<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 2000
REGISTRATION NO. 333-92873
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
AMENDMENT NO. 4
TO
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. / /
--------------------------
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.
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<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 MARCH 10, 2000
2,300,000 Shares
[IMPROVENET 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 $14.00 and
$16.00 per share. Our common stock has been approved for listing on The Nasdaq
Stock Market's National Market under the symbol "IMPV."
The underwriters have an option to purchase a maximum of 345,000 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See Risk Factors on page 6.
<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 our matching services
and content on third party Web sites" 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 ImproveNet logo.
<PAGE>
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 6
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 17
USE OF PROCEEDS....................... 18
DIVIDEND POLICY....................... 18
CAPITALIZATION........................ 19
DILUTION.............................. 20
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 22
</TABLE>
<TABLE>
BUSINESS.............................. 33
<CAPTION>
PAGE
--------
<S> <C>
MANAGEMENT............................ 49
RELATED PARTY TRANSACTIONS............ 59
PRINCIPAL STOCKHOLDERS................ 65
DESCRIPTION OF CAPITAL STOCK.......... 68
SHARES ELIGIBLE FOR FUTURE SALE....... 71
UNDERWRITING.......................... 73
NOTICE TO CANADIAN RESIDENTS.......... 76
LEGAL MATTERS......................... 77
EXPERTS............................... 77
WHERE YOU CAN FIND MORE INFORMATION... 77
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.
<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 provide home improvement information and services on the Internet.
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 and related services benefit from an
organized and efficient online flow of information and communication.
We generate quality job leads for architects, designers and contractors, or
service providers, from highly interested homeowners within their geographic
area using our proprietary matching service. In 1999, we received approximately
106,500 job submissions, of which we matched approximately 37,500 or 35.2% with
service providers who were interested in bidding on the job. Our service
providers won approximately 3,350 jobs or 8.9% of all matched jobs and 3.1% of
all jobs submitted. We have designed our services to deliver a satisfying home
improvement experience to homeowners and to 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
or 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 matching process allows us to match
service providers who have passed our screening process 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 fragmented. 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;
- expand our commercial contracts with suppliers of home improvement
products and services and related home services; and
- continue to build the ImproveNet brand.
3
<PAGE>
We generate revenues from our three constituents:
- service providers pay us lead fees and win fees for our matching service
that are included in service revenues;
- suppliers of home improvement products and services as well as other
advertisers pay us advertising fees for the purchase of advertising space
on our Web sites that are included in advertising revenues; and
- homeowners pay us fees for our premium home improvement services that are
included in service revenues and that to date have not been significant.
In 1999, service revenues represented approximately 55% of total revenues
and advertising revenues represented the remainder.
We have entered into multi-year commercial contracts with the following
providers of home improvement products and services and related home services:
Cendant, DuPont, General Electric Appliances, Microsoft and Owens Corning.
From inception through December 31, 1999, we had aggregate net losses of
approximately $42.0 million, and we anticipate incurring losses in the
foreseeable future.
Following this offering, our existing stockholders will own approximately
85.6% of our stock and therefore will have control over the election of
directors and all other matters submitted to stockholders for approval.
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 September 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.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered........................... 2,300,000 shares
Common stock to be outstanding after the
offering..................................... 16,019,310 shares
Use of proceeds................................ For operating activities, including expansion
of our sales and marketing programs and field
support organization, capital expenditures and
other general corporate purposes.
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 December 31, 1999, and
excludes:
- 1,858,067 shares subject to options outstanding as of December 31, 1999,
at a weighted average exercise price of $3.72 per share;
- 1,787,172 shares subject to warrants outstanding as of December 31, 1999,
at a weighted average exercise price of $6.67 per share;
- 1,179,356 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 CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues.............................................. $ 2 $ 60 $ 258 $ 2,065
Loss from operations........................................ (360) (1,239) (4,199) (36,768)
Net loss attributable to common stockholders................ (359) (1,328) (4,832) (36,490)
Basic and diluted net loss per common share................. $(0.73) $ (1.08) $ (3.49) $ (23.85)
Shares used in calculating basic and diluted net loss per
common share.............................................. 493 1,228 1,383 1,530
Pro forma basic and diluted net loss per common share
(unaudited)............................................... $ (4.40)
Shares used in calculating pro forma basic and diluted net
loss per common share (unaudited)......................... 8,234
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $45,291 $45,291 $75,976
Working capital............................................. 39,891 39,891 70,576
Total assets................................................ 51,542 51,542 82,227
Total stockholders' equity.................................. 43,862 43,862 74,547
</TABLE>
See Note 2 of the notes to our consolidated financial statements for an
explanation of the determination of the number of shares used in computing per
share data.
The pro forma information gives effect to 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 2,300,000 shares of common stock in this offering at an assumed initial
public offering price of $15.00 per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses.
5
<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 HAVE LARGE ACCUMULATED LOSSES, 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 approximately
$1.2 million in 1997, $4.1 million in 1998 and $36.3 million in 1999 on revenues
of $60,000, $258,000 and approximately $2.1 million, respectively. As of
December 31, 1999, our accumulated loss was approximately $42.0 million. We
expect our expenditures on sales and marketing activities, support field
services 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, if ever, we will operate
profitably.
WE ARE AN EARLY STAGE COMPANY WITH A NEW SENIOR MANAGEMENT TEAM AND WE HAVE
RECENTLY EXPANDED OUR BUSINESS TO OFFER NEW SERVICES. AS A RESULT, WE HAVE A
LIMITED HISTORY WHICH MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS.
We were incorporated in January 1996; however, we did not begin offering
home improvement services on the Internet until August 1997. In December 1998,
we began selling Web site advertising. Until March 1999, we focused primarily on
building our network of service providers and refining our matching services
processes. In March 1999, we hired our new chief executive officer and commenced
recruiting our senior management team, including our senior vice president,
partnership services; our senior vice president, engineering and development,
and chief technology officer; our senior vice president, professional services;
our senior vice president and chief financial officer; our vice presidential,
editorial; our vice president, strategic planning, acquisitions and
international; and our vice president, human resources. In April 1999, we
introduced Powered by ImproveNet, a service that allows third parties to offer
the ImproveNet matching services and content on their Web sites, for national
suppliers of home improvement and repair products. In November 1999, we launched
our customized Web site for service providers. 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. As a result, we have a limited
history upon which you can evaluate our business and the performance of our
senior management team. Furthermore, even if our business is successful, we may
change our business to enter into new business areas, including areas in which
we do not have extensive experience. 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.
6
<PAGE>
OUR FINANCIAL RESULTS WILL BE AFFECTED BY FLUCTUATIONS IN THE HOME IMPROVEMENT
INDUSTRY AND SEASONALITY.
Our limited operating history and rapid growth make it difficult to assess
the impact of seasonal factors on our business. However, our business is
dependent upon the home improvement industry. As a result, 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.
According to the United States Department of Commerce, for quarterly periods in
1996 through 1998, average expenditures for the residential home improvement
industry were approximately 18% in the first quarter, 28% in the second quarter,
29% in the third quarter, and 25% in the fourth quarter. We are currently unable
to assess the effect of seasonality in the home improvement industry on our
business.
OUR MARKET IS BECOMING MORE COMPETITIVE AND WE MAY SUFFER PRICE REDUCTIONS, BE
UNABLE TO ATTRACT HOMEOWNERS TO OUR WEB SITE, BE UNABLE TO MAINTAIN OUR SERVICE
PROVIDER NETWORK OR ENTER INTO NEW MULTI-YEAR COMMERCIAL CONTRACTS IF WE DO NOT
COMPETE EFFECTIVELY.
The market for our services is intensely competitive, evolving and subject
to rapid technological change. To remain competitive, we must continue to
enhance and improve the ease of use, responsiveness, functionality and features
of our online and offline services in order to attract homeowners to our Web
site and maintain our service provider network. We expect the intensity of
competition to increase in the future. Increased competition may result in
changes in our pricing model, fewer homeowners visiting our Web site, service
providers leaving our network, less advertising revenue, reduced gross margins
and loss of market share, any one of which could significantly reduce our future
profitability. In addition, technological barriers to entry are relatively low.
As a result, current competitors, such as local referral businesses and online
referral companies such as ServiceMagic.com, iMandi, iCastle, repairnet,
HomesSpud, OurHouse.com, Handyman Online, Bid Express and Contractor.com and
potential competitors such as The Home Depot, Lowe's and Sears Roebuck & Company
could launch Web sites similar to ours that gain broader market acceptance based
on content, products and services. Remodel.com, recently launched by
HomeStore.com, offers a matching service.
Some 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, especially offline home
improvement retail store chains such as The Home Depot, Lowe's and Sears Roebuck
& Company.
OUR FAILURE TO DEVELOP BRAND RECOGNITION COULD LIMIT OR REDUCE THE DEMAND FOR
OUR SERVICES AND RESULT IN A COMPLETE LOSS OF THE ANTICIPATED BENEFITS FROM
SIGNIFICANT MARKETING EXPENDITURES.
We believe that continuing to strengthen our brand will be critical to
increasing demand for, and achieving widespread acceptance of, our matching
services, generating additional homeowner traffic, and entering into new
multi-year commercial contracts. Some of our competitors and potential
competitors have better name recognition and powerful brands. Promoting and
positioning our brand will depend largely on the success of our marketing
efforts, our ability to deliver features on our Web site that are engaging to
our users, and our ability to provide high quality matching 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. We expect to spend between $25 million and $35 million in
2000 on sales and marketing programs and we expect our marketing expenditures to
increase in the future. Brand promotion activities may not yield increased
7
<PAGE>
homeowner traffic, additional multi-year commercial contracts or 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 develop
sufficient brand recognition, our ability to generate advertising revenues and
service revenues may be harmed.
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 198 as of
December 31, 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. In 1999, we derived
approximately 55% of our total revenues from our network of service providers in
the form of lead fees and win fees. Our business is highly dependent on
homeowners' use of our Web 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 72 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 and motivate our
current service providers to ensure that we continually have adequate national
coverage. We believe that service providers in the home improvement industry
suffer from a relatively high failure or turnover rate which makes it difficult
for us to retain service providers. Accordingly, we expect that not all of our
service providers will remain active participants in our network. If we are
unable to achieve low turnover among our network of service providers our
business could be harmed.
8
<PAGE>
IF HOMEOWNERS FAIL TO REPORT, AND SERVICE PROVIDERS FAIL TO REPORT AND TO PAY TO
US WIN FEES, DIRECTLY OR INDIRECTLY, OUR BUSINESS WOULD BE HARMED.
Our service providers are responsible for paying us a win fee for each job
that they obtain from us. We ask service providers not to pass on the cost of
the win fee to the homeowner. However, we do not currently provide any guarantee
to the homeowner that our service providers have not raised their rates to cover
the win fee nor do we audit or plan to audit our service providers to confirm
that they have not raised their rates. Homeowners may believe that they are
indirectly paying us our win fee through the higher rates of service providers
and, therefore, choose to select service providers through word-of-mouth
referrals, Yellow Pages, local contractor matching services or other means
rather than using our matching service. If homeowners choose not to use our
service, we will lose service revenues and visitors to our Web sites and our
business will be harmed.
We depend on our service providers to report that they have won a job and
pay us our win fee. We rely on personal relationships with our service providers
and the incentive to receive future leads from us to encourage service providers
to report wins and pay win fees. Currently, we do not have a control or an
oversight mechanism in place with either service providers or homeowners to
ensure that they report wins and pay win fees. If service providers do not
report wins or pay us win fees, we will lose service revenues and our business
will be harmed.
WE DEPEND ON THIRD-PARTY RELATIONSHIPS TO ATTRACT VISITORS TO OUR WEB SITES.
We have recently entered into multi-year commercial contracts with suppliers
of home improvement products and services to generate revenues and increase the
number of visitors to our Web sites. Under these contracts, suppliers have
placed links to our Web site from their Web sites to allow their customers to
visit our Web site if the customers are interested in obtaining home improvement
information or searching for a service provider. We believe that increasing the
number of visitors to our Web sites will increase the number of job submissions.
We cannot assure you that these contracts will lead to increased visits to our
Web sites or that increased visits to our Web sites will result in increased job
submissions. If we do not maintain our existing multi-year commercial contracts
on terms as favorable as currently in effect or if we are not able to establish
new contracts on commercially reasonable terms, our business could be harmed.
In 1999, we did not derive any revenue that could be recognized on a gross
basis, directly or indirectly, from our multi-year commercial contracts with
suppliers of home improvement products and services nor did we receive any
significant increased traffic from these contracts. Companies that we may pursue
for a multi-year commercial contract may offer services competitive with
suppliers with which we currently have multi-year contracts. As a result, these
suppliers may be reluctant to enter into multi-year contracts with us.
We purchase preferential advertising placement on high-traffic Web sites. We
believe these Web sites can help us to increase the number of visitors to
ImproveNet.com. For example, in 1999 approximately 19% of our Web site traffic
originated from AltaVista, America Online, Excite@Home, Lycos, Microsoft
HomeAdvisor, Quicken.com and Yahoo! In 1999, we spent approximately 14% of our
sales and marketing expenses on direct advertising on these Web sites. There is
intense competition for preferential placements on these Web sites. If we lose
our relationships with any one of these Web sites, the traffic on ImproveNet.com
may decrease and we may not be able to enter into commercially reasonable
contracts with replacement high-traffic Web sites, if at all.
WE DEPEND ON THIRD-PARTY RELATIONSHIPS TO PROVIDE SOFTWARE TOOLS AND
INFRASTRUCTURE.
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
9
<PAGE>
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 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 databases of homeowners and service providers and our
internally-developed matching criteria and algorithms, 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. Our databases are protected by trade secret laws and our
matching service is protected primarily by trade secret and copyright laws.
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 intellectual property 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 by claiming that our matching service infringes their patents, trade
secrets or copyrights. In the ordinary course of business, we have received, and
may receive in the future, notices from third parties claiming infringement of
their proprietary rights. In addition, providers of goods and services over the
Internet are increasingly subject to claims that they infringe patents that
cover basic elements of electronic commerce. The resolution of any claims could
be time-consuming, result in costly litigation, delay or prevent us from
offering our 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.
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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 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. Since we have been keeping logs of our Web sites, our
ImproveNet.com Web site has been unintentionally interrupted for periods ranging
from two minutes to one hour. On one occasion, some users experienced
interruptions in part of our service for a period of 48 hours.
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, including at peak times, 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. The required hardware may not be readily available or affordable
and 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.
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RISKS RELATED TO OUR INDUSTRY
HOMEOWNERS AND SERVICE PROVIDERS MAY BE RELUCTANT TO ACCEPT AN INTERNET-BASED
SERVICE PROVIDER MATCHING SERVICE.
Currently most homeowners use traditional means including word-of-mouth
referrals, Yellow Pages and local contractor matching services to obtain service
providers for their home improvement projects. In addition, many service
providers do not use the Internet for business purposes and may be reluctant to
become part of a network of service providers on an Internet-based service
provider matching service. If homeowners do not use our matching service or
service providers do not join our network, we will not be able to generate
significant revenues from either services or advertising, or be able to enter
into new multi-year commercial contracts.
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. Homeowners may bring claims against us for referring
service providers who may have, among other things, provided them with poor
workmanship or caused bodily injury or damage to property. Our existing
insurance coverage may not cover all potential claims, may not adequately cover
all costs incurred in defense of potential claims, may not indemnify us for all
liability that may be imposed or may not be renewable in future periods or
renewable on terms and conditions satisfactory to us. In addition, claims, with
or without merit, would result in diversion of our financial resources and
management resources.
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
businesses. 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
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<PAGE>
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.
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 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. Currently, we
collect personal information only with the user's consent and under our 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 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.
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<PAGE>
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 31, 1999, upon
completion of this offering, we will have outstanding 16,019,310 shares of
common stock. Upon completion of this offering, 2,345,000 shares of common
stock, including the 2,300,000 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 8,197,728 shares will be eligible for sale in the public
market.
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. If we are unable to generate
sufficient cash flows from operations to meet our anticipated needs for working
capital and capital expenditures, we will need to raise additional funds after
12 months to fund brand promotions, develop new or enhanced services or respond
to competitive pressures. 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;
- 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 $10.39 per share of common
stock in net tangible book value, based on an assumed initial public offering
price of $15.00 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.
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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;
- loss of a major customer or failure to complete significant commercial
contracts;
- 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;
- limiting 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
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- 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 Corporation 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 65.6% of our outstanding common stock. In addition,
following this offering, our existing stockholders will own approximately 85.6%
of our 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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USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of 2,300,000 shares of
common stock in this offering will be approximately $30.7 million, approximately
$35.5 million if the underwriters' over-allotment option is exercised in full,
at an assumed initial public offering price of $15.00 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 operating
activities, including approximately $18 million to expand our sales and
marketing programs, approximately $5 million to expand our field support
organization, approximately $3.5 million for capital expenditures and the
balance for other general corporate purposes, including general and
administrative operations and potential acquisitions. Our management will retain
broad discretion in the allocation of the net proceeds of this offering. The
amounts we actually spend will depend on a number of factors, including the
amount of our future revenues and other factors described elsewhere in this
prospectus. We may also use a portion of the net proceeds to invest in
additional businesses, business development, products and technologies, 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 December 31, 1999;
- our pro forma capitalization giving effect 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 2,300,000
shares of common stock in this offering at an assumed initial public
offering price of $15.00 per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses.
The number of shares outstanding excludes the following shares:
- 1,858,067 shares of common stock subject to options outstanding as of
December 31, 1999, at a weighted average exercise price of $3.72 per
share;
- 1,787,172 shares subject to warrants outstanding as of December 31, 1999,
at a weighted average exercise price of $6.67 per share;
- 1,179,356 additional shares of common stock that are available for
issuance under our stock option plans;
- 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>
AS OF DECEMBER 31, 1999
------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
ACTUAL (UNAUDITED) (UNAUDITED)
-------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Long-term liabilities....................................... $ 116 $ 116 $ 116
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 12,482,935
shares authorized and 11,382,694 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................................... 12 -- --
Common stock, $0.001 par value; 34,000,000 shares
authorized and 2,336,616 shares issued and outstanding,
actual; 34,000,000 shares authorized and 13,719,310
shares issued and outstanding, pro forma; 100,000,000
shares authorized and 16,019,310 shares issued and
outstanding, pro forma as adjusted...................... 2 14 16
Additional paid-in capital................................ 108,656 108,656 139,339
Notes receivable from stockholders........................ (633) (633) (633)
Unearned stock-based compensation......................... (22,208) (22,208) (22,208)
Accumulated deficit....................................... (41,967) (41,967) (41,967)
-------- -------- --------
Total stockholders' equity.............................. 43,862 43,862 74,547
-------- -------- --------
Total capitalization.................................. $ 43,978 $ 43,978 $ 74,663
======== ======== ========
</TABLE>
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DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $43.1 million, or approximately $3.14 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 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
December 31, 1999 would have been approximately $73.8 million or $4.61 per
share, after giving effect to the sale of 2,300,000 shares of our common stock
in this offering at an assumed initial public offering price of $15.00 per share
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses. This amount represents an immediate increase in net
tangible book value of $1.47 per share to existing stockholders and an immediate
dilution in net tangible book value of $10.39 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............. $15.00
Pro forma net tangible book value per share as of December
31, 1999................................................ $ 3.14
Increase per share attributable to new investors.......... 1.47
------
Pro forma net tangible book value per share after this
offering.................................................. 4.61
------
Dilution per share to new investors......................... $10.39
======
</TABLE>
The following table summarizes, on the pro forma basis described above, as
of December 31, 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 $15.00 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................... 13,719,310 86% $ 81,722,638 70% $ 5.96
New investors........................... 2,300,000 14 34,500,000 30 15.00
---------- --- ------------ ---
Total............................... 16,019,310 100% $116,222,638 100%
========== === ============ ===
</TABLE>
As of December 31, 1999, there were outstanding options to purchase a total
of 1,858,067 shares of common stock at a weighted average exercise price of
$3.72 per share. After December 31, 1999, we issued options to purchase 90,000
shares of common stock at a weighted average exercise price of $12.00 per share.
As of December 31, 1999, there were outstanding warrants to purchase a total of
1,787,172 shares at a weighted average exercise price of $6.67 per share. To the
extent these outstanding options or warrants are exercised, there will be
further dilution to new investors.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data for the three years in the period ended December 31, 1999 and
the consolidated balance sheet data as of December 31, 1998 and 1999 are derived
from the audited consolidated financial statements included elsewhere in this
prospectus. The consolidated statement of operations data for the year ended
December 31, 1996 and the consolidated balance sheet data as of December 31,
1996 and 1997 are derived from audited consolidated financial statements not
included in this prospectus. Historical results are not necessarily indicative
of results to be expected for future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998 1999
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Service revenues.......................................... $ 2 $ 60 $ 238 $ 1,139
Advertising revenues...................................... -- -- 20 926
------ ------- ------- --------
Total revenues.......................................... 2 60 258 2,065
Cost of revenues:
Cost of service revenues (excludes stock-based
compensation of $0, $0, $55 and $610)................... 8 59 767 1,984
Cost of advertising revenues (excludes stock-based
compensation of $0, $0, $37 and $189)................... -- -- 49 567
------ ------- ------- --------
Total cost of revenues.................................. 8 59 816 2,551
------ ------- ------- --------
Gross profit (loss)......................................... (6) 1 (558) (486)
Operating expenses:
Sales and marketing (excludes stock-based compensation of
$0, $0, $155 and $2,608)................................ 38 414 1,669 25,784
Product development (excludes stock-based compensation of
$0, $0, $14 and $88).................................... 65 288 504 665
General and administrative (excludes stock-based
compensation of $0, $11, $65 and $2,124)................ 251 527 1,142 4,214
Stock-based compensation.................................. -- 11 326 5,619
------ ------- ------- --------
Total operating expenses................................ 354 1,240 3,641 36,282
------ ------- ------- --------
Loss from operations........................................ (360) (1,239) (4,199) (36,768)
Interest and other income (expense), net.................... 1 (3) 84 517
------ ------- ------- --------
Net loss.................................................... (359) (1,242) (4,115) (36,251)
Accretion of mandatorily redeemable convertible preferred
stock..................................................... -- (86) (717) (239)
------ ------- ------- --------
Net loss attributable to common stockholders.............. $ (359) $(1,328) $(4,832) $(36,490)
====== ======= ======= ========
Basic and diluted net loss per common share................. $(0.73) $ (1.08) $ (3.49) $ (23.85)
====== ======= ======= ========
Shares used in calculating basic and diluted net loss per
common share.............................................. 493 1,228 1,383 1,530
====== ======= ======= ========
Pro forma basic and diluted net loss per common share
(unaudited)............................................... $ (4.40)
========
Shares used in calculating pro forma basic and diluted net
loss per share (unaudited)................................ 8,234
========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------
1996 1997 1998 1999
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 20 $ 345 $ 1,676 $45,291
Working capital (deficit)................................... (11) (79) 697 39,891
Total assets................................................ 71 472 2,144 51,542
Long-term liabilities and mandatorily redeemable convertible
preferred stock........................................... -- 1,252 6,843 116
Total stockholders' equity (deficit)........................ 40 (1,210) (5,714) 43,862
</TABLE>
See Note 2 of the notes to our consolidated 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, including SmartLeads services, a way for suppliers
of home improvement products to send targeted messages about their products,
including product promotions, to homeowners at the time of purchase and to our
network of service providers. In March 1999, we hired our new chief executive
officer and commenced recruiting our senior management team, including our
senior vice president, partnership services; our senior vice president,
engineering and development, and chief technology officer; our senior vice
president, professional services; our senior vice president and chief financial
officer; our vice president, editorial; our vice president, strategic planning,
acquisitions and international; and our vice president, human resources. In
April 1999, we introduced Powered by ImproveNet, a service that allows third
parties to offer the ImproveNet matching services and content on their Web
sites, for national suppliers of home improvement and repair products. We also
expanded the focus of our business model, accelerated our time horizons for
increasing traffic on our Web sites and establishing multi-year commercial
contracts with suppliers of home improvement products and related services. In
November 1999, we launched our customized Web site for service providers. 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. As a result, we have a limited operating history upon which
you can evaluate our business and the performance of our senior management team.
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 1999, 55% of our total revenues were service revenues
and 45% were advertising revenues.
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.
For 1999, lead fees, win fees, enrollment fees and premium service fees
represented 32%, 63%, 4% and 1% of total service revenues. 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 2% to 10% of the estimated cost of the job, up to
a maximum of $995 per job. We charge each new service provider who passes our
quality screens an enrollment fee of $90 to join our national network; however,
in the past we have often discounted or waived this fee. Our revenue from
premium service fees, consisting of fees charged to homeowners for bid and
contract assessment services and legal/credit reports on contractors outside the
ImproveNet database, has also been negligible.
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
22
<PAGE>
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
us.
The revenues we generate from lead and win fees are largely a function of:
- the number of job submissions;
- the effectiveness in finding a service provider or match for each job
submission;
- the success of the service provider to win a job; and
- the amount we charge the service provider for a lead or a win.
In 1999, we received approximately 106,500 job submissions, of which we
matched approximately 37,500 or 35.2% with service providers who were interested
in bidding on the job. Our match rates increased sequentially in 1999, except in
the second quarter, and our win rates have increased sequentially from quarter
to quarter. We believe that this trend will continue for the forseeable future
as we expand our sales and marketing programs, attract more service providers
into our network and improve the efficiency of the matching and bidding process.
In 1999, our service providers won approximately 3,350 jobs or 8.9% of all
matched jobs and 3.1% of all jobs submitted.
Revenues from new service provider enrollment fees are recognized as revenue
ratably over the expected period they participate in our contractor matching
service, which is initially estimated to be between one and two years. Revenues
from premium service fees to homeowners are recognized at the time the service
is provided. We generally will refund the lead fee charged if a job is cancelled
or the homeowner cannot be reasonably contacted. We will refund a portion of the
initial enrollment fee collected in the event that the service provider does not
pass the ImproveNet screening process. We do not refund win or premium service
fees.
We establish refund 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.
We anticipate that the mix and source of our revenues will change over time.
In the future, we anticipate that service revenues will increase at a greater
rate than advertising revenues as the anticipated number of job submissions
increases, as we attract additional homeowners through our multi-year commercial
contracts and as we expand our network of service providers. We do not expect
enrollment fees to be a significant source of service revenues in the future.
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 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.
23
<PAGE>
Currently advertising revenues are comprised of:
- Advertising paid for in cash; and
- Advertising paid for by way of barter.
CASH ADVERTISING. Cash advertising revenues generally are derived from
short-term advertising contracts in which we typically guarantee that a minimum
number of impressions will be delivered to our Web site visitors over a
specified period of time for a fixed fee. Cash advertising revenues from banner,
button and other Web site advertisements 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. SmartLeads are also paid for
in cash and revenues are recognized when the SmartLeads have been delivered to
the customer. Cash advertising is recognized when we have delivered the
advertising, evidence of an agreement is in place and fees are fixed,
determinable and collectible. In 1999, cash advertising totaled $746,000 and
accounted for approximately 36% of our total revenues.
BARTER ADVERTISING. Barter advertising comes from two distinct contractual
sources: short-term barter advertising similar in nature to our cash advertising
contracts and multi-year commercial contracts. Barter advertising is recognized
in accordance with EITF No. 99-17, "Accounting for Advertising Barter
Transactions", which we adopted in 1999. Under EITF No. 99-17, we record
advertising transactions at fair value only when we have an established
historical practice of selling similar advertising for cash. The characteristics
of the advertising that must be similar include the duration of the display of
the advertising, the prominence and positioning of the advertising, the intended
audience, the timing of the advertising and its circulation.
SHORT-TERM BARTER ADVERTISING. Short-term barter advertising results
from the exchange of advertising space on our Web site for reciprocal
advertising space on Web sites of third parties. Advertising revenues and sales
and marketing expenses arising from these transactions are recorded at fair
value as we have an established historical practice of receiving cash for
similar short-term advertising. We recorded no short-term barter advertising
revenue in 1997 and 1998. In 1999, we began to engage in short-term barter
advertising and recorded revenues of $180,000 in the year. Short-term barter
advertising represented approximately 9% of our total revenues for 1999. Sales
and marketing expenses arising from these barter transactions are recognized
when the advertisments are delivered on the reciprocal Web site, which is
typically the same period in which advertisements are delivered on our Web site.
We expect our short-term barter advertising to decrease as a percentage of total
revenues.
MULTI-YEAR COMMERCIAL CONTRACTS. In September 1999 and during the
fourth quarter 1999, we entered into multi-year commercial contracts, some of
which are with related parties. These contracts generally provide for a fixed
annual fee, an advertising package that includes a mix of buttons, banners,
SmartLeads and other marketing services including Powered by ImproveNet, plus a
continuous presence, as defined, on our Web sites. These commercial contracts
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
commercial contracts 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, the commercial party. In the commercial
contracts to date, we have agreed to spend 50% to 100% of the fees we expect to
receive from the commercial party on these cooperative advertisements and other
marketing services. In addition, these commercial contracts give us access to
customer databases, direct mail inserts and marketing resources. Since we only
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 commercial contracts provide us with significant
marketing benefits, including better advertising rates, stronger brand
recognition and access
24
<PAGE>
to customer databases and marketing resources that we could not secure or
otherwise afford in the normal course of business.
As we do not have an established historical practice of selling advertising
for cash for similar multi-year commercial contracts, we have not assigned any
value to the exchange of services or barter element of these transactions and
accordingly, we have not recorded either revenue or advertising expense for the
barter element. However, some of these multi-year commercial contracts do
generate an overall net cash component to us and in these cases, we have
recorded revenue based on the cash received or receivable under the contract,
net of the obligation to pay the commercial party for the cooperative
advertisements and other marketing services. These revenues are recognized over
the term of the commercial contract once advertising has been delivered to the
commercial party and collection of the resulting net receivable is deemed
probable.
Furthermore, in connection with certain of these multi-year commercial
contracts, we have also issued warrants to purchase shares of our common stock
to the commercial parties. We have valued these warrants using the Black Scholes
option pricing model. As the fair value of these warrants represents an
additional rebate on the revenue otherwise recorded under the contracts, the
amortization of warrant stock-based compensation is further netted against this
revenue over the term of the respective commercial contract. To the extent that
there are insufficient revenues, the remaining amortization of warrant
stock-based compensation is expensed and characterized as sales and marketing
expense. In 1999, we reduced the net cash component of revenue by $65,000 of
warrant stock-based compensation amortization. As a result, we have not
recognized revenue of $408,000 for the barter element of these commercial
contracts or for the cash component of $65,000, which has been reduced by the
warrant stock-based compensation amortization for the year ended December 31,
1999. We expect to enter into at least one multi-year commercial contract solely
for cash by the end of the first quarter of 2000. Such a multi-year commercial
contract could begin to establish the requisite criteria for an established
historical practice and the fair value for similar transactions which could
result in the recognition of revenue and the recording of marketing expenses for
future advertising packages.
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
$36.3 million in 1999. As of December 31, 1999, we had an accumulated deficit of
approximately $42.0 million. We intend to continue to invest heavily in sales
and marketing, expansion of our support field organization 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
YEARS ENDED DECEMBER 31, 1998 AND 1999
REVENUES
Total revenues increased from $258,000 in 1998 to approximately
$2.1 million in 1999, an increase of approximately $1.8 million.
Service revenues increased from $238,000 in 1998 to approximately
$1.1 million in 1999, an increase of $901,000. The increase in service revenues
was primarily due to an increased number of visitors to our Web sites and
increased job submissions and sequential quarterly improvement in the number of
jobs matched as a percentage of total job submissions and in the number of jobs
won as a
25
<PAGE>
percentage of jobs matched or our match and win rates, respectively, which led
to increased lead and win fee revenues. Our match rate, defined as the total
number of jobs matched as a percentage of total job submissions, was 37% for the
first quarter of 1999, 28% for the second quarter of 1999, 35% for the third
quarter of 1999 and 47% for the fourth quarter of 1999. Our win rate, defined as
the number of jobs won as a percentage of the number of jobs matched, was 5.5%
for the first quarter of 1999, 7.4% for the second quarter of 1999, 9.5% for the
third quarter of 1999 and 12.4% for the fourth quarter of 1999. We had not
formalized our recording of the number of jobs matched or won prior to 1999. The
decrease in the match rate for the second quarter 1999 was due to the rate of
growth in job submissions which outpaced the rate of growth of available service
providers. This condition was stabilized in the affected local markets by
expanding the number of our professional services personnel who are responsible
for recruiting and retaining local service providers. Revenues from new service
provider enrollment fees and fees charged to homeowners for premium services
were not significant in either period.
Advertising revenues increased from $20,000 in 1998 to $926,000 in 1999. Of
our 1999 advertising revenues, $180,000 constituted barter advertising revenue.
We did not sell advertising space on our Web site until December 1998. Our
advertising revenues in 1999 include amounts invoiced under advertising
arrangements of approximately $1.4 million less $473,000 for amounts invoiced
and accrued under commercial contracts with related parties and amortization of
warrant stock-based compensation. There were no adjustments to advertising
revenues in 1998.
Total revenues may be analyzed as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Service revenues............................................ $238 $1,139
Amounts invoiced under advertising and multi-year commercial
contracts................................................. 20 1,399
---- ------
258 2,538
Amounts invoiced and accrued under multi-year commercial
contracts with related parties............................ -- (408)
Amortization of warrant stock-based compensation............ -- (65)
---- ------
Total revenues.............................................. $258 $2,065
==== ======
</TABLE>
OPERATING EXPENSES
COST OF REVENUES. Cost of revenues increased from $816,000 for 1998 to
approximately $2.6 million for 1999, an increase of approximately $1.7 million.
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 $767,000 for 1998 to
approximately $2.0 million for 1999, an increase of approximately $1.2 million.
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 expenses of $728,000 and
facilities and office expenses of $284,000, 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 322% in 1998 to 174% in 1999. The percentage improvement
was attributable to increased service revenues and improved utilization of our
project services group and Web site operations.
26
<PAGE>
Cost of advertising revenues includes an allocation of direct Web site
operations costs, consisting of payroll and related costs, data transmission
costs and equipment depreciation. Cost of advertising revenues increased from
$49,000 in 1998 to $567,000 in 1999, an increase of $518,000. There were few
costs associated with advertising revenues in 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 $1.7 million in 1998 to approximately
$25.8 million in 1999, an increase of approximately $24.1 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 $15.1 million, an increase in other marketing expenses of
approximately $3.7 million, and an increase in payroll and related costs of
approximately $3.4 million. 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.
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 $504,000 in 1998 to $665,000 in 1999, an increase of $161,000. 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
approximately $1.1 million in 1998 to approximately $4.2 million in 1999, an
increase of approximately $3.1 million. The increase in general and
administrative expenses was attributable primarily to the increase in our
executive management, full-time support staff and contract support staff payroll
costs of $2.4 million and increased lease and occupancy expenses of $271,000
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
December 31, 1999, we have recorded unearned stock-based compensation of
approximately $28.2 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 an expense of $326,000
for 1998 and an expense of approximately $5.2 million in 1999. The remaining
unamortized, unearned stock-based compensation for all option grants through
December 31, 1999 will be amortized as follows: approximately $5.3 million for
2000; approximately $2.4 million for 2001; $1.0 million for 2002; and $162,000
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
27
<PAGE>
unearned stock-based compensation from warrants was $517,000 for 1999. There was
no warrant stock-based compensation expense for 1998. The remaining unamortized
unearned stock-based compensation for all warrants granted through December 31,
1999 will be amortized as follows: approximately $4.0 million for 2000;
approximately $4.0 million for 2001; approximately $3.7 million for 2002; and
approximately $1.6 million thereafter.
INTEREST AND OTHER INCOME (EXPENSE), NET
Net interest income increased from $84,000 in 1998 to $517,000 in 1999, an
increase of $433,000. The increase in net interest income is primarily due to
higher average invested cash balances in 1999 compared to 1998 as we received
approximately $73.2 million in cash from the sale of our preferred stock in
March 1999, September 1999 and December 1999.
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 December 31, 1999, we had approximately $29.0 million and
approximately $17.2 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, 1997 AND 1998
REVENUES
Total revenues increased from $60,000 in 1997 to $258,000 in 1998. Service
revenues increased from $60,000 in 1997 to $238,000 in 1998. The increase in
service revenues was 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 1997 or the first eleven months of 1998.
OPERATING EXPENSES
COST OF REVENUES. Cost of revenues increased from $59,000 in 1997 to
$816,000 in 1998. Cost of service revenues increased from $59,000 in 1997 to
$767,000 in 1998. 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 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 in job submissions. Cost of advertising revenues was not
significant in any period.
SALES AND MARKETING. Sales and marketing expenses increased from $414,000
in 1997 to approximately $1.7 million in 1998. The increase was primarily due to
increased online and offline advertising expenses of $733,000, increased payroll
and related costs of $153,000 and increased marketing expenses of $185,000.
PRODUCT DEVELOPMENT. Product development expenses increased from $288,000
in 1997 to $504,000 in 1998. The increase was primarily due to increases in
payroll and related costs and contract content provider costs of $205,000.
28
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $527,000 in 1997 to approximately $1.1 million in 1998. The increase 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 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 was no
warrant-based stock compensation expense in 1997 or 1998.
INTEREST AND OTHER INCOME (EXPENSE), NET
Net interest income (expense) was $(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
quarters of 1998 and 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>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Service revenues..................... $ 31 $ 27 $ 86 $ 94 $ 156 $ 251 $ 312 $ 420
Advertising revenues................. -- -- -- 20 123 175 268 360
----- ------- ----- ------- ------- ------- -------- --------
Total revenues..................... 31 27 86 114 279 426 580 780
----- ------- ----- ------- ------- ------- -------- --------
Cost of revenues:
Cost of service revenues............. 155 155 207 250 192 261 638 893
Cost of advertising revenues......... -- -- -- 49 61 88 158 260
----- ------- ----- ------- ------- ------- -------- --------
Total cost of revenues............. 155 155 207 299 253 349 796 1,153
----- ------- ----- ------- ------- ------- -------- --------
Gross profit (loss).................... (124) (128) (121) (185) 26 77 (216) (373)
Operating expenses:
Sales and marketing.................. 266 413 323 667 1,745 3,748 8,870 11,421
Product development.................. 43 229 116 116 146 120 151 248
General and administrative........... 181 200 284 477 297 475 719 2,723
Stock-based compensation............. -- 109 117 100 466 909 1,460 2,784
----- ------- ----- ------- ------- ------- -------- --------
Total operating expenses........... 490 951 840 1,360 2,654 5,252 11,200 17,176
----- ------- ----- ------- ------- ------- -------- --------
Loss from operations................... (614) (1,079) (961) (1,545) (2,628) (5,175) (11,416) (17,549)
Interest and other income (expense),
net.................................. (3) 41 30 16 2 184 138 193
----- ------- ----- ------- ------- ------- -------- --------
Net loss............................. $(617) $(1,038) $(931) $(1,529) $(2,626) $(4,991) $(11,278) $(17,356)
===== ======= ===== ======= ======= ======= ======== ========
</TABLE>
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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 expenses 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 $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 of advertising sold on our Web sites;
- 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 industry, we expect that our revenues
may be lower during the first and fourth quarters of each calendar year since
more homeowners commit to home improvement projects during 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. During the three years
ended December 31, 1999, we have financed our operations through private sales
of our convertible preferred stock, convertible notes and common stock for net
proceeds of approximately $79.4 million.
Operating activities used cash of approximately $25.8 million in 1999. This
amount resulted from a net loss of approximately $30.2 million after adding back
noncash stock-based compensation and other charges of approximately
$6.0 million, offset by an increase of approximately $4.7 million in net current
liabilities, primarily increases in accounts payable and accrued liabilities.
Net cash used in operating activities was approximately $1.2 million in 1997 and
approximately $3.2 million in 1998 primarily to fund net losses of 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 $85,000 and $273,000 in the years ended
December 31, 1997 and 1998, respectively, substantially all of which was used to
acquire property and equipment. Investing activities used cash of approximately
$3.5 million in 1999. In addition to purchases of property and equipment, in
1999 our investing activities included an acquisition, an employment-related
loan to our president and chief executive officer and a lease-related security
deposit. Financing activities generated
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cash of approximately $79.4 million in the three years ended December 31, 1999
including approximately $73.0 million in 1999, primarily consisting of net
proceeds from the issuance of convertible preferred stock and common stock.
At December 31, 1999, we had approximately $45.3 million in cash and cash
equivalents excluding restricted cash balances of $449,000 related to security
deposits on our leases, approximately $39.9 million in working capital and no
outstanding debt. At December 31, 1999, we had non-cancelable commitments
aggregating approximately $4.4 million in minimum future lease payments
consisting primarily of a seven-year lease for our administrative 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 $3.5 million, with no current material commitments for
capital expenditures. We expect our sales and marketing expenditures for 2000
will be between $25 million and $35 million depending on available cash
resources, including the net proceeds of this offering. At December 31, 1999 we
had approximately $45.3 million in available cash resources.
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, with or without
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. We do not currently have any plans for a follow-on public
offering nor do we have any predetermined future share price thresholds that
would cause us, based on share price alone, to initiate a follow-on public
offering. We will continue to evaluate our needs for funds based on our
assessment of access to public or private capital markets and the timing of our
need for funds. Although we have no present intention to conduct additional
public equity offerings, 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 December 31, 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
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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.
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BUSINESS
OVERVIEW
We provide home improvement information and services on the Internet.
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 job leads for service providers from highly interested
homeowners within their geographic area using our proprietary matching service.
In 1998, we received approximately 33,500 job submissions valued at a total of
approximately $1.1 billion, compared to the estimated total expenditures for the
residential home improvement market for 1998 of approximately $120.7 billion,
according to the United States Department of Commerce. In 1999, we received
approximately 106,500 job submissions valued at a total of approximately
$2.7 billion, compared to the estimated total expenditures for the residential
home improvement market for 1999 of approximately $126.7 billion, according to
the National Association of Home Builders. 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 our
three constituents:
- service providers pay us lead fees and win fees for our matching service
that are included in service revenues;
- suppliers of home improvement products and services as well as other
advertisers pay us advertising fees for the purchase of advertising space
on our Web sites that are included in advertising revenues; and
- homeowners pay us fees for our premium home improvement services that are
included in service revenues and that to date have not been significant.
INDUSTRY BACKGROUND
THE HOME IMPROVEMENT INDUSTRY
The home improvement industry is fragmented. According to the National
Association of Home Builders, total expenditures for residential home
improvements for 1999 were $126.7 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,
establish a budget for the project, find and select service providers, 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
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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 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.
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THE IMPROVENET SOLUTION
We provide home improvement information and services on the Internet. 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 products and services.
Our solution offers the following benefits:
FOR HOMEOWNERS:
- ACCESS TO QUALITY SERVICE PROVIDERS. Our screening process is designed to
identify the leaders in quality and service in each of our local markets.
To pass our screening criteria, service providers must have a clean credit
and legal history, all necessary licenses, appropriate insurance and no
significant negative references from customers or other service providers.
We re-screen the service providers in our database approximately
semi-annually. By creating a national database of screened service
providers, we improve the likelihood that homeowners who contact us will
hire qualified, experienced and reputable service providers.
- 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. We choose
the service providers by matching their geographical, job type and job
size preferences with the homeowner's job specification. We contact
selected service providers by fax, e-mail or by posting to
ImproveNetPro.com. Our goal is to have the selected service providers
contact the homeowner directly to discuss the job in detail within
72 hours of when we provide the homeowner with the service providers'
names. Our service providers currently meet this goal approximately 50% of
the time. In addition, we offer homeowners the ability to search for home
improvement services and to plan their current projects using our
interactive planning tools from home or work 24 hours a day, seven days a
week. We assign a personal project advisor to each home improvement
project. The project advisor 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 a fee, we provide premium services such as
legal and credit reports on contractors outside the ImproveNet network for
$29 per report and bid and contract assessment assistance for $50 per
contract.
FOR SERVICE PROVIDERS:
- QUALITY JOB LEADS. Our project advisors call each homeowner after we
receive a job to confirm that the homeowner is interested and to assist
with refining the details of the job. Service providers who receive leads
through our proprietary matching service benefit from the likelihood that
the homeowner's interest is real and that the potential project is
correctly characterized. In addition, service providers give us
geographic, job type and job size preferences, which enable us to match
the service provider to a job that meets its preferences and expertise.
Service providers can change their preferences at any time to reflect
their changing needs and circumstances.
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Through our ImproveNetPro.com website, we have recently begun to
communicate job leads in near real-time to the selected service providers.
- COMPETITIVE DIFFERENTIATION. We believe service providers can
differentiate themselves from their competitors by successfully completing
our proprietary screening process and joining our network. We identify,
contact and recruit service providers through many public and private
sources. We have used Yellow Pages and licensing and trade association
lists to identify, contact and recruit service providers into our network.
We have not been able to screen approximately one-third of all service
providers we have identified. Approximately one-third of the service
providers who we have identified through lists or contacted through our
various sources and roughly 50% of those we have screened have met our
selection standards of professionalism and reliability. Currently, we have
approximately 33,000 eligible service providers in our network who have
indicated an interest in continuing to receive qualified job leads from
us.
- 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. 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.
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 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 service providers and homeowners engaged in home improvement
projects through targeted 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 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:
DELIVER 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
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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.
Through our online services, including our Web sites and SmartLeads program,
and our offline support services, including our project advisors and
professional services group, we seek to provide increased communication between
all parties to a home improvement project and to 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 match. For 1999, our win
rate was 8.9%. 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 by interested, responsive high-quality service
providers;
- 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.
EXPAND EXISTING COMMERCIAL RELATIONSHIPS AND CREATE NEW ONES WITH SUPPLIERS
OF HOME IMPROVEMENT PRODUCTS AND SERVICES AND RELATED HOME SERVICES
We have recently entered into multi-year commercial contracts with Cendant,
DuPont, General Electric Appliances, Microsoft and Owens Corning. We believe
that these contracts provide these 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.
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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
multi-year commercial contracts, we are aggressively pursuing additional
nationally recognized suppliers of various 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 CompleteHome and Microsoft's
HomeAdvisor.
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 multi-year commercial contracts with recognized 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 contracts provide us with the opportunity to use 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.
SERVICES AND INFORMATION
We offer several 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 and information 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 Appliances, 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
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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.
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 providing bid
and contract assessment assistance.
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 5,600 discussions
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 deliver job leads to
selected service providers by fax, email or by posting the leads on
ImproveNetPro.com. Currently, we have approximately 33,000 eligible service
providers in our network who have indicated an interest in continuing to receive
qualified job leads from us. The interested service providers who first contact
us get the opportunity to have their name submitted to the homeowner on the
project. We currently allow up to four service providers to be matched 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 on a first-come,
first-served basis to the homeowner via e-mail, ideally
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within 72 hours of submission, a goal that we meet approximately 50% of the
time. The service providers who we refer to the homeowner pay us a fee for the
job lead.
Service providers contact the homeowner directly by telephone to discuss the
job in detail, ideally within 72 hours of our e-mail. Once the homeowner and
service provider have been matched, the service provider is able to bid on the
project at any time after meeting with the homeowner. If a job does not receive
a contact from an interested service provider within approximately one week 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 her project advisor as many times as needed by e-mail or by
telephone. 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 are based on a non-negotiable,
fixed-fee schedule based on estimated job size, as follows:
<TABLE>
<CAPTION>
ESTIMATED JOB SIZE FEE MAXIMUM
- ------------------ --------------- --------
<S> <C> <C>
Less than $5,000.......................................... 10% of job size $250
$5,000 - $10,000.......................................... 5% of job size $300
$10,000 - $35,000......................................... 3% of job size $700
Greater than $35,000...................................... 2% of job size $995
</TABLE>
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 service providers and homeowners who are making purchasing decisions
during the home improvement process. Currently, our service providers cannot opt
out of the SmartLeads program, while homeowners may request that they not be
included in the SmartLeads program. 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 AND FIND A CONTRACTOR
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
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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. We also advertise on
third party Web sites through our Find a Contractor service. We place a "Find a
Contractor" banner or button on third party Web sites that links the user to
ImproveNet.com. We pay these third parties either a flat fee or on a per
referral basis. Since many of the third-party Web sites that use Powered by
ImproveNet and Find a Contractor are related to the home improvement industry,
we believe these programs will deliver more qualified traffic to our Web site.
We also believe that Web sites that are related to the home improvement industry
and will participate in these programs will benefit from the access to our
matching services.
The following is a complete list of third parties who currently participate
or have agreed to participate in the Powered by ImproveNet or Find a Contractor
programs:
Armstrong World Industries, Inc.
Art on Tiles
Brandwise.com
Builder Select.com
Buildscape.com
Classified Ventures/HomeHunter
Chesapeake Precision, Inc.
ContractorGuy.com
Cox Interactive
DeGeorge, Inc.
Delta Faucets
Dow Remodel.com (Dow)
EllieMae Affiliates
FeelingRightAtHome.com
GE Appliances
GoingSouth.com
GoToWorld
Halogens
HomeCase.com, Inc.
Homematrix.com, Inc.
Homes.com, LLC
HomeServices.com
HomeSpace
HomeSpecialties
Hometime Video Publishing, Inc.
Houston Association of Realtors
Insurance Spotlight
iOwn, Inc.
Jenn-Air
Just Seconds
Las Vegas Virtual Realtor
LoanUPDATE (NetUpdate.com)
Lumbermen's Building Centers
Maytag Corporation, Inc.
Michigan Web
Microsoft HomeAdvisor
MinnesotaLink.com
MortgageDepartment.com
Move.com
MyHome.com
MyMortgageAdvisor.com
Ohio Home Search
OurHouse, Inc.
Owens Corning
Owners, Inc.
Paintright.com (Paint Right Services)
Philips Electronics
Phoenix Association of Realtors
postnet.com (St. Louis Post-Dispatch)
PruWeb.com (Prudential)
RealEstateRover.com, Inc.
realhub.com
Re/max of California & Hawaii, Inc.
RemodelingGuy.com
Schlage Lock Company
Minneapolis Star Tribune (startribune.com)
The SunRay Corporation
The Half-Assed Handyman
The Redondo Mall
Today's Homeowner
Turnhome, Inc.
Wickes Lumber
Yahoo!
MULTI-YEAR COMMERCIAL CONTRACTS
In September 1999, we entered into an Internet Development, Marketing and
Distribution Agreement with General Electric Appliances, a division of the
General Electric Company. GE purchased a package of our advertising products and
Powered by ImproveNet including a private label contractor matching service for
$3,000,000 over three years. In addition, we purchased cooperative and
co-branded advertising and access to GE's direct mail infrastructure, for
$3,000,000 over three years. Throughout the term of the agreement, GE has agreed
to pay us ten dollars for each completed sale we refer to GE, not to exceed
$2,500,000 over three years. In connection with this agreement, we issued to GE
Appliances and GE Capital Equity Investments, Inc. warrants to purchase 326,000
shares of series D preferred stock at $0.01 per share.
