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As filed with the Securities and Exchange Commission on June 14, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LOOKSMART, LTD.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
Delaware 7373 13-3904355
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Identification No.) Classification Number)
</TABLE>
LookSmart, Ltd.
487 Bryant Street
San Francisco, CA 94107-1316
(415) 597-4850
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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Evan Thornley
Chief Executive Officer
LookSmart, Ltd.
487 Bryant Street
San Francisco, CA 94107-1316
(415) 597-4850
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
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<S> <C>
Hank V. Barry, Esq. William H. Hinman, Jr., Esq.
Gail C. Husick, Esq. Danielle Carbone, Esq.
Kelly Ames Morehead, Esq. Shearman & Sterling
Wilson Sonsini Goodrich & Rosati 1550 El Camino Real
650 Page Mill Road Menlo Park, California 94025
Palo Alto, California 94304 (650) 330-2200
(650) 493-9300
</TABLE>
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act 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) under the Securities Act, please check the following
box and list the Securities Act registration 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,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Aggregate Amount of
Title of Each Class of Offering Registration
Securities to be Registered Price(1) Fee
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<S> <C> <C>
Common Stock ($0.001 par value).......................................... $150,000,000 $41,700
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(1) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act 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 preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell nor does it seek an offer to
buy these securities in any jurisdiction where the offer or sale is not
permitted.
Subject to Completion. Dated June 14, 1999.
Shares
LookSmart, Ltd.
Common Stock
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This is an initial public offering of shares of common stock of LookSmart,
Ltd. All of the shares of common stock are being sold by LookSmart.
Prior to this offering, there has been no public market for the common stock.
LookSmart expects that the initial public offering price will be between
$ and $ . Application has been made for listing of the common
stock on the Nasdaq National Market under the symbol "LOOK".
See "Risk Factors" beginning on page 5 to read about certain factors you
should consider before buying shares of the common stock.
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Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed on the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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Per Share Total
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<S> <C> <C>
Initial public offering price............................ $ $
Underwriting discount.................................... $ $
Proceeds, before expenses, to LookSmart.................. $ $
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The underwriters may, under certain circumstances, purchase up to an
additional shares from LookSmart at the initial public offering price less
the underwriting discount.
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The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
Goldman, Sachs & Co.
BancBoston Robertson Stephens
Hambrecht & Quist
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Prospectus dated , 1999.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding LookSmart and the common stock being sold in this
offering and our financial statements and notes thereto appearing elsewhere in
this prospectus. The presentation of information in this prospectus assumes the
conversion of all LookSmart's preferred stock into common stock as of the date
of closing of this offering, and that the underwriters do not exercise the
option granted to them by us to purchase additional shares in the offering.
LookSmart
Our Business
We are a leading category-based Internet directory provider which has
assembled what we believe to be the largest collection of high-quality,
granular (highly specific) content on the Internet. Our LookSmart directory
contains over 750,000 unique Uniform Resource Locators (URLs) in over 60,000
categories. Our directory is organized in an easy-to-navigate format that is
designed to appeal to an audience of novice, as well as sophisticated, Internet
users. We are the only major Internet navigation service provider that chooses
not to list pornographic or hate material.
We distribute our proprietary directory to a large number of Internet users
through LookSmart-owned Internet properties and through our strategic
alliances. Our Internet properties, including looksmart.com, target primarily a
focused demographic of female household purchase decision-makers and generate
advertising and electronic commerce (ecommerce) transaction revenues. We
broaden the reach of the LookSmart directory through syndication and licensing
of our content. We currently provide our directory to leading Internet portals,
such as The Microsoft Network (MSN), Netscape Netcenter, Excite@Home and Alta
Vista, and over 200 Internet Service Providers (ISPs), including IBM.net and
NetZero. In addition, users can access our content and services through a
network of over 600,000 website affiliates. In April 1999, more than 43 million
individual Internet users accessed looksmart.com and the websites of our
licensing and syndication partners, according to Media Metrix.
Our Market Opportunity
The Navigation Challenge. The massive volume and growth of highly specific
content on the Internet has created the need for an organizing layer that can
successfully match content producers with end users. We believe that most
Internet organization efforts to date, such as traditional Internet directories
and search engines, have failed to fully meet this challenge.
The Audience and Advertising Challenge. We believe that current Internet
navigation services do not meet the particular needs of what we call the New
Media Familysm, a group consisting primarily of female household purchase
decision-makers, many of whom are new Internet users. In addition, many
advertisers cannot accurately target this audience using the Internet.
The Business Challenge. As the amount and specificity of Internet content
has grown, the editorial challenge for ISPs, portals and vertical websites of
maintaining high-quality directories has grown proportionally. We believe that
these companies have a need for outsourced services to provide their search,
directory and content solutions. In addition, the rapid emergence of ecommerce
has created challenges for many businesses that hope to tap ecommerce
opportunities.
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To address these challenges, we offer several solutions to Internet users
and businesses.
The Navigation Solution. We provide a leading category-based Internet
directory that consists of what we believe to be the largest collection of
high-quality, granular content on the Internet organized in an easy-to-navigate
format.
The Audience and Advertising Solution. Through looksmart.com, we seek to
package the LookSmart directory with other appropriate content and
functionality to provide a simple, compelling experience for the New Media
Family. Looksmart.com's benefits include: intuitive navigation, inoffensive
content environment, differentiated visual design, content, commerce and
community functionality. By targeting the New Media Family, we offer
advertisers a unique opportunity to reach female household purchase decision-
makers. In addition, we offer advertisers the ability to place their
advertisements on category and keyword results pages.
The Business Solution. We offer a variety of business solutions.
. We leverage our database by syndicating, licensing and distributing our
proprietary content to leading Internet portals, websites and other media
companies, and we provide ISPs with a full content solution for their
users.
. We offer services that help both new and existing businesses optimize
their online presence, including website enhancement services for
webmasters and seminars and services that enable small and mid-size
business owners to sell their products and services over the Internet.
. We offer a variety of websites that allow buyers and sellers to find each
other. These websites include rewardmall.com, an affinity Internet
shopping mall site, and "Buy it On the Web", an Internet shopping website
that promotes and sells over 30 "As Seen on TV" products.
Our Strategy
Our strategy is to be the leading category-based Internet directory service
for global and local information on the Internet and to derive multiple revenue
streams by leveraging our directory asset. Key elements to our growth strategy
include:
Expand Collection of High-Quality, Granular Content. We intend to expand
both the number of high-quality URLs included in our directory, as well as the
number of categories into which we classify the URLs by continually adding new
websites, communities and ecommerce environments, deleting outdated links and
updating editorial annotations.
Build the LookSmart Brand and Audience. To enhance business and consumer
awareness of our brand, we plan to pursue an extensive brand development
initiative through mass market and targeted advertising. Our consumer branding
investments will focus specifically on reaching our target New Media Family
audience.
Utilize LookSmart Content to Drive Multiple Revenue Streams. We intend to
leverage our unique assets--the LookSmart directory and the people and
processes that create it--and monetize them by generating revenues through
online advertising, syndication and licensing, Internet outsourcing and
ecommerce.
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Pursue Strategic Acquisitions and Alliances. We plan to pursue acquisitions
and alliances to strengthen our technology, broaden our audience reach, capture
new distribution channels or open new revenue streams.
Expand into Select International Markets. As one of only a few companies
that have created a significant presence in the United States Internet market
with beginnings outside the United States, we believe we are well positioned to
enter major international markets in a locally-relevant, culturally-sensitive
manner.
Corporate Information
We are a Delaware corporation with our principal executive offices located
at 487 Bryant Street, San Francisco, CA 94107-1316. Our telephone number is
(415) 597-4850. Our fiscal year ends on December 31. We maintain a world wide
website at www.looksmart.com. The reference to our world wide web address does
not constitute incorporation by reference of the information contained at this
website. The LookSmart logo is a registered trademark of LookSmart, and
LookSmart Live! and New Media Family are service marks of LookSmart. All other
brand names and trademarks appearing in this prospectus are the property of
their respective holders.
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The Offering
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Shares offered by LookSmart................ shares
Shares outstanding after this offering(1).. shares
Proposed Nasdaq National Market Symbol..... "LOOK"
Use of proceeds............................ General corporate purposes,
including working capital,
marketing and promotional
activities, new product
development, increased personnel
and potential acquisitions.
</TABLE>
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(1) Based on shares outstanding as of , 1999, including 8,016,616 shares
of common stock to be issued upon exercise of outstanding warrants
immediately prior to the closing of this offering. The following shares are
excluded from this number: 7,904,584 shares of common stock issuable upon
the exercise of options outstanding under our 1998 Stock Plan and 2,286,941
shares of common stock issuable upon exercise and conversion of outstanding
warrants.
Summary Consolidated Financial Information
(in thousands, except per share amounts)
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<CAPTION>
Pro Forma
Fiscal Year Ended Three Months Pro Forma Three Months
------------------------- Ended Year Ended Ended
December 31, December 31, March 31, December 31, March 31,
1997 1998 1999 1998(1) 1999(1)
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<S> <C> <C> <C> <C> <C>
Consolidated Statement
of
Operations Data:
Net revenues............ $ 949 $ 8,785 $ 6,580 $ 20,143 $ 10,245
Loss from operations.... (7,329) (11,898) (6,689) (17,026) (7,728)
Net loss................ (7,514) (12,858) (6,722) (17,988) (7,761)
Net loss per share:
Basic and diluted..... $ (0.12) $ (1.03) $ (0.52) $ (1.26) $ (0.53)
Weighted average shares,
basic and diluted...... 61,059,333 12,526,356 12,972,652 14,226,356 14,672,652
Pro forma net loss per
share:
Basic and diluted..... $ (0.47) $ (0.17) $ (0.59) $ (0.20)
Pro forma weighted
average shares, basic
and diluted............ 27,386,715 39,149,991 30,631,159 39,149,991
</TABLE>
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<CAPTION>
At March 31, 1999
-------------------------
Pro Forma
Actual As Adjusted(1)(2)
Consolidated Balance Sheet Data: ------- -----------------
<S> <C> <C>
Cash and cash equivalents........................... $58,429
Working capital..................................... 51,362
Total assets........................................ 84,070
Long-term debt and capital lease obligations, net of
current portion.................................... 375
Total stockholders' equity.......................... $52,701
</TABLE>
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(1) Pro forma financial information reflects the acquisition of BeSeen.com,
Inc. and the asset purchase transactions with Guthy-Renker Internet, LLC
and ITW NewCorp, Inc. See the unaudited pro forma combined financial
information and the notes thereto included elsewhere in this prospectus.
(2) As adjusted to reflect the sale of shares of our common stock at
an assumed offering price of $ per share, after deducting
underwriting discounts and commissions and estimated offering expenses
payable by us.
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occur, our
business, financial condition or results of operations could be harmed. In such
case, the trading price of our common stock could decline, and you could lose
all or part of your investment.
Risks Related to Our Business
Our management and internal systems may be inadequate to handle the growth of
our business
We have experienced rapid growth both internally and through acquisitions in
a short period of time. We plan to continue to increase the scope of our
operations both domestically and internationally by enhancing our existing
services, offering new services and expanding into new business areas,
including ecommerce. Since January 1, 1998, our workforce has grown
substantially, from 63 employees at that date to 430 employees on May 31, 1999.
In addition, many members of our management team have only recently been hired,
including our Chief Financial Officer, our Senior Vice President of Business
Development and our Senior Vice President of Marketing. These individuals do
not have significant experience working with LookSmart or the rest of our
management team. We anticipate that our Senior Vice President of Engineering
will resign prior to the end of 1999, and as a result, we will need to hire a
replacement. Implementation of our growth strategy requires that we hire
additional highly-qualified personnel in the near term, particularly in our
engineering, product development and sales operations.
Our growth has placed, and our anticipated growth will continue to place, a
significant strain on our management, our engineering and product development
staff, and our internal accounting, operational and administrative systems. To
manage future growth, we must continue to improve these systems and expand,
train, retain and manage our employee base. If our systems, procedures and
controls are inadequate to support our operations, our expansion could be
slowed. We cannot assure you that we will be able to manage our growth
effectively, and any failure to do so could harm our business.
Our business is extremely difficult to evaluate because our operating history
is limited
We were formed in July 1996 and launched looksmart.com in October 1996.
Because of our limited operating history, it is extremely difficult to evaluate
our business and prospects. Our revenue and income potential are unproven and
our business model is continuing to evolve. You should evaluate our business in
light of the risks, uncertainties, expenses, delays and difficulties associated
with starting a new business, many of which may be beyond our control. In
addition, we compete in the relatively new and rapidly evolving Internet
navigation market, which presents many uncertainties that could require us to
further refine or change our business model.
Our success will depend on many factors, including our ability to:
. build and maintain brand awareness;
. increase the amount of traffic to looksmart.com;
. enhance and expand the quality and breadth of our directory;
. establish and maintain syndication and licensing relationships without
jeopardizing the LookSmart brand;
. attract and retain a large number of advertisers from a variety of
industries;
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. manage the rapid growth of our business;
. attract, retain and motivate qualified personnel;
. respond to technological and competitive developments; and
. expand our service offerings, including ecommerce and LookSmart Live!SM.
Our failure to succeed in one or more of these areas harm our business,
results of operations and financial condition.
We have a history of net losses and expect to continue to incur net losses
We have incurred net losses since our inception, including a net loss of
approximately $6.7 million in the quarter ended March 31, 1999. As of March 31,
1999, we had an accumulated deficit of approximately $30.0 million. Although
our revenues have grown in recent quarters, we expect to have increasing net
losses and negative cash flow for the foreseeable future. The size of these net
losses will depend, in part, on the rate of growth in our advertisers,
syndication and licensing revenues and on the level of our expenses. We expect
to spend significant amounts to build our brand awareness through marketing and
promotion, develop our international business, fund new product development and
enhance the content and features of our website. As a result, we expect that
our operating expenses will increase significantly in the near term and,
consequently, we will need to generate significant additional revenues to
achieve profitability. Even if we do achieve profitability, we may not be able
to sustain or increase profitability on a quarterly or annual basis.
Our quarterly revenues and operating results may fluctuate due to the timing of
delivery of URLs under our Microsoft contract and other factors, which may
negatively affect our stock price
The terms of our agreement with Microsoft Corporation could cause our
quarterly revenues and operating results to fluctuate significantly. Under this
agreement, we license our database to Microsoft and we are obligated to
increase the number of unique URLs included in our database every six months by
pre-defined amounts. Microsoft has the right to determine the criteria for a
portion of these URLs. We recognize quarterly revenues under this agreement
based on the number of URLs added to our database during the quarter relative
to the total number of URLs we are required to add to our database during the
relevant six month period. As a result, to the extent that we satisfy our
database update obligations unevenly, the revenues we recognize may be skewed
on a quarter-to-quarter basis. Because the six-month contractual measurement
periods end on June 5 and December 5 of each year our second and fourth
quarters may include revenues from more than one six-month contractual
measurement period. This may result in additional quarter-to-quarter
fluctuations in revenues.
Our quarterly operating results may also fluctuate significantly in the
future as a result of a variety of other factors that could affect our revenues
or expenses in any particular quarter. These factors include:
. the level of user traffic on our website and the demand for our Internet
navigation services;
. the level of demand for Internet advertising and changes in the
advertising rates we charge;
. the addition or loss of relationships with advertisers;
. the level and timing of our licensing and syndication activities;
. the mix of types of advertising we sell (targeted advertising generally
has higher rates);
. seasonality of our advertising revenues, as Internet usage is typically
lower in the first and third quarters of the year;
. timing of revenue recognition under long-term contracts;
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. the amount and timing of other costs relating to the expansion of our
operations;
. the introduction of new products or services by us or our competitors;
. technical difficulties and systems downtime or failures; and
. costs related to acquisitions and integration of technologies or
businesses.
We may, from time to time, make certain pricing, service or marketing
decisions that may adversely affect our profitability in a given quarterly or
annual period. Our expense levels are based in part on expectations of future
revenues and, to a large extent, are fixed. We may be unable to adjust spending
quickly enough to compensate for any unexpected revenue shortfall. In addition,
we generate a significant portion of our revenues from our contracts with
advertisers, which generally range from one to three months.
Due to the above factors, we believe that period-to-period comparisons of
our operating results are not necessarily meaningful. You should not rely on
period-to-period comparisons as indicators of our future performance. If our
operating results in any future period fall below the expectations of
securities analysts and investors, the market price of our securities would
likely decline.
The adequacy of our internally developed software and systems is critical to
our business
We have developed custom, proprietary software for use by our editors to
create the LookSmart directory and we also use proprietary software and
software developed by third parties to distribute the LookSmart directory and
associated pages, and to serve advertising to those pages. This software may
contain undetected errors, defects or bugs or may fail to operate with other
software applications. Demands on our software and infrastructure systems
resulting from substantial increases in editorial activity or the number of
URLs in our directory, customization of the database for syndication,
substantially increased traffic and the addition of new features or changes in
our directory structure could result in temporary capacity constraints and
technical difficulties with our website or with the websites of our syndication
partners. If we fail to address these constraints and difficulties in a timely
manner, our advertising, syndication and other revenues will decline and our
business will suffer.
We have developed a new structure for the presentation of data from the
LookSmart directory, and a new design for our website which we introduced in
June 1999. This new software may have unforeseen errors, and users of the web
site may interact with the directory in ways we have not anticipated, causing
fewer advertisements to be displayed or fewer clickthroughs on advertisements
that are displayed.
In addition, as we expand our service offerings and enter into new business
areas such as ecommerce, we may be required to significantly modify, enhance
and expand our software and infrastructure systems. If we fail to accomplish
these tasks in a timely manner, our business will suffer.
Our business prospects will suffer if we fail to establish our LookSmart brand
We believe that increasing the recognition of the LookSmart brand is
critical to our success. We intend to invest a significant amount of our
resources to increase brand awareness, brand loyalty and brand equity through
various media. We cannot assure you that our brand awareness strategy will be
successful or that our strategy of licensing or syndicating all or part of our
directory to third parties will not undermine our efforts to establish the
LookSmart brand. If our branding strategy is unsuccessful, we may be unable to
increase future revenues.
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We derive a significant amount of our revenues from Microsoft, and if our
relationship with Microsoft suffers, our business could be harmed
In December 1998, we entered into an agreement with Microsoft Corporation
for the licensing of our database content, including regular database updates.
For the quarter ended March 31, 1999, revenue from Microsoft under this
agreement accounted for 66% of our total revenues. A portion of the revenues we
receive under this agreement is subject to refund if we fail to provide the
stated number of URLs. Microsoft has the right to use our database during the
term of the agreement and, after the agreement is terminated, to continue to
use the content we delivered during the term of the agreement. This license
excludes certain locally-oriented content. Microsoft also has the right to
sublicense these rights to third parties both during and after the term,
although for a period of not less than two years, Microsoft may not sublicense
its rights to a specified group of companies. We believe that this specified
group includes all of our current competitors. After June 8, 2000, our
obligation to deliver database updates to Microsoft pursuant to this agreement
may be terminated by either party for any reason on six months' notice.
The operating performance of our systems is critical to our business and
reputation
Any system failure, including network, software or hardware failure, that
causes an interruption in our service or a decrease in the responsiveness of
our website could result in reduced user traffic, a decline in revenue and
damage to our reputation and brand name. In addition, our users and customers
depend on Internet service providers, online service providers and other
website operators for access to the LookSmart directories. Each of these
service providers has experienced significant outages in the past and could
experience outages, delays and other operating difficulties in the future due
to system failures.
In February 1999, we entered into an agreement with Frontier GlobalCenter
(Frontier) to house our hardware equipment at Frontier's Santa Clara,
California facility. We do not presently maintain fully redundant systems at
separate locations, so our operations depend on Frontier's ability to protect
the systems in its data center from earthquake, fire, power loss, water damage,
telecommunications failure, vandalism and similar events. Although Frontier
provides comprehensive facilities management services, Frontier does not
guarantee that our Internet access will be uninterrupted, error-free or secure.
We have not developed a disaster recovery plan to respond to system failures.
We maintain property insurance for our equipment, but do not maintain business
interruption insurance. We can not guarantee that our insurance will be
adequate to compensate us for all losses that may occur as a result of any
system failure.
We face risks related to expanding into new services and business areas,
particularly LookSmart Live! and ecommerce
To increase our revenues, we will need to expand our operations by promoting
new or complementary products and services and by expanding into new business
areas. We intend to introduce an interactive Internet navigation assistance
service called LookSmart Live!, and we are continuing to develop and implement
various ecommerce services, including facilitating transactions and providing
ecommerce solutions for small to mid-sized businesses. These new products and
services will require both modification of existing software and systems and
the creation or acquisition of new software and systems. We may lack the
managerial, editorial and technical resources necessary to expand our service
offerings. Such initiatives may not generate sufficient revenues to offset
their cost. In addition, as we continue to expand our offerings in these and
other markets, we will require significant additional managerial and financial
resources that may strain our existing resources.
We believe LookSmart Live! will be capital and human resource intensive,
which may make it difficult for us to scale that service quickly. If we are
unable for any reason to expand the service in
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line with consumer demand, our reputation and business could be harmed. The
costs of providing our LookSmart Live! service may exceed the incremental
advertising revenue, if any, that it generates. In addition, the market for
ecommerce is extremely competitive and we have limited experience in this
market.
If we are unable to compete effectively in the Internet navigation market, our
business and profitability will suffer
We compete in the Internet navigation market which is relatively new and
highly competitive. We expect competition to intensify as the market evolves.
Many of our competitors have longer operating histories, larger user bases,
longer relationships with consumers, greater brand or name recognition and
significantly greater financial, technical and marketing resources than we do.
As a result of their greater resources, our competitors may be in a position to
respond more quickly to new or emerging technologies and changes in consumer
requirements and to develop and promote their products and services more
effectively than we do.
There are relatively low barriers to entry into certain segments of the
Internet navigation market. As a result, new market entrants pose a threat to
our business. We do not own any patented technology that precludes or inhibits
competitors from entering the Internet navigation market. Existing or future
competitors may develop or offer technologies or services that are comparable
or superior to ours, which could harm our business.
We currently face direct competition from companies that provide (1)
directory content and/or search algorithms, (2) content aggregation and
licensing, (3) demographically and content-targeted advertising, (4) Internet
outsourcing and (5) services that enable online/ecommerce capabilities. As we
expand the scope of our Internet services, we will compete directly with a
greater number of websites and other media companies across a wide range of
different online services, including:
. subject-specific websites where competitors may have advantages in
expertise and brand recognition;
. services and software applications that allow a user to search the
databases of several directories and catalogs simultaneously;
. database vendors that offer information search and retrieval
capabilities with their core database products;
. online merchant hosting services; and
. Internet-based email and instant messaging services.
To date, the Internet navigation market has been characterized by
competition for consumer traffic. One aspect of this competition has been the
payment of consumer referral fees to Internet browser companies and other
frequently used websites such as portals and Internet service providers. If
these companies fail to provide these referrals, or the market for these
referrals becomes more competitive such that navigation companies are required
to pay more for these referrals, our business and profitability could be
harmed.
A failure to manage and integrate businesses we acquire could divert
management's attention and harm our operations
If we are presented with appropriate opportunities, we intend to make
additional acquisitions of, or significant investments in, complementary
companies, products or technologies to increase our technological capabilities
and expand our service offerings. Acquisitions may divert the attention of
management from the day-to-day operations of our company. In addition,
integration of recently acquired companies and future acquisitions into our
company could be expensive, time consuming
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and may strain our resources. In particular retaining key management and
technical personnel during the transition period following an acquisition may
be difficult. For these reasons, we may not be successful in integrating any
acquired businesses or technologies and may not achieve anticipated revenue and
cost benefits.
Acquisitions may also result in dilution to our existing stockholders if we
issue additional equity securities and may increase our debt. We may also be
required to amortize significant amounts of goodwill or other intangible assets
in connection with future acquisitions, which would adversely affect our
operating results.
The success of our business will depend, in part, on our ability to sell
advertising on our looksmart.com website and on the ability of our partners to
generate traffic
For the year ended December 31, 1998 and the three months ended March 31,
1999, advertising revenues accounted for 63.3% and 33.3% of our total revenues.
We expect that revenues from advertising will continue to represent a
significant portion of our total revenues for the foreseeable future. Our
ability to generate advertising revenues will depend on a number of factors,
including:
. the development of the Internet as an advertising medium;
. the level of traffic on our looksmart.com website;
. our ability to effectively manage our advertising inventory,
particularly our category-based advertising inventory; and
. our ability to achieve, measure and demonstrate to advertisers the
unique user demographic characteristics of visitors to our website.
In addition, our ability to earn advertising revenues depends on the number
of advertising impressions per search and the number of clickthroughs. Because
we believe category searches result in a greater number of advertising
impressions per search and a higher number of click-throughs than are
characteristic of keyword searches, if users decide to use keyword searches
more frequently than category searches, then our advertising revenues could
decline.
Recent acquisitions and strategic alliances involving our competitors could
negatively affect our business
Recently, there have been a number of significant acquisitions and strategic
alliances completed or announced in the Internet navigation market involving
certain of our competitors, including:
. Yahoo, Inc.'s acquisition of GeoCities;
. The Walt Disney Company's acquisition of a significant interest in
Infoseek Corporation;
. America OnLine, Inc.'s acquisition of Netscape Communications
Corporation;
. @Home Network's acquisition of Excite, Inc.;
. NBC's acquisition of an interest in Snap! LLC (a subsidiary of CNET) and
proposed merger with XOOM, Inc.; and
. Compaq Computer Corporation's control of Alta Vista Company.
Although the effect of these acquisitions and strategic alliances on our
business cannot be predicted with certainty, these transactions could provide
our competitors with significant opportunities to increase traffic on their
websites and expand their service offerings which could drive down traffic for
us. In addition, these transactions align certain of our competitors with
companies,
10
<PAGE>
including television networks, that are significantly larger and have
substantially greater marketing and technical resources and name recognition
than LookSmart. As a result, these competitors may be in a position to respond
more quickly to new or emerging technologies and changes in consumer
requirements and to develop and promote their products and services more
effectively than we do.
Our future success depends on our ability to attract and retain key personnel
Our future success depends, in part, on the continued service of our key
management personnel, particularly Evan Thornley, our Chairman and Chief
Executive Officer, and Tracey Ellery, our President. Mr. Thornley and Ms.
Ellery are husband and wife. The loss of the services of either of these
individuals, or the services of other key employees, could adversely affect our
business. LookSmart does not have employment agreements with Mr. Thornley and
Ms. Ellery. Our success also depends on our ability to identify, attract,
retain and motivate highly skilled technical, editorial and marketing
personnel. In particular, we are currently conducting a search for a senior
technology executive. Competition for such personnel, particularly in the San
Francisco Bay area, is intense, and there can be no assurance that we will be
able to retain our key employees or that we can identify, attract and retain
highly skilled personnel in the future.
Many of our customers are emerging Internet companies
We expect to derive an increasingly significant portion of our revenues from
the sale of advertising and other services and the syndication of our directory
and navigation services to other Internet companies, including website owners,
Internet portals and regional ISPs. In addition, we are targeting certain of
our Internet and ecommerce enabling services to small and medium-sized
businesses. Many of these companies have limited operating histories, are
operating at a loss and have limited access to capital. Many of these
businesses could fail and, in any event, represent credit risks. If our
customer base experiences financial difficulties or fails to experience
commercial success, our business will suffer.
We may need additional capital in the future to support our growth and such
additional financing may not be available to us
We believe that the net proceeds from this offering, together with our
current cash balance, will provide adequate liquidity to fund our operations
and meet our other cash requirements for at least two years following this
offering. However, we cannot assure you that such resources will be sufficient
for anticipated or unanticipated working capital and business development
requirements. We may seek to raise additional funds through public or private
debt or equity financings in order to:
. take advantage of favorable business opportunities, including geographic
expansion or acquisitions of complementary businesses or technologies;
. develop and upgrade our technology infrastructure;
. develop new service offerings;
. respond to competitive pressures; or
. take advantage of current favorable market conditions.
We cannot assure you that any additional financing we may need will be
available on terms favorable to us, or at all. Any additional equity financing
may cause investors to experience dilution and the terms of additional debt
financing may contain covenants that restrict our operations.
11
<PAGE>
Our business would suffer if we were held liable for information made available
on our website
We make information available on our looksmart.com website and on the
websites of our partners, including through our syndication and licensing
activities. The availability of this content through our website or third party
websites linked from our website could subject us to claims for defamation,
negligence, copyright or trademark infringement or other theories based on the
nature and content of the information made available. These types of claims
have been brought, sometimes successfully, against online service providers in
the past. Even if such claims do not result in liability to us, we could incur
significant costs in investigating and defending against them and in
implementing measures to reduce our exposure to this kind of liability. Our
insurance may not cover potential claims of this type or may not be adequate to
cover all costs incurred in defense of potential claims or to indemnify us for
all liability that may be imposed.
The Year 2000 Problem could significantly disrupt our operations, causing a
decline in revenue and cash flow and other difficulties
Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates.
As a result, many companies' software and computer systems may need to be
upgraded or replaced to comply with these Year 2000 requirements. Our business
is dependent on the operation of numerous systems that could potentially be
impacted by Year 2000 related problems. If our vendors' systems, including
those of our hosting services provider, are not Year 2000 compliant, or if our
efforts to make our systems Year 2000 compliant are not successful or if our
contingency plan fails, then our critical systems will fail and our business
will be harmed. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Readiness Disclosure".
Our international expansion strategy involves risks
A key component of our strategy is expanding our operations into selected
international markets, including in Europe, Australia, Asia and Latin America.
To date, we have limited experience in developing and syndicating localized
versions of our service offerings in international markets, and we may be
unable to execute our business model in these markets. In addition,
international markets have experienced lower levels of Internet usage and
advertising compared to the United States. In pursuing our international
expansion strategy, we face several additional risks, including:
. uncertainty of market acceptance in new regions due to language,
cultural or other factors;
. difficulties in staffing and managing international operations;
. unexpected changes and differences in regulatory requirements,
particularly as applied to Internet services;
. export controls relating to encryption technology;
. foreign currency fluctuations;
. potentially adverse tax consequences; and
. ability to find and develop relationships with international partners.
Our failure to address these risks could inhibit or preclude our efforts to
expand our business in international markets.
12
<PAGE>
Our results will be negatively affected if we fail to adapt to rapid
technological change and evolving industry standards
To be successful, we must adapt to rapidly changing Internet technologies
and evolving industry standards. The introduction of new technologies,
including new or superior Internet navigation methods, or the emergence of new
industry standards and practices could render our systems and proprietary
software obsolete and unmarketable or require us to make significant
unanticipated investments to adapt to these changes. We must also enhance our
existing service offerings and introduce new products and services to address
the changing needs and demands of Internet users and our customers. If we are
unable to respond to any of these developments on a timely and cost-effective
basis, our business will be adversely affected.
We may face intellectual property infringement claims that may be costly to
resolve
The services we provide include custom-developed software and software
developed by third parties. Although we do not believe that our services
infringe on any third-party proprietary rights, we cannot assure you that third
parties will not assert such claims against us in the future or that such
claims will not be successful. We could incur substantial costs and diversion
of management resources to defend any claims relating to proprietary rights.
These costs and diversions could harm our business. In addition, we are
obligated under certain agreements to indemnify other parties as a result of
claims that we infringe on the proprietary rights of third parties. If we are
required to indemnify parties under these agreements, our business could be
harmed. If any party asserts a claim against us relating to proprietary
technology or information, we may be forced to seek licenses to such
intellectual property. We cannot assure you, however, that we will be able to
obtain licenses on commercially reasonable terms, or at all. Any failure to
obtain the necessary licenses or other rights could harm our business.
The anti-takeover provisions of Delaware's general corporation law and certain
provisions of our charter and by-laws may discourage a takeover attempt
Our Restated Certificate of Incorporation and Amended and Restated Bylaws
and provisions of Delaware law may deter or prevent a takeover attempt,
including an attempt that might result in a premium over the market price for
our common stock. See "Description of Capital Stock--Effect of Certain
Provisions of the Certificate of Incorporation and Bylaws and the Delaware
Anti-Takeover Statute".
Risks Related to Our Industry
Our business prospects depend on the use of the Internet as an advertising
medium
Many potential advertisers and advertising agencies have only limited
experience advertising on the Internet and have not devoted a significant
portion of their advertising expenditures to Internet advertising. We expect
downward pressure on advertising prices in the industry generally due to the
often increasing amount of advertising inventory coming onto the Internet from
other sources. As the Internet evolves, advertisers may find Internet
advertising to be a less effective means of promoting their products or
services relative to traditional advertising media and may not continue to
allocate funds to Internet advertising. Acceptance of the Internet among
advertisers will depend, to a large extent, on the level of use of the Internet
by consumers and upon growth in the commercial use of the Internet. In
addition, advertising on the Internet is at an earlier stage of development in
international markets compared to the United States.
There is intense competition for advertising revenue on high-traffic
websites, which has resulted in significant price competition. Currently, there
are a variety of pricing models for selling advertising
13
<PAGE>
on the Internet. Several of the most widely used pricing models are based on
the number of impressions or clickthroughs, the duration over which the
advertisement is displayed or the number of keywords to which the advertisement
will be linked. It is difficult to predict which, if any, will emerge as the
industry standard. This uncertainty makes it difficult to project our future
advertising rates and revenues that we may generate from advertising. In
addition, filter software programs that limit or prevent advertising from being
displayed to a user's computer are available. It is unclear whether this type
of software will become widely accepted. If it does, it would negatively affect
Internet-based advertising.
Our business prospects depend on the continued growth in the use of the
Internet
Our business is substantially dependent upon continued growth in the use of
the Internet as a medium for obtaining information and engaging in commercial
transactions. Internet usage may decline and ecommerce may be inhibited for
various reasons, including:
. user inability or frustration in locating and accessing required
information;
. actual or perceived lack of security of information;
. limitations of the Internet infrastructure resulting in traffic
congestion, reduced reliability or increased access costs;
. inconsistent quality of service;
. governmental regulation;
. uncertainty regarding intellectual property ownership; and
. lack of appropriate communications equipment.
Published reports have indicated that capacity constraints caused by growth
in the use of the Internet may, unless resolved, impede further growth in
Internet use. Further, the adoption of the Internet for commerce and
communications, particularly by those individuals and companies that have
historically relied upon traditional means of commerce and communication,
generally requires the understanding and acceptance of a new way of conducting
business and exchanging information. Companies that have already invested
substantial resources to conduct commerce and exchange information through
other means may be particularly reluctant or slow to adopt a new Internet-based
strategy that may make their existing personnel and infrastructure obsolete. If
any of the foregoing factors affects the continuing growth in the use of the
Internet, our business could be harmed.
Government regulation and legal uncertainties could harm our business
Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could decrease demand for our services,
increase our cost of doing business or otherwise have a material adverse effect
on our business. Currently, there are a number of laws and regulations that
pertain to communications or commerce on the Internet, and it is likely that
the number of such laws and regulations will increase. These laws or
regulations may relate to liability for information retrieved from or
transmitted over the Internet, online content regulation, user privacy,
taxation and the quality of products or services provided over the Internet.
Moreover, the applicability to the Internet of existing laws governing
intellectual property ownership and infringement, copyright, trademark and
trade secret is uncertain and developing.
Privacy related regulation of the Internet could adversely affect our business
Internet user privacy has become an issue both in the United States and
abroad. The Federal Trade Commission and government agencies in some states and
countries have been investigating
14
<PAGE>
certain Internet companies regarding their use of personal information. Any
regulations imposed to protect the privacy of Internet users may affect the way
in which we currently collect and use personal information.
The European Union (EU) has adopted a directive that imposes restrictions on
the collection and use of personal data, guaranteeing citizens of EU member
states certain rights, including the right of access to their data, the right
to know where the data originated and the right to recourse in the event of
unlawful processing. We cannot assure you that this directive will not
adversely affect our activities in EU member states.
As is typical with most websites, our website places certain information
(cookies) on a user's hard drive, generally without the user's knowledge or
consent. This technology enables website operators to target specific users
with a particular advertisement and to limit the number of times a user is
shown a particular advertisement. Some currently available Internet browsers
allow users to modify their browser settings to remove cookies at any time or
to prevent cookies from being stored on their hard drives. In addition, some
Internet commentators, privacy advocates and governmental bodies have suggested
limiting or eliminating the use of cookies. If this technology is reduced or
limited, the Internet may become less attractive to advertisers and sponsors.
We retain information about our users. If third parties were able to
penetrate our network security and gain access to, or otherwise misappropriate,
our users' information, we could be subject to liability. These claims could
result in litigation, our involvement in which, regardless of the outcome,
could require us to expend significant financial resources. We could incur
additional expenses if new regulations regarding the use of personal
information are introduced or if any regulator chooses to investigate our
privacy practices.
New tax treatment of companies engaged in Internet commerce may adversely
affect the Internet industry and our company
Tax authorities on the international, federal, state and local levels are
currently reviewing the appropriate tax treatment of companies engaged in
Internet commerce. New state tax regulations may subject us to additional state
sales, income and other taxes. A recently passed federal law places a temporary
moratorium on certain types of taxation on Internet companies. We cannot
predict the effect of current attempts to impose sales, income or other taxes
on commerce over the Internet although, if imposed, such taxes would likely
increase our cost of doing business and may adversely affect our business and
results of operations.
Risks Related to this Offering
Directors, officers and significant stockholders will have substantial
influence over LookSmart after this offering which could prevent or delay a
change in control
Immediately following this offering, the executive officers, directors, and
significant stockholders and the funds for whom they act as general partner
collectively will own approximately % of the outstanding shares of our
common stock.
If these stockholders choose to act or vote together, they will have the
power to control matters requiring stockholder approval, including the election
of our directors, amendments to our certificate of incorporation and approval
of significant corporate transactions like mergers or sales of all of our
assets. This concentration of ownership may have the effect of discouraging
third parties from making a tender offer or bid to acquire our company at a
price per share that is above the then-current market price.
15
<PAGE>
Management has broad discretion in spending the proceeds of this offering and
may do so in ways with which our stockholders disagree
We have no specific allocations for the net proceeds of this offering. We
intend to use the proceeds for general corporate purposes, including working
capital to fund anticipated operating losses, to add engineers, editorial and
marketing personnel and to expand our advertising efforts. We may also use a
portion of the proceeds to acquire or invest in other complementary businesses.
Consequently, management has broad discretion over the ways in which the
proceeds will be used. Because of the number and variability of factors that
determine our use of the net proceeds of the offering, we cannot assure you
that such uses will not vary substantially from our current intentions or that
stockholders will agree with the uses we have chosen.
Our stock price could be extremely volatile and investors may not be able to
resell their shares at or above the initial offering price
The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies, particularly Internet-related
companies, have been extremely volatile. These broad market and industry
fluctuations may adversely affect the market price of our common stock,
regardless of our actual operating performance. The initial public offering
price for the shares will be determined by negotiations between us and
representatives of the underwriters and may not be indicative of prices that
will prevail in the trading market. You may not be able to sell your shares at
or above the initial public offering price as a result of a number of factors
including:
. changes in the market valuations of other Internet companies;
. actual or anticipated quarterly fluctuations in our operating results;
. changes in financial estimates by securities analysts;
. announcements of technological innovations or new products or services
by us or our competitors; or
. conditions or trends in the Internet.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. A securities class action suit against us could result in
substantial costs and the diversion of management's attention and resources.
Future sales of our common stock may cause our stock price to decline
The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market after the closing
of this offering, or the perception that such sales could occur. These sales or
the possibility that they may occur also could make it more difficult for us to
raise funds through future offerings of common stock. The number of shares of
common stock available for sale in the public market is limited by restrictions
under federal securities laws. In addition, LookSmart, our executive officers
and directors and all of our existing stockholders have agreed that they will
not sell any shares of common stock without the consent of Goldman, Sachs & Co.
for 180 days after the date of this prospectus. Goldman, Sachs & Co. may,
however, in their sole discretion and without notice, release all or any
portion of the shares from the restrictions in the lock-up agreements.
16
<PAGE>
After this offering we will have shares of common stock outstanding.
These shares will become eligible for future sale in the public market as
follows:
<TABLE>
<CAPTION>
Number of
Shares Date Eligible for Public Resale
--------- -------------------------------
<C> <S>
Date of this prospectus (includes shares sold in this
offering)
180 days after the date of this prospectus
At various times thereafter
</TABLE>
We intend to register on Form S-8 registration statements under the
Securities Act a total of shares of common stock reserved for issuance
under the 1998 Stock Plan and 1999 Employer Stock Purchase Plan. None of these
shares may be sold for a period of 180 days after completion of the offering.
As of the date of this prospectus, there were outstanding options to purchase
7,904,584 shares of common stock, of which 619,095 were exercisable. See
"Management--Employee Benefit Plans" for a more complete description of our
employee benefit plans and the grants of options.
The holders of approximately 28,139,090 shares of outstanding common stock
and warrants to purchase 2,983,557 shares of common stock have rights to
require us to register those shares under the Securities Act beginning six
months after the closing of this offering subject to limitations. See
"Description of Capital Stock--Registration Rights".
You will suffer immediate and substantial dilution
The initial public offering price per share of common stock will
significantly exceed our net tangible book value per share. Accordingly,
investors purchasing shares in this offering will suffer immediate and
substantial dilution of their investment.
----------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be found
in the material set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" as well as in the
prospectus generally. We used words such as "believes", "intends", "expects",
"anticipates", "plans", and similar expressions are intended to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements. Our actual results could differ materially from
those anticipated in the forward-looking statements for many reasons, including
the risks described above and elsewhere in this prospectus.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock
are estimated to be approximately $ at an assumed initial public
offering price of $ per share (approximately $ if the
underwriters' over-allotment option is exercised in full), after deducting the
estimated underwriting discounts and estimated offering expenses payable by us.
The net proceeds of this offering will be used for general corporate
purposes, including working capital, marketing and promotional activities, new
product development and increased personnel. In addition, we may, if
appropriate opportunities arise, use a portion of the net proceeds to acquire
or invest in complementary companies, product lines, products or technologies.
However, we have no present understandings, commitments or agreements with
respect to any potential acquisition or investment with any third party. We
have not determined the amounts we plan to spend on any of the uses described
above or the timing of these expenditures. Pending such uses, we will invest
the net proceeds in investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid cash dividends on our capital stock. We currently intend
to retain all future earnings to finance the expansion of our business and do
not anticipate paying cash dividends on our common stock in the near future.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
. on an actual basis;
. on a pro forma basis as of such date to reflect the conversion upon the
closing of this offering of all outstanding shares of preferred stock
into 26,791,968 shares of common stock and the exercise of warrants to
purchase 8,016,616 shares of common stock immediately prior to the
closing of this offering; and
. on a pro forma as adjusted basis to reflect the sale of the common stock
in this offering at an assumed initial public offering price of
$ per share, after deducting the estimated underwriting
discounts and offering expenses payable by us.
This information should be read in conjunction with LookSmart's financial
statements and related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term debt and capital lease obligations,
current portion............................... $ (1,637) $ (137) $
======== ======== ======
Long-term debt and capital lease obligations,
net of current portion........................ (375) (375)
-------- --------
Stockholders' equity:
Preferred Stock, $0.001 par value:
Series A, 7,925,300 shares authorized:
5,235,076 shares issued and outstanding,
actual; none authorized, issued and
outstanding, pro forma and pro forma as
adjusted(1)................................. 5
-------- --------
Series B, 9,551,832 shares authorized:
9,551,832 shares issued and outstanding,
actual; none authorized, issued and
outstanding, pro forma and pro forma as
adjusted(1)................................. 10
-------- --------
Series C, 8,393,333 shares authorized:
8,005,060 issued and outstanding, actual;
none authorized, issued and outstanding, pro
forma and pro forma as adjusted(1).......... 8
Series 1 Junior, 4,000,000 shares authorized:
4,000,000 shares issued and outstanding,
actual; none authorized, issued and
outstanding, pro forma and pro forma as
adjusted(1)................................. 4
-------- --------
Preferred Stock, $0.001 par value; 5,000,000
shares authorized, pro forma as adjusted; no
shares issued and outstanding, actual, pro
forma and pro forma as adjusted.............
Common Stock, $0.001 par value, 70,129,535
shares authorized; 12,972,652 issued and
outstanding, actual; 47,781,236 issued and
outstanding, pro forma; 100,000,000 shares
authorized; issued and outstanding, pro
forma as adjusted(1)........................ 14 48
-------- --------
Additional paid-in capital................... 85,520 87,639
Warrants..................................... 2,851 1,995
Unearned compensation........................ (5,669) (5,669)
Cumulative translation adjustment............ (48) (48)
-------- -------- ------
Accumulated deficit.......................... (29,994) (29,994)
-------- -------- ------
Total stockholders' equity............... 52,701 53,971
-------- -------- ------
Total capitalization................... $ 54,713 $ 54,483 $
======== ======== ======
</TABLE>
- --------
(1) The following shares at March 31, 1999 are excluded from the number:
8,089,500 shares of common stock issuable upon exercise of outstanding
options and 2,983,557 shares of common stock issuable upon the exercise of
warrants. See "Management--Benefit Plans" and "Description of Capital
Stocks--Warrants".
19
<PAGE>
DILUTION
On a pro forma basis after giving effect to the conversion of all
outstanding shares of preferred stock into shares of common stock in connection
with this offering, our pro forma net tangible book value as of March 31, 1999
was $48,852,000 or $1.02 per share of common stock. Pro forma net tangible book
value per share represents the amount of our total tangible assets reduced by
the amount of our total liabilities and divided by the total number of shares
of common stock outstanding and to be issued upon exercise of warrants upon the
closing of this offering (reflecting the conversion of all outstanding shares
of preferred stock into shares of common stock upon the closing of this
offering). Without taking into account any other change in our pro forma net
tangible book value after March 31, 1999, other than to give effect to the sale
of shares of common stock offered by this prospectus at an assumed
initial public offering price of $ per share and receipt of the estimated
net proceeds therefrom, our pro forma net tangible book value as of March 31,
1999 would have been approximately $ or $ per share. This
represents an immediate increase in such net tangible book value of $ per
share to existing stockholders and an immediate dilution of $ per share to
the new investors. If the initial public offering price is higher or lower, the
dilution to new investors will be, respectively, greater or less. The following
table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $
Pro forma net tangible book value per share as of March 31, 1999,
before this offering............................................... $1.02
Increase per share attributable to new investors....................
-----
Pro forma net tangible book value per share after this offering.......
---
Dilution per share to new investors................................... $
===
</TABLE>
- --------
The following table summarizes, as of March 31, 1999, on a pro forma basis
to reflect the adjustments described above, the differences between the
existing stockholders and the new investors with respect to the number of
shares of common stock purchased from us, the total consideration paid (or to
be paid) to us, and the average price per share paid (or to be paid) by
existing stockholders and by new investors at the assumed initial public
offering price of $ per share, before deducting the estimated underwriting
discounts and offering expenses payable by us:
<TABLE>
<CAPTION>
Total
Shares Purchased Consideration
------------------ -------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 42,764,620 % $ % $
New investors................... $
---------- ---- ----- -----
Total......................... % $ 100.0%
========== ==== ===== =====
</TABLE>
This table assumes that the underwriters do not exercise their over-
allotment options. This table also assumes that no options or warrants were
exercised after March 31, 1999. As of March 31, 1999, there were outstanding
options to purchase an aggregate of 8,089,500 shares of common stock at a
weighted average exercise price of $.15 per share and warrants to purchase
2,983,557 shares of common stock at a weighted aggregate purchase price of
$2.85 per share. If all such options and warrants had been exercised on March
31, 1999, our net tangible book value on such date would have been $ ,
or $ per share, the increase in net tangible book value attributable to new
investors would have been $ per share and the dilution in net tangible book
value to new investors would have been $ per share.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(In Thousands Except Per Share Amounts)
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto 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 period from July 19, 1996 (inception) to December
31, 1996 and for the years ended December 31, 1997 and 1998 and the
consolidated balance sheet data as of December 31, 1997 and 1998 are derived
from our Consolidated Financial Statements which have been audited by
PricewaterhouseCoopers LLP independent accountants, and are included elsewhere
in this prospectus. The consolidated statement of operations data for the
three-month period ended March 31, 1998 and 1999 and the consolidated balance
sheet data as of March 31, 1999 are derived from our unaudited consolidated
financial statements included elsewhere in this prospectus.
The unaudited selected pro forma financial data of Guthy-Renker Internet,
LLC, ITW NewCorp, Inc., and BeSeen.com, Inc. is derived from the unaudited
consolidated pro forma combined financial statements of Guthy-Renker Internet,
LLC, ITW New Corp. Inc. and BeSeen.com, Inc. and should be read in conjunction
with such pro forma statements and notes thereto which are included elsewhere
in this prospectus.
The consolidated pro forma information is presented for illustrative
purposes only and is not necessarily indicative of future operating results or
financial position.
<TABLE>
<CAPTION>
Pro Forma
Three
Period from July Year Ended Three Months Ended Pro Forma Months
19, 1996 ------------------------- ---------------------- Year Ended Ended
(Inception) to December 31, December 31, March 31, March 31, December 31, March 31,
December 31, 1996 1997 1998 1998 1999 1998 1999(1)
----------------- ------------ ------------ ---------- ---------- ------------ ----------
(in thousands, except per share amounts) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues............... $ 3 $ 949 $ 8,785 $ 804 $ 6,580 $ 20,143 $ 10,245
Cost of revenues....... 90 700 6,819 626 2,840 13,481 5,197
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit (loss).. (87) 249 1,966 178 3,740 6,662 5,048
Operating expenses:
Sales and marketing.. 1,115 3,398 5,615 748 3,900 8,876 4,777
General and
administrative...... 504 1,165 2,746 362 1,616 4,535 2,094
Product development.. 915 2,605 4,427 528 3,884 4,855 3,911
Write-off of in-
process research and
development......... -- -- 338 -- -- -- --
Total operating
expenses........... 2,739 7,578 13,864 1,741 10,429 23,689 12,777
Loss from operations... (2,826) (7,329) (11,898) (1,563) (6,689) (17,026) (7,728)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Other income (expense),
net................... (10) (19) (814) (64) 19 (817) 19
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss............... $ (2,900) $ (7,514) $ (12,858) $ (1,672) $ (6,722) $ (17,988) $ (7,761)
========== ========== ========== ========== ========== ========== ==========
Basic and diluted net
loss per share........ $ (0.04) $ (0.12) $ (1.03) $ (0.14) $ (0.52) $ (1.26) $ (0.53)
========== ========== ========== ========== ========== ========== ==========
Weighted average shares
used in computing
basic and diluted net
loss per share........ 77,298,272 61,059,333 12,526,356 12,001,400 12,972,652 14,226,356 14,672,652
========== ========== ========== ========== ========== ========== ==========
Unaudited pro forma
basic and diluted net
loss per share(2)..... $ (0.47) $ (0.17) $ (0.59) $ (0.20)
========== ========== ========== ==========
Weighted average shares
used in computing pro
forma basic and
diluted net loss per
share................. 27,386,715 39,149,991 30,631,159 39,149,991
========== ========== ========== ==========
<CAPTION>
Pro Forma
December 31, December 31, March 31, March 31,
December 31, 1996 1997 1998 1999 1999(1)
----------------- ------------ ------------ ---------- ----------
(in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital
(deficit)............. $ (429) $ (1,125) $ (6,507) $ 51,362 $ 41,648
Total assets........... 2,825 2,275 13,590 84,070 93,004
Long-term debt and
capital lease
obligations, net of
current portion....... -- 1,500 1,500 375 375
Total stockholders'
equity (deficit)...... 2,091 (453) (1,761) 52,701 61,627
</TABLE>
- -------
(1) Pro forma financial information reflects the acquisition of BeSeen.com,
Inc. and the asset purchase transactions with Guthy-Renker Internet, LLC
and ITW NewCorp, Inc. See the unaudited pro forma combined financial
information and the notes thereto included elsewhere in this prospectus.
(2) Unaudited pro forma net loss per share for the year ended December 31, 1998
is computed using the weighted average number of common shares outstanding,
adjusted to include the pro forma effects of the conversion of preferred
stock to common stock as if such conversion had occurred on January 1,
1998, or at the date of original issuance, if later.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and the notes to those statements which appear elsewhere
in this prospectus. The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs, including without
limitation forward-looking statements regarding anticipated revenue growth,
trends in costs of revenues and operating expenses, international expansion and
introduction of additional services. Our actual results could differ materially
from those discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed below and elsewhere in this prospectus, particularly in "Risk
Factors".
Overview
LookSmart is a leading category-based Internet directory provider which has
assembled what it believes to be the largest collection of high quality,
granular content on the Internet. The LookSmart directory contains over 750,000
unique URLs in over 60,000 categories, organized in an easy-to-navigate format.
We distribute our proprietary directory to a large number of Internet users
through LookSmart-owned Internet properties and through our strategic partners.
Our Internet properties, including looksmart.com, primarily target a focused
demographic of female household purchase decision-makers and generate
advertising and ecommerce transaction revenue. We broaden the reach of the
LookSmart directory through syndication and licensing of our content. We
currently provide our directory to leading Internet portals, such as The
Microsoft Network (MSN), Netscape Netcenter, Excite@Home and Alta Vista, and to
over 200 Internet Service Providers (ISPs), including IBM.net and NetZero. In
addition, users can access our content and services through a network of over
600,000 website affiliates.
LookSmart was formed in July 1996 as a Delaware corporation under the name
of NetGet Ltd. to acquire the business and associated intellectual property of
HomeBase Directories Pty Ltd., an Australian company founded by Evan Thornley
and Tracey Ellery in October 1995. At that time, The Reader's Digest
Association purchased approximately 85% of our outstanding common stock, an
investment it held until October 1997 when it exchanged this stock for warrants
to purchase 6.0 million shares of our common stock and a $1.5 million
promissory note. We changed our name to LookSmart, Ltd. in October 1996. In
July 1997, we relocated our headquarters from Australia to San Francisco,
California.
Prior to July 1997, revenues from our business were incidental and we were
primarily focused on investing in editorial resources and building our Internet
directory. Until October 1997, our cash requirements were satisfied primarily
by funds provided by The Reader's Digest Association and, to a lesser extent,
from advertising revenues from sales made through third party salesforces. Our
advertising revenues continued to increase during the fourth quarter of 1997
and the first quarter of 1998.
During 1998, we entered into several key operational relationships designed
to increase traffic to our website and to expand our directory. In May 1998, we
raised a total of approximately $8.3 million in our Series A and Series B
preferred stock financings, marking the beginning of our strategic relationship
with Cox Interactive Media in developing web directories for key local United
States markets. This infusion of capital allowed us to significantly increase
the resources devoted to editorial and product development, establish our own
advertising sales force and significantly strengthen our management team.
Also in May 1998, we entered into a one-year traffic contract with Netscape,
which has been renewed through July 2000. Under this arrangement, Netscape
periodically directs user search traffic to LookSmart for a fixed cost per
thousand impressions, or "CPM".
22
<PAGE>
In October 1998, we acquired BeSeen.com, Inc., a leading provider of tools
to webmasters, for 4 million shares of our Series 1 Junior preferred stock. The
primary purpose of this transaction was to generate traffic and website
relationships for LookSmart to increase advertising sales.
In December 1998, we entered into a five-year contract with Microsoft. Under
this agreement, we license our database to Microsoft and we are obligated to
increase the number of unique URLs included in our database every six months by
pre-defined amounts. Microsoft has the right to determine the criteria for a
portion of these URLs. Microsoft paid us an initial non-refundable license fee
and committed to a fixed schedule of additional payments for updates. A portion
of each update payment is subject to refund if we fail to provide the stated
number of URLs. Generally, the difference between any cash received under the
contract and revenues recognized is carried as deferred revenues. At March 31,
1999, deferred revenue associated with the Microsoft contract was $23.6
million. Either party may terminate the contract upon six-months notice
following the second anniversary of the contract.
The terms of our agreement with Microsoft could cause our quarterly revenues
and operating results to fluctuate significantly. We recognize quarterly
revenues under this agreement based on the number of URLs added to our database
during the quarter relative to the total number of URLs we are required to add
to our database during the relevant six-month contractual measurement period.
As a result, to the extent that we satisfy our database update obligations
unevenly, the revenues we recognize may be skewed on a quarter-to-quarter
basis. Because the six-month contractual measurement periods end on June 5 and
December 5 of each year, our second and fourth quarters may include revenues
from more than one six-month contractual measurement period. This may result in
additional quarter-to-quarter fluctuations in revenues.
In March 1999, we raised approximately $60 million in our Series C preferred
stock round of financing. The proceeds from this financing are being used to
increase working capital, to fund operating losses and for potential strategic
relationships and acquisitions.
In April 1999, we acquired lines of business and other rights from an
affiliate of Guthy-Renker Corporation as part of a strategic alliance between
our two companies for $5 million in cash and 1.7 million shares of LookSmart
common stock. Through the acquired business, we provide Internet development
seminars and services that are targeted to small business owners. We also
receive revenues from Guthy-Renker "As Seen on TV" products that are sold
online and promoted through television infomercials, and we are entitled to
place LookSmart advertising on Guthy-Renker infomercials.
In May 1999, we entered into a letter of commitment with PBS Sponsorship
Group under which we agreed to sponsor five programs on PBS. The programs are
Mystery!, Chefs of Cucina Amore, Great Food, MasterChefUSA and Sesame Street.
The term of the agreement is for five years, with either party having the right
to terminate the agreement after three years. During the term, none of our
directory competitors will have the right to sponsor any of the listed
programs. Additionally, we have the right to transmit such programs online
during the term.
In June 1999, we entered a three-year licensing agreement with Excite@Home.
Under this agreement, we will share advertising revenues with Excite@Home. We
have also agreed to co-develop a broadband content directory.
Revenues
From inception through mid-1998, we derived substantially all of our
revenues from the sale of advertising on our website. In the second half of
1998, we began the licensing and syndication of our
23
<PAGE>
database to other Internet-based businesses. We plan to continue to seek
additional sources of revenues from the use of our Internet directory,
including international sources, premium usage fees and additional ecommerce
activities.
Advertising. We generally provide advertisers with one to three month
agreements to serve a minimum number of banner impressions over the term of the
agreement. In several cases, we have entered into lengthier agreements. We
offer advertisers the ability to specify the category of traffic for their
banner advertisements, and we are able to charge premiums on some categories
based on advertisers' perception of economic value, including the placement of
the advertisement on the page, the demographics of the users who view the page
and the size of the audience requesting the page.
We expect advertising revenues to continue to account for a significant
portion of our revenues for the foreseeable future. Our ability to maintain
current levels of advertising revenue will depend on our ability to re-sign or
replace existing advertisers as their contracts expire. We expect downward
pressure on advertising prices in the industry generally due to the increasing
amount of advertising inventory coming onto the Internet from other sources.
Therefore, we expect that any future increases in advertising revenues will
depend on our ability to effectively manage our advertising inventory by
leveraging our targeted category-based model to charge premium rates and on our
ability to grow the inventory availability by increasing traffic to our
Internet properties.
We recognize advertising revenues as impressions are delivered over the term
of the contract. Prepayments are deferred until the impressions are delivered.
Because advertising revenues are often received from advertising agencies that
wait until receipt of payment from their own clients before forwarding payment
to LookSmart, associated cash flow may lag by as much as one quarter.
In our limited operating history, we have experienced seasonality in
advertising revenues with typically weaker demand from advertisers in the first
and third quarters. We expect that advertising revenues will continue to be
subject to seasonality. In particular, the rate of growth, if any, between the
last quarter of one year and the first quarter of the next year tends to be
less than the rate of growth experienced between other consecutive quarters.
This may be due in part to the fact that the fourth quarter contains increased
advertising spending in anticipation of the holiday season.
Syndication and Licensing. We generate revenues from syndication agreements
by sharing with our syndication partners advertising sales revenue associated
with traffic referred between the partners and LookSmart. In some cases, our
syndication partner receives gross revenues from the advertiser and then makes
a payment to LookSmart for our share of those revenues. In other cases, we
receive the gross revenues from the advertiser, as described above, and then
forward a portion of these revenues to the applicable syndication partner. We
work with our ISP partners to "co-brand", or create partner-specific home pages
which have the "look and feel" a partner desires and which provides the ISP
subscriber fully functional access to the LookSmart database. In these cases,
LookSmart receives advertising sales revenues from the traffic generated by the
ISP partner and compensates the partner, typically on a per impression basis,
for this traffic referral. We also license our content database to a number of
parties, including Microsoft as described above and Excite@Home. We expect
revenues from syndication and licensing to fluctuate from period to period
because the revenues from our syndication activities are dependent upon the
level of future traffic, the revenues from our licensing activities are
dependent upon the particular terms of our licensing arrangements, and the
revenues from both syndication and licensing are dependent upon the expiration,
renewal and addition of agreements with our partners.
Ecommerce. We began generating ecommerce revenues with our acquisition of
Guthy-Renker Internet, LLC in April 1999. Our ecommerce revenue sources include
assistance in the development
24
<PAGE>
of ecommerce websites, an operational hosting service and placement on the
LookSmart Choice Mall virtual shopping mall. We also receive fees from Guthy-
Renker "As Seen on TV" merchandise that is sold online. While this is a
relatively new portion of our business, we expect that it may be seasonal and
may fluctuate from period to period. We plan to launch our Rewardmall service
in June 1999. This Internet shopping mall will feature over 25 merchants. We
will also offer "Reward Points" for purchases made through this service.
International. To date, non-United States revenues have comprised less than
2% of our total revenues in any period. These international revenues have been
derived exclusively from advertising sales, primarily in Australia and to a
lesser extent the United Kingdom. To the extent that our international revenues
begin to constitute a larger portion of our total revenues, our financial
results may be subject to more volatility. Furthermore, we may incur
substantial expenses in expanding our international operations, and increases
in associated revenues, if any, may substantially lag behind such expenses.
Expenses
Cost of Revenues. The principal components of cost of revenues are payments
to portals, ISP partners and other traffic providers who direct online users to
our LookSmart database. Other components of cost of revenues are agency
commissions paid to third-party advertising sales organizations, personnel
costs of our in-house advertising operations employees, equipment depreciation
and other expenses relating to hosting advertising operations.
We expect cost of revenues to increase over time in absolute dollars. Cost
of revenues as a percentage of revenues can exhibit significant fluctuations
from period to period depending on the volume of traffic purchases and the
contracted rates. Further, cost of revenues as a percentage of revenues can
vary significantly depending on the structure of the payment arrangements
between us and our partners. When a traffic arrangement is structured so that
we simply receive a payment from our partner, who collects the gross
advertising revenues, we record as revenues only the portion of the gross
advertising revenues forwarded to us and little or no cost of revenues is
directly associated with that revenue stream. On the other hand, when a traffic
arrangement is structured so that we collect the gross advertising revenues and
forward a portion to our partner, we record as revenue the entire amount of the
gross advertising revenue, and the portion forwarded to the partner is recorded
as cost of revenue associated with that revenue stream.
Sales and Marketing. Sales and marketing expenses include salaries,
commissions and associated costs of employment, overhead and facilities for our
sales force, including those personnel responsible for advertising sales, ISP
agreements and other business-to-business relationships. These costs are fixed
in the short term. In the second and third quarters of 1998, we experienced a
substantial increase in sales and marketing expenses as we began to transition
from reliance on third-party advertising sales forces, which are accounted for
in cost of revenues, to reliance on our in-house advertising sales force, which
is accounted for in sales and marketing expenses.
Sales and marketing expenses also include the costs of advertising, trade
shows and public relations activities. Due to the one-time nature of these
expenditures, sales and marketing expenses will be subject to significant
fluctuations from period to period. We plan to conduct a consumer branding
campaign shortly following this offering that will result in a significant
increase in overall sales and marketing costs, both in absolute dollars and as
a percentage of revenues. Thereafter, we expect to continue to incur sales and
marketing expenses at a greatly increased level as we attempt to establish a
dominant brand. Sales and marketing costs have been expensed as incurred.
Product Development. Product development expenses include the editorial
development costs of building our content database, the costs associated with
the development and licensing of additional website features and engineering
costs associated with activities such as improving the
25
<PAGE>
development environment, including our proprietary Editorial Support System
(ESS) tool. These costs include salaries and associated costs of employment,
overhead and facilities. Software licensing and computer equipment depreciation
related to supporting product development functions are also included in
product development expenses. These costs are fixed in the short term. Research
and development costs have been expensed as incurred.
We expect product development costs to continue to increase as we increase
the size and reach of our database, add more website features and expand our
international operations. We also expect that the launch and maintenance of
additional services, including LookSmart Live!, which may be significantly more
resource intensive than many other aspects of our business, may result in
increased product development costs.
General and Administrative. General and administrative expenses include
corporate overhead costs such as executive management, human resources,
finance, legal, investor relations and facilities personnel. These costs
include salaries and associated costs of employment, overhead and facilities.
General and administrative expenses include consulting and professional service
fees which are subject to variability over time. We expect to incur additional
general and administrative expenses in the future as required to support an
increasing number of employees and expanding international operations, and as a
result of becoming a public company.
Unearned Compensation. We have recorded aggregate unearned compensation
expenses of approximately $6.4 million. These amounts were booked in connection
with the grant of stock options to employees and directors and represent the
difference between the deemed fair value for accounting purposes of the common
stock subject to the options at the dates of grant and the exercise price of
the related options. The unearned compensation expense is amortized over the
vesting period of the applicable option, typically four years. Amortization of
unearned compensation expense was $133,000 for the year ended December 31,
1998, and $635,000 for the three months ended March 31, 1999. We expect to
amortize additional unearned compensation expenses of $2.7 million in the
remainder of 1999, $1.8 million in 2000, $887,000 in 2001, $319,000 in 2002 and
$13,000 in 2003.
Amortization of Goodwill and Intangibles. We recorded goodwill of
approximately $2.1 million, which primarily represented intellectual property
acquired in connection with the acquisition of the predecessor company in 1996,
as described above. This amount is being amortized over a five-year period on a
straight-line basis. In connection with the acquisition of BeSeen.com which was
completed in the fourth quarter of 1998, we recorded goodwill and intangible
assets of approximately $3.4 million. This amount is being amortized over
periods from one to five years. We began amortizing this amount in the fourth
quarter of 1998, and we expect to amortize approximately $1.1 million of the
remainder in 1999, $1,103,000 in 2000, $854,000 in 2001, $430,000 in 2002 and
$1,104,000 in 2003. Part of our growth strategy is to make additional
acquisitions as we identify attractive opportunities. As a result, we expect
additional amortization of goodwill and intangibles to occur in future periods.
Income Taxes
Although we have not yet shown profitability on a consolidated basis, tax
charges will be incurred in connection with our operations in foreign
jurisdictions. We expect that foreign taxes will become more significant with
continued overseas expansion.
26
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, line items from
LookSmart's consolidated statements of operations as percentages of revenues:
<TABLE>
<CAPTION>
Year Three
Ended Months
December Ended
31, March 31,
----------- -------------
1997 1998 1998 1999
---- ---- ----- -----
(Unaudited)
<S> <C> <C> <C> <C>
Revenues.................... 100 % 100 % 100 % 100 %
Cost of revenues............ 74 78 78 43
---- ---- ----- -----
Gross margin............ 26 22 22 57
Operating expenses:
Sales and marketing....... 357 63 92 58
Product development....... 274 50 66 59
General and
administrative........... 123 31 45 25
Amortization of goodwill.. 43 6 11 6
Amortization of unearned
compensation costs....... -- 2 -- 10
Write-off of in-process
R&D...................... -- 4 -- --
---- ---- ----- -----
Total operating
expenses............... 797 156 216 158
---- ---- ----- -----
Loss from operations........ (771) (134) (194) (101)
Other income (expense),
net........................ (2) (10) (8) --
---- ---- ----- -----
Loss before income taxes.... (773) (144) (202) (101)
Income taxes................ (18) (2) (6) (1)
---- ---- ----- -----
Net loss.................... (791)% (146)% (208)% (102)%
==== ==== ===== =====
</TABLE>
Percentage comparisons relating to 1996 are not meaningful because
operations in 1996 were focused primarily on building the database and not
generating revenues.
Three Months Ended March 31, 1999 compared to the Three Months Ended March 31,
1998
Revenues. Our revenues increased 718% to $6.6 million in the three months
ended March 31, 1999 compared to $804,000 in the same period of 1998. The
largest portion of the increase was due to new revenues of $4.2 million from
licensing in the first quarter of 1999, principally under the Microsoft
contract. In the 1999 period, advertising revenues increased by $1.4 million as
a result of increased traffic and better inventory management.
Cost of Revenues. Cost of revenues increased 353% to $2.8 million for the
three months ended March 31, 1999 from $626,000 for the same period in 1998. A
substantial portion of the increase in cost of revenues for the first quarter
of 1999 was attributable to payments to Netscape for the purchase of traffic
under an agreement originally entered into in May 1998. We expect to continue
to make significant payments to Netscape in the future under this contract,
which was recently renewed. We also increased the number of ISP partners
between the first quarter of 1998 and the first quarter of 1999, resulting in
higher traffic levels and associated costs. We have also invested in computer
hardware and software and have hired additional advertising operations
personnel to manage the traffic and the advertising serving process. The
resulting depreciation on the capital expenditures as well as the salaries and
benefits costs of additional headcount in advertising operations have
contributed to the overall increase in cost of revenues when comparing the
three months ended March 31, 1999 to the same period for 1998.
27
<PAGE>
As a percentage of revenues, cost of revenues decreased to 43% for the three
months ended March 31, 1999 compared to 78% for the same period in 1998. This
decrease can be primarily attributed to economies of scale associated with
higher traffic volume and higher yields on saleable traffic and the impact of
high margin licensing revenues. To a lesser extent, this decrease was
influenced by the shift from reliance on a third party advertising sales force,
which is accounted for in cost of revenues, to an in-house salesforce, which is
accounted for as a sales and marketing expense. As a result of this shift, the
overall increase in cost of revenues was partially offset by a decrease in fees
paid to the third party advertising agency.
Sales and Marketing. Sales and marketing expenses increased 421% to $3.9
million for the three months ended March 31, 1999 from $748,000 for the same
period in 1998. As a percentage of revenues, sales and marketing expenses
decreased to 58% for the three month period ended March 31, 1999 from 92% for
the same period in 1998. The dollar increase in sales and marketing expenses is
attributable to our addition of an advertising sales staff in the second half
of 1998, as discussed above and our industry brand marketing campaign focused
on syndication partners and the advertising trade.
Product Development. Product development expenses increased 635% to $3.9
million for the three months ended March 31, 1999 from $ 528,000 for the same
period in 1998. As a percentage of revenues, product development expenses
increased to 59% for the three month period ended March 31, 1999 from 66% for
the same period in 1998. The dollar increase in product development costs is
primarily due to a significant increase in editorial, engineering and product
design personnel necessary to support our efforts to expand our database.
General and Administrative. General and administrative expenses increased
346% to $1.6 million for the three months ended March 31, 1999 from $362,000
for the same period in 1998. As a percentage of revenue, general and
administrative expenses decreased to 31% for the three month period ended March
31, 1999 from 45% for the same period in 1998. The dollar increase in general
and administrative expenses is primarily due to additional personnel and
professional services costs incurred to support the growth of the company,
while the decrease as a percentage of revenue was a function of the increased
revenue base.
Amortization of Goodwill and Intangibles. We are amortizing goodwill and
intangibles as a result of the purchase of intellectual property at our
inception in 1996 and the BeSeen.com acquisition completed in the fourth
quarter of 1998, as described above. Amortization of these assets increased
282% to $394,000 for the three months ended March 31, 1999 from $103,000 for
the same period in 1998. The dollar increase was due primarily to the fact that
1999 included the impact of the BeSeen.com acquisition.
Amortization of Unearned Compensation. Amortization of deferred compensation
costs were $635,000 for the three months ended March 31, 1999. There were no
such costs for the same period in 1997. We began recording unearned
compensation costs in the second half of 1998.
Other Income (Expense), Net. Interest income (expense), net includes
interest expense on our debt and capital lease obligations, net of interest
income from our cash and cash equivalents. We recorded net interest income of
$20,000 for the three months ended March 31, 1999 compared to net interest
expense of $30,000 for the same period in 1998. The change from net interest
expense to net interest income between the two periods is primarily the result
of larger cash balances on hand during the three months ended March 31, 1999.
Other income (expense), net includes foreign exchange gains and losses
arising from the change in the value of foreign currencies, primarily the
Australian dollar, relative to the United States dollar. We recorded other
expenses, net, of $1,000 for the three months ended March 31, 1999 compared to
other expenses, net, of $34,000 for the same period in 1998.
28
<PAGE>
Income Taxes. We recorded income tax expense of $52,000 for the three months
ended March 31, 1999, primarily associated with our Australian operations,
compared to $45,000 for the same period in 1998.
Year Ended December 31, 1998 compared with Year Ended December 31, 1997
Revenues. Our revenues increased 825% to $8.8 million in the year ended
December 31, 1998 from $949,000 in the same period of 1997. The largest portion
of the increase was due to new revenues from licensing in the last half of
1998. Before the third quarter of 1998, database content licensing was not a
significant element in our business model. Also contributing significantly to
the increase was improved advertising revenues as compared to the 1997 period
as a result of increased traffic and better advertising inventory management.
Cost of Revenues. Cost of revenues increased 874% to $6.8 million for the
year ended December 31, 1998 from $700,000 for the same period in 1997. As a
percentage of revenues, cost of revenues increased slightly to 78% for the year
ended December 31, 1998 compared to 74% for the same period in 1997. Traffic
payments under the Netscape contract and under a similar contract with
Alta Vista accounted for the year-to-year increase.
Sales and Marketing. Sales and marketing expenses increased 65% to $5.6
million for the year ended December 31, 1998 from $3.4 million for the same
period in 1997. As a percentage of revenues, sales and marketing decreased to
63% for the year ended December 31, 1998 from 357% for the same period in 1997.
The dollar increase in sales and marketing expenses is attributable to our
addition of an advertising sales staff in the second half of 1998 and our
industry brand marketing campaign focused on syndication partners and the
advertising trade.
Product Development. Product development expenses increased 83% to $4.8
million for the year ended December 31, 1998 from $2.6 million for the same
period in 1997. As a percentage of revenues, product development expenses
decreased to 54% for the year ended December 31, 1998 from 274% for the same
period in 1997. The dollar increase in product development costs is primarily
due to a significant increase in editorial and engineering personnel to
accelerate the addition of URLs to our database and due to an increase in
product design personnel to add features to our website. The decrease as a
percentage of revenues is primarily due to the increased revenue base.
General and Administrative. General and administrative expense increased
135% to $2.7 million for the year ended December 31, 1998 from $1.2 million for
the same period in 1997. As a percentage of revenues, general and
administrative expenses decreased to 31% for the year ended December 31, 1998
from 123% for the same period in 1997. The dollar increase in general and
administrative expenses is primarily due to additional personnel and
professional services costs incurred to support our growth.
Amortization of Goodwill and Intangibles. Amortization increased 47% to
$605,000 for the year ended December 31, 1998 from $410,000 for the same period
in 1997. The dollar increase in amortization of goodwill and intangibles is the
result of the amortization expenses associated with the October 1998
acquisition of BeSeen.com.
Amortization of Unearned Compensation Costs. Amortization of unearned
compensation costs was $133,000 for the year ended December 31, 1998. There
were no such costs for 1997. We began recording unearned compensation costs in
the second half of 1998.
Write-off of In-process Research and Development. In connection with the
BeSeen.com acquisition in October 1998, we recorded a $338,000 one-time charge
representing the fair value of acquired in-process research and development.
29
<PAGE>
Other Income (Expense), Net. We recorded net interest expense of $675,000
for the year ended December 31, 1998 compared to net interest expense of
$16,000 for the same period in 1997. The increase in net interest expense
between the two periods is primarily the result of interest expense related to
the issuance of warrants with debt, and interest accruals on larger debt
balances outstanding in 1998 compared to 1997.
We recorded other expenses, net, of $139,000 for the year ended December 31,
1998 compared to other expenses, net, of $3,000 for the same period in 1997.
Income Taxes. We recorded income tax expense of $146,000 for the year ended
December 31, 1998, primarily associated with our Australian operations,
compared to $166,000 for the same period in 1997.
Year Ended December 31, 1997 compared with the Period July 19, 1996 (inception)
through December 31, 1996
Revenues. Our revenues increased to $949,000 in the year ended December 31,
1997 from $3,000 for the period July 19, 1996 (inception) through December 31,
1996. This increase is the result of the launch of our website in late 1996 and
the commencement of advertising revenues in 1997.
Cost of Revenues. Cost of revenues increased to $700,000 for the year ended
December 31, 1997 from $90,000 for the period from July 19, 1996 (inception)
through December 31, 1996. Traffic fees and sales commissions to third parties
contributed to the increase in cost of revenues when comparing the year ended
December 31, 1997 to the period from July 19, 1996 (inception) through December
31, 1996. This increase reflects of the commencement of advertising revenues in
1997.
Sales and Marketing. Sales and marketing expenses increased to $3.4 million
for the year ended December 31, 1997 from $1.1 million for the period from July
19, 1996 (inception) through December 31, 1996. The dollar increase in sales
and marketing expenses is attributable to a full year of operations in 1997
compared to approximately five months of operations in 1996, as well as
increased business development expenses in 1997.
Product Development. Product development expense increased to $2.6 million
for the year ended December 31, 1997 from $915,000 for the period from July 19,
1996 (inception) through December 31, 1996. The dollar increase in product
development expenses is attributable to a full year of operations in 1997
compared to approximately five months in 1996, as well as an increase in
editorial and engineering personnel for the purpose of developing the LookSmart
database.
General and Administrative. General and administrative expenses increased to
$1.2 million for the year ended December 31, 1997 from $504,000 for the period
from July 19, 1996 (inception) through December 31, 1996. The dollar increase
in general and administrative expenses is primarily due to a full year of
operations in 1997 and additional personnel and professional services costs
incurred to support the growth of the Company.
Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles increased to $410,000 for the year ended December 31, 1997 from
$205,000 for the period from July 19, 1996 (inception) through December 31,
1996. The dollar increase in amortization of goodwill and intangibles is the
result of a full year of amortization in 1997 versus approximately five months
of amortization in 1996.
Other Income (Expense), Net. We recorded net interest expense of $16,000 for
the year ended December 31, 1997 compared to net interest income of $9,000 for
the period from July 19,
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1996 (inception) through December 31, 1996. We recorded other expenses, net of
$3,000 for the year ended December 31, 1997 compared to other expenses, net of
$19,000 for the period from July 19, 1996 (inception) through December 31,
1996.
Income Taxes. We recorded income tax expense of $166,000 for the year ended
December 31, 1997, primarily associated with our Australian operations,
compared to $64,000 for the period from July 19, 1996 (inception) through
December 31, 1996.
Quarterly Results of Operations
The following table sets forth unaudited quarterly statements of operations
results for each of the seven quarters ended March 31, 1999. We believe that
this information reflects all adjustments consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of such
information in accordance with generally accepted accounting principles. The
results for any quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended
--------------------------------------------------------------------
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1997 1997 1998 1998 1998 1998 1999
--------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 102 $ 555 $ 804 $ 1,040 $ 1,723 $ 5,218 $ 6,580
Cost of revenues........ 132 309 626 1,354 2,093 2,746 2,840
------- ------- ------- ------- ------- ------- -------
Gross margin......... (30) 246 178 (314) (370) 2,472 3,740
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 1,027 695 748 851 1,451 2,565 3,900
Product development.... 874 478 528 615 1,186 2,098 3,884
General and
administrative........ 324 220 362 524 671 1,189 1,616
Amortization of
goodwill.............. 103 103 103 103 103 296 394
Amortization of
unearned compensation
costs................. -- -- -- -- 18 115 635
Write-off of in-
process research and
development........... -- -- -- -- -- 338 --
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 2,328 1,496 1,741 2,093 3,429 6,601 10,429
------- ------- ------- ------- ------- ------- -------
Loss from operations.... (2,358) (1,250) (1,563) (2,407) (3,799) (4,129) (6,689)
Other income (expense),
net.................... 5 (29) (64) (503) (2) (245) 19
------- ------- ------- ------- ------- ------- -------
Loss before income
taxes.................. (2,353) (1,279) (1,627) (2,910) (3,801) (4,374) (6,670)
Income taxes............ (41) (30) (45) (31) (18) (52) (52)
------- ------- ------- ------- ------- ------- -------
Net loss............. $(2,394) $(1,309) $(1,672) $(2,941) $(3,819) $(4,426) $(6,722)
======= ======= ======= ======= ======= ======= =======
</TABLE>
Revenues increased from $1.7 million for the quarter ended September 30,
1998 to $5.2 million for the quarter ended December 31, 1998 and to $6.6
million for the quarter ended March 31, 1999. The increase is attributable to a
significant database content licensing agreement that we entered into in the
third quarter of 1998. In addition, revenues increased each quarter for the six
quarters ended December 31, 1998, as a result of steady increases in
advertising and syndication revenue. Advertising revenues were higher in the
fourth quarter of 1998, reflecting the seasonality of our advertising sales,
which are typically higher during the holiday season.
Cost of revenues increased in each of the seven quarters ended March 31,
1999. The quarterly increases were the result of higher traffic volume
generated by the Netscape contract and a similar contract with Alta Vista. Also
contributing to the increasing quarterly cost of revenues were agency
commissions paid to third party advertising sales organizations and
depreciation. We expect cost of revenues to increase in the future with the
introduction of new services.
Sales and marketing expenses increased significantly for each of the last
three quarters as we increased our trade marketing efforts, built our
salesforce and continued to expand our business development team. Product
development expenses increased significantly for each of the last three
quarters due to significant increases in editorial and engineering personnel
for the purpose of developing our databases. General and administrative
expenses have continued to increase over the past four quarters due primarily
to an increase in personnel and the development of a corporate infrastructure
to support our growth.
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Amortization of the goodwill and intangibles increased to $297,000 for the
three months ended December 31, 1998 from $103,000 for the three months ended
September 30, 1998 due to the amortization of goodwill relating to the
acquisition of BeSeen.com in October 1998. Amortization of goodwill and
intangibles increased to $394,000 for the three months ended March 31, 1999 as
a result of recording three full months of amortization of goodwill related to
the November 1998 acquisition.
Amortization of unearned compensation costs increased in each of the last
three quarters ended March 31, 1998, primarily as a result of an increase in
the number of options outstanding.
Our quarterly operating results may fluctuate significantly in the future as
a result of a variety of factors. These factors include:
. the timing of specification of and delivery against URL targets in our
agreement with Microsoft that may lead to significant variations in
revenues earned;
. the level of user traffic on our website and the demand for our Internet
navigation services;
. the level of demand for Internet advertising and changes in the
advertising rates we charge;
. the addition or loss of relationships with advertisers;
. the level and timing of our licensing and syndication activities;
. the mix of types of advertising we sell (targeted advertising generally
has higher rates):
. seasonality of our advertising revenues, as Internet usage is typically
lower in the first and third quarters of the year;
. the amount and timing of other costs relating to the expansion of our
operations;
. the introduction of new products or services by us or our competitors;
. technical difficulties and systems downtime or failures; and
. costs related to acquisitions and integration of technologies or
businesses.
We may from time to time make pricing, service or marketing decisions that
may adversely affect our profitability in a given quarterly or annual period.
Our expense levels are based in part on expectations of future revenue and, to
a large extent, are fixed. We may be unable to adjust spending quickly enough
to compensate for any unexpected revenue shortfall. In addition, we generate a
significant portion of our revenues from advertising once our contracts with
advertisers are generally for a period of one to three months.
Liquidity and Capital Resources
Since inception, we have funded our cash requirements primarily through the
issuance of common and convertible preferred stock and through revenues from
licensing and advertising sales.
As of March 31, 1999, we had working capital of $51.4 million. Current
assets included $58.4 million in cash and cash equivalents and current
liabilities included $17.3 million in deferred licensing revenues. Deferred
revenues primarily reflects payments in excess of the revenues we have
recognized under our agreement with Microsoft. We have an equipment financing
line of $2.0 million of which $1.5 million was available on March 31, 1999.
Our operations used cash of $6.4 million for 1997, $1.9 million for 1998 and
$3.8 million for the quarter ended March 31, 1999. Net cash used in operations
in 1997 was principally the result of the net loss. Net cash used in operations
for 1998 and the first quarter of 1999 resulted primarily from the net losses
for the period and increases in accounts receivable, partially offset by
increases in accrued liabilities and deferred revenues related to our agreement
with Microsoft.
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Our investing activities used cash of $336,000, $2.5 million and $1.8
million for the years ended December 31, 1997 and 1998, and for the quarter
ended March 31, 1999. Investing activity in each period reflects purchases of
fixed assets and, in 1998, also includes the acquisition of BeSeen.com. We plan
to consolidate our five San Francisco offices into one facility later in 1999,
and will incur substantial leasehold improvement and other fixed asset outlays
related to the occupancy of the new facility.
We have entered into a lease on that facility under which we will be
required to make aggregate rent payments of approximately $44.0 million over
the ten year term of the lease. We have the right to sublease.
Our financing activities provided cash of $6.5 million, $7.9 million and
$60.5 million for the years ended December 31, 1997 and 1998, and for the
quarter ended March 31, 1999. In 1997, we received a $5.0 million cash
contribution from our stockholder. In 1998, we received cash proceeds of $5.5
million from the issuance of Series B convertible preferred stock. In the first
quarter of 1999, we received cash proceeds of $61 million from the issuance of
Series C convertible preferred stock.
Our capital requirements depend on numerous factors, including market
acceptance of LookSmart services, the amount of resources we invest in
directory content, site development, sales and marketing and brand promotions.
We have experienced a substantial increase in expenditures since inception
consistent with growth in operations and staffing. We anticipate that this will
continue for the foreseeable future. Additionally, we plan to expand our sales
and marketing programs and conduct more aggressive brand promotions and will
continue to evaluate possible investments in complementary businesses and
technologies.
We believe that the net proceeds from this offering and our current cash
balance will provide adequate liquidity to meet cash requirements for at least
two years following this offering. We may need to seek additional financing if
investment plans for our business change. We cannot assure you that such
financing will be available on reasonable terms when and if required. If we
raise additional funds through the issuance of equity or convertible debt
securities, our existing stockholders will experience dilution of their
holdings.
Recently Issued Accounting Pronouncements
In 1998, the Financial Accounting Standard Board issued Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, and No. 133, Accounting for Derivative Instruments and
Hedging Activities, which are effective for the year ending December 31, 1999.
We do not believe that the adoption of these pronouncements will have a
material effect on our consolidated financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1), which provides guidance for
determining whether computer software is internal-use software and for
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold. SOP 98-1, which is
effective for the year ended December 31, 1999, also provides guidance on
capitalization of the costs incurred for computer software developed or
obtained for internal use. We do not expect the adoption of SOP 98-1 to have a
material effect on our consolidated financial statements.
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position No. 98-5 (SOP 98-5), Reporting on the Costs of
Start-Up Activities, which provides guidance on the financial reporting of
start-up costs. SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred. SOP 98-5 is effective for financial
statements for fiscal years beginning after December 15, 1998. Because we have
not capitalized such costs, the adoption of SOP 98-5 will not have an impact on
our consolidated financial statements.
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Year 2000 Readiness Disclosure
The Year 2000 problem may adversely affect our business.
The Year 2000 problem is the potential for system and processing failures of
date-related data arising from the use of two digits by computer-controlled
systems, rather than four digits, to define the applicable year. We believe
that our internal software and hardware systems will function properly with
respect to dates in the year 2000 and thereafter, but we cannot assure you that
this will be the case. In addition, Year 2000 problems of our suppliers or
partners could affect our systems or operations.
Year 2000 Assessment and Contingency Planning
In 1999, we initiated a Year 2000 assessment and contingency planning effort
to review both our information technology systems and our non-information
technology systems, and where necessary to plan for and supervise the
remediation of those systems (Y2K Committee). We have retained Interim
Technologies as our outside consultant to assist us in the Y2K Committee's
review of our systems and planning for remediation efforts. We have conducted
tests and expect to conduct additional tests of such systems as part of our
Year 2000 efforts.
Our Year 2000 assessment and contingency planning effort is divided into the
following four phases:
. Discovery (completed June 4, 1999);
. Compliance Review Phase I/Desktop Systems (planned as June 7-June 28,
1999);
. Compliance Review Phase II/Network Servers (planned as July 1-July 31,
1999); and
. Compliance Review Phase III/External Systems (planned as August 1-August
31, 1999).
Interim Technologies will develop contingency plans for critical individual
information technology systems and non-information technology systems to
address Year 2000 risks as a complementary part of our Year 2000 program. We
believe we will have identified all of our critical hardware and software
systems and will have sought confirmations from the providers of these systems
that they are Year 2000 compliant by the completion of Compliance Review Phase
III.
State of Readiness of Third Party Systems
Our main external supplier is our internet service provider, Frontier
GlobalCenter. We are currently consulting with the senior levels of Frontier
GlobalCenter's executives to determine whether Frontier GlobalCenter will be
Year 2000 compliant in the Year 2000. We expect to receive written assurances
from Frontier GlobalCenter as to its readiness for the Year 2000 prior to
August 31, 1999.
We have initiated communication with other significant suppliers and vendors
to determine the extent to which they are vulnerable to Year 2000 issues. We
have not yet received sufficient information on Year 2000 remediation plans of
these vendors in order to predict the outcome of their efforts. We have not
made a full assessment of the extent to which third parties with which we
transact business have determined their vulnerability to Year 2000 issues.
As part of their analysis of the Year 2000 problem, Interim Technologies
will analyze the impact of the "worst case scenario" on our business. The
"worst case scenario" would occur if the vendors' critical systems fail to be
Year 2000 compliant, our current upgrades were unsuccessful and our contingency
plan failed, resulting in a critical systems failure throughout LookSmart.
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<PAGE>
Costs
Although we do not track Year 2000 readiness expenses separately from other
expenses, based on the steps being taken and progress to date, we estimate that
the expenses for ensuring Year 2000 compliance of our computer products and
systems will not be material.
Risks
We believe that the Year 2000 risk will not present significant operational
problems for us. However, there can be no assurance that our Year 2000 planning
program will prevent any harm to our company.
Despite such plans and our assessment of current hardware and software, our
assessment of our Year 2000 compliance may not be fully accurate. In certain
cases, we may have to rely in good faith on the representations and warranties
regarding Year 2000 compliance provided to us by third-party vendors of
hardware and software and the advice and assessment of our consultants, which
we may not be able to independently verify. Such representations and warranties
may not be accurate in all material respects and the advice or assessments of
our consultants may not be reliable. If third parties are not able to make
their systems Year 2000 compliant in a timely manner, it could harm our
business.
Year 2000 issues may impact other entities with which we do business,
including those responsible for maintaining telephone and online communications
such as Frontier GlobalCenter. Accordingly, we cannot predict the effect of the
Year 2000 problem on such entities. If these other entities fail to take
preventative or corrective actions in a timely manner, the Year 2000 issue
could have a negative effect on our business.
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BUSINESS
Overview
LookSmart is a leading category-based Internet directory provider which has
assembled what it believes to be the largest collection of high-quality,
granular content on the Internet. The LookSmart directory contains over 750,000
unique URLs in over 60,000 categories, organized in an easy-to-navigate format.
Our directory is designed to appeal to an audience of novice as well as
sophisticated Internet users. LookSmart is the only major Internet navigation
service provider that chooses not to list pornographic or hate material.
We distribute our proprietary directory to a large number of Internet users
through LookSmart-owned Internet properties and through our strategic
alliances. Our Internet properties, including looksmart.com, target primarily a
focused demographic of female household purchase decision-makers and generate
advertising and ecommerce transaction revenue. We broaden the reach of the
LookSmart directory through syndication and licensing of our content. We
currently provide our directory to leading Internet portals, such as The
Microsoft Network (MSN), Netscape Netcenter, Excite@Home and Alta Vista, and
over 200 Internet Service Providers (ISPs), including IBM.net and NetZero. In
addition, users can access our content and services through a network of over
600,000 website affiliates. In April 1999, more than 43 million individual
Internet users accessed looksmart.com and the websites of our licensing and
syndication partners, according to Media Metrix.
Industry Background
The emergence and wide acceptance of the Internet has fundamentally changed
how millions of people worldwide share information, communicate and conduct
business. International Data Corporation (IDC) estimates that the number of
Internet users worldwide will increase from approximately 142 million in 1998
to approximately 399 million by the end of 2002. IDC expects the total number
of URLs to grow from 351 million in 1997 to 7.7 billion by 2002. This includes
"suffixed" pages, which are separate URLs within individual websites. We
believe this increase is leading to an increasing amount of highly-specific
content on the Internet. Major factors driving this growth in Internet usage
and content include the increasing familiarity with and acceptance of the
Internet by businesses and consumers, the growing number of personal computers
in homes and offices, the ease, speed and lower cost of Internet access and
improvements in network infrastructure. These factors make the Internet
accessible to inexperienced users as well as the technologically sophisticated.
The growth in the number of Internet users has also led to the emergence of the
Internet as a powerful advertising and commerce medium. Jupiter Communications,
LLC estimates that total spending on Internet advertising in the United States
will grow from $1.9 billion in 1998 to $7.7 billion in 2002.
The Navigation Challenge
The massive volume and growth of granular content on the Internet has
created the need for an organizing layer that can successfully match content
producers with end users. This organizational challenge, which we call the
"navigation challenge", has led to the development of several Internet
services--such as directories, search engines and portals--designed to help
users locate information. These services also seek to enable content
producers--including website owners, Internet communities, advertisers and
vendors--to reach their target audiences.
We believe that most Internet organization efforts to date have failed to
fully meet the "navigation challenge". Traditional Internet directories often
lack focused and relevant category structures, have limited content and contain
many "dead", outdated, irrelevant and offensive links.
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Search engines, which use software to locate websites based on user-entered key
words, often generate large sets of results but typically cannot determine
website quality. Search engines also have limited capacity to determine the
relevancy of websites to a query, have poor "ranking algorithms" to order
results, often do not contain recently published websites and fail to respond
to "dynamic", or frequently changing, material. Users of these services also
often receive irrelevant or offensive material, such as pornography. Internet
users are demanding smarter search capabilities and better organized content
that will allow them to find granular, deeply specialized and local content.
The Audience and Advertising Challenge
New Media Family. We believe that current Internet navigation services do
not meet the particular needs of a rapidly emerging user demographic that we
call the New Media Family. This group consists primarily of female household
purchase decision-makers, many of whom are new Internet users. Because most
major Internet search services were designed and "packaged"--in terms of
graphic and interface design, color scheme and editorial "voice"--for the early
technically-oriented adopters of the Internet, these Internet search services
have not created an atmosphere and community that appeals to inexperienced
Internet users.
Advertisers. According to a November 1997 Advertising Age article, women
controlled or influenced 80% of all purchase decisions. Spending on advertising
targeted to women is generally considered to represent the largest single
category of advertising in the United States. Many advertisers, however, cannot
accurately target this audience using the Internet because they lack
sufficiently precise targeting data--such as demographic, psychographic and
behavioral data. In addition, few websites offer advertisers access to
concentrated groups of female users. For example, Media Metrix estimated that
less than 10% of all websites had audiences consisting of over 50% females in
April 1999. Given the lack of focus on women and new users among websites and
traditional navigation services, it is particularly difficult for advertisers
to reach these influential purchase decision-makers.
The Business Challenge
While the Internet has emerged as an effective and powerful commercial
medium for buyers and sellers to consummate transactions, businesses still face
many challenges in utilizing the Internet to its full potential.
Internet Service Providers, Portals and Vertical Websites. As the amount and
specificity of Internet content has grown, the editorial challenge for ISPs,
portals and vertical websites of maintaining high quality directories has grown
proportionately. We believe that as these companies invest more heavily in
adding functionality to their websites, they will have fewer resources to
devote to the categorization and maintenance of relevant and focused directory
services. Therefore, many Internet portals and vertical websites have a need
for outsourced services to provide their search, directory and content
solutions.
Buyers and Sellers. The rapid emergence of ecommerce has created challenges
for both buyers and sellers. Many companies that hope to tap ecommerce
opportunities have little understanding of how to use the Internet to reach
their target customers, and find it difficult to obtain the resources and
expertise necessary to create an effective online presence. Businesses that are
online often find it difficult to generate qualified visitor traffic. Lastly,
would-be buyers find it difficult to locate specific, often local, businesses
through the Internet.
The LookSmart Solution
LookSmart has assembled what it believes to be the largest collection of
high-quality, granular content on the Internet, organized in a categorical,
easy-to-navigate directory format and underlying
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database. In doing so, we believe we are creating a highly scalable asset that
can be distributed to a large number of Internet users through our Internet
properties, including looksmart.com, and through other online licensees and
syndicators, including major Internet portals, ISPs and destination websites.
In the process, we seek to address many of the key challenges faced by users,
content providers, advertisers and vendors.
The Navigation Solution
We provide a directory that includes "all of the useful stuff and none of
the junk" and is organized in order to enable users to choose between an
intuitive category search path or a keyword query.
Comprehensive Content. The LookSmart directory currently contains over
750,000 unique URLs in over 60,000 categories. Through a partnership with Cox
Interactive Media, the LookSmart directory contains what we believe to be the
most comprehensive collection of high-quality local websites in 67 United
States markets. We have also developed specialized directory services for the
United Kingdom, Canada and Australia.
High-Quality Content. We focus on including only authoritative, up-to-date,
categorized content in our directory, while excluding pornographic and other
offensive material. Our team of over 180 editors includes taxonomists, copy
editors, assignment editors, subject specialists, maintenance editors and
generalist editors. Our editors use proprietary software products that help
find, categorize, index, rate, compare and check whether a website is
available.
Easy-to-Navigate Content. The LookSmart directory is organized to provide
relevant navigation results for both category-based and keyword navigation. Our
navigation interface allows a user to follow a search path into sub-categories
and sub-sub-categories visually on the screen-- enabling the user to see not
only which path was chosen, but also those which were not. We believe that this
is a critical element in the trial and error process that most users undertake
to find material. Our keyword search brings users directly to website results.
All of our navigation results include a brief description of each website to
help guide users. The LookSmart directory also facilitates searches of local
content, white pages and email directories, yellow pages, discussion/news
groups and shopping prices.
A typical LookSmart category search result for "home repair" is illustrated
below:
[Graphics of LookSmart category search page and website reporting page.]
The Audience and Advertising Solution
Looksmart.com: Uniquely Packaged Content. Looksmart.com, launched in October
1996, is the flagship site for our LookSmart directory. Looksmart.com seeks to
package the LookSmart directory with other appropriate content and
functionality to provide a simple, compelling experience for the New Media
Family. Looksmart.com's benefits include:
. Intuitive Navigation. Looksmart.com combines the superior navigation
functionality of the underlying directory with the benefits of the
website's easy-to-use user interface.
. Inoffensive Content Environment. Looksmart.com does not list
pornographic or hate material in its directory.
. Differentiated Visual Design. Looksmart.com has been designed using
colors, color photographs and other design elements that differentiate
the offering and, we believe, makes our website more attractive to
users.
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. Content, Commerce and Community Functionality. Looksmart.com provides
access to additional content and functionality on its home page,
including free email, current news, stock and finance information,
weather, maps, horoscopes and chat groups. Each of these services has
been designed to appeal to the New Media Family.
. LookSmart Live!. We intend to introduce a service that will enable users
to directly contact our editors to get assistance with their Internet
search and related activities. This feature has been developed in
response to consistent data from our qualitative research that suggests
that our target audience often "gets stuck" and would greatly value
assistance. We believe that, if introduced, this would be the first
large scale implementation of such a service on the Internet.
Access for Advertisers to the New Media Family. We offer advertisers the
opportunity to reach female household purchase decision-makers in large scale.
Looksmart.com's audience was most recently measured by the NPD (the majority
owner of Media Metrix) Search Engine Tracking Study for Winter 1999 at 61%
female--up from 60% and 57% in respective prior quarters. LookSmart is able to
provide advertisers with highly targeted reach driven by particular subject
categories or keyword search terms. By offering advertisers the ability to
place their advertisements on category and keyword results pages, advertisers
are able to find their target audience more effectively.
The Business Solution
We believe that our ability to categorize and organize highly granular
content allows us to offer a variety of business solutions.
Outsourcing Solution for Content and Internet Service Providers. We leverage
our database by syndicating, licensing and distributing our proprietary content
to leading Internet portals, websites and other media companies such as
Microsoft, Netscape, Alta Vista, Excite@Home, Blue Mountain Arts, Go2Net,
Lycos/HotBot, Macromedia and IDG. Each partner is able to package our content
in unique ways to meet the particular needs of its core audience without
expending resources and expertise to develop and maintain a comprehensive
Internet directory. Through our LookSmart Network, we also provide ISPs with a
full content solution for their users. The LookSmart Network has over 200
member ISPs and a greater than 90% customer retention rate over its two-year
history.
Dedicated Services for New and Existing Online Businesses. LookSmart offers
services that help both new and existing businesses optimize their online
presence. Our website enhancement services provide content and applications for
webmasters to help them meet their users' needs and to encourage them to become
affiliated with LookSmart. Our Internet access services provide small and mid-
size business owners with seminars and services that enable them to sell their
products and services over the Internet. In addition to helping businesses
establish a presence on the Internet, LookSmart offers new arrivals visibility,
the advantages of a place in the LookSmart directory and positioning in our
ChoiceMall shopping site.
Ecommerce Solutions That Match Buyers and Sellers. LookSmart also offers a
variety of websites that allow buyers and sellers to find each other. In June
1999, LookSmart launched rewardmall.com, an affinity Internet shopping mall
site that is accessible through both looksmart.com and our partners' Internet
properties. We also operate an Internet shopping site entitled Buy it On the
Web which promotes and sells over 30 As Seen on TV products ranging from music
videos to beauty and health products, pursuant to an exclusive license
agreement with Guthy-Renker Corporation.
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The LookSmart Strategy
Our strategy is to establish LookSmart as the leading category-based
Internet directory service for global and local information on the Internet and
to derive multiple revenue streams by leveraging our directory asset. The key
elements of our growth strategy include the following:
Expand Collection of High-Quality, Granular Content. We intend to expand
both the number of high-quality URLs included in our directory as well as the
number of categories into which we classify the URLs. Our mission to be the
largest provider of granular information on the Internet requires us to
continually improve the content in our existing categories by including new
websites, communities and commerce environments, deleting outdated links and
updating editorial annotations. In order to extend our directory, we plan to
increase the number of Internet editors that we have both domestically and
internationally, and to support those editors with advanced productivity tools.
Build the LookSmart Brand and Audience. To enhance business and consumer
awareness of our brand, we plan to pursue an extensive brand development
initiative through mass market and targeted advertising. We believe that
building a strong brand name will help build a loyal base of users. In
addition, we believe that a strong brand will help to attract additional
advertisers and ecommerce partners and will better enable us to syndicate and
license our directory to additional business partners. Our consumer branding
investments will focus specifically on reaching our target New Media Family
audience through radio, television, print and online advertising media.
Utilize LookSmart Content to Drive Multiple Revenue Streams. Our goal is to
leverage our unique assets--the LookSmart directory and the people and
processes that create it--and monetize them in several ways. We are targeting
the convergence of three large market opportunities: online advertising,
syndication and licensing, Internet outsourcing and ecommerce. We will continue
to seek to monetize these assets through these revenue opportunities, as well
as create additional revenue streams, including from international sources,
premium usage fees and enterprise services.
Pursue Strategic Acquisitions and Alliances. We plan to pursue acquisitions
and alliances to strengthen our technology, broaden our audience reach, capture
new distribution channels or open new revenue streams. In addition, we plan to
focus on further expanding our syndication, licensing, Internet enabling and
ecommerce services.
Expand into Select International Markets. As one of only a few companies
that have created a significant presence in the United States Internet market
with beginnings outside the United States, we believe we are well positioned to
enter major international markets in a locally-relevant, culturally-sensitive
manner. We plan to build our editorial operations and our business operations
in Europe, Asia and Latin America.
The LookSmart Database
LookSmart content has been structured to include "all of the useful stuff
and none of the junk". The database is organized in order to enable users to
follow intuitive category and sub-category "paths" to find their desired
content or to retrieve it by typing in a keyword.
LookSmart creates this directory database using a combination of proprietary
software and a highly structured Internet editorial team. Our editorial teams
are located in San Francisco, Melbourne, Montreal and Amsterdam. Our
proprietary software includes systems that find, categorize, index and check
whether the website is available and provide editors with a sophisticated desk-
top tool set to efficiently review, categorize, describe, rate and compare the
websites. The systems we have developed enable our editors to perform five core
processes:
Find the Content. Our editors use a range of automated search technologies,
other websites, website submissions from website owners/builders, off-line data
sources and other methodologies to find the content our users may require.
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Select the Content. In finding useful content, our editors also encounter a
lot of "junk"--material that is unlikely to be useful to our users. For
example, a user searching through traditional Internet directories for material
on surgery for breast cancer is likely to come across material that is either:
(a) commercial material; (b) material related to cosmetic surgery; (c)
pornographic material; or (d) material from sources with limited medical
authority. Our editors select and place content for each of over 60,000
categories according to parameters that our taxonomy team maintains. The
editors will also often order the websites to enable the user to find the most
generally useful or authoritative source first and view the more specialized or
marginal sources later.
Organize the Content. Our team of full-time taxonomists, primarily library
science and information science specialists, create and frequently modify our
category taxonomy to ensure that it is logical, current and intuitive.
Describe the Content. The end product that users are seeking from a
navigation service is a list of website links. Our copy editors provide
succinct (15 words or fewer) descriptions of every website listed to assist
users in determining which websites contain content most relevant to their
search.
Maintain the Content. Our editors regularly review user requests and content
availability to add new categories and new websites for existing categories. We
also use a combination of software and editorial intervention to minimize
inactive links in the database. Websites in each category are reviewed
according to a schedule that is appropriate to the subject matter. For example,
we update our collection of material related to the current news much more
frequently than we update our material on historical subjects.
Looksmart.com and Related Properties
Looksmart.com packages the LookSmart directory with other appropriate
content and functionality to provide a simple, compelling experience for the
New Media Family. Some of the principal aspects of the service are as follows:
Intuitive Navigation. Looksmart.com combines the navigation functionality of
the underlying database with the benefits of the website's easy-to-use user
interface. The LookSmart directory content is available through an intuitive
interface that enables a user to follow a category path into sub-categories and
sub-sub-categories visually on the screen--enabling the user to see not only
which path was chosen, but also those which were not--a critical element in the
trial and error process most users undertake to find the material they require.
In addition to the 60,000 categories listed on its home page, LookSmart offers
keyword search functionality, which searches the LookSmart database first and
then the Alta Vista database if additional results are required.
Inoffensive Content Environment. Looksmart.com does not list pornographic or
hate material in its directory. We believe that the New Media Family desires an
Internet navigation environment that does not provide links to offensive
material in response to benign queries. We believe that no other major Internet
navigation company has made a commitment not to list this material and, while
we cannot provide an absolute guarantee against access to such material through
looksmart.com, we believe that it is unlikely that a user of looksmart.com will
inadvertantly come across offensive material.