In October 1999, we entered into an Internet-based Services Agreement with
Owens Corning. Owens Corning purchased a package of our advertising products and
Powered by Improvenet including a private-label contractor matching service for
$3,000,000 over the first three years. In addition, we purchased cooperative and
co-branded advertising for $2,250,000 over the first three years. We pay Owens
Corning for each job Owens Corning refers to us which exceeds $500 in total job
value. As long as Owens Corning owns at least 500,000 shares of our common
stock, we are obligated to nominate one designee of Owens Corning for election
to our board of directors. The Owens Corning designee is currently Domenico
Cecere, president of Owens Corning North American Building Materials Systems.
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<PAGE>
We cannot provide a private label contractor matching service to Owens Corning's
competitors through December 2000. In connection with this agreement, we issued
Owens Corning warrants to purchase 150,000 shares of our common stock at $0.01
per share. The term of the agreement is 12 years. Following the initial three
years of the agreement, Owens Corning may terminate the agreement upon
12 months prior written notice.
In December 1999, we entered into a Relationship Agreement with Microsoft.
We purchased a direct link on Microsoft's HomeAdvisor Web site to a co-branded
Web site Powered by ImproveNet. We will pay Microsoft a fee equal to the greater
of 25%-37 1/2% of revenues realized from the operation of the co-branded Web
site or a guaranteed minimum fee of $6,000,000 over three years. If Microsoft
agrees to host our content on the HomeAdvisor Web site, Microsoft will pay us a
minimum of 25% of all gross revenues received by Microsoft from operation of the
Web site. In addition, we have agreed that Web pages on our site visited by
users linked through the HomeAdvisor Web site will not contain any
advertisements, hyperlinks or other content from a special class of HomeAdvisor
competitors. In connection with this agreement, we issued to Microsoft warrants
to purchase 583,333 shares of our common stock at $13.50 per share and warrants
to purchase 100,000 shares of our common stock at $0.01 per share. The term of
this agreement is three years.
In December 1999, we entered into a Collaboration Agreement with DuPont.
DuPont purchased a package of our advertising products and Powered by
ImproveNet. In addition, we purchased cooperative advertising and access to
DuPont's direct mail infrastructure, the fees for which cannot exceed the fees
we collect from DuPont. Pursuant to this agreement, DuPont agreed to pay us
$1,000,000 in year one and we agreed to pay DuPont $1,000,000 in year one with
fees for subsequent years to be negotiated by the parties. We agreed to pay
DuPont a fifteen dollar fee for each direct referral to ImproveNet.com for jobs
that exceed $500 in total value. The agreement provides for an exclusive
arrangement with respect to other manufacturers of two DuPont product
categories. In connection with this agreement, we issued to DuPont warrants to
purchase 35,000 shares of our common stock at $0.01 per share. The term of this
agreement is four years. Following the initial year, either party may terminate
the agreement without cause upon 90 days prior written notice.
In December 1999, we entered into an Agreement with Move.com, an affiliate
of Cendant Corporation. We purchased a direct link on Cendant's Move.com Web
site to a co-branded Web site Powered by ImproveNet. We will pay Cendant a fee
over three years equal to the greater of a predetermined share of the revenue
realized from the operation of the co-branded Web site or a guaranteed minimum
fee of $6,000,000 over three years. In addition, we have agreed that Web pages
on our site visited by users linked through the Move.com Web site will not
contain advertisements, hyperlinks or other content from a special class of
Move.com competitors. In connection with this agreement, we issued to Cendant
warrants to purchase 259,263 shares of our common stock at $13.50 per share and
warrants to purchase 75,000 shares of our common stock at $0.01 per share.
SALES AND MARKETING
We believe that building awareness of the ImproveNet brand is critical to
our effort to be America's 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, print 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 five largest advertisers in 1999 were Armstrong, General Electric
Appliances, Masco's Merrillat, Owens Corning and Whirlpool. No single advertiser
accounted for more than 10% of our total revenues for any period.
PARTNERSHIP SERVICES GROUP
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. For example, we have entered into multi-year commercial
contracts with the following third parties: Cendant, DuPont, General Electric
Appliances, Microsoft and Owens Corning. As of December 31, 1999, we had 18
professionals in our partnership services group.
PROFESSIONAL SERVICES GROUP
Our professional services group, a recently formed department within
ImproveNet, consists of professionals residing in local markets who are
responsible for recruiting and retaining service providers in their local market
and for maintaining and building business relationships with local service
providers with a view to enhance our match and win rates. 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. As of December 31,
1999, we had 70 local professional advisors in our professional services group.
PROJECT SERVICES GROUP
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. Our
project advisors are the primary contact with the homeowner from the time the
homeowner logs in to use our matching services through the end of the entire
home improvement process. We believe that this personal interaction increases
the likelihood that homeowners will return to us for all their home improvement
needs. As of December 31, 1999, we had 49 project advisors.
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.
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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. In 1997, 1998 and 1999, we spent
$288,000, $504,000 and $665,000 on research and development.
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 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. We estimate that we are currently
using up to approximately 20% of our Web sites' server capacity. Visitor traffic
to our Web sites varies significantly. 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, we believe that 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 believe that
we have had no interruptions or outages of our ImproveNetPro.com Web site since
its inception in December 1999. The primary reason for interruptions in service
relate to new content introductions onto our Web sites, such as our visualizer
or estimator tools, which involve a complex code base. Implementation of
increased security measures, such as additional firewalls, has caused
interruptions in our Internet-based services. We have implemented
around-the-clock security, installed monitoring equipment and hired additional
personnel to minimize and diagnose service problems.
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.
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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
ServiceMagic.com, iMandi, iCastle, repairnet, HomesSpud and OurHouse.com
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.
- 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
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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; and
- 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, including our
databases of homeowners and service providers and our matching criteria and
algorithms. We rely primarily on a combination of contractual provisions,
confidentiality procedures, trade secrets, and copyright and trademark laws to
accomplish these goals. Our databases are trade secrets, and our matching
service is protected by trade secret and copyright laws.
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 services 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.
In the ordinary course of business, we have received, and may receive in the
future, notices from third parties claiming infringement of their proprietary
rights. 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 were successful and we could not obtain a
license on acceptable terms, 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
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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 leases of the six regional support
offices and our project advisor office is adequate for our current operations
and that additional office space, if required, can be readily obtained.
EMPLOYEES
As of December 31, 1999, we had 198 employees, including 24 in sales and
marketing, 49 in project services, 84 in professional services, 24 in product
development and technology, and 17 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 31, 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
Peter A. Schuller......................... 47 Vice President, Strategic Planning,
Acquisitions and International
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 and as a director since September 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
November 1997 to September 1999, he was vice president of engineering and chief
technology officer at TelePost, an internet telecommunications company. From
March 1996 to November 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 1995 to March 1996, he was project leader and
manager of engineering at Netcom, an online services company. From April 1994 to
April 1995, he was a principal engineer and project leader at Lotus Software
Development, a software company.
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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.
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 since June
1997. From September 1977 to August 1996, Mr. Crosby served in a variety of
positions at Sunset Magazine, most recently senior writer.
PETER A. SCHULLER has served as our vice president, strategic planning,
acquisitions and international since October 1999. From August 1994 to September
1999, Mr. Schuller was a management consultant at his own firm and at Pacific
Partners, a management consulting company.
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. Mr. Anker is the designated
representative of August Capital. August Capital has a contractual right to
designate one representative for nomination to our board of directors under a
voting agreement with holders of a majority of our capital stock.
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 Business 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 Corporate Controller of Owens Corning. Mr. Cecere is the
designated representative of Owens Corning. Owens Corning has a contractual
right to designate one representative for nomination to our board of directors
under a voting agreement with holders of a majority of our capital stock.
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
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<PAGE>
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 principal of Odyssey Investment Partners, a venture capital
company, since March 2000 and was previously a senior vice president of GE
Capital Equity Investments, Inc., a financial subsidiary of General Electric,
where he had been employed 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. Mr. Graff is the designated representative of GE Capital. GE
Capital has a contractual right to designate one representative for nomination
to our board of directors under a voting agreement with holders of a majority of
our capital stock.
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.
Mr. Gruener is the designated representative of Alta Partners II, L.P. Alta
Partners has a contractual right to designate one representative for nomination
to our board of directors under a voting agreement with holders of a majority of
our capital stock.
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 company. From September 1993 to May 1995,
Mr. Knight was director of business development and creative affairs at
Microsoft Corporation, a software company. Mr. Knight is the designated
representative of Arch Venture Fund III. ARCH Venture Fund III has a contractual
right to designate one representative for nomination to our board of directors
under a voting agreement with holders of a majority of our capital stock.
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 February 2000, our board of directors implemented a program of automatic
option grants to each non-employee director. Under this program, each
non-employee director will receive options to purchase 20,000 shares of common
stock upon commencement of service as a director and 5,000 shares at each annual
meeting of stockholders thereafter. The options vest monthly over three years
for the 20,000 share option and over twelve months for the 5,000 share option.
Messrs. Anker, Cecere, Graff
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<PAGE>
and Gruener will be eligible for these grants if they are re-elected at our
annual meeting of stockholders on February 22, 2000. In addition, in January
2000, the board of directors granted Mr. Gannes an option to purchase 20,000
shares of our common stock, 5,000 of which will vest monthly over fifteen months
and granted Mr. Knight an option to purchase 20,000 shares of our common stock,
13,333 of which will vest monthly over fifteen months.
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 in consideration for
consulting services. 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. Gannes, Mr. Anker and Mr. Knight have been designated as
class I directors; Mr. Gruener, Mr. Graff, and Mr. Stevens have been designated
as class II directors; and Mr. Cooper and Mr. Cecere have been designated as
class III directors. Mr. Anker, the designated representative of August Capital;
Mr. Graff, the designated representative of GE Capital; Mr. Gruener, the
designated representative of Alta Partners; Mr. Knight, the designated
representative of ARCH Venture Fund III; and Mr. Cecere, the designated
representative of Owens Corning, were elected to the board of directors pursuant
to a voting agreement with the holders of a majority of our capital stock which
obligated these holders to vote for the designated representative of each of
August Capital, ARCH Venture Fund III, Alta Partners, GE Capital and Owens
Corning. The voting agreement terminates upon the closing of this 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. This obligation will expire upon
the termination of the Internet-based Services Agreement that we have with Owens
Corning. The Internet-based Services Agreement has a term of twelve years but
may be cancelled at Owens Corning's option on twelve months notice at any time
following the third year it is in effect.
EXECUTIVE COMPENSATION
The following table shows information concerning compensation earned in the
fiscal years ended December 31, 1999 and 1998 for our President and Chief
Executive Officer, our former President and Chief Executive Officer and our five
other most highly compensated executive officers, whose compensation in 1999, as
defined by the Securities and Exchange Commission, exceeded $100,000. These
people are referred to as the "named executive officers." The information in the
table includes salaries, bonuses, stock options granted and other miscellaneous
compensation. We have not granted
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<PAGE>
stock appreciation rights or restricted stock awards and have no long-term
compensation benefits other than stock options.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES ALL
--------------------------------- UNDERLYING OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION
- --------------------------- -------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert L. Stevens....................... 1999 $150,000 -- -- --
Chairman of the Board and former 1998 148,750 -- -- --
President and Chief Executive Officer
Ronald B. Cooper........................ 1999 228,125 -- 577,102 $ 9,637(1)
President and Chief Executive Officer 1998 -- -- -- --
Dennis R. Galloway...................... 1999 75,000 -- 75,000 48,575(2)
Senior Vice President, Partnership 1998 -- -- 30,000 26,000(2)
Services
Richard A. Roof......................... 1999 96,875 -- 125,000 --
Senior Vice President, Project 1998 -- -- -- --
Services
William E. Crosby....................... 1999 114,000 -- 25,000 --
Vice President, Editorial 1998 91,000 -- 10,000 --
Jan Sherman............................. 1999 143,335 -- -- --
Former Vice President, Strategic 1998 94,818 -- -- --
Planning
Hunter Madsen........................... 1999 192,789 -- -- 31,450(2)
Former Vice President, Marketing 1998 -- -- -- 20,400(2)
</TABLE>
- --------------------------
(1) Represents reimbursement for personal travel expenditures.
(2) Represents consulting fees.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows each grant of stock options during the fiscal year
ended December 31, 1999 to the individuals 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 or by promissory notes.
The potential realizable value is calculated based on the ten-year term of
the option and the market value 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 $15.00 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.
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<PAGE>
Percentages shown under "Percent of Total Options Granted to Employees in
Fiscal 1999" are based on a total of 2,377,302 options granted to our employees
under our stock option plans during 1999.
<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 1999 SHARE DATE 5% 10%
- ---- ----------- ------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Stevens............... -- -- -- -- -- --
Ronald B. Cooper................ 577,102 24.3% $0.25 03/18/09 $13,347,272 $20,495,152
Dennis R. Galloway.............. 75,000 3.2 1.50 07/12/09 1,612,416 2,512,792
Richard A. Roof................. 75,000 3.2 1.50 05/03/09 1,597,399 2,467,279
50,000 2.1 7.50 11/17/09 607,497 962,296
William E. Crosby............... 25,000 1.1 7.50 11/17/09 303,748 481,148
Jan Sherman..................... -- -- -- -- -- --
Hunter Madsen................... -- -- -- -- -- --
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table shows information regarding shares acquired upon
exercise of options in fiscal 1999 and the number and value of securities
underlying unexercised options that are held by the named executive officers as
of December 31, 1999.
Amounts shown under the column "Value of Unexercised In-the-Money Options at
December 31, 1999" represent the positive spread between the respective exercise
prices of outstanding stock options and the assumed initial public offering
price of $15.00 per share without taking into account any taxes that may be
payable in connection with the transaction, multiplied by the number of shares
underlying the option. 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.
<TABLE>
<CAPTION>
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED DECEMBER 31, 1999 DECEMBER 31, 1999
UPON EXERCISE VALUE REALIZED ----------------------- -----------------------
NAME (#) (1) VESTED UNVESTED VESTED UNVESTED
- ---- --------------- -------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Stevens........ 71,250 $1,058,625 -- -- -- --
Ronald B. Cooper(2)...... 400,000 5,900,000 -- 177,102 -- $2,612,255
Dennis R. Galloway....... 40,000 591,500 -- 75,000 -- 1,012,500
Richard A. Roof(3)....... 13,333 99,998 -- 111,667 -- 1,287,503
William E. Crosby(3)..... 35,950 436,616 5,300 33,750 $78,809 415,575
Jan Sherman.............. 44,500 660,050 -- -- -- --
Hunter Madsen............ -- -- 35,208 -- 519,318 --
</TABLE>
(1) Based on the assumed initial public offering price of $15.00 per share,
minus the per share exercise price, multiplied by the number of shares
issued upon exercise of the option.
(2) Represents 400,000 shares subject to a right of repurchase in favor of
ImproveNet.
(3) Includes 13,333 shares subject to a right of repurchase in favor of
ImproveNet.
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<PAGE>
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 31, 1999, there were outstanding
options to purchase 1,727,317 shares of common stock and 10,106 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. As of December 31, 1999, there were outstanding options to purchase
130,750 shares of common stock and 1,169,250 shares available for future grant.
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;
- 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 and officers. 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
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<PAGE>
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. We 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 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 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
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<PAGE>
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 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
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<PAGE>
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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RELATED PARTY TRANSACTIONS
PREFERRED STOCK FINANCINGS
In June and July of 1997, we sold 1,207,000 shares of 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 at an exercise price of $1.00 per share. Upon
the closing of this offering, all outstanding shares of series A preferred stock
will automatically convert into shares of common stock on a one-for-one basis.
The following executive officers, directors, holders of more than 5% of our
securities and members of these persons' immediate families purchased shares of
series A preferred stock.
<TABLE>
<CAPTION>
SHARES OF
SERIES A SERIES A AGGREGATE VALUE OF
PURCHASER PREFERRED STOCK WARRANTS PURCHASE PRICE SHARES (1)
- --------- --------------- --------- -------------- -----------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Stuart Gannes............................... 10,000 800 $ 10,000 $ 161,200
5% STOCKHOLDERS
Entities affiliated with Alta Partners...... 1,000,000 80,000 1,000,000 16,120,000
</TABLE>
- ------------------------
(1) Based on the assumed initial public offering per share of $15.00 and net of
the warrant exercise price.
In March 1998, we sold 1,934,526 shares of 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 at an exercise price of $2.52 per share. Upon the
closing of this offering, all outstanding shares of series B preferred stock
will automatically convert into shares of common stock on a one-for-one basis.
The following executive officers, directors, holders of more than 5% of our
securities and members of these persons' immediate families purchased shares of
series B preferred stock.
<TABLE>
<CAPTION>
SHARES OF
SERIES B SERIES B AGGREGATE VALUE OF
PURCHASER PREFERRED STOCK WARRANTS PURCHASE PRICE SHARES (1)
- --------- --------------- --------- -------------- -----------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Alex Knight................................ 9,921 241 $ 25,000 $ 151,823
5% STOCKHOLDERS
Entities affiliated with Alta Partners..... 555,556 13,500 1,400,001 8,501,820
ARCH Venture Fund III, L.P................. 813,492 19,768 2,049,999 12,449,085
Allstate Insurance Company................. 496,032 12,054 1,250,000 7,590,914
</TABLE>
- ------------------------
(1) Based on the assumed initial public offering per share of $15.00 and net of
the warrant exercise price.
In March 1999, we sold 3,543,190 shares of series C preferred stock at a
purchase price of $6.53 per share. Upon the closing of this offering, all
outstanding shares of series C preferred stock will automatically convert into
shares of common stock on a one-for-one basis. The following executive
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<PAGE>
officers, directors, holders of more than 5% of our securities and members of
these persons' immediate families purchased shares of series C preferred stock.
<TABLE>
<CAPTION>
SHARES OF
SERIES C AGGREGATE VALUE OF
PURCHASER PREFERRED STOCK PURCHASE PRICE SHARES (1)
- --------- --------------- -------------- -----------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Stuart Gannes........................................ 3,829 $ 25,003 $ 57,435
Alex Knight.......................................... 7,657 50,000 114,855
5% STOCKHOLDERS
Entities affiliated with Alta Partners............... 421,134 2,750,005 6,317,010
ARCH Venture Fund III, L.P........................... 612,558 4,000,004 9,188,370
Allstate Insurance Company........................... 306,278 1,999,995 4,594,170
August Captial II, L.P............................... 1,378,255 9,000,005 20,673,825
</TABLE>
- ------------------------
(1) Based on the assumed initial public offering per share of $15.00.
In September 1999, we sold 2,100,843 shares of 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 at an exercise price of $0.01. Upon the closing of this
offering, all outstanding shares of series D preferred stock will automatically
convert into shares of common stock on a one-for-one basis. The following
executive officers, directors, holders of more than 5% of our securities and
members of these persons' immediate families purchased shares of series D
preferred stock.
<TABLE>
<CAPTION>
SHARES OF
SERIES D SERIES D AGGREGATE VALUE OF
PURCHASER PREFERRED STOCK WARRANTS PURCHASE PRICE SHARES (1)
- --------- --------------- --------- -------------- -----------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Alex Knight................................. 2,597 -- $ 19,997 $ 38,955
5% STOCKHOLDERS
Entities affiliated with Alta Partners...... 259,740 -- 1,999,998 3,896,100
ARCH Venture Fund III, L.P.................. 215,192 -- 1,656,978 3,227,880
August Capital II, L.P...................... 205,137 -- 1,579,555 3,077,055
Entities affiliated with GE Capital Equity
Investments, Inc.......................... 1,298,701 326,000 9,999,998 24,367,255
</TABLE>
- ------------------------
(1) Based on the assumed initial public offering per share of $15.00 and net of
the warrant exercise price.
In November and December 1999, we sold 2,597,135 shares of series E
preferred stock at a purchase price of $13.50 per share, warrants to purchase
420,000 shares of common stock at an exercise price of $0.01 and warrants to
purchase 842,596 shares of common stock at an exercise price of $13.50. Upon the
closing of this offering, all outstanding shares of series E preferred stock
will automatically convert into shares of common stock on a one-for-one basis.
The following executive officers, directors,
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<PAGE>
holders of more than 5% of our securities and members of these persons'
immediate families purchased shares of series E preferred stock.
<TABLE>
<CAPTION>
SHARES OF
SERIES E COMMON AGGREGATE VALUE OF
PURCHASER PREFERRED STOCK WARRANTS PURCHASE PRICE SHARES (1)
- --------- --------------- -------- -------------- -----------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Alex Knight............................... 1,850 -- $ 24,975 $ 27,750
5% STOCKHOLDERS
ARCH Venture Fund III, L.P................ 74,074 -- 999,999 1,111,110
Microsoft Corporation..................... 555,556 683,333 7,500,006 17,227,502
Owens Corning............................. 740,741 150,000 10,000,004 13,359,615
</TABLE>
- ------------------------
(1) Based on the assumed initial public offering per share of $15.00 and net of
the warrant exercise price.
See the notes on the table on beneficial ownership in "Principal
Stockholders" for information relating to the beneficial ownership of such
shares.
FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT. We have entered into
an agreement dated November 23, 1999 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 dated November 23, 1999 with our preferred stockholders. Under the
voting agreement, Alta Partners, ARCH Venture Fund III, August Capital, GE
Capital and Owens Corning each have the right to designate one representative
for nomination to our board of directors and the holders of a majority of our
capital stock are obligated to vote for these representatives. Andrew Anker was
elected to our board as the designated representative of August Capital; Brian
Graff was elected to our board as the designated representative of GE Capital;
Garrett Gruener was elected to our board as the designated representative of
August Capital; Alex Knight was elected to our board as the designated
representative of ARCH Venture Fund III; and Domenico Cecere was elected to our
board as the designated representative of Owens Corning. The voting agreement
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 continue to nominate one designated
representative of Owens Corning for election to our board of directors but no
stockholders will be obligated to vote in favor of this representative. This
obligation will expire upon the termination of the Internet-based Services
Agreement that we have with Owens Corning. The Internet-based Services Agreement
has a term of twelve years but may be cancelled at Owens Corning's option on
twelve months notice at any time following the third year it is in effect.
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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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.
INDEBTEDNESS OF MANAGEMENT
In December 1999, we received promissory notes from our executive officers
in connection with their exercise of stock options in the aggregate amount of
$299,785 with an interest rate of 6.2%. These promissory notes represent
$99,897.50 in principal amount from William Crosby, $99,897.50 in principal
amount from Richard Roof and $99,990.00 in principal amount from William
Phillips, Jr.
ACCELERATION OF VESTING
In February 2000, we granted acceleration of vesting to our executive
officers in the event that we are acquired. In that event, 40% of the remaining
unvested shares held by any executive officer who is terminated without cause
within 24 months following the acquisition will automatically vest.
TRANSACTIONS WITH 5% OR GREATER STOCKHOLDERS
In September 1999, we entered into an Internet Development, Marketing and
Distribution Agreement with General Electric Appliances, a division of the
General Electric Company. GE purchased a package of our advertising products and
Powered by ImproveNet including a private label contractor matching service, for
$750,000 in year one, $1,000,000 in year two and $1,250,000 in year three. In
addition, we purchased cooperative and co-branded advertising and access to GE's
direct mail infrastructure, such as inclusion in some of GE's direct mail
advertising campaigns for $750,000 in year one, $1,000,000 in year two and
$1,250,000 in year three. Throughout the term of the agreement, GE has agreed to
pay us ten dollars for each completed sale we refer to GE, not to exceed
$500,000 in year one, $750,000 in year two and $1,250,000 in year three. In
connection with this agreement, we issued to GE Appliances and GE Capital Equity
Investments, Inc. warrants to purchase 326,000 shares of series D preferred
stock at $0.01 per share. Based on the assumed initial public offering price of
$15.00 per share and net of the warrant exercise price, this warrant will have a
total value of $4,886,740. The term of the agreement is three years.
In October 1999, we entered into an Internet-based Services Agreement with
Owens Corning. Owens Corning purchased a package of our advertising products and
Powered by ImproveNet including a private-label contractor matching service for
$750,000 in year one, $1,000,000 in year two and $1,250,000 in year three. We
also agreed to charge Owens Corning fees that are the lower of the fees charged
to our similar sized customers or 20% below our prevailing market rate for such
services. In addition, we purchased cooperative and co-branded advertising, the
fees for which cannot exceed $562,500 in year one, $750,000 in year two and
$937,500 in year three. We agreed to pay Owens Corning twenty-five dollars for
each direct referral to ImproveNet.com exceeding $500 in total job value. As
long as Owens Corning owns at least 500,000 shares of our common stock, we are
obligated to nominate one designee of Owens Corning for election to our board of
directors. The Owens Corning
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designee is currently Mr. Domenico Cecere, president of Owens Corning North
American Building Materials Systems. We cannot provide a private-label
contractor matching service to Owens Corning's competitors through December
2000. In connection with this agreement, we issued Owens Corning warrants to
purchase 150,000 shares of our Common Stock at $0.01 per share. Based on the
assumed initial public offering price of $15.00 per share and net of the warrant
exercise price, this warrant will have a total value of $2,248,500. The term of
the agreement is 12 years. Following the initial three years of the agreement,
Owens Corning may terminate the agreement upon 12 months prior written notice.
In December 1999, we entered into a Relationship Agreement with Microsoft.
We purchased a direct link on Microsoft's HomeAdvisor Web site to a co-branded
Web site Powered by ImproveNet. Microsoft agreed to provide our Web site with
nine million guaranteed impressions from a combination of HomeAdvisor's
MarketPlace and button rotation across its Web site. We will pay Microsoft a fee
equal to the greater of 25%-37 1/2% of revenues realized from the operation of
the co-branded Web site or a minimum guaranteed fee of $2,500,000 in year one,
$2,000,000 in year two and $1,500,000 in year three. If Microsoft agrees to host
our content on the HomeAdvisor Web site, Microsoft will pay us a minimum of 25%
of all gross revenues received by Microsoft from operation of the Web site. In
addition, we have agreed that Web pages on ImproveNet.com visited by users
linked through the HomeAdvisor Web site will not contain any advertisements,
hyperlinks or other content from a special class of HomeAdvisor competitors. We
also agreed to charge Microsoft 75% of our current rates for button, banner,
showcase and smart lead advertising on our Web sites. In connection with this
agreement, we issued to Microsoft warrants to purchase 583,333 shares of our
common stock at $13.50 per share and warrants to purchase 100,000 shares of
common stock at $0.01 per share. Based on the assumed initial public offering
price of $15.00 per share and net of the warrant exercise prices, these warrants
will have a total value of $2,374,000. The term of the agreement is three years.
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. Mr. Stevens was our president and chief executive officer from
January 1996 to March 1999. He has been a director since January 1996 and is the
chairman of the board. The total rent paid was $30,000 in 1996, $78,000 in 1997
and $23,000 in 1998. We did not pay any rent to 125 University or
101 University in 1999.
In January 1996, we issued Robert L. Stevens 200,000 shares of our common
stock at a purchase price of $0.01 per share for an aggregate purchase price of
$2,000. The purchase price was less than the per share fair market value of our
common stock of $0.25 as determined by our board on the date of issuance. Based
on the assumed initial public offering price of $15.00 per share, these shares
have an aggregate net value of $2,998,000. 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 for
aggregate purchase price of $56,459. The purchase price was equal to the fair
market value of our common stock as determined by our board on the date of
issuance. Based on the assumed initial public offering price of $15.00 per
share, these shares have an aggregate net value of $3,331,066. 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. Based on the assumed initial public
offering price of $15.00 per share, these shares have an aggregate net value of
$295,000. 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. Based on the
assumed initial public offering price of $15.00 per share, these shares have an
aggregate net value of $763,625. 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 June 1997, we issued to Mr. Stevens 40,253
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<PAGE>
shares of common stock upon conversion of a promissory note at a purchase price
of $0.50 per share for an aggregate purchase price of $20,127. The purchase
price per share was greater than the per share fair market value of our common
stock of $0.10 as determined by our board on the date of issuance. Based on the
assumed initial public offering price of $15.00 per share, these shares have an
aggregate net value of $583,669.
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 for an aggregate purchase price of $2,000. The purchase price of
$0.01 per share was less than the per share fair market value of our common
stock of $0.25 as determined by our board on the date of issuance. Based on the
assumed initial public offering price of $15.00 per share, these shares have an
aggregate net value of $2,998,000. 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. Based on the assumed initial public offering price of $15.00
per share, these shares have an aggregate net value of $295,000. 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. Based on the assumed initial public offering
price of $15.00 per share, these shares have an aggregate net value of $365,050.
The exercise price of these options 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 31, 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 31, 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 13,719,310 shares of common stock
outstanding on December 31, 1999 and 16,019,310 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 and entities 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 (1)............................... 400,000 2.9% 2.5%
Garrett Gruener (2)................................ 2,329,930 16.9 14.5
Andrew Anker (3)................................... 1,583,392 11.5 9.9
Robert L. Stevens (4).............................. 527,338 3.8 3.3
Alex Knight (5).................................... 22,266 * *
Stuart Gannes (6).................................. 21,851 * *
Brian Graff (7).................................... -- * *
Domenico Cecere (8)................................ -- * *
Dennis Galloway.................................... 40,000 * *
William Crosby (9)................................. 38,032 * *
Richard Roof (10).................................. 13,333 * *
Jan Sherman........................................ 244,500 1.6 1.4
Hunter Madsen...................................... 35,208 * *
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT BENEFICIALLY OWNED
BENEFICIALLY --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- ------------------------------------ ---------------- --------------- --------------
<S> <C> <C> <C>
5% STOCKHOLDERS
Alta California Partners, L.P. (11)................ 2,329,930 16.9% 14.5%
ARCH Venture Fund III, L.P. (12)................... 1,735,084 12.6 10.8
GE Capital Equity Investments, Inc. (13)........... 1,624,701 11.6 9.9
August Capital II, L.P............................. 1,583,392 11.5 9.9
Microsoft Corporation (14)......................... 1,238,889 8.6 7.4
Owens Corning (15)................................. 890,741 6.4 5.5
Allstate Insurance Company (16).................... 814,364 5.9 5.1
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(16 PERSONS) (17)................................ 5,051,142 36.5 31.3
ALL DIRECTORS, EXECUTIVE OFFICERS AND 5%
STOCKHOLDERS
AS A GROUP (21 PERSONS) (18)..................... 11,354,921 75.6 65.6
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1%.
(1) Represents 400,000 shares subject to a right of repurchase at the purchase
price for such shares.
(2) 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. at a weighted average exercise price of
$1.22 per share pursuant to warrants which vest within 60 days and 2,089
shares issuable to Alta Embarcadero Partners, L.P. at a weighted average
exercise price of $1.22 per share pursuant to warrants that vest within 60
days. 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.
(3) 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.
(4) 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 at a weighted
average per share exercise price of $1.00 pursuant to warrants that vest
within 60 days and 1,500 shares issuable to G. Bickley Stevens II at a
weighted average per share exercise price of $1.00 pursuant to options that
vest within 60 days. 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.
(5) Includes 241 shares issuable at a weighted average per share exercise price
of $2.52 pursuant to warrants that vest within 60 days. 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.
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<PAGE>
(6) Includes 800 shares issuable at a weighted average per share exercise price
of $2.52 pursuant to warrants that vest within 60 days and 7,222 shares
issuable at a weighted average per share exercise price of $0.10 pursuant
to options that vest within 60 days.
(7) 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.
(8) Mr. Cecere is a vice president of Owens Corning and disclaims beneficial
ownership of the shares held by Owens Corning.
(9) Includes 2,082 shares issuable at a weighted average per share exercise
price of $0.13 pursuant to options that vest within 60 days. Includes
13,333 shares subject to a right of repurchase at the purchase price for
such shares.
(10) Represents 13,333 shares subject to a right of repurchase at the purchase
price for such shares.
(11) Includes 91,411 shares issuable upon exercise of warrants at a weighted
average exercise price of $1.22 per share that vest within 60 days, 49,957
shares held by Alta Embarcadero Partners and 2,089 shares issuable upon
exercise of warrants at a weighted average exercise price of $1.22 per
share that vest within 60 days.
(12) Includes 19,768 shares issuable at a weighted average per share exercise
price of $2.52 pursuant to warrants that vest within 60 days.
(13) Represents 1,298,701 shares held by GE Capital Equity Investments, Inc.,
117,000 shares issuable to GE Capital Equity Investments, Inc. at a
weighted average per share exercise price of $0.01 pursuant to warrants
that vest within 60 days and 209,000 shares issuable to General Electric
Appliances at a weighted average per share exercise price of $0.01
pursuant to warrants that vest within 60 days. GE Capital Equity
Investments, Inc. shares beneficial ownership with General Electric
Capital Corporation and General Electric Company with respect to 1,298,701
shares.
(14) Includes 683,333 shares issuable to Microsoft at a weighted average per
share exercise price of $1.98 pursuant to warrants that vest within
60 days.
(15) Includes 150,000 shares issuable at a weighted average per share exercise
price of $0.01 pursuant to warrants that vest within 60 days.
(16) Includes 12,054 shares issuable at a per share exercise price of $2.52
pursuant to warrants that vest within 60 days.
(17) Includes 94,541 shares issuable at a weighted average per share exercise
price of $1.22 pursuant to warrants that vest within 60 days, 9,304 shares
issuable at a weighted average per share exercise price of $0.11 pursuant
to options that vest within 60 days and 3,913,322 shares held by related
entities.
(18) Represents 5,051,142 shares held by or issuable to directors and executive
officers (see note 17), 1,735,084 shares held by or issuable to ARCH
Venture Fund III, L.P. (see note 12), 1,624,701 shares held by or issuable
to entities affiliated with GE Capital Equity Investments, Inc. (see note
13), 1,238,889 shares held by or issuable to Microsoft Corporation (see
note 14), 890,741 shares held by or issuable to Owens Corning (see note
15) and 814,364 shares held by or issuable to Allstate Insurance Company
(see note 16).
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<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 31, 1999, there were 13,719,310 shares of common stock
outstanding that were held of record by approximately 120 stockholders after
giving effect to the conversion of our preferred stock into common stock at a
one-to-one ratio. There will be 16,019,310 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 this 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 31, 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.
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<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 180 days 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 upon written request from the holders of more than a majority of
the registrable securities then outstanding, with a net aggregate public
offering price of $20,000,000. 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 for an aggregate public offering of at least
$500,000 of our common stock. 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.
69
<PAGE>
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.
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. 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 this
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 American Stock
Transfer & Trust Company.
NASDAQ NATIONAL MARKET
Our common stock has been approved for listing on the Nasdaq National Market
under the trading symbol "IMPV."
70
<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
16,019,310 shares of common stock, based on shares outstanding as of
December 31, 1999 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 13,719,310 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:
- 45,000 shares will be eligible for immediate sale on the date of this
prospectus;
- no shares will be eligible for sale 90 days from the date of this
prospectus;
- 8,197,728 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
- 5,476,582 shares will be eligible for sale at various times after the
180-day lock-up period.
LOCK-UP AGREEMENTS. All of our officers and directors and substantially all
of our 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 160,193 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
71
<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.
Affiliates who purchase or receive shares from us in connection with a
compensatory stock purchase plan or option plan or other written agreement will
be eligible to sell their shares beginning 90 days after the date of this
prospectus under Rule 701 without compliance with the Rule 144 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 3,037,423 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 statement 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.
72
<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..................................................... 2,300,000
=======
</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 345,000 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.
The underwriting discounts and commissions are equal to the initial public
offering price per share of our common stock, less the amount the underwriters
pay to us per share of our common stock. The underwriting discounts and
commissions will represent % of the initial public offering price.
<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 of $1,400,000 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 and substantially all of our stockholders,
optionholders and warrantholders have agreed not to
- offer, sell, pledge or otherwise dispose of, directly or indirectly,
- file with the Securities and Exchange Commission a registration statement
under the Securities Act for, or
- publicly disclose the intention to make any offer, sale, pledge,
disposition or filing relating to,
73
<PAGE>
any additional shares of our common stock or securities convertible into or
exchangeable or exercisable for our common stock, without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days after
the date of this prospectus.
In our case we are permitted to issue securities in connection with:
- the exercise of employee stock options granted under our 1996 Stock Option
Plan;
- the grant and exercise of options under our 1999 Equity Incentive Plan;
and
- issuances under our 1999 Employee Stock Purchase Plan.
The underwriters have reserved for sale, at the initial public offering
price, up to 230,000 shares of the common stock for employees, directors and
their friends and family members who have 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. These shares will not be subject to the lock-up agreement.
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.
Our common stock has been approved for listing 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.
74
<PAGE>
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. If the purchase of these shares is deemed by the National
Association of Securities Dealers, Inc., to constitute underwriting compensation
in connection with this offering, these shares cannot be sold, transferred,
assigned, pledged or hypothecated by any person for a period of one year after
the effective date of this prospectus, except to officers or partners of the
underwriters or members of the selling group and their officers or partners.
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.
A prospectus in electronic format will be made available on the Web sites
maintained by one or more of the underwriters participating in this offering.
The underwriters may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the representatives of the underwriters to underwriters that may
make Internet distributions on the same basis as other allocations.
The public offering price, underwriting discount and other terms set forth
in the purchase agreement will be approved by the pricing committee of our board
of directors prior to the sale of the common stock offered.
75
<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.
76
<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 consolidated financial statements for ImproveNet, Inc. as of
December 31, 1998 and 1999 and for each of the three years in the period ended
December 31, 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.
77
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
IMPROVENET, INC.
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
and Mandatorily Redeemable Convertible Preferred Stock.... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
CONTRACTOR REFERRAL SERVICE, LLC
Report of Independent Accountants........................... F-29
Balance Sheets.............................................. F-30
Statements of Operations.................................... F-31
Statements of Members' Deficit.............................. F-32
Statements of Cash Flows.................................... F-33
Notes to Financial Statements............................... F-34
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma Combined Financial Information.......... F-37
Unaudited Pro Forma Combined Statement of Operations for the
year ended December 31, 1999.............................. F-38
Notes to Unaudited Pro Forma Combined Statement of
Operations................................................ F-39
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
ImproveNet, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated 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. and
its wholly-owned subsidiary at December 31, 1998 and 1999 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These consolidated financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States 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
January 17, 2000
F-2
<PAGE>
IMPROVENET, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
AS OF DECEMBER 31, EQUITY (DEFICIT)
---------------------------- DECEMBER 31,
1998 1999 1999
------------ ------------- ----------------
(SEE NOTE 12)
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,676 $ 45,291
Accounts receivable, net of allowance for doubtful
accounts of $8 and $148 in 1998 and 1999,
respectively............................................ 33 1,023
Prepaid expenses and other current assets................. 3 1,141
------- --------
Total current assets.................................... 1,712 47,455
Property and equipment, net................................. 281 1,970
Other assets................................................ 151 2,117
------- --------
Total assets............................................ $ 2,144 $ 51,542
======= ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities.................. $ 699 $ 7,472
Deferred revenue.......................................... -- 92
Lines of credit........................................... 316 --
------- --------
Total current liabilities............................... 1,015 7,564
Lines of credit, net of current portion..................... 19 --
Other long-term liabilities................................. -- 116
------- --------
Total liabilities....................................... 1,034 7,680
------- --------
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: 3,139,526 shares in 1998, and none
in 1999................................................. 6,824 --
------- --------
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible preferred stock, $0.001 par value:
Authorized: 12,482,935 shares
Issued and outstanding: none in 1998, 11,382,694 shares in
1999 and none pro forma (unaudited) (liquidation value:
$83,057)................................................ -- 12
Common stock, $0.001 par value:
Authorized: 34,000,000 shares
Issued and outstanding: 1,406,289 shares in 1998,
2,336,616 shares in 1999 and 13,719,310 shares pro forma
(unaudited)............................................. 1 2 $ 14
Additional paid-in capital.................................. 734 108,656 108,656
Notes receivable from stockholders.......................... (4) (633) (633)
Unearned stock-based compensation........................... (729) (22,208) (22,208)
Accumulated deficit......................................... (5,716) (41,967) (41,967)
------- -------- ---------
Total stockholders' equity (deficit).................... (5,714) 43,862 $ 43,862
------- -------- =========
Total liabilities, mandatorily redeemable convertible
preferred stock and stockholders' equity (deficit).... $ 2,144 $ 51,542
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
IMPROVENET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Revenues:
Service revenues.......................................... $ 60 $ 238 $ 1,139
Advertising revenues...................................... -- 20 926
-------- -------- ---------
Total revenues.......................................... 60 258 2,065
Cost of revenues:
Cost of service revenues (excludes stock-based
compensation of $0, $55 and $610)....................... 59 767 1,984
Cost of advertising revenues (excludes stock-based
compensation of $0, $37 and $189)....................... -- 49 567
-------- -------- ---------
Total cost of revenues.................................. 59 816 2,551
-------- -------- ---------
Gross profit (loss)......................................... 1 (558) (486)
Operating expenses:
Sales and marketing (excludes stock-based compensation of
$0, $155 and $2,608).................................... 414 1,669 25,784
Product development (excludes stock-based compensation of
$0, $14 and $88)........................................ 288 504 665
General and administrative (excludes stock-based
compensation of $11, $65 and $2,124).................... 527 1,142 4,214
Stock-based compensation.................................. 11 326 5,619
-------- -------- ---------
Total operating expenses................................ 1,240 3,641 36,282
-------- -------- ---------
Loss from operations........................................ (1,239) (4,199) (36,768)
Interest and other income (expense), net.................... (3) 84 517
-------- -------- ---------
Net loss.................................................... (1,242) (4,115) (36,251)
Accretion of mandatorily redeemable convertible preferred
stock..................................................... (86) (717) (239)
-------- -------- ---------
Net loss attributable to common stockholders.............. $ (1,328) $ (4,832) $ (36,490)
======== ======== =========
Basic and diluted net loss per common share................. $ (1.08) $ (3.49) $ (23.85)
======== ======== =========
Shares used in calculating basic and diluted net loss per
common share.............................................. 1,228 1,383 1,530
======== ======== =========
Pro forma basic and diluted net loss per common share (Note
12) (unaudited)........................................... $ (4.40)
=========
Shares used in calculating pro forma basic and diluted net
loss per common share (unaudited)......................... 8,234
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
IMPROVENET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AND MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
(IN THOUSANDS)
<TABLE>
MANDATORILY
REDEEMABLE
CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED
STOCK STOCK COMMON STOCK
------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1997................................... -- $ -- -- $-- 1,000 $ 1
Issuance of common stock in exchange for services
rendered.................................................. -- -- -- -- 112 --
Issuance of common stock subscribed......................... -- -- -- -- 128 --
Issuance of common stock upon conversion of bridge notes
payable................................................... -- -- -- -- 134 --
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 -- -- -- --
Net loss.................................................... -- -- -- -- -- --
------ ------- ------ --- ----- ---
BALANCES, DECEMBER 31, 1997................................. 1,205 1,252 -- -- 1,379 1
Exercise of common stock options............................ -- -- -- -- 27 --
Issuance of Series B mandatorily redeemable convertible
preferred stock, net of issuance costs of $20............. 1,935 4,855 -- -- -- --
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..... -- -- -- -- -- --
Amortization of stock-based compensation for service
providers................................................. -- -- -- -- -- --
Unearned employee stock-based compensation.................. -- -- -- -- -- --
Amortization of unearned employee stock-based
compensation.............................................. -- -- -- -- -- --
Net loss.................................................... -- -- -- -- -- --
------ ------- ------ --- ----- ---
BALANCES, DECEMBER 31, 1998................................. 3,140 6,824 -- -- 1,406 1
Exercise of common stock options............................ -- -- -- -- 706 1
Issuance of common stock in exchange for notes receivable... -- -- -- -- 225 --
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..................................................... (1,205) (1,496) 1,205 1 -- --
Conversion of Series B mandatorily redeemable convertible
preferred stock into Series B convertible preferred
stock..................................................... (1,935) (5,567) 1,935 2 -- --
Issuance of Series C convertible preferred stock, net of
issuance costs of $1,049.................................. -- -- 3,538 4 -- --
Issuance of Series D convertible preferred stock, net of
issuance costs of $57..................................... -- -- 2,101 2 -- --
Issuance of Series E convertible preferred stock, net of
issuance costs of $68..................................... -- -- 2,597 3 -- --
Issuance of Series C convertible preferred stock for
services.................................................. -- -- 5 -- -- --
Payment received in settlement of stockholder notes
receivable................................................ -- -- -- -- -- --
Issuance of Series D convertible preferred stock warrant to
strategic stockholders.................................... -- -- -- -- -- --
Issuance of common stock warrants to strategic
stockholders.............................................. -- -- -- -- -- --
Amortization of stock-based compensation from warrants
granted to strategic shareholders......................... -- -- -- -- -- --
Unearned employee stock-based compensation.................. -- -- -- -- -- --
Amortization of unearned employee stock-based
compensation.............................................. -- -- -- -- -- --
Net loss.................................................... -- -- -- -- -- --
------ ------- ------ --- ----- ---
BALANCES, DECEMBER 31, 1999................................. -- $ -- 11,383 $12 2,337 $ 2
====== ======= ====== === ===== ===
<S> <C> <C> <C> <C> <C>
NOTES
ADDITIONAL RECEIVABLE UNEARNED
PAID-IN FROM STOCK-BASED ACCUMULATED
CAPITAL STOCKHOLDERS COMPENSATION DEFICIT TOTAL
--------- ----------- ------------ ----------- --------
BALANCES, JANUARY 1, 1997................................... $ 402 $ (4) $ -- $ (359) $ 40
Issuance of common stock in exchange for services
rendered.................................................. 11 -- -- -- 11
Issuance of common stock subscribed......................... -- -- -- -- --
Issuance of common stock upon conversion of bridge notes
payable................................................... 67 -- -- -- 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) -- -- -- (86)
Net loss.................................................... -- -- -- (1,242) (1,242)
-------- ----- -------- -------- -------
BALANCES, DECEMBER 31, 1997................................. 394 (4) -- (1,601) (1,210)
Exercise of common stock options............................ 2 -- -- -- 2
Issuance of Series B mandatorily redeemable convertible
preferred stock, net of issuance costs of $20............. -- -- -- -- --
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 -- (120) -- --
Amortization of stock-based compensation for service
providers................................................. -- -- 100 -- 100
Unearned employee stock-based compensation.................. 935 -- (935) -- --
Amortization of unearned employee stock-based
compensation.............................................. -- -- 226 -- 226
Net loss.................................................... -- -- -- (4,115) (4,115)
-------- ----- -------- -------- -------
BALANCES, DECEMBER 31, 1998................................. 734 (4) (729) (5,716) (5,714)
Exercise of common stock options............................ 148 -- -- -- 149
Issuance of common stock in exchange for notes receivable... 633 (633) -- -- --
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..................................................... 1,495 -- -- -- 1,496
Conversion of Series B mandatorily redeemable convertible
preferred stock into Series B convertible preferred
stock..................................................... 5,565 -- -- -- 5,567
Issuance of Series C convertible preferred stock, net of
issuance costs of $1,049.................................. 22,046 -- -- -- 22,050
Issuance of Series D convertible preferred stock, net of
issuance costs of $57..................................... 16,118 -- -- -- 16,120
Issuance of Series E convertible preferred stock, net of
issuance costs of $68..................................... 34,991 -- -- -- 34,994
Issuance of Series C convertible preferred stock for
services.................................................. 37 -- -- -- 37
Payment received in settlement of stockholder notes
receivable................................................ -- 4 -- -- 4
Issuance of Series D convertible preferred stock warrant to
strategic stockholders.................................... 2,507 -- (2,507) -- --
Issuance of common stock warrants to strategic
stockholders.............................................. 11,299 -- (11,299) -- --
Amortization of stock-based compensation from warrants
granted to strategic shareholders......................... -- -- 517 -- 517
Unearned employee stock-based compensation.................. 13,320 -- (13,320) -- --
Amortization of unearned employee stock-based
compensation.............................................. -- -- 5,130 -- 5,130
Net loss.................................................... -- -- -- (36,251) (36,251)
-------- ----- -------- -------- -------
BALANCES, DECEMBER 31, 1999................................. $108,656 $(633) $(22,208) $(41,967) $43,862
======== ===== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
IMPROVENET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(1,242) $(4,115) $(36,251)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 20 52 204
Allowance for doubtful accounts......................... 3 5 140
Amortization of stock-based compensation................ 11 326 5,684
Other................................................... 2 3 --
Changes in operating assets and liabilities, net of
acquired working capital deficit:
Accounts receivable..................................... (8) (33) (1,064)
Prepaid expenses and other current assets............... (1) (94) (1,019)
Other assets............................................ (5) -- (314)
Accounts payable and accrued liabilities................ 49 618 6,663
Deferred revenue........................................ -- -- 92
Other long-term liabilities............................. -- -- 16
------- ------- --------
Net cash used in operating activities................. (1,171) (3,238) (25,849)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (85) (224) (1,828)
Increase in restricted cash............................... (49) (400)
Issuance of note receivable to related party.............. -- -- (500)
Payments for acquisitions................................. -- -- (792)
------- ------- --------
Net cash used in investing activities................. (85) (273) (3,520)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock................ -- 2 149
Proceeds from the issuance of preferred stock, net........ 1,166 4,705 73,166
Repayment of stockholder notes receivable................. -- -- 4
Proceeds from the issuance of convertible bridge notes.... 65 150 --
Borrowings under lines of credit.......................... 350 298 --
Principal payments under lines of credit.................. -- (313) (335)
------- ------- --------
Net cash provided by financing activities............. 1,581 4,842 72,984
------- ------- --------
Net increase in cash and cash equivalents................... 325 1,331 43,615
Cash and cash equivalents, beginning of period.............. 20 345 1,676
------- ------- --------
Cash and cash equivalents, end of period.................... $ 345 $ 1,676 $ 45,291
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED 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
September 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 information 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. The Company also sells Web site advertising and
other marketing services.
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 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.
BASIS OF PRESENTATION
The financial statements include the accounts of the Company and its
wholly-owned subsidiary from the date of acquisition. All significant
intercompany balances and transactions have been eliminated.
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.
F-7
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESTRICTED CASH
At December 31, 1998 and 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 standby letters of credit issued to the 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 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.
INTANGIBLE ASSETS
Intangible assets include goodwill and non-compete agreements, which are
amortized from the date of acquisition using the straight-line method over the
expected period to be benefited, estimated at three to five years. At
December 31, 1999, the total value assigned to goodwill and non-compete
agreements of $817,000 was offset by accumulated amortization of $65,000. 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
F-8
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
REVENUE RECOGNITION
Revenues are derived from two sources: service provider fees and advertising
from the Company's Web sites.
SERVICE REVENUES
Service provider revenues include lead fees, win fees and enrollment 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 the
Company that a job has been sold and the service provider becomes obligated to
pay such fee. Enrollment fees from service providers are recognized as revenue
ratably over the expected period they participate in our contractor matching
service, which is initially estimated to be between one and two years. Payments
of enrollment fees received in advance of providing services are deferred until
the period the services are provided. This deferred revenue is included in
current and long-term liabilities. The Company establishes a refund reserve and
allowance for doubtful accounts at the time of revenue recognition based on the
Company's historical experience.