Content, Commerce and Community Functionality. Looksmart.com also provides
access to additional content and functionality on its home page including: free
email, current news, stock and finance information, weather, maps, horoscopes,
and chat groups. By providing access to these services, LookSmart seeks to meet
the community and communications needs of its users.
Localized Content. Through a partnership with Cox Interactive Media, the
LookSmart directory contains the most comprehensive collection of high-quality
local websites in 67 United States
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markets. Looksmart.com offers up-to-the-minute news, weather and traffic
reports, information on movies and family activities and thousands of links to
local businesses, services and community activities.
Syndication
Syndication and Licensing of the Directory Database. We currently generate
revenue from our proprietary content by licensing to portals, websites and
other media companies and by making it available to ISPs through our LookSmart
network. We have syndication relationships with Microsoft, NetZero,
Excite@Home, Alta Vista, Blue Mountain Arts and IBM.net.
Many of these businesses are focused on extending their user reach and
increasing the length and frequency of user visits and are continually adding
services to make their offering more compelling. These companies typically may
not have the resources, expertise or desire to internally develop and maintain
a comprehensive Internet directory and instead choose to outsource this
navigation service from LookSmart.
We offer these businesses a wide and flexible range of business terms and
technology solutions. For example, in some cases LookSmart serves the pages
and/or sells the advertising; in other cases, the partner does one or both. In
some cases, LookSmart pays or receives a share of the advertising revenues; in
other cases, the partner pays LookSmart a pre-determined license or
subscription fee for ongoing access to the database updates.
Syndication of Full Navigation Functionality to ISPs. We provide ISPs with
our navigation and directory content solution, enabling them to offer a
complete Internet service to their users. Outsourced solutions like ours allow
small and medium-sized ISPs to compete with larger, more powerful companies
like America Online. In most cases, LookSmart provides a complete solution to
the ISP where we design a unique page, host the service, sell the advertising
and share a percentage of advertising revenue with the ISP. While we have
agreements with some of the major ISPs, such as IBM.net and NetZero, we have
also concentrated on reaching the mid-sized regional ISP market which accounts
for approximately 75% of all non-AOL ISP traffic. The LookSmart network has
over 200 member ISPs and a greater than 90% customer retention rate over its
two-year history.
Business Services
LookSmart has built a portfolio of business services that help businesses
understand the Internet and its implications for their business, including:
. seminars to educate business owners and vendors as to how to best
establish an online presence and tap potential ecommerce opportunities;
. internet design and website building;
. integration of ecommerce enabling tools into websites (e.g. shopping
carts, online ordering);
. website hosting and technical support; and
. placement in LookSmart's Choice Mall and Rewardmall services.
Our choicemall.com service provides an online shopping environment for our
merchant customers. Our vendors' websites are also listed in the appropriate
sections of the LookSmart database for distribution through looksmart.com and
our related websites. Together, these services create the opportunity for
smaller vendors to understand and tap the potential of the Internet as a
marketing and commerce vehicle for their products and services.
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Content and Applications. We seek to provide a wide range of content
services and software applications for webmasters to help them better serve
their users' needs in a cost-effective manner. These services include:
. navigation/content offerings such as SmartLinks (links into the part of
the category structure of LookSmart that is relevant to their website's
focus);
. a "Search My Site" utility, enabling users to conduct key word searches
of the webmaster's website and then the Internet;
. community offerings such as guest books, chat rooms and private club
environments;
. vendor offerings such as Rewardmall and transaction-enabling services
through our Choice Mall offering; and
. other utilities such as hit counters and one-for-one banner exchanges.
All of these services adopt a self-marketing approach whereby any user
(including other website owners) who clicks on a product can download products
to enhance his or her own website. These services require a simple "cut and
paste" operation to become operative on a website. This approach has enabled
the network of affiliate websites to grow very rapidly at very low cost to
LookSmart. We currently have over 600,000 affiliated websites.
Rewardmall. In June 1999, we will launch an Internet shopping mall called
rewardmall.com, which will feature over 25 brand name merchants, as well as
smaller specialty merchants. The Rewardmall will be accessible via a direct
link from the looksmart.com home page as well as via several links throughout
our website. In addition, the Rewardmall will be syndicated to our ISP partners
and through our co-branded websites. Internet shoppers will be able to find
products and services by using the Rewardmall directory or by searching the
Rewardmall by merchant, product or product category. We will also offer
shoppers customized "Rewardmall Deals" which appear throughout the Rewardmall.
We will receive a percentage of the sales purchased through the Rewardmall,
including products sold through Rewardmall Deals.
We will also offer shoppers "RewardPoints" for purchases made through the
Rewardmall. We will allocate a certain portion of the proceeds we receive from
the purchases made through the Rewardmall to offer merchandise to online
shoppers that can be purchased with RewardPoints. Online shoppers will be able
to redeem these RewardPoints for various products, services and miles in
certain frequent flier programs.
Buy It On The Web. We maintain an Internet shopping website entitled Buy It
On The Web that promotes and sells over thirty As Seen on TV products ranging
from music videos to beauty and health products. As Seen on TV products are
products that have been or are currently promoted through infomercials and
other television advertising, and are often endorsed by celebrities. Currently,
all of the products available through Buy It On The Web are products marketed
and distributed by Guthy-Renker Corporation. We are the primary Internet
distributor for all of Guthy-Renker's products, including Anthony Robbins'
programs and Victoria Principal cosmetics. We receive a percentage of all sales
revenues from such products sold through the Internet.
International
LookSmart has established international operations to meet worldwide demand
for improved navigation and content on the Internet. Central to our
international efforts is our ability to localize our database for individual
markets in order to create a more culturally-relevant offering. We currently
have editorial teams located in San Francisco for our United States based
service, Melbourne for our Australian, British and New Zealand services,
Montreal for our Canadian services and Amsterdam for non-English European
services. Looksmart.com.au was rated the number one navigation service in
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the Australian market in May 1999 by Top 100 and looksmart.co.uk was a top 50
website in the United Kingdom in a June 1999 Fletcher Research study.
Strategic Relationships
LookSmart has actively pursued strategic relationships, and sees these
relationships as key drivers of growth in traffic and revenue. We have
relationships with companies for content, distribution, advertising sales,
technology and marketing.
Cox Interactive Media. We have a strategic alliance with Cox Interactive
Media, Inc. relating to local websites, local navigation services and local
content. LookSmart's US Internet directory is prominently placed on all 23 of
Cox's local city sites (e.g. www.accessatlanta.com) and Cox, using its own
editorial staff, provides the local content for 67 city markets for LookSmart's
United States directory database, using a licensed copy of our proprietary
Editorial Support System.
Microsoft. We entered into a five year licensing agreement with Microsoft
Corporation in December 1998 under which Microsoft licensed our directory
database for use on the msn.com website and other properties. See "Risk
Factors--Our quarterly revenues and operating results may fluctuate due to the
timing of delivery of URLs under our Microsoft contract and other factors,
which may negatively affect our stock price", "--We derive a significant amount
of our revenues from Microsoft and if our relationship with Microsoft suffers,
our business could be harmed" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Guthy-Renker Corporation. In April 1999, we acquired the website presence
building businesses of Guthy-Renker Internet to begin our services for the
small business market. We also acquired the online sales rights to Guthy-
Renker's As Seen on TV products. We receive media support from Guthy-Renker in
the form of advertising in Guthy-Renker infomercials.
PBS. In May 1999, we entered into a letter of commitment with PBS
Sponsorship Group under which we agreed to sponsor five programs on PBS. The
programs are Mystery!, Chefs of Cucina Amore, Great Food, MasterChefUSA and
Sesame Street. Additionally, we have the right to transmit such programs online
during the term of our agreement. The agreement will have a five-year term,
however either party will have the right to terminate the agreement after three
years. During the term, none of our directory competitors will have the right
to sponsor any of the listed programs.
Excite@Home. In June 1999, we entered a three-year licensing agreement with
Excite@Home Corporation under which Excite@Home licensed our directory
databases for use on the excite.com website and other properties. LookSmart
agrees to update the database periodically.
Competition
We compete in markets that are new, intensely competitive, highly fragmented
and rapidly changing. We compete on the basis of several factors, including the
quality of content and the ease of use of online services. In the licensing
market, there are additional factors such as performance, scalability, price,
and relevance of results. The number of companies and websites competing for
users and Internet advertisers' and ecommerce marketers' spending has increased
significantly. With no substantial barriers to entry in these markets, we
expect such competition to continue to increase. Competition may also increase
as a result of industry consolidation.
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We face direct competition from companies that provide several types of
Internet services, as illustrated in the following table.
<TABLE>
<CAPTION>
Category Focus Example Competitors
- ---------------------------------------------------------------------------------
<C> <C> <S>
Internet content Internet navigation, content AOL, Yahoo!, Snap!,
retrieval aggregation, content Infoseek, Lycos, and
licensing Netscape Open Directory
Internet advertising Demographically targeted and Internet destinations
content-targeted advertising with similar
demographics like
iVillage and women.com;
Internet navigation
firms with similar
content targeting
capabilities like AOL,
Yahoo!, InfoSeek and
Lycos
Internet outsourcing Outsourcers of Internet Inktomi, InfoSpace.com,
navigation, Internet portal Snap.com, Lycos,
or website enhancement PlanetDirect.com, and
content XOOM.com
Online commerce enabling Small vendors Internet and TicketMaster-CitySearch,
companies transaction enabling AOL's Digital Cities,
Sidewalk, Go2Net, iMall
and Hypermart
</TABLE>
See "Risk Factors--If we are unable to compete effectively in the Internet
navigation market, our business and profitability will suffer".
Infrastructure
Technology
One of our principal assets is our internally-developed software for
creating and distributing the LookSmart directory. In addition, we use a
variety of hardware and communications technologies to distribute and maintain
our business.
Editorial Support System. We have developed a proprietary software
application, the ESS, used by our editors to discover, edit, and catalog
websites into the LookSmart database. This system undergoes frequent revision
and upgrade, and over 200 editors can use the application simultaneously. In
addition to the ESS, we have developed several proprietary algorithms which
enable us to extract data from the database, publish this data in various
editions of the directory and perform routine maintenance on the database, such
as deadlink checking.
The ESS also provides various statistical and reporting functions, such as
editorial productivity levels and work quality, and identifies trends in user
preferences. We have recently enhanced the system to include multi-language
capabilities.
Taxonomy and Search. We publish our data in a proprietary and unique set of
categories in a specific taxonomy. This taxonomy has over 60,000 categories. We
have developed proprietary search technology to search this database and return
relevant answers to users.
Server Architecture. We believe we have developed a proprietary, dynamic and
scalable server software architecture that allows us to support our ISP
partners by serving custom versions of the ISP's home page or any other page on
the ISP's website as part of our distribution of our directory content. In
January 1999, we signed a license agreement with Engage Technologies to license
their Accipiter advertising server technology. We converted our advertising
serving functionality from an internal proprietary application to the Accipiter
technology effective in March of this year.
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Frontier GlobalCenter. In February 1999, we signed an agreement with
Frontier GlobalCenter to provide co-location, Internet connectivity, and
maintenance of our hardware equipment at Frontier's Santa Clara, California
facility. Frontier GlobalCenter provides a comprehensive facilities management
services including human and technical monitoring of all production servers 24
hours per day, seven days per week.
Sales
Our advertising sales were handled through Softbank Interactive Marketing
from the inception of operations through October 1997 and by DoubleClick from
October 1997 through mid-1998. In an effort to maintain stronger relationships
and loyalties with our advertisers, and to reduce advertising sales costs as a
percentage of revenues in mid-1998 we created our own sales organization
including a national sales team of twenty personnel located in San Francisco,
New York, Detroit and Austin. We plan to expand the size of the team and the
location of the offices commensurate with traffic expansion.
Advertising
The following is a list of some of the advertisers that have recently
advertised on our looksmart.com website: Amazon.com, Apple, Baby Center, Bell
Atlantic, Budget Rent-A-Car, Capital One, Chrysler, Compaq, Discover, eBay,
Farmers Insurance, JC Penney, Jenny Craig, Microsoft, Mitsubishi, NationsBank
and Office Depot.
Marketing
We believe that marketing and brand promotion activities will be important
in our efforts to build traffic and attract additional advertisers and
ecommerce partners. We have initiated a multi-tiered marketing and advertising
strategy. The trade segment of our marketing strategy targets:
. the ISP community, focusing on turn-key branded opportunities;
. advertising agency media planners and the vendor advertising community,
focusing on LookSmart's ability to deliver the New Media Family; and
. Internet industry marketing executives, to reach and sell our roster of
top 100 websites that have adopted our search directory.
We plan to launch a broad, national consumer advertising campaign in early
fall of 1999. The campaign will involve some or all of television, online,
print, radio, cable, and outdoor marketing media. All of our advertising and
messaging is based on focus group and quantitative research. Our marketing
strategy also employs selective trade show and public relations promotional
efforts.
Legal Proceedings
On October 5, 1998, Hollinger Digital, Inc., filed a complaint against us in
New York Supreme Court (Case No. 604797/98). The complaint alleges that we
breached an agreement to sell 2,039,865 shares of our Series C preferred stock
to Hollinger for $3.50 per share. The complaint also asserts claims for
promissory and equitable estoppel. On the same day it filed its complaint,
Hollinger sought preliminary injunctive relief to prevent us from taking any
action that would interfere with Hollinger's alleged right to purchase the
Series C preferred stock. The Court denied Hollinger's motion for preliminary
injunction. On December 1, 1998, we filed a motion to dismiss Hollinger's
complaint. On March 17, 1999, the Court issued an order granting our motion and
dismissed Hollinger's complaint with prejudice. On May 4, 1999, Hollinger filed
a Notice of Appeal. We believe that Hollinger's complaint is without merit and
will continue to vigorously defend the lawsuit.
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Except for the Hollinger litigation, we are not a party to any material
legal proceedings.
Employees
We had 184 employees at the end of 1998, and 430 as of May 31, 1999. We have
never had a work stoppage, and none of our employees is represented by a labor
union. We consider our relations with our employees to be good.
Facilities
Our headquarters are located in 9,884 square feet of leased office space in
San Francisco, California. The lease term for our headquarters extends to May
31, 2003. We also lease space at four other locations in San Francisco,
including 20,000 square feet of office space that has a lease term extending to
October 31, 1999 and 17,000 square feet of space that has a lease term
extending to November 29, 2000. We have recently leased an additional 134,847
square feet of office space, which will be available in October 1999 and will
allow us to consolidate our operations and continue to expand our business. The
lease term for this additional space provides us with an option to renew the
lease for two additional five-year periods after the initial lease term of ten
years expires. We also lease 3,750 square feet of office space in New York that
has a lease term extending to August 31, 2000. We also lease facilities
overseas. In particular, we have a three-year lease on a 4,800 square foot
property in Melbourne, Australia. The Melbourne lease extends until August
2001. Also, we have a smaller 2,650 square foot property in Sydney, Australia,
which has a term lease extending until May 2002. We also plan to enter into
leases for other smaller facilities that provide for additional storage space.
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MANAGEMENT
Directors and Executive Officers
Our current directors and executive officers are:
<TABLE>
<CAPTION>
Name Age Position with LookSmart
--------------------------- --- ---------------------------------------------
<C> <C> <S>
Chairman, Chief Executive Officer, Co-Founder
Evan Thornley.............. 34 and Director
Tracey Ellery.............. 36 President, Co-Founder and Director
Patricia Cole.............. 49 Chief Financial Officer
David Neylon............... 52 Senior Vice President, Engineering
Brian Cowley............... 40 Senior Vice President, Global Sales
Martin Hosking............. 38 Senior Vice President, Distribution
Val Landi.................. 54 Senior Vice President, Marketing
Chris Tucher............... 38 Senior Vice President, Business Development
Timothy Pethick............ 37 Vice President, International and CEO,
LookSmart International Pty Ltd.
Ned Brody.................. 35 Vice President, eCommerce
Martha Clark............... 45 Vice President, Human Resources
Anthony D. Castagna(2)..... 52 Director
Paul Riley(1).............. 34 Director
Robert J. Ryan(2).......... 51 Director
Scott Whiteside(1)......... 48 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Evan Thornley co-founded LookSmart and has served as its Chairman and Chief
Executive Officer and a director since July 1996. From July 1996 to June 1999,
Mr. Thornley also served as President. From 1991 to 1996, Mr. Thornley was a
consultant at McKinsey & Company, a global consulting company, in their New
York, Kuala Lumpur and Melbourne offices. Mr. Thornley holds a Bachelor of
Commerce and a Bachelor of Laws from the University of Melbourne, Australia.
Mr. Thornley is married to Ms. Ellery.
Tracey Ellery co-founded LookSmart and has served as President since June
1999. Ms. Ellery has served as one of our directors since September 1997, and
as our Senior Vice President of Product from July 1996. From 1991 to 1994, Ms.
Ellery was Chief Executive Officer of Student Services Australia, an Australian
college publishing/retail company. Ms. Ellery studied Drama and Legal Studies
at Deakin University, Australia. Ms. Ellery is married to Mr. Thornley.
Patricia Cole has served as our Chief Financial Officer since February 1999.
From September 1995 to February 1999, Ms. Cole served as Chief Financial
Officer of Fair, Isaac and Company, a credit scoring company. From 1992 to
September 1995, Ms. Cole served as Vice President, Controller at Qwest
Communications International Inc., a telecommunications company. Ms. Cole is a
C.P.A., Chartered Accountant in England, and holds a B.A. in economics from the
University of Manchester, England, an M.B.A. from Cranfield Business School,
England, and a Masters of Business Taxation from the University of Southern
California.
David Neylon has served as our Chief Operating Officer since November 1998
and Senior Vice President of Engineering from June 1999. From March 1995 to
February 1998, Mr. Neylon was Senior Vice President at World Play
Entertainment, a network games and entertainment company. From 1987 to February
1995, Mr. Neylon held a variety of positions in AT&T Corp., including Vice
President of ImagiNation Network, a subsidiary of AT&T, from 1993 to 1995.
Mr. Neylon holds a B.A. in Economics from Drew University and an M.B.A. in
finance and marketing from Rutgers University.
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Brian Cowley has served as our Senior Vice President of Global Sales since
December 1998. From August 1997 to December 1998, Mr. Cowley served as our
Senior Vice President of Global Sales and Distribution and as our Vice
President of Advertising Sales from October 1996 to August 1997. From February
1996 to October 1996, Mr. Cowley served as Business Development Manager at
Netscape Communications Corporation, over seeing advertising sales on the
Netscape Netcenter website. From April 1995 to March 1996, Mr. Cowley served as
Vice President of Sales and Product Marketing in the Data Products Division of
Strategic Mapping, Inc., a marketing data company. Mr. Cowley holds a B.S. in
marketing from Bryant College.
Martin Hosking joined the Company in January 1996 and has held a variety of
senior management positions, most recently as Senior Vice President,
Distribution since July 1998. From 1994 to 1996, Mr. Hosking was a consultant
at McKinsey & Company, a management consulting company. Mr. Hosking holds a
B.A. in history and economics and an M.B.A. from the University of Melbourne,
Australia.
Val Landi has served as our Senior Vice President of Marketing & Media
Services since August 1998. From October 1997 to July 1998, Mr. Landi served as
Vice President, Sales and Marketing of Carnelian, Inc., an Internet software
company, and from April to September 1997 as Executive Vice President of Power
Agent, an Internet media company. From March 1995 to March 1997, Mr. Landi
served as Publisher and General Manager of International Data
Group/Computerworld Internet Media, an information technology company,
Corporate Vice President of International Data Group from 1994 to 1995, and as
Executive Vice President of International Data Group's International Marketing
Services from 1991 to 1995. Mr. Landi holds an M.A. from Harvard University.
Chris Tucher has served as our Vice President of Business Development and
Syndication since August 1998 and Senior Vice President of Business Development
from June 1999. From August 1995 to August 1998, Mr. Tucher served as Director
of Sales and Marketing and Media and Financial Markets at Netscape
Communications Corporation, an Internet software company. From 1991 to 1995,
Mr. Tucher was a vice president and member of the executive board of the Contra
Costa Newspapers, Inc., a news publishing company. Mr. Tucher holds a B.A. in
english and economics from Occidental College, and an M.B.A. from the Harvard
Business School.
Timothy Pethick has served as our Vice President of International and as
Chief Executive Officer and Director of LookSmart International Pty Ltd., our
Australian subsidiary, since March 1999. From August 1996 to March 1999, Mr.
Pethick was employed in several positions by Encyclopedia Britannica, Inc., a
publishing company, most recently as General Manager of Sales and Marketing.
From 1995 to 1996, Mr. Pethick was Managing Director of On Australia Pty.
Limited, an Internet/online publishing company, and from 1994 to 1995, he was
General Manager of Roadshow New Media, a CD-rom publishing company. Mr. Pethick
holds a Bachelor of Commerce from the University of New South Wales, a Masters
of Economics from Macquarie University, and an M.B.A. from Deakin University,
Australia. Mr. Pethick is a Chartered Accountant in Australia.
Ned Brody has served as our Vice President of eCommerce since November 1998.
From 1993 to November 1998, Mr. Brody was a Partner at Mercer Management
Consulting, a management consulting company. Mr. Brody holds a B.S. in
economics and an M.B.A. from Wharton School, University of Pennsylvania.
Martha Clark has served as our Vice President of Human Resources since May
1999. From January 1997 to October 1998, Ms. Clark was Senior Vice President
and Human Resources Division Manager of Sumitomo Bank of California, a
commercial bank. From August 1995 to January 1997, Ms. Clark was Director and
Co-Founder of John Parry & Alexander, a human resources consulting
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company. From 1993 to 1995, Ms. Clark was Director of Human Resources of Fritz
Companies, Inc., a human resources management company. Ms. Clark holds a B.A.
in economics from Wellesley College and an M.B.A. from Stanford University.
Anthony D. Castagna has served as one of our directors since March 1999. Dr.
Castagna presently serves as a non-executive director of GlobalGate LLC, an
Internet-related technology holding company, and as a non-executive director of
Macquarie Technology Funds Management Pty Limited, an Australian venture
capital fund. From 1994 to present, Dr. Castagna has served as an independent
advisor to the Macquarie Technology Investment Banking Division of Macquarie
Bank Limited, an investment banking company, and other technology-based
companies in Australia, Asia and the U.S. Dr. Castagna holds a Bachelors of
Commerce from the University of Newcastle, Australia, and an M.B.A. and Ph.D.
in Finance from the University of New South Wales, Australia.
Paul Riley has served as a one of our directors since March 1998. Since
November 1992, Mr. Riley has served as a Managing Director and Company
Secretary, of Australian Mezzanine Investments Pty Limited, an Australian
venture capital company, and several of its affiliated entities. Mr. Riley also
serves as director of other private and public Australian companies. Mr. Riley
holds a Bachelor of Business in accounting from the University of Western
Sydney, Australia.
Robert J. Ryan has served as one of our directors since May 1998. Since
1996, Mr. Ryan has served as Chairman of Entrepreneur America, LLC, a business
consulting company. From 1989 to 1995, Mr. Ryan served as founder, Chief
Executive Officer and Chairman of Ascend Communications, Inc., a networking
company. Mr. Ryan holds a B.A. in Mathematics from Cornell University and an
M.A. in mathematics from the University of Wisconsin.
Scott Whiteside has served as one of our directors since May 1998. Since
October 1995, Mr. Whiteside has served as Director of Strategy and
Technology/New Media at Cox Enterprises, Inc., a media conglomerate. From 1993
to 1995, Mr. Whiteside served as a Director of Strategic Development at Times
Mirror Company, a publishing company. Mr. Whiteside holds a B.S. in journalism
from the University of Missouri, an M.B.A. from Rockhurst College, and a J.D.
from Oklahoma University.
Board Composition
LookSmart's Board of Directors is comprised of six directors. In accordance
with the terms of LookSmart's Restated Certificate of Incorporation, effective
upon the closing of this offering, the terms of office of the members of the
Board of Directors will be divided into three classes: Class I, whose term will
expire at the annual meeting of stockholders to be held in 2000, Class II,
whose term will expire at the annual meeting of stockholders to be held in
2001, and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2002. The Class I directors are Paul Riley and
Robert J. Ryan, the Class II directors are Anthony Castagna and Scott
Whiteside, and the Class III directors are Evan Thornley and Tracey Ellery. At
each annual meeting of stockholders after the initial classification, the
successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, LookSmart's Amended and Restated Bylaws
provide that the authorized number of directors may be changed only by
resolution of the Board of Directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the total number of directors. This classification of the Board of Directors
may have the effect of delaying or preventing changes in control or management
of LookSmart.
Each officer is elected by, and serves at the discretion of, the Board of
Directors. Each of LookSmart's officers and directors, other than non-employee
directors, devotes full time to the affairs
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<PAGE>
of LookSmart. LookSmart's non-employee directors devote such time to the
affairs of LookSmart as is necessary to discharge their duties.
Board Committees
The Audit Committee reviews LookSmart's audited financial statements and
accounting practices, and considers and recommends the employment of, and
approves the fee arrangements with, independent accountants for both audit
functions and for advisory and other consulting services. The current members
of the Audit Committee are Paul Riley and Scott Whiteside.
The Compensation Committee reviews and approves the compensation and
benefits for our key executive officers, administers our employee benefit plans
and makes recommendations to the Board of Directors regarding grants of stock
options and any other incentive compensation arrangements. The current members
of the Compensation Committee are Anthony Castagna and Robert J. Ryan.
Compensation Committee Interlocks and Insider Participation Interlocks
The compensation committee was established in March 1999. Prior to that
time, the entire board of directors participated in compensation decisions. In
particular, Mr. Thornley and Ms. Ellery, each an officer and employee of
LookSmart, actively participated in the deliberations concerning executive
officer compensation.
Director Compensation
The directors do not receive any compensation for their service as
Directors, other than reimbursement of all reasonable out-of-pocket expenses
for attendance at Board meetings.
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<PAGE>
Executive Compensation
The following summary compensation table sets forth the compensation paid to
LookSmart's named executive officers, who are our Chief Executive Officer and
each of our three other most highly compensated executive officers, during the
fiscal year ended December 31, 1998:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Position(1) Salary Bonus Compensation Options Compensation (2)
- ------------------ -------- ------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Evan Thornley........... $137,136 -- $30,323(3) -- --
Chairman, Chief
Executive Officer and
Director
Brian Cowley............ 190,000(4) -- -- -- $7,969
Senior Vice President,
Global Sales
Barbara Read............ 172,057(5) $17,500 -- -- 5,375
Vice President,
Advertising Sales
Michael Reaves.......... 120,000 -- -- 42,000 3,500
Vice President,
Engineering
</TABLE>
- --------
(1) Mr. Landi joined us in August 1998 as our Senior Vice President of
Marketing and will be compensated at an annual base of salary of $150,000
during the fiscal year ended December 31, 1999. Mr. Neylon joined us in
November 1998 as our Chief Operating Officer and will be compensated at an
annual base salary of $180,000 during the fiscal year ended December 31,
1999. Ms. Cole joined us in February 1999 as our Chief Financial Officer
and will be compensated at an annual base salary of $200,000 during the
fiscal year ended December 31, 1999.
(2) Consists of 401(K) contributions made by LookSmart for the benefit of the
Executive Officer.
(3) Consists of rental housing allowance.
(4) Includes $37,500 earned as commissions.
(5) Includes $19,866 earned as commissions.
The following table sets forth information with respect to stock options
granted to each of the named executive officers during the fiscal year ended
December 31, 1998:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------
Potential Realizable
Value at Assumed
% of Total Annual Rates of Stock
Options Price Appreciation or
Number of Granted to Exercise Option Term(3)
Options Employees Price Per Expiration ---------------------
Name(1) Granted(2) in Fiscal Year Share Date 5% ($) 10% ($)
- ------- ---------- -------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Evan Thornley........... -- -- -- --
Brian Cowley............ -- -- -- --
Barbara Read............ -- -- -- --
Michael Reaves.......... 42,000 0.01% $0.125 8/19/2008 $17,103 $35,601
</TABLE>
- --------
(1) In September 1998, we granted to Mr. Landi an option to purchase 400,000
shares of common stock at an exercise price of $0.1750 per share, which
expires on September 2, 2008. In November 1998, we granted to Mr. Neylon an
option to purchase 700,000 shares of common
52
<PAGE>
stock at an exercise price of $0.25 per share, which expires on November 6,
2008. In February 1999, we granted to Ms. Cole an option to purchase
600,000 shares of common stock at an exercise price of $1.875 per share,
which expires on February 25, 2009.
(2) All options were granted under LookSmart's 1998 Stock Plan. Options
granted under the Plan vest over a four-year period with 25% vesting at
the first anniversary date of the vest date and the remaining shares
vesting in monthly installments over the next 36 months.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% annual rates of stock price appreciation from the date of grant
to the end of the option term are provided in accordance with SEC rules
and do not represent our estimate or projection of the future common stock
price. Actual gains, if any, on stock option exercises are dependent on
the future performance of the common stock, overall market conditions and
the option holders' continued employment through the vesting period. This
table does not take into account any actual appreciation in the price of
the common stock from the date of grant to the present.
The following table sets forth certain information regarding exercised
stock options during the fiscal year ended December 31, 1998, and unexercised
options held as of December 31, 1998 by each of the named executive officers.
None of the named executive officers exercised options in 1998.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at Fiscal Year-
Options at Fiscal Year-End(1) End(2)
-------------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Evan Thornley..... -- -- -- --
Brian Cowley...... 607,500 472,500 $219,125 $170,431
Barbara Read...... 48,750 131,250 17,584 47,342
Michael Reaves.... 22,500 109,500 8,116 39,497
</TABLE>
- --------
(1) All options were granted under LookSmart's 1998 Stock Plan. Options
granted under the Plan vest over a four-year period with 25% vesting at
the first anniversary date of the grant date and the remaining shares
vesting in monthly installments over the next 36 months. The Board retains
discretion to modify the terms, including the exercise price, of
outstanding options.
(2) Calculated on the basis of the fair market value of the underlying
securities as of December 31, 1998 of $0.375 per share, minus the per
share exercise price, multiplied by the number of shares underlying the
Option.
Employee Benefit Plans
1998 Stock Plan
LookSmart's 1998 Stock Plan (1998 Plan) provides for the granting to
employees of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (Code), and for the granting to
employees, directors and consultants of nonstatutory stock options and stock
purchase rights (SPRs). The 1998 Plan was approved by the Board of Directors
and by the stockholders in December 1997. The Board of Directors approved
amendments to the 1998 Plan to increase the number of shares reserved under
the 1998 Plan in November 1998, February 1999 and March 1999, and the
stockholders also approved these amendments to the 1998 Plan in March 1999.
Unless terminated sooner, the 1998 Plan will terminate automatically in 2008.
A total of 13,900,000 shares of common stock is currently reserved for
issuance pursuant to the 1998 Plan, and the 1998 Plan provides for automatic
annual increases equal to the lesser of: (i) 2.5 million shares; (ii) 4% of
the outstanding shares on such date, or (iii) an amount determined by the
Board of Directors. As of May 31,1999, options to purchase 1,315,151 shares of
common stock had been exercised and options to purchase 7,503,332 shares of
common stock were outstanding under the
53
<PAGE>
1998 Plan with a weighted average exercise price of $0.152, and 1,089,517
shares were available for future grants.
The 1998 Plan may be administered by the Board of Directors or a committee
of the Board of Directors (Administrator). This Administrator shall, in the
case of options intended to qualify as "performance-based compensation" within
the meaning of Section 162(m) of the Code, consist of two or more "outside
directors" within the meaning of Section 162(m) of the Code. The Administrator
has the power to determine the terms of the options or SPRs granted, including
the exercise price, the number of shares subject to each option or SPR, the
exercisability thereof, and the form of consideration payable upon such
exercise. The Board of Directors has the authority to amend, suspend or
terminate the 1998 Plan, provided that no such action may affect any share of
common stock previously issued and sold or any option previously granted under
the 1998 Plan.
Options and SPRs granted under the 1998 Plan are not generally transferable
by the optionee, and each option and SPR is exercisable during the lifetime of
the optionee only by such optionee. Options granted under the 1998 Plan must
generally be exercised within three months of the optionee's separation of
service from LookSmart, or within twelve months after such optionee's
termination by death or disability, but in no event later than the expiration
of the option's ten year term. In the case of SPRs, unless the Administrator
determines otherwise, the Restricted Stock Purchase Agreement shall grant
LookSmart a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's service for LookSmart for any reason (including
death or disability). The purchase price for shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to LookSmart. The repurchase option shall lapse at a rate determined by the
Administrator. The exercise price of all incentive stock options granted under
the 1998 Plan must be at least equal to the fair market value of the common
stock on the date of grant. The exercise price of nonstatutory stock options
and SPRs granted under the 1998 Plan is determined by the Administrator, but
with respect to nonstatutory stock options intended to qualify as "performance-
based compensation" within the meaning of Section 162(m) of the Code, the
exercise price must at least be equal to the fair market value of the common
stock on the date of grant. The term of all other options granted under the
1998 Plan may not exceed ten years.
The 1998 Plan provides that in the event of a merger of LookSmart with or
into another corporation or a sale of substantially all of LookSmart's assets,
each option or right shall be assumed or an equivalent option or right
substituted by the successor corporation. If the outstanding options or rights
are not assumed or substituted as described in the preceding sentence, the
Administrator shall notify the Optionee that he or she will have the right to
exercise the option or SPR as to all of the optioned stock, including shares as
to which he or she would not otherwise be exercisable, for a period of fifteen
(15) days from the date of such notice, and the option or SPR will terminate
upon the expiration of such period.
1999 Employee Stock Purchase Plan
LookSmart's 1999 Employee Stock Purchase Plan (1999 Purchase Plan) was
adopted by the Board of Directors, subject to stockholder approval, in June
1999. A total of 500,000 shares of common stock have been reserved for issuance
under the 1999 Purchase Plan, plus annual increases on January 1 of each year
(beginning in 2000) equal to the lesser of: (i) 1 million shares; (ii) 3% of
the outstanding shares on such date; or (iii) an amount determined by the Board
of Directors. As of the date of this prospectus, no shares have been issued
under the 1999 Purchase Plan.
The 1999 Purchase Plan which is intended to qualify under Section 423 of the
Code contains successive 24 month offering periods. The offering periods
generally start on the first trading day on
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<PAGE>
or after June 1 and December 1 of each year, except for the first such offering
period which commences on the first trading day on or after the effective date
of this Offering and ends on the last trading day on or before December 1,
1999.
Employees are eligible to participate if they are customarily employed by
LookSmart or any participating subsidiary for at least twenty hours per week
and more than five months in any calendar year. However, any employee: (i) who
immediately after grant owns stock possessing 5% or more of the total combined
voting power or value of all classes of the capital stock of LookSmart; or
(ii) whose rights to purchase stock under all employee stock purchase plans of
LookSmart accrues at a rate which exceeds $25,000 worth of stock for each
calendar year, may be not be granted an option to purchase stock under the 1999
Purchase Plan. The 1999 Purchase Plan permits participants to purchase common
stock through payroll deductions of up to 15% of the participant's
"compensation." Compensation is defined as the participant's base straight time
gross earnings and commissions, but exclusive of payments for overtime, profit
sharing payments, shift premium payments, incentive compensation and bonuses.
The maximum number of shares a participant may purchase during a single
offering period is 2500 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the 1999 Purchase Plan is 85% of the lower of the fair market
value of the common stock at the beginning or end of the offering period.
Participants may end their participation at any time during an offering period,
and they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with LookSmart.
Rights granted under the 1999 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1999 Purchase Plan. The 1999 Purchase Plan
provides that, in the event of a merger of LookSmart with or into another
corporation or a sale of substantially all of our assets, offering periods then
in progress may be continued by the successor corporation. If the successor
corporation refuses to continue the offering periods then in progress, such
offering periods will be shortened and a new exercise date will be set. The
1999 Purchase Plan will terminate in 2009. The Board of Directors has the
authority to amend or terminate the 1999 Purchase Plan, except that generally
no such action may adversely affect any outstanding rights to purchase stock
under the 1999 Purchase Plan.
401(k) Plan
LookSmart's 401(k) plan covers its full-time employees located in the United
States. The 401(k) plan is intended to qualify under Section 401(k) of the
Code. Consequently, contributions to the 401(k) plan by employees or by
LookSmart, and the investment earnings thereon, are not taxable to employees
until withdrawn from the 401(k) plan. Further, contributions by LookSmart, if
any, will be deductible by LookSmart when made. Employees may elect to
contribute up to 15% of their current compensation to the 401(k) plan up to the
statutorily prescribed annual limit, which was $10,000 in 1998. The 401(k) plan
permits, but does not require, additional matching contributions to the 401(k)
plan by LookSmart on behalf of all participants in the 401(k) plan. LookSmart
matches a portion of the employee's contribution.
Life Insurance Program
LookSmart provides as a benefit to each employee a term life insurance
policy in the amount of $50,000, and an accidental death and dismemberment
policy in the amount of $50,000. Each employee may designate one or more
beneficiaries, and the coverage is provided during the term of employment. Upon
termination of employment, the employee may convert the policies to individual
policies.
55
<PAGE>
Limitation of Liability and Indemnification
LookSmart's Amended and Restated Certificate of Incorporation limits the
liability of directors to the maximum extent permitted by Delaware law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except liability for: (i) breach of their duty of loyalty to the corporation or
its stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) unlawful payments
of dividends or unlawful stock repurchases or redemptions; or (iv) any
transaction from which the director derived an improper personal benefit. Such
limitation of liability does not apply to liabilities arising under the federal
or state securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
LookSmart's Bylaws provide that LookSmart shall indemnify its directors,
officers, employees and other agents to the fullest extent permitted by law.
LookSmart believes that indemnification under its Bylaws covers at least
negligence and gross negligence on the part of indemnified parties. LookSmart's
Bylaws also permit it to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity, regardless of whether the Bylaws permit such indemnification.
LookSmart has entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in its
Bylaws. These agreements, among other things, indemnify LookSmart's directors
and executive officers for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of LookSmart
arising out of such person's services as a director, officer, employee, agent
or fiduciary of LookSmart, any subsidiary of LookSmart or any other company or
enterprise to which the person provides services at the request of LookSmart.
LookSmart believes that these provisions and agreements are necessary to
attract and retain qualified persons as directors and executive officers.
At present, there is no pending litigation or proceeding involving a
director or officer of LookSmart in which indemnification is required or
permitted, and LookSmart is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
56
<PAGE>
CERTAIN TRANSACTIONS
Since our inception in July 1996, we have never been a party to, and we have
no plans to be a party to, any transaction or series of similar transactions in
which the amount involved exceeds $60,000, and in which any director, executive
officer, or holder of more than 5% of any class of our voting stock, or any
member of the immediate family of any of the foregoing persons had or will have
a direct or indirect material interest, other than as described under
"Management" and the transactions described below.
The share numbers and per share prices for the transactions described below
have been adjusted to give effect to the stock splits effected on December
17,1997 and on March 23, 1999.
In July 1996, we sold 60,000,000 shares of common stock at the purchase
price of $0.00025 per share to The Reader's Digest Association and 12,000,000
shares of common stock at the purchase price of $0.00025 per share to Buy Back
the Farm, Inc., a Delaware company whose principal shareholders were Evan
Thornley, Tracey Ellery, and KMG Trust, of which Martin Hosking is a trustee.
Mr. Thornley, Ms. Ellery and Mr. Hosking are all executive officers of
LookSmart.
In August 1997, we sold 7,760,000 shares of common stock at a purchase price
of $0.00025 per share to The Reader's Digest Association.
In September 1997, we repurchased 67,760,000 shares of our common stock from
The Readers Digest Association in exchange for a warrant to purchase 6,000,000
shares of our common stock at an exercise price of $0.00025 per share.
Preferred Stock Transactions
In May 1998, we sold an aggregate of 4,235,076 shares of Series A preferred
stock to certain investors at a purchase price of $0.5344 per share in
consideration of the cancellation of indebtedness by those investors. These
shares of Series A preferred stock shall automatically convert into 4,235,076
shares of common stock upon the completion of this offering. Also, in May 1998,
we sold an aggregate of 9,551,832 shares of Series B preferred stock to Cox
Interactive Media, Inc. at a purchase price of $0.6287 per share, which shares
shall automatically convert into 9,551,832 shares of common stock upon the
completion of this offering. In October 1998, we sold an aggregate of 4,000,000
shares of Series 1 Junior preferred stock to certain investors in connection
with the acquisition of BeSeen.com, Inc., which shares shall automatically
convert into 4,000,000 shares of common stock upon the completion of this
offering. In March to April 1999, we sold an aggregate of 8,055,686 shares of
Series C preferred stock to certain investors at a purchase price of $7.50 per
share, which shares shall automatically convert into 8,055,686 shares of common
stock upon the completion of this offering.
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<PAGE>
The investors in preferred stock include the following entities, which are
5% stockholders of a class of our voting securities or affiliated with our
directors or both.
<TABLE>
<CAPTION>
Shares of
Shares of Shares of Shares of Series 1
Series A Series B Series C Junior
Preferred Preferred Preferred Preferred
Purchaser(1) Stock Stock Stock Stock
------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cox Interactive Media, Inc.(2)(3)(6).. 9,551,832 1,606,702
Entities Affiliated with Australian
Mezzanine Investments Pty
Limited(2)(4)........................ 2,807,016 266,667
Entities Affiliated with Macquarie
Bank Limited(2)(5)................... 1,734,624 2,004,335
Entrepreneur America, LLC(8).......... 114,165
Drew Duncan(2)........................ 1,506,624
Thomas Duncan and Mary Duncan(2)...... 454,504
Allen Lee(2).......................... 79,929 421,208
Josh Elmore(2)........................ 1,447,564
Conpress Trading Pty Limited(2)....... 850,000
Entities Affiliated with Amerindo
Investment Advisors, Inc.(2)(9)...... 653,333
Entities Affiliated with Sand Hill
Capital LLC(2)(7).................... 1,000,000 168,208
Jokren Pty Limited Instanz Nominees
Pty Limited(2)(10)................... 467,832 133,332
</TABLE>
- --------
(1) See notes to table of beneficial ownership in "Principal Stockholders" for
information relating to the beneficial ownership of such shares.
(2) A holder of more than 5% of a class of LookSmart's voting securities.
(3) Mr. Whiteside, one of our directors, is Director of Strategy and
Technology/New Media at Cox Enterprises Inc, of which Cox Interactive
Media, Inc is a division. Mr. Whiteside disclaims beneficial ownership of
the shares owned by Cox Interactive Media, Inc.
(4) Mr. Riley, one of our directors, is a Director of AMWIN Innovation Fund,
Director and Company Secretary of Australian Mezzanine Investments Pty
Limited, a 50% shareholder in AMWIN Innovation Fund, and the manager of
Australian Mezzanine Investments No. 2 Trust. Mr. Riley disclaims
beneficial ownership of the shares listed. The aggregate shares listed are
owned as follows: Australian Venture Capital Nominee Pty Ltd as Trustee for
AMWIN Innovation Fund 701 holds 2,807,016 shares of Series A preferred
stock, and Perpetual Trustee Company Limited as Trustee of the Australian
Mezzanine Investments No. 2 Trust holds 266,667 shares of Series C
preferred stock. The amount listed above does not include a warrant we
issued in May 1998 to purchase an aggregate of 673,608 shares of Series A
preferred stock to Perpetual Trustee Company Limited, Trustee for
Australian Mezzanine Investments, No. 3 Trust, then a holder of shares in
excess of 5% of our Series A preferred stock, which was subsequently
transferred to another party.
(5) Mr. Castagna, one of our directors, is a Director of Macquarie Technology
Fund Management Pty Limited and an independent advisor of Macquarie
Technology Investment Banking Division of Macquarie Bank Limited.
Mr. Castagna disclaims beneficial ownership of the shares listed. The
aggregate shares listed are owned as follows: Macquarie Bank Limited holds
322,812 shares of Series A preferred stock, holds a warrant to purchase
1,008,308 shares of Series A preferred stock, and holds a warrant to
purchase 293,333 shares of Series C preferred stock. Perpetual Trustee
Company Limited as Trustee for Macquarie Technology Fund 1A holds 201,752
shares of Series A preferred stock and 47,408 shares of Series C preferred
stock. Perpetual Trustee Company Limited as Trustee for Macquarie
Technology Fund 1B holds 201,752 shares of Series A preferred stock and
47,408 shares of Series C preferred stock. Belike Nominees Pty Limited
holds 1,265,044 shares of Series C preferred stock. Perpetual Trustee
Company limited as Trustee for Macquarie Select Opportunities Fund holds
58
<PAGE>
134,000 shares of Series C preferred stock. Macquarie PRISM Pty Limited
holds 217,142 shares of Series C preferred stock.
(6) Cox Interactive Media, Inc. also holds a warrant to purchase an aggregate
of 1,000,000 shares of our common stock at an exercise price of $3.75 per
share and 500,000 shares of common stock.
(7) In February 1999, Sand Hill Capital LLC exercised its warrant to purchase
1,000,000 shares of our Series A preferred stock. Sand Hill Capital
Partners I, LLC holds 168,208 shares of Series C preferred stock.
(8) Mr. Ryan, one of our directors, is the Managing Member of Entrepreneur
America, LLC. Entrepreneur America, LLC owns 114,165 shares of preferred
stock convertible into common stock. Mr. Ryan disclaims beneficial
ownership of the shares held by Entrepreneur America, LLC except as to
those shares issuable to Mr. Ryan upon a pro rata distribution by
Entrepreneur America, LLC.
(9) The aggregate shares listed for Entities affiliated with Amerindo
Investment Advisors, Inc. are owned as follows: Amerlook Investments, LLC
holds 12,500 shares of Series C preferred stock. ATGFII holds 440,783
shares of Series C preferred stock. Litton Master Trust holds 200,000
shares of Series C preferred stock.
(10) Jokren Pty Limited and Instanz Nominees Pty Limited are affiliated
entities. Jokren Pty Limited holds 233,916 shares of Series A preferred
stock and 133,332 shares of Series C preferred stock. Instanz Nominees
Pty Limited holds 233,916 shares of Series A preferred stock.
In May 1998, we entered into a development, licensing and affiliation
agreement with Cox Interactive Media, Inc., a holder of shares in excess of 5%
of our common stock. Revenues from this agreement amounted to $538,396 for the
year ended December 31, 1998 and $6,647 for the three months ended March 31,
1999.
Upon the consummation of this offering, all outstanding shares of Series A
preferred stock, Series B preferred stock, Series C preferred stock and Series
1 Junior preferred stock will automatically convert into shares of common
stock on a one-for-one basis.
We believe that all transactions between LookSmart and its officers,
directors, principal stockholders and other affiliates have been and will be
on terms no less favorable to us than could be obtained from unaffiliated
third parties.
The holders of converted shares of common stock are entitled to demand and
piggy-back registration rights. See "Description of Capital Stock--
Registration Rights".
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of May 31, 1999 (assuming conversion of all outstanding shares of preferred
stock into common stock upon the closing of this offering and as adjusted to
reflect the sale of the shares offered by this prospectus) by:
. each person who is known by us to beneficially own more than 5% of our
common stock;
. each of the Named Executive Officers and by each of LookSmart's
directors; and
. all of our officers and directors as a group.
Percentage of ownership is based on 42,564,245 shares outstanding as of May
31, 1999, assuming conversion of the preferred stock, and shares
outstanding after this offering assuming no exercise of the underwriters' over-
allotment option.
<TABLE>
<CAPTION>
Shares Beneficially Owned
(2)
----------------------------
Percent Percent
Prior to After
Beneficial Owner Number Offering Offering
- ---------------- ---------- -------- --------
<S> <C> <C> <C>
Five Percent Stockholders
Cox Interactive Media, Inc.(3)................. 12,658,534 29.7%
1400 Lake Hearn Drive
Atlanta, GA 30319
The Reader's Digest Association, Inc.(4)....... 6,000,000 14.1
Reader's Digest Road
Pleasantville, NY 10570
Evan Thornley(1)(5)............................ 5,150,000 12.1
Tracey Ellery(1)(5)............................ 5,150,000 12.1
Entities Affiliated with Macquarie Bank
Limited(6).................................... 3,738,959 8.8
Macquarie Bank Limited
Level 16, 20 Bond Street
Sydney, NSW, 2000 Australia
Entities Affiliated with Australian Mezzanine
Investments Pty Limited(7).................... 3,073,683 7.2
Australian Venture Capital Nominee Pty Ltd
Level 2, The Terrace
155 George Street
Sydney, NSW, 2000 Australia
Named Executive Officers and Directors
Scott Whiteside(6)(8).......................... 12,658,534 29.8
Cox Interactive Media, Inc.
1400 Lake Hearn Drive
Atlanta, GA 30319
Evan Thornley(1)(5)............................ 5,150,000 12.1
Tracey Ellery(1)(5)............................ 5,150,000 12.1
Anthony Castagna(9)............................ 3,738,959 8.8
Macquarie Bank Limited
Level 16, 20 Bond Street
Sydney, NSW, 2000 Australia
Paul Riley(10)................................. 3,073,683 7.2
Australian Venture Capital Nominee Pty Ltd.
Level 2, The Terrace
155 George Street
Sydney, NSW, 2000 Australia
Brian Cowley(11)............................... 832,500 2.0
Robert J. Ryan(12)............................. 819,165 2.0
77 Storm King Road
Hamilton, MT 59840
Barbara Read(1)(13)............................ 82,500 *
Michael Reaves(1)(14).......................... 56,625 *
All current directors and executive officers as
a group (15 persons)(5)(15)................... 25,036,200 55.0%
</TABLE>
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<PAGE>
- --------
* Less than 1% of LookSmart's outstanding common stock.
(1) Except as otherwise reported the address on each person listed in the
table is c/o LookSmart, Ltd., 487 Bryant, San Francisco, CA 94107.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The number of shares beneficially
owned by a person includes shares of common stock subject to options held
by that person that are currently exercisable or exercisable within 60
days. Shares issuable pursuant to options are deemed outstanding for
computing the percentage ownership of the person holding such options, but
are not deemed outstanding for the purposes of computing the percentage
ownership of each other person. Unless otherwise indicated below, each
stockholder named in the table has sole voting and investment power with
respect to all shares beneficially owned, subject to applicable community
property laws.
(3) Includes 500,000 shares of common stock, common stock issued upon
automatic conversion of 11,158,534 shares of preferred stock and common
stock issuable upon exercise of a warrant to purchase 1,000,000 shares of
common stock.
(4) The Reader's Digest Association, Inc. holds a warrant to purchase
6,000,000 shares of common stock.
(5) Evan Thornley is also a beneficial owner of the shares of common stock
held by Tracey Ellery; Tracey Ellery is also a beneficial owner of the
shares of common stock held by Evan Thornley. The shares of common stock
beneficially owned by each of Mr. Thornley and Ms. Ellery have been
counted once in the total number of shares beneficially owned by them
prior to the offering.
(6) Includes (a) common stock issued upon automatic conversion of 322,812
shares of preferred stock and common stock issuable upon exercise of
warrants to purchase an aggregate of 1,301,641 shares of preferred stock
owned by Macquarie Bank Limited; (b) 249,160 shares of preferred stock
owned by Perpetual Trustee Company Limited as Trustee for Macquarie
Technology Fund 1A; (c) 249,160 shares of preferred stock owned by
Perpetual Trustee Company Limited as Trustee for Macquarie Technology Fund
1B; (d) 1,265,044 shares of preferred stock owned by Belike Nominees Pty
Limited; (e) 134,000 shares of preferred stock owned by Macquarie Select
Opportunities Fund; and (f) 217,142 shares of Series C preferred stock
owned by Macquarie PRISM Pty Limited.
(7) Includes of common stock issued upon automatic conversion of 2,807,016
shares of preferred stock owned by Australian Venture Capital Nominee Pty
Ltd as Trustee for AMWIN Innovation Fund 701, and 266,667 shares of
preferred stock owned by Perpetual Trustee Company Limited as Trustee of
the Australian Mezzanine Investments No. 2 Trust.
(8) Mr. Whiteside, one of our directors, is Director of Strategy and
Technology/New Media at Cox Enterprises, Inc., of which Cox Interactive
Media, Inc. is a division. Cox Interactive Media owns 500,000 shares of
common stock, 1,158,534 shares of preferred stock convertible into common
stock, and a warrant to purchase 1,000,000 shares of common stock. Mr.
Whiteside disclaims beneficial ownership of the shares held by Cox
Interactive Media, Inc.
(9) Dr. Castagna, one of our directors, is a director of Macquarie Technology
Fund Management Pty Limited, which is a subsidiary of Macquarie Bank
Limited. Entities affiliated with Macquarie Bank Limited are beneficial
owners of 3,373,959 shares. Dr. Castagna disclaims beneficial ownership of
the shares held by Macquarie Bank Limited and its affiliated entities.
(10) Mr. Paul Riley, one of our directors, is a Managing Director of Australian
Mezzanine Investments Pty Limited. Entities affiliated with Australian
Mezzanine Investments Pty Limited own 3,073,683 shares. Mr. Riley
disclaims beneficial ownership of the shares held by Australian Mezzanine
Investments Pty Limited and its affiliated entities.
(11) Includes 135,000 shares subject to stock options that are exercisable
within 60 days.
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<PAGE>
(12) Mr. Ryan, one of our Directors, is the Managing Member of Entrepreneur
America, LLC. Entrepreneur America, LLC owns 114,165 shares of preferred
stock convertible into common stock. Mr. Ryan disclaims beneficial
ownership of the shares held by Entrepreneur America, LLC except as to
those shares issuable to Mr. Ryan upon a pro rata distribution by
Entrepreneur America, LLC.
(13) Includes 15,000 shares subject to stock options that are exercisable
within 60 days.
(14) Includes 22,625 shares subject to stock options that are exercisable
within 60 days.
(15) Mr. Reaves and Ms. Read are no longer executive officers of LookSmart.
62
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our Certificate of Incorporation currently authorizes 70,129,535 shares of
common stock, par value $0.001 per share and 29,870,465 shares of preferred
stock. As of May 31, 1999, 15,720,151 shares of common stock were outstanding
and 26,842,594 shares of preferred stock, which is comprised of 5,235,076
shares of Series A preferred stock, 9,551,832 shares of Series B preferred
stock, 8,055,686 shares of Series C preferred stock and 4,000,000 shares of
Series 1 Junior preferred stock. These shares of preferred stock are
convertible into an aggregate of 26,842,594 shares of common stock. As of May
31, 1999, we had 103 stockholders.
Our Restated Certificate of Incorporation, which will become effective upon
the closing of this offering, authorizes the issuance of up to 100,000,000
shares of common stock, par value $0.001 per share, and 5,000,000 shares of
preferred stock, par value $0.001 per share, the rights and preferences of
which may be established from time to time by our Board of Directors.
Common Stock
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders and there are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued after
the sale of the common stock offered hereby may be entitled, holders of common
stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. Please see "Dividend Policy". In the event of a
liquidation, dissolution or winding up of LookSmart, holders of common stock
would be entitled to share in LookSmart's assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights or other subscription rights and there
are no redemption or sinking fund provisions applicable to the common stock.
All outstanding shares of common stock are, and the shares of common stock
offered by LookSmart in this offering, when issued and paid for, will be, fully
paid and nonassessable. The rights, preferences and privileges of the holders
of common stock are subject to, and may be adversely affected by the rights of
the holders of shares of any series of preferred stock, which LookSmart may
designate in the future.
Preferred Stock
Upon the closing of this offering, the Board of Directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue up to an aggregate of 5,000,000 shares of
preferred stock, $0.001 par value per share, in one or more series, each of
such series to have such rights and preferences, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be determined by the Board of Directors. The rights of
the holders of common stock will be subject to, and may be adversely affected
by, the rights of holders of any preferred stock that may be issued in the
future. Issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of the
outstanding voting stock of LookSmart. LookSmart has no present plans to issue
any shares of preferred stock.
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<PAGE>
Warrants
As of May 31, 1999, giving effect to the conversion of all preferred stock
into common stock, we had outstanding warrants to purchase an aggregate of
10,303,557 shares of common stock, all of which are immediately exercisable. Of
these, warrants to purchase 8,016,616 shares of common stock expire immediately
prior to the closing of this offering. The remaining warrants expire at various
dates through March 2005. Our warrant holders include the following:
The following table sets forth warrants outstanding as of May 31, 1999:
<TABLE>
<CAPTION>
Number of Exercise
Date of grant Type warrants price Expires
------------- ------------------ --------- -------- --------------
<S> <C> <C> <C> <C>
September 1997.......... Common 6,000,000 $0.0003 September 2007
March 1998.............. Series A preferred 673,608 $0.5344 March 2005
May 1998................ Series A preferred 2,016,616 $0.6287 May 2005
May 1998................ Common 1,000,000 $3.7500 May 2003
September 1998.......... Common 320,000 $0.6275 September 2003
March 1999.............. Series C preferred 293,333 $ 7.50 March 2002
</TABLE>
Some of the warrants have a net exercise provision under which the holder
may, in lieu of payment of the exercise price in cash, surrender the warrant
and receive a net amount of shares, based on the fair market value of our stock
at the time of the exercise of the warrant, after deducting the aggregate
exercise price.
Registration Rights
Pursuant to the Second Amended and Restated Investors' Rights Agreement
(Rights Agreement) dated March 24, 1999, the holders of approximately
28,139,090 shares of common stock, and the holders of 2,983,557 shares of
Common Stock issuable upon exercise of warrants (together, Registrable
Securities) or their permitted transferees will have certain rights to require
LookSmart to register those shares under the Securities Act six months after
the sale of the shares offered hereby. Subject to limitations in the Rights
Agreement, LookSmart's obligation to register these shares include the
following:
. at any time after six months following this offering at the request of
the holders of at least 30% of the outstanding shares of the registrable
securities issued or issuable upon conversion of either the Series A
preferred stock or of the Series 1 Junior preferred stock if the
anticipated aggregate offering price, net of underwriting discounts and
commissions, would exceed $3,000,000; provided ,however, that LookSmart
is not required to effect more than one registration on behalf of the
holders of the Series A preferred stock, and one registration on behalf
of the holders of the Series 1 Junior preferred stock; or
. at any time after the earlier of November 7, 1999 and six months
following this offering at the request of the holders of at least 30% of
the outstanding shares of the registrable securities issued or issuable
upon conversion of the Series B preferred stock if the anticipated
aggregate offering price, net of underwriting discounts and commissions,
would exceed $3,000,000; provided, however, that LookSmart is not
required to effect more than two registrations on behalf of the holders
of the Series B preferred stock; or
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<PAGE>
. at any time after six months following this offering at the request of
the holders of at least 30% of the outstanding shares of the registrable
securities issued or issuable upon conversion of the Series C preferred
stock if the anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed $10,000,000; provided, however,
that LookSmart is not required to effect more than one registration on
behalf of the holders of the Series C preferred stock.
The holders of 20% of these Registrable Securities may require LookSmart to
register all or a portion of their Registrable Securities on Form S-3 when
LookSmart is eligible to use such form, provided, among other limitations, that
the proposed aggregate price to the public is at least $1,000,000.
Each of the foregoing registration rights is qualified by certain conditions
and limitations, including the right of the underwriters in any underwritten
offering to limit the number of shares to be included in a registration due to
market or other conditions.
If LookSmart registers any of its common stock for its own account or for
the account of other security holders, the holders of Registrable Securities
will be entitled to pursuant to the Rights Agreement are entitled to include
their shares of common stock in the registration, subject to the ability of the
underwriters for any such offering to limit the number of shares included in
the offering so long as the shares of holders of registrable securities wishing
to register their shares are not reduced below 25% of the total number of
shares in that registration. Pursuant to the Restricted Stock Agreement between
Guthy-Renker Internet, LLC and LookSmart, the holders of 1,700,000 shares of
our common stock will have certain "piggyback" registration rights, which
rights shall be subject to the right of the underwriters to limit the number of
these shares to be included in the registration. LookSmart will bear all fees,
costs and expenses of all registrations, other than underwriting discounts and
commissions. Upon the effectiveness of any registration statement filed to
register LookSmart's common stock, such shares would become freely tradable,
without any restrictions imposed by the Securities Act.
Effect of Certain Provisions of the Certificate of Incorporation and Bylaws and
the Delaware Anti-Takeover Statute
Some provisions of LookSmart's Restated Certificate of Incorporation and
Bylaws may make it more difficult for stockholders to take certain corporate
actions. They may also make it more difficult for a third party to acquire, or
may discourage a third party from attempting to acquire, control of LookSmart.
Such provisions could limit the price that certain investors might be willing
to pay in the future for shares of LookSmart's common stock. Certain of these
provisions allow LookSmart to issue preferred stock without any vote or further
action by the stockholders and eliminate the right of stockholders to call a
special meeting of stockholders or act by written consent without a meeting.
In addition, LookSmart is subject to Section 203 of the Delaware General
Corporation Law which, subject to some exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder 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 for purposes of determining the number of shares
outstanding those shares owned by persons who are directors and also officers
and by 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 (iii) on or subsequent to such
date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
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<PAGE>
LookSmart's Restated Certificate of Incorporation provides that, upon the
closing of this offering, the Board of Directors will be divided into three
classes of directors with each class serving a staggered three-year term. The
classification system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of
LookSmart and may maintain the incumbency of the Board of Directors, as the
classification of the Board of Directors generally increases the difficulty of
replacing a majority of the directors. The Amended and Restated Certificate of
Incorporation and Bylaws do not provide for cumulative voting in the election
of directors. The amendment of any of the provisions described above would
require approval by holders of at least 66 2/3% of the outstanding common
stock.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the market price of our common stock.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming the issuance of shares
of common stock offered hereby and no exercise of options after May 31, 1999.
Of these shares, the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except for any shares purchased by "Affiliates" of LookSmart as that term is
defined in Rule 144 under the Securities Act (whose sales would be subject to
certain limitations and restrictions described below).
The remaining shares of common stock held by existing stockholders
were issued and sold by us in reliance on exemptions from the registration
requirements of the Securities Act. Of these shares, shares will be
subject to "lock-up" agreements described below on the effective date of this
offering. On the effective date of this offering, no shares not subject to
lock-up agreements will be eligible for sale pursuant to Rule 144(k). Upon
expiration of the lock-up agreements 180 days after the effective date of this
offering, shares will become eligible for sale, subject in most cases to
the limitations of Rule 144. In addition, holders of stock options could
exercise such options and sell certain of the shares issued upon exercise as
described below.
<TABLE>
<CAPTION>
Days After Date of Shares Eligible
this Prospectus for Sale Comment
------------------ --------------- -------
<C> <C> <S>
Upon Effectiveness.. Freely tradeable shares salable under
Rule 144(k) that are not subject to the
lock-up
180 days............ Lock-up released; shares saleable under
Rules 144 and 701
</TABLE>
As of May 31, 1999, a total of 7,520,234 shares of common stock were subject
to outstanding options under our 1998 Stock Plan, approximately 561,076 of
which were vested and exercisable. However, all of these shares are subject to
lock-up agreements. All options held by officers and directors of LookSmart are
subject to 180-day lock-up agreements described below. Immediately after the
completion of this offering, we intend to file registration statements on Form
S-8 under the Securities Act to register all of the shares of common stock
issued or reserved for future issuance under the 1998 Stock Plan and 1999
Employee Stock Purchase Plan. On the date 180 days after the effective date of
this offering, a total of approximately shares of common stock subject to
outstanding options will be vested and exercisable. After the effective dates
of the registration statements on Form S-8, shares purchased upon exercise of
options granted pursuant to the 1998 Stock Option Plan and 1999 Employee Stock
Purchase Plan generally would be available for resale in the public market.
Our officers and directors and all of our existing stockholders agreed not
to sell or otherwise dispose of any of their shares for a period of 180 days
after the date of this offering. Goldman, Sachs & Co. may in their sole
discretion release all or any portion of the shares subject to lock-up
agreements.
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<PAGE>
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell in "broker's
transactions" or to market makers, within any three-month period, a number of
shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding (which will
equal approximately shares immediately after this
offering); or
. the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are generally subject to the availability of current
public information about LookSmart.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been an affiliate of
LookSmart 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, is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice filing provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.
Rule 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with the holding period and notice filing requirements of Rule 144 and,
in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice filing provisions of Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of such options (including exercises after the date of this
prospectus). Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this prospectus, may be sold by persons
other than "affiliates" (as defined in Rule 144) subject only to the manner of
sale provisions of Rule 144 and by "affiliates" under Rule 144 without
compliance with its one-year minimum holding period requirements.
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<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
LookSmart by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California.
Certain legal matters will be passed upon for the Underwriters by Shearman &
Sterling, Menlo Park, California. As of the date of this prospectus, WS
Investment Company 99A, an investment partnership composed of certain current
and former members of and persons associated with Wilson Sonsini Goodrich &
Rosati, P.C., and certain members of Wilson Sonsini Goodrich & Rosati, P.C.,
beneficially own an aggregate of 13,332 shares of LookSmart Series C preferred
stock.
EXPERTS
The consolidated financial statements and financial statement schedule of
LookSmart, Ltd. as of December 31, 1997 and 1998 and for the period from July
19, 1996 (date of incorporation) through December 31, 1996 and for the years
ended December 31, 1997 and 1998 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of BeSeen.com, Inc. as of December 31, 1997 and
September 30, 1998 and for the period from January 27, 1997 (date of inception)
through December 31, 1997 and for the nine months ended September 30, 1998
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Guthy-Renker Internet, LLC as of December 31,
1997 and January 3, 1999 and for the year ended December 31, 1997 and the 53
weeks ended January 3, 1999, appearing in this prospectus, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The financial statements of ITW NewCorp, Inc. as of December 31, 1997 and
1998 and March 31, 1999 and for the years ended December 31, 1997 and 1998 and
for the three months ended March 31, 1999 included in this prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of HomeBase Directories Pty Ltd. as of July 24,
1996 and for the period from January 1, 1996 to July 24, 1996 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
69
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
LookSmart has filed with the Securities and Exchange Commission a
registration statement on Form S-1 (including exhibits and schedules) under the
Securities Act, with respect to the shares to be sold in this offering. This
prospectus does not contain all of the information set forth in the
registration statement. For further information with respect to LookSmart and
the common stock offered in this prospectus, reference is made to the
registration statement, including the exhibits thereto, and the financial
statements and notes filed as a part thereof. With respect to each such
document filed with the SEC as an exhibit to the registration statement,
reference is made to the exhibit for a more complete description of the matter
involved.
We will be filing quarterly and annual reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at
the public reference facilities of the SEC in Washington, D.C. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our SEC filings are also available to the public from the SEC's website at
http://www.sec.gov.
70
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS
LOOKSMART, LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-3
Consolidated Balance Sheets at December 31, 1997 and 1998 and at March 31,
1999 (unaudited)......................................................... F-4
Consolidated Statements of Operations for the period July 19, 1996
(inception) through December 31, 1996 and for the years ended December
31, 1997 and 1998 and for the three months ended March 31, 1998 and 1999
(unaudited).............................................................. F-5
Consolidated Statements of Stockholders' Equity for the period July 19,
1996 (inception) through December 31, 1996 and for the years ended
December 31, 1997 and 1998 and for the three months ended March 31, 1999
(unaudited).............................................................. F-6
Consolidated Statements of Cash Flows for the period July 19, 1996
(inception) through December 31, 1996 and for the years ended December
31, 1997 and 1998 and for the three months ended March 31, 1998 and 1999
(unaudited).............................................................. F-7
Notes to Consolidated Financial Statements................................ F-8
LOOKSMART, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma Combined Financial Information........................ F-23
Unaudited Pro Forma Combined Balance Sheet as of March 31, 1999........... F-24
Unaudited Pro Forma Combined Statements of Operations for the year ended
December 31, 1998........................................................ F-25
Unaudited Pro Forma Combined Statements of Operations for the three months
ended March 31, 1999..................................................... F-26
Notes to Unaudited Pro Forma Combined Financial Information............... F-27
</TABLE>
BESEEN.COM, INC.
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Balance Sheets at December 31, 1997 and September 30, 1998................ F-28
Report of Independent Accountants......................................... F-29
Statements of Operations for the periods January 27, 1997 (inception)
through December 31, 1997 and September 30, 1997 and for the nine months
ended September 30, 1998................................................. F-30
Statement of Stockholders' Equity for the period January 27, 1997
(inception) through September 30, 1998................................... F-31
Statements of Cash Flows for the periods January 27, 1997 (inception)
through December 31, 1997 and September 30, 1997 and for the nine months
ended September 30, 1998................................................. F-32
Notes to Financial Statements............................................. F-33
</TABLE>
F-1
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS--(Continued)
GUTHY-RENKER INTERNET, LLC
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................... F-35
Balance Sheets at December 31, 1997 and January 3, 1999.................. F-36
Statements of Operations for the year ended December 31, 1997 and the 53
weeks ended January 3, 1999............................................. F-37
Statements of Members' Deficit for the period January 1, 1997 through
January 3, 1999......................................................... F-38
Statements of Cash Flows for the year ended December 31, 1997 and the 53
weeks ended January 3, 1999............................................. F-39
Notes to Financial Statements............................................ F-40
Balance Sheets at April 4, 1999 (unaudited) and January 3, 1999.......... F-43
Statements of Operations for the quarter ended March 31, 1998 and the 13
weeks ended April 4, 1999 (unaudited)................................... F-44
Statements of Cash Flows for the quarter ended March 31, 1998 and the 13
weeks ended April 4, 1999 (unaudited)................................... F-45
Notes to Financial Statements (unaudited)................................ F-46
ITW NEWCORP, INC.
FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-47
Balance Sheets at December 31, 1997 and 1998 and at March 31, 1999
(unaudited)............................................................. F-48
Statements of Operations for the years ended December 31, 1997 and 1998
and for the three months ended March 31, 1998 and 1999 (unaudited)...... F-49
Statements of Stockholders' Equity for the years ended December 31, 1997
and 1998 and for the three months ended March 31, 1999 (unaudited)...... F-50
Statements of Cash Flows for the years ended December 31, 1997 and 1998
and for the three months ended March 31, 1998 and 1999 (unaudited)...... F-51
Notes to Financial Statements............................................ F-52
</TABLE>
HOMEBASE DIRECTORIES PTY LTD.
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................ F-55
Balance Sheet at July 24, 1996........................................... F-56
Statement of Operations for the period January 1, 1996 through July 24,
1996.................................................................... F-57
Statement of Stockholders' Deficit for the periods ended January 1, 1996
and July 24, 1996....................................................... F-58
Statement of Cash Flows for the periods ended January 1, 1996 and July
24, 1996................................................................ F-59
Notes to Financial Statements............................................ F-60
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
LookSmart, Ltd. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
LookSmart, Ltd. and Subsidiaries (the Company) at December 31, 1997 and 1998,
and the results of their operations and their cash flows for the period from
July 19, 1996 (inception) through December 31, 1996 and for the two years ended
December 31, 1997 and 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 audits. We conducted our audits in accordance with
generally accepted auditing standards which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, 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.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
May 7, 1999
F-3
<PAGE>
LOOKSMART, LTD.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31, Pro forma at
---------------- March 31, March 31,
1997 1998 1999 1999
------- ------- --------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............ $ 48 $ 3,501 $58,429 $ 58,199
Trade accounts receivable, net of
allowance for doubtful accounts of
$0, $127 and $142 in 1997, 1998 and
March 31, 1999...................... 41 2,895 16,546 --
Prepaid expenses..................... 10 791 836 --
Other assets......................... 4 61 238 --
------- ------- ------- --------
Total current assets............... 103 7,248 76,049 75,819
Property and equipment, net.......... 707 1,979 4,038 --
Goodwill and intangible assets, net
of accumulated amortization of
$615, $1,220 and $1,614 in 1997,
1998 and March 31, 1999............. 1,435 4,244 3,849 --
Other assets......................... 30 119 134 --
------- ------- ------- --------
Total assets....................... $ 2,275 $13,590 $84,070 $ 83,840
======= ======= ======= ========
Liabilities and Stockholders' Equity
(Deficit)
<CAPTION>
Current liabilities:
<S> <C> <C> <C> <C>
Trade accounts payable............... $ 439 $ 1,325 $ 1,508 --
Other accrued liabilities............ 572 2,873 4,065 --
Deferred revenue..................... -- 9,234 17,278 --
Income taxes payable................. 217 323 199 --
Capital lease obligation--current
portion............................. -- -- 137 --
Note payable--current................ -- -- 1,500 --
------- ------- ------- --------
Total current liabilities.......... 1,228 13,755 24,687 23,187
Deferred revenue...................... -- 96 6,307 --
Capital lease obligation.............. -- -- 375 --
Note payable to former stockholder ... 1,500 1,500 -- --
------- ------- ------- --------
Total liabilities.................. 2,728 15,351 31,369 29,869
Commitments (Note 5).
Stockholders' equity (deficit):
Series A convertible preferred
stock, $.001 par value; 7,925,300
shares authorized and designated at
December 31, 1998 and March 31,
1999, respectively (none pro
forma); 4,235,076 and 5,235,076
issued and outstanding at December
31, 1998 and March 31, 1999,
respectively (none pro forma);
aggregate liquidation preference of
$2,263 and $2,797 at December 31,
1998 and March 31, 1999 (none pro
forma).............................. -- 4 5 --
Series B convertible preferred
stock, $.001 par value; 9,551,832
shares authorized and designated,
issued and outstanding at December
31, 1998 and March 31, 1999 (none
pro forma); aggregate liquidation
preference $6,005 (none pro
forma).............................. -- 10 10 --
Series C convertible preferred
stock, $.001 par value; 8,393,333
shares authorized and designated at
March 31, 1999 (none pro forma),
8,005,060 shares issued and
outstanding at March 31, 1999 (none
pro forma); aggregate liquidation
preference of $60,038 (none pro
forma).............................. -- -- 8 --
Series 1 Junior convertible
preferred stock, $.001 par value;
4,000,000 shares authorized and
designated, issued and outstanding
at December 31, 1998 and March 31,
1999 (none pro forma); aggregate
liquidation preference of $2,000
(none pro forma).................... -- 4 4 --
Common stock, $.001 par value;
54,000,000 and 70,129,535 shares
authorized at December 31, 1998 and
March 31, 1999, respectively
(100,000,000 pro forma);
12,000,000, 12,972,652, and
12,972,652 issued and outstanding
at December 31, 1997, 1998 and
March 31, 1999, respectively
(47,781,236 pro forma).............. 12 14 14 48
Additional paid-in capital........... 9,903 21,170 85,520 87,639
Warrants............................. 85 1,408 2,851 1,995
Unearned compensation................ -- (1,044) (5,669) (5,669)
Cumulative translation adjustment.... (39) (55) (48) (48)
Accumulated deficit.................. (10,414) (23,272) (29,994) (29,994)
------- ------- ------- --------
Total stockholders' equity
(deficit)......................... (453) (1,761) 52,701 53,971
------- ------- ------- --------
Total liabilities and stockholders'
equity (deficit).................. $ 2,275 $13,590 $84,070 $ 83,840
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
LOOKSMART, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Period from Year Ended Three Months Ended
July 19, 1996 December 31, March 31,
(Inception) through ---------------------- ----------------------
December 31, 1996 1997 1998 1998 1999
------------------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 3 $ 949 $ 8,785 $ 804 $ 6,580
Cost of revenues........ 90 700 6,819 626 2,840
---------- ---------- ---------- ---------- ----------
Gross profit (loss).. (87) 249 1,966 178 3,740
---------- ---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing... 1,115 3,398 5,615 748 3,900
Product development... 915 2,605 4,427 528 3,884
General and
administrative....... 504 1,165 2,746 362 1,616
Amortization of
goodwill............. 205 410 605 103 394
Amortization of
unearned
compensation......... -- -- 133 -- 635
Write off of in-
process research and
development.......... 338
---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 2,739 7,578 13,864 1,741 10,429
---------- ---------- ---------- ---------- ----------
Loss from
operations.......... (2,826) (7,329) (11,898) (1,563) (6,689)
Non-operating income
(expense)
Other income
(expense), net....... (19) (3) (139) (34) (1)
Interest income
(expense), net....... 9 (16) (675) (30) 20
---------- ---------- ---------- ---------- ----------
Total non-operating
income (expense).... (10) (19) (814) (64) 19
---------- ---------- ---------- ---------- ----------
Loss before income
taxes............... (2,836) (7,348) (12,712) (1,627) (6,670)
Income taxes............ 64 166 146 45 52
---------- ---------- ---------- ---------- ----------
Net loss............. $ (2,900) $ (7,514) $ (12,858) $ (1,672) $ (6,722)
---------- ---------- ---------- ---------- ----------
Other comprehensive
income
Change in foreign
currency translation
adjustment during the
period............... 1 (40) (16) 3 7
---------- ---------- ---------- ---------- ----------
Comprehensive loss... $ (2,899) $ (7,554) $ (12,874) $ (1,669) $ (6,715)
========== ========== ========== ========== ==========
Basic and diluted loss
per share.............. $ (0.04) $ (0.12) $ (1.03) $ (0.14) $ (0.52)
========== ========== ========== ========== ==========
Weighted average shares
outstanding............ 77,298,272 61,059,333 12,526,356 12,001,400 12,972,652
========== ========== ========== ========== ==========
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (0.47) $ (0.17)
========== ==========
Weighted average shares
outstanding used in the
pro forma calculation
(unaudited)............ 27,386,715 39,149,991
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
LOOKSMART, LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Cumulative Total
----------------- ------------------- Paid-in Unearned Translation Accumulated Stockholders'
Shares Amount Shares Amount Capital Warrants Compensation Adjustment Deficit Equity
---------- ------ ----------- ------ ---------- -------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July
19, 1996
(inception)..... -- $-- -- $-- $ -- $ -- $ -- $ -- $ -- $ --
Common stock
issued for
acquisition of
HomeBase
Directories..... -- -- 60,000,000 60 1,990 -- -- -- -- 2,050
Stockholder
contribution.... -- -- -- -- 2,940 -- -- -- -- 2,940
Translation
adjustment...... -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- (2,900) (2,900)
---------- --- ----------- --- ------- ------ ------- ---- -------- -------
Balance at
December 31,
1996............ -- -- 60,000,000 60 4,930 -- -- -- (2,900) 2,090
Common stock
issued for
cash............ -- -- 19,760,000 20 135 -- -- -- -- 155
Stockholder
contribution.... -- -- -- -- 4,855 -- -- -- -- 4,855
Common stock
repurchased and
exchanged for
warrants........ -- -- (67,760,000) (68) (17) 85 -- -- -- --
Translation
adjustment...... -- -- -- -- -- -- -- (39) -- (39)
Net loss........ -- -- -- -- -- -- -- -- (7,514) (7,514)
---------- --- ----------- --- ------- ------ ------- ---- -------- -------
Balance at
December 31,
1997............ -- -- 12,000,000 12 9,903 85 -- (39) (10,414) (453)
Common stock
issued upon
exercise of
options......... -- -- 267,652 1 4 -- -- -- -- 5
Common stock
issued for
cash............ -- -- 705,000 1 8 -- -- -- -- 9
Preferred stock
Series A issued
for conversion
of notes, net of
costs of
$424,939........ 4,235,076 4 -- -- 1,858 -- -- -- -- 1,862
Preferred stock
Series B issued
for cash and
conversion of
notes........... 9,551,832 10 -- -- 5,995 -- -- -- -- 6,005
Preferred stock
Series 1 Junior
issued as part
of acquisition
of BeSeen.com... 4,000,000 4 -- -- 2,996 -- -- -- -- 3,000
Issuance of
warrants with
preferred
stock........... -- -- -- -- (770) 770 -- -- -- --
Issuance of
warrants with
debt............ -- -- -- -- -- 379 -- -- -- 379
Issuance of
warrants for
services........ -- -- -- -- -- 31 -- -- -- 31
Issuance of
warrants with
financing
agreement....... -- -- -- -- -- 143 -- -- -- 143
Unearned
compensation.... -- -- -- -- 1,176 -- (1,176) -- -- --
Amortization of
unearned
compensation.... -- -- -- -- -- -- 132 -- -- 132
Translation
adjustment...... -- -- -- -- -- -- -- (16) -- (16)
Net loss........ -- -- -- -- -- -- -- -- (12,858) (12,858)
---------- --- ----------- --- ------- ------ ------- ---- -------- -------
Balance at
December 31,
1998............ 17,786,908 18 12,972,652 14 21,170 1,408 (1,044) (55) (23,272) (1,761)
Preferred stock
Series A issued
for cash
(unaudited)..... 1,000,000 1 -- -- 532 -- -- -- -- 533
Preferred stock
Series C issued
for cash, net of
costs of $28,730
(unaudited)..... 8,005,060 8 -- -- 60,001 -- -- -- -- 60,009
Issuance of
warrants with
preferred
stock........... -- -- -- -- (1,443) 1,443 -- -- -- --
Unearned
compensation
(unaudited)..... -- -- -- -- 5,260 -- (5,260) -- -- --
Amortization of
unearned
compensation
(unaudited) .... -- -- -- -- -- -- 635 -- -- 635
Translation
adjustment
(unaudited)..... -- -- -- -- -- -- -- 7 -- 7
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- (6,722) (6,722)
---------- --- ----------- --- ------- ------ ------- ---- -------- -------
Balance at March
31, 1999
(unaudited)..... 26,791,968 $27 12,972,652 $14 $85,520 $2,851 $(5,669) $(48) $(29,994) $52,701
========== === =========== === ======= ====== ======= ==== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
LOOKSMART, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Period from
July 19,
1996
(inception) Year Ended Three Months
through December 31, Ended March 31,
December 31, ----------------- -----------------
1996 1997 1998 1998 1999
------------ ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss................... $(2,900) $(7,514) $(12,858) $(1,672) $(6,722)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization............. 259 679 956 194 632
Amortization of unearned
compensation............. -- -- 133 -- 635
Write-off of in-process
research
and development ......... -- -- 338 -- --
Warrants and other non-
cash charges............. -- -- 557 -- --
Loss from sale of
equipment................ -- 12 12 -- --
Changes in operating
assets and liabilities:
Decrease (increase) in
assets:
Trade accounts
receivable............. (3) (37) (2,709) (102) (13,651)
Prepaid expenses........ (15) 5 (781) (14) (45)
Other assets............ (5) (8) (170) (9) (198)
Decrease (increase) in
liabilities:
Trade accounts payable.. 185 254 834 199 182
Other accrued
liabilities............ 468 103 2,301 317 1,192
Deferred revenues....... -- -- 9,330 -- 14,255
Income taxes payable.... 64 133 130 49 (117)
------- ------- -------- ------- --------
Net cash used in
operating activities.. (1,947) (6,373) (1,927) (1,038) (3,837)
------- ------- -------- ------- --------
Cash flows from investing
activities:
Acquisition of BeSeen.com,
Inc. ..................... -- -- (907) -- --
Purchases of property and
equipment................. (707) (336) (1,573) (59) (1,783)
------- ------- -------- ------- --------
Net cash used in
investing activities.. (707) (336) (2,480) (59) (1,783)
Cash flows from financing
activities:
Proceeds from note payable
to former stockholder..... -- 1,500 -- -- --
Proceeds from stockholder
contribution.............. 2,940 5,010 -- -- --
Proceeds from notes........ -- -- 4,952 2,078 --
Repayment of notes......... -- -- (2,327) -- --
Proceeds from issuance of
preferred stock........... -- -- 5,500 -- 60,542
Cash paid for issuance
costs..................... -- -- (263) -- --
Proceeds from issuance of
common stock.............. -- -- 14 -- --
------- ------- -------- ------- --------
Net cash provided by
financing activities.. 2,940 6,510 7,876 2,078 60,542
Effect of exchange rate
changes on cash............ -- (39) (16) 3 6
------- ------- -------- ------- --------
Increase in cash and cash
equivalents................ 286 (238) 3,453 984 54,928
Cash and cash equivalents,
beginning of period........ -- 286 48 48 3,501
------- ------- -------- ------- --------
Cash and cash equivalents,
end of period.............. $ 286 $ 48 $ 3,501 $ 1,032 $ 58,429
======= ======= ======== ======= ========
</TABLE>
Supplemental disclosure of cash flow information (Note 10)
The accompanying notes are an integral part of these consolidated financial
statements
F-7
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Nature of Business and Principles of Consolidation
LookSmart, Ltd. and its Australian subsidiary (LookSmart or the Company)
were incorporated on July 19, 1996 under the name NetGet Ltd. to acquire the
business and associated intellectual property of HomeBase Directories Pty Ltd.
This acquisition was accounted for as a purchase. The purchase price of $2.1
million was recorded as goodwill. LookSmart is a global media company offering
consumers and advertisers comprehensive Internet navigation services. LookSmart
is a category-based web directory provider which assembles high quality, highly
specific content on the Internet. The LookSmart directory contains a collection
of unique uniform resource locators (URLs) organized by categories and
presented in an easy-to-navigate format.
LookSmart distributes its proprietary directory to a large number of
Internet users through LookSmart owned web properties, including looksmart.com,
BeSeen.com and others, as well as our strategic alliances, including Internet
portals and Internet service providers. The Company's web properties are
primarily targeted at a focused demographic of female household purchase
decision-makers. In addition, LookSmart has a network of web site affiliates
that may access its content and services.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Looksmart International Pty Ltd., an
Australian company and BeSeen.com, Inc., a Delaware corporation. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Included in the Company's consolidated balance sheet at March 31, 1999 are
net assets of the Company's Australian subsidiary totaling $421,000.
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 the
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.
Unaudited Interim Financial Information
The accompanying interim consolidated balance sheet, statements of
operations and statements of cash flows at March 31, 1999 and for the three
months ended March 31, 1998 and 1999, together with the related notes, are
unaudited but include all adjustments (consisting of normal recurring
adjustments) which, in the opinion of management, are necessary for a fair
statement of the financial position and the operating results and cash flows
for the interim date and periods presented. Results for the three months ended
March 31, 1999 are not necessarily indicative of results for the entire fiscal
year or future periods.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and capital lease are carried at cost,
which approximates fair value due to the relatively short maturity of those
instruments.
F-8
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Split
On December 18, 1997, the Company authorized and implemented a one thousand-
for-one stock split. On March 23, 1999, the Company authorized and implemented
a four-for-one stock split. Accordingly, all share and per share amounts have
been retroactively restated to reflect the effect of the stock splits.
Foreign Currencies
The balance sheets of the Company's Australian subsidiary are translated
into U.S. dollars at year end rates of exchange. Revenues and expenses are
translated at average rates for the year. The resulting translation adjustments
are shown as a separate component of stockholders' equity.
Exchange gains and losses arising from transactions denominated in a foreign
currency other than the functional currency of the entity involved are included
in other expense. Such exchange gains (losses) amounted to ($19,000), $9,000
and ($119,000) for the period from July 19, 1996 (inception) through December
31, 1996 and for the years ended December 31, 1997 and 1998, respectively.
Derivatives
To date, the Company has not entered into foreign currency forward exchange
contracts or any other derivative instruments.
Revenue Recognition
The Company generates revenues by providing access to its proprietary
database through a variety of channels. Revenues are generated from short term
and long term contracts.
Short term contract revenues are derived principally from the sale of banner
advertisements displayed on the Company's websites. Revenues from these
contracts are based on the number of impressions (a view of an advertisement)
delivered. Revenues are recognized as impressions are delivered. All
prepayments are recorded as deferred revenues until the impressions have been
delivered.
Revenues associated with long term fixed fee contracts are recognized as
delivery milestones are met, all performance obligations have been satisfied
and no refund obligations exist. Payments received in advance of delivery are
recorded as deferred revenues.
Revenues also include barter transactions which are recorded at the fair
value of the goods or services provided or received, whichever is more readily
determinable in the given circumstance.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost. The Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
F-9
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Computer equipment.............................................. 3 years
Furniture and fixtures.......................................... 5 years
Software........................................................ 3 years
</TABLE>
Leasehold improvements are amortized on a straight line basis over the
shorter of their estimated useful lives or the lease term.
When assets are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from their respective accounts, and any gain or loss
on such sale or disposal is reflected in operations.
Maintenance and repairs are charged to expense as incurred. Expenditures
which substantially increase an asset's useful life are capitalized.
Asset Impairment
Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of". SFAS No. 121 requires recognition of impairment of long-
lived assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets. SFAS 121 has not had an
impact on the consolidated financial statements of the Company.
Advertising Costs
Advertising costs are charged to sales and marketing expenses as incurred
and amounted to $430,000; $938,000 and $256,000 for the period from July 19,
1996 (inception) through December 31, 1996 and for the years ended December 31,
1997 and 1998, respectively.
Product Development Costs
Costs incurred in the classification and organization of listings within the
unique URL database and the development of new products and enhancements to
existing products are charged to expense as incurred. SFAS No. 86, "Accounting
for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed,"
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based upon the Company's product
development process, technological feasibility is established upon completion
of a working model. No costs have been incurred by the Company between
completion of the working model and the point at which the product is ready for
general release.
Net Loss Per Share
SFAS No. 128 "Earnings per Share," establishes standards for computing and
presenting earnings per share. Basic earnings per share is calculated using the
average shares of common stock outstanding. Diluted earnings per share is
calculated using the weighted average number of common and dilutive common
equivalent shares outstanding during the period, using either the as if
converted method for convertible preferred stock or the treasury stock method
for options and
F-10
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
warrants. Pursuant to SEC Staff Accounting Bulletin No. 98, common stock and
convertible preferred stock issued for nominal consideration, prior to the
anticipated effective date of an initial public offering, are included in the
calculation of basic and diluted net loss per share as if such stock were
outstanding for all periods presented. To date, the Company has not had any
issuances for nominal consideration.
Pro Forma Net Loss Per Share (unaudited)
Pro forma net loss per share for the year ended December 31, 1998 and the
three months ended March 31, 1999, is computed using the weighted average
number of common shares outstanding, including the pro forma effects of the
automatic conversion of the Company's Series A, B, C and Series 1 Junior
preferred stock into shares of the Company's common stock effective upon the
closing of the Company's initial public offering as if such conversion occurred
on January 1, 1998, or at the date of issuance, if later. Pro forma common
equivalent shares, comprised of incremental common shares issuable upon the
exercise of stock options and warrants are not included in pro forma diluted
net loss per share because they would be anti-dilutive.
Income Taxes
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS No.
109). Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25, (APB
No. 25) "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS No. 123 "Accounting for Stock-based
Compensation." Under APB No. 25, compensation cost is recognized based on the
difference, if any, on the date of grant between the fair value of the
Company's stock and the amount an employee must pay to acquire the stock.
Goodwill and Intangible Assets
Goodwill and intangible assets consist of the excess of purchase price paid
over identified intangible and tangible net assets of acquired companies.
Goodwill and intangible assets are amortized using the straight-line method
over one to five years, the period of expected benefit. Valuation of goodwill
and intangible assets is based on forecasted cash flows and is reassessed
periodically as a result of changes in management's estimates of future
performance given consideration to existing and anticipated competitive and
economic conditions. Cash flow forecasts are based on trends of historical
performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
Concentration of Credit Risk and Business Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
(including money market accounts) and accounts
F-11
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
receivable. The Company places its temporary cash investments in the U.S. in
one major financial institution. Such deposits may at times exceed federally
insured limits. The Company performs ongoing credit evaluations and generally
requires no collateral from its customers. The Company maintains a reserve for
doubtful accounts receivable based upon expected collectibility of accounts
receivable.
Three customers, in the aggregate, accounted for approximately 56% and 52%
of total revenues for the years ended December 31, 1997 and 1998, respectively.
As of December 31, 1997, one customer accounted for 100% of total accounts
receivable. As of December 31, 1998, one customer accounted for 13% of total
accounts receivable. No other individual customers accounted for more than 10%
of the total balance.
The internet navigation market is highly competitive. The success of the
Company is dependent upon its ability to raise capital, sell advertising on its
website, generate traffic and attract and retain key personnel. Additionally,
the Company's success is dependent upon the continued growth in use of the
Internet.
Comprehensive Income
The Company has adopted the accounting treatment prescribed by SFAS No. 130,
"Comprehensive Income." Unless otherwise noted, the components of the Company's
"Other comprehensive income (loss)" and "Comprehensive income" have no tax
effect as the Company makes no provision for U.S. income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely reinvested
in foreign operations.
Segment Information
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in the fiscal year ended December 31, 1998.
SFAS 131 establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas and major customers. In accordance with
the provisions of SFAS 131, the Company has determined that it does not have
separately reportable operating segments.
Pro forma Balance Sheet (Unaudited)
The accompanying unaudited pro forma balance sheet at March 31, 1999
reflects the conversion of the Series A, Series B, Series C and Series 1 Junior
preferred stock into common stock as of March 31, 1999. The conversion of this
preferred stock is automatic upon completion of an initial public offering that
results in total gross proceeds to the Company of at least $25 million.
Recently Issued Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits", and
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
are effective for the year ending December 31, 1999. The Company does not
believe that the adoption of these pronouncements will have a material effect
on the consolidated financial statements.
F-12
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1), which provides guidance for
determining whether computer software is internal-use software and for
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold. SOP 98-1, which is
effective for the year ended December 31, 1999, also provides guidance on
capitalization of the costs incurred for computer software developed or
obtained for internal use. The Company does not expect the adoption of SOP 98-1
to have a material effect on the consolidated financial statements.
On April 3, 1998, the Accounting Standards Executive Committee of the AICPA
issued SOP No. 98-5, "Reporting on the Costs of Start-Up Activities," which
provides guidance on the financial reporting of start-up costs. SOP 98-5
requires costs of start-up activities and organization costs to be expensed as
incurred. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. As the Company has not capitalized such
costs, the adoption of SOP 98-5 does not have an impact on the consolidated
financial statements of the Company.
2. Property and Equipment:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
------------- -----------
1997 1998 1999
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Computer equipment........ $ 989 $2,240 $4,162
Furniture and fixtures.... 42 207 343
Software.................. -- 130 89
Leasehold improvements.... -- 77 357
------ ------ ------
1,031 2,654 4,951
Less accumulated
depreciation and
amortization............. 324 675 913
------ ------ ------
Property and equipment,
net.................... $ 707 $1,979 $4,038
====== ====== ======
</TABLE>
Cost and accumulated depreciation related to assets under capital lease
obligations at March 31, 1999 were $523,000 and $15,000, respectively. No
assets were subject to capital lease prior to 1999.
Depreciation was $55,000, $269,000 and $352,000 for the period from July 19,
1996 (inception) through December 31, 1996, and for the two years ended
December 31, 1997 and 1998.
3. Notes Payable:
In September 1997, the Company issued a note payable for $1.5 million to a
former stockholder. The principal is due and payable on the earlier of
September 1, 2000 or on the closing of an initial public offering. Interest is
charged at the rate of 10% per annum and is payable quarterly starting
September 30, 1998. As of March 31, 1999, the Company was not in compliance
with one covenant of the note.
F-13
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From January to April 1998, the Company issued convertible promissory notes
in the principal amount of $2.9 million for $2.9 million in the principal
amount to investors of the Company. All notes bore interest at 10% per annum
and included an issuance of 1,673,608 Series A preferred stock warrants (Note
6). In May 1998, in accordance with the terms of these notes, outstanding
principal of $2.1 million was converted into Series A preferred stock and
outstanding principal and interest of $505,000 was converted into Series B
preferred stock. Outstanding principal of $250,000 was repaid to a note holder.
In September 1998, the Company entered into a financing agreement with
Microsoft to borrow up to $11.9 million at an interest rate of 8% per annum.
Principal and accrued interest were due upon the earlier of September 1999, or
the closing of any acquisition of the Company by a third party of a majority of
its capital stock or substantially all of its assets. Borrowings were
convertible, at the option of the Company, to any series of equity issued to
third parties pursuant to any equity financing that in the aggregate exceeded
$5 million. Warrants to purchase 320,000 shares of common stock at an exercise
price of $0.6275 per share were issued in conjunction with the financing
agreement. These warrants expire in September 2003. The fair value of these
warrants was recorded as interest expense over the term the financing agreement
was effective. In December 1998, pursuant to a licensing agreement with
Microsoft, this note was applied as an offset against the consideration due
under that license agreement and was recorded as deferred revenue of $11.4
million.
4. Income Taxes:
The provision for income taxes of $63,000, $166,000 and $145,000 for the
period from July 19, 1996 (inception) through December 31, 1996 and for the
years ended December 31, 1997 and 1998, applies to the Australian subsidiary.
The primary components of the net deferred tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating losses.......................................... $3,700 $4,699
Deferred revenue.............................................. -- 3,637
Depreciation & amortization................................... 446 391
Accruals and reserves......................................... 52 110
------ ------
Total deferred tax assets..................................... 4,198 8,837
Deferred tax liability........................................ -- (3)
------ ------
Net deferred tax asset........................................ 4,198 8,834
------ ------
Valuation allowance........................................... 4,177 (8,834)
------ ------
Deferred tax asset............................................ $ 21 $ --
====== ======
</TABLE>
Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its otherwise recognizable net deferred tax asset.
As of December 31, 1998, the Company has net operating loss (NOL)
carryforwards of approximately $12.1 million and $10.3 million for federal and
state tax purposes, respectively. Such carryforwards expire from 2004 to 2011.
F-14
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the provisions of Section 382 of the Internal Revenue Code,
utilization of the NOLs are subject to annual limitations through 2011 due to a
greater than 50% change in the ownership of the Company which occurred during
fiscal years 1997 and 1998.
5. Commitments:
The Company leases office and storage space for technical equipment under
non-cancelable operating leases which expire at various dates through the year
2003.
Future minimum lease payments under all operating leases at December 31,
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31:
------------------------
<S> <C>
1999.............................................................. $1,038
2000.............................................................. 932
2001.............................................................. 287
2002.............................................................. 287
2003.............................................................. 119
Thereafter........................................................ --
------
Total minimum lease payments.................................... $2,663
======
</TABLE>
Rent expense under all operating leases for the period from July 19, 1996
(inception) through December 31, 1996 and for the years ended December 31, 1997
and 1998, amounted to $71,000, $215,000 and $508,000 respectively.
In February 1999, the Company obtained a financing lease with a total
commitment of $2.1 million which is accounted for as a capital lease. The
Company has pledged as collateral certain computer equipment. The total credit
extended to the Company under the agreement was $523,000 as of March 31, 1999.
Future minimum lease payments under this capital lease at March 31, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
Capital
-------
<S> <C>
Nine months ended December 31, 1999................................ $167
Year ending December 31,
2000............................................................. 201
2001............................................................. 201
2002............................................................. 69
Thereafter....................................................... --
----
Total minimum lease payments....................................... 638
Less: Interest..................................................... 125
----
Present value of net minimum lease payments........................ $513
====
Capital lease obligation--current portion.......................... $137
Capital lease obligation--long-term................................ $375
</TABLE>
F-15
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Stockholders' Equity:
Convertible Preferred Stock
The Company is authorized to issue 29,870,465 shares of $0.001 par value
preferred stock. The following is outstanding:
<TABLE>
<CAPTION>
Issued and Outstanding
---------------------------
December 31,
--------------- March 31,
Designated 1997 1998 1999
---------- ---- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Series A.............................. 7,925,300 -- 4,235,076 5,235,076
Series B.............................. 9,551,832 -- 9,551,832 9,551,832
Series C.............................. 8,393,333 -- -- 8,005,060
Series 1 Junior....................... 4,000,000 -- 4,000,000 4,000,000
---------- ----------
Total convertible preferred........... -- 17,786,908 26,791,968
========== ==========
</TABLE>
The rights, preferences and privileges of the preferred stockholders are as
follows:
Dividends
The Company's Certificate of Incorporation prohibits the Company from
declaring or paying dividends on the Junior preferred stock unless dividends
have been paid on the Series A, B and C preferred stock. Dividends are
noncumulative and the dividend rate is at the discretion of the Board of
Directors of the Company. The Certificate also prohibits declaring or paying
dividends on the common stock unless dividends are paid on the senior and
Series 1 Junior preferred stock. As of March 31, 1999, no dividends have been
declared or paid on any class of the Company's capital stock.
Liquidation
In the event of any liquidation, dissolution, or winding up of the Company,
the holders of Series A, Series B and Series C preferred stock (senior
preferred stockholders) retain liquidation preference over Series 1 Junior
preferred stockholders and common stockholders equal to the sum of the original
purchase price of $0.5344, $0.6287 and $7.50 per share, respectively, plus any
declared but unpaid dividends. After payment to the Senior preferred
stockholders, the holders of Series 1 Junior preferred stock retain liquidation
preference over common stockholders equal to the sum of $0.50 per share of
Series 1 Junior preferred plus any declared but unpaid dividends. After payment
has been made to holders of preferred stock, all remaining assets shall be
distributed pro rata among all senior preferred and common stockholders until
the holders of Series A, Series B, and Series C preferred stock have received
$1.33592, $1.57167 and $11.25, respectively, as adjusted for stock splits,
stock dividends and recapitalizations.
Conversion
Preferred stock is convertible, at the option of the holder, into shares of
common stock at an initial conversion price of $0.5344 per share for Series A
preferred stock, $0.6287 per share for Series B preferred stock, $7.500 per
share for Series C preferred stock and $0.8750 per share for Series 1 Junior
preferred stock, as adjusted for stock splits, combinations, or
recapitalization. Convertible preferred shares are convertible into common
stock at a one-to-one ratio, and will
F-16
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
automatically be converted upon the effectiveness of an initial public
offering. The Company has reserved 29,870,465 shares of common stock for
preferred stock conversions.
Voting Rights
Each holder of preferred stock is entitled to the number of votes equal to
the number of shares of common stock into which the shares are convertible.
Common Stock
In September 1997, the Company reorganized its capital structure by entering
into a transaction with a major stockholder in which it repurchased 67,760,000
shares of its common stock (approximately 85% of the outstanding shares), in
exchange for a warrant to purchase 6,000,000 shares of common stock at an
exercise price of $0.00025 per share. In conjunction with this exchange, the
Company issued a note payable for $1.5 million to the former stockholder.
See discussion in Note 3.
Warrants
During 1997, in conjunction with the reorganization of its capital
structure, the Company issued a warrant to purchase 6,000,000 shares of common
stock at an exercise price of $0.00025 per share to a former stockholder. The
warrant is exercisable until the earlier of (1) September 30, 2007, (2) the
closing of an initial public offering of the Company's stock, (3) a
reorganization, merger or consolidation, or (4) the sale of all of the
Company's assets. The fair value of this warrant was recorded as treasury
stock.
During 1998, in connection with the issuance of Series A convertible
preferred stock the Company issued warrants to purchase 2,016,616 shares of
Series A preferred stock at $0.6287 per share as a finder's fee to certain
preferred stockholders. The warrants are immediately exercisable and expire at
the earlier of May 2005 or immediately prior to the closing of an initial
public offering. The fair value of the warrants has been recorded as stock
issuance cost.
During 1998, the Company also issued warrants to purchase 1,673,608 shares
of Series A preferred stock at $0.5344 per share in connection with the
issuance of convertible notes payable (Note 3). During 1998, 1,000,000 of these
warrants were exercised. The remaining warrants are immediately exercisable and
expire in March 2005. The fair value of the warrants has been recorded as
interest expense over the period the notes were outstanding.
During 1998, the Company issued a warrant to purchase up to 1,000,000 shares
of common stock at an exercise price of $3.75 per share in connection with a
strategic alliance agreement. This warrant is immediately exercisable and
expires in May 2003. Because the exercise price exceeded the deemed fair value
of the underlying stock at the date of grant, no positive fair value was
attributed to this warrant.
During 1998, the Company issued a warrant to purchase up to 320,000 shares
of common stock at an exercise price of $0.6275 per share in connection with a
financing agreement. This warrant is immediately exercisable and expires in
September 2003. See Note 3.
During 1999 the Company issued a warrant to purchase 293,333 shares of
Series C preferred stock at $7.50 per share as compensation for services
provided in connection with the Series C preferred financing. The warrants are
immediately exercisable and expire in March 2002. The fair value of the
warrants has been recorded as issuance costs.
F-17
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 1999, all warrants outstanding are exercisable. The
following table sets forth warrants outstanding as of March 31, 1999:
<TABLE>
<CAPTION>
Number of Exercise
Date of grant Type warrants price Expires
------------- ------------------ --------- -------- --------------
<S> <C> <C> <C> <C>
September 1997.......... Common 6,000,000 $0.0003 September 2007
March 1998.............. Series A preferred 673,608 $0.5344 March 2005
May 1998................ Series A preferred 2,016,616 $0.6287 May 2005
May 1998................ Common 1,000,000 $3.7500 May 2003
September 1998.......... Common 320,000 $0.6275 September 2003
March 1999.............. Series C preferred 293,333 $ 7.50 March 2002
</TABLE>
Stock Option Plan
In December 1997, in connection with a stock split, the Company canceled the
1996 Stock Option Plan and all options granted thereunder. In December 1997,
the Company approved the 1998 Stock Option Plan (the Plan). The Company has
reserved 6,500,000 and 9,900,000 shares of common stock for issuance under the
Plan at December 31, 1998 and March 31, 1999, respectively. Options generally
become exercisable ratably over up to four years after the grant date and have
a term of ten years. Under the Plan, the Company may grant incentive stock
options, nonstatutory stock options and stock purchase rights to employees,
directors and consultants.
As of March 31, 1999, 8,077,500 options were outstanding and 1,554,848
shares remained available for grant under the Company's stock option plan. At
March 31, 1999, 1,495,380 options were exercisable at exercise prices ranging
from $0.0143 to $3.7500, with an average exercise price of $0.1521.
Stock option activity under the plans during the periods indicated is as
follows:
<TABLE>
<CAPTION>
Weighted
Average
Outstanding Exercise
Options Price
Number of Per
Shares Share
----------- --------
<S> <C> <C>
Balance at December 31, 1996........................... --
Granted.............................................. 8,934,000 $0.0071
Canceled............................................. (5,976,000) $0.0003
----------
Balance at December 31, 1997........................... 2,958,000 $.00143
Granted.............................................. 3,616,000 $0.2413
Canceled............................................. (416,348) $0.0369
Exercised............................................ (267,652) $0.0143
----------
Balance at December 31, 1998........................... 5,890,000 $0.1521
(unaudited)
Granted.............................................. 2,255,500 $2.3574
Canceled............................................. (68,000) $0.8235
----------
Balance at March 31, 1999.............................. 8,077,500 $0.7622
</TABLE>
The Company accounts for employee stock options under APB No. 25 and related
Interpretations in accounting for grants to employees under its stock option
plans. For the years ended December 31, 1997 and 1998, the Company recorded
deferred compensation of $0 and $1,176,580, respectively, for stock option
grants where the deemed fair value of the option at grant date was in excess of
the exercise price.
F-18
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
------------------------------ ------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Range of Exercise Prices Shares Life Price Shares Price
------------------------ --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.0143 to $0.0143....... 2,394,000 8.97 $0.0143 1,149,624 $0.0143
$0.1250 to $0.1250....... 378,000 9.63 $0.1250 -- --
$0.1750 to $0.1750....... 800,000 9.67 $0.1750 -- --
$0.2500 to $0.2500....... 1,572,000 9.85 $0.2500 -- --
$0.3750 to $0.3750....... 746,000 9.93 $0.3750 20,000 $0.3750
--------- ---------
5,890,000 9.62 $0.1521 1,169,624 $0.0215
</TABLE>
The following information concerning the Company's stock options plan is
provided in accordance with the SFAS No. 123, and "Accounting for Stock-Based
Compensation".