ADVERTISING REVENUES
Beginning in December 1998, the Company also derived advertising revenues
from the sale of banner, SmartLeads and other Web site advertisements. For 1999,
advertising revenues represented 45% of total revenue.
Currently advertising revenues are comprised of:
- Advertising paid for in cash; and
- Advertising paid for by way of barter.
CASH ADVERTISING
Cash 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. Cash advertising revenues from banner, button and other
Web site advertisements 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. SmartLeads revenues are also paid for in
cash and are recognized when the SmartLeads have been delivered to the customer.
Cash advertising is recognized when the Company has delivered the advertising,
evidence of an agreement is in place and fees are fixed, determinable and
collectible. In 1999, cash advertising totaled $746,000 and accounted for
approximately 36% of total revenues.
F-9
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BARTER ADVERTISING
Barter advertising comes from two distinct contractual sources: short-term
barter advertising similar in nature to the Company's cash advertising contracts
and multi-year commercial contracts. Barter advertising is recognized in
accordance with EITF No. 99-17, "Accounting for Advertising Barter
Transactions", which was adopted by the Company in 1999. Under EITF No. 99-17,
the Company records advertising transactions at fair value only when the Company
has an established historical practice of selling similar advertising for cash.
The characteristics of the advertising that must be similar include the duration
of the display of the advertising, the prominence and positioning of the
advertising, the intended audience, the timing of the advertising and its
circulation.
SHORT-TERM BARTER ADVERTISING
Short-term barter advertising results from the exchange by the Company of
advertising space on the Company's Web site for reciprocal advertising space on
Web sites of third parties. Advertising revenues and sales and marketing
expenses arising from these transactions are recorded at fair value as the
Company has an established historical practice of receiving cash for similar
short-term advertising. The Company recorded no short-term barter advertising
revenue in 1997 and 1998. In 1999, the Company began to engage in short-term
barter advertising and recorded revenues of $180,000 in the year. Short-term
barter advertising represented approximately 9% of total revenues for 1999.
Sales and marketing expenses arising from these barter transactions are
recognized when the Company's advertisement's are delivered on the reciprocal
Web site which is typically the same period in which advertisements are
delivered on the Company's Web site.
MULTI-YEAR COMMERCIAL CONTRACTS
In September 1999 and during the fourth quarter 1999, the Company entered
into multi-year commercial contracts some of which are with related parties.
These commercial contracts generally provide for a fixed annual fee, an
advertising package that includes a mix of buttons, banners, SmartLeads and
other marketing services, plus a continuous presence, as defined, on the
Company's Web sites. These commercial contracts are for periods ranging between
3 and 12 years, including renewal options. These commercial contracts also
include cooperative marketing arrangements under which the Company is obligated
to fund co-branded advertisements on television and in the print media, with or
on behalf of the commercial party. In the commercial contracts to date, the
Company is obligated to spend 50% to 100% of the fees the Company expects to
receive. In return, the Company expects to receive significant marketing
benefits including better advertising rates, stronger brand recognition, and
access to customer databases, direct mail inserts and marketing resources.
As the Company does not have an established historical practice of selling
advertising for cash for similar multi-year commercial contracts, the Company
has not assigned any value to the exchange of services or barter element of
these transactions and accordingly, the Company has not recorded either revenue
or sales and marketing expense for the barter element. However, some of these
multi-year commercial contracts do generate an overall net cash component to the
Company and in these cases the Company has recorded revenue based on the cash
received or receivable under the contract, net of the obligation to pay the
commercial party for the cooperative advertisements and other marketing
services. These revenues are recognized over the term of the commercial contract
once advertising has
F-10
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
been delivered to the commercial party and collection of the resulting net
receivable is deemed probable.
Furthermore, in connection with certain of these multi-year commercial
contracts, the Company also issued warrants to purchase shares of the Company's
common stock to the commercial parties. These warrants have been valued by the
Company using the Black Scholes option pricing model. As the fair value of these
warrants represent an additional rebate on the revenue otherwise recorded under
the contracts, the amortization of the warrants is further netted against this
revenue over the term of the respective commercial contract. To the extent that
there is insufficient revenues, the remaining amortization of warrant
stock-based compensation is expensed and characterized as sales and marketing
expense. In 1999, the Company has further reduced the net cash component of
revenue by $65,000 for the warrant stock-based compensation amortization. As a
result, the Company has not recognized revenue of $408,000 for the barter
element amounts of these commercial contracts or for the net cash component of
$65,000, which has been reduced by the the warrant amortization amount for the
year ended December 31, 1999.
Total revenues may be analyzed as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Service revenues............................................ $60 $238 $1,139
Amounts invoiced under advertising and multi-year commercial
contracts................................................. -- 20 1,399
--- ---- ------
60 258 2,538
Amounts invoiced and accrued under multi-year commercial
contracts with related parties............................ -- -- (408)
Amortization of warrant stock-based compensation............ -- -- (65)
--- ---- ------
Total revenues.............................................. $60 $258 $2,065
=== ==== ======
</TABLE>
Total revenues are reported in the statements of operations net of the
amounts invoiced and accrued under the multi-year commercial contracts with
related parties as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Service revenues............................................ $60 $238 $1,139
Advertising revenues........................................ -- 20 926
--- ---- ------
Total revenues.............................................. $60 $258 $2,065
=== ==== ======
</TABLE>
PRODUCT DEVELOPMENT COSTS
Product development costs incurred by the Company are expensed as incurred.
Costs incurred in the design, creation and maintenance of content, graphics and
user interface of the Company's Web sites are expensed as incurred in accordance
with SOP 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." Costs incurred in the development of application and
infrastructure of the Web sites are capitalized and amortized over the useful
life of the web sites. In 1999, the costs that could be capitalized were
insignificant.
F-11
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1999
were $28,000, $761,000, and $15,887,000, respectively. Of these total expenses,
barter advertising costs represented $180,000 for the year ended December 31,
1999. There were no barter advertising expenses for 1997 and 1998.
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 value of the Company's stock and the
exercise price of the option. Stock, stock options and warrants for stock issued
to non-employees have 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."
The Company presents stock-based compensation expense as a separate line
item in its consolidated statements of operations for the three years ended
December 31, 1999 except to the extent that it represents a rebate of revenue
and is applied against advertising revenue.
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, cash equivalents and restricted cash are held with four
banks in the United States, which management believes to be creditworthy.
Deposits with these banks may exceed the amount of insurance provided on such
deposits.
The Company's customers consist of homeowners, service providers and
suppliers of home improvement products and related services within the United
States. The Company performs ongoing credit evaluations of its customers'
financial condition. The Company does not require collateral. Two advertising
customers accounted for 24% and 18% of aggregate accounts receivable as of
December 31, 1999. Revenues from these multi-year commercial contract customers
represented nil% and 2%, respectively, of total revenues in 1999. No revenues
from these customers were recorded in 1997 or 1998. 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
consolidated statements of operations.
F-12
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 consolidated statements of operations.
COMPREHENSIVE INCOME
The Company follows SFAS No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 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
consolidated statements 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 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>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Numerator
Net loss attributable to common stockholders.............. $(1,328) $(4,832) $(36,490)
======= ======= ========
Denominator
Weighted average common shares............................ 1,233 1,383 1,560
Weighted average unvested common shares subject to
repurchase.............................................. (5) -- (30)
------- ------- --------
Denominator for basic and diluted calculation............. 1,228 1,383 1,530
======= ======= ========
Basic and diluted net loss per common share............... $ (1.08) $ (3.49) $ (23.85)
======= ======= ========
</TABLE>
F-13
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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>
YEARS ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Weighted average effect of common stock equivalents:
Series A convertible preferred stock...................... 609 1,205 1,206
Series B convertible preferred stock...................... -- 1,536 1,935
Series C convertible preferred stock...................... -- -- 2,689
Series D convertible preferred stock...................... -- -- 645
Series E convertible preferred stock...................... -- -- 229
Options to purchase common stock.......................... 167 429 1,273
Warrants to purchase convertible preferred and common
stock................................................... 51 122 372
Common stock subject to repurchase........................ 5 -- 30
--- ----- -----
832 3,292 8,379
=== ===== =====
</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 - ACQUISITIONS
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 consolidated statement of operations only from the
date of acquisition. At December 31, 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-14
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - ACQUISITIONS (CONTINUED)
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. The total acquisition cost was $249,000. The acquisition was
accounted for using the purchase method. Accordingly, the results of operations
for The J.L. Price Corporation have been included in the Company's consolidated
statement of operations only from the date of acquisition.
The purchase price was allocated to the acquired assets and liabilities
based on fair value as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current liabilities......................................... $ (107)
Non-competition agreement................................... 100
Goodwill.................................................... 256
-------
Total..................................................... $ 249
=======
</TABLE>
The following unaudited pro forma consolidated financial information
presents the combined results of operations of the Company, CRS, and The J.L.
Price Corporation as if the acquisitions had occurred on January 1, 1998, after
giving effect to certain adjustments, principally amortization of goodwill and
non-compete agreements. This unaudited pro forma consolidated financial
information does not necessarily reflect the results of operations that would
have occurred had the acquisitions been completed on January 1, 1998 (in
thousands, except per share amounts).
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1998 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $ 687 $ 2,451
Net loss attributable to common stockholders................ (5,211) (36,850)
Basic and diluted net loss per common share................. (3.77) (24.08)
</TABLE>
NOTE 4 - BALANCE SHEET COMPONENTS
PREPAID EXPENSES AND OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
----------- --------
(IN THOUSANDS)
<S> <C> <C>
Prepaid advertising expenses................................ $ -- $ 595
Prepaid expenses and other current assets................... 3 546
----------- ------
$ 3 $1,141
=========== ======
</TABLE>
Prepaid advertising expenses consist of payments made in advance for online
and offline advertising for services to be delivered in the following year.
F-15
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - BALANCE SHEET COMPONENTS (CONTINUED)
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment.......................................... $188 $1,060
Software.................................................... 15 30
Furniture, fixtures and other equipment..................... 47 726
Leasehold improvements...................................... 108 370
---- ------
358 2,186
Less: accumulated depreciation and amortization............. (77) (216)
---- ------
$281 $1,970
==== ======
</TABLE>
Property and equipment depreciation and amortization expenses for each of
the years in the three year period ended December 31, 1999 were $20,000, $52,000
and $139,000, respectively.
OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Goodwill, net of amortization of nil and $38................ $ -- $ 629
Non-competition agreements, net of amortization of nil and
$27....................................................... -- 123
Restricted cash............................................. 49 449
Other assets................................................ 102 916
------ ------
$ 151 $2,117
====== ======
</TABLE>
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable............................................ $478 $4,139
Accrued advertising expense................................. 130 1,215
Accrued payroll costs....................................... 27 1,407
Other....................................................... 64 711
---- ------
$699 $7,472
==== ======
</TABLE>
Accrued advertising expenses consist of $807,000 in online advertising
services which have been delivered prior to year end and accrued advertising and
co-marketing expenses of $408,000 arising from the multi-year commercial
contracts.
F-16
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - LINES OF CREDIT
In 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. In
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 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 December 31, 1999
are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
2000........................................................ 723
2001........................................................ 724
2002........................................................ 667
2003........................................................ 673
2004........................................................ 653
Thereafter.................................................. 994
------
$4,434
======
</TABLE>
Rent expense charged to operations for each of the years in the three-year
period ended December 31, 1999 was $78,000, $80,000 and $383,000, respectively.
SALES AND 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.
F-17
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
In September 1999, the Company began entering into advertising package
agreements under which the Company will exchange advertising services for
advertising services with investors in Series D and Series E convertible
preferred stock. The minimum future payments under sales and marketing and
multi-year commercial contracts are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year Ending December 31,
2000........................................................ 7,710
2001........................................................ 6,478
2002........................................................ 5,080
2003........................................................ 356
Thereafter.................................................. 352
-------
$19,976
=======
</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.
NOTE 8 - CONVERTIBLE PREFERRED STOCK
Under the Company's Certificate of Incorporation, as amended in
November 1999, the Company is authorized to issue 12,482,935 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, 2,500,000
shares have been designated as Series D preferred stock and 3,000,000 shares
have been designated as Series E preferred
F-18
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - CONVERTIBLE PREFERRED STOCK (CONTINUED)
stock. From inception through December 31, 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 DECEMBER 31,
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 $ 1,397
Series B.............. $ 2.52 4,855 712 5,567 1,981,535 1,934,526 2 5,413
Series C.............. $ 6.53 22,087 -- 22,087 3,700,000 3,543,190 4 24,492
Series D.............. $ 7.70 16,120 -- 16,120 2,500,000 2,100,843 2 16,462
Series E.............. $13.50 34,994 -- 34,994 3,000,000 2,597,135 3 35,293
------- ------ ------- ---------- ---------- --- -------
Total................. $79,222 $1,042 $80,264 12,482,935 11,382,694 $12 $83,057
======= ====== ======= ========== ========== === =======
</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 December 31, 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, Series D and Series E preferred stock are $1.00, $2.52, $6.53, $7.70
and $13.50, respectively, and are subject to adjustment in accordance with
anti-dilution provisions contained in the Company's
F-19
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - CONVERTIBLE PREFERRED STOCK (CONTINUED)
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, D and E 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 34,000,000 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 December 31, 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
Conversion of Series E convertible preferred stock.......... 2,597,135
Exercise of options......................................... 3,037,423
Warrants.................................................... 1,787,172
-----------
16,207,289
===========
</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 $20,000,000, subject to certain limitations.
The Company had not declared or paid cash dividends as of December 31, 1999.
In December 1999, certain employees exercised stock options to purchase
650,381 shares of the Company's common stock at the weighted average exercise
price of $0.99. Under the terms of the options, the Company has the right to
repurchase the unvested shares of common stock at the original issue price. In
the event the employees terminate their employment with the Company, the
repurchase rights lapse 90 days after the date of termination. At December 31,
1999, 630,416 shares of common stock were subject to repurchase rights. As
consideration for the exercise of these options, the Company accepted promissory
notes in the amount of $633,000 from certain officers and employees.
F-20
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - COMMON STOCK (CONTINUED)
These non-recourse promissory notes accrue interest at a rate of 6.2% per annum,
and are payable in full in 2002.
STOCK PLANS
1996 STOCK OPTION PLAN
Under the Company's 1996 Stock Option Plan, as amended, the Company may
issue incentive stock options or non-statutory stock options to purchase up to
2,700,000 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.
1999 EQUITY INCENTIVE PLAN
The Company's Board of Directors adopted the 1999 Equity 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 Board of Directors
implemented a program of automatic option grants to each non-employee director
such that each non-employee director will receive options to purchase 20,000
shares of common stock upon commencement of service as a director, which will
vest monthly over three years and 5,000 shares annually thereafter, which will
vest monthly over twelve months.
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 will be effective upon the effective
date of the Company's initial public offering ("IPO"). 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 valued at the lesser of $25,000 or 15% of their
compensation. The purchase price per share will be 85% of the common stock fair
value at the lower of certain plan defined dates.
F-21
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - COMMON STOCK (CONTINUED)
Activity under the 1996 stock option plan and the 1999 stock incentive plan
("the Plans") 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>
Balances, January 1, 1997..... 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.................. 3,000,000
Options granted............... (2,377,302) 2,377,302 $0.25-$12.00 7,698 $3.24
Options exercised............. -- (930,327) $0.10-$12.00 (782) $0.84
Options canceled.............. 352,876 (352,876) $0.25-$4.00 (161) $0.46
---------- --------- ------
Balances, December 31, 1999... 1,179,356 1,858,067 $0.10-$12.00 $6,916 $3.72
========== ========= ======
</TABLE>
The following table summarizes information with respect to stock options
outstanding at December 31, 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 28,980 7.62 $ 0.10 27,105 $ 0.10
$ 0.25 344,053 9.06 $ 0.25 280,924 $ 0.25
$ 1.00 1,500 6.75 $ 1.00 1,500 $ 1.00
$ 1.50 534,750 9.52 $ 1.50 151,905 $ 1.50
$ 4.00 539,200 9.77 $ 4.00 167,000 $ 4.00
$ 7.50 233,334 9.88 $ 7.50 123,334 $ 7.50
$ 12.00 176,250 9.96 $12.00 - $12.00
--------- ---- ------ ------- ------
$0.10-12.00 1,858,067 9.56 $ 3.72 751,768 $ 2.52
========= ==== ====== ======= ======
</TABLE>
F-22
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - COMMON STOCK (CONTINUED)
As of December 31, 1997 and 1998, the number of options exercisable was
168,181 and 248,386, respectively, at weighted average exercise prices of $0.14
and $0.17, respectively.
In December 1999, we amended the terms of our stock options plans to permit
early exercise of the options. Unvested options exercised pursuant to the
foregoing amendment are subject to repurchase until they have vested based on
the original vesting schedule. At December 31, 1999, options to purchase
751,768 shares were outstanding and exercisable, of which 641,541 shares would
be subject to repurchase if the options were exercised.
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>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
Weighted average fair values................. $ 0.21 $ 2.06 $ 7.06
Assumptions:
Risk-free interest rates................... 6.12% 4.30-5.59% 4.30-5.99%
Expected lives............................. 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>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss attributable to common stockholders............. $(1,328) $(4,832) $(36,490)
Net loss attributable to common stockholders--pro
forma.................................................. $(1,328) $(4,837) $(36,826)
Basic and diluted net loss per common share.............. $ (1.08) $ (3.49) $ (23.85)
Basic and diluted net loss per common share--pro forma... $ (1.08) $ (3.50) $ (24.07)
</TABLE>
The effects of applying SFAS No. 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 $13,835,000, 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 years ended
December 31, 1998 and 1999 totaled approximately $326,000 and $4,968,000,
respectively.
F-23
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - COMMON STOCK (CONTINUED)
The total unearned stock-based compensation recorded to date will be
amortized as follows: $4,970,000 in 2000; $2,418,000 in 2001; $1,028,000 in
2002; and $162,000 in 2003.
In connection with the acquisition of the J.L. Price Corporation, the
Company will issue 48,592 shares of common stock, of which 24,296 shares will be
issued on November 1, 2000 and 24,296 shares will be issued on November 1, 2001,
subject to the continued employment of the selling stockholder. The Company
recorded $540,000 in unearned stock-based compensation. Amortization of this
stock-based compensation in the year ended December 31, 1999 totaled $199,000.
The remaining balance will be amortized as follows: $312,000 in 2000, and
$29,000 in 2001.
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.
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 connection with the series E convertible stock financing and the
advertising purchase agreements in November and December 1999, the Company
issued warrants to the 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.
In 1999, warrants to purchase 2,000 shares of Series A convertible preferred
stock were exercised for cash proceeds of $2,000.
F-24
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - WARRANTS (CONTINUED)
The following summarizes the warrants outstanding at December 31, 1999:
<TABLE>
<CAPTION>
NUMBER
OF EXERCISE TERM
SHARES PRICE (YEARS) EXPIRATION DATE
-------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Series A convertible preferred stock......... 94,400 $ 1.00 4 June 30, 2001
Series B convertible preferred stock......... 47,009 $ 2.52 6 March 28, 2004
Series C convertible preferred stock......... 47,167 $ 6.53 5 March 28, 2004
Series D convertible preferred stock......... 326,000 $ 0.01 3 September 9, 2002
Common stock................................. 10,000 $ 1.00 10 June 16, 2007
Common stock................................. 245,000 $ 0.01 5 November 23, 2004
Common stock................................. 100,000 $ 0.01 5 December 6, 2004
Common stock................................. 583,333 $13.50 5 December 6, 2004
Common stock................................. 75,000 $ 0.01 5 December 12, 2004
Common stock................................. 259,263 $13.50 5 December 12, 2004
</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 three years ended December 31, 1999 to be $48,000, $80,000 and
$13,806,000, respectively. The Company believes that the fair value of the
warrants issued is a more reliable measure than the services received because it
has recent issuances of its preferred stock to third party investors to indicate
fair value. The fair value of the warrants 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
issued in 1999 is simultaneously recorded in additional paid-in capital and also
charged to stock issue costs. The fair value of warrants for series D
convertible preferred stock and for common stock issued in 1999 is approximately
$2.5 million and approximately $11.3 million, respectively.
The amortization of warrant stock-based compensation was nil, nil and
$517,000 for the years ended December 31, 1997, 1998 and 1999, respectively. The
remaining unearned stock-based compensation from preferred and common warrants
granted in 1999 is being charged over the periods of the related co-marketing
agreements, which expire between 2001 and 2011 as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year Ending December 31,
2000........................................................ $ 3,990
2001........................................................ 3,990
2002........................................................ 3,717
2003........................................................ 334
2004........................................................ 223
Thereafter.................................................. 1,035
-------
$13,289
=======
</TABLE>
F-25
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - WARRANTS (CONTINUED)
The fair value of each warrant has been estimated on the date of issuance
using the term of the warrant and the following assumptions:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate.................................. 6.12% 5.36% 5.87%
Expected dividends....................................... -- -- --
Volatility............................................... 70% 70% 70%
</TABLE>
NOTE 11 - RELATED PARTY TRANSACTIONS
During 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 $78,000 and $23,000 for the years ended December 31, 1997 and 1998,
respectively.
In May 1999, the Company entered into an employment related 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 December 31, 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.
Certain strategic investors who participated in the Company's series D and E
convertible preferred stock offerings are also advertising customers of the
Company. In connection with purchase of the convertible preferred stock and the
consummation of the advertising package agreements, the Company issued warrants
to these customers to purchase 326,000 shares of convertible preferred and
1,262,596 shares of common stock.
Six of these strategic stockholders were advertising customers of the
Company during the year ended December 31, 1999. The Company also purchased
services, primarily advertising, from three of these strategic stockholders
during 1999 under multi-year commercial contracts.
These commercial contracts also include cooperative marketing arrangements
under which the Company is obligated to fund co-branded advertisements on
television and in the print media, with or on behalf of the related commercial
party. In the commercial contracts to date, the Company has committed to spend
between 50% to 100% of the fees it expects to receive under these commercial
contracts with the related commercial party. These commitments are disclosed in
Note 6 to Notes to the Consolidated Financial Statements.
The accounts payable and accrued liabilities balances due to related parties
reflects the advertising and co-marketing services provided by related parties
under the multi-year commercial contracts. These balances are settled by the
Company on a gross basis without set-off.
F-26
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - RELATED PARTY TRANSACTIONS (CONTINUED)
The Company recognized the following amounts in advertising revenues, sales
and marketing expense, accounts receivable and accounts payable and accrued
liabilities (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1999
------------------------------------- ---------------------------------
SALES AND ACCOUNTS ACCOUNTS PAYABLE AND
REVENUES MARKETING EXPENSE RECEIVABLE ACCRUED LIABILITIES
----------------- ----------------- ---------- --------------------
<S> <C> <C> <C> <C>
General Electric and affiliates.......... $ -- $217 $250 $ 28
Dow Chemical............................. -- -- 35 18
Masco.................................... 168 12 71 --
Owens Corning............................ 48 -- 185 141
Armstrong................................ 50 -- 11 --
Microsoft................................ 20 991 -- 597
</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 nil and $2,000 in the years ended December 31, 1997 and 1998,
respectively, for advertising services purchased from Microsoft and its
affiliate.
NOTE 12 - UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA
STOCKHOLDERS' EQUITY
Upon the closing of the Company's IPO, 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
consolidated balance sheet, assuming the conversion had occurred as of
December 31, 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 IPO (using the as-if-converted method) for 1999.
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>
YEAR ENDED
DECEMBER 31,
1999
-------------
(UNAUDITED)
<S> <C>
Net loss.................................................... $(36,251)
========
Shares used in computing basic and diluted net loss per
common
share..................................................... 1,530
Adjusted to reflect the effect of the assumed conversion of
convertible preferred stock from
the date of issuance:
Series A convertible preferred stock...................... 1,206
Series B convertible preferred stock...................... 1,935
Series C convertible preferred stock...................... 2,689
Series D convertible preferred stock...................... 645
Series E convertible preferred stock...................... 229
--------
Weighted average shares used in computing pro forma basic
and diluted net loss per common share..................... 8,234
========
Pro forma basic and diluted net loss per common share....... $ (4.40)
========
</TABLE>
F-27
<PAGE>
IMPROVENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - INCOME TAXES
At December 31, 1999, the Company had net operating loss carryforwards
available to offset future regular and alternative minimum taxable income of
approximately $29,023,000 and $17,187,000 for federal and California purposes,
respectively. These carryforwards expire between 2005 and 2019, if not utilized
before these dates. At December 31, 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.
The Company's deferred tax assets and liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets (current):
Net operating losses...................................... $ 2,079 $ 11,387
Allowance for doubtful accounts........................... 3 34
Accrued liabilities....................................... 11 1,946
Research and development credit carryforwards............. 89 119
-------- --------
Deferred tax assets..................................... 2,182 13,486
Deferred tax liabilities (non-current):
Depreciation.............................................. (14) (78)
-------- --------
Deferred tax liabilities................................ (14) (78)
-------- --------
Net deferred tax assets................................. 2,168 13,408
Valuation allowance..................................... (2,168) (13,408)
-------- --------
$ -- $ --
======== ========
</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>
YEARS ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <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
Unearned stock-based compensation relating to employee
stock option grants..................................... $-- $1,055 $13,320
Unearned stock-based compensation relating to Series D
warrant grant to strategic stockholders................. $-- $ -- $ 2,507
Unearned stock-based compensation relating to common stock
warrant grant to strategic stockholders................. $-- $ -- $11,299
Accretion of Series A mandatorily redeemable convertible
preferred stock......................................... $86 $ 192 $ 52
Accretion of Series B mandatorily redeemable convertible
preferred stock......................................... $-- $ 525 $ 187
Issuance of common stock in exchange for stockholder notes
receivable.............................................. $-- $ -- $ 633
Accrued interest converted to common stock................ $ 2 $ -- $ --
Conversion of convertible notes into convertible preferred
stock................................................... $-- $ 150 $ --
Exchange of advertising services for advertising
services................................................ -- -- 653
Working capital acquired in acquisitions.................. -- -- 17
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................. $14 $ 15 $ 5
Cash paid during the period for taxes..................... $ 1 $ 1 $ 2
</TABLE>
F-28
<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, of 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-29
<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-30
<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 revenues............................................ 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-31
<PAGE>
CONTRACTOR REFERRAL SERVICE, LLC
STATEMENTS OF MEMBERS' DEFICIT
(IN THOUSANDS)
<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-32
<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-33
<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 that 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, 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-34
<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 year 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-35
<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 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 the Company owed a total of $62,000 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 (unaudited) to the
founders and directors. These amounts represent loans to the Company which
include interest of $31,000 (unaudited) that has been compounded annually at a
weighted average rate of 40% (unaudited).
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-36
<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 Statement of Operations for the
year ended December 31, 1999 gives effect to the acquisition by the Company of
CRS as if it had occurred on January 1, 1999. The statement has been derived
from the statement of operations of the Company for the year ended December 31,
1999 appearing elsewhere in this Prospectus and the unaudited statement of
operations of CRS 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 at the
beginning of the period presented, nor are they necessarily indicative of the
results of operations which may be expected to occur in the future. The
unaudited Pro Forma Combined Statement 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-37
<PAGE>
IMPROVENET INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CRS
IMPROVENET FOR THE
FOR THE YEAR PERIOD FROM PRO FORMA
ENDED JANUARY 1, 1999 ----------------------
DECEMBER 31, TO ACQUISITION
1999 SEPTEMBER 30, 1999 ADJUSTMENTS COMBINED
------------- ------------------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Service revenues......................... $ 1,139 $ 215 $ -- $ 1,354
Advertising revenues..................... 926 -- -- 926
-------- ------ ---- --------
Total revenues......................... 2,065 215 -- 2,280
Cost of revenues:
Cost of service revenues................. 1,984 66 -- 2,050
Cost of advertising revenues............. 567 -- -- 567
-------- ------ ---- --------
Total cost of revenues................. 2,551 66 -- 2,617
-------- ------ ---- --------
Gross profit (loss).................. (486) 149 -- (337)
Operating expenses:
Sales and marketing...................... 25,784 144 -- 25,928
Product development...................... 665 -- -- 665
General and administrative............... 4,214 84 -- 4,298
Amortization of goodwill................. -- -- 82(A) 82
Stock-based compensation................. 5,619 -- -- 5,619
-------- ------ ---- --------
Total operating expenses............. 36,282 228 82 36,592
-------- ------ ---- --------
Loss from operations....................... (36,768) (79) (82) (36,929)
Interest and other income (expense), net... 517 (41) -- 476
-------- ------ ---- --------
Net loss................................... (36,251) (120) (82) (36,453)
Accretion of mandatorily redeemable
preferred convertible stock.............. (239) -- -- (239)
-------- ------ ---- --------
Net loss attributable to common
stockholders............................. $(36,490) $ (120) $(82) $(36,692)
======== ====== ==== ========
Basic and diluted net loss per share....... $ (23.85) $ (23.98)
======== ========
Shares used in calculating basic and
diluted net loss per share:.............. 1,530 1,530
======== ========
</TABLE>
See accompanying notes to unaudited Pro Forma Statement of Operations
for explanation of Pro Forma acquisition adjustments.
F-38
<PAGE>
IMPROVENET INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT 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 outstanding.
F-39
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[IMPROVENET 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.............. 95,000
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............................................... 253,570
----------
Total....................................................... $1,400,000
==========
</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 for an aggregate price of $4,200
pursuant to founders stock agreements by and between the Company and
Robert L. Stevens, Jan Sherman and Rachel McNamara. These sales were made
in reliance on Rule 701.
(2) In June 1997, the Company issued 133,604 shares of its common stock in
consideration of cancellation of indebtedness of $0.50 per share for an
aggregate amount of $66,802 pursuant to convertible promissory notes
issued in February 1997 and May 1997 to Robert L. Stevens, Thomas
Fortman, The Kenyon Trust, William Smith and The Weil Family Trust. These
sales were made in reliance on Section 4(2).
(3) From March 1996 through June 1997, the Company issued 707,835 shares of
its common stock at a weighted average purchase price of approximately
$0.56 per share for an aggregate purchase price of $398,458.75 pursuant
to subscription agreements by and between the Company and Robert L.
Stevens, G. Bickley Stevens II and nineteen other investors. These sales
were made in reliance on Section 4(2).
(4) In June 1997, the Company issued 112,600 shares of its common stock at a
purchase price of $0.10 per share in consideration of $11,260 in
consulting services rendered pursuant to a consulting agreement by and
between the Company and G. Bickley Stevens II and one other consultant.
These sales were made in reliance on Rule 701.
(5) From inception through December 31, 1999, the Company granted options to
purchase 3,557,235 shares of common stock at a weighted average exercise
price of $2.23 per share to employees, consultants, directors and other
service providers pursuant to its 1996 Stock Option Plan and issued an
aggregate of 962,577 shares of its common stock at a weighted average
exercise price of $0.82 per share to employees, consultants, directors
and other service
II-2
<PAGE>
providers for an aggregate purchase price of $117,798.14 pursuant to
exercises of options granted under the 1996 Stock Option Plan. These
sales were made in reliance on Rule 701.
(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 for an
aggregate purchase price of $1,207,000 and warrants to purchase 94,400
shares of series A preferred stock to Alta California Partners, L.P.,
Alta Embarcadero Partners, LLC, Stuart Gannes, GC&H Investments and five
other investors. The warrants have a per share exercise price of $1.00
per share. These sales were made in reliance on Rule 506 of
Regulation D.
(7) In January 1998, the Company issued a convertible promissory note in the
principal amount of $150,000 to Alta California Partners, L.P. and Alta
Embarcadero Partners, LLC. This sale was made in reliance on Rule 506 of
Regulation D.
(8) 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 for an aggregate
purchase price of $4,875,005.52 and warrants to purchase 47,009 shares
of series B preferred stock to Alta California Partners, L.P., Alta
Embarcadero Partners, LLC, Allstate Insurance Company, ARCH Venture Fund
III, L.P., Alex Knight and three other investors. The warrants have a
per share exercise price of $2.52 per share. These sales were made in
reliance on Rule 506 of Regulation D.
(9) 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.
(10) In March 1999 and September 1999, the Company issued 3,543,190 shares of
its series C preferred stock at a purchase price of $6.53 per share to
Allstate Insurance Company, Alta California Partners, L.P., Alta
Embarcadero Partners, LLC, ARCH Venture Fund III, L.P., Alex Knight,
Stuart Gannes and thirty other investors and a consultant for an
aggregate purchase price of $23,137,030.70. In connection with this
issuance, the Company issued warrants to purchase 47,167 shares of
series C preferred stock with an exercise price of $6.53 per share.
These sales were made in reliance on Rule 506 of Regulation D.
(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 for an aggregate
purchase price of $16,176,491.10 and warrants to purchase 326,000 shares
of series D preferred stock to Alta California Partners, L.P., Alta
Embarcadero Partners, LLC, ARCH Venture Fund III, L.P., August Capital
II, L.P., GE Capital Equity Investments, Alex Knight and ten other
investors. The warrants have a per share exercise price of $0.01 per
share. These sales were made in reliance on Rule 506 of Regulation D.
(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
ARCH Venture Fund III, L.P., Microsoft Corporation, Owens Corning, Alex
Knight, QBB Management I, L.L.C., and eleven other investors for an
aggregate purchase price of $35,061,322.50, warrants to purchase 175,000
shares of common stock to Cendant Finance Holding Corporation and
Microsoft Corporation at a per share exercise price of $13.50 and
warrants to purchase 420,000 shares of common stock to Owens Corning,
Microsoft, Cendant, The Dow Chemical Company, DuPont and Armstrong at a
per share exercise price of $0.01. These sales were made in reliance on
Rule 506 of Regulation D.
(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.
This sale was made in reliance on Section 4(2).
II-3
<PAGE>
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.
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 Certificate of Amendment to the Third Amended and Restated
Certificate of Incorporation of the Registrant.
3.3 Form of Fourth Amended and Restated Certificate of
Incorporation of the Registrant to be filed on the closing
of the offering made hereby.
3.4 Bylaws of the Registrant.
3.5 Bylaws of the Registrant to be filed on the closing of the
offering made hereby.
4.1** Specimen Stock Certificate.
4.2** Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4 hereof.
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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
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.
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 Collaboration Agreement between the Registrant and E.I. du
Pont de Nemours and Company dated December 3, 1999.
10.18 Internet Development, Marketing and Distribution Agreement
between the Registrant and General Electric Appliances
dated September 10, 1999.
10.19 Relationship Agreement between the Registrant and Microsoft
HomeAdvisor dated December 7, 1999.
10.20 Agreement between the Registrant and CompleteHome
Operations, Inc. dated December 13, 1999.
10.21** Form of 1996 Stock Option Plan Grant Notice.
10.22** Form of 1999 Equity Incentive Plan Stock Option Agreement.
10.23** Form of Warrant to Purchase an aggregate of 420,000 shares
of common stock.
10.24** Form of Warrant to Purchase an aggregate of 10,000 shares of
common stock.
10.25** Form of Warrant to Purchase an aggregate of 842,596 shares
of common stock.
10.26** Form of Warrant to Purchase an aggregate of 96,400 shares of
Series A preferred stock.
10.27** Form of Warrant to Purchase an aggregate of 47,009 shares of
Series B preferred stock.
10.28** Form of Warrant to purchase 47,167 shares of Series C
preferred stock.
10.29** Form of Warrant to purchase an aggregate of 326,000 shares
of Series D preferred stock.
10.30** Fourth Amended and Restated Investor Rights Agreement by and
between the Registrant and certain investors of the
Registrant dated November 23, 1999.
10.31** Promissory Note between the Registrant and William E. Crosby
dated December 14, 1999.
10.32** Promissory Note between the Registrant and Richard A. Roof
dated December 14, 1999.
10.33 Promissory Note between the Registrant and William A.
Phillips Jr. dated December 14, 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.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
** Previously Filed
(b) Financial Statement Schedules
The financial statement schedules are omitted because the information called
for is not required or is shown either in the consolidated financial statements
or the notes to the consolidated financial statements.
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 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 Amendment No. 3 to the 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 March 10, 2000.
<TABLE>
<S> <C> <C>
By: /s/ RICHARD G. REECE
-----------------------------------------
Richard G. Reece
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 4 to 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 March 10, 2000
Ronald B. Cooper OFFICER)
Senior Vice President and
/s/ RICHARD G. REECE Chief Financial Officer
------------------------------------------- (PRINCIPAL FINANCIAL AND March 10, 2000
Richard G. Reece ACCOUNTING OFFICER)
*
------------------------------------------- Chairman of the Board of March 10, 2000
Robert L. Stevens Directors
*
------------------------------------------- Director March 10, 2000
Andrew Anker
------------------------------------------- Director
Domenico Cecere
*
------------------------------------------- Director March 10, 2000
Stuart Gannes
*
------------------------------------------- Director March 10, 2000
Brian Graff
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
------------------------------------------- Director March 10, 2000
Garrett Gruener
*
------------------------------------------- Director March 10, 2000
Alex Knight
* /s/ RICHARD G. REECE
-------------------------------------------
Richard G. Reece
ATTORNEY-IN-FACT
</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 Certificate of Amendment to the Third Amended and Restated
Certificate of Incorporation of the Registrant.
3.3 Form of Fourth Amended and Restated Certificate of
Incorporation of the Registrant to be filed on the closing
of the offering made hereby.
3.4 Bylaws of the Registrant.
3.5 Bylaws of the Registrant to be filed on the closing of the
offering made hereby.
4.1** Specimen Stock Certificate
4.2** Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4
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.
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
10.17 Collaboration Agreement between the Registrant and E.I. du
Pont de Nemours and Company dated December 3, 1999.
10.18 Internet Development, Marketing and Distribution Agreement
between the Registrant and General Electric Appliances
dated September 10, 1999.
10.19 Relationship Agreement between the Registrant and Microsoft
HomeAdvisor dated December 7, 1999.
10.20 Agreement between the Registrant and CompleteHome
Operations, Inc. dated December 13, 1999.
10.21** Form of 1996 Stock Option Plan Grant Notice.
10.22** Form of 1999 Equity Incentive Plan Stock Option Agreement.
10.23** Form of Warrant to Purchase an aggregate of 420,000 shares
of common stock.
10.24** Form of Warrant to Purchase an aggregate of 10,000 shares of
common stock.
10.25** Form of Warrant to Purchase an aggregate of 842,596 shares
of common stock.
10.26** Form of Warrant to Purchase an aggregate of 96,400 shares of
Series A preferred stock.
10.27** Form of Warrant to Purchase an aggregate of 47,009 shares of
Series B preferred stock.
10.28** Form of Warrant to purchase 47,167 shares of Series C
preferred stock.
10.29** Form of Warrant to purchase an aggregate of 326,000 shares
of Series D preferred stock.
10.30** Fourth Amended and Restated Investor Rights Agreement by and
between the Registrant and certain investors of the
Registrant dated November 23, 1999.
10.31** Promissory Note between the Registrant and William E. Crosby
dated December 14, 1999.
10.32** Promissory Note between the Registrant and Richard A. Roof
dated December 14, 1999.
10.33 Promissory Note between the Registrant and William A.
Phillips Jr. dated December 14, 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.
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
** Previously Filed
<PAGE>
EXHIBIT 1.1
DRAFT DATED FEBRUARY 27, 2000
2,300,000 SHARES
IMPROVENET, INC.
COMMON STOCK, $0.001 PER SHARE PAR VALUE
UNDERWRITING AGREEMENT
----------------------
March __, 2000
CREDIT SUISSE FIRST BOSTON CORPORATION
FLEETBOSTON ROBERTSON STEPHENS INC.
E*OFFERING CORP.,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. INTRODUCTORY. ImproveNet, Inc., a Delaware corporation ("COMPANY"),
proposes to issue and sell 2,300,000 shares ("FIRM SECURITIES") of its Common
Stock, par value $0.001 per share ("SECURITIES"), and also proposes to issue and
sell to the Underwriters, at the option of the Underwriters, an aggregate of not
more than 345,000 additional shares ("OPTIONAL SECURITIES") of its Securities as
set forth below. The Firm Securities and the Optional Securities are herein
collectively called the "OFFERED SECURITIES". As part of the offering
contemplated by this Agreement, E*Offering (the "DESIGNATED UNDERWRITER") has
agreed to reserve out of the Firm Securities purchased by it under this
Agreement, up to 230,000 shares, for sale to the Company's directors, officers,
employees and other parties associated with the Company (collectively,
"PARTICIPANTS"), as set forth in the Prospectus (as defined herein) under the
heading "Underwriters" (the "DIRECTED SHARE PROGRAM"). The Firm Securities to be
sold by the Designated Underwriter pursuant to the Directed Share Program (the
"DIRECTED SHARES") will be sold by the Designated Underwriter pursuant to this
Agreement at the public offering price. Any Directed Shares not orally confirmed
for purchase by a Participant by the end of the business day on which this
Agreement is executed will be offered to the public by the Underwriters as set
forth in the Prospectus. The Company hereby agrees with the several Underwriters
named in Schedule A hereto ("UNDERWRITERS") as follows:
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-92873) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("COMMISSION") and either (i) has been
declared effective under the Securities Act of 1933 ("ACT") and is not
proposed to be amended or (ii) is proposed to be amended by amendment or
1
<PAGE>
post-effective amendment. If such registration statement ("INITIAL
REGISTRATION STATEMENT") has been declared effective, either (i) an
additional registration statement ("ADDITIONAL REGISTRATION STATEMENT")
relating to the Offered Securities may have been filed with the Commission
pursuant to Rule 462(b) ("RULE 462(b)") under the Act and, if so filed, has
become effective upon filing pursuant to such Rule and the Offered
Securities all have been duly registered under the Act pursuant to the
initial registration statement and, if applicable, the additional
registration statement or (ii) such an additional registration statement is
proposed to be filed with the Commission pursuant to Rule 462(b) and will
become effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("RULE 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "EFFECTIVE TIME" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (i) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "EFFECTIVE TIME" with respect
to such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective pursuant
to Rule 462(b). "EFFECTIVE DATE" with respect to the initial registration
statement or the additional registration statement (if any) means the date
of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of the
initial registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a
part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("RULE 430A(b)") under the Act, is hereinafter
referred to as the "INITIAL REGISTRATION STATEMENT". The additional
registration statement, as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "ADDITIONAL REGISTRATION
STATEMENT". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"REGISTRATION STATEMENTS" and individually as a "REGISTRATION STATEMENT".
The form of prospectus relating to the Offered Securities, as first filed
with the Commission pursuant to and in accordance with Rule 424(b) ("RULE
424(b)") under the Act or (if no such filing is required) as included in a
Registration Statement, is hereinafter referred to as the "PROSPECTUS". No
document has been or will be prepared or distributed in reliance on Rule
434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and the
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rules and regulations of the Commission ("RULES AND REGULATIONS") and did
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed, or will conform, in all respects to the requirements of the Act
and the Rules and Regulations and did not include, or will not include, any
untrue statement of a material fact and did not omit, or will not omit, to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading and (iii) on the date of this
Agreement, the Initial Registration Statement and, if the Effective Time of
the Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective Date of the
Additional Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all respects to
the requirements of the Act and the Rules and Regulations, and neither of
such documents includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading. If the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement: on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement and the Prospectus will conform in all respects to
the requirements of the Act and the Rules and Regulations, neither of such
documents will include any untrue statement of a material fact or will omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and no Additional Registration
Statement has been or will be filed. The two preceding sentences do not
apply to statements in or omissions from a Registration Statement or the
Prospectus based upon written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein, it
being understood and agreed that the only such information is that
described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company ("MATERIAL ADVERSE EFFECT").
(d) Each subsidiary of the Company has been duly incorporated and is
an existing corporation in good standing under the laws of the jurisdiction
of its incorporation, with power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus; and
each subsidiary of the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires
such qualification; all of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly issued and
is fully paid and nonassessable; and the capital stock of each subsidiary
owned by the Company, directly or through subsidiaries, is owned free from
liens, encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized; all outstanding shares of
capital stock of the Company are, and, when the Offered Securities have
been issued, delivered and paid for in accordance with this Agreement on
each Closing Date (as defined below), such Offered Securities will have
been, validly issued, fully paid and nonassessable and will conform to the
description thereof contained in the Prospectus under the caption
"Description of Capital Stock"; and the stockholders of the Company have no
preemptive rights with respect to the Securities.
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(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with
this offering.
(g) Except as set forth in that certain Fourth Amended and Restated
Investor Rights Agreement by and between the Company and certain of its
securityholders, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to a Registration Statement or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Act. Any such rights to require the Company
to include such securities in the securities registered pursuant to a
Registration Statement have been satisfied or effectively waived.
(h) The Offered Securities have been approved for listing on The
Nasdaq Stock Market's National Market, subject to notice of issuance.
(i) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act, such
consents, approvals or filings with the National Association of Securities
Dealers, Inc. (the "NASD") and such as may be required under state
securities laws.
(j) The execution, delivery and performance of this Agreement, and the
issuance and sale of the Offered Securities will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over
the Company or any subsidiary of the Company or any of their properties,
which would result in a Material Adverse Effect, or any agreement or
instrument to which the Company or any such subsidiary is a party or by
which the Company or any such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is subject, which
individually or in the aggregate would result in a Material Adverse Effect,
or the charter or by-laws of the Company or any such subsidiary, and the
Company has full power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and delivered by
the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectus, the Company and its subsidiaries
hold any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or to be made thereof by them.
(m) The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or
bodies necessary to conduct the business now operated by them as described
in the Prospectus and have not received any notice of proceedings relating
to the revocation or modification of any such certificate, authority or
permit that, if
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<PAGE>
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a Material Adverse Effect.
(o) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and
other intellectual property (collectively, "INTELLECTUAL PROPERTY RIGHTS")
necessary to conduct the business now operated by them as described in the
Prospectus, or the intellectual property rights presently employed by them,
and have not received any notice of infringement of or conflict with
asserted rights of others with respect to any intellectual property rights
that, if determined adversely to the Company or any of its subsidiaries,
would individually or in the aggregate have a Material Adverse Effect.
(p) Except as disclosed in the Prospectus, neither the Company nor any
of its subsidiaries is in violation of any statute, any rule, regulation,
decision or order of any governmental agency or body or any court, domestic
or foreign, relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment
or human exposure to hazardous or toxic substances (collectively,
"ENVIRONMENTAL LAWS"), owns or operates any real property contaminated with
any substance that is subject to any environmental laws, is liable for any
off-site disposal or contamination pursuant to any environmental laws, or
is subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in the
aggregate have a Material Adverse Effect; and the Company is not aware of
any pending investigation which might lead to such a claim.
(q) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, any of its
subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or
in the aggregate have a Material Adverse Effect, or would materially and
adversely affect the ability of the Company to perform its obligations
under this Agreement, or which are otherwise material in the context of the
sale of the Offered Securities; and no such actions, suits or proceedings
are threatened or, to the Company's knowledge, contemplated.
(r) The financial statements included in each Registration Statement
and the Prospectus present fairly the financial position of the Company and
its consolidated subsidiaries as of the dates shown and their results of
operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally accepted
accounting principles in the United States ("GAAP") applied on a consistent
basis.
(s) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole, and, except as disclosed in or contemplated
by the Prospectus, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" as
defined in the Investment Company Act of 1940.
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<PAGE>
(u) Furthermore, the Company represents and warrants to the
Underwriters that all participants in the Directed Share Program are
residents of the United States, and residing in the United States on the
date of this Agreement and on the First Closing Date.
(v) The Company has not offered, or caused the Underwriters to offer,
any offered Securities to any person pursuant to the Directed Share Program
with the specific intent to unlawfully influence (i) a customer or supplier
of the Company to alter the customer's or supplier's level or type of
business with the Company or (ii) a trade journalist or publication to
write or publish favorable information about the Company or its products.
3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $ per share, the respective
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters, at the office of , against
payment of the purchase price in Federal (same day) funds by official bank
check or checks or wire transfer to an account at a bank acceptable to Credit
Suisse First Boston Corporation ("CSFBC") drawn to the order of the Company
at the office of Cooley Godward LLP, at A.M., New York time, on
, or at such other time not later than seven full business days
thereafter as CSFBC and the Company determine, such time being herein
referred to as the "FIRST CLOSING DATE". For purposes of Rule 15c6-1 under
the Securities Exchange Act of 1934 ("EXCHANGE ACT"), the First Closing Date
(if later than the otherwise applicable settlement date) shall be the
settlement date for payment of funds and delivery of securities for all the
Offered Securities sold pursuant to the offering. The certificates for the
Firm Securities so to be delivered will be in definitive form, in such
denominations and registered in such names as CSFBC requests and will be made
available for checking and packaging at the above office of
at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "OPTIONAL CLOSING DATE", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "CLOSING DATE"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, at the office of
, against payment of the purchase price therefor in Federal (same
day) funds by official
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<PAGE>
bank check or checks or wire transfer to an account at a bank acceptable to
CSFBC drawn to the order of the Company, at the above office of .
The certificates for the Optional Securities being purchased on each Optional
Closing Date will be in definitive form, in such denominations and registered in
such names as CSFBC requests upon reasonable notice prior to such Optional
Closing Date and will be made available for checking and packaging at the
above office of at a reasonable time in advance of such
Optional Closing Date.
4. OFFERING BY UNDERWRITERS. It is understood that the several Underwriters
propose to offer the Offered Securities for sale to the public as set forth in
the Prospectus.
5. CERTAIN AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to Rule
424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later date
as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or
the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not
effect such amendment or supplementation without CSFBC's consent; and the
Company will also advise CSFBC promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will promptly
notify CSFBC of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of,
any such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6.
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(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "AVAILABILITY DATE" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"AVAILABILITY DATE" means the 90th day after the end of such fourth fiscal
quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (five of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFBC requests. The Prospectus shall be so
furnished on or prior to 3:00 P.M., New York time, on the business day
following the later of the execution and delivery of this Agreement or the
Effective Time of the Initial Registration Statement. All other documents
shall be so furnished as soon as available. The Company will pay the
expenses of printing and distributing to the Underwriters all such
documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Exchange Act or mailed to stockholders, and (ii)
from time to time, such other information concerning the Company as CSFBC
may reasonably request.
(h) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, for any filing fees and other
expenses (including fees and disbursements of counsel) incurred in
connection with qualification of the Offered Securities for sale under the
laws of such jurisdictions as CSFBC designates and the printing of
memoranda relating thereto, for the filing fee incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities
Dealers, Inc. of the Offered Securities, for any travel expenses of the
Company's officers and employees and any other expenses of the Company in
connection with attending or hosting meetings with prospective purchasers
of the Offered Securities and for expenses incurred in distributing
preliminary prospectuses and the Prospectus (including any amendments and
supplements thereto) to the Underwriters.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Commission a registration statement under the Act relating
to, any additional shares of its Securities or securities convertible into
or exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of CSFBC, except
issuances of Securities pursuant to the conversion or exchange of
convertible or exchangeable securities or the exercise of warrants or
options, in each case outstanding on the date hereof, or
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<PAGE>
grants of employee stock options pursuant to the terms of a plan in effect
on the date hereof or issuances of Securities pursuant to the exercise of
such options.