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Expected volatility.............................................. 0% 0%
Risk-free interest rate.......................................... 5.72% 5.18%
Expected lives (years)........................................... 5 5
Expected dividend yield.......................................... -- --
</TABLE>
The weighted average fair value for options granted was $0.0041 and $0.4502
for 1997 and 1998, respectively. The fair value of options granted to
independent contractors has been determined using the Black-Scholes model with
the same assumptions as options granted to employees and with a volatility of
104%. The fair value is recorded as consulting expense as services are
provided.
The pro forma net loss for the Company for 1997 and 1998 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Net Loss
As reported............................................. $(7,514) $(12,858)
Pro forma............................................... $(7,515) $(12,933)
Basic and Diluted net loss per share
As reported............................................. $(0.12) $(1.03)
Pro forma............................................... $(0.12) $(1.03)
</TABLE>
7. Microsoft Contract
The Company has entered into a long-term, fixed-fee contract with Microsoft
Corporation. Under the terms of this contract, the Company has licensed its
proprietary database and is obligated to add a certain number of incremental
URLs ratably over the contract term. Microsoft may direct the specific topics
or specific websites of approximately half of the required URLs. The contract
provides for a refund of a portion of the fee in the event that the Company
does not deliver the specified number of URLs.
F-19
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recognizes revenues under this contract ratably as access to
URLs is delivered and as the risk of refund diminishes. Payments received in
advance of performance under the contract are recorded as deferred revenues.
8. Net Loss Per Share:
In accordance with the requirements of SFAS No. 128, a reconciliation of the
numerator and denominator of basic and diluted loss per share is provided as
follows (in thousands, except share amounts):
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
---------------------------------- ----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Numerator-Basic and
diluted:
Net loss.............. $(2,900) $(7,514) $(12,858) $(1,672) $(6,722)
Denominator-Basic and
diluted:
Weighted average
common shares
outstanding.......... 77,298,272 61,059,333 12,526,356 12,001,400 12,972,652
Basic and diluted loss
per share.............. $(0.04) $(0.12) $(1.03) $(0.14) $(0.52)
In September, 1997, the Company reorganized its capital structure by
entering into a transaction with a major stockholder in which it repurchased
67,760,000 shares of its common stock. Options and warrants to purchase common
and preferred shares are not included in the diluted loss per share
calculations as their effect is antidilutive for all periods presented. These
dilutive securities included weighted average common stock equivalents relating
to preferred stock, stock options and warrants to purchase common and preferred
shares (as calculated using the treasury method).
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
---------------------------------- ----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Preferred stock......... -- -- 8,468,898 -- 18,911,473
Options................. -- 3,571,546 2,633,993 -- 5,497,307
Warrants................ -- 1,525,000 7,017,370 6,045,785 9,523,635
---------- ---------- ---------- ---------- ----------
Total dilutive shares... -- 5,096,546 18,120,261 6,045,785 33,932,415
========== ========== ========== ==========
</TABLE>
9. BeSeen.com, Inc. Acquisition:
In October 1998, the Company acquired the outstanding stock of BeSeen.com,
Inc. (BeSeen) a privately held company, for $907,000 cash, including
acquisition costs of $157,000, and the issuance of 4,000,000 shares of Series 1
Junior preferred stock. At the acquisition date the Series 1 Junior preferred
stock was valued at $0.75 per share. This transaction was accounted for as a
purchase. The results of operations of BeSeen are included in the consolidated
results of operations for periods subsequent to the acquisition date. The total
purchase price was $3.9 million, of which $3.6 million was allocated to
goodwill and intangible assets.
F-20
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Supplemental Disclosure of Cash Flow Information (in thousands):
<TABLE>
<CAPTION>
Period from Three
July 19, 1996 Months
(Inception) Year Ended Ended March
through December 31, 31,
December 31, ------------ -------------
1996 1997 1998 1998 1999
------------- ---- ------- ----- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest............................. -- $54 $ 274 $ 30 $ 48
====== === ======= ===== ======
Income taxes......................... -- $-- $ -- $ -- $ 1
====== === ======= ===== ======
Noncash investing and financing
activities:
Equipment under capital lease........ -- $-- $ -- $ -- $ 513
====== === ======= ===== ======
Purchase of Homebase Directories for
common stock........................ $2,050 $-- $ -- $ -- $ --
====== === ======= ===== ======
Conversion of notes payable to Series
A preferred stock................... -- $-- $ 2,125 $ -- $ --
====== === ======= ===== ======
Conversion of notes payable and
accrued interest to Series B
preferred stock..................... -- $-- $ 505 $ -- $ --
====== === ======= ===== ======
Series A preferred stock given for
issuance costs of Series A.......... -- $-- $ 163 $ -- $ --
====== === ======= ===== ======
Issuance of Series 1 Junior preferred
stock for the acquisition of
BeSeen.com.......................... -- $-- $ 3,000 $ -- $ --
====== === ======= ===== ======
Note payable converted to deferred
revenue under license agreement..... -- -- $11,385 -- --
====== === ======= ===== ======
</TABLE>
11. Related Party Transactions:
The Company receives licensing revenues from Cox Interactive Media, Inc. a
shareholder of the Company, for the design and licensing of LookSmart database
content used on Cox Interactive websites. Revenues from Cox Interactive Media,
Inc. amounted to $0 and $538 for the years ended December 31, 1997 and 1998,
respectively, and $7,000 for the three months ended March 31, 1999.
12. Subsequent Events:
On April 9, 1999 the Company acquired certain assets and liabilities of
Guthy-Renker Internet, LLC in exchange for $5 million cash and 1,700,000 shares
of the Company's common stock. At the date of acquisition, the common shares
were valued at $3.75 each. The total purchase price of this
F-21
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
transaction was $11.4 million including direct costs and expenses related to
the acquisition, of which $11.3 million will be allocated to goodwill and
intangible assets.
In April 1999, the Company issued 50,626 shares of Series C convertible
preferred stock at $7.50 per share resulting in net proceeds of $372,000.
Subsequent to March 31, 1999, the Company granted options to purchase
974,750 shares of the Company's common stock to employees at exercise prices
ranging from $3.75 to $11.00 per share.
In May 1999, the Company entered into a ten year operating lease agreement
for office space. The lease commences in October 1999 and has average monthly
lease payments over the lease term of $364,000 per month.
In June 1999, the Company acquired certain assets and liabilities of ITW
NewCorp, Inc. in exchange for $5 million cash and warrants to purchase 280,000
shares of the Company's common stock at $1.875. At the date of acquisition, the
common shares were valued at $11.00 each. The total purchase price of this
transaction was $7 million including direct costs and expenses related to the
acquisition, all of which will be allocated to goodwill and intangible assets.
F-22
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial information for Looksmart, Ltd.
set forth below gives effect to the merger between the LookSmart, Ltd. and
BeSeen.com, Inc., (Merger) as well as LookSmart's asset purchase transactions
with Guthy-Renker Internet, LLC and ITW NewCorp, Inc. (Purchase Transactions).
The historical financial information set forth below has been derived from, and
is qualified by reference to, the consolidated financial statements of
LookSmart, and the financial statements of BeSeen.com, Inc. Guthy-Renker
Internet, LLC and ITW NewCorp, Inc., and should be read in conjunction with
those financial statements, the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
On October 23, 1998, LookSmart acquired all of the outstanding common stock
of BeSeen.com, Inc. in exchange for 4,000,000 shares of LookSmart Series 1
Junior preferred stock. This transaction was accounted for using the purchase
method.
On April 9, 1999, LookSmart acquired certain assets from Guthy-Renker
Internet, LLC in exchange for $5 million cash and 1,700,000 shares of LookSmart
common stock.
In June, 1999, LookSmart acquired substantially all of the assets of ITW
NewCorp, Inc., in exchange for $5 million and warrants to purchase 280,000
shares of LookSmart common stock.
The unaudited pro forma combined statement of operations data for the year
ended December 31, 1998, set forth below, give effect to the Merger and the
Purchase Transactions as if they occurred on January 1, 1998. The unaudited pro
forma combined statement of operations data for the three months ended March
31, 1999, set forth below, give effect to the Purchase Transactions as if they
occurred on January 1, 1999. The unaudited pro forma combined balance sheet as
of March 31, 1999 set forth below gives effect to the Purchase Transactions as
if they occurred on March 31, 1999.
The unaudited pro forma combined financial information set forth below does
not purport to represent what the consolidated results of operations or
financial condition of LookSmart, Ltd would have been if the Merger or the
Purchase Transactions had in fact occurred on such dates or to the future
consolidated results of operations or financial condition of LookSmart, Ltd.
F-23
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of March 31, 1999
<TABLE>
<CAPTION>
Guthy-Renker ITW
LookSmart, Internet, NewCorp, Pro Forma
Ltd. LLC Inc. Combined Adjustments Total
------------ ------------ -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash
equivalents............ $ 58,429,349 -- $ 22,540 $ 58,451,889 $(10,000,000)(5) $ 48,451,889
Accounts receivable,
net.................... 16,545,350 $ 5,000 125,556 16,675,906 (5,000)(4) 16,670,906
Other current assets... 1,074,309 146,000 41 1,220,350 -- 1,220,350
------------ ----------- -------- ------------ ------------ ------------
Total current assets... 76,049,008 151,000 148,137 76,348,145 (10,005,000) 66,343,145
Property and equipment,
net..................... 4,037,873 72,000 8,659 4,118,532 -- 4,118,532
Goodwill and
intangibles, net........ 3,849,139 -- -- 3,849,139 18,558,575 (6) 22,407,714
Other assets............ 134,171 -- -- 134,171 -- 134,171
------------ ----------- -------- ------------ ------------ ------------
Total assets........... $ 84,070,191 $ 223,000 $156,796 $ 84,449,987 $ 8,553,575 $ 93,003,562
============ =========== ======== ============ ============ ============
Liabilities and
Stockholders' Equity
Current liabilities:
Accounts payable....... $ 1,507,520 $ 789,000 $ 5,058 $ 2,301,578 (789,000)(4) $ 1,512,578
Other accrued
liabilities............ 4,064,788 277,000 2,483 4,344,271 (277,000)(4) 4,067,271
Income tax payable..... 199,325 -- -- 199,325 -- 199,325
Deferred revenue....... 17,278,570 47,000 17,325,570 (47,000)(4) 17,278,570
Note payable to former
stockholder............. 1,500,000 -- -- 1,500,000 -- 1,500,000
Other current
liabilities............ 137,430 773,000 -- 910,430 (773,000)(4) 137,430
------------ ----------- -------- ------------ ------------ ------------
Total current
liabilities............ 24,687,633 1,886,000 7,541 26,581,174 (1,886,000) 24,695,174
Deferred revenue--long
term.................... 6,306,120 -- -- 6,306,120 -- 6,306,120
Other liabilities....... 375,161 -- -- 375,161 -- 375,161
------------ ----------- -------- ------------ ------------ ------------
Total liabilities...... 31,368,914 1,886,000 7,541 33,262,455 (1,886,000) 31,376,455
Stockholders' equity
(deficit):
Preferred stock........ 26,792 -- -- 26,792 -- 26,792
Common stock........... 12,973 -- 1 12,974 1,700 (1) 14,673
(1)(3)
Additional paid-in
capital................ 86,963,993 -- 6,436 86,970,429 6,373,300 (1) 93,337,293
(6,436)(3)
Warrants............... 1,408,520 -- -- 1,408,520 2,550,830 (2) 3,959,350
Deferred compensation
costs.................. (5,668,695) -- -- (5,668,695) -- (5,668,695)
Cumulative translation
adjustment............. (48,296) -- -- (48,296) -- (48,296)
Retained earnings
(accumulated deficit).. (29,994,010) (1,663,000) 142,818 (31,514,192) 1,520,182 (3) (29,994,010)
------------ ----------- -------- ------------ ------------ ------------
Total stockholders'
equity (deficit)....... 52,701,277 (1,663,000) 149,255 51,187,532 10,439,575 61,627,107
------------ ----------- -------- ------------ ------------ ------------
Total liabilities and
stockholders' equity... $ 84,070,191 $ 223,000 $156,796 $ 84,449,987 $ 8,553,575 $ 93,003,562
============ =========== ======== ============ ============ ============
</TABLE>
F-24
<PAGE>
LOOKSMART, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Guthy-Renker
Looksmart, Ltd. BeSeen.com, Inc. Internet, LLC ITW NewCorp,
for the Year for the period for the Inc. for the
Ended January 1, 1998 53 Weeks Ended Year Ended
December 31, through January 3, December 31, Pro Forma
1998 October 23, 1998 1999 1998 Combined Adjustments Total
--------------- ---------------- -------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues...... $ 8,785,437 $298,465 $10,670,000 $389,285 $ 20,143,187 -- $ 20,143,187
Cost of revenues.. 6,818,950 83,188 6,459,000 119,469 13,480,607 -- 13,480,607
------------ -------- ----------- -------- ------------ ----------- ------------
Gross profit
(loss)........... 1,966,487 215,277 4,211,000 269,816 6,662,580 -- 6,662,580
Operating
expenses:
Sales and
marketing...... 5,615,589 22,948 3,214,000 23,903 8,876,440 -- 8,876,440
Research and
product
development.... 4,765,855 30,594 58,422 4,854,871 -- 4,854,871
General and
administrative.. 2,746,120 186,935 1,532,000 70,006 4,535,061 -- 4,535,061
Amortization of
goodwill,
intangibles and
unearned
compensation... 737,286 -- -- -- 737,286 4,684,925(7) 5,422,211
------------ -------- ----------- -------- ------------ ----------- ------------
Total operating
expenses......... 13,864,850 240,477 4,746,000 152,331 19,003,658 4,684,925 23,688,583
------------ -------- ----------- -------- ------------ ----------- ------------
Income (loss) from
operations....... (11,898,363) (25,200) (535,000) 117,485 (12,341,078) (4,684,925) (17,026,003)
Other income/
(expense), net... (139,051) -- -- -- (139,051) -- (139,051)
Interest income/
(expense), net... (675,025) (1,025) -- (1,432) (677,482) -- (677,482)
Income taxes...... (145,353) -- (5,000) -- (150,353) 5,000(8) (145,353)
------------ -------- ----------- -------- ------------ ----------- ------------
Net income
(loss)........... (12,857,792) (26,225) (540,000) 116,053 (13,307,964) (4,679,925)(9) (17,987,889)
Change in foreign
currency
translation
adjustment during
the period....... (16,134) -- -- -- (16,134) -- (16,134)
------------ -------- ----------- -------- ------------ ----------- ------------
Comprehensive
income (loss).... $(12,873,926) $(26,225) $ (540,000) $116,053 $(13,324,098) $(4,679,925)(9) $(18,004,023)
============ ======== =========== ======== ============ =========== ============
Basic and diluted
net loss
per share........ $ (1.03) (9) $ (1.26)
============ ============
Weighted average
number of shares
of common stock
outstanding used
in computing
basic and diluted
net loss per
share............ 12,526,356 1,700,000(9) 14,226,356
============ =========== ============
Pro forma basic
and diluted net
loss per share... $ (0.47) $ (0.59)
============ ============
Shares used in
computing pro
forma basic and
diluted net loss
per share........ 27,386,715 3,244,444(9) 30,631,159
============ =========== ============
</TABLE>
F-25
<PAGE>
LOOKSMART LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the three months ended March 31, 1999
<TABLE>
<CAPTION>
LookSmart, Ltd Guthy-Renker ITW NewCorp,
for the Internet, LLC Inc. for the
Three Months for the Three Months
Ended 13 Weeks Ended Ended
March 31, April 4, March 31, Pro Forma
1999 1999 1999 Combined Adjustments Total
-------------- -------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 6,580,416 $3,471,000 $193,408 $10,244,824 -- $10,244,824
Cost of revenues........ 2,840,903 2,287,000 68,618 5,196,521 -- 5,196,521
----------- ---------- -------- ----------- --------- -----------
Gross profit (loss)..... 3,739,513 1,184,000 124,790 5,048,303 -- 5,048,303
Operating expenses:
Sales and marketing... 3,899,783 853,000 24,321 4,777,104 -- 4,777,104
Research and product
development.......... 3,883,846 -- 27,053 3,910,899 -- 3,910,899
General and
administrative....... 1,615,734 421,000 57,504 2,094,238 -- 2,094,238
Amortization of
goodwill, intangibles
and deferred
compensation......... 1,029,704 -- -- 1,029,704 964,595(7) 1,994,299
----------- ---------- -------- ----------- --------- -----------
Total operating
expenses............ 10,429,067 1,274,000 108,878 11,811,945 964,595 12,776,540
----------- ---------- -------- ----------- --------- -----------
Income (loss) from
operations............. (6,689,554) (90,000) 15,912 (6,763,642) (964,595) (7,728,237)
Other income/(expense),
net.................... (1,377) -- -- (1,377) -- (1,377)
Interest
income/(expense), net.. 20,289 -- (114) 20,175 -- 20,175
Income Taxes............ (51,579) (5,000) (56,579) 5,000(8) (51,579)
----------- ---------- -------- ----------- --------- -----------
Net income (loss).... (6,722,221) (95,000) 15,798 (6,801,423) (959,595) (7,761,018)
Change in foreign
currency translation
adjustment during the
period................. 6,898 -- -- 6,898 -- 6,898
----------- ---------- -------- ----------- --------- -----------
Comprehensive income
(loss)................. $(6,715,323) $ (95,000) $ 15,798 $(6,794,525) $(959,595) $(7,754,120)
=========== ========== ======== =========== ========= ===========
Basic and diluted net
loss per share......... $ (0.52) $ (0.53)
=========== ===========
Weighted average number
of shares of common
stock outstanding used
in computing basic and
diluted net loss per
share.................. 12,972,652 1,700,000(9) 14,672,652
=========== ========= ===========
Pro forma basic and
diluted net loss per
share.................. $ (0.17) $ (0.20)
=========== ===========
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 39,149,991 39,149,991
=========== ===========
</TABLE>
F-26
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Pro forma adjustments for the unaudited pro forma combined balance sheet as
of March 31, 1999 and the statements of operations for the year ended December
31, 1998 and the three months ended March 31, 1999 are as follows:
(1) Represents the issuance of 1,700,000 shares of LookSmart common stock
pursuant to the asset purchase agreement with Guthy-Renker Internet,
LLC
(2) Represents the issuance of warrants to purchase 280,000 shares of
LookSmart common stock pursuant to the asset purchase agreement with
ITW NewCorp, Inc.
(3) Reflects the elimination of Guthy-Renker Internet, LLC and ITW NewCorp,
Inc. stockholder's equity.
(4) Reflects assets and liabilities not assumed by LookSmart.
(5) Represents cash paid to Guthy-Renker Internet, LLC and ITW NewCorp,
Inc. pursuant to asset purchase agreements.
(6) Represents the allocation to goodwill and intangible assets of the
excess of the purchase price over fair value of net assets acquired as
a result of the Purchase Transactions. The purchase price of the
Purchase Transactions has been allocated to assets and liabilities
based on management's best estimates of their fair value with the
excess cost over the acquired net assets allocated to intangible assets
and goodwill. This allocation has resulted in $1.1 million in
intangible assets and $17.5 million in goodwill. These amounts are
being amortized over periods ranging from three to five years.
(7) Represents the amortization of intangible assets and goodwill discussed
above in note 6. For the unaudited pro forma combined statement of
operations for the year ended December 31, 1998 this amount also
includes amortization of intangible assets and goodwill as a result of
the BeSeen.com, Inc. merger.
(8) Represents elimination of Guthy-Renker Internet, LLC tax provision.
(9) Pro forma net loss reflects the impact of the adjustments above. Basic
and diluted net loss per share (pro forma) is computed using the
weighted-average number of shares of common stock outstanding after the
issuance of LookSmart common stock to purchase the Guthy-Renker
Internet, LLC assets. Pro forma basic and diluted net loss per share
includes the weighted-average shares described above and it gives
effect to the assumed conversion of LookSmart's Series A, B and C
preferred stock and Series 1 Junior preferred stock at the date of
issuance.
F-27
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
BeSeen.com, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' equity and cash flows present fairly, in all
material respects, the financial position of BeSeen.com, Inc. at December 31,
1997 and September 30, 1998, and the results of its operations and its cash
flows for the period from January 27, 1997 (inception) to December 31, 1997 and
for the nine month period ended September 30, 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
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, 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.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
April 7, 1999
F-28
<PAGE>
BESEEN.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $ 6,500 $ 11,616
Trade accounts receivable......................... -- 85,151
------- --------
Total current assets............................ 6,500 96,767
Computer equipment and software, net................ 15,347 33,426
------- --------
Total assets.................................... $21,847 $130,193
======= ========
Liabilities and Net Assets
Current liabilities:
Trade accounts payable............................ $ 6,152 $ 68,316
Other accrued liabilities......................... -- 13,912
Income taxes payable.............................. -- 2,214
------- --------
Total liabilities............................... 6,152 84,442
------- --------
Stockholders' equity:
Common stock, $.001 par value, 1,000,000 shares
authorized; issued and outstanding: 79,342 and
101,388 shares December 31, 1997 and
September 30, 1998, respectively................. 79 101
Additional paid-in capital........................ 46,012 100,015
Accumulated deficit............................... (30,396) (54,365)
------- --------
Total stockholders' equity...................... 15,695 45,751
------- --------
Total liabilities and stockholders' equity.... $21,847 $130,193
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
BESEEN.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
January 27, 1997 January 27, 1997
(Inception) to (Inception) to Nine Months Ended
December 31, 1997 September 30, 1997 September 30, 1998
----------------- ------------------ ------------------
<S> <C> <C> <C>
Revenues................ $ 13,059 $ 1,299 $235,942
Cost of revenues........ (19,228) (5,363) (69,718)
-------- -------- --------
Gross profit (loss)... (6,169) (4,064) 166,224
-------- -------- --------
Operating expenses:
Sales and marketing... 5,772 1,668 22,738
General and
administrative....... 10,759 2,933 143,031
Research and
development.......... 7,696 2,224 23,399
-------- -------- --------
Total operating
expenses........... 24,227 6,825 189,168
-------- -------- --------
Loss from
operations......... (30,396) (10,889) (22,944)
Interest expense, net... -- -- (1,025)
-------- -------- --------
Net loss.............. $(30,396) $(10,889) $(23,969)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
BESEEN.COM, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 27, 1997 (INCEPTION) TO SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------- Paid in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 27,
1997 (inception)......... -- $ -- $ -- $ -- $ --
Common stock issued for
cash..................... 79,342 79 46,012 -- 46,091
Net loss.................. -- -- -- (30,396) (30,396)
------- ---- -------- -------- --------
Balance at December 31,
1997..................... 79,342 79 46,012 (30,396) 15,695
Common stock issued for
cash..................... 20,658 21 11,979 -- 12,000
Common stock issued for
conversion of notes...... 1,121 1 42,024 -- 42,025
Net loss.................. -- -- -- (23,969) (23,969)
------- ---- -------- -------- --------
Balance at September 30,
1998..................... 101,121 $101 $100,015 $(54,365) $ 45,751
======= ==== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
BESEEN.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
January 27, 1997 January 27, 1997 Nine Months
(Inception) to (Inception) to Ended
December 31, 1997 September 30, 1997 September 30, 1998
----------------- ------------------ ------------------
<S> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(30,396) $(10,889) $(23,969)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 2,337 983 8,011
Noncash interest
expense.............. -- -- 1,025
Changes in operating
assets and
liabilities:
Decrease (increase)
in assets:
Trade account
receivable......... -- -- (85,151)
Increase (decrease)
in liabilities:
Trade accounts
payable............ 6,152 -- 62,164
Other accrued
liabilities........ -- -- 13,912
Income taxes
payable............ -- -- 2,214
-------- -------- --------
Net cash used in
operating
activities......... (21,907) (9,906) (21,794)
-------- -------- --------
Cash flows from
investing activities:
Purchase of computers
and software.......... (17,684) (12,726) (26,090)
-------- -------- --------
Net cash used in
investing.......... (17,684) (12,726) (26,090)
-------- -------- --------
Cash flows from
financing activities:
Proceeds from
stockholder
contributions......... 46,091 30,092 12,000
Proceeds from issuance
of note payable....... -- -- 47,000
Repayment of note
payable............... -- -- (6,000)
-------- -------- --------
Net cash provided by
financing
activities......... 46,091 30,092 53,000
-------- -------- --------
Net increase in cash and
cash equivalents....... 6,500 7,460 5,116
Cash and cash
equivalents, beginning
of period.............. -- -- 6,500
-------- -------- --------
Cash and cash
equivalents, end of
period................. $ 6,500 $ 7,460 $ 11,616
======== ======== ========
Supplemental noncash
activity:
Conversion of note
payable to equity..... $ -- $ -- $ 42,025
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
BESEEN.COM, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of presentation:
BeSeen.com, Inc. (the Company) was incorporated on August 3, 1998 as a
Texas corporation. As of that date, all interests in Duncan & Elmore,
L.L.C., a Texas limited liability company formed on January 27, 1997, were
transferred in exchange for 100,000 shares of BeSeen.com, Inc. common
stock. The issuance of these shares is retroactively presented in these
financial statements. The Company provides tools for website development
and online community interaction.
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.
Revenue Recognition:
Revenues are derived principally from short-term advertising contracts in
which the Company guarantees a minimum number of impressions (a view of an
advertisement by a consumer) for a fixed fee. Revenues are recognized
ratably over the period in which the advertisement is displayed, provided
that no significant obligations remain and collection of the resulting
receivable is probable. To the extent minimum guaranteed impressions are
not met, the Company defers recognition of the corresponding revenue until
the remaining guaranteed impression levels are achieved.
Revenues derived from monthly subscription services and upgrades are
recognized in the period in which the services are provided. The Company
records deferred revenues for any amounts received in advance of the
completion of the subscription period.
Revenues from retail sales are recognized in the period in which the goods
are shipped. Such revenues have been insignificant to date.
Cash and Cash Equivalents:
Cash and cash equivalents are stated at cost. The Company considers all
highly liquid investments with an original maturity of three months or less
to be cash equivalents.
Computer Equipment and Software:
Computer equipment and software are recorded at cost and depreciated using
the straight-line method over their useful lives of three years. When
assets are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from their respective accounts, and any gain or
loss on such sale or disposal is reflected in operations.
Maintenance and repairs are charged to expense as incurred. Expenditures
which substantially increase an asset's useful life are capitalized.
Computer equipment and software was $17,684 and $ 43,774 at December 31,
1997 and September 30 1998, respectively. Accumulated depreciation was
$2,337 and $10,348 at December 31, 1997 and September 30, 1998,
respectively.
F-33
<PAGE>
BESEEN.COM, INC.
NOTES TO FINANCIAL STATEMENTS
Product Development:
Costs incurred in the development of new products and enhancements to
existing products are charged to expense as incurred. Statements of
Financial Accounting Standards (SFAS) No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based upon the Company's
product development process, technological feasibility is established upon
completion of a working model. Costs incurred by the Company between
completion of the working model and the point at which the product is ready
for general release are considered to be insignificant.
Deferred Revenues:
Deferred revenues primarily represent prepayments by customers for
advertising space over a predetermined period.
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable. The
Company performs ongoing credit evaluations, does not require collateral,
and maintains reserves for potential credit losses on customer accounts
when deemed necessary.
Recently Issued Accounting Pronouncements:
In 1997 the Financial Accounting Standards Board issued SFAS No. 130,
"Comprehensive Income" and No. 131, "Disclosure About Segments of an
Enterprise and Related Information" which are effective for the year ending
December 31, 1998. In 1998 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which is
effective for the year ending December 31, 1999. The Company has not yet
determined the impact of the implementation of these pronouncements;
however, it is not expected to be material to the financial statements.
2. Income Taxes:
On August 3, 1998, the Company changed its tax status from a Limited
Liability Corporation to a C-Corporation. Prior to converting to a C-
Corporation, the taxes were the responsibility of the members of the
Limited Liability Corporation. There were no significant deferred tax
balances at September 30, 1998.
3. Common Stock:
On August 3, 1998, the Company incorporated as a Texas corporation. On that
date, the Corporation issued 1,000 share certificates for every one percent
of membership interest to the owners Duncan & Elmore, L.L.C. for a total of
100,000 shares.
4. Related Party Transactions:
On July 1, 1998, the Company issued a note payable to a contracted
technical support employee and investor in the amount of $41,000. As of
August 31, 1998, the outstanding principal and accrued interest of $1,025
were converted into 1,121 shares of common stock.
On April 10, 1998, an interest free loan payable to a Company officer, was
originated in the amount of $6,000. This loan was repaid on October 8,
1998.
5. Subsequent Event:
On October 23, 1998 in accordance with the Certificate of Merger and
Articles of Merger then dated, LookSmart, Ltd. acquired all of the
Company's outstanding shares of common stock, at which time the Company
became a wholly owned subsidiary of LookSmart, Ltd.
F-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Members
Guthy-Renker Internet, LLC
We have audited the accompanying balance sheets of Guthy-Renker Internet,
LLC, a California limited liability company, as of January 3, 1999 and December
31, 1997, and the related statements of operations, members' deficit, and cash
flows for the 53 weeks ended January 3, 1999 and the year ended December 31,
1997, respectively. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Guthy-Renker Internet, LLC
at January 3, 1999 and December 31, 1997, and the results of its operations and
its cash flows for the 53 weeks ended January 3, 1999 and the year ended
December 31, 1997, respectively, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Riverside, California
March 24, 1999,
except for Note 6,as to which the date is
April 9, 1999
F-35
<PAGE>
GUTHY-RENKER INTERNET, LLC
(a California limited liability company)
BALANCE SHEETS
<TABLE>
<CAPTION>
January 3, December
1999 31, 1997
----------- -----------
<S> <C> <C>
Assets
Current assets:
Accounts receivable................................. $ 127,000 $ 89,000
Deferred direct-response costs...................... 291,000 293,000
Supplies inventory.................................. 8,000 --
----------- -----------
Total current assets.............................. 426,000 382,000
Equipment........................................... 241,000 212,000
Accumulated depreciation............................ (167,000) (90,000)
----------- -----------
74,000 122,000
----------- -----------
Total assets...................................... $ 500,000 $ 504,000
=========== ===========
Liabilities and members' equity (deficit)
Current liabilities:
Accounts payable.................................... $ 1,016,000 $ 854,000
Amounts due to member............................... 735,000 192,000
Accrued Internet setup costs........................ 227,000 280,000
Accrued expenses.................................... 22,000 96,000
Deferred revenue.................................... 68,000 110,000
----------- -----------
Total current liabilities......................... 2,068,000 1,532,000
Contingencies
Members' deficit...................................... (1,568,000) (1,028,000)
----------- -----------
Total liabilities and members' deficit............ $ 500,000 $ 504,000
=========== ===========
</TABLE>
See accompanying notes.
F-36
<PAGE>
GUTHY-RENKER INTERNET, LLC
(a California limited liability company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
53 weeks
Ended Year Ended
January 3, December
1999 31, 1997
----------- -----------
<S> <C> <C>
Gross revenues........................................ $11,201,000 $20,925,000
Less returns........................................ (531,000) (2,102,000)
----------- -----------
Net revenues...................................... 10,670,000 18,823,000
Cost of revenues...................................... 6,459,000 9,608,000
----------- -----------
Gross profit.......................................... 4,211,000 9,215,000
Cost and expenses:
Advertising expense................................. 3,214,000 5,364,000
General and administrative expenses................. 1,532,000 2,763,000
----------- -----------
Total costs and expenses.......................... 4,746,000 8,127,000
----------- -----------
Income (loss) before tax expense...................... (535,000) 1,088,000
Income tax expense.................................... 5,000 5,000
----------- -----------
Net income (loss)................................. $ (540,000) $ 1,083,000
=========== ===========
</TABLE>
See accompanying notes.
F-37
<PAGE>
GUTHY-RENKER INTERNET, LLC
(a California limited liability company)
STATEMENTS OF MEMBERS' DEFICIT
<TABLE>
<CAPTION>
Guthy-
Renker Shim and Sons Platform
Corporation Enterprises, Inc. Dynamics, Inc. Total
----------- ----------------- -------------- -----------
<S> <C> <C> <C> <C>
Balance at January 1,
1997................... $ 1,543,800 $ (28,400) $ (28,400) $ 1,487,000
Net income............ 649,800 216,600 216,600 1,083,000
Distributions to
members.............. (2,618,000) (490,000) (490,000) (3,598,000)
----------- --------- --------- -----------
Balance at December 31,
1997................... (424,400) (301,800) (301,800) (1,028,000)
Net loss.............. (432,000) (108,000) -- (540,000)
Transfer of negative
equity of selling
member............... (301,800) -- 301,800 --
----------- --------- --------- -----------
Balance at January 3,
1999................... $(1,158,200) $(409,800) $ -- $(1,568,000)
=========== ========= ========= ===========
</TABLE>
See accompanying notes.
F-38
<PAGE>
GUTHY-RENKER INTERNET, LLC
(a California limited liability company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
53 weeks
Ended Year Ended
January 3, December 31,
1999 1997
---------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $(540,000) $ 1,083,000
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation....................................... 77,000 58,000
Provision for loss on receivables.................. 197,000 104,000
Changes in operating assets and liabilities:
Accounts receivable.............................. (235,000) (45,000)
Supplies inventory............................... (8,000) --
Amounts due to member............................ 543,000 192,000
Deferred direct-response costs................... 2,000 (92,000)
Accounts payable................................. 162,000 241,000
Accrued Internet setup costs..................... (53,000) 94,000
Accrued expenses................................. (74,000) 51,000
Deferred revenues................................ (42,000) (162,000)
--------- -----------
Net cash provided by operating activities.............. 29,000 1,524,000
Cash flows from investing activities
Purchases of equipment............................... (29,000) (78,000)
Cash flows from financing activities:
Amount due from member............................... -- 2,152,000
Distributions to members............................. -- (3,598,000)
--------- -----------
Net cash used in financing activities.................. -- (1,446,000)
Net change in cash..................................... -- --
Cash at beginning of year.............................. -- --
--------- -----------
Cash at end of year.................................... $ -- $ --
========= ===========
Supplemental disclosure of cash flow information:
Cash paid for taxes.................................... $ 5,000 $ 5,000
========= ===========
</TABLE>
See accompanying notes.
F-39
<PAGE>
GUTHY-RENKER INTERNET, LLC
(a California limited liability company)
NOTES TO FINANCIAL STATEMENTS
JANUARY 3, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
Guthy-Renker Internet, LLC, a California limited liability company
(Company), was formed on January 1, 1996. Guthy-Renker Corporation (GRC), Shim
and Sons Enterprises, Inc. (SSE) and Platform Dynamics, Inc. (PDI) are members
of the Company having a 60%, 20% and 20% interest in the Company, respectively.
On May 22, 1998, PDI sold its 20% interest to GRC. As a result of the
transaction, GRC has $800,000 of goodwill which has not been pushed down to the
Company.
The Company is in the business of providing Internet-related seminars and
selling Internet websites throughout the United States. The Company also
receives revenues from processing sales orders of GRC products purchased
through the Internet.
Effective January 1, 1998, the Company changed from a calendar year end to a
52- or 53-week year, ending on the Sunday nearest December 31 each year. For
the convenience of the readers, the 52 or 53 weeks ended December 31, 1997 and
January 3, 1999 will be referred to as the years ended 1997 and 1998,
respectively.
Operating Agreement
As set forth in the Operating Agreement (the Agreement), no member is
required to make any additional capital contributions other than the initial
contributions unless there is unanimous consent of the members.
Net profits and losses shall be allocated to the members in proportion to
their membership interests. Losses should be allocated only to the extent that
such allocation will not create a deficit capital account balance. Any excess
losses will be reallocated to the other members that have positive capital
accounts. Any reallocation will be taken into account in computing subsequent
allocations of income.
During 1997, the Company made distributions in excess of the amounts
provided for under the Agreement. In accordance with the Agreement, these
overpayments will be withheld from future cash distributions until the
overpayments have been recovered.
The Company pays fees to the members for providing management and other
services to the Company. The Company pays GRC a fee equal to 4% of the
Company's gross revenues, as defined; SSE a fee of at least $15,000 per month;
and PDI a fee of 7% of certain revenues or otherwise $15,000 per month until
the dissolution of its member interest. The fees are considered remuneration
for services and not distributions of the Company.
Each member's liability is limited pursuant to the Beverly-Killea Limited
Liability Company Act. The term of the Company shall continue until December
31, 2050, unless terminated sooner pursuant to the terms of the Agreement.
F-40
<PAGE>
GUTHY-RENKER INTERNET, LLC
(a California limited liability company)
NOTES TO FINANCIAL STATEMENTS
Deferred Direct-Response Costs
Deferred direct-response costs include production costs and direct-response
advertising costs. The Company defers these costs in accordance with Statement
of Position 93-7, "Reporting on Advertising Costs." Production costs include
various costs incurred by the Company to produce a commercial, generally for
television, in which the Company's seminars are marketed. The costs are
amortized over the estimated revenue stream, not to exceed 12 months. Direct-
response advertising costs include costs of airing the commercials and are
expensed when the revenues are recognized.
Equipment
Equipment is stated at cost and is depreciated using the straight-line
method based on an estimated useful life of three years.
Accrued Internet Setup Costs
Accrued Internet setup costs represent estimated costs expected to be
incurred for setup of Internet Web pages.
Income Taxes
As a limited liability company, the Company pays no federal income tax and a
nominal state LLC surtax; the members include their respective share of profits
or losses in their individual federal and state income tax returns.
Revenue Recognition
Revenues include seminar fees, sales of Internet Web pages, subscription
sales of virtual mall Web pages and Internet sales order processing fees. The
Company records revenues for the seminars when the seminars are conducted.
Revenues for the Internet Web pages are recorded when the pages are delivered.
Revenues for the subscription sales are recorded on a monthly basis. Revenues
for the processing fees are recorded when the related products are shipped. The
Company offers its services over a broad geographic base and is not dependent
on any single customer or market geographic area.
Deferred revenue represents amounts received from customers for future
seminars and is recognized when the seminar is given. Amounts received in
advance for Internet subscriptions are recognized as revenue on a monthly
basis.
Credit is extended based on an evaluation of the customer's financial
condition and collateral is generally not required. Credit losses have
traditionally been minimal and such losses have been within management's
expectation.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-41
<PAGE>
GUTHY-RENKER INTERNET, LLC
(a California limited liability company)
NOTES TO FINANCIAL STATEMENTS
2. Deferred Direct-Response Costs
Deferred direct-response costs are included in seminar and website expenses
and advertising expenses and consist of direct-response advertising costs of
$291,000 and $293,000 at January 3, 1999 and December 31, 1997, respectively.
3. Related-Party Transactions
In accordance with the Agreement (Note 1), the Company pays amounts to the
members for providing management and other services to the Company. Total fees
recognized as expense for fees paid to GRC, SSE and PDI were $427,000, $334,000
and $23,000 in 1998, and $742,000, $534,000 and $543,000 in 1997, respectively.
Commissions are paid to GRC for the sales of GRC products over the Internet
and were approximately $975,000 in 1998. There were no such expenses in 1997.
Amounts due to GRC for intercompany expenses totaled $735,000 and $192,000
at January 3, 1999 and December 31, 1997, respectively.
4. Contingencies
The Company is involved with pending litigation which has arisen in the
ordinary course of business. Although the outcome of these matters is not
presently determinable, management does not expect that the resolution of these
matters will have a material adverse impact on the financial condition of the
Company.
5. Impact of Year 2000 (Unaudited)
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. GRC performs the
accounting functions for the Company. GRC has completed an assessment of its
systems to ensure Year 2000 compliance and is upgrading their systems to be
compliant by third quarter 1999.
There can be no assurance that the systems of customers and suppliers upon
which the Company relies also will be compliant by the Year 2000. Should there
be such a failure by the customers and suppliers to convert to a Year 2000
compliant status, it would not have a material adverse effect on the operations
of the Company.
6. Subsequent Event
On April 9, 1999, the assets of the Company were sold to a third party.
F-42
<PAGE>
GUTHY-RENKER INTERNET, LLC
(a California limited liability company)
BALANCE SHEETS
<TABLE>
<CAPTION>
January 3, April 4,
1999 1999
----------- -----------
(unaudited)
<S> <C> <C>
Assets
Current Assets:
Accounts receivable................................. $ 127,000 $ 5,000
Deferred direct-response costs...................... 291,000 138,000
Supplies inventory.................................. 8,000 8,000
----------- -----------
Total current assets.............................. 426,000 151,000
Equipment............................................. 241,000 255,000
Accumulated depreciation.............................. (167,000) (183,000)
----------- -----------
74,000 72,000
----------- -----------
Total assets...................................... $ 500,000 $ 223,000
=========== ===========
Liabilities and members' equity (deficit)
Current liabilities:
Accounts payable.................................... $ 1,016,000 $ 789,000
Amounts due to member............................... 735,000 773,000
Accrued Internet setup costs........................ 227,000 250,000
Accrued expenses.................................... 22,000 27,000
Deferred revenue.................................... 68,000 47,000
----------- -----------
Total current liabilities......................... 2,068,000 1,886,000
Contingencies
Members' deficit...................................... (1,568,000) (1,663,000)
----------- -----------
Total liabilities and members' deficit............ $ 500,000 $ 223,000
=========== ===========
</TABLE>
F-43
<PAGE>
GUTHY-RENKER INTERNET, LLC
(a California limited liability company)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended
13 Weeks Ended March 31,
April 4, 1999 1998
-------------- -------------
<S> <C> <C>
Gross revenues..................................... $3,580,000 $2,653,000
Less returns..................................... (109,000) (60,000)
---------- ----------
Net revenues................................... 3,471,000 2,593,000
Cost of revenues................................... 2,287,000 1,433,000
---------- ----------
Gross profit....................................... 1,184,000 1,160,000
Costs and Expenses:
Advertising expense.............................. 853,000 627,000
General and administrative expenses.............. 421,000 407,000
---------- ----------
Total costs and expenses....................... 1,274,000 1,034,000
---------- ----------
Income (loss) before tax expense................... (90,000) 126,000
Income tax expense................................. (5,000) (5,000)
---------- ----------
Net income (loss).............................. $ (95,000) $ 121,000
========== ==========
</TABLE>
F-44
<PAGE>
GUTHY-RENKER INTERNET, LLC
(a California limited liability company)
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
13 Weeks
Ended Quarter Ended
April 4, March 31,
1999 1998
--------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ (95,000) $121,000
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation........................................ 16,000 19,000
Change in operating assets and liabilities:
Accounts receivable................................ 122,000 32,000
Amounts due to member.............................. 38,000 (12,000)
Deferred direct-response costs..................... 153,000 77,000
Accounts payable................................... (227,000) (94,000)
Accrued Internet setup costs....................... 23,000 (31,000)
Accrued expenses................................... 5,000 (46,000)
Deferred revenues.................................. (21,000) (52,000)
--------- --------
Net cash provided by operating activities............. 14,000 14,000
Cash flows from investing activities:
Purchases of equipment.............................. (14,000) (14,000)
--------- --------
Net change in cash.................................... -- --
Cash at beginning of quarter.......................... -- --
--------- --------
Cash at end of quarter................................ $ -- $ --
========= ========
Supplemental Information:
Cash paid for taxes................................... $ 5,000 $ --
========= ========
</TABLE>
F-45
<PAGE>
GUTHY-RENKER INTERNET, LLC
(a California limited liability company)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
April 4, 1999
1. Basis of Presentation
In the opinion of management, the accompanying unaudited financial
statements contain all normal recurring adjustments necessary to present fairly
the financial position of Guthy-Renker Internet, LLC (Company) as of April 4,
1999 and the results of its operations and its cash flows for the three months
ended March 31, 1998 and April 4, 1999. These financial statements should be
read in conjunction with the audited financial statements and related notes as
of and for the 53 weeks ended January 3, 1999. The operating results for the
three months ended March 31, 1998 and 13 weeks ended April 4, 1999 are not
necessarily indicative of the results of operations for a full year.
2. 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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Contingencies
The Company is involved with pending litigation which has arisen in the
ordinary course of business. Although the outcome of these matters is not
presently determinable, management does not expect that the resolution of these
matters will have a material adverse impact on the financial condition of the
Company.
4. Subsequent Event
On April 9, 1999, the assets of the Company were sold to a third party.
F-46
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder of
ITW NewCorp, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholder's equity and cash flows present fairly, in all
material respects, the financial position of ITW NewCorp, Inc., successor to
Inside the Web, Inc., at December 31, 1997 and 1998, and March 31, 1999, the
results of its operations and its cash flows for each of the years ended
December 31, 1997 and 1998 and the three months ended March 31, 1999 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, 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.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
June 4, 1999
F-47
<PAGE>
ITW NEWCORP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------- March 31,
1997 1998 1999
------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 1,737 $ 1,412 $ 22,540
Trade accounts receivable....................... 10,878 135,123 125,556
Other current assets............................ 3,208 41 41
------- -------- --------
Total current assets.......................... 15,823 136,576 148,137
Property and equipment, net....................... 3,571 7,228 8,659
------- -------- --------
Total assets.................................. $19,394 $143,804 $156,796
======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable.......................... $ -- $ 1,976 $ 5,058
Credit card and other liabilities............... 7,998 8,371 2,483
------- -------- --------
Total liabilities............................. 7,998 10,347 7,541
------- -------- --------
Stockholder's equity:
Common stock, $.01 par value; 1,000 shares
authorized; 100 issued and outstanding......... 1 1 1
Additional paid-in capital...................... 428 6,436 6,436
Retained earnings............................... 10,967 127,020 142,818
------- -------- --------
Total stockholder's equity.................... 11,396 133,457 149,255
------- -------- --------
Total liabilities and stockholder's equity.. $19,394 $143,804 $156,796
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-48
<PAGE>
ITW NEWCORP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended Three Months
December 31, Ended March 31,
----------------- -----------------
1997 1998 1998 1999
------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C>
Revenues.................................. $37,458 $389,285 $28,124 $193,408
Cost of revenues.......................... 7,967 119,469 8,104 68,618
------- -------- ------- --------
Gross margin.......................... 29,491 269,816 20,020 124,790
------- -------- ------- --------
Operating expenses:
Sales and marketing..................... 87 23,903 12 24,321
General and administrative.............. 10,861 70,006 6,008 57,504
Research and development................ 9,161 58,422 9,374 27,053
------- -------- ------- --------
Total operating expenses.............. 20,109 152,331 15,394 108,878
------- -------- ------- --------
Income from operations................ 9,382 117,485 4,626 15,912
Interest expense.......................... (124) (1,432) (371) (114)
------- -------- ------- --------
Net income............................ $ 9,258 $116,053 $ 4,255 $ 15,798
======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-49
<PAGE>
ITW NEWCORP, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
------------- Paid In Retained Stockholder's
Shares Amount Capital Earnings Equity
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997.... 100 $ 1 $ 8 $ 1,709 $ 1,718
Capital contributions......... -- -- 420 -- 420
Net income.................... -- -- -- 9,258 9,258
--- --- ------ -------- --------
Balance at December 31, 1997.. 100 1 428 10,967 11,396
Capital contributions......... -- -- 6,008 -- 6,008
Net income.................... -- -- -- 116,053 116,053
--- --- ------ -------- --------
Balance at December 31, 1998.. 100 1 6,436 127,020 133,457
Net income (unaudited)........ -- -- -- 15,798 15,798
--- --- ------ -------- --------
Balance at March 31, 1999
(unaudited).................. 100 $ 1 $6,436 $142,818 $149,255
=== === ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
ITW NEWCORP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended Three Months
December 31, Ended March 31,
------------------ ----------------
1997 1998 1998 1999
------- --------- ------- -------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 9,258 $ 116,053 $ 4,255 $15,798
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization........ 308 2,124 437 841
Changes in operating assets and
liabilities:
Decrease (increase) in assets:
Trade accounts receivable.......... (9,430) (124,245) (8,937) 9,567
Other current assets............... (3,070) 3,167 3,117 --
Decrease (increase) in liabilities:
Trade accounts payable............. -- 1,976 2,670 3,082
Credit card and other liabilities.. 7,192 373 480 (5,888)
------- --------- ------- -------
Net cash provided by (used) in
operating activities.............. 4,258 (552) 2,022 23,400
------- --------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment.... (3,879) (5,781) (2,039) (2,272)
------- --------- ------- -------
Net cash used in investing
activities........................ (3,879) (5,781) (2,039) (2,272)
------- --------- ------- -------
Cash flows from financing activities:
Proceeds from stockholder
contributions......................... 420 6,008 -- --
------- --------- ------- -------
Net cash provided by financing
activities........................ 420 6,008 -- --
------- --------- ------- -------
Net increase (decrease) in cash and
cash equivalents.................. 799 (325) (17) 21,128
Cash and cash equivalents, beginning of
period.................................. 938 1,737 1,737 1,412
------- --------- ------- -------
Cash and cash equivalents, end of
period.................................. $ 1,737 $ 1,412 $ 1,720 $22,540
======= ========= ======= =======
Supplemental disclosure of cash flow
information:
Cash paid for interest................. $ 124 $ 1,432 $ 371 $ 114
======= ========= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-51
<PAGE>
ITW NEWCORP, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Basis of Presentation:
ITW NewCorp, Inc. was incorporated March 9, 1999 and is the successor to
Inside the Web, Inc., which was incorporated on August 5, 1998. The
corporations are the successors to a sole proprietorship founded in
September 1994. The corporations and sole proprietorship are referred to
hereafter as "the Company". The Company provides free customized message
board systems for existing Internet sites. Upon incorporation, the Company
issued 100 shares of common stock with a par value of $0.01 to the former
sole proprietor in exchange for the assets and liabilities of the sole
proprietorship. This issuance of common stock has been retroactively
presented in these financial statements and all assets and liabilities have
been presented at their historical basis.
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.
Unaudited Interim Financial Information:
The accompanying interim consolidated balance sheet, statements of
operations and statements of cash flows at March 31, 1999 and for the three
months ended March 31, 1998 and 1999 together with the related notes, are
unaudited but include all adjustments (consisting of normal recurring
accruals) which, in the opinion of management, are necessary for a fair
statement of the financial position and the operating results and cash
flows for the interim date and periods presented. Results for the interim
periods ended March 31, 1998 and 1999 are not necessarily indicative of
results for the entire fiscal year or future periods.
Revenue Recognition:
Revenues are derived principally from short-term advertising contracts.
Revenues are recognized as impressions (a view of an advertisement by a
consumer) are delivered, provided that no other significant obligations
remain and collection of the resulting receivable is probable.
Cash and Cash Equivalents:
Cash and cash equivalents are stated at cost. The Company considers all
highly liquid investments with an original maturity of three months or less
to be cash equivalents.
Fair Value of Financial Instruments:
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, and accounts payable are carried at cost, which
approximates fair value due to the relatively short maturity of those
instruments.
Property and Equipment:
Property and equipment are recorded at cost and depreciated using the
straight-line method over their useful lives of three years for computer
equipment and five years for furniture and
F-52
<PAGE>
ITW NEWCORP, INC.
NOTES TO FINANCIAL STATEMENTS
fixtures. When assets are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from their accounts, and any gain or
loss on such sale or disposal is reflected in operations.
Maintenance and repairs are charged to expense as incurred. Expenditures
which substantially increase an asset's useful life are capitalized.
Concentration of Credit Risk:
The Company has used two third-party marketing companies to generate more
than 90% of its revenues for the years ended December 31, 1997 and 1998,
and for the three month period ended March 31, 1999. As of December 31,
1997 and 1998 and March 31, 1999 receivables from these third party
marketing companies exceeded 90% of total accounts receivable.
Comprehensive Income:
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130 (SFAS No. 130), "Comprehensive Income". SFAS No. 130
establishes standards for reporting comprehensive income and its components
in financial statements. Comprehensive income, as defined, includes all
changes in equity (net assets) during a period from nonowner sources. To
date, the Company has not had any transactions that are required to be
included in comprehensive income other than net income.
Segment Information:
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
(SFAS No. 131), "Disclosures about Segments of an Enterprise and Related
Information". This statement establishes standards for the way companies
report information about operating segments in financial statements. It
also establishes standards for related disclosures about products and
services, geographic areas and major customers. In accordance with the
provisions of SFAS No. 131, the Company has determined that it does not
have any separately reportable operating segments.
Recently Issued Accounting Pronouncements:
In 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits,"
and No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which are effective for the year ending December 31, 1999. The
Company has not yet determined the impact of the implementation of these
pronouncements; however, it is not expected to be material to the financial
statements.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1), which provides
guidance for determining whether computer software is internal-use software
and accounting for the proceeds of computer software originally developed
or obtained for internal use and then subsequently sold to the public. SOP
98-1 also provides guidance on capitalization of the costs incurred for
computer software developed or obtained for internal use. The Company does
not expect the adoption of SOP 98-1 to have a material effect on the
financial statements.
F-53
<PAGE>
ITW NEWCORP, INC.
NOTES TO FINANCIAL STATEMENTS
2. Property and Equipment:
Property and equipment consisted of the following at:
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1997 1998 1999
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Computer equipment........ $3,879 $9,660 $10,863
Furniture and fixtures.... -- -- 1,069
------ ------ -------
3,879 9,660 11,932
Less accumulated
depreciation and
amortization............. 308 2,432 3,273
------ ------ -------
Property and equipment,
net.................... $3,571 $7,228 $ 8,659
====== ====== =======
</TABLE>
3. Income Taxes:
At August 5, 1998, the Company elected and continues to be treated as an S-
corporation for tax purposes. Prior to this, the Company was a sole
proprietorship. As an S-corporation, the Company's income and expenses are
passed through to its stockholder rather than being taxed at the
corporation level. The Company is not required to pay any federal or state
taxes.
4. Common Stock:
On March 9, 1999, the Company reincorporated as a Florida corporation. The
Company is authorized to issue 1,000 shares of common stock with a par
value of $0.01 per share.
5. Subsequent Events:
Subsequent to March 31, 1999, the Company sold substantially all of its
assets to LookSmart, Ltd.
F-54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
LookSmart, Ltd. and Subsidiaries:
In our opinion, the accompanying balance sheet and the related statement of
operations, stockholders' deficit and cash flows present fairly, in all
material respects, the financial position of HomeBase Directories Pty Ltd at
July 24, 1996, and the results of its operations and its cash flows for the
period from January 1, 1996 to July 24, 1996, 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.
/s/ PriceWaterhouseCoopers LLP
San Francisco, California
June 4, 1999
F-55
<PAGE>
HOMEBASE DIRECTORIES PTY LTD.
(Predecessor to LookSmart, Ltd.)
BALANCE SHEET
<TABLE>
<CAPTION>
July 24,
1996
-----------
<S> <C>
Assets
Current assets:
Cash............................................................ $ 36,408
Prepaid expenses................................................ 15,291
Other current assets............................................ 791
-----------
Total current assets.......................................... 52,490
Plant and equipment, net.......................................... 281,937
-----------
Total assets.................................................. $ 334,427
===========
Liabilities and Stockholders' deficit
Current liabilities:
Accounts payable................................................ $ 215,148
Notes payable................................................... 1,479,781
Accrued liabilities............................................. 73,559
-----------
Total current liabilities..................................... 1,768,488
-----------
Total liabilities............................................. 1,768,488
-----------
Stockholders' deficit:
Common stock, $1 par value, 100,000 shares authorized; 12 shares
issued and outstanding at July 24, 1996........................ $ 12
Additional paid-in capital...................................... 53,321
Cumulative translation adjustment............................... (35,219)
Accumulated deficit............................................. (1,452,175)
-----------
Total stockholders' deficit................................... (1,434,061)
-----------
Total liabilities and stockholders' deficit................... $ 334,427
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-56
<PAGE>
HOMEBASE DIRECTORIES PTY LTD.
(Predecessor to LookSmart, Ltd.)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the
Period From
January 1,
1996 to
July 24,
1996
-----------
<S> <C>
Operating expenses:
Sales and marketing............................................. $ 271,997
General and administrative...................................... 568,403
Product development............................................. 545,272
-----------
Total operating expenses...................................... 1,385,672
-----------
Loss from operations.............................................. (1,385,672)
Interest expense, net............................................. (42,391)
-----------
Net loss...................................................... $(1,428,063)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-57
<PAGE>
HOMEBASE DIRECTORIES PTY LTD.
(Predecessor to LookSmart, Ltd.)
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional Cumulative Total
------------- Paid In Translation Cumulative Stockholders'
Shares Amount Capital Adjustment Deficit Deficit
------ ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1,
1996................... 12 $12 $ -- $ 139 $ (24,112) $ (23,961)
Stockholder
contribution........... -- -- 53,321 -- -- 53,321
Foreign currency
translation
adjustment............. -- -- -- (35,358) -- (35,358)
Net loss................ -- -- -- -- (1,428,063) (1,428,063)
--- --- ------- -------- ----------- -----------
Balances at July 24,
1996................... 12 $12 $53,321 $(35,219) $(1,452,175) $(1,434,061)
=== === ======= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-58
<PAGE>
HOMEBASE DIRECTORIES PTY LTD.
(Predecessor to LookSmart, Ltd.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
from January 1, 1996
to July 24, 1996
--------------------
<S> <C>
Cash flows from operating activities:
Net loss................................................ $(1,428,063)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation expense.................................. 34,201
Changes in operating assets and liabilities:
Increase in prepaid expenses.......................... (14,023)
Increase in other current assets...................... (773)
Increase in accounts payable.......................... 137,146
Increase in accrued liabilities....................... 77,290
-----------
Net cash used in operating activities............... (1,194,222)
Cash flows from investing activities:
Purchases of plant and equipment........................ (268,267)
-----------
Net cash used in investing activities............... (268,267)
Cash flows from financing activities:
Proceeds from note payable.............................. 1,048,073
-----------
Net cash provided by financing activities........... 1,048,073
-----------
Decrease in cash.................................... (414,416)
Cash and cash equivalents, beginning of period............ 450,824
-----------
Cash and cash equivalents, end of period.................. $ 36,408
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-59
<PAGE>
HOMEBASE DIRECTORIES PTY LTD.
(Predecessor to LookSmart, Ltd.)
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Basis of Presentation:
HomeBase Directories Pty Ltd. (Company) was incorporated on September 11,
1995 in Melbourne, Australia and is the predecessor to LookSmart, Ltd. The
Company's activities consisted of developing comprehensive Internet navigation
services. On July 24, 1996, the Company sold substantially all assets and
liabilities to NetGet Ltd.
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.
Revenue Recognition:
Interest revenue is recognized as it is earned. No revenues have been
derived from the Company's product to date.
Cash and Cash Equivalents:
Cash and cash equivalents are stated at cost. The Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
Fair Value of Financial Instruments:
The Company's financial instruments, including cash and cash equivalents,
notes payable and accounts payable, are carried at cost, which approximates
fair value due to the short maturity of those instruments.
Plant and Equipment:
Plant and equipment are recorded at cost and depreciated using the straight-
line method over their useful lives, which is three years for computer
equipment and five years for furniture and fixtures. Leasehold improvements are
depreciated over the shorter of five years or the lease term. When assets are
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from their respective accounts, and any gain or loss on such sale or
disposal is reflected in operations.
Maintenance and repairs are charged to expense as incurred. Expenditures
which substantially increase an asset's useful life are capitalized.
Foreign Currency Translation:
The accounts of the Company are translated into U.S. dollars, the functional
currency, at period end rates of exchange. Revenues and expenses are translated
at average rates for the period. The resulting translation adjustments are
shown as a separate component of stockholders' equity. Gains and losses from
foreign currency transactions are included in the determination of operations
and are not material.
F-60
<PAGE>
HOMEBASE DIRECTORIES PTY LTD.
(Predecessor to LookSmart, Ltd.)
NOTES TO FINANCIAL STATEMENTS
2. Plant and Equipment:
Plant and equipment at July 24, 1996 consisted of the following:
<TABLE>
<S> <C>
Computer equipment............................................. $255,930
Furniture and fixtures......................................... 3,826
Leasehold improvements......................................... 56,382
--------
316,138
Less accumulated depreciation................................ (34,201)
--------
Plant and equipment, net................................... $281,937
========
</TABLE>
3. Income Taxes:
For the period ended July 24, 1996, no income tax provision was recorded, as
the Company did not have taxable income.
The primary components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
July 24,
1996
---------
<S> <C>
Net operating loss carryforwards.............................. $ 495,350
Less valuation allowance...................................... (495,350)
---------
$ --
=========
</TABLE>
Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its otherwise recognizable net deferred tax asset.
4. Notes Payable:
During 1995 and 1996, the Company borrowed $1,479,781 from a strategic
partner, and issued a note for the same amount.
5. Related Party Transactions:
During 1996, the company purchased plant and equipment from asia.java.com
Pty Ltd, the Company's parent company, for $10,856.
F-61
<PAGE>
UNDERWRITING
LookSmart and the Underwriters named below (the "underwriters") have entered
into an underwriting agreement with respect to the shares being offered.
Subject to certain conditions, each underwriter has severally agreed to
purchase the number of shares indicated in the following table. Goldman, Sachs
& Co., BancBoston Robertson Stephens Inc. and Hambrecht & Quist LLC are the
representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
BancBoston Robertson Stephens Inc. .........................
Hambrecht & Quist LLC.......................................
-----
Total.....................................................
=====
</TABLE>
----------------
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from LookSmart to cover such sales. They may exercise
that option for 30 days. If any shares are purchased pursuant to this option,
the underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the underwriters by LookSmart. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by LookSmart No Exercise Full Exercise
----------------- ----------- -------------
<S> <C> <C>
Per Share..........................................
Total..............................................
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to per share from the initial public offering price.
Any such securities dealers may resell any shares purchased from the
underwriters to certain other brokers or dealers at a discount of up to
per share from the initial public offering price. If all the shares are not
sold at the initial public offering price, the representatives may change the
offering price and the other selling terms.
LookSmart and its directors, officers, employees and other securityholders
have agreed with the underwriters not to dispose of or hedge any of their
common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of the representatives. See "Shares Eligible for Future
Sale" for a discussion of certain transfer restrictions.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock has been
negotiated among LookSmart and the representatives of the underwriters. Among
the factors considered in determining the initial public offering price of the
shares, in addition to prevailing market conditions, were LookSmart's
historical performance, estimates of LookSmart's business potential and
earnings prospects, an assessment of LookSmart's management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.
U-1
<PAGE>
We have applied for quotation of the common stock on the Nasdaq National
Market under the symbol "LOOK".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short-sale
covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
The underwriters have reserved for sale, at the initial public offering
price, up to of common stock offered hereby for certain individuals
designated by LookSmart who have expressed an interest in purchasing such
shares of common stock in the offering. The number of shares available for sale
to the general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same basis as other shares offered
hereby.
LookSmart estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $ .
LookSmart has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
U-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
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
Business................................................................. 36
Management............................................................... 48
Certain Transactions..................................................... 57
Principal Stockholders................................................... 60
Description of Capital Stock ............................................ 63
Shares Eligible for Future Sale.......................................... 67
Legal Matters............................................................ 69
Experts.................................................................. 69
Where You Can Find More Information...................................... 70
Index to the Financials Statements....................................... F-1
Underwriting............................................................. U-1
</TABLE>
--------------------
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
LookSmart, Ltd.
Common Stock
-------------------------
[LOGO]
-------------------------
Goldman, Sachs & Co.
BancBoston Robertson Stephens
Hambrecht & Quist
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
Information Not Required In Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses to be paid by the Registrant,
other than the underwriting discounts and commissions payable by the Registrant
in connection with the sale of the common stock being registered. All amounts
shown are estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
Registration fee.................................................... $ 41,700
NASD filing fee..................................................... 20,500
Nasdaq National Market System listing fee........................... 50,000
Printing and engraving expenses..................................... 150,000
Legal fees and expenses............................................. 400,000
Accounting fees and expenses........................................ 300,000
Transfer agent and registrar fees................................... 10,000
Miscellaneous expenses.............................................. 227,800
----------
Total............................................................. $1,200,000
==========
</TABLE>
- --------
* To be supplied by amendment.
Item 14. Indemnification of Officers and Directors.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Certificate of
Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements with its
directors, officers and certain employees which would require the Registrant,
among other things, to indemnify them against certain liabilities which may
arise by reason of their status or service (other than liabilities arising from
willful misconduct of a culpable nature). The Registrant also intends to
maintain director and officer liability insurance, if available on reasonable
terms.
These indemnification provisions and the indemnification agreement to be
entered into between the Registrant and its officers and directors may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
The Registrant intends to obtain in conjunction with the effectiveness of
the Registration Statement a policy of directors' and officers' liability
insurance that insures the Registrant's directors and officers against the cost
of defense, settlement or payment of a judgment under certain circumstances.
The underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act, or otherwise.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Since our incorporation in July 1996, we have sold and issued the following
securities:
(1) On July 24, 1996, we issued 79,760,000 shares of common stock to two
founding stockholders for an aggregate consideration of $19,940.00.
(2) On September 22, 1997, we repurchased 67,760,000 shares of our common
stock from one founding stockholder for the aggregate repurchase price of
$16,940.00 in exchange for the issuance of a warrant to purchase 6,000,000
shares of common stock and a promissory note in the aggregate amount of
$1,500,000. Such warrant has an exercise price of $0.00025 per share.
(3) On January 5, 1998, we issued a warrant for 1,000,000 shares of
mandatorily redeemable convertible preferred stock (Series A) to a bank in
connection with a line of credit agreement for an aggregate purchase price
of $534,400.00.
(4) On February 1, 1998, we issued to one investor a convertible
promissory note in the aggregate amount of $250,000.00, mandatorily
redeemable for preferred stock (Series A).
(5) On February 5, 1998, we issued to two investors convertible
promissory notes in the aggregate amount of $250,000.00, mandatorily
redeemable for preferred stock (Series A).
(6) On March 7, 1998, we issued to one investor a convertible promissory
note in the aggregate amount of $50,000.00, mandatorily redeemable for
preferred stock (Series A).
(7) On March 12, 1998, we issued to one investor a convertible promissory
note in the aggregate amount of $75,000.00, mandatorily redeemable for
preferred stock (Series A).
(8) On March 26, 1998, we issued a warrant for 673,608 shares of
mandatorily redeemable convertible preferred stock (Series A) to one
investor for an aggregate purchase price of $359,976.12.
(9) On March 27, 1998, we issued to one investor a convertible promissory
note in the aggregate amount of $1,500,000, mandatorily redeemable for
preferred stock (Series A).
(10) On April 6, 1998, we issued to one investor a warrant for 224,536
shares for an aggregate purchase price of $56,134.00 and a convertible
promissory note in the aggregate amount of $500,000.00, both for
mandatorily redeemable convertible preferred stock (Series A).
(11) On May 6, 1998, we issued 705,000 shares of common stock to one
director for an aggregate consideration of $8,906.25.
(12) On May 7, 1998, we issued 4,235,076 shares of Series A to seven
investors for an aggregate consideration of $2,287,493.39, we issued
9,551,832 shares of Series B to one investor for an aggregate consideration
of 6,004,997.98, and we issued a warrant to purchase 1,000,000 shares of
common stock to one investor for an aggregate purchase price of
$3,750,000.00 and warrants to purchase an aggregate of 2,016,616 shares of
Series A to two investors for an aggregate of $1,267,846.48.
(13) On September 10, 1998, we issued a warrant to purchase 320,000
shares of common stock to one investor for an aggregate purchase price of
$200,800.00.
(14) On October 23, 1998, we issued 4,000,000 shares of Series 1 Junior
Preferred to seven investors for an aggregate of $2,900,000.00 in
connection with the acquisition of BeSeen.com, Inc. as a wholly-owned
subsidiary.
(15) On March 24, 1999, we issued 8,005,060 shares of Series C to forty-
five investors for an aggregate of $60,037,950.00, and a warrant to
purchase 293,333 shares of Series C to one investor for an aggregate
purchase price of $2,199,997.50. One April 26, 1999, we issued 50,626
shares of Series C Preferred Stock to fourteen investors for an aggregate
of $379,695.00.
(16) On April 9, 1999, we issued 1,700,000 shares of common stock to one
investor for the aggregate consideration of $6,375,000.00 in connection
with an asset purchase.
II-2
<PAGE>
(17) Since our incorporation, we have issued, and there remain
outstanding, options to purchase an aggregate of 7,904,584 shares of common
stock with exercise prices ranging from $0.0143 to $11.00 per share. Since
our incorporation, options to purchase 1,316,651 shares of common stock
have been exercised for an aggregate consideration of $124,063.60.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
The issuances of securities described in Items 15(1), (4), (5), (7), (9),
(12), and (15) were deemed to be exempt from registration under the Securities
Act in reliance on Section 4(2) and on Regulation S of the Securities Act as
transactions by an issuer not involving a public offering and the offer and
sale of securities to non-U.S. investors. The issuance of securities described
in Items 15(2), (3), (6), (10), (11), (13) and (16) were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering.
The issuance of securities described in item 15(14) were deemed to be exempt
from registration in reliance on Sections (2) and 4(6) of the Securities Act.
The issuances of securities described in Item 15(17) were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) or Rule
701 promulgated thereunder as transactions pursuant to compensatory benefit
plans and contracts relating to compensation. The recipients of securities in
each such transaction represented their intention 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 affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Registrant or had access,
through employment or other relationships, to such information.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation as currently in effect
3.2 Form of Restated Certificate of Incorporation (to be filed with the
Delaware Secretary of State prior to the closing of the offering
covered by this Registration Statement)
3.3 Bylaws as currently in effect
3.4 Form of Bylaws (to be adopted upon the completion of the offering
covered by this Registration Statement)
4.1* Form of Specimen Stock Certificate
4.2 Second Amended and Restated Investor Rights Agreement dated March
24, 1999
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, regarding legality of the securities being issued
10.1 Form of Indemnification Agreement, to be entered into between the
Registrant and each of its directors and officers, to become
effective upon the closing of the offering made under this
Registration Statement
10.2 Amended and Restated 1998 Stock Plan
10.3 1999 Employee Stock Purchase Plan
10.4+ License and Update Agreement with Microsoft Corporation
10.5+ Asset Purchase Agreement with Guthy-Renker Internet, LLC
10.6+ Agreement and Plan of Reorganization with BeSeen.com, Inc.
10.7 Procurement and Trafficking Agreement with DoubleClick, Inc.
10.8+ Development Agreement with Cox Interactive Media, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.9+ Premier Positions on US Search Pages with Netscape Communications
Corporation
10.10+ PBS Group Sponsorship Agreement
10.11 Sublease Agreement with Wired Ventures, Inc. for property located at
660 Third Street, San Francisco, California, dated December 2, 1998
10.12 Lease Agreement with 487 Bryant Street, LLC for property located at
487 Bryant Street, San Francisco, California, dated May 4, 1998
10.13 Sublease Agreement with Skidmarks, Inc. for property located at 550
Bryant Street, San Francisco, California, dated November 18, 1998
10.14 Sublease Agreement with Jaran, Inc. for property located at 275
Brannan Street, San Francisco, California, dated April 30, 1999
10.15 Lease Agreement with Rosenberg SOMA Investments III, LLC for
property located at 625 Second Street, San Francisco, California,
dated May 5, 1999
10.16 Consent to Sublease Agreement with Ninety Park Property LLC, and
First Manhattan Consulting Group Inc. for property located at 90
Park Avenue, New York, New York, dated October 22, 1998
10.17 Lease Agreement with Euro Asia Properties Pty Ltd for property
located at Level 5, 388 Lonsdale Street, Melbourne, Australia, dated
September 1, 1998
10.18 Lease Agreement with Tonicalon Pty Limited for property located at
Level 3, 68 Alfred Street, Milsons Point, Sydney, Australia, dated
June 1, 1999
10.19 Summary Plan Description of 401(K) Plan
21.1 List of Subsidiary
23.1 Consent of PricewaterhouseCoopers LLP (LookSmart, Ltd.)
23.2 Consent of PricewaterhouseCoopers LLP (BeSeen.com, Inc.)
23.3 Consent of Ernst & Young LLP (Guthy-Renker Internet, LLC)
23.4 Consent of PricewaterhouseCoopers LLP (ITW NewCorp, Inc.)
23.5 Consent of PricewaterhouseCoopers LLP (HomeBase Directories Pty
Ltd.)
23.6* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (contained in Exhibit 5.1)
24.1 Power of Attorney (contained in the signature page to this
Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- --------
+ confidential treatment requested
* to be filed by amendment
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in
II-4
<PAGE>
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 hereunder, 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:
(17) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the Offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, County of
San Francisco, State of California, on the day of June 11, 1999.
LOOKSMART, LTD.
/s/ Evan Thornley
By: _________________________________
Evan Thornley, Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Evan Thornley and Patricia Cole, and each
of them acting individually, as his true and lawful attorneys-in-fact and
agents, each with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments or any abbreviated registration statement
and any amendments thereto filed pursuant to Rule 462(b) increasing the number
of securities for which registration is sought), and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, with full power of each to act alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or his or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Evan Thornley Chairman, Chief Executive June 11, 1999
______________________________________ Officer and Director
(Evan Thornley) (Principal Executive
Officer)
/s/ Tracey Ellery President, Director June 11, 1999
______________________________________
(Tracey Ellery)
/s/ Patricia Cole Chief Financial Officer June 11, 1999
______________________________________ (Principal Financial and
(Patricia Cole) Accounting Officer)
/s/ Anthony Castagna Director June 11, 1999
______________________________________
(Anthony Castagna)
/s/ Paul Riley Director June 11, 1999
______________________________________
(Paul Riley)
/s/ Robert J. Ryan Director June 11, 1999
______________________________________
(Robert J. Ryan)
/s/ Scott Whiteside Director June 11, 1999
______________________________________
(Scott Whiteside)
</TABLE>
II-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
Board of Directors and Stockholders of LookSmart, Ltd. and Subsidiaries:
We have audited the financial statements of LookSmart, Ltd. and subsidiaries
as of December 31, 1997 and 1998 and for the period from July 19, 1996
(inception) to December 31, 1996 and for each of the two years in the period
ended December 31, 1998, and have issued our report thereon dated May 7, 1999.
Our audits also included the financial statement schedule listed in Item 16(b)
of this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information required to be
included therein.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
May 7, 1999
S-1
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
LookSmart, Ltd. and Subsidiaries
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Period from July 19, 1996
(inception) to December 31, 1996:
Deferred tax valuation
allowance...................... $ -- $ 986,000 $ -- $ 986,000
---------- ---------- ------- ----------
Total......................... $ -- $ 986,000 $ -- $ 986,000
========== ========== ======= ==========
Year ended December 31, 1997:
Deferred tax valuation
allowance...................... $ 986,000 $3,190,604 $ -- $4,176,604
---------- ---------- ------- ----------
Total......................... $ 986,000 $3,190,604 $ -- $4,176,604
========== ========== ======= ==========
Year ended December 31, 1998:
Allowance for doubtful
accounts....................... $ -- $ 127,371 $ -- $ 127,371
Deferred tax valuation
allowance...................... 4,176,604 4,657,689 -- 8,834,293
---------- ---------- ------- ----------
Total......................... $4,176,604 $4,785,060 $56,104 $8,961,664
========== ========== ======= ==========
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation as currently in effect
3.2 Form of Restated Certificate of Incorporation (to be filed with the
Delaware Secretary of State prior to the closing of the offering
covered by this Registration Statement)
3.3 Bylaws as currently in effect
3.4 Form of Bylaws (to be adopted upon the completion of the offering
covered by this Registration Statement)
4.1* Form of Specimen Stock Certificate
4.2 Second Amended and Restated Investor Rights Agreement dated March
24, 1999
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, regarding legality of the securities being issued
10.1 Form of Indemnification Agreement, to be entered into between the
Registrant and each of its directors and officers, to become
effective upon the closing of the offering made under this
Registration Statement
10.2 Amended and Restated 1998 Stock Plan
10.3 1999 Employee Stock Purchase Plan
10.4+ License and Update Agreement with Microsoft Corporation
10.5+ Asset Purchase Agreement with Guthy-Renker Internet LLC
10.6+ Agreement and Plan of Reorganization with BeSeen.com, Inc.
10.7 Procurement and Trafficking Agreement with DoubleClick, Inc.
10.8+ Development Agreement with Cox Interactive Media, Inc.
10.9+ Premier Positions on US Search Pages with Netscape Communications
Corporation
10.10+ PBS Group Sponsorship Agreement
10.11 Sublease Agreement with Wired Ventures, Inc. for property located at
660 Third Street, San Francisco, California, dated December 2, 1998
10.12 Lease Agreement with 487 Bryant Street, LLC for property located at
487 Bryant Street, San Francisco, California, dated May 4, 1998
10.13 Sublease Agreement with Skidmarks, Inc. for property located at 550
Bryant Street, San Francisco, California, dated November 18, 1998
10.14 Sublease Agreement with Jaran, Inc. for property located at 275
Brannan Street, San Francisco, California, dated April 30, 1999
10.15 Lease Agreement with Rosenberg SOMA Investments III, LLC for
property located at 625 Second Street, San Francisco, California,
dated May 5, 1999
10.16 Consent to Sublease Agreement with Ninety Park Property LLC, and
First Manhattan Consulting Group Inc. for property located at 90
Park Avenue, New York, New York, dated October 22, 1998
10.17 Lease Agreement with Euro Asia Properties Pty Ltd for property
located at Level 5, 388 Lonsdale Street, Melbourne, Australia, dated
September 1, 1998
10.18 Lease Agreement with Tonicalon Pty Limited for property located at
Level 3, 68 Alfred Street, Milsons Point, Sydney, Australia, dated
June 1, 1999
10.19 Summary Plan Description of 401(K) Plan
21.1 List of Subsidiary
23.1 Consent of PricewaterhouseCoopers LLP (LookSmart, Ltd.)
23.2 Consent of PricewaterhouseCoopers LLP (BeSeen.com, Inc.)
23.3 Consent of Ernst & Young LLP (Guthy-Renker Internet, LLC)
23.4 Consent of PricewaterhouseCoopers LLP (ITW NewCorp, Inc.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
23.5 Consent of PricewaterhouseCoopers LLP (HomeBase Directories Pty
Ltd.)
23.6* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (contained in Exhibit 5.1)
24.1 Power of Attorney (contained in the signature page to this
Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- --------
+ confidential treatment requested
* to be filed by amendment
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
Looksmart, Ltd.
A Delaware Corporation
The undersigned, Evan Thornley and Henry V. Barry, hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of LookSmart, Ltd., a Delaware corporation, the original
Certificate of Incorporation of which was filed with the Secretary of the State
of Delaware on July 19, 1996, under the name of NetGet, Ltd.
2. The Certificate of Incorporation of this corporation is hereby amended
and restated in its entirety to read as follows:
"FIRST: The name of the Corporation is LookSmart, Ltd. (the "Corporation").
-----
SECOND: The address of the Corporation's registered office in the State of
------
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
Delaware 19805. The name of its registered agent at such address is Corporate
Agents, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
-----
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: This Corporation is authorized to issue two classes of shares
------
designated, respectively, Common Stock and Preferred Stock. The total number of
shares of stock which the Corporation shall have the authority to issue is
100,000,000 of which 70,129,535 shares shall be designated "Common Stock",
$0.001 par value per share, and 29,870,465 shares shall be designated "Preferred
Stock", $0.001 par value per share. The Preferred Stock shall be issued in four
series, of which 7,925,300 shares shall be designated "Series A Preferred Stock"
(the "Series A Preferred"), 9,551,832 shares shall be designated "Series B
Preferred Stock" (the "Series B Preferred") and 8,393,333 shares shall be
designated "Series C Preferred Stock" (the "Series C Preferred") and together
with the Series A Preferred and the Series B Preferred, (the "Senior Preferred
Stock"), and 4,000,000 shares shall be designated as the "Series 1 Junior
Preferred Stock" (the "Junior Preferred Stock," and together with the Senior
Preferred Stock the "Preferred Stock").
Upon amendment of this article to read as herein set forth, each currently
outstanding share of Common Stock, Series A Preferred, Series B Preferred, and
Junior Preferred Stock shall be converted into or reconstituted as four (4)
shares of Common Stock, Series A Preferred, Series B Preferred and Junior
Preferred Stock, as the case may be.
<PAGE>
The relative rights, preferences, privileges and restrictions granted to or
imposed on the respective classes of the shares of capital stock or the holders
thereof are as follows:
1. Dividends.
---------
(a) The Corporation shall not declare or pay any dividends or
other distributions (as defined below) on shares of any series of Senior
Preferred Stock unless the holders of all other series of Senior Preferred Stock
then outstanding receive a dividend on each outstanding share of Senior
Preferred Stock on a pari passu basis relative to the Original Issue Price of
each series of Senior Preferred Stock. The Corporation shall not declare or pay
any dividends or other distributions (as defined below) on shares of Common
Stock unless the holders of the Preferred Stock then outstanding shall
simultaneously receive a dividend on each outstanding share of Preferred Stock
in an amount equal to the product of (i) the per share amount, if any, of the
dividends or other distributions to be declared, paid or set aside for the
Common Stock, multiplied by (ii) the number of whole shares of Common Stock into
which such share of Preferred Stock is then convertible.
(b) For purposes of this Section 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, the holders of Senior
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Junior Preferred and Common Stock by reason of their ownership
thereof, an amount equal to the sum of (i) the Original Issue Price for each
such series of Preferred Stock (as adjusted for stock splits, combinations,
stock dividends or other recapitalizations with respect to such series of
Preferred Stock); and, (ii) an amount equal to all declared but unpaid dividends
on such share. The "Original Issue Price" shall mean $0.53437 per share for the
Series A Preferred, $0.62867 per share for the Series B Preferred, and $7.50 per
share for the Series C Preferred. The aggregate amount payable to each holder
shall be rounded to the nearest whole cent. If, upon occurrence of such event
the assets and funds thus distributed among the holders of the Senior Preferred
Stock shall be insufficient to permit the payment to such holders of the full
preferential amount to which they respectively shall be entitled pursuant to
this Section 2(a), then the entire assets and funds of the Corporation legally
available for distribution shall be distributed pro rata among the holders of
the Senior Preferred Stock in proportion to the respective amounts which
-2-
<PAGE>
would otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(b) After payment has been made to the holders of the Senior
Preferred Stock of the full amounts to which they shall be entitled pursuant to
Section 2(a) above, the holders of the Junior Preferred Stock shall be entitled
to receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Common Stock by reason of
their ownership thereof, an amount equal to the sum of (i) $0.50 per share of
Junior Preferred Stock (as adjusted for stock splits, combinations, stock
dividends or other recapitalizations); and, (ii) an amount equal to all declared
but unpaid dividends on each such share. The aggregate amount payable to each
holder shall be rounded to the nearest whole cent. If, upon occurrence of such
event, and following satisfaction of the liquidation preferences of the Senior
Preferred Stock set forth in Section 2(a) above, the assets and funds thus
distributed among the holders of the Junior Preferred Stock shall be
insufficient to permit the payment to such holders of the full preferential
amount to which they respectively shall be entitled pursuant to this Section
2(b), then the entire assets and funds of the Corporation legally available for
distribution shall be distributed pro rata among the holders of the Junior
Preferred Stock in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
(c) After payment has been made to the holders of the Preferred
Stock of the full amounts to which they shall be entitled pursuant to Section
2(a) and 2(b) above, all remaining assets of the Corporation shall be
distributed pro rata among all holders of Series A Preferred, Series B
Preferred, Series C Preferred and Common Stock based on the number of shares of
Common Stock which would be held by each such holder if all shares of Series A
Preferred, Series B Preferred and Series C Preferred were converted into Common
Stock at the then effective Conversion Price (as defined in Section 3(a) below)
until (i) with respect to the holders of Series A Preferred, such holders have
received an amount equal to $1.33592 per share as adjusted for stock splits,
combinations, stock dividends, recapitalizations and the like (including amounts
previously paid pursuant to Section 2(a) above), (ii) with respect to the
holders of Series B Preferred, such holders have received an amount equal to
$1.57167 per share as adjusted for stock splits, combinations, stock dividends,
recapitalizations and the like (including amounts previously paid pursuant to
Section 2(a) above), and (iii) with respect to the holders of Series C
Preferred, such holders have received an amount equal to $11.25 per share as
adjusted for stock splits, combinations, stock dividends, recapitalizations and
the like (including amounts previously paid pursuant to Section 2(a) above).
Thereafter, all remaining assets shall be distributed pro rata among the holders
of Common Stock.
(d) The holders of Preferred Stock shall not be entitled to
convert shares of Preferred Stock into shares of Common Stock in order to
participate in any distribution, or series of distributions, as holders of
Common Stock, without first foregoing participation in the distribution, or
series of distribution, as holders of such shares of Preferred Stock.
-3-
<PAGE>
(e) For purposes of this Section 2, a liquidation, dissolution
or winding up of the Corporation shall be deemed to be occasioned by, and to
include, (i) the Corporation's sale of all or substantially all of its assets,
or (ii) any transaction or series of related transactions (including, but not
limited to, any consolidation, merger or reorganization) which will result in
the holders of the outstanding voting equity securities of the Corporation
immediately prior to such transaction holding less than fifty percent (50%) of
the voting equity securities of the surviving entity immediately following such
transaction.
(f) For purposes of this Section 2, the amount of assets and/or
proceeds available for distribution upon a liquidation, dissolution or winding
up of this Corporation shall be determined as follows:
(i) insofar as such assets or proceeds consist of cash,
the amount shall be computed at the aggregate amount of cash held by this
Corporation or payable to the stockholders at the time of the liquidation,
dissolution or winding up, excluding amounts paid or payable for accrued
interest or accrued dividends; and
(ii) insofar as it consists of securities, (A) if the
securities are then traded on a national securities exchange or the NASDAQ Stock
Market (or a similar national quotation system), then the value shall be
computed based on the closing price on such exchange or system at the time of
the liquidation, dissolution or winding up, (B) if the securities are actively
traded over-the-counter, then the value shall be computed based on the closing
price at the time of the liquidation, dissolution or winding up, and (C) if
there is no public market for the securities, then the value shall be computed
based on the fair market value thereof, as determined in good faith by the Board
of Directors of the Corporation (the "Board") at the time of liquidation,
dissolution or winding up; and
(iii) insofar as it consists of property other than cash or
securities, the amount shall be computed at the fair value thereof at the time
of the liquidation, dissolution or winding up, as determined in good faith by
the Board.
3. Conversion. The holders of the Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time into such number
of fully paid and nonassessable shares of Common Stock as is determined by
dividing either (i) $0.53437 for the Series A Preferred, (ii) $0.62867 for the
Series B Preferred, (iii) $0.875 for the Junior Preferred Stock, or (iv) $7.50
for the Series C Preferred by the Conversion Price (as defined hereinafter) per
share in effect for each series of Preferred Stock at the time of conversion.
The respective Conversion Price per share for each series of
Preferred Stock shall initially be the Original Issue Price for such series of
Preferred Stock. The Original Issue Price
-4-
<PAGE>
for the Junior Preferred Stock is $0.875. Such initial Conversion Prices shall
be subject to adjustment as hereinafter provided.
Each share of Preferred Stock shall automatically be converted
into shares of Common Stock at the then effective Conversion Price upon the
earlier of (i) with respect to each series of Preferred Stock, the election to
effect such conversion by the holders of at least 50% of the applicable series
of Preferred Stock, or (ii) immediately upon the effectiveness of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Corporation to the public at a price
per share in such offering that results in total gross proceeds to the Company
of at least $25,000,000. In the event of such an offering, the person(s)
entitled to receive the Common Stock issuable upon such conversion of Preferred
Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such underwritten public offering.
(b) Mechanics of Conversion. No fractional shares of Common
-----------------------
Stock shall be issued upon conversion of Preferred Stock. In lieu of any
fractional share to which a holder would otherwise be entitled, the Corporation
shall pay cash equal to such fraction multiplied by the fair market value of the
Common Stock as determined in good faith by the Board of Directors. Before any
holder of Preferred Stock shall be entitled to convert the same into full shares
of Common Stock, he shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
Preferred Stock, and shall give written notice to the Corporation at such office
that he elects to convert the same. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Preferred Stock, a certificate or certificates for the number of shares of
Common Stock to which he shall be entitled as aforesaid and a check payable to
the holder in the amount of any cash amounts payable as the result of a
conversion into a fractional share of Common Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. If the conversion is in
connection with an underwritten public offering of securities registered
pursuant to the Securities Act of 1933, as amended, the conversion shall be
conditioned upon the closing of such public offering, in which event the
person(s) entitled to receive the Common Stock issuable upon such conversion of
the Preferred Stock shall not be deemed to have converted such Preferred Stock
until immediately prior to such closing.
(c) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
(i) Special Definitions. For purposes of this Section 3,
-------------------
the following definitions shall apply:
(1) "Options" shall mean rights, options or warrants
-------
to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
-5-
<PAGE>
(2) "Convertible Securities" shall mean any evidences
----------------------
of indebtedness, shares (other than Common Stock and Preferred Stock) or other
securities convertible into or exchangeable for Common Stock.
(3) "Original Issue Date" shall mean the date on which
-------------------
the first share of the applicable series of Preferred Stock was first issued.
(4) "Additional Shares of Common Stock" shall mean all
---------------------------------
shares of Common Stock (i) issued (or, pursuant to paragraph 3(c)(iii), deemed
to be issued) by the Corporation after the Original Issue Date, or (ii) sold or
exchanged by the Corporation in conjunction with an acquisition of the
Corporation after the Original Issue Date, other than shares of Common Stock
issued or issuable:
(A) upon conversion of shares of Series A
Preferred, Series B Preferred, Junior Preferred Stock or Series C Preferred;
(B) to employees, officers or directors of, or
consultants to, the Corporation pursuant to a stock grant, option plan, purchase
plan or other employee stock incentive program (collectively, the "Plans") or
any other agreement so long as any such Plans or agreement are unanimously
approved by the Board of Directors;
(C) as a dividend or distribution on Series A
Preferred, Series B Preferred, Junior Preferred Stock or Series C Preferred;
(D) up to 2,900,000 shares issued in connection
with equipment lease financing transactions, bank financing transactions,
strategic alliances or licensing agreements approved by the Board of Directors,
where the issuance of such shares is not principally for the purpose of raising
additional equity capital for the Corporation;
(E) securities issued in connection with any
acquisition, merger or similar transaction;
(F) by way of dividend or other distribution on
shares of Common Stock excluded from the definition of Additional Shares of
Common Stock by the foregoing clauses (A), (B), (C), (D) and (E) or on shares of
Common Stock so excluded;
(ii) No Adjustment of Conversion Price: No adjustment in the
---------------------------------
Conversion Price of a series of Preferred Stock shall be made in respect of the
issuance of Additional Shares of Common Stock unless the consideration per share
for an Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the Conversion Price in effect on the date of, and
immediately prior to such issue, for such share of Preferred Stock.
-6-
<PAGE>
(iii) Deemed Issue of Additional Shares of Common Stock.
-------------------------------------------------
(1) Options and Convertible Securities. In the event
----------------------------------
the Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date for
the determination of holders of any class of securities entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 3(c)(v) hereof) of such Additional
Shares of Common Stock would be less than the Conversion Price in effect on the
date of and immediately prior to such issue, or such record date, as the case
may be, and provided further that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities; and
(C) on the expiration or cancellation of any
Options or the termination of the right to convert or exchange any Convertible
Securities which shall have not been exercised, if the Conversion Price shall
have been adjusted upon the original issuance thereof or shall have been
subsequently adjusted pursuant to clause (B) above, the Conversion Price shall
be recomputed as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the
-7-
<PAGE>
issue of all such Convertible Securities which were actually converted
or exchanged plus the consideration actually received by the Corporation upon
such conversion or exchange, if any, and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause (B) or (C)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date.
(iv) Adjustment of Conversion Price Upon Issuance of
-----------------------------------------------
Additional Shares of Common Stock. In the event this Corporation shall issue
- ---------------------------------
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 3(c)(iii)) without consideration or for
a consideration per share less than the Conversion Price of any series of
Preferred Stock in effect on the date of and immediately prior to such issue,
then and in such event, the Conversion Price of the Preferred Stock shall be
reduced, concurrently with such issuance (A) with respect to each such series of
Preferred Stock, to a price (calculated to the nearest cent) determined by
multiplying each such Conversion Price by a fraction, (x) the numerator of which
shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue, plus (2) the number of shares of Common Stock
which the aggregate consideration received by the Corporation for the total
number of Additional Shares of Common Stock so issued would purchase at such
Conversion Price; and (y) the denominator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to such issue, plus (2) the
number of such Additional Shares of Common Stock so issued; and provided further
that, for the purposes of this Section 3(c)(iv), all shares of Common Stock
issuable (i) upon conversion of all outstanding Preferred Stock, (ii) upon
conversion of all outstanding Convertible Securities, and (iii) upon exercise of
all outstanding Options, shall be deemed to be outstanding, and immediately
after any Additional Shares of Common Stock are deemed issued pursuant to
Section 3(c)(iii), such Additional Shares of Common Stock shall be deemed to be
outstanding, and (B) notwithstanding the above, with respect to the Series C
Preferred, to a price equal to the consideration per share for which such
Additional Shares of Common Stock are issued; provided, however, that (x) the
Conversion Price for the Series C Preferred shall be reduced only until it is
equal to a per share price that when multiplied by all of the shares of Common
Stock of the Corporation outstanding (including any shares of Common Stock
issuable upon conversion of all outstanding Preferred Stock and Convertible
Securities and upon exercise of all outstanding Options) immediately prior to
the issuance of such Additional Shares of Common Stock, is equal to
$240,000,000, and (y) the provisions of this Section 3(c)(iv)(B) shall only
apply until the closing of a firmly underwritten
-8-
<PAGE>
public offering of shares of Common Stock at a price that results in gross
proceeds to the Corporation of at least $25,000,000. If such Additional Shares
of Common Stock are issued for no consideration, then the consideration per
share shall be deemed to be $0.001.
(v) Determination of Consideration. For purposes of this
------------------------------
Section 3(c), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
-----------------
(A) insofar as it consists of cash, be computed
as the aggregate amount of cash received by the Corporation;
(B) insofar as it consists of property other then
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
----------------------------------
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 3(c)(iii), relating
to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(d) Adjustments for Stock Dividends, Subdivisions, Combinations,
------------------------------------------------------------
or Consolidations. In the event the Corporation shall pay a stock dividend on
- -----------------
the Common Stock, or the outstanding shares of Common Stock shall be subdivided,
combined or consolidated, by reclassification, stock split or otherwise, into a
greater or lesser number of shares of Common Stock,
-9-
<PAGE>
the Conversion Price for each series of Preferred Stock in effect immediately
prior to such dividend, subdivision, combination or consolidation shall,
concurrently with the effectiveness of such dividend, subdivision, combination
or consolidation, be proportionately decreased or increased, as appropriate.
(e) No Impairment. The Corporation will not, by amendment of
-------------
its Certificate of Incorporation or through any reorganization, transfer of
assets, merger, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Corporation but will at all times
in good faith assist in the carrying out of all the provisions of this Section 3
and in the taking of all such action as may be necessary or appropriate in order
to protect the Conversion Rights of the holders of the Preferred Stock against
impairment.
(f) Notices of Record Date. In the event that this Corporation
----------------------
shall propose at any time:
(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization of
its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each such event, this Corporation shall send to the
holders of the Preferred Stock:
(1) at least twenty (20) days' prior written notice
of the terms of such contemplated action and the date on which a record shall be
taken for such dividend, distribution or subscription rights (and specifying the
date on which the holders of Common Stock shall be entitled thereto) or for
determining rights to vote in respect of the matters referred to in (iii) and
(iv) above; and
(2) in the case of the matters referred to in (iii)
and (iv) above, at least twenty (20) days' prior written notice of the date when
the same shall take place and the terms of such contemplated transaction (and
specifying the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
the occurrence of such event).
-10-
<PAGE>
Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of Preferred Stock at the address for each
such holder as shown on the books of this Corporation.
4. Voting Rights and Directors.
---------------------------
(a) General. Except as otherwise expressly provided herein or
-------
as required by law and as provided in paragraph (b) below, the holders of Series
A Preferred, Series B Preferred, Series C Preferred, Junior Preferred Stock and
the holders of Common Stock shall be entitled to notice of any stockholders'
meeting and to vote as a single class upon any matter submitted to the
stockholders for a vote, as follows: (i) each holder of Preferred Stock shall
have one vote for each full share of Common Stock into which its respective
shares of Preferred Stock would be convertible on the record date for the vote,
and (ii) each holder of Common Stock will have one vote per share of Common
Stock.
(b) Number of Directors and Voting for Directors. For so long
--------------------------------------------
as more than 700,000 shares of Series A Preferred are outstanding (as adjusted
for stock splits, reverse splits, recapitalizations or similar event), the
holders of shares of Series A Preferred, voting as a class, shall be entitled to
elect one (1) director. For so long as more than 1,000,000 shares of Series B
Preferred are outstanding (as adjusted for stock splits, reverse splits,
recapitalizations or similar event) the holders of shares of Series B Preferred,
voting as a class, shall be entitled to elect two (2) directors. For so long as
more than 1,000,000 shares of Series C Preferred are outstanding (as adjusted
for stock splits, reverse splits, recapitalizations or similar event) the
holders of shares of Series C Preferred, voting as a class, shall be entitled to
elect one (1) director; provided, however, the holders of shares of Series C
Preferred shall only be entitled to such right until the closing of a firmly
underwritten public offering of shares of Common Stock at a price that results
in gross proceeds to the Corporation of at least $25,000,000. The holders of
shares of Common Stock and Junior Preferred Stock voting as a class shall be
entitled to elect two (2) directors. Any remaining directors shall be elected by
the holders of the Preferred Stock and the holders of Common Stock, voting as
provided in Section 4(a) above. In the case of a vacancy on the Board of
Directors of the Corporation caused by the death, resignation or removal of a
director elected by a particular class or series of stock, such vacancy shall be
filled by a director elected by the affirmative vote of a majority of the
outstanding shares of such class or series of Preferred Stock or Common Stock,
as the case may be, given at a special meeting of stockholders duly called or by
an action by written consent for that purpose. Any director elected by the
holders of a particular class or series of stock may be removed during such
director's term of office, either for or without cause, by and only by the
affirmative vote of the holders of a majority of the outstanding shares of such
class or series of stock given at a special meeting of stockholders duly called
or by an action by written consent for that purpose.
5. Protective Provisions. In addition to any other rights provided
---------------------
by law, for so long as at least 2,000,000 shares of Preferred Stock shall be
outstanding (as adjusted for stock splits, combinations, stock dividends,
recapitalizations and the like), this Corporation shall not without first
-11-
<PAGE>
obtaining the affirmative vote or written consent of the holders of a majority
of the outstanding shares of Senior Preferred Stock, voting as a single class on
an as-converted basis:
(a) amend or repeal any provision of, or add any provision to,
this Corporation's Certificate of Incorporation or Bylaws if such action would
adversely alter or change the preferences, rights, privileges or powers of, or
the restrictions provided for the benefit of, the Preferred Stock; provided,
however, that in the event any such amendment or repeal would adversely affect
one series of the Preferred Stock but would not so affect the entire class of
Preferred Stock, then the Corporation shall obtain the affirmative vote or
written consent of the holders of a majority of the outstanding shares of such
affected series of Preferred Stock, voting separately as a single class.
(b) authorize or issue shares of any class or series of stock on
parity with or which has a preference over any series of the Senior Preferred
Stock;
(c) declare or pay any dividends on shares other than the
Preferred Stock;
(d) redeem or purchase any of the Preferred Stock or Common
Stock, provided, however, that this restriction shall not apply to the
repurchase of any unvested shares of Common Stock at cost (unless a repurchase
price other than cost is unanimously approved by the Board of Directors) from
employees, officers, directors, consultants or other persons performing services
for the Corporation upon the termination of the employment, consulting or other
relationship between the Corporation and such persons;
(e) consummate a sale of all or substantially all of the
Corporation's assets or any transaction or series of related transactions
(including, but not limited to, any consolidation, merger or reorganization)
which will result in the holders of the outstanding voting equity securities of
the Corporation immediately prior to such transaction holding less than fifty
percent (50%) of the voting equity securities of the surviving entity
immediately following such transaction;
(f) increase or decrease the number of authorized shares of
Preferred Stock; and
(g) incur or prepay, or have any subsidiaries incur or prepay,
any indebtedness in excess of $10,000,000.
6. Junior Preferred Protective Provision. Without the Corporation
--------------------------------------
first obtaining the affirmative vote or written consent of the holders of a
majority of the Junior Preferred Stock, voting separately as a single class, the
Corporation shall not authorize or issue shares of a new class or series of
securities with rights, preferences, and privileges that are junior to the
Senior Preferred Stock, but senior to the Junior Preferred Stock.
7. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 3 hereof, the shares so converted
shall be canceled and shall not be issuable by the Corporation, and the
Certificate of Incorporation of this Corporation shall be
-12-
<PAGE>
appropriately amended to effect the corresponding reduction in the Corporation's
authorized capital stock.
FIFTH: The Corporation is to have perpetual existence.
-----
SIXTH: Elections of directors need not be by written ballot unless a
-----
stockholder demands election by written ballot at the meeting and before voting
begins or unless the Bylaws of the Corporation provide otherwise.
SEVENTH: The number of directors that constitute the whole Board of
-------
Directors of the Corporation shall be designated in the Bylaws of the
Corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred by
------
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
NINTH: (a) To the fullest extent permitted by the Delaware General
-----
Corporation Law as the same exists or as it may hereafter be amended, a director
of the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(b) The Corporation may indemnify to the fullest extent permitted
by law any person made or threatened to be made a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that she or he or her or his testator or intestate is or was a
director, officer or employee of the Corporation or any predecessor of the
Corporation or serves or served at any other enterprise as a director, officer
or employee at the request of the Corporation or any predecessor to the
Corporation.
(c) Neither any amendment nor repeal of this Article NINTH, nor
the adoption of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article NINTH, shall eliminate or reduce the effect of
this Article NINTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article NINTH, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision, except as required by law.
TENTH: Meetings of stockholders may be held within or without the State of
-----
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ELEVENTH: The Corporation reserves the right to amend, alter, change or
--------
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation."
-13-
<PAGE>
3. The foregoing Restated Certificate of Incorporation has been duly
adopted in accordance with Sections 228, 242 and 245 of the General Corporation
Law of the State of Delaware.
-14-
<PAGE>
The undersigned declares under penalty of perjury that the matters set
forth in the foregoing certificate are true of his own knowledge.
IN WITNESS WHEREOF, the undersigned has executed this Restated Certificate
of Incorporation on this 23rd day of March, 1999.
/s/ EVAN THORNLEY
----------------------------------------
Evan Thornley, President
Attest By: /s/ HENRY V. BARRY
----------------------------------
Henry V. Barry, Secretary
-15-
<PAGE>
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
LOOKSMART, LTD.
LookSmart, Ltd., a corporation organized and existing under the laws of the
State of Delaware, hereby certifies as follows:
A. The name of the corporation is LookSmart, Ltd. The corporation was
originally incorporated under the name of NetGet Ltd., and the original
Certificate of Incorporation was filed with the Secretary of the State of
Delaware on July 19, 1996.
B. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation of the corporation.
C. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
ARTICLE I
The name of this corporation is LookSmart, Ltd.
ARTICLE II
The address of the corporation's registered office in the State of Delaware
is 1013 Centre Road, in the City of Wilmington, County of New Castle, Delaware
19805. The name of its registered agent at such address is Corporate Agents,
Inc.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
The corporation is authorized to issue two classes of shares of stock to be
designated, respectively, Common Stock, $0.001 par value, and Preferred Stock,
$0.001 par value. The total number of shares that the corporation is authorized
to issue is 105,000,000 shares. The number of
<PAGE>
shares of Common Stock authorized is 100,000,000. The number of shares of
Preferred authorized is 5,000,000.
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the board of directors (authority to do so being hereby expressly vested in the
board). The board of directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of Preferred
Stock. The board of directors, within the limits and restrictions stated in any
resolution or resolutions of the board of directors originally fixing the number
of shares constituting any series, may increase or decrease (but not below the
number of shares in any such series then outstanding) the number of shares of
any series subsequent to the issue of shares of that series.
The authority of the board of directors with respect to each such class or
series shall include, without limitation of the foregoing, the right to
determine and fix:
(a) the distinctive designation of such class or series and the
number of shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at the
rate so determined shall be cumulative or accruing, and whether the shares of
such class or series shall be entitled to any participating or other dividends
in addition to dividends at the rate so determined, and if so, on what terms;
(c) the right or obligation, if any, of the corporation to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;
(d) the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the corporation;
(e) the terms and conditions, if any, upon which shares of such class
or series shall be convertible into, or exchangeable for, shares of capital
stock of any other class or series, including the price or prices or the rate or
rates of conversion or exchange and the terms of adjustment, if any;
(f) the obligation, if any, of the corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
-2-
<PAGE>
(g) voting rights, if any, on the issuance of additional shares of
such class or series or any shares of any other class or series of Preferred
Stock;
(h) limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
and
(i) such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the board of directors of the
corporation, acting in accordance with this Restated Certificate of
Incorporation, may deem advisable and are not inconsistent with law and the
provisions of this Restated Certificate of Incorporation.
ARTICLE V
The corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right.
ARTICLE VI
The corporation is to have perpetual existence.
ARTICLE VII
1. Limitation of Liability. To the fullest extent permitted by the
-----------------------
General Corporation Law of the State of Delaware as the same exists or as may
hereafter be amended, a director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
2. Indemnification. The corporation may indemnify to the fullest extent
---------------
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that such person or his or her testator or intestate is or
was a director, officer or employee of the corporation, or any predecessor of
the corporation, or serves or served at any other enterprise as a director,
officer or employee at the request of the corporation or any predecessor to the
corporation.
3. Amendments. Neither any amendment nor repeal of this Article VII,
----------
nor the adoption of any provision of the corporation's Certificate of
Incorporation inconsistent with this Article VII, shall eliminate or reduce the
effect of this Article VII, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article VII, would accrue
or arise, prior to such amendment, repeal, or adoption of an inconsistent
provision.
-3-
<PAGE>
ARTICLE VIII
In the event any shares of Preferred Stock shall be redeemed or converted
pursuant to the terms hereof, the shares so converted or redeemed shall not
revert to the status of authorized but unissued shares, but instead shall be
canceled and shall not be re-issuable by the corporation.
ARTICLE IX
Holders of stock of any class or series of the corporation shall not be
entitled to cumulate their votes for the election of directors or any other
matter submitted to a vote of the stockholders, unless such cumulative voting is
required pursuant to Sections 2115 or 301.5 of the California General
Corporation Law, in which event each such holder shall be entitled to as many
votes as shall equal the number of votes which (except for this provision as to
cumulative voting) such holder would be entitled to cast for the election of
directors with respect to his shares of stock multiplied by the number of
directors to be elected by him, and the holder may cast all of such votes for a
single director or may distribute them among the number of directors to be voted
for, or for any two or more of them as such holder may see fit, so long as the
name of the candidate for director shall have been placed in nomination prior to
the voting and the stockholder, or any other holder of the same class or series
of stock, has given notice at the meeting prior to the voting of the intention
to cumulate votes.
1. Number of Directors. The number of directors which constitutes the
-------------------
whole Board of Directors of the corporation shall be designated in the Amended
and Restated Bylaws of the corporation. The directors shall be divided into
three classes with the term of office of the first class (Class I) to expire at
the annual meeting of stockholders held in 2000; the term of office of the
second class (Class II) to expire at the annual meeting of stockholders held in
2001; the term of office of the third class (Class III) to expire at the annual
meeting of stockholders held in 2002; and thereafter for each such term to
expire at each third succeeding annual meeting of stockholders after such
election.
2. Election of Directors. Elections of directors need not be by written
---------------------
ballot unless the Amended and Restated Bylaws of the corporation shall so
provide.
ARTICLE X
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Amended and Restated Bylaws of the corporation.
ARTICLE XI
-4-
<PAGE>
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of the stockholders called in accordance with the
Amended and Restated Bylaws and no action shall be taken by the stockholders by
written consent. The affirmative vote of sixty-six and two-thirds percent (66
2/3%) of the then outstanding voting securities of the corporation, voting
together as a single class, shall be required for the amendment, repeal or
modification of the provisions of Article IX, Article X or Article XII of this
Restated Certificate of Incorporation or Sections 2.3 (Special Meeting), 2.4
(Notice of Stockholders' Meeting), 2.5 (Advanced Notice of Stockholder Nominees
and Stockholder Business), 2.10 (Voting), or 2.12 (Stockholder Action by Written
Consent Without a Meeting), or 3.2 (Number of Directors) of the corporation's
Amended and Restated Bylaws.
ARTICLE XII
Meetings of stockholders may be held within or without the State of
Delaware, as the Amended and Restated Bylaws may provide. The books of the
corporation may be kept (subject to any provision contained in the statutes)
outside of the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Amended and Restated
Bylaws of the corporation.
-5-
<PAGE>
IN WITNESS WHEREOF, LookSmart, Ltd. has caused this certificate to be
signed by Evan Thornley, its President and Chief Executive Officer, this
_________ day of ________, 1999.
________________________________________
Evan Thornley
President and Chief Executive Officer
Attest By: ____________________________
Hank V. Barry, Secretary
<PAGE>
EXHIBIT 3.3
RESTATED BYLAWS
OF
LOOKSMART, LTD.
Approved and Adopted May 5, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I STOCKHOLDERS............................................................................... 1
1.1 ANNUAL MEETINGS....................................................................... 1
1.2 SPECIAL MEETINGS...................................................................... 1
1.3 NOTICE OF MEETINGS.................................................................... 1
1.4 ADJOURNMENTS.......................................................................... 1
1.5 QUORUM................................................................................ 2
1.6 ORGANIZATION.......................................................................... 2
1.7 VOTING; PROXIES....................................................................... 2
1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD................................................................................ 3
1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE................................................. 3
1.10 ACTION BY CONSENT OF STOCKHOLDERS..................................................... 4
ARTICLE II BOARD OF DIRECTORS........................................................................ 4
2.1 NUMBER; QUALIFICATIONS................................................................ 4
2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES............................................. 4
2.3 REGULAR MEETINGS...................................................................... 5
2.4 SPECIAL MEETINGS...................................................................... 5
2.5 TELEPHONIC MEETINGS PERMITTED......................................................... 5
2.6 QUORUM; VOTE REQUIRED FOR ACTION...................................................... 5
2.7 ORGANIZATION.......................................................................... 5
2.8 INFORMAL ACTION BY DIRECTORS.......................................................... 5
ARTICLE III COMMITTEES............................................................................... 6
3.1 COMMITTEES............................................................................ 6
3.2 COMMITTEE RULES....................................................................... 6
ARTICLE IV OFFICERS.................................................................................. 6
4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF
OFFICE; RESIGNATION; REMOVAL; VACANCIES............................................... 6
4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS............................................... 7
ARTICLE V STOCK...................................................................................... 7
5.1 CERTIFICATES.......................................................................... 7
5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE
OF NEW CERTIFICATES................................................................... 7
ARTICLE VI INDEMNIFICATION........................................................................... 8
6.1 THIRD PARTY ACTIONS................................................................... 8
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION......................................... 8
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.3 SUCCESSFUL DEFENSE............................................................................. 8
6.4 DETERMINATION OF CONDUCT....................................................................... 9
6.5 PAYMENT OF EXPENSES IN ADVANCE................................................................. 9
6.6 INDEMNITY NOT EXCLUSIVE........................................................................ 9
6.7 INSURANCE INDEMNIFICATION...................................................................... 9
6.8 THE CORPORATION................................................................................ 9
6.9 EMPLOYEE BENEFIT PLANS......................................................................... 10
6.10 INDEMNITY FUND................................................................................. 10
6.11 INDEMNIFICATION OF OTHER PERSONS............................................................... 10
6.12 SAVINGS CLAUSE................................................................................. 10
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES....................................................................................... 11
ARTICLE VII MISCELLANEOUS..................................................................................... 11
7.1 FISCAL YEAR.................................................................................... 11
7.2 SEAL........................................................................................... 11
7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS,
DIRECTORS AND COMMITTEES....................................................................... 11
7.4 INTERESTED DIRECTORS; QUORUM................................................................... 11
7.5 FORM OF RECORDS................................................................................ 12
7.6 AMENDMENT OF BY-LAWS........................................................................... 12
</TABLE>
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BYLAWS
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OF
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LOOKSMART, LTD.
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ARTICLE I
STOCKHOLDERS
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1.1 ANNUAL MEETINGS
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An annual meeting of stockholders shall be held for the election of
directors at such date, time and place, either within or without the state of
Delaware, as may be designated by resolution of the Board of Directors from time
to time. Any other proper business may be transacted at the annual meeting.
1.2 SPECIAL MEETINGS
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Special meetings of stockholders for any purpose or purposes may be called
at any time by the Board of Directors, or by a committee of the Board of
Directors which has been duly designated by the Board of Directors and whose
powers and authority, as expressly provided in a resolution of the Board of
Directors, include the power to call such meetings, or by one or more
shareholders holding shares in the aggregate entitled to cast not less than ten
percent (10%) of the votes at that meeting, but such special meetings may not be
called by any other person or persons.
1.3 NOTICE OF MEETINGS
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Whenever stockholders are required or permitted to take any action at a
meeting, a written notice of the meeting shall be given which shall state the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. Unless otherwise provided
by law, the certificate of incorporation or these by-laws, the written notice of
any meeting shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.4 ADJOURNMENTS
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Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the
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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 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.
1.5 QUORUM
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Except as otherwise provided by law, the certificate of incorporation or
these by-laws, at each meeting of stockholders the presence in person or by
proxy of the holders of shares of stock having a majority of the votes which
could be cast by the holders of all outstanding shares of stock entitled to vote
at the meeting shall be necessary and sufficient to constitute a quorum. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided in Section 1.4 of these by-
laws until a quorum shall attend. Shares of its own stock belonging to the
corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of the corporation to vote stock, including but not limited to its own
stock, held by it in a fiduciary capacity.
1.6 ORGANIZATION
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Meetings of stockholders shall be presided over by the Chairman of the
Board, if any, or in his absence by the Vice Chairman of the Board, if any, or
in his absence by the President, or in his absence by a Vice President, or in
the absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting.
1.7 VOTING; PROXIES
---------------
Except as otherwise provided by the certificate of incorporation, each
stockholder entitled to vote at any meeting of stockholders shall be entitled to
one vote for each share of stock held by him which has voting power upon the
matter in question. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power.
A stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the corporation. Voting at meetings of stockholders need not be by written
ballot and need not be conducted by inspectors of election unless so determined
by the holders of shares of stock having a majority of the votes which could be
cast by the holders of all outstanding shares of stock entitled to vote thereon
which are present in person or by proxy at such meeting. At all meetings of
stockholders for the election of directors a plurality of the votes cast shall
be sufficient to elect. All other elections and questions shall, unless
otherwise provided by law,
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the certificate of incorporation or these by-laws, be decided by the vote of the
holders of shares of stock having a majority of the votes which could be cast by
the holders of all shares of stock entitled to vote thereon which are present in
person or represented by proxy at the meeting.
1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD
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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,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or 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 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: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (1) 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; (2) the record
date for determining stockholders entitled to express consent to corporate
action in writing without a meeting when no prior action of the Board of
Directors is required by 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 in accordance with applicable law, or, if prior action by the
Board of Directors is required by law, shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action; and (3) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. 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.
1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The Secretary shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
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 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 so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present. Upon the willful neglect or refusal of the
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directors to produce such a list at any meeting for the election of directors,
they shall be ineligible for election to any office at such meeting. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders or the books of the
corporation, or to vote in person or by proxy at any meeting of stockholders.
1.10 ACTION BY CONSENT OF STOCKHOLDERS
---------------------------------
Unless otherwise restricted by the certificate of incorporation, any action
required or permitted to 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.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE II
BOARD OF DIRECTORS
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2.1 NUMBER; QUALIFICATIONS
----------------------
The number of directors of the corporation shall be not less than five (5)
nor more than seven (7), with the current number of directors to be fixed at
five (5). The indefinite number of directors may be changed, or a definite
number may be fixed without provision for an indefinite number, by a duly
adopted amendment to the certificate of incorporation or by an amendment to this
bylaw duly adopted by resolution of a majority of the authorized number of
directors of the board of directors or the vote or written consent of the
holders of a majority of the outstanding shares of the stock issued and
outstanding and entitled to vote.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires. Directors
need not be stockholders.
2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES
-----------------------------------------
The Board of Directors shall initially consist of the persons named as
directors in the certificate of incorporation, and each director so elected
shall hold office until the first annual meeting of stockholders or until his
successor is elected and qualified. At the first annual meeting of stockholders
and at each annual meeting thereafter, the stockholders shall elect directors
each of whom shall hold office for a term of one year or until his successor is
elected and qualified. Any director may resign at any time upon written notice
to the corporation. Any newly created directorship or any vacancy occurring in
the Board of Directors for any cause may be filled only by the vote of the
stockholders entitled to designate such director or entitled to fill such
vacancy or newly created directorship pursuant to the terms of the Restated
Certificate of Amendment, and each
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director so elected shall hold office until the expiration of the term of office
of the director whom he has replaced or until his successor is elected and
qualified.
2.3 REGULAR MEETINGS
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Regular meetings of the Board of Directors may be held at such places
within or without the State of Delaware and at such times as the Board of
Directors may from time to time determine, and if so determined notices thereof
need not be given.
2.4 SPECIAL MEETINGS
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Special meetings of the Board of Directors may be held at any time or place
within or without the State of Delaware whenever called by the President, any
Vice President, the Secretary, or by any member of the Board of Directors.
Notice of a special meeting of the Board of Directors shall be given by the
person or persons calling the meeting at least twenty-four hours before the
special meeting.
2.5 TELEPHONIC MEETINGS PERMITTED
-----------------------------
Members of the Board of Directors, or any committee designated by the Board
of Directors, may participate in a meeting thereof 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
pursuant to this by-law shall constitute presence in person at such meeting.
2.6 QUORUM; VOTE REQUIRED FOR ACTION
--------------------------------
At all meetings of the Board of Directors a majority of the whole Board of
Directors shall constitute a quorum for the transaction of business. Except in
cases in which the certificate of incorporation or these by-laws otherwise
provide, the vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
2.7 ORGANIZATION
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Meetings of the Board of Directors shall be presided over by the Chairman
of the Board, if any, or in his absence by the Vice Chairman of the Board, if
any, or in his absence by the President, or in their absence by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.
2.8 INFORMAL ACTION BY DIRECTORS
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Unless otherwise restricted by the certificate of incorporation or these
by-laws, 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 such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or such committee.
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ARTICLE III
COMMITTEES
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3.1 COMMITTEES
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The Board of Directors may, by resolution passed by a majority of the whole
Board of Directors, designate one or more committees, each committee to consist
of one or more of the directors of the corporation. 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. In
the absence or disqualification of a member of the 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 place of any such absent or
disqualified member. Any such committee, to the extent permitted by law and to
the extent provided in the resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it.
3.2 COMMITTEE RULES
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Unless the Board of Directors otherwise provides, each committee designated
by the Board of Directors may make, alter and repeal rules for the conduct of
its business. In the absence of such rules each committee shall conduct its
business in the same manner as the Board of Directors conducts its business
pursuant to Article III of these by-laws.
ARTICLE IV
OFFICERS
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4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
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RESIGNATION; REMOVAL; VACANCIES
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The Board of Directors shall elect a President and Secretary, and it may,
if it so determines, choose a Chairman of the Board and a Vice Chairman of the
Board from among its members. The Board of Directors may also choose one or
more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or
more Assistant Treasurers. Each such officer shall hold office until the first
meeting of the Board of Directors after the annual meeting of stockholders next
succeeding his election, and until his successor is elected and qualified or
until his earlier resignation or removal. Any officer may resign at any time
upon written notice to the corporation. The Board of Directors may remove any
officer with or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
corporation. Any number of offices may be held by the same person. Any vacancy
occurring in any office of the corporation by
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death, resignation, removal or otherwise may be filled for the unexpired portion
of the term by the Board of Directors at any regular or special meeting.
4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS
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The officers of the corporation shall have such powers and duties in the
management of the corporation as may be prescribed by the Board of Directors
and, to the extent not so provided, as generally pertain to their respective
offices, subject to the control of the Board of Directors. The Board of
Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
ARTICLE V
STOCK
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5.1 CERTIFICATES
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Every holder of stock shall be entitled to have a certificate signed by or
in the name of the corporation by the Chairman or Vice Chairman of the Board of
Directors, if any, or the President or Vice President, and by the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the
corporation, certifying the number of shares owned by him in the corporation.
Any of or all the signatures on the certificate may be a facsimile. 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 by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
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CERTIFICATES
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The corporation may issued a new certificate of stock in the place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
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ARTICLE VI
INDEMNIFICATION
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6.1 THIRD PARTY ACTIONS
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The corporation shall indemnify 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
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director or officer of the corporation, or that such
director or officer is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture trust or other enterprise (collectively "Agent"), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
---------------------------------------------
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was an Agent (as defined in Section 6.1)
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in manner he reasonably believed to be in or not opposed
to the best interests of the corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.
6.3 SUCCESSFUL DEFENSE
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To the extent that an Agent of the corporation has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to in
Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
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6.4 DETERMINATION OF CONDUCT
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Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case upon a
determination that the indemnification of the Agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 6.1 and 6.2. Such determination shall be made (1) by the Board of
Directors or an executive committee by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) or 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, or (3)
by the stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
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Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
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The indemnification and advancement of expenses provided or granted
pursuant to the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
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The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was an Agent of the corporation, or is or was
serving at the request of the corporation, as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
6.8 THE CORPORATION
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For purposes of this Article VI, references to "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 and officers, so that any person who is or
was a director 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 and subject to the
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provisions of this Article VI (including, without limitation the provisions of
Section 6.4) with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
6.9 EMPLOYEE BENEFIT PLANS
----------------------
For purposes of this Article VI, 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 Article
VI.
6.10 INDEMNITY FUND
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Upon resolution passed by the Board, the corporation may establish a trust
or other designated account, grant a security interest or use other means
(including, without limitation, a letter of credit), to ensure the payment of
certain of its obligations arising under this Article VI and/or agreements which
may be entered into between the corporation and its officers and directors from
time to time.
6.11 INDEMNIFICATION OF OTHER PERSONS
--------------------------------
The provisions of this Article VI shall not be deemed to preclude the
indemnification of any person who is not an Agent (as defined in Section 6.1),
but whom the corporation has the power or obligation to indemnify under the
provisions of the General Corporation Law of the State of Delaware or otherwise.
The corporation may, in its sole discretion, indemnify an employee, trustee or
other agent as permitted by the General Corporation Law of the State of
Delaware. The corporation shall indemnify an employee, trustee or other agent
where required by law.
6.12 SAVINGS CLAUSE
--------------
If this Article or any portion thereof shall be invalidated on any ground
by any court of competent jurisdiction, then the corporation shall nevertheless
indemnify each Agent against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement with respect to any action, suit,
proceeding or investigation, whether civil, criminal or administrative, and
whether internal or external, including a grand jury proceeding and an action or
suit brought by or in the right of the corporation, to the full extent permitted
by any applicable portion of this Article that shall not have been invalidated,
or by any other applicable law.
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6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
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The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise prided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
MISCELLANEOUS
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7.1 FISCAL YEAR
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The fiscal year of the corporation shall be determined by resolution of the
Board of Directors.
7.2 SEAL
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The corporate seal shall have the name of the corporation inscribed thereon
and shall be in such form as may be approved from time to time by the Board of
Directors.
7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
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COMMITTEES
- ----------
Any written waiver of notice, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person 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. Neither the
business to be transacted at, nor the purpose of any regular or special meeting
of the stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice.
7.4 INTERESTED DIRECTORS; QUORUM
----------------------------
No contract or transaction between the corporation and one or more of its
directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if: (1) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
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quorum: or (2) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (3) the contract or
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
7.5 FORM OF RECORDS
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Any records maintained by the corporation in the regular course of its
business, including its stock ledger, books of account, and minute books, may be
kept on, or be in the form of, punch cards, magnetic tape, photographs,
microphotographs, or any other information storage device, provided that the
records so kept can be converted into clearly legible form within a reasonable
time. The corporation shall so convert any records so kept upon the request of
any person entitled to inspect the same.
7.6 AMENDMENT OF BY-LAWS
--------------------
These by-laws may be altered or repealed, and new by-laws made, by the
unanimous vote of the Board of Directors, but the stockholders acting by the
vote of a majority of the holders of each outstanding class or series of the
corporation's capital stock may make additional by-laws and may alter and repeal
any by-laws whether adopted by them or otherwise.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
LOOKSMART, LTD.
Certificate by Secretary of Adoption by Stockholders' Vote
----------------------------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of LookSmart, Ltd. and that the foregoing Bylaws,
comprising 12 pages, excluding this page, were submitted to Written Consent of
the Stockholders of the Company, effective as of May 5, 1998, and were ratified
by the vote of stockholders entitled to exercise the majority of the voting
power of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 5th day of May, 1998.
/s/ HENRY V. BARRY
-----------------------------------------
Henry V. Barry, Secretary
-13-
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned, being the duly elected Secretary of LookSmart, Ltd., a
Delaware corporation (the "Company"), do hereby certify that Article II, Section
2.1 of the Bylaws of this Corporation was amended by Unanimous Written Consent
of the Board of Directors, effective as of March 19, 1999, and by Written
Consent of the Stockholders, effective as of March 19, 1999, to read in its
entirety as follows:
"2.1 NUMBER; QUALIFICATIONS
The number of directors of the corporation shall be not less than
five (5), nor more than seven (7), with the current number of directors to
be fixed at seven (7). The indefinite number of directors may be changed,
or a definite number may be fixed without provision for an indefinite
number, by a duly adopted amendment to the certificate of incorporation or
by an amendment to this bylaw duly adopted by resolution of a majority of
the authorized number of directors of the board of directors or the vote or
written consent of the holders of a majority of the outstanding shares of
the stock issued and outstanding and entitled to vote.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office
expires. Directors need not be stockholders."
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name this
19th day of March, 1999.
/s/ HENRY V. BARRY
--------------------------------------
Henry V. Barry, Secretary
-14-
<PAGE>
EXHIBIT 3.4
RESTATED BYLAWS
OF
LOOKSMART, LTD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES.......................................................................... 1
1.1 REGISTERED OFFICE......................................................................... 1
1.2 OTHER OFFICES............................................................................. 1
ARTICLE II MEETINGS OF STOCKHOLDERS.................................................................. 1
2.1 PLACE OF MEETINGS......................................................................... 1
2.2 ANNUAL MEETING............................................................................ 1
2.3 SPECIAL MEETING........................................................................... 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.......................................................... 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS........................... 2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.............................................. 3
2.7 QUORUM.................................................................................... 4
2.8 ADJOURNED MEETING; NOTICE................................................................. 4
2.9 CONDUCT OF BUSINESS....................................................................... 4
2.10 VOTING.................................................................................... 4
2.11 WAIVER OF NOTICE.......................................................................... 5
2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING................................... 5
2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS............................... 6
2.14 PROXIES................................................................................... 6
2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE..................................................... 7
ARTICLE III DIRECTORS................................................................................ 7
3.1 POWERS.................................................................................... 7
3.2 NUMBER OF DIRECTORS....................................................................... 7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS................................... 8
3.4 RESIGNATION AND VACANCIES................................................................. 8
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.................................................. 9
3.6 REGULAR MEETINGS.......................................................................... 9
3.7 SPECIAL MEETINGS; NOTICE.................................................................. 9
3.8 QUORUM.................................................................................... 10
3.9 WAIVER OF NOTICE.......................................................................... 10
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING......................................... 10
3.11 FEES AND COMPENSATION OF DIRECTORS........................................................ 10
3.12 APPROVAL OF LOANS TO OFFICERS............................................................. 10
3.13 REMOVAL OF DIRECTORS...................................................................... 11
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV COMMITTEES................................................................................. 11
4.1 COMMITTEES OF DIRECTORS.................................................................... 11
4.2 COMMITTEE MINUTES.......................................................................... 12
4.3 MEETINGS AND ACTION OF COMMITTEES.......................................................... 12
ARTICLE V OFFICERS.................................................................................... 12
5.1 OFFICERS................................................................................... 12
5.2 APPOINTMENT OF OFFICERS.................................................................... 12
5.3 SUBORDINATE OFFICERS....................................................................... 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS; FILLING VACANCIES..................................... 13
5.5 CHAIRMAN OF THE BOARD...................................................................... 13
5.6 CHIEF EXECUTIVE OFFICER.................................................................... 13
5.7 PRESIDENT.................................................................................. 14
5.8 VICE PRESIDENTS............................................................................ 14
5.9 SECRETARY.................................................................................. 14
5.10 CHIEF FINANCIAL OFFICER.................................................................... 15
5.11 ASSISTANT SECRETARY........................................................................ 15
5.12 ASSISTANT TREASURER........................................................................ 15
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS............................................. 15
5.14 AUTHORITY AND DUTIES OF OFFICERS........................................................... 16
ARTICLE VI INDEMNITY.................................................................................. 16
6.1 THIRD PARTY ACTIONS........................................................................ 16
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION.............................................. 16
6.3 SUCCESSFUL DEFENSE......................................................................... 17
6.4 DETERMINATION OF CONDUCT................................................................... 17
6.5 PAYMENT OF EXPENSES IN ADVANCE............................................................. 17
6.6 INDEMNITY NOT EXCLUSIVE.................................................................... 18
6.7 INSURANCE INDEMNIFICATION.................................................................. 18
6.8 THE CORPORATION............................................................................ 18
6.9 EMPLOYEE BENEFIT PLANS..................................................................... 18
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES................................ 19
ARTICLE VII RECORDS AND REPORTS....................................................................... 19
7.1 MAINTENANCE AND INSPECTION OF RECORDS....................................................... 19
7.2 INSPECTION BY DIRECTORS..................................................................... 20
7.3 ANNUAL STATEMENT TO STOCKHOLDERS............................................................ 20
ARTICLE VIII GENERAL MATTERS.......................................................................... 20
8.1 CHECKS...................................................................................... 20
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS............................................ 20
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES..................................................... 21
8.4 SPECIAL DESIGNATION ON CERTIFICATES........................................................ 21
8.5 LOST CERTIFICATES.......................................................................... 22
8.6 CONSTRUCTION; DEFINITIONS.................................................................. 22
8.7 DIVIDENDS.................................................................................. 22
8.8 FISCAL YEAR................................................................................ 22
8.9 SEAL....................................................................................... 22
8.10 TRANSFER OF STOCK.......................................................................... 23
8.11 STOCK TRANSFER AGREEMENTS.................................................................. 23
8.12 REGISTERED STOCKHOLDERS.................................................................... 23
ARTICLE IX AMENDMENTS................................................................................. 23
</TABLE>
-iii-
<PAGE>
RESTATED BYLAWS
OF
LOOKSMART, LTD.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is Corporate Agents, Inc.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, either within or
without the State of Delaware, as may be designated by the board of directors or
in the manner provided in these bylaws. In the absence of any such designation,
stockholders' meetings shall be held at the registered office of the corporation
in the State of Delaware.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the second
Tuesday of June of each year at 10:00 a.m. However, if such day falls on
<PAGE>
a legal holiday, then the meeting shall be held at the same time and place on
the next succeeding business day. At the meeting, directors shall be elected and
any other proper business may be transacted.
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the chief executive
officer, or by the president.
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 time of such
meeting and 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, the president or the
secretary of the corporation. No business may be transacted at such special
meeting otherwise than specified in such notice. The officer receiving the
request shall cause notice to be promptly given to the stockholders entitled to
vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article
II, that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than ten (10) nor more than sixty (60) days after
the receipt of the request. Nothing contained in this paragraph of this Section
2.3 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.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.6 of these bylaws 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. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
---------------------------------------------------------------
Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation,
(i) nominations for the election of directors, and
(ii) business proposed to be brought before any stockholder meeting
may be made by the board of directors or proxy committee appointed by the board
of directors or by any stockholder entitled to vote in the election of directors
generally if such nomination or business proposed is otherwise proper business
before such meeting. However, any such stockholder may nominate one or more
persons for election as directors at a meeting or propose business to be brought
before a meeting, or both, only if such stockholder has given timely notice in
proper written
-2-
<PAGE>
form of their intent to make such nomination or nominations or to propose such
business. To be timely, such stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the corporation not less than
one hundred twenty (120) calendar days in advance of the first anniversary date
of mailing of the corporation's proxy statement released to stockholders in
connection with the previous year's annual meeting of stockholders; 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 a reasonable time
before the solicitation is made. To be in proper form, a stockholder's notice to
the secretary shall set forth:
(a) the name and address of the stockholder who intends to make
the nominations or propose the business and, as the case may be, of the
person or persons to be nominated or of the business to be proposed;
(b) a representation that the stockholder is a holder of record
of stock of the corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
(c) if applicable, 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
nomination or nominations are to be made by the stockholder;
(d) such other information regarding each nominee or each matter
of business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or intended to be
proposed by the board of directors; and
(e) if applicable, the consent of each nominee to serve as
director of the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
-3-
<PAGE>
2.7 QUORUM
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (i) the Chairman of the meeting or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.8 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, 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 that
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.
2.9 CONDUCT OF BUSINESS
-------------------
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.10 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.13 of these bylaws,
subject to the provisions of Sections 217 and 218 of the Delaware General
Corporation Law (relating to voting rights of fiduciaries, pledgors and joint
owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
Notwithstanding the foregoing, if the stockholders of the corporation are
entitled, pursuant to Sections 2115 and 301.5 of the California Corporations
Code, to cumulate their votes in the election of directors, each such
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes that such stockholder normally
is entitled to cast) only if the candidates' names have been properly placed in
nomination (in accordance with these restated Bylaws) prior to commencement of
the voting, and the stockholder requesting cumulative
-4-
<PAGE>
voting has given notice prior to commencement of the voting of the stockholder's
intention to cumulate votes. If cumulative voting is properly requested, each
holder of stock, or of any class or classes or of a series or series thereof,
who elects to cumulate votes shall be entitled to as many votes as equals the
number of votes that (absent this provision as to cumulative voting) he or she
would be entitled to cast for the election of directors with respect to his or
her shares of stock multiplied by the number of directors to be elected by him,
and he or she may cast all of such votes for single director or may distribute
them among the number to be voted for, or for any two or more of them, as he or
she may see fit.
2.11 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the Delaware
General Corporation Law or of the certificate of incorporation or these bylaws,
a written waiver, signed by the person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice. Attendance
of a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person 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. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the certificate
of incorporation or these bylaws.
2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any action
required to be taken at any annual or special meeting of stockholders of a
corporation, or any action that may be taken at any annual or special meeting of
such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. 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 notice and written consent have been given as
provided in Section 228 of the Delaware General Corporation Law.
-5-
<PAGE>
2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
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,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or 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 shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) 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.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the first date on which
a signed written consent is delivered to the corporation.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
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.
2.14 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by a written
proxy, signed by such stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if such stockholder's name is placed on the proxy by any
reasonable means including, but not limited to, by facsimile signature, manual
signature, typewriting, telegraphic transmission or otherwise, by such
stockholder or such stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the Delaware General Corporation Law.
-6-
<PAGE>
2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. 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 so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the Delaware General Corporation Law and any
limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The board of directors shall consist of six (6) members. The number of
directors may be changed by an amendment to this bylaw, duly adopted by the
board of directors or by the stockholders, or by a duly adopted amendment to the
certificate of incorporation. Upon the closing of the first sale of the
corporation's common stock pursuant to a firmly underwritten registered public
offering (the "IPO"), the directors shall be divided into three classes, with
the term of office of the first class, which class shall initially consist of
two directors, to expire at the first annual meeting of stockholders held after
the IPO; the term of office of the second class, which shall initially consist
of two directors, to expire at the second annual meeting of stockholders held
after the IPO; the term of office of the third class, which class shall
initially consist of two directors, to expire at the third annual meeting of
stockholders held after the IPO; and thereafter for each such term to expire at
each third succeeding annual meeting of stockholders held after such election.
-7-
<PAGE>
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
-------------------------------------------------------
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the attention of
the Secretary of the corporation. 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 as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the certificate of
incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the Delaware General Corporation Law.
-8-
<PAGE>
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent 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 office as aforesaid, which
election shall be governed by the provisions of Section 211 of the Delaware
General Corporation Law as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of such board of directors, or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting pursuant to this section shall constitute
presence in person at the meeting.
3.6 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
-9-
<PAGE>
3.8 QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute, the certificate of incorporation, or
these bylaws. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the Delaware
General Corporation Law, the certificate of incorporation, or these bylaws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when such person 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. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
directors, or members of a committee of directors, need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A 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 or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.12 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
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loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.13 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors; provided, however, that, so long
as stockholders of the corporation are entitled to cumulative voting, if less
than the entire board is to be removed, no director may be removed without cause
if the votes cast against his removal would be sufficient to elect such director
if then cumulatively voted at an election of the entire board of directors or,
if there be classes of directors, at an election of the class of directors of
which such director is a part.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board 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. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members 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. Any such committee, to the extent provided in the
resolution of the board of directors, or in the bylaws of the corporation, 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 that may require it; but
no such committee shall have the power or authority (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 bylaws of the corporation;
and, unless the board resolution establishing the committee, the bylaws or the
certificate of incorporation expressly so provide, no such committee
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shall have the power or authority to declare a dividend, to authorize the
issuance of stock, or to adopt a certificate of ownership and merger pursuant to
Section 253 of the Delaware General Corporation Law.
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9
(waiver of notice), and Section 3.10 (action without a meeting), with such
changes in the context of those bylaws as are necessary to substitute the
committee and its members for the board of directors and its members; provided,
however, that the time of regular meetings of committees may be determined
either by resolution of the board of directors or by resolution of the
committee, that special meetings of committees may also be called by resolution
of the board of directors and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant vice presidents, one or more assistant secretaries, one or
more assistant treasurers, and any such other officers as may be appointed in
accordance with the provisions of Section 5.3 of these bylaws. Any number of
offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
-----------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be appointed by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
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<PAGE>
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS; FILLING VACANCIES
------------------------------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.5 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to the
chairman of the board by the board of directors or as may be prescribed by these
bylaws. If there is no president and no one has been appointed chief executive
officer, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.6 of these bylaws.
5.6 CHIEF EXECUTIVE OFFICER
-----------------------
The board of directors shall select a chief executive officer of the
corporation who shall be subject to the control of the board of directors and
have general supervision, direction and control of the business and the officers
of the corporation. The chief executive officer shall preside at all meetings of
the stockholders and, in the absence or nonexistence of a chairman of the board,
at all meetings of the board of directors.
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<PAGE>
5.7 PRESIDENT
---------
The president shall have the general powers and duties of management
usually vested in the office of president of a corporation and shall have such
other powers and duties as may be prescribed by the board of directors or these
bylaws. In addition and subject to such supervisory powers, if any, as may be
given by the board of directors to the chairman of the board, if no one has been
appointed chief executive officer, the president shall be the chief executive
officer of the corporation and shall, subject to the control of the board of
directors, have the powers and duties described in Section 5.6.
5.8 VICE PRESIDENTS
---------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. The secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
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<PAGE>
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. The chief financial officer shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all his transactions as chief financial officer and of the
financial condition of the corporation, and shall have other powers and perform
such other duties as may be prescribed by the board of directors or these
bylaws.
The chief financial officer shall be the treasurer of the corporation.
5.11 ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as may be
prescribed by the board of directors or these bylaws.
5.12 ASSISTANT TREASURER
-------------------
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the chief financial officer or in the event of his or
her inability or refusal to act, perform the duties and exercise the powers of
the chief financial officer and shall perform such other duties and have such
other powers as may be prescribed by the board of directors or these bylaws.
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations
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<PAGE>
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
5.14 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
---------
6.1 THIRD PARTY ACTIONS
-------------------
The corporation shall indemnify 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
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement (if such settlement is approved
in advance by the corporation, which approval shall not be unreasonably
withheld) actually and reasonably incurred by such person in connection with
such action, suit or proceeding if 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 corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
---- ----------
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which the person reasonably believed to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that the person's
conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
---------------------------------------------
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee or
agent of corporation, or is or was serving at the request of the corporation as
a director,
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<PAGE>
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees) and
amounts paid in settlement (if such settlement is approved in advance by the
corporation, which approval shall not be unreasonably withheld) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper. Notwithstanding any other provision of this
Article VI, no person shall be indemnified hereunder for any expenses or amounts
paid in settlement with respect to any action to recover short-swing profits
under Section 16(b) of the Securities Exchange Act of 1934, as amended.
6.3 SUCCESSFUL DEFENSE
------------------
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
6.4 DETERMINATION OF CONDUCT
------------------------
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because such person has met the applicable
standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall
be made (1) by the Board of Directors or the Executive Committee by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding or (2) or 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, or (3) by the stockholders. Notwithstanding the
foregoing, a director, officer, employee or agent of the Corporation shall be
entitled to contest any determination that the director, officer, employee or
agent has not met the applicable standard of conduct set forth in Sections 6.1
and 6.2 by petitioning a court of competent jurisdiction.
6.5 PAYMENT OF EXPENSES IN ADVANCE
------------------------------
Expenses incurred in defending a civil or criminal action, suit or
proceeding, by an individual who may be entitled to indemnification pursuant to
Section 6.1 or 6.2, shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount if
it
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shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification and advancement of expenses provided by or granted
pursuant to the other sections of this Article VI shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
6.7 INSURANCE INDEMNIFICATION
-------------------------
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against such
person and incurred by such person in any such capacity or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article VI.
6.8 THE CORPORATION
---------------
For purposes of this Article VI, references to "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 and subject to the provisions of this Article VI (including,
without limitation the provisions of Section 6.4) with respect to the resulting
or surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
----------------------
For purposes of this Article VI, 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 such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee
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<PAGE>
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 Article VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
-----------------------------------------------------------
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive officer or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent so to act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the 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 so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at
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the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so 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.
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8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the 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 shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the 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.
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8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
---------
The directors of the corporation, subject to any restrictions contained in
(i) the Delaware General Corporation Law or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
----
The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
-22-
<PAGE>
8.10 TRANSFER OF STOCK
-----------------
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
-------------------------
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.
8.12 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, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The bylaws of the corporation may be adopted, amended or repealed by the
stockholders entitled to vote; provided, however, that the corporation may, in
its certificate of incorporation, confer the power to adopt, amend or repeal
bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal bylaws.
-23-
<PAGE>
CERTIFICATE OF ADOPTION OF
RESTATED BYLAWS
OF
LOOKSMART, LTD.
Certificate by Secretary
------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of LookSmart, Ltd. and that the foregoing Restated Bylaws,
comprising twenty-two (22) pages, were adopted as the Restated Bylaws of the
corporation on ________________, 1999 by the board of directors of the
corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this ____ day of ______________, 1999.
_______________________________
Hank V. Barry, Secretary
-24-
<PAGE>
EXHIBIT 4.2
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This Second Amended and Restated Investors' Rights Agreement (the
"Agreement") is made as of March 24, 1999 by and among LookSmart, Ltd., a
Delaware corporation (the "Company"), and the investors identified on the
Investor Schedule attached hereto as Exhibit A for the holders of the Company's
---------
Series A Preferred Stock (the "Series A Preferred"), the Company's Series B
Preferred Stock (the "Series B Preferred"), the Company's Series C Preferred
Stock (the "Series C Preferred"), and the Company's Series 1 Junior Preferred
Stock (the "Junior Preferred") (collectively, the "Preferred Stock"). Each
entity listed on the Investor Schedule shall be referred to herein as an
"Investor", and collectively, the "Investors."
RECITALS
WHEREAS, the Company has granted the holders of the Series A Preferred, the
Series B Preferred and the Junior Preferred registration and other rights under
that certain Amended and Restated Investors' Rights Agreement dated as of
October 23, 1998 (the "Prior Agreement");
WHEREAS, the Company and certain of the Investors are entering into a
Series C Preferred Stock Purchase Agreement (the "Series C Agreement") of even
date herewith, pursuant to which the Company shall sell, and certain of the
Investors shall acquire, shares of the Series C Preferred.
WHEREAS, as a condition to entering into the Series C Agreement, certain of
the Investors have requested that the Company extend registration and other
rights to them with respect to the Series C Preferred and the Preferred Warrants
(as defined below) as set forth below, and the Company and the existing
Investors who are signatories to this Agreement are willing to amend the
registration rights and other rights set forth in the Prior Agreement by
replacing such rights in their entirety with the rights set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
AGREEMENT
---------
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Conversion Shares" shall mean the Common Stock issued or issuable
-----------------
upon conversion of the Preferred Stock.
<PAGE>
"Holder" shall mean the Investors holding Restricted Securities or
------
Registrable Securities or securities convertible into or exercisable for
Registrable Securities and any transferee of Registrable Securities who,
pursuant to Section 13 below, is entitled to registration rights hereunder.
"Initiating Series A Preferred Holders" shall mean any Investors (or
-------------------------------------
transferees of any Investors pursuant to Section 13 below) who in the aggregate
are Holders of not less than thirty percent (30%) of the Registrable Securities
issued or issuable upon conversion of the Series A Preferred.
"Initiating Series B Preferred Holders" shall mean any Investors (or
-------------------------------------
transferees of any Investors pursuant to Section 13 below) who in the aggregate
are Holders of not less than thirty percent (30%) of the Registrable Securities
issued or issuable upon conversion of the Series B Preferred.
"Initiating Series C Preferred Holders" shall mean any Investors (or
-------------------------------------
transferees of any Investors pursuant to Section 13 below) who in the aggregate
are Holders of not less than thirty percent (30%) of the Registrable Securities
issued or issuable upon conversion of the Series C Preferred.
"Initiating Junior Preferred Holders" shall mean any Investors (or
-----------------------------------
transferees of any Investors pursuant to Section 13 below) who in the aggregate
are Holders of not less than thirty percent (30%) of the Registrable Securities
issued or issuable upon conversion of the Junior Preferred.
"Initiating Holders" shall refer collectively to Initiating Series A
------------------
Preferred Holders, Initiating Series B Preferred Holders, Initiating Series C
Preferred Holders, and Initiating Junior Preferred Holders.
"Preferred Warrants" shall mean warrants exercisable for the Company's
------------------
Series A Preferred and Series C Preferred.
"Registrable Securities" means (i) the Conversion Shares, (ii) any
----------------------
Common Stock of the Company issued or issuable with respect to the Shares,
Conversion Shares or Preferred Warrants or otherwise held or acquired by an
Investor, or (iii) other securities issued or issuable with respect to Shares or
Conversion Shares upon any stock split, stock dividend, recapitalization, or
similar event; provided, however, that shares of Common Stock or other
-------- -------
securities shall only be treated as Registrable Securities if and so long as
they have not been sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
-2-
<PAGE>
"Registration Expenses" shall mean all expenses, except for Selling
---------------------
Expenses, incurred by the Company in complying with Sections 5, 6 and 7 hereof,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company and for the selling Holders, if any, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration.
"Restricted Securities" shall mean the securities of the Company
---------------------
required to bear the legend set forth in Section 3 hereof (or any similar
legend).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes, if any, applicable to the Registrable
Securities registered by the Holders.
"Shares" shall mean the shares of Series A Preferred, Series B
------
Preferred, Series C Preferred and the Junior Preferred.
2. Restrictions on Transferability. The Restricted Securities shall not
-------------------------------
be transferable except upon the conditions specified in this Agreement, which
conditions are intended to ensure compliance with the provisions of the
Securities Act. Each Holder of Restricted Securities will cause any proposed
transferee of the Restricted Securities held by such Holder to agree to take and
hold such Restricted Securities subject to the provisions and upon the
conditions specified in this Agreement.
3. Restrictive Legend. Each certificate representing (i) the Shares, (ii)
------------------
the Conversion Shares, (iii) the Preferred Warrants, and (iv) any other
securities issued in respect of the Shares and Conversion Shares upon conversion
of the Preferred Stock, or exercise of the Preferred Warrants, or upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event,
shall (unless otherwise permitted by the provisions of Section 4 below) be
stamped or otherwise imprinted with a legend in the following form (in addition
to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION, AN EXEMPTION THEREFROM UNDER SAID ACT OR AN OPINION
OF COUNSEL FOR THE INVESTOR THAT SHALL BE ACCEPTABLE IN FORM AND
SUBSTANCE TO THE COMPANY'S COUNSEL AND TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT. COPIES OF THE
AGREEMENT COVERING THE PURCHASE OF
-3-
<PAGE>
THESE SECURITIES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED
AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
4. Notice of Proposed Transfers. The Holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed transfer
of any Restricted Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the Holder thereof
shall give written notice to the Company of such Holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall, if the Company so
requests, be accompanied (except in transactions in compliance with Rule 144) by
either (i) a written opinion of legal counsel who shall be reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "No Action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the Holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the Holder to the
Company; provided, however, that no opinion or No Action letter need be obtained
-------- -------
with respect to a transfer to (A) a partner, active or retired, of a Holder of
Restricted Securities, (B) the estate of any such partner, (C) an "affiliate" of
a Holder of Restricted Securities as that term is defined in Rule 405
promulgated by the Commission under the Securities Act, or (D) the spouse,
children, grandchildren or spouse of such children or grandchildren of any
Holder or to trusts for the benefit of any Holder or such persons, if the
transferee agrees to be subject to the terms hereof. Each certificate evidencing
the Restricted Securities transferred as above provided shall bear the
appropriate restrictive legend set forth in Section 3 above, except that such
certificate shall not bear such restrictive legend if in the opinion of counsel
for the Company such legend is not required in order to establish compliance
with any provisions of the Securities Act.
5. Demand Registration.
-------------------
5.1 Demand for Registration. (a) If at any time after six months
-----------------------
following the effective date of the Company's initial registration statement
filed under the Securities Act, the Company shall receive from the Initiating
Series A Preferred Holders or the Initiating Junior Preferred Holders a written
request that the Company effect any registration, qualification or compliance
having an aggregate offering price to the public, net of underwriting discounts
and commissions, of $3,000,000, or (b) if at any time after the earlier of (i)
November 7, 1999, and (ii) six months following the effective date of the
Company's initial registration statement filed under the Securities Act, the
Company shall receive from the Initiating Series B Preferred Holders a written
request that the Company effect any registration, qualification or compliance
having an aggregate offering price to the public, net of underwriting discounts
and commissions, of
-4-
<PAGE>
$3,000,000, or (c) if at any time after six months following the effective date
of the Company's initial registration statement filed under the Securities Act,
the Company shall receive from the Initiating Series C Preferred Holders a
written request that the Company effect any registration, qualification or
compliance having an aggregate offering price to the public, net of underwriting
discounts and commissions, of $10,000,000, the Company will (i) within fifteen
(15) days of the receipt by the Company of such notice, give written notice of
the proposed registration, qualification or compliance to all other Holders and
(ii) as soon as practicable, use its best efforts to effect such registration,
qualification or compliance (including, without limitation, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to take
-------- -------
any action to effect any such registration, qualification or compliance pursuant
to this Section 5.1:
(a) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(b) On behalf of the Initiating Series A Preferred Holders,
after the Company has already effected one (1) registration at the request of
the Initiating Series A Preferred Holders pursuant to this Section 5.1, and such
registration has been declared or ordered effective;
(c) On behalf of the Initiating Series B Preferred Holders,
after the Company has already effected two (2) registrations at the request of
the Initiating Series B Preferred Holders pursuant to this Section 5.1, and such
registrations have been declared or ordered effective;
(d) On behalf of the Initiating Series C Preferred Holders,
after the Company has already effected one (1) registration at the request of
the Initiating Series C Preferred Holders pursuant to this Section 5.1, and such
registration has been declared or ordered effective;
(e) On behalf of the Initiating Junior Preferred Holders, after
the Company has already effected one (1) registration at the request of the
Initiating Junior Preferred Holders pursuant to this Section 5.1, and such
registration has been declared or ordered effective;
(f) If the Company shall furnish to the Initiating Holders
within thirty (30) days of receipt of their written request a notice of its
intent to file a registration statement pertaining to its initial public
offering within ninety (90) days, or during the ninety (90) day period
immediately following the closing date of the Company's initial public offering;
-5-
<PAGE>
(g) If the Company shall furnish to the Initiating Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors the filing of such a registration
statement will have a material adverse effect on any proposal or plan by the
Company or any of its subsidiaries to engage in any financing, acquisition of
assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or other significant transaction, then the Company's
obligation to use its best efforts to register, qualify or comply under this
Section 5 shall be deferred for a period not to exceed ninety (90) days from the
date of receipt of the written request from the Initiating Holders; provided,
--------
however, that the Company shall not exercise such right more than once in any
- -------
twelve (12) month period.
5.2 Underwriting. In the event that the Initiating Holders intend to
------------
distribute their Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as part of the written request
given pursuant to Section 5.1. In such event, the right of any Holder to
registration pursuant to this Section 5 shall be conditioned upon such Holder's
participation in the underwriting arrangements required by this Section 5, and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent requested shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by a majority of the Initiating Series A Preferred
Holders, Initiating Series B Preferred Holders, Initiating Series C Preferred
Holders, and Initiating Junior Preferred Holders reasonably acceptable to the
Company proposing to distribute their securities through such underwriting.
Notwithstanding any other provision of this Section 5, if the managing
underwriter advises the Initiating Series A Preferred Holders, Initiating Series
B Preferred Holders, Initiating Series C Preferred Holders, or Initiating Junior
Preferred Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
Holders proposing to distribute their securities and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated first among the Initiating Series A Preferred Holders,
Initiating Series B Preferred Holders, Initiating Series C Preferred Holders, or
Initiating Junior Preferred Holders (or in the event that such registration
results in the Company's initial registration statement filed under the
Securities Act, Holders of an aggregate of Series A Preferred, Series B
Preferred, Series C Preferred, or Junior Preferred) in proportion to the
respective amounts of Registrable Securities held by such Holders at the time of
filing the registration statement, and second among all other Holders proposing
to distribute their securities in proportion to the respective amounts of
Registrable Securities held by such Holders at the time of filing the
registration statement. No Registrable Securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall be included in such
registration. To facilitate the allocation of shares in accordance with the
above provisions, the Company or the underwriters may round the number of shares
allocated to any Holder to the nearest 100 shares.
-6-
<PAGE>
If any Holder of Registrable Securities disapproves of the terms
of the underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company, the managing underwriter, the Initiating Series A
Preferred Holders, the Initiating Series B Preferred Holders, Initiating Series
C Preferred Holders, or the Initiating Junior Preferred Holders. The Registrable
Securities and/or other securities so withdrawn shall also be withdrawn from
registration, and such Registrable Securities shall not be transferred in a
public distribution prior to ninety (90) days after the effective date of such
registration, or such other shorter period of time as the underwriters may
require.
6. Company Registration.
--------------------
6.1 Notice of Registration. If the Company shall determine to
----------------------
register any of its securities, either for its own account or the account of a
security holder or holders exercising their respective demand registration
rights (under Section 5 or Section 7), other than (i) a registration relating
solely to employee benefit plans, (ii) a registration relating solely to a
Commission Rule 145 transaction, or (iii) an initial public offering, the
Company will:
(a) promptly give to each Holder written notice thereof; and
(b) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within fifteen (15) days after receipt of such written notice
from the Company, by any Holder.
6.2 Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 6.1. In such event the right of any Holder to registration
pursuant to Section 6 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of Registrable Securities in the
underwriting to the extent provided herein.
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company) enter into an underwriting
agreement in customary form with the managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision of this
Section 6, if the managing underwriter determines that marketing factors require
a limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Securities and other securities to be
distributed through such underwriting. The Company shall so advise all Holders
distributing their securities through such underwriting of such limitation and
the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated pro rata among all Holders, as
nearly as practicable, based on the respective amounts of Registrable Securities
held by such Holders at the time of filing the registration statement; provided,
--------
however, that in no event shall the amount of securities of the selling Holders
- -------
included in the registration be reduced below twenty-five percent (25%) of the
total amount of securities included in such registration, unless such offering
is the initial underwritten
-7-
<PAGE>
public offering of the Company's securities in which event any or all of the
Registrable Securities of the Holders may be excluded in accordance with the
immediately preceding sentence. In no event will shares of any other selling
shareholder be included in such registration which would reduce the number of
shares which may be included by Holders without the written consent of Holders
of not less than a majority of the Registrable Securities proposed to be sold in
the offering. To facilitate the allocation of shares in accordance with the
above provisions, the Company may round the number of shares allocated to any
Holder or holder to the nearest 100 shares.
If any Holder or holder disapproves of the terms of any such
underwriting, such Holder or holder may elect to withdraw therefrom by written
notice to the Company and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration, and
shall not be transferred in a public distribution prior to ninety (90) days
after the effective date of the registration statement relating thereto, or such
other shorter period of time as the underwriters may require. A Holder's right
to future Company registration rights granted pursuant to Section 6.1 herein
shall survive any such exclusion or withdrawal.
6.3 Right to Terminate Registration. The Company shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this Section 6
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
7. Registration on Form S-3. In addition to the rights set forth in
------------------------
Section 5, if holders of 20% or more of the Registrable Securities issued or
issuable with respect to the Shares request that the Company file a registration
statement on Form S-3 (or any successor thereto) for a public offering of shares
of Registrable Securities the reasonably anticipated aggregate price to the
public of which would exceed $1,000,000, and the Company is a registrant
entitled to use Form S-3 to register securities for such an offering, the
Company shall use its best efforts to cause such shares to be registered for the
offering on such form (or any successor thereto). The Company shall be obligated
to file only one registration statement every six (6) months under this Section
7.
8. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with registrations pursuant to Sections 5, 6 and 7 shall be borne by
the Company; provided, however, that the Company will pay the Registration
-------- -------
Expenses for no more than two (2) registrations on Form S-3. All Selling
Expenses relating to securities registered on behalf of the Holders shall be
borne by the holders of securities included in such registration pro rata with
the Company and among each other on the basis of the number of shares so
registered.
9. Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and
-8-
<PAGE>
remain effective for at least one hundred eighty (180) days or until the
distribution described in the Registration Statement has been completed;
(b) Prepare and file with the Commission such amendments, post-
effective amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement.
(c) Furnish to the Holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, amendments, preliminary
prospectuses, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
10. Indemnification.
---------------
(a) To the extent permitted by law, the Company will indemnify
each selling Holder, each of its officers, directors, partners and legal
counsel, and each person controlling such Holder within the meaning of Section
15 of the Securities Act, with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each underwriter,
if any, and each person who controls any underwriter within the meaning of
Section 15 of the Securities Act, against all expenses, claims, losses, damages
or liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of its officers, directors, partners, and legal counsel and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly
-9-
<PAGE>
executed by such Holder, controlling person or underwriter and stated to be
specifically for use therein.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
severally and not jointly, indemnify the Company, each of its directors,
officers, and legal counsel, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other Holder, each of its officers, directors, partners
and legal counsel and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
Notwithstanding the foregoing, the liability of each Holder under this
subsection (b) shall be limited in an amount equal to the proceeds to each such
Holder of Registrable Securities sold as contemplated herein, unless such
liability resulted from willful misconduct by such Holder which has been
judicially determined. A Holder will not be required to enter into any agreement
or undertaking in connection with any registration under this Agreement
providing for any indemnification or contribution on the part of such Holder
greater than the Holder's obligations under this Section 10. The indemnity
obligations of each Holder hereunder shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
(c) Each party entitled to indemnification under this Section 10
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party
-10-
<PAGE>
shall not assume the defense for matters as to which there is a conflict of
interest or separate and different defenses but shall bear the expense of such
defense nevertheless. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
11. Information by Holder. It shall be a condition precedent to the
---------------------
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Securities of any selling Holder that such holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as the Company may reasonably request in writing and as shall be reasonably
required to effect the registration of such Holder's Registrable Securities.
12. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are defined in Rule 144 under the Securities Act, at all times after the
effective date that the Company becomes subject to the reporting requirements of
the Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements);
(c) Furnish to Holders of Restricted Securities upon their
request, (i) a written statement by the Company as to its compliance with the
reporting requirements of said Rule 144 (at any time after 90 days after the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly report of the
Company and (iii) such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the Company as an
Investor may reasonably request in availing itself of any rule or regulation of
the Commission allowing an Investor to sell any such securities without
registration.
13. Transfer of Registration Rights. The rights to cause the Company to
-------------------------------
register Registrable Securities pursuant to Sections 5, 6 and 7 may be assigned
by a Holder (i) to any partner, general partner, limited partner, retired
partner or member of any Holder, (ii) to any immediate family member or trust
for the benefit of any individual Holder, (iii) to any Investor, and (iv) in
connection with the transfer of not less than 400,000 shares of Registrable
Securities; provided in
-11-
<PAGE>
each case that (i) the Company is given prior written notice thereof, and (ii)
such transferee shall agree in writing to be subject to all restrictions set
forth in this Agreement.
14. Standoff Agreement. Each Holder agrees, in connection with the
------------------
Company's initial public offering of the Company's securities, upon request of
the underwriters managing any underwritten offering of the Company's securities,
not to sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of such underwriters, for
such period of time (not to exceed one hundred eighty (180) days) from the
effective date of such registration as may be requested by the underwriters;
provided, however, that the officers and directors of the Company who own stock
- -------- -------
of the Company, together with all holders of one percent (1%) or more of the
Company's outstanding stock, also agree to such restrictions. Notwithstanding
the foregoing, Holders shall only be bound to the provisions of this Section 14
if the underwriters agree that any early release from any lock-up agreement for
any person in connection with a public offering shall be pro rata among such
person and the Holders.
15. Limitation on Subsequent Registration Rights. From and after the date
--------------------------------------------
of this Agreement, the Company shall not, without the prior written consent of
the Holders of a majority of the Registrable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
that would allow such holder or prospective holder registration rights senior to
those rights granted to the Investors under this Agreement.
16. Termination of Registration Rights. The rights granted under this
----------------------------------
Agreement shall terminate on the third anniversary of the closing of a public
offering of the Company's securities that results in the automatic conversion of
the Company's Preferred Stock into Common Stock under the Company's Restated
Certificate of Incorporation.
17. Investors' Rights of First Refusal.
----------------------------------
17.1 Issuance of Securities by the Company.
-------------------------------------
(a) Right of First Refusal. Should the Company propose to sell
----------------------
and issue any New Securities (as defined below), the Company hereby grants to
each Investor the right of first refusal to purchase, pro rata, a portion of
such New Securities. An Investor's pro rata share, for purposes of this right of
first refusal, is the ratio of the number of shares of Common Stock held by such
Investor (including shares of Common Stock issuable upon conversion of Preferred
Stock held by such Investor) to the total number of shares of Common Stock
outstanding, after giving effect to the conversion of all outstanding
convertible securities and the exercise of all outstanding options and warrants.
(b) Definition of New Securities. "New Securities" shall mean
----------------------------
any capital stock of the Company whether authorized or not, and rights, options
or warrants to purchase capital stock and securities of any type whatsoever that
are, or may become, convertible into capital stock; provided that the term "New
Securities" does not include the following:
-12-
<PAGE>
(i) Shares or the Conversion Shares;
(ii) securities issued pursuant to a public offering
pursuant to an effective registration statement under the Act at a price that
results in gross proceeds to the Company of at least $25,000,000 (a "Qualified
Public Offering");
(iii) securities issued pursuant to the Company's
acquisition of another corporation, limited liability company or other business
entity by merger, purchase of substantially all the assets or other
reorganization whereby after such transaction the Company owns not less than
fifty-one percent (51%) of the voting power of such corporation or entity;
(iv) any shares of the Company's Common Stock or options
issued or granted to employees, consultants to, and directors of the Company
pursuant to any arrangement approved by the Board of Directors; provided,
however that with respect to the holders of Series A Preferred, Series B
Preferred and the Junior Preferred, only up to 7,900,000 shares of Common Stock
shall be so excluded from the definition of "New Securities", unless a greater
number of shares of Common Stock is unanimously approved by the Board of
Directors.
(v) securities issued in connection with strategic
alliance agreements, equipment lease financing transactions or bank financing
transactions approved by the Board of Directors, where the issuance of such
shares is not principally for the purpose of raising additional equity capital
for the Company; provided, however, that for the holders of Series A Preferred,
Series B Preferred and the Junior Preferred, only 400,000 shares shall be so
excluded.
(vi) securities issued in connection with any stock split
or stock dividend of the Company.
(c) Notice of Right. In the event the Company proposes to
---------------
undertake an issuance of New Securities, it shall give each Investor written
notice of its intention, describing the type of New Securities, the price and
the general terms upon which the Company proposes to issue the same. Each
Investor shall have fifteen (15) days from the date of receipt of any such
notice to agree to purchase the Investor's pro rata share (as set forth in
Section 17.1(a) above) of such New Securities for the price and upon the terms
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased. An Investor's waiver or
failure to exercise such right of first refusal in response to an offering of
New Securities, does not constitute a waiver of such Investor's right of first
refusal in any future offering of New Securities.
(d) Exercise of Right. In the event an Investor fails to
-----------------
exercise the right of first refusal within said fifteen (15) day period, the
Company shall have one hundred twenty (120) days thereafter, to sell or enter
into an agreement (pursuant to which the sale of New Securities covered thereby
shall be closed, if at all, within sixty (60) days from the date of said
agreement) to sell the New Securities respecting which the Investor's option was
not exercised, at the price and upon the terms specified in the Company's
notice. In the event the Company has not entered into an agreement to sell the
New Securities within said 120-day period (or sold and issued New Securities
-13-
<PAGE>
in accordance with the foregoing within sixty (60) days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities,
without first offering such securities to the Investors in the manner provided
above.
(e) Termination of Right of First Refusal. The right of first
-------------------------------------
refusal granted under this Agreement (i) may be waived on behalf of all
Investors only with the written consent of the holders of more than 50% of the
shares of Common Stock then held by all Investors (including shares of Common
Stock issuable upon conversion of all outstanding Preferred Stock), and (ii)
will terminate immediately upon the closing of a Qualified Public Offering.
18. Additional Investment Rights.
----------------------------
18.1 Additional Investment Rights. In the event that the Company
----------------------------
issues any New Securities, the Company shall grant to each Investor set forth in
Exhibit B (each a "Designated Investor"), the right to purchase such New
- ---------
Securities on the same terms offered by the Company to the other investors
purchasing such New Securities, up to an aggregate amount, including the amounts
each Designated Investor has purchased pursuant to Section 17 above or this
Section 18 in all previous issuances of New Securities by the Company (including
any shares of Series C Preferred purchased pursuant to a Series C Preferred
Stock Purchase Agreement of even date herewith) equal to one million dollars
($1,000,000), or in the case of CDP Information Systems Pty Ltd. ("CDP"), two
hundred and fifty thousand dollars ($250,000).
18.2 Limitation of Additional Investment Rights. Notwithstanding
------------------------------------------
Section 18.1 above, in the event that the Company issues New Securities in an
equity financing that results in aggregate proceeds to the Company of less then
ten million dollars ($10,000,000), no such Designated Investor shall be entitled
to purchase more than five percent (5%), or in the case of CDP, one and a
quarter percent (1.25%), of the New Securities issued in such equity financing,
unless prior to such financing a Designated Investor notifies the Company that
it will not fully exercise its right to purchase New Securities hereunder ("Non-
Participating Investor"), in which case any of the Designated Investors may
purchase an additional amount of New Securities equal to the amount of New
Securities that such Non-Participating Investor would otherwise be entitled to
purchase. In no event, shall such Designated Investors be entitled to purchase
an aggregate amount of New Securities greater than 11.25 % of the New Securities
issued in such financing.
18.3 Termination of Additional Investment Rights. The rights granted
-------------------------------------------
pursuant to this Section 18 will terminate on the earlier of (i) immediately
prior to the closing of a Qualified Public Offering, or (ii) December 31, 1999.
18.4 Cancellation of Other Investment Rights. Each Investor hereby
---------------------------------------
agrees to terminate, rescind and cancel any and all other rights, granted under
any agreement between the Company and such Investor prior to the date hereof, to
purchase any securities issued by the Company in any future equity financing.
-14-
<PAGE>
19. Information Rights.
------------------
19.1 Annual Financial Information. So long as an Investor holds
----------------------------
Shares or Conversion Shares, the Company will provide to such Investor, as soon
as practicable, but in any event within ninety (90) days after the end of each
fiscal year of the Company, a balance sheet, and statements of operations and
cash flow for such fiscal year. Such year-end financial reports shall be in
reasonable detail, shall be prepared in accordance with generally accepted
accounting principles ("GAAP"), and audited and certified by independent public
accountants selected by the Company; provided, however, that such accountants
are either Price Waterhouse Coopers LLP, KPMG, Deloitte & Touche LLP, Arthur
Andersen LLP, Ernst & Young LLP, or a successor to any such accounting firm, or
such other accountants as determined by the Board.
19.2 Quarterly and Monthly Financial Information Shareholder List. So
------------------------------------------------------------
long as an Investor holds at least 10% of either the Series A Preferred, Series
B Preferred, Series C Preferred, or Junior Preferred, the Company will provide
to such Investor the following information:
(a) within forty-five (45) days of the end of each fiscal
quarter, an unaudited statement of operations and balance sheet for and as of
the end of such quarter, in reasonable detail and prepared in accordance with
GAAP, subject to year-end audit adjustments and the absence of footnotes;
(b) within thirty (30) days of the end of each month, an
unaudited balance sheet, income statement and statement of cash flows for and as
of the end of each month, in reasonable detail and prepared in accordance with
GAAP, subject to year-end audit adjustments and the absence of footnotes;
(c) prior to the beginning of each fiscal year, the Company's
operating budget for the following fiscal year, as approved by the Board of
Directors;
(d) with the annual financial statements, lists of the Company's
shareholders and optionees, as of the year-end, showing the number of shares
held by each such shareholder and optionee.
19.3 Nondisclosure. Each Investor and any successor or assignee of
-------------
such Investor, who receives from the Company or its agents, directly or
indirectly, any information which the Company has not made generally available
to the public, pursuant to the preparation and execution of this Agreement or
disclosure in connection therewith or pursuant to the provisions of this Section
19, acknowledges and agrees that such information is confidential and for its
use only in connection with evaluating its investment in the Company, and
further agrees that it will not disseminate such information to any person other
than its accountants, investment advisors or attorneys and that such
dissemination shall be only for purposes of evaluating its investment.
19.4 Termination of Covenants. The rights set forth in Sections 19.1
------------------------
and 19.2 shall terminate and be of no further force or effect upon the closing
of a Qualified Public Offering.
-15-
<PAGE>
20. Miscellaneous.
-------------
20.1 Waivers and Amendments. Except as otherwise provided herein, with
----------------------
the written consent of the Company and the Holders of more than a majority of
the Series A Preferred, the Series B Preferred, the Series C Preferred, and the
Junior Preferred voting together as a single class, the obligations of the
Company and the rights of the Investors under this Agreement may be waived
(either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely), and
with the same consent, the Company, when authorized by resolution of its Board
of Directors, may amend this Agreement or enter into a supplementary agreement
for the purpose of adding any provisions of this Agreement; provided, however,
-------- -------
that no such waiver or supplemental agreement shall reduce the above percentage
of Registrable Securities, the holders of which are required to consent to any
waiver or supplemental agreement, without the consent of the record or
beneficial holders of all of the Registrable Securities. Upon the effectuation
of each such waiver, consent, agreement, amendment or modification, the Company
shall promptly give written notice thereof to the record holders of the
Registrable Securities who have not previously consented thereto in writing.
Neither this Agreement nor any provisions hereof may be changed, waived,
discharged or terminated orally, but only by a signed statement in writing. Any
amendment, waiver or supplementary agreement effected in accordance with this
paragraph shall be binding upon each Investor, each future Holder of Registrable
Securities and the Company.
20.2 Notices. All notices and other communications required or
-------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail (postage prepaid and return receipt requested), or otherwise
delivered by reputable overnight courier service by hand or by messenger,
addressed: (a) if to the Company, at 487 Bryant Street, San Francisco, CA 94107-
1316 (or at such other address as the Company shall have furnished to the
Investors in writing) attention of President, with a copy to Wilson Sonsini
Goodrich and Rosati, 650 Page Mill Road, Palo Alto, CA 94304, attention Hank
Barry, and (b) if to an Investor, at the latest address of such person shown on
the Company's records. If notice is provided by mail, notice shall be deemed to
be given on the third day after proper deposit with the United States mail (or
if outside the United States on the seventh day after proper deposit via
airmail), if by hand or messenger on delivery, and if by overnight courier on
the day after deposit (or if outside the U.S., upon delivery).
20.3 Descriptive Headings. The descriptive headings herein have been
--------------------
inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provisions hereof.
20.4 Governing Law. This Agreement shall be governed by and
-------------
interpreted under the laws of the State of Delaware, without regard to its laws
pertaining to conflict of laws.
20.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument. In the event the Company
issues additional shares of Series C Preferred in an additional closing or
closings pursuant to the Series C Agreement, upon execution of a signature
counterpart and without need for an amendment hereto (except to add such
purchaser's name to
-16-
<PAGE>
Exhibit A hereto), any such purchaser in such closing or closings shall become a
party to this Agreement, and shall be deemed an "Investor" for the purposes of
this Agreement.
20.6 Successors and Assigns. Except as otherwise expressly provided in
----------------------
this Agreement, this Agreement shall benefit and bind the successors, assigns,
heirs, executors and administrators of the parties to this Agreement.
20.7 Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement between the parties with regard to the subject
matter of this Agreement.
20.8 Separability; Severability. Unless expressly provided in this
--------------------------
Agreement, the rights of each Investor under this Agreement are several rights,
not rights jointly held with any other Investors. Any invalidity, illegality or
limitation on the enforceability of this Agreement with respect to any Investor
shall not affect the validity, legality or enforceability of this Agreement with
respect to the other Investors. If any provision of this Agreement is judicially
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not be affected or impaired.
20.9 Stock Splits. All references to numbers of shares in this
------------
Agreement shall be appropriately adjusted to reflect any stock dividend, split,
combination or other recapitalization of shares by the Company occurring after
the date of this Agreement.
21. Limitation of Liability of Australian Venture Capital Nominee Pty
-----------------------------------------------------------------
Limited. This Section 21 sets forth the limitation of Australian Venture
- -------
Capital Nominee Pty Limited ("Trustee") as trustee for AMWIN Innovation Fund
("Trust") under the Transaction Documents.
(a) The Trustee enters into the Transaction Documents only in
its capacity as trustee of the Trust and in no other capacity. A liability
arising under or in connection with the Transaction Agreements is limited to and
can be enforced against the Trustee only to the extent to which it can be
satisfied out of property of the Trust out of which the Trustee is actually
indemnified for the liability. This limitation of the Trustee's liability
applies despite any other provision of the Transaction Documents and extends to
all liabilities and obligations of the Trustee in any way connected with any
representation, warranty, conduct, omission, agreement or transaction related to
the Transaction Documents.
(b) The parties other than the Trustee may not sue the Trustee
in any capacity other than as trustee of the Trust, including seek the
appointment of a receiver (except in relation to property of the Trust), a
liquidator, an administrator or any similar person to the Trustee or prove in
any liquidation, administration or arrangement of or affecting the Trustee
(except in relation to property of the Trust).
(c) The provisions of this Section 21 shall not apply to any
obligation or liability of the Trustee to the extent that it is not satisfied
because under the trust deed establishing
-17-
<PAGE>
the Trust or by operation of law there is a reduction in the extent of the
Trustee's indemnification out of the assets of the Trust, as a result of the
Trustee's fraud, negligence or breach of trust. For these purposes, it is agreed
that the Trustee cannot be regarded as being fraudulent, negligent or in breach
of the trust to the extent to which any failure by the Trustee to satisfy its
obligations or breach of representation or warranty under the relevant
Transaction Document has been caused or contributed to by a failure by the
manager of the Trust or any other person to fulfill its obligations in relation
to the Trust or any other act or omission of that manager or any other person.
(d) Every provision of the Transaction Documents shall be read
subject to the terms set forth in paragraphs (a), (b) and (c) of this Section
21.
[Signature pages follow]
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Investors Rights
Agreement on the day and year first set forth above.
LOOKSMART, LTD.
By: /s/ EVAN THORNLEY
---------------------------------------
Evan Thornley
President and Chief Executive Officer
[INVESTORS RIGHTS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Investors Rights
Agreement on the day and year first set forth above.
SERIES A PREFERRED INVESTOR
_____________________________________
By: _________________________________
Title: ______________________________
[INVESTORS RIGHTS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Investors Rights
Agreement on the day and year first set forth above.
SERIES B PREFERRED INVESTOR
_____________________________________
By: _________________________________
Title: ______________________________
[INVESTORS RIGHTS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Investors Rights
Agreement on the day and year first set forth above.
SERIES C PREFERRED INVESTOR
_____________________________________
By: _________________________________
Title: ______________________________
[INVESTORS RIGHTS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Investors Rights
Agreement on the day and year first set forth above.
SERIES 1 JUNIOR PREFERRED INVESTOR
_____________________________________
By: _________________________________
Title: ______________________________
[INVESTORS RIGHTS AGREEMENT]
<PAGE>
EXHIBIT A
---------
SERIES A INVESTORS
- ------------------
Australian Venture Capital Nominee Pty Limited,
Trustee of AMWIN Innovation Fund 701
(An Investor as a Holder of Series A Preferred and as a Holder of a Preferred
Warrant)
Macquarie Bank Limited
Jokren Pty Limited
Instanz Nominees Pty Limited
ECforu Labuan Holdings Ltd.
Hootnick Family Trust 4/22/76
Sand Hill Capital, LLC
SERIES B INVESTORS
- ------------------
Cox Interactive Media, Inc.
SERIES C INVESTORS
- ------------------
Cox Interactive Media, Inc.
Perpetual Trustee Company Limited
as Trustee for Macquarie Select Opportunities Trust
Perpetual Trustee Company Limited
as Trustee for Australian Mezzanine Investments No. 2 Trust
Perpetual Trustee Company Limited
as Trustee for Macquarie Technology Fund 1A
Perpetual Trustee Company (Canberra) Limited
as Trustee for Macquarie Technology Fund 1B
Citicorp International Finance Corporation
Conpress Trading Pty Limited
Flinders Capital Investments Pty Limited
Macquarie PRISM Pty Limited
[INVESTORS RIGHTS AGREEMENT]
<PAGE>
Belike Nominees Pty Limited
Sire Holdings LLC
Sanu Desai
Ralph H. Cechettini 1995 Trust
Peter J. Mooney, as Nominee for the Broadview Investor Group
Robert A. Keller
Al H. Robinson III
Emeric J. McDonald
Jokren Pty Limited
ECfuro Labuan Holdings Ltd.
Hootnick Family Trust 4/22/76
John Michael Teak Elmore
R. David Dicioccio, Jr.
William B. Stripling, Jr.
Clayton Clark
Allen C. Lee
Rainmaker Capital, LLC
GCWF Investment Partners LLC
Paul E. Hurdlow
Sand Hill Capital Partners I, LLC
WS Investment Company 99A
Pivotal Asset Management
Hambrecht & Quist California
Hambrecht & Quist Employee Venture Fund, L.P. II
Access Technology Partners, L.P.
Access Technology Partners Brokers Fund, L.P.
New Millennium Partners, L.P.
[INVESTORS RIGHTS AGREEMENT]
<PAGE>
New Millennium Mezzanine Partners - LookSmart, L.P.
ATGF II
Litton Master Trust
Amerlook Investments LLC
Essex Private Placement Fund, Limited Partnership
Daniel Rimer
Sue C. Robinson
Henry V. Barry
DSJ International Trust
Entrepreneur America, LLC
New Media Capital Ventures II, LLC
Carrier Pasta LLC
Isaac J. Vaughn
Nina F. Locker
Martin W. Korman
Christian and Anne Castle
Camille Klamecki
Series 1 Junior Investors
- -------------------------
Drew Duncan
Josh Elmore
Thomas Duncan and Mary Duncan
Allen Lee
GCWF Investment Partners
Paul E. Hurdlow
Rainmaker Capital, LLC
[INVESTORS RIGHTS AGREEMENT]
<PAGE>
EXHIBIT B
---------
DESIGNATED INVESTORS
1. Macquarie Bank Limited
2. Jokren Pty Limited ("Jokren") and Instanz Nominees Pty Limited ("Instanz")
(Jokren and Instanz together shall be considered one (1) Designated
Investor for the purposes of Section 18)
3. CDP Information Systems Pty Ltd.
[INVESTORS RIGHTS AGREEMENT]
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement ("Agreement") is made as of this _____ day
of _________, 1999 by and between LookSmart, Ltd., a Delaware corporation (the
"Company"), and __________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors of
the Company and to indemnify its officers and directors so as to provide them
with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Third Party Proceedings. The Company shall indemnify
-----------------------
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action or proceeding if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe Indemnitee's conduct was
unlawful. The termination of any action or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
---------------
shall not, of itself, create a presumption that (i) Indemnitee did not act in
good faith and in a manner which Indemnitee reasonably believed to be in the
best interests of the Company, or (ii) with respect to any criminal
<PAGE>
action or proceeding, Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company
---------------------------------------------
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or proceeding by
or in the right of the Company or any subsidiary of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) and, to the fullest extent
permitted by law, amounts paid in settlement, in each case to the extent
actually and reasonably incurred by Indemnitee in connection with the defense or
settlement of such action or proceeding if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in the best interests of the
Company and its shareholders, except that no indemnification shall be made in
respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company in the performance of Indemnitee's duty to
the Company and its shareholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
2. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action or proceeding referenced in Section
1(a) or (b) hereof (but not amounts actually paid in settlement of any such
action or proceeding). Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to
Indemnitee within twenty (20) days following delivery of a written request
therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). Notice shall be deemed received three business days after the date
postmarked if sent by domestic certified or registered mail, properly addressed;
otherwise notice shall be deemed received when such notice shall actually be
received by the Company. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
-2-
<PAGE>
(c) Procedure. Any indemnification provided for in Section 1 shall
---------
be made no later than forty-five (45) days after receipt of the written request
of Indemnitee. If a claim under this Agreement, under any statute, or under any
provision of the Company's Certificate of Incorporation or By-laws providing for
indemnification, is not paid in full by the Company within forty-five (45) days
after a written request for payment thereof has first been received by the
Company, Indemnitee may, but need not, at any time thereafter bring an action
against the Company to recover the unpaid amount of the claim and, subject to
Section 12 of this Agreement, Indemnitee shall also be entitled to be paid for
the expenses (including attorneys' fees) of bringing such action. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in connection with any action or proceeding in advance of its
final disposition) that Indemnitee has not met the standards of conduct which
make it permissible under applicable law for the Company to indemnify Indemnitee
for the amount claimed, but the burden of proving such defense shall be on the
Company, and Indemnitee shall be entitled to receive interim payments of
expenses pursuant to Subsection 2(a) unless and until such defense may be
finally adjudicated by court order or judgment from which no further right of
appeal exists. It is the parties' intention that if the Company contests
Indemnitee's right to indemnification, the question of Indemnitee's right to
indemnification shall be for the court to decide, and neither the failure of the
Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its shareholders) to have made
a determination that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of conduct
required by applicable law, nor an actual determination by the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its shareholders) that Indemnitee has
not met such applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice
------------------
of a claim pursuant to Section 2(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
--------------------
obligated under Section 2(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, which approval
shall not be unreasonably withheld, upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by Indemnitee with respect to the same proceeding,
provided that (i) Indemnitee shall have the right to employ his counsel in any
such proceeding at Indemnitee's expense; and (ii) if (A) the employment of
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense
or (C) the Company shall not, in fact, have employed counsel to
-3-
<PAGE>
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
3. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. Notwithstanding any other provision of this Agreement,
-----
the Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's By-laws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute or rule
which expands the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes shall be, ipso facto, within the
---- -----
purview of Indemnitee's rights and Company's obligations, under this Agreement.
In the event of any change in any applicable law, statute or rule which narrows
the right of a Delaware corporation to indemnify a member of its Board of
Directors or an officer, such changes, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its By-laws, any agreement,
any vote of shareholders or disinterested directors, the Delaware General
Corporation Law, or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though he may have ceased to serve in such capacity at the time of any action or
other covered proceeding.
4. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
5. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the Securities and
Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
6. Directors' and Officers' Liability Insurance. The Company shall,
--------------------------------------------
from time to time, make the good faith determination whether or not it is
practicable for the Company to obtain and maintain a policy or policies of
insurance with reputable insurance companies providing the
-4-
<PAGE>
officers and directors of the Company with coverage for losses from wrongful
acts, or to ensure the Company's performance of its indemnification obligations
under this Agreement. Among other considerations, the Company will weigh the
costs of obtaining such insurance coverage against the protection afforded by
such coverage. In all policies of directors' and officers' liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if Indemnitee is not an officer or
director but is a key employee. Notwithstanding the foregoing, the Company shall
have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if the
premium costs for such insurance are disproportionate to the amount of coverage
provided, if the coverage provided by such insurance is limited by exclusions so
as to provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Company.
7. Severability. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 7. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
8. Exceptions. Any other provision herein to the contrary
-----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any acts or omissions
-------------
or transactions from which a director may not be relieved of liability under the
Delaware General Corporation Law.
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors has approved the initiation or bringing of such suit; or
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
-5-
<PAGE>
(d) Insured Claims. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the Company; or
(e) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. Effectiveness of Agreement. To the extent that the indemnification
--------------------------
permitted under the terms of certain provisions of this Agreement exceeds the
scope of the indemnification provided for in the Delaware General Corporation
Law, such provisions shall not be effective unless and until the Company's
Certificate of Incorporation authorize such additional rights of
indemnification. In all other respects, the balance of this Agreement shall be
effective as of the date set forth on the first page and may apply to acts or
omissions of Indemnitee which occurred prior to such date if Indemnitee was an
officer, director, employee or other agent of the Company, or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, at the time
such act or omission occurred.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" 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, employees or agents, so that if
Indemnitee 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, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee or agent of the Company 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.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
-6-
<PAGE>
13. Attorney's Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. Notice. All notices, requests, demands and other communications under
-------
this agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
------------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
16. Choice of Law. This Agreement shall be governed by and its provisions
-------------
construed in accordance with the laws of the State of Delaware as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
LOOKSMART, LTD.
By:_____________________________________
Evan Thornley
President and Chief Executive Officer
LookSmart, Ltd.
487 Bryant Street
San Francisco, CA 94107-1316
AGREED TO AND ACCEPTED:
INDEMNITEE:
_____________________________
Name:
Address:______________________
______________________
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<PAGE>
EXHIBIT 10.2
LOOKSMART, LTD.
AMENDED AND RESTATED
1998 STOCK PLAN
1. Purposes of the Plan. The purposes of this Amended and Restated 1998
--------------------
Stock Plan are:
. to attract and retain the best available personnel for positions
of substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as
-------------
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the
---------
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means LookSmart, Ltd., a Delaware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
<PAGE>
(i) "Director" means a member of the Board.
--------
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
-2-
<PAGE>
(p) "Notice of Grant" means a written or electronic notice
---------------
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company
-------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and
----------------
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this Amended and Restated 1998 Stock Plan.
----
(y) "Restricted Stock" means shares of Common Stock acquired
----------------
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
-------------
(cc) "Service Provider" means an Employee, Director or Consultant.
----------------
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
-3-
<PAGE>
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 13,900,000 Shares, plus an annual increase to be added on each
anniversary date of the adoption of the Plan equal to the lesser of (i)
2,500,000 Shares, (ii) 4% of the outstanding Shares on such date, or (iii) a
lesser amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
-4-
<PAGE>
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
-5-
<PAGE>
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan .
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
-6-
<PAGE>
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to
--------------
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
-7-
<PAGE>
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
-------------------------------------------------
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her
-8-
<PAGE>
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
-9-
<PAGE>
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
-10-
<PAGE>
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until fifteen (15) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has not
been previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
-11-
<PAGE>
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-12-
<PAGE>
EXHIBIT 10.3
LOOKSMART, LTD.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of LookSmart, Ltd.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean LookSmart, Ltd. and any Designated
-------
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
------------
earnings and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has
---------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each
-------------
Purchase Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock prior to the date of determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board; or
(iv) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after June 1 and
December 1 of each year and terminating on the last Trading Day in the periods
ending twenty-four months later; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
December 1, 1999. The duration and timing of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 1999 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month
---------------
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
-2-
<PAGE>
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
-----------
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after June 1 and December 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
December 1, 1999. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
-3-
<PAGE>
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall re-commence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 2,500
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
-4-
<PAGE>
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of the Company's Common Stock an Employee may purchase during
each Purchase Period of such Offering Period. Exercise of the option shall
occur as provided in Section 8 hereof, unless the participant has withdrawn
pursuant to Section 10 hereof. The option shall expire on the last day of the
Offering Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the
-5-
<PAGE>
participant's payroll deductions credited to his or her account shall be paid to
such participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period shall be automatically terminated,
and no further payroll deductions for the purchase of shares shall be made for
such Offering Period. If a participant withdraws from an Offering Period,
payroll deductions shall not resume at the beginning of the succeeding Offering
Period unless the participant delivers to the Company a new subscription
agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or she
shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be Five Hundred Thousand (500,000) shares, plus an annual increase to be
added on the first day of the Company's fiscal year beginning in 2000 equal to
the lesser of (i) 1,000,000 shares, (ii) 3% of the outstanding shares on such
date or (iii) a lesser amount determined by the Board.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination
-6-
<PAGE>
made by the Board or its committee shall, to the full extent permitted by law,
be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by
-------------------------
the shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be
-7-
<PAGE>
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
--------------------
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law,
-8-
<PAGE>
regulation or stock exchange rule), the Company shall obtain shareholder
approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering
Period ends on a new Exercise Date, including an Offering Period underway at the
time of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being
-9-
<PAGE>
purchased only for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned applicable provisions of
law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
LOOKSMART, LTD.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
____ Original Application Enrollment Date: ___________
____ Change in Payroll Deduction Rate
____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the LookSmart, Ltd.
1999 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance
with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing within 30 days after the date
---------------------------------------------------------------------------
of any disposition of my shares and I will make adequate provision for
----------------------------------------------------------------------
Federal, state or other tax withholding obligations, if any, which arise
------------------------------------------------------------------------
upon the
--------
<PAGE>
disposition of the Common Stock. The Company may, but will not be obligated
-------------------------------
to, withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary to
make available to the Company any tax deductions or benefits attributable
to sale or early disposition of Common Stock by me. If I dispose of such
shares at any time after the expiration of the 2-year and 1-year holding
periods, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition,
and that such income will be taxed as ordinary income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of
the shares at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the shares on
the first day of the Offering Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)_______________________________________________________
(First) (Middle) (Last)
_________________________ _____________________________________________
Relationship
_____________________________________________
(Address)
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:________________________ _____________________________________________
Signature of Employee
_____________________________________________
Spouse's Signature (If beneficiary other
than spouse)
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<PAGE>
EXHIBIT B
---------
LOOKSMART, LTD.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the LookSmart, Ltd.
1999 Employee Stock Purchase Plan which began on ____________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
_____________________________________
_____________________________________
_____________________________________
Signature:
_____________________________________
Date:________________________________
<PAGE>
EXHIBIT 10.4
LICENSE & UPDATE AGREEMENT
--------------------------
This License & Update Agreement (the "Agreement") is entered into and
effective as of December 4, 1998 (the "Effective Date") by and between Microsoft
Corporation, a Washington corporation located at One Microsoft Way, Redmond,
Washington 98052 and Looksmart, Ltd., a Delaware corporation located at 487
Bryant Street, San Francisco, California 94107, each a "Party" and collectively,
the "Parties".
Recitals
--------
Whereas, LookSmart is the developer, owner and operator of a Web site known
as www.looksmart.com and other similar international versions of such Web site
-----------------
which Web sites are a directory(ies) of global, national, local, and
international URL links along with associated content and commentary regarding
each such URL link;
Whereas, Microsoft desires to obtain from LookSmart the below specified
grant of license rights to LookSmart's directory(ies) of URL links and
associated content and commentary;
Whereas, Microsoft further desires to be entitled to obtain updates and
enhancements made by or for LookSmart to LookSmart's directory(ies) of URL links
and associated content and commentary as set forth herein; and
Whereas, LookSmart is willing to grant Microsoft such rights to its
directory(ies) and updates and enhancements thereto, all on the terms and
conditions set forth herein.
Now Therefore, the Parties agree as follows.
Agreement
---------
1. DEFINITIONS. As used herein, the following terms shall have the
-----------
following meanings:
1.1 "Licensed Database" shall collectively refer to [**] The Licensed
Database shall not, however, in any event be deemed to include any CIM Content
or any work in progress (i.e., links still in the process of creation or links
which have been created but that LookSmart's editorial process has not yet
approved or rejected) or any internal workflow data from LookSmart's editorial
process, e.g. identity of editors, stage of editorial process, etc.
1.2 "Database Updates" shall mean the Licensed Database as it exists
at any given time, including, but not limited to, any and all updates,
enhancements, additions, modifications, deletions and/or error corrections to
any previously delivered version of the Licensed Database and/or Database
Update.
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as *****. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
<PAGE>
1.3 "Database" shall refer to the Licensed Database including any and
all Database Updates.
1.4 "CIM Content" shall mean any local content included in the
Database that was included by LookSmart directly and solely for Cox Interactive
Media, Inc. or its Affiliates ("CIM") under the Development, Licensing and
Affiliation Agreement between CIM and LookSmart entered into as of the 7th day
of May, 1998, as the same may be amended from time to time, provided that such
amendments do not materially adversely affect Microsoft's rights under this
Agreement as they exist prior to any such amendment executed after the Effective
Date.
1.5 "Update Term" shall mean the period of time beginning on the
Effective Date and ending five (5) Years thereafter, unless earlier terminated
in accordance with Section 3.2, provided that for the avoidance of doubt the
Update obligations under Section 3 below for Year 1 shall not commence until the
date that is ninety (90) days from the Effective Date, provided that all such
obligations shall be met within the remaining 275 Days of Year 1, and further
provided that nothing in this Agreement including the foregoing proviso shall in
any way affect any right, obligation or date triggered off of the Effective
Date.
1.6 "Year" shall mean each successive twelve (12) month period
starting on the Effective Date, and each anniversary of the Effective Date
(i.e., Year 1 shall start on the Effective Date and end twelve (12) months
later, Year 2 shall start on the first anniversary of the Effective Date and end
twelve (12) months later, Year 3 shall start on the second anniversary of the
Effective Date and end twelve (12) months later, etc.). A "one-half Year period"
shall refer to either the first six (6) months or the last six (6) months of a
given Year, except that with respect to LookSmart's obligations under Section 3
for Year 1 only, "one-half Year period" shall mean either the first one hundred
thirty-eight (138) days after the date that is ninety (90) days after the
Effective Date or the one hundred thirty-seven (137) days prior to the first day
of Year 2. In addition, with respect to LookSmart's obligations under Section 3
for Year 1 only, a quarter shall mean as appropriate one of (a) the sixty-nine
(69) day periods starting on each of the date that is ninety (90) days from the
Effective Date, the date that is one hundred fifty-nine (159) days from the
Effective Date and the date that is two hundred twenty-eight (228) days from the
Effective Date or (b) the sixty-eight (68) day period starting on the date that
is two hundred ninety-seven (297) days from the Effective Date.
1.7 "Financing Agreement" shall refer to that certain Financing
Agreement and Note between the Parties dated September 10, 1998, as amended in
the Letter of Intent between the Parties dated as of October 9, 1998.
1.8 "Listed Companies" shall mean those companies set forth on the
attached Exhibit A attached hereto and incorporated herein by this reference.
1.9 "Restricted Period" shall mean the two and one-half (2 1/2) Year
period beginning on the Effective Date or if Microsoft makes the election in
Section 5.4.2 the two (2) Year period beginning on the Effective Date.
1.10 "Affiliate" shall mean, with respect to any legally recognizable
entity, any other such entity directly or indirectly Controlling, Controlled by,
or under common "Control" with such entity. "Control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a legally recognizable entity, whether through the
ownership of voting shares, by contract, or otherwise. Where such entity is a
partnership, limited liability company, corporation, or similar entity and has
partners, members, or shareholders with equal ownership interests or equal
control interests, by contract or otherwise, then each such partner, member, or
shareholder will be deemed to possess Control.
-2-
<PAGE>
1.11 "Microsoft" shall mean Microsoft Corporation and any and all
Microsoft Affiliates.
1.12 "Looksmart" shall mean LookSmart, Ltd. and any and all LookSmart
Affiliates.
1.13 "Looksmart Primary Web Site" shall mean LookSmart's primary web
site (currently located at http://www.looksmart.com) and all localized and/or
international versions thereof and/or any successor web site(s) of any of them,
having substantially similar features and functions, regardless of how such
successor web site(s) is named or denominated. A screen image of the home page
at http://www.looksmart.com as of the Effective Date is attached at Exhibit C.
1.14 "day" shall mean a calendar day unless otherwise noted.
1.15 "URL Link" means a unique uniform resource locator address, e.g.,
www.msn.com and www.msn.com/news and www.carpoint.msn.com are each a URL link.
- ----------- ---------------- --------------------
For the avoidance of doubt delivery of a URL link or inclusion of a URL link in
the Database shall at all times be accompanied by all appropriate content,
commentary, taxonomy and documentation associated with such URL link. For the
further avoidance of doubt, it is understood by the parties that URL links that
are contained in the Database but which are not made available to users of the
LookSmart Primary Web Site may not have or need the level of content,
commentary, taxonomy and documentation associated with URL links made available
to users of the LookSmart Primary Web Site, provided Microsoft shall receive any
such existing content, commentary, taxonomy and documentation associated with
such URL links.
All other terms shall have the meanings hereinafter assigned to them.
2. Delivery Of The Licensed Database.
---------------------------------
2.1 Initial Delivery. Looksmart agrees to provide Microsoft with one
(1) copy of the Licensed Database, current as of the Effective Date and
including as of the Effective Date a minimum of [**] unique URL links that are
also available to users of the LookSmart Primary Web Sire, as SQL Server data in
character-mode BCP format, including BCP scripts, any table and view scripts and
the agreed data, on a CD-ROM no later than three (3) business days following the
Effective Date.
2.2 Additional Delivery. Within ninety (90) days of the Effective
Date and without limiting any other of LookSmart's obligations under this
Agreement, LookSmart agrees to add an additional [**] unique published URL links
with all appropriate associated content, commentary, taxonomy and documentation
(the "Additional Links") to the Licensed Database. (For purposes of this Section
2.2, "published/ing" means available to users of the LookSmart Primary Web
Site.) Such Additional Links: (a) shall be on topics and in amounts specifically
directed by Microsoft in its sole discretion as further set forth in Exhibit D
attached hereto and incorporated herein by this reference (the Additional Links
Specifications), provided that Microsoft shall have the right in its sole
discretion to provide to LookSmart within one (1) business day of the Effective
Date, with ongoing updates through the tenth (10th) business day following the
Effective Date, a list of sub-topics and sub-amounts as determined by Microsoft
in its sole discretion of the topics and amounts set forth in Exhibit D, for
LookSmart's use in meeting its obligations hereunder; (b) shall be added to the
Licensed Database according to the schedule attached hereto as Exhibit E
attached hereto and incorporated herein by this reference (the Additional Links
Delivery Schedule) and according to the priority designations appearing in
Exhibit D; and (c) shall in all ways meet quality standards determined by
Microsoft in its sole discretion. LookSmart's addition of the Additional Links
to the Licensed Database will be the top priority for LookSmart's editorial team
and the engineering group required to support them (including, without
limitation, any other work not
-3-
<PAGE>
covered by this Agreement), provided that nothing herein shall limit LookSmart's
obligations under this Agreement. Microsoft shall have the right to reject any
Additional Link or any part of it if Microsoft in its good faith sole discretion
determines that such Additional Link or part thereof does not meet the Microsoft
quality standards as required by sub-Section (c) above, provided that if any
Additional Link or part of it is not rejected within forty-five (45) days of the
delivery of the Additional Link, then such Additional Link is deemed accepted.
In the event Microsoft rejects within the forty-five (45) day period any given
Additional Link or part thereof, LookSmart shall, at Microsoft's option and
direction, (i) replace within thirty (30) days from the date of rejection by
Microsoft the Additional Link with a substitute Additional Link on the same
topic, which replacement Additional Link shall be acceptable to Microsoft in its
sole discretion in accordance with subsection (c) above; (ii) revise within
thirty (30) days from the date of rejection by Microsoft, to Microsoft's
satisfaction, the text, description, content or commentary accompanying such
Additional Link; (iii) replace within thirty (30) days from the date of
rejection by Microsoft the Additional Link with a substitute Additional Link on
a new topic specified by Microsoft which such Additional Link shall be subject
to Microsoft's acceptance as set forth above; or (iv) remove the URL link
entirely from the Database within thirty (30) days from the date of rejection by
Microsoft and not get paid for that URL link. For the avoidance of doubt
rejection by Microsoft of any Additional Link in its entirety under sub-Sections
(i), (iii) or (iv) above shall result in such URL link's removal from the
Database delivered to Microsoft, but shall not require LookSmart to cease
publishing the URL link on its web sites or in any other form. Furthermore, if
Microsoft rejects any Additional Link in its entirety under sub-Sections (i),
(iii) or (iv) above, Microsoft may not in the future request that LookSmart add
such rejected Additional Link to the Database, provided that nothing shall
prevent Microsoft from adding such rejected Additional Link to the Database
itself as permitted under Section 4 of this Agreement.
2.3 User Created URL Links. LookSmart agrees that no URL link(s)
added to the Licensed Database by any user(s) of the LookSmart Primary Web Site
will be counted towards the number of URL links, including Additional Links,
delivered under Sections 2.1 or 2.2 above, unless such URL link(s) has been
reviewed and submitted by LookSmart as independently meeting the criteria
required by this Agreement. For the avoidance of doubt, if LookSmart submits
such a URL link(s), Microsoft shall have all rights to accept and/or reject as
are provided under this Agreement.
3. Creation And Delivery Of Database Updates.
-----------------------------------------
3.1 Database Updates. Subject to Section 3.2, during the Update Term,
LookSmart shall provide Microsoft with Database Updates. LookSmart shall deliver
the Database Updates to Microsoft as frequently as may be reasonably requested
by Microsoft, provided that LookSmart agrees that: (i) starting no later than as
soon as is reasonably practicable, but in any event no later than three (3)
months (for the purposes of this Section 3.1, the "Update Start-up Period")
following the Effective Date, Microsoft will receive Database Updates from
LookSmart once per day at a mutually agreed upon time of day by delivery of a
complete refreshed copy of the Database (as delivered by LookSmart up to the
time of the delivery) as more completely set forth in Exhibit B attached hereto
and incorporated herein by this reference and (ii) prior to the Update Start-up
Period, Microsoft will receive Database Updates from LookSmart once per week on
a mutually agreed upon day and at a mutually agreed upon time of day by delivery
of a complete refreshed copy of the Database (as delivered by LookSmart up to
the time of the delivery) in the format set out in Section 2 of this Agreement.
If, after the Update Start-up Period, LookSmart does not provide Microsoft with
a Database Update at least once daily for more than five (5) days in any one-
half Year period, Microsoft may, upon Microsoft's notice to LookSmart made
within ninety (90) days of the end of such one-half Year period, as Microsoft's
sole remedy for such non-performance, receive a payment of the following amount
from LookSmart:
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(i) if the total number of days during the one-half Year
period for which LookSmart does not deliver a Database Update is thirty-five
(35) or fewer, a per day amount of [**] for day six (6) and each additional
day over six (6) days;
(ii) if the total number of days during the one-half Year
period for which LookSmart does not deliver a Database Update is thirty-six (36)
or more, a per day amount of [**] for day six (6) and each additional day
over six (6) days.
Any amounts due under this Section 3.1, shall have no affect on any amounts due
under Section 7 and shall be due and payable within ten (10) business days of
Microsoft's submitting an invoice to LookSmart for the applicable amount, and
the election of Microsoft to receive such amount shall prohibit Microsoft from
pursuing any other remedy that may be available to Microsoft under Section 12 of
this Agreement or otherwise.
3.2 Termination Of Database Updates. Either Party may terminate
Microsoft's right to receive Database Updates prior to the expiration of the
Update Term by giving six (6) months prior written notice to the other Party,
provided neither Party may give such notice any earlier than the date that is
eighteen (18) months following the Effective Date. In addition, if LookSmart
undergoes a material change in its capital structure, control or ownership
(including by way of an initial public offering of stock) this Agreement and
Microsoft's rights hereunder, including without limitation, the right to receive
Database Updates, shall survive such a change. For the avoidance of doubt,
termination or expiration of Microsoft's right to receive Database Updates as
contemplated by this Section 3.2, shall not affect in any way Microsoft's
license of rights set forth in Section 4.1 to the Database as delivered to
Microsoft prior to any such termination or expiration.
3.3 Database Update Requirements.
3.3.1 LookSmart will deliver Database Updates containing a total
of no less than [**] new (as opposed to edited, modified, re-categorized, re-
named or otherwise) URL links (hereinafter "Gross Links") during each Year
during the Update Term, all such URL links (i) shall be reviewed by LookSmart's
editors prior to delivery to Microsoft, (ii) shall be of sufficient quality that
they have been approved by LookSmart pursuant to LookSmart's Standards and
Policies (as defined below) prior to delivery to Microsoft, and (iii) shall be
links available to users of the LookSmart Primary Web Site. LookSmart has, prior
to the Effective Date, made its standards and policies as of the Effective Date
("Standards and Policies") available to Microsoft and hereby agrees (A) that
such Standards and Policies will not during the Update Term substantially depart
from those in place as of the Effective Date and (B) to timely notify Microsoft
during the Update Term of any and all changes made by LookSmart to such
Standards and Policies. At no time during the Update Term shall the Database
contain more than [**] percent [**] Inactive Links (as defined hereunder) and
no Database Update shall be delivered containing more than [**] percent [**]
Inactive Links. An "Inactive Link" shall mean a URL that does not successfully
return a web page when requested on three (3) or more days out of five (5)
consecutive days, provided that Microsoft shall only check for such Inactive
Links once per day on any given link. If, after the Update Start-up Period, the
Database contains more than [**] percent [**] Inactive Links, Microsoft may, at
Microsoft's request made within ninety (90) days of such non-performance and
provided that Microsoft has delivered to LookSmart a listing of the Inactive
Links within twenty-four (24) hours of Microsoft's determination that the
Database has more than [**] percent [**] Inactive Links, as Microsoft's sole
remedy for such non-performance, receive a payment of the following amount from
LookSmart:
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(i) if the total number of days for which the Database
contains more than [**] percent [**] Inactive Links as contained on the list
provided by Microsoft to LookSmart is thirty-five (35) or fewer, a per day
amount of [**] for day six (6) and each additional day over six (6) days;
or
(ii) if the total number of days for which the Database
contains more than [**] percent [**] Inactive Links as contained on the list
provided by Microsoft to LookSmart is thirty-six (36) or more, a per day amount
of [**] for day six (6) and each additional day over six (6) days.
Any amounts due under this Section 3.3.1, shall have no affect on any amounts
due under Section 7 and shall be due and payable within ten (10) business days
of Microsoft's submitting an invoice to LookSmart for the applicable amount, and
the election of Microsoft to receive such amount shall prohibit Microsoft from
pursuing any other remedy that may be available to Microsoft under Section 12 of
this Agreement or otherwise.
3.3.2 Of the [**] Gross Links required to be delivered by
LookSmart during any given one Year period during the Update Term, a subset of
up to [**] of such Gross Links may be specifically requested by Microsoft
as provided in Section 3.3.3 (hereinafter such a specifically requested subset
of links is referred to as "Directed Links"). With respect to the Directed
Links, Microsoft will have the right to specify the topics and/or the specific
sites which LookSmart will research consistent with Section 3.1 and add to the
Database as part of a Database Update. Microsoft may request as Directed Links,
local links (i.e. links relevant to a given geographic locale), and such local
links may, in Microsoft's discretion, be URL links which are the same as those
contained in the CIM Content. The Gross Links and Directed Links will at all
times be of a high grade, nature and quality and will comply with LookSmart's
Standards and Policies as described in Section 3.1 and for the avoidance of
doubt all Gross Links and Directed Links shall be URL links available to users
of the LookSmart Primary Web Site and such URL links shall be available no less
prominently on the LookSmart Primary Web Site than any other comparable quality
URL link(s) available on the LookSmart Primary Web Site
3.3.3 When Microsoft requests Directed Links, Microsoft will also
specify that the addition of the Directed Links to the Database must occur
within a specific six (6) month period, one (1) month period or twenty-four (24)
hour period, or any combination of the foregoing, as follows:
(i) Microsoft may in a single request specify up to [**]
Directed Links for addition to the Database within a given one-half Year period,
by specifying the specific topics and/or specific sites for such one-half Year
period no later than two (2) weeks prior to the beginning of the one-half Year
period, except that with respect to the first one-half Year period following the
Effective Date, Microsoft shall specify the specific topics and/or specific
sites for such one-half Year period no later than thirty (30) days after the
Effective Date;
(ii) Microsoft may specify up to [**] Directed Links for
addition to the Database by LookSmart in any given one (1) month period, by
specifying the specific topics and/or specific sites for such one month period
not later than two (2) weeks prior to the beginning of such one (1) month
period, provided that Microsoft may not specify Direct Links for monthly
delivery for the first three (3) months of Year 1; and
(iii) Microsoft may specify up to [**] Directed Links for
addition to the Database in any given 24 hour period;
provided, however, that the total number of Directed Links required in a single
Year shall in no event exceed [**] (regardless of whether such Directed
Links were ordered pursuant to (i), (ii) or (iii) above, any
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combination thereof or otherwise). LookSmart shall add the specified Directed
Links to the Database within the corresponding time period, after review
pursuant to Section 3.1.
3.3.4 Upon receiving any Microsoft specification of Directed
Links under Sections 3.3.2 and 3.3.3 above, LookSmart shall have the right to
inform Microsoft that LookSmart in good faith believes that LookSmart's
provision of such links ("Questioned Links") is impossible because the
corresponding sites do not exist or would violate LookSmart's Standards and
Policies. In the event that LookSmart so informs Microsoft, the Parties will
work together in good faith to find mutually acceptable substitutes for the
Questioned Links; provided that if the Parties do not mutually agree, (i)
LookSmart need not deliver the Questioned Links and (ii) the number of requested
Directed Links for purposes of Section 7.2.2 shall not include the Questioned
Links unless on two (2) prior occasions, Microsoft has provided ((A) within
eight (8) months of the time that the Parties determine that they cannot
mutually agree, for Questioned Links that are part of a six (6) month request,
(B) within three (3) months of the time that the Parties determine that they
cannot mutually agree, for Questioned Links that are part of a one (1) month
request, and (C) within eight (8) days of the time that the Parties determine
that they cannot mutually agree, for Questioned Links that are part of a twenty-
four (24) hour request) a list of links that would have satisfied the
specification as evidence to LookSmart that the requested links should not have
been Questioned Links because the corresponding sites do exist and would not
violate LookSmart's Standards and Policies, in which case the number of
requested Directed Links for purposes of Section 7.2.1 shall be at all times
thereafter the number so requested by Microsoft; and further provided that
nothing in this sub-Section 3.3.4 shall effect or diminish (i) Microsoft's right
to request links under Sections 3.3.2 and 3.3.3 or (ii) LookSmart's obligation
to deliver (A) the links requested by Microsoft under Sections 3.3.2 and 3.3.3
during the relevant periods, (B) up to [**] Directed Links per Year or (C) the
Gross Links per Year.
3.3.5 As used in this Section 3.3.5, links "created specifically
for a given country" means a separate, distinct set of links that may be in the
primary language(s) of a named country and have been specifically selected
and/or targeted at the citizens of that country. In the event Microsoft desires
to have a portion of its Directed Links created specifically for non-English
speaking countries which countries are not then in the Database, Microsoft shall
either: (i) request such Directed Links as part of a six month request pursuant
to Section 3.3.3(i); or (ii) give LookSmart three (3) months prior written
notice of the name(s) of such country(ies) prior to requesting Directed Links
for such country pursuant to either Section 3.3.3(ii) or (iii). Once there are
links for a given non-English speaking country contained in the Database,
Microsoft may order additional Directed Links for that country without further
prior notice, other than that normally required under Section 3.3.3.
3.3.6 Upon receiving any delivery of Gross Links or Directed
Links, Microsoft shall have the right to inform LookSmart that Microsoft in good
faith believes that the Gross Links or Directed Links do not contain URL links
in existence that Microsoft believes are of such a quality that they should have
been included in the delivered Gross links or Directed Links. In the event that
Microsoft so informs LookSmart, the Parties will work together in good faith to
review the URL links that Microsoft believes should have been included and if
LookSmart agrees that such URL links meet LookSmart's Standards and Policies
then LookSmart will include such links in the Database.
3.4 Audit And Quarterly Review.
3.4.1 Microsoft shall have the right upon twenty-four (24) hours
notice, and with a frequency no more than once in each one-half Year, to engage
an independent third party to audit and/or inspect (a) the URL links and all
assocciated content, commentary, taxonomy and documentation contained in the
relevant database(s) underlying the LookSmart Primary Web Site from time to time
via human or automated review of the components, structure and any other part(s)
of such database solely as necessary in
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order to confirm LookSmart's compliance with the provisions of this Agreement
and (b) all usual and proper records, books of account, all usual and proper
entries and all contracts between LookSmart and third parties, as relevant,
relating to the amounts payable by Microsoft under Section 7.3 in order to
verify the invoices sent and the amounts owed and/or paid to LookSmart under
Section 7.3. The independent third party shall be selected by Microsoft and
approved by LookSmart, such approval not to be unreasonably withheld. Any such
review shall be conducted within normal business hours, shall be limited to the
subject matter of the Agreement, and shall be subject to an appropriate Non-
Disclosure Agreement. In the event Microsoft makes a claim as a result of such
audit, LookSmart shall be provided with a copy of any such final audit report.