(j) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required
by the NASD or the NASD rules (including the free-riding and withholding
rules) from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of the effectiveness of the
Registration Statement. The Designated Underwriter will notify the Company
as to which Participants will need to be so restricted. The Company will
direct the transfer agent to place stop transfer restrictions upon such
securities for such period of time.
(k) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program
and stamp duties, similar taxes or duties or other taxes, if any, incurred
by the underwriters in connection with the Directed Share Program.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement to
be filed shortly prior to such Effective Time), of PricewaterhouseCoopers
LLP confirming that they are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations
thereunder and stating to the effect that:
(i) in their opinion the financial statements of the Company and the
financial statements of Contractor Referral Service, L.L.C. examined
by them and included in the Registration Statements comply as to form
in all material respects with the applicable accounting requirements
of the Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards
No. 71, Interim Financial Information, on the unaudited financial
statements of the Company and of Contractor Referral Service, L.L.C.
included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii) above, a
reading of the latest available interim financial statements of the
Company, inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations or any material
modifications should be made to such unaudited
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financial statements for them to be in conformity with generally
accepted accounting principles;
(B) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not more
than three business days prior to the date of such letter, there
was any change in the capital stock or any increase in short-term
indebtedness or long-term debt of the Company and its
consolidated subsidiaries or, at the date of the latest available
balance sheet read by such accountants, there was any decrease in
consolidated current assets or total assets, as compared with
amounts shown on the latest balance sheet included in the
Prospectus; or
(C) for the period from the closing date of the latest
statement of operations included in the Prospectus to the closing
date of the latest available statement of operations read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year and with the period of
corresponding length ended the date of the latest income
statement included in the Prospectus, in consolidated net
revenues, or net operating loss, or in the total or per share
amounts of consolidated net loss,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter;
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter; and
(v) nothing has come to their attention that caused them to believe
that the unaudited pro forma financial information included in the
Registration Statements does not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published Rules and Regulations or that the pro forma
adjustments have not been properly applied to the historical amounts
in the compilation of those statements.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "REGISTRATION STATEMENTS" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement but the Effective Time of the
Additional Registration is subsequent to such execution and delivery,
"REGISTRATION STATEMENTS" shall mean the Initial Registration Statement and
the additional registration statement as proposed to be filed or as
proposed to be amended by the post-effective amendment to be filed shortly
prior to its Effective Time, and (iii) "PROSPECTUS" shall mean the
prospectus included in the Registration Statements.
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(b) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time the Prospectus
is printed and distributed to any Underwriter, or shall have occurred at
such later date as shall have been consented to by CSFBC. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 5(a) of
this Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Representatives, shall be contemplated by
the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as one enterprise which, in the judgment of a majority
in interest of the Underwriters including the Representatives, is material
and adverse and makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities; (ii) any downgrading in the rating of any debt
securities of the Company by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Act), or
any public announcement that any such organization has under surveillance
or review its rating of any debt securities of the Company (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (iii) any material
suspension or material limitation of trading in securities generally on the
New York Stock Exchange, or any setting of minimum prices for trading on
such exchange, or any suspension of trading of any securities of the
Company on any exchange or in the over-the-counter market; (iv) any banking
moratorium declared by U.S. Federal or New York authorities; or (v) any
outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of a
majority in interest of the Underwriters including the Representatives, the
effect of any such outbreak, escalation, declaration, calamity or emergency
makes it impractical or inadvisable to proceed with completion of the
public offering or the sale of and payment for the Offered Securities.
(d) The Representatives shall have received an opinion, dated such
Closing Date, of Cooley Godward LLP, counsel for the Company, to the effect
that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification, except where
the failure to be so qualified would not have a Material Adverse
Effect;
(ii) The Offered Securities delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus under the caption "Description of Capital Stock"; and the
stockholders of the Company have no preemptive rights with respect to
the Securities;
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<PAGE>
(iii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings known to such counsel between
the Company and any person granting such person the right to require
the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Act, other than those that
have been waived or have expired;
(iv) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(v) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance or sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act,
such consents, approvals or filings as may be required by or with the
NASD and such as may be required under state securities laws;
(vi) The execution, delivery and performance of this Agreement
and the issuance and sale of the Offered Securities will not result in
a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court having jurisdiction
over the Company or any subsidiary of the Company or any of their
properties, or any agreement or instrument listed on a schedule to
such counsel's opinion letter, which breach, violation or default
would have a Material Adverse Effect, or result in a breach or
violation of any of the terms and provisions of the charter or by-laws
of the Company or any such subsidiary, and the Company has full power
and authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement;
(vii) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) specified in
such opinion on the date specified therein or was included in the
Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
Prospectus (except as to the financial statements and other financial
data and statistical data derived therefrom as to which such counsel
need express no opinion), and each amendment or supplement thereto, as
of their respective effective or issue dates, complied as to form in
all material respects with the requirements of the Act and the Rules
and Regulations; the descriptions in the Registration Statements and
Prospectus of statutes, legal and governmental proceedings and
contracts and other documents are accurate and fairly present the
information required to be shown; and such counsel do not know of any
legal or governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not described as
required or of any contracts or documents of a character required to
be described in a Registration Statement or the
12
<PAGE>
Prospectus or to be filed as exhibits to a Registration Statement
which are not described and filed as required; and
(viii) This Agreement has been duly authorized, executed and
delivered by the Company.
In addition to the matters set forth above, counsel rendering the foregoing
opinion shall also include a statement to the effect that while such
counsel has not independently verified and accordingly is not passing upon
and does not assume responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statements,
nothing has come to such counsel's attention which has caused such counsel
to believe that any part of a Registration Statement or any amendment
thereto (except as to the financial statements and other financial data and
statistical data derived therefrom as to which such counsel need express no
opinion) on the date it became effective under the Act or as of such
Closing Date, contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus or any
amendment or supplement thereto (except as to the financial statements and
other financial data and statistical data derived therefrom as to which
such counsel need express no opinion), as of its issue date or as of such
Closing Date, contained any untrue statement of a material fact or omitted
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(e) The Representatives shall have received from Fenwick & West LLP,
counsel for the Underwriters, such opinion or opinions, dated such Closing
Date, with respect to the incorporation of the Company, the validity of the
Offered Securities delivered on such Closing Date, the Registration
Statements, the Prospectus and other related matters as the Representatives
may require, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon
such matters.
(f) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to such Closing Date; no stop order suspending the
effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated by
the Commission; the Additional Registration Statement (if any) satisfying
the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and, subsequent
to the date of the most recent financial statements in the Prospectus,
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(g) The Representatives shall have received a letter, dated such
Closing Date, of PricewaterhouseCoopers LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than three days prior to such
Closing Date for the purposes of this subsection.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive
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<PAGE>
on behalf of the Underwriters compliance with any conditions to the obligations
of the Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon 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, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below; and provided, further,
that with respect to any untrue statement or alleged untrue statement in or
omission or alleged omission from any preliminary prospectus the indemnity
agreement contained in this subsection (a) shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased the Offered Securities concerned, to the extent that a
prospectus relating to such Offered Securities was required to be delivered by
such Underwriter under the Act in connection with such purchase and any such
loss, claim, damage or liability of such Underwriter results from the fact that
there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Offered Securities to such person, a copy of
the Prospectus if the Company had previously furnished copies thereof to such
Underwriter.
The Company agrees to indemnify and hold harmless the Designated
Underwriter and each person, if any, who controls the Designated Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act (the "DESIGNATED ENTITIES"), from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) (i) caused by any untrue statement or
alleged untrue statement of a material fact contained in any material prepared
by or with the consent of the Company for distribution to Participants in
connection with the Directed Share Program or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) caused by the
failure of any Participant to pay for and accept delivery of Directed Shares
that the Participant agreed to purchase; or (iii) related to, arising out of, or
in connection with the Directed Share Program, other than losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross negligence of
the Designated Entities.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any who
controls the Company within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue
14
<PAGE>
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through the Representatives specifically for use therein, and will reimburse any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Underwriter consists of the following information
in the Prospectus furnished on behalf of each Underwriter: the concession and
reallowance figures appearing in the ______ paragraph under the caption
"Underwriting" and the information contained in the ______ and ______ paragraphs
(sales to discretionary accounts and stabilization) under the caption
"Underwriting."
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. Notwithstanding anything contained herein to
the contrary, if indemnity may be sought pursuant to the last paragraph in
Section 7(a) hereof in respect of such action or proceeding, then in addition to
such separate firm for the indemnified parties, the indemnifying party shall be
liable for the reasonable fees and expenses of not more than one separate firm
(in addition to any local counsel) for the Designated Underwriter for the
defense of any losses, claims, damages and liabilities arising out of the
Directed Share Program, and all persons, if any, who control the Designated
Underwriter within the meaning of either Section 15 of the Act or Section 20 of
the Exchange Act. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action in respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified party unless
such settlement (i) includes an unconditional release of such indemnified party
from all liability on any claims that are the subject matter of such action and
(ii) does not include a statement as to, or an admission of, fault, culpability
or a failure to act by or on behalf of an indemnified party.
(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and
15
<PAGE>
opportunity to correct or prevent such untrue statement or omission. The amount
paid by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section shall be in addition
to any liability which the Company may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act.
8. DEFAULT OF UNDERWRITERS. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than
16
<PAGE>
solely because of the termination of this Agreement pursuant to Section 8 or the
occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(c),
the Company will reimburse the Underwriters for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the Offered Securities.
10. NOTICES. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
the Representatives, c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at 720 Bay Road, Suite 200,
Redwood City, CA 94063-2469 Attention: President; provided, however, that any
notice to an Underwriter pursuant to Section 7 will be mailed, delivered or
telegraphed and confirmed to such Underwriter.
11. SUCCESSORS. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. REPRESENTATION OF UNDERWRITERS. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
17
<PAGE>
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
IMPROVENET, INC.
By
-------------------------------------
President and Chief Executive Officer
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
FLEETBOSTON ROBERTSON STEPHENS INC.
E*OFFERING CORP.
Acting on behalf of themselves and
as the Representatives of the
several Underwriters
By CREDIT SUISSE FIRST BOSTON CORPORATION
By
------------------------------
[INSERT TITLE]
18
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER FIRM SECURITIES
----------- ---------------
<S> <C>
Credit Suisse First Boston Corporation.....................
FleetBoston Robertson Stephens Inc.........................
E*OFFERING Corp............................................
---------
Total........................................... 2,300,000
=========
</TABLE>
19
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO THE THIRD AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION OF
IMPROVENET, INC.
Ronald B. Cooper and Richard G. Reece hereby certify that:
1. The date of filing of the original Certificate of Incorporation of this
corporation with the Secretary of State of the State of Delaware is June 2,
1998.
2. They are the duly elected and acting President and Secretary, respectively,
of ImproveNet, Inc., a Delaware corporation.
3. Article IV(A) of the Third Amended and Restated Certificate of Incorporation
of this corporation is hereby amended in its entirety to read as follows:
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 twelve
million four hundred eighty two thousand nine hundred thirty five (112,482,935)
shares, one hundred million (100,000,000) 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).
4. This Certificate of Amendment to the Third Amended and Restated Certificate
of Incorporation has been duly approved by the Board of Directors of this
Corporation.
5. This Certificate of Amendment to the Third 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 2,375,720 shares of Common Stock, 1,207,000 shares of Series A
Preferred Stock, 1,934,526 shares of Series B Preferred Stock, 3,543,190
shares of Series C Preferred Stock, 2,100,843 shares of Series D Preferred
Stock and 2,597,135 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 Certificate of Amendment to
the 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.
IN WITNESS WHEREOF, IMPROVENET, INC. has caused this Certificate of
Amendment to the Third Amended and Restated Certificate of Incorporation to be
signed by the President and the Secretary in Redwood City, California this tenth
day of March, 2000.
- ------------------------------------
RONALD B. COOPER
President
- ------------------------------------
RICHARD G. REECE
Secretary
1.
<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 2,375,720
shares of Common Stock, 1,207,000 shares of Series A Preferred Stock,
1,934,526 shares of Series B Preferred Stock, 3,543,190 shares of Series C
Preferred Stock, 2,100,843 shares of Series D Preferred Stock and 2,597,135
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 March, 2000.
IMPROVENET, INC.
By:
----------------------------------
Ronald B. Cooper
President
ATTEST:
By:
----------------------------
Richard G. Reece
Secretary
<PAGE>
Exhibit 3.4
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.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<S> <C>
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.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<S> <C>
ARTICLE XV MISCELLANEOUS............................................................................23
Section 47. Annual Report.........................................................................23
</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))
SECTION 5. ANNUAL MEETING.
1
<PAGE>
(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.
2
<PAGE>
(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 fifty percent (50%) 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
3
<PAGE>
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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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
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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.
23
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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>
PAGE
<S> <C>
(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
<PAGE>
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 fifty
percent (50%) 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,
3
<PAGE>
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
4
<PAGE>
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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<PAGE>
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.
6
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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
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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
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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.
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EXHIBIT 5.1
[COOLEY GODWARD LLP LETTERHEAD]
March 10, 2000
ImproveNet, Inc.
720 Bay Road, Suite 200
Redwood City, CA 94063-2469
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by ImproveNet, Inc. (the "Company") of a Registration Statement
on Form S-1 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission"), covering an underwritten public offering of up to
two million three hundred thousand (2,300,000) (plus up to three hundred
forty-five thousand (345,000) additional shares of Common Stock for which the
underwriters have been granted an over allotment option) shares of the Company's
common stock (the "Common Stock").
In connection with this opinion, we have examined and relied upon the
Registration Statement and related Prospectus, the Company's Certificate of
Incorporation and Bylaws and the originals or copies certified to our
satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable to render
the opinion expressed below.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid and
nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
By: /S/ MARK P. TANOURY
------------------------------------
MARK P. TANOURY
<PAGE>
EXHIBIT 10.16
INTERNET-BASED SERVICES AGREEMENT
THIS INTERNET-BASED SERVICES AGREEMENT, dated as of this 1st day of
October, 1999 ("Agreement") is entered into by and between OWENS CORNING, a
Delaware corporation ("OC") and IMPROVENET, INC. a Delaware corporation
("ImproveNet").
BACKGROUND STATEMENT
ImproveNet is a leading Internet-based home improvement market maker in
the United States for contractors, homeowners and building material suppliers.
ImproveNet provides an Internet-based contractor matching service ("Contractor
Matching Service") pursuant to which it screens and qualifies both contractors
and homeowner leads and matches appropriate and interested contractors to
homeowners seeking to have home improvement projects performed. ImproveNet also
provides other informational, promotional and advertising services to
contractors and suppliers via its Internet home page.
OC is a leading manufacturer and seller of building materials and
systems and is interested in having ImproveNet provide certain contractor
matching, informational, promotional and advertising services for it, and
ImproveNet is willing to provide such services for OC, all In accordance with
the terms end conditions set forth below:
In consideration of the mutual promises set forth below and other good
and valuable consideration, the value and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. SERVICES
1.1 SCOPE OF SERVICES. Throughout the "Term" (as defined in Section 8.1
below) of this Agreement, ImproveNet agrees to provide OC with the specific
contractor matching and advertising services that are described on Exhibit A
attached hereto (the "Services"). The scope of the Services provided by
ImproveNet to OC hereunder may be modified from time to time upon the mutual
agreement of the parties.
1.2 STANDARD OF CARE. ImproveNet shall use commercially reasonable
efforts to provide Services to OC hereunder in accordance with the highest
industry standards. Furthermore, ImproveNet shall provide Services to OC in a
manner that is no less favorable in terms of priority, availability of services
and standard of care, than similar services provided by ImproveNet to any of its
other customers. Other than as set forth in the preceding sentence, ImproveNet
disclaims all warranties, whether
<PAGE>
expressed or implied, including without limitation, the implied warranties of
merchantability and fitness for a particular purpose.
1.3 COMPLIANCE WITH LAWS AND REGULATIONS. ImproveNet agrees that it
shall perform the Services as well as all of its other obligations under this
Agreement in compliance with all applicable federal, state and local laws,
regulations, ordinances and codes.
1.4 PRIMARY CONTACT. ImproveNet will designate one or more individuals
to whom all communications concerning this Agreement or the Services provided
hereunder may be addressed.
1.5 FUTURE SERVICES. ImproveNet agrees to offer OC on a preferential
basis any additional informational, promotional or advertising services that
ImproveNet may develop during the Term of this Agreement.
2. OC'S RESPONSIBILITIES
2.1 PRIMARY CONTACT. OC will designate one or more individuals to whom
all communications concerning this Agreement or the Services provided hereunder
may be addressed.
2.2 REASONABLE COOPERATION. OC shall reasonably cooperate with
ImproveNet by, among other things, delivering or otherwise making available, in
a timely fashion, information in OC's control which is relevant and necessary to
ImproveNet's effective performance of Services hereunder.
2.3 PROMOTIONAL EFFORTS. OC will use commercially reasonable efforts to
promote its relationship with ImproveNet, including, if appropriate, displays of
promotional material at trade shows, on OC's Internet home page, advertisements:
and literature. However, nothing shall commit OC to any level of spending or to
support or obligate OC to advertise or promote ImproveNet or its Services in any
manner unacceptable to OC.
3. SERVICE FEES AND CHARGES
3.1 SERVICE FEES.
(a) During the first three (3) "Contract Years" (as defined in
SECTION 8.1 below) of the Term, OC shall pay ImproveNet the fees set forth on
EXHIBIT B ("Initial Fees"). The Initial Fees shall cover all Services to be
provided by ImproveNet hereunder during such 3-Contract Year period, and shall
also provide the consideration required by ImproveNet in exchange for its
agreement to make
2.
<PAGE>
Services available to CC throughout the entire Term of this
Agreement.
(b) Following the first three (3) Contract Years of the Term,
ImproveNet shall have the right to increase the fees for Services hereunder upon
ninety (90) days prior written notice to CC, provided that such fees shall be
increased no more than once during any Contract Year, and in no increase can
exceed five percent (5%) over the fees charged during the immediately preceding
Contract Year.
(c) If the parties hereunder agree to modify the scope of Services
at any time throughout the Term of this Agreement, there will be an appropriate
modification to the Service fees. Such modification of Service fees is, however,
subject to the mutual written agreement of the parties, and any disputes
regarding such modifications shall be resolved in accordance with the provisions
of Article 9 below.
3.2 PAYMENT. The Service fees for each Contract Year shall be paid by
OC in equal monthly installments, and ImproveNet shall invoice OC each month in
the amount of such installment (net of any credits or offsets for which OC is
entitled to receive against such installment as described in Section 3.3 below).
OC shall pay the net amount of each invoice received from ImproveNet hereunder
within thirty (30) days following its receipt thereof. OC may, however, withhold
payment of any amounts which it disputes, in good faith, provided that OC pays
to ImproveNet any amounts that are determined under Article 9 to be payable by
OC within thirty (30) days of such determination.
3.3 OC SERVICES TO IMPROVENET. Throughout the Term of this Agreement,
ImproveNet agrees to purchase certain advertising services from OC or wholly,
owned subsidiaries of CC. The parties agree to discuss and negotiate in good
faith the nature, extent and value of such services throughout the Term of this
Agreement. However, the parties specifically agree that ImproveNet shall
purchase from OC or wholly-owned subsidiaries of OC, the advertising coop
services in accordance with Exhibit B attached hereto. OC shall invoice
ImproveNet for the agreed-upon value of the advertising provided by OC or
wholly-owned subsidiaries of OC, and the amount of such invoice shall be offset,
or netted against, ImproveNet's invoice for the immediately following month.
3.4 AFFILIATE CONTRACTOR CREDITS. OC shall be entitled to the
"Affiliate Contractor" credits described on EXHIBIT C attached hereto. Within
the first term (10) business days of each month, OC shall provide ImproveNet
with a Summary of ail credits to which OC is entitled for the immediately
3.
<PAGE>
preceding month. Such credits will be reflected on ImproveNet's invoice for the
immediately following month.
3.5 MOST FAVORED PRICING. Throughout the Term of this Agreement, OC
shall be charged Service fees by ImproveNet that are the lower of (i) the
lowest Service fees charged to any other ImproveNet customer that is
comparable to OC in terms of breadth and volume of services provided by
ImproveNet, the breadth and volume of services purchased by ImproveNet from
such customer and the size of the equity investment by such customer in
ImproveNet, or (ii) twenty percent (20%) below ImproveNet's prevailing market
rates for such Services. For purposes of this Agreement, ImproveNet's
"prevailing market rate" for each Service shall be the average rate quoted
for such Service to new customers with no pre-existing commercial or equity
relationship with ImproveNet.
4. CONTRACTOR FEES.
4.1 In connection with the "Private-Label Contractor Matching
Services" (as defined on Exhibit A) to be provided by ImproveNet for and on
behalf of OC (e.g., DIF-me or other co-branded services), ImproveNet shall
charge participating OC Preferred Contractors the fees set forth on Exhibit C
attached hereto ("OC Contractor Fees"). The parties acknowledge and agree
that OC Contractor Fees are to be charged to OC Preferred Contractors only in
connection with leads and jobs that are generated by OC, whether through OC's
DIF-me program or otherwise ("OC-Generated Job"). With respect to any other
lead or job (i.e., other than an OC-Generated Job) that is provided by
ImproveNet to an OC Preferred Contractor, ImproveNet's standard fees and
rates shall apply.
4.2 For each OC-Generated Job resulting in a "won job" exceeding
$500 in value, ImproveNet will pay OC a referral fee equal to $25.00 ("OC
Referral Fee"). Throughout the Term of this Agreement, the amount of the OC
Referral Fee shall be increased by the same percentage as any increase in
"Win Fees" pursuant to Section 4.3 below.
4.3 OC Contractor Fees may, from time to time, be increased by
ImproveNet as follows:
(a) Throughout the first Contract Year of this Agreement,
ImproveNet shall have the right subject to Section 3.5, to increase the OC
Contractor Fees upon sixty (60) day's prior written notice to OC. Thereafter,
ImproveNet shall have the right to increase the OC Contractor Fees upon
ninety (90) day's prior written notice to OC.
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(b) With respect to the Win Fee component of the OC Contractor
Fees, no such increase shall exceed one percent (1%) over the Win Fees for
the prior Contract Year, and there shall be no more than one such increase in
any Contract Year. With respect to the Lead Fee component, the total of such
increases shall not exceed two dollars ($2.00) during any 6-month period of
the first Contract Year and shall not exceed one dollar ($1.00) during any
6-month period of the second Contract Year. Thereafter, there shall be no
more than one (1) increase in Lead Fees during any Contract Year and no
increase shall exceed $1.00 over the Lead Fees for the immediately prior
Contract Year.
4.4 In the event that ImproveNet materially modifies its standard
non-OC Contractor Fees such that they become inconsistent with the OC
Contractor Fees in terms of structure, format and/or amounts, OC and
ImproveNet agree to discuss in good faith whether it Ps commercially
reasonable and appropriate to make corresponding modifications to the OC
Contractor Fees and the OC Referral Fee hereunder.
4.5 OC "Affiliate Contractor" fees shall be determined pursuant to
Exhibit C attached hereto.
4.6 Upon request from OC, ImproveNet agrees to allow ImproveNet
contractors who are not OC Preferred Contractors to receive and enjoy the
benefit of OC Contractor Fees when they are matched to OC-Generated Jobs.
5. REGULAR AND SPECIAL MEETINGS/REPORTS
5.1 REGULAR MEETINGS. On a regular basis (no less often than
quarterly), OC and ImproveNet shall meet, in person, to discuss the Services
being provided hereunder as well as the fees being charged for Services and
any general market issues that are of concern to either party. The parties
agree to discuss any problems and/or issues which may have occurred or are
occurring, and to discuss any ways in which the Services may be ImproveNet or
made more effective. The parties agree that the meeting date four regular
meetings shall be determined within the first ten days of each month.
5.2 SPECIAL MEETINGS. In the event that either party desires to call
a special meeting to discuss issues of concern to a party not generally
discussed at the regular meeting described in Section 5.1, that party can
request a special meeting to discuss such issues. Such request must be in
writing and must provide the other party with at least five (5) business days
notice of the requested meeting and must briefly describe the issues to be
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discussed. The parties agree to then meet with one another as soon as is
reasonably practical to discuss in good faith how such issues might be
resolved.
6. DATA/REPORTS
6.1 OC DATA. In connection with the Services provided by ImproveNet
for OC hereunder, ImproveNet will collect and maintain data and information
relative to OC-Generated Jobs as well as OC Preferred Contractors
(collectively, "OC Data"). OC will have unrestricted access to such OC Data
alt all times and it shall be provided to OC upon OC's written request or
upon the termination or expiration of this Agreement for any reason.
ImproveNet shall have the right to use such OC Data in connection with its
business subject to limitations or restrictions imposed by OC's internet
privacy/policy, but in no event will ImproveNet use OC Data in connection
with the provision of services to or for any competitor of OC identified on
EXHIBIT D, nor will it provide such OC Data to or for the benefit of any
third party. OC may, from time to time, modify the list of competitors
identified on Exhibit D upon forty-five (45) days' prior written notice to
ImproveNet.
6.2 IMPROVENET DATA. ImproveNet will also collect data and
information in connection with the Contractor Matching Services that it
provides generally through its Internet service ("ImproveNet Data"). All such
data is the Sole property of ImproveNet and/or the originator, unless
otherwise assigned to a third party. ImproveNet agrees to provide OC with
statistical information regarding the ImproveNet Data provided that OC agrees
to allow similar statistical data collected from OC-Generated Jobs to be
included as part of the overall pool of jobs. Any ImproveNet Data provided to
OC shall be subject to limitations and restrictions imposed by ImproveNet's
Internet privacy policy and other commercial agreements to which ImproveNet
may be a party.
6.3 REPORTS. By the tenth day of each month during the Term of this
Agreement, ImproveNet shall submit to OC a report, in the form agreed to by
OC and ImproveNet, describing the Services provided by ImproveNet during the
preceding month, including without limitation, the number of OC-Generated
Jobs, the number of won jobs by OC Preferred Contractors, and the specific
information related to each such won job.
7. EXCLUSIVITY. In consideration of the commitments made by OC
hereunder, ImproveNet agrees not to provide Private Label Contractor Matching
Services to any of the direct category competitors of OC identified on
EXHIBIT E attached hereto ("OC Competitors") for a period commencing on the
"Effective Date" (as defined in Section 8.1 below) and ending on December 31,
2000.
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8. TERM AND TERMINATION.
8.1 TERM. This Agreement shall become effective as of the date first
written above ("Effective Date") and shall continue for a period of twelve (12)
years thereafter. ("Term") unless terminated earlier as provided below in
Sections 8.2 or 8.3 below. Each consecutive twelve (12) month period commencing
on the Effective Date and continuing through the expiration of the Term shall be
referred to herein as a "Contract Year". The Term of the Agreement may be
extended upon the mutual written agreement of the parties.
8.2 Termination for Cause. Notwithstanding the term of this Agreement
as provided in Section 8.1 above, this Agreement may be terminated at any time
by either party upon the following terms and conditions:
(a) If either party breaches any material provision of this
Agreement, and such breach is not cured within thirty (30) days following the
breaching party's receipt of written notice of such breach from the
non-breaching party, or if such breach cannot be cured within such thirty (30)
day period, then the non-breaching party may terminate this Agreement, subject
to the procedures and notice requirements set forth in Section 14.3 below, with
immediate effect upon written notice to the breaching party. The termination
right provided in this Section 8.2(A) is not exclusive of any remedies to which
either party may otherwise be entitled in law or in equity in the event of a
breach of this Agreement:
(b) If either party (i) ceases generally to pay its debts as they
become due; or (ii) becomes the subject of a bankruptcy proceeding, whether
voluntarily or involuntarily, and such proceeding is not dismissed or vacated
within thirty (30) days after filing, then the other party shall have the right
to immediately terminate this Agreement by written notice to the insolvent or
bankrupt party.
8.3 OC TERMINATION FOR CONVENIENCE. Following the initial three (3)
Contract Years of this Agreement, OC may terminate this Agreement for
convenience and without cause, at any time upon twelve (12) months' prior
written notice to ImproveNet. In the event that a purported termination for
cause by OC under Section 8.2 is finally determined by a competent authority
under Section 9.2 or Section 9.3 not to be properly a termination for cause,
then such termination shall be deemed to be a termination for convenience under
this Section 8.3, effective from the date of the notice first delivered pursuant
to Section 8.2(A) above.
9. DISPUTE RESOLUTION
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9.1 INFORMAL DISPUTE RESOLUTION. The parties shall attempt in good
faith to resolve any dispute arising out of or relating to this Agreement
through negotiation between representatives who have authority to resolve the
matter. Either party may give the other party written notice of any dispute
not resolved in the normal course of business, it being understood that a
notice delivered by a party pursuant to Section 8.2(A) above shall constitute
the delivery of a written notice of dispute pursuant to this Section 9.1.
Within five (5) days after its receipt of the notice, the receiving party
shall submit to the other party a written response. The notice and response
shall each include (a) a statement of the party's position and a summary of
the arguments supporting that position, and (b) the name and title of the
company representative who will represent that party. Within ten (10) days
following delivery of the original dispute notice the parties' respective
representatives shall meet at a mutually acceptable time and place, and
thereafter as often as they reasonably deem necessary to attempt to resolve
the dispute. Ali reasonable requests for information made by either party to
the other will be honored.
9.2 ARBITRATION. If a dispute has not been resolved within thirty
(30) days of the disputing party's original notice under Section 9.1, or if
the parties fail to meet within the ten (10) days following such notice under
Section 9.1, then either party may initiate arbitration of the dispute. The
dispute shall then be submitted to mandatory and binding arbitration in
Chicago, Illinois in accordance with the commercial rules and procedures of
the American Arbitration Association before a single arbitrator. Judgment
upon the award may be entered by any. court having appropriate jurisdiction.
The arbitrator shall not, however, be empowered to award damages in excess of
compensatory damages.
9.3 LITIGATION. The only circumstance in which a dispute between the
parties will no be subject to the provision of Sections 9.1 and 9.2. above, is
when a part) makes a good faith determination that a breach of the terms of this
Agreement by the other party is such that the damages to such party resulting
from the breach will be so immediate, so large or severe, and so incapable of
adequate redress after the fact that a temporary restraining order or other
immediate injunctive relief is the only adequate remedy. Except for such relief,
the parties shall resolve their disputes, whether or not such relief is granted,
in accordance with the provisions set forth in Sections 9.1 and 9.2.
9.4 CONTINUED PERFORMANCE. Each party agrees to continue performing its
obligations under this Agreement when any dispute is being resolved under his
Article 9, unless and until such obligations are terminated by
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the expiration or termination of this Agreement or by order of a court of
competent authority under SECTION 9.2 or SECTION 9.3.
10. LIMITATION OF LIABILITY
10.1 LIMITATION. IN NO EVENT SHALL EITHER PARTY, OR ITS RESPECTIVE
OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES, BE LIABLE TO THE OTHER FOR ANY
INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY, POTENTIAL OR CONSEQUENTIAL DAMAGES
(INCLUDING, WITHOUT LIMITATION, LOST PROFITS) EVEN IF A PARTLY HAS BEEN
PREVIOUSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL EITHER
PARTY BE LIABLE TO THE OTHER PARTY IN AN AMOUNT GREATER THAN THE AMOUNTS
ACTUALLY PAID BY OC TO IMPROVENET HEREUNDER DURING THE TWELVE (12) MONTHS
PRECEDING THE CLAIM. THIS LIMITATION OF EACH PARTY S LIABILITY IS CUMULATIVE,
WITH ALL PAYMENTS FOR CLAIMS OR DAMAGES IN CONNECTION WITH THIS AGREEMENT BEING
AGGREGATED DURING SUCH TWELVE (12) MONTH PERIOD PRECEDING THE CLAIM TO DETERMINE
SATISFACTION OF THE LIMIT. THE EXISTENCE OF ONE OR MORE CLAIMS WILL NOT ENLARGE
THE LIMIT.
10.2 EXCLUSIONS FROM LIMITATION. The limitation on liability set forth
in Section 10.1 above will not apply with respect to damages arising from or
relating to (i) the willful misconduct or gross negligence of a party; or (ii)
either parties indemnification obligations in Article 11.
11. INDEMNITIES
ImproveNet and OC each agree to indemnify, defend and hold harmless the
other, including its officers, directors, employees, agents, successors, and
assigns from any and all losses, liabilities, damages, judgments and expenses
(including reasonable attorneys' fees and witness fees) ("Losses") arising from
or in connection with any of the following: (a) the death or bodily injury of
any agent, employee, customer, business invitee, or business visitor or other
person caused by the tortuous conduct of the indemnitor, its agent or employee;
(b) the damage, loss or destruction of any real or tangible personal property
caused by the tortuous conduct of the indemnitor, its agent or employer; and (c)
any Loss asserted against the indemnitee but resulting from an act of omission
of the indemnitor in its capacity as an employer of a person.
12. CONFIDENTIALITY.
12.1 CONFIDENTIAL INFORMATION. Each party acknowledges that the other
will receive or have access to confidential or proprietary information of such
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party or of a third party (e.g., OC Preferred Contractors) and in such party's
possession (the "Confidential Information").
12.2 OBLIGATIONS. Each party will use at least the same degree of care
to prevent disclosing to third parties the Confidential Information of the other
as it employs to avoid unauthorized disclosure, publication or dissemination of
its own information of a similar nature, but in no event less than a reasonable
standard of care. A party may disclose Confidential Information of the other to
third parties performing services hereunder where(i) the use of such entity is
authorized under this Agreement, (ii) such disclosure is reasonably necessary to
or otherwise naturally occurs in that entity's scope of responsibility, and
(iii) the disclosure is in accordance with the terms and conditions of this
Agreement. Neither party will (1) make any use or copies of the Confidential
Information of the other except as necessary to perform its obligations under
this Agreement, (2) acquire any right in or assert any lien against the
Confidential Information of the other, or (3) refuse for any reason (including a
default or material breach of this Agreement by the other party) to promptly
provide the other party's Confidential Information (including all copies
thereof) to it if requested in writing to do so. Upon the expiration or
termination for any reason of this Agreement and the concomitant completion of a
party's obligations under this Agreement, each arty shall (except as otherwise
provided in this Agreement), return or destroy, as the other may direct, all
documentation in any medium that contains, refers to, or relates to the other
party s Confidential Information, and retain no copies. In addition, the parties
shall take reasonable steps to ensure that their employees comply with these
confidentiality provisions. The steps taken by a party to ensure such compliance
will be deemed reasonable if they are no less onerous than the steps taken by
the other party.
12.3 The obligations of this Article 12 will not apply to any
particular information which either party can demonstrate: (i) was, at the
time of disclosure to it, in the public domain; (ii) after disclosure to it,
is published or otherwise becomes part of the public domain through no
fault of the receiving party; (iii) was rightfully in the possession of the
receiving party at the time of disclosure to it; (iv) is received from a
third party who had a lawful right to disclose such information to it; or (v)
was independently developed by the receiving party without reference to
Confidential Information of the furnishing party, in addition, a party shall
not be considered to have breached its obligations under this Article 12 for
disclosing Confidential Information of the other party as required to satisfy
any legal demand of a government, judicial or administrative body; provided,
however, that, promptly upon receiving any such request and to the extent
that it may legally do so, such party advises the other party so
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that the other party may take appropriate actions in response to the demand.
12.4 In the event of any disclosure or loss of, or inability to account
for, any Confidential Information of the furnishing party, the receiving party
will notify the furnishing party promptly upon the occurrence of any such event.
12.5 Nothing contained in this Agreement shall be construed as
obligating a party to disclose its Confidential Information to the other party,
or as granting to or conferring on a party, expressly or impliedly, any rights
or license to the Confidential Information of the other party.
12.6 Nothing in this Agreement shall be construed to prevent either
party from obtaining, developing or using services or products itself or
provided by a third party as permitted by this Agreement which are similar or
competitive with the services and/or products furnished under this Agreement or
from using ideas, concepts, expressions, skills or experience possessed by
either party prior to, or developed or learned by either party in the
performance of this Agreement, except to the extent inconsistent with the terms
of this Agreement.
13. INTELLECTUAL PROPERTY
13.1 OC TRADEMARKS. OC grants to ImproveNet, during the Term of this
Agreement, a non-exclusive, non-transferable license to use the OC name
trademarks or logo solely in connection with the Services provided to OC
hereunder. Any such use is, however, subject to the prior review and written
approval of OC and must be in accordance with standards and specifications for
such use provided to ImproveNet by OC. Except for the foregoing right to use, no
right or license to any trademark or tradename of OC shall be deemed to be
granted to ImproveNet by any provision hereof or by the performance of this
Agreement by either party. This license expires immediately upon termination or
expiration of this Agreement.
13.2 IMPROVENET TRADEMARKS. ImproveNet grants to OC during the Term of
this Agreement a non-exclusive, non-transferable license to use the ImproveNet
name, trademarks and logo solely in connection with the promotion and
advertising of the Services provided to OC by ImproveNet hereunder. Any such use
is, however, subject to the prior review and written approval of ImproveNet, and
must be in accordance with standards and specifications for such use provided to
OC by ImproveNet. Except for the foregoing right to use, no right or license to
any trademark or tradename or logo of ImproveNet shall be deemed to be granted
to OC
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by any provision hereof or by the performance of this Agreement by either
party. This license expires immediately upon termination or expiration of this
Agreement
14. GENERAL PROVISIONS
14.1 BINDING NATURE AND ASSIGNMENT. This Agreement shall be binding on
each of the parties and its respective successors and permitted assigns. Except
as provided below, neither party may assign this Agreement or any rights or
obligations created herewith in whole or in part to any third party without the
prior written consent of the other, and any attempt to do so will be void and of
no effect. Either party may assign its rights and obligations under this
Agreement with the prior written approval of the other party to (i) a third
party that acquires all or substantially all of the assets or stock of the
assigning party, (ii) any subsidiary or Affiliate of the assigning party, or
(iii) a successor in a merger or acquisition of the assigning party; provided,
however that in no event shall such assignment relieve the assigning party of
any of its obligations under this Agreement. For the purposes of this SECTION
14.1, any assignment by operation of law or under an order of any court shall be
deemed an assignment for which prior written consent is required, and any
assignment made without such consent shall be void and of no effect as between
the parties.
14.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement between the parties, and supersedes all other prior or center
contemporaneous communications between the parties (whether written or oral),
with respect to the subject matter contained in this Agreement, including
without limitation that certain agreement titled "General Services Agreement."
No modification or amendment of this Agreement will be effective unless made in
a writing executed by both parties.
14.3 NOTICES. All notices required or permitted under this Agreement
(other than routine operational communications) shall be in writing and shall be
deemed received if sent by one of the following means: (i) upon receipt if
delivered by hand; (ii) one (1) day after being sent by an express courier with
a reliable system for tracking delivery; (iii) three (3) days after being sent
by certified or registered first class mail, postage prepaid and return receive
requested; or (iv) upon confirmed facsimile transmission provided that a copy is
sent by another of the foregoing means all notices will be addressed by a party
to the other as follows:
In the case of IMPROVENET:
ImproveNet, Inc,
720 Bay Road, Suite 200
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Redwood City, CA 94063
Attention: Ron Cooper, CEO
In the base of OC:
Owens Coming
One Owens Corning Parkway
Toledo, Ohio 43659
Attention: President - North America Building Materials
With a copy to:
Owens Corning
Corporate Law Dept.
One Owens Corning Parkway
Toledo, Ohio 43659
A party may change its address from time to time upon prior written
notice to the other specifying the effective date of the new address.
14.4 HEADINGS. The section headings contained in this Agreement are for
reference and convenience only and shall not enter into the interpretation of
this Agreement.
14.5 RELATIONSHIP OF THE PARTIES. ImproveNet, in furnishing Services to
OC hereunder, is acting as an independent contractor and has the sole right and
obligation to supervise, manage, contract, direct, procure, perform or cause to
be performed, all Services to be performed by ImproveNet under this Agreement.
Neither ImproveNet or OC is an agent, partner, joint venturer or fiduciary of
the other party and neither has the authority to represent the other party as to
any matters or to bind the other party to any third parties, except as expressly
authorized in this Agreement.
14.6 SEVERABILITY. In the event that any provision of this Agreement is
found to be unenforceable under applicable law, the parties agree to replace
such provision with a substitute provision that most nearly reflects the
original intentions of the parties and is enforceable under applicable law, and
the remainder of this Agreement shall continue in full force and affect.
14.7 WAIVER OF DEFAULT; CUMULATIVE REMEDIES.
(a) A delay or omission by either party hereto to exercise any
right or power under this Agreement shall not be construed to be a waiver
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thereof. A waiver by either party under this Agreement will not be effective
unless it is in writing and signed by the party granting the waiver. A waiver by
a party of a right under, or breach of, this Agreement will not be construed to
operate as a waiver of any other or successive rights under, or breaches of,
this Agreement.
(b) Except as otherwise expressly provided in this Agreement, all
remedies provided for in this Agreement shall be cumulative and in addition to
and not in lieu of any other remedies available to either party at law, in
equity or otherwise.
14.8 THIRD PARTY BENEFICIARIES. This Agreement is entered into solely
between, and may be enforced only by, CC and ImproveNet. This Agreement shall
not be deemed to create any rights in any third parties, including any suppliers
and customers of a party, or to create any obligations of a party to any third
parties.
14.9 PUBLICITY AND ADVERTISING. The parties agree that any notices or
disclosures to third parties concerning this Agreement or the Services shall be
jointly coordinated and approved in advance by both parties. In addition,
neither party shall use the corporate name or any brand or proprietary name,
mark or logo of the other party for any advertising or promotional purpose
without first submitting such advertising or promotional materials to the other
party and obtaining the prior written consent of such party. Each party agrees
to provide prompt and timely turnaround, not to exceed five (5) business days,
of all such materials submitted to it by the other party hereto.
14.10 FORCE MAJEURE. No party shall be liable for any default or delay
in the performance of its obligations under this Agreement due to an act of God
or other event to the extent that: (i) the non-performing party is without fault
in causing such default or delay; (ii) such default or delay could not have been
prevented by reasonable precautions; and (iii) such default or delay not
reasonably be circumvented by the non-performing party through the use of
alternate sources, work around plans or other means.
14.11 CHOICE OF LAW. This Agreement, and the rights and duties of the
parties arising from or relating to this Agreement or its subject matter, shall
be construed in accordance with the laws of the State of New York, without
regard to its conflicts of laws provisions.
14.12 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original and all of which together shall
be deemed to be one and the same instrument.
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14.13 JOINTLY DRAFTED. This Agreement represents the joint drafting
efforts of the parties and shall not be construed more strictly against one
party than the other.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized representatives as of the Effective
Date.
OWENS CORNING
By: /s/ Jerry Oleschansky
---------------------------------
Name: Jerry Oleschansky
---------------------------------
Title: Vice President - Marketing
---------------------------------
Date: October 22, 1999
---------------------------------
IMPROVENET, INC.
By: /s/ Ronald Cooper
---------------------------------
Name: Ronald Cooper
---------------------------------
Title: President and CEO
---------------------------------
Date: October 26, 1999
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LIST OF EXHIBITS
EXHIBIT A Description of Services
EXHIBIT B Fees for Services
EXHIBIT C Contractor Fees
EXHIBIT D OC Competitors (For Data Protection)
EXHIBIT E OC Competitors (For Exclusivity)
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EXHIBIT A
DESCRIPTION OF SERVICES
A-1 PRIVATE-LABEL CONTRACTOR MATCHING. ImproveNet agrees to provide its
Contractor Matching Service to OC on a Private-Label basis. That is,
ImproveNet will provide an OC branded Contractor Matching Service
through OC's Internet home page and OC's toll-free telephone number.
Such service to be marketed as OC's "Do-it-for-me" Service ("DIF-Me")
or such other name as OC may select. In all situations where DIF-Me
brand is prominently displayed, it shall be followed by the text
"powered by ImproveNet" or such other text as may be agreed to by the
parties. Where OC publishes information regarding the structure and
functionality of the DIF-Me program, OC will use reasonable efforts to
include therein a reference to ImproveNet and an explanation of
ImproveNet's role in the DIF-Me program, but in no event shall OC have
any liability for its failure to so reference ImproveNet.
Customer leads generated through the DIF-Me program will be routed
directly to ImproveNet and managed through its Contractor Matching
Service. All OC-Generated Jobs will be directed, on a priority basis to
OC's "Preferred Contractors" (as defined below). If no Preferred
Contractor is successfully matched to the OC-Generated Job within
forty-eight (48) hours, ImproveNet shall have the right to match such
OC-Generated Job to other ImproveNet Contractors.
A-2 PREFERRED CONTRACTOR SCREENING. OC and/or OC's wholly-owned
subsidiaries, has developed a promotional program with certain
contractors that satisfy and continuously maintain certain criteria
("Preferred Contractors"). Such ImproveNet qualified Preferred
Contractors shall be those to whom ImproveNet shall direct OC-Generated
Jobs. These Preferred Contractors are subjected to an initial
certification and ongoing re-certification by OC in order to maintain
their "Preferred" status. ImproveNet agrees to screen and qualify
contractors for inclusion as Preferred Contractors on behalf of OC in
accordance with selection criteria which are mutually agreed upon by OC
and ImproveNet. During the Term of this Agreement, ImproveNet shall
assist OC with the recruitment of ImproveNet qualified contractors to
OC's Preferred Contractor Program.
A-3 ADVERTISING AND PROMOTIONAL SERVICES. During the Term of this
Agreement, ImproveNet shall provide the following advertising and
promotional services to OC, or at the request of OC, to any
wholly-owned subsidiary of OC (provided that if OC requests ImproveNet
to perform such services for an OC subsidiary, such services will be
performed in lieu of, rather than in addition to, providing such
services to OC):
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A. BANNER ADVERTISING. OC will be represented with continuous banner
advertisements on the ImproveNet Consumer Site and the ImproveNet ProSite at all
time over the term of the Agreement. The style, format and content of such
banner advertising shall be determined by OC in consultation with ImproveNet.
B. BUTTON ADVERTISING. OC will be represented with a continuous
presence on the "button bar" in the relevant sections of both
the ImproveNet Consumer Site and ProSite. Each OC product line
will be represented on the appropriate pages. The style,
format and content of such button shall be determined by OC in
consultation with ImproveNet.
C. ON-LINE PRODUCT BROCHURE. OC's home and building related
products will be continuously featured in an on-line product
brochure on the ImproveNet Consumer Site and the ProSite (if
such brochure is offered on the ProSite). Such brochures will
link directly to the appropriate section of OC's Internet home
page. The placement of OC brochures will be at least as good
as any other brochure on the site. The specific products
included in the brochure, as well as the style, format and
content of the brochure shall be determined by OC, in its sole
discretion but after consultation with ImproveNet.
D. CONSUMER SMARTLEADS. OC has the right to submit SmartLeads to
every ImproveNet customer initiating on the OC site and the
ImproveNet system who submits a job related to any of OC's
product lines throughout the term of this Agreement. In
addition, OC will receive an additional 15,000 SmartLeads per
Contract Year during the Term of this Agreement to use, at its
discretion, from customers initiating on other manufacturers'
sites (e.g., "Find-a-Contractor"). ImproveNet will seek the
permission of the respective manufacturer from whose site the
customer originated ("Host Manufacturer") for OC to submit the
SmartLeads. The Host Manufacturer retains the full authority
to accept or reject OC SmartLeads to consumers originating on
its site. OC, as a Host Manufacturer will also retain this
"veto" right regarding SmartLeads from other manufacturers to
consumers generated by OC. OC SmartLeads will be consistent in
nature (e.g., currently 3 messages per lead) with those agreed
to by other manufacturers in standard signed insertion orders.
E. CONTRACTOR SMARTLEADS. OC has the right to submit SmartLeads to
every ImproveNet contractor responding to a job related to any of OC's product
lines throughout the Term of this Agreement that is generated either by OC or by
the ImproveNet system, provided that such contractor has not opted out of
receiving such third-party promotions. These leads will be submitted to
contractors who are both online and not online through a combination of emails
via the ProSite and fax via the SmartPro
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fax. In addition, OC will receive an additional 15,000 SmartLeads per
Contract Year throughout the Term of this Agreement subject to the host
manufacturer rules as specified in Section D above, on the contractor ProSite
to use at its discretion. OC SmartLeads to contractors will be consistent in
nature with those agreed to by other manufacturers in standard signed
insertion orders.
F. CONTENT INTEGRATION ON IMPROVENET. OC products will continuously
appear in the relevant sections of ImproveNet's Product Showcase. OC will have
the right to have OC products listed in at least as many total listings under
each of the relevant product categories as any other manufacturer displayed,
ImproveNet will work closely with OC to develop advertorial material that will
appear no less than three months each Contract Year in the relevant section of
the ImproveNet Consumer Site and ProSite, assuming that suitable material is
available from OC.
G. HOT LINKS. The ImproveNet Consumer Site and ProSite will be
continuously "hot linked" to the OC Internet site in all places where OC
products are referenced.
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EXHIBIT B
FEES FOR SERVICES
Contract Year 1 - $750,000
Contract Year 2 - $1,000,000
Contract Year 3 - $1,250,000
Fees to be invoiced and paid in monthly installments.
OC Fees for Co-op Advertising.
1) For advertisements that mention ImproveNet, and provide some promotion of
its services, OC will receive fees in an amount not less than ten percent
(10%) of the total cost of the advertisement but not more than twenty-five
percent (25%) of the total cost of the advertisement, the exact percentage
for each advertisement to be agreed upon by the parties based upon the degree
of the ImproveNet promotion. OC shall have the right to receive fees only up
to fifty percent (50%) of the Service Fees for any Contract Year hereunder
with fees from these types of advertisements, subject to the overall cap on
all such fees set forth in Section 3 below.
2) For advertisements that prominently feature ImproveNet and promote
ImproveNet's services, OC will receive fees in an amount not less than
twenty-five percent (25%) of the cost of the advertisement, but not more than
fifty percent (50%) of the cost of advertisement, the exact percentage for
each advertisement to be agreed upon by the parties, based upon the degree of
the ImproveNet promotion.
3) In no event shall OC have the right to total receive fees, pursuant to
this EXHIBIT B, in excess of seventy-five percent (75%) of the total Service
Fees during any Contract throughout the Term of this Agreement. ImproveNet
shall have the right Year to approve the creative content directly related to
the ImproveNet portion of the advertisements and promotions mentioned above,
which approval will not be unreasonably withheld or delayed.
20.