The cost of performing such audit shall be paid by Microsoft, unless material
non-compliance is found by Microsoft, in which case the cost of the audit shall
be paid by LookSmart. The audit and any report or correspondence from the
auditors to Microsoft shall be solely for the purpose of confirming LookSmart's
compliance with this Agreement and shall contain only material and information
relating to the subject matter of this Agreement. In the event that any audit
under sub-Section (b) above reveals an over payment by Microsoft of more than
[**] or more than [**] percent [**] of the amounts due pursuant to any invoice
presented to Microsoft by LookSmart, LookSmart, in addition to recomputing and
making immediate refund to Microsoft of all amounts overpaid, plus interest at
the highest prime rate set forth from time to time in the Wall Street Journal in
the United States plus two percentage points (or, if less, at a rate equal to
the highest rate permitted under applicable law), shall pay Microsoft's
reasonable costs and expenses incurred by MS in conducting such audit,
including, but not limited to, any amounts paid to any auditor or attorney.
3.4.2 Microsoft shall have the right upon fourteen (14) days
notice, and with a frequency no more than once per calendar quarter, to visit
LookSmart's at its premises to run queries against and otherwise test the
relevant database(s) underlying the LookSmart's Primary Web Site solely for
purposes of reviewing (a) the number and quality of unique URL links and (b)
LookSmart's compliance with the provisions of this Agreement. Notwithstanding
the foregoing, Microsoft shall accommodate LookSmart's reasonable scheduling
requests, provided that in no event shall LookSmart fail to find a date
acceptable to Microsoft that is more than thirty (30) days from Microsoft's
notice. Each Microsoft visit shall last no longer than one (1) full business day
and LookSmart shall provide such assistance to Microsoft during such visit as
Microsoft reasonably requests. In addition, LookSmart agrees nothing shall
prevent Microsoft from running queries against, crawling or otherwise testing
the LookSmart Primary Web Site from remote locations and that LookSmart does not
and will not object to Microsoft doing so in Microsoft's discretion.
4. LICENSE OF RIGHTS.
-----------------
4.1 License Of Rights To The Database. Subject to Section 4.3 below,
effective upon delivery of the Licensed Database and any Database Update(s),
LookSmart shall simultaneously grant to Microsoft the irrevocable, non-
exclusive, worldwide, perpetual, non-terminable, royalty-free rights to: (i)
make, use, copy, modify, edit, add to, delete from, extract from, combine with
other materials, create derivative works of the Database or any portion thereof;
(ii) publicly perform or display, import, broadcast, transmit, distribute,
publish, license, offer to sell, sell, rent, lease or lend copies of the
Database or any portion thereof; and (iii) subject to Section 5, sublicense to
third parties the foregoing rights, including the right to sublicense to further
third parties. For the avoidance of doubt, the foregoing license shall be
cumulative with respect to each delivery of the Database or any version or part
thereof and no subsequent delivery of the Database or any version or part
thereof shall void any right(s) to any previously delivered version of the
Database or any part thereof.
4.2 Branding. Nothing herein shall in any way obligate Microsoft to
brand, name or label the Database or any derivative technology of the Database
in any given manner or fashion, and Microsoft and its licensees shall at all
times be free to brand, name and label their Web sites, pages and any other
implementation containing or based on the Database as they in their discretion
deem appropriate.
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4.3 Third Party Supplied Content And Commentary. With respect to
Section 1.1(ii), in the event that LookSmart licenses or otherwise acquires the
right to any such content and/or commentary, that would otherwise be included in
the Database, from any third party not Affiliated with LookSmart and as part of
such license LookSmart is required to pay such third party for such content
and/or commentary on a per use, royalty or other usage basis, then with respect
to such content or commentary Microsoft will elect either to (a) pay LookSmart
the actual amount LookSmart pays the third party for each use attributable to
Microsoft as a result of use of the Database by Microsoft or its permittees
pursuant to this Agreement or (b) give up all rights to such content and/or
commentary under this Agreement unless and until LookSmart is no longer required
to pay the third party on a per use, royalty or other usage basis (at which time
Microsoft shall have all rights under this Agreement to such content and/or
commentary).
5. USE RESTRICTIONS.
----------------
5.1 Third Party Licenses. Subject to Sections 5.3 and 5.5, and
notwithstanding anything to the contrary set forth in this Agreement, during the
Restricted Period, Microsoft may not sublicense or otherwise affirmatively
provide any of the rights (including, but not limited to, the right to brand or
market the Database or any part thereof) granted by LookSmart under Section 4.1
above as to the Database to any of the Listed Companies; provided that: (i)
nothing herein shall obligate Microsoft or its sublicensees to prohibit any
Listed Company from linking to or accessing any Microsoft or third party sites
or any page(s) within them including any page(s) containing or permitting access
to the Database other than by means of a sublicense or other affirmative
provision of rights by Microsoft; and (ii) nothing herein shall permit Microsoft
to sublicense to any third party during the Restricted Period the right to
exercise any rights with respect to the Database that Microsoft itself would be
restricted from exercising under this Section 5. For the avoidance of doubt, the
Parties agree that the foregoing restriction: (a) does not obligate Microsoft or
its sublicensees to prohibit any Listed Company from advertising or being
referenced on any Microsoft or third party sites or any page(s) within them
including any page(s) containing or permitting access to the Database, so long
as Microsoft does not also sublicense or otherwise affirmatively provide any of
the rights to the Database granted by LookSmart under Section 4.1 above to such
Listed Company; (b) does not prevent Microsoft from advertising or being
referenced on any Listed Company Web site or other product or offering as long
as Microsoft is not sublicensing or otherwise affirmatively providing any of the
rights granted by LookSmart under Section 4.1 above as to the Database to any of
the Listed Companies; (c) does not prevent Microsoft from granting any Listed
Company any rights to any Microsoft Web site, product or other offering as long
as Microsoft is not sublicensing or otherwise affirmatively providing any of the
rights granted by LookSmart under Section 4.1 above as to the Database to any of
the Listed Companies; and (d) does not prevent any Listed Company from appearing
in the Database or in any results page from a search of the Database on any
Microsoft or third party site.
5.2 Prevention Of End User Confusion. Subject to Section 5.5, during
the Restricted Period, Microsoft shall use good faith efforts not to use a user
interface with respect to the Database the appearance of which (e.g., color,
font, visual arrangement) is likely to cause confusion as to the affiliation of
the Database as presented by Microsoft and the home page of the LookSmart
Primary Web Site located at http://www.looksmart.com as of the Effective Date.
------------------------
Notwithstanding the foregoing, nothing in this Section 5.2 shall limit
Microsoft's right to use any functionality (including, but not limited to,
cascading menus), technology, language, format or other available method to
create any user interface(s) used with respect to the Database. A screen image
of the home page at http://www.looksmart.com as of the Effective Date is
------------------------
attached at Exhibit C and incorporated herein by this reference.
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5.3 General.
5.3.1 The restrictions in Section 5.1 shall not apply to any
Listed Company if such Listed Company undergoes a material change in its capital
structure, control or ownership through any transaction with Microsoft.
5.3.2 The restrictions in Section 5.1 shall apply not only to
each Listed Company but to its corresponding Listed Company domain name(s) set
out in Exhibit A regardless of any material change in the Listed Company's
capital structure, control or ownership, except a transaction with Microsoft as
described in Section 5.3.1 (in which case Section 5.3.1 applies); provided that
in the event of any material change in a Listed Company's capital structure,
control or ownership, Microsoft shall continue to be restricted during the
Restricted Period with respect to the Listed Company but shall not be restricted
from doing business of any kind with any company ("Owning Company") investing in
or acquiring a Listed Company, except that Microsoft may not during the
Restricted Period sublicense or otherwise affirmatively provide any of the
rights (including, but not limited to, the right to brand or market) to the
Database granted by LookSmart under Section 4.1 above to such Owning Company for
use primarily in connection with the corresponding Listed Company or Listed
Company domain name(s) listed on Exhibit A. For the avoidance of doubt, (A)
nothing in this Agreement shall prevent Microsoft from providing the Database or
any part thereof to the Owning Company if it is used by the Owning Company in
its business other than in the Listed Company's business or in association with
a Listed Company's domain name(s) and (B) nothing in this Agreement shall
obligate Microsoft or its sublicensees to prohibit any Owning Company from
linking to or accessing any Microsoft or third party sites or any page(s) within
them including any page(s) containing or permitting access to the Database other
than by means of a sublicense or other affirmative provision of rights by
Microsoft..
5.3.3 Nothing in this Agreement, including this Section 5, shall
prevent Microsoft from (i) sharing taxonomy for or any part of the Database or
any knowledge derived therefrom, with any party solely for the purpose of
creating or improving Microsoft's own branded search service, or (ii) providing
any party including a Listed Company with access to the Database solely for the
purpose of assisting Microsoft with Microsoft's exercise of its rights to the
Database set forth in Section 4.1.
5.4 Notification Of Certain Transactions. Notwithstanding anything
contained in this Agreement including this Section 5, if Microsoft enters into
an agreement with any Listed Company(ies) under which Microsoft will provide
such Listed Company with any rights to the Database and such agreement is to
begin within thirty (30) days of the end of the Restricted Period (which for the
avoidance of doubt is (a) for purposes of Section 5.4.1, the thirty (30) day
period following expiration of two and one-half (2 1/2) Years from the Effective
Date and (b) for purposes of Section 5.4.2, the thirty (30) day period following
the expiration of two (2) Years from the Effective Date), Microsoft shall either
at its discretion:
5.4.1 Give LookSmart twelve (12) months prior written notice of
the start date of such agreement, in which case, LookSmart will continue to
provide Database Updates for six (6) months from the date of Microsoft's notice
(or longer at LookSmart's discretion) but LookSmart may opt to stop providing
Database Updates after such six (6) month period by providing Microsoft with
written notice as provided in Section 3.2; or
5.4.2 Give LookSmart six (6) months prior notice of the start
date of such agreement, in which case, notwithstanding Section 3, LookSmart may
(i) elect, within five (5) business days of Microsoft's notice, to immediately
stop providing Database Updates and if LookSmart so elects, Microsoft will
nonetheless pay LookSmart as if Database Updates were delivered for six (6)
months following
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Microsoft's notice or (ii) after such five (5) business day period, opt to stop
providing Database Updates by providing Microsoft with written notice as
provided in Section 3.2.
No notice given under this Section 5.4 may be given earlier than eighteen (18)
months from the Effective Date.
5.5 In the event that either or both of the restrictions described in
Sections 5.1 and or 5.2 are still in effect on the date this Agreement
terminates, the restriction(s) still in effect (i.e., Section 5.1 and/or 5.2)
shall survive or not survive such termination as follows:
5.5.1 In the event that the Agreement is terminated by Microsoft
under Section 12.1.1 or 12.1.2 (except if the material breach leading to the
termination is as a result of an unauthorized breach of the confidentiality
provision by non-management personnel acting other than in the scope of their
duties to LookSmart): the remaining effective restriction(s), if any, shall
continue until the earlier of (i) six (6) months from the earlier of (A) the
date of termination and (B) the date Microsoft received the last Database Update
and (ii) the end of the Restricted Period (which for the avoidance of doubt may
be two and one-half (2 1/2) Years from the Effective Date if Microsoft has given
notice under Section 5.4.1 or two (2) years from the Effective Date if Microsoft
has given notice under Section 5.4.2).
5.5.2 In the event that the Agreement is terminated by either
party as a result of LookSmart's being subject to any of the events set forth in
12.1.3 or is terminated by Microsoft as set forth in Section 12.1.4: the
remaining effective restrictions, if any, shall terminate with the Agreement.
5.5.3 In the event that the Agreement is terminated for any
other reason not covered by Sections 5.5.1 or 5.5.2: the remaining effective
restrictions, if any, shall continue for the Restricted Period (which for the
avoidance of doubt may be two and one-half (2 1/2) Years from the Effective Date
if MS has given notice under Section 5.4.1 or two (2) years from the Effective
Date if Microsoft has given notice under Section 5.4.2).
6. TECHNICAL SUPPORT. For a period of three (3) months following the
-----------------
Effective Date, LookSmart shall provide, at its expense, technical and other
assistance as reasonably requested by Microsoft to allow Microsoft to use the
Database effectively in its business. Such assistance shall include without
limitation a "walkthrough" of the data schema of the Licensed Database
immediately after the Effective Date. During the Update Term, LookSmart will
provide reasonable advance warning of changes to the Database schema and such
technical support and other assistance necessary to understand those changes
such that Microsoft can continue to receive and use the Database including the
Database Updates. During the Update Term, LookSmart shall respond to and use
best efforts to promptly correct any issue raised by Microsoft.
7. PAYMENTS.
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7.1 Licensed Database Payment. In consideration of the rights granted
Microsoft as to the Licensed Database in Section 4.1 above and the technical
support to be provided Microsoft as set forth in Section 6 above, Microsoft will
pay LookSmart on the Effective Date the sum of [**] (the "Licensed Database
Consideration"). The total amount of principal and accrued interest owed by
LookSmart to Microsoft as of the Effective Date under the Financing Agreement
shall be applied as an offset against the Licensed Database Consideration, and
as of the Effective Date (i) no further draw downs under the Financing Agreement
shall be permitted, (ii) the Financing Agreement shall automatically be
terminated, and (iii) neither Party shall have any further obligation to the
other under the Financing Agreement. For each Additional Link delivered by
LookSmart pursuant to Section 2.2 that is not
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rejected by Microsoft in its sole discretion in accordance with section 2.2
above, Microsoft will pay LookSmart a fee of [**] In the event LookSmart has not
met the Additional Link Delivery Schedule, then the amount owed by Microsoft for
each Additional Link shall be reduced by [**] per week per Additional Link for
each Additional Link that is delivered late. By way of example, if 10,000
Additional Links are delivered 2 weeks late, then the amount owed LookSmart for
each such late delivered Additional Link accepted by Microsoft would be [**].
Moreover, if at any given milestone set forth on the Additional Link Delivery
Schedule, LookSmart has delivered less than [**] percent [**] of the Additional
Links required to be delivered by such milestone, then Microsoft may immediately
terminate this Agreement upon giving written notice thereof. All payments for
Additional Links shall be made by Microsoft within one hundred thirty-five (135)
days from the Effective Date, provided that if LookSmart delivers [**] or more
Additional Links by the date that is fifty-one (51) days from the Effective Date
(as required under Exhibits D and E), then within sixty-one (61) days of the
Effective Date Microsoft shall pay LookSmart a portion of the payments due for
the Additional Links equal [**.]
7.2 Database Update Payments. Subject to Section 7.2.5 below, in
consideration of LookSmart's creation, delivery and licensing to Microsoft of
the Database Updates as set forth in Sections 3 and 4.1, Microsoft shall pay
LookSmart the sum of [**] per Year (the "Database Update Consideration") during
the Update Term, such sum to be paid by Microsoft in four (4) quarterly
installments of [**] each, payable and paid within ten (10) business days of the
end of quarter comprising such Year. If LookSmart fails to deliver, by the end
of any one-half Year period in any Year, (A) [**] or (B) one hundred percent
(100%) of the Directed Links requested under Sections 3.3.2 and 3.3.3 for
delivery in the one-half Year period of such Year, then LookSmart shall refund
to Microsoft within thirty (30) business days of the end of such one-half Year
period an amount (the "Total Half Year Refund Amount") equal to the sum of the
Half Year Gross Links Refund Amount and the Half Year Directed Links Refund
Amount, as determined below.
7.2.1 Gross Links Refund Amounts. If LookSmart fails to provide,
[**] Gross Links in a given one-half Year period of any Year, then the "Half
Year Gross Links Refund Amount" shall be determined by the following formula:
[**]
provided that the Half Year Gross Links Refund Amount shall never be less than
zero (i.e. LookSmart may not turn the Half Year Gross Links Refund Amount into a
credit).
7.2.2 Directed Links Refund Amounts. If LookSmart fails to
provide the requested number of Directed Links in a given one-half Year period,
the "Half Year Directed Links Refund Amount" shall be determined by the
following formulas:
[**]
provided that Half Year Directed Links Refund Amount shall never be less than
zero (i.e. LookSmart may not turn the Half Year Directed Links Refund Amount
into a credit by delivering more Directed Links in any given Year than Microsoft
requested).
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7.2.3 REFUND EXAMPLES.
Example 1: By way of a first example, if in the first one-half Year period
of Year 1, Microsoft requested [**] Directed Links out of the [**] minimum
number of links to be provided to Microsoft during such period, and if LookSmart
instead delivered [**] Directed Links on time and only [**] other Gross Links
(for a total of [**] Gross Links) during such period, then LookSmart would owe
Microsoft a Half Year Total Refund Amount of [**] calculated as follows:
Half Year Gross
Links Refund Amount = [**]
Half Year Directed
Links Refund Amount = [**]
Total Half Year Refund Amount = [**]
Example 2: By way of a second example, if in the first one-half Year
period of Year 1, Microsoft requested [**] Directed Links out of the [**]
minimum number of links to be provided to Microsoft during such period, and if
LookSmart instead delivered [**] Directed Links and [**] other Gross Links (for
a total of [**] Gross Links) during such period, then LookSmart would owe
Microsoft a Total Half Year Refund Amount of [**] calculated as follows:
Half Year Gross
Links Refund Amount = [**]
Half Year Directed
Links Refund Amount = [**]
Total Half Year Refund Amount = [**]
*As noted above, the Gross Links Refund Amount may not become a credit by
LookSmart's delivering more than [**] Gross Links.
7.2.4 Termination of Database Update Obligations. If either
Party has terminated LookSmart's obligations to provide Database Updates in
accordance with Section 3.2 above or terminates this Agreement pursuant to
Section 12 prior to the end of any one-half Year period (except where LookSmart
is entitled to continue to be paid under Section 5.4.2), then within thirty (30)
business days following the effective date of any such termination, Microsoft
shall undertake a calculation of the amount of money to be refunded to Microsoft
by LookSmart or to be paid by Microsoft to LookSmart as a result of such early
termination. Such amount shall be determined by comparing the (i) "value" (as
defined below) of the Gross Links and Directed Links delivered by LookSmart
during the portion of the one-half Year period prior to termination, to (ii) the
amount paid by Microsoft to LookSmart during such one-half Year period prior to
termination. As used in this Section 7.2.4, (i) the "value" of the Gross Links
delivered by LookSmart shall be calculated by multiplying [**] by a ratio, of
which the numerator is the number of Gross Links delivered during such period
and the denominator is [**] and (ii) the "value" of the Directed Links delivered
by LookSmart shall be calculated by multiplying [**] by the ratio of which the
numerator is the number of the Directed Links delivered by LookSmart during such
period and the denominator is either (x) [**] (in the instance where Microsoft
has terminated the Agreement) or (y) the number of Directed Links requested by
Microsoft in such "stub" period (in the instance where LookSmart has
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terminated the Agreement). If the "value" of links delivered by LookSmart during
such period exceeds the amount paid by Microsoft during such period, then
Microsoft will pay LookSmart the amount of the difference. If the "value" of
links delivered by LookSmart during such period is less than the amount paid by
Microsoft during such period, then LookSmart will refund Microsoft the amount of
the difference. By way of example, if Microsoft's right to receive Database
Updates is terminated by Microsoft effective one hundred twenty (120) days after
the end of the Year 2 and LookSmart had delivered during such 120 day period
[**] Directed Links and [**] other Gross Links (for a total of [**] Gross
Links), then LookSmart would owe Microsoft a total early termination refund
amount of [**] calculated as follows:
"Value" of Gross Links = [**]
"Value" of Directed Links = [**]
Total "value" of links delivered = [**]
Amount paid by Microsoft during such 120 day period = [**]
Refund owed to Microsoft = [**]
By way of a second example, if Microsoft's right to receive Database Updates is
terminated by Microsoft effective on sixty (60) days after the end of the Year 2
and LookSmart had delivered during such 60 day period [**] Directed Links and
[**] other Gross Links (for a total of [**] Gross Links), then Microsoft would
owe LookSmart an early termination payment of [**] calculated as follows:
"Value" of Gross Links = [**]
"Value" of Directed Links = [**]
Total "value" of links delivered = [**]
Amount paid by Microsoft during such 60 day period = [**]
Payment owed to LookSmart = [**]
7.2.5 Update Obligations in Year 1. The obligations in this
section 7.2 above shall apply in Year 1 on the following basis: the obligations
remain in their entirety, but all references to the Year shall be translated on
a pro-rata basis to the days 91 through 365. For the avoidance of doubt, the
obligations in terms of number of URL links (including Gross Links and Directed
Links), payment and refunds and all other terms shall be the same in Year 1 as
they are in any other Year, the only difference being that Year 1 obligation
shall be satisfied in during the two hundred seventy-five (275) day period
beginning on the ninety-first (91st) day after the Effective Date and the
meaning of "one-half Year period" and quarter shall be as set out in Section 1.6
above.
7.3 Section 4.3 Payments. Microsoft shall pay LookSmart all amounts
due as a result of any election by Microsoft to proceed under Section 4.3(a)
within thirty (30) days of Microsoft's receipt of an invoice from LookSmart for
such amounts.
8. No Obligation/independent Development. Notwithstanding any other
-------------------------------------
provision of this Agreement, Microsoft shall have no obligation to market, sell,
license or otherwise distribute the Database, either alone or in any Microsoft
product. Nothing in this Agreement will be construed as restricting Microsoft's
ability to acquire, license, develop, manufacture or distribute for itself, or
have others acquire, license, develop, manufacture or distribute for Microsoft,
similar technology, information or data performing
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or having the same or similar functions, features or information as the
Database, or to market and distribute such similar technology, information or
data in addition to, or in lieu of, the Database.
9. Representations, Warranties and Indemnity.
-----------------------------------------
9.1 Representations and Warranties. LookSmart warrants and represents
that:
9.1.1 It has sufficient authority to enter into this Agreement;
9.1.2 All materials delivered by LookSmart to Microsoft pursuant
to this Agreement, including without limitation the Database, including anything
contained therein or arising or produced therefrom, do not infringe the
copyrights, trademarks, service marks or any other proprietary right of any
third party;
9.1.3 The functionality of the Database, the methods used to
collect data for and from the Database, and the structure sequence and
organization of the Database do not infringe the copyrights, trademarks,
patents, service marks or any other proprietary right of any third party;
9.1.4 The Database, including anything contained therein or
arising or produced therefrom, do not and will not contain any libelous, or
materially false or misleading statements and do not otherwise infringe on the
rights of any third party, provided that this representation and warranty by
LookSmart does not extend to anything placed in the Database (i) by Microsoft or
at Microsoft's direction, without LookSmart's consent or instruction, or (ii) by
LookSmart or its agents, over LookSmart's objection, at Microsoft's direction
and in full compliance with Microsoft's instruction;
9.1.5 The Database, including anything contained therein or
arising or produced therefrom, are in compliance with all applicable laws; and
9.1.6 As of the Effective Date LookSmart is not aware of any
third party claims concerning the Licensed Database, which if true, would
constitute of violation of the representations and warranties set forth in
9.1.1, 9.1.2, 9.1.3, 9.1.4 and 9.1.5 above.
9.2 Indemnity. LookSmart will indemnify Microsoft from and against
any loss, claim, liability, damage, action or cause of action (including,
without limitation, reasonable attorneys' fees) brought against Microsoft by a
third party and arising from or related to any breach by LookSmart of the
warranties set forth in Section 9.1 above, provided that Microsoft provides
LookSmart with reasonable cooperation at LookSmart's expense and tenders control
of the defense of the claim to LookSmart. LookSmart's selection of counsel to
defend any such claim under this Section 9.2 shall be subject to Microsoft's
prior approval, such approval not to be unreasonably withheld. Microsoft
reserves the right to immediately discontinue the use of the Database, pending
the satisfactory resolution of such matter, in the event that Microsoft receives
notice which alleges that the Database or any portion thereof or any materials
delivered hereunder (a) violate any applicable laws, and/or (b) infringe the
copyrights, trademarks, service marks or any other proprietary right of any
third party. In the event of an infringement or other claim regarding the
Database, the Party receiving the claim agrees to provide prompt written notice
of the claim to the other Party, and LookSmart's obligations under this Section
9.2 shall be conditioned upon Microsoft's giving of such prompt notice. In the
event of use of the Database or a portion thereof is permanently enjoined, then
LookSmart shall, at LookSmart's option and LookSmart's sole expense, either (i)
acquire a license sufficient for Microsoft to exercise all its license rights
hereunder; (ii) replace or modify the Database as required by such permanent
injunction, provided any replaced or modified portion of Database shall be of an
equivalent quality and quantity to that portion being replaced or modified; or
(iii) pay Microsoft a refund equal to the total Microsoft payments up to the
date of
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the permanent injunction to LookSmart under Sections 7.1 and 7.2, multiplied by
the ratio of the number of links subject to permanent injunction to the total
links in the Database as of the date of the permanent injunction. Any refund due
Microsoft pursuant to the foregoing (iii), shall be due within ten (10) business
days of LookSmart's making its election from the above options.
10. Confidentiality. The Parties agree that the terms and conditions of
---------------
this Agreement are subject to the Non-Disclosure Agreement between the Parties
dated July 8, 1998 ("NDA"). Within ninety (90) days of the Effective Date,
Microsoft and LookSmart shall conduct joint press activities relating to the
conclusion of this Agreement in a form and at a time mutually agreed to by the
Parties. LookSmart shall have the opportunity to provide a quote and/or
information mutually agreed to between the Parties for any press release, if
any, issued by either party in connection with such press activities. Except as
specified above, neither Party will issue any press release or make any public
announcement(s) (including, but not limited to, using the other party's name in
any marketing materials) relating in any way whatsoever to this Agreement or the
relationship established by this Agreement without the express prior written
consent of the other Party.
11. Limitation of Liabilities.
-------------------------
NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES.
12. Termination.
-----------
12.1 Termination for Cause. In addition to any other rights and/or
remedies that either Party may have under the circumstances, all of which are
expressly reserved, either Party may terminate this Agreement immediately upon
written notice at any time if:
12.1.1 The other Party is in material breach of any material
warranty, representation, term, condition or covenant of this Agreement, other
than those contained in Section 10, and fails to cure that breach within twenty
(20) days after written notice thereof; or
12.1.2 The other Party is in material breach of Section 10 or
entitled to terminate as provided in Section 13.7; or
12.1.3 Either Party becomes insolvent 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
proceeding; or has any petition under any bankruptcy law filed against it, which
petition is not dismissed within sixty (60) days of such filing; or has a
trustee or receiver appointed for its business or assets or any part thereof or
12.1.4 If Microsoft elects as set forth in Section 7 above, as a
result of LookSmart's failure to deliver at least [**] of the Additional Links
required to be delivered by a given milestone contained in the Additional Links
Delivery Schedule.
12.2 Effect of Termination. In the event of 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, Sections 4, 5 (but only as and to the extent specifically set forth
in Section 5.5), 8, 9, 10 and 11, shall survive such termination or expiration.
If either Party terminates the Agreement after the start of but prior to the end
of any one-half Year period (except where LookSmart is entitled to continue to
be paid under Section 5.4.2), then the value of the Database Updates delivered
in such
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one-half Year period shall be calculated immediately and paid or refunded as
provided in Section 7.2.4. Neither Party shall be liable to the other for
damages of any sort resulting solely from terminating this Agreement in
accordance with its terms.
13. General.
-------
13.1 Notices. All notices and requests in connection with this
Agreement shall be deemed given as of the day they are received either by
messenger, delivery service, or in the United States of America mails, postage
prepaid, certified or registered, return receipt requested, and addressed as
follows:
<TABLE>
<CAPTION>
To Microsoft: To LookSmart:
------------ ------------
<S> <C>
Microsoft Corporation LookSmart Ltd.
One Microsoft Way 487 Bryant Street
Redmond, WA 98052-6399 San Francisco, California 94107-1316
Attention: Hyer Bercaw Attention: Evan Thornley
Telephone: (425) 882-8080 Telephone: (415) 597-4850
Facsimile: (425) 936-7329 Facsimile: (415) 597-4860
With a copy to: Law & Corporate Affairs With a copy to:
Telephone: (425) 882-8080
Facsimile: (425) 936-7409 Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Hank Barry, Esq.
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
</TABLE>
or to such other address as a Party may designate pursuant to this notice
provision.
13.2 No Agency Relationship. Nothing in this Agreement shall be
construed as creating an employer-employee relationship, a partnership, or a
joint venture between the Parties.
13.3 Governing Law. This Agreement shall be governed by the laws of
the State of Washington as though entered into between Washington residents and
to be performed entirely within the State of Washington, and LookSmart consents
to jurisdiction and venue in the state and federal courts sitting in King
County, the State of Washington. In any action or suit to enforce any right or
remedy under this Agreement or to interpret any provision of this Agreement, the
prevailing Party shall be entitled to recover its costs, including reasonable
attorneys' fees.
13.4 Assignment. This Agreement shall be binding upon and inure to
the benefit of each Party's respective successors and lawful assigns; provided,
however, that LookSmart may not assign this Agreement, in whole or in part, or
any rights or obligations hereunder, whether by contract or by operation of law,
except in the context of a material change in LookSmart's capital structure,
control or ownership (including by way of an initial public offering of stock),
without the express written consent of Microsoft, and any attempted assignment
by LookSmart in violation of this Section 13.4 shall be void. In the event of
any such assignment or attempted assignment by LookSmart in violation of this
Section 13.4, Microsoft shall have the right to immediately terminate the Update
Term.
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13.5 Construction. If for any reason a court of competent
jurisdiction finds any provision of this Agreement, or portion thereof, to be
unenforceable, that provision of the Agreement will be enforced to the maximum
extent permissible so as to effect the intent of the Parties, and the remainder
of this Agreement will continue in full force and effect. Failure by either
Party to enforce any provision of this Agreement will not be deemed a waiver of
future enforcement of that or any other provision. This Agreement has been
negotiated by the Parties and their respective counsel and will be interpreted
fairly in accordance with its terms and without any strict construction in favor
of or against either Party. The section headings used in this Agreement are
intended for convenience only and shall not be deemed to affect in any manner
the meaning or intent of this Agreement or any provision hereof.
13.6 Entire Agreement. This Agreement does not constitute an offer by
Microsoft and it shall not be effective until signed by both Parties. This
Agreement constitutes the entire agreement between the Parties with respect to
the subject matter hereof and merges all prior and contemporaneous
communications, including but not limited to the Letter of Intent between the
Parties dated as of October 9, 1998. It shall not be modified except by a
written agreement dated subsequent to the date of this Agreement and signed on
behalf of LookSmart and Microsoft by their respective duly authorized
representatives. No waiver of any breach of any provision of this Agreement
shall constitute a waiver of any prior, concurrent or subsequent breach of the
same or any other provisions hereof, and no waiver shall be effective unless
made in writing and signed by an authorized representative of the waiving Party.
13.7 Force Majeure. If either Party is in material breach of a term
of this Agreement as a result (wholly or in primary part) of any earthquake,
fire or other natural cause not entirely within such Party's control and which
it could not by reasonable diligence have avoided, then without limiting the
other Party's rights in any such event, such other Party shall have the option,
without liability, to suspend their performance for the duration of any such
breach but in no event longer than twenty (20) consecutive days or thirty (30)
days total ("Suspension Period") with respect to any single or proximately
related cause(s), by giving the other Party written notice thereof detailing the
reason and expected duration of such suspension; provided that during such
Suspension Period the non-notifying Party's obligations (but not its rights)
shall also be suspended; and further provided that if the notifying Party has
not cured its material breach by end of the Suspension Period, the non-notifying
Party may immediately upon notice to the notifying Party terminate this
Agreement pursuant to 12.1.2.
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In Witness Whereof, the Parties have entered into this Agreement as of the
Effective Date written above.
MICROSOFT CORPORATION LOOKSMART LTD.
/s/ Pete Higgins /s/ Evan Thornley
- ----------------------------- --------------------------------
By (Sign) By (Sign)
Pete Higgins Evan Thornley
- ----------------------------- --------------------------------
Name (Print) Name (Print)
Group OP CEO
- ----------------------------- --------------------------------
Title Title
12-18-98
- ----------------------------- ________________________________
Date Date
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[EXHIBIT A]
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[**]
<PAGE>
[**]
<PAGE>
[EXHIBIT B]
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[**]
<PAGE>
EXHIBIT C
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LookSmart Primary Web Site Screen Shot
--------------------------------------
<PAGE>
[EXHIBIT D]
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[**]
<PAGE>
[EXHIBIT E]
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[**]
<PAGE>
EXHIBIT 10.5
ASSET PURCHASE AGREEMENT
By and Between
LOOKSMART, LTD
and
GUTHY-RENKER INTERNET LLC
Dated as of
March 26, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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ARTICLE 1 - PURCHASE, CONSIDERATION AND ADDITIONAL AGREEMENTS................................................... 1
1.1 Sale and Purchase of Assets................................................................. 1
1.2 Assets Not to be Transferred................................................................ 3
1.3 Assumption of Liabilities................................................................... 3
1.4 Consideration............................................................................... 5
1.5 Direction Regarding Stock Consideration..................................................... 5
1.6 Allocation.................................................................................. 6
1.7 Sales and Use Taxes......................................................................... 6
1.8 Instruments of Transfer..................................................................... 6
1.9 Use of Name................................................................................. 6
1.10 Refunds..................................................................................... 7
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF SELLER............................................................ 9
2.1 Corporate Existence; Authority.............................................................. 9
2.2 Title to Assets; Conflicting Interests; Effect of Agreement................................. 10
2.3 Consents.................................................................................... 10
2.4 Financial Statements........................................................................ 11
2.5 Tangible Property........................................................................... 11
2.6 Intellectual Property....................................................................... 11
2.7 Inventories................................................................................. 17
2.8 Intentionally Deleted....................................................................... 17
2.9 Customer List............................................................................... 17
2.10 Litigation.................................................................................. 17
2.11 Compliance with Laws........................................................................ 18
2.12 Taxes....................................................................................... 18
2.13 Contracts................................................................................... 18
2.14 Employees of Seller's Business.............................................................. 18
2.15 Insurance................................................................................... 18
2.16 [Intentionally deleted]..................................................................... 18
2.17 No Material Changes......................................................................... 19
2.18 Representations Complete.................................................................... 20
2.19 Investment.................................................................................. 20
2.20 Tax Liability............................................................................... 20
2.21 Environmental Liabilities................................................................... 20
2.22 Restrictions on Business Activities......................................................... 21
2.23 Website Agreements.......................................................................... 21
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF BUYER.............................................................. 21
3.1 Incorporation; Authority..................................................................... 21
3.2 Capitalization............................................................................... 22
3.3 Conflicting Interests........................................................................ 22
3.4 Consents..................................................................................... 22
3.5 Financial Statements......................................................................... 23
3.6 Litigation................................................................................... 23
3.7 Compliance with Laws......................................................................... 23
3.8 No Material Changes.......................................................................... 23
3.9 Representations Complete..................................................................... 24
3.10 Defaults..................................................................................... 24
ARTICLE 4 - AGREEMENTS TO BE PERFORMED PRIOR TO THE CLOSING...................................................... 24
4.1 Full Access.................................................................................. 24
4.2 Conduct of Business.......................................................................... 25
4.3 Liabilities.................................................................................. 25
4.4 Advice of Developments....................................................................... 26
4.5 Further Purchase Offers...................................................................... 26
4.6 Further Assurances........................................................................... 26
4.7 Notices and Consents......................................................................... 27
4.8 Employment of Certain Personnel.............................................................. 27
4.9 Transition Services Agreement................................................................ 27
4.10 Employee Stock Options....................................................................... 27
4.11 401(k) Account Transfer...................................................................... 27
ARTICLE 5 - CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER......................................................... 28
5.1 Representations True and Correct............................................................. 28
5.2 Covenants Performed.......................................................................... 28
5.3 No Material Adverse Change................................................................... 28
5.4 Opinion of Counsel........................................................................... 28
5.5 Unanimous Agreement.......................................................................... 28
5.6 Officers' Certificates....................................................................... 28
5.7 Absence of Litigation........................................................................ 28
5.8 Necessary Consents........................................................................... 28
5.9 Approval of Documentation.................................................................... 29
5.10 Confidential Information Agreements.......................................................... 29
5.11 GRC Tagging and Marketing Agreement.......................................................... 29
</TABLE>
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<TABLE>
<S> <C>
5.12 Transition Services Agreement................................................................ 29
5.13 Employee Agreements.......................................................................... 29
5.14 Corporate Consents........................................................................... 29
5.15 Noncompetition/No Solicitation Agreements.................................................... 29
5.16 Restricted Stock Purchase Agreements......................................................... 29
5.17 Insurance.................................................................................... 29
5.18 Transfer of Intellectual Property Licenses................................................... 30
5.19 UCC Filings.................................................................................. 30
5.20 Consultant Intellectual Property Agreements.................................................. 30
5.21 Seller's Documents........................................................................... 30
5.22 Reimbursement for Accrued Vacation Time...................................................... 30
5.23 Allocation of Consideration.................................................................. 30
5.24 Escrow Agreement............................................................................. 30
ARTICLE 6 - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER.................................................... 30
6.1 Representations True and Correct............................................................. 31
6.2 Covenants Performed.......................................................................... 31
6.3 Officers' Certificate........................................................................ 31
6.4 Approval of Documentation.................................................................... 31
6.5 Corporate Consents........................................................................... 31
6.6 No Material Adverse Change................................................................... 31
6.7 Absence of Litigation........................................................................ 31
6.8 Approval of Documentation.................................................................... 31
6.9 GRC Tagging Agreement........................................................................ 31
6.10 Transition Services Agreement................................................................ 31
6.11 Employee Agreements.......................................................................... 32
6.12 Restricted Stock Purchase Agreements......................................................... 32
6.13 Prepaid Expenses............................................................................. 32
6.14 Opinion of Counsel........................................................................... 32
6.15 Necessary Consents........................................................................... 32
6.16 Allocation of Consideration.................................................................. 32
6.17 Escrow Agreement............................................................................. 32
ARTICLE 7 - THE CLOSING.......................................................................................... 32
7.1 The Closing.................................................................................. 32
7.2 Deliveries at the Closing.................................................................... 33
ARTICLE 8 - OBLIGATIONS OF PARTIES AFTER CLOSING................................................................. 33
8.1 Survival of Representations, Warranties and Covenants........................................ 33
</TABLE>
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<TABLE>
<S> <C>
8.2 Indemnification by Seller.................................................................... 33
8.3 Indemnification by Buyer..................................................................... 34
8.4 Escrow Arrangements.......................................................................... 35
8.5 Arbitration.................................................................................. 37
8.6 Third-Party Claims........................................................................... 38
8.7 Seller's Agent; Power of Attorney............................................................ 39
8.8 Escrow Agent's Duties........................................................................ 40
8.9 Payment of Tax Claims........................................................................ 41
8.10 Further Assurances........................................................................... 41
8.11 Tax Returns.................................................................................. 41
8.12 Post-Closing Date Access to Information...................................................... 41
8.13 Collection of Seller's Business Accounts Receivable.......................................... 42
8.14 Regulatory Claims............................................................................ 42
ARTICLE 9 - TERMINATION.......................................................................................... 43
9.1 Termination.................................................................................. 43
9.2 Effect of Termination........................................................................ 43
9.3 Marketing and Advertising Agreement.......................................................... 43
ARTICLE 10 - CONFIDENTIALITY..................................................................................... 43
10.1 Confidentiality.............................................................................. 43
10.2 Public Announcements......................................................................... 44
ARTICLE 11 - GENERAL PROVISIONS.................................................................................. 44
11.1 Broker or Finder............................................................................. 44
11.2 Payment of Costs............................................................................. 44
11.3 Entire Agreement; Waivers.................................................................... 44
11.4 Successors and Assigns....................................................................... 44
11.5 Effect of Headings........................................................................... 44
11.6 Notices...................................................................................... 45
11.7 Notice of Default............................................................................ 46
11.8 Governing Law................................................................................ 46
11.9 Parties in Interest.......................................................................... 46
11.10 Severability................................................................................. 46
11.11 Counterparts................................................................................. 46
11.12 Attorneys' Fees.............................................................................. 47
11.13 Assignment................................................................................... 47
11.14 No Third Party Beneficiary................................................................... 47
11.15 Authority of Members......................................................................... 47
</TABLE>
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<TABLE>
<S> <C>
11.16 Disclosure on Schedules...................................................................... 47
</TABLE>
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TABLE OF CONTENTS
(continued)
Page
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<PAGE>
TABLE OF CONTENTS
(continued)
Page
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EXHIBITS
A - Restricted Stock Purchase Agreement
B - Seller's Financial Statements
C - Buyer's Restated Certificate of Incorporation
D - Buyer's Financial Statements
E - Transition Agreement
F - Stock Option Agreement
G-1- Opinion of Counsel for GRC
G-2- Opinion of Counsel Shim and Sons Enterprises, Inc.
G-3- Opinion of Counsel for Seller
H - Confidential Information Agreement
I - GRC Tagging Agreement
J - Employee Agreements between Buyer and Boris Shimanovsky and Buyer
and Christy Hadzick
K - Noncompetition Agreement
L - Opinion of Counsel for Buyer
M - Escrow Agreement
SCHEDULES
1.1(a) - Seller's Intellectual Property
1.1(b) - Promotional Materials
1.1(c) - Computers
1.1(d) - Prepaid Expenses
1.1(f) - Contracts, Agreements, Licenses and Leases
1.1(g) - Permits and Licenses
1.3 - Assumed Liabilities
1.5 - List of Seller's Designees
1.6 - Allocation of Purchase Price
1.8 - Domain Names
1.10 - Material Changes to Choice Mall Website
2.2(a) - Liens, Encumbrances, and Restrictions
2.2(b) - Transferred Assets Not in Possession of Seller
2.2(c) - Non-exclusive Licenses or Ownership
2.3 - Consents
2.6(b) - Seller's Registered Intellectual Property
2.6(f) - Third Party Rights
2.6(h) - Indemnification Obligations
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2.6(k) - Oral Royalty Agreements
2.9 - Customer List
2.10 - Litigation
2.13 - Contracts
2.14 - Employees
2.15 - Insurance
2.23 - Form of Associate Agreement
3.4 - Consents
3.6 - Litigation
5.19 - Released UCC Filings
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of this 26th day
---------
of March, 1999 is made and entered into by and between LOOKSMART, LTD., a
Delaware corporation ("Buyer") with offices at 487 Bryant Street, San Francisco,
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California 94107, and GUTHY-RENKER INTERNET LLC, a California limited liability
company ("Seller") with offices at 3340 Ocean Park, Santa Monica, California
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90405, and as to Article 8, SHIM AND SONS ENTERPRISES, INC., a California
corporation, with offices at 3340 Ocean Park, 3rd Floor, Santa Monica,
California 90405 and U.S. BANK TRUST, NATIONAL ASSOCIATION with offices at 1
California Street, 4th Floor, San Francisco, California 94111 (referred to
herein as "Escrow Agent"), and as to Article 8 and Section 9.3, GUTHY-RENKER
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CORPORATION ("GRC"), a Delaware corporation, with offices at 3340 Ocean Park,
---
Santa Monica, California 90405.
WHEREAS, Buyer owns and operates the Internet website entitled
"looksmart.com" and is in the business of exploiting such site, promoting same,
and other enterprises relating thereto or in connection therewith (the "Buyer's
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Business");
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WHEREAS, Seller owns and operates the Internet websites entitled
"choicemall.com" and "buyitontheweb.com" and has developed a business in
connection therewith, including, without limitation, certain methods and
materials disseminating information relating thereto by means of seminars
("Seminars") conducted at various locations and producing so-called
--------
"infomercials" and related promotional, advertising and marketing materials in
connection therewith ("Seller's Business"). Seller has decided to sell, and
-----------------
Buyer has agreed to purchase, certain of Seller's assets and properties related
to Seller's Business;
WHEREAS, a member of Seller, GRC, a Delaware corporation, is, among other
things, a producer and distributor of so-called "infomercials" and the products
advertised or promoted in such infomercials; and
WHEREAS, Seller desires to sell, and Buyer desires to purchase,
substantially all of the assets of Seller related to the Seller's Business on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and representations contained herein, the parties hereto agree as
follows.
ARTICLE 1
PURCHASE, CONSIDERATION AND ADDITIONAL AGREEMENTS
-------------------------------------------------
1.1 Sale and Purchase of Assets. Subject to the terms and conditions of
---------------------------
this Agreement and except for the Excluded Assets (defined in Section 1.2),
Seller agrees to transfer, convey, assign
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as *****. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
and deliver to Buyer and Buyer agrees to buy from Seller, free and clear of all
liens, claims and encumbrances other than the Assumed Liabilities (as defined in
Section 1.3), all of Seller's right, title and interest in and to all of the
following assets and properties, tangible and intangible, personal or mixed,
wherever located (collectively, the "Transferred Assets"):
------------------
(a) Seller's Intellectual Property (defined in Section 2.6(a)(iii))
used in connection with Seller's Business, wherever located, and which is listed
on Schedule 1.1(a), attached hereto and made a part hereof;
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(b) the promotional materials, finished goods embodying infomercials
in home video devices of all kinds, inventories, parts, supplies listed on
Schedule 1.1(b) attached hereto and made a part hereof;
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(c) the computers listed on Schedule 1.1(c), attached hereto and made
---------------
a part hereof, and the peripherals, software and the like associated with such
computers;
(d) all prepaid expenses, which are listed on Schedule 1.1(d)
---------------
attached hereto and made a part hereof which Schedule shall set forth the
prepaid expenses which have been approved by Buyer as of the date of this
Agreement and which Schedule may be revised and/or updated as of the Closing
Date subject to the provisions of Section 6.13 (the "Prepaid Expenses");
----------------
(e) all other properties, rights and assets owned by Seller and used
by Seller in Seller's Business in connection with the items set forth in
Sections 1.1(a)-(d), whether tangible or intangible, in whatever form or medium,
absolute, contingent, or otherwise;
(f) all right, title and interest of Seller to the contracts,
agreements, licenses, leases and similar documents relating to the items set
forth in Sections 1.1(a)-(e) to which Seller (or an Affiliate of Seller) is a
party and which are listed on Schedule 1.1(f), attached hereto and made a part
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hereof (collectively, the "Assigned Contracts"), including, without limitation,
------------------
any and all agreements, permissions and the like relating to the Internet server
on which the Seller's Business is currently hosted.
(g) all permits, licenses, franchises, consents, authorities and
other similar authorizations, if any, of any federal, state, local or foreign
governmental body which relate to Seller's Business and which may be lawfully
assigned or transferred, subject to any action by such body which may be
required in connection with such assignment or transfer, including, without
limitation, those items listed on Schedule 1.1(g), attached hereto and made a
---------------
part hereof;
(h) all of Seller's transferable books and records used in connection
with Seller's Business as same relate to the items set forth in Sections 1.1(a)-
(g), including, without limitation, all supplier lists, all marketing plans,
drawings, blueprints, and manuals and materials of Seller used in employee and
management training in Seller's Business, but not including Seller's minute
book, tax returns, financial statements, or similar corporate documents;
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<PAGE>
(i) all of Seller's rights to the agreements, payment authorizations
and the like, with persons, firms, corporations or other entities who are party
to any agreement (or who are a transferee of a party to any agreement) relating
to the Associate Pages (individually an "Associate Agreement" and collectively
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the "Associate Agreements.") As used in this Agreement, "Associate Pages" shall
-------------------- ---------------
mean all so-called "web pages" designated by Associates and located on "Seller's
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Website" (as defined below) published to the World Wide Web (or any successor
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technology); "Seller's Website" shall refer to the Seller's websites with the
----------------
URLs of "www.choicemall.com," "www.buyitontheweb.com" and any and all other
websites owned or controlled by Seller.
(j) all payments of any kind payable by any third party after the
Closing Date in connection with the Associate Agreements;
(k) all of Seller's claims against any parties regarding Seller's
Intellectual Property and any unliquidated rights of Seller under manufacturers'
and vendors' warranties or guarantees.
1.2 Assets Not to be Transferred. Notwithstanding any provision of this
----------------------------
Agreement to the contrary, Seller shall retain and Buyer shall not acquire (i)
all rights, properties and assets which relate to the conduct of the Seller's
Business which are not set forth in the particular schedules hereto relating to
the Transferred Assets or otherwise described as Transferred Assets in this
Agreement; (ii) Seller's minute books, tax returns, financial statements and
similar corporate documents which are not necessary for Buyer to use the
Transferred Assets as a part of Buyer's Business and (iii) any other assets of
Seller not related to Seller's Business, collectively the "Excluded Assets."
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1.3 Assumption of Liabilities.
-------------------------
(a) The only liabilities of Seller to be assumed by Buyer hereunder
shall be those liabilities described in Section 1.3(d) (collectively, the
"Assumed Liabilities"). The Assumed Liabilities shall be listed on Schedule
------------------- --------
1.3, attached hereto and made a part hereof.
- ---
(b) Except for the Assumed Liabilities, Buyer shall not assume or
have any responsibility for any other liability, obligation or commitment of any
nature, whether now or hereafter existing, of Seller (the "Excluded
--------
Liabilities"). Seller shall remain liable for and shall pay, settle or
- -----------
discharge in the ordinary course of Seller's business (unless circumstances
warrant otherwise) all such liabilities, obligations or commitments which are
not Assumed Liabilities, including, but not limited to, the following:
(i) liabilities for any income, business, occupation, sales or
use, withholding or similar tax or taxes of any kind relating to any period
prior to the Closing Date attributable or pertaining to (1) the Transferred
Assets; and (2) Seller or the conduct by Seller of Seller's Business before, as
of and after the Closing Date.
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<PAGE>
(ii) liabilities for any income, business, occupation, sales
or use, withholding or similar tax or taxes of any kind imposed on Seller and
relating to the sale of the Transferred Assets hereunder;
(iii) any liabilities of Seller not identified on Schedule 1.3;
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(iv) any contingent liabilities of Seller pertaining to the
ownership, distribution or use of any of Seller's Intellectual Property sold or
licensed prior to the Closing Date which are not identified on Schedule 1.3;
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(v) any tort liability, including liabilities based on
theories of strict liability or product liability, arising from Seller's assets,
or the conduct or operation of Seller's Business arising from events, actions or
inactions occurring prior to the Closing Date;
(vi) any obligation of Seller under any confidentiality or
nondisclosure agreement, noncompetition agreement, nonsolicitation agreement, or
the like, between Seller and a third party;
(vii) all liabilities and obligations under the Assigned
Contracts arising from events, actions or inactions occurring prior to the
Closing Date;
(viii) liabilities and obligations for refunds to "Active
------
Associates" and "Inactive Associates" (as defined in Section 1.10) for which
- ---------- -------------------
Seller is responsible as specifically provided in Section 1.10;
(ix) any obligation of Seller in respect of employees of Seller
arising on or prior to the Closing Date, including, without limitation any
obligations in respect of (i) severance pay or arrangements; (ii) workers
compensation; (iii) wrongful termination; (iv) discrimination;(v) rights to
stock, stock options or any other equity of any type in connection with the one
or more of employment of Seller's employees, or the separation thereof and (vi)
executive reimbursements;
(x) any computer files, software, documents or other materials
that may be found or recoverable from the hard drive(s) or other memory of the
computers being transferred to Buyer hereunder which do not relate to the
Transferred Assets; and
(xi) any liabilities for prepayment penalties arising from the
repayment of any long-term debt or notes payable of Seller.
(c) Notwithstanding anything to the contrary set forth in this
Agreement, the Buyer agrees to assume at Closing and shall be responsible solely
for the following itemized liabilities of Seller (the "Assumed Liabilities"):
-------------------
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<PAGE>
(i) liabilities and obligations under the Assigned Contracts
arising from Buyer's actions or inactions or Buyer's use of the Transferred
Assets occurring on or after the Closing Date; and
(ii) all liabilities and obligations for refunds to Active
Associates and Inactive Associates for which Buyer is responsible as
specifically provided in Section 1.10.
(d) The assumption by Buyer of the Assumed Liabilities shall not
require Buyer to pay, perform or observe any such obligations so long as Buyer,
in good faith, shall contest or cause to be contested the amount or validity
thereof. Buyer's assumption of the Assumed Liabilities is intended to inure
solely to the benefit of Seller, and notwithstanding anything herein to the
contrary, such assumption is not intended and shall not be construed to give any
third parties any greater or additional benefits than they would have but for
Buyer's said assumption.
1.4 Consideration. As consideration and payment in full for the
-------------
Transferred Assets, at the Closing Buyer shall, subject to the provisions of
Section 8.4(a):
(a) issue to Seller [**] duly authorized, fully paid, and non-
assessable Shares of Buyer's Common Stock at a valuation of [**] (the "Stock
Consideration");
(b) pay to Seller the sum of [**] (the "Cash Consideration") by wire
transfer; and
(c) assume the Assumed Liabilities.
1.5 Direction Regarding Stock Consideration. Seller's Stock Consideration
---------------------------------------
shall be issued to Seller pursuant to the form of Restricted Stock Purchase
Agreement, attached hereto as Exhibit A and made a part hereof. Provided that
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such transfer is permissible under the operating agreement of Seller and subject
to the availability of applicable exemptions under applicable securities laws
and other documentation effecting such transfer in a form reasonably acceptable
to Buyer in Buyer's good faith judgement, at the Closing Seller may direct Buyer
to issue the Stock Consideration to its members or the persons, firms,
corporations or other entities listed on Schedule 1.5 attached hereto and made a
part hereof (each, other than Seller, a "Seller Designee" and collectively
---------------
"Seller's Designees"), pursuant to the form of Restricted Stock Purchase
------------------
Agreement attached hereto as Exhibit A and made a part hereof. Seller and each
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Seller Designee shall execute its respective Restricted Stock Purchase
Agreements at or before the Closing. It is understood and agreed that Buyer's
issuance of such portion of the Stock Consideration to Seller's Designees is as
an accommodation to Seller only, and does not create any third-party beneficiary
relationship with any person, firm, corporation or other entity, including,
without limitation, any of Seller's Designees.
Notwithstanding the foregoing, the number of all such shares shall be
reduced proportionately by the portion of the Stock Consideration to be placed
into the Escrow Fund (defined
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<PAGE>
in Section 8.4(a) below), and appropriate adjustments shall be made for
applicable repurchase restrictions to which any portion of the Stock
Consideration is subject.
1.6 Allocation. The parties agree to allocate the consideration for the
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Transferred Assets among the Transferred Assets as mutually agreed by the Buyer
and Seller on or prior to the Closing Date and to be attached as Schedule 1.6,
------------
and made a part hereof (the "Allocation") and each of Buyer and Seller to agree
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to report the sale and purchase of the Transferred Assets consistently with the
Allocation for all federal, state and local income and other tax purposes.
1.7 Sales and Use Taxes. Seller and Buyer shall each bear fifty percent
-------------------
(50%) of all sales and use taxes, if any, that either party shall be responsible
by law to pay and discharge by reason of or in connection with the sale and
transfer hereunder of the Transferred Assets. Notwithstanding any provision of
this Agreement to the contrary, the parties agree to pay and discharge promptly
whenever due their respective shares of the entire amount of all such taxes
arising in connection with the transactions set forth hereunder, whether levied
on Buyer or Seller. Buyer and Seller agree to use their respective good faith
efforts to minimize the amount of any sales tax that may be due with respect to
the transactions contemplated hereunder, and each party agrees to give the other
party reasonable prior written notice of any such amounts which may be claimed
to be due by any governmental taxing authority.
1.8 Instruments of Transfer. The sale, assignment, transfer, conveyance
-----------------------
and delivery of the Transferred Assets and assumption of Assumed Liabilities
shall be made by such bills of sale and assumption agreements and other
recordable instruments of assignment, transfer and conveyance as Buyer shall
reasonably request, including, without limitation, such instruments of transfer
as may be required by Network Solutions, Inc., Internic, or any successor
organization thereto, in connection with the transfer by Seller to Buyer of the
domain names set forth on Schedule 1.8, attached hereto and made a part hereof,
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and the related URLs and web site addresses, as well as any instruments of
transfer or registration forms required in connection with any of the
Transferred Assets. If the domain names listed on Schedule 1.8 are not
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registered in the name of Seller, Seller shall cause the registrant of such
domain names to transfer and assign to Buyer all such domain names pursuant to
the customary forms used by Network Solutions, Inc. or any other relevant
organizations and such other documentation as Buyer shall reasonably require to
transfer such domain names and any trademark, goodwill or otherwise associated
with such domain names. All transfer fees payable to Network Solutions or other
relevant organization with respect to the transfer of the domain names set forth
on Schedule 1.8 shall be paid by Buyer.
1.9 Use of Name. Seller agrees that for a period of up to twelve (12)
-----------
months from the Closing Date, Buyer shall have the right to use the name "Guthy-
Renker Internet" and/or the letters "GRI" and Seller's trademarks, trade names,
service marks or other designations (individually or collectively, as
applicable, "Seller's Designations"), including, without limitation, in
---------------------
connection with the use of the Transferred Assets by the Buyer. During such
twelve (12) month period, Seller will not grant the right, as applicable, to use
the Seller's Designations to any other third party. Notwithstanding the
foregoing twelve (12) month restriction on the use of Seller's Designations,
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<PAGE>
Seller further agrees that if any of the Transferred Assets of the Seller bear
any or all of Seller's Designations the Buyer (or any of Buyer's Affiliates or
licensees) may use and distribute generally such Transferred Assets, including,
without limitation, any of the materials listed on Schedule 1.1(b), any
---------------
promotional materials or printed forms, products, stationery, brochures and
similar materials. As used in this Agreement, an "Affiliate" of a referenced
---------
person shall mean (a) another person controlling, controlled by or under common
control with such referenced person, (b) any other person beneficially owning or
controlling ten percent (10%) or more of the outstanding voting securities or
rights or of the interest in the capital, distributions or profits of the
referenced person or (c) any Member, officer or director of or partner in the
referenced person, or any person controlled by any such individual. The terms
"control", "controlling", "controlled" and the like shall mean the direct or
------- ----------- ----------
indirect possession of the power to direct or cause the direction of the
management or policies of a person or the disposition of its assets or
properties, whether through ownership, by contract, arrangement or
understanding, or otherwise. Buyer agrees not to assign right to use Seller's
Designation to any other party without Seller's written consent.
1.10 Refunds.
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(a) After the Closing Date, Buyer shall have the right to elect in
Buyer's sole discretion to conduct one (1) or more marketing campaigns or
similar solicitations directed at some or all of the "Inactive Associates" (as
-------------------
defined below). Prior to conducting each such marketing campaign, Buyer shall
consult with Seller in respect thereof, and give Seller a reasonable opportunity
to review and comment upon the number of Inactive Associates to whom such
marketing campaign shall be addressed and the manner and context of such
marketing campaign. After so consulting with Seller, if Buyer so elects to
conduct one (1) or more such marketing campaigns, Seller shall continue to be
directly liable for all refunds, penalties, claims and expenses paid to Inactive
Associates except as provided in Subsection 1.10(b)(i) below.
(b) With respect to any refunds due and owing, or claimed to be due
and owing, to "Inactive Associates" as defined below, whether such refunds are
-------------------
due and owing or are claimed to be due and owing before or after the Closing
Date, subject to the provisions of subsection 3 below, Seller shall remain
liable for and shall pay all such refunds following the Closing Date except as
provided in subparagraphs (i) and (ii) below.
(i) if Buyer elects to conduct a marketing campaign or similar
solicitation directly to the Inactive Associates as provided in subsection (a)
above, then Buyer will be responsible for all refunds payable to such Inactive
Associates who request refunds within a ninety (90) day period following the
commencement of such marketing campaign by Buyer.
(ii) if Buyer elects to make any Material Changes (as defined
below) to the "Choicemall Website" (which shall mean Seller's Website with a URL
------------------
of "www.choicemall.com") as currently configured and such Material Changes have
not been approved by Seller in advance, which approval shall not be unreasonably
withheld, then Buyer shall be responsible for all refunds payable to such
Inactive Associates who have requested refunds arising after the Closing Date
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<PAGE>
resulting from such Material Changes. "Material Changes" shall be those changes
----------------
described on Schedule 1.10(b) attached hereto and made a part hereof. Seller
----------------
and Buyer agree that any changes and modifications other than the Material
Changes shall not be deemed Material Changes for purposes of this subsection
(ii) unless Buyer and Seller agree otherwise in writing. Seller shall remain
liable for and shall pay any and all refunds payable to Inactive Associates
resulting from such changes or modifications.
(iii) Buyer and Seller agree to use their respective good faith
efforts to minimize the amount of any claims or requests for refunds with
respect to Inactive Associates under this subsection (b).
(c) With respect to any refunds due and owing or claimed to be due
and owing to "Active Associates" as defined below, then:
-----------------
(i) Seller shall remain liable for any refund to any Active
Associate following the Closing Date if such Active Associate's claim for refund
relates directly and primarily to the actions or inactions of Seller, its
members, agents or representatives, including, without limitation, any seminar
speakers or the conduct of Seller's Business prior to the Closing Date.
(ii) Buyer shall be responsible for all other refunds to Active
Associates following the Closing Date for any reason other than as set forth in
subparagraph (i) of this subsection 1.10(c)(i) above.
(d) Notwithstanding any other provision of this Section 1.10 to the
contrary, for any refunds payable to Inactive Associates and/or Active
Associates for which Buyer is responsible under this Section 1.10, Seller shall
remain liable for and shall pay, and Buyer shall not be responsible for, that
amount of refunds to Active Associates and/or Inactive Associates collectively
not to exceed $25,000 in aggregate, and Buyer shall only be responsible for such
refunds to the extent that the total amount of such refunds exceeds $25,000.
(e) For purposes of this Agreement, (i) an "Inactive Associate" shall
------------------
mean each person, firm, corporation or other entity as of the Closing Date who
has entered into an agreement with Seller but who (1) has not published a
website on or linked to the Choicemall Website as of the Closing Date or (2) has
previously published a website on or linked to the Choicemall Website but who
has deactivated such website as of the Closing Date; and (ii) an "Active
------
Associate" shall mean each person, firm, corporation or other entity who has
- ---------
published a website on or linked to the Choicemall Website as of the Closing
Date (regardless of whether such Associate has entered into an agreement with
Seller as of the Closing Date).
(f) In the event either Seller or Buyer receives a request for refund
from an Active Associate and/or Inactive Associate following the Closing Date,
such party agrees to promptly notify in writing (the "Refund Notice") the other
-------------
party who would be responsible for the refund under the provisions of this
Section 1.10 for such refund (the "Responsible Party") and such Responsible
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<PAGE>
Party may at its option either to pay such refund or dispute such refund
request, in its sole discretion. Such Responsible Party agrees to indemnify and
hold the other party harmless from any and all liability, loss, expense relating
to such refund request in accordance with the provisions of Sections 8.2 or 8.3,
as the case may be, including without limitation, the payment of any refund
amount and any damages, penalties, interest or other amounts payable in
connection with such refund request. If Buyer and Seller dispute who is the
Responsible Party with respect to any claim or claims for refund from any Active
Associate or Inactive Associate, the parties hereto agree to submit such dispute
to arbitration in accordance with the provisions of Section 8.5 if such dispute
cannot be reached within thirty (30) days following delivery of the Refund
Notice.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller hereby represents and warrants to Buyer as follows:
2.1 Corporate Existence; Authority .
------------------------------
(a) Seller is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of California. Seller
has the full corporate power to carry on its business as now being conducted and
to own and operate the property and assets now owned and operated by it. Seller
is duly qualified to transact business and is in good standing in each
jurisdiction where such qualification is required by law or regulation, except
for those jurisdictions where the failure to qualify will not have a material
adverse effect on the use of the Transferred Assets.
(b) The execution and delivery of this Agreement by Seller has been
duly authorized by an authorized Member of Seller in accordance with the
operating agreement of Seller. As used herein, the "Authorized Member of
--------------------
Seller" shall mean the Member of Seller authorized to act on behalf of Seller in
the manner of a designated "manager" as defined in Section 17001(w) of the
Beverly-Killea Limited Liability Company Act. As used herein, a "Member" of
------
Seller shall mean the persons, firms, corporations or other entities who or
which are "members" of Seller. As used herein, "member" shall have the meaning
-------
set forth in Section 17001(w) of the aforesaid Limited Liability Company Act,
and "operating agreement" shall have the meaning set forth in Section 17001(ab)
-------------------
of such Act.
(c) Seller has the right, power, legal capacity and authority to
enter into, and perform its and their respective obligations under, this
Agreement and all other agreements executed in connection herewith and all other
exhibits hereto.
(d) All corporate action on the part of Seller and its Members
necessary for the authorization, execution, delivery and performance of this
Agreement by Seller and the performance of all of Seller's obligations hereunder
has been taken or will be taken prior to the Closing. This
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<PAGE>
Agreement and all other agreements executed in connection herewith, including
all exhibits hereto, when executed and delivered by Seller, shall constitute a
valid and binding obligation of Seller, enforceable in accordance with its
terms, and subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.
2.2 Title to Assets; Conflicting Interests; Effect of Agreement.
-----------------------------------------------------------
(a) Seller has good and marketable title to, or a valid leasehold
interest in, each and all of the Transferred Assets, free and clear of all
security interests, or any other lien (including any tax, workman's, mechanics',
carriers', or repairman's liens), encumbrance or restriction other than the
Assumed Liabilities or as set forth in Schedule 2.2.
------------
(b) Except as may be expressly set forth on Schedule 2.2, none of the
------------
Transferred Assets is held under any lease, security agreement, conditional
sales contract or other title retention or security arrangement, or is located
other than in the possession of Seller.
(c) Without limiting the generality of the foregoing, except as set
forth in Schedule 2.2, Seller is the exclusive owner or exclusive licensee of
------------
all Seller's Intellectual Property.
(d) Seller, and to the best of Seller's knowledge, no Member, officer
or director of Seller, has any direct or indirect interest in any competitor,
supplier or customer of Seller, or in any other person with whom Seller is doing
business or currently proposes to do business except in each case not more than
a 5% beneficial ownership interest in the outstanding stock of any such entity
the stock of which is publicly traded. To the best of the knowledge and belief
of Seller, no other employee nor any spouse, child or other relative of any such
other employee has any such direct or indirect interest.
(e) The execution and delivery of this Agreement by Seller does not,
and the consummation of the transactions contemplated hereby and compliance with
the provisions hereof will not, conflict with, result in a breach of, constitute
a default (with or without notice or lapse of time, or both) under or violation
of, or result in the creation of any lien, charge or encumbrance pursuant to any
provision of the charter documents or operating agreement of Seller, any law or
regulation of any governmental authority, foreign or domestic, or any provision
of any agreement, instrument, contract understanding, order, judgment or decree
to which Seller is a party or by which Seller or any of the Transferred Assets
is bound or affected, nor will it give to any other person or entity any
interests or rights of any kind, including rights of termination, acceleration,
or cancellation, in or with respect to any of the Transferred Assets except for
any breach, termination, acceleration or cancellation of rights, which would not
individually or in the aggregate, have a material adverse effect on the
Transferred Assets or the transactions contemplated hereunder.
2.3 Consents. Except as listed on Schedule 2.3, no consent of any person
-------- ------------
not a party to this Agreement and no consent of any governmental authority is
required to be obtained on the part
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<PAGE>
of Seller to permit the consummation of the transactions contemplated by this
Agreement, including without limitation the transfer to Buyer of all right,
title and interest in and to the Transferred Assets owned by Seller, free and
clear of any mortgages, liens, pledges, encumbrances, claims, conditions or
restrictions of any nature whatsoever, direct or indirect, whether accrued,
absolute, contingent or otherwise, except where the failure to obtain any such
consent would not have a material adverse effect on the Transferred Assets.
2.4 Financial Statements. Seller shall furnish to Buyer prior to the
--------------------
Closing Date, and which shall be attached hereto as Exhibit B, with respect to
---------
Seller's Business only, an unaudited balance sheet at February 28, 1999 (the
"February Balance Sheet") and audited financial statements of Seller for the
----------------------
year ending December 31, 1998 (collectively, "Seller's Financial Statements").
-----------------------------
Seller's Financial Statements at their respective dates are complete and correct
in all material respects, and fairly present the financial position and results
of operations of Seller's Business for the periods and at the dates reflected
therein. Seller's Financial Statements have been prepared in accordance with
generally accepted accounting principles, applied on a consistent basis.
2.5 Tangible Property.
-----------------
(a) The Schedules described in Section 1.1 to this Agreement are
complete and accurate schedules describing, and, at the Closing Seller will
provide the location of, all personal and tangible property included in the
Transferred Assets. The Transferred Assets, together with the leasehold
interests of Seller constitute, all the personal and tangible property necessary
for the use by Buyer of the Transferred Assets in the manner such Transferred
Assets are now used by Seller in Seller's Business.
(b) All tangible personal property included in the Transferred Assets
is in good operating condition and repair, ordinary wear and tear excepted. No
person, firm, corporation or other entity, including, without limitation, no
Member, consultant, or employee of Seller, nor any spouse, child or other
relative of any of these persons, owns, or has any interest, directly or
indirectly, in any of the personal property included in the Transferred Assets.
2.6 Intellectual Property.
---------------------
(a) For the purposes of this Agreement, the following terms have the
following definitions:
(i) "Intellectual Property" shall mean any or all of the
---------------------
following:
(A) works of authorship including, without limitation,
computer programs, source code, object code and executable code, whether
embodied in software, firmware or otherwise, documentation, designs, files,
records, data and mask works;
(B) inventions (whether or not patentable), improvements,
and technology;
-11-
<PAGE>
(C) proprietary and confidential information, trade secrets
and know how;
(D) databases, customer listings and data (including,
without limitation, all contact information relating to Seller's customers
and/or persons attending Seminars, email addresses and the like), data
compilations and collections and technical data;
(E) logos, trade names, trade dress, trademarks and service
marks;
(F) domain names, URLs, web addresses and sites;
(G) tools, methods and processes, including object
libraries;
(H) all programs, files and similar materials created,
commissioned or licensed in connection with all web sites owned by Seller,
including, without limitation all HTML files, Java files, graphics files,
animation files, data files, technology, scripts, programs and the like;
(I) the services of any and all persons, firms,
corporations or other entities rendered in connection with the creation of any
of the items described in this Section 2.6(a)(i) and the results and proceeds of
such services;
(J) audiovisual works of all kinds, including so-called
"infomercials" created by Seller or Seller's designee(s) for Seller's Business,
and any and all materials created, commissioned or licensed in connection
therewith;
(K) all materials relating to Seminars, including, without
limitation, any and all of the elements of Intellectual Property set forth in
Sections 2.6(a)(i)(A)-(J) relating to Seminars, advertising formats (including
so-called "ad mats"), books, brochures, promotional materials of all kinds,
lists of advertising contacts and/or outlets and rate cards relating thereto,
advertising copy, overlays, images, written materials and/or other documentation
relating thereto, or materials to be used in connection with printing any of the
foregoing elements of Intellectual Property relating to Seminars;
(L) Seller's rights to the name, voice, likeness and
biographical materials relating to any persons rendering services in connection
with Seller's audiovisual works and infomercials, including, without limitation,
Seller's rights under Seller's agreements with celebrity endorsers which permit
the use of the name, voice, likeness and biographical materials of each such
celebrity endorser;
(M) all instances of the foregoing in any form and embodied
in any media; and
-12-
<PAGE>
(N) the goodwill associated with any or all of the items
described in Sections 2.6(a)(i)(A)-(M), all licenses and sublicenses granted and
obtained with respect thereto and rights thereunder, remedies against
infringements thereof and rights to protection of interests therein under the
laws of all jurisdictions.
(ii) "Intellectual Property Rights" shall mean worldwide common
----------------------------
law and applicable statutory rights relating to Intellectual Property and
associated with:
(A) patents and patent applications;
(B) copyrights, copyrights registrations and copyrights
applications and "moral" rights (including the right to edit, remake, recompile
and otherwise alter same);
(C) the protection of trade and industrial secrets and
confidential information;
(D) other proprietary rights relating to intangible
intellectual property;
(E) trademarks, trade names and service marks together
with all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith;
(F) analogous rights to those set forth above; and
(G) divisions, continuations, renewals, reissuances,
extensions, and revised terms of the foregoing (as applicable).
(iii) "Seller's Intellectual Property" shall mean any
------------------------------
Intellectual Property and Intellectual Property Rights that are owned by or
licensed to Seller and used by Seller in connection with, or which are otherwise
embodied, in the Transferred Assets, including, without limitation, Seller's
Intellectual Property as listed on Schedule 1.1(a), the domain names listed on
---------------
Schedule 1.8, the Seller's Website, but not including any Intellectual Property
- ------------
or Intellectual Property Rights of any third party that has published on or
linked to Seller's Website. With respect to audiovisual works, Seller's
Intellectual Property shall include any and all services agreements with each
and every person rendering services in connection with such audiovisual works,
and the results and proceeds of such services, including, without limitation, in
respect of all performers, directors and writers, clearances of all kinds,
music, musical compositions, royalty-free licenses for the public performance,
synchronization, mechanical reproduction and all other exploitations of all such
musical compositions in any and all media (whether now or hereafter known,
devised or discovered), scripts (including story lines, characters, settings and
contexts), dialog, and product rights relating thereto, and any and all
reproductions of such audiovisual works and infomercials (including master
tapes, parts, and other materials from which such audiovisual works may be
produced in quantity).
-13-
<PAGE>
Seller's Intellectual Property shall not include the name "Guthy-Renker
Internet," or any variation thereof, the use of which shall be licensed by
Seller to Buyer as set forth in Section 1.9.
(iv) "Registered Intellectual Property Rights" shall mean
---------------------------------------
Intellectual Property Rights that have been registered, filed, certified or
otherwise perfected by recordation with any state, government or other public
legal authority.
(b) Schedule 2.6(b) lists all Registered Intellectual Property Rights
---------------
owned by, or filed in the name of, Seller (the "Seller's Registered Intellectual
--------------------------------
Property") and lists any proceedings or actions pending before any court,
- --------
tribunal (including the United States Patent and Trademark Office (the "PTO") or
---
equivalent authority anywhere in the world) related to any of the Seller's
Registered Intellectual Property.
(c) At Closing, each item of Seller's Intellectual Property,
including all Seller's Registered Intellectual Property, shall be free and clear
of any liens or other encumbrances imposed against Seller, or the Transferred
Assets, and with respect to Seller's Intellectual Property which Seller owns,
may be exploited by Buyer in any and all media, whether now or hereafter known,
devised or discovered without payment to any person, firm or corporation except
as set forth in the Assigned Contracts or subject to final approval of the PTO
or any equivalent authority to any of Seller's Registered Intellectual Property
which is pending before the PTO or such other equivalent authority.
(d) Except as set forth on Schedule 1.1(a), to the extent that any of
---------------
Seller's Intellectual Property owned by Seller has been developed or created
independently or jointly by or with any person other than Seller, Seller has a
written agreement with such person with respect thereto, and the Seller thereby
has obtained ownership of, and is the exclusive owner of, all such Seller's
Intellectual Property by operation of law or by valid assignment to the extent
legally permissible.
(e) Seller has not transferred ownership of or granted any exclusive
license of or exclusive right to use or authorized the retention of any
exclusive rights to use or joint ownership in any of Seller's Intellectual
Property, to any other person.
(f) Except as set forth in Schedule 2.6(f) Seller's Intellectual
Property described in the Schedules 1.1 constitute all the Intellectual
-------------
Property and Intellectual Property Rights which are currently used in and
necessary for the conduct of Seller's Business as currently conducted,
including, in each case, without limitation, with respect to the design,
development, manufacture, use, import and sale of the Transferred Assets.
Except as set forth on Schedule 2.6(f), Seller's transfer of Seller's
---------------
Intellectual Property to Buyer does not, and will not, conflict with, infringe
on or otherwise violate any rights of third parties.
(g) The contracts, licenses and agreements listed in Schedule 1.1(f)
---------------
include all contracts, licenses and agreements to which Seller is a party with
respect to any of Seller's
-14-
<PAGE>
Intellectual Property and Intellectual Property Rights relating to the
Transferred Assets, including, without limitation, "shrink-wrap" and similar
widely available commercial end-user licenses. Seller has all ownership rights
or exclusive license rights to all improvements to software used in connection
with Seller's Business or to the Transferred Assets.
(h) Except as set forth on Schedule 2.6(g), Seller has not agreed to,
---------------
or assumed, any obligation or duty to warrant, indemnify, reimburse, hold
harmless, guaranty or otherwise assume or incur any obligation or liability or
provide a right of rescission with respect to the infringement or
misappropriation by Seller or such other person of the Intellectual Property
Rights of any person other than Seller.
(i) The operation of the Transferred Assets as they are currently
used in connection with Seller's Business, including but not limited to the
design, development, use, reproduction, public performance, advertising, import,
manufacture and sale of any or all of the Transferred Assets, does not infringe
or misappropriate the Intellectual Property Rights of any person, violate the
rights of any person (including rights to privacy or publicity), or except as
set forth on Schedule 2.6(i), constitute unfair competition or trade practices
---------------
under the laws of any jurisdiction. Except as set forth on Schedule 2.6(i),
---------------
Seller has not received notice from any person claiming that any or all of the
Transferred Assets infringes or misappropriates the Intellectual Property Rights
of any person or that the use thereof constitutes unfair competition or trade
practices under the laws of any jurisdiction (nor is Seller aware of any
reasonable basis therefor).
(j) All necessary registration, maintenance and renewal fees in
connection with such Seller's Registered Intellectual Property have been paid
and all reasonably necessary documents and certificates in connection with such
Seller's Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining
Seller's Registered Intellectual Property. There are no actions that must be
taken by the Seller within sixty (60) days of the Closing Date, including the
payment of any registration, maintenance or renewal fees or the filing of any
documents, applications or certificates for the purposes of maintaining,
perfecting or preserving or renewing any of Seller's Registered Intellectual
Property except for any transfer fees payable in connection with the transfer to
Buyer of such Seller's Registered Intellectual Property. In each case in which
Seller has acquired ownership of any of Seller's Intellectual Property Rights
from any person, Seller has obtained a valid and enforceable assignment
sufficient to irrevocably transfer all rights in such Seller's Registered
Intellectual Property Rights to Seller and, Seller has recorded each such
assignment with the relevant governmental authorities, including the PTO, the
U.S. Copyright Office, or their respective equivalents in any relevant foreign
jurisdiction, as the case may be.
(k) There are no contracts, licenses or agreements between Seller and
any other person with respect to Seller's Intellectual Property under which
there is any dispute known to Seller regarding the scope of such agreement, or
performance under such agreement including with respect to any payments to be
made or received by Seller thereunder. Except as set forth on Schedule 2.6(k)
---------------
or on Schedule 2.14, there are no oral contracts, licenses or agreements between
-------------
Seller and any third
-15-
<PAGE>
party pending for any royalty payments to such third party. Seller has not
received any notice or other communication alleging, and Seller has no reason to
believe, (a) that Seller's Intellectual Property are not valid and in full force
and effect or that they are subject to any taxes, maintenance fees or actions
falling due within sixty (60) days after the Closing Date other than payments in
the normal and ordinary course of business consistent with Seller's past
practice; (b) that Seller's Business, or the use of the Transferred Assets in
Seller's Business, has infringed or is now infringing on any Intellectual
Property Rights or other right belonging to any person, firm, corporation or
other entity; (c) that Seller does not have the right and authority to use
Seller's Intellectual Property as are necessary to enable it to conduct and to
continue to conduct all phases of Seller's Business, or the use of the
Transferred Assets in Seller's Business, in the manner presently conducted by
it.
(l) To the knowledge of Seller, no person is infringing or
misappropriating any of Seller's Intellectual Property.
(m) None of Seller's Intellectual Property is subject to any
proceeding or outstanding decree, order, judgment or settlement agreement that
restricts in any manner the use, transfer or licensing thereof by Seller or may
affect the validity, use or enforceability of Seller's Intellectual Property.
(n) To Seller's knowledge, as of the date of this Agreement no (i)
product or service of Seller; or (ii) material published or distributed by
Seller, whether or not in connection with the Associate Pages linked to the
Choice Mall Website or in respect of which Seller has permitted such Associate
Pages to utilize a URL associated with the Choice Mall Website's URL;
constitutes obscene material or a defamatory statement or material which would
result in any liability of any kind with respect to the ownership or operation
of the Choicemall Website.
(o) Except as stated in Schedule 2.6(b), all of Seller's Intellectual
---------------
Property owned by Seller including, without limitation, all of Seller's
software, and the computers and related materials being transferred hereunder
will record, store, process, calculate and present calendar dates falling on and
after (and if applicable, spans of time including) January 1, 2000 in the same
manner, and with the same functionality, data integrity and performance, as the
products record, store, process, calculate and present calendar dates on or
before December 31, 1999 (collectively, "Year 2000 Compliance"); provided that
--------------------
Seller makes no representation or warranty concerning Year 2000 Compliance
hereunder with respect to (i) all third party databases, software and operating
systems licensed by Seller and used in connection with Seller's Intellectual
Property, or (ii) Buyer's databases, operating systems, hardware and other
Buyer's software or hardware interfacing, connecting or operating with Seller's
Intellectual Property provided pursuant to this Agreement.
(p) Schedule 1.1(a) to this Agreement sets forth a true and complete
---------------
list and summary descriptions of Seller's "Trade Secrets," defined in this
-------------
Agreement as that part of Seller's Intellectual Property consisting of
information, including a formula, pattern, compilation, program, device, method,
technique, or process, that: (1) derives independent economic value, actual or
potential, from not being generally known to the public or to other persons who
can obtain economic
-16-
<PAGE>
value from its disclosure or use; and (2) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy. The specific
location of each Trade Secret's documentation, including its complete
description, specifications, charts, procedures and other material relating to
it, is also set forth in Schedule 1.1(a). Seller has taken reasonable steps to
---------------
protect its rights in the confidential information and trade secrets of Seller
or provided by any other person to the Seller. Without limiting the foregoing,
Seller has a policy requiring each employee, consultant and contractor rendering
services in connection with the creation, design and development of Seller's
Intellectual Property to execute, if requested, proprietary information,
confidentiality and assignment agreements substantially in Seller's standard
forms, and, except as noted in Schedule 1.1(a), all current and former
---------------
employees, consultants and contractors of the Seller have executed such an
agreement in substantially Seller's standard form, a copy of which has been
provided to and approved by Buyer. Each Trade Secret's documentation is current,
accurate and sufficient in reasonable detail and content to identify and explain
it, and to allow its full and proper use by Buyer without reliance on the
special knowledge or memory of others.
2.7 Inventories. The inventories of Seller consists of work in progress
-----------
and finished goods (including, without limitation, Seminar materials,
audiovisual works and audiovisual works embodied in home video devices), if any,
that are included in the Transferred Assets are listed on the February Balance
Sheet with additions and deletions in the ordinary course of business since
February 28, 1999 (the "Inventories"). The Inventories consist of items that
-----------
are usable and salable and saleable in the ordinary course of Seller's Business
and no portion of the Inventories is obsolete, damaged or defective except to
the extent of applicable reserves reflected on Seller's unaudited balance sheet
as of February 28, 1999. All the Inventories are the property of Seller and
good and marketable title to the Inventories free and clear of any lien or
encumbrance will pass to Buyer upon the Closing. None of such Inventories is
subject to any security interest.
2.8 Intentionally deleted without implication.
2.9 Customer List. Seller has, and shall deliver to Buyer at the
-------------
Closing a materially correct list of the Active Associates and Inactive
Associates as of the Closing Date (the "Customer List"). In addition to the
-------------
Customer List, Seller shall deliver to Buyer at the Closing any and all other
information, materials, or lists in Seller's possession or control relating to
Seller's Business including, without limitation, persons who have attended
Seminars, or are currently enrolled in Seminars. The Customer List shall
include the respective names, addresses, telephone numbers, email addresses (if
available), and other available information. Such attachment shall be a true
and correct copy of the Customer List and all other information required
pursuant to the second sentence of this Section 2.9 embodied thereon as of the
Closing Date. Except as indicated on Schedule 2.9, Seller does not have any
------------
information, nor is Seller aware of any facts, indicating that any Active
Associate intends to cease doing business with Seller or materially alter the
amount of business that any Active Associate is doing with Seller (or with Buyer
subsequent to the consummation of this agreement), or, with respect to any other
customers of Seller, that any such customers shall cease doing business with
Seller or materially alter the amount of business that any such customers are
presently doing with Seller.
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<PAGE>
2.10 Litigation. Schedule 2.10, attached hereto and incorporated herein,
---------- -------------
contains a schedule and description of all litigation, proceedings or
controversies (including, without limitation, unsettled claims), if any, that
are pending, or to Seller's knowledge threatened or anticipated by or against
Seller with respect to the Transferred Assets and/or Seller's Business before
any court, government agency (including, without limitation, the Federal Trade
Commission, any state attorney general's office, the U.S. Copyright Office or
the PTO) or any other administrative body. Seller has furnished or made
available to Buyer copies if any, of all relevant court papers and other
documents in its possession, which relate to the matters listed on Schedule
--------
2.10. Seller is not in default with respect to any order, subpoena, writ,
- ----
injunction or decree of any federal, state, local or foreign court, department,
agency or instrumentality. Seller is not presently engaged in any legal action
to recover monies due Seller or damages sustained by Seller or any Member of
Seller.
2.11 Compliance with Laws. To the best of Seller's knowledge, Seller
--------------------
has complied with, and is not in violation of, all applicable federal, state and
local statutes, laws and regulations (including, without limitation, any and all
applicable building, zoning, environmental or other law, ordinance or
regulation) affecting the Transferred Assets and/or the operation of Seller's
Business.
2.12 Taxes. Seller has timely filed within the time period for filing
-----
or any extension granted with respect thereto all federal, state, local and
other returns, estimates and reports ("Returns") relating to any and all taxes
-------
of whatever kind or other governmental charges, obligations, fines,
deficiencies, assessments or fees including any secondary or transferee
liability for taxes and any related interest or penalties ("Tax" or "Taxes")
--- -----
that Seller is required to file with respect to the Transferred Assets. To
Seller's knowledge, Seller has paid all Taxes it is required to pay with respect
to the Transferred Assets. There are no pending or threatened audits,
examinations, assessments, asserted deficiencies or claims for additional Taxes
with respect to the Transferred Assets. There are (and as of immediately
following the Closing there will be) no liens or similar encumbrances relating
to or attributable to Taxes on the Transferred Assets.
2.13 Contracts. Schedule 1.3 contains an accurate and complete list of
--------- ------------
all Assigned Contracts. There is no default, or event that with notice or lapse
of time, or both, would constitute a default, by Seller or to Seller's knowledge
by any other party to any of the Assigned Contracts. Except for the Assigned
Contracts, Seller is not a party to, nor are the Transferred Assets bound by,
any other contract, license, agreement or understanding that would impose any
material adverse restriction on the use or future disposition of the Transferred
Assets by Buyer.
2.14 Employees of Seller's Business. Schedule 2.14, attached hereto and
------------------------------ -------------
incorporated herein, is a true and complete list of the names of all employees
of Seller who work in Seller's Business. Schedule 2.14 contains a schedule
-------------
showing the current cash and non-cash compensation (including any and all bonus,
401(k) participation and accrued vacation) of all such employees of Seller.
2.15 Insurance. Schedule 2.15, attached hereto and incorporated herein,
--------- -------------
contains a true and correct list of all insurance policies held by Seller with
respect to Seller's Business. Seller has
-18-
<PAGE>
provided to Buyer copies of all such insurance policies. Seller has in full
force and effect property and casualty insurance, and errors and omissions
insurance, in types and amounts normal and appropriate for the Seller's Business
of its type. Such insurance or comparable insurance will be maintained in full
force and effect to and including the Closing Date.
2.16 Intentionally deleted without implication.
2.17 No Material Changes.
-------------------
Since the later of December 31, 1998, or the date of the most recent
financial statements provided to Buyer prior to the Closing, with respect to
Seller's Business, including, without limitation, in connection with the
Transferred Assets, there has not been any:
(a) Transaction or accounting adjustment by Seller except in the
ordinary course of Seller's business;
(b) Material adverse change in the financial condition, liabilities,
assets, business or prospects of Seller's Business and/or, as applicable, of any
or all of Transferred Assets;
(c) Destruction, damage to or loss of any asset (whether or not
covered by insurance) that materially and adversely affects the condition of any
or all of Transferred Assets;
(d) Change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization policies or rates) by
Seller;
(e) Increase in the salary or other compensation payable or to become
payable by Seller to any of its officers, directors or employees (whether in
their respective capacities as such, as a consultant or otherwise) or the
declaration, payment or commitment or obligation of any kind for the payment, by
Seller, of a bonus or other additional salary or compensation to any such
person;
(f) Sale or transfer of any or all asset(s) of Seller, except in the
ordinary course of Seller's business;
(g) Except as set forth on Schedule 2.17, termination or material
-------------
amendment of any contract, license, agreement or understanding listed on
Schedule 1.3;
- ------------
(h) Mortgage, pledge or other encumbrance of any or all of the
Transferred Assets;
(i) Waiver or release of any right or claim of Seller relating to the
Transferred Assets, except in the ordinary course of Seller's business;
-19-
<PAGE>
(j) Other event or condition of any character that has or might have
a material and adverse effect on the physical or financial condition of any or
all of the Transferred Assets; or
(k) Agreement by Seller to do any of the things described in the
preceding clauses (a) through (k).
2.18 Representations Complete.
------------------------
(a) None of the representations and warranties made by Seller herein
or in any exhibit, schedule or certificate furnished by Seller, or on its
behalf, pursuant to this Agreement, contains or will contain any untrue
statement of a material fact, or omits to state any material fact required to be
stated therein or necessary in order to make the statements made, in the light
of the circumstances under which they were made, not misleading.
(b) Seller has no knowledge of any developments of any kind existing
as of the date of this Agreement and relating to the Transferred Assets which
would materially and adversely affect the business, operations, relationships
with customers or suppliers, properties, relating to or assets comprising the
Transferred Assets except as otherwise disclosed to Buyer by Seller in
connection with this Agreement or otherwise on or prior to the Closing Date,
which disclosures by Seller shall survive any integration provisions of this
Agreement.
2.19 Investment. Seller is capable of evaluating the merits and risks
----------
of the transfer set forth in this Agreement, and its investment in Buyer as a
result thereof, and has the capacity to protect its own interests in making its
investment in Buyer. Seller (i) understands that the Stock Consideration has
not been, and will not be, registered under the Securities Act, or under any
state securities laws, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering, (ii) is
acquiring the Stock Consideration solely for its own account for investment
purposes, and not with a view to the distribution thereof (except to the Members
of Seller), (iii) is a sophisticated investor with knowledge and experience in
business and financial matters, (iv) has received certain information concerning
the Buyer and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in holding the
Stock Consideration, (v) is able to bear the economic risk and lack of liquidity
inherent in holding the Stock Consideration, and (vi) is an Accredited Investor.
As used herein, "Securities Act" means the Securities Act of 1933, as amended,
--------------
and "Accredited Investor" has the meaning set forth in Regulation D promulgated
-------------------
under the Securities Act.
2.20 Tax Liability. Seller has reviewed with its own tax advisors the
-------------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement (including any tax consequences
resulting from the recently enacted tax legislation). Seller relies solely on
such advisors and not on any statements or representations of Buyer or any of
its agents. Seller understands that Seller (and not Buyer) shall be responsible
for Seller's own tax liability that may arise as a result of this investment or
the transactions contemplated by this Agreement.
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<PAGE>
2.21 Environmental Liabilities. Seller has no knowledge of any fact or
-------------------------
circumstance which is more likely than not to involve Seller in any
environmental litigation or impose upon Seller any environmental liability.
2.22 Restrictions on Business Activities. There is no agreement (whether
-----------------------------------
a noncompete agreement, nondisclosure agreement or otherwise), commitment,
judgment, injunction, order or decree to which Seller is a party or which is
otherwise binding upon Seller which has or may have the effect of prohibiting or
impairing any business practice of Seller (as presently conducted by Seller or
as currently contemplated by Seller to be conducted), which would have a
material adverse effect on the Transferred Assets. Without limiting the
foregoing, Seller has not entered into any agreement under which it is
restricted from selling, licensing or otherwise distributing any of Seller's
Intellectual Property, technology or products to or providing services to,
customers or potential customers or any class of customers, in any geographic
area, during any period of time or in any segment of the market.
2.23 Website Agreements. Seller has entered into agreements with
------------------
substantially all Active Associates and Inactive Associates setting forth
Seller's rights and remedies substantially in the form attached hereto as
Schedule 2.23.
- -------------
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to Seller as follows:
3.1 Incorporation; Authority.
------------------------
(a) Buyer is a corporation duly organized, validly existing and in
good standing under the laws of Delaware. The execution and delivery of this
Agreement by Buyer and the consummation of the transactions contemplated herein
have or will have been duly authorized prior to the Closing, and no further
corporate authorization is necessary on the part of Buyer.
(b) All corporate action on the part of Buyer and its directors
necessary for the authorization, execution, delivery and performance of this
Agreement by Buyer, the authorization, sale, issuance and delivery of the Stock
Consideration and the performance of all of Buyer's obligations hereunder has
been taken or will be taken prior to the Closing.
(c) Seller has the right, power, legal capacity and authority to
enter into, and perform its obligations under, this Agreement and all other
agreements executed in connection herewith and all other exhibits hereto.
(d) This Agreement and all other agreements executed in connection
herewith, including all exhibits hereto, when executed and delivered by Buyer,
shall constitute a valid and
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<PAGE>
binding obligation of Buyer, enforceable in accordance with its terms, and
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies.
(e) The shares of Buyer's Common Stock constituting the Stock
Consideration have been duly authorized and, when issued in compliance with the
provisions of this Agreement, will be validly issued, fully paid and
nonassessable, and will have the rights, preferences and privileges described in
the Amended and Restated Certificate of Incorporation of Buyer (the "Restated
--------
Certificate") attached hereto as Exhibit C and made a part hereof. Common Stock
- -----------
issuable in connection with the Stock Consideration will be free of any liens or
encumbrances, other than any liens or encumbrances created by or imposed upon
the holders thereof; provided, however, that the Common Stock issuable in
connection with the Stock Consideration may be subject to restrictions on
transfer under state and/or federal securities laws as set forth therein.
3.2 Capitalization. Immediately prior to the Closing, the authorized
--------------
capital of Buyer shall consist of:
(a) Preferred Stock. 29,870,465 shares of Preferred Stock, of which
---------------
(i) 7,925,300 are designated Series A Preferred Stock (the "Series A
--------
Preferred"), 5,235,076 of which are issued and outstanding, (ii) 9,551,832 are
- ---------
designated Series B Preferred Stock (the "Series B Preferred"), 9,551,832 of
------------------
which are issued and outstanding, (iii) 8,393,333 are designated Series C
Preferred Stock (the "Series C Preferred"), 8,005,060 of which are issued and
------------------
outstanding, and (iv) 4,000,000 are designated Series 1 Junior Preferred Stock
(the "Junior Preferred"), of which 4,000,000 are issued and outstanding.
----------------
(b) Common Stock. 70,129,535 shares of Common Stock, of which
------------
12,972,652 shares are issued and outstanding. Buyer has reserved 7,925,300
shares of Common Stock for issuance upon conversion of the Series A Preferred,
9,551,832 shares of Common Stock for issuance upon conversion of the Series B
Preferred, 8,005,060 shares of Common Stock for issuance upon conversion of the
Series C Preferred, 4,000,000 shares of Common Stock for issuance upon
conversion of the Junior Preferred, and that number of shares of Common Stock
for issuance to employees, consultants and advisors pursuant to the Buyer's 1998
Stock Option Plan, which may be approved by Buyer's Board of Directors from time
to time. Such number of shares of Common Stock so approved by Company's Board
of Directors as of the Closing shall be disclosed to Seller at the Closing.
3.3 Conflicting Interests. The execution and delivery of this Agreement
---------------------
by Buyer does not, and the consummation of the transactions contemplated hereby
and compliance with the provisions hereof will not, conflict with, result in a
breach of, constitute a default (with or without notice or lapse of time, or
both) under or violation of, or result in the creation of any lien, charge or
encumbrance pursuant to any provision of the charter documents, operating
agreement and the like of Buyer, any law or regulation of any governmental
authority, foreign or domestic, or any provision of any agreement, instrument,
understanding, order, judgment or decree to which Buyer is a party.
-22-
<PAGE>
3.4 Consents. Except as listed on Schedule 3.4, no consent of any
-------- ------------
person not a party to this Agreement and no consent of any governmental
authority is required to be obtained on the part of Buyer to permit the
consummation of the transactions contemplated by this Agreement.
3.5 Financial Statements. Buyer shall furnish to Seller prior to the
--------------------
Closing Date, and which shall be attached hereto as Exhibit D, audited financial
---------
statements for the year ended December 31, 1998 and an unaudited balance sheet
at February 28, 1999 (collectively "Buyer's Financial Statements"). Buyer's
----------------------------
Financial Statements at their respective dates are complete and correct, and
fairly present the financial position and results of operations of the Buyer's
Business for the periods and at the dates reflected therein. Buyer's Financial
Statements have been prepared in accordance with generally accepted accounting
principles, applied on a consistent basis.
3.6 Litigation. Schedule 3.6 attached hereto and incorporated herein,
---------- ------------
contains a schedule and description of all litigation, proceedings or
controversies (including, without limitation, unsettled claims), if any, that
are pending, or to Buyer's knowledge threatened or anticipated by or against
Buyer with respect to the Buyer's before any court, government agency or any
other administrative body. The matters, if any, listed on Schedule 3.6, if
------------
decided adversely to Buyer, will not result in any liability to Seller, and
Buyer shall indemnify, defend and hold Seller harmless in connection therewith,
including, without limitation, pursuant to the applicable provisions of Article
8 below. Buyer has furnished or made available to Seller copies if any, of all
relevant court papers and other documents in its possession, which relate to the
matters listed on Schedule 3.6. Buyer is not in default with respect to any
------------
order, writ, injunction or decree of any federal, state, local or foreign court,
department, agency or instrumentality. Buyer is not presently engaged in any
legal action to recover monies due Buyer or damages sustained by Buyer.
3.7 Compliance with Laws. Buyer has complied with, and is not in
--------------------
violation of, all applicable federal, state and local statutes, laws and
regulations (including, without limitation, any and all applicable building,
zoning, environmental or other law, ordinance or regulation) affecting its
properties or the operation of the Buyer's Business.
3.8 No Material Changes. Since the later of December 31, 1998 or the
-------------------
date of the most recent financial statements provided to Seller prior to the
Closing, with respect to the Buyer's Business, there has not been any:
(a) Transaction or accounting adjustment by Buyer except in the
ordinary course of Buyer's business;
(b) Material adverse changes in the financial condition, liabilities,
assets, business or prospects of the Buyer or Buyer's Business;
(c) Destruction, damage to or loss of any asset (whether or not
covered by insurance) that materially and adversely affects the financial
condition of Buyer or Buyer's Business;
-23-
<PAGE>
(d) Change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization policies or rates) by
Buyer;
(e) Revaluation by Buyer of any or all of its assets;
(f) Sale or transfer of any or all asset(s) of Buyer, except in the
ordinary course of Buyer's business;
(g) Other event or condition of any character that has or might have
a material and adverse effect on the physical or financial condition of Buyer or
Buyer's Business; or
(h) Agreement by Buyer to do any of the things described in the
preceding clauses (a) through (g).
3.9 Representations Complete.
------------------------
(a) None of the representations and warranties made by Buyer herein
or in any exhibit, schedule or certificate furnished by Buyer, or on its behalf,
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact, or omits to state any material fact required to be stated therein
or necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading.
(b) Buyer has no knowledge of any developments of any kind existing
as of the date of this Agreement which would materially and adversely affect the
business, operations, prospects, relationships with customers or suppliers,
properties, assets or financial condition of the Buyer's Business which
disclosure by Buyer shall survive any integration provisions of this Agreement.
3.10 Defaults. There is no default or event that with notice or lapse
--------
of time, or both, would constitute a default by Buyer or to Buyer's knowledge by
any other party to any material contract to which Buyer is a party.
ARTICLE 4
AGREEMENTS TO BE PERFORMED PRIOR TO THE CLOSING
-----------------------------------------------
From the date of execution of this Agreement until and including the
Closing Date:
4.1 Full Access. Buyer and its counsel, accountants, and other
-----------
representatives shall have full access during normal business hours to all
properties, books, accounts, records, contracts and documents of or relating to
the Transferred Assets. Seller shall furnish or cause to be furnished to Buyer
and its representatives all data and information concerning the business,
finances and properties of Seller's Business in Seller's possession that may
reasonably be requested.
-24-
<PAGE>
4.2 Conduct of Business. Seller, unless Buyer shall have otherwise
-------------------
consented in writing:
(a) will use its best efforts to (i) preserve and maintain the
business and assets (including, without limitation, the assets that shall
comprise the Transferred Assets) of Seller's Business in their present condition
subject to changes in normal and ordinary course, (ii) to keep available to
Seller those of its present officers and employees whose duties are related to
Seller's Business and the Transferred Assets; and (iii) to preserve Seller's
present relationships with suppliers, customers and other third parties to the
extent that such relationships relate to Seller's Business and/or the
Transferred Assets;
(b) will carry on the business and activities of Seller's Business
diligently and in substantially the same manner as they have been previously
carried on;
(c) will not enter into any transaction or incur any liability or
obligation (absolute or contingent) with respect to the Seller's Business except
transactions entered into, or liabilities or obligations incurred, in the
ordinary course of business;
(d) will not enter into, assume or become bound or obligated by any
contract, license, agreement or obligation that relates to Seller's Business
and/or the Transferred Assets or extend or modify the terms of any presently
existing contract, license, agreement or obligation relating to Seller's
Business and/or the Transferred Assets that (i) involves the payment of more
than $25,000 per year, (ii) extends any such agreement, license, contract or
obligation for more than one year, or (iii) increases the compensation of any
employee of Seller engaged in the Seller's Business;
(e) will not establish any new, or modify any existing, employee
benefit, compensation or stock agreement, plan or arrangement;
(f) will not cancel any debts or claims owed to Seller that pertain to
Seller's Business and/or the Transferred Assets, except in the ordinary course
of business;
(g) will not hire any employee or retain any consultant or terminate
any employee or any consulting agreement that relates to Seller's Business
and/or the Transferred Assets; and
(h) will not incur any capital expenditure with respect to Seller's
Business in excess of $5,000 in any instance without the express written
approval of Buyer.
4.3 Liabilities. Seller will not do, or agree to do, any of the
-----------
following acts: (i) pay an obligation or liability of Seller's Business, fixed
or contingent, other than current liabilities which, if paid, would have a
material adverse effect on the Transferred Assets; (ii) waive or compromise any
right or claim of or pertaining to Seller's Business; or (iii) cancel, without
full payment, any note, loan, or other obligation owing to Seller with respect
to Seller's Business.
-25-
<PAGE>
4.4 Advice of Developments. Seller shall have a continuing obligation
----------------------
to and including the Closing Date to advise Buyer of any and all matters or
occurrences relating to the value of the Transferred Assets or the operation of
the Seller's Business, including, without limitation, any increased costs or
scarcity of parts and materials or other items required for production, other
increased costs of production or production problems, any difficulties with
customers, generally or on specific projects, any sales or marketing problems or
decreases in selling prices or profitability for products and services of the
Seller's Business.
4.5 Further Purchase Offers.
-----------------------
(a) Seller covenants and agrees that neither Seller nor its members,
employees, agents and representatives will not, directly or indirectly for a
period of ninety (90) days from January 29, 1999:
(i) solicit, initiate or encourage the submission of
inquiries, proposals or offers from any corporation, partnership, person or
other entity or group relating to any acquisition, license or purchase of
material assets (other than in the ordinary course of business) of, or any
equity interest in, Seller or any liquidation, dissolution, merger,
consolidation or business combination, or similar transaction, involving Seller
(each, an "Acquisition Proposal");
--------------------
(ii) participate in any discussions or negotiations regarding
the foregoing;
(iii) authorize any officer or agent to do any of the
foregoing; or
(iv) otherwise cooperate in any way with, or assist,
facilitate, encourage, or participate in any effort or attempt by any other
person to do or seek any of the foregoing.
(b) Seller and the Members of Seller will immediately suspend any
pre-existing discussions involving any Acquisition Proposal. Seller will
immediately communicate to Buyer the terms of any inquiry, proposal, offer or
contact with respect to any Acquisition Proposal received after the date of this
Agreement by Seller.
(c) Seller (and its Members) will not disclose to any person other
than any Member or employee of Seller or representatives of or advisors to
Seller, without the prior written consent of Buyer, the fact that Seller has
executed this Agreement.
(d) The covenants and agreements of Seller under this Section 4.5
shall immediately terminate upon a termination of this Agreement.
4.6 Further Assurances. Seller and its respective successors and
------------------
assignees, at any time on or after the Closing Date, shall execute, acknowledge,
and deliver any further deeds, assignments, conveyances, and other assurances,
documents, changes of registration with respect to Seller's Registered
Intellectual Property and the applicable domain names of Seller, and instruments
of
-26-
<PAGE>
transfer, reasonably requested by Buyer, and will take any other action
consistent with the terms of this Agreement that may reasonably be requested by
Buyer for the purpose of assigning, transferring, granting, conveying, and
confirming or reducing to possession or quiet enjoyment of the Transferred
Assets or any rights assumed by or granted to Buyer hereunder.
4.7 Notices and Consents. Seller will give any notices to third parties
--------------------
and Seller will use its best efforts to obtain any third party consents required
to be obtained by Seller that Buyer may reasonably request in connection with
this Agreement. Seller will give any notices to and make any filings with and
use its best efforts to obtain any authorizations, consents and approvals of
government and governmental agencies required to be obtained by Seller hereunder
in connection with the transaction, contemplated by this Agreement.
4.8 Employment of Certain Personnel. Seller shall assist Buyer in
-------------------------------
Buyer's employing the following individuals: Boris Shimanovsky, Christy Hadzick
and such other employees as may be designated by Buyer no later than the
Closing.
4.9 Transition Services Agreement. At the Closing, Seller and Buyer
-----------------------------
shall enter into the Transition Services Agreement, in substantially the form
attached hereto as Exhibit E (the "Transition Agreement") pursuant to which
--------- --------------------
Seller shall (i) provide certain specified operational services and support for
current and planned products and services to be offered by the Seller's
Business, (ii) provide office space and physical plant relating to the
Transferred Assets, and (iii) assist Buyer in the transition of the Seller's
Business from operation and control by Seller to operation and control by Buyer.
4.10 Employee Stock Options. Buyer shall, as and when approved by
----------------------
Buyer's Board of Directors in connection with the grant thereof, reserve up to
266,000 options pursuant to Buyer's 1998 Stock Plan for issuance to certain
employees of Seller who shall become employees of Buyer as of the Closing Date.
Such stock options shall be granted pursuant to the form of stock option
agreement attached hereto as Exhibit F, and shall be subject to Buyer's
---------
customary vesting schedules applicable to Buyer's employees. It is currently
contemplated by Buyer and Seller that such employees shall be Boris Shimanovsky,
who shall be entitled to receive such options if he so becomes an employee of
Buyer, and Christy Hadzick, who shall be entitled to receive such options if she
so becomes an employee of Buyer.
4.11 401(k) Account Transfer. Following the Closing, Buyer shall use
-----------------------
its best efforts to cause its 401(k) plan to accept a direct rollover or
transfer from the GRC 401(k) Plan of the account balances (including participant
loans allocated to such accounts) with respect to those employees of the Seller
or GRC who terminate employment with GRC or Seller, as the case may be, and who
become employees of Buyer.
ARTICLE 5
-27-
<PAGE>
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
--------------------------------------------
The obligations of Buyer to consummate the transactions contemplated by
this Agreement are subject to the satisfaction, or waiver in writing by Buyer,
at or before the Closing, of each of the following conditions:
5.1 Representations True and Correct. All representations and
--------------------------------
warranties made by Seller in this Agreement and the exhibits hereto, or in any
written statement delivered by Seller under this Agreement, shall be true and
correct on the date hereof and on and as of the Closing Date as though made on
such date, subject to such immaterial additions, deletions and modification to
the Exhibits and Schedules to this Agreement between the date of this Agreement
and the Closing Date.
5.2 Covenants Performed. Seller shall have performed, satisfied and
-------------------
complied with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by Seller on or before the
Closing Date.
5.3 No Material Adverse Change. During the period from the date of the
--------------------------
February Balance Sheet to the Closing Date, there shall not have been any
material adverse change in the business, financial condition, results of
operations or prospects of Seller's Business, and Seller shall not have
sustained any material loss or damage to any or all of the Transferred Assets,
whether or not insured, that materially affects its ability to conduct Seller's
Business.
5.4 Opinion of Counsel. Buyer shall have received an opinion from
------------------
Venable, Baetjer, Howard & Civiletti, counsel for GRC, an opinion from Jacobson,
White, Diamond & Bordy, LLP, counsel for Shim and Sons Enterprises, Inc. and
Bouza, Klein & Goosenberg, LLP, counsel for Seller, all dated as of the Closing
Date, in form and substance reasonably satisfactory to Buyer and Buyer's counsel
which shall be attached hereto as Exhibit G-1, G-2 and G-3, respectively.
---------------- ---
5.5 Unanimous Agreement. This Agreement and transactions contemplated
-------------------
hereunder shall have been approved by the Members of Seller. Seller shall have
executed this Agreement and taken all other actions necessary to consummate the
transactions contemplated hereby.
5.6 Officers' Certificates. Buyer shall have received a certificate,
----------------------
dated the Closing Date, signed by an authorized Member certifying, in such
detail as Buyer and its counsel may reasonably request, that the conditions set
forth in this Article 5 have been fulfilled.
5.7 Absence of Litigation. No action, suit or proceeding before any
---------------------
court or any governmental body or authority, pertaining to the transactions
contemplated by this Agreement or their consummation, shall have been instituted
or threatened on or before the Closing Date.
5.8 Necessary Consents. All necessary agreements and consents of any
------------------
third parties to the consummation of the transactions contemplated by this
Agreement, including, but not limited to (i) any third party or governmental
consent set forth on Schedule 2.3; (ii) any consent to assignment
------------
-28-
<PAGE>
of any material contract described on Schedule 1.1(d), (iii) any consent
---------------
required by the terms of any license or other agreement relating to any or all
of the Transferred Assets, or (iv) any other consent deemed by Buyer as
reasonably necessary for Buyer to have all right, title and interest in the
Transferred Assets, or otherwise pertaining to the matters covered by this
Agreement, shall have been obtained by Seller and delivered to Buyer.
5.9 Approval of Documentation. The form and substance of all
-------------------------
certificates, instruments, opinions and all other documents delivered to Buyer
by Seller under this Agreement shall be satisfactory in all reasonable respects
to Buyer and its counsel.
5.10 Confidential Information Agreements. Each employee or consultant
-----------------------------------
of Seller, and each employee or consultant of Seller to be to be employed or
retained by Buyer subsequent to the Closing, shall have signed a Confidential
Information Agreement satisfactory in form and substance to Buyer which shall be
attached hereto as Exhibit H.
---------
5.11 GRC Tagging and Marketing Agreement. Seller shall have caused GRC
-----------------------------------
to execute and deliver to Buyer the "GRC Tagging Agreement" substantially in the
---------------------
form attached hereto as Exhibit I.
---------
5.12 Transition Services Agreement. GRC shall have executed and
-----------------------------
delivered to Buyer the Transition Agreement
5.13 Employee Agreements. Buyer shall have entered into employee
-------------------
agreements with each of Boris Shimanovsky and Christy Hadzick (each an "Employee
--------
Agreement" and collectively the "Employee Agreements") on terms mutually
- --------- -------------------
satisfactory to Buyer and to each respective employee which shall be attached
hereto as Exhibit J.
---------
5.14 Corporate Consents. Seller shall have delivered to Buyer copies,
------------------
certified by an authorized Member, of the resolutions of its Members approving
this transaction.
5.15 Noncompetition/No Solicitation Agreements. Buyer shall have
-----------------------------------------
entered into noncompetition and no solicitation agreements on terms reasonably
satisfactory to Buyer with each of GRC, GRI, Shim and Sons Enterprises, Inc.,
Boris Shimanovsky and Christy Hadzick (each a "Noncompetition Agreement" and
------------------------
collectively the "Noncompetition Agreements") which shall be attached hereto as
-------------------------
Exhibit K.
- ---------
5.16 Restricted Stock Purchase Agreements. Seller shall have executed
------------------------------------
the Restricted Stock Purchase Agreement between Seller and Buyer, and Seller
shall have caused each of Seller's Designees to have executed their respective
Restricted Stock Purchase Agreements with Buyer.
5.17 Insurance. Seller shall, or Seller shall cause GRC to, cause Buyer
---------
to be an additional named insured and loss payee in respect of any and all
insurance policies relating to the production of "infomercials" that are the
subject of the GRC Tagging Agreement, as shall be more fully set forth
-29-
<PAGE>
therein, and such other insurance policies relating to Seller's Intellectual
Property as may exist in connection with the Transferred Assets.
5.18 Transfer of Intellectual Property Licenses. Seller shall have
------------------------------------------
transferred to Buyer adequate licenses (including, without limitation, "shrink-
wrap" and similar widely available commercial end-user licenses), or other
rights to use, all of Seller's Intellectual Property.
5.19 UCC Filings. Seller shall have obtained a release from any
-----------
obligation which was heretofore evidenced by a filing in any jurisdiction by
means of a Form UCC-1, including, without limitation, those UCC filings listed
on Schedule 5.19.
--------------
5.20 Consultant Intellectual Property Agreements. Except as set forth
-------------------------------------------
on Schedule 1.1(a), Seller shall have provided to Buyer copies of fully-executed
---------------
agreements in a form satisfactory to Buyer and Buyer's counsel of Employee
Inventions and Confidential Information Agreements signed by each person, firm,
corporation or other entity which has engaged in preparing, modifying or
otherwise creating all or any portion of the Seller's Website, or if applicable,
assignments from each consultant rendering services in connection therewith.
5.21 Seller's Documents. Seller shall deliver to Buyer copies of
------------------
substantially all of its agreements with the Active Associates and Inactive
Associates.
5.22 Reimbursement for Accrued Vacation Time. Seller shall have reimbursed
---------------------------------------
Buyer for the aggregate dollar amount equal to all accrued but unpaid vacation
time as of the Closing Date for all employees of Seller and/or GRC who terminate
their employment with Seller and/or GRC as the case may be as of the Closing
Date and who are employed by Buyer as of the Closing Date to the extent that
such accrued vacation time is credited by Buyer to the account of any such
employee(s) and such employee(s) release Seller and/or GRC, as the case may be,
from any liability to such employee(s) for such accrued but unpaid vacation
time.
5.23 Allocation of Consideration. Seller shall have agreed with Buyer
---------------------------
to the Allocation as provided in Section 1.6.
5.24 Escrow Agreement. The Escrow Agreement (as defined in Section 8.4
----------------
below) shall have been duly executed and delivered by Seller and the Escrow
Agent.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER
-------------------------------------------------
The obligations of Seller to consummate the transactions contemplated by
this Agreement are subject to the satisfaction or waiver in writing by Seller,
at or before the Closing, of each of the following conditions:
-30-
<PAGE>
6.1 Representations True and Correct. All representations and
--------------------------------
warranties made by Buyer in this Agreement and the exhibits hereto, or in any
written statement delivered by Buyer under this Agreement, shall be true and
correct on the date hereof and on and as of the Closing Date as though made on
such date, subject to such immaterial additions, deletions and modifications to
the Exhibit and Schedules to this Agreement between the date of this Agreement
and the Closing Date.
6.2 Covenants Performed. Buyer shall have performed, satisfied and
-------------------
complied with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by Buyer on or before the
Closing Date.
6.3 Officers' Certificate. Seller shall have received a certificate,
---------------------
dated the Closing Date, signed by Buyer's president and its chief financial
officer (in such capacities) certifying, in such detail, as Seller and its
counsel may reasonably request, that the conditions set forth in this Article 6
have been fulfilled.
6.4 Approval of Documentation. The form and substance of all
-------------------------
certificates, instruments, and all other documents delivered to Seller by Buyer
under this Agreement shall be reasonably satisfactory to Seller and its counsel.
6.5 Corporate Consents. Buyer shall have delivered to Seller copies,
------------------
certified by its secretary, of the resolutions of its Board of Directors (and
the approval of its shareholders to the extent applicable) approving this
transaction.
6.6 No Material Adverse Change. During the period from December 31,
--------------------------
1998 to the Closing Date, there shall not have been any material adverse change
in the business, financial condition, results of operations or prospects of the
Buyer's Business of which Seller has not otherwise been notified or informed.
6.7 Absence of Litigation. No action, suit or proceeding before any
---------------------
court or any governmental body or authority, pertaining to the transactions
contemplated by this Agreement or their consummation, shall have been instituted
or threatened on or before the Closing Date.
6.8 Approval of Documentation. The form and substance of all
-------------------------
certificates, instruments and all other documents delivered to Seller by Buyer
under this Agreement shall be satisfactory in all reasonable respects to Seller
and its counsel.
6.9 GRC Tagging Agreement. Buyer shall have executed and delivered to
---------------------
Seller the GRC Tagging Agreement.
6.10 Transition Services Agreement. Buyer shall have executed and
-----------------------------
delivered to Seller the Transition Agreement.
6.11 Employee Agreements. Buyer shall have executed the Employee
-------------------
Agreements on terms mutually satisfactory to Buyer and to each respective
employee.
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<PAGE>
6.12 Restricted Stock Purchase Agreements. Buyer shall have executed the
------------------------------------
Restricted Stock Purchase Agreements with each of Seller and Seller's Designees.
6.13 Prepaid Expenses. Buyer shall have reimbursed Seller for the
----------------
amount of the Prepaid Expenses to be updated on Schedule 1.1(d) as of the
---------------
Closing Date provided that if no actual amount of the Prepaid Expenses as of the
Closing Date exceeds the amount of such Prepaid Expenses set forth in Schedule
--------
1.1(d) attached hereto by more than 5% then such excess shall have been approved
- ------
in writing by Buyer prior to Seller incurring such amounts.
6.14 Opinion of Counsel. Buyer shall have received an opinion from
------------------
Wilson, Sonsini, Goodrich & Rosati, counsel for Buyer, dated as of the Closing
Date, in form and substance reasonably satisfactory to Seller and Seller's
counsel which shall be attached hereto as Exhibit L.
---------
6.15 Necessary Consents. All necessary agreements and consents of any
------------------
third parties required to be obtained by Buyer for the consummation of the
transactions contemplated by this Agreement, including, but not limited to (i)
any consent required by the terms of any agreement between Buyer and its
stockholders, or (ii) any other consent deemed by Seller as reasonably necessary
for Seller to have all right, title and interest in the Stock Consideration, or
otherwise pertaining to the matters covered by this Agreement, shall have been
obtained by Buyer and delivered to Seller.
6.16 Allocation of Consideration. Buyer shall have agreed with Seller
---------------------------
to an allocation of the Purchase Price as provided in Section 1.6.
6.17 Escrow Agreement. The Escrow Agreement shall have been duly
----------------
executed and delivered by Buyer and the Escrow Agent.
ARTICLE 7
THE CLOSING
-----------
7.1 The Closing. Subject to satisfaction or waiver of the conditions
-----------
precedent to obligations of the parties hereto and the execution and delivery of
this Agreement and all other documents required by this Agreement, the sale of
the Transferred Assets (the "Closing") shall take place at the offices of Wilson
-------
Sonsini Goodrich & Rosati at 650 Page Mill Road, Palo Alto, California 94304,
at 10:00 a.m. local time, on May 15, 1999, or at such other time and place as
the parties may agree (the "Closing Date").
------------
7.2 Deliveries at the Closing. At the Closing, (i) Seller will deliver
-------------------------
the various certificates, instruments and documents referred to in Article 5;
(ii) Buyer will deliver the various certificates, instruments and documents
referred to in Article 6; (iii) Seller will execute, acknowledge
-32-
<PAGE>
and deliver to Buyer assignments and bills of sale and such other instruments of
sale, transfer, registration, conveyance and assignment as Buyer and its counsel
may reasonably request in form and substance reasonably satisfactory to Buyer;
(iv) Buyer shall execute, acknowledge and deliver to Seller an assumption
agreement relating to the Assumed Liabilities in form and substance reasonably
satisfactory to Seller and Seller's's counsel and (v) Buyer will deliver to
Seller and to Seller's Designees their respective certificates for the Stock
Consideration properly issued and executed in the number of shares of Buyer's
Common Stock set forth next to their respective names in Section 1.5.
ARTICLE 8
OBLIGATIONS OF PARTIES AFTER CLOSING
------------------------------------
8.1 Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
The representations, warranties and covenants of Seller contained in
this Agreement or in any certificate, document or instrument delivered pursuant
hereto, shall survive the Closing for a period of two (2) years following the
Closing Date.
8.2 Indemnification by Seller.
-------------------------
(a) Seller, and each Member of Seller severally in proportion to
their respective ownership interests in Seller which shall be deemed to be 80%
with respect to GRC and 20% with respect to Shim and Sons Enterprises, Inc.
(Seller and each Member of Seller are hereafter referred to collectively as
"Seller" for purposes of this Article 8) shall indemnify, defend and hold
-----
harmless Buyer, its Affiliates, officers, directors, shareholders, successors
and assigns (collectively, the "Buyer Indemnified Parties") against and in
-------------------------
respect of any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including interest,
penalties and attorneys' fees and costs, reasonably incurred (collectively
referred to as "Losses"), that the Buyer Indemnified Parties shall directly and
------
actually incur or suffer and which arise out of, or are caused or occasioned by:
(i) any or all of the Excluded Liabilities;
(ii) any third party copyright, trademark or patent infringement
action with respect to Seller's Intellectual Property which is owned by Seller;
(iii) any and all matters listed on Schedule 2.10 of this
-------------
Agreement;
(iv) the incorrectness, untruth, or breach of any warranty,
representation, covenant, undertaking or agreement made by the Seller in this
Agreement or the exhibits or schedules hereto;
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(v) any Refunds for which Seller is responsible pursuant to the
provisions of Section 1.10;
(vi) any liability with respect to the failure of Seller to
comply with bulk sales or bulk transfer or any similar law ("Bulk Sales Laws"),
if applicable, it being understood that Buyer has agreed to waive compliance
with such Bulk Sales Laws to the extent any such Bulk Sales Laws are applicable;
and
(vii) all actions and suits incident to any of the foregoing.
In no event shall "Losses" (with respect to either the indemnification
obligations of Buyer or Seller as set forth in this Article 8) include any
damages for lost profits, consequential damages, or punitive special or
exemplary damages.
(b) For any Losses claimed by the Buyer Indemnified Parties for any
matter set forth in Section 8.2(a) above other than the matters set forth in
Section 8.2(a)(iii), such Losses shall first be satisfied from the Escrow Fund
(defined in Section 8.4(a) below), and by the Seller to the extent such Losses
exceed the Escrow Fund from the first dollar of such loss. If Losses are
claimed by the Buyer Indemnified Parties for reasons set forth in clauses
8.2(a)(iii), including, without limitation, any claims by the Buyer Indemnified
Parties with respect to fraud on the part of Seller or any of them, Seller shall
satisfy and shall be responsible for such Losses from the first dollar of such
Losses if the Buyer Indemnified Parties so demand, without need of the Buyer
Indemnified Parties attempting to first satisfy such Losses from the Escrow
Fund.
(c) Notwithstanding any provision of this Section 8.2 to the
contrary, the liability of Seller and each Member of Seller with respect to
Losses of the Buyer Indemnified Parties shall not exceed in the aggregate the
valuation of the Stock Consideration. For purposes of this Subsection 8.2(c),
the Stock Consideration shall be valued based on the price therefor set forth in
Section 1.4.
(d) Buyer and Seller agree that the provisions of Section 8.2 and 8.3
shall be the exclusive remedy for any and all Losses incurred by Seller or Buyer
with respect to the matters set forth in Section 8.2 or 8.3, as the case may be.
8.3 Indemnification by Buyer. Buyer agrees to indemnify, defend, and
------------------------
hold harmless Seller and each Member of Seller (collectively, the "Seller
------
Indemnified Parties") against and in respect of any and all Losses that the
- -------------------
Seller Indemnified Parties shall directly and actually incur or suffer on which
arise out of or are caused and occasioned by:
(a) any or all of the Assumed Liabilities;
(b) any Refunds for which Buyer is responsible pursuant to the
provisions of Section 1.10; or
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<PAGE>
(c) the use or operation by Buyer of the Transferred Assets or the
conduct by Buyer or its employees, agents or representatives in connection with
the use of the Transferred Assets; provided, however, that nothing in this
subsection (iii) shall relieve Seller of its indemnification obligations under
Section 8.2.
8.4 Escrow Arrangements.
-------------------
(a) Escrow Fund. As soon as practicable following the Closing Date,
-----------
a number of shares of Buyer's Common Stock equal to ten percent (10%) of one
hundred percent (100%) of the Stock Consideration (the "Escrow Shares"),
-------------
without any act of Seller, will be deposited with the Escrow Agent to constitute
an escrow fund (the "Escrow Fund") to be governed by the terms set forth herein
-----------
and shall be held and disbursed at Buyer's sole cost and expense pursuant to
this Agreement and the Escrow Agreement to be signed among the parties (the
"Escrow Agreement"), substantially in the form attached hereto as Exhibit M.
---------------- ---------
Without limiting the scope of Seller"s indemnity obligations hereunder, the
Escrow Fund shall be available to compensate the Buyer Indemnified Parties for
any Losses, to the extent of the amount of such Losses that the Buyer
Indemnified Parties have incurred or reasonably anticipate incurring, the
amounts of which Losses do not exceed the then-remaining value of the Escrow
Fund. All Escrow Shares shall be subject to the terms of the applicable
Restricted Stock Purchase Agreement.
(b) Survival Period; Distribution upon Termination of Escrow Periods.
----------------------------------------------------------------
Subject to the following requirements, the Escrow Fund shall remain in existence
for a period of twelve (12) months following the Closing Date (the "Survival
--------
Period"), provided that the Survival Period shall not terminate with respect to
- ------
such amount (or some portion thereof) if in the reasonable judgement of Buyer,
subject to the objection of Seller's Agent and the subsequent resolution of the
matter in the manner provided in Section 8.4(g) and Section 8.4(h) hereof, such
amount (or some portion thereof) together with the aggregate amount remaining in
the Escrow Fund is necessary to satisfy any unsatisfied claims specified in any
Officer's Certificate(s) delivered to the Escrow Agent prior to the expiration
of the Survival Period with respect to facts and circumstances existing prior to
the termination of the Survival Period. As soon as all such claims have been
resolved, the Escrow Agent shall deliver to Seller the remaining portion of the
Escrow Fund not required to satisfy such claims.
(c) Protection of Escrow Fund. The Escrow Agent shall hold and
-------------------------
safeguard the Escrow Fund during the Survival Period, shall treat such fund as a
trust fund in accordance with the terms of this Agreement and not as the
property of the Buyer Indemnified Parties and shall hold and dispose of the
Escrow Fund only in accordance with the terms hereof.
(d) Claims Upon Escrow Fund. Upon receipt by the Escrow Agent at any
-----------------------
time on or before the last day of the Survival Period of a certificate signed by
any officer of Buyer on behalf of the Buyer Indemnified Parties (an "Officer's
---------
Certificate"): (A) stating that the Buyer Indemnified Parties have paid or
- -----------
incurred a Loss, and (B) specifying in reasonable detail the individual items of
Losses included in the amount so stated, the date each such item was paid or
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<PAGE>
incurred, or the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty or claim to which such item is related,
the Escrow Agent shall, subject to such rights as Seller's Agent may have to
object thereto pursuant to the provisions of Section 8.4(f), deliver to the
Buyer Indemnified Parties out of the Escrow Fund, as promptly as practicable,
such amounts held in the Escrow Fund equal to such Losses. For purposes of the
cure period set forth in Section 11.7, such period shall be ten (10) business
days in lieu of thirty (30) days for default by the Escrow Agent in making
delivery to the Buyer Indemnified Parties out of the Escrow Fund such otherwise
payable amounts relating to Losses as required hereunder, and for default by
Seller in respect of payments required to be made directly by Seller as provided
in Article 8.
(e) Value of Escrow Shares. The Escrow Shares delivered to Buyer out
----------------------
of the Escrow Fund, if any, shall be valued at their fair market value,
determined as follows, and the valuation of the shares in the Escrow Fund shall
be provided in writing to the Escrow Agent by Buyer with a copy to Seller: (i)
if shares of the Company's common stock are listed on a national securities
exchange, the fair market value shall be deemed to be the average closing price
of shares of the Company's common stock for the five (5) business days
immediately preceding the day the Escrow Shares are to be delivered to Buyer,
and (ii) if shares of the Company's common stock are not so listed, then the
fair market value shall be deemed to be the price per share of the Company's
common stock as reasonably determined by the Company's Board of Directors based
on the value of all shares of the Company's common stock then outstanding.
(f) Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to Seller's Agent (as designated by Seller in or pursuant to Section
8.7) and for a period of thirty (30) days after such delivery, the Escrow Agent
shall make no delivery to the Buyer Indemnified Parties of any Escrow Shares
pursuant to Section 8.4(d) hereof unless the Escrow Agent shall have received
written authorization from Seller's Agent to make such delivery (except as
otherwise provided in Section 8.6 with respect to certain third party claims).
After the expiration of such thirty (30) day period, the Escrow Agent shall make
delivery of an amount from the Escrow Fund in accordance with Section 8.4(d)
hereof, except that with respect to any claims other than certain regulatory
claims as defined and set forth in Section 8.14, no such payment or delivery may
be made if Seller's Agent shall object in a written statement to the claim made
in the Officer's Certificate, and such statement shall have been delivered to
the Escrow Agent prior to the expiration of such thirty (30) day period.
(g) Resolution of Conflicts.
-----------------------
(i) In case Seller's Agent shall so object in writing to any
claim or claims made in any Officer's Certificate, Seller's Agent and the Buyer
Indemnified Parties shall attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If Seller's Agent and
the Buyer Indemnified Parties should so agree, a memorandum setting forth such
agreement shall be prepared and signed by Seller and the Buyer Indemnified
Parties that shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and distribute amounts from the Escrow
Fund in accordance with the terms thereof.
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<PAGE>
(ii) If no such agreement can be reached after good faith
negotiation for a period of fifteen (15) days, either the Buyer Indemnified
Parties or Seller's Agent may demand arbitration of the matter unless the amount
of the damage or loss is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration; and in either such event the matter shall
be settled by binding arbitration in accordance with Section 8.5.
8.5 Arbitration.
-----------
(a) In the event that any dispute between Buyer and Seller arising
out of or related to this Article 8 is not settled by Buyer and Seller within
the aforesaid fifteen (15) day negotiation period, such dispute shall be finally
settled by binding arbitration in San Francisco, California under the Commercial
Arbitration Rules of the American Arbitration Association (the "Rules") by three
-----
arbitrators appointed in accordance with said Rules. Judgment on the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
(b) The arbitrators shall apply the laws of the State of California
to the merits of the particular dispute, without reference to rules of conflict
of law. The arbitration proceedings shall be governed by the Rules, without
reference to California state arbitration law.
(c) Each of Buyer or Seller may apply to any court of competent
jurisdiction for a temporary restraining order, preliminary injunction, or other
interim or conservatory relief, as necessary, without breach of this arbitration
provision and without any abridgment of the powers of the arbitrators. The
arbitrators may, in their discretion, award to the prevailing party, if any, as
determined by the arbitrators, all of its costs and fees, including, without
limitation, administrative fees, arbitrator's fees, attorneys' fees, experts'
fees, witnesses' fees, travel expenses, and out-of-pocket expenses (including,
without limitation, such expenses as copying, telephone, facsimile, postage, and
courier fees); otherwise, the costs of the arbitration, including administrative
and arbitrator's fees, shall be shared equally by the parties to the particular
arbitration, and each party shall bear the cost of its own attorneys' fees and
expert witness fees. The parties agree that, any provision of applicable law
notwithstanding, they will not request, and the arbitrators shall have no
authority to award, punitive, special, consequential or exemplary damages
against any party.
(d) The decision of the arbitrator(s) as to the validity and amount
of any claim arising under this Article 8 shall be binding and conclusive upon
Buyer and Seller, and notwithstanding anything in Section 8.4(f), the Escrow
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance therewith. Such decision
shall be written and shall be supported by written findings of fact and
conclusions which shall set forth the award, judgment, decree or order awarded
by the arbitrator(s).
8.6 Third-Party Claims.
------------------
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<PAGE>
(a) If the Buyer Indemnified Parties become aware of a third-party
claim which the Buyer Indemnified Parties believe may result in a demand against
the Escrow Fund or against the Seller directly, or if the Seller Indemnified
Parties become aware of a third party claim which the Seller Indemnified Parties
believe may result in a claim against Buyer directly, the Buyer Indemnified
Parties or the Seller Indemnified Parties, as the case may be, (hereafter the
"Indemnified Party") shall notify the other party who is required to provide
-----------------
indemnification under this Article 8 (the "Indemnitor") of such claim, and the
----------
Indemnitor shall assume the defense or prosecution of such claim; provided,
however, that any failure so to notify the Indemnitor shall not relieve the
Indemnitor of any obligation to indemnify the Indemnified Party unless the
failure to so notify Indemnitor is determined to have materially prejudiced the
Indemnitor's defense of the applicable third party claim.
(b) If the facts giving rise to any indemnification provided for in
this Agreement involve any actual and/or threatened claim and/or demand by any
person, firm, corporation or other entity, the Indemnified Party shall tender to
the Indemnitor the defense or prosecution of such claim and any litigation
resulting therefrom. The Indemnitor shall be entitled to assume the defense of
such claim; provided, however, that if by reason of the claim a lien,
attachment, garnishment or execution has been placed on all or any portion of
the property or assets of an Indemnified Party, the Indemnitor shall furnish a
satisfactory indemnity bond to obtain the release of such lien, attachment,
garnishment or execution. The Indemnitor shall then take all steps reasonably
necessary in the defense, prosecution or settlement of such claim or litigation
and will hold the Indemnified Party harmless from and against all Losses caused
by and/or arising out of any settlement thereof approved by the Indemnified
Party or any judgment in connection therewith. If the defense or prosecution of
a third party claim is assumed by the Indemnitor, the Indemnified Party shall be
entitled to participate in such settlement or defense through counsel chosen by
the Indemnified Party (but not to finally control such settlement or defense for
so long as Indemnitor is not in breach of Indemnitor's obligations hereunder).
(c) The Indemnitor shall have the right to settle any such third
party claim with the consent of the Indemnified Party, which consent shall not
be unreasonably withheld, and with respect to the indemnification obligations of
Seller, the good faith settlement of any such claim with third-party claimants
shall alone be dispositive of the amount of any claim for Losses against the
Escrow Fund. If the Indemnitor is Seller and Seller so settles such a third
party claim, the Escrow Agent shall make delivery of an amount from the Escrow
Fund in accordance with Section 8.4(d) hereof to the extent of the amount of any
Losses incurred by the Buyer Indemnified Parties, or the Seller shall promptly
pay such amount to the Buyer Indemnified Parties if the then-remaining balance
of the Escrow Fund shall be insufficient to make such payment (unless the basis
of such claim is one in respect of which the Buyer Indemnified Parties are not
obligated to first satisfy such claim against the Escrow Fund, and the Buyer
Indemnified Parties elect to cause the Indemnitor to satisfy such claim
directly).
(d) If the Indemnitor does not assume the defense of any such claim
or legal proceeding resulting therefrom within thirty (30) days after the date
of receipt of notice thereof
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<PAGE>
from the Indemnified Party (or, if earlier, by the tenth day preceding the day
on which an answer or other pleading must be served in order to prevent judgment
by default in favor of the person, firm, corporation or other entity asserting
such claim), (A) the Indemnified Party may defend against such claim or legal
proceeding, in such manner as it may deem appropriate, in cluding, but not
limited to, settling such claim or legal proceeding, after giving notice of the
same to the Indemnitor, on such terms as the Indemnified Party may deem
appropriate, and (B) the Indemnitor shall be entitled to participate in (but not
control) the defense of such action, with its counsel and at its own expense and
shall indemnify the Indemnified Parties in respect of Losses arising out of such
third party claim otherwise in accordance with the provisions hereof.
8.7 Seller's Agent; Power of Attorney.
---------------------------------
(a) Seller hereby appoints Ben Van de Bunt as the Seller's Agent
(and, for purposes of the Escrow Agreement, Seller and the Members of Seller
hereby appoint Ben Van de Bunt as the "Shareholders' Representative" as defined
----------------------------
in the Escrow Agreement), to serve as agent and attorney-in-fact for the Seller
to give and receive notices and communications, to authorize delivery to Buyer
of Escrow Shares from the Escrow Fund in satisfaction of claims by the Buyer
Indemnified Parties, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of Seller for the
accomplishment of the foregoing. Such agency may be changed by the Seller from
time to time upon not less than thirty (30) days prior written notice to the
Buyer Indemnified Parties. Seller's Agent may resign upon not less than thirty
(30) days prior written notice to the Buyer Indemnified Parties, the Escrow
Agent and Seller. Any vacancy in the position of the Seller's Agent may be
filled by the Seller. No bond shall be required of the Agent, and the Seller's
Agent shall not receive compensation for his or her services. Notices or
communications to or from the Seller's Agent shall constitute notice to or from
Seller.
(b) Seller's Agent shall not be liable for any act done or omitted
hereunder as Seller's Agent while acting in good faith and the exercise of
reasonable judgment. Seller shall indemnify Seller's Agent and hold Seller's
Agent harmless against any loss, liability or expense incurred without
negligence or bad faith on the part of Seller's Agent and arising out of or in
connection with the acceptance or administration of Seller's Agent's duties
hereunder, including the reasonable fees and expenses of any legal counsel
retained by Seller's Agent.
(c) Actions of the Seller's Agent. A decision, act, consent or
-----------------------------
instruction of Seller's Agent shall constitute a decision of the Seller and
shall be final, binding and conclusive upon Seller and the Escrow Agent, and the
Buyer Indemnified Parties may rely upon any such decision, act, consent or
instruction of Seller's Agent as being the decision, act, consent or instruction
of Seller. The Escrow Agent, and the Buyer Indemnified Parties are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of Seller's Agent.
8.8 Escrow Agent's Duties.
---------------------
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<PAGE>
(a) The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive after
the date of this Agreement which are signed by an officer of the Buyer
Indemnified Parties and Seller (including, without limitation, the Escrow
Agreement), and may rely and shall be protected in relying or refraining from
acting on any instrument reasonably believed to be genuine and to have been
signed or presented by the proper party or parties. The Escrow Agent shall not
be liable for any act done or omitted hereunder as Escrow Agent while acting in
good faith and in the exercise of reasonable judgment, and any act done or
omitted pursuant to the advice of counsel shall be conclusive evidence of such
good faith.
(b) The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by Seller, the Buyer Indemnified Parties, any of parties
hereto or by any other person, excepting only orders or process of courts of
law, and is hereby expressly authorized to comply with and obey orders,
judgments or decrees of any court. In case the Escrow Agent obeys or complies
with any such order, judgment or decree of any court, the Escrow Agent shall not
be liable to any of the parties hereto or to any other person by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
(c) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with the Escrow Agent.
(d) The Escrow Agent may resign at any time upon giving at least
thirty (30) days written notice to the Buyer Indemnified Parties and Seller;
provided, however, that no such resignation shall become effective until the
appointment of a successor escrow agent which shall be accomplished as follows:
the Buyer Indemnified Parties and Seller shall use their best efforts to
mutually agree upon a successor agent within thirty (30) days after receiving
such notice. If the parties fail to agree upon a successor escrow agent within
such time, the Buyer Indemnified Parties shall have the right to appoint a
successor escrow agent authorized to do business in California. The successor
escrow agent selected in the preceding manner shall execute and deliver an
instrument accepting such appointment and it shall thereupon be deemed the
Escrow Agent hereunder and it shall without further acts be vested with all the
estates, properties, rights, powers, and duties of the predecessor Escrow Agent
as if originally named as Escrow Agent. Thereafter, the predecessor Escrow
Agent shall be discharged for any further duties and liabilities under this
Agreement.
(e) If the indemnification provided for in this Section 8 is held by
a court of competent jurisdiction to be unavailable to one (1) or more of the
Indemnified Parties with respect to all or part of any Loss, then the
Indemnitor, in lieu of indemnifying the Indemnified Parties hereunder, shall
contribute to the amount paid or payable by one (1) or more of the Indemnified
Parties as a result of such Loss in such proportion as is appropriate to reflect
the relative fault of the Indemnitor on the one hand and of the Indemnified
Parties on the other in connection with the
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<PAGE>
statements or omissions that resulted in such Loss, as well as any other
relevant equitable considerations. The relative fault of the Indemnitor and of
the Indemnified Parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnitor or by the Indemnified Parties and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
8.9 Payment of Tax Claims. Notwithstanding any other provision of this
---------------------
Agreement, but not in limitation of and in addition to the procedures for
indemnification hereunder, upon the receipt by a Buyer Indemnified Party of
evidence of an actual or asserted tax liability (including, without limitation,
in respect of Taxes) for which Seller is liable and which attaches to the
Transferred Assets by operation of law or otherwise and for which the Buyer
Indemnified Parties then are or would otherwise be liable as a successor-in-
interest, Seller's Agent shall be deemed to have consented to such payment, and
the Escrow Agent shall make delivery of an amount from the Escrow Fund to the
extent of the amount of such tax liability, or Seller shall promptly pay such
amount to the Buyer Indemnified Parties if the then-remaining balance of the
Escrow Fund shall be insufficient to make such payment. Accordingly, the
dispute resolution provisions of Section 8.4(g) or Section 8.5 shall not apply
to tax liabilities described in this Section 8.9. If Seller objects or disputes
the payment or satisfaction of any such tax liability, the Seller's sole
recourse shall be to file a claim for refund or such other appropriate claim
with the governmental body to which the payment was made. The Buyer Indemnified
Parties shall provide the Seller with prompt notice of the payment of any such
tax liability made under this Section 8.9.
8.10 Further Assurances. At the request of Buyer, and without further
------------------
consideration, Seller agrees to execute after the Closing Date such documents
and instruments and to do such further acts as may be necessary or desirable to
perfect Buyer's title to the Transferred Assets.
8.11 Tax Returns. To the extent that failure to do so would adversely
-----------
affect the Transferred Assets, Seller shall (i) continue to timely file within
the time period for filing, or any applicable extension granted with respect
thereto, all Federal, state, local and other Returns relating to any and all
Taxes it is required to file with respect to the conduct of Seller's Business or
the use of the Transferred Assets prior to the Closing Date and (ii) be
responsible for and pay when due any and all Taxes (A) relating or pertaining to
the period (or that portion of any period) ending on or prior to the Closing
Date, attributable to, levied or imposed upon, or incurred in connection with
the Transferred Assets and (B) incurred in connection with the operations of
Seller.
8.12 Post-Closing Date Access to Information. If after the Closing, in
---------------------------------------
order properly to prepare documents or reports required to be filed with
governmental authorities or its financial statements, it is necessary that Buyer
be furnished with additional information relating to the Transferred Assets and
such information is in possession of Seller, Seller will furnish, or cause to be
furnished, such information to Buyer. Seller agrees to maintain and retain any
and all information regarding the Seller's Business, the Transferred Assets and
operations on or prior to the Closing
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<PAGE>
necessary for Buyer to calculate the availability to it of any tax credits under
the Internal Revenue Code.
8.13 Collection of Seller's Business Accounts Receivable. Immediately
---------------------------------------------------
following the Closing, Seller shall notify in writing the account debtors on the
accounts receivable transferred to Buyer as part of the Transferred Assets to
remit all payments on such accounts to Buyer. If, after the Closing, Seller
shall receive any payments with respect to such accounts receivable it shall
remit such payments to Buyer within forty-eight hours by check or wire transfer.
8.14 Regulatory Claims. Notwithstanding anything to the contrary in
-----------------
this Agreement, and as a material inducement for Buyer to enter into this
Agreement, GRC agrees to indemnify, defend and hold harmless the Buyer
Indemnified Parties from and against any and all monetary damages of any kind or
description, including, without limitation, jury awards, settlements, attorneys'
fees and costs (which shall be promptly paid by GRC as and when billed or
otherwise incurred by Buyer) arising out of, connected to, caused by or
otherwise relating to activities, investigations, inquiries, claims, demands,
actions or objections of any kind by either the Federal Trade Commission, the
Attorney General of the State of Illinois, or both of them, or any pending
consumer claims occurring prior to the Closing Date that have been filed or
referred to any state agency prior to the Closing Date in connection with
(individually a "Regulatory Claim" and collectively the "Regulatory Claims").
---------------- -----------------
If a Regulatory Claim arises during the Survival Period, the Seller hereby
agrees that Buyer may, at Buyer's election, either (a) require GRC to directly
indemnify Buyer without the need of Buyer to first satisfy such Regulatory Claim
from the Escrow Fund or (b) satisfy in whole or in part any Regulatory Claims
that Buyer may have under this Section 8.14 by making a claim against the Escrow
Fund as a Buyer Indemnified Party in the manner set forth in Section 8.4
hereinabove; provided, however, that if Buyer makes such claim against the
Escrow Fund, Seller's Agent shall not have the right to object to such claim (as
set forth in Section 8.4(f)) if the Officer's Certificate submitted in
connection therewith is accompanied by correspondence or legal documents sent to
or served upon Buyer in connection with the Regulatory Claims. (In either
event, Buyer shall first comply with the notice provisions of Section 8.6(a)
with respect to any Regulatory Claim.) In such event, Seller's Agent shall be
deemed to have consented to the delivery by the Escrow Agent to Buyer of, at
Buyer's election, the applicable number of Escrow Shares from the Escrow Fund
equal to the Buyer's costs in connection with the claim so submitted. GRC's
obligation to indemnify Buyer in respect of Regulatory Claims shall continue
without limitation beyond the Survival Period.
ARTICLE 9
TERMINATION
-----------
9.1 Termination.
-----------
This Agreement may be terminated:
(a) By mutual agreement by Buyer and Seller; or
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<PAGE>
(b) By Buyer if the conditions precedent to Buyer's obligation to
close set forth in Section 5 hereof are not satisfied on or prior to May 15,
1999.
(c) By Seller if the conditions precedent to Seller's obligation to
close set forth in Section 6 hereof are not satisfied on or prior to May 15,
1999.
9.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Sections 9.1(a) and (b) above, this Agreement shall
(except for the provisions of this Article 9, Article 10, forthwith become void
and there shall be no liability on the part of Buyer, Seller or the Affiliates,
Members, shareholders, officers, directors, attorneys or agents of either Buyer
or Seller; provided, however, that the foregoing shall not relieve any party for
Losses incurred as a result of any breach of this Agreement.
9.3 Marketing and Advertising Agreement. In the event of termination
-----------------------------------
of this Agreement as provided in Sections 9.1(a), (b) or (c) above, Buyer and
GRC shall promptly enter into an negotiations in good faith in respect of a
marketing and advertising agreement between Buyer and GRC pursuant to which
Buyer shall have the right to sell, market, and otherwise deal in the products
of GRC.
ARTICLE 10
CONFIDENTIALITY
---------------
10.1 Confidentiality. All information not previously disclosed to the
---------------
public or generally known to persons engaged in the respective businesses of
Buyer and Seller which shall have been furnished by Buyer to Seller or by Seller
to Buyer as provided in this Agreement or otherwise in connection with the
transactions contemplated hereby, shall not be disclosed by the party receiving
such information to any person, other than its employees, legal counsel,
financial advisers, accountants or agents in confidence, or used for any purpose
other than is contemplated herein. In the event that the transactions
contemplated by this Agreement shall not be consummated, all such information
which shall be in writing shall be returned to the party furnishing the same,
including, to the extent reasonably practicable, all copies or reproductions
thereof which may have been prepared.
10.2 Public Announcements. Except as required by applicable law, no
--------------------
party hereto shall disclose, or permit their respective officers,
representatives, agents or employees to disclose the existence or terms of this
Agreement to any third party without the prior written consent of both Buyer and
Seller, which consent shall not be unreasonably withheld. The parties hereto
will mutually agree in advance on the form, timing and contents of announcements
and disclosures regarding the transactions contemplated by this Agreement.
ARTICLE 11
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<PAGE>
GENERAL PROVISIONS
------------------
11.1 Broker or Finder. Seller shall pay the fees of any brokers or
----------------
finders alleged to be payable because of any act, omission or statement of
Seller or its Affiliates. Buyer shall pay the fees of any broker or finders
alleged to be payable because of any act, omission or statement of Buyer or its
Affiliates.
11.2 Payment of Costs. Buyer shall pay all costs and expenses incurred
----------------
or to be incurred by Buyer in negotiating and preparing this Agreement and in
closing and carrying out the transactions referred to in this Agreement. Seller
shall pay all such costs and expenses paid or incurred by Seller in carrying
out the transactions referred to in this Agreement.
11.3 Entire Agreement; Waivers.
-------------------------
(a) This Agreement and the exhibits and schedules hereto constitute
the entire agreement between the parties pertaining to the subject matter hereof
and the contemporaneous agreements, and understandings of the parties. No
supplement, modification, or amendment of this Agreement shall be binding unless
executed in writing by all the parties. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver. No waiver shall be binding unless executed in writing by the party
making the waiver.
(b) Each of the exhibits, schedules and other documents attached to
this Agreement is incorporated herein by reference as if set forth in full
herein.
11.4 Successors and Assigns. This Agreement shall be binding on, and
----------------------
shall inure to the benefit of, the parties to it and their respective permitted
successors, and assigns.
11.5 Effect of Headings. The subject headings of the paragraphs and
------------------
subparagraphs of this Agreement are included for purposes of convenience only,
and shall not affect the construction of any of its provisions.
11.6 Notices.
-------
(a) Method of Giving Notices. A notice required or permitted to be
------------------------
given by one party to another under this Agreement must be in writing and is
treated as being duly given if it is: (i) sent by air courier to that other
party's address; (ii) delivered personally or by commercial delivery service to
that other party's address; (iii) mailed by registered or certified mail (return
receipt requested) to that other party's address; or (iv) sent by facsimile to
the other party (with printed acknowledgment of completed transmission).
(b) Time of Receipt. A notice given to a party in accordance with
---------------
clause 11.6(a) is treated as having been duly given and received: (i) when
delivered (if left at that party's address or
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<PAGE>
delivered personally or by commercial delivery service to that other party's
address); (ii) seven business days after delivery to the courier (if sent by air
courier); or (iii) on the business day of receipt of the transmission (if given
by facsimile and sent to the facsimile receiver number of that party with
printed acknowledgment of completed transmission).
To Seller
To Seller: GUTHY-RENKER INTERNET LLC
3340 Ocean Park
Santa Monica, California 90405
Attention: Ben Van de Bunt, Esq.
To GRC: GUTHY-RENKER CORP.
3340 Ocean Park
Santa Monica, California 90405
Attention: Ben Van de Bunt, Esq.
With copies to VENABLE, BAETJER, HOWARD & CIVILETTI,
of each notice to LLP
either Seller or: 1201 New York Avenue, N.W., Suite 1000
Washington, D.C. 20005
Attention: Robert J. Bolger, Jr., Esq.
To Shim and Sons SHIM AND SONS ENTERPRISES, INC.
Enterprises, Inc. at: 3340 Ocean Park
3rd Floor
Santa Monica, California 90405
Attention: Boris Shimanovsky
With copies to: JACOBSON, WHITE, DIAMOND & BORDY LLP
9777 Wilshire Blvd, Suite 918
Beverly Hills, California 90212
Attention: Lawrence H. Jacobson, Esq.
To Escrow Agent at: US BANK TRUST
1 California Street, 4th Floor
San Francisco, California 94111
Attention: Barbara Wise
To Buyer at: LOOKSMART, LTD
487 Bryant Street
San Francisco, CA 94107
Attention: Teresa Maldonado
With copies to: WILSON SONSINI GOODRICH & ROSATI
-45-
<PAGE>
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Henry V. Barry, Esq.
Any party may change its address for purposes of this paragraph by giving notice
of the new address to each of the other parties in the manner set forth above.
11.7 Notice of Default. In the event of a breach of this Agreement or
-----------------
the representations and warranties set forth herein, either prior to or after
the Closing Date, the party seeking to declare a breach or default shall give
written notice to the breaching/defaulting party and said breaching/ defaulting
party shall thereafter have thirty (30) days as to non-monetary defaults to cure
same. The failure of the breaching/defaulting party to cure the alleged default
prior to the expiration of this cure period shall be a condition to the
nonbreaching party's taking any further actions, by way of set-off or otherwise,
hereunder.
11.8 Governing Law. The terms of this Agreement shall be governed by
-------------
the internal, substantive laws of the State of California without regard to
conflict of laws provisions.
11.9 Parties in Interest. Nothing in this Agreement, express or
-------------------
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective and
permitted successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
party to this Agreement, nor shall any provision give any third persons any
right of subrogation or action against any party to this Agreement.
11.10 Severability. Should any provision of this Agreement be determined
------------
to be invalid, it shall be severed from this Agreement and the remaining
provisions shall remain in full force and effect.
11.11 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
11.12 Attorneys' Fees. Should it become necessary for any party to this
---------------
Agreement to employ an attorney (i) to assert any right or enforce any
obligation under this Agreement or (ii) to defend against any action brought by
another party which action arises out of this Agreement, then the prevailing
party shall be entitled to recover reasonable attorneys fees from the non-
prevailing party.
11.13 Assignment. Seller shall not assign this Agreement without first
----------
obtaining the written consent of Buyer. Buyer may not assign its rights
hereunder without the consent of Seller prior to the Closing Date buy may assign
its rights hereunder following the Closing Date but such assignment shall not
relieve Buyer of any of its obligations hereunder except that Buyer shall be
-46-
<PAGE>
relieved of its obligations hereunder if such assignment occurs by operation of
law or is to a party of comparable valuation or market capitalization to that of
Buyer.
11.14 No Third Party Beneficiary. Nothing in this Agreement, express or
--------------------------
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
11.15 Authority of Members. Each Member of Seller represents and
--------------------
warrants to Buyer that each Member of Seller has the right power, legal capacity
and authority to enter into, and perform its and their respective obligations
under, this Agreement and all other agreements executed in connection herewith
and all other exhibits hereto. Each Member of Seller is executing this
Agreement solely for the limited purposes set forth in this Section 11.15 and
Article 8 hereof.
11.16 Disclosure on Schedules. Any item disclosed in a Schedule
-----------------------
attached hereto in response to one section or subsection of this Agreement shall
be deemed disclosed in response to any other section or subsection in which it
is required to be disclosed provided that such disclosure for one section or
subsection would be sufficient for the purpose of disclosure for such other
section or subsection.
[Signature pages follow]
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<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on
the day and year first above written.
LOOKSMART, LTD.
By:__________________________________________
Title: President and Chief Executive Officer
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on
the day and year first above written.
GUTHY-RENKER INTERNET LLC
By: ______________________
Title:______________________
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on
the day and year first above written.
GUTHY-RENKER CORPORATION
By: ___________________________
Title:___________________________
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on
the day and year first above written.
SHIM AND SONS ENTERPRISES, INC.
By: ____________________________
Title:____________________________
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on
the day and year first above written.
US BANK TRUST
By: ____________________________
Title:____________________________
<PAGE>
EXHIBIT 10.6
AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - THE MERGER........................................................................................... 2
1.1 The Merger..................................................................................... 2
1.2 Effective Time................................................................................. 2
1.3 Effect of the Merger........................................................................... 3
ARTICLE II - CONVERSION OF SHARES................................................................................ 3
2.1 Shares to Be Issued; Effect on Company Stock................................................... 3
2.2 Rights to Acquire Company Stock, Etc........................................................... 4
2.3 Surrender of Certificates...................................................................... 4
2.4 No Further Ownership Rights in Company Stock................................................... 6
2.5 No Further Obligations to Finder............................................................... 6
2.6 Lost, Stolen or Destroyed Certificates......................................................... 6
2.7 Tax Consequences............................................................................... 6
2.8 Taking of Necessary Action; Further Action..................................................... 6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................... 6
3.1 Organization of the Company.................................................................... 7
3.2 No Subsidiaries................................................................................ 7
3.3 Incorporation of Company....................................................................... 7
3.4 Company Capital Structure...................................................................... 7
3.5 Authority...................................................................................... 8
3.6 No Conflict.................................................................................... 8
3.7 Consents....................................................................................... 8
3.8 Company Financial Statements................................................................... 9
3.9 No Undisclosed Liabilities..................................................................... 9
3.10 No Changes..................................................................................... 9
3.11 Tax Matters.................................................................................... 11
3.12 Restrictions on Business Activities............................................................ 13
3.13 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment................................................................................... 13
3.14 Intellectual Property.......................................................................... 14
3.15 Agreements, Contracts and Commitments.......................................................... 17
3.16 Interested Party Transactions.................................................................. 19
3.17 Governmental Authorization..................................................................... 19
3.18 Litigation..................................................................................... 19
3.19 Accounts Receivable; Inventory................................................................. 19
3.20 Minute Books................................................................................... 20
3.21 Environmental Matters.......................................................................... 20
3.22 Brokers'and Finders'Fees; Third Party Expenses................................................. 21
3.23 Employee Benefit Plans and Compensation........................................................ 21
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.24 Insurance...................................................................................... 24
3.25 Compliance with Laws........................................................................... 24
3.26 Warranties; Indemnities........................................................................ 24
3.27 Complete Copies of Materials................................................................... 25
3.28 Statements in Shareholder Solicitations........................................................ 25
3.29 Representations Complete....................................................................... 25
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............................................. 25
4.1 Organization, Standing and Power............................................................... 25
4.2 Authority...................................................................................... 26
4.3 Subsidiaries................................................................................... 26
4.4 Capitalization................................................................................. 26
4.5 Compliance with Other Instruments.............................................................. 27
4.6 Intellectual Property.......................................................................... 27
4.7 Consents....................................................................................... 27
4.8 Litigation, etc................................................................................ 28
4.9 Employees...................................................................................... 28
4.10 Employee and Consultant Agreements............................................................. 28
4.11 Registration Rights and Voting Rights.......................................................... 28
4.12 Brokers or Finders............................................................................. 28
4.13 Financial Statements........................................................................... 28
4.14 Employee Benefit Plans......................................................................... 29
4.15 Tax Returns, Payments and Elections............................................................ 29
4.16 Representations Complete....................................................................... 29
ARTICLE V - CONDUCT PRIOR TO THE EFFECTIVE TIME.................................................................. 29
5.1 Conduct of Business of the Company............................................................. 29
5.2 No Solicitation................................................................................ 32
ARTICLE VI - ADDITIONAL AGREEMENTS............................................................................... 33
6.1 Company Shareholder and Parent and Merger Sub Stockholder Approvals............................ 33
6.2 Access to Information.......................................................................... 33
6.3 Confidentiality................................................................................ 33
6.4 Expenses....................................................................................... 34
6.5 Public Disclosure.............................................................................. 34
6.6 Consents....................................................................................... 34
6.7 FIRPTA Compliance.............................................................................. 34
6.8 Reasonable Efforts............................................................................. 34
6.9 Notification of Certain Matters................................................................ 35
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.10 Tax Treatment.................................................................................. 35
6.11 Foreign Corporation Application................................................................ 35
6.12 Additional Documents and Further Assurances.................................................... 35
ARTICLE VII - CONDITIONS TO THE MERGER........................................................................... 35
7.1 Conditions to Obligations of Each Party to Effect the Merger................................... 35
7.2 Additional Conditions to Obligations of the Company............................................ 36
7.3 Additional Conditions to the Obligations of Parent and Merger Sub.............................. 38
ARTICLE VIII - SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION....................................... 39
8.1 Survival of Representations, Warranties and Covenants.......................................... 39
8.2 Indemnification by Company and Company Shareholders............................................ 39
8.3 Escrow Fund.................................................................................... 40
ARTICLE IX - TERMINATION, AMENDMENT AND WAIVER................................................................... 43
9.1 Termination.................................................................................... 43
9.2 Extension of Effective Time Upon Material Breach............................................... 44
9.3 Effect of Termination.......................................................................... 44
9.4 Amendment...................................................................................... 44
9.5 Extension; Waiver.............................................................................. 44
ARTICLE X - GENERAL PROVISIONS................................................................................... 44
10.1 Notices........................................................................................ 44
</TABLE>
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<PAGE>
Exhibit 10.6
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
---------
entered into as of October 12 1998 (the "Execution Date") among LookSmart, Ltd.,
--------------
a Delaware corporation ("Parent"), LS Sub, Inc., a Delaware corporation and a
------
wholly-owned subsidiary of Parent ("Merger Sub"), BeSeen.com, Inc., a Texas
----------
corporation (the "Company"), and as to Article VIII, Drew Duncan, Josh Elmore,
-------
Thomas and Mary Duncan, Allen Lee, GCWF Investment Partners, Rainmaker Capital,
LLC, Paul Hurdlow, and U.S. Bank Trust, as Escrow Agent.
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each such company and their respective
shareholders that Parent and Company become affiliated through the merger of
Company with and into Merger Sub (the "Merger") and, in furtherance thereof,
------
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
stock of the Company (the "Company Stock") and all outstanding options, warrants
-------------
or other rights to acquire or receive shares of Company Stock shall be converted
into the right to receive (i) the cash consideration set forth herein, and (ii)
the shares of Series 1 Junior Preferred Stock of LookSmart Ltd., $.001 par value
(the "Junior Preferred Stock"), such shares of Junior Preferred Stock having the
----------------------
rights, privileges and preferences set forth in the Restated Certificate of
Incorporation of Parent (the "Restated Certificate") in substantially the form
--------------------
attached hereto as Exhibit A.
---------
C. Pursuant to that certain letter agreement (the "Finder Agreement")
----------------
between the Company and Rainmaker Capital LLC, a California limited liability
company ("Finder") and at Company's instruction, Finder will receive four
------
percent (4%) of the Merger Consideration (as defined herein) in full payment of
its services performed thereunder.
D. A portion of the Junior Preferred Stock otherwise payable by Parent in
connection with the Merger shall be placed in escrow by Parent for the purposes
of satisfying damages, losses, expenses, and other similar charges which result
from breaches of representations, warranties and covenants.
E. It is the intention of the parties to this Agreement that the Merger
for federal income tax purposes shall qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
----
F. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as *****. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
<PAGE>
G. Concurrent with the Merger, Josh Elmore and Drew Duncan (together, the
"Principal Shareholders") will enter into employment relationships with Parent,
----------------------
the terms of which are set forth in certain letters and agreements
(collectively, the "Employment Letters") as of the date hereof, in substantially
------------------
the form attached hereto as Exhibit B to be executed on or before Closing (as
---------
defined herein).
H. Concurrent with Merger, the Parent will grant to the Principal
Shareholders, the other shareholders of the Company (together with the Principal
Shareholders, the "Company Shareholders") and the Finder certain information and
--------------------
registration rights similar to rights granted to current holders of the Parent's
Series A Preferred Stock, $.001 par value and Series B Preferred Stock, $.001
par value (together, the "Senior Preferred Stock") pursuant to an Amended and
----------------------
Restated Investors Rights Agreement (the "Investor Rights Agreement") in
-------------------------
substantially the form attached hereto as Exhibit C.
---------
I. Concurrent with Merger, the Parent and each Company Shareholder shall
enter into a Series 1 Voting Agreement in substantially the form attached hereto
as Exhibit G (the "Series 1 Voting Agreement").
---------
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
----------
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law")
------------
and Texas Business Corporation Act ("Texas Law"), Company shall be merged with
---------
and into Merger Sub, the separate corporate existence of and corporate
organization of Company shall cease, and the Merger Sub shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The Merger Sub
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "Surviving Corporation." The Merger shall be consummated pursuant to
---------------------
the terms of this Agreement, which has been approved and adopted by the
respective Boards of Directors of the Company, Merger Sub and Parent, and by the
Company Shareholders and by Parent, as the sole shareholder of Merger Sub.
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
to Section 9.1, the closing of the Merger (the "Closing") will take place as
-------
promptly as practicable, but no later than five (5) business days following
satisfaction or waiver of the conditions set forth in Article VII, and in any
case no later than thirty (30) business days following the Execution Date,
unless such time is extended pursuant to Section 9.2, at the offices of Wilson
Sonsini Goodrich & Rosati ("WSGR"), 650 Page Mill Road, Palo Alto, California,
----
unless another place or time is agreed to by Parent and the Company. The date
upon which the Closing actually occurs is herein referred to as the "Closing
-------
-2-
<PAGE>
Date." On the Closing Date, the proper officers of Merger Sub and Company shall
- ----
execute and acknowledge appropriate certificates of merger that shall be filed
with the Secretary of State of Delaware, in the case of Merger Sub, and the
Secretary of State of Texas, in the case of Company, on the first business day
following the Closing Date, all in accordance with applicable law. The Merger
shall become effective immediately upon completion of such filings (the
"Effective Time").
--------------
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
--------------------
shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the Company
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of the Company shall become the debts, liabilities and duties of the Surviving
Corporation, including any and all outstanding state tax liabilities of the
Company in the State of Texas.
(a) Certificate of Incorporation; Bylaws.
------------------------------------
(i) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Certificate of Incorporation of Merger Sub
shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Certificate of Incorporation.
(ii) Unless otherwise determined by Parent, the Bylaws of the
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended.
(b) Directors and Officers. The directors and officers of Merger Sub
----------------------
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each to hold office in accordance with
the Bylaws of the Surviving Corporation.
ARTICLE II
CONVERSION OF SHARES
2.1 Shares to Be Issued; Effect on Company Stock. The number of shares of
--------------------------------------------
Junior Preferred Stock to be issued in exchange for the acquisition by Parent of
all outstanding Company Stock and all unexpired and unexercised options,
warrants or other rights to acquire Company Stock shall be [**]. Subject to
the terms and conditions of this Agreement, as of the Effective Time, by virtue
of the Merger and without any action on the part of Parent, Merger Sub, the
Company, Finder or the Company Shareholders, the following shall occur:
(a) Conversion of Company Stock. (i) Each share of Company Stock
---------------------------
(including any shares of Company Stock issued upon exercise, conversion or
exchange of all other outstanding securities immediately prior to the Closing
pursuant to Section 2.2) issued and outstanding immediately prior to the
Effective Time (other than any shares of Company Stock to be canceled pursuant
to Section 2.1(b)) (the "Convertible Shares") will be canceled and extinguished
------------------
and
-3-
<PAGE>
converted into the right to receive, subject to the provisions of Section
2.1(a)(iii), (A) a per share cash payment without interest determined by
dividing [**] (minus $30,000 due to Finder for services rendered to Company,
together with any amount in excess of $40,000 due and to become due to Gray Cary
Ware & Friedenrich LLP for services rendered and to be rendered to the Company,
and related expenses, in connection with the transactions contemplated hereby)
(the "Cash Consideration") by the number of Convertible Shares, and (B) that
------------------
number of shares of Junior Preferred Stock equal to [**] (minus 40,000
shares of Junior Preferred Stock due to Finder for services rendered to Company)
divided by the number of Convertible Shares (the "Equity Consideration," and
--------------------
together with the Cash Consideration the "Merger Consideration"). No fractional
--------------------
shares of Junior Preferred Stock shall be issued.
(ii) The portion of the Merger Consideration for each
Convertible Share shall be paid upon surrender of the certificate representing
such share in the manner provided in Section 2.3.
(iii) Ten percent (10%) of the Equity Consideration (together
with all dividends and other distributions thereon) (the "Escrow Fund") shall be
-----------
placed in escrow for the purposes of satisfying damages, losses, expenses, and
other similar charges which result from breaches of representations and
warranties, and shall be held and disbursed pursuant to this Agreement and the
Escrow Agreement to be signed between the parties (the "Escrow Agreement"),
----------------
substantially in the form attached hereto as Exhibit D.
---------
(iv) All Convertible Shares shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
certificate previously representing any such Convertible Shares shall thereafter
represent the right to receive upon surrender of such certificate the portion of
the Merger Consideration into which such Convertible Share was converted in the
Merger without interest.
(b) Cancellation of Company-Owned Stock. Each share of the Company
-----------------------------------
Stock owned by the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(c) Payment to Finder. The Company hereby directs Parent to pay
-----------------
Finder the following amounts due to Finder for services rendered to Company
under the Finder Agreement: (i) $30,000 in cash and (ii) 40,000 shares of Junior
Preferred Stock, which shall be treated as Equity Consideration for purposes of
this Agreement and the Escrow Agreement.
2.2 Rights to Acquire Company Stock, Etc. At the Effective Time, all
------------------------------------
outstanding options, warrants, convertible notes or any other securities
convertible into, exchangeable for or rights to acquire Company Stock shall have
been converted, exchanged or exercised pursuant to their provisions or canceled.
2.3 Surrender of Certificates.
-------------------------
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<PAGE>
(a) Exchange Agent. WSGR shall serve as the exchange agent (the
--------------
"Exchange Agent") in the Merger.
--------------
(b) Parent to Provide Junior Preferred Stock and Cash Consideration.
---------------------------------------------------------------
Immediately prior to the Effective Time, Parent shall make available to the
Exchange Agent for exchange: (i) certificates representing the aggregate number
of shares of Junior Preferred Stock issuable pursuant to Section 2.1; and (ii)
cash in the aggregate amount of the Cash Consideration.
(c) Exchange Procedures. At the Closing, the Company Shareholders
-------------------
shall deliver to the Exchange Agent stock certificates (the "Certificates")
------------
representing all of the outstanding Convertible Shares and each Principal
Shareholder shall execute and deliver to the Exchange Agent Section 83(b)
elections ("Section 83(b) Elections") with respect to the Junior Preferred Stock
to be received in the Merger. Upon surrender of a Certificate for cancellation
to the Exchange Agent and the transmittal for filing with the Internal Revenue
Service of a Section 83(b) Election by each Principal Shareholder that will
receive Junior Preferred Stock subject to vesting or other transfer
restrictions, the holder of such Certificate shall be entitled to receive in
exchange therefor: (i) a certificate representing the number of whole shares of
Junior Preferred Stock to which such holder is entitled; and (ii) such holder's
pro rata portion of the Cash Consideration, as set forth on Schedule 2.3(c) and
the Certificate so surrendered shall forthwith be canceled and the holder
thereof shall no longer have any rights with respect to such Certificate. Until
so surrendered, each outstanding Certificate that, prior to the Effective Time,
represented Convertible Shares will be deemed from and after the Effective Time,
for all corporate purposes, other than the payment of dividends, to evidence the
right to receive the Merger Consideration.
(d) Distributions With Respect to Unexchanged Shares. No dividends
------------------------------------------------
or other distributions with respect to the Junior Preferred Stock declared or
made after the Effective Time and with a record date after the Effective Time
will be paid to the holder of any unsurrendered Certificate with respect to the
shares of Junior Preferred Stock represented thereby until the holder of record
of such Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Junior Preferred Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of Junior
Preferred Stock.
(e) Transfers of Ownership. If any certificate for shares of Junior
----------------------
Preferred Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Junior Preferred Stock in any name other than that of the
registered holder of the Certificate surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
-5-
<PAGE>
(f) No Liability. Notwithstanding anything to the contrary in this
------------
Section 2.3, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Junior Preferred Stock or
Company Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
2.4 No Further Ownership Rights in Company Stock. (a) All cash amounts
--------------------------------------------
paid by Parent, and (b) all shares of Junior Preferred Stock issued in exchange
for Convertible Shares in accordance with the terms hereof (including any cash
paid in respect thereof) shall be deemed to have been issued in full payment for
and in full satisfaction of all rights pertaining to such Convertible Shares,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of Convertible Shares which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Article.
2.5 No Further Obligations to Finder. (a) All cash amounts paid by Parent,
--------------------------------
and (b) all shares of Junior Preferred Stock issued to Finder in accordance with
the terms hereof shall be deemed to have been issued in full payment for and in
full satisfaction of all obligations of Company due to Finder under the Finder
Agreement.
2.6 Lost, Stolen or Destroyed Certificates. In the event any Certificates
--------------------------------------
evidencing Convertible Shares shall have been lost, stolen or destroyed, the
Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the holder
thereof, such Merger Consideration as may be required pursuant to Section 2.1;
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
2.7 Tax Consequences. It is intended by the parties hereto that the Merger
----------------
shall constitute a reorganization within the meaning of Section 368(a) of the
Code.
2.8 Taking of Necessary Action; Further Action. If, at any time after the
------------------------------------------
Effective Time, any such further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are disclosed in the disclosure schedule
(referencing the appropriate Section and
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<PAGE>
paragraph numbers) separately supplied by the Company (the "Company Disclosure
------------------
Schedule") which exceptions shall be deemed to be representations and warranties
- --------
as if made hereunder, that on the date hereof and as of the Effective Time as
though made at the Effective Time; provided that, the representations and
warranties as of a specified date will be true and correct as of such date, as
follows:
3.1 Organization of the Company. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Texas. The Company has the corporate power to own its properties and to carry on
its business as now being conducted. The Company is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified could have a Company Material Adverse
Effect. For all purposes of this Agreement, the term "Company Material Adverse
------------------------
Effect" means any change, event or effect that is adverse to the business,
- ------
assets (including intangible assets), condition (financial or otherwise), or
results of operations of the Company. The Company has delivered a true and
correct copy of its Articles of Incorporation and Bylaws, each as amended to
date, to Parent. Section 3.1 of the Company Disclosure Schedule lists the
directors and officers of the Company. The operations now being conducted by the
Company have not been conducted under any other name.
3.2 No Subsidiaries. The Company has no subsidiaries or affiliated
---------------
companies.
3.3 Incorporation of Company. The Company was incorporated on August 3,
------------------------
1998 under Texas Law and pursuant to Section 351 of the Code. The incorporation
of the Company was independent of, and unrelated to, any discussions with Parent
concerning the Merger.
3.4 Company Capital Structure.
-------------------------
(a) The authorized capital stock of the Company consists of 1,000,000
shares of authorized Common Stock of which 101,388 shares are issued and
outstanding as of the date hereof. The Common Stock is held by the persons, with
the domicile addresses and in the amounts set forth in Section 3.4(a) of the
Company Disclosure Schedule. All outstanding shares of the Company's capital
stock are duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive rights created by statute, the Articles of Incorporation
or Bylaws of the Company or any agreement to which the Company is a party or by
which it is bound, and have been issued in compliance with federal and state
securities laws. There are no declared or accrued unpaid dividends with respect
to any shares of the capital stock. The Company has no other capital stock
authorized, issued or outstanding.
(b) The Company has never adopted or maintained any stock option plan
or other plan providing for equity compensation of any person ("Company
-------
Option"). There is no outstanding Company Stock which is subject to vesting.
- ------
There are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company is a party or by which it is
bound obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company or
-7-
<PAGE>
obligating the Company to grant, extend, accelerate the vesting of, change the
price of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights with
respect to the Company. There are no voting trusts, proxies, or other agreements
or understandings with respect to the voting stock of the Company.
3.5 Authority. The Company has all requisite power and authority to enter
---------
into this Agreement and any Related Agreements (as hereinafter defined) to which
it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Related Agreements
to which it is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of the Company, and no further action is required on the part of the
Company to authorize the Agreement, any Related Agreements to which it is a
party and the transactions contemplated hereby and thereby, subject in each case
only to the approval of this Agreement by the Company Shareholders. This
Agreement and the Merger have been approved by the Board of Directors of the
Company. This Agreement and any Related Agreements to which the Company is a
party have been duly executed and delivered by the Company, and, assuming the
due authorization, execution and delivery by the other parties hereto and
thereto, constitute the valid and binding obligation of the Company, as the case
may be, enforceable in accordance with their respective terms, subject to the
laws of general application relating to bankruptcy, insolvency and the relief
of debtors and to rules of law governing specific performance, injunctive relief
or other equitable remedies. The "Related Agreements" shall mean the Investor
------------------
Rights Agreement, Escrow Agreement, the Series 1 Voting Agreement, and Stock
Repurchase Agreements with each of the Principal Shareholders ("Stock Repurchase
----------------
Agreements") substantively in the form attached hereto as Exhibit E.
- ---------- ---------
3.6 No Conflict. The execution and delivery of this Agreement and any
-----------
Related Agreements to which the Company is a party do not, and, the consummation
of the transactions contemplated hereby and thereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation,
modification or acceleration of any obligation or loss of any benefit under (any
such event, a "Conflict") (i) any provision of the Articles of Incorporation and
--------
Bylaws of the Company, (ii) any mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise or license to which the
Company, or any of its properties or assets (including intangible assets) are
subject, or (iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or its properties or assets, except in the
case of clauses (ii) and (iii) where such Conflict will not have a Company
Material Adverse Effect.
3.7 Consents. No consent, waiver, approval, order or authorization of, or
--------
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
-------------------
third party, including a party to any agreement with the Company (so as not to
trigger any Conflict), is required by or with respect to the Company in
connection with the execution and delivery of this Agreement and any Related
Agreements to which the Company is
-8-
<PAGE>
a party or the consummation of the transactions contemplated hereby and thereby,
except for the filing of the Merger Agreement with the Secretary of the State of
Texas.
3.8 Company Financial Statements. Section 3.8 of the Company Disclosure
----------------------------
Schedule sets forth the Company's unaudited balance sheet as of August 31, 1998,
and the related unaudited statement of income for the period ending August 31,
1998 (the "Company Interim Financials"). To the best of Company's knowledge, the
--------------------------
Company Interim Financials present fairly the financial condition and operating
results of the Company as of the dates and during the periods indicated therein,
subject to normal year-end adjustments, which will not be material in amount or
significance. The Company's unaudited Balance Sheet as of August 31, 1998 shall
be hereinafter referred to as the "Company Current Balance Sheet."
-----------------------------
3.9 No Undisclosed Liabilities. The Company has no liability,
--------------------------
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type, in excess of $25,000, individually or in the aggregate, whether
accrued, absolute, contingent, matured, unmatured or other (whether or not
required to be reflected in financial statements in accordance with GAAP), which
individually or in the aggregate (i) has not been reflected in the Company
Current Balance Sheet, or (ii) has not arisen in the ordinary course of business
consistent with past practices since August 31, 1998.
3.10 No Changes. Except as set forth in Section 3.10 of the Company
----------
Disclosure Schedule, between August 31, 1998 and the date hereof, there has not
been, occurred or arisen any:
(a) amendments or changes to the Articles of Incorporation or Bylaws
of the Company;
(b) other than payments under leases disclosed in the Company Current
Balance Sheet, capital expenditures or capital commitments by the Company,
exceeding $10,000 individually or $50,000 in the aggregate;
(c) destruction of, damage to or loss of any material assets or
business of the Company (whether or not covered by insurance);
(d) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(e) revaluation by the Company of any of its assets except in
connection with the conversion of debt to equity;
(f) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) with respect to the stock of
the Company, or any split, combination or reclassification with respect to the
stock of the Company, or any issuance or authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of
stock of the Company or any direct or indirect redemption, repurchase or other
acquisition by the Company of its stock (or options, warrants or other rights
exercisable therefor) except in connection with conversion of debt to equity;
-9-
<PAGE>
(g) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors, employees or advisors,
or the declaration, payment or commitment or obligation of any kind for the
payment, by the Company of a bonus or other additional salary or compensation to
any such person;
(h) changes to the list and terms of the Employee Plans and
Employment Agreements detailed at Schedule 3.23(b) of the Company Disclosure
Schedule;
(i) other than non-exclusive licenses pursuant to the Company's
standard end-user agreements in substantially the form included in Section
3.14(g) of the Company Disclosure Schedule, any agreement, contract, covenant,
instrument, lease, license or commitment to which the Company is a party or by
which it or any of its assets (including intangible assets) are bound or any
termination, extension, amendment or modification the terms of any agreement,
contract, covenant, instrument, lease, license or commitment to which the
Company is a party or by which it or any of its assets are bound;
(j) other than non-exclusive licenses pursuant to the Company's
standard end-user agreements in substantially the form included in Section
3.14(g) of the Company Disclosure Schedule, sale, lease, license or other
disposition of any of the assets or properties of the Company or any creation of
any security interest in such assets or properties;
(k) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practice;
(l) waiver or release of any right or claim of the Company including
any write-off or other compromise of any account receivable of the Company;
(m) the commencement or notice or, to Company's knowledge, the threat
of any lawsuit or, to the Company's knowledge, proceeding or investigation
against the Company or its affairs;
(n) knowledge of any claim or potential claim of ownership by any
person other than the Company of the Company Intellectual Property (as defined
in Section 3.14(a)(iii)) or of infringement by the Company of any other person's
Intellectual Property (as defined in Section 3.14(a)(i));
(o) other than non-exclusive licenses pursuant to the Company's
standard end-user agreements in substantially the form included in Section
3.14(g) of the Company Disclosure Schedule, (i) sale or license of any Company
Intellectual Property or entering into of any agreement with respect to the
Company Intellectual Property with any person or entity or with respect to the
Intellectual Property of any person or entity or (ii) purchase or license of any
Intellectual Property or
-10-
<PAGE>
entering into of any agreement with respect to the Intellectual Property of any
person or entity or (iii) entering into any agreement with respect to
development of any Intellectual Property with a third party or (iv) change in
pricing or royalties charged by the Company to its customers or licensees or in
pricing or royalties set or charged by persons who have licensed Intellectual
Property to the Company;
(p) event or condition of any character that has had or would have a
Company Material Adverse Effect as of the date hereof;
(q) other than a transaction of the types described in Sections
3.10(a) through (q) above, transaction by the Company except in the ordinary
course of business as conducted on that date and consistent with past practices;
or
(r) agreement by the Company or any officer or employee thereof, in
his or her capacity as such, to do any of the things described in the preceding
clauses 3.10(a) through (q) (other than negotiations with Parent and its
representatives regarding the transactions contemplated by this Agreement).
3.11 TAX MATTERS.
-----------
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
------------------- ---
or, collectively, "Taxes", means (i) any and all federal, state, local and
-----
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts; (ii) any liability for the payment of any amounts of
the type described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits.
----------------------
(i) As of the Effective Time, the Company will have prepared and
timely filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to any and all Taxes
-------
concerning or attributable to the Company or its operations and such Returns
will be true and correct and will have been completed in accordance with
applicable law.
(ii) As of the Effective Time, the Company will have paid all
Taxes it is required to pay and will have withheld with respect to its employees
all federal and state income
-11-
<PAGE>
taxes, FICA, FUTA and other Taxes required to be withheld for the period
commencing August 3, 1998 (date of incorporation) and ending immediately prior
to the Effective Time.
(iii) The Company has not been delinquent in the payment of
any Tax nor has Company received any notice of any Tax deficiency, assessed or
proposed against it, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) The Company, to its knowledge, has no liabilities for
unpaid federal, state, local and foreign Taxes which have not been accrued or
reserved against on the Company Current Balance Sheet and set forth in Section
3.11(b)(v) of the Company Disclosure Schedule, whether asserted or unasserted,
contingent or otherwise except for liabilities incurred since the Company
Current Balance Sheet in the ordinary course of business.
(vi) The Company has made available to Parent or its legal
counsel, copies of all foreign, federal and state income and all state sales and
use Returns for the Company filed for all periods since its inception.
(vii) There are (and immediately following the Effective Time
there will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"Liens") on the assets of the Company relating to or attributable to Taxes
-----
other than Liens for Taxes not yet due and payable.
(viii) Assuming that all Taxes due after the Effective Time are
paid when due and that all Taxes accrued or reserved on the Current Balance
Sheet will be paid when due, the Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as "tax-exempt
use property", within the meaning of Section 168(h) of the Code.
(x) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xi) The Company is not a party to any tax sharing,
indemnification or allocation agreement nor does the Company owe any amount
under any such agreement, other than this Agreement.
(xii) The Company is not and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
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<PAGE>
(xiii) No adjustment relating to any Return filed by the
Company has been proposed formally or, to the knowledge of the Company,
informally by any tax authority to the Company or any representative thereof.
(xiv) Except as may be required as a result of the Merger, the
Company has not nor will it be required to include any adjustment in Taxable
income for any Tax period (or portion thereof) pursuant to Section 481 of
Section 263A of the Code or any comparable provision under state or foreign Tax
laws as a result of transactions, events or accounting methods employed prior to
the Closing.
(c) Executive Compensation Tax. There is no contract, agreement, plan
--------------------------
or arrangement to which the Company is a party as of the date of this Agreement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of Company, individually or collectively, that could
give rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code.
3.12 Restrictions on Business Activities. There is no agreement (noncompete
-----------------------------------
or otherwise), commitment, judgment, injunction, order or decree to which the
Company is a party or which is otherwise binding upon the Company which has or
may have the effect of prohibiting or impairing any business practice of the
Company (as presently conducted by the Company or as currently contemplated by
the Company to be conducted), any acquisition of property (tangible or
intangible) by the Company or the conduct of business by the Company (as
presently conducted by the Company or as currently contemplated by the Company
to be conducted) which would have a Company Material Adverse Effect. Without
limiting the foregoing, the Company has not entered into any agreement under
which it is restricted from selling, licensing or otherwise distributing any of
its technology or products to or providing services to, customers or potential
customers or any class of customers, in any geographic area, during any period
of time or in any segment of the market.
3.13 Title of Properties: Absence of Liens and Encumbrances: Condition of
--------------------------------------------------------------------
Equipment
---------
(a) The Company does not own any real property, nor has it ever owned
any real property. Section 3.13(a) of the Company Disclosure Schedule sets forth
a list of all real property currently leased by the Company, the name of the
lessor, the date of the lease and each amendment thereto and, with respect to
any current lease, the aggregate annual rental payment payable under any such
lease. All such current leases are in full force and effect, are valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default) .
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in the Company
Current Balance Sheet and except for Liens for Taxes not yet due and payable and
such
-13-
<PAGE>
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or interfere with the present use, of the property subject thereto or affected
thereby.
(c) Section 3.13(c) of the Company Disclosure Schedule lists all
material items or classes of items of equipment (the "Equipment") owned or
---------
leased by the Company and such Equipment is (i) adequate for the conduct of the
business of the Company as currently conducted and (ii) in good operating
condition, regularly and properly maintained, subject to normal wear and tear.
(d) The Company has sole and exclusive ownership, free and clear of
any Liens, of all customer lists, customer contact information, customer
correspondence and customer licensing and purchasing histories relating to the
Company's current and former customers (the "Customer Information"). No person
--------------------
other than the Company possesses any claims or rights with respect to use of the
Customer Information.
3.14 INTELLECTUAL PROPERTY
---------------------
(a) For the purposes of this Agreement, the following terms have the
following definitions :
(i) "Intellectual Property" shall mean any or all of the
following (A) works of authorship including, limitation, computer programs,
source code and executable code, whether embodied in software, firmware or
otherwise, documentation, designs, files, records, data and mask works, (B)
inventions (whether or not patentable), improvements, and technology, (C)
proprietary and confidential information, trade secrets and know how, (D)
databases, customer listings and data, data compilations and collections and
technical data, (E) logos, trade names, trade dress, trademarks and service
marks, (F) domain names, web addresses and sites, (G) tools, methods and
processes, including object libraries, and (H) all instances of the foregoing in
any form and embodied in any media.
(ii) "Intellectual Property Rights" shall mean worldwide common
----------------------------
law and statutory rights associated with (A) patents and patent applications,
(B) copyrights, copyrights registrations and copyrights applications and "moral"
rights, (C) the protection of trade and industrial secrets and confidential
information, (D) other proprietary rights relating to intangible intellectual
property, (E) trademarks, trade names and service marks, (F) analogous rights to
those set forth above, and (G) divisions, continuations, renewals, reissuances
and extensions of the foregoing (as applicable).
(iii) "Company Intellectual Property" shall mean any Intellectual
-----------------------------
Property and Intellectual Property Rights that are owned by or exclusively
licensed to the Company.
(iv) "Registered Intellectual Property Rights" shall mean
Intellectual Property Rights that have been registered, filed, certified or
otherwise perfected by recordation with any state, government or other public
legal authority.
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<PAGE>
(b) Section 3.14(b) of the Company Disclosure Schedule lists all
Registered Intellectual Property owned by, or filed in the name of, the Company
(the "Company Registered Intellectual Property") and lists any proceedings or
----------------------------------------
actions before any court, tribunal (including the United States Patent and
Trademark Office (the "PTO") or equivalent authority anywhere in the world)
related to any of the Company Registered Intellectual Property.
(c) Each item of Company Intellectual Property, including all Company
Registered Intellectual Property listed in Section 3.14(b) of the Company
Disclosure Schedule and all Intellectual Property licensed to the Company, is
free and clear of any Liens against the Company's rights or interests or other
encumbrances, except that, with respect to Intellectual Property or Intellectual
Property Rights licensed to the Company that such Intellectual Property or
Intellectual Property Rights are subject to the terms of the licenses of such
Intellectual Property or Intellectual Property Rights listed in Section 3.14(g)
of the Company Disclosure Schedule or not required to be listed in Section
3.14(g) of the Company Disclosure Schedule. The Company is the exclusive owner
or exclusive licensee of all Company Intellectual Property .
(d) To the extent that any Intellectual Property has been developed
or created independently or jointly by any person other than the Company for
which the Company has directly paid the cost and expense of development, the
Company has a written agreement with such person with respect thereto, and the
Company thereby has obtained ownership of, and is the exclusive owner of, all
such Intellectual Property and associated Intellectual Property Rights therein
by operation of law or by valid assignment to the extent legally permissible.
(e) The Company has not transferred ownership of or granted any
exclusive license of or exclusive right to use or authorized the retention of
any exclusive rights to use or joint ownership in any Intellectual Property or
Intellectual Property Rights that is or was Company Intellectual Property, to
any other person.
(f) Other than Intellectual Property Rights acquired by the Company
pursuant to "shrink-wrap" and similar widely available commercial end-user
licenses (in each case which is not included in the Company's products or
technology including products and technology currently available or under
development), the Company has listed all Intellectual Property and Intellectual
Property Rights which are not Company Intellectual Property or Intellectual
Property Rights of the Company used in and necessary to the conduct of the
business of the Company as it currently is conducted or used in and/or believed
to be necessary to the conduct of the business of the Company as currently
proposed by the Company to be conducted, including, in each case, without
limitation, the design, development, manufacture, use, import and sale of
products, technology and services (including products, technology or services
currently under development).
(g) The contracts, licenses and agreements listed in Section 3.14(g)
of the Company Disclosure Schedule include all contracts, licenses and
agreements to which the Company is a party with respect to any Intellectual
Property and Intellectual Property Rights. No person who has licensed
Intellectual Property or Intellectual Property Rights to the Company has
ownership
-15-
<PAGE>
rights or license rights to improvements made by the Company in such
Intellectual Property which has been licensed to the Company.
(h) Section 3.14(h) of the Company Disclosure Schedule lists all
contracts, licenses and agreements between the Company and any other person
wherein or whereby the Company has agreed to, or assumed, any obligation or duty
to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or liability or provide a right of rescission with respect
to the infringement or misappropriation by the Company or such other person of
the Intellectual Property Rights of any person other than the Company .
(i) The operation of the business of the Company as it currently is
conducted or is currently contemplated by the Company to be conducted, including
but not limited to the design, development, use, import, manufacture and sale of
the products, technology or services (including products, technology or services
currently under development) of the Company, does not to the Company's knowledge
and there is no reason to know that it will infringe or misappropriate the
Intellectual Property Rights of any person, violate the rights of any person
(including rights to privacy or publicity), or constitute unfair competition or
trade practices under the laws of any jurisdiction, and the Company has not
received notice from any person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Company infringes or misappropriates the
Intellectual Property Rights of any person or constitutes unfair competition or
trade practices under the laws of any jurisdiction (nor is the Company aware of
any reasonable basis therefor) .
(j) Each item of Company Registered Intellectual Property is valid
and with such Company Registered Intellectual Property have been filed with the
relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property. There are no actions that must be taken
by the Company within sixty (60) days of the Closing Date, including the payment
of any registration, maintenance or renewal fees or the filing of any documents,
applications or certificates for the purposes of maintaining, perfecting or
preserving or renewing any Registered Intellectual Property. In each case in
which the Company has acquired any Intellectual Property rights from any person,
the Company has obtained a valid and enforceable assignment sufficient to
irrevocably transfer all rights in such Intellectual Property and the associated
Intellectual Property Rights (including the right to seek past and future
damages with respect thereto) to the Company and, to the maximum extent provided
for by, and in accordance with, applicable laws and regulations, the Company has
recorded each such assignment with the relevant governmental authorities,
including the PTO, the U.S. Copyright Office, or their respective equivalents in
any relevant foreign jurisdiction, as the case may be.
(k) There are no contracts, licenses or agreements between the
Company and any other person with respect to Company Intellectual Property under
which there is any dispute known
-16-
<PAGE>
to the Company regarding the scope of such agreement, or performance under such
agreement including with respect to any payments to be made or received by the
Company thereunder.
(l) To the knowledge of the Company, no person is infringing or
misappropriating any Company Intellectual Property.
(m) The Company has taken reasonable steps to protect its rights in
the confidential information and trade secrets of the Company or provided by any
other person to the Company. Without limiting the foregoing, the Company has,
and enforces, a policy requiring each employee, consultant and contractor to
execute proprietary information, confidentiality and assignment agreements
substantially in the Company's standard forms, and, except as noted in Section
3.14(m) of the Company Disclosure Schedule, all current and former employees,
consultants and contractors of the Company have executed such an agreement in
substantially the Company's standard form.
(n) No Company Intellectual Property is subject to any proceeding or
outstanding decree, order, judgment or settlement agreement that restricts in
any manner the use, transfer or licensing thereof by the Company or may affect
the validity, use or enforceability of such Company Intellectual Property .
(o) To the Company's knowledge, no (i) product, technology, service
or publication of the Company, (ii) material published or distributed by the
Company or (iii) conduct or statement of Company constitutes obscene material or
a defamatory statement or material.
(p) Except as stated in Section 3.14(p) of the Company Disclosure
Schedule, all of the Company's products (including products currently under
development) will record, store, process, calculate and present calendar dates
falling on and after (and if applicable, spans of time including) January 1,
2000 in the same manner, and with the same functionality, data integrity and
performance, as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999 (collectively, "Year 2000
---------
Compliant"). All of the Company's internal computer and technology products
- ---------
and systems are Year 2000 Compliant.
3.15 AGREEMENTS, CONTRACTS AND COMMITMENTS
-------------------------------------
(a) Except as set forth in or excepted from (by virtue of the
specific exclusions contained in Sections 3.14(g) or 3.14(h) hereof) Sections
3.14(g) and 3.14(h) of the Company Disclosure Schedule or as set forth in
Section 3.15(a) of the Company Disclosure Schedule, the Company is not a party
to nor is bound by:
(i) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization,
(ii) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be
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<PAGE>
increased, or the vesting of benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement,
(iii) any fidelity or surety bond or completion bond,
(iv) any lease of personal property having an annual rental
rate individually in excess of $10,000 or $25,000 in the aggregate,
(v) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person,
(vi) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $10,000 individually or
$100,000 in the aggregate,
(vii) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business,
(viii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit,
(ix) any purchase order or contract for the purchase of
materials involving in excess of $10,000 individually or $100,000 in the
aggregate,
(x) any construction contracts,
(xi) any dealer, distribution, joint marketing or development
agreement,
(xii) any sales representative, original equipment manufacturer,
value added, remarketer, reseller or independent software vendor or other
agreement for use or distribution of the Company's products, technology or
services, or
(xiii) any other agreement, contract or commitment that involves
a current or future obligation of $10,000 individually or $100,000 in the
aggregate or more and is not cancelable without penalty within sixty (60) days.
(b) The Company is in compliance with, and has not breached, violated
or defaulted under, or received notice that it has breached, violated or
defaulted under, any of the terms or conditions of any agreement, contract,
covenant, instrument, lease, license or commitment to which it is a party or by
which it is bound (collectively a "Contract"), nor is the Company aware of any
event that would constitute such a breach, violation or default with the lapse
of time, giving of
-18-
<PAGE>
notice or both. Each Contract is in full force and effect and is not subject to
any default thereunder by any party obligated to the Company pursuant thereto.
The Company has obtained, or will obtain prior to the Closing Date, all
necessary consents, waivers and approvals of parties to any Contract as are
required thereunder in connection with the Merger or for such Contracts to
remain in effect without modification after the Closing. Following the Effective
Time, the Company will be permitted to exercise all of its rights under the
Contracts without the payment of any additional amounts or consideration other
than amounts or consideration which the Company would otherwise be required to
pay had the transactions contemplated by this Agreement not occurred.
3.16 Interested Party Transactions. No officer, director or, to the
-----------------------------
knowledge of the Company, Shareholder who holds greater than five percent (5%)
of the Company Stock has or has had, directly or indirectly, (i) any material
interest in any entity which furnished or sold, or furnishes or sells, services,
products or technology that the Company furnishes or sells, or proposes to
furnish or sell, or (ii) any interest in any entity that purchases from or sells
or furnishes to the Company any goods or services or (iii) a beneficial interest
in any Contract; provided, that ownership of no more than five percent (5%) of
--------
the outstanding voting stock of a publicly traded corporation shall not be
deemed an "interest in any entity" for purposes of this Section 3.16.
3.17 Governmental Authorization. "Company Authorizations" means each
-------------------------- ----------------------
consent, license, permit, grant or other authorization (i) issued to the Company
by a Governmental Entity pursuant to which the Company currently operates or
holds any interest in any of their properties or (ii) of a Governmental Entity
which is required for the operation of its business of the Company or the
holding by any such entity of any such interest. The Company Authorizations are
in full force and effect and constitute all Company Authorizations required to
permit the Company to operate or conduct its business or hold any interest in
its properties or assets.
3.18 Litigation. There is no action, suit, claim or proceeding of any
----------
nature pending, or, to the Company's knowledge, threatened, against the Company,
its properties (tangible or intangible) or any of its officers or directors
which would have a Company Material Adverse Effect, nor, to the knowledge of the
Company, is there any reasonable basis therefor. To the Company's knowledge,
there is no investigation pending or threatened against the Company, its
properties or any of its officers or directors (nor, to the best knowledge of
the Company, is there any reasonable basis therefor) by or before any
Governmental Entity. No Governmental Entity has at any time challenged or
questioned the legal right of the Company to conduct its operations as presently
or previously conducted.
3.19 Accounts Receivable; Inventory.
------------------------------
(a) The Company has made available to Parent a list of all accounts
receivable (or classes of accounts receivable) of the Company as of August 31,
1998 along with a range of days elapsed since invoice.
(b) All accounts receivable arose in the ordinary course of business,
including the amount of the reserves therefor set forth in Section 3.19(b) of
the Company Disclosure Schedule.
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<PAGE>
No person has any Lien on any of such Accounts Receivable and no request or
agreement for deduction or discount has been made with respect to any of such
Accounts Receivable.
(c) All of the inventories of the Company reflected on the Company
Financials and the Company's books and records were purchased, acquired or
produced in the ordinary and regular course of business and in a manner
consistent with the Company's regular inventory practices and are set forth on
the Company's books and records in accordance with the practices and principles
of the Company consistent with the method of treating said items in prior
periods.
3.20 Minute Books. The minutes of the Company made available to counsel for
------------
Parent are the only minutes of the Company and contain a reasonably accurate
summary of all meetings of the Board of Directors (or committees thereof) of the
Company and its respective shareholders or actions by written consent since the
time of incorporation of the Company.
3.21 Environmental Matters.
---------------------
(a) Hazardous Material. The Company has not: (i) operated any
------------------
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased; or (ii) illegally released any material
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, and urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws (a
"Hazardous Material"), but excluding office and janitorial supplies properly and
------------------
safely maintained. No Hazardous Materials are present as a result of the
deliberate actions of the Company or, to the Company's knowledge, as a result of
any actions of any other person or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. The Company has not transported,
------------------------------
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Effective Time, nor has it disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (any or all of the foregoing being
collectively referred to as "Hazardous Materials Activities") in violation of
------------------------------
any rule, regulation, treaty or statute promulgated by any Governmental Entity
in effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental approvals,
-------
permits, licenses, clearances and consents (the "Environmental Permits")
---------------------
necessary for the conduct of the Company's Hazardous Material Activities,
respectively, and other businesses of the Company as such activities and
businesses are currently being conducted.
-20-
<PAGE>
(d) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company. The Company has no
knowledge of any fact or circumstance which is more likely than not to involve
the Company in any environmental litigation or impose upon the Company any
environmental liability.
3.22 Brokers' and Finders' Fees; Third Party Expenses. Except for Finder
------------------------------------------------
under the Finder Agreement, the Company has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with the Agreement or any
transaction contemplated hereby.
3.23 Employee Benefit Plans and Compensation.
---------------------------------------
(a) The following terms shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
---------
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
(ii) "Employee Plan" shall mean any plan, program, policy,
-------------
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written, unwritten or otherwise, funded or unfunded,
including without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA which is or has been maintained, contributed to, or
required to be contributed to, by the Company or any Affiliate for the benefit
of any Employee, or with respect to which the Company or any Affiliate has or
may have any liability or obligation;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
-----
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
---
(v) "Employee" shall mean any current or former employee,
--------
consultant or director of the Company or any Affiliate;
(vi) "Employee Agreement" shall mean each management,
------------------
employment, severance, consulting, relocation, repatriation, expatriation, visa,
work permit or other agreement, contract or understanding between the Company or
any Affiliate and any Employee;
(vii) "ERISA" shall mean the Employee Retirement Income Security
-----
Act of 1974, as amended;
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<PAGE>
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
(ix) "IRS" shall mean the Internal Revenue Service;
---
(x) "PBGC" shall mean the Pension Benefit Guaranty
----
Corporation; and
(xi) "Pension Plan" shall mean each Employee Plan which is an
------------
"employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
(b) Schedule. Schedule 3.23(b) of the Company Disclosure Schedule
--------
contains an accurate and complete list of each Employee Plan and each Employee
Agreement. The Company has no any plan or commitment to establish any new
Employee Plan or Employee Agreement, to modify any Employee Plan or Employee
Agreement (except to the extent required by law or to conform any such Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
Agreement), or to enter into any Employee Plan or Employee Agreement.
(c) Documents. The Company has made available to Parent: (i) correct
---------
and complete copies of all documents embodying each Employee Plan and each
Employee Agreement including (without limitation) all amendments thereto and all
related trust documents; (ii) the three (3) most recent annual reports (Form
Series 5500 and all schedules and financial statements attached thereto), if
any, required under ERISA or the Code in connection with each Employee Plan;
(iii) if the Employee Plan is funded, the most recent annual and periodic
accounting of Employee Plan assets; (iv) the most recent summary plan
description together with the summary(ies) of material modifications thereto, if
any, required under ERISA with respect to each Employee Plan; (v) all material
written agreements and contracts relating to each Employee Plan, including, but
not limited to, administrative service agreements and group insurance contracts;
(vi) all communications material to any Employee or Employees (other than
individual benefits Statements) relating to any Employee Plan and any proposed
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any liability to the
Company; (vii) all material correspondence to or from any governmental agency
relating to any Employee Plan; (viii) all COBRA forms and related notices; (ix)
all insurance policies pertaining to fiduciary liability insurance covering the
fiduciaries for each Employee Plan; and (x) all discrimination tests for each
Employee Plan subject to discrimination testing for the most recent plan year.
(d) Employee Plan Compliance. (i) The Company has performed all
------------------------
material obligations required to be performed by it under, is not in default or
violation of, and has no knowledge of any default or violation by any other
party to each Employee Plan, and each Employee Plan has been established and
maintained in accordance with its terms and in substantial compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) to the knowledge of the Company, no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under
-22-
<PAGE>
Section 408 of ERISA, has occurred with respect to any Employee Plan; (iii)
there are no actions, suits or claims pending, or, to the knowledge of the
Company, threatened or reasonably anticipated (other than routine claims for
benefits) against any Employee Plan or against the assets of any Employee Plan;
(iv) each Employee Plan can be amended, terminated or otherwise discontinued
after the Effective Time in accordance with its terms, without liability to
Parent, the Company or any Affiliate (other than ordinary administration and
termination expenses); (v) there are no audits, inquiries or proceedings pending
or, to the knowledge of the Company or any Affiliates, threatened by the IRS or
DOL with respect to any Employee Plan; and (vi) neither the Company nor any
Affiliate is subject to any penalty or tax with respect to any Employee Plan
under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code.
(e) No Pension Plans. Neither the Company nor any Affiliate has ever
----------------
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan.
(f) No Post-Employment Obligations. No Employee Plan provides, or
------------------------------
reflects or represents any liability to provide, retiree life insurance, retiree
health or other retiree employee welfare benefits to any person for any reason,
except as may be required by COBRA or other applicable statute, and the Company
has not represented, promised or contracted (whether in oral or written form) to
any Employee (either individually or to Employees as a group) or any other
person that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.
(g) COBRA. Neither the Company nor any Affiliate has, prior to the
-----
Effective Time, violated any of the health care continuation requirements of
COBRA, the requirements of FMLA or any similar provisions of state law
applicable to its Employees.
(h) Effect of Transaction. The execution of this Agreement and the
---------------------
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Employee Plan, Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(i) Employment Matters. The Company: (i) is in compliance with all
------------------
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) has withheld
and reported all amounts required by law or by agreement to be withheld and
reported with respect to wages, salaries and other payments to Employees; (iii)
is not liable for any arrears of wages or any taxes or any penalty for failure
to comply with any of the foregoing; and (iv) is not liable for any payment to
any trust or other fund governed by or maintained by or on behalf of any
governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending
-23-
<PAGE>
or, to the knowledge of the Company, threatened or reasonably anticipated claims
or actions against the Company under any worker's compensation policy or long-
term disability policy.
(j) Labor. No work stoppage or labor strike against the Company is
-----
pending, or to the knowledge of the Company, threatened or reasonably
anticipated. The Company does not know of any activities or proceedings of any
labor union to organize any Employees. There are no actions, suits, claims,
labor disputes or grievances pending, or, to the knowledge of the Company,
threatened or reasonably anticipated relating to any labor, safety or
discrimination matters involving any Employee, including, without limitation,
charges of unfair labor practices or discrimination complaints. The Company has
not engaged in any unfair labor practices within the meaning of the National
Labor Relations Act. The Company is not presently, nor has it been in the past,
a party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by the Company.
(k) No Interference or Conflict. To the knowledge of the Company,
---------------------------
no shareholder, officer, employee or consultant of the Company is obligated
under any contract or agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with such person's
efforts to promote the interests of the Company or that would interfere with the
Company's business. Neither the execution nor delivery of this Agreement, nor
the carrying on of the Company's business as presently conducted or presently
proposed to be conducted nor any activity of such officers, directors, employees
or consultants in connection with the carrying on of the Company's business as
presently conducted or presently proposed to be conducted by the Company, will,
to the Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract or
agreement under which any of such officers, directors, employees or consultants
is now bound.
3.24 Insurance. Section 3.24 of the Company Disclosure Schedule lists all
---------
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. There
is no claim by the Company pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid, and the Company is otherwise in compliance with the terms
of such policies and bonds (or other policies and bonds providing substantially
similar insurance coverage). The Company has no knowledge of any threatened
termination of, or premium increase with respect to, any of such policies.
3.25 Compliance With Laws. The Company has complied with, is not in
--------------------
violation of, and has not received any notices of violation with respect to, any
material foreign, federal, state or local statute, law or regulation.
3.26 Warranties; Indemnities. Except for the warranties and indemnities
-----------------------
contained in those contracts and agreements set forth in Section 3.15(a) of the
Company Disclosure Schedule, the Company has not given any warranties or
indemnities relating to products or technology sold or licensed or services
rendered by the Company.
-24-
<PAGE>
3.27 Complete Copies of Materials. The Company has delivered or made
----------------------------
available true and complete copies of each document (or summaries of same) that
has been requested by Parent or its counsel.
3.28 Statements in Shareholder Solicitations. The information supplied by
---------------------------------------
the Company for inclusion in any solicitation to be sent to the Company
Shareholders shall not, on the date the solicitation is first mailed to the
Company Shareholders and at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies or consents for
approval of the this Agreement which has become false or misleading. If at any
time prior to the Effective Time, any event relating to the Company or any of
its affiliates, officers or directors should be discovered by the Company which
should be set forth in an amendment to the solicitation, the Company shall
promptly inform Parent. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Parent or
Merger Sub which is contained in any of the foregoing documents.
3.29 Representations Complete. None of the representations or warranties
------------------------
made by the Company (as modified by the Company Disclosure Schedule), nor any
statement made in any Schedule or certificate furnished by the Company pursuant
to this Agreement or furnished in or in connection with documents mailed or
delivered to the Shareholders for use in soliciting their consent to this
Agreement and the Merger contains or will contain at the Effective Time, any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to Company, subject to
such exceptions as are disclosed in the disclosure schedule (referencing the
appropriate Section and paragraph numbers) separately supplied by Parent and
Merger Sub (the "Parent Disclosure Schedule"), that on the date hereof and as of
--------------------------
the Effective Time as though made at the Effective Time; provided that, the
representations and warranties as of a specified date will be true and correct
as of such date, as follows:
4.1 Organization, Standing and Power. Parent and Merger Sub are
--------------------------------
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of Parent and Merger Sub has the corporate
power to own its properties and to carry on its business as now being conducted
and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the ability of Parent
-25-
<PAGE>
and Merger Sub to consummate the transactions contemplated hereby. Parent has
made available a true and correct copy of the Certificate of Incorporation and
Bylaws of Parent, as amended to date, and the Certificate of Incorporation and
Bylaws of Merger Sub to counsel for the Company. For all purposes of this
Agreement, the term "Parent Material Adverse Effect" means any change, event or
------------------------------
effect that is materially adverse to the business, assets (including intangible
assets), condition (financial or otherwise) or results of operations of Parent
and its subsidiaries taken as a whole.
4.2 Authority. Each of Parent and Merger Sub has all requisite corporate
---------
power and authority to enter into this Agreement and any Related Agreements to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Related Agreements
to which it is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Parent and Merger Sub (including any necessary stockholder
approval), and no further action is required on the part of Parent or Merger Sub
to authorize this Agreement, any Related Agreement to which it is a party or the
transactions contemplated hereby and thereby. This Agreement and the Merger have
been approved by the Boards of Directors of Parent and Merger Sub. This
Agreement and any Related Agreements to which Parent and Merger Sub are parties
have been duly executed and delivered by Parent and Merger Sub and constitute
the valid and binding obligations of Parent and Merger Sub, enforceable in
accordance with their terms, except as such enforceability may be limited by
principles of public policy and subject to the laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
4.3 Subsidiaries. Parent has two subsidiaries which are LookSmart
------------
International Pty Limited, a company duly organized and operating under the laws
of Australia, and Merger Sub, a Delaware corporation. The Parent is not a
participant in any joint venture or partnership and has no subsidiaries other
than LookSmart International Pty Limited and Merger Sub.
4.4 Capitalization.
--------------
(a) As of the Execution Date, the authorized capital stock of the
Parent consists of 10,750,000 shares of Common Stock, $.001 par value, of which
3,179,375 shares are issued and outstanding, and 4,369,283 shares of Preferred
Stock, $.001 par value, 1,981,325 of which are designated Series A Preferred, of
which 1,058,769 shares are issued and outstanding, and 2,387,958 of which are
designated Series B Preferred, all of which are issued and outstanding. The
authorized capital stock of the Merger Sub consists of 1,000 shares of Common
Stock, $.001 par value, 1,000 shares of which, as of the date hereof, are issued
and outstanding and held by the Parent. All such shares of Parent and Merger Sub
have been duly authorized and validly issued, are fully paid and nonassessable,
are free of any liens or encumbrances other than any liens or encumbrances
created by or imposed upon the holders thereof, are not subject to preemptive
rights created by statute, the charter documents or Bylaws of Parent as
currently in effect or any agreement to which Parent is a party or by which it
is bound, and have been issued in compliance with federal and state securities
laws. The Parent has reserved (i) 922,556 shares of Series A Preferred for
issuance upon exercise of outstanding warrants to purchase Series A Preferred;
(ii) sufficient shares of Common Stock for
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<PAGE>
issuance upon conversion of the Preferred Shares; (iii) 1,125,000 shares of
Common Stock for issuance to employees, consultants and advisors pursuant to the
Parent's 1998 Stock Plan; and (iv) 1,830,000 shares of Common Stock for issuance
upon exercise of outstanding warrants to purchase Common Stock. There are no
other options, warrants, calls, rights, commitments or agreements of any
character to which Parent is a party or by which it is bound obligating Parent
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of Parent or
obligating Parent to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement.
(b) The shares of Junior Preferred Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, nonassessable, free
of any liens or encumbrances and not subject to any preemptive rights or rights
of first refusal created by statute or the charter documents or Bylaws of Parent
or Merger Sub or any agreement to which Parent or Sub is a party or is bound and
will be issued in compliance with federal and state securities laws.
4.5 Compliance with Other Instruments. Parent and Merger Sub are not in
---------------------------------
violation of any term of their respective current Certificates of Incorporation
or Bylaws, or in any respect of any term or provision of any mortgage, loan,
indenture, contract, agreement, instrument, judgment or decree, and to their
knowledge, are not in violation of any order, statute, rule or regulation
applicable to Parent or Merger Sub, which violation has or would have a material
adverse effect on the Parent's or Merger Sub's business. The execution, delivery
and performance by Parent or Merger Sub of this Agreement and each Related
Agreement to which either is a party and the consummation of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Junior Preferred Stock has not resulted and will not result in (with or
without giving effect to the passage of time or the giving of notice) any
material violation of, material conflict with, or constitute a material default
or require any consent or waiver under any mortgage, loan, indenture, contract,
agreement, instrument, judgment, decree, order, statute, rule, regulation, or
the Parent's or Merger Sub's Certificate of Incorporation or Bylaws, or the
creation of any mortgage, pledge, lien encumbrance or charge upon any of the
properties or assets of Parent or Merger Sub or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit license, authorization or
approval applicable to Parent or Merger Sub, their businesses or operations or
any of their assets or properties; and there is no such violation or default or
event which, with the passage of time or giving of notice or both, would
constitute a violation or default which would adversely affect the business of
Parent or Merger Sub or any of their properties or assets.
4.6 Intellectual Property. Parent owns or has the right, or prior to the
---------------------
Closing will own or have the right, to use, free and clear of all liens,
charges, claims and restrictions, all Intellectual Property (as defined in
Section 3.14(a)(i)) necessary to its business as now conducted and, to the best
of its knowledge, is not infringing upon or otherwise acting adversely to the
right or claimed right of any person under or with respect to any of the
foregoing, including without limitation any right or claimed rights disclosed in
the Exhibits hereto.