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EXHIBIT C
CONTRACTOR FEES
OC Preferred Contractors who elect to respond and bid on OC-Generated
Jobs will pay ImproveNet Lead Fees according to the following schedule:
<TABLE>
<CAPTION>
LEAD FEE JOB SIZE
----------------- -------------------------
<S> <C>
$0 $500 and below
$10 $501 and above
</TABLE>
Such OC Preferred Contractors who are awarded jobs OC-Generated Jobs will pay
ImproveNet Win Fees according to the following schedule:
<TABLE>
<CAPTION>
Win Fee Job Size
------------------------------------- ---------------------------
<S> <C>
10% $ 500 and below
5% with cap of $ 150 $ 501 - $ 5,000
3% with cap of $ 200 $ 5,001 - $ 10,000
2% with cap of $ 700 $ 10,001 - $ 35,000
2% with cap of $1,000 $ 35,001 - $100,000
1% with cap of $1,500 $100,000 and above
</TABLE>
OC and ImproveNet will jointly agree how to best implement this fee
schedule, in light of ImproveNet technical capabilities and OC Preferred
Contractor acceptance, no later than December 31,1999.
AFFILIATE CONTRACTOR CREDITS
For purposes of this Agreement, an "Affiliate Contractor" shall mean
either OC or a wholly-owned or controlled subsidiary of OC that is in the
business of providing contracting or other services directly to customers.
With respect to any Affiliate Contractor that participates in ImproveNet's
Contractor Matching Service, ImproveNet agrees that each Affiliate Contractor
shall not be obligated to pay any Lead Fees for OC-Generated Jobs provided to
it, and shall be obligated to pay only fifty percent (50%) of any
applicable Win Fee for jobs awarded to it from such OC-Generated Jobs.
However, the parties agree that Affiliate Contractors will be billed and will
pay the full amount of such Lead Fees and Win Fees, but that OC will then be
given a corresponding equal offset or credit against service fees due to
ImproveNet.
ImproveNet will not be obligated to pay a Referral Fee to OC for any
jobs won by Affiliate Contractors or sent exclusively to Affiliate Contractors.
21.
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EXHIBIT D
OC COMPETITORS
(FOR DATA PROTECTION)
The following is a current listing of competitors of Owens Corning,
which listing may be added to, deleted from or amended by Owens Corning from
time to time:
<TABLE>
<S> <C>
A. INSULATION:
1) Georgia Pacific
2) Guardian Industries/Graham
3) Knauf
4) Manson (Canada)
5) Ottawa Fiber (Canada)
6) Amoco (Foam)
7) Atlas (Foam)
8) BASF (Foam)
9) Celotex (Foam)
10) Dow (Foam Board)
11) Certain Teed St. Gobain (CSG)
12) Firestone (Foam)
13) Johns-Manville/J-M/Schuller
14) Tenneco (Foam Board)
B. INSULATION: MINERAL WOOL
1) American Rockwool
2) Fibrex
3) Rockwool International
4) Rockwool Manufacturing
5) Roxul
6) USG
C. ROOFING & ASPHALT
1) Atlas Roofing
2) Bird
3) BPCO (Canada)
4) Celotex
5) Certain Teed
6) Chevron
7) Cross
8) Custom
9) Eagle
10) Elk
11) GAF
22.
<PAGE>
12) Globe Building Materials
13) GS
14) IKO (US and Canada)
15) Koch
16) Leatherback Industries (owned by GAF)
17) Lundy Thagard
18) Marlarkey
19) Neste
20) Northern Globe
21) Pabco
22) San Joaquin
23) Seneca
24) Tanko
25) US Intec (owned by GAF)
D) EXTERIOR SYSTEMS - VINYL MANUFACTURING
1) Certain Teed
2) Alcoa
3) Jannock
4) Variform
5) Royal
6) Gentek
7) Alside
8) Vipco
9) Kcan
E) EXTERIOR SYSTEMS - METALS
1) Alcoa
2) Gentek
3) Commonwealth Aluminum
4) Napco
5) Rolex
6) Quality Aluminum
7) Kcan
8) First American Resources aka Coil Coaters of
America
9) Jupiter Aluminum
F) EXTERIOR SYSTEMS - DISTRIBUTION
1) Alside
2) Cameron Ashley
3) ABC Supply
4) Ted Lansing Supply
5) Gentek
6) Kcan
23.
<PAGE>
7) First Alabama
8) Allied Building Supply
9) Modern Building Supply
G) EXTERIOR SYSTEMS - FABWEL
1) Certain Teed
2) Master Shield
3) Elixir Industries
4) Goldshield - a division of Fleetwood Enterprise
5) Miles
6) Amerimax Building Products
7) Mende
8) Variform - through GP
9) Vipco
10) Mastic (Alcoa)
(H) EXTERIOR SYSTEMS - CULTURED STONE
1) El Dorado
2) Coronado
3) Centerion
</TABLE>
24.
<PAGE>
EXHIBIT E
OC COMPETITORS
(FOR EXCLUSIVITY)
<TABLE>
<S> <C>
1. Guardian Industries/Graham
2. Knauf
3. Celotex
4. Certain Teed St. Gobain
5. Johns-Manville/J-M/Schuller
6. Elk
7. GAF
8. IKO
9. Tamko
10. Alcoa
11. Jannock
12. Alside
</TABLE>
25.
<PAGE>
Exhibit 10.17
COLLABORATION AGREEMENT
This Agreement is dated the 3rd day of December 1999 (the "Effective
Date") and is made between E. I du Pont de Nemours and Company
("DuPont"), a Delaware corporation, having its principal place of
business at 1007 Market Street, Wilmington, Delaware 19803, and
ImproveNet, Inc. ("ImproveNet") a Delaware corporation, having its
principal place of business at 720 Bay Road, Redwood City, California
94063.
WHEREAS:
A. ImproveNet has developed and operates an internet based service
providing content on products and services to consumer endusers and
matching consumer endusers with builders/remodelers.
B. DuPont, among other businesses, develops, manufactures and sells
materials for countertops and other residential products.
C. ImproveNet wishes to receive from DuPont content for consumer endusers
and both wish to collaborate in the areas of brand awareness, marketing
and revenue generation.
D. Further, the parties acknowledge and understand that DuPont's
participation in the collaboration contemplated by this Agreement and
its corresponding obligations are limited to DuPont's
Corian-Registered Trademark- surfaces SBU and no other business of
DuPont is bound by any provision of this Agreement or arrangements
contemplated hereby unless and until such DuPont business agrees to
participate.
E. The parties intend to exchange with each other the services described
in this Agreement at a mutually agreed upon value in recognition that a
precise valuation of the services provided by one party to the other
party is not readily quantifiable.
IT IS HEREBY AGREED AS FOLLOWS;
1. IMPROVENET OFFERING TO DUPONT
1.1 During the entire term of this Agreement, ImproveNet agrees to
provide the following to DuPont:
(a) BANNER ADVERTISING - ImproveNet will add and maintain at least one
banner advertisement on consumer site and prosite ("Sites") rotating
through pages of the Sites that are most relevant to DuPont
Corian-Registered Trademark- surfaces products ("Products") as
mutually agreed upon by the parties and documented in Exhibit I to
this Agreement. The content for each banner shall be provided by
DuPont in a form to be mutually agreed upon with the content subject
to change up to twelve times each year at no cost to DuPont.
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(b) BUTTON ADVERTISING - ImproveNet will add and maintain a button
identifying DuPont with continuous presence on button bar for the Sites
rotating through pages of the Sites that are most relevant to DuPont
Products as mutually agreed upon by the parties and documented in
Exhibit I to this Agreement. The content for each button shall be
provided by DuPont in a form to be mutually agreed upon with the
content subject to change up to twelve times each year at no cost to
DuPont.
(c) ON-LINE PRODUCT BROCHURE - ImproveNet will add and maintain an on-line
brochure for Products using content supplied by DuPont in a form to be
mutually agreed upon and linked to the DuPont Corian-Registered
Trademark- website. The content will be subject to change up to three
times each year at no cost to DuPont.
(d) MESSAGE BOARD SPONSORSHIP - DuPont will be credited as an official
sponsor and the countertop sponsor as defined in Section I, 1(g) below
of Kitchen Ideas message board with a banner permanently added and
maintained on top of the message board. DuPont may provide information
to respond to messages received. DuPont, or parties authorized by
DuPont shall use reasonable efforts to respond to messages received
with objective information. ImproveNet will have the final editorial
authority.
(e) PRODUCT SHOWCASE - ImproveNet will prominently feature Products in all
product categories on the Sites most relevant to Products as mutually
agreed upon by the parties and documented in Exhibit I to this
Agreement. The content for Products shall be provided by DuPont in a
form to be mutually agreed upon with the content subject to change up
to six times each year at no cost to DuPont. DuPont will have at least
as many products featured as any other manufacturer in each relevant
category.
(f) HOT LINKS - ImproveNet will add and maintain hot links between the
Sites and the DuPont Corian-Registered Trademark- website.
(g) COUNTERTOP CONTENT SPONSORSHIP - DuPont shall be the exclusive provider
of Countertop content on the Sites. For the purposes of this
Agreement, "Countertop" is defined as a horizontal work surface
located in a residential kitchen, bathroom, wet bar, or home office.
DuPont shall provide to ImproveNet fully developed content to add and
maintain on the Sites. ImproveNet reserves the right to edit the
content provided by DuPont but not to change the substantive
information without giving DuPont the ability to comment on the
proposed edit. If ImproveNet wishes to make available to its users
certain Countertop content, and such content either is not available
from DuPont or, in the reasonable opinion of ImproveNet, is not of
acceptable quality, then ImproveNet will notify DuPont of the content
ImproveNet wishes to obtain. If DuPont is not able to commence
provision of such content within thirty (30) business days of such
request, then ImproveNet shall be permitted to present such content
provided by a third party.
(h) SERVICE PROVIDER SCREENING - ImproveNet will screen/evaluate service
providers identified by DuPont using criteria established by ImproveNet
for all service providers to ImproveNet, ImproveNet will work with
DuPont to inform and educate DuPont's
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fabricator and distributor network on ImproveNet's offering through
attendance at meetings/conferences of DuPont's fabricator and
distributor network at no cost to DuPont.
(i) SITE ENHANCEMENT - ImproveNet will modify its site to enable early
indication of consumer's interest in Countertops and. other aspects
necessary for effective utilization of Smart Lead Messaging (as
hereinafter defined in section 4 below).
(j) DATABASE ACCESS - ImproveNet will provide DuPont information drawn from
ImproveNet's databases of consumers and contractors. The information
will be defined by DuPont and be necessary for effective utilization of
Smart Lead Messaging subject to ImproveNet's privacy policy as
communicated on the Sites.
1.2 CONSIDERATION. In consideration for the ImproveNet offering to
DuPont for the year 2000, DuPont agrees to pay ImproveNet the amount
of One Million Dollars ($1,000,000). The consideration for subsequent
calendar years during the term of this Agreement shall be negotiated
by the parties prior to the beginning of each calendar year with the
expectation that the value of each Party's offering to the other Party
shall be commensurate. The Parties shall invoice each other on a
calendar quarter basis for one fourth of the total amount of
consideration charged for each calendar year of this Agreement.
Invoices shall be payable net 30 days from the date of such invoice.
2. DUPONT OFFERING TO IMPROVENET
2.1 During the entire term of this Agreement, DuPont agrees to provide
the following to ImproveNet;
(a) CO-BRANDED ADVERTISING - DuPont will develop co-branded advertising
with ImproveNet to build awareness of ImproveNet's Sites. ImproveNet
will participate in all aspects of creative development and media
placement that pertains to ImproveNet's presence in the co-branded
advertising campaign. DuPont retains final editorial and creative
decision with ImproveNet having a right of refusal. DuPont will not be
required to materially alter or revise its advertising strategies and
plans to implement the co-branded advertising campaign.
(b) DIRECT MAIL INSERTS - DuPont will include promotional material supplied
by ImproveNet in direct mailings sent by DuPont in response to certain
programs identified by DuPont. The material from ImproveNet shall be
developed at no cost to DuPont and must be in a mutually agreed upon
format appropriate to the direct mailing and DuPont's brand aesthetics.
DuPont's material for direct mail it send shall be developed at no cost
to ImproveNet. The total value to ImproveNet of the Co-Branded
Advertising and Direct Mail Inserts, should be equal to or greater than
$1,000,000 annually and will be determined on the following scale:
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<PAGE>
- For advertisements and inserts that mention ImproveNet and
provide some promotion of its services. DuPont will receive
credit in an amount not less than ten percent (10%) of the
total net media value of the advertisement, but not more than
twenty-five percent (25%) of the total Net media value of the
advertisement, exact percentage to be mutually agreed upon by
the parties based upon the degree of the ImproveNet promotion.
- For advertisements and inserts that prominently feature
ImproveNet, and promote ImproveNet's services, DuPont will receive
credit in an amount not less than twenty-five percent (25%) of the
total net media value of the advertisement, but not more than
fifty percent (50%) of the total net media value of the
advertisement, the exact percentage to be mutually agreed upon by
the parties based upon the degree of the ImproveNet promotion.
- For advertisements and inserts that prominently feature ImproveNet
more than DuPont, and promote ImproveNet's services, DuPont will
receive credit in an amount not less than fifty percent
(50%) of the total net media value of the advertisement,
but not more than ninety percent (90%) of the total net
media value of the advertisement, the exact percentage to be
mutuallY agreed upon by the parties based upon the degree of the
ImproveNet promotion.
(c) TRADE SHOW PRESENCE - DuPont will make available to ImproveNet
reasonable space in DuPont's trade show booth at selected major
industry shows for signage and live site demonstrations by ImproveNet.
The signage, content and structure of the materials for inclusion in
the trade show booth shall be supplied at no cost to DuPont and must be
in a mutually agreed upon format appropriate to DuPont's booth and
DuPont's brand aesthetics identity.
2.2 CONSIDERATION. In consideration for the DuPont offering to
ImproveNet for the year 2000, ImproveNet agrees to pay DuPont the
amount of one million dollars ($1,000,000). The consideration for
subsequent calendar years during the term of this Agreement shall be
negotiated by the parties prior to the beginning of each calendar
year with the expectation that the value of each Party's offering to
the other Party shall be commensurate. The Parties shall invoice
each other on a calendar quarter basis for one fourth of the total
amount of consideration charged for each calendar year of this
Agreement. Invoices shall be payable net 30 days from the date of
such invoice.
3. EXCLUSIVITY. During the term of this Agreement, ImproveNet agrees
not to enter into relationships with (i) other manufacturers of
countertop materials other than with DuPont for advertising
(including banners and buttons), sponsorships, and other mutually
agreed upon ImproveNet offerings in the Sites and (ii) other
manufacturers of solid surface materials other than DuPont for Smart
Leads and Brochure Showcase. In addition, only for Smart Leads and
Brochure Showcase, ImproveNet may enter into relationships with the
specifically identified brands of laminate products identified on
Attachment A to this Agreement. Upon written request from
ImproveNet, DuPont may waive this restriction for other
manufacturers of countertop materials DuPont will
4
<PAGE>
inform ImproveNet whether it will waive this restriction within
sixty (60) days of receiving the request, ImproveNet retains the
right to include any manufacturer in the Design Gallery, Product
Showcase and any other editorial feature provided DuPont products
are always prominently featured in all relevant sections of the
Sites as mutually agreed upon by the parties. ImproveNet retains the
right to charge any manufacturer for live links from ImproveNet to
the manufacturer's site except Banners and Burtons. During the term
of this Agreement, DuPont agrees that the DuPont Corian-Registered
Trademark- business will not establish a similar relationship with
another third party, non- DuPont, based residential remodeling
contractor referral site.
4. SMART LEADS MESSAGING. ImproveNet has a system of issuing leads to
customers who access the Sites arid contractors who are service
providers qualified with ImproveNet during certain steps in the
process of project or job evolution ("Smart Leads Messaging"), DuPont
desires to participate in ImproveNet's Smart Leads Messaging Program
at times currently designed by ImproveNet and upon ImproveNet's
enhancing the Sites at times other than currently designed by
ImproveNet; for example, prior to job submission for referrals and
upon job completion. DuPont and ImproveNet shall mutually agree upon
the timing and content and other criteria for each Smart Lead sent by
ImproveNet based on meeting DuPont's objective to increase brand
awareness and revenue generation. DuPont agrees to pay for Smart Leads
generated wing this criteria at rates to be attached as Exhibit II to
this Agreement. The cost for Smart Leads shall be fixed for the term
of the Agreement with the total cost varying based on number of
messages sent during a billing period.
5. FIND A CONTRACTOR. DuPont will place a button to ImproveNet, entitled,
"Find A Contractor", on the DuPont Corian-Registered Trademark-
website. Consumers submitting a project to ImproveNet through this
button link will be referred, on an exclusive basis, to DuPont service
providers qualified with ImproveNet. If after forty eight hours after
the initial referral a sufficient number (a maximum of four) of DuPont
service providers have not responded to the lead, the project will be
offered to other qualified service providers in the ImproveNet
network. ImproveNet agrees to pay DuPont a fee of $15 on all
real billable jobs valued greater than Five Hundred Dollars
($500) submitted to ImproveNet that originate from the DuPont
Corian-Registered Trademark- website. A "real billable job" means that
all information required from consumer is obtained and interest
request sent to an ImproveNet service provider. ImproveNet shall
report on a calendar quarter basis the billable jobs and submit
payment to DuPont for the fees on the billable jobs.
6. BRAND PROTECTION. Recognizing the importance of maintaining the
strength, market presence, and integrity of DuPont's brand, ImproveNet
will consult with DuPont on removing or modifying any ImproveNet
service or other offerings which DuPont deems will dilute or adversely
impact the DuPont brand.
7. IMPLEMENTATION. Implementation of the arrangements as described in this
Agreement including content providing and access to sites shall require
execution of licenses and other agreements by the parties containing
terms and conditions typical of interact based
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business. Such agreements shall be completed promptly (within forty
five (45) days from execution) after execution of this Agreement and
must be in place before sharing of data or providing access.
8. TERM; TERMINATION.
8.1 TERM. This Agreement shall commence on the Effective Date and shall
continue in full force and effect until December 31, 1999 ("1999 Term")
and thereafter automatically renew for a period of four(4) years
("Initial Term") subject to the provisions hereof, as provided for
below, Prior to the end of the Initial Term of this Agreement, if
DuPont decides to continue this Agreement it will notify ImproveNet and
a new agreement will be executed containing the same or different terms
and conditions, Termination shall nor relieve either party of any
rights, obligations, or liabilities arising prior to termination of
this Agreement, Termination of this Agreement in accordance with the
provisions of this Agreement shall be without liability and neither
DuPont or ImproveNet shall be liable, or responsible to the other for
termination compensation or payments of any kind, including but not
limited to, investment, promotion or selling expense payments.
8.2 EARLY TERMINATION. Either party may terminate this Agreement without
cause upon ninety (90) days prior written notice to the other party to
be effective at any time after December 31, 2000, or any renewal term
of this Agreement. Either party may terminate this Agreement at any
time during the Initial Term or any renewal term immediately by notice
to the-other party upon the occurrence of any of the following events
of default by the other party:
(a) The other party fails to observe, perform or fulfill any of
its obligations or warranties (other than confidentiality
obligations) under the Agreement and fails to cure such
default within thirty (30) days after the non-defaulting party
gives written notice of such failure;
(b) The other party fails to observe, perform or fulfill any
confidentiality obligation imposed hereunder and fails to cure
such default within ten (10) days after the non-defaulting
party gives notice of such failure;
(c) The other party's business is liquidated, dissolved or
suspended;
(d) The other party's adverse change in financial condition that
materially impairs its ability to perform its obligations
under this Agreement; or
(e) The other party's organization, ownership, operation, or
business philosophy change in a manner which in the other
party's judgment conflicts with such party's business
objectives set forth in this Agreement.
8.3 SURVIVAL. The provisions of the Agreement, which by their nature are
intended to survive termination or expiration of this Agreement, shall
survive expiration or termination of this Agreement.
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9. MANAGEMENT OF THE COLLABORATION
9.1 To facilitate the anticipated scope and importance of the alliance
created by this Agreement, the parties will jointly establish teams to
execute the terms of this alliance, and these teams will be located to
facilitate communications, e.g., Redwood City, Wilmington.
9.2 If ImproveNet considers an international development and deployment of
the ImproveNet strategy, ImproveNet will consult with DuPont. If
interested, DuPont and ImproveNet may enter into a separate alliance
for the international development and deployment of the ImproveNet
strategy.
9.3 The parties will meet periodically in person or by telephone (and at
least once per calendar quarter) to discuss operations of this
collaboration, possible changes to the collaboration and possible
additional areas of collaborative activity,
9.4 The parties work together to maximize opportunities between the
companies and to mutually agree on goals and measurable metrics to
demonstrate increase in desired economics.
10. PROPRIETARY RIGHTS AND CONFIDENTIALITY.
10.1 PROPRIETARY INFORMATION. "Proprietary Information" means any data or
information regarding (i) the business operations of a party which is
not generally known to the public and affords such party a competitive
advantage, including but not limited to, information regarding its
products and product development, suppliers, marketing strategies,
finance, operations, customers, sales, and internal performance
results; (ii) proprietary software, including but not limited to;
concepts, designs, documentation, reports, data, specifications, source
code, object code, flow charts, file record layouts, databases,
inventions and trade secrets, whether or not patentable or
copyrightable; and (iii) the terms and conditions of this Agreement.
10.2 OWNERSHIP AND PROTECTION. Each parry agrees that it has no interest in
or right to use the Proprietary In. formation of the other except in
accordance with the terms of this Agreement. Each party acknowledges
that it may disclose Proprietary Information to the other in the
performance of this Agreement. The party receiving the Proprietary
Information shall (i) maintain it in strict confidence and take all
reasonable steps to prevent its disclosure to third panics, except to
the extent necessary to carry out the purposes of this Agreement,, in
which case these confidentiality restrictions shall be imposed upon the
third parties to whom the disclosures are made; (ii) use at least the
same degree of care as it uses in maintaining the secrecy of its own
Proprietary Information (but no less than a reasonable degree of care);
and (iii) prevent the removal of any proprietary, confidential or
copyright notices placed on the Proprietary Information.
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10.3 LIMITATION. Neither party shall have any obligation concerning any
portion of the Proprietary Information of the other which (i) is
publicly known prior to or after disclosure hereunder other than
through acts or omissions attributable to the recipient or its
employees or representatives; (ii) as demonstrated by prior written
records, is already known to the recipient at the time of disclosure
hereunder; (iii) is disclosed in good faith to the recipient by a third
party having a lawful right to do so; or (iv) is the subject of written
consent of the party which supplied such information authorizing
disclosure; (v) is required to be disclosed by the receiving party by
applicable law or legal process, provided that the receiving party
shall immediately notify the other party so that it can take steps to
prevent its disclosure; or (vi) is independently developed by the
recipient by personnel having no knowledge of the disclosure hereunder.
10.4 REMEDIES FOR BREACH. In the event of a breach of this Section 9, the
parties agree that the non-breaching party may suffer irreparable harm
and the total amount of monetary damages for any injury to the
non-breaching party may be impossible to calculate and would therefore
be an inadequate remedy. Accordingly, the parties agree that the
non-breaching party may be entitled to temporary, preliminary and
permanent injunctive relief against the breaching party, its officers
or employees, in addition to such other rights and remedies to which it
may be entitled at law or in equity.
11. INTELLECTUAL PROPERTY MATTERS.
11.1 Each party shall retain sole rights to any intellectual property
developed by that party independently of the collaboration pursuant to
this Agreement;
11.2 The parties shall jointly own any intellectual property which arises
out of the collaboration pursuant to this Agreement provided that if
one party specifies and funds particular research activities, such
party shall have sole rights to any intellectual property arising out
of such research activities
11.3 All content and material provided in any format by DuPont for use by
ImproveNet under this Agreement shall remain the sole property of
DuPont. DuPont retains all rights of ownership and use including
copyright, trademark, patent, etc. to the content and material
including the right to use on any other interact based medium.
11.4 Nothing contained in this Agreement shall, by express grant,
implication, estoppel or otherwise, creates in either party any right,
title, interest, or license in or to the inventions, patents, technical
dam, computer software, or software documentation of the other party.
12. DISPUTE RESOLUTION. In the event of a dispute between the parties and
for which dispute the parties are unable to reach a mutually agreeable
resolution, the dispute shall be submitted to arbitration under the
commercial arbitration rules of the American Arbitration Association
then in effect. There shall be one arbitrator mutually agreed to by
both parties; such arbitrator shall have experience in the area of
controversy. After the hearing, the arbitrator shall decide the
controversy and render a written decision
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setting forth the issues adjudicated, the resolution thereof and the
reasons for the award. The award of the arbitrator shall be
conclusive. Payment of the expenses of arbitration, including the
fee of the arbitrator, shall be assessed by the arbitrator based on
the extent to which each party prevails.
13. MISCELLANEOUS PROVISIONS.
13.1 INVESTMENT. This Agreement is subject to the execution and delivery of
the Series E Preferred Stock and Warrant Purchase Agreement on or about
November 19, 1999.
13.2 FEES; NO BROKERS. Except as expressly provided herein, each party shall
bear its own costs incurred in performing under this Agreement. Without
limiting the generality of the foregoing sentence, ImproveNet
represents and warrants to DuPont, and DuPont represents and warrants
to ImproveNet that no broker, finder, investment banker or other party
is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement.
13.3 SEVERABILITY. If any term of this Agreement is held as invalid or
unenforceable, the remainder of this Agreement shall not be affected,
and each term and provision shall be valid and enforced to the fullest
extent permitted by law.
13.4 ASSIGNMENT. This Agreement and any interest hereunder shall inure to
the benefit of and be binding upon the parties and their respective
successors, legal representatives and permitted assigns. Upon prior
notice to the other party, either party may assign this Agreement (i)
to any legal entity in connection with the merger or consolidation of
the assigning Party into such entity or the sale of all or
substantially all of the assets of the assigning Party to such entity;
or (ii) to any direct or indirect subsidiary of the assigning parry in
connection with any corporate reorganization. Except as stated in the
previous sentence, neither party may assign or delegate this Agreement
without the other party's prior written consent, which consent shall
not be unreasonably withheld. Any attempt to assign, delegate or
otherwise transfer the Agreement in violation of this Section 10 is
voidable by the other party.
13.5 INDEPENDENT CONTRACTORS. It is expressly agreed that ImproveNet and
DuPont are acting under this Agreement as independent contractors, and
the relationship established under this Agreement shall not be
construed as a partnership, joint venture or other form of joint
enterprise. Neither parry is authorized to make any representations or
create any obligation or liability, expressed or implied, on behalf of
the other party, except as may be expressly provided for in this
Agreement.
13.6 ACCESS TO BOOKS AND RECORDS. The parties shall keep complete, accurate
and up-to-date books and records in accordance with generally accepted
accounting principles and sound business practices covering all
transactions relating to this Agreement. Either party and/or its
authorized representatives shall upon reasonable notice have the right
(not more than once annually) to inspect, audit, and/or copy such
records in order to determine whether all provisions of this Agreement
have been met. The parties agree
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that all information and records obtained in such audit shall be
considered Proprietary Information. This right to audit shall be
available to either party for up to two (2) years following the
termination of this Agreement.
13.7 NOTICES. All notices, requests, demands and other communications
(collectively, "Notices") required or permitted by this Agreement shall
be in writing and shall be delivered by hand, telex, telegraph,
facsimile or like method of transmission or mailed by registered or
certified mail, return receipt requested, first class postage prepaid,
addressed as follows:
If to DuPont:
DuPont Corian-Registered Trademark-
E. I. du Pont de Nemours and Company
P.O. Box 80012
Wilmington, DE 19850-0012
Attn: Global Communications Manager
Fax:
If to ImproveNet:
ImproveNet, Inc.
720 Bay Road
Redwood City, California 94063
Attn:
Fax:
If delivered by hand, telex, telegraph, facsimile or like method of
transmission, the date on which a Notice is actually delivered shall be
deemed the date of receipt and if delivered by mail, the date on which
a Notice is actually received shall be deemed the date of receipt.
Either party may change the address or designated person for receiving
Notices by providing notice in accordance with this Section 11.g.
13.9 EXHIBITS. This Agreement incorporates the attached Attachment, Exhibits
and any subsequent Attachments, Exhibits or schedules referencing this
Agreement.
13.10 Y2K.
Each party covenants and agrees that it will not permit a Year 2000
Problem to computer systems, software or equipment owned, leased or
licensed by it, its affiliates or subsidiaries to interfere with its
performance under this Agreement. This undertaking is subject to any
standard of performance or any excuse for non-performance provided in
this Agreement, at law, or in equity. Each party further agrees, to the
extent that the party deems it appropriate, to request, from those of
its suppliers whose performance may materially affect that party's
performance hereunder, that each such supplier undertake the same
obligation with respect to such material performance. The parties will
use reasonable commercial efforts to cooperate and share information to
further comply with this section, and to minimize the impact of any
Year 2000 Problem
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on performance of this Agreement. Each party will inform the other
party of any circumstance indicating a possible obstacle to such
compliance, and the steps being taken to avoid or overcome the
obstacle. Provided a party complies with the previous paragraph, it
will not be liable to the other party for any failure to perform
obligations under this Agreement to the extent such failure arises
from a Year 2000 Problem (l) affecting one of the non-performing
party's suppliers or (2) beyond that party's reasonable control
(e.g., a Year 2000 Problem affecting a governmental entity). IN
PARTICULAR, SUCH NON-PERFORMING PARTY SHALL HAVE NO LIABILITY FOR
ANY DAMAGES, INCLUDING DIRECT, INDIRECT, INCIDENTAL, SPECIAL,
CONSEQUENTIAL, PUNITIVE OK EXEMPLARY DAMAGES.
A "Year 2000 Problem" means a date handling problem relating to the
Year 2000 date change that would cause a computer system, software or
equipment to fail to correctly perform, process and handle date-related
data for the dates within and between the twentieth and twenty-first
centuries and all other centuries.
13.10 GOVERNING LAW. This Agreement is to be construed, and the respective
rights of DuPont and ImproveNet are to be determined, according to the
laws of the State of Delaware, without regard to choice of law or
conflicts principles of such other state which might otherwise be
applicable, and the courts of Delaware shall have exclusive
jurisdiction over any disputes, controversies or issues arising under
this Agreement. This Agreement shall not be governed by the United
Nations Convention on Contracts for the International Sale of Goods.
13.11 ENTIRE AGREEMENT/AMENDMENTS. This Agreement including all exhibits
attached hereto, contains the entire agreement between the parties
covering the subject matter hereof and supersedes all prior and
contemporaneous proposals, discussions and writings by and between the
parties and relating to the subject matter hereof. None of the terms of
this Agreement shall be deemed to be waived by either party or amended
or supplemented unless such waiver, amendment or supplement is written
and signed by both parties. The invalidity or unenforceability of any
particular provision of this Agreement, as determined by any court of
competent jurisdiction or any appropriate legislature, shall not affect
the other provisions hereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision had been
omitted. No usage of trade or industry course of dealing shall be
relevant to explain or supplement any term expressed in this Agreement.
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IN WITNESS WHEREOF, ImproveNet and DuPont, intending to be legally bound by the
terms of this Agreement, have caused this Agreement to be executed by their duly
authorized representatives.
E.I. DU PONT DE NEMOURS AND COMPANY IMPROVENET, INC.
By: /s/ Keith R. McLoughlin By: /s/ Ronald B. Cooper
-------------------------------- --------------------------------
Name: Keith R. McLoughlin Name: Ronald B. Cooper
------------------------------ --------------------------------
Title: Vice President and Title: President and CEO
General Manager -----------------------------
------------------------------
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Exhibit I
Pages of Consumer Site and Prosite Relevant to DuPont Corian-Registered
Trademark- Products
CONSUMER SITE
Design Gallery - Top Page
Design Gallery - Kitchens
Design Gallery - Baths
Product Showcase - Top Page
Product Showcase - Counters
Product Showcase - Bath Collections
Product Showcase - Kitchen Sinks
Product Showcase - Bath Sinks
Product Showcase - Shower and Tub Enclosures
Product Showcase - Tub and Shower Combos
Expert Advice - Top Page
Expert Advice - Pro Advice Library
Expert Advice - Message Boards - Top Page
Expert Advice - Message Boards - Kitchen Ideas
Expert Advice - Message Boards - Bath Ideas
Expert Advice - Message Boards - Cabinetry and Counters
Manufacturer Listings - Counters
PRO SITE
Design Gallery - Top Page
Design Gallery - Kitchens
Design Gallery - Baths
Product Ideas - Bath
Collections Product Ideas - Bath Sinks
Product Ideas - Counters
Product Ideas - Kitchen Sinks
Product Ideas - Shower & Tub Enclosures
Product Ideas - Tub and Shower Combos
Manufacturer Listings - Counters
Important Notes regarding relevant pages
- Not all relevant pages accept banner and button advertising.
This is not a guarantee that a banner/button for DuPont
Corian-Registered Trademark- will always be found on one of
these pages.
- New pages are added to both the consumer and ProSite on a
regular basis. Part of the management of the collaboration
will be keeping DuPont up to speed on planned editorial
changes in the site and determining the relevance of each.
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Exhibit II
Smart Leads Program
The base cost per message ($3.00 - $5.00 based on segmentation)
will remain the same for duration of the Agreement, but the total cost will
change depending upon the number of messages sent and the return to DuPont
from the SmartLeads. The estimated costs below are for 2000, ImproveNet
will update the projections annually during DuPont's budgeting cycle.
DuPont will be billed only for the actual number of messages sent if the
true number falls below the estimates. If the number of messages surpasses
estimates, DuPont will be receiving those additional messages at no
additional charge.
ImproveNet will send custom SmartLeads to the following groups:
1. To selected homeowners submitting a kitchen or bath remodeling project
- Estimated number of jobs submitted to ImproveNet - 120,000
- Cost per message - $3.00, with no segmentation of budget or
geography, additional $0.50 per segment.
- Total Net Maximum Cost - $360,000
2. To contractors working with homeowners on above projects
- 80,000 contractor messages sent
- Cost per message - $3.00
- Total Net Maximum Cost - $240,000
3. To recent purchasers of DuPont products
Post project offer to recent purchasers to include DuPont
Corian-Registered Trademark- on their next project
- Estimated 16,000 messages
- Cost per message - $3.50
- Total Net Maximum Cost - $56,000
4. To "Early Birds" consumers who have submitted a project to ImproveNet,
too early to be matched with a service provider.
- Estimated number of "Early Bird" kitchen and bath remodeling jobs
submitted - 5,000
- Cost per message - $3.00
- Total Net Maximum Cost - $15,000
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EXHIBIT 10.18
INTERNET DEVELOPMENT, MARKETING AND DISTRIBUTION AGREEMENT
This INTERNET DEVELOPMENT, MARKETING AND DISTRIBUTION AGREEMENT (the
"Agreement") is dated as of September 10, 1999 (the "Effective Date"), by and
between ImproveNet, Inc., a Delaware corporation, with its principal place of
business at 1286 Oddstad Drive, Redwood City, CA 94063 ("ImproveNet"), General
Electric Company, a New York corporation, ("GE") by and through its General
Electric Appliances operating unit having a place of business at Appliance Park,
Louisville, Kentucky 40225 ("GEA") and GE Capital Equity Investments, Inc.
(solely with regard to Article IV, Section 4.2 hereof).
RECITALS
WHEREAS, ImproveNet, itself and through its affiliates, has developed
and operates a proprietary Internet-based service for matching consumer
end-users with builders/remodelers;
WHEREAS, GEA manufactures and/or sells appliance products and services
to builders/remodelers and desires to strengthen its relationship with
builders/remodelers through a commercial arrangement with ImproveNet;
WHEREAS, ImproveNet wishes to provide builder/remodeler customers and
consumer end-users utilizing the ImproveNet System with linkage to certain
content and capabilities owned or licensed by GEA relating to various GEA
products and services; and
WHEREAS, ImproveNet, GE, GEA and GE Capital Equity Investments, Inc.
have determined that it is in their respective interests to enter into this
agreement;
NOW, THEREFORE, for good and valuable consideration, and in
consideration of the mutual covenants and conditions herein set forth, and with
the intent to be legally bound thereby, ImproveNet and GEA hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINED TERMS. Unless the parties, in writing, agree
otherwise, the following defined terms shall have the meanings set forth herein:
(a) "ABD" means a GEA Authorized Builder-Distributor.
(b) "AFFILIATE" means any entity that controls, is
controlled by, or is under common control with the named entity, whether
directly or through one or more intermediaries. For purposes of this definition
"under common control with," "controlled by" and "control" each refer to
ownership of more than fifty percent (50%) of the voting capital stock or other
interests having voting rights with respect to the election of the board of
directors or similar governing authority.
(c) "HPS" means GEA's Home Products and Services business.
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(d) "IMPROVENET MARKS" means any and all trademarks, trade
names and/or service marks owned by ImproveNet and related to the ImproveNet
System.
(e) "IMPROVENET SYSTEM" means the current ImproveNet.com web
site and all ImproveNet business processes created in support of the
ImproveNet.com website consisting of: (i) ImproveNet's Internet website(s) as of
Effective Date, or ImproveNet's successor websites thereto; (ii) any other
websites or means of electronic display or presentation relating to the
builder/remodeler service process controlled by ImproveNet or its Affiliates
relevant to the builder/remodeler or service process; (iii) software developed
or utilized to create and publish product or service catalogs; and (iv) any
proprietary communications links between the ImproveNet System website and GEA.
(f) "COVERED ITEMS" means any products or services offered
for sale to builders and/or remodelers and End Users by GE in the following
categories: refrigeration, cooking, speed cooking, microwave, laundry,
dishwasher, and room air conditioners.
(g) "CUSTOMER" means any builder or remodeler that uses the
ImproveNet System to obtain access to potential End User buyers of building or
remodeling goods or services.
(h) "END USER" means a visitor to the ImproveNet System,
other than a Customer, who may be an actual or potential purchaser or consumer
of building or remodeling goods and services.
(i) "GEA CONTENT" means GEA product specifications and
descriptions for Covered Items, digitized representations of GEA products, and
any other proprietary informational content provided by GEA for placement on or
linkage from or to the ImproveNet System.
(j) "GEA MARKS" means any and all trademarks, trade names,
and/or service marks owned by GE and used in connection with the GEA Content.
(k) "GEA TECHNOLOGY" means: (i) GEA's CustomerNet and
Interactive Design Center sites and related software; (ii) GEA's order entry and
order fulfillment system; and (iii) any Proprietary Information of GEA provided
to ImproveNet under this Agreement.
(l) "INTELLECTUAL PROPERTY RIGHTS" means intellectual
property and/or proprietary rights, including, without limitation, copyrights
(including, but not limited to, rights in audiovisual works, whether or not
registered); moral rights and all other rights in works of authorship; patent
rights (including patent applications and disclosures); rights of priority;
publicity rights, trade secret rights; registered or otherwise protected
trademarks, trade names, and service marks, and protections from trademark
dilution; to the extent that any of the foregoing are recognized in any country
or jurisdiction in the world.
(m) "MEMBER" means a manufacturer or distributor of building
or remodeling supplies or services who contracts with ImproveNet to market goods
or services to Customers or End-users through the ImproveNet System. Members
include those manufacturers and distributors, such as GEA, which are designated
as "Founding Members" by virtue of contracting for terms such as GEA has been
accorded in section 3.3 hereof.
(n) "PROPRIETARY INFORMATION" of a party means any
confidential, proprietary or trade secret information disclosed by a party that
is identified in writing as such at the time of its initial disclosure, or if
initially disclosed in intangible form, is reduced to tangible form and properly
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identified as such within thirty (30) days of initial unmarked disclosure,
however, disclosed, whether orally, visually, electronically, in writing or
otherwise, including without limitation: (i) information disclosed by a party
relating to product development strategy and activity, corporate assessments
and strategic plans, financial and statistical information, accounting
information, software, systems, processes, formulae, inventions, discoveries,
policies, guidelines, procedures, practices, disputes or litigation; (ii)
trade information relating to such party's employees, advertisers, suppliers,
contractors or customers which, if released, would cause an unlawful or
actionable invasion of privacy; and (iii) compilations or summaries of
information or data that is itself Proprietary Information. For purposes of
this Agreement, information shall be deemed to be disclosed by a party if
such information is disclosed by any of its officers, employees, directors,
consultants, agents, representatives or Affiliates.
(o) "STATEMENT OF WORK" means the description of the
parties' responsibilities and implementation schedules set forth in EXHIBIT A.
(p) "ImproveNet Consumer Site" means ImproveNet's
location on the internet where individual consumers access any of
ImproveNet's product and service offering. Currently defined as
www.improvenet.com. In the event ImproveNet defines other URL's for consumers
to access its product and service offering in the future, these sites will
also be included under this definition.
(q) "ImproveNet ProSite" means location or locations on
the internet where individual contractors or groups of contractors access
ImproveNet's complete product and service offering to the contractor network.
The ProSite offering is still under development and will be defined with
specific URLs after completion of this Agreement. All URLs where contractors
will access ImproveNet's product and service offering are included in this
definition.
(r) "SmartLeads" means targeted email messages, either
stand alone messages or embedded as part of a broader message from
ImproveNet, sent to consumers and contractors on behalf of ImproveNet's
manufacturing and service partners such as GEA Appliances.
(s) "Smart Pro Fax" means faxes sent to contractors which
includes a targeted message from an ImproveNet manufacturing and service
partner such as GEA.
(t) "GEA Find A Contractor" means capability to access
ImproveNet content directly on the GE Appliances web site via clicking on a
button on the GE Appliances site that indicates this feature. The name of
such button may vary from "Find a Contractor", per GEA's discretion but must
suggest to the consumer that they will be sent to a site offering content
consistent with ImproveNet's product and service offering and value
proposition.
(u) "Six Sigma Process" means a business process that is
designed using GE's "Six Sigma" quality assurance and improvement process
methodology. This methodology is defined based on GE's internal training
materials for Six Sigma and includes but is not limited to the use of process
mapping and statistics to design and improve processes that best meet the
defined objectives of a company's customers.
(v) "Competitor" means any person, corporation or other
business entity, including their successors, in whole or in part, that
produces or sells Covered Items, including but not limited to the following
corporations: Whirlpool, Maytag, Electrolux (Frigidaire), Amana and Bosch
Siemens.
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ARTICLE II
DEVELOPMENT AND INTEGRATION OF THE IMPROVENET SYSTEM
Section 2.1 DEVELOPMENT OF IMPROVENET SYSTEM. ImproveNet will develop
the ImproveNet System and link GEA Content and transactional capabilities in
accordance with the specifications and schedule set forth in the Statement of
Work. In connection with such development efforts, ImproveNet and GEA will
perform the activities specified in this Article II and the Statement of Work.
Section 2.2 IMPROVENET SYSTEM DESIGN. In consultation with ImproveNet,
GEA will provide design input with respect to ImproveNet's links to GEA
Content and will have final approval of the results of the linkage of the GEA
Content and GEA Technology with the ImproveNet System before such results are
made publicly available. No changes to the overall "look and feel" relating
to GEA Content or GEA Covered Items will be made without prior approval of
GEA. ImproveNet shall not alter the wording or context of any GEA Content
without the prior written approval of GEA.
Section 2.3 RISK MANAGEMENT CONTACT. ImproveNet and GEA will each
designate a risk management contact (collectively, the "Risk Management") as
the primary individuals responsible for facilitating communication between
GEA and ImproveNet regarding the Statement of Work and for coordinating the
development and integration efforts contemplated herein.
(a) MODIFICATIONS TO STATEMENT OF WORK. Upon mutual
written agreement, GEA and ImproveNet may from time to time modify the
Statement of Work, provided that any modifications to the Statement of Work
will be made in a writing executed by each of the parties.
(b) SCHEDULE. GEA and ImproveNet will confer on a regular
basis to assess the status of the development effort with respect to the
agreed-upon schedule for such effort ("Schedule") as indicated on EXHIBIT B
hereto, which may be updated or modified by the parties at any time in a
writing executed by each of the parties hereto.
Section 2.4 DEVELOPMENT PERSONNEL. ImproveNet will dedicate, as mutually
agreed upon by GEA and ImproveNet, sufficient personnel with appropriate risk
management skill to the development and integration effort contemplated by
this Agreement in order to ensure that the ImproveNet System is developed and
integrated in accordance with the Schedule.
Section 2.5 "BEST OF BREED" PERFORMANCE STANDARDS TO BE MAINTAINED BY
IMPROVENET. ImproveNet shall exercise commercially reasonable efforts to
perform its responsibilities set forth in this Agreement so that, to the
extent applicable, the ImproveNet System is competitive with or superior to
any other commercial consumer service-oriented web sites offered in similar
markets to similar customers ("Best of Breed Performance Standards"). For
purposes of this Section, competitiveness or superiority shall be ascertained
on the basis of material, objective performance factors, including response
time, functionality, and reliability. Without limiting the foregoing,
ImproveNet shall, (i) exercise reasonable commercial efforts to ensure that
the ImproveNet System operates twenty-four hours a day, seven days a week,
with no more than five percent (5%) Scheduled Downtime (periods of
unavailability for scheduled maintenance or installation of upgrades), and
(ii) ensure that there is no Scheduled Downtime between 6am and 9pm EST
Section 2.6 GEA ASSISTANCE. GEA will use reasonable commercial efforts
to provide appropriate and timely support to ImproveNet's development and
integration efforts
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Section 2.7 DEVELOPMENT EXPENSES. Except as expressly stated in this
Agreement, ImproveNet will be responsible for its own cost of development of
the ImproveNet System and integration with GEA and will pay for the costs of
the personnel, materials, and facilities it contributes to such effort.
Section 2.8 MAINTENANCE OBLIGATIONS. ImproveNet shall update the
ImproveNet System as promptly as is practicable and at least as often as is
necessary to maintain compliance with any applicable government regulations
and standard industry practices. GEA shall update the GEA Content linked to
the ImproveNet System as promptly as is practicable and at least as often as
is necessary to maintain compliance with any applicable government
regulations and standard industry practices. In addition, the parties will
cooperate to maintain any transactional capabilities between GEA and
ImproveNet as the ImproveNet System upgrades are released.
ARTICLE III
MARKETING AND DISTRIBUTION
Section 3.1 IMPROVENET MARKETING AND DISTRIBUTION RESPONSIBILITIES TO GEA
(a) Paid Banner Advertising - GEA will be represented
with at least one paid banner advertisement on the ImproveNet Consumer Site
and the ProSite (a contractor site now in development), at all times over the
life of the Agreement, including in one or more of the following four
locations on the ImproveNet Consumer Site at ImproveNet's discretion: kitchen
section of the product showcase, kitchen section of the design gallery, lead
banner advertisement on the ImproveNet homepage, or kitchen sections of
version 2.0. Both parties agree that banner locations may be relocated on the
ImproveNet System, provided both parties agree, as the nature of the
ImproveNet System changes over time. GEA, working with ImproveNet, will
determine the GEA Content and linkages associated with the advertisements.
ImproveNet guarantees minimum impressions for each advertisement at a level
at least as high as that guaranteed within its normal signed Insertion Orders
with other manufacturers. Banner sizes and nature will be at least consistent
with (e.g. 488x60), but may exceed the standard advertisement terms agreed to
by other manufacturers in signed Insertion Orders.
(b) Paid Button Advertising - GEA will be represented
with a continuous paid button advertisement on both the ImproveNet Consumer
Site and ProSite over the life of the Agreement. This paid button will be
prominently placed and will be present on all pages of the ImproveNet
Consumer Site and ProSite where there is relevant content for the Covered
Items; provided, however, ImproveNet will place a GEA button in all places
where a Competitor in the Covered Items categories appears on the ImproveNet
Consumer Site and ProSite except the home page of the ImproveNet Consumer
Site, provided that it is free of any button advertising. In the event,
ImproveNet makes the editorial decision to add any button advertising to the
home page of the ImproveNet Consumer Site, a GEA button will be present on
the home page at all times that other button advertising is present on the
ImproveNet Consumer Site homepage. GEA, working with ImproveNet, will
determine the GEA Content and linkages associated with the advertisements.
ImproveNet guarantees minimum impressions for each advertisement at a level
at least as high as that guaranteed within its standard signed Insertion
Orders with other manufacturers. Button sizes and nature will be at least
consistent (e.g. 66 x33) but may exceed the standard advertisement terms
agreed to by other manufacturers in signed Insertion Orders.
(c) On-line Product Brochure - A GEA product brochure,
linked to the
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GEA site, will be part of the ImproveNet Consumer Site and ProSite site for
the entire life of the agreement. GEA and ImproveNet will both work together
in good faith to provide the resources needed to co-design the brochure to be
launched as soon as possible. ImproveNet will agree to link the brochure to
the GEA site if appropriate to eliminate the need for GEA to maintain
multiple versions of brochures.
(d) Hot Links - The ImproveNet Consumer Site and ProSite
will be "hot linked" to the GEA site for the entire life of the Agreement, in
all places where GEA is referenced, unless GEA specifically agrees not to
link specific references.
(e) Consumer SmartLeads - GEA has the right to submit
SmartLeads to every ImproveNet customer initiating on the GEA site and the
ImproveNet System who submits a job related to kitchen designing and
remodeling or general designing and remodeling that include kitchens, for the
entire life of the Agreement. In addition, GEA will receive an additional
20,000 SmartLeads per year during this three-year Agreement to use at its
discretion from customers initiating on other manufacturers sites (e.g. find
a contractor). ImproveNet will seek the permission of the respective
manufacturer whose site the customer originated on ("host manufacturer") for
GEA to submit the SmartLeads. The host manufacturer retains the full
authority to reject GEA SmartLeads to consumers originating on its site. GEA
as a host manufacturer will also hold this veto right regarding leads from
other manufacturers to consumers originating on its site. GEA SmartLeads will
be consistent in nature (e.g. currently 3 messages per lead) with those
agreed to by other manufacturers in standard signed Insertion Orders.
(f) Contractor SmartLeads - GEA has the right to submit
SmartLeads to every ImproveNet contractor (including general and specialty
remodeling contractors, designers and architects) responding to a job related
to kitchen designing and remodeling or general designing and remodeling that
include kitchens, for the entire life of this Agreement that comes from the
ImproveNet System or GEA; provided, that such contractor has not opted out of
receiving third-party promotions. These leads will be submitted to
contractors who are both on-line and not on-line through a combination of
e-mails via the ProSite and fax via the Smart ProFax. In addition, GEA will
receive an additional 20,000 SmartLeads per year during the three-year
agreement subject to the same host manufacturer rules as specified in Section
3.1(e) above, on the contractor ProSite to use at its discretion. GEA
SmartLeads to contractors will be consistent in nature with those agreed to
by other manufacturers in standard signed Insertion Orders.
(g) Product Showcase - Over the entire life of the
Agreement, GEA product will be listed prominently under each of the "covered
product categories" in the Product Showcase and will have the right to have
GEA products listed in at least as many total listings under each of the
"covered product categories" as any other manufacturer displayed.
(h) Support resource - ImproveNet agrees to assign a
full-time individual to maximize opportunities between ImproveNet and GEA. In
addition, ImproveNet agrees to provide the resources required to implement
GEA "Find a Contractor," GEA product brochure, and other system requirements
to ensure GEA is connected to ImproveNet as quickly as possible following the
signing of this Agreement.
(i) GEA contractor screening - (1) ImproveNet agrees to
screen/evaluate any contractors, builders and remodelers suggested by GEA for
inclusion in the ImproveNet System, and (2) said screening/evaluation process
shall be reviewed by GEA pursuant to its Six Sigma Process and GEA will make
suggestions to ImproveNet as to potential changes or improvement; provided,
however, ImproveNet shall in its sole discretion have the right to approve
its screening and evaluation process and
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determine if a contractor, builder or remodeler is included in the ImproveNet
System.
(j) Marketing Data: Consistent with the terms of Article
VII, (1) CUSTOMERS INITIATED ON GEA "FIND A CONTRACTOR": ImproveNet will,
during the term of this Agreement, provide GEA with aggregated customer data
for all customers initiating from the GEA "Find a Contractor" location. Such
data will include, but not be limited to, consumer demographic data captured
by ImproveNet, consumer click through data, and job/purchase basket analysis.
ImproveNet will not share GEA specific data with any other parties, except to
the extent that such data is aggregated with other manufacturer data and is
not identifiable as GEA-specific data, and (2) CUSTOMERS INITIATED ON
IMPROVENET SITE AND OTHER HOST MANUFACTURER SITES: During the term of this
Agreement, ImproveNet will make commercially reasonable efforts to seek
approval of all host manufacturers to provide to ImproveNet overall site and
category level data for all product categories. The host manufacturers retain
the full authority to reject any request for marketing data that includes
consumers originating on their sites.
Section 3.2 GEA MARKETING AND DISTRIBUTION RESPONSIBILITIES TO IMPROVENET
(a) "Find A Contractor": GEA agrees to institute and
support the "Find a Contractor" service for the entire life of the Agreement.
GEA and ImproveNet will work together to execute the foregoing with two
objectives in mind: (1) GEA customers will remain framed within GEA's
websites (unless GEA, at its sole discretion, agrees otherwise). GEA will not
become subject to ancillary liability for customer-contractor-ImproveNet
disputes, except as may pertain to actual or alleged defects in GEA Covered
Items. The precise form of this linkage will be determined by GEA in
consultation with ImproveNet.
(b) GEA Point Person: GEA will support ImproveNet with a
full-time dedicated person devoted to maximizing opportunities between
ImproveNet and GEA (GEA Point Person). This person will be Six Sigma trained
and their job will based on, but not limited to, undertaking the following
activities:
(1) Promotion of Find a Contractor - GEA will work
with marketing and other GEA functional groups to incorporate the ImproveNet
"message" and GEA's implementation of "Find a Contractor" into GEA's general
promotional and communications materials to the trade. GEA will work in good
faith in this area but ImproveNet agrees to understand the broad and diverse
nature of GEA communication materials, the needs and desires of the receiving
parties of the materials, and the lead time associated with working to
include such information in its materials, in its interpretation of "good
faith."
(2) External Communications - GEA will work with
ImproveNet and GEA communications to develop press releases and
communications to other targeted manufacturers regarding the GEA-ImproveNet
relationship and the ImproveNet value proposition.
(3) Trade shows - GEA will coordinate GEA-ImproveNet
co-marketing activities at industry trade shows and events.
(4) Authorized builder distributors - GEA will work
with HPS Marketing to fold the ImproveNet relationship into the ABD Prestige
Remodeling Program including local ABD remodeling events
(5) Sales - GEA will work with GEA sales management
to communicate the ImproveNet relationship to the GEA field sales force.
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(6) BuildNet - GEA will facilitate conversations to
identify and implement mutually agreed upon opportunities between BuildNet,
Inc., ImproveNet, and GEA.
(7) Six Sigma-GEA will complete a project to analyze
ImproveNet's core business processes. Train key ImproveNet personnel on Six
Sigma. Provide ongoing Six Sigma support.
(c) Call center key word search: GEA will build an
ImproveNet marketing message into the Answer Center database by connecting it
to keywords associated with remodeling and the ImproveNet value proposition.
GEA will communicate this added feature to all service representatives in the
Answer Center and will train all GEA service representatives in the Answer
Center to use it. ImproveNet and GEA will work together to script the message
and identify the list of keywords to be used.
(d) Automated call center message: GEA is currently
developing automated, IVR, dealer locator functionality in the Answer Center.
An ImproveNet message will be built into this new feature under remodeling.
(e) Direct marketing: GEA agrees to provide ImproveNet
with the opportunity to insert ImproveNet promotional materials in all third
class direct mailings of GEA's affiliate Warranty Management Inc. each year
for the entire term of the Agreement. Materials to be inserted will be
developed by ImproveNet at their cost and must fit within the specifications
used by GEA with other advertisers. Improvenet's third class mailing
opportunities with GEA are anticipated to number at least 20 million
individual mailing pieces per year. In the event third class mailing
opportunities fall below 20 million pieces, GEA will provide opportunities
for ImproveNet to insert in other class mailings until total opportunities
reach 20 million pieces in a given year.
(f) Direct marketing database: GEA to provide ImproveNet
access to up to 12 "cuts" or "runs" of the GEA direct marketing database over
the three year period. ImproveNet's use of the database must comply with the
standards imposed by GEA in working with other third party users of the
database
Section 3.3 FOUNDING MEMBER AGREEMENT
GEA will be designated as a "founding member" of the ImproveNet manufacturers
partners program. This membership applies to all the Covered Items and
services defined above. As a founding member GEA will receive the following
benefits:
(a) Equity investment exclusivity: During the term of
this Agreement, ImproveNet agrees not to sell any capital stock to any other
manufacturer within the Covered Items categories; provided, however, the
aforementioned limitation shall not apply to any stock sold in the public
market or sold by the Company in any underwritten registration under the
Securities Act of 1933, as amended. GEA maintains the right to waive this
exclusivity right at any time.
(b) Preferred SmartLeads placement: GEA SmartLeads will
be the first manufacturer listed within a message when multiple
manufacturers in the Covered Items categories are submitting a message to a
Customer in the same message. In addition, when both GEA and other
manufacturers in the Covered Items categories submit leads within separate
messages to the same Customer, the GEA SmartLeads will be submitted in
messages that proceed the messages containing
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leads from other manufacturers in the Covered Items categories.
(c) ImproveNet personal project advisors will be trained
to mention GEA first when discussing the Covered Items categories with
consumers.
(d) GEA paid banner and button advertising will receive
at least an equal position to other advertisements from other manufacturers
of the Covered Items when located on the same page
ARTICLE IV
MARKETING ASSISTANCE
Section 4.1 CUSTOMER REFERRALS. For a period of three years commencing
on the Effective Date, GEA agrees to pay ImproveNet the sum of ten dollars
($10.00) for each "completed customer" (the "Fee"). This will be done
quarterly as the data is collected with both parties having appropriate audit
rights. For purposes of this provision, a "completed customer" is defined as
a consumer or contractor that is (i) referred to GEA through a lead initiated
by ImproveNet, including both on-line leads sent electronically and
paper-based leads printed off the ImproveNet System, and (ii) which buys GEA
Covered Items in conjunction with that job as demonstrated by the customer's
submission of an ImproveNet generated coupon pursuant to a promotional
program developed and sponsored by GEA in its sole discretion; provided,
however, the aggregate due to ImproveNet under this Section 4.1 shall not
exceed in the aggregate $500,000 during the first year of this Agreement,
$750,000 in the second year of this Agreement and $1,000,000 during the third
year of this Agreement.
Section 4.2 WARRANT. In recognition of GEA's strategic contribution,
ImproveNet hereby grants to GEA a warrant in the form attached hereto as
EXHIBIT C, the intent and effect of which shall be that in exchange for
agreeing to pay ten dollars ($10.00) per completed customer per job for three
(3) years, GEA will be issued a warrant to purchase 209,000 shares of Series
D Preferred Stock at $0.01 per share. GEA shall receive the warrant
immediately upon the signing of this Agreement. In addition, GE Capital
Equity Investments, Inc. shall be issued a warrant to purchase 117,000 shares
of Series D Preferred Stock at $0.01 per share. In consideration for such
additional warrant, GE Capital Equity Investments, Inc. shall be issued a
warrant to purchase 117,000 shares of Series D Preferred Stock at $0.01 per
share. In consideration for such additional warrant, GE Capital Equity
Investments, Inc. agrees to (a) work with ImproveNet to assist it in
obtaining rights for ImproveNet to receive a preferred choice of time slots
in buying remnant advertising space from NBC, (b) place the "Find a
Contractor" Hotlink on the homepage of at least three of the four strategic
GE businesses (i.e. GE Lighting, GE Plastics, GE Fleet and GE Mortgage) and
(c) include ImproveNet in the GE Advantage program.
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ARTICLE V
LICENSE GRANTS
Section 5.1 LICENSE FOR GEA CONTENT AND GEA MARKS. During the term of
this Agreement, and subject to the terms and conditions of this Agreement,
GEA hereby grants to ImproveNet, in conjunction with ImproveNet's activities
pursuant to this Agreement, a non-exclusive, non-transferable and, pursuant
to the terms of this Agreement, revocable right and license:
(a) to reproduce and publicly display the GEA Content on
or from the ImproveNet System and on or from any co-branded pages (i.e.,
pages identified with both GEA Marks and ImproveNet Marks, or the names or
descriptions of both GEA and ImproveNet) to End Users and Customers, in the
manner specified in this Agreement or otherwise agreed to by the parties, and
to distribute and transmit the GEA Content for the sole purpose of permitting
End Users and Customers to view it from the ImproveNet System and co-branded
pages;
(b) subject to GEA's prior written right (within its sole
discretion) of approval, to reproduce and publicly display the GEA Content on
or from any Internet site, other electronic platform, or computer system that
is not exclusively controlled by ImproveNet, and to electronically distribute
and transmit the GEA Content for the sole purpose of permitting End Users and
Customers to view it from such approved sites, platforms, or systems;
provided, however, ImproveNet agrees to obtain GEA's prior written consent if
it intends to enter into a contract or an arrangement with a third party
which could or would result by virtue of the proposed terms of the applicable
contract or arrangement in less than full pages of GEA Content being pulled
through to a third party's website or any material alteration of GEA Content;
(c) to display the GEA Marks in direct connection with
GEA Content on or from the ImproveNet System website and on or from any
co-branded pages (i.e., pages identified with both GEA Marks and ImproveNet
Marks, or the names or descriptions of both GEA and ImproveNet) as provided
in this Agreement and, subject to GEA's prior written right of approval, (in
its sole discretion) to display the GEA Marks in direct connection with GEA
Content on any Internet site, other electronic platform, or computer system
that is not exclusively controlled by ImproveNet, and
(d) to modify the selection, arrangement, and look and
feel of the GEA Content, only such that ImproveNet may determine what
portions of the GEA Content will be incorporated into the ImproveNet System
or the co-branded pages referred to above and how that content is arranged
and displayed, provided that ImproveNet shall have no right to alter the
wording or context of the portions of the GEA Content selected, without the
prior written approval of GEA, in its sole discretion.
Section 5.2 LIMITATIONS.
(a) The use of the GEA Marks shall always be in connection
with GEA Content, be with appropriate attributions displayed to End Users and
Customers, and as otherwise agreed by the parties, provided that: (i)
ImproveNet shall at all times use an appropriate trademark or service mark
legend as GEA may from time to time specify with respect to any use of the
GEA Marks; (ii) GEA may request that ImproveNet correct the appearance of any
GEA Marks by giving ImproveNet seven (7) calendar days prior written notice;
and (iii) ImproveNet shall not modify the GEA Marks or use them for any
purpose other than as set forth above. ImproveNet shall not engage in any
activity associated with the GEA Marks that, in GEA's sole judgement,
adversely affects the good name, good will, image or
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reputation of GEA, and ImproveNet shall take commercially reasonable steps to
ensure that Customers do not do so. All uses of the GEA Marks hereunder shall
inure only to the benefit of GE, including GEA.
(b) ImproveNet shall use the GEA Content, the GEA Marks, and
the GEA Technology (to the extent that the parties agree that ImproveNet may
use the GEA Technology) in accordance with any and all standards, policies,
and/or guidelines adopted by GEA; provided, however, that GEA agrees to
deliver to ImproveNet a written copy of any such standards, policies and/or
guidelines adopted by GEA and ImproveNet shall not be required to conform to
such policies until fifteen (15) business days after receipt of such
materials from GEA, and GEA shall have the right to proscribe any use of the
GEA Content, the GEA Marks, and the GEA Technology pursuant to the exercise
of the foregoing license that is not in accordance with any and all such
standards, policies and/or guidelines.
Section 5.3 NO UNAUTHORIZED USE. ImproveNet shall not:
(a) copy, use, display, distribute, or transfer the GEA
Content, the GEA Marks, or the GEA Technology, except as expressly
contemplated in this Agreement;
(b) create any derivative works based upon the GEA
Technology; and
(c) reverse engineer, disassemble, or decompile the GEA
Technology.
Section 5.4 NO OTHER LICENSES. ImproveNet's rights in and to the GEA
Content, the GEA Marks, and the GEA Technology shall be limited to those
expressly granted in this Agreement. All other uses, reproduction, or display
of the GEA Content, the GEA Marks, and the GEA Technology shall be subject to
GEA's prior written approval, in GEA's sole discretion.
Section 5.5 LICENSE REGARDING IMPROVENET MARKS. Subject to the terms and
conditions of this Agreement, ImproveNet hereby grants to GEA a
non-exclusive, non-transferable and, pursuant to the terms of this Agreement,
revocable right and license to display ImproveNet Marks in links from any GEA
websites to the ImproveNet System and in links to the ImproveNet System from
any co-branded pages (i.e., pages identified with both GEA Marks and those of
third parties, or with the names or descriptions of both GEA and third
parties) hosted by GEA, and subject to the approval of ImproveNet (which
shall not be unreasonably withheld), to display ImproveNet Marks in GEA
marketing collateral. The use of ImproveNet Marks shall be with appropriate
attributions displayed, and as otherwise agreed by the parties, provided
that: (i) GEA shall at all times use an appropriate trademark or service mark
legend as ImproveNet may from time to time specify with respect to any use of
ImproveNet Marks; (ii) ImproveNet may request that GEA correct the appearance
of any ImproveNet Marks by giving GEA seven (7) calendar days prior written
notice; and (iii) GEA shall not modify ImproveNet Marks or use them for any
purpose other than as set forth above. GEA shall not engage in any action
associated with ImproveNet Marks that, in ImproveNet's sole judgment,
adversely affects the good name, goodwill, image or reputation of ImproveNet.
All uses of ImproveNet Marks hereunder shall inure to the benefit of
ImproveNet. GEA's rights in and to ImproveNet Marks shall be limited to those
expressly granted in this Agreement. All other uses, reproduction, or display
of ImproveNet Marks shall be subject to ImproveNet's prior written approval.
Section 5.6 INTELLECTUAL PROPERTY RIGHTS. Nothing in this Agreement
shall be construed to transfer from one party to another the ownership of any
property subject to Intellectual Property Rights, or any rights to use,
reproduce, or exhibit such property except as provided in this Article V.
Unless otherwise expressly agreed in writing: (i) GEA Technology and GEA
Content, and all Intellectual
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Property Rights therein, are and will remain the sole and exclusive property
of GEA and its licensors; (ii) the ImproveNet System and all Intellectual
Property Rights therein will remain the sole and exclusive property of
ImproveNet and its licensors.
ARTICLE VI
FEES AND PAYMENTS
Section 6.1 CUSTOMER REFERRAL FEES Shall be as provided in section 4.2
hereof.
Section 6.2 GEA PAYMENTS TO IMPROVENET. In consideration for the
ImproveNet services set forth in Section 3.1 hereof, GEA will pay to
ImproveNet, annually in advance, the sum of $750,000 in 1999, $1,000,000 in
2000 and $1,250,000 in 2001. The first payment shall be due and payable
within 30 days of the Effective Date and each subsequent payment shall be due
and payable within 30 days of the anniversary date of the Effective Date.
Section 6.3 IMPROVENET PAYMENTS TO GEA. In consideration for the GEA
services provided in Section 3.2 hereof, ImproveNet will pay to GEA the sum
of $750,000 in 1999, $1,000,000 in 2000 and $1,250,000 in 2001. The first
payment shall be due and payable within 30 days of the Effective Date and
each subsequent payment shall be due and payable within 30 days of the
anniversary date of the Effective Date.
Section 6.4 PAYMENTS. Disputes related to any payments due under this
Agreement shall not constitute grounds for any party hereto to cease to
perform any of its obligations under this Agreement and shall be handled in
accordance with Article XI. Any payments not made when due shall accrue
interest from the date due until the date paid at twelve percent (12%) per
annum or, if less, the maximum per annum rate permitted by law.
Section 6.5 TAXES. Each party shall be responsible for all taxes of any
sort due on any fees received by that party pursuant to this Agreement.
Section 6.6 TRANSACTION FEES. In the event GEA elects to utilize its
relationship with ImproveNet to sell Covered Items to Customers or End-Users,
whether directly or through GEA authorized intermediaries such as
distributors or dealers, ImproveNet will not be entitled to any fees or
payments other than as expressly set forth in this provision and in Article
IV.
ARTICLE VII
PROPRIETARY INFORMATION, USAGE DATA AND PUBLICITY
Section 7.1 PROTECTION. All Proprietary Information disclosed by a party
hereto to any other party hereto in the course of performing under this
Agreement or to which a party hereto gains access in connection with this
Agreement shall be deemed to be the property of the disclosing party. The
receiving party shall during the life of this Agreement: (i) receive such
Proprietary Information in confidence; (ii) during the life of this Agreement
and for two (2) years thereafter maintain the confidentiality of such
Proprietary Information and not disclose such Proprietary Information to
third parties (except for the receiving party's representatives, agents and
contractors who have a need to know, are under a duty of non-disclosure, and
are acting for the sole benefit of the receiving party), and shall
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accord such Proprietary Information at least the same level of protection
against unauthorized use and disclosure as the receiving party customarily
accords its own information of a similar nature; (iii) use or permit the use
of such Proprietary Information solely in accordance with the terms of this
Agreement; and (iv) promptly notify the disclosing party in writing of any
loss or unauthorized use or disclosure of or access to the disclosing party's
Proprietary Information of which it becomes aware. The terms and conditions
of this Agreement (as well as all information regarding the negotiation of
this Agreement) shall be deemed to be the Proprietary Information of the
parties hereto. The parties hereto shall each abide by and reproduce and
include any restrictive legends or proprietary rights notices that appear in
or on any Proprietary Information of the other parties hereto that it is
authorized to reproduce. Each party shall also not remove, alter, cover or
distort any trademark, trade name, copyright or other proprietary rights
notices, legends, symbols or labels appearing in any Proprietary Information
of any other party hereto. Confidentiality obligations and restrictions
arising under this Section 7.1 shall continue to exist unless and until such
Proprietary Information falls into one of the exclusions set forth in Section
7.2 hereto, but in no event longer than three (3) years following the
expiration or termination of this Agreement.
Section 7.2 EXCLUSIONS. The restrictions on disclosure set forth above
shall not apply when, and to the extent that the Proprietary Information: (i)
is or becomes generally available to the public through no fault of the
receiving party; (ii) was previously rightfully known to the receiving party
free of any obligation to keep it confidential; (iii) is subsequently
disclosed to the receiving party by a third party who may rightfully transfer
and disclose such information without restriction and free of any obligation
to keep it confidential; (iv) is independently developed by the receiving
party or a third party without reference to the disclosing party's
Proprietary Information and such disclosing party is able to document such
independent development; or (v) is required to be disclosed by the receiving
party as a matter of law, provided that the receiving party uses all
reasonable efforts to provide the disclosing party with at least ten (10)
days prior written notice of such disclosure; provided, further, ImproveNet
shall be permitted to disclose this Agreement, without GEA's consent, and the
Related Agreements (as defined in the Series D Preferred Stock Purchase
Agreement entered into between the parties on the date hereof) publicly to
the extent mandated by any applicable federal or state law or regulation.
Section 7.3 DATA RIGHTS. All data generated through the ImproveNet
System shall be the property of the originator, unless otherwise assigned.
Notwithstanding anything herein to the contrary, GEA acknowledges and agrees
that ImproveNet may request and obtain all rights from Customers and/or
Members using the system (including GEA) in order for ImproveNet to make use
of aggregated data for forecasting or other commercial purposes. ImproveNet
will protect the confidentiality of all GEA transactions. Assuming that GEA
obtains appropriate Customer and/or End User authorization, GEA will have the
right to use all data generated by and through its Customers or End-Users for
Covered Items and may use such transaction data gathered by GEA (whether or
not such transactions flow through the ImproveNet System) in any manner GEA
deems appropriate.
Section 7.4 SECURITY. ImproveNet will ensure the security of individual
customer account, pricing, purchasing, and credit information and agrees not
to share, sell, allow access to, or otherwise make available any such
customer-related information supplied by GEA which GEA deems confidential,
except on an aggregated basis pursuant to Section 7.3. GEA and ImproveNet
agree to provide adequate security around the ImproveNet System, GEA Content
and GEA Technology (to the extent utilized) and to protect proprietary system
design, content, and functionality from unauthorized use or access by third
parties.
Section 7.5 PUBLIC STATEMENTS REGARDING AGREEMENT. The parties hereto
shall jointly prepare a press release regarding the existence of this
Agreement at a mutually agreed upon time. The
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parties acknowledge that each may have internal constraints that may affect
the timing of issuance and the content of any such press releases. Subject to
Section 7.2, unless required by law or to assert its rights under this
Agreement, and except for disclosure on a "need to know basis" to its own
employees and consultants, and its legal, investment, financial and other
professional advisers and their respective representatives or agents on a
confidential basis, each party shall not disclose the existence of or any of
the terms of this Agreement without the prior written consent of the other
party. The breach of this Section 7.5 by either GEA or ImproveNet, shall
constitute a material breach of this Agreement and shall accord the
non-disclosing party the immediate right to terminate this Agreement as
provided in Section 11.2.
Section 7.6 EQUITABLE RELIEF. The parties acknowledge that a breach of
any portion of this Article VII would cause the non-disclosing party
irreparable harm for which monetary damages would be inadequate. Accordingly,
the non-disclosing party shall be entitled to seek injunctive or other
equitable relief to remedy any threatened or actual breach of any portion of
this Article VII by the other party.
ARTICLE VIII
OTHER BUSINESS RELATIONSHIPS
Section 8.1 OTHER GE BUSINESSES. So long as (a) ImproveNet has not
already established, or entered into discussion with a third party to
establish a Founding Member for a major product category (as described in
Section 3.3) as of the Effective Date, and (b) ImproveNet receives a list of
GEA Affiliates in the building supply industry (such as GE Supply, GE
Silicones, etc.) (collectively, the "GEA Affiliates"), ImproveNet will
contact GEA Affiliates named on such list provided to ImproveNet within
thirty (30) days of the receipt of such list and agrees not to establish a
Founding Member relationship with any third party without speaking to the
relevant GEA Affiliate first.
Section 8.2 RELATIONSHIPS WITH THIRD PARTIES. Except for ImproveNet's
obligations under Section 3.1 and 3.3 hereof, no provision of this Agreement
shall be construed so as to preclude or limit a party (or its Affiliates)
from: (i) creating or operating any other websites; (ii) maintaining any and
all existing relationships and performing all existing agreements entered
into prior to the Effective Date of this Agreement; or (iii) providing
content, technology and other services to third parties; or (iv) with respect
to GEA, entering into relationships with third parties with respect to
services similar to the ImproveNet System.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
Section 9.1 REPRESENTATIONS AND WARRANTIES OF IMPROVENET. ImproveNet
represents and warrants as follows, as of the Effective Date and for the term
of this Agreement:
(a) The execution and delivery of this Agreement and
compliance by ImproveNet with all provisions of this Agreement (i) are within
the corporate power and authority of ImproveNet, and (ii) have been duly
authorized by all requisite corporate proceedings on the part of ImproveNet.
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(b) The execution and delivery of this Agreement shall
not conflict with or result in a material breach of the terms, conditions or
provisions of, or give rise to a right of termination under, or constitute a
default under, or result in any material violation of, the organizational
documents of ImproveNet or any agreement, contract, instrument, order,
judgment, decree, statute, law, rule or regulation to which ImproveNet is
subject. Neither the execution and delivery of this Agreement nor the
compliance with the terms and provisions hereof shall result in any violation
of any franchise, certificate, license, permit, or other authorization
necessary for the ownership, maintenance and operation by ImproveNet of the
ImproveNet System.
(c) To the best of its knowledge, ImproveNet is in
compliance in all material respects with all applicable federal, state and
local laws and regulations and has obtained all licenses required or
necessary for the conduct of the ImproveNet System. There are no claims,
notices, civil, criminal or administrative actions, suits, hearings,
investigations, inquiries or proceedings pending or threatened against
ImproveNet with respect to the ImproveNet System.
(d) To the best of the its knowledge, ImproveNet owns, or
has the right to use under valid and enforceable agreements, all of the
Intellectual Property Rights related to the operation of the ImproveNet
System. The operation of the ImproveNet System as presently conducted or
proposed to be conducted by ImproveNet does not infringe or violate any
Intellectual Property Rights of any other person, and ImproveNet has not
received any charge, complaint, claim, demand or notice alleging any such
infringement or violation. ImproveNet represents and warrants to GEA that (i)
the technology as utilized by the ImproveNet System, and (ii) any material
originated by ImproveNet or provided to GEA by ImproveNet (other than the GEA
Content) ("ImproveNet Material") which is displayed on the ImproveNet System
shall not (A) violate any criminal laws or any rights of any third parties,
including, but not limited to, such violations as infringement or
misappropriation of Intellectual Property Right or other proprietary or
property right, false advertising, unfair competition, defamation, invasion
of privacy or rights of celebrity, violation of any anti-discrimination law
or regulation or (B) contain any material that would constitute a criminal
offense, give rise to civil liability, or otherwise violate any applicable
local, state or federal law.
(e) All computer systems, software, and hardware used in
the operation of the ImproveNet System are able to accurately process date
data, including, calculating, comparing, and sequencing from, into and
between the twentieth century (through year 1999), the year 2000 and the
twenty-first century, including leap year calculations. ImproveNet is taking
all commercially reasonable steps to assure that the ImproveNet System is not
adversely and materially affected by Year 2000 or other date-related
processing failures affecting the performance of its suppliers and business
partners.
(f) The ImproveNet System will comport with reasonable
commercial or industry standards, including standards for firewalls,
antivirus protection, and system security.
(g) ImproveNet represents and warrants that it will
fulfill the obligations defined in Exhibit A, Statement of Work, which sets
forth a Risk Management Plan the execution of which GEA deems material to its
decision to enter into this Agreement and related investment agreements with
ImproveNet.
(h) In accordance with the particulars set forth in
Exhibit B hereof, ImproveNet represents and warrants that it will carry
sufficient third party liability insurance with an insurer and insurance
arrangement acceptable to GEA to ensure its ability to fulfill its
indemnification obligations to GEA and generally as required to meet its
obligations for third party claims and dispute costs arising from or related
to consumer and contractor interaction on the ImproveNet System.
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(i) In the event that GEA notifies ImproveNet that the
ImproveNet System is failing to conform to any of the above warranties,
ImproveNet, without charge, shall promptly and in no event more than thirty
(30) days thereafter (or such longer period as GEA may agree to in writing)
(the "Cure Period"), repair, replace or otherwise remedy the cause of such
failure. The foregoing represents GEA's sole and exclusive remedy, and
ImprovNet's sole and exclusive liability for any breach of the foregoing
warranties; provided, however, that in the event that ImproveNet fails to
cure any breach of warranty within the applicable Cure Period, GEA retains
the right to obtain any and all remedies available to GEA at law or in equity.
Section 9.2 REPRESENTATIONS AND WARRANTIES OF GEA. GEA represents and
warrants as follows, as of the Effective Date and for the term of this
Agreement:
(a) The execution and delivery of this Agreement and
compliance by GEA with all provisions of this Agreement (i) are within the
corporate power and authority of GEA, and (ii) have been duly authorized by
all requisite corporate proceedings on the part of GEA.
(b) The execution and delivery of this Agreement shall
not conflict with or result in a breach of the terms, conditions or
provisions of, or give rise to a right of termination under, or constitute a
default under, or result in any violation of, the organizational documents of
GEA or any agreement, contract, instrument, order, judgment, decree, statute,
law, rule or regulation to which GEA is subject.
(c) GEA is in compliance in all material respects with
all applicable federal, state, local and foreign laws and regulations and has
obtained all licenses required or necessary for the provision of GEA Content
or GEA Technology under this Agreement. There are no claims, notices, civil,
criminal or administrative actions, suits, hearings, investigations,
inquiries or proceedings pending or threatened against GEA with respect to
the GEA Content or GEA Technology.
(d) GEA owns, or has the right to use under valid and
enforceable agreements, all of the Intellectual Property Rights related to
the GEA Technology and the GEA Content. GEA represents and warrants to
ImproveNet that (i) GEA Technology, and (ii) the GEA Content which used with
or displayed on the ImproveNet System shall not (A) violate any criminal laws
or any rights of any third parties, including, but not limited to, such
violations as infringement or misappropriation of Intellectual Property Right
or other proprietary or property right, false advertising, unfair
competition, defamation, invasion of privacy or rights of celebrity,
violation of any anti-discrimination law or regulation, or any other right of
any person or (B) contain any material that would constitute a criminal
offense, give rise to civil liability, or otherwise violate any applicable
local, state or federal law.
(e) All computer systems, software, and hardware used in
the operation of the GEA Technology are able to accurately process date data,
including, calculating, comparing, and sequencing from, into and between the
twentieth century (through year 1999), the year 2000 and the twenty-first
century, including leap year calculations. GEA is taking all commercially
reasonable steps to assure that the GEA Technology is not adversely and
materially affected by Year 2000 or other date-related processing failures.
(f) The GEA Technology will comport with reasonable
commercial or industry standards as applicable, including standards for
firewalls, antivirus protection, and system security.
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(g) In the event that ImproveNet notifies GEA that the
GEA System is failing to conform to any of the above warranties, GEA, without
charge, shall promptly and in no event more than thirty (30) days thereafter
(or such longer period as ImproveNet may agree to in writing) (the "GEA Cure
Period"), repair, replace or otherwise remedy the cause of such failure. The
foregoing represents ImproveNet's sole and exclusive remedy and GEA's sole
and exclusive liability for any breach of any of the foregoing warranties;
provided, however, that in the event GEA fails to cure any breach of warranty
within the applicable GEA Cure Period, ImproveNet retains the right to obtain
any and all remedies available to ImproveNet at law or in equity.
Section 9.3 DISCLAIMER. OTHER THAN AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NO PARTY HERETO MAKES ANY REPRESENTATIONS OR WARRANTIES WITH
RESPECT TO THE IMPROVENET SYSTEM, THE GEA CONTENT, THE GEA TECHNOLOGY, OR ANY
OTHER TECHNOLOGY, CONTENT, OR INTELLECTUAL PROPERTY RIGHTS, OR ANY OTHER
INFORMATION, DATA, PRODUCTS, SERVICES, ACCURACY OR RESULTS OF USE, RIGHTS OR
OTHER SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS ALL IMPLIED
WARRANTIES, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. TO THE EXTENT THAT ANY IMPLIED WARRANTY MAY
NOT BE DISCLAIMED AS A MATTER OF APPLICABLE LAW, THE SCOPE AND DURATION OF
SUCH WARRANTY SHALL BE THE MINIMUM PERMITTED UNDER SUCH LAW.
ARTICLE X
LIMITATION OF LIABILITY
OTHER THAN WITH RESPECT TO INDEMNIFICATION OBLIGATIONS UNDER SECTION
12.1 OF ARTICLE XII, BREACH OF THE NONDISCLOSURE OBLIGATIONS UNDER ARTICLE
VII, AND INSTANCES OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, IN NO EVENT
SHALL EITHER PARTY BE LIABLE TO THE OTHER UNDER THIS AGREEMENT FOR ANY FORM
OF SPECIAL, INCIDENTAL, INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES OF ANY
KIND (WHETHER OR NOT FORESEEABLE), EVEN IF INFORMED IN ADVANCE OF THE
POSSIBILITY OF SUCH DAMAGES, AND WHETHER ARISING IN CONTRACT, TORT (INCLUDING
NEGLIGENCE), OR OTHERWISE.
ARTICLE XI
TERM AND TERMINATION
Section 11.1 TERM. This Agreement shall continue in force for three (3)
years from and after the Effective Date, or longer if renewed by mutual
written consent of the parties, or until the valid termination hereof as
provided herein.
Section 11.2 TERMINATION FOR CAUSE. ImproveNet and GEA shall each have
the right to terminate this Agreement if: (i) the other party breaches any
material term or condition of this Agreement and fails to cure such breach
within thirty (30) days (or such longer period as the non-breaching party may
agree to in writing, in its sole discretion) after receipt of written notice
from the non-breaching party; (ii) the other party breaches the same material
term or condition of this Agreement three (3) or more times during the same
one year term, and was given notice and an opportunity to cure
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in each instance as provided above and even if the party did, in fact, cure
on any or all such three (3) occasions; (iii) the other party materially
breaches this Agreement more than five (5) times during the same one year
term, and was given notice and an opportunity to cure in each instance as
provided above and even if the other party did, in fact, cure on any or all
such five (5) occasions; (iv) the other party becomes the subject of a
voluntary petition in bankruptcy or any voluntary proceeding relating to
insolvency, receivership, liquidation, composition, or comparable proceeding
or any assignment for the benefit of creditors; or (v) the other party
becomes the subject of an involuntary petition in bankruptcy or any
involuntary proceeding relating to insolvency, receivership, liquidation,
composition, or comparable proceeding or any assignment for the benefit of
creditors, if such petition or proceeding is not dismissed within ninety (90)
days of filing.
Section 11.3 TERMINATION IN THE EVENT OF CHANGE OF CONTROL. In the event
of a Change of Control of ImproveNet, GEA may terminate this Agreement by
providing ImproveNet with thirty (30) days written notice of such intent to
terminate. For purposes of this Section 11.3, a "Change of Control" shall
mean: (i) the consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of a
party; or (ii) the acquisition by any individual, entity or group of
beneficial ownership of a controlling interest in ImproveNet (as defined in
Section 1.1(a) above); provided that a "Change of Control" does not include a
reorganization of ImproveNet that does not result in a change in the
effective control of ImproveNet or an initial public offering of ImproveNet's
voting stock or an assignment or transfer of this Agreement that is permitted
pursuant to Section 14.4.
Section 11.4 SURVIVAL. All accrued and outstanding payment obligations
hereunder, any remedies for breach of this Agreement, Articles VII, IX, X,
XII, XIII and XIV, and Sections 5.6, 11.4 and 11.5 shall survive the
termination and expiration of this Agreement; provided, that if any such
provision explicitly sets for the duration for such survival, such term shall
survive only for the period explicitly set forth therein.
Section 11.5 RETURN OF PROPRIETARY INFORMATION UPON TERMINATION OR
EXPIRATION OF AGREEMENT. Upon the termination or expiration of this
Agreement, each party shall promptly return all materials subject to
Intellectual Property Rights of the other party, all Proprietary Information
of the other party, and other information, documents, manuals and other
materials belonging exclusively to the other party, except as may be
otherwise provided in this Agreement. Each party shall have the right to
request, and the other party shall provide, written certification from an
executive officer of the other party stating that all such material has been
returned or destroyed.
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ARTICLE XII
INDEMNIFICATION
Section 12.1 INTELLECTUAL PROPERTY INDEMNIFICATION.
(a) Each of GEA and ImproveNet, respectively, shall
defend, indemnify and hold each other, and each other's Affiliates, partners,
officers, employees, directors, agents, consultants, contractors,
representatives, successors and assigns, as such, harmless from and against
any third party claims, demands, liabilities, actions, judgments and
expenses, including attorneys fees, ("Losses") which arise out of or result
from any claim that such party does not have sufficient right, title or
interest in any software, data, or any other materials used or supplied by
such party in performance of such party's obligations under this Agreement
that are subject to any Intellectual Property Rights (the "Protected
Material") or that such Protected Material violates any Intellectual Property
Right of any third party.
(b) In the event that any such claim is made against
either GEA or ImproveNet, or in one of the parties' (the "Indemnifying
Party") opinion is likely to be made against the other party (the
"Indemnified Party"), such Indemnifying Party reserves the right, in its sole
discretion, to avoid infringement by (i) procuring for the Indemnified Party
the right to use the subject Protected
Material, (ii) replacing the subject Protected Material with materials of
equal or superior content and functionality, or (iii) to modify the subject
Protected Material without materially and adversely affecting their content
and functionality.
Section 12.2 GENERAL INDEMNIFICATION. ImproveNet shall defend, indemnify
and hold GEA and its Affiliates, officers, directors, agents, consultants and
employees harmless from and against any and all Losses arising out of or
related to ImproveNet's material breach of ImproveNet's obligations,
representations, and warranties hereunder or any legal liability arising out
of or relating to the ImproveNet System.
Section 12.3 GENERAL INDEMNIFICATION. GEA shall defend, indemnify and
hold ImproveNet and its Affiliates, officers, directors, agents, consultants
and employees harmless from and against any and all Losses arising out of or
related to GEA's material breach of GEA's obligations, representations, and
warranties hereunder or any legal liability arising out of or relating to the
GEA Technology.
Section 12.4 INDEMNIFICATION PROCEDURES.
(a) Only claims for indemnification during the term of
this Agreement and for one year following the termination of this Agreement
shall be permitted under this Agreement. Any party claiming indemnification
pursuant to this Agreement shall notify the indemnifying party within thirty
(30) days after learning of the occurrence of any event (including, without
limitation, the commencement of any audit by any taxing authority) that such
party asserts is an indemnifiable event pursuant to this Agreement. If such
event involves the claim of any third party and the indemnifying party
confirms in writing its responsibility for such liability, if established,
the indemnifying party shall be entitled to participate in and, to the extent
it shall wish, assume control over (in which case the indemnifying party
shall assume all expense with respect to) the defense, settlement, adjustment
or compromise of such claim.
(b) The indemnified party shall have the right to
employ separate counsel in any action or claim and to participate in the
defense thereof at the expense of the indemnifying party (i) if the retention
of such counsel has been specifically authorized by the indemnifying party,
or (ii) if the
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counsel is retained because the indemnifying party does not notify the
indemnified party within twenty (20) days after receipt of a claim notice
that it elects to undertake the defense thereof. The indemnified party shall
have the right to employ counsel at the indemnified party's own expense and
to participate in such action or claim, including settlement or trial, so
long as such participation does not substantially interfere in the
indemnifying party's defense of such claim or action.
(c) The indemnifying party shall obtain the prior written
approval of the indemnified party, not to be unreasonably withheld, before
entering into any settlement, adjustment, or compromise of such claim or
ceasing to defend against such claim, if pursuant to or as a result of such
settlement, adjustment, compromise, or cessation, injunctive or other relief
would be imposed against the indemnified party.
(d) If the indemnifying party does not assume control
over the defense of such claim as provided in Section 12.3(a), the
indemnified party shall have the right to defend the claim in such manner as
it may deem appropriate at the cost and expense of the indemnifying party,
and with the consent of the indemnifying party, not to be unreasonably
withheld, to settle, adjust, or compromise such claim. The indemnified party
may settle, adjust, or compromise any such claim without the consent of the
indemnifying party if the indemnified party waives indemnification for such
claim.
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ARTICLE XIII
DISPUTE RESOLUTION
Section 13.1 INFORMAL DISPUTE RESOLUTION.
(a) DISPUTES. Any dispute, controversy, claim or
disagreement between or among any of the parties hereto arising from,
relating to or in connection with this Agreement, any agreement, certificate
or other document referred to herein or delivered in connection herewith, or
the relationships of the parties hereunder or thereunder, including questions
regarding the interpretation, meaning or performance of this Agreement, and
including claims based on contract, tort, common law equity, statute,
regulation, order or otherwise ("Dispute") shall be resolved in accordance
with this Section 13.1. The parties agree that all disputes will involve
interstate commerce in fact, and accordingly, the FAA applies and governs the
arbitration.
(b) LEVEL 1 REVIEW. Upon written request of any party,
each of GEA and ImproveNet shall appoint a designated representative familiar
with the dealings among the parties hereto whose task it shall be to meet (by
conference telephone call or in person at a mutually agreeable site) for the
purpose of endeavoring to resolve such Dispute ("LEVEL 1 REVIEW"). The
designated representatives shall meet as often as the parties reasonably deem
necessary to discuss the Dispute and negotiate in good faith in an effort to
resolve the Dispute without the necessity of any formal proceeding.
(c) LEVEL 2 REVIEW. If the Dispute cannot be resolved
within the earlier of (i) fifteen (15) days of the first Level 1 Review
meeting or (ii) such time as when either party gives the other notice of an
impasse ("LEVEL 1 TERMINATION DATE"), an executive vice president (or a
functional equivalent) of GEA and chief executive officer of ImproveNet shall
meet (by conference telephone call or in person at a mutually agreeable site)
within thirty (30) days after the Level 1 Termination Date for the purpose of
resolving such unresolved Dispute ("LEVEL 2 REVIEW).
Section 13.2 ARBITRATION.
(a) If the Dispute is not resolved within fifteen (15)
days after the Level 2 Review and any extension of such periods as mutually
agreed to by the parties, either party may submit the Dispute to binding
arbitration in accordance with the following provisions of this Section 13.2.
(b) Any such arbitration shall be conducted by
JAMS/Endispute in accordance with its current rules ("JAMS RULES"), before a
single arbitrator selected under such JAMS Rules. The arbitration shall be
conducted in Redwood City, California, unless otherwise agreed by the parties.
(c) Except as necessary in court proceedings to enforce
this arbitration provision or an award rendered hereunder, or to obtain
interim relief or as otherwise provided in Section 13.3 or pursuant to lawful
compulsion, no party nor any arbitrator shall disclose the existence, content
or results of any arbitration conducted hereunder without the prior written
consent of the other party to the arbitration.
(d) To the extent that the relief or remedy granted in an
award rendered by the arbitrator is relief or a remedy on which a court could
enter judgment, a judgment upon the award rendered may be entered in any
court having jurisdiction thereof. Otherwise, the award shall be binding
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on the parties in connection with their obligations under this Agreement and
in any subsequent arbitration or judicial proceedings among any of the
parties.
(e) The parties shall share equally the cost of
arbitration, including any required administrative fee, the compensation of
the arbitrators and the costs of any neutral witnesses or proof produced at
the direct request of the arbitrator. The arbitrator shall have the power to
grant injunctive relief or any other relief allowed by the substantive law of
the State of Delaware.
Section 13.3 RECOURSE TO COURTS AND OTHER REMEDIES. Notwithstanding the
Dispute resolution procedures contained in Sections 13.1 and 13.2, any party
may apply to the appropriate division of the courts of the State of
California having proper jurisdiction (i) to enforce this agreement to
arbitrate, (ii) to decide issues of arbitrability, (iii) to seek interim
injunctive relief so as to maintain the status quo until the arbitration
award is rendered or the Dispute is otherwise resolved, (iv) to avoid the
expiration of any applicable limitation period, (v) to preserve a superior
position with respect to other creditors, (vi) to challenge or vacate any
final judgment, award or decision of the arbitrator under the circumstances
and to the effect allowed, (vii) to enforce the payment of undisputed
amounts, or (vii) to seek post-arbitration injunctive relief for the
protection of any Intellectual Property Rights of a party.
Section 13.4 MISCELLANEOUS. It is the intent of the parties that
reasonable discovery be allowed prior to the arbitration, in the discretion
of the arbitrator, and as further provided by any applicable JAMS Rules.
Disputes submitted shall be governed by the substantive law of the State of
Delaware, not inconsistent with the Federal Arbitration Act ("FAA"), 9 U.S.C.
Section 1 et seq. A prevailing party may petition the arbitrator for reasonable
attorneys' fees and expenses.
ARTICLE XIV
GENERAL TERMS AND CONDITIONS
Section 14.1 FORCE MAJEURE. Neither party shall be liable to the other
for delays or failures in performance resulting from causes beyond the
reasonable control of that party, including, but not limited to, acts of God,
labor disputes or disturbances, material shortages or rationing, riots, acts
of war, changes in governmental regulations, or casualties.
Section 14.2 INDEPENDENT CONTRACTOR RELATIONSHIP. The parties to this
Agreement are independent contractors. Neither party is an agent,
representative or partner of the other party. Neither party shall have any
right, power or authority to enter into any agreement for or on behalf of, or
to incur any obligation or liability for, or to otherwise bind, the other
party. This Agreement shall not be interpreted or construed to create an
association, joint venture or partnership between the parties or to impose
any partnership obligation or liability upon either of the parties hereto.
Section 14.3 SEVERABILITY. If any term, provision, or restriction of
this Agreement and any appendix, exhibit, or schedule hereto is held by a
court or arbitrator of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement and such exhibits shall remain in full force
and effect and shall in no way be affected, impaired or invalidated. The
parties will negotiate in good faith appropriate modifications to the
invalidated provision or this Agreement to most nearly effect the intent of
such provision.
Section 14.4 ASSIGNMENT. Neither party shall assign, sublicense or
otherwise transfer (voluntarily, by operation of law or otherwise) this
Agreement or any right, interest or benefit under this
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Agreement, without the prior written consent of the other party, except in
the event of its merger, corporate reorganizations, or sale of all, or
substantially all, of its assets, provided that such assignee (a) is not a
direct competitor of the other party, (b) has financial assets equal to or
greater than that of the assigning party, and (c) is bound by law or written
agreements to all of the obligations of the assigning party under this
Agreement. Any attempted assignment, sublicense or transfer in derogation
hereof shall be null and void. Subject to the foregoing, this Agreement shall
be fully binding upon, inure to the benefit of and be enforceable by the
parties hereto and their respective successors and assigns.
Section 14.5 AMENDMENT AND MODIFICATION OF AGREEMENT. No change,
amendment or modification of any provision of this Agreement or waiver of any
of its terms shall be valid unless set forth in writing and signed by the
party to be bound thereby.
Section 14.6 CHOICE OF LAW AND VENUE. This Agreement shall be
interpreted, construed and enforced in all respects in accordance with the
laws of the State of Delaware.
Section 14.7 WAIVER OF COMPLIANCE OR ENFORCEMENT. The failure of any
party hereto to insist upon or enforce strict performance by the other party
of any provision of this Agreement or to exercise any right under this
Agreement shall not be construed as a waiver or relinquishment to any extent
of such party's right to assert or rely upon any such provision or right in
that or any other instance; rather the same shall be and remain in full force
and effect.
Section 14.8 NOTICES. Any notice, approval, request, authorization,
direction or other communication under this Agreement shall be given in
writing, shall reference this Agreement and shall be deemed to have been
delivered and given (a) when delivered personally; (b) three (3) business
days after having been sent by registered or certified U.S. mail, return
receipt requested, postage and charges prepaid, whether or not actually
received; or (c) one (1) business day after deposit with a commercial
overnight courier, with written verification of receipt. All communications
shall be sent to the addresses set forth below or to such other address as
may be designated by a party by giving written notice to the other party
pursuant to this Paragraph 14.8.
IF TO GEA:
General Electric Appliances
Appliance Park
Louisville, KY 40225
Attn.: Vice-President and General Counsel
IF TO IMPROVENET:
ImproveNet, Inc.
--------------------
Section 14.9 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties hereto and supersedes any and all prior
agreements or understandings among the parties with respect to the subject
matter hereof. No party hereto shall be bound by, and each party hereto
specifically objects to, any term, condition or other provision or other
condition which is different from or in addition to the provisions of this
Agreement (whether or not it would materially alter this Agreement) and which
is proffered by any other party hereto in any correspondence or other
document, unless the party to be bound thereby specifically agrees to such
provision in writing. The parties
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understand and agree that the main body of this Agreement, and all the terms
and conditions contained herein, shall govern and take precedence over any
inconsistent terms and conditions (including inconsistent choice of law or
forum provisions) that are or may be contained in those certain ancillary
agreements attached as Exhibits hereto, including by way of example not
limitation, Exhibit B (Founding Member Agreement) and Exhibit E (Services
Agreement). The fact that said ancillary agreements may be executed
subsequent to this Agreement shall not alter the intent of this provision.
Notwithstanding the foregoing, GEA shall in all instances be accorded terms
and conditions in such ancillary agreements at least as favorable as accorded
other Founding Members.
Section 14.10 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more of the counterparts
have been signed by each party and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
ARTICLE XV
ImproveNet agrees for a period of 60 days following the Effective Date of
this Agreement not to engage in active negotiations with other parties in
order to allow GE Warranty Management Inc. the opportunity to negotiate a
business agreement with ImproveNet to offer warranty products and services
for Covered Items through the ImproveNet System. The specific terms and
conditions of such an arrangement, if any, would be in the subject of a
separate agreement.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to
be executed on its behalf as of the date first above written.
IMPROVENET, INC.
By: /s/ Ronald B. Cooper
-------------------------------
Name: Ronald B. Cooper
-----------------------------
Title: President and CEO
----------------------------
GE Appliances, on behalf of
GENERAL ELECTRIC COMPANY
By: /s/ Smith W. Holland
-------------------------------
Name: Smith Holland
-----------------------------
Title: General Manager Business Development
-------------------------------------
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ Brian S. Graff
-------------------------------
Name: Brian S. Graff
-----------------------------
Title: Vice President
----------------------------
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EXHIBIT A: STATEMENT OF WORK
ImproveNet, Inc. Risk Management Plan
<TABLE>
<CAPTION>
TIMING
- ------------------------------------------------------------------------------------ -------------------------------------
<S> <C>
A. MANAGING CONSUMER RISK
1. On-line Guidelines and Practices
- - Clear (but user-friendly) policy statement: ImproveNet is providing public Draft By closing (Implemented
service advice only, not paid advice which consumer's are intended to rely within 90 days)
on in choosing a contractor.
- - Consumers would be encouraged to consult a competent lawyer regarding Draft By closing (Implemented
contracts, permits, and other necessary job documentation and their within 90 days)
insurance agent regarding the contractor's and their own insurance
coverage.
- - ImproveNet would affirmatively disclaim consequential, incidental, and
punitive damages.
- - ImproveNet would complete a legal survey to determine the exact form and Draft By closing (Implemented
enforceability of such a disclaimer in all states in which ImproveNet will within 90 days)
do business.
Post-closing (within 90 days)
2. Consumer Waiver of Litigation in Favor of Arbitration
- - In the event of any dispute with ImproveNet arising from or related to
advice provided, consumers would affirmatively waive their rights to
judicial recourse (i.e., jury trial) in favor of mandatory arbitration. For Post-closing (within 90 days)
small claims (under $2,500), the BBB might be used; larger claims would be
referred to either JAMS (Judicial Arbitration and Mediation Service) or CPR
(Center for Public Resources).
- - This would be done initially in as user-friendly a manner as possible with
detailed terms and conditions provided later in the process.
3. Affirmative Consumer Acceptance of Disclaimer and Post-closing (within 90 days)
Arbitration
- - Consumers would have to "click" on-line their acceptances of both the
Post-closing (within 90 days) disclaimer and arbitration.