4.7 Consents. No consent, waiver, approval, order or authorization of, or
--------
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state,
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county, local or other foreign governmental authority, instrumentality, agency
or commission ("Governmental Entity") or any third party, including a party to
-------------------
any agreement with Parent (so as not to trigger any Conflict), is required by or
with respect to Parent in connection with the execution and delivery of this
Agreement and any Related Agreements to which Parent is a party or the
consummation of the transactions contemplated hereby and thereby, except for the
filing of the Merger Agreement with the Secretaries of the States of Texas and
Delaware.
4.8 Litigation, etc. There are no actions, suits, proceedings or
---------------
investigations pending or currently threatened against Parent, Merger Sub or
their properties before any court or governmental agency (nor, to Parent and
Merger Sub's knowledge, is there any threat thereof), and none which questions
the Intellectual Property of Parent, the validity of this Agreement, or any
action taken or to be taken in connection herewith or therewith.
4.9 Employees. To Parent's knowledge, no employee of Parent is in
---------
violation of any term of any employment contract, patent disclosure agreement,
confidentiality agreement or any other contract or agreement relating to the
relationship of any such employee with Parent or any other party. Parent does
not have any collective bargaining agreements covering any of its employees.
4.10 Employee and Consultant Agreements. Each consultant retained by, and
----------------------------------
each person currently employed by Parent has executed (or will execute by the
Closing Date) a Confidential Information and Invention Assignment Agreement in
Parent's standard form.
4.11 Registration Rights and Voting Rights. Except as contemplated in the
-------------------------------------
Investors' Rights Agreement, Parent has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity. To
Parent's knowledge except as contemplated in Parent's Voting Agreement of May 7,
1998 and in the Series 1 Voting Agreement, no stockholders of Parent have
entered into any agreements with respect to the voting of capital shares of
Parent.
4.12 Brokers or Finders. Parent and Merger Sub have not incurred, and
------------------
will not incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
4.13 Financial Statements. Section 4.12 of the Parent Disclosure Schedule
--------------------
sets forth Parent's unaudited financial statements for the fiscal year ended
June 30, 1998, and Parent's unaudited balance sheet as of August 31, 1998, and
the related unaudited statement of income for the period ending August 31, 1998
(the "Parent Interim Financials"). To the best of Company's knowledge, the
-------------------------
Parent Interim Financials present fairly the financial condition and operating
results of Parent as of the dates and during the periods indicated therein,
subject to normal year-end adjustments, which will not be material in amount or
significance. Parent's unaudited Balance Sheet as of August 31, 1998 shall be
hereinafter referred to as the "Parent Current Balance Sheet."
----------------------------
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4.14 Employee Benefit Plans. Parent does not have any Employee Benefit
----------------------
Plan as defined in the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and is not a party to any "multi-employer plan" as defined
under ERISA.
4.15 Tax Returns, Payments and Elections. Parent has filed all tax
-----------------------------------
returns and reports as required by law. These returns and reports are true and
correct in all material respects. Parent has paid all taxes and other
assessments due, except those contested by it in good faith which are listed
Section 4.14 of the Parent Disclosure Schedule. The provision for taxes of
Parent as shown in the Parent's most recent financial statements is adequate for
taxes due or accrued as of the date thereof. Parent has not elected pursuant to
the Code to be treated as a Subchapter S corporation or a collapsible
corporation pursuant to Section 341(f) or Section 1362(a) of the Code, nor has
it made any other elections pursuant to the Code (other than elections which
relate solely to methods of accounting, depreciation or amortization) which
would have a Parent Material Adverse Effect. There are no pending audits by any
federal, state, local or foreign taxation authorities relating to Parent or its
subsidiaries, and Parent does not know of any additional assessments or
adjustments pending or threatened against Parent or any of its subsidiaries for
any period, nor of any basis for any such assessment or adjustment.
4.16 Representations Complete. None of the representations or warranties
------------------------
made by Parent or Merger Sub (as modified by any exceptions listed on the Parent
Disclosure Schedule), nor any statement made in any schedule or certificate
furnished by Parent or Merger Sub pursuant to this Agreement, or furnished in or
in connection with documents mailed or delivered to the stockholders of Parent
or Merger Sub in connection with soliciting their consent to this Agreement and
the Merger, contains or will contain at the Effective Time, any untrue statement
of a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business of the Company. During the period from the date
----------------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing), to carry on the Company's business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay the debts and Taxes of the Company when due, to pay
or perform other obligations when due, and, to the extent consistent with such
business, use its reasonable commercial efforts consistent with past practice
and policies to preserve intact the Company's present business organizations,
keep available the services of the Company's present officers and key employees
and preserve the Company's relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it,
all with the goal of preserving unimpaired the Company's goodwill and ongoing
businesses at the Effective Time. The Company shall promptly notify Parent of
any event or occurrence or emergency not in the ordinary
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<PAGE>
course of business of the Company and any material event involving the Company.
Except as expressly contemplated by this Agreement or the Disclosure Schedule,
the Company shall not, without the prior written consent of Parent:
(a) Make any expenditures or enter into any commitment or transaction
exceeding $10,000 individually or $50,000 in the aggregate;
(b) (i) Other than in the ordinary course of Company's business and
consistent with past practices, sell, license or transfer to any person or
entity any rights to any Company Intellectual Property or enter into any
agreement with respect to the Company Intellectual Property with any person or
entity or with respect to the Intellectual Property of any person or entity,
(ii) other than Intellectual Property Rights acquired by the Company pursuant to
"shrink-wrap" and similar widely available commercial end-user licenses (in each
case which is not included in the Company's products or technology including
products and technology currently available or under development), buy or
license any Intellectual Property or enter into any agreement with respect to
the Intellectual Property of any person or entity, (iii) enter into any
agreement with respect to development of any Intellectual Property with a third
party or (iv) change the pricing or royalties charged by the Company to its
customers or licensees or the pricing or royalties set or charged by persons who
have licensed Intellectual Property to the Company;
(c) Except in the ordinary course of business and consistent with
past practices, enter into or amend any Contract pursuant to which any other
party is granted marketing, distribution, development or similar rights of any
type or scope with respect to any products or technology of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the Contracts set
forth or described in the Disclosure Schedule;
(e) Commence or settle any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of the capital
stock of the Company (or options, warrants or other rights exercisable
therefor);
(g) Except for issuance in connection with debt conversion, issue,
grant, deliver or sell or authorize or propose the issuance, grant, delivery or
sale of, or purchase or propose the purchase of, any shares of its capital stock
or securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue or purchase any such shares or other convertible securities.
-30-
<PAGE>
(h) Cause or permit any amendments to its Articles of Incorporation
or Bylaws; (i) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Company's
business;
(j) Other than non-exclusive licenses of the Company's products in
the ordinary course of business, sell, lease, license or otherwise dispose of
any of its properties or assets;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
(l) Grant any loans to others or purchase debt securities of others
or amend the terms of any outstanding loan agreement;
(m) Grant any severance or termination pay (i) to any director or
officer of the Company or (ii) to any other employee of the Company except
payments made pursuant to standard written agreements outstanding on the date
hereof or as disclosed in the Disclosure Schedule;
(n) Adopt any employee benefit plan, or enter into any employment
contract, pay or agree to pay any special bonus or special remuneration to any
director or employee, or increase the salaries or wage rates of its employees;
(o) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(p) Pay, discharge or satisfy, in an amount in excess of $10,000 in
any one case or $50,000 in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Company Current Balance Sheet;
(q) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(r) Enter into any strategic alliance or joint marketing arrangement
or agreement;
(s) Other than as specifically requested in writing by Parent or as
contemplated by this Agreement, accelerate the vesting schedule of any of the
outstanding Company Options or Company Stock;
(t) Hire or terminate employees or encourage employees to resign; or
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<PAGE>
(u) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) through (t) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
5.2 No Solicitation
---------------
(a) Until the earlier of (i) October 26, 1998, and (ii) the date of
termination of this Agreement pursuant to the provisions of Section 9.1 hereof,
the Company will not (nor will the Company permit any of its officers,
directors, agents, representatives or affiliates to) directly or indirectly,
take any of the following actions with any party other than Parent and its
designees:
(i) solicit, encourage, initiate or participate in any
negotiations or discussions or enter into any agreement with respect to, any
offer or proposal to acquire all, substantially all or a significant portion of
the Company's business, properties or technologies or any portion of the
Company's capital stock (whether or not outstanding) whether by merger, purchase
of assets, tender offer or otherwise, or effect any such transaction,
(ii) disclose any information not customarily disclosed to any
person concerning the Company's business, technologies or properties or afford
to any person or entity access to its properties, technologies, books or records
or
(iii) assist or cooperate with any person to make any proposal to
purchase all or any part of the Company's capital stock or assets.
(b) In addition to the foregoing, if the Company receives, prior to
the Effective Time or the termination of this Agreement, any offer, proposal, or
request relating to any of the above, the Company shall:
(i) immediately notify Parent thereof, including information as
to the identity of the party making any such offer or proposal and the specific
terms of such offer or proposal, as the case may be, and such other information
related thereto as Parent may reasonably request, and
(ii) shall not respond orally to any offer, proposal, or
request, providing only the following written response to any such offer,
proposal, or request: "BeSeen.com, Inc. (the "Company") has signed a Letter of
Intent with another party regarding the sale of the Company. As a result, the
Company is bound by a "no-shop" agreement and will not, prior to October 26,
1998, entertain or cooperate with any inquiry, proposal, or offer from any third
party during these negotiations. "
(c) The parties hereto agree that irreparable damage would occur in
the event that the provisions of this Section 5.2 were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed by the parties that Parent shall be entitled to seek an
injunction or injunctions, without bond, to prevent breaches of the provisions
of this Section 5.2 and to enforce specifically the terms and provisions hereof
in any court of the United States or any state
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<PAGE>
having jurisdiction, this being in addition to any other remedy to which Parent
may be entitled at law or in equity.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Company Shareholder and Parent and Merger Sub Stockholder Approvals
-------------------------------------------------------------------
(a) As promptly as practicable, the Company shall submit this
Agreement and the transactions contemplated hereby, including without limitation
the Merger, to the Company Shareholders for approval as provided by Texas Law
and the Company's Articles of Incorporation and Bylaws. The materials submitted
to the Company Shareholders shall be subject to review and approval by Parent
and include information regarding Parent and the Company, the terms of the
Merger and this Agreement and the unanimous recommendation of the Board of
Directors of the Company in favor of the Merger, this Agreement and the
transactions contemplated hereby.
(b) As promptly as practicable, Parent shall submit this Agreement
and the transactions contemplated hereby, including without limitation the
Merger, to Parent's stockholders for approval and adoption as provided by
Delaware law and Parent's Certificate of Incorporation and Bylaws. The materials
submitted to Parent's stockholders shall include the unanimous recommendation of
the Board of Directors of Parent in favor of the Merger, this Agreement and the
transactions contemplated hereby.
(c) As promptly as practicable, Merger Sub shall submit this
Agreement and the transactions contemplated hereby, including without limitation
the Merger, to Merger Sub's stockholder for approval and adoption as provided by
Delaware law and Merger Sub's Certificate of Incorporation and Bylaws. The
materials submitted to Merger Sub's stockholder shall include the unanimous
recommendation of the Board of Directors of Merger Sub in favor of the Merger,
this Agreement and the transactions contemplated hereby.
6.2 Access to Information. Each party shall afford the others and their
---------------------
respective accountants, counsel and other representatives, reasonable access
during normal business hours during the period prior to the Effective Time to
(i) all of its properties, books, contracts, commitments and records, and (ii)
all other information concerning the business, properties and personnel (subject
to restrictions imposed by applicable law) of it as the others may reasonably
request, subject, in the case of Parent, to reasonable limits on access to its
technical and other nonpublic information. No information or knowledge obtained
in any investigation pursuant to this Section 6.2 shall affect or be deemed to
modify any representation or warranty contained herein.
6.3 Confidentiality. Each of the parties hereto hereby agrees to keep the
---------------
terms of this Agreement (except to the extent contemplated hereby) and such
information or knowledge obtained in any investigation pursuant to Section 6.2,
or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential; provided,
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<PAGE>
however, that the foregoing shall not apply to information or knowledge which
(i) a party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by the other party, (ii) is generally known to the public and
did not become so known through any violation of law, (iii) became known to the
public through no fault of such party, (iv) is later lawfully acquired by such
party without confidentiality restrictions from other sources, (v) is required
to be disclosed by order of court or government agency with subpoena powers
(provided that such party shall have provided the other party with prior notice
of such order or subpoena and an opportunity to object or take other available
action) or (vi) which is disclosed in the course of any litigation between any
of the parties hereto.
6.4 Expenses. Unless the Merger is consummated, all fees and expenses
--------
incurred in connection with the Merger including, without limitation, all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties ("Third Party Expenses") incurred by a party in connection with
--------------------
the negotiation and effectuation of the terms and conditions of this Agreement
and the transactions contemplated hereby, shall be the obligation of the
respective party incurring such fees and expenses.
6.5 Public Disclosure. Unless otherwise required by law (including,
-----------------
without limitation, federal and state securities laws) prior to the Effective
Time, no disclosure (whether or not in response to an inquiry) of the subject
matter of this Agreement shall be made by any party hereto unless approved by
the other parties prior to release, provided that such approval shall not be
unreasonably withheld.
6.6 Consents. Parent and the Company shall use commercially reasonable
--------
efforts to obtain the consents, waivers and approvals under any contract or
permit as may be required in connection with the Merger (all of such consents,
waivers and approvals are set forth in the Company Disclosure Schedule and
Parent Disclosure Schedule) so as to preserve all rights of and benefits to the
Parent and Company thereunder.
6.7 FIRPTA Compliance. On or prior to the Closing Date, the Company shall
-----------------
deliver to Parent a properly executed statement in a form reasonably acceptable
to Parent for purposes of Treasury Regulation Section 1.1445-2(c)(3).
6.8 Reasonable Efforts. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use its reasonable efforts to
ensure that its representations and warranties remain true and correct in all
material respects, and to take promptly, or cause to be taken, all actions, and
to do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings, and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided that Parent shall not be required to agree to any
divestiture by Parent or the Company or any of Parent's subsidiaries or
affiliates of shares of capital stock or of any business, assets
or property of Parent or
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<PAGE>
its subsidiaries or affiliates or the Company or its affiliates, or the
imposition of any material limitation on the ability of any of them to conduct
their businesses or to own or exercise control of such assets, properties and
stock.
6.9 Notification of Certain Matters. The Company shall give prompt notice
-------------------------------
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company, Parent
or Merger Sub, respectively, contained in this Agreement to be untrue or
inaccurate at or prior to the Effective Time and (ii) any failure of the Company
or Parent, as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 6.9 shall not
limit or otherwise affect any remedies available to the party receiving such
notice.
6.10 Tax Treatment. Each of the Parties undertakes and agrees to use its
-------------
reasonable efforts to cause the Merger to qualify as a "reorganization" within
the meaning of Section 368(a) of the Code, and to take no action which would
cause the Merger not to so qualify.
6.11 Foreign Corporation Application. Parent and Merger Sub shall cause
-------------------------------
the Surviving Corporation to file an application to qualify to do business as a
foreign corporation in Texas.
6.12 Additional Documents and Further Assurances. Each party hereto, at
-------------------------------------------
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
ARTICLE VII
CONDITIONS TO THE MERGER
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions :
(a) Company Shareholder Approval. This Agreement and the Merger
----------------------------
shall have been approved by the shareholders of the Company by the requisite
vote under applicable law and the Company's Articles of Incorporation and
Bylaws.
(b) Parent Stockholder Approval. This Agreement and the Merger
---------------------------
(including any amendments to Parent's Certificate of Incorporation reasonably
necessary to consummate the transactions contemplated by this Agreement) shall
have been approved and adopted by the stockholders of Parent by the requisite
vote under applicable law and Parent's Certificate of Incorporation and Bylaws.
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<PAGE>
(c) Merger Sub Stockholder Approval. This Agreement and the Merger
-------------------------------
(including any amendments to Merger Sub's Certificate of Incorporation
reasonably necessary to consummate the transactions contemplated by this
Agreement) shall have been approved and adopted by the stockholders of Merger
Sub by the requisite vote under applicable law and Merger Sub's Certificate of
Incorporation and Bylaws.
(d) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(e) Additional Tax Representations. Parent and Company shall have
------------------------------
executed prior to Closing or as soon as practicable after the Execution Date,
certificates providing for certain additional tax representations and warranties
substantively similar to those set forth at Exhibit F hereto.
---------
(f) Investors' Rights Agreement. The Investors' Rights Agreement
---------------------------
shall have been duly executed by the parties thereto and delivered by the Parent
to the Company Shareholders.
(g) Other Governmental Approvals. All approvals from government
----------------------------
authorities, including without limitation any requisite Blue Sky approvals,
which are appropriate or necessary for the consummation of the Merger, shall
have been obtained.
(h) Litigation. There shall be no bona fide action, suit, claim or
----------
proceeding of any nature pending, or overtly threatened, against Parent or the
Company, their respective properties or any of their officers or directors,
arising out of, or in any way connected with, the Merger or other transactions
contemplated by the terms of this Agreement.
(i) Consents and Approvals. Each party shall have obtained any and
----------------------
all consents required for consummation of the Merger or for the preventing of
any Default under any Contract or Permit of such party which, if not obtained or
made, is reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect or a Parent Material Adverse Effect, as applicable. No
consent so obtained which is necessary to consummate the transactions
contemplated hereby shall be conditioned or restricted in a manner which in the
reasonable judgment of the Board of Directors of either party would so
materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement that, had such condition or
requirement been known, such party would not, in its reasonable judgment, have
entered into this Agreement.
(j) Section 83(b) Elections. Each of the Principal Shareholders
-----------------------
shall have delivered to the Exchange Agent an executed Section 83(b) Election
with respect to those shares of Junior Preferred Stock subject to vesting or
other transfer restrictions.
7.2 Additional Conditions to Obligations of the Company. The obligations
---------------------------------------------------
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be
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<PAGE>
subject to the satisfaction at or prior to the Closing of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date, except for those representations and
warranties that are qualified by references to "material" or "Material Adverse
Effect" which all shall be true and correct in all respects, and except, in all
such cases, for such breaches, inaccuracies or omissions of such representations
and warranties which have neither had nor reasonably would be expected to have a
Material Adverse Effect on Parent; and the Company shall have received a
certificate to such effect signed on behalf of Parent by a duly authorized
officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
------------------------
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and the Company shall have received a certificate to such
effect signed by a duly authorized officer of Parent.
(c) Legal Opinion. The Company shall have received a legal opinion
-------------
from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to
Parent, in form and substance reasonably acceptable to counsel of Company.
(d) Due Diligence Investigation. Company shall have completed its
---------------------------
due diligence investigation of Parent to Company's reasonable satisfaction,
provided that no information or knowledge obtained in such investigation shall
affect or be deemed to modify any representation or warranty of Parent contained
herein. In this regard, Company's due diligence investigation shall be
conclusively deemed to have been completed to Company's reasonable satisfaction
in the event that (i) the Parent Disclosure Schedule attached hereto does not
require subsequent modification in order to make Parent's representations and
warranties true and correct in all material respects on and as of the Closing
Date, and (ii) within five days of the Execution Date, no information or
knowledge obtained in Company's investigation of the litigation between Parent
and Hollinger Digital, Inc., shall affect or be deemed to modify any
representation or warranty of Parent contained herein or in the Parent
Disclosure Schedule attached hereto.
(e) Parent 1997 Financial Statements. Parent shall have completed
--------------------------------
and delivered to the Company a copy of its audited financial statements for the
fiscal year ended June 30, 1998.
(f) Material Adverse Change. There shall not have occurred any
-----------------------
Parent Material Adverse Change since the date of the Parent Current Balance
Sheet.
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(g) Employment Arrangements. Parent shall have entered into the (i)
-----------------------
Employment Letters, (ii) Confidential Information and Invention Assignment
Agreements, and (iii) Non-Competition Agreements with each of the Principal
Shareholders.
(h) Stock Re-Purchase Agreements. Parent shall have entered into
----------------------------
Restricted Stock Re-Purchase Agreements with each of the Principal Shareholders.
7.3 AdditionaL Conditions to the Obligations oF Parent and Merger Sub. The
-----------------------------------------------------------------
obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date, except for those representations and
warranties that are qualified by references to "material" or "Material Adverse
Effect" which all shall be true and correct in all respects, and except, in all
such cases, for such breaches, inaccuracies or omissions of such representations
and warranties which have neither had nor reasonably would be expected to have a
Material Adverse Effect on the Company or Parent; and Parent and Merger Sub
shall have received a certificate to such effect signed on behalf of the Company
by a duly authorized officer of the Company.
(b) Agreements and Covenants. The Company shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate to
such effect signed by a duly authorized officer of the Company.
(c) Legal Opinion. Parent shall have received a legal opinion from
-------------
Gray Cary Ware & Friedenrich LLP, legal counsel to the Company, in form and
substance reasonably acceptable to counsel of Parent.
(d) Material Adverse Change. There shall not have occurred any
-----------------------
Company Material Adverse Change since the date of the Company Current Balance
Sheet.
(e) No Dissenters. No holders of more than five (5%) of the
-------------
outstanding shares of Company Stock shall have exercised, nor shall they have
any continued right to exercise, dissenters' rights under applicable law with
respect to their shares by virtue of the Merger.
(f) Third-Party Consents. Parent shall have been furnished with
--------------------
evidence satisfactory to it that the Company has obtained all required consents,
approvals and waivers of third parties necessary to consummate the Merger.
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(g) Employment Arrangements. Parent shall have entered into the (i)
-----------------------
Employment Letters (ii) Confidential Information and Invention Assignment
Agreements, and (iii) Non-Competition Agreements with each of the Principal
Shareholders.
(h) Stock Re-Purchase Agreements. Parent shall have entered into
----------------------------
Stock Re-Purchase Agreements with Drew Duncan and Josh Elmore.
(i) Due Diligence Investigation. Parent shall have completed its due
---------------------------
diligence investigation of the Company to Parent's reasonable satisfaction,
provided that no information or knowledge obtained in such investigation shall
affect or be deemed to modify any representation or warranty of the Company
contained herein. In this regard, Parent's due diligence investigation shall be
conclusively deemed to have been completed to Parent's reasonable satisfaction
in the event that the Company Disclosure Schedule attached hereto does not
require subsequent modification, in order to make the Company's representations
and warranties true and correct in all material respects on and as of the
Closing Date.
(j) Company Balance Sheet Statements. The Company shall have
--------------------------------
completed and delivered to Parent a copy of its Company Current Balance Sheet
and Company Interim Financials as defined in Section 3.8.
(k) Conversion. All of the Company's outstanding notes, warrants,
----------
loans and other convertible securities shall have been converted into Company
Stock or otherwise satisfied by Company.
(l) Escrow Agreement. The Escrow Agreement shall have been duly
---------------
executed and delivered.
(m) Series 1 Voting Agreement. The Series 1 Voting Agreement shall
-------------------------
have been duly executed and delivered.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
8.1 Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
representations, warranties, covenants and other agreements of the Company,
Parent and Merger Sub contained in this Agreement, or in any certificate or
other instrument delivered pursuant to this Agreement, shall terminate on the
twelve (12) month anniversary of the Closing Date.
8.2 Indemnification by Company and Company Shareholders. The Company,
---------------------------------------------------
Finder and each Company Shareholder, jointly and severally, agrees to indemnify
and hold Parent and its officers, directors, employees, agents, shareholders and
affiliates, including the Surviving Corporation (the "Parent Indemnified
------------------
Parties"), harmless against all claims, losses, liabilities, damages,
- -------
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses of
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<PAGE>
investigation and defense (hereinafter individually a "Loss" and collectively
----
"Losses") incurred or suffered by the Parent Indemnified Parties, or any of them
------
(including the Company after the Closing), directly or indirectly, as a result
of (i) any breach or inaccuracy of a representation or warranty of the Company
contained in this Agreement, (ii) any failure by the Company to perform or
comply with any covenant contained in this Agreement.
(a) Losses Subject to Compensation Solely Through Escrow Fund. For
---------------------------------------------------------
any Losses claimed by the Parent Indemnified Parties after the Closing, with the
exception of Losses due to any breach or inaccuracy of a representation or
warranty of the Company contained in Sections 3.11 or 3.14, the Parent
Indemnified Parties shall have as their sole and exclusive remedy to obtain
compensation from the Escrow Fund pursuant to Section 8.3 of this Agreement and
the terms and conditions of the Escrow Agreement.
(b) Losses Excluded From Compensation Solely Through Escrow Fund.
------------------------------------------------------------
For any Losses claimed by the Parent Indemnified Parties after the Closing due
to any breach or inaccuracy of a representation or warranty of the Company
contained in Sections 3.11 or 3.14, only the Principal Shareholders shall have
liability for such Loss to the extent, and only to the extent, such Losses
exceeds the Escrow Fund, but any such liability shall not exceed the total
amount of the Merger Consideration received by the Principal Shareholders.
8.3 ESCROW Fund.
-----------
(a) The Escrow Fund shall be available to compensate in full Parent
Indemnified Parties for Losses which the Parent Indemnified Parties may suffer,
sustain or become subject to directly or indirectly pursuant to Section 8.2(a).
A Parent Indemnified Party may not receive any payments from the Escrow Fund
unless and until Claim Certificates (as defined in Section 8.3(d) below)
identifying Losses have been delivered to the Escrow Agent as provided in
Section 8.3(e).
(b) Claims Period, Distribution upon Termination of Claims Period.
-------------------------------------------------------------
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate six months from the
date thereof (the "Claims Period"). As soon as all such Claims (as defined in
Section 8.3(d)) have been resolved pursuant to this Section 8.3 and the Escrow
Agreement, the Escrow Agent shall deliver the amount remaining in the Escrow
Fund to the Company Shareholders and Finder, pro rata based upon the respective
numbers of shares of Company Stock held by each immediately prior to the
Effective Time.
(c) Protection of Escrow Fund. The Escrow Agent shall hold and
-------------------------
safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a
trust fund in accordance with the terms of this Agreement and the Escrow
Agreement, and not as the property of the Parent and shall hold and dispose of
the Escrow Fund only in accordance with the terms hereof and thereof.
(d) Claims Upon Escrow Fund. A Parent Indemnified Party may, from
-----------------------
time to time on or prior to expiration of the Claims Period, make a claim to
some or all of the Escrow Fund (a "Claim") by delivering to the Escrow Agent a
-----
certificate (a "Claim Certificate") signed, if in the
-----------------
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<PAGE>
case the claim is made by Parent or the Surviving Corporation, by the president
or any vice president of Parent or Surviving Corporation, stating: (i) that
Parent Indemnified Party is entitled to be indemnified, or reasonably expects to
have a claim for such indemnification; (ii) the reasons therefor, set forth in
reasonable detail; (iii) the amount of the claim by Parent Indemnified Party,
which, where the amount of the claim is not a liquidated sum, shall be the
amount reasonably estimated by Parent Indemnified Party; (iv) that Parent
Indemnified Party has delivered a copy of such Claim Certificate to the
Shareholders' Representative (as defined herein) and the date on which such copy
was delivered.
(e) Objections to Claims. The Shareholders' Representative, acting
--------------------
on behalf of the Company Shareholders and Finder, may dispute or object to any
Claim, in whole or in part, by delivering to the Escrow Agent a notice (an
"Objection Notice") stating: (i) that the Shareholders' Representative disputes
or objects to such Claim; (ii) the reasons for such objections or dispute, set
forth in reasonable detail; (iii) that the Shareholders' Representative has
delivered a copy of the Objection Notice to Parent and the date on which such
copy was delivered; and (iv) the portion of the Claim set forth in the Claim
Certificate, if any, that is not disputed or objected to. In the event of an
Objection Notice, the Parent and the Shareholders' Representative shall attempt
in good faith to agree upon the rights of the respective parties with respect to
such claims. If the Parent and Shareholders' Representative so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to the Escrow Agent. If no agreement can be
reached after good faith negotiation, both the Parent and the Shareholders'
Representative will participate in a mutually agreeable form of nonbinding
mediation.
(f) Resolution of Conflicts. The Escrow Agent shall not make any
-----------------------
distribution from the Escrow Fund with respect to any Claim made by a Parent
Indemnified Party hereunder until: (i) it receives the written consent or
agreement of the Shareholders' Representative with respect to such distribution;
or (ii) there is a Final Decision with respect to a disputed Claim. "Final
Decision" means a decision, order, judgment or decree of an arbitrator or court
having jurisdiction that is either not subject to appeal or as to which notice
of appeal has not been timely filed or served.
(g) Payment of Claims. If the Escrow Agent receives from the
-----------------
Shareholders' Representative written notice of consent or agreement to all or
part of a Claim, the Escrow Agent shall thereupon promptly pay to the Parent
Indemnified Party from the Escrow Fund as specified in the Escrow Agreement, or,
upon the written election of the Shareholders' Representative, shall distribute
a cash payment received from the Shareholders and Finder in the amount of the
Claim to the Parent Indemnified Party in lieu of such distribution of the Escrow
Fund. For the purposes of payment of Claims, shares of Junior Preferred Stock in
the Escrow Fund shall be valued at their fair market value, as reasonably
determined by the Board of Directors of Parent at the time a Claim is to be
paid. Valuation of shares in the Escrow Fund shall be provided in writing to the
Escrow Agent and Shareholder Representative by Parent.
(h) Power of Attorney of Shareholders' Representative.
-------------------------------------------------
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<PAGE>
(i) In the event that the Merger is approved, effective upon
such vote, and without further act of any Company Shareholder or Finder, Drew
Duncan shall be appointed as agent and attorney-in-fact (the "Shareholders' to
execute the Escrow Agreement, to give and receive notices and communications, to
authorize delivery to a Parent Indemnified Party of payments from the Escrow
Fund in satisfaction of a Claim by the Parent Indemnified Party, to object to
such deliveries, to agree to negotiate, enter into settlements and compromises
of, and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Shareholders' Representative for the
accomplishment of the foregoing. Such agency may be changed by such Company
Shareholders and Finder prior to the Effective Time, and after the Effective
Time by such persons from time to time upon not less than thirty (30) days prior
written notice to the Parent; provided that the Shareholders' Representative may
not be removed unless holders of two-thirds of such Shares agree to such
removal. Any vacancy in the position of Shareholders' Representative may be
filled by approval of such persons. No bond shall be required of the
Shareholders' Representative, and the Shareholders' Representative shall not
receive compensation for his or her services. Notices or communications to or
from the Shareholders' Representative shall constitute notice to or from each of
the former Company Shareholders and Finder.
(ii) The Shareholders' Representative shall not be liable for
any act done or omitted hereunder as Shareholders' Representative while acting
in good faith and in the exercise of reasonable judgment. The Company
Shareholders and Finder shall severally indemnify the Shareholders'
Representative and hold the Shareholders' Representative harmless against any
loss, liability or expense incurred without negligence or bad faith on the part
of the Shareholders' Representative and arising out of or in connection with the
acceptance or administration of the duties of the Shareholders' Representative
hereunder, including the reasonable fees and expenses of any legal counsel
retained by the Shareholders' Representative.
(i) Actions of Shareholders' Representative. A decision, act,
---------------------------------------
consent or instruction of the Shareholders' Representative shall constitute a
decision of all the Company Shareholders and Finder and shall be final, binding
and conclusive upon each of such Company Shareholders and Finder, and the Escrow
Agent and the Parent may rely upon any such decision, act, consent or
instruction of the Shareholder Representative as being the decision, act,
consent or instruction of each and every such Company Shareholder and Finder.
The Escrow Agent and the Parent are hereby relieved from any liability to any
person for any acts done by them in accordance with such decision, act, consent
or instruction of the Shareholders' Representative.
(j) Third-Party Claims. In the event the Parent becomes aware of a
------------------
third-party claim which the Parent believes may result in a demand against the
Escrow Fund, the Parent shall notify the Shareholders' Representative of such
claim, and the Shareholders' Representative, as representative for the Company
Shareholders and Finder, shall be entitled, at their expense, to participate in
any defense of such claim. The Parent shall have the right in its sole
discretion to settle any such claim; provided, however, that except with the
consent of the Shareholders' Representative which shall not be unreasonably
withheld, no settlement of any such claim with
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<PAGE>
third-party claimants shall alone be determinative of the amount of any claim
against the Escrow Fund. In the event that the Shareholders' Representative has
consented to any such settlement and expressly agreed that the claim is a valid
claim against the Escrow Fund, the Shareholders' Representative shall have no
power or authority to object under any provision of this Article VIII to the
amount of any claim by the Parent against the Escrow Fund with respect to such
settlement.
(k) Escrow Agent's Duties. The Escrow Agent shall be obligated only
---------------------
for the performance of such duties as are specifically set forth in the Escrow
Agreement.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.3 below, this Agreement
-----------
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred before 5:00 p.m. (Pacific time) thirty (30) business days from the
Execution Date of this Agreement (provided that (A) the right to terminate this
Agreement under this clause 9.1(b)(i) shall not be available to any party whose
failure to use its commercially reasonable efforts to fulfill any obligation
hereunder has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date, and (B) such date shall be automatically
extended pursuant to Section 9.2 in the event of a curable material breach);
(ii) there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the Merger; or (iii) there shall be any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity that would make consummation
of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's
ownership or operation of all or any portion of the business of the Company or
(ii) compel Parent or the Company to dispose of or hold separate all or a
portion of the business or assets of the Company or Parent as a result of the
Merger;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and (i) such breach has not been cured within thirty (30) days after
written notice to the Company (provided that, no cure period shall be required
for a breach which by its nature cannot be cured), and (ii) as a result of such
breach the conditions set forth in Section 7.3(a) or (b), as the case may be,
would not then be satisfied; or
(e) by the Company if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement
-43-
<PAGE>
contained in this Agreement on the part of Parent or Merger Sub and (i) such
breach has not been cured within thirty (30) days after written notice to Parent
(provided that, no cure period shall be required for a breach which by its
nature cannot be cured), and (ii) as a result of such breach the conditions set
forth in Section 7.2(a) or (b), as the case may be, would not then be satisfied.
Where action is taken to terminate this Agreement pursuant to this Section
9.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
9.2 Extension of Effective Time Upon Material Breach. Should Parent or
------------------------------------------------
Company be in curable material breach of its obligations under this Agreement
pursuant to Sections 9.1(d) or (e), respectively, the Effective Time shall be
automatically extended for an additional thirty (30) days following written
notice to the other party, in order to provide time to cure such material
breach.
9.3 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 9.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub or the
Company, or their respective officers, directors or shareholders, provided that
each party shall remain liable for any breaches of this Agreement prior to its
termination; and provided further that, the provisions of Sections 6.3 and 6.4
and Article VIII of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
9.4 Amendment. Except as is otherwise required by applicable law after
---------
the shareholders of the Company and the shareholders of Parent approve this
Agreement, this Agreement may be amended by the parties hereto at any time by
execution of an instrument in writing signed on behalf of each of the parties
hereto.
9.5 Extension; Waiver. At any time prior to the Effective Time, Parent
-----------------
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
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<PAGE>
(a) if to Parent or Merger Sub, to:
LookSmart Ltd.
487 Bryant Street
San Francisco, California 94107
Attention: Edward O'Dea
Telephone No.: (415) 597-8527
Facsimile No.: (415) 597-4863
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Hank Barry, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to the Company, to:
BeSeen.com, Inc.
610 Highland Avenue
Austin, Texas 78703
Attention: Josh Elmore
Telephone No.: (512) 478-7489
Facsimile No.: (512) 478-8822
with a copy to:
Gray Cary Ware & Friedenrich LLP
100 Congress Avenue
Suite 1440
Austin, Texas 78701
Attention: Paul Hurdlow, Esq.
Telephone No.: (512) 457-7020
Facsimile No.: (512) 457-7070
(c) Interpretation. The words "include," "includes" and "including"
--------------
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
(d) 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
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<PAGE>
more counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
(e) Entire Agreement; Assignment. This Agreement, the Schedules and
----------------------------
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (i) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (ii) are not intended to confer upon any
other person any rights or remedies hereunder (except with respect to the Escrow
Agent and Shareholders' Representative defined in Article VIII); and (ii) shall
not be assigned by operation of law or otherwise except as otherwise
specifically provided.
(f) Severability. In the event that any provision of this Agreement
------------
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
(g) Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
(h) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto irrevocable consents to the exclusive
jurisdiction and venue of any court within San Francisco County, State of
California, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of California for
such persons and waives and covenants not to assert or plead any objection which
they might otherwise have to such jurisdiction, venue and such process.
(i) Rules of Construction. The parties hereto agree that they have
---------------------
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
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<PAGE>
(j) Specific Performance. The parties hereto agree that irreparable
--------------------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
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<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have caused this
Agreement to be signed by their duly authorized respective officers and
representatives, all as of the date first written above.
BESEEN.COM, INC. LOOKSMART, LTD.
By: /s/ Josh Elmore By: /s/ Evan Thornley
------------------------------- ---------------------------------
Name: Name:
Title: Title:
LS SUB, INC. U.S. BANK TRUST
By: /s/ Evan Thornley /s/ Barbara Wise
------------------------------- ------------------------------------
Name: Name:
Title: Title:
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<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have caused this
Agreement to be signed by their duly authorized respective officers and
representatives, all as of the date first written above.
/s/ Josh Elmore
---------------------------------
JOSH ELMORE
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<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have caused this
Agreement to be signed by their duly authorized respective officers and
representatives, all as of the date first written above.
/s/ Drew Duncan
-----------------------------------
DREW DUNCAN
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<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have caused this
Agreement to be signed by their duly authorized respective officers and
representatives, all as of the date first written above.
TOMAS AND MARY DUNCAN
/s/ Thomas Duncan
---------------------------------------
Thomas Duncan
/s/ Mary Duncan
---------------------------------------
Mary Duncan
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<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have caused this
Agreement to be signed by their duly authorized respective officers and
representatives, all as of the date first written above.
/s/ Allen Lee
---------------------------------------
ALLEN LEE
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<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have caused this
Agreement to be signed by their duly authorized respective officers and
representatives, all as of the date first written above.
GCWF INVESTMENT PARTNERS LLC
By: /s/ Douglas J. Rein
------------------------------------
Name: Douglas J. Rein
----------------------------------
Title: Vice President
---------------------------------
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<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have caused this
Agreement to be signed by their duly authorized respective officers and
representatives, all as of the date first written above.
RAINMAKER CAPITAL
By: /s/ Erik Ott
------------------------------------
Name: Erik Ott
----------------------------------
Title: Authorized Member
---------------------------------
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<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have caused this
Agreement to be signed by their duly authorized respective officers and
representatives, all as of the date first written above.
Paul E. Hurdlow, Esq.
/s/ Paul Hurdlow
------------------------------------
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<PAGE>
The Company believes the Invisalign System will develop tremendous consumer
appeal, a conclusion supported by a Company sponsored marketing survey of 13,000
adults, a series of consumer focus groups and one-on-one interviews with over
100 adults. Accordingly, the Company believes it can generate significant
consumer demand through broad consumer public relations and advertising
campaigns.
The Company sponsored marketing survey indicated initial U.S. consumer demand
for the Invisalign System of approximately four million patients. The principal
determinants of demand were age, desire for improved orthodontic appearance,
income level and price sensitivity at a price premium for the Invisalign Systems
of $2,000. The survey results can be summarized as follows:
[Insert Table]
<PAGE>
Exhibits
- --------
Exhibit A Restated Certificate of Incorporation of Parent
Exhibit B Employment Letters
Exhibit C Amended and Restated Investor Rights Agreement
Exhibit D Escrow Agreement
Exhibit E Stock Re-Purchase Agreements
Exhibit F Tax Certificates
Exhibit G Voting Agreement
<PAGE>
EXHIBIT 10.7
PROCUREMENT AND TRAFFICKING AGREEMENT
Company: LookSmart
Address: 600 Townsend Street
San Francisco, CA 94103
Web Site URL: www.looksmart.com
This Agreement when executed by the above named company ("Company"), and
DoubleClick Inc. ("DoubleClick"), will constitute a valid and binding agreement
between Company and DoubleClick according to the specific terms and conditions
set forth below and those terms and conditions set forth in the Standard Terms
and Conditions (a copy of which is attached as Exhibit A). All terms not
otherwise defined below shall be as defined in the Standard Terms and
Conditions.
I. DESCRIPTION OF SERVICES
-----------------------
A. DoubleClick agrees to link Pages mutually agreed upon between Company
and DoubleClick to the Service and through such Service, DoubleClick
shall deliver Advertisers' Advertising to users accessing Pages.
DoubleClick agrees to provide the Service to certain Advertisers
specified and selected by Company ("Strategic Advertisers") as part of
a "key account" program and other Advertisers procured by DoubleClick.
Company agrees that it shall consult with DoubleClick with respect to
its selection of Strategic Advertisers, provided that Company's
decision with respect to its selection of Strategic Advertisers shall
be final. DoubleClick shall afford Company all the benefits and
privileges associated with entities having "Premium" web sites linked
to the Service, which benefits and privileges shall include, but are
not limited to, the following: the establishment by Company of a "key
account" program which will consist of a defined number of Strategic
Advertiser accounts where the Company will direct any and all sales
strategies, negotiations, activities, and all communications directly
or indirectly related to the placement of Advertising on the Web Site
by these Strategic Advertiser accounts; and having Company serve as
the lead with these Strategic Advertiser accounts and determining when
and how a DoubleClick advertising sales representatives will be
involved with these Strategic Advertiser accounts. DoubleClick will
receive the full commission rate agreed to in this Agreement for those
Strategic Advertiser accounts and related sales activities and will
provide delivery of the Advertising of said Strategic Advertisers to
the Web Site. In addition to the information provided to Company
pursuant to Section V.E. and in furtherance of helping Company
establish these Strategic Advertiser accounts, DoubleClick will make
available to Company, no less frequently than or a monthly basis, (i)
a list of those Advertisers who are currently having their Advertising
targeted exclusively to the Web Site (i.e. Advertisers whose
Advertising buy requires that their Advertising be delivered solely to
the Web Site) and (ii) a list of prospective Advertisers in whose
advertising campaigns the Web Site may play a significant role. The
list of these prospective Advertisers will include contact name,
address, phone number, "call reports" and any other information
reasonably requested by Company and which DoubleClick can reasonably
provide.
B. Subject to Section A above, during the Term (as defined below), the
Company shall not sell, place, or permit the placement or delivery of,
any Advertising on the Web Site except through DoubleClick or
DoubleClick's authorized representatives, licenses and assigns which
shall be the Company's sole and
<PAGE>
exclusive representative for the sale, placement and delivery of all
Advertising on the Web Site; provided, however, that, Company shall
have the right to utilize for its own purposes, in its sole
discretion, those Spots which are not filled with Paid Advertising
("Unpaid Spots"). Any Advertising which Company desires be delivered
to the Unpaid Spots shall either be (i) delivered to the Unpaid Spots
by DoubleClick from DoubleClick's server, (ii) redirected by
DoubleClick to the Unpaid Spots from Company's server or (iii)
delivered by Company to the Unpaid Spots from Company's own server, as
determined by Company. Company agrees that it shall not directly sell
any Advertising which Company directs DoubleClick to deliver or
redirect to such Unpaid Spots or which Company delivers to the Unpaid
Spots directly from Company's server; it being understood and agreed
that the delivery of Advertising on account of a barter, e-commerce or
similar relationship shall not be deemed the sale of Advertising for
purposes of the preceding sentence. Any Unpaid Spots not utilized by
Company may be utilized by DoubleClick as provided for in the
definition of "Service" in the Standard Terms and Conditions. For any
Advertising which Company directs DoubleClick to deliver to the Unpaid
Spots from DoubleClick's server, DoubleClick shall receive the
compensation set forth in Section III.E. hereof. For any Advertising
which Company directs DoubleClick to redirect to the Unpaid Spots from
Company's server, DoubleClick shall receive the compensation set forth
in Section III.F. hereof. For any Advertising which Company delivers
directly to the Unpaid Spots from Company's server, DoubleClick shall
be entitled to no additional compensation. It is understood and agreed
that with respect to Advertising which DoubleClick redirects to the
Unpaid Spots or which Company delivers directly to the Unpaid Spots,
DoubleClick shall not be able to provide Company with the information
contained in the reports referred to in Section V.E. and Exhibit B.
II. TERM
----
The term (the "Term") of this Agreement shall commence on September
22, 1997 and shall continue until such time that it is terminated by
either party on not less than forty-five (45) days prior written
notice to the other party.
III. COMPENSATION/PAYMENT
--------------------
A. In full consideration of the Company providing the use of the Spot and
performing all its other obligations under this Agreement, DoubleClick
shall pay Company, and Company agrees to accept, seventy percent (70%)
percent of the Net Revenues generated on Advertising which is
delivered through the Service to Pages.
B. DoubleClick shall pay Company within five (5) days of DoubleClick's
Day's Sales Outstanding (as defined herein) following the end of the
month in which Advertisers' Advertising is delivered to Pages.
C. Company shall be solely responsible for any costs or expenses it
incurs in connection with the Service or performance of its
obligations under this Agreement including, without limitation,
expenses associated with any HTML programming and linking Pages to the
Service.
D. Notwithstanding anything to the contrary contained herein, in the
event Company terminates this Agreement in accordance with Section II
above and DoubleClick, prior to said termination, has entered
2
<PAGE>
into agreements with Advertisers ("Advertiser Contracts") for the
delivery of Advertising to the Pages, the duration of which Advertiser
Contracts extend beyond the date on which this Agreement has been
terminated by Company, DoubleClick shall be entitled to twenty percent
(20%) of the revenues derived from the continued delivery of the
Advertising programs by Company or any party other than DoubleClick
until those specific Advertiser Contracts expire.
E. With respect to Advertising delivered by DoubleClick from
DoubleClick's server to the Unpaid Spots at Company's direction
pursuant to Section I.B. above, Company shall pay DoubleClick a
monthly delivery fee (the "Monthly Delivery Fee") computed as follows:
<TABLE>
<CAPTION>
TOTAL ADVERTISING DELIVERED COST PER THOUSAND ADVERTISING
PER MONTH IMPRESSIONS (CPM)
--------- -----------------
<S> <C>
First 1,000,000 $1.90
From 1,000,001 to 5,000,000 $1.70
From 5,000,001 to 10,000,000 $1.50
From 10,000,001 to 20,000,000 $1.20
From 20,000,001 to 30,000,000 $0.70
From 30,000,001 to 40,000,000 $0.45
From 40,000,001 to 50,000,000 $0.35
From 50,000,001 and up $0.30
</TABLE>
F. With respect to Advertising which is redirected by DoubleClick from
Company's server to the Unpaid Spots at Company's direction pursuant
to Section I.B. above, Company shall pay DoubleClick a monthly fee
(the "Monthly Redirection Fee") equal to $0.20/CPM for all Advertising
so redirected to the Unpaid Spots for the given month.
G. Company agrees to pay the Monthly Delivery Fee and the Monthly
Redirection Fee for each month to DoubleClick within thirty (30) days
of Company's receipt of an invoice from DoubleClick therefor.
IV. COMPANY OBLIGATIONS AND RIGHTS
------------------------------
A. Company agrees to effect all necessary HTML programming with respect
to the Web Site and Pages in accordance with the HTML modifications
(the "HTML Modifications") reasonably designated by DoubleClick so as
to enable DoubleClick to perform its obligations under this Agreement.
B. Spots must be within the first screen of a Page and otherwise conform
to the HTML Modifications unless otherwise agreed upon by Company and
DoubleClick.
C. Promptly after the execution of this Agreement, Company agrees to
place a link on the Web Site's media kit home page to DoubleClick's
web site for potential advertisers to learn how they can place
Advertising on the Web Site.
3
<PAGE>
D. Company will maintain its Pages and Web Site at a quality standard
that is no less than the standard that exists as of the date of this
Agreement and in a manner in keeping with the quality of other web
sites in the Service.
E. Company agrees that DoubleClick has no responsibility to review the
contents of Pages or the Web Site.
F. Company shall have the right to ban and/or remove Advertising from the
Web Site by accusing the Manage Site Application (located at
www.doubleclick.net).
V. DOUBLECLICK OBLIGATIONS AND RIGHTS
----------------------------------
A. DoubleClick shall have the right to refuse to include in the Service,
and to remove from the Service without prior notice, any Pages
(including its contents) that DoubleClick determines do not meet the
standards of the Service or which do not comply with the HTML
Modifications, as DoubleClick deems reasonable and necessary in its
sole good faith discretion, or in the event of any material change in
the nature of the Web Site or the Page from that set forth in
Company's application.
B. DoubleClick shall determine in its sole discretion, which Advertisers
shall have access to the Service; it being understood that Company
shall have the right to ban and/or remove Advertising from the Web
Site pursuant to Section IV.F.
C. Company acknowledges and agrees that promotion of the Service is
critical to enhance usage by Advertisers and in connection therewith
Company agrees that (i) DoubleClick shall have the right to use
Company's name and Pages in advertising and promoting the Service in
any media now or hereafter known and (ii) Company shall, upon
DoubleClick's reasonable request, supply DoubleClick with a reasonable
amount of Company's promotional materials so as to facilitate
DoubleClick's sales efforts to prospective Advertisers. Company may,
in its reasonable discretion, prevent or require that DoubleClick
immediately cease any such promotion. Notwithstanding the foregoing
sentence, if DoubleClick seeks Company's approval for the use of
Company's name and Pages in printed materials which advertise and
promote the Service and Company approves such use, then,
notwithstanding the fact that Company subsequently revokes its
approval, DoubleClick shall be entitled to continue to distribute and
disseminate all such materials which have already been printed as of
the time Company revokes its approval until such time as DoubleClick's
supply of such materials is exhausted.
D. DoubleClick shall have the right to use for DoubleClick's own use or
for use in connection with potential Advertisers on the Service,
information concerning Pages, Impressions and users accessing Pages
obtained through the Service, provided DoubleClick does not reproduce
any Pages without Company's prior consent and DoubleClick shall not
disclose to any third party any such current information specifically
pertaining to such users.
E. DoubleClick will make daily Advertising reports containing the
information specified in Exhibit B available to Company through
DoubleClick's web site (www.doubleclick.net) in addition to site
reports listing the number of Impressions and click-over rates by
Page. Subject to any applicable laws, DoubleClick will provide any
individual or cookie level data on users accessing the Web Site that
is
4
<PAGE>
reasonably technically feasible to provide to Company. DoubleClick
shall also provide any additional information reasonably requested by
Company and which can reasonably be provided by DoubleClick.
F. It is understood and agreed that DoubleClick, in conjunction with
Company, shall determine the rate card charged to Advertisers for
delivery of Advertising which is targeted exclusively for the Web Site
(the "Web Site Rate Card"). Revisions to the Web Site Rate Card can be
made on a quarterly basis upon the mutual agreement of DoubleClick and
Company. DoubleClick can offer discounts of up to 25% off of said Web
Site Rate Card. Discounts in excess of 25% must be approved by Company
in its sole discretion, which decision Company shall provide within
twenty-four (24) hours. If Company does not provide DoubleClick with
approval or disapproval within said twenty-four (24) hour period, such
discount shall be deemed approved. It is further understood and agreed
that DoubleClick shall have the right, in its reasonable discretion,
to provide Advertisers with bonus Impressions free of charge;
provided, however, that bonus Impressions on the Web Site shall not
exceed twenty-five (25%) of the Impressions on the Web Site from Paid
Advertising.
DOUBLECLICK INC. COMPANY
By: /s/ Signature Illegible By: /s/ Signature Illegible
(Signature) (Signature)
KEVIN RYAN BRIAN J. COWLEY
- ---------- ---------------
(Printed/Typed Name)
(Printed/Typed Name)
President SUP, SALES S. DISTRIBUTION
- --------- --------------------------
(Official Title) (Official Title)
Dated: 9/24/97
-------
5
<PAGE>
EXHIBIT A
---------
STANDARD TERMS AND CONDITIONS
-----------------------------
1. No Assignment. Neither party to this Agreement shall sell, transfer or
-------------
assign this Agreement or the rights or obligations hereunder, other than to a
parent or wholly-owned subsidiary, without the prior written consent of the
other party. Notwithstanding the foregoing, either party shall have the right to
transfer or assign this Agreement to a third party successor-in-interest, which
for the purposes of this Section shall mean any third party which acquires all
or substantially all of the assets of either party, or more than 75% of the
outstanding stock of such party, whether by sale, consolidation, merger or
otherwise. Any act in derogation of the foregoing shall be null and void.
2. Proprietary Rights. Company understands and agrees that Company shall
------------------
not have, nor will it claim, any right, title or interest in and to any
Advertising (other than its own Advertising), the Service or any elements
thereof (including without limitation, the grant of a license in or to the
Service or any software, source codes, modifications, updates and enhancements
thereof or any other aspect of the Service), the name "DoubleClick" or any
derivatives thereof, or any other trademarks and logos which are owned or
controlled by DoubleClick and made available to Company through the Service or
otherwise.
3. Representation and Indemnity. Company warrants and represents at all
----------------------------
times that Company (i) owns controls, manages or represents the Web Site, (ii)
has the right and full power and authority to enter into this Agreement, to
grant the rights herein granted and fully to perform its obligations hereunder,
(iii) owns and/or has the right to use all materials contained on the Web Site
or Pages, including, without limitation, all copyrights, trademarks and other
proprietary rights in and to such materials, and (iv) has secured the requisite
permission to use any person's name, voice, likeness and performance as embodied
in such materials or any other element contained in said material. In
furtherance of the foregoing, Company agrees to indemnify and hold DoubleClick
and the Advertisers harmless from and against any and all claims, actions,
losses, damages, liability, costs and expenses (including reasonable attorneys'
fees) arising out of or in connection with (i) the breach of any representation,
warranty or agreement made by Company hereunder, (ii) the Web Site or Pages,
including, without limitation, claims for infringement of copyright or other
intellectual property rights and violation of rights of privacy or publicity,
(iii) any and all claims, actions, lawsuits and proceedings brought by Third
Party Web Site Owners against DoubleClick ("Third Party Web Site Owner Claims")
arising out of, related to or in connection with the Service or this Agreement,
including without limitation, any action taken by or services performed by
DoubleClick under his Agreement, and/or (iii) any and all losses, damages,
liabilities, costs and expenses (including attorneys' fees) arising out of
related to, or in connection with any Third Party Web Site Owner Claims.
DoubleClick shall promptly notify Company of all claims and proceedings related
thereto of which DoubleClick becomes aware. DoubleClick warrants and represents
at all times that DoubleClick owns the Service and that such Service will not
infringe upon or conflict with the copyright or other intellectual property
right held by any third party. In furtherance of the foregoing, DoubleClick
shall indemnify, defend and hold Company harmless from and against any and all
claims, actions, losses, damages, liabilities, costs and expenses (including
reasonable attorneys' fees) resulting from or arising out of or in connection
with any breach of the foregoing representations and warranties, including,
without limitation, claims for infringement of copyright or other intellectual
property rights. Company shall promptly notify DoubleClick of all claims and
proceedings related thereto of which Company becomes aware.
4. No Warranties/Liabilities. EXCEPT AS EXPRESSLY PROVIDED ABOVE, NEITHER
-------------------------
PARTY MAKES ANY WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS OF THE SERVICE OR THE WEB
SITE FOR A PARTICULAR PURPOSE INCLUDING, WITHOUT LIMITATION, THE TYPE OF
ADVERTISING OR AMOUNT OF ADVERTISING WHICH WILL BE DELIVERED TO PAGES THROUGH
THE SERVICE. DOUBLECLICK SHALL NOT BE LIABLE FOR ANY ADVERTISERS WHOSE
ADVERTISING APPEARS ON THE SERVICE, NOR THE CONTENTS OF ANY ADVERTISING, NOR
SHALL DOUBLECLICK BE LIABLE FOR ANY LOSS, COST, DAMAGE OR EXPENSE (INCLUDING
COUNSEL FEES) INCURRED BY COMPANY IN CONNECTION WITH COMPANY'S PARTICIPATION IN
THE SERVICE. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY TECHNICAL
MALFUNCTION, COMPUTER ERROR OR LOSS OF DATA OR OTHER INJURY, DAMAGE OR
DISTRIBUTION TO COMPANY'S PAGES OR WEB SITE OR THE SERVICE. IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL OR
CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES ARISING OUT OF OR IN RELATION TO
THIS AGREEMENT.
1
<PAGE>
5. Confidentiality. Any information relating to or disclosed in the
---------------
course of this Agreement by either party (the "Disclosing Party") to the other
party (the "Receiving Party"), which is or should be reasonably understood to be
confidential or proprietary to the Disclosing Party, including but not limited
to, the material terms of this Agreement, information about the Service and
technical processes and formulas, source code, product designs, sales, cost and
other unpublished financial information, product and business plans,
projections, and marketing data shall be deemed "Confidential Information" and
shall not be used, disclosed or reproduced by the Receiving Party without the
Disclosing Party's prior written consent. "Confidential Information" shall not
include information (a) already lawfully known to or independently developed by
the Receiving Party, (b) disclosed in published materials, (c) generally known
to the public, (d) lawfully obtained from any third party, or (e) required to be
disclosed by law.
6. Breach. Either party shall have the right to immediately terminate
------
this Agreement in the event the other party commits a material breach of this
Agreement and such breach is not cured by the breaching party within thirty (30)
days of its receipt of notice of such breach from the non breaching party.
7. Miscellaneous. Notwithstanding any provision hereof, for the purpose
-------------
of this Agreement each party shall be and act as an independent contractor and
not as an employee, partner, joint venturer, or agent of the other and shall not
bind not attempt to bind the other to any contract.
This Agreement, including the Standard Terms and Conditions, represents the
entire understanding between DoubleClick and Company regarding DoubleClick's
services and supersedes all prior agreements. No waiver, modification or
addition to this Agreement shall be valid unless in writing and signed by the
parties to this Agreement. Notwithstanding the foregoing, DoubleClick shall have
the right to modify or make additions to the placement algorithm governing.
Advertising delivery and the HTML Modifications, from time to time upon
reasonable prior notice to Company.
If any provision of this Agreement shall be adjudicated by any court of
competent jurisdiction to be unenforceable or invalid, that provision shall be
limited or eliminated to the minimum extent necessary so that this Agreement
shall otherwise remain in full force and effect and the other provisions shall
be unaffected.
8. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the substantive laws of the State of New York and Company agrees
that jurisdiction and venue of all matters relating to this Agreement shall be
vested exclusively in the federal, state or local courts within the State of New
York.
9. Definitions. "Advertiser" is defined as a company, entity or
-----------
individual which provides Advertising to DoubleClick for distribution through
the Service. "Advertising" (or its correlative term "Advertisement") is defined
as third party materials including "banners", "pop-up windows", "buttons",
"roadblocks", "tickers", "intermercials", "incentives" and any other forms of
advertisements and their contents. "Day's Sales Outstanding" shall be the
average number of days it takes DoubleClick to collect its Net Accounts
Receivable (as defined herein) from Advertisers and which shall be calculated as
follows: DoubleClick's account's receivable balance from the immediately
preceding semi-annual accounting period (calculated on a calendar year basis)
after adjustment for any reserve for doubtful accounts and deferred or unbilled
revenue ("Net Accounts Receivable") shall be divided by the average daily
revenue recognized by DoubleClick for the last two months of such semi-annual
accounting period. DoubleClick's Day's Sales Outstanding shall be calculated
following the end of each semi-annual accounting period and shall be used in
determining the date of payment for amounts due to Company for Advertising which
is delivered to Pages in each of the months comprising the ensuring semi-annual
accounting period. "Net Revenues" is defined as the gross billings earned from
Advertisers by DoubleClick less (i) rate card and volume discounts and agency
commissions, and (ii) a bad debt allowance of 1% of said gross billings.
"Impression" is defined as occurring each time Advertising appears on a Page
resulting from a user accessing or visiting such Page. "Page" is defined as a
page of the Web Site designated by Company to be linked to the Service and is
accepted and approved by DoubleClick. "Paid Advertising" is defined as any
Advertising which is paid for by an Advertiser. "Service" is defined as the
DoubleClick service that delivers Advertising to any Page(s) of the Web Site in
the following order and manner: For users which match the criteria selected by
an Advertiser from information currently available to DoubleClick concerning
users. Paid Advertising from such Advertiser will appear. If no match occurs or
Paid Advertising is unavailable. Advertising for another web site linked to the
Service will appear (and Company shall receive "barter" Advertising entitling it
to one free delivery of its Advertising to a web site linked to the Service.) In
addition, Advertising promoting the Service and Advertising promoting charitable
causes and non-profit organizations (i.e. public service announcements) may
appear on Pages. "Spot" is defined as the specific place on a Page where
Advertising may appear through the Service. "Web Site" is defined as (i)
2
<PAGE>
the Company's web site referred to above and (ii) pages of those web sites which
are owned by third parties ("Third Party Web Site Owners"), but for which
Company has the right to deliver Advertising.
3
<PAGE>
EXHIBIT B
---------
Advertising Report Information
------------------------------
Daily Advertiser report information shall include:
(1) Advertiser name
(2) Number of Impressions contracted
(3) Area/Category of the Web Site targeted
(4) CPM rates
(5) Term of Advertising contract and dates contracted
(6) Impressions delivered against number of Impressions contracted
(7) Click rates for each Advertisement of (i) Strategic Advertisers and
(ii) Advertisers whose Advertising is targeted exclusively for the Web
Site. With respect to the foregoing Advertisers who specifically
target "Affinity Areas" within the Web Site, DoubleClick will provide
click rates for each applicable Advertisement by Affinity Area. (It is
understood and agreed that DoubleClick shall not be required to make
any click rates referred to in this item (7) available until such time
as the applicable Advertiser has granted DoubleClick permission to
make the click rate information available to Company; Company shall be
the party responsible for obtaining any permissions of the Strategic
Advertisers and DoubleClick shall be the party responsible for
obtaining any permissions of Advertisers whose Advertising is targeted
exclusively for the Web Site and who are not Strategic Advertiser).
(8) Forecast of Impressions available for sale to Advertisers and
available Impression (based on forecast) for sale to Advertisers.
4
<PAGE>
EXHIBIT 10.8
December 23, 1998
VIA AIR BOURNE EXPRESS
- ----------------------
VIA FASCIMILE (415) 597-4860
Mr. Chris Tucher
LookSmart, Ltd.
487 Bryant Street
San Francisco, CA 94107-1316
Re: DEVELOPMENT AGREEMENT BETWEEN COX INTERACTIVE MEDIA, INC.
--------------------------------------------------------
AND LOOKSMART, LTD.
------------------
Dear Chris:
Enclosed herewith is one fully executed copy of the above-referenced
agreement.
Very truly yours,
/s/ Steven D. Rosenboro
Steven D. Rosenboro
General Counsel/Acting Director of Business Development
Enclosures
Cc: Lacey Lewis
Paul Dubsky
<PAGE>
EXHIBIT 10.8
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT (this "Agreement") is entered into with an
effective date as of July 27, 1998 by and between Cox Interactive Media, Inc., a
Delaware corporation ("CIM") with offices at The Carriage Works, 530 Means
Street, N.W., Suite 200, Atlanta, Georgia, and LookSmart, Ltd., a Delaware
corporation ("LookSmart") with offices at 600 Townsend Street, San Francisco,
California (CIM and LookSmart being referred to sometimes herein individually as
a "Party" and collectively as the "Parties").
WHEREAS, CIM and LookSmart are parties to that certain Development,
Licensing and Affiliation Agreement, dated as of May 7, 1998 (the "Affiliation
Agreement"), the terms of which are incorporated by reference herein to the
fullest extent not otherwise inconsistent with the terms hereof; and
WHEREAS, in furtherance of the purposes of the Affiliation Agreement, the
Parties have determined to initiate the development of Local Databases and Local
Ontologies for [**] in the United States for use in the Localized Category
Search functionalities that will be made available to users of LookSmart's web
site or any other web site utilizing LookSmart's search functionality; and
WHEREAS, CIM and LookSmart have agreed that, subject to the terms and
conditions set forth herein, LookSmart shall be responsible for the creation and
development of such Local Databases and Local Ontologies for [**] of such
[**] (such Local Databases and Local Ontologies for those [**] markets being
referred to sometimes herein as the "Deliverables"), while CIM shall be
responsible for the creation and development of Local Databases and Local
Ontologies for the remaining [**] such markets; and
WHEREAS, the Parties wish to set forth herein their agreement regarding
certain specific terms and conditions relating to LookSmart's development of the
Deliverables;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS.
-----------
Capitalized words used herein and not otherwise defined shall have the meanings
given them in the Affiliation Agreement.
SECTION 2. DEVELOPMENT OF LOCAL DATABASES AND LOCAL ONTOLOGIES.
---------------------------------------------------
2.1 General. CIM and LookSmart shall undertake, on the terms and
-------
conditions set forth herein, to create and develop Local Databases and Local
Ontologies for the [**] United States markets (the "Markets") identified on
Exhibit A hereto, which Local Databases and Local Ontologies will be made
available to users of LookSmart's web site or any other web site utilizing
LookSmart's search functionality for use with Localized Category Searches to the
extent contemplated by the Affiliation Agreement. Subject to the terms and
conditions set forth herein, CIM hereby engages LookSmart to create and develop,
and LookSmart hereby accepts such engagement and agrees to create and develop,
Local Databases and Local Ontologies for the [**] Markets designated on Exhibit
B as "LookSmart Markets," and CIM shall be responsible for the creation and
development of the Local Databases and Local Ontologies for the [**] remaining
Markets, which are designated on Exhibit B as "CIM Markets."
2.2 Specifications for Deliverables.
-------------------------------
2.2.1 Local Databases. LookSmart shall research and analyze
---------------
Internet web sites in order to compile and develop a Local Database for each of
the LookSmart Markets containing a listing of web sites, identified and
hypertext-linked by their Universal Resource Locators ("URLs"), that focus on
information, entertainment or services specific or of particular interest to
each LookSmart Market. The Local Databases compiled and developed by LookSmart
for the LookSmart Markets shall contain, in the aggregate, not less than [**]
distinct URLs.
2.2.2 Local Ontologies. LookSmart shall research and develop
----------------
hierarchies to categorize the web sites in each Local Database to facilitate
Localized Category Searches by users from LookSmart's web site or
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as *****. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
<PAGE>
other web sites utilizing LookSmart's search functionality. The top thirteen
(13) categories (the "LookSmart General Categories") in each Local Ontology
shall be based on the ontology previously developed and mutually agreed to by
CIM and LookSmart for use with LookSmart's Category Search functionality. The
appearance and placement of categories other than the LookSmart General
Categories shall be based on the particular interests and preferences of users
in each of the LookSmart Markets, which LookSmart shall develop in consultation
with CIM as contemplated hereunder.
2.2.3 Formats for Deliverables. LookSmart shall use all
------------------------
commercially reasonable efforts to deliver the Deliverables to CIM as they are
completed in the formats specified in Exhibit C hereto.
2.3 Development and Delivery Schedule. LookSmart shall employ [**]
---------------------------------
teams (each a "Development Team" and collectively, the "Development Teams"),
consisting of approximately [**] developers and editors each. Each
Development Team shall undertake to create a Local Database and Local Ontology
for one (1) LookSmart Market per week. During the ninety (90) day period
commencing on July 27, 1998 and expiring on October 26, 1998 (the "Development
Period"), LookSmart shall develop, deliver and, if necessary, revise the
LookSmart Deliverables in a form that CIM deems acceptable pursuant to Section
2.4.3 below.
2.4 Acceptance of Deliverable. The parties acknowledge that, as of the
-------------------------
date CIM executes this Agreement, CIM shall thereby deem the Deliverables
to be acceptable.
2.5 Development Fees. In consideration for LookSmart's efforts in
----------------
developing the Local Databases and Local Ontologies for the LookSmart Markets in
accordance with this Agreement, CIM shall pay to LookSmart a total of
[**] (the "LookSmart Development Fee"), in accordance with the terms
described in this Section 2.5. The parties hereto acknowledge and agree that,
prior to the execution of this Agreement, CIM has paid to LookSmart a [**]
portion of the LookSmart Development Fee. The [**] balance of the LookSmart
Development Fee shall be paid by CIM to LookSmart as promptly as practicable
after LookSmart delivers the Deliverable to CIM.
2.6 Future Markets. If CIM and/or LookSmart should decide, at a future
--------------
date, to develop Local Databases and Local Ontologies for markets not covered in
this Agreement ("Future Markets"), the Parties agree to negotiate in good faith
regarding the terms and conditions for the creation and development of such
Future Sites.
SECTION 3. MAINTENANCE.
-----------
CIM shall use commercially reasonable efforts to maintain and update the
LookSmart Deliverables used with the Localized Category Searches in the
LookSmart Markets.
SECTION 4. OWNERSHIP.
---------
The Parties agree, consistent with the provisions of the Affiliation
Agreement, that all Intellectual Property Rights to the LookSmart Category
Search (including the Localized Category Search), the LookSmart Search Engine
and the LookSmart Tools are owned solely by LookSmart and that all Intellectual
Property Rights to the Local Ontologies and the Local Databases shall be owned
solely by CIM. Each Party agrees that it will make no claim to Intellectual
Property Rights in or to the Intellectual Property owned by the other Party.
Licenses for and restrictions on use of owned or licensed functionalities,
content and marks shall be granted by the Parties pursuant to the terms and
conditions contained in Section 4 of the Affiliation Agreement.
SECTION 5. DISPUTE RESOLUTION.
------------------
5.1 Informal Procedures. If any dispute arises between the parties
-------------------
relating to this Agreement, each of CIM and LookSmart shall (i) designate one
(1) representative (each a "Negotiator" and together, the "Negotiators") to
attempt to resolve, in good faith, such dispute. The Negotiators shall have
seven (7) days, beginning on the day on which a particular dispute arises, to
resolve the dispute. If the Negotiators fail to settle the dispute within seven
(7) days, then (ii) the dispute shall be presented by the CIM Negotiator and the
LookSmart Negotiator to the chief executive officers of CIM and LookSmart,
respectively, who shall have seven (7) days to resolve the dispute.
5.2 Other Remedies. If any dispute arising between the Parties is not
--------------
resolved pursuant to the terms of Section 5.1 above, the Parties shall each have
the right to pursue all available legal rights and remedies.
-2-
<PAGE>
SECTION 6. CONFIDENTIALITY.
---------------
The Parties hereby acknowledge that each of them may have access to
confidential and proprietary information which relates to the other party's
business (the "Confidential Information"). Each Party agrees to preserve and
protect the confidentiality of the Confidential Information and not to disclose
any applicable Confidential Information without prior written consent of the
other Party; provided, however, that any Party hereto may disclose to any other
-------- -------
third-party any information which is: (i) already publicly known; (ii)
discovered or created independently by such party; or (iii) otherwise learned
through legitimate means other than from the other party to this Agreement.
Moreover, any Party hereto may disclose any Confidential Information hereunder
to such Party's agents, attorneys and other representatives who agree to
preserve the confidentiality thereof in accordance with this Agreement or
pursuant to the requirements of any court or government agency.
SECTION 7. MISCELLANEOUS.
-------------
7.1 Incorporation by Reference. All of the terms and provisions of the
--------------------------
Affiliation Agreement shall remain in full force and effect, except to the
extent the same have been expressly modified by this Agreement.
7.2 Notices. All notices and other communications given or made
-------
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered by hand, by telecopier device
(confirmed by hand delivery or overnight courier service) or by overnight
courier service to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to CIM: Cox Interactive Media, Inc.
"The Carriage Works"
530 Means Street, N.W. Suite 200
Atlanta, Georgia 30318-5730
Attention: Mr. Peter M. Winter
Telecopier: (404) 572-1880
with a copy to: Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Edward J. O'Connell
Telecopier: (202) 776-2222
If to LookSmart: LookSmart, Ltd.
600 Townsend Street
Suite 49E
San Francisco, CA 94103
Attention: Mr. Martin Hosking
Telecopier: (415) 437-3829
with a copy to: Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Henry Barry, Esq.
Telecopier: (650) 496-4006
7.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED, AND
-------------
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA WITHOUT REGARD TO
ITS LAWS PERTAINING TO CONFLICTS OF LAW.
-3-
<PAGE>
7.4 Non-Infringement. LookSmart represents and warrants that the
----------------
Deliverable provided under this Agreement to CIM, will not, to LookSmart's
knowledge, under the federal or state laws of the United States, infringe in any
manner any intellectual property rights of a third party.
7.5 LIMITATION OF LIABILITY. EXCEPT WITH RESPECT TO LIABILITY ARISING
-----------------------
FROM A PARTY'S INDEMNIFICATION OBLIGATIONS HEREUNDER, GROSS NEGLIGENCE, OR
WILLFUL MISCONDUCT, NEITHER PARTY HERETO SHALL BE LIABLE TO THE OTHER FOR
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) SUCH AS, BUT NOT
LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS.
7.6 Entire Agreement; Amendment. This Agreement, and all documents and
---------------------------
certificates to be delivered by the parties pursuant hereto, together with the
Affiliation Agreement, collectively represent the entire understanding and
agreement between CIM and LookSmart with respect to the subject matter of this
Agreement. This Agreement cannot be amended, supplemented or modified except by
an agreement in writing which makes specific reference to this Agreement and
which is signed by the party against which enforcement of any such amendment,
supplement or modification is sought.
7.7 Counterparts. This Agreement may be signed in any number of
------------
counterparts with the same effect as if the signature on each such counterpart
were upon the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of
the date first above written.
CIM:
---
COX INTERACTIVE MEDIA, INC.
By: /s/ Steven Rosenboro
Name: Steven Rosenboro
Title: General Counsel
Date: December 23, 1998
LOOKSMART:
---------
LOOKSMART, LTD.
By: /s/ Chris Tucher
Name: Chris Tucher
Title: VP/Bus. Dev.
Date: Dec. 10, 1998
-4-
<PAGE>
EXHIBIT A
[**]
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as *****. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT B
CIM MARKETS AND LOOKSMART MARKETS
Initial CIM Markets
- -------------------
[**]
<PAGE>
EXHIBIT B
CIM MARKETS AND LOOKSMART MARKETS (Continued)
Initial LookSmart Markets
- -------------------------
[**]
<PAGE>
EXHIBIT B
CIM MARKETS AND LOOKSMART MARKETS (Continued)
Initial LookSmart Markets
- -------------------------
[**]
<PAGE>
EXHIBIT C
FORMATS FOR DELIVERIES FROM LOOKSMART TO CIM
The database produced by LookSmart will be reviewed by CIM. LookSmart will
notify CIM via e-mail when a batch of web sites is ready for review.
CIM will access this database via the standard LookSmart interface. The
content should be in finished form in the format as users view it. The database
will be delivered to CIM after it has been collected, edited, and the data
extracted so that it can be read from a standard Internet browser.
The database will be evaluated according to quality and quantity, and CIM
reserves the right to approve or reject the database according to either
criteria in line with the following guidelines.
Quality is determined by accuracy of grammar, typographical errors and
links. The database must be deemed acceptable according to reasonable standards
and the best judgment of CIM staff. CIM may randomly sample up to five percent
of the entries in the in the database for accuracy and relevance.
As for quantity, LookSmart and CIM agree that the database for each market
should consist of enough web sites and reviews to thoroughly cover each relevant
category. LookSmart at all times will adhere to the quality guidelines
referenced elsewhere in this Agreement.
<PAGE>
EXHIBIT 10.9
NETSCAPE COMMUNICATIONS CORPORATION
U.S.ENGLISHLANGUAGENETSEARCHSERVICESAGREEMENT
-PREMIER PROVIDER-
Summary Cover Sheet
EFFECTIVE DATE: Date of last signature of the Agreement.
PARTIES:
Premier Provider: Netscape:
LookSmart Ltd. Netscape Communications Corporation
600 Townsend Street, Suite 49E 501 East Middlefield Road, MV-
002
San Francisco, CA 94103 Mountain View, CA 94043
Fax: 415/437-3829 Fax: (650) 528-4123
Attn: [CEO] Attn: General Counsel
TERRITORY: United States
--------------
LOCAL LANGUAGE: U.S. English
--------------
PREMIER PERIOD: 1 year, from June 1, 1998 (Launch) to May 31, 1999.
---------------------------------------------------
1. Exposure on Stack....................... [**]
2. Minimum Guaranteed Exposures............ [**]
3. Payment................................. [**]
[**]
4. Discount on advertising on Netscape's
Web Sites............................... [**]
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL Rev. 051898
Confidential treatment has been requested for Portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as *****. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
<PAGE>
NETSCAPE COMMUNICATIONS CORPORATION
U.S.ENGLISHLANGUAGENETSEARCHSERVICESAGREEMENT-PREMIERPROVIDER
OBJECTIVE: To direct users of a Netscape client software Internet browser
product ("Browser") to U.S. English-language Internet search and directory
services.
TERMS AND CONDITIONS:
1. PREMIER PROVIDER. The entity ("PREMIER PROVIDER") named on the signature
page to this agreement ("AGREEMENT") will be a premier search and directory
service for the U.S. English-language HTML page accessible by the public via the
Internet at the Universal Resource Locator ("URL")
http://home.netscape.com/home/internet-search or such other URL as Netscape may
designate from time to time in writing ("PAGE"). The Page is part of the
collection of U.S. English-language HTML documents accessible by the public via
the Internet at the URL http://home.netscape.com and/or at such other URL(s) as
Netscape may designate ("NETSCAPE'S WEB SITE"). The Page may also be accessed by
Internet users of the Netscape-distributed English-language version of the
Browser by pressing or "clicking" on the Net Search button, by visiting the Page
by way of a bookmark pre-loaded in certain versions of the Browser toolbar as
described herein, or such other methods as Netscape may specify from time to
time. Notwithstanding the foregoing, Netscape reserves the right to determine
other means whereby users may access the Page, which provides Internet search
and directory services on Netscape's Web Site, including, but not limited to,
the use of mirror sites and pointers based on a user's IP address, and which
mirror sites and pointers are separate and distinct from the Page described in
this Agreement. The Page shall remain Netscape's primary Internet search page
during the term of this Agreement.
2. PREMIER PERIOD. Netscape will maintain the Premier Graphic, as defined
below, on the Page for the following one-year period ("PREMIER PERIOD"):
From: June 1, 1998
Until: May 31, 1999
3. SERVICES PROVIDED BY NETSCAPE.
3.1. Premier Graphic. Each of the participants, including Premier
---------------
Provider, in this Net Search Program (the "PREMIER PROVIDER(S)") will supply
Netscape with HTML and/or GIF files, or files of such other format as may be
designated from time to time in writing by Netscape, which conform to the
specifications in Exhibit A (such files comprise, for Premier Provider, the
---------
"PREMIER GRAPHIC" and for the Premier Providers, the "PREMIER GRAPHICS"), which
Netscape will place on the Page during the Premier Period. Premier Provider
shall retain all right, title and interest in and to the Premier Graphic
(including the copyright ownership thereof), and Premier Provider hereby grants
Netscape a royalty-free worldwide license, without payment or other charge
therefor, to use, display, perform, reproduce and distribute the Premier
Graphic, and such other licenses with respect to the Premier Graphic necessary
to fulfill the intention of this Agreement. The Premier Graphic shall contain a
functional search field and, if available, directory tree. The specifications of
the Premier Graphic and the placement on the Page of the Premier Graphics are
set forth on Exhibit A hereto. Premier
---------
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL 2 Rev. 051898
<PAGE>
Provider's compliance with the content as well as the language, technical,
visual and functional specifications set forth in Exhibit A are a material
----------
obligation of Premier Provider under this Agreement. Netscape may, upon notice
to Premier Provider, revise Exhibit A, provided that the display of the Premier
----------
Graphics shall remain the largest and most prominent category of search graphics
on the Page.
3.2. Stack. Netscape will produce the Page as set forth on Exhibit A. The
----- ---------
Premier Graphics on any Page will appear to be overlapped in a stack (the
"STACK"). A Premier Graphic will be accessible by the end user by pressing or
"clicking" on a tab for the relevant Premier Provider's service. Netscape will
produce the Page such that when an end user presses or "clicks" on hypertext
links ("PREMIER LINKS") placed by Premier Provider on the Premier Graphic, the
end user's Browser will access Premier Provider's applicable HTML pages located
at the applicable URL's ("PREMIER URL'S") for such pages on the collection of
English-language HTML documents Premier Provider maintains as its primary web
site whose home page is located at the URL http://www.[premier provider].com
("PREMIER PROVIDER'S WEB SITE").
3.3. Rotation. Netscape will rotate the display of the Premier
--------
Graphics to be displayed on the top of the Stack when each Page is served to an
end user who has not selected a Premier Graphic as a default, as described in
Section 3.4. Subject to the provisions of Section 3.4, the Premier Graphic will
appear on the top of the Stack of each Page [**] ("ROTATION PERCENTAGE") of the
time in which the Page is served up to end users who have not selected a
particular Premier Graphic or selected a default Premier Graphic when accessing
the particular Page. Premier Provider acknowledges that the Rotation Percentage
is an annualized target, and that, accordingly, at any given time the display of
the Premier Graphic may be adjusted by Netscape to occur above or below the
Rotation Percentage.
3.4. End User Default. Netscape shall produce each Page such that the
----------------
end user may select which Premier Graphic, including, without limitation, the
Premier Graphic, the end user would prefer to have displayed on the top of the
Stack upon the calling up of each Page by such end user. If an end user selects
a favorite, default Premier Graphic, the Premier Graphic selected by the end
user will be displayed on top of the Stack when that end user accesses such
Page. If an end user has elected to have a particular Premier Graphic appear on
top of the Stack on a default basis, the other Premier Graphics, including,
without limitation, the Premier Graphic, to the extent the Premier Graphic is
not selected as such default, will not appear on the top of the Stack unless
selected by the end user.
3.5. Page Specifications. The specifications of each of the Premier
-------------------
Graphics, including, without limitation, the Premier Graphic, the Stacks, and
their placement on the Page are set forth on Exhibit A hereto; provided however,
---------
that Netscape may, upon notice to Premier Provider, (i) change the location of
the Stacks or the Premier Graphics on the Page, (ii) redesign or reconfigure the
Stacks, the Page, Netscape's Web Site, and/or the manner in which an end user
interacts with any of the pages of Netscape's Web Site, or (iii) revise Exhibit
-------
A, and Premier Provider shall promptly, and in any event, within no more than
- -
thirty (30) days following receipt of the notice, supply Netscape with a revised
Premier Provider Premier Graphic which conforms to the specifications of the
revised Exhibit A. Netscape reserves the right to use, in its sole discretion,
---------
those portions of the Page not used by the Stack. In the event that Netscape
revises Exhibit A and Premier Provider must supply conforming materials, such
conforming materials shall be received by Netscape and fully functional no later
than five (5) days (excluding holidays) prior to the date Netscape specifies for
the posting of the revised Premier Provider Premier Graphic or Stack on
Netscape's Web Site. If Netscape has not received such revised and conforming
materials no later than five (5) days prior to the date Netscape specifies for
the posting of the revised Premier Provider Premier Graphic or Stack on
Netscape's Web Site, or if the materials supplied by Premier Provider do not
function in accordance with the specifications set by Netscape, then Netscape
shall either (i) post previous
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL 3 Rev. 051898
<PAGE>
versions of Premier Provider's supplied materials, or (ii) make such changes as
necessary to bring the materials into conformity with the new specifications,
until such time as the specifications of Exhibit A are again revised.
---------
3.6. Update of Premier Graphic. Premier Provider may elect to revise or
-------------------------
update its Premier Graphic, provided that such Premier Graphic complies with the
specifications of Exhibit A. Netscape shall provide Premier Provider with a
---------
"Program Schedule" of material due dates and planned updates attached hereto as
Exhibit B.
- ----------
3.7. Engineering Support. Netscape shall provide expert to expert
-------------------
support, as described in Exhibit C, free of charge, for any software deployed by
---------
Premier Provider in accordance with Section 6.2.
4. ADDITIONAL PREMIER PROVIDER BENEFITS.
4.1. Advertising Services. During the Premier Period, Premier Provider
--------------------
may purchase additional advertising on Netscape's Web Site for advertising that
will run during the Premier Period for the service of Premier Provider at a
discount of [**] off Netscape's then standard rates for such advertising.
Premier Provider shall execute Netscape's standard sponsorship agreement for
online advertising with respect to postings of Premier Provider's advertisement
("PREMIER PROVIDER'S ADVERTISEMENT"). Premier Provider and Netscape shall
mutually agree to the schedule and the placement of Premier Provider's
Advertisement on Netscape's Web Site. Premier Provider shall supply Netscape
with the graphic files and other materials and information within the timeframes
and as set forth in the specifications of the applicable Netscape advertising
program and as reasonably requested by Netscape to produce the Premier
Provider's Advertisement. Premier Provider's Advertisement shall not contain any
Internet search or directory functionality as such Premier Provider's
Advertisement is served to end users.
4.2. Limit on Premier Providers. Netscape shall limit the number of
--------------------------
companies whose tabs appear on the Stack at any one time to a total of [**]
entities.
4.3. Pre-loaded Bookmark. During the Premier Period, Netscape shall
-------------------
include a graphic HTML link for the Premier Provider to the Page ("BOOKMARKED
PAGE") in the bookmark section of the U.S. English-language version of Netscape
Communicator client software 4.x versions. The Bookmarked Page may be
reconfigured, customized or deleted by an end user. Premier Provider will not be
disadvantaged relative to the other Premier Providers vis a vis the presence,
absence, or programmatic status of bookmarked pages on any major upgrade or
successor version of Netscape Communicator.
5. EXPOSURE GUARANTEE
5.1. (a) An exposure ("EXPOSURE") occurs upon the serving up to an end
user of: (i) the HTML pages displaying the Premier Graphic on the top of a Stack
as described in Section 5.1 (b); (ii) any of Premier Provider's Web Site in
conjunction with a search query executed by an end user through entering the
search terms in the URL window of a Browser; (iii) any of Premier Provider's Web
Site as a result of an end user clicking on a link (excluding Premier Links) to
such Premier Provider's Web Site on Netscape's Web Site; (iv) any of Premier
Provider's Web Site as a result of an end user clicking on a link to such
Premier Provider's Web Site on sites operated by a Netscape partner under
Netscape's U.S. English "Netscape Guide" program; (v) the Page when accessed by
a click from the Bookmarked Page; (vi) a click through to any of the Premier
Provider's Page(s) from the Netcenter or Netscape home page; (vii) a link
through a disabling device only if and to the extent permitted under Section
6.5; or (viii) any other Premier Provider content as a consequence of an end
user accessing a promotional page on Netscape's Web Site if the parties agree
that such promotional page traffic shall constitute an
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL 4 Rev. 051898
<PAGE>
Exposure. (b) Premier Provider's Premier Graphics may be served on the top of
the Stack to an end user by the following means: (a) the Premier Graphics is
displayed as part of a random rotation, as described in Section 3.3; (b) the
Premier Graphic has been set as an end user's default selection, as described in
Section 3.4; or (c) an end user selects or clicks on the Premier Graphic tab in
the Stack.
5.2 Minimum Guaranteed Exposures. Netscape guarantees that Premier
----------------------------
Provider shall receive no fewer than a combined total of [**] Exposures
("MINIMUM GUARANTEED EXPOSURES") during the Premier Period.
5.3. Make-Good. If, at the end of the Premier Period, Premier Provider's
---------
content has not, in the aggregate, received total Exposures equal to or greater
than the Minimum Guaranteed Exposures, and provided that Premier Provider has
complied with its obligations hereunder, Netscape will, at its discretion: (i)
continue to place the Premier Graphic on the Page as specified in Section 3
beyond the end of the Premier Period until such time as the Minimum Guaranteed
Exposures have been achieved, or (ii) deliver to Premier Provider a program of
equivalent value as a remedy for the shortfall in Exposures. The remedy set
forth in this Section 5.3 shall be Premier Provider's sole and exclusive remedy,
and Netscape's sole and exclusive obligation, regarding the Netscape's
obligation set forth in Section 5.2 in the event, by the end of the Premier
Period, the Minimum Guaranteed Exposures have not been achieved.
6. PREMIER PROVIDER OBLIGATIONS. In addition to the other obligations set
forth herein, Premier Provider agrees to the following provisions.
6.1 Netscape Now. Premier Provider shall display the then-current
------------
version of the "Netscape Now" (or equivalent promotional) button prominently
above the fold of Premier Provider's home page on Premier Provider's Web Site
and on any page linked to a Premier URL, and use best efforts to include the
following statement (or a statement designated by Netscape and generally used by
Netscape as a successor to the following statement or in connection with any
successor program to Netscape's Netscape Now program) next to the Netscape Now
button: "This site is best viewed with Netscape Communicator. Download Netscape
Now!". Premier Provider will produce the page such that when an end user presses
or clicks on the Netscape Now button (or such other button used in connection
with any successor program to the Netscape Now program), the end user's Internet
client software or online service will access the applicable HTML page located
at a URL supplied by Netscape. On any page on which the Netscape Now button, or
a successor button, is displayed, the Netscape Now button shall be top-most and
left-most, and equal to or greater in size and prominence than the virtual
button or other text or graphic for any third party Internet client software,
online service or software provider, or a "push" content delivery system or
other online service. Premier Provider shall use best efforts promptly to remedy
any misplacement of the Netscape Now button on its home page or any other pages
or any malfunctioning of the button, provided Netscape will fully cooperate with
Premier Provider to remedy any such misplacement or malfunctioning, and provided
further that Premier Provider shall not incur liability for any failure to
remedy such misplacement or malfunctioning if such remedy is not within the
reasonable control of Premier Provider. In the event that Netscape replaces the
Netscape Now program with a successor program, Netscape shall advise Premier
Provider and Premier Provider shall produce the page to conform to such
successor program, provided Premier Provider's obligations under such successor
program shall not be materially increased. Netscape hereby grants Premier
Provider a nonexclusive, nontransferable, nonassignable, nonsublicensable
license to perform and display the Netscape Now button directly in connection
with fulfilling the foregoing obligation. Premier Provider's use of the Netscape
Now button shall be in accordance with Netscape's reasonable policies regarding
advertising and trademark
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL 5 Rev. 051898
<PAGE>
usage as established from time to time by Netscape, including the guidelines of
the Netscape Now Program published on Netscape's U.S. English-language Web Site.
Premier Provider acknowledges that the Netscape Now button is a proprietary logo
of Netscape and contains Netscape's trademarks. In the event that Netscape
determines that Premier Provider's use of the Netscape Now button is
inconsistent with Netscape's quality standards, then Netscape shall have the
right to suspend immediately such use of the Netscape Now button. Premier
Provider understands and agrees that the use of the Netscape Now button in
connection with this Agreement shall not create any right, title or interest in
or to the use of the Netscape Now button or associated trademarks and that all
such use and goodwill associated with the Netscape Now button and associated
trademarks will inure to the benefit of Netscape. Premier Provider agrees not to
register or use any trademark that is similar to the Netscape Now button.
Premier Provider further agrees that it will not use the Netscape Now button in
a misleading manner or otherwise in a manner that could tend to reflect
adversely on Netscape or its products. If Premier Provider fails to honor the
commitment set forth in this Section 6.1, Netscape shall be relieved of its
obligations described in Section 5.3.
6.2. Server Software. To showcase the close relationship between Premier
---------------
Provider and Netscape and highlight Premier Provider's endorsement of Netscape's
products, Premier Provider shall use at least one (1) current version of
Netscape core Web server software product (currently comprised of Netscape
Enterprise Server and Netscape FastTrack Server) to maintain a portion of
Premier Provider's Web Site or operation and, if requested, provide Netscape
with evidence OF such USE.
6.3. Site Features. Premier Provider shall implement HTML Frames, layers,
-------------
dynamic HTML pages, Java, JavaScript, absolute positioning, cascading style
sheets or the then current client software technology (or subsequent features
displayable by the Browser, within the beta testing period of the availability
of such features) ("SITE FEATURES") for display with those Internet software
clients capable of displaying the Site Features on (i) Premier Provider's Web
Site, provided that Premier Provider shall use reasonable commercial efforts to
implement the Site Features on Premier Provider's Web Site in a location and in
a fashion as Netscape may agree, and (ii) at least one (1) HTML page located at
each Premier URL (or on an HTML page located further down the directory tree
from the page located at the Premier URL; provided Premier Provider will use
reasonable efforts to implement the Site Features as high in such directory tree
structure as possible), and, where appropriate, on all other HTML pages of
Premier Provider's primary Web site; and provided Premier Provider shall not be
required to implement the Site Features on pages of any secondary Web site of
Premier Provider that Premier Provider is required to construct to satisfy
Premier Provider's obligations under any third party contract existing as of the
date of this Agreement. Netscape shall use reasonable commercial efforts to help
Premier Provider implement changes in order to comply with new Site Features.
6.4. Mailto Link. Premier Provider shall include on the page served to
-----------
an end user in conjunction with the results of the end user's search query on
Premier Provider's service a "mailto" link which users of Premier Provider's
service can use to direct questions or help requests to Premier Provider.
Netscape shall also include such a "mailto" link on the page. Premier Provider
will use reasonable efforts to reply promptly, but in any event within one (1)
week, to any such question or help request.
6.5. No Disabling. Premier Provider shall not provide or implement any
------------
means or functionality that would (i) alter, modify or enable end users to alter
or modify, the Browser standard user interface or configuration, (ii) disable
any functionality of the Browser or any other Internet browser software, or
(iii) modify the functioning of pages served from Netscape's
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL 6 Rev. 051898
<PAGE>
Web Site. If Premier Provider fails to honor the commitment set forth in this
Section 6.5, Netscape will be relieved of its obligations described in Section
5.3.
6.6 Use of Premier Graphic Space. Premier Provider shall: (i) not use,
----------------------------
or assign the right to use, the space allotted the Premier Graphic, or links
therein, for the benefit of a third party without first obtaining Netscape's
prior written consent therefor; and (ii) not produce the Premier Graphic such
that it includes comparisons of Premier Provider's services with other services.
Premier Provider shall maintain the Premier Graphic for the purpose of promoting
Premier Provider's Internet search and directory services.
6.7. Preference for Netscape Products and Services. Premier Provider
---------------------------------------------
shall accord, in light of the intent of the parties to highlight their strategic
relationship as evidenced by the terms and conditions of this Agreement, in
Premier Provider's Web sites as well as Premier Provider's overall marketing
efforts, Netscape's products and services a position of prominence, overall as
well as on an element by element basis, at least as great as the positioning
accorded any third-party Internet client software, software provider, online
service or other service provider.
6.8 Co-Marketing; Netcenter Links. During the Premier Period, and any
-----------------------------
renewal or extension thereto, Premier Partner shall provide the following co-
marketing services. Premier Provider shall place hypertext links ("NETCENTER
LINK(S") under the computer, software or Internet related channel link to
Premier Provider's Web Site, the top level pages of its computer-, software- or
Internet-related directories (or their successors), and on any Premier Provider
search results pages generated from computer-, software- or Internet-related
keywords ("KEYWORDS"). The Keywords shall include, but not be limited to, the
following:
<TABLE>
<CAPTION>
COMPUTING OR INTERNET
SOFTWARE
- ----------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
computer linux program browse aiff newsgroups
computers netware programs browser mp3 usenet
laptop network shareware browsers jpgs com
pc networking software cyber cgi http
pcs networks virus download java https
code nt database downloads javascript net
codes unix desktop online perl nets
computing file security webs alt www
developer files system jpg bbs html
developers freeware systems animated bulletin link
programming help technology gif cyberspace links
wav newsgroup site
Netscape sites
website
</TABLE>
The Netcenter Links shall be produced so that when an end user presses or
"clicks" on the Netcenter Links, the end user's browser will access Netscape's
applicable HTML pages located at the applicable URL(s) for Netscape's Web Site.
The Netcenter Links shall be placed in a position equal to or better than any
other similarly situated button, link, listing or channel on Premier Provider's
Web Site. Each party shall also provide such additional co-marketing services as
the parties may, from time to time, mutually agree.
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL 7 Rev. 051898
<PAGE>
7. PAYMENT TO NETSCAPE.
7.1. Payment. Premier Provider shall pay Netscape an amount not less than
-------
[**] including the Participation Fee set forth below (collectively, the
"PAYMENT"). The Payment shall be comprised of the following:
(a) The minimum non-refundable payment shall be paid for the
following services:
Participation fees for the Net Search Program:
Engineering Services [**]
Redesign of Page [**]
NETSEARCH SLOTTING FEE [**]
Minimum Financial Commitment (Guaranteed Exposures x CPM rate): [**]
[**]
Total Non-Refundable Payment [**]
7.2 Timing. Premier Provider shall pay the total non-refundable payment
------
amount, which shall be payable on a quarterly basis, as follows:
[**] Upon the execution of this Agreement;
[**] September 30, 1998
[**] December 31, 1998
[**] March 31, 1999.
Last Quarterly payment
under Section 7.3, if any: May 31, 1999.
7.3. Excess Quarterly Exposures. If, during the Premier Period, the number
--------------------------
of Premier Provider's Exposures exceeds the number of Minimum Guaranteed
Exposures allotted to Premier Provider on a quarterly basis as set forth above,
Premier Provider shall pay to Netscape additional payments based on the value of
the Exposures set forth on the Cover Page, which obligation shall be reflected
in Netscape's invoice under Section 7.5. For each quarterly invoice during the
Premier Period, if the value (Exposures x applicable CPM price) of the Exposures
to date exceeds the value of the payment(s) received by Netscape to date, then
Premier Provider shall pay Netscape for the excess in value. If such value is 0
or negative, then Premier Provider shall pay, on a pro rata basis for such
quarter, the minimum Payments due as outlined above.
7.4. Payment Terms. All amounts payable to Netscape hereunder shall be
-------------
paid in U.S. Dollars. Except as otherwise set forth herein, all amounts payable
by Premier Provider hereunder are payable within thirty (30) days after receipt
by Premier Provider of the corresponding invoice submitted by Netscape. Any
portion of the Payment which has not been paid to Netscape within the applicable
time set forth above shall bear interest at the lesser of (i) one percent (1%)
per month, or (ii) the maximum amount allowed by law.
7.5. Taxes.
-----
a. Exclusive of Tax. All payments hereunder are exclusive of any
----------------
tax. Premier Provider shall pay or reimburse Netscape for all value-added,
sales, use, consumption, property, ad valorem and similar taxes, all customs
duties, import fees or similar charges, stamp
LookSmart/Netscape KS 5/19/98
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CONFIDENTIAL 8 Rev. 051898
<PAGE>
duties, license fees and similar costs, and all other mandatory payments to any
government agencies of whatever kind imposed with respect to products or
services provided by Netscape under this Agreement or with respect to this
Agreement except taxes imposed on the net income of Netscape. If the transaction
is exempt from tax, Premier Provider shall provide Netscape with a valid
exemption certificate or other evidence of such exemption in a form acceptable
to Netscape. Premier Provider shall, at its own expense, use reasonable efforts
to recover refundable or recoverable taxes. Each party shall cooperate with the
other in minimizing applicable tax.
b. No Withholding. All payments by Premier Provider to Netscape
--------------
pursuant to this Agreement shall be made without any withholding or deduction of
any withholding tax or other tax or mandatory payment to government agencies. If
Premier Provider is legally required to make any such withholding or deduction
from any payment due to Netscape under this Agreement, the sum payable by
Premier Provider upon which such withholding or deduction is based shall be
increased to the extent necessary to ensure that, after such withholding or
deduction, Netscape receives and retains, free from liability for such
withholding or deduction, a net amount equal to the amount Netscape would have
received and retained in the absence of such required withholding or deduction.
c. Provide Receipts. In order to assist Netscape in obtaining tax
----------------
credits or deductions, Premier Provider shall provide to Netscape, in a form
acceptable to Netscape, original or certified copies of all tax payment receipts
or other evidence of payment of taxes by Premier Provider with respect to
transactions or payments under this Agreement.
d. Survival of Obligations. Premier Provider's obligations under
-----------------------
this Section shall survive any termination of this Agreement.
7.6. Advertising Purchase by Netscape. During the Premier Period, Netscape
--------------------------------
shall purchase from Premier Provider advertising inventory and services on
Premier Provider's Web Site valued at 2 Million Dollars ($2,000,000) (181.3
million exposures @ $11.03/CPM). This $2 million shall be paid as a prepayment
as of the date of execution of this Agreement. Once Exposures exceed 181.3
million Exposures, then on a quarterly basis, IN ARREARS, Netscape shall
purchase from Premier Provider advertising inventory and services ON PREMIER
Provider's Web Site valued at an amount calculated based on 15% of the amount
payable under Section 7.3. Such advertising inventory and services shall be
based on Premier Provider's advertising rate card and shall include Netcenter
advertisements and a list of keywords/categories to be mutually agreed upon by
the parties including placement and available advertising key words or other
value added targeting services. The timing of the application of the advertising
credit against payment shall be as mutually agreed by the parties.
8. USAGE REPORTS.
8.1. Provide Usage Reports. Netscape and Premier Provider WILL each
---------------------
provide the other, via email to the email address set forth below, with usage
reports ("USAGE REPORTS") containing the information and in the format set forth
in Exhibit D hereto. The Usage Reports shall cover each one-month time period of
---------
the Premier Period, and the parties shall use reasonable commercial efforts to
deliver the Usage Reports within fifteen (15) days following the end of each
month. If, due to technical problems, a party is unable to provide any portion
of a Usage Report in any given month, the following data shall be used for each
day for which data is missing: ninety percent (90%) of the usage figures
reported for the same day of the week most recently reported (e.g. if data for
the day seven (7) days prior is available, ninety percent (90%) of the usage
figures for such day; if not available, the data for the day fourteen (14) days
prior, and so on). No more than every quarter during the Premier Period, upon
request and reasonable notice by Premier Provider, Netscape shall engage an
independent auditor to audit
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL 9 Rev. 051898
<PAGE>
reasonable notice by Premier Provider, Netscape shall engage an independent
auditor to audit the Usage Reports submitted to Premier Provider hereunder.
During Netscape's normal business hours and at Premier Provider's expense,
Premier Provider shall have the right to: (i) evaluate the process by which
Netscape collects data contained in the Usage Reports; and (ii) audit Netscape's
Usage Reports during the Premier Period and for two months after the end of the
Premier Period. If such audit shows that Premier Provider has overpaid at the
end of the Premier Period, such overpayment shall be corrected by Premier
Provider's presence on the Page being extended after the Premier Period for such
time until Premier Provider has received the Exposures which are commensurate
with the total amount, including credits, paid to Netscape hereunder. If an
audit conducted by Premier Provider establishes a material discrepancy, Netscape
shall pay for the reasonable cost of the audit.
8.2. No Liability. NETSCAPE AND PREMIER PROVIDER WILL USE REASONABLE
------------
COMMERCIAL EFFORTS TO ENSURE THE TIMELY DELIVERY, ACCURACY AND COMPLETENESS OF
THE USAGE REPORTS, BUT NEITHER PARTY WARRANTS THAT THE USAGE REPORTS WILL
CONFORM TO ANY PUBLISHED NUMBERS AT ANY GIVEN TIME. NEITHER PARTY SHALL BE HELD
LIABLE FOR ANY CLAIMS AS THEY RELATE TO SUCH USAGE REPORTS.
9. TERMINATION.
9.1. Methods of Termination.
----------------------
a. Term and Termination. This Agreement shall commence as of the
--------------------
date hereof and, unless sooner terminated pursuant to this Section 9.1, shall
terminate as of the end of the Premier Period.
b. Termination on Breach. Either party may terminate this
---------------------
Agreement if the other party materially breaches its obligations hereunder and
such breach remains uncured for fifteen (15) days following notice to the
breaching party of the breach or as otherwise provided in Section 10.
c. Termination for Convenience. Either party may terminate this
---------------------------
Agreement for its convenience upon sixty (60) prior written notice to the other
party.
9.2. Effect of Termination. Except as specifically provided otherwise in
---------------------
this Agreement, upon the expiration or termination of the Agreement, all rights
and obligations hereunder shall cease (other than Premier Provider's payment
obligations hereunder to the extent accrued on or prior to the termination date
or as otherwise provided in this Section 9.2) and each party will promptly and
at the direction of the other party, either return or destroy, and will not take
or use, any items of any nature that belong to the other party and all items
containing or related to Confidential Information (as defined in Exhibit E) of
---------
the other party. Notwithstanding the foregoing, if this Agreement expires or is
terminated for any reason, other than by Premier Provider as a result of
Netscape's material breach of the terms of this Agreement or by Netscape for its
convenience pursuant to Section 9.1(c), Premier Provider shall remain liable for
the value of the payments which are due or, but for such expiration or
termination, would otherwise become due and payable under the terms of this
Agreement. The following provisions shall survive the expiration or termination
of this Agreement for any reason: Section 7.3 (Excess Quarterly Exposures),
Section 7.6 (Taxes), Section 8.2 (No Liability), Section 9.2 (Effect of
Termination), Section 9.3 (No Compensation), Section 11 (Responsibility),
Section 12 (Limitation of Liability), and Section 16 (General). In addition, to
the extent that any credit provided by Premier Provider to Netscape pursuant to
Section 7.7 shall not be applied against advertising services provided by
Premier Provider to Netscape during the Premier Period, Section 7.7 shall
survive the expiration or termination of this Agreement until all such credits
shall be applied against such services.
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U.S. Net Search Premier Provider
CONFIDENTIAL 10 Rev. 051898
<PAGE>
9.3. No Compensation. Premier Provider shall not be entitled to any
---------------
compensation, damages or payments in respect to goodwill that has been
established or for any damages on account of prospective profits or anticipated
sales, and Premier Provider shall not be entitled to reimbursement in any amount
for any training, advertising, market development, investments, leases or other
costs that shall have been expended by either party before the expiration or
termination of this Agreement, regardless of the reason for or method of
termination of this Agreement. Premier Provider hereby waives its rights under
applicable laws for any such compensation, reimbursement or damages.
10. RIGHT TO REFUSE. Netscape will have the right to review the contents and
format of the Premier Graphic, the Bookmarked Page and Premier Provider's
Advertisement. If Netscape, in its sole discretion, at any time determines that
Premier Provider's Premier Graphic, the Bookmarked Page or Premier Provider's
Advertisement contains any material, or presents any material in a manner that
Netscape deems inappropriate for any reason, Netscape will inform Premier
Provider of the reason Netscape has made such determination and may (i) refuse
to include the Premier Graphic in the Page or Premier Provider's Advertisement
on Netscape's Web Sites, and/or (ii) immediately terminate this Agreement if
Premier Provider has not revised to Netscape's reasonable satisfaction the
Premier Graphic, the Bookmarked Page or Premier Provider's Advertisement within
one (1) business day of written notice from Netscape. If Netscape, in its sole
discretion, at any time determines that the Premier Provider's Web Sites
contains any material, or presents any material in a manner, that Netscape deems
inappropriate for any reason, Netscape may immediately terminate this Agreement
upon notice to Premier Provider. Netscape reserves the right to refuse to
include the Premier Graphic in the Page if such Premier Graphic does not
completely conform to the specifications set forth in Exhibit A, and any Premier
---------
Provider's Advertisement that does not completely conform to the specifications
of the applicable advertising program.