- - Consumers would be sent a prepared set of terms and conditions via mail or
e-mail early in the process. Post-closing (within 90 days)
- - ImproveNet should complete a legal survey to confirm enforceability of this
approach. Post-closing (within 90 days)
4. Third Party Warranty Post-closing (within 90 days)
- - Upon job completion, ImproveNet would encourage consumers to evaluate third
Post-closing (within 90 days) party warranty coverage for work performed,
explaining the benefits of doing so.
- - ImproveNet would make available to consumers the names of possible home Post-closing (within 90 days)
warranty providers
- ------------------------------------------------------------------------------------ -------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------ -------------------------------------
Post-closing (within 90 days)
- ------------------------------------------------------------------------------------ -------------------------------------
<S> <C>
B. MANAGING CONTRACTOR RISK
1. Intensify Screening Techniques.
- - Develop alternatives to formal licensing data for key large states with no Post-closing (rep & warranty)
licensing requirements (e.g., NY, Illinois, Pa.). Options include
professional designations, trade or industry group certifications.
- - In states with no licensing requirements, conduct a more thorough review of Post-closing (rep & warranty)
contractor insurance and referrals.
- - Subscribe to a national "watch" service that provides an alert about Post-closing (within 90 days)
contractors which get into legal, regulatory or financial trouble.
2. Strengthen ImproveNet's Contractor Agreement
- - Add a disclaimer for consequential, incidental and punitive damages. Post-closing (within 90 days)
- - Revise the reps and warranties under the "Performance" section to include Draft By closing (Implemented
(i ) a "best in class" standard of care (ie "best efforts consistent with within 90 days)
the highest prevailing industry standards), and (ii) a representation
regarding the solvency and sufficiency of assets and insurance adequacy
- - Add a mandatory mediation/arbitration clause in lieu of litigation.
Draft By closing (Implemented
within 90 days)
- ------------------------------------------------------------------------------------ -------------------------------------
C. NATIONAL CLAIMS MANAGEMENT
1. To ensure uniformity of claims management practices, Post-closing ("best efforts")
ImproveNet would set up an initial program to manage
contracts, monitor claims, and oversee dispute resolution.
This would include appointing national counsel to supply
local attorneys with a standard prepared package to support
the ADR (Alternative Dispute Resolution) process.
2. Third Party Insurance:
- - ImproveNet would evaluate what levels of insurance are practicable and Post-closing ("good faith
sensible for its contractors in any given region of the country, and would undertaking")
then monitor to ensure that coverage levels are maintained, and that
insurance certificates are duly issued for ImproveNet.
- - ImproveNet would work with insurance partner, possibly AllState, to develop By closing
low-cost standardized contractor insurance program (including making
ImproveNet as insured in all instances.
3. First Party Insurance: ImproveNet would, together with its
equity investors, including GE, determine appropriate
coverage levels for ImproveNet in view of potential risks.
- ------------------------------------------------------------------------------------ -------------------------------------
</TABLE>
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EXHIBIT 10.19
MICROSOFT-Registered Trademark- HOMEADVISOR/IMPROVENET
RELATIONSHIP AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the
later of the two signature dates below (the "Effective Date") by and Between
IMPROVENET, INC. ("Company"), a Delaware, U.S.A. corporation, and MICROSOFT
CORPORATION ("MS"), a Washington, U.S.A. corporation.
The parties agree as follows:
1. DEFINITIONS
1.1 "Availability Date" means the first date on which HomeAdvisor
contains a hyperlink to the Company Site as contemplated by this Agreement.
1.2 "Company Site" means the Web site operated by or for Company,
currently located on the Internet at http://www.improvenet.com, as modified
from time to time to comply with the provisions of this Agreement, and future
versions, upgrades, successors and replacements thereof.
1.3 "HomeAdvisor" means the real estate related product and/or
service currently named HomeAdvisor created by or for MS (including any
portions, future versions, upgrades, successors and replacements thereof)
that are published via the Internet or via any and all other means of
electronic delivery now or hereafter known.
1.4 "HomeAdvisor Third Party Sites" means the real estate related
products and/or services created by or for MS (including any portions, future
versions, upgrades, successors and replacements thereof) that are published
via the Internet or via any and all means of electronic delivery (now or
hereafter known) by third party Licenses under MS or third party trademarks
or branding.
1.5 "Intermediate Page" means the HomeAdvisor page created and
hosted by MS that requests information from a HomeAdvisor user and then
hyperlinks that user to a relevant page of the Company Site based on the
information provided.
1.6 All other initially capitalized terms shall have the meanings
assigned to them in this Agreement.
2. RIGHTS AND OBLIGATIONS OF THE PARTIES
2.1 HOMEADVISOR RIGHTS AND OBLIGATIONS.
(a) MS shall use its reasonable commercial efforts to
develop and operate HomeAdvisor and maintain uptime consistent with industry
standards, as set forth in EXHIBIT A hereto.
(b) MS shall place links on HomeAdvisor to Company Site as set
forth in EXHIBIT B hereto.
(c) MS will actively seek to drive increasing levels of
traffic to the Company Site via the Home Improvement area of the HomeAdvisor
Site. MS will employ reasonable commercial efforts to promote the Company
Site in such manner, consistent with its marketing strategy for HomeAdvisor.
Promotion options to be investigated by MS will include, but not be limited
to: (a) adding links on MSNBC, MSN.com, HotMail, and other MS properties
which take users to the Home Improvement area of the HomeAdvisor site; (b)
pursuing promotions on MSN.com and (c) including ImproveNet in potential
HomeAdvisor and MSN Home Ownership Newsletters.
(d) MS shall actively seek to leverage its local
advertising sales force to sign up contractors into the ImproveNet certified
network.
1.
<PAGE>
(e) MS shall use reasonable commercial efforts to comply with
the testing and other technical specifications set forth in EXHIBIT A hereto.
(f) MS and Company will negotiate in good faith to have
HomeAdvisor's financing section on the Company Site offered up to
non-HomeAdvisor customers (e.g., Dow, Owens-Corning, etc.). This is
non-exclusive, in that Company will also be able to offer links to other
financing sites to Company's non-MS customers. Notwithstanding the preceding,
MS HomeAdvisor's finance section will be the only financing section on the
Company Site offered up to a HomeAdvisor user (which means both a user who is
currently coming to the Company Site from the HomeAdvisor Site and a user who
previously came to the Company Site from the HomeAdvisor Site, so long as the
Company is able to track such user via a "persistent" cookie or other
method), at no charge to HomeAdvisor. If the user later comes to the Company
Site via a non-MSN advertising banner or a non-co-branded HomeAdvisor/Company
banner or via another Company partner's site, he or she will receive the
generic Company financing experience.
(g) Notwithstanding anything to the contrary set forth in
this Agreement, any rights provided to MS under this Agreement with respect
to HomeAdvisor shall also be provided without additional cost to HomeAdvisor
Third Party Sites if MS and Company so elect. Revenue generated by the users
sent to the Company Site via these HomeAdvisor/Third Party Sites will accrue
to MS under the same terms and conditions of this Agreement unless otherwise
specified.
2.2 COMPANY RIGHTS AND OBLIGATIONS.
(a) Company shall use its reasonable commercial efforts to
develop and operate the Company Site and maintain uptime consistent with
industry standards, as set forth in EXHIBIT A hereto. MS shall first discuss
with Company any proposed updates to EXHIBIT A, and will not implement such
changes without Company's consent, not to be unreasonably withheld.
(b) Company will develop a tracking mechanism to identify
HomeAdvisor referred users and be able to track their usage and Company
marketing/promotional efforts associated with these unique users. Such
tracking method shall be via a "persistent" cookie (or other similar method
agreeable to the parties) which shall be delivered to every HomeAdvisor user
on his or her first visit to the Company Site. There are situations in which
Company may engage in reduced rate advertising. In any such situation where a
reduction off Company's established rate card is given (i) to partners that
have taken an equity interest in Company (no such agreement currently being
in existence), or (ii) to persons for the beneficial interest of Company and
not MS (e.g., if the Company gives away advertising, or trades advertising in
exchange for advertising on another site), Company will accrue
button/banner/showcase/smart lead, etc., revenue to MS at a minimum of 75% of
Company's established rate card. In other situations not contemplated above,
including, for example, in case of a volume discount, no adjustment will be
made to the amounts ordinarily received by MS.
(c) Company will offer for sale, on terms mutually
agreeable to MS and Company, bCentral web site hosting, business service
packages, and desktop tools to its existing and future contractor network.
This includes those services currently available and new services as they
become available. Company will be paid based on existing and future
commercial sales incentive programs used by bCentral. An example of the
agreement terms and conditions is attached in EXHIBIT C, but these will
change from time to time, and Company and bCentral will work together to
reach mutually agreeable terms. This is a non-exclusive offering in that
Company may also sell up to two competing services to its contractor network.
(d) Company shall maintain a HomeAdvisor logo and
navigation structure on sessions generated via a direct link from the
HomeAdvisor site (reflecting top level HomeAdvisor navigation, currently
containing "home page," "getting started," "neighborhoods," "homes,"
"financing," "offer and closing," and "help," but likely to change, and as
changed by HomeAdvisor user; and such logo and navigation structure shall
contain hyperlinks to such HomeAdvisor page(s) as specified by MS. Such logo
and navigation shall be
2.
<PAGE>
provided by MS, and the exact page placement thereof shall be mutually agreed
upon by the parties, but must be at a minimum, located on the top third of
each page on the Company Site.
(e) Company shall provide a monthly report to MS, within 21
days of calendar month end, setting forth the following information: (1) the
number of unique HomeAdvisor users that clicked through to any areas of the
Company Site (broken down to show how many users clicked through from a query
box on the Intermediate Page and how many clicked through from different
links throughout the HomeAdvisor site), (2) the number of page views by such
users with respect to each page of the Company Site (with such pages being
described in an understandable manner based on the content thereof and not by
URL or IP address), and (3) the number of qualified job leads passed by the
Company Site to its professionals (e.g., contractors, architects and
designers).
(f) Company shall use reasonable commercial efforts to
comply with the testing and other technical specifications set forth in
EXHIBIT A hereto.
3. MARKETING
3.1 USE OF NAME OR MARKS. Each party hereby grants to the other the
right during the term of this Agreement to use, reproduce and publish, the
name and logos of the other party in the manner contemplated by this
Agreement. Company must use the HomeAdvisor names and logos in accordance
with the logo guidelines provided by MS from time to time (these guidelines
are currently located at http://homeadvisor.msn.com/ie/help/policies.asp.).
MS must use the ImproveNet names and logos in accordance with the logo
guidelines provided by ImproveNet from time to time. Company shall provide
Company logos in accordance with the logo specifications provided by MS. MS
and Company acknowledge that nothing contained herein shall give either party
any interest in any logo, trade name, trademark or service mark owned by the
other party. The mark owner may terminate the foregoing license if, in its
reasonable discretion, the licensee's use of the marks tarnishes, blurs or
dilutes the quality associated with the marks or the associated goodwill and
such problem is not cured within ten (10) days of notice of breach;
alternatively, instead of terminating the license in total, the owner may
specify that certain pages of the licensee's web site may not contain the
marks. The licensee shall not take any action inconsistent with the owner's
ownership of the marks, and any benefits accruing from use of such marks
shall automatically vest in the owner.
3.2 PRESS RELEASES. Neither party shall issue any press release
relating to the relationship contemplated by this Agreement without giving
the other party three business days to review and approve such release, with
such approval to not be unreasonably withheld. If a party has not responded
in such three business day period, the other party may issue such press
release. Notwithstanding the foregoing, Company shall not issue any press
release prior to the Availability Date.
4. PAYMENTS
4.1 FEES. Company shall pay the greater of: (1) the Minimum Annual
Fee (as stated in 4.2); (2) the Unique User Referral Fee (as stated in 4.3);
and (3) a 25% Revenue Share (as stated in 4.4).
4.2 MINIMUM ANNUAL FEE. Company shall pay MS a minimum annual fee of
$2,500,000 for year one, $2,000,000 for year two, and $1,500,000 for year
three. The first two payments (total of $4,500,000) will be exchanged upon
the execution of this Agreement for warrants to purchase 583,333 shares of
the Company's common stock (at a per share exercise price of $13.50). The
form of warrant will be identical (except for exercise price) to the form of
warrant provided to MS in connection with its financing transaction occurring
on or about the date of this Agreement. The third payment of $1,500,00 will
be paid as follows: 50% on the first day of the third year, and 50% one
hundred and twenty days following the first day of the third year.
4.3 UNIQUE USER REFERRAL FEE: Company will accrue an obligation to
MS of $2.00 per unique customer sent to the Company Site. These fees will be
tallied monthly and accrue against the minimum
3.
<PAGE>
annual fees. Once such fees cumulative exceed the annual minimum, Company
will start to make payment of such fees to MS 30 days following the end of
each month they are accrued. The total annual user fee due under this Section
4.3 will be capped at the greater of 1.5 times the Revenue Share in 4.4, or
$2,500,000 in year one, $3,000,000 in year two, and $3,750,000 in year three.
4.4 REVENUE SHARE - COMPANY TO MS. Company shall track all gross
revenues associated with each unique user sent from HomeAdvisor to the
Company Site via the Intermediate Page. For the first contract year, Company
will, within 15 days of the end of such contract year, calculate MS's portion
([...***...] of the total) of such gross revenues and in the event that such
portion exceeds the amount described in 4.2 (Minimum Fee) or 4.3 (Unique User
Referral Fee), Company shall pay the excess within 30 days of such
calculation date. For the second contract year, Company will perform such
calculations and make applicable payments within 15 days of the end of the
first six month period and the end of the year, respectively. For the third
contract year, Company will perform such calculations and make applicable
payments within 15 days of the end of every three month period. The gross
revenues exclude all taxes invoiced, collected or withheld, refunds, credits,
rebates and other allowances annually granted (not to exceed 3%) and include
all revenues actually received from (but not limited to):
- Contractor Lead Fees (currently $10/lead accepted by contractors)
- Completed Job Revenue
- Product Showcase & Design Gallery Integration
- Banners & Brand Buttons
- Brochure Showcases
- SmartLeads Emails
- Category Message Boards
4.5 CONTRACTOR REFERRAL FEE: Company will pay MS 25% of all gross
revenues actually received by ImproveNet (excluding all taxes invoiced,
collected or withheld, refunds, credits, rebates and other allowances
actually granted, not to exceed 3%) from contractor signup fees for each
contractor MS enlists into the ImproveNet certified network through the MS
sales force. These fees are independent from the fees due under 4.1, and are
due 30 days following the end of the month they are accrued.
4.6 REVENUE SHARE - MS TO COMPANY. In the event that MS agrees to
embed and host Company content on the HomeAdvisor Site, the parties shall
discuss a mutually beneficial arrangements which shall include, at a minimum,
payment by MS to Company of 25% of all gross revenues actually received by MS
(excluding all taxes invoiced, collected or withheld, refunds, credits,
rebates and other allowances actually granted, not to exceed 3%) associated
with each unique user that visits pages on HomeAdvisor's site that contain
Company content. This includes all revenues from banner & button
advertisements on such HomeAdvisor pages, and are due 30 days following the
end of the month they are accrued.
4.
<PAGE>
5. REPRESENTATIONS AND WARRANTIES; LIMITATION OF LIABILITY
Each party hereby represents and warrants as follows: (i) it has full
corporate power and authority to enter into this Agreement and to carry out
the provisions hereof, (ii) it is duly authorized to execute and deliver this
Agreement and to perform its obligations hereunder, (iii) this Agreement is a
legal and valid obligation binding upon and enforceable according to its
terms, (iv) the execution, delivery and performance of this Agreement by it
does not conflict with any agreement to which it is a party or by which it
may be bound, and (v) its website contemplated by this Agreement (HomeAdvisor
in the case of MS, and the Company Site in the case of the Company), and the
services provided pursuant thereto, shall be of a high nature, grade and
quality and shall comply with all applicable laws and regulations throughout
the term of this Agreement.
EXCEPT AS SET FORTH ABOVE, NEITHER PARTY MAKES ANY WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER INCLUDING, BUT NOT LIMITED TO, A
WARRANTY OF FITNESS FOR PURPOSE OR OF MERCHANTABILITY.
OTHER THAN WITH RESPECT TO AN INDEMNIFIED CLAIM UNDER THIS AGREEMENT, NEITHER
PARTY WILL BE LIABLE FOR ANY SPECIAL INDIRECT, INCIDENTAL, CONSEQUENTIAL
DAMAGES (INCLUDING BUT NOT LIMITED TO SUCH DAMAGES ARISING FROM BREACH OF
CONTRACT OR WARRANTY OR FROM NEGLIGENCE OR STRICT LIABILITY), EVEN IF SUCH
PARTY HAS BEEN ADVISED OF (OR KNOWS OR SHOULD KNOW OF) THE POSSIBILITY OF
SUCH DAMAGES.
6. INDEMNIFICATION
6.1 INDEMNIFICATION BY MS. MS agrees to indemnify, pay the defense
costs of, and hold Company, and its successors, officers, directors and
employees harmless from any and all claims, demands, costs, liabilities,
losses, expenses and damages (including without limitation attorneys' fees)
arising out of or in connection with (a) the HomeAdvisor website, (b) any
claim which, taking the claimant's allegations to be
5.
<PAGE>
true, would result in a breach by MS of any of its warranties, covenants or
other obligations set forth in this Agreement; and (c) any claim arising from
the negligence or willful misconduct of MS.
6.2 INDEMNIFICATION BY COMPANY. Company agrees to indemnify, pay the
defense costs of, and hold MS, and its successors, officers, directors and
employees harmless from any and all claims, demands, costs, liabilities,
losses, expenses and damages, including without limitation attorneys' fees),
arising out of or in connection with (a) the Company Site (in the form
modified for HomeAdvisor users and in the form unmodified for non-HomeAdvisor
users); (b) any claim which, taking the claimant's allegations to be true,
would result in a breach by Company of any of Company's warranties, covenants
or other obligations set forth in this Agreement; and (c) any claim arising
from the negligence or willful misconduct of Company.
6.3 PROCEDURE. In the event of an indemnified claim hereunder, the
indemnified party shall give the indemnifying party prompt notice in writing
of the claim (and any failure to provide prompt notice shall relieve the
indemnifying party of liability to the extent it is prejudiced by such delay)
and the indemnifying party shall have sole control over its defense or
settlement, except that the indemnifying party shall not settle or compromise
any such matter without obtaining the indemnified party's written consent,
which shall not be unreasonably withheld. The indemnified party shall have
the right at its own cost and expense to employ separate counsel and
participate in the defense of any claim or action.
7. NON-DISCLOSURE
If MS and Company have entered into a Microsoft Non-Disclosure Agreement, MS
and Company agree that the terms of such agreement shall be deemed
incorporated herein, and further, that all terms and conditions of this
Agreement shall be deemed Confidential Information as defined therein. If MS
and Company have not entered into such agreement, then MS and Company agree
that any and all information identified by the other as "Confidential" and/or
"Proprietary," or which, under all of the circumstances ought reasonably to
be treated as Confidential and/or Proprietary, will not be disclosed to any
third person without the express consent of the other party for a period of
three (3) years following termination of this Agreement and that neither
party will make use of Confidential Information except under the terms of
this Agreement. These confidentiality obligations shall not apply to any
information which: (i) is or subsequently becomes available to the general
public other than through a breach by the receiving party; (ii) is already
known to the receiving party before disclosure by the disclosing party; (iii)
is developed through the independent efforts of the receiving party; or (iv)
the receiving party rightfully receives from a third party without
restriction as to confidentiality or use. The restriction on disclosure shall
not apply to Confidential Information that a court or governmental agency
requires be disclosed, or which must be disclosed in compliance with
applicable laws and regulations.
8. DISPUTE RESOLUTION
8.1 INFORMAL DISPUTE RESOLUTION. The parties shall attempt in good
faith to resolve any dispute arising out of or relating to this Agreement
through negotiation between representatives who have authority to resolve the
matter. Either party may give the other party written notice of any dispute
not resolved in the normal course of business, it being understood that a
notice delivered by a party pursuant to Section 10.2 below shall constitute
the delivery of a written notice of dispute pursuant to this SECTION 8.1.
Within five (5) days after its receipt of the notice, the receiving party
shall submit to the other party a written response. The notice and response
shall each include (a) a statement of the party's position and a summary of
the arguments supporting that position, and (b) the name and title of the
company representative who will represent that party. Within ten (10) days
following delivery of the original dispute notice, the parties' respective
representatives shall meet at a mutually acceptable time and place, and
thereafter as often as they reasonably deem necessary to attempt to resolve
the dispute. All reasonable requests for information made by either party to
the other will be honored.
6.
<PAGE>
8.2 ARBITRATION. If a dispute has not been resolved within thirty
(30) days of the disputing party's original notice under SECTION 8.1, or if
the parties fail to meet within the ten (10) days following such notice under
SECTION 8.1, then either party may initiate arbitration of the dispute. The
dispute shall then be submitted to mandatory and binding arbitration in San
Francisco in accordance with the commercial rules and procedures of the
American Arbitration Association before three arbitrators (one chosen by MS,
one chosen by the Company, and the third chosen by the mutual agreement of
the arbitrators chosen by MS and the Company). Judgment upon the award may be
entered by any court having appropriate jurisdiction. The arbitrators shall
not, however, in the case of a dispute between the parties not involving a
third party claim, be empowered to aware damages in excess of compensatory
damages.
8.3 LITIGATION. The only circumstance in which a dispute between the
parties will not be subject to the provision of SECTIONS 8.1 and 8.2 above,
is when a party makes a good faith determination that a breach of the terms
of this Agreement by the other party is such that the damages to such party
resulting from the breach will be so immediate, so large o severe, and so
incapable of adequate redress after the fact that a temporary restraining
order or other immediate injunctive relief is the only adequate remedy.
Except for such relief, the parties shall resolve their disputes, whether or
not such relief is granted, in accordance with the provisions set forth in
SECTIONS 8.1 and 8.2.
8.4 CONTINUED PERFORMANCE. Each party agrees to continue performing
its obligations under this Agreement when any dispute is being resolved under
ARTICLE 8, unless and until such obligations are terminated by the expiration
or termination of this Agreement or by order of a court of competent
authority under SECTION 8.2 or SECTION 8.3.
9. TERMINATION
9.1 TERM. The term of the Agreement shall commence on the Effective
Date and shall expire on the third anniversary of the Availability Date,
unless earlier terminated as provided herein.
9.2 TERMINATION FOR CAUSE. In the event either party shall
materially fail to perform or comply with the terms of this Agreement, the
other party may terminate if such failure has not been remedied within 30
days of written notice thereof to the other party.
9.3 SURVIVAL. Sections 5, 6, 7 and 10 shall survive any expiration
or termination of this Agreement.
10. GENERAL
10.1 MISCELLANEOUS. If either MS or Company employs attorneys to
enforce any rights arising out of or relating to this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys' fees an
costs, including expert witness fees. Neither party may assign all or any
portion of this Agreement unless the other party consents in writing, which
consent will not be unreasonably withheld provided that either party may
assign this Agreement without consent to any of its subsidiaries, affiliates,
joint ventures, partnerships, and limited liability companies in which it has
a majority interest, and to any company into which it merges if it is not the
surviving entity. No partnership, joint venture, employment, agency,
franchise, or other form of agreement or relationship is intended by this
Agreement. The parties agree that this Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
merges all prior and contemporaneous communications. This Agreement shall not
be modified except by a written agreement dated subsequent hereto signed on
behalf of the parties by their duly authorized representatives. Neither party
will be liable for any default or delay in the performance of its obligations
hereunder due to an act of God or other event to the extent that: 1) the
non-
7.
<PAGE>
performing party is without fault in causing such default or delay; 2) such
default or delay could not have been prevented by reasonable precaution; and
3) such default or delay cannot reasonably be circumvented by the
non-performing party through the use of alternate sources, work around plans
or other means. This Agreement, and the rights and duties of the parties
arising from or relating to this Agreement or its subject matter, shall be
construed in accordance with the laws of the State of California, without
regard to its conflicts of laws provisions.
10.2 NOTICES AND REQUESTS. All notices and requests in connection
with this Agreement shall be deemed given as of the day they are (i)
deposited in the U.S. mails, postage prepaid, certified or registered, return
receipt requested; or (ii) sent by overnight courier, charges prepaid, with a
confirming fax; and addressed as follows:
COMPANY: IMPROVENET, INC. MS: MICROSOFT CORPORATION
720 BAY ROAD, SUITE 200 One Microsoft Way
REDWOOD CITY, CA 94063 Redmond, WA 98052-6399
Attention: Ron Cooper Attention:
Fax:
Phone:
with a cc to: MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
Attention: Law & Corporate Affairs
Department
U.S. Legal Group
Fax:
or to such other address as the party to receive the notice or request so
designates by written notice to the other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the dates indicated below.
MICROSOFT CORPORATION IMPROVENET, INC.
/s/ Brian R. Mistere /s/ Ronald B. Cooper
- ---------------------------------- ----------------------------------
By (sign) By (sign)
Brian R. Mistere Ronald B. Cooper
- ---------------------------------- ----------------------------------
Name (Print) Name (Print)
Unit Manager President and CEO
- ---------------------------------- ----------------------------------
Title Title
12/7/99 12/7/99
- ---------------------------------- ----------------------------------
Date Date
8.
<PAGE>
EXHIBIT A
(1) COMPETITORS - The page(s) of the Company Site served after entry
from the Intermediate Page (or other links from HomeAdvisor to the Company
site) shall not contain any categories, hyperlinks, advertisements,
sponsorships, or other content relating to home listings of any kind (real
estate broker or agent, classified, for sale by owner or otherwise), mortgage
loans/services, or any other real estate related products or services. In
addition, the page(s) of the Company served after entry from the Intermediate
Page (or other links from HomeAdvisor to the Company site) shall not contain
any categories, hyperlinks, advertisements, sponsorships, or other content
from any of the following companies: HomeStore.com, Realtor.com, Intuit,
HomeShark, E-Loan, Countrywide, Get Smart, Lending Tree, Priceline.com,
SmartMoney.com, Mortgage.com, Owners.com, iOwn.com, Homehunter.com,
Ditech.com, mortgage.com, getsmart.com, Homescout.com, HomeSeekers.com,
Homes.com, HomeGain.com, Yahoo Real Estate, Cendant, Cyberhomes,
RealEstate.com, AOL Real Estate, Infoseek Real Estate, RentNet.com,
Apartments.com, SpringStreet.com, or any affiliate of any of the foregoing.
In addition, during the course of this agreement, Company may not enter into
a commercial relationship with HomeStore.com or any of its affiliates.
(2) The parties shall use their reasonable commercial efforts to
adhere to the following Development Schedule (and shall work together to
revise the action items and due dates as necessary):
<TABLE>
<CAPTION>
Action Item Due Date Owner
- --------------------------------------------------------------------------------
<S> <C> <C>
Intermediate Page Review 12/20/99 MS/Company
- --------------------------------------------------------------------------------
Prototype functioning for HomeAdvisor
(Intermediate Page built and links
working) 1/10/00 MS/Company
- --------------------------------------------------------------------------------
Intermediate Page & integrated
site/Company Site live date 3/7/00 MS/Company
- --------------------------------------------------------------------------------
</TABLE>
The current Intermediate Page live on Home Advisor, due to expire
per the current agreement after 2/28/99, will remain intact until the
relaunch on approximately 3/7/00 of the new Intermediate Page.
(3) The parties shall use their reasonable commercial efforts to
adhere to the following testing specifications:
Company shall test the Company Site and MS shall test HomeAdvisor to
confirm that it operates with Netscape Navigator (domestic USA) versions 4.0
and later, and that it operates with and is optimized for MS Internet
Explorer (domestic USA) versions 4.0 and later, all running on leading
hardware platforms, consisting of (when versions are available): MS Windows
3.1, Windows 95, Windows 98, Windows NT, the Apple Macintosh operating
systems and such other platforms as the parties may mutually agree to add or
remove from time to time. The parties shall mutually determine a process and
software to use for communicating bugs.
(4) The parties shall use their reasonable commercial efforts to adhere
to the following specifications:
Company with respect to the Company Site, and MS with respect to
HomeAdvisor, shall each regularly monitor the operation and performance of
the such site, respond to technical and customer inquiries, and conduct
similar business hours and practices in a manner consistent with the rules,
policies, and procedures consistent with industry standards.
The parties shall mutually agree on communication processes for
sharing and updating each other's requirements and technical teams. Each
party shall make commercially reasonable efforts to adhere to a mutually
agreed set of technical processes, policies, rules, and procedures for
sharing schedules, screen shots, updates, schedule information, and other
relevant technical information. Each party shall be
9.
<PAGE>
responsible for notifying the other in the event that it discovers a
technical problem with the service of the other party.
MS and Company shall each use commercially reasonable efforts to
support increasing numbers of users, including operating sufficient servers
for user traffic, and shall promptly inform the other party of the failure of
relevant Web servers. Company shall operate its Web server(s) at a capacity
below 30%, where capacity is calculated as a daily average of hourly samples
and represents what % of the system's full capabilities are being met.
Company shall have uptime of 99.5%, where uptime is defined as the portion of
time when the system is accessible and available to users. Uptime shall be
calculated on a monthly basis and based on daily updates. Uptime shall not
include scheduled maintenance.
10.
<PAGE>
EXHIBIT B
The following general guidelines will apply to the placement of hyperlinks
from HomeAdvisor to the Company Site, unless both companies mutually agree
otherwise. Aside from the link in (*) none of the links to Company will
include branding or "ImproveNet.com" related text, but be generically
referred to as "find a contractor" or "home improvement" or something to that
effect. As HomeAdvisor releases new versions of its site, the exact
placement, number and treatment of these links is subject to change (except
for the treatment on the Intermediate Page), but this exhibit is designed to
lay out the spirit of the links MS & Company will work toward implementing.
EFFECTIVE 12/3/99
MARKETPLACE - ImproveNet will get a logo, text description, and 9M guaranteed
impressions in a combination of HomeAdvisor's MarketPlace and button rotation
across the site.
EFFECTIVE APPROXIMATELY 3/7/00
LINKS FROM HOMEADVISOR HOME PAGE: http://homeadvisor.msn.com/ie
There will be a link from the HomeAdvisor home page named "Find a
Professional" or "Professional Services" or something similar in the
"Resources & Services" area. This will link to an "Intermediate Page."
THE INTERMEDIATE PAGES
The Company and MS will work together to create a section of integrated
content similar to that found on the Home Improvement section of the site at
http://homeadvisor.msn.com/ie/services/homeimprovement.asp. The Company will
have a branded link and query fields (supporting navigation by type of
professional, viewing designs, viewing products, and finding remodeler's
resources) that take people directly to the appropriate places on the
company's site. The Company will be branded with a logo link (*) with maximum
pixel size of (77Wx33H) that will take users directly to the Company's home
page.
LINKS FROM THE PARTNERS PAGE*:
http://homeadvisor.msn.com/ie/partnerscenter/infoproviderlist.asp. There will
be one Company text link of a location and representation similar that which
exists for ImproveNet.com on the Partners page as of 11/16/99.
HOMEADVISOR KEYWORDS: http://homeadvisor.msn.com/ie/
HomeAdvisor and ImproveNet will agree upon list of keywords in the
HomeAdvisor search engine. When results for keywords are returned, links to
ImproveNet's "Find A Professional" area on the HomeAdvisor site will appear.
LINKS IN THE HOMEADVISOR REMODELING SECTION HomeAdvisor's Version 4.0
(currently slated for 3/7/99 release) will have a remodeling section in the
Ownership area with the following contemplated sections: "Working with a
Contractor", "Doing It Yourself", and "Is it worth the cost" (titles and
content subject to change at MS sole discretion). We will link to ImproveNet
in areas that make editorial sense, with the following links currently
planned (subject to change at MS sole discretion).
- Working With A Contractor - Within this section, we plan to have
links to:
11.
<PAGE>
- Visit ImproveNet's Design Gallery for home improvement ideas
< http://www.improvenet.com/dream/designgallery/index.html >
- Make sure the contractor you've found is up to snuff with
ImproveNet contractor screening
< http://www.improvenet.com/secure/legalcredit.html >
- Make sure your contract is legit with ImproveNet's contract
review
< http://www.improvenet.com/secure/contractorview.html >
- Find a Professional
http://www.improvenet.com/tools/form/form_35.asp
- Doing It Yourself - Within this section, we plan to have links to:
- Visit ImproveNet's DesignGallery for home improvement ideas
< http://www.improvenet.com/dream/designgallery/index.html >
- Find a Professional
http://www.improvenet.com/tools/form/form_35.asp
- Is It Worth The Cost - Within this section, we plan to have links to:
- Link to Kitchen and Bath Design Showcases
< http://www.improvenet.com/dream/designgallery/KitchenShowcase/
KitchenShowcase.html > and
< http://www.improvenet.com/dream/DesignGallery/BathShowcase/
BathShowcase.html >
- Link to Product showcases
< http://www.improvenet.com/dream/productshowcase/index.html >
CALCULATORS - ImproveNet's kitchen and bathroom estimator will be featured in
the Ownership section and Resources & Services calculator page. As ImproveNet
develops other calculators, we will explore integrating these as appropriate.
12.
<PAGE>
EXHIBIT C
EXAMPLE ONLY
RESELLER AGREEMENT
LINKEXCHANGE PREMIUM MEMBERSHIP PROGRAM
This Agreement, by and between LINKEXCHANGE, INC. ("LinkExchange"), a
California corporation, and a wholly own subsidiary of Microsoft Corporation,
with its principal offices at 2172nd Street, San Francisco, CA 94105, and
_________________________, a ___________a corporation, with its principal
offices at __________________________________ ("Company") is made and entered
into as of the later of the two signature dates below (the "Effective Date").
The parties agree that Company will promote, market, offer for sale and sell to
third party end users Premium Memberships in the LinkExchange Network according
to the terms set forth below and the attached Standard Terms and Conditions. The
Standard Terms and Conditions are incorporated into this Agreement by this
reference.
1. LAUNCH DATE: _____________, 1999
2. TERM: Commencing on the Effective Date and terminating ____ months
following the Launch Date.
3. COMMISSIONS:
a. SUGGESTED RETAIL PRICES (subject to change by Microsoft from
time to time):
<TABLE>
<CAPTION>
--------------------------- ---------------------- --------------------
Annual Fees
--------------------------- ---------------------- --------------------
<S> <C> <C>
Business Membership 19.99 US $230.00
--------------------------- ---------------------- --------------------
Professional Membership N/A US $300.00
--------------------------- ---------------------- --------------------
</TABLE>
b. COMPANY DISCOUNT:
<TABLE>
<CAPTION>
Monthly Memberships:
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
<S> <C>
2,500 or less Monthly Membership 15%
-----------------------------------------------------------------------------------
Less than 5,000, but more than 2,500, Monthly Memberships 25%
-----------------------------------------------------------------------------------
Less than 10,000, but more than 5,000, Monthly Memberships 35%
-----------------------------------------------------------------------------------
More than 10,000 Monthly Memberships 45%
-----------------------------------------------------------------------------------
Annual Memberships*:
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
2,500 or less Annual Memberships (inclusive) 25%
-----------------------------------------------------------------------------------
2,501 to 5,000 Annual Memberships (inclusive) 35%
-----------------------------------------------------------------------------------
5,001 to 10,000 Annual Memberships (inclusive) 45%
-----------------------------------------------------------------------------------
10,001 or more Annual Memberships (inclusive) 50%
-----------------------------------------------------------------------------------
Pre-paid Annual Memberships:
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
1,000 or less Pre-paid Annual Memberships (inclusive) 35%
-----------------------------------------------------------------------------------
1,001 to 2,500 Pre-paid Annual Memberships (inclusive) 40%
-----------------------------------------------------------------------------------
2,501 to 5,000 Pre-paid Annual Memberships (inclusive) 45%
-----------------------------------------------------------------------------------
5,001 to 10,000 Pre-paid Annual Memberships (inclusive) 50%
-----------------------------------------------------------------------------------
10,001 or more Pre-paid Annual Memberships (inclusive) 60%
-----------------------------------------------------------------------------------
</TABLE>
*Pre-paid Annual Premium Memberships will not be included when
determining the discounts applicable to Annual Premium Memberships.
1.
<PAGE>
This Agreement does not constitute an offer by LinkExchange and it
will not be effective unless and until signed by both parties.
LINK EXCHANGE, INC. [ ]
By By
-------------------------------- --------------------------------
Name (Print) Name (Print)
---------------------- ----------------------
Title Title
----------------------------- ----------------------------
Date Date
------------------------------ ------------------------------
Address
---------------------------
---------------------------
---------------------------
Fax: ( )
---------------------------
2.
<PAGE>
STANDARD TERMS AND CONDITIONS
SECTION 1. DEFINITIONS
Terms contained in this Agreement with the initial letter capitalized will
have the applicable meanings se forth below or elsewhere in this Agreement.
"Discount Rate" means the discount off of the suggested retail price set
forth on the attached cover page.
"Launch Date" means the first day that the sign Up Pages may be accessed
through the Company's web site by third parties.
"Link" means a hypertext link to the LinkExchange web site provided to
Company by LinkExchange.
"Premium Member" means a person registering for a Premium Membership via the
Sign Up Pages.
"Premium Member Terms" means the terms of use applicable to the Premium
Memberships, as the same may be modified by LinkExchange from time to time.
"Premium Memberships" means on or more of the LinkExchange premium
memberships currently consisting of Starter, Business and Professional
memberships described at the URL http:\\premium\linkexchange.com (or any
successor site). Premium Memberships may be sold or distributed by Company on
a monthly or annual subscription basis. "Monthly Membership" means a Premium
Membership with a month to month term. "Annual Membership" means Premium
Membership with a twelve (12) month term. "Pre-paid Annual Membership" means
an Annual Premium Membership for which LinkExchange has received full payment
of the suggested retail price set forth on the attached cover page, less the
applicable Discount Rate, prior to such membership becoming effective.
"Sign Up Pages" means pages located on one or more of Company's web sites,
created pursuant to paragraph 4.2.
"Suggested Retail Price" means the suggested retail prices set forth to
paragraph 3(a) of the attached cover page.
"Term" meant the period described in paragraph 6.1.
SECTION 2. APPOINTMENT OF RESELLER
2.1 APPOINTMENT. LinkExchange hereby appoints Company, and Company hereby
accepts LinkExchange's appointment, as a reseller of Premium Memberships,
subject to and in accordance with the provisions of this Agreement.
2.2 LIMITATIONS. Company will promote, market, offer for sale and sell
Premium Memberships solely to third party end users. Company may not offer
for sale, sell or otherwise distribute Premium Memberships through a third
party or sublicense any of the rights granted in this Agreement. All Premium
Memberships must be sold or otherwise distributed subject to the Premium
Member Terms.
SECTION 3. REVENUES AND REPORTS
3.1 CONSIDERATION. On a monthly basis, Company will pay to LinkExchange the
applicable Suggested Retail Price (as the same may be changed by Microsoft
from time to time), less the applicable Discount Rate, for each Premium
Membership sold or otherwise distributed by Company during such month.
3.2 DISCOUNT RATE. The Discount Rate applicable to Company for Premium
Memberships is determined as follows: (a) Monthly Memberships, based upon the
number of Premium Memberships paid by Company to LinkExchange during a given
month; (b) Annual Memberships, based upon the number of Annual Memberships
sold or distributed by Company during the Term; and (c) Pre-paid Annual
Memberships, based upon the number of
1.
<PAGE>
Pre-paid Annual Premium Memberships sold or distributed by Company during the
Term (but not including Annual Memberships).
3.3 PAYMENTS. Within thirty (30) days after the end of each month, Company
will pay to LinkExchange in readily available funds all amounts owing to
LinkExchange pursuant to paragraph 3.1.
3.4 REPORTS. Within thirty (30) days after the end of each month, Company
will deliver to LinkExchange a report setting forth the number of Premium
Memberships (itemized by membership type) sold or otherwise distributed by
Company during such month, the number of Premium Members registered through
or otherwise authorized by Company to use the Premium Member services during
such month, the calculation of the amounts owing pursuant to paragraph 3.1,
and such usage data as LinkExchange may specify (including, without
limitation, aggregate demographic data, individual demographic data, and Sign
Up Page usage data). Such reports will be delivered in the form and format
specified by LinkExchange.
3.5 AUDITS. Company will keep usual and customary records and books of
account relating to Premium Members, Premium Memberships sold or otherwise
distributed by Company, and Company's other obligations hereunder.
LinkExchange may inspect such books of account and records at Company's
facilities and during Company's regular business hours upon five (5) days
prior written notice in order to verify Company's compliance with this
Agreement. LinkExchange will bear the cost of such inspection, except that
Company will pay all reasonable costs of inspection if that inspection
uncovers (a) an error of five percent (5%) or greater in the amounts payable
to LinkExchange for such audited period, or (b) Company is in material breach
of the Agreement. Company will promptly pay to LinkExchange any amounts
deemed owing as a result of such inspection, together with all applicable
interest.
3.6 TAXES. Company will bill, collect and remit to the appropriate taxing
authorities all sales, use, value added, and other comparable taxes due or
owing pursuant to this Agreement or the transactions contemplated hereunder
(other than taxes on LinkExchange revenues), and will provide LinkExchange
with proof of such payments upon request. Company is solely liable for any
and all such taxes, including penalties, interest and other additions
thereon. All amounts to be paid by Company to LinkExchange are exclusive of
all taxes imposed by any federal, foreign, state, provincial, municipal,
local and other taxing authorities, including income, franchise, excise,
gross receipts, sales, use, value added, property or similar tax, now or
hereafter imposed on Company.
3.7 CURRENCY. All amounts owing hereunder will be computed in United States
dollar currency and paid in United States dollar currency.
3.8 INTEREST. Any amounts not paid when due under this Agreement will bear
interest at the rate of eighteen percent (18%) per annum or the maximum rate
permitted by applicable law, whichever is less. Interest will be compounded
on a monthly basis.
SECTION 4. COMPANY OBLIGATIONS
4.1 PROMOTION. Company will use its commercially reasonable efforts to
promote, market, offer for sale and sell the Premium Membership, and will
cooperate with LinkExchange in promoting and marketing the Premium
Memberships. Without limiting the foregoing, Company will diligently promote
the Premium Memberships through all of Company's standard promotional
vehicles (e.g., newsletters, welcome e-mail, banner advertising and
update/news e-mail), and Company will incorporate into the home page of
Company's web sites a LinkExchange Logo provided by LinkExchange, linked to
the web site specified by LinkExchange. Company will submit all promotional
materials prepared by or for Company related to the Premium Membership to
LinkExchange for review and may not distribute such materials without
LinkExchange's prior written approval.
4.2 SIGN UP PAGES. Company will create and host web pages as part of
Company's web sites that permit third parties to purchase Premium
Memberships. The initial Sign Up Pages will be in the form specified by
LinkExchange in writing, and all Sign Up Pages will be submitted to
LinkExchange for their review and approval prior to implementation. Company
may not modify the Sign Up Pages or any LinkExchange hypertext link without
the prior written approval of LinkExchange. All Sign Up Pages will
prominently contain a hypertext link provided
2.
<PAGE>
by LinkExchange, which link shall be placed "above the fold" in a screen act
at 650 x 480 pixels (i.e., such that a user visiting the a web page
containing the such link is not required to scroll in any direction to view
such link).
4.3 INFORMATION. Company will obtain appropriate contact information from
Premium Members, and will deliver such information to LinkExchange on a
monthly basis at the time and in the form and format specified in
LinkExchange. Company will inform Premium Members, in a manner that satisfies
applicable laws and regulations, that information collected will be
transferred to LinkExchange in connection with the Premium Memberships.
4.4 RESTRICTIONS. Company will not promote, market, offer for sale, sell or
resell any product or service that competes with or may serve as a substitute
(in whole or in part) for the services available through the Premium
Membership program, in whole or in part ("Competing Services"). In addition,
for a period of three (3) months following the expiration or termination of
the Term. Company will not promote, market, offer for sale, sell or resell
any Competing Services to any Premium Member. Company may not disclose
information collected from Premium Members to any third party in any form
that identifies such Premium Members as customers of LinkExchange or for use
in connection with developing, marketing, promoting or selling Competing
Services.
SECTION 5. LINKEXCHANGE OBLIGATIONS
5.1 LINKEXCHANGE PREMIUM PROGRAM. LinkExchange will provide Company with a
version of the LinkExchange Premium Membership program to be co-branded with
Company's name and logos. Premium Member Terms will be at LinkExchange's sole
discretion including, without limitation, the products and services to be
offered within the Premium Membership program. All persons registering to
become a Premium Member through the Sign Up Pages are subject to the Premium
Member Terms, as the same may be modified from time to time by LinkExchange.
In addition, all Premium Members are subject to acceptance in the discretion
of LinkExchange.
5.2 CUSTOMER SERVICE. Subject to paragraph 4.3, LinkExchange will be
responsible for technical support services relating to the Premium Membership
program.
5.3 LINKEXCHANGE RIGHTS. LinkExchange is entitled to continue to offer the
Premium Memberships separately from this Agreement, as LinkExchange may deem
appropriate in its sole discretion. LinkExchange will further be entitled to
offer and provide additional products or services directly to Premium Members
and other third parties on such terms and conditions as LinkExchange may
determine in its sole discretion. LinkExchange may modify or terminate the
Premium Membership program at any time, in its discretion. LinkExchange (and
its licensors) reserves all rights in all other code, software, logos, links
and other materials provided by or on behalf of LinkExchange hereunder.
SECTION 6. TERM AND TERMINATION.
6.1 TERM. The Term of this Agreement is set forth in paragraph 2 of the
attached cover page. Upon expiration of the Term and any subsequent extension
thereof, this Agreement will automatically extend for consecutive one (1)
month periods, unless one party notifies the other party in writing of its
intent not to renew the Agreement at least thirty (30) days prior to the
expiration date of then-current Term.
6.2 TERMINATION. In addition to any other rights and/or remedies that either
party may have under the circumstances, all of which are expressly reserved
by the parties, either party may immediately terminate this Agreement upon
written notice to the other party if: (a) such other party materially
breaches this Agreement and fails to cure that breach within fifteen (15)
business days after written notice thereof; (b) LinkExchange terminates the
Premium Membership program; (c) Company breaches paragraph 9.1; or (d) either
party becomes involved or makes any assignment for the benefit of creditors
or similar transfer evidencing insolvency, or suffers or permits the
commencement of any form of insolvency or receivership proceedings or files
or has filed against it any petition under any bankruptcy, debtor relief or
similar law, which petition is not dismissed within sixty (60) days of such
filing, or appoints or has appointed a trustee or receiver for such party's
business or ____________ or any part thereof.
3.
<PAGE>
6.3 TERMINATION PROCEDURE. Upon expiration or termination of this Agreement
for any reason, Company will have no further right to market, promote, offer
for sale or sell Premium Memberships. Company will cooperate in good faith
with LinkExchange to transfer all Premium Member information (including,
without limitation, billing information) to LinkExchange, and to facilitate
an orderly transition of Premium Members to LinkExchange.
6.4 EFFECT OF TERMINATION. Upon termination or expiration of this Agreement
for any reason, each and every clause which by its nature is intended to
survive the termination of this Agreement (including, without limitation,
paragraph 4.5, 6.3 and 6.4, and paragraphs 3, 7, 8 and 9) will survive.
Neither party will be liable to the other party for damages arising from or
related to termination of this Agreement in accordance with this paragraph 6.
SECTION 7. WARRANTIES AND INDEMNITY
7.1 COMPANY. Company warrants and represents that: (a) it has sufficient
authority to enter into this Agreement; (b) the Sign Up Pages and all
materials delivered by Company to LinkExchange pursuant to this Agreement do
not infringe the copyrights, trademarks, service marks, rights of publicity
or privacy, or any other intellectual property or proprietary right of any
third party; (c) the Company web site and the Sign Up Pages, and all actions
occurring therein, are in compliance with all applicable laws; (d) Company
will comply with all applicable laws and governmental regulations related to
the transactions contemplated by this Agreement; and (e) each Company web
site containing a Sign Up Page include a privacy statement available to end
users of such web site, and Company will adhere to the information gathering,
dissemination, privacy protection and other practices specified in such
privacy statement.
7.2 INDEMNIFICATION. Company will defend, indemnify and hold LinkExchange
harmless from and against any loss, claim, liability, damage or expense
(including, without limitation, reasonable attorneys' fees) arising from or
otherwise related to any claim or action threatened or commenced against
LinkExchange by a third party arising from or related to any breach or
alleged breach by Company of this Agreement. LinkExchange will reasonably
cooperate with Company, at Company's expense, in connection with the defense
and settlement of any such claim or action, which settlement will be subject
to LinkExchange's written approval which will not be unreasonably withheld.
LinkExchange will have the right to employ separate counsel and participate
in the defense and settlement of any such claim or action at LinkExchange's
sole expense.
7.3 WARRANTY DISCLAIMER. THE LINKEXCHANGE NETWORK (INCLUDING ALL OF THE
PRODUCTS AND SERVICES AVAILABLE THROUGH THE PREMIUM MEMBERSHIP) AND ANY OTHER
MATERIALS OR SERVICES PROVIDED TO COMPANY PURSUANT TO THIS AGREEMENT ARE
PROVIDED "AS IS" AND WITH ALL DEFECTS. LINKEXCHANGE HEREBY DIS-CLAIMS ALL
REPRESENTATIONS, WARRANTIES AND CONDITIONS, EXPRESS OR IMPLIED, OF FITNESS
FOR A PARTICULAR PURPOSE, MERCHANTABILITY, TITLE, NONINFRINGEMENT,
COMPATIBILITY, SECURITY, AND CONDITION OR OPERATION OF THE FOREGOING. COMPANY
ACKNOWLEDGES THAT THE IMPRESSIONS HOSTED TO COMPANY'S SITE ARE PROVIDED BY
THIRD PARTIES AND THAT LINKEXCHANGE IS NOT RESPONSIBLE FOR THE CONTENT OF
SUCH ADVERTISEMENTS. IN ADDITION, LINKEXCHANGE IS NOT RESPONSIBLE FOR AND
DOES NOT WARRANT THE CONTINUED OR INTERRUPTED OPERATION OF THE INTERNET.
Company may not make any representations, warranties or conditions with
respect to Premium Memberships, or any product or services available through
the Premium Memberships, except as expressly set forth in the Premium Member
Terms.
SECTION 8. LIMITATIONS.
8.1 LIMITATION OF REMEDIES. Except to the extent arising pursuant to
paragraph 7.2 or a breach of paragraph 9.1, NEITHER PARTY WILL BE LIABLE TO
THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE,
SPECIAL OR EXEMPLARY DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT
(INCLUDING DAMAGES FOR LOSS OR INTERRUPTION OF BUSINESS, PROFITS, REVENUES OR
DATA, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES), WHETHER ARISING IN TORT (INCLUDING NEGLIGENCE), CONTRACT, STRICT
LIABILITY, PRODUCT LIABILITY OR OTHER CAUSE OF ACTION. NOTWITHSTANDING THE
FOREGOING, THIS SECTION WILL NOT LIMIT EITHER PARTY'S ABILITY TO OBTAIN
INJUNCTIVE OR OTHER EQUITABLE RELIEF UNDER THIS AGREEMENT.
4.
<PAGE>
8.2 LIMITATION ON DAMAGES. Except to the extent arising pursuant to paragraph
7.2 or a breach of paragraph 9.1, NEITHER PARTY WILL BE LIABLE TO THE OTHER
PARTY UNDER THIS AGREEMENT IN THE AGGREGATE FOR DAMAGES IN EXCESS OF THE
AMOUNTS PROPERLY PAID, OWING AND ACCRUED TO COMPANY HEREUNDER.
SECTION 9. MISCELLANEOUS
9.1 CONFIDENTIALITY. The parties acknowledge and agree that the LinkExchange
Non-Disclosure Agreement dated as of ____________ ("NDA") entered into by and
between the parties applies to this Agreement as if fully set forth herein
and that all of the terms of this Agreement (including but not limited to its
existence) and all discussions and negotiations related thereto are
considered Confidential Information of LinkExchange under the NDA. Upon
termination or expiration of this Agreement, Company will destroy (or upon
the other party's request return) any and all confidential information and
materials of LinkExchange in Company's possession or control.
9.2 NOTICES. All notices and requests in connection with this Agreement will
be deemed given (a) when personally delivered, (b) when delivered by
facsimile or telex, (c) the next business day following delivery to a
nationally recognized courier service guarantying next-day delivery, or (d)
five (5) business days after being placed in the mails of the United States,
postage prepaid, certified or registered, return receipt requested, to the
applicable address set forth on the attached cover page (or to such other
address as the party to receive the notice or request so designates by at
least ten (10) days prior written notice to the other party).
9.3 INDEPENDENT CONTRACTOR. Company is an independent contractor, and not an
employee, agent, franchisee, or representative of LinkExchange. Except as
otherwise specifically provided in this Agreement, Company will perform its
obligations under this Agreement at its own expense. Company is not
authorized to, and will not attempt to create or assume any obligation or
liability, express or implied, in the name or otherwise on behalf of
LinkExchange. Without limiting the generality of the foregoing, Company will
not enter into any contract, agreement or commitment, make any warranty or
guaranty, or incur any obligation or liability in the name or otherwise on
behalf of LinkExchange. This Agreement will not be construed as creating or
evidencing any franchise, agency or partnership among the parties or as
imposing any franchise, agency or partnership obligation or liability on
either party.
9.4 COSTS. Each party is responsible for all costs associated with fulfilling
its obligations hereunder.
9.5 GOVERNING LAW. This Agreement will be governed by the laws of the State
of Washington. Company hereby irrevocably consents to the personal
jurisdiction of, and for any action governed by or on behalf of Company
exclusive venue in the state and federal courts sitting King County,
Washington, USA. In any suit or action to enforce any right or remedy under
this Agreement or to interpret any provision of this Agreement, the
prevailing party will be entitled to recover its costs, including reasonable
attorneys' fees.
9.6 ASSIGNMENT. Company may not assign this Agreement without LinkExchange's
prior written approval. Any attempted assignment, sub-license, transfer,
encumbrance or other disposal of this Agreement by Company without
LinkExchange's prior written approval will be void and will constitute a
material default and breach of this Agreement. Except as otherwise provided,
this Agreement will be binding upon and will inure to the benefit of the
parties' successors and lawful assigns.
9.7 HEADINGS. The section headings used in this Agreement are intended for
convenience only and will not be deemed to affect in any manner the meaning
or intent of this Agreement or any provision hereof.
9.8 MODIFICATION. This Agreement will not be modified except by a written
agreement dated subsequent to the date of this Agreement and signed on behalf
of Company and LinkExchange by their respective duly authorized
representatives.
9.9 WAIVER. No waiver of any breach of this Agreement will constitute a
waiver of any prior, concurrent or subsequent breach of the same or any other
provisions hereof, and no waiver will be effective unless made in writing and
signed by the waiving party.
5.
<PAGE>
9.10 SEVERABILITY. To the extent that any provision of this Agreement
conflicts with governing law, or is held to be null, void or otherwise
ineffective or invalid by a court of competent jurisdiction, (a) such
provision will not be deemed to be restated to reflect as nearly as possible
the original intentions of the parties in accordance with applicable law, and
(b) the remaining terms, provisions, covenants and restrictions of this
Agreement will remain in full force and effect.
9.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together will constitute one agreement.
9.12 LANGUAGE. This Agreement has been negotiated in the English language and
it is the express wish of the parties that this Agreement, and all related
documents be drafted in the English language. C'est la volonte expresse des
parties que la presente convention ainsi que les documents qui a y
rattachment soient rediges en anglais.
9.13 ENTIRE AGREEMENT. Subject to paragraph 5.1, this Agreement constitutes
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements or
communications between the parties.
6.
<PAGE>
EXHIBIT 10.20
AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the later of the
two signature dates below (the "Effective Date") by and between IMPROVENET,
INC. ("ImproveNet"), a Delaware, U.S.A. corporation, and COMPLETEHOME
OPERATIONS, INC. ("CompleteHome"), a Delaware, U.S.A. corporation.
BACKGROUND
ImproveNet is an Internet-based home improvement market maker in the United
States for contractors, homeowners and suppliers of goods and services
related to home improvement. ImproveNet provides an Interact-based contractor
matching service pursuant to which it screens and qualifies both contractors
and homeowner leads and matches appropriate and interested contractors to
homeowners seeking to have home improvement projects performed. ImproveNet
also provides other informational services to homeowners and contractors as
well as promotional and advertising services to suppliers via its Internet
sites.
CompleteHome is the owner and operator of an Internet-based real estate
portal, known as CompleteHome.com and is engaged, inter alia, in the business
of providing online advertising and certain other promotional activities
associated with residential real estate and real estate-related services.
CompleteHome is interested in having ImproveNet provide certain contractor
matching, informational, promotional and advertising services for the
CompleteHome Site (as defined below), and ImproveNet is willing to provide
such services for CompleteHome, all in accordance with the terms and
conditions set forth below.
In consideration of the mutual promises set forth below and other good and
valuable consideration, the value and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. DEFINITIONS
1.1 "ADVERTISING RECURRING FEES" shall mean 50% of the Advertising
Shared Revenue.
1.2 "ADVERTISING SHARED REVENUE" shall mean the aggregate of all
advertising, sponsorship or promotional activity revenue generated from
activity on the Co-Branded Site.
1.3 "AGGREGATE RECURRING FEES" shall mean, collectively, the General
Recurring Fees and the Advertising Recurring Fees.
CONFIDENTIAL
1
<PAGE>
1.4 "AGGREGATE SHARED REVENUE" shall mean the aggregate of all
General Shared Revenue and all Advertising Shared Revenue from the Effective
Date through the date of calculation,
1.5 "ANNUAL MINIMUM GENERAL FEE" shall mean a minimum per annum
General Recurring Fee of $1,500,000 for the first Contract Year, $2,000,000
for the second Contract Year, and $2,500,000 for the third Contract Year and
any partial Contract Year thereafter during the Term.
1.6 "AVAILABILITY DATE" shall mean the first date on which the
CompleteHome Site contains a hyperlink to the Co-Branded Site as contemplated
by this Agreement.
1.7 "BRANDS" shall mean, collectively, Century 21 Real Estate
Corporation, Coldwell Banker Real Estate Corporation and ERA Franchise
Systems, Inc., the franchisors, respectively, of the CENTURY 21-Registered
Trademark-, COLDWELL BANKER-Registered Trademark- and ERA-Registered
Trademark- real estate brokerage franchise systems.
1.8 "BUSINESS DAY" shall mean every day other than Saturdays,
Sundays and legal holidays in the State of California.
1.9 "CLAIMS" shall mean claims, demands, costs, liabilities, losses,
expenses and damages (including without limitation reasonable attorneys' fees)
1.10 "CO-BRANDED SITE" shall mean, collectively, the Limited
Co-Branded Site and the Full Co-Branded Site.
1.11 "COMPLETEHOME SITE" shall mean the Internet portal operated and
maintained by or on behalf of CompleteHome through which various real estate
related products and/or services are offered to the public, currently located
on the Interact at http://www.completehome.com (including any portions,
future versions, upgrades, successors and replacements thereof, including any
and all other means of electronic delivery now or hereafter known).
1.12 "COMPLETEHOME USERS" shall mean users of the Co-Branded Site,
the ImproveNet Site or services provided by ImproveNet, who by virtue of
having come to the Co-Branded Site or the ImproveNet Site through links with
the CompleteHome Site or Related Sites are tracked by Cookies established by
ImproveNet in accordance with its obligations under Section 2.2(c) hereof. A
user of the ImproveNet Site shall be deemed to be a CompletaHome User if the
user's computer contains a Cookie identifying it as a CompleteHome User and
there is no more recently dated Cookie identifying such User to a different
party with whom ImproveNet then has a contractual obligation to track users
coming to the ImproveNet Site from such other party's Web site(s). In
addition, if a user with a Cookie identifying it as a CompleteHome User
clicks through to the ImproveNet Site through banner advertising or other
links appearing on any Web site other than the CompleteHome Site or the
Related Sites, business transacted on that visit will not be
CONFIDENTIAL
2.
<PAGE>
counted as activity of the CompleteHome User for purposes of calculating
General Shared Revenue, but any future access by such user to the ImproveNet
Site not coming through a connection from such other Web sites shall be
counted as activity of the CompleteHome User for such revenue sharing
calculations. Notwithstanding the foregoing, all visits by users to the
Co-Branded Site and all business transacted by such users on the Co-Branded
Site shall count as activity of CompleteHome Users.
1.13 "CONFIDENTIAL INFORMATION" shall mean confidential or
proprietary reformation of a party to which the other party is providing
access which has been so marked or so identified by the disclosing party at
the tune of disclosure, subject to the limitations set forth in Section 7.2
hereof.
1.14 "COOKIE" shall mean the mechanism through which information
regarding a user of a particular Web site is gathered, which shall include
the current technology of putting an electronic label on the computer of such
user as well as future technologies reasonably available during the Term to
the extent such technologies will improve the ability of ImproveNet to meet
the Tracking Requirements.
1.15 "CONTRACT YEAR" shall mean a period consisting of twelve
consecutive full calendar months, provided, however, that the first Contract
Year shall mean that period commencing on the Availability Date and ending on
the data which is the end of the twelfth full calendar month succeeding the
Availability Date and the last Contract Year shall consist of any partial
year remaining in the term of this Agreement after the expiration of the
preceding Contract Year.
1.16 "CUSTOMER INFORMATION" shall mean the information regarding
CompleteHome Users collected by ImproveNet as part of the process of such
CompleteHome Users' accessing and navigating the Co-Branded Site or the
ImproveNet Site and utilizing the services provided thereby, and shall
include the additional information required in accordance with Section
2.2(c)(2) hereof.
1.17 "DEVELOPMENT OBLIGATION" shall mean the obligation of
ImproveNet to develop the Full Co-Branded Site in accordance with the
Specification and the Tracking Requirements (subject to the limitations set
forth in Section 2.2(c) hereof) and to put such site into operation.
1.18 "FIRST DELIVERY PERIOD" shall mean a period of fifty six (56)
days after the delivery of the Specification without counting in such period
any elapsed time attributable to CompleteHome's review periods or any delay
caused by changes to the Specification required by CompleteHome after the
initial delivery of the Specification or other delay caused by CompleteHome.
1.19 "FULL CO-BRANDED SITE" shall mean a version of the ImproveNet
Site operated on the ImproveNet servers which is developed in accordance with
the Specification and which shall have its own URL.
CONFIDENTIAL
3.
<PAGE>
1.20 "GENERAL RECURRING FEES" shall mean 25% of the Shared General
Revenue until such time as the Aggregate Shared Revenue exceeds $2 million,
and 30% of the General Shared Revenue thereafter, subject to adjustment in
accordance with Section 4.1 (c)(2).
1.21 "GENERAL SHARED REVENUE" shall mean all gross collected
revenues generated by ImproveNet from all of the following sources, through
CompleteHome Users:
(1) Contractor Lead Fees (currently $10/lead accepted by
contractors)
(2) Completed Job Revenue
(3) Product Showcase & Design Gallery Integration
(4) Brochure Showcases
(5) SmartLeads Emails
(6) Category Message Boards
(7) Contractor sign-up fees
(8) Advertising, sponsorship or promotional
activity revenue realized by ImproveNet for activity on
IanproveNet sites other than the Co-Branded Site from
advertising sold by CompleteHome.
1.22 "IMAGE" shall mean a mock-up image of the Limited Co-Branded
Site prepared by CompleteHome.
1.23 "IMPROVENET SITE" shall mean the Web site operated by or for
ImproveNet, currently located on the Interact at http://www.improvenet.com,
as modified from time to time to comply with the provisions of this
Agreement, and future versions, upgrades, successors and replacements thereof.
1.24 "LATE DELIVERY FEE" shall mean an amount equal to $750,000.
1.25 "LEGAL LANGUAGE" shall mean disclaimers, privacy policies or
other legal concerns addressed in designated sections of the Co-Branded Site.
1.26 "LIMITED CO-BRANDED SITE" shall mean a version of the
ImproveNet Site operated on the ImproveNet servers with the CompleteHome logo
and branding at the top of every page and a CompleteHome logo hyperlink
consistent with the Image.
1.27 "RELATED SITES" shall mean Web sites operated by or for
CompleteHome (including any portions, future versions, upgrades, successors
and replacements thereof including any and all means of electronic delivery
now or hereafter known) by third party licensees under CompleteHome or third
party trademarks or branding and shall include the Web sites of the CENTURY
21-Registered Trademark-, COLDWELL BANKER-Registered Trademark- and
ERA-Registered Trademark- real estate brokerage franchise systems.
1.28 "SECOND DELIVERY DATE" shall mean the date which is
twenty-eight (28) days after the expiration of the First Delivery Period.
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1.29 "SPECIFICATION" shall mean a specification of the requirements
of CompleteHome with respect to the Full Co-Branded Site, which shall include
the graphical elements constituting the navigation bars, the links from the
navigation bars or other areas of the Full Co-Branded Site to specified areas
of the CompleteHome Site and the information required to link to such areas
of the CompleteHome Site.
1.30 "TERM" shall have the meaning ascribed to such term in Section
8.1 hereof.
1.31 "TRACKING REQUIREMENTS" shall mean:
(1) the number of CompleteHome Users clicked through
to any areas of the Co-Branded Site (i.e., pageview counts for each portion
of the Co-Branded Site)
(2) the Customer Information collected by ImproveNet
with respect to each CompleteHome User
(3) where relevant, the broker/agent of the Brands
who is entitled to lead generation credit for each CompleteHome User
(4) a detailed list of the types of projects
requested by each CompleteHome User requesting a project
(5) the pricing for such projects
(6) a list of the advertisers sold SmartLeads that
have appeared to CompleteHome Users
(7) in each such case, the revenue generated to
ImproveNet from CompleteHome Users
(8) tracking information for banner and other
advertising impressions and other measurements of advertising revenue
generated by advertisements, sponsorships and promotional opportunities
appearing to or otherwise communicated to CompleteHome Users visiting the
Co-Branded Site
(9) tracking information for banner and other
advertising impressions and other measurements of advertising revenue
generated by advertisements, sponsorships and promotional opportunities sold
by CompleteHome on the ImproveNet Site and
(10) aggregate collected advertising revenues
generated (a) from the Co-Branded Site or (b) from advertising, sponsorships
or other promotional opportunities sold by CompleteHome on the ImproveNet
sites.
1.32 CONSTRUCTION OF CERTAIN TERMS. Any references made in this
Agreement to named areas or design features of a Web site shall include such
named area or design feature as it exists or is contemplated as of the
Effective Date and any modification or substitution therefor in future
designs of such Web site.
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2. RIGHTS AND OBLIGATIONS OF THE PARTIES
2.1 COMPLETEHOME RIGHTS AND OBLIGATIONS.
(a) CompleteHome shall use commercially reasonable good
faith efforts to develop and operate the CompleteHome Site and maintain
uptime consistent with industry standards,
(b) CompleteHome shall place links to the Co-Branded Site and
other advertising of the Co-Branded Site and ImproveNet's services on the
CompleteHome Site as described on Exhibit A attached hereto and made a part
hereof.
(c) CompleteHome will take reasonable steps, determined in
its own discretion, to encourage traffic to the Co-Branded Site, which steps
may include one or more of the following: (1) including coupons on the
Welcome Wagon Web site and causing its affiliate that operates the Welcome
Wagon business to include coupons for the Co-Branded Site in its offline
coupon offerings and including links from other Web sites that are part of or
linked to the CompleteHome Site; (2) developing and distributing promotional
marketing pieces, produced by CompleteHome and shipped (at the expense of
CompleteHome) to participating Brand franchisees nationwide; these marketing
pieces will promote the home improvement areas of the CompleteHome site, and
will include a space for the broker identification reformation required for
the Tracking System described in Section 2.2 (c) hereof; (3) as determined by
CompleteHome and the Brands, in their sole discretion, inclusion in recurring
mailings, newsletters, e-mails and other communications to the brokers/agents
of the Brands and speeches at the Brand national conventions, of promotional
information about the benefits of sending homeowners to the CompleteHome home
improvement area and (4) training its marketing sales force to speak to the
benefits of the ImproveNet services for new homeowners and for sellers of
homes needing sale-related repairs or replacements.
2.2 IMPROVENET RIGHTS AND OBLIGATIONS.
(a) ImproveNet shall use commercially reasonable good faith
efforts to develop and operate the ImproveNet Site and the Co-Branded Site
and maintain uptime for each such site consistent with industry standards.
(b) (1) Not later than ten (10) Business Days after the
date on which CompleteHome delivers the Image to ImproveNet (which is
expected to be on or before December 17, 1999), ImproveNet shall establish
the Limited Co-Branded Site, to which CompleteHome will establish one or more
links from the CompleteHome Site. The Limited Co-Branded Site shall be
maintained by ImproveNet until such time as the Full Co-Branded Site is fully
operational.
(2) ImproveNet shall develop and maintain the Full
Co-Branded Site in accordance with file following: not later than twenty
eight (28) days after CompleteHome delivers the Specification to ImproveNet,
ImproveNet shall develop and
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provide to CompleteHome a mock-up of the Full Co-Branded Site sufficient for
CompleteHome to evaluate its conformity to the Specification. CompleteHome
shall promptly review such mock-up and provide ImproveNet with a notice
either indicating approval to proceed with development or specifying m detail
the ways in which the mock-up fails to meet the Specification. Not later than
twenty eight (28) days after CompleteHome delivers such notice ImproveNet
shall deliver the final operational Full Co-Branded Site for CompleteHome's
approval. CompleteHome shall promptly test and review such site for
conformity to the Specification and shall provide a notice to ImproveNet
either approving the Full Co-Branded Site or specifying in detail the ways in
which such site fails to meet the Specification. ImproveNet acknowledges that
the Specification will require, inter alia, that CompleteHome logos and
navigation must, at a minimum, be located at the top of each page on the
Co-Branded Site. CompleteHome Users navigating from the CompleteHome Site
shall only be transferred to the Co-Branded Site and not to any other Web
site.
(3) To the extent either party considers that Legal
Language shall be included in or displayed on the Co-Branded Site, if the
parties cannot agree on such Legal Language, the version proposed which is
the most stringent or restrictive on the parties or the most detailed in
specifying the circumstances addressed in such Legal Language shall be used
on the Co-Branded Site.
(c) (1) ImproveNet will, at its expense, as part of the
development of the Co-Branded Site, use its best efforts to develop and
include in the Co-Branded Site tracking mechanisms to identify CompleteHome
Users and be able to track their usage of the services promoted by the
Co-Branded Site and otherwise collect information in accordance with the
Tracking Requirements.
(2) In the event CompleteHome reasonably requires
information about CompleteHome Users additional to ImproveNet's standard
Customer Information and CompleteHome provides a specification of its
requirement for such information, ImproveNet shall use commercially
reasonable efforts to add a mechanism to collect such information in the Full
Co-Branded Site.
(3) Notwithstanding the foregoing, to the extent
ImproveNet is unable to track some or all of the information set forth above
as a result of a CompleteHome User's deletion or deactivation of the Cookie
or due to changes in available technology that prevent such tracking (such as
a new privacy feature of a browser software), ImproveNet shall work with
CompleteHome to find a reasonable alternative to track or estimate the
required information, ImproveNet shall not be in default of its obligations
hereunder; provided, however, that if such impediments to the tracking of the
information set forth above significantly impair the value of this Agreement
to CompleteHome and an acceptable alternative is not developed, in its sole
discretion, CompleteHome shall have the right to terminate this Agreement
upon thirty (30) days prior written notice to ImproveNet. Notwithstanding any
such impediments, ImproveNet shall make all commercially reasonable efforts
to maximize its compliance with the requirements set forth above.
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2.3 MARKETING PLAN. CompleteHome and ImproveNet shall cooperate in
the development of a marketing plan for the sale of advertising, sponsorship
and promotional opportunities on the Co-Branded Site in accordance, with the
parameters and principles set forth on Exhibit B attached hereto and made a
part hereof. Such plan shall be revised from time to time during the Term by
agreement of the parties.
2.4 EXCLUSIVITY. ImproveNet hereby agrees that during the Term it
will not promote homestore.com, Inc., its Web site or services through the
ImproveNet Site or the Co-Branded Site. Such prohibition shall include, but
not be limited to, that no advertising of homestore.com, Inc., its Web sites
or services shall appear on the ImproveNet Site or the Co-Branded Site.
Notwithstanding the foregoing, ImproveNet will not be deemed to be in
violation of this provision by honoring its agreement with Homefair, Inc. in
existence as of the Effective Date, provided that, ImproveNet shall not renew
or extend the term of such agreement, which ImproveNet represents expires in
or before April 2000, and provided further, that ImproveNet shall not permit
any banner advertisement or link from the ImproveNet Site to Homefair to
reference homestore.com or any of its affiliates in any way. In addition, to
the extent homestore.com, Inc. acquires any entity with which Improve.Net has
a contract at the time of such acquisition, without violating this provision
ImproveNet may continue to honor such existing contract provided that
ImproveNet shall not renew or extend the term of such agreement and provided
further, that ImproveNet shall not permit any banner advertisement or link
from the ImproveNet Site to such entity to reference homestore.com or any of
its affiliates in any way, except to the extent failing to permit such
reference would constitute a material breach of such agreement.
2.5 COLLECTIONS. ImproveNet shall be responsible for the collection
of all Aggregate Shared Revenue subject to its normal and customary
collection procedures and policies for all sites operated by ImproveNet.
3. MARKETING
3.1 USE OF NAME OR MARKS. Each party hereby grants to the other a
limited, royalty-free, non-exclusive license during the term of this
Agreement to use, reproduce and publish, the name and logos of the other
party but only in the manner contemplated by and subject to the restrictions
contained in this Agreement, including, but not limited to the provisions of
Section 10.9 hereof, ImproveNet must use the CompleteHome names and logos in
accordance with the logo guidelines provided by CompleteHome from time to
time. CompleteHome must use the ImproveNet names and logos in accordance with
the logo guidelines provided by ImproveNet from time to time. CompleteHome
and ImproveNet acknowledge that nothing contained herein shall give either
party any interest in any logo, trade name, trademark or service mark owned by
the other party, and that such license will automatically terminate upon the
termination of this Agreement.
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3.2 PRESS RELEASES. Neither party shall issue any press release
relating to the relationship contemplated by this Agreement without giving
the other party a minimum of three business days to review and approve such
release. No press release or other public announcement with respect to this
Agreement may be made by either party without the approval of the other party
except to the extent such public announcement may be required by law.
Notwithstanding the foregoing, ImproveNet shall not issue any press release
prior to the Availability Date.
4. PAYMENTS
4.1 AGGREGATE RECURRING FEES.
(a) PAYMENT OBLIGATION. ImproveNet shall calculate and pay
the Aggregate Recurring Fees to CompleteHome on a monthly basis, on or before
the fifteenth (15th) day after the end of each calendar month as provided for
herein. In any month in which (A) the cumulative monthly payments of General
Recurring Fees for the preceding calendar months in the then current Contract
Year, together with the payment of General Recurring Fees due for such month
is an amount less than CB) the applicable Annual Minimum General Fee, the
amount to be paid to CompleteHome m respect of General Recurring Fees for
such calendar month shall be equal to one twelfth (1/12) of the Annual
Minimum Fee; and (2) in any month in which the amount in clause (A) equals or
exceeds the amount in clause (B), the amount to be paid to CompleteHome in
respect of General Recurring Fees for such calendar month shall be equal to
lesser of the excess of the amount in clause (A) over the Annual Minimum
General Fee or the General Recurring Fee for such month. Each payment of
General Recurring Fees shall be accompanied by a payment of the amount of
Advertising Recurring Fees accrued in such calendar month.
(b) Together with each monthly Aggregate Recurring Fee
payment, ImproveNet shall provide a monthly report to CompleteHome in such
electronic format as the parties agree, setting forth the information for
such calendar month gathered in accordance with the Tracking Requirement and
the calculation of the Aggregate Recurring Fees payable for such calendar
month.
(c) LATE DELIVERY. (1) In the event that ImproveNet fails
to satisfy the Development Obligation within the First Delivery Period, the
General Recurring Fees attributable to such period shall be equal to any
General Recurring Fees documented to have accrued during such period plus the
Late Delivery Fee.
(2) In the event the Development Obligation is not
satisfied by ImproveNet on or prior to the Second Delivery Date, (A) the
General Recurring Fee shall from that date and thereafter be calculated at
30% of General Shared Revenues, regardless of whether the $2 million
threshold has been achieved, (B) ImproveNet shall use best efforts :to
deliver the Development Obligation as soon as possible and (C) ImproveNet
shall calculate and pay the General Recurring Fees from the beginning of the
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Term until such time as the Development Obligation is satisfied on the basis
of all estimate of the General Shared Revenues that would have been generated
had the Full Co-Branded Site been delivered as of the end of the First
Delivery Period, plus the Late Delivery Fee. The methodology of estimating
the General Recurring Fees accrued during such period shall be acceptable to
CompleteHome in its sole discretion.
4.2 PREPAYMENT. ImproveNet agrees that, upon execution of this
Agreement, it shall pay to CompleteHome $2,000,000.00, representing an
advance payment of the Annual Minimum General Fee, which payment shall be
credited to the first $1,500,000 due under this Agreement for the first
Contract Year and the first $500,000 due for the second Contract Year. Such
payment will be made by ImproveNet delivering to CompleteHome or to such
affiliate of CompleteHome as CompleteHome may direct, warrants to purchase
259,263 shares of common stock of ImproveNet at $13.50 per share, which
warrants shall have such terms other than pricing as are set forth in that
certain Warrant Purchase Agreement between ImproveNet and Cendant Finance
Holding Corporation executed on or about the date of this Agreement. In no
event shall any payment or prepayment of Annual Minimum General Fees apply to
the payment of General Recurring Fees in excess of the Annual Minimum General
Fees nor to the payment of Advertising Recurring Fees.
4.3 All payments to CompleteHome shall be sent to the following
address, which address may be revised by CompleteHome from time to time:
CompleteHome
200 Vallejo Street
San Francisco, CA 94111
Attention: Accounts Receivable Dept.
4.4 ImproveNet shall keep accurate and complete records of all
Aggregate Shared Revenues. All such records and all accounting systems with
respect thereto shall be available for inspection, copy and audit by
CompleteHome or its representatives on reasonable notice to ImproveNet during
normal business hours throughout the Term and for one (1) year thereafter,
which audit may be conducted not more frequently than once m any six (6)
month period, unless there has been a previous underpayment of more than 5%
as contemplated below. ImproveNet shall fully cooperate with CompleteHome in
such inspection and audit. Neither CompleteHome's acceptance of any
information nor CompleteHome's inspection or audit of ImproveNet's records
shall waive CompleteHome's right later to dispute the accuracy or
completeness of any information supplied by ImproveNet. In the event any such
audit establishes an underpayment of commissions, ImproveNet shall pay the
amount of the deficit within five (5) business days of notification of such
deficiency. In the event such audit identifies an overpayment of commissions,
such overpayment shall be a credit against future commissions to become due
from ImproveNet to CompleteHome. If an audit establishes an underpayment of
commissions greater than five percent (5%) of the total commissions then due
and payable to CompleteHome, ImproveNet shall pay for the costs and expenses
of such audit. In the event of a dispute over the result of any such audit,
the amount so
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disputed shall be deposited by the party to be charged with an
escrow agent acceptable to both parties and pursuant to an escrow agreement
acceptable to both parties and such escrow agent shall retain the disputed
amount until such time as the dispute is resolved; provided, however, that
party to be charged may provide the other party with security satisfactory to
it that such payment will be made if such dispute is resolved in the party to
be paid's favor in lieu of establishing such escrow. Each party in such a
dispute shall bear its own costs.
5. REPRESENTATIONS AND WARRANTIES; LIMITATION OF LIABILITY
Each party hereby represents and warrants as follows: (i) it has full
corporate power and authority to enter into this Agreement and to carry out
the provisions hereof, (ii) it is duly authorized to execute and deliver this
Agreement and to perform its obligations hereunder, (iii) tins Agreement is a
legal and valid obligation binding upon it and enforceable according to its
terms, (iv) the execution, delivery and performance of this Agreement by it
does not conflict with any agreement to which it is a party or by which it
may be bound, and (v) its Web site(s) contemplated by this Agreement (the
CompleteHome Site in the case of CompleteHome, and the Co-Branded Site and
the ImproveNet Site in the case of ImproveNet), and the services provided
pursuant thereto, shall be of a high nature, grade and quality and shall
comply with all applicable laws and regulations throughout the term of this
Agreement.
EXCEPT AS SET FORTH ABOVE, NEITHER PARTY MAKES ANY WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER INCLUDING, BUT NOT LIMITED TO, A
WARRANTY OF FITNESS FOR PURPOSE OR OF MERCHANTIBILITY.
OTHER THAN WITH RESPECT TO AN INDEMNIFIED CLAIM UNDER THIS AGREEMENT, NEITHER
PARTY WILL BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES (INCLUDING BUT NOT LIMITED TO SUCH DAMAGES ARISING FROM BREACH OF
CONTRACT OR WARRANTY OR FROM NEGLIGENCE OR STRICT LIABILITY), EVEN IF SUCH
PARTY HAS BEEN ADVISED OF (OR KNOWS OR SHOULD KNOW OF) THE POSSIBILITY OF
SUCH DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY IN
AN AMOUNT GREATER THAN THE AMOUNTS DUE FROM SUCH PARTY TO THE OTHER PARTY
UNDER THIS AGREEMENT DURING THE TERM OF THE AGREEMENT. THIS LIMITATION OF
EACH PARTY'S LIABILITY IS CUMULATIVE, WITH ALL PAYMENTS FOR CLAIMS OR DAMAGES
IN CONNECTION WITH THE AGREEMENT BEING AGGREGATED TO DETERMINE SATISFACTION
OF THE LIMIT. THE EXISTENCE OF ONE OR MORE CLAIMS WILL NOT ENLARGE THE LIMIT.
6. INDEMNIFICATION
6.1 INDEMNIFICATION BY COMPLETEHOME. CompleteHome agrees to
indemnify, pay the defense costs of, and hold ImproveNet, and its successors,
officers, directors and
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employees harmless from any and all Claims arising out of or in connection
with (a) the CompleteHome Site, (b) any claim which, taking the claimant's
allegations to be true. would result in a breach by CompleteHome of any of
its warranties, covenants or other obligations set forth m this Agreement;
and (c) any claim arising from the gross negligence or willful misconduct of
CompleteHome.
6.2 INDEMNIFICATION BY IMPROVENET. ImproveNet agrees to indemnify,
pay the defense costs or, and hold CompleteHome, and its successors,
officers, directors and employees harmless from any and all Claims, arising
out of or in connection with (a) the ImproveNet Site and the Co-Branded Site;
(b)any claim which, taking the claimant's allegations to be true, would
result in a breach by ImproveNet of any of ImproveNet's warranties, covenants
or other obligations set forth in this Agreement; and (c) any claim arising
from the negligence or willful misconduct of ImproveNet. Without limiting the
generality of the foregoing, such indemnity shall apply to any Claims made in
connection with or as a result of any action or failure to act by a
contractor or other vendor promoted through the Co-Branded Site.
6.3 PROCEDURE. In the event of an indemnified claim hereunder, the
indemnified party shall give the indemnifying party prompt nonce in writing
of the claim and the indemnifying party shall have sole control over its
defense or settlement, except that the indemnifying party shall not settle or
compromise any such matter without obtaining the indemnified party's written
consent, which shall not be unreasonably withheld. The indemnified party
shall have the right at its own cost and expense to employ separate counsel
and participate in the defense of any claim or action.
7. CONFIDENTIALITY
7.1 OBLIGATIONS. Each party acknowledges that the other party will
receive or have access to Confidential Information of such party. Each party
will use at least the same degree of care to prevent disclosing to third
parties the Confidential Information of the other as it employs to avoid
unauthorized disclosure, publication or dissemination of its own information
of a similar nature, but in no event less than a reasonable standard of care.
A party may disclose Confidential Information of the other party to third
parties performing services hereunder where (i) the use of such Confidential
Information by such third party is authorized under this Agreement, (ii) such
disclosure is reasonably necessary to or otherwise naturally occurs in that
entity's scope of responsibility, and (iii) the disclosure is in accordance
with the terms and conditions of this Agreement Neither party will (1) make
any use or copies of the Confidential information of the other party except
as necessary to perform its obligations under this Agreement, (2) acquire any
right in or assert any lien against the Confidential Information of the other
party, or (3) refuse for any reason (including a default or material breach
of this Agreement by the other party) to promptly provide the other party's
Confidential Information (including all copies thereof) to it if requested in
writing to do so. Upon the expiration or termination for any reason of this
Agreement and the concomitant completion of a party's obligations under this
Agreement, each party shall (except as otherwise provided in this Agreement),
return or destroy, as the other party may direct, all documentation in any
medium that
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contains, refers to, or relates to the other party's Confidential
Information, and retain no copies, in addition, the parties shall take
reasonable steps to ensure that their respective employees comply with these
confidentiality provisions. The steps taken by a party to ensure such
compliance will be deemed reasonable if they are no less onerous than the
steps taken by the other party.
7.2 The obligations of this Article 7 will not apply to any
particular information which the receiving party can demonstrate: (i) was, at
the time of disclosure to it, in the public domain; (ii) after disclosure to
it, is published or otherwise becomes part of the public domain through no
fault of the receiving party; (iii) was rightfully in the possession of the
receiving party at the time of disclosure to it; (iv) is received from a
third party who had a lawful right to disclose such information to it; or (v)
was independently developed by the receiving party without reference to
Confidential Information of the furnishing party. In addition, a party shall
not be considered to have breached its obligations under this section for
disclosing Confidential Information of the other party as required to satisfy
any legal demand of a government, judicial or administrative body; provided,
however, that, promptly upon receiving any such request and to the extent
that it may legally do so, such party advises the other party so that the
other party may take appropriate actions in response to the demand.
7.3 In the event of any disclosure or loss of, or inability to
account for, any Confidential Information of the furnishing party, the
receiving party! will notify the furnishing party promptly upon the
occurrence of any such event.
7.4 Nothing contained m this Agreement shall be construed as
obligating a party to disclose its Confidential Information to the other
party, or as granting to or conferring on a party, expressly or impliedly,
any rights or license to the Confidential Information of the other party.
7.5 Nothing in this Agreement shall be construed to prevent either
party from obtaining, developing or using services or products itself or
provided by a third party as permitted by this Agreement which are similar or
competitive with the services and/or products furnished under this Agreement
or from using ideas, concepts, expressions, skills or experience possessed by
either party prior to, or developed or learned by either party in the
performance of this Agreement, except to the extent inconsistent with the
terms of this Agreement.
8. TERM AND TERMINATION
8.1 TERM. The term of the Agreement (the "Term") shall commence on
the Effective Date and shall expire on the third anniversary of the
Availability Date, unless earlier terminated as provided herein.
8.2 TERMINATION FOR CAUSE. In the event a party shall materially
fail to perform or comply with the terms of this Agreement, the other party
may ten-innate if such failure has not been remedied within 30 days of
written notice thereof to the
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defaulting party (or if such failure is not susceptible of cure within 30
days, if the defaulting party fails to commence to cure within 30 days after
notice of default or fails to diligently pursue such cure thereafter).
8.3 SURVIVAL. Sections 5, 6, 7 and 9 shall survive any expiration or
termination of this Agreement.
9. DISPUTE RESOLUTION
9.1 INFORMAL DISPUTE RESOLUTION. Prior to commencing any litigation
or other formal dispute resolution, the parties shall attempt in good faith
to resolve any dispute arising out of or relating to this Agreement through
negotiation between representatives. Either party may give the other party
written notice of any dispute not resolved in the normal course of business.
Within fifteen (15) days after its receipt of the notice, the receiving party
shall submit to the other party a written response. The notice and response
shall each include (a) a statement of the party's position and a summary of
the arguments supporting that position, and (b) the name and title of the
company representatives who will represent that party. Within thirty (30)
days following delivery of the original dispute notice, the parties'
respective representatives shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary to attempt
to resolve the dispute. All reasonable requests for information made by
either party to the other will be honored, provided that such information so
provided shall be deemed communications in furtherance of settlement
discussions and shall not be available to be used as evidence of admissions
or otherwise against the providing party. If a dispute has not been resolved
within sixty (60) days of the disputing party's original notice under this
section, or if the parties fail to meet within the thirty (30) days following
such notice, then either party may initiate litigation or other formal
dispute resolution proceedings.
9.2 ARBITRATION. If a dispute is not resolved within sixty (60) days
after the commencement of such dispute pursuant to Section 9.1, then either
party shall, within five business days after the completion of the procedures
set forth in Section 9.1, upon notice to the other party, submit the dispute
to binding arbitration in accordance with tins Section 9.2
(a) The arbitration shall be held in San Francisco,
California before a panel of three arbitrators. Either party may, by notice
to the other party, demand arbitration by serving on the other party a
statement of the dispute, the facts relating or giving rise to such dispute
and the name of the arbitrator selected by it.
(b) Within five business days after receipt of such notice,
the other party shall name its arbitrator, and the two arbitrators named by
the Parties shall, within five business days after the date of such notice,
select the third arbitrator.
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(c) The arbitration shall be governed by the Commercial
Arbitration Rules of the American Arbitration Association, as may be amended
from time to time, except as expressly provided in this Section 9.2;
provided, however, that the arbitration shall be administered by any
organization agreed upon by the Parties. The arbitrators may not amend or
disregard any provision of this Section 9.2.
(d) The arbitrators shall allow such discovery as is
appropriate to the purposes of arbitration in accomplishing fair, speedy and
cost-effective resolution of disputes. The arbitrators shall reference the
rules of evidence of the Federal Rules of Civil Procedure then in effect in
setting the scope and direction of such discovery.
(e) The decision of and award rendered by the arbitrators
shall be final and binding on the parties. Judgment on the award of the
arbitrators may be entered in and enforced by any court of competent
jurisdiction. The arbitrators shall have no authority to award damages in
excess compensatory damages.
Except for (a) an action to seek injunctive relief as contemplated
by Section 9.3 or (b) any action necessary to enforce the award of. the
arbitrators, the provisions of this Section 9.2 are a complete defense to any
suit, action or other proceeding instituted in any court or before any
administrative tribunal with respect to any dispute, controversy or claim
arising out of or related to tins Agreement or the creation, validity,
interpretation, breach or termination of tins Agreement.
9.3 LITIGATION. The only circumstance in which a dispute between the
parties will not be subject to the provision of section 9.1 and 9.2 above, is
when a party makes a good faith determination that a breach of the terms of
this Agreement by the other party is such that the damages to such party
resulting from the breach will be so immediate, so large or severe, and so
incapable of adequate redress after the fact that a temporary restraining
order or other immediate injunctive relief is the only adequate remedy.
Except for such relief, the parties shall resolve their disputes, whether or
not such relief is granted, in accordance with the provisions set forth in
section 9.1 and 9.2.
9.4 CONTINUED PERFORMANCE. Each party agrees to continue performing
its obligations under this Agreement when any dispute is being resolved under
this Article 9 unless and until such obligations are terminated by the
expiration or termination of this Agreement or by order of a court of
competent authority under Sections 9.2 or 9.3.
10. GENERAL PROVISIONS
10.1 BINDING NATURE AND ASSIGNMENT. This Agreement shall be binding
on each of the parties and its respective successors and permitted assigns.
Except as provided below, neither party may assign this Agreement or any
rights or obligations created herewith in whole or in part, directly or
indirectly, to any third party without the prior written consent of the
other, and any attempt to do so will be void and of no effect. Either party
may assign its rights and obligations under this Agreement with the prior
written approval of the other party to (i) a third party that acquires all or
substantially all
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of the assets or stock of the assigning party (any transfer of a controlling
interest in a party being deemed to be an assignment of this Agreement by
such party for purposes of this Section 101), (ii) any subsidiary or
Affiliate of the assigning party, or (iii) a successor in a merger or
acquisition of the assigning p. arty; provided, however that in no event
shall such assignment relieve the assigning party of any of its obligations
under this Agreement For the purposes of this Section 10.1, any assignment by
operation of law or under an order of any court shall be deemed an assignment
for which prior written consent is required, and any assignment made without
such consent shall be void and of no effect as between the parties.
10.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement between the parties, and supersedes all other prior or
contemporaneous communications between the parties (whether written or oral),
with respect to the subject matter contained in this Agreement. No
modification or amendment of this Agreement will be effective unless made in
a writing executed by both parties.
10.3 NOTICES: All notices required or permitted under this Agreement
(other than routine operational communications) shall be in writing and shall
be deemed received if sent by one of the following means: (i) upon receipt if
delivered by hand; (ii) one (1) day after being sent by an express courier
with a reliable system for tracking delivery; (iii) three (3) days after
being sent by certified or registered first class mail, postage prepaid and
return receipt requested; or (iv) upon confirmed facsimile transmission
provided that a copy is sent by another of the foregoing means. All notices
will be addressed by a party to the other as follows:
In the case of ImproveNet:
ImproveNet, Inc.
720 Bay Road, Suite 200
Redwood City, CA 94063
Attention: Ron Cooper, Chief Executive Officer
In the case of CompleteHome:
CompleteHome
200 Vallejo Street
San Francisco, CA 94111
Attention: Sarah Nolan, Chief Executive Officer
A party may change its address from time to time upon written notice to the
other party specifying the effective date of the new address.
CONFIDENTIAL
16.
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10.4 HEADINGS. The section headings contained in this Agreement are
for reference and convenience only and shall not enter into the
interpretation of this Agreement.
10.5 RELATIONSHIP OF THE PARTIES. Each party, in furnishing services
to the other party hereunder, is acting as an independent contractor and has
the sole tight and obligation to supervise, manage, contract, direct,
procure, perform or cause to be performed, all services to be performed by
such party trader this Agreement. Neither ImproveNet or CompleteHome is an
agent, partner, joint venturer or fiduciary of the other party and neither
has the authority to represent the other party as to any matters or to bind
the other party to any third parties, except as expressly authorized in this
Agreement.
10.6 SEVERABILITY. In the event that any provision of this Agreement
is found to be unenforceable under applicable law, the parties agree to
replace such provision with a substitute provision that most nearly reflects
the original intentions of the parties and is enforceable under applicable
law, and the remainder of this Agreement shall continue in full force and
affect.
10.7 WAIVER OF DEFAULT; CUMULATIVE REMEDIES.
(a) A delay or omission by either party hereto to exercise
any right or power under this Agreement shall not be construed to be a waiver
thereof. A waiver by either party under this Agreement will not be effective
unless it is in writing and signed by the party granting the waiver. A waiver
by a party of a right under, or breach of, this Agreement will not be
construed to operate as a waiver of any other or successive rights under, or
breaches of, this Agreement.
(b) Except as otherwise expressly provided in this
Agreement, all remedies provided for in this Agreement shall be cumulative
and m addition to and not in lieu of any other remedies available to either
party at law, in equity or otherwise. Notwithstanding the foregoing, no
payment default by one party may be offset by a payment due to such party by
the other party.
10.8 THIRD PARTY BENEFICIARIES. This Agreement is entered into
solely between, and may be enforced only by, CompleteHome and ImproveNet.
This Agreement shall not be deemed to create any rights in any third parties,
including any suppliers and customers of a party, or to create any
obligations of a party to any third parties.
10.9 PUBLICITY AND ADVERTISING. The parties agree that any notices
or disclosures to third parties concerning this Agreement or the Services:
shall be jointly coordinated and approved in advance by both parties. In
addition, neither party shall use the corporate name or any brand or
proprietary name, mark or logo of the other party for any advertising or
promotional purpose without first submitting such advertising or promotional
materials to the other party and obtaining the prior written consent of such
party.
CONFIDENTIAL
17.
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10.10 FORCE MAJEURE. No party shall be liable for any default or
delay in the performance of its obligation under this Agreement due to an act
of God or other event to the extent that: (i) the non-performing party is
without fault in causing such default or delay;, (ii) such default or delay
could not have been prevented by reasonable precautions; and (iii) such
default or delay cannot reasonably be circumvented by the non-performing
party through the use of alternate sources, work around plans or other means.
10.11 CHOICE OF LAW. This Agreement, and the rights and duties of
the parties arising from or relating to this Agreement or its subject matter,
shall be construed in accordance with the laws of the State of California,
without regard to its conflicts of laws provisions.
10.12 COUNTERPARTS. This Agreement may be executed in counterparts,
of which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
10.13 JOINTLY DRAFTED. This Agreement represent the joint drafting
of the parties and shall not be construed more strictly against one party
than the other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the dates indicated below.
COMPLETEHOME OPERATIONS, INC. IMPROVENET, INC.
/s/ James E. Buchanan /s/ Ronald B. Cooper
- -------------------------------- --------------------------------
By (sign) By (sign)
James E. Buchanan Ronald B. Cooper
- -------------------------------- --------------------------------
Name (Print) Name (Print)
Executive Vice President President and CEO
- -------------------------------- --------------------------------
Title Title
December 13, 1999 December 13, 1999
- -------------------------------- --------------------------------
Date Date
CONFIDENTIAL
18.
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EXHIBIT A
LINKS AND ADVERTISING ON COMPLETEHOME SITE
1. CompleteHome will place "contractor referral/Plan a Project" or similar
links at the following locations on the CompleteHome Site and at such other
locations as may be agreed by the parties from time to time during the Term:
(a) On the CompleteHome Site home page, on the main "Living"
navigation bar
(b) In the CompleteHome Site "Home Improvement" Section
(c) In the CompleteHome "Selling" section
2. CompleteHome will run promotional banners, in its discretion, on the
CompleteHome Site and on the Brand Web sites promoting the Co-Branded Site; m
particular, CompleteHome will include the Co-Branded Site in banners and
e-mail reminders on and generated by the Move Calendar.
CONFIDENTIAL
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EXHIBIT B
ADVERTISING ON CO-BRANDED SITE
Within thirty (30) days after the Effective Date, the parties will develop a
comprehensive marketing plan (the "Marketing Plan") for the sale of
advertising, sponsorship and promotional opportunities ("Advertising Units")
on the Co-Branded Site as well as combinations of Advertising Units with
other similar opportunities on the ImproveNet or CompleteHome sites. Such
plan shall address, among other things, the following:
1. The parties will accumulate data during the first thirty (30)
days after the Availability Date of operation of the Co-Branded Site on the
number of projected impressions available for sale as Advertising Units, and
reflect such projections in the Marketing Plan. The parties shall also agree
upon a minimum number of impressions per month, below which neither party
shall have the obligation to sell Advertising Units. The parties shall also
agree on the placement of the Advertising Units on the Co-Branded Site.
2. The parties shall agree on a rate card for the sale of
Advertising Units, which shall address, to the extent such can be
anticipated, rates for advertising packages including Advertising Units and
other advertising opportunities on the CompleteHome, Related and/or
ImproveNet sites. Notwithstanding the foregoing, the appearance of or links
to such services of the ImproveNet Site as Product Showcase, Design Gallery,
Brochure Showcases, SmartLeads Emails and Category Message Boards on the
Co-Branded Site shall be determined by CompleteHome in its sole discretion.
Neither party shall present discounted or bundled rates off the rate card
rates without the other party's prior approval.
3. For the first sixty (60) days after the determination of the
projected impressions as set forth in paragraph 1 above (the "First Selling
Period"), CompleteHome shall have the exclusive right to sell Advertising
Units on the Co-Branded Site. Thereafter, if CompleteHome sells at least 80%
of the Advertising Units provided in the Marketing Plan to be sold in the
three month period next succeeding .the First Selling Period, CompleteHome
will continue to have the exclusive right to sell such Advertising Units,
subject to any specific reservations agreed to in the Marketing Plan, and if
CompleteHome has not sold at least 80% of the Advertising Units provided in
the Marketing Plan to be sold during the First Selling Period, CompleteHome
and ImproveNet shall then agree on how to divide the responsibility to sell
Advertising Units in the future.
4. Regardless of which party is selling Advertising Units,
CompleteHome shall have the right to approve each advertiser prior to its
appearance on the Co-Branded Site. Further, in the event ImproveNet sells
Advertising Units on the Co-Branded Site bundled with other ImproveNet sites,
ImproveNet may not commit to specific numbers or percentages of impressions
or other Advertising Units on the Co-Branded Site, nor market that some
allocation of such Advertising Units will be on the Co-Branded Site as
opposed to other ImproveNet sites included in such bundle.
CONFIDENTIAL
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<PAGE>
PROMISSORY NOTE
$ 99,990.00 Redwood City, CA
December 14, 1999
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of IMPROVENET, INC., a Delaware corporation (the "Company"), at
[Street Address], [City and State], or at such other place as the holder hereof
may designate in writing, in lawful money of the United States of America and in
immediately available funds, the principal sum of Ninety-Nine Thousand Nine
Hundred Ninety Dollars ($99,990.00) together with interest accrued from the date
hereof on the unpaid principal at the rate of 6.2% per annum, or the maximum
rate permissible by law (which under the laws of the State of California shall
be deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount hereunder shall
be due and payable in full on December 14, 2002.
INTEREST PAYMENTS. Interest shall be payable annually in arrears and
shall be calculated on the basis of a 365-day year for the actual number of days
elapsed;
PROVIDED, HOWEVER, that in the event that the undersigned's employment by or
association with the Company or its Affiliate is terminated for any reason prior
to payment in full of this Note, this Note shall be accelerated and all
remaining unpaid principal and interest shall become due and payable immediately
after such termination.
If the undersigned fails to pay any of the principal and accrued
interest when due, the Company, at its sole option, shall have the right to
accelerate this Note, in which event the entire principal balance and all
accrued interest shall become immediately due and payable, and immediately
collectible by the Company pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of the
Early Exercise Stock Purchase Agreement and Stock Pledge Agreement of even date
herewith between the undersigned and the Company.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
1.
<PAGE>
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
Signed /s/ William Phillips
----------------------
William Phillips
2.
<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 January 17, 2000, relating to the consolidated 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
San Jose, CA
March 10, 2000