11. RESPONSIBILITY. Premier Provider is solely responsible for any liability
arising out of or relating to (i) the Premier Graphic, the Bookmarked Page, the
Premier URLs, the Premier Links or Premier Provider's Advertisement, (ii) any
material to which users can link through any of the foregoing or (iii) any use
of Premier Provider's search and directory service pursuant to this Agreement,
(collectively, the "Services"). Premier Provider represents and warrants that it
holds the necessary rights to permit the use of the Services by Netscape for the
purpose of this Agreement; and that the permitted use, reproduction,
distribution, or transmission of the Services, and any material to which users
can link through the Services will not violate any criminal laws or any rights
of any third parties, including, but not limited to, infringement or
misappropriation of any copyright, patent, trademark, trade secret, music,
image, or other proprietary or property right, false advertising, unfair
competition, defamation, invasion of privacy or rights of celebrity, violation
of any antidiscrimination law or regulation, or any other right of any person or
entity, or otherwise violate any applicable local, state, national or
international law. Premier Provider agrees to indemnify Netscape and to hold
Netscape harmless from any and all liability, loss, damages, claims, or causes
of action, including reasonable legal fees and expenses that may be incurred by
Netscape, arising out of or related to Premier Provider's breach of any of the
foregoing responsibilities.
12. LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE
OTHER FOR ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON
BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, AND WHETHER OR
NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THE LIABILITY
OF EITHER PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER WHETHER IN CONTRACT OR
TORT OR ANY OTHER LEGAL THEORY IS
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL 11 Rev. 051898
<PAGE>
LIMITED TO AND SHALL NOT EXCEED THE PAYMENT DUE FROM PREMIER PROVIDER HEREUNDER.
THE LIMITATIONS IN THIS SECTION DO NOT APPLY TO SECTION 11 (RESPONSIBILITY) OR
SECTION 16.5 (CONFIDENTIALITY).
13. COURSE OF DEALING. In consideration of Premier Provider's participation in
the Premier Program, until such time as Microsoft fully publicly documents and
makes available its operating systems' programming interfaces sufficiently to
enable Netscape to make use of all of the facilities and resources of those
operating systems on a basis equal to that of Microsoft, Premier Provider shall:
(1) Within looksmart.com, not accord Microsoft's Internet Explorer product a
position of preference or prominence, overall as well as on an element by
element basis; and (2) not make content available solely to users of client
software or services other than Netscape's, or disfavor or disadvantage users of
Netscape client software or services in any way relative to users of other
Internet client software or services.
14. ALTERNATIVE DISPUTE RESOLUTION. Any dispute hereunder will be negotiated
between the parties commencing upon written notice from one party to the other.
Settlement discussions and materials will be confidential and inadmissible in
any subsequent proceeding without both parties' consent. If the dispute is not
resolved by negotiation within 45 days following such notice, the parties will
refer the dispute to non-binding mediation conducted by JAMS/EndDispute in Santa
Clara County, California (the "Venue"). The parties will share the costs of
mediation. If the dispute is not resolved after 45 days of mediation, the
parties will refer the dispute to binding arbitration by JAMS/EndDispute in the
Venue. The results of any arbitration will be final and non-appeallable, except
that either party may petition any court of competent jurisdiction specified in
Section 16 to review any decision relating to Netscape intellectual property
matters (including the scope of license rights), vacating or modifying erroneous
conclusions of law or findings of fact not supported by substantial evidence.
The arbitrator may fashion any legal or equitable remedy except punitive or
exemplary damages, which both parties waive. The arbitrator will render a
written decision, which may be entered in and enforced by any court of competent
jurisdiction, but which will have no preclusive effect in other matters
involving third parties. The losing party will pay the costs of the arbitration
and the reasonable legal fees and expenses of the prevailing party, as
determined by the arbitrator. The parties will jointly pay arbitration costs
pending a final allocation by the arbitrator. At any point in the dispute
resolution process, either party may seek injunctive relief preserving the
status quo pending the outcome of that process. Except as noted, the parties
waive any right to judicial process. California law, without regard to its
conflict-of-law provisions, will govern any dispute under this Section 14. The
U.S. Arbitration Act and JAMS/EndDispute rules will govern the arbitration
process. Absent fraudulent concealment, neither party may raise a claim more
than 3 years after it arises or any shorter period provided by applicable
statutes of limitations.
15. INSURANCE. Premier Provider, at its sole cost and expense, shall secure and
maintain adequate insurance coverage as is necessary, as a reasonable prudent
businessperson, for Premier Provider to bear all of its obligations under this
Agreement. Maintenance of the foregoing insurance shall in no way be interpreted
as relieving Premier Provider of any responsibility or obligation whatsoever and
Premier Provider may acquire, at its own expense, such additional insurance as
Premier Provider deems necessary. Premier Provider assumes full and complete
liability for all injuries to, or death of, any person, or for any damages to
property arising from the acts or omissions of Premier Provider. Premier
Provider shall at Netscape's request provide Netscape with a certificate of
insurance demonstrating compliance with this Section 15. Before any cancellation
or material change in any coverage, Premier Provider shall provide Netscape with
30 days' advance written notice. Premier Provider's insurance shall be primary
to any other insurance Netscape may have.
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL 12 Rev. 051898
<PAGE>
16. GENERAL.
16.1. Governing Law. This Agreement shall be subject to and governed in
-------------
all respects by the statutes and laws of the State of California without regard
to the conflicts of laws principles thereof. Except as provided in Section 14,
Netscape reserves the right to invoke the exclusive jurisdiction of the
applicable court in the County of Santa Clara in the State of California, and
each party submits to the jurisdiction of any such court.
16.2. Entire Agreement. This Agreement, including the exhibits and
----------------
attachments referenced on the signature page hereto, constitutes the entire
Agreement and understanding between the parties and integrates all prior
discussions between them related to its subject matter. No modification of any
of the terms of this Agreement shall be valid unless in writing and signed by an
authorized representative of each party.
16.3. Assignment. Premier Provider may not assign any of its rights or
----------
delegate any of its duties under this Agreement, or otherwise transfer this
Agreement (by merger, operation of law or otherwise) without the prior written
consent of Netscape. Any attempted assignment, delegation or transfer in
derogation hereof shall be null and void.
16.4. Notices. All notices required or permitted hereunder shall be given
-------
in writing addressed to the respective parties as first set forth above on the
cover sheet and shall either be (i) personally delivered or (ii) transmitted by
internationally-recognized private express courier, and shall be deemed to have
been given on the date of receipt if delivered personally, or the day on which
such notice is delivered to the recipient as evidenced by the delivery records
of such courier, but in no case later than five (5) days after deposit with such
courier. Either party may change its address for purposes hereof by written
notice to the other in accordance with the provisions of this Subsection.
16.5. Confidentiality. All disclosures of proprietary and/or confidential
---------------
information in connection with this Agreement as well as the contents of this
Agreement shall be governed by the terms of the Mutual Confidential Disclosure
Agreement either entered into previously by the parties or entered into
concurrently with this Agreement, a copy of which is attached hereto as Exhibit
-------
E. The information contained in the Usage Reports provided by each party
- -
hereunder shall be deemed the Confidential Information of the disclosing party.
Notwithstanding the foregoing, Netscape may, in its sole discretion, make
publicly available client software market share information contained in the
Usage Reports submitted by Premier Provider as such information may be
aggregated with data provided by other Premier Providers.
16.6. Force Majeure. Neither party will be responsible for any failure to
-------------
perform its obligations under this Agreement due to causes beyond its reasonable
control, including but not limited to, acts of God, war, riot, embargoes, acts
of civil or military authorities, fire, floods or accidents.
16.7. Waiver. The waiver, express or implied, by either party of any
------
breach of this Agreement by the other party will not waive any subsequent breach
by such party of the same or a different kind.
16.8. Headings. The headings to the Sections and Subsections of this
--------
Agreement are included merely for convenience of reference and shall not affect
the meaning of the language included therein.
16.9. Independent Contractors. The parties acknowledge and agree that
-----------------------
they are dealing with each other hereunder as independent contractors. Nothing
contained in this Agreement shall be interpreted as constituting either party
the joint venturer, employee or partner of the other party or as conferring upon
either party the power of authority to bind the other party in any transaction
with third parties.
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U.S. Net Search Premier Provider
CONFIDENTIAL 13 Rev. 051898
<PAGE>
16.9. Independent Contractors. The parties acknowledge and agree that
-----------------------
they are dealing with each other hereunder as independent contractors. Nothing
contained in this Agreement shall be interpreted as constituting either party
the joint venturer, employee or partner of the other party or as conferring upon
either party the power of authority to bind the other party in any transaction
with third parties.
16.10. Severability. In the event any provision of this Agreement is held
------------
by a court or other tribunal of competent jurisdiction to be unenforceable, such
provision shall be reformed only to the extent necessary to make it enforceable,
and the other provisions of this Agreement will remain in full force and effect.
16.11. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. For purposes hereof, a
facsimile copy of this Agreement, including the signature pages hereto, shall be
deemed to be an original.
IN WITNESS WHEREOF, the parties have caused duly authorized representatives to
execute this Agreement as of the Effective Date.
PREMIER PROVIDER: NETSCAPE:
LOOKSMART LTD. NETSCAPE COMMUNICATIONS
CORPORATION
By: /s/ Evan Thornley By: /s/ Noreen G. Bergin
Print Name: EVAN THORNLEY Print Name: Noreen G. Bergin
Title: CEO Title: Senior Vice President
Finance & Corporate Controller
Date: 5/19/98 Date: 5/20/98
Attached Exhibits:
Exhibit A: Specifications of the Page
---------
Exhibit B: Program Schedule
---------
Exhibit C: Expert to Expert Support
---------
Exhibit D: Usage Reports
---------
Exhibit E: Mutual Confidential Disclosure Agreement
---------
LookSmart/Netscape KS 5/20/98
U.S. Net Search Premier Provider
CONFIDENTIAL Rev. 051898
14
<PAGE>
EXHIBIT A
SPECIFICATIONS OF THE PAGE
As of June 1, 1998, the Launch Date, Net Search will support Netscape Navigator
versions 2, 3 and 4 (on both the Macintosh and PC ("Wintel") platforms), and
Microsoft Internet Explorer 3.0 (PC only). (See Net Search Premier Graphics Test
Specification, External for complete list). All other browsers will be routed to
a simple version of the Page which encourages users to download a more current
version of Netscape's browser. Netscape will spend up to one hour of engineering
time per sampler per month to integrate a Premier Graphic into the Net Search
Page if available. If more engineering or QA time than is available becomes
necessary to fix bugs discovered, or if the necessary changes to fix any bugs
include changes to the appearance of the Premier Graphic, the Premier Graphic
will be returned for revision. The specifications are as follows:
* Size. All Premier Provider materials should be exactly 468 by 165 pixels.
Text and interactive forms included in the Premier Graphic should be of a
default font size of 12 points. (Be aware, however, that text and forms may
resize on your audience's browsers as they change their default font
sizes.) Keep in mind that the (FONT SIZE=) tag is not implemented in early
versions of web browsers.
A Premier Graphic is measured by taking a screen shot on a system
configured as follows: A PC running Windows 95, with the settings
configured for small fonts, and an NEC MultiSync XV17+ (17 inch) monitor.
The screen shot will be taken of Netscape Navigator Gold version 3.1, with
the Proportional Font set at 12pt Times New Roman, and the Fixed Font set
at 10pt Courier New. The measurement will be taken in Paintbrush. Netscape
will provide "measurement services", if needed, for companies that don't
have the specified platform configuration.
* HTML Quirks. We have found a few less-than-obvious quirks which cause some
browsers to crash, which we thought would be helpful to pass on:
1. (FORM)tags must follow IMMEDIATELY AFTER your sampler's first
(TABLE) tag. Any variation of this whatsoever will cause a
significant number of users to crash.
2. Any empty (TD) tags should be separated by a carriage return.
HTML should read as follows:
(TD)
(/TD)
as opposed to
(TD)(/TD)
3. If text appears without any spacing between words (for instance,
in a sentence as opposed to in a table), any text that falls
closer than 50 pixels to the edge of the Premier Graphic should
be tested on a Unix machine. Often, this text will be cut off on
that platform.
4. Interleaving HTML tags will cause several browsers to crash. Tags
should be ordered as follows:
(H3)(FONT COLOR="#000055")Text here(/FONT)(/H3)
as opposed to
(H3)(FONT COLOR="#000055")Text here(/H3)(/FONT).
* Tables. In order to maintain the robustness of the Page, please do not
include any more than one nested table, for a total of two tables per
sampler. Any more than one nested table will cause crashes for a
significant number of users. One simple table is ideal, as even one nested
table may cause some implementation problems when integrated with the Net
Search Page. If you are nesting a table, please test carefully.
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL Rev. 051898
15
<PAGE>
* Image maps. Only a client-side image map is necessary, since browsers which
don't support client-side maps will not be directed to the main Net Search
Page.
* File sizes. To keep the user's load time low, we request that Premier
Provider files in total do not exceed 20K unless cleared by the U.S. Search
production manager at [email protected].
* Animated GIFs. Due to the large number of users whose browsers do not
support animated GIFs, and their typically large file size, we are not
implementing animated GIFs at this time.
* JavaScript. JavaScript tends to cause older browsers to behave
unpredictably and in many cases crash, and there is delicate technology in
place to implement Site Sampler functionality. As a result, the
implementation of Java Script in a Premier Graphic is not an option at this
time.
* Delivery. Content providers should email files to Netscape at
[email protected]. If you are providing multiple files, you should
place them in a folder labeled with the content provider's name. For the
best possible results, deliver a Premier Graphic that is already integrated
into a copy of the Net Search Page.
* Filenames. It is important that filenames be in the following format:
search_providername.fmt (for example, search_premprov.gif,
search_premprov.htm). If there are two or more files of a certain format,
filenames should be in the following format: search_providername#.fmt (for
example, search_premprov.gif, search_premprov.gif). When you update your
Premier Graphic, continue to increment the number to help avoid caching
issues.
* Format. All content providers need to provide HTML files that include the
layout for their materials. All HTML should be uppercase. Please include
the TARGET="_top" attribute in all HREF tags. Height and width tags need to
be specified for all images. Graphics files should be in GIF format; all
other formats should be cleared with the Destinations production manager at
[email protected].
* Graphics. By limiting the number of individual graphics (server calls) in
your Premier Graphic, you will improve overall Page performance and allow
the Page to load more quickly. Cropping as close as possible to the image,
leaving no white space around them, will also allow the Page to load more
quickly. To minimize dithering and insure that the users across all
platforms see what you expect them to see, we recommend use of the Netscape
Color Palette.
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL Rev. 051898
16
<PAGE>
EXHIBIT B
PROGRAM SCHEDULE
Final materials due NetSearch goes live
June 4, 1998 June 11, 1998
June 11, 1998 June 18, 1998
June 18, 1998 June 25, 1998
June 24, 1998 (note: Wednesday) July 1, 1998 (note: Wednesday)
July 2, 1998 July 9, 1998
July 9, 1998 July 16, 1998
July 16, 1998 July 23, 1998
July 23, 1998 July 30, 1998
July 30, 1998 August 6, 1998
August 6, 1998 August 13, 1998
August 13, 1998 August 20, 1998
August 20, 1998 August 27, 1998
August 27, 1998 September 3, 1998
September 3, 1998 September 10, 1998
September 10, 1998 September 17, 1998
September 17, 1998 September 24, 1998
September 24, 1998 October 1, 1998
October 1, 1998 October 8, 1998
October 8, 1998 October 15, 1998
October 15, 1998 October 22, 1998
October 22, 1998 October 29, 1998
October 29, 1998 November 5, 1998
November 5, 1998 November 12, 1998
November 12, 1998 November 19, 1998
November 25, 1998 (note: Wednesday) December 3, 1998
December 3, 1998 December 10, 1998
December 10, 1998 December 17, 1998
December 17, 1998 December 29, 1998 (note: Tuesday)
December 29, 1998 (note: Tuesday) January 7, 1999
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL Rev. 051898
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<PAGE>
EXHIBIT C
EXPERT TO EXPERT SUPPORT
As a participant in Netscape's technical support program, you ("Customer") are
subject to these terms and conditions and entitled to receive the technical
support ("Services") associated with such program for the term of this
Agreement. As used in this Agreement, for residents of Europe, the Middle East
or Africa, "Netscape" shall mean Netscape Communications Ireland Limited; for
residents of Japan, "Netscape" shall mean Netscape Communications (Japan), Ltd.;
for residents of all other countries, "Netscape" shall mean Netscape
Communications Corporation. Therefore, in consideration for such participation,
Customer agrees to be bound by the terms and conditions set forth below.
As used in this Agreement. "End User" means any user of the Netscape software
("Product") authorized by Customer pursuant to Customer's license agreement for
the Product. "Program Errors" means 1 or more reproducible deviations in the
standard, unmodified Product from the applicable specifications shown in the
documentation.
1. FRONT-LINE SUPPORT. Customer, and not Netscape, will be responsible for,
and will bear all expenses associated with, providing front-line support and
Product revisions or patches to its End Users. Customer, and not Netscape, will
provide front-line technical support to its End Users. Such support includes but
is not limited to, call receipt, entitlement verification, call screening,
installation assistance, problem identification and diagnosis, product defect
determination, efforts to create a repeatable demonstration of the Program Error
and, if applicable, the distribution of replacements for any defective media.
Customer agrees that any documentation distributed by Customer to its End Users
will clearly and conspicuously state that End Users should call Customer for
technical support for the Product. Netscape will have no obligation to furnish
any assistance, information or documentation with respect to the Product,
directly to End Users. If Netscape is being contacted by a significant number of
End Users, Netscape will use reasonable efforts to (i) verify support
eligibility for such End Users, and (ii) refer such End Users to Customer for
support. If Netscape continues to be contacted by a significant number of End
Users, then, upon Netscape's request. Customer and Netscape will cooperate to
minimize such contact. Thereafter, if Netscape continues to be contacted by a
significant number of End Users for front-line support, then Customer shall pay
to Netscape Netscape's then current charges for any End User identified by
Netscape as obtaining such support.
2. SERVICES. Netscape will provide back-end support to Customer for Program
Errors not resolved by Customer pursuant to Customer's support policies and in
accordance herewith. This support includes efforts to identify defective source
code and to provide corrections, workarounds and/or patches to correct Program
Errors. If Customer has paid Netscape for developer support under this
Agreement, Netscape will provide developer support by reviewing Customer's
coding approach but will not write or modify Customer's code. Netscape will
provide Customer with a telephone number and an e-mail address which Customer
may use to report Program Errors during Netscape's local business hours. For
priority 1, Customer agrees to notify Netscape via both telephone and e-mail.
When Customer first contacts Netscape for Services, Customer will identify 2
members of its customer support staff to act as technical liaisons responsible
for all communications with Netscape's technical support representatives. Such
liaisons will have sufficient technical expertise, training and/or experience,
for Customer to perform its obligations hereunder. Customer may substitute its
contacts at any time by providing 1 week's prior written and/or electronic
notice thereof to Netscape.
Netscape will use reasonable commercial efforts to resolve each significant
Program Error by providing either a reasonable workaround, an object code patch
or a specific action plan for how Netscape will address the problem and an
estimate of how long it will take to rectify the defect. Netscape reserves the
right to charge Customer additional fees at its then-standard rates for services
performed in connection with reported Program Errors which are later determined
to have been due to hardware or software not supplied by Netscape.
Notwithstanding the foregoing, Netscape has no obligation to perform services in
connection with Program. Errors resulting from hardware or software not supplied
by Netscape. Netscape agrees to support a given revision of the Product for the
shorter of (i) 12 months from the date such revision is superseded by the next
sequential Product revision; or (ii) until such revision is superseded by 2
sequential Product revisions. (For example, Netscape will support version 2.1
for the shorter of 12 months from the date version 2.2 or 3.0 (if 3.0 is the
next sequential release), is released by Netscape, or until version 2.1 is
superseded by 2 sequential releases (2.2 and 2.3 or 2.2 and 3.0, as the case may
be.)
Netscape will make reasonable efforts to correct significant Program Errors that
Customer identifies, classifies and reports to Netscape and that Netscape
substantiates. Netscape may reclassify Program Errors if it reasonably believes
that Customer's classification is incorrect. Customer will provide sufficient
information for Netscape to enable Netscape to duplicate the Program Error
before Netscape's response obligations will commence. Unless otherwise
authorized in writing by Netscape, Netscape will not be required to correct any
Program. Error caused by (a) incorporation, attachment of a feature, program, or
device to the Product, or any part thereof; (b) any nonconformance caused by
accident, transportation, neglect, misuse, alteration, modification, or
enhancement of the Product; (c) the failure to provide an installation
environment recommended for the Product; (d) use of the Product for other than
the specific purpose for which the Product is intended; (e) use of the Product
on any systems other than the specified hardware platform for such Product; (f)
if applicable, use of defective media or defective duplication of the Product;
or (g) failure to incorporate any Product revision or patch previously released
by Netscape which corrects such Program Error. For Program Error reports
received by Netscape during Netscape's local business hours, Netscape will use
reasonable commercial efforts to communicate with Customer about the Program
Error via telephone or e-mail within the targeted response times set forth at
the end of these terms and conditions.
3. REINSTATEMENT OF SERVICES. Reinstatement of lapsed technical support
services is subject to Netscape's then-current technical support reinstatement
fees in effect on the date the new technical support is ordered.
4. NOTICE. Any notice required or permitted hereunder shall be in English, in
writing and shall be deemed to be properly given upon the earlier of (a) actual
receipt by the addressee (including facsimile or e-mail) of (b) 5 business days
after deposit in the mail, postage prepaid, when mailed by registered or
certified airmail, return receipt requested, or (c) 2 business days after being
sent via private industry courier to the respective parties at the addresses set
forth in the Agreement or to such other person or address as the parties may
from time to time designate in a writing. Notices to Netscape shall be to the
attention of the Legal Department, Netscape Communications Corporation, 501 East
Middlefield Road, Mountain View, California 94043.
5. ORDERS FOR SERVICES. Customer must place an order with Netscape or a
Netscape authorized reseller to initiate Services under this Agreement and/or to
renew or change the selection of Services thereafter. Customer may, at its
option, issue a purchase order for such purchase or prepay by credit card. No
terms and conditions set forth in any purchase order or instrument issued by
Customer in connection with the Services shall be binding upon Netscape.
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL Rev. 051898
18
<PAGE>
6. MISCELLANEOUS. (a) Customer shall comply with all applicable laws, rules
and regulations for the export of Product and technical data covered under this
Agreement. (b) Customer may not assign or otherwise transfer any of its rights
or delegate any of its duties under this Agreement without the express written
consent of Netscape which will not be unreasonably withheld, and any attempt to
assign without such consent shall be null and void. (c) Neither party's waiver
of a breach or delay or omission to exercise any right or remedy shall be
construed as a waiver of any subsequent breach or as a waiver of such right or
remedy. (d) This Agreement may be amended only by a writing signed by both
parties. (e) This Agreement shall be governed by and construed in accordance
with the laws of the State of California, U.S.A., without reference to its
conflicts of law provisions. (f) Any dispute regarding this Agreement shall be
subject to the exclusive jurisdiction of the courts in California and each party
submits to the jurisdiction of such courts. Notwithstanding the foregoing,
Netscape reserves the right to invoke the jurisdiction of any competent court to
remedy or prevent violation of any provision under this Agreement relating to
payment. (g) This Agreement will not be governed by the United Nations
Convention of Contracts for the International Sale of Goods. (h) If the
application of any provision hereof to any particular facts shall be held to be
unenforceable by any competent court, then (x) the enforceability of such
provision as applied to any other facts and the validity of other provisions
hereof shall not be affected and (y) such provision shall be reformed without
further action by the parties hereto only to the extent necessary to make such
provision valid and enforceable when applied to the particular facts. (i) Each
party shall be excused from any delay or failure in performance hereunder,
except the obligation for payment of monies by Customer to Netscape, caused by
reason of any occurrence beyond its reasonable control for so long as the
occurrence persists. (j) This Agreement constitutes the entire agreement between
the parties concerning the subject matter hereof and supersedes all proposals or
prior agreements whether oral or written, all communications between the parties
relating to the subject matter hereof, and all past courses of dealing or
industry custom. (k) This Agreement is written in the English language only,
which language shall be controlling in all respects. (l) This Agreement may be
executed in counterparts or by facsimile, each of which shall be an original,
but all of which together shall constitute one agreement. (m) If any dispute
arises under this Agreement, the prevailing party shall be reimbursed by the
other party for any and all legal fees and costs associated therewith. (n) All
payments shall be made in US dollars at Netscape's address indicated herein or
otherwise notified by Netscape. Unless Customer has requested cancellation of
support within 30 days of purchase, all amounts payable to Netscape are
nonrefundable and must be paid in a single payment in advance or within 30 days
of the date of Netscape's invoice, as determined by Netscape's Credit
Department. Except for payments made by credit card, all payments shall be made
by wire transfer or remittance in accordance with Netscape's instructions on
such invoice. Past due amounts shall bear interest at the lower of 1-1/2% per
month or the maximum rate allowed by law until paid in full. Customer shall be
responsible for any costs resulting from collection by Netscape of any such past
due amounts, including without limitation, reasonable attorneys fees and court
costs. All fees are exclusive of taxes, withholdings, duties or levies, however
designated or computed and Customer shall be responsible therefor except for
taxes based on Netscape's net income. In lieu thereof, Customer shall provide to
Netscape a valid tax or other levy exemption certificate acceptable to the
taxing or other levying authority.
7. CUSTOMER OUTSIDE OF THE UNITED STATES. If Customer is located outside of
the United States, this section shall apply, (a) If any applicable law requires
Customer to withhold amounts from any payments to Netscape hereunder, (i)
Customer shall effect such withholding, remit such amounts to the appropriate
taxing authorities and promptly furnish Netscape with tax receipts evidencing
the payments of such amounts, and (ii) the sum payable by Customer upon which
the deduction or withholding is based shall be increased to the extent necessary
to ensure that, after such deduction or withholding, Netscape receives and
retains, free from liability for such deduction or withholding, a net amount
equal to the amount Netscape would have received and retained absent such
required deduction or withholding. (b) Les parties aux presentes confirment leur
volonte que cette convention de meme que tous les documents y compris tout avis
qui s'y rattache, soient rediges en langue anglaise. (Translation: "The parties
confirm that this Agreement and all related documentation is and will be in the
English language.") (c) If any applicable law requires Customer to obtain
technology import rights and complete certain registration requirements in order
for this Agreement to be enforceable under such law, Customer hereby represents
that Customer has duly obtained and maintains valid technology import rights,
and that Customer has duly completed or will duly complete the registration
formalities required by such law.
8. LIMITATION OF LIABILITY. UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL THEORY,
TORT, CONTRACT, OR OTHERWISE, SHALL NETSCAPE BE LIABLE TO CUSTOMER OR ANY OTHER
PERSON FOR ANY INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY
CHARACTER INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF GOODWILL, WORK
STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, OR ANY AND ALL OTHER COMMERCIAL
DAMAGES OR LOSSES. IN NO EVENT WILL NETSCAPE BE LIABLE FOR ANY DAMAGES IN EXCESS
OF THE AMOUNT NETSCAPE RECEIVED FROM CUSTOMER HEREUNDER, EVEN IF NETSCAPE SHALL
HAVE BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY
THIRD PARTY. THIS LIMITATION OF LIABILITY SHALL NOT APPLY TO LIABILITY FOR DEATH
OR PERSONAL INJURY RESULTING FROM NETSCAPE'S NEGLIGENCE TO THE EXTENT APPLICABLE
LAW PROHIBITS SUCH LIMITATION. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR
LIMITATION OF INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THIS EXCLUSION AND
LIMITATION MAY NOT APPLY TO CUSTOMER.
TARGETED ACCELERATED RESPONSE TIMES: (EXCLUDING NETSCAPE HOLIDAYS)
<TABLE>
<CAPTION>
STATUS UPDATES (PROVIDED UPON
PRIORITY FAILURE DESCRIPTION INITIAL RESPONSE TIME CUSTOMER'S REQUEST AFTER NETSCAPE'S
INITIAL RESPONSE)
<S> <C> <C> <C>
1 Enterprise-critical (Product is not 1 hour By customer agreement
functioning)
2 Severe Impact - Product inconsistency 2 business hours Once per business day
which significantly decreases
Customer productivity (periodic work
stoppages, feature crashes)
3 Degraded Operations: Product inconsistency 4 business hours Once every 3 business days
which slightly impairs
customer productivity (Customer can work
around problem)
4 Minimal Impact: desired change in Product next business day Release notes or plan for next
(documentation update, release
cosmetic defects, enhancement requests)
</TABLE>
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL Rev. 051898
19
<PAGE>
EXHIBIT D
USAGE REPORTS
Sample report provided by Premier Provider to Netscape each month.
For the week of: 6/1/97 - 6/7/97
Netscape Browsers All Browsers
- ----------------- ------------
NSCP 4.x - 5% NSCP Total - 75%
3.x - 40% MSIE Total - 18%
2.x - 5% AOL Total - 6%
1.x - 2% Other - 1%
Total, basic - 52%
MSIE Browsers
-------------
NSCP Gold 3.x - 25% MSIE 4.x - 5%
Total, Gold - 25% 3.x - 65%
2.x - 25%
NSCP 4.x - 2% 1.x - 5%
3.x - 18% Total MSIE - 100%
2.x - 3%
1.x - 0%
Total, 23%
Total All - 100%
Premier Provider shall also provide Netscape with I/Pro audits or such audits
from another reputable third party Internet auditor if such audits are conducted
as the parties shall mutually agree, the top 100 search terms and the number of
searches on each term.
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL Rev. 051898
20
<PAGE>
Sample report provided by Netscape to Premier Provider each month.
For the month of June 1997
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Rotated Default Total First User Total
Exposures Exposures Exposures Selected Exposures
(1+2) Exposures (3+4)
<S> <C> <C> <C> <C> <C>
June1 1M 200K 1.2M 400K 1.6M
June2 1.1M 210K 1.31M 500K 1.81M
June3 1.2M 220K 1.42M 600K 2.02M
...
...
June31 1.8M 280K 2.08M 800K 3.08M
Total
</TABLE>
A running total of the Exposures will also be included.
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL Rev. 051898
21
<PAGE>
EXHIBIT E
MUTUAL CONFIDENTIAL DISCLOSURE AGREEMENT
Attach previously executed document
LookSmart/Netscape KS 5/19/98
U.S. Net Search Premier Provider
CONFIDENTIAL Rev. 051898
22
<PAGE>
EXHIBIT 10.10
PBS SPONSORSHIP GROUP
May 17, 1999
Mr. Val Landi
Vice President, Marketing
LookSmart
487 Bryant Street
San Francisco, CA 94107
Dear Val,
Thank you and without question we look forward to a great partnership with
LookSmart. The following is a letter of commitment that LookSmart will be a
national sponsor On-air and Online of Mystery!, Chefs of Cucina Amore (Cucina),
Great Food, MasterChef USA and Sesame Street. The details are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Mystery Cucina Great Foods Masterchef Sesame Street
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
On-Air
- ------
Start Date: September 99 October 99 January 00 May 00 December 99
Term: 5 Years 5 Years 5 Years 5 Years 5 Years
Mutual Option*: 3 Years 3 Years 3 Years 3 Years 3 Years
Exclusivity **: Category Category Category Category Category
Credits/program: 2x/15:sec 2x/15:sec 2x/15:sec 2x/15:sec 2x/15:sec
Billboards ***: Opening/ Opening/ Opening/ Opening/ TBD
Closing Closing Closing Closing
Credit Position: First First First First Rotates
* Either party can opt out after three years.
[**]
*** Per PBS guidelines.
Online at PBS.org:
- --------------------
Homepage: Button Button Button Button Button
</TABLE>
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as *****. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
<PAGE>
Page 2
Links: Your sponsor button will link to your site, with the exception of Sesame
Street which links to a bridge page first.
Exclusivity: Category exclusivity to include sponsorship and banners of each
program website.
Additional Terms:
- ----------------
Press: We will make every effort toward major cooperative press effort
announcing your sponsorship and partnership with PBS. LookSmart will also have
recognition on all sponsored programs promotional and press materials.
First Look: The National Sponsorship List will be forwarded to you for your
review.
First Look: Special inventory.
Client Service: A client service person will be assigned to your sponsored
program(s).
Online Broadcast Rights for Sponsored Cooking Shows: Confirmed by e-mail from
the producer West 175 for sponsored cooking shows.
Shared and Original Web Content: Confirmed by e-mail from the producer West 175
for sponsored cooking shows.
Online Value Added: PBS Sponsorship Group will work with each producer to
further enhance your Online value added e.g. Online chat for Mystery!, and will
work with the producers on your behalf to help acquire the online audio and
video rights to Mystery!
Total Package Cost: $20,750,000.00
Total Annual Cost: $4,150,000.00
Payment Terms (Mystery, Cucina, Great Foods, Masterchef): Year 1...25% of each
sponsored program's total on contract signing, 25% of each sponsored program's
total on the Start Date (as set forth above) of each program sponsorship, 25% of
each sponsored program's total three months after Start Date, 25% of each
sponsored program's total six months after Start Date.
Year 2 through Year 5...25% of each sponsored program's annual total on the
Start Date of each sponsorship year, 25% of each sponsored program's annual
total three months after Start Date, 25% of each sponsored program's annual
total six months after Start Date and 25% of each sponsored program's total nine
months after Start Date.
Payment Terms (Sesame Street): To be negotiated and detailed in the Children's
Television Workshop contract.
As discussed, the PBS Sponsorship Group will make its best efforts to help you
to develop a productive relationship with PBS Online. We understand that
LookSmart would like to provide
<PAGE>
Page 3
search directory services to PBS Online, either co-branded or PBS branded, and
pioneer with us the interactivity of the Internet and television. We will be
happy to facilitate discussions in this area with PBS Online, as soon as
possible.
By signing below, the parties indicate the acceptance of the terms of this
commitment letter which outlines the terms and conditions of our sponsorship
deal and that the foregoing is subject to a definitive agreement including due
diligence for each sponsored program.
We are proud to have LookSmart as a sponsor on PBS and most importantly we are
very excited with this partnership for the new millennium. I look forward to
your comments and please do not hesitate to call with any questions.
Sincerely yours,
/s/ RICK PACK
- -----------------------------------
Rick Pack
National Sponsorship Director
AGREED and ACCEPTED
-------------------
PENDING LookSmart BOARD APPROVAL
--------------------------------
PBS SPONSORSHIP GROUP LookSmart
By: /s/ Peter Greene By: /s/ VAL LANDI
----------------------------- -------------------------------
Title: Executive Director Title: Senior Vice President
------------------------- -------------------------------
Date: 5/21/99 Date: May 24, 1999
-------------------------- --------------------------------
If PBS doesn't do it, who will?"
- --------------------------------------------------------------------------------
4401 Sunset Boulevard Los Angeles California 90027
Voice: (323) 953-5412 Email: [email protected] Fax: (323) 953-5668
--------------
<PAGE>
EXHIBIT 10.11
1. PARTIES. This Sublease, dated, for reference purposes only. December
2, 1998, is made by and between Wired Ventures, Inc. ("Sublessor") and
LookSmart, LTD. A Delaware Corporation ("Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at rental, and upon all of the
conditions set forth herein, that certain real property, including all
improvements therein, and commonly known by the street address of 660 Third
Street located in the County of San Francisco, State of California and generally
described as (describe briefly the nature of the property) The entire second
floor of approximately 20,000 rentable square feet. Premises shall be delivered
to sublessor as follows: The northern portion consisting of approximately 10,000
rsf shall be delivered at lease commencement. The balance of the floor
approximately 10,000 rsf shall be delivered February 1, 1999. ("Premises").
3. TERM.
3.1 TERM. The term of this Sublease shall be for Six months
commencing on December 15, 1998 and ending on JUNE 15, 1999 unless sooner
terminated pursuant to any provision hereof. See 12.1
3.2 DELAY IN COMMENCEMENT. Sublessor agrees to use its best
commercially reasonable efforts to deliver possession of the Premises by the
commencement date. If, despite said efforts, Sublessor is unable to deliver
possession as agreed, the rights and obligations of Sublessor and Sublessee
shall be as set forth in Paragraph 3.3 of the Master Lease (as modified by
Paragraph 7.3 of this Sublease).
4. RENT.
4.1 BASE RENT. Sublessee shall pay to Sublessor as Base Rent for the
Premises equal monthly payments of $ See provision 12.2 in advance, on the 15th
day of each month of the term hereof. Sublessee shall pay Sublessor upon the
execution hereof $15,292 as Base Rent for December 15, 1998 through January 15,
1999 Base Rent for any period during the term hereof which is for less than one
month shall be a pro rata portion of the monthly installment.
4.2 RENT DEFINED. All monetary obligations of Sublessee to Sublessor
under the terms of this Sublease (except for the Security Deposit) are deemed to
be rent ("RENT"). Rent shall be payable in lawful money of the United States to
Sublessor at the address stated herein or to such other persons or at such other
places as Sublessor may designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon
execution hereof $ $20,000 as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. The rights and obligations of Sublessor and
Sublessee as to said Security Deposit shall be as set forth in Paragraph 5 of
the Master Lease (as modified by Paragraph 7.3 of this Sublease).
6. USE.
6.1 AGREED USE. The Premises shall be used and occupied only for
General Office Use and for no other purpose.
6.2 COMPLIANCE. Sublessor warrants that the improvements on the
Premises comply with all applicable covenants or restrictions of record and
applicable building codes, regulations and ordinances ("APPLICABLE
REQUIREMENTS") in effect on the commencement date. Said warranty does not apply
to the use to which Sublessee will put the Premises or to any alterations or
utility installations made or to be made by Sublessee. NOTE: Sublessee is
responsible for determining whether or not the zoning is appropriate for its
intended use, and acknowledges that past uses of the Premises may no longer be
allowed. If the Premises do not comply with said warranty, or in the event that
the Applicable Requirements are hereafter changed, the rights and obligations of
<PAGE>
Sublessor and Sublessee shall be as provided in Paragraph 2.3 of the Master
Lease (as modified by Paragraph 7.3 of this Sublease).
6.3 ACCEPTANCE OF PREMISES AND LESSEE. Sublessee acknowledges that:
(a) it has been advised by Brokers to satisfy itself with
respect to the condition of the Premises (including but not limited to the
electrical, HVAC and fire sprinkler systems, security, environmental aspects,
and compliance with Applicable Requirements), and their suitability for
Sublessee's intended use,
(b) Sublessee has made such investigation as it deems necessary
with reference to such matters and assumes all responsibility therefor as the
same relate to its occupancy of the Premises, and
(c) neither Sublessor, Sublessor's agents, nor any Broker has
made any oral or written representations or warranties with respect to said
matters other than as set forth in this Sublease.
In addition, Sublessor acknowledges that:
(a) Broker has made no representations, promises or warranties
concerning Sublessee's ability to honor the Sublease or suitability to occupy
the Premises, and
(b) It is Sublessor's sole responsibility to investigate the
financial capability and/or suitability of all proposed tenants.
7. MASTER LEASE
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter the "MASTER LEASE", a copy of which is attached hereto marked
Exhibit 1, wherein Gorr Partners, LLC A California Limited Liability Company
is the lessor, hereinafter the "MASTER LESSOR"
7.2 This Sublease is and shall be at all times subject and
subordinate to the Master Lease.
7.3 The terms conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease
<PAGE>
7.5 Sublessee's Assumed Obligations. The obligations that sublessee
has not assumed under paragraph 7.4 hereof are hereinafter Referred to as the
"SUBLESSOR'S REMAINING OBLIGATIONS".
7.6 Sublessee shall hold Sublessor free and harmless from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire
term of this Sublease, subject, however, to any earlier termination of the
Master Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless from
all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in
full force and effect and that no default exists on the part of any Party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease, subject however to the provisions of
Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a
Default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the Rent accruing
under this Sublease. However, if Sublessor shall Default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all Rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the Rent from the Sublessee, be deemed liable
to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee
upon receipt of any written notice from the Master Lessor stating that a Default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the Rent due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such Rent
to Master Lessor without any obligation or right to inquire as to whether such
Default exists and notwithstanding any notice from or claim from Sublessor to
the contrary and Sublessor shall have no right or claim against Sublessee for
any such Rent so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease
without the consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain
the consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within ten days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the
Master Lease have been guaranteed by third parties then neither this Sublease,
nor the Master Lessor's consent, shall be effective unless, within 10 days of
the date hereof, said guarantors sign this Sublease thereby giving their consent
to this Sublease.
9.3 In the event that Master Lessor does give such consent then:
<PAGE>
(a) Such consent shall not release Sublessor of its obligations
or alter the primary liability of Sublessor to pay the Rent and perform and
comply with all of the obligations of Sublessor to be performed under the Master
Lease.
(b) The acceptance of Rent by Master Lessor from Sublessee or
anyone else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent
to any subsequent subletting or assignment.
(d) In the event of any Default of Sublessor under the Master
Lease, Master Lessor may proceed directly against Sublessor, any guarantors or
anyone else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor or any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall Default in its obligations
under the Master Lease, then Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said option to termination of this
Sublease but Master Lessor shall not be liable for any prepaid Rent nor any
Security Deposit paid by Sublessee, nor shall Master Lessor be liable for any
other Defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of
Sublessor at the end of this document shall constitute their consent to the
terms of this Sublease.
9.5 Master Lessor acknowledges that, to Lessor's knowledge, WITHOUT
ANY INQUIRY, no Default presently exists under the Master Lease of obligations
to be performed by Sublessor and that the Master Lease is in full force and
effect.
10.2 Sublessor agrees that if Sublessee exercises any option or right
of first refusal as granted by Sublessor herein, or any option or right
substantially similar thereto, either to extend the term of this Sublease, to
renew this Sublease, to purchase the Premises, or to lease or purchase adjacent
property which Sublessor may own or in which Sublessor has an interest, then
Sublessor shall pay to Broker a fee in accordance with the schedule of Broker in
effect at the time of the execution of this Sublease. Notwithstanding the
foregoing, Sublessor's obligation under this Paragraph 10.2 is limited to a
transaction in which Sublessor is acting as a Sublessor, lessor or seller.
<PAGE>
??
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an
action to enforce the terms hereof or to declare rights hereunder, the
prevailing party in any such action, on trial and appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
Court.
12. ADDITIONAL PROVISIONS. [If there are no additional provisions, draw a
line from this point to the next printed word after the space left here. If
there are additional provisions place the same here.]
12.1 TERM. The term shall be a minimum of six (6) months through June 15, 1999.
----
At any time after June 15, 1999, the term shall be cancelable by either
Sublandlord or Subtenant upon sixty (60) days written notice given at any
time. Rent during the extension term shall be $30,583 per month.
12.2 RENT. Rent shall be as follows:
----
December 15, 1998 through December 31, 1998: $ 7,646.00
January 1, 1999 through January 31, 1999: $15,292.00
February 1, 1999 through February 28, 1999 $30,583.00
March 1, 1999 through March 31, 1999 $30,583.00
April 1, 1999 through April 30, 1999 $30,583.00
May 1, 1999 through May 31, 1999 $30,583.00
June 1, 1999 through June 15, 1999 $15,292.00
SUBLEASE PROFITS. Sublessee will deliver to Master Lessor, on Sublessor's
----------------
behalf, upon full execution of this Sublease, a check in the amount of
$49,439.50, pursuant to the letter agreement among Master Lessor,
Sublessor and Sublessee dated December 11, 1998 and incorporated herein by
reference. Additional sums may be owed by Sublessee if the term is
extended as set forth in the letter agreement.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
- ---------
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY REAL ESTATE BROKER AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE
TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
SUBLEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PROPERTY, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR SUBLESSEE'S INTENDED USE.
WARNING: IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
- --------
CERTAIN PROVISIONS OF THE SUBLEASE MAY NEED TO BE REVISED TO COMPLY WITH THE
LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED.
Executed at:____________________________ WIRED VENTURES
--------------
on: ______________________________________ By /s/Signature Illegible
-------------------------
Address: _____________________________________ By ____________________________
"Sublessor" (Corporate Seal)
Executed at:___________________________________ LookSmart
<PAGE>
---------
on: __________________________________________ By Edward M.O. Dean
----------------
Address: ____________________________________ By /s/ Signature Illegible
-----------------------
"Sublessee" (Corporate Seal)
The undersigned executes this Sublease solely with respect to paragraphs 8.9 and
------
12.3 above.
Executed at:___________________________________ Gorr Partners LLC
-----------------
on: ___________________________________ By /s/ Signature Illegible
-----------------------
Address: __________________________________ Its
---------------------
"Master Lessor"
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower
St., Suite 600, Los Angeles, CA 90017. (213) 687-8777.
Page 3 of 3
(c)1997 -- American Industrial Real Estate Association
<PAGE>
EXHIBIT 10.12
LEASE AGREEMENT
PARTIES
This Lease (the "Lease"), made this Fourth day of May, 1998, between; 487 BRYANT
STREET, LLC, ("Landlord"), and LOOKSMART, LTD. ("Tenant").
WITNESSETH:
1. PREMISES
Landlord hereby leases to Tenant and Tenant hereby hires from Landlord those
certain premises [hereinafter called "premises"] described on Exhibit A attached
hereto and by this reference made a part hereof, said premises being situated on
the three floors of that certain building [hereinafter called "building" or
"Building"] known as 487 Bryant Street, San Francisco, California.
Said letting and hiring is upon and subject to the terms, covenants and
conditions herein set forth and Tenant covenants as a material part of the
consideration for this Lease to keep and perform each and all of said terms,
covenants and conditions by it to be kept and performed and that this Lease is
made upon the condition of such performance.
2. PURPOSE
The premises shall be used for general office purposes and for no other use or
purpose without the prior written consent of Landlord which shall not be
unreasonably withheld.
3. TERM
The term of this Lease shall be for five years, commencing on the 1st day of
June, 1998, or upon substantial completion of the Tenant's improvements on the
2nd and 3rd floors, and ending on the 31st day of May, 2003 [the "Lease Term"].
4. POSSESSION
If Landlord, for any reason whatsoever, cannot deliver possession of the said
premises to Tenant at the commencement of the Lease Term, this Lease shall not
be void or voidable, nor shall Landlord be liable to Tenant for any loss or
damage resulting therefrom, but in that event there shall be a proportionate
reduction of rent covering the period between the commencement of the said term
and the time when Landlord can deliver possession. If possession of the premises
is not delivered to Tenant within three months from the scheduled commencement
date, this Lease will terminate at Tenant's election. Should Landlord tender
possession of the premises to Tenant prior to the date specified for the
commencement of the term, and Tenant accepts such prior tender, such prior
occupancy shall be subject to all terms, covenants, and conditions of this
Lease, including the payment of rent. No delay in delivery of possession shall
operate to extend the term hereof. Within 10 days after written request from
Landlord, Tenant shall execute and return to Landlord an acknowledgment of the
commencement date of the term of this lease.
5. RENT
[a] On or before the first day of each calendar month during the term hereof
Tenant shall pay to Landlord, as minimum monthly rent for the premises, the sum
of $23,886.34. However, for two months from June 1, 1998, Tenant shall pay as a
minimum monthly rent for the premises, the sum of $16,694.34. The minimum
monthly rent for any partial month shall be prorated at the rate of 1/30 of the
minimum monthly rent per day.
Said rent shall be paid by Tenant to Landlord, in advance, without deduction or
offset, in lawful money of the United States of America at 90 South Park, San
Francisco, California, or to such other person or at such other place as
Landlord may from time to time designate in writing.
[b] All charges and other amounts of any kind payable by Tenant to Landlord
pursuant to this Lease shall be deemed additional rent. Landlord shall have the
same remedies for default in the payment of additional rent as for default in
the payment of basic rent. Basic rent and additional rent are collectively
sometimes hereinafter referred to as rent.
[c] All rent payable by Tenant to Landlord hereunder, if not received by
Landlord when due, shall bear interest from the due date until paid at the
publicly announced prime rate or reference rate charged on such
<PAGE>
due date by the San Francisco Main Office of Bank of America, N. T. & S. A. [or
any successor bank] for short term, unsecured loans to its most creditworthy
borrowers, plus four percent [4%] per annum, but in no event shall such interest
exceed the maximum rate permitted by law. Landlord's acceptance of any interest
payments shall not constitute a waiver of Tenant's default with respect to the
overdue amount or prevent Landlord from exercising any of the rights and
remedies available to Landlord under this Lease or by law.
6. RENTAL ADJUSTMENT
[a] The minimum rent described in Section 5 includes an amount equal to
Tenant's percentage share of [i] the real and personal property taxes (as
described in Section 6(b) hereof) for fiscal year 1998 and [ii] direct expenses
(as described in Section 6(c) hereof) for calendar year 1998. In addition to the
minimum monthly rent provided for in Paragraph 5 hereof, Tenant shall pay to
Landlord the sums set forth in the following subparagraphs. Tenant's percentage
share as set forth below has been calculated by dividing the number of square
feet of rentable area in the premises by the number of square feet of rentable
area in the building. In the event the rentable area of the building is changed,
the Tenant's percentage share shall be appropriately adjusted. Rentable area
shall be based upon the Building Owners and Managers Association International
[BOMAI] standard method of floor measurement for office buildings. Tenant hereby
approves and accepts Landlord's calculation of Tenant's current percentage share
as set forth below.
[B] TAX INCREASES AND ASSESSMENTS
Tenant shall pay to Landlord an amount equal to 100% of any increase in real
property taxes and assessments or other fees or charges of whatsoever kind or
character imposed by a governmental agency which may be levied on the land and
building of which the premises are a part and personal property taxes levied on
personal property of Landlord used in the operation of said land and building
above the amount of such taxes levied and assessed for the fiscal tax year
ending June 30, 1998, either by way of increase in the rate or in the assessed
valuation of said land and building or by imposition of any such charges by
ordinance or statute of any authority having jurisdiction. Real and personal
property taxes shall include, without limitation, taxes of every kind and nature
levied and assessed in lieu of or in substitution for existing or additional
real or personal property taxes on said land and building as well as any form of
assessment, license, fee, levy, penalty, or tax [other than inheritance or
estate taxes], imposed by any authority having the direct or indirect power to
tax, including any city, county, state, or federal government, or any school,
agricultural, lighting, drainage, or other improvement district, as against any
legal or equitable interest of Landlord in the premises or in the real property
of which the premises are a part, or as against Landlord's right to rent or
other income therefrom, or as against Landlord's business of leasing the
premises. In addition, Tenant shall pay one hundred per cent [100%] of any
increase in taxes or assessments of whatsoever kind and nature [including,
without limitation, all personal property taxes] caused by improvements or
installations made by Tenant to the premises at any time during the term hereof.
The total amounts due hereunder shall be paid to Landlord on or before the date
full payment of such taxes or assessments or, if payable in installments, the
date payment of the first installment Of such taxes or assessments shall become
due. In the event said taxes or assessments are charged to or paid or payable by
Landlord, Tenant forthwith upon demand therefore, shall reimburse Landlord for
all amounts of such taxes or assessments chargeable against Tenant pursuant to
this subparagraph [b] and paid by Landlord.
[C] OPERATING EXPENSE INCREASES
Tenant shall pay to Landlord, at the times hereinafter set forth, an amount
equal to Tenant's 100% share of any increase in direct expenses paid or incurred
by Landlord on account of the operation or maintenance of the building above
such direct expenses paid or incurred by Landlord during the Base Year. "Base
Year" as used in this subparagraph [c] shall mean the calendar year 1998;
"Direct expenses" as used herein shall include all direct costs of operation and
maintenance as determined by standard accounting practices as set forth in the
Building Owners and Managers Association International [BOMAI] chart of accounts
from time to time [excluding, however, any and all taxes of the nature set forth
in subparagraph [b] above and shall include the following by way of illustration
but not limitation: the cost of contesting by appropriate proceeding the amount
or the validity of any of the aforementioned taxes or fees; water and sewer
charges; insurance premiums; license, permit and inspection fees; charges for
labor; supplies; materials, equipment and tools; management expenses and the
cost of capital improvements made by Landlord to the Building that are intended
to reduce other Operating Expenses or that are required under any governmental
law or regulation that is not applicable to the Building as of the date of this
Lease, such cost or allocable portion
Page 2
<PAGE>
thereof to be amortized over such reasonable period as Landlord shall determine
together with interest on the unamortized balance at the rate that was paid by
Landlord on funds borrowed for the purpose of constructing or installing such
capital improvements, or, if landlord does not borrow such funds, would have
been paid had the Landlord borrowed funds for such purpose but in no event shall
such interest rate exceed the maximum rate permitted by law. "Direct expenses"
as used herein shall not include depreciation on the building, real estate
broker's commissions, tenant improvements, interest and capital items other than
those referred to above. In the event the Building is not fully occupied during
any Expense Year or in the event the entire Building is not provided with
Building standard services during any Expense Year, an adjustment shall be made
by Landlord in computing Operating Expenses for such Expense Year so that
Operating Expenses shall be computed as though 95% of the entire Building had
been occupied and 95% of the entire Building had been provided with Building
standard services during such year [or such Operating Expenses shall be computed
in accordance with actual occupancy or actual provision of Building standard
services if such respective amounts shall exceed 95%]; provided, however, that
in no event shall the aggregate amount of Operating Expenses collected by
Landlord from all Tenants in the Building exceed the actual Operating Expenses
for said year.
Statements of the amount of direct expenses for the preceding calendar year and
the amount of such increase payable by Tenant shall be determined or estimated
by Landlord and shall be given to Tenant on such date as Landlord shall from
time to time determine. All amounts payable by Tenant as shown on said statement
shall be paid by Tenant within the time required by said statement. If during
any such year Landlord shall revise its estimate of Tenant's share of said
expenses for said year, Landlord shall advise Tenant and commencing on the next
date payment of additional charges are due, Tenant shall pay all additional
charges based on such revised estimate for the portion of the year already
elapsed and shall commence paying the additional charges based on such revised
estimate for the remainder of such year.
7. UTILITIES AND JANITORIAL
Tenant shall pay all janitorial costs, gas, heat, refuse and electrical costs.
In addition, Tenant shall pay for all of its data and all of its telephone
utilities at the Premises. Tenant shall be responsible for and shall promptly
pay to either Landlord or the supplier thereof, as applicable, as the same
becomes due and payable, all bills, charges, fees, assessments, and extractions
for all electricity, gas, heat, refuse, janitorial, data, and telephone services
furnished or used by Tenant in, on or about the premises. If any of these
utilities or services are not separately charged or metered to the premises,
Tenant shall pay to Landlord within ten [10] days after written demand therefor,
Tenant's pro rata share of the total cost thereof as may be determined by
Landlord. Tenant shall if required install and maintain in good repair, separate
metering for any or all of these services. In no event shall Landlord be liable
for any interruption or failure of any of these services for any cause, whether
or not within Landlord's control or due to Landlord's act or neglect.
8. SECURITY
Simultaneously with the execution of this lease, Tenant shall deposit with
Landlord the sum of $71,659.01 ("Deposit"), of which sum $71,659.01 will be a
refundable cash security deposit held by the Landlord. This amount shall be held
by Landlord as security for the faithful performance by Tenant of all the terms,
covenants and conditions of this lease. Beginning on the second anniversary of
this Lease, the amount of the refundable cash security deposit shall be reduced
by 33.33% and reduced an additional 33.33% on the fourth anniversary. Provided
that at the end of the Lease Term Tenant shall have delivered up the Premises to
Landlord, broom clean, and in the same condition as at the commencement date,
reasonable wear excepted, said refundable security deposit held as security
shall be returned to Tenant. No interest shall be payable thereon and Landlord
shall not be required to keep said sum in a separate account. If Tenant fails to
pay any Rent or other charges due hereunder, or otherwise defaults with respect
to any provision of this Lease, Landlord may at its option apply or retain all
or any portion of the Deposit for the payment of any Rent or other charge in
default or the payment of any other sum to which Landlord may become obligated
by Tenant's default, or to compensate Landlord for any loss damage which
Landlord may suffer thereby. If Landlord so uses or applies all or any portion
of the Deposit, then within 10 days after demand therefor Tenant shall deposit
cash with Landlord in an amount sufficient to restore the Deposit to the full
amount thereof, and Tenant's failure to do so shall be a material breach of this
Lease. Landlord's application or retention of the Deposit shall not constitute a
waiver of Tenant's default to the extent that the deposit does not fully
compensate Landlord for all losses or damages incurred by Landlord in connection
with such default and shall not prejudice any other rights or remedies available
to Landlord under this Lease or by law.
Page 3
<PAGE>
No security or guaranty which may now or hereafter be furnished Landlord for the
payment of the rent herein reserved or for performance by Tenant of the other
covenants or conditions of this Lease shall in any way be a bar or defense to
any action in unlawful detainer, or for the recovery of the premises, or to any
action which Landlord may at any time commence for a breach of any of the
covenants or conditions of this Lease.
9. USES PROHIBITED
Tenant shall not do or permit anything to be done in or about the premises nor
bring or keep anything therein which will in any way increase the rate of or
affect any fire or other insurance upon the building or any of its contents or
cause a cancellation of any insurance policy covering said building or contents.
Tenant shall not do or permit anything to be done in or about the premises which
will in any way obstruct or interfere with the rights of other tenants or
occupants of the building or injure or annoy them, or use or allow the premises
to be used for any residential, immoral, unlawful or objectionable purpose, nor
shall Tenant cause, maintain or permit any nuisance in, on or about the
premises. No cooking devices or other odor causing devices, loudspeakers or
other similar device, system or apparatus which can be heard or experienced
outside the premises shall, without the prior written approval of Landlord, be
used in or at the premises. Tenant shall not commit or suffer to be committed
any waste in or upon the premises.
10. COMPLIANCE WITH LAW
Tenant shall not use or permit anything to be done in or about the premises
which will in any way conflict with any law, statute, ordinance or governmental
rule, regulation or requirement now in force or which may hereafter be enacted
or promulgated. Tenant, at its sole cost and expense, shall promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use of occupancy
of the premises, excluding structural changes not related to or affected by
Tenant's improvements or acts. The judgment of any court of competent
jurisdiction or the admission of Tenant in an action against Tenant, whether
Landlord be a party thereto or not, that Tenant has violated any law, statute,
ordinance or governmental rule, regulation or requirement shall be conclusive of
that fact as between Landlord and Tenant. Further, Tenant shall it all times and
in all respects comply with all federal, state and local laws, ordinances and
regulations ["Hazardous Material Laws"] relating to hygiene, environmental
protection, or the presence, use generation, storage, transportation or disposal
of any toxic or hazardous substances, as the same may be amended from time to
time, including without limitation, obtaining any required permits or licenses,
and Tenant shall handle, treat, manage and dispose of any and all toxic or
hazardous substances in strict conformity with all manufacturers' instructions
and prudent business practices.
11. ALTERATIONS
Tenant shall not make or suffer to be made any alterations, additions or
improvements to or of the Premises or any part thereof without the written
consent of Landlord first had and obtained. Any alterations, additions, or
improvements to or of said premises, including without limitation any
partitions, immovable or otherwise, and all carpeting, shall at once become a
part of the realty and belong to Landlord. Movable furniture, equipment and
trade fixtures shall remain the property of Tenant. If Landlord consents to the
making of any alterations, additions or improvements to the premises by Tenant,
the same shall be made by Tenant at Tenant's sole cost and expense and any
contractor or person selected by Tenant to make the same must first be approved
of in writing by Landlord. Upon the expiration or sooner termination of the term
Tenant, upon demand by Landlord, at Tenant's sole cost and expense, forthwith
and with all due diligence shall remove any alterations, additions or
improvements made by Tenant designated by Landlord to be removed, and Tenant,
forthwith and with all due diligence, at its sole cost and expense, shall repair
any damage to the premises caused by such removal. Tenant's obligation to remove
any alterations, additions, improvements, fixtures and/or personal property and
to repair any damage from such removal shall survive the termination of this
Lease. Prior to or while approving any alterations, Landlord shall notify Tenant
in writing whether such alterations will have to be removed at the termination
of this Lease.
Construction of the alterations, additions, or improvements shall be completed
in accordance with drawings and specifications approved in advance in writing by
Landlord, shall be carried out in a good and workmanlike manner, and shall
comply with all applicable requirements of governmental authorities and such
additional conditions as Landlord may reasonably impose.
12. REPAIR
Page 4
<PAGE>
By entry hereunder upon the commencement of the term hereof, Tenant accepts the
---
premises as being in good, sanitary order, condition and repair subject to the
"Punch List" items. Tenant, at Tenant's sole cost and expense, shall keep the
premises and every part thereof in good condition and repair, damage thereto by
fire, earthquake, act of God or the elements not caused by Tenant's negligent or
willful act excepted, Tenant hereby waiving all rights to make repairs at the
expense of the Landlord as provided by law, statute or ordinance now or
hereafter in effect. Upon the expiration or sooner termination of the term
hereof, Tenant shall surrender the premises to Landlord in the same condition as
when received, ordinary wear and tear and damage by fire, earthquake, act of God
or the elements excepted, unless caused by Tenant's negligent or willful act. It
is specifically understood and agreed that Landlord has no obligation and has
made no promises to alter, remodel, improve, repair, decorate or paint the
premises or any part thereof and that no representations respecting the
condition of the premises or the building have been made by Landlord to Tenant
except as specifically set forth in Exhibit A attached hereto. There shall be no
abatement of Rent and no liability to Landlord by reason of any injury or to
interference with Tenant's business arising from the making of any repairs or
performance of any maintenance obligations by the Landlord.
13. ABANDONMENT
Tenant shall not vacate or abandon the premises at any time during the term
hereof, and if Tenant shall abandon, vacate or surrender the premises or be
dispossessed by process of law, or otherwise, any personal property belonging to
Tenant and left on the premises shall be deemed to be abandoned, at the option
of Landlord.
14. LIENS
Tenant shall keep the premises and the building and the land upon which the
building is situated free from any liens arising out of any work performed,
materials furnished or obligations incurred by Tenant. Tenant shall in the event
of the filing of any such lien, post any bond required to release the premises
therefrom. Should Tenant fail to remove any such lien within five [5] business
days after notice to do so from Landlord, Landlord may, in addition to any other
remedies, record a bond pursuant to California Civil Code Section 3143 and all
amounts incurred by Landlord in so doing shall become immediately due and
payable by Tenant to Landlord as additional rent. Landlord shall have the right
to post and keep posted on the Premises any notices that may be provided by law
or which Landlord may deem to be proper for the protection of Landlord, the
Premises and the building from such liens.
15. ASSIGNMENT AND SUBLETTING
[a] Tenant shall not mortgage, pledge, hypothecate or encumber this Lease or
any interest therein. Tenant shall not assign this Lease or sublet or suffer any
other person [the agents and employees of Tenant excepted] to occupy or use the
premises, or any part thereof, or sublet any right or privilege appurtenant
thereto without the prior written consent of Landlord first had and obtained,
which consent may not be unreasonably withheld. Landlord's consent to one
assignment, subleasing or occupancy shall not be deemed to be a consent to any
subsequent assignment, subleasing or occupancy
[b] Provided further and notwithstanding anything herein before set forth: In
the event that at any time or from time to time during the term of this Lease,
Tenant desires to sublet all or any part of the Premises, Tenant shall notify
the Landlord in writing [the "Sublet Notice"] of the terms of the proposed
subletting, and the area so proposed to be sublet and shall give Landlord the
right to sublet from Tenant such space [the "Sublet Space"] on the same terms as
those contained in the Sublet Notice. Such option shall be exercisable by
Landlord in writing for a period of 15 days after receipt of the Sublet Notice.
--
If Landlord fails to exercise its option and Tenant desires to complete the
proposed sublease, Tenant shall deliver an executed copy of such sublease to
Landlord in order to obtain its consent as required in paragraph 15[a] above. If
Landlord consents to a sublease, then such sublease shall be subject to and made
upon the following terms:
[i] any such sublease shall be subject to the terms of this Lease and the
term thereof may not extend beyond the expiration of the term of this
Lease;
[ii] no subtenant shall have a right to further sublease its premises without
the prior written consent of the Landlord.
[iii] If Landlord fails to exercise such option, and Tenant fails to consummate
a sublease with a third party within 60 days after the expiration of
Landlord's option period on the same terms and conditions
Page 5
<PAGE>
contained in the Sublet Notice, Tenant shall be required to deliver a new
Sublet Notice to Landlord and comply with the terms and conditions set
forth above before any further subletting shall be permitted.
[iv] Any additional rent over the rent specified in this Agreement received
from the Sublet space will be split 50%/50% between the Landlord and
Tenant after deduction of reasonable sublease expenses including real
estate leasing fees, Tenant improvements, rent abatement (if any on the
rent due to the Tenant from the subleasee to induce the subleasee to
Sublease the space) and legal expenses.
[c] Regardless of Landlord's consent, no subletting nor assignment shall
release Tenant of Tenant's obligation or alter the primary liability of Tenant
to pay rent and perform other obligations of Tenant under this lease.
[d] In no event shall Tenant assign this Lease or sublet the premises or any
portion thereof to any then, existing or prospective tenant of said building.
[e] Tenant shall pay Landlord's reasonable costs incurred in connection with
Tenant's request to assign this lease or sublet the premises, regardless whether
or not the Landlord consents to the proposed transfer.
[f] If Tenant is a corporation or a partnership, the transfer [as a
consequence of a single transaction or any number of separate transactions] of
fifty percent [50%] or more of the beneficial ownership interest of the voting
stock of Tenant issued and outstanding as of the date hereof or of the
partnership interests in Tenant, is the case may be, shall constitute an
assignment hereunder for which such consent is required. Further, any assignment
of this Lease or sublet of the Premises or any portion thereof to any
corporation which controls, is controlled by or is under common control with
Tenant, or to any corporation resulting from merger or consolidation with
Tenant, or to any person or entity which acquires all the assets as a going
concern of the business of Tenant that is being conducted on the Premises,
without the written consent of the Landlord shall be void, and, at the option of
Landlord, shall terminate this Lease. Such transfer shall not be subject to
Landlord's option under Section 15(b).
16. INDEMNIFICATION OF LANDLORD
Tenant agrees to indemnify and defend Landlord against and save Landlord
harmless from and against any and all loss, cost, liability, damage and expense,
including without limitation penalties, fines and reasonable attorneys fees and
costs, incurred in connection with or arising from any case whatsoever in, on or
about the Premises, including without limiting the generality of the foregoing:
[1] any breach by Tenant of the terms, covenants or conditions of this Lease or
provisions of this Lease, or [2] the use of occupancy or manner of the use or
occupancy of the Premises by Tenant or any other person or entity claiming
through or under Tenant including without limitation, the presence, use,
generation, storage, transportation or disposal of any toxic or hazardous
substances, or [3] the condition of the Premises or any occurrence or happening
on the Premises from any cause whatsoever, or [4] any acts, emissions or
negligence of Tenant or of Tenant's agents, contractors, employees, subtenants,
licensees, invitees or visitors or any such person or entity, in, on or about
the Premises or the Building, either prior to the commencement of, during, or
after the expiration of the term, including without limitation any acts,
emissions or negligence in the making or performing of any alterations. Tenant
further agrees to indemnify, defend and save harmless Landlord, Landlord's
agents and the lessors under, any ground or underlying leases, from and against
any and all loss, cost, liability, damage and expense, incurred in connection
with or arising from any claims by any persons by reason of injury to persons or
damage to property occasioned by any use, occupancy condition, occurrence,
happening, act, emission or negligence referred to in the preceding sentence. In
the event any action or proceeding is brought against Landlord for any claim
against which Tenant is obligated to indemnify Landlord hereunder, Tenant upon
notice from Landlord shall defend such action or proceeding at Tenant's sole
expense by counsel approved by Landlord, which approval shall not be
unreasonably withheld. The provisions of this Section 15 shall survive the
expiration or earlier termination of this lease.
17. INSURANCE
Tenant agrees to keep in force during file term hereof, at Tenant's expense,
public liability and property damage insurance with combined single limits in
the amount of not less than $2,000,000.00. Said policy shall name Landlord as an
additional insured, and shall insure Landlord's contingent liability as respects
acts, or omissions of Tenant, shall be issued by an insurance company licensed
to do business in the state where the premises are located; and shall provide
that said insurance shall not be canceled or amended unless thirty [30] days
prior written notice to Landlord is first given. Said policy or a certificate
thereof
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shall be delivered to Landlord by Tenant prior to the commencement of the term
and each renewal of such insurance. Tenant hereby waives all rights of
subrogation against Landlord to which any insurance carrier may at any time
become entitled under any policy of insurance carried by Tenant.
18. UTILITIES
Landlord shall furnish to the premises, during reasonable hours of generally
recognized business days, to be determined by Landlord, and subject to the rules
and regulations of the building, water and electricity suitable for the use of
the premises for general office purposes and heat required in Landlord's
judgement for the comfortable use and occupation of the premises for such
purposes, janitorial service, and elevator service. Landlord shall not be liable
for, and Tenant shall not be entitled to any abatement or reduction of rent by
reason of Landlord's failure to furnish any of the foregoing when such failure
or delay is caused by accident, breakage, repairs, strikes, lockouts or other
labor disturbances or labor disputes of any character, or is caused directly or
indirectly by the limitation, curtailment, rationing or restrictions on use of
water, electricity, gas or any other form of energy serving the premises or the
building, or by any other cause, similar or dissimilar, beyond the reasonable
control of Landlord. Landlord shall not be liable under any circumstances for
loss of business or injury to property, however occurring, through or in
connection with or incidental to failure to furnish any of the foregoing. Tenant
shall pay and provide for all services and utilities not furnished by Landlord.
Tenant will not, without the written consent of Landlord, use any apparatus or
device in the premises which will in any way increase the amount of electricity,
cooling capacity or water usually furnished or supplied for use of the premises
for general office purposes or connect with electric current, except through
existing electrical outlets in the premises, or water pipes, any apparatus or
device for the purpose of using electric current or water. If Tenant shall
require water or electric current in excess of that customarily furnished or
supplied to other tenants of the building for use of their premises for general
office purposes, Tenant shall first procure the consent of Landlord, which
Landlord may refuse, to the use thereof and Landlord may cause an electric
current or water meter to be installed in the premises so as to measure the
amount of excess electric current or water consumed by Tenant. The cost of any
such meter and of the installation, maintenance and repair thereof shall be paid
by Tenant and Tenant agrees to pay to Landlord promptly upon demand therefor the
cost of all such excess water and electric current consumed, as shown by said
meters, at the rates charged for such services by the local public utility
furnishing the same, plus any additional expense incurred in keeping account of
the excess electric current or water so consumed.
19. PERSONAL PROPERTY AND OTHER TAXES
Tenant shall pay, before delinquency, any and all taxes levied or assessed and
which become payable during the term hereof upon Tenant's equipment, furniture,
fixtures and other personal property located in the premises, including
carpeting installed by Tenant even though said carpeting has become a part of
the leased premises; and any and all taxes or increases therein levied or
assessed on Landlord or Tenant by virtue of alterations, additions or
improvements to the premises made by Tenant or Landlord at Tenant's request. In
the event said taxes are charged to or paid or payable by Landlord, Tenant,
forthwith upon demand therefore, shall reimburse Landlord for all of such taxes
paid by Landlord.
20. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the rules and regulations
printed on or annexed to this Lease and all modifications of and additions
thereto applicable to all tenants of the building from time to time Put into
effect by Landlord of which Tenant shall have notice. Landlord shall not be
responsible to Tenant for the nonperformance by any other tenant or occupant of
the building of any of said rules and regulations.
21. HOLDING OVER
If Tenant holds possession of the premises after the term of this lease, Tenant
shall, [at option of Landlord to be exercised by Landlord's giving written
notice to Tenant and not otherwise] become a Tenant from month to month upon the
terms and conditions herein specified, so far as applicable, at the lower of
$50,000 or 150% of the base rent for the first three months after Lease Term and
after a further three months after the Lease Term, this shall increase to 200%
of the base rental payable in advance, in lawful money, and shall continue to be
such Tenant until thirty [30] days after Tenant shall have given to Landlord or
Landlord shall have given to Tenant a written notice of intent to terminate such
monthly tenancy. Unless Landlord shall exercise the option hereby given him,
Tenant shall be a Tenant at sufferance only, whether or not Landlord shall
accept any rent from Tenant while Tenant is so holding over
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22. SUBORDINATION
This Lease shall be subject and subordinate it all times to all ground or
underlying leases which may now exist or hereafter be executed affecting the
building and/or the land upon which the building is situated and to the lien of
any mortgages or deeds of trust in any amount or amounts whatsoever now or
hereafter placed on or against said building and/or land or on or against the
Landlord's interest or estate therein or on or against any ground or underlying
lease without the necessity of having further instruments on the part of Tenant
to effectuate such subordination. Notwithstanding the foregoing, Tenant
covenants and agrees to execute and deliver, upon demand, such further
instruments evidencing such subordination of this Lease to such ground or
underlying leases and to the lien of any such mortgages or deeds of trust as may
be required by Landlord. Tenant hereby irrevocably appoints Landlord the
attorney in fact of Tenant to execute and deliver any such instrument or
instruments for or in the name of Tenant. In the event of termination of any
ground or underlying lease, or in the event of foreclosure or exercise of any
power of sale under any mortgage or deed of trust superior to this Lease or to
which this Lease is subject or subordinate, upon Tenant's attornment to the
Lessor under such ground or underlying lease or to the purchaser at any
foreclosure sale or site pursuant to the exercise of any power of sale under any
mortgage or deed of trust, this Lease shall not terminate, and Tenant shall
automatically be and become the Tenant of said Lessor under such ground or
underlying lease or to said purchasers whichever shall make demand therefore.
23. ENTRY BY LANDLORD AND FINANCIAL INSPECTION
Landlord reserves and shall at any reasonable time, have the right to enter the
premises to inspect the same, to supply janitor service and any other service to
be provided by Landlord to Tenant hereunder, to submit the premises to
prospective purchasers or tenants, to post notices of nonresponsibility, and to
alter, improve or repair the premises and any portion of the building without
abatement of rent and may for that purpose erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
performed, always providing the entrance to the premises shall not be blocked
thereby and further providing that the business of Tenant shall not be
interfered with unreasonably. Tenant hereby waives any claim for damages for any
injury or inconvenience to or interference with Tenant's business, any loss of
occupancy of quiet enjoyment of the premises, and other loss occasioned by such
entry. For each of the aforesaid purposes, Landlord shall at all times have and
retain a key with which to unlock all of the doors, in, upon and about the
premises excluding Tenant's vaults and safes, and Landlord shall have the right
to use any and all means which Landlord may deem proper to open said doors in an
emergency in order to obtain entry to the premises, and any entry to the
premises obtained by Landlord by any of said means, or otherwise, shall not
hinder any circumstances be construed or deemed to be a forcible or unlawful
entry into or a detainer of the premises or an eviction of Tenant from the
premises or any portion thereof.
Upon prior notice to Tenant, Landlord shall be permitted to review the financial
statements (Income Statement, FAS 95 Cash Flow Statement and Balance Sheet) of
Tenant prepared in accordance with General Accepted Accounting Practices
("GAAP"), at the offices of Tenant. Such review will be permitted at least once
every three months.
24. INSOLVENCY OR BANKRUPTCY
Either [a] the appointment of a receiver to take possession of all or
substantially all of the assets of Tenant, [b] an assignment by Tenant for the
benefit of creditors, or [c] any action taken or suffered by Tenant under any
insolvency, bankruptcy or reorganization act shall constitute a breach of this
Lease by Tenant. Upon the happening of any such event this Lease shall terminate
five [5] days after written notice of termination from Landlord to Tenant. In no
event shall this Lease be assigned or assignable by reason of any voluntary or
involuntary bankruptcy proceedings nor shall any rights or privileges hereunder
be an asset of Tenant in any bankruptcy, insolvency or reorganization
proceedings.
25. DEFAULT
In the event of any breach or default of Lease by Tenant, then Landlord, besides
any other rights and remedies of Landlord at law or equity, shall have the right
either to terminate Tenant's right to possession of the premises and thereby
terminate this Lease or to have this Lease continue in full force and effect
with Tenant at all times having the right to possession of the premises. Such
property so removed may be stored in a public warehouse or elsewhere at the cost
and for the account of Tenant. Upon such termination Landlord, in addition to
any other rights and remedies [including rights and remedies under subparagraphs
[1], [2], and [4] of subdivision [a] of Section 1951.2 of the California Civil
Code of any amendment thereto], shall be entitled to recover from Tenant the
worth at the time of the award of the amount by which
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the unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that the Tenant proves could be reasonably avoided.
The worth at the time of award of the amount referred to in subparagraphs [1]
and [2] of subdivision [a] of Section 1951.2 of the California Civil Code shall
be computed by allowing interest at the maximum rate allowed by law. The worth
at the time of the award of the amount referred to in subparagraph [3] of
subdivision [a] of Section 1951.2 of the California Civil Code shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of the award plus 10%.
Any proof by Tenant of the amount of rental loss that could be reasonably
avoided shall be made in the following manner: Landlord and Tenant shall each
select a licensed real estate broker in the business of renting property of the
same type and use as the premises and in the same geographic vicinity and such
two real estate brokers shall select a third licensed real estate broker and the
three licensed real estate brokers so selected shall determine the amount of
rental loss that could be reasonably avoided for the balance of the term of this
Lease after the time of award. The decision of the majority of said licensed
real estate brokers shall be final and binding upon the parties hereto.
Should Landlord, following any breach or default of this Lease by Tenant, elect
to keep this Lease in full force and effect, with Tenant retaining the right to
possession of the premises [notwithstanding the fact the Tenant may have
abandoned the leased premises], then Landlord, besides the rights and remedies
specified in Section 1951.4 of the California Civil Code "[lessor may continue
lease in effect after lessee's breach and abandonment and recover rent as it
becomes due, if lessee has right to sublet or assign, subject only to reasonable
limitations]" and all other rights and remedies Landlord may have at law or
equity, shall have the right to enforce all of Landlord's rights and remedies
under this Lease. Notwithstanding any such election to have this Lease remain in
full force and effect, Landlord may at any time thereafter elect to terminate
Tenant's right to possession of said premises and thereby terminate this Lease
for any previous breach or default which remains uncured, or for any subsequent
breach or default.
26. DESTRUCTION OR DAMAGE
[a] In the event the premises or a portion of the Building is damaged by fire
or other insured casualty, Landlord shall diligently repair the same to the
extent possible with the insurance proceeds received by Landlord, subject to the
provisions of this section hereinafter set forth, if such repairs can in
Landlord's opinion be made within 90 days after issuance of a building permit
therefor under the laws and regulations of federal, state and local governmental
authorities having jurisdiction thereof. In such event this Lease shall remain
in full force and effect except that if such damage is not the result of the
negligence or willful misconduct of Tenant or Tenant's agents, contractors,
employees, subtenants, licensees, invitees or visitors, all abatement of basic
rent shall be allowed Tenant for such part of the Premises as shall be rendered
unusable by Tenant in the conduct of its business during the time such part is
so unusable. Notwithstanding the foregoing, if such damage shall occur during
the final year of the term of this Lease, Landlord shall not be obligated to
repair such damage, but may instead elect to terminate this Lease upon written
notice given to Tenant within 30 days after the date of such fire or other
casualty, in which event this Lease shall terminate as of the termination date
specified in Landlord's notice.
[b] If such repairs cannot in Landlord's opinion be made within 90 days after
issuance of a building permit therefor or if such damage is uninsured, Landlord
may elect upon notice to Tenant given 60 days after the date of such fire or
other casualty to [i] repair or restore such damage, in which event this Lease
shall continue in full force and effect, but basic rent shall be partially
abated as hereinabove in this section provided or [ii] terminate this Lease in
which event this Lease shall terminate as of the termination date specified in
Landlord's notice.
[c] A total destruction of the Building automatically shall terminate this
lease. Landlord and Tenant acknowledge that this Lease constitutes the entire
agreement of the parties regarding events of damage or destruction, and Tenant
waives the provisions of California Civil Code Sections 1932[2] and 1933[4] and
any similar statute now or hereafter in force.
[d] If the Premises are to be repaired under this section, Landlord shall
repair at its cost any injury or damage to the Building itself and the initial
improvements made by Landlord pursuant to Exhibit A. Tenant shall pay the cost
of repairing or replacing all other improvements in the Premises and Tenant's
trade fixtures, furnishings, equipment and other personal property.
27. EMINENT DOMAIN
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If all or any part of the premises shall be taken or appropriated by any public
or quasi-public authority under the power of eminent domain, and such taking
will substantially impair Tenant's use of the premises for more than 90 days,
either party hereto shall have the right, at its option, to terminate this
Lease. If all or any part of the building of which the premises are a part shall
be taken or appropriated by any public or quasi-public authority under any power
of eminent domain, Landlord may terminate this Lease. In either of such events,
Landlord shall be entitled to and Tenant upon demand of Landlord shall assign to
Landlord any rights of Tenant to any and all income, rent, award, or any
interest herein whatsoever which may be paid or made in connection with such
public or quasi-public use or purpose, and Tenant shall have no claim against
Landlord or the condemnor for the value of any unexpired term of this Lease. If
a part of the premises shall be so taken or appropriated and neither party
hereto shall elect to terminate this Lease, the rent thereafter to be paid shall
be equitably reduced.
28. PLATS AND RIDERS
Clauses, plats and riders, if any, signed by Landlord and Tenant and endorsed on
or affixed to this Lease are a part hereof, and in the event of variation or
discrepancy the duplicate original hereof, including such clauses, plats and
riders, if any, held by Landlord shall control.
29. SALE BY LANDLORD
In the event the original Landlord hereunder, or any successor owner of the
building, shall sell or convey the Building, all liabilities and obligations on
the part of the original Landlord, or such successor owner, under this Lease,
accruing thereafter shall terminate, and thereupon all such liabilities and
obligations shall be binding upon the new owner. Tenant agrees to attorn to such
new owner. If any security be given by Tenant to secure the faithful performance
of all or any of the covenants of this Lease on the part of Tenant, Landlord may
transfer and/or deliver the security, to the successor in interest of Landlord,
and thereupon Landlord shall be discharged from any further liability in
reference thereto. Except as set forth in this paragraph 28, this Lease shall
not be affected by any such sale or conveyance.
30. ESTOPPEL CERTIFICATES
At any time and from time to time, upon not more than ten [10] days prior
request by Landlord, Tenant shall execute, acknowledge and deliver to Landlord a
statement certifying the date of commencement of this Lease, stating that this
Lease is unmodified and in full force and effect [or if there have been
modifications, that this Lease is in full force and effect as modified and the
date and nature of such modifications] and the dates to which the rent has been
paid, and setting forth such other matters as may reasonably be requested by
Landlord. Landlord and Tenant intend that any such statement delivered pursuant
to this paragraph may be relied upon by any mortgagee or the beneficiary of any
Deed of Trust or by any purchaser or prospective purchaser of the building.
Tenant hereby irrevocably appoints Landlord as its agent and attorney-in-fact to
execute, acknowledge and deliver any such certificate in the name of and on
behalf of Tenant, in the event that Tenant fails to so execute, acknowledge and
deliver any such certificate within 10 days after receipt thereof.
31. RIGHT OF LANDLORD TO PERFORM
All covenants and agreements to be kept or performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of rent. If Tenant shall fail to pay any sum
of money, other than rent, required to be paid by it hereunder or shall fail to
perform any other act on its part to be performed hereunder, and such failure
shall continue for ten [10] days after notice thereof by Landlord, Landlord may,
but shall not be obligated to, and without waiving any default of Tenant or
releasing Tenant from any obligations of Tenant hereunder, make any such payment
or perform any such other act on Tenant's part to be made or performed as in
this Lease provided. All sums so paid by the Landlord and all necessary
incidental costs, together with interest thereon in the rate of ten percent
[10%] per annum from the date of such payment by the Landlord, shall be paid to
Landlord forthwith on demand, and Landlord shall have [in addition to any other
right or remedy of Landlord] the same rights and remedies in the event of
nonpayment thereof by Tenant as in the case of default by Tenant in payment of
rent.
32. ATTORNEY FEES
If as a result of any breach or default on the part of Tenant under this Lease,
Landlord uses the services of any attorney in order to secure compliance with
this Lease, Tenant shall reimburse Landlord upon demand as additional rent for
any and all attorneys' fees and expenses incurred by Landlord, whether or not
formal legal proceedings are instituted. Should either party bring action
against the other party, by reason of or
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<PAGE>
alleging the failure of the other party to comply with any or all of its
obligations hereunder, whether for declaratory or other relief, then the party
which prevails in such action shall be entitled to its reasonable attorneys'
fees and expenses related to such action, in addition to all other recovery or
relief. A party shall be deemed to have prevailed in any such action [without
limiting the generality of the foregoing] if such action is dismissed upon the
payment by the other party of the sums allegedly due or the performance of
obligations allegedly not complied with, or if such party obtains substantially
the relief sought by it in the action, irrespective of whether such action is
prosecuted to judgment. In addition, if either party to this Lease becomes a
party to or is involved in any way in any action concerning this Lease or the
Premises by reason in whole or in part of any act, neglect, fault or emission of
any duty by the other party, its employees or contractors, the party subjected
to said involvement shall be entitled to reimbursement for any and all
reasonable attorneys' fees and costs.
33. SURRENDER OF PREMISES
The voluntary or other surrender of this Lease by Tenant or mutual cancellation
thereof shall not work a merger and, at the option of Landlord, shall terminate
all or any existing subleases or subtenancies, or at the option of Landlord, may
operate is iii assignment to Landlord of any or all such subleases or
subtenancies.
34. WAIVER
The waiver by Landlord or Tenant of performance of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant of any term, covenant or condition of this Lease, other than the
failure of Tenant to pay the particular rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent.
35. NOTICES
All notices and demands which may or are required to be given by either party to
the other hereunder shall be in writing. All notices and demands by Landlord to
Tenant shall be delivered personally or sent by United States certified or
registered mail, postage prepaid, addressed to Tenant at the premises, or to
such other place as Tenant may from time to time by like notice designate. All
notices and demands by Tenant to Landlord shall be sent by United States
certified or registered mail, postage prepaid, addressed to Landlord at 90 South
Park, San Francisco, California 94107 or to such other place as Landlord may
from time to time by like notice designate.
36. NOTICE OF SURRENDER
At least ninety [90] days before the last day of the term hereof, Tenant shall
give to Landlord a written notice of intention to surrender the premises on that
date, but nothing contained herein or any failure to give such notice shall be
construed as an extension of the term hereof or as consent of Landlord to any
holding over by Tenant,
37. BROKERS
Tenant represents that it has not incurred any obligation to any broker in
connection with this lease, other than Landlord's broker Whitney Cressman
Limited and Tenant's broker HC&M Commercial Properties, Inc. and Tenant shall
hold Landlord harmless from and against any and all liability, loss, damage,
expense, claim, action, suit or obligation arising out of or relating to a
breach by tenant of this representation.
38. DEFINED TERMS AND MARGINAL HEADINGS
The words "Landlord" and "Tenant", as used herein shall include plural as well
as the singular words used in masculine gender include the feminine and neuter.
If there be more than one Tenant, the obligations hereunder imposed upon Tenant
shall be joint and several. The marginal headings and titles to the paragraphs
of the Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
39. TIME AND APPLICABLE LAW
Time is of the essence of this Lease and each and all of its provisions. This
Lease shall in all respects be governed by the laws of the state in which the
premises are located.
40. SUCCESSORS
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Subject to the provisions of Paragraph 15 hereof, the covenants and conditions
herein contained successors shall be binding upon and inure to the benefits of
the heirs, successors, executors, administrators and assigns of the parties
hereto.
41. ENTIRE AGREEMENT
This Lease constitutes the entire agreement between Landlord and Tenant and no
promises or representations, express or implied, either written or oral, not
herein set forth shall be binding upon or inure to the benefit of Landlord or
Tenant. This Lease shall not be modified by any oral agreement, either express
or implied, and all modifications hereof shall be in writing and signed by both
Landlord and Tenant,
42. NO DISCRIMINATION
Tenant agrees for Tenant and Tenant's heirs, executors, administrators,
successors and assigns and all persons claiming under or through Tenant, and
this Lease is made and accepted upon the following conditions; that there shall
be no discrimination against or segregation of any person or group of persons on
account of race, color, creed, sex, religion, martial status, ancestry or
national origin [whether in the use, occupancy, subleasing, transferring, tenure
or enjoyment of the Premises or otherwise] nor shall Tenant or any person
claiming through or under Tenant establish or permit any such practice or
practices of discrimination or segregation with reference to or arising out of
the use or occupancy of the Premises by Tenant or any person claiming through or
under Tenant.
43. ADDITIONAL PROVISIONS
The exhibits and addenda listed below are incorporated by reference in this
lease.
IN WITNESS WHEREOF Landlord and Tenant have executed this
Lease the day and year first above written.
By /s/ Rick Holman /s/ Martin Hosking
___________________________ _______________________________
___________________________ _______________________________
___________________________ _______________________________
Landlord Tenant
Date May 4, 1998 Date May 4, 1998
___________________________ _______________________________
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SECURITY AGREEMENT IN ANTICIPATION OF SIGNING LEASE FOR 487 BRYANT STREET
LookSmart, Ltd. and 487 Bryant Street, LLC ("LLC") intend to enter into a lease
for 487 Bryant Street, San Francisco, California 94107 substantially similar to
the attached draft lease provided by LLC to LookSmart, Ltd. on April 29, 1998
("Lease Agreement").
As consideration for agreeing not to lease 487 Bryant Street to another party
prior to May 6, 1998, LookSmart, Ltd. agrees to provide LLC the three month
deposit of $71,659.01 specified in the Lease Agreement. This deposit will be
held by Simon Poulton until the later of the Lease Agreement is signed, or May
6, 1998. If LookSmart, Ltd. has not signed the Lease Agreement by May 6, 1998,
then LookSmart, Ltd. agrees to give LLC as consideration for agreeing not to
sign a lease with another party during this period, $23,886.34 for the time
period from today to May 6, 1998.
/s/ Rick Holman /s/ Martin Hosking
Rick Holman Martin Hosking
487 Bryant Street, LLC LookSmart, Ltd.
Dated: 4/30/98 Dated: 4/30/98
Attachment
<PAGE>
Exhibit 10.13
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("Agreement"), dated as of November, 18 1998 is made
between Skidmarks, Inc., a California corporation doing business as San
Francisco Production Group ("Tenant") and Looksmart Ltd. ("Subtenant").
RECITALS:
--------
A. Tenant has entered into a lease (the "Master Lease") of certain
premises, designated as 550 Bryant Street, San Francisco, California (the
"Premises"), with an initial term commencing June 1, 1998, and continuing to May
31, 2003, with Fred Alexander and Company, a California partnership
("Landlord"). A copy of Sections 9 through 32 of the Master Lease is attached
hereto as Exhibit A and incorporated herein by this reference (the "Master Lease
Provisions"). A plan of the Premises denoting generally the location of the
portion of the Premises being subleased to the Subtenant (the "Sublease
Premises") is attached hereto as Exhibit B and incorporated herein by this
reference.
B. Subtenant desires to obtain the use of the Sublease Premises from
Tenant in connection with the conduct of Subtenant's business activities. Tenant
desires to provide such space to Subtenant, upon the terms and conditions set
forth herein.
AGREEMENT
In consideration of the foregoing, and of the promises, terms and
conditions of this Agreement, the parties hereto agree as follows:
1. Sublease Premises. Tenant hereby subleases to Subtenant and Subtenant
-----------------
hereby subleases from Tenant the "Sublease Premises" as outlined in Exhibit B
attached hereto, on all of the terms and conditions of this Agreement.
2. Use. The Sublease Premises are to be used for General Office Use
---
3. Term. The term of this Agreement shall be for six months and shall
----
commence on the 19th day of November, 1998, and end on the 31st day of May,
1999, inclusive.
4. Rent. Rent shall be paid in lawful money of the United States of
----
America at the office of the Tenant at the following address: 550 Bryant Street,
-1-
<PAGE>
San Francisco, California 94107 or at such other place as the Tenant may
designate in writing, in advance, on the 1st day of each month during the term
of this Agreement, free from all claims, demands or set-offs against Tenant of
any kind or character, whatsoever, as follows: rent shall be eighty-five-hundred
Dollars ($ 8500,00) per month, which will include $8238,43 Dollars ($ 8238.43)
base rent plus an additional rent ("Escalation Rent") in an amount equal to
Fifty percent (50%) of the charges levied upon Tenant by Landlord for the
Landlord's property taxes, fire insurance and umbrella insurance payable by
Tenant pursuant to the terms of the Master Lease: Subtenant's current Escalation
Rent shall be $ 261.57 ($ 261.57) per month. Tenant shall give Subtenant prompt
notice in writing of any change in the amount of Escalation Rent, as it is
determined from time to time, note less than ten (10) days prior to the date
such payment is due. Rental payments are due on the first day of each month and
a late charge of five percent (5%) shall be paid by Subtenant for any payment
made more than five (5) calendar days after the due date. In addition, interest
shall be owing on any such payment at the rate of three percent (3%) over the
prime rate of Union Bank of California, or the maximum rate permitted by law,
whichever is less. Tenant acknowledges receipt from subtenant of the sum of
eighty-five-hundred dollars ($8500) as an additional inducement and
consideration for the execution by Tenant of this Agreement, which sum shall be
and remain the property of Tenant, and Subtenant agrees that such sum is paid
solely as such consideration and for the purpose of obtaining this Agreement,
and is an absolute payment to Tenant for that purpose. Tenant agrees that if
Subtenant shall faithfully perform all of the terms, covenants and conditions of
this Agreement on Subtenant's part to be performed during the term of this
Agreement until the 1st day of last month of rating then and solely in
consideration of such performance, there shall be deducted from the rental
required to be paid to Tenant for the last month of this Agreement the sum of
eighty-Five-hundred dollars ($8500.00), anything herein contained to the
contrary notwithstanding.
5. Notice of Surrender. Subtenant shall, at least sixty (60) days before
-------------------
the last day of the term hereof, give to Tenant a written notice of intention to
surrender the Subleased Premises on that date, but nothing herein shall be
construed as an extension of the term hereof or as a consent of Tenant to any
holding over by Subtenant.
6. Holding Over. If Subtenant holds possession of the Sublease Premises
------------
after the Term of this Agreement, Subtenant shall, at the option of Tenant, to
be exercised by Tenant's giving written notice to Subtenant, and not otherwise,
become a tenant from month-to-month upon the terms and conditions herein
specified, so far as applicable, at a monthly rental equal to the then current
rent payable in advance, in lawful money, and shall continue to be a
-2-
<PAGE>
month-to-month tenant until sixty (60) days after Subtenant shall have given to
Tenant, or Tenant shall have given to Subtenant, a written notice of intention
to terminate such monthly tenancy. Unless Tenant shall hereby exercise the
option hereby given, Subtenant shall be a tenant at sufferance only, whether or
not Tenant shall accept any rent from Subtenant while Subtenant is so holding
over.
7. Master Lease. The effectiveness of this Agreement is conditioned upon
------------
the effectiveness of the Master Lease. Any termination of the Master Lease prior
to the expiration of the term hereof shall operate as a termination of this
Agreement.
8. Telephone. Subtenant's telephone reception will be handled by
---------
Subtenant's own personnel. Subtenant shall be entirely responsible for providing
its own telephone answering services, telephone number(s) and lines, and for the
installation of Subtenant's own telephone lines. Subtenant shall pay all of
Subtenant's own costs and expenses in connection with Subtenant's telephone
usage.
9. Master Lease Provisions. Subject to the more specific terms of this
-----------------------
Agreement, Subtenant shall assume and perform the obligations of Tenant as
Lessee under the Master Lease Provisions attached hereto as Exhibit A, to the
extent said terms and conditions are applicable to the Sublease Premises.
Further, except where the context indicates to the contrary, and except where
otherwise provided in this Agreement, Subtenant shall undertake to perform and
shall perform, in favor of and for the benefit of Tenant, all obligations,
covenants, and conditions which the Master Lease Provisions impose upon "Lessee"
in favor of "Lessor," in the same manner as if such obligations, covenants, and
conditions were set forth at length in this Agreement, as obligations,
covenants, and conditions of Subtenant in favor of Tenant. Sub-tenant shall not
commit, or permit to be committed, on the Premises any act or omission which
shall violate any term or condition of the Master Lease Provisions. In the event
of the termination of Tenant's interest as Lessee under the Master Lease for any
reason, then this Agreement shall terminate coincidentally therewith, without
any liability of Tenant to Subtenant or Subtenant to Tenant. Such Master Lease
Provisions, along with all of the other terms set forth in this Agreement, shall
be the complete terms and conditions of this Agreement.
10. Insurance. Subtenant, at its expense, shall maintain public liability
---------
and property damage insurance with an insurance company acceptable to Tenant in
an amount of $1,000,000 per occurrence. Said policy or policies shall name
Tenant as an additional insured party, and Subtenant shall provide Tenant with a
certificate evidencing such insurance which shall provide for at least thirty
(30) days' written notice to Tenant prior to alteration or cancellation of any
policy evidenced by the certificate.
-3-
<PAGE>
11. Assignment or Subletting. Subtenant shall not assign Subtenant's
------------------------
rights under this Agreement, or sublet or attempt to sublet any portion of the
Sublease Premises, without first obtaining the written consent of Tenant, which
consent will not be delayed or withheld unreasonably. Tenant may reasonably
require that any subletting be consistent with the current intensity and nature
of use of the Premises, recognizing that Tenant and Subtenant work in close
proximity and with frequent contact. Regardless of Tenant's consent, no
subletting or assignment by Subtenant shall release Subtenant of Subtenant's
obligations hereunder or alter the primary liability of Subtenant to pay the
rent and to perform all other obligations to be performed by Subtenant
hereunder.
12. Form of Agreement. Tenant and Subtenant understand and agree that this
-----------------
form of Agreement is an abbreviated one. Accordingly, they incorporate by this
reference the Master Lease Provisions attached as Exhibit A hereto as the terms
of the Agreement between them, with, however, Tenant occupying the position of
Lessor, and Subtenant occupying that of Lessee. The specific terms of this
Agreement shall prevail over any inconsistent supplemental terms as so
incorporated, but, in all other respects, such supplemental terms shall
constitute a part of this Agreement, including, without limitation, the events
of default, and remedies therefor provided to Lessor thereunder (Tenant
hereunder).
13. Attorneys' Fees. If as a result of any breach of default by Subtenant
---------------
in the performance of any of the provisions of this Agreement, Tenant uses the
services of an attorney in order to secure compliance with such provisions or
recover damages therefor, or to terminate this Agreement and evict Subtenant,
Subtenant shall reimburse Tenant upon demand for any and all reasonable
attorneys' fees and expenses so incurred by Tenant.
IN WITNESS WHEREOF, Tenant and Subtenant have executed this Agreement
effective as of the date first hereinabove written.
TENANT: SUBTENANT:
- ------- ----------
SKIDMARKS, Inc., a California LOOKSMART, Ltd
corporation doing business as
San Francisco Production Group
By: /s/ Signature Illegible By: /s/ Signature Illegible
Its President Its CFO
-4-
<PAGE>
EXHIBIT 10.14
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD SUBLEASE
(SHORT-FORM TO BE USED WITH POST 1995 AIR LEASES)
1. PARTIES. The Sublease, dated, for reference purposes only, April 30,
1999, is made by and between Jaran, Inc., a California Corporation ("SUBLESSOR")
and LookSmart, LTD, a Delaware Corporation ("SUBLESSEE").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property, including all
improvements therein, and commonly known by the street address of 275 Brannan
Street, San Francisco located in the County of san Francisco, State of CA and
generally described as (describe briefly the nature of the property) A three
story building for commercial and office use. ("PREMISES").
3. TERM.
3.1 TERM. The term of this Sublease shall be for 20 months commencing
on May 1, 1999 and ending on November 29, 2000 unless sooner terminated pursuant
to any provision hereof. Rent shall commence May 15, 1999.
3.2 DELAY IN COMMENCEMENT. Sublessor agrees to use its best
commercially reasonable efforts to deliver possession of the Premises by the
commencement date. If, despite said efforts, Sublessor is unable to deliver
possession as agreed, the rights and obligations of Sublessor and Sublessee
shall be as set for in paragraph 3.3 of the Master Lease (as modified by
paragraph 7.3 of the Sublease).
4. RENT.
4.1 BASE RENT. Sublessee shall pay to Sublessor as Base Rent for the
Premises equal monthly payments of $8,500.00 in advance, on the 15th day of each
month of the term hereof. Sublessee shall pay Sublessor upon the execution
hereof $8,500.00 as Base Rent for May 15, 1999 through June 14, 1999 Base Rent
for any period during the term hereof which is for less than one month shall be
a pro rata portion of the monthly installment.
4.2 RENT DEFINED. All monetary obligations of Sublessee to Sublessor
under the terms of this Sublease (except for the Security Deposit) are deemed to
be rent ("RENT"). Rent shall be payable in lawful money of the United States to
Sublessor at the address stated herein or to such other persons or at such other
places as Sublessor may designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $8,500.00 as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. The rights and obligations of Sublessor and Sublessee as
to said Security Deposit shall be as set forth in Paragraph 5 of the Master
Lease (as modified by Paragraph 7.3 of this Sublease).
6. USE.
6.1 AGREED USE. The Premises shall be used and occupied only for
General Office and Internet Development and for no other purpose.
6.2 COMPLIANCE. Sublessor warrants that the improvements on the
Premises comply with all applicable building codes, regulations and ordinances
("APPLICABLE REQUIREMENTS") in effect on the commencement date. Said warranty
does not apply to the use to which Sublessee will put the Premises or to any
alterations or utility installations made or to be made by Sublessee. NOTE:
Sublessee is responsible for determining whether or not the zoning is
appropriate for its intended use, and acknowledges that past uses of the
Premises may no longer be allowed. If the Premises do not comply with said
warranty, or in the event that the Applicable Requirements are hereafter
changed, the rights and obligations of Sublessor and Sublessee shall be as
provided in Paragraph 2.3 of the Master Lease (as modified by Paragraph 7.3 of
this Sublease).
6.3 ACCEPTANCE OF PREMISES AND LESSEE. Sublessee acknowledges that:
(a) it has been advised by Brokers to satisfy itself with respect
to the condition of the Premises (including but not limited to the electrical,
HVAC and fire sprinkler systems, security, environmental aspects, and compliance
with Applicable Requirements), and their suitability for Sublessee's intended
use,
<PAGE>
(b) Sublessee has made such investigation as it deems necessary
with reference to such matters and assumes all responsibility therefor as the
same relate to its occupancy of the Premises, and
(c) neither Sublessor, Sublessor's agents, nor any Broker has made
any oral or written representations or warranties with respect to said matters
other than as set forth in this Sublease.
In addition, Sublessor acknowledges that:
(a) Broker has made no representations, promises or warranties
concerning Sublessee's ability to honor the Sublease or suitability to occupy
the Premises, and
(b) it is Sublessor's sole responsibility to investigate the
financial capability and/or suitability of all proposed tenants.
7. MASTER LEASE.
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter the "MASTER LEASE", a copy of which is attached hereto marked
Exhibit 1, wherein Ringrose Corporation, a California Corporation is the lessor,
hereinafter the "MASTER LESSOR"
7.2 This Sublease is and shall be at all times subject and subordinate
to the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions of
the Master Lease except for those provisions of the Master Lease which are
directly contradicted
<PAGE>
wherever in the Master Lease the word "Lessee" is used it shall be deemed to
mean the Sublessee herein.
7.4 During the term of this Sublease and for all period subsequent
for obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with, for
the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom: 1.04, 1.05, 1.07, 1.08, 1.09, 1.10, 1.12, 3.02 Addendum.
7.5 The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "SUBLESSEE'S ASSUMED OBLIGATIONS". The
obligations that sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "SUBLESSOR'S REMAINING OBLIGATIONS".
7.6 Sublessee shall hold Sublessor free and harmless from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire
term of this Sublease, subject, however, to any earlier termination of the
Master Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless from
all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in
full force and effect and that no default exists on the part of any Party to the
Master Lease.
8. ASSIGNMENT OPF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease, subject however to the provisions of
Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a
Default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the Rent accruing
under this Sublease. However, if Sublessor shall Default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all Rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the Rent from the Sublessee, be deemed liable
to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee
upon receipt of any written notice from the Master Lessor stating that a Default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the Rent due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such Rent
to Master Lessor without any obligation or right to inquire as to whether such
Default exists and notwithstanding any notice from or claim from Sublessor to
the contrary and Sublessor shall have no right or claim against Sublessee for
any such Rent so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease
without the consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain
the consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within ten days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to the Subletting.
9.2 In the event that the obligations of the Sublessor under the
Master Lease have been guaranteed by third parties then neither this Sublease,
nor the Master Lessor's consent, shall be effective unless, within 10 days of
the date hereof, said guarantors sign this Sublease thereby giving their consent
to this Sublease.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent shall not release Sublessor of its obligations
or after the primary liability of Sublessor to pay the Rent and perform and
comply with all of the obligations of Sublessor to be performed under the Master
Lease.
<PAGE>
(b) The acceptance of Rent by Master Lessor from Sublessee or
anyone else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent
to any subsequent subletting or assignment.
(d) In the event of any Default of Sublessor under the Master
Lease, Master Lessor may proceed directly against Sublessor, any guarantors or
anyone else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor or any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall Default in its obligations
under the Master Lease, then Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said option to termination of this
Sublease but Master Lessor shall not be liable for any prepaid Rent nor any
Security Deposit paid by Sublessee, nor shall Master Lessor be liable for any
other Defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of
Sublessor at the end of this document shall constitute their consent to the
terms of this Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no Default presently exists under the Master Lease of obligations to
be performed by Sublessor an that the Mater Lease in full force and effect.
9.6 In the event that Sublessor Defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any Default of Sublessor described in any notice of default within
ten days after service of such notice of default on Sublessee. If such Default
is cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor.
10. BROKERS FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to
__________________________________________________________________________ a
licensed real estate broker, ("BROKER"), a fee as set forth in a separate
agreement between Sublessor and Broker, or in the event there is not such
separate agreement, the sum of $____________ for brokerage services rendered by
Broker to Sublessor in this transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right
of first refusal as granted by Sublessor herein, or any option or right
substantially similar thereto, either to extend the term of this Sublease, to
renew this Sublease, to purchase the Premises, or to lease or purchase adjacent
property which Sublessor may own or in which Sublessor has an interest, then
Sublessor shall pay to Broker a fee in accordance with the schedule of Broker in
effect at the time of the execution of this Sublease. Notwithstanding the
foregoing, Sublessor's obligation under this Paragraph 10.2 is limited to a
transaction in which Sublessor is acting
<PAGE>
Sublessee and Master Lessor pertaining to the Premises, any part thereof, or any
adjacent property which Master Lessor owns or in which it has an interest, then
as to any of said transactions. Master Lessor shall pay to Broker a fee, in
cash, in accordance with the schedule of Broker in effect at the time of the
execution of this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be
due and payable upon the exercise of any option to extend or renew, upon the
execution of any new lease, or, in the event of a purchase, at the close of
escrow.
10.5 Any transferee of Sublessor's interest in this Sublease, or of
Master Lessor's interest in the Master Lease, by accepting an assignment
thereof, shall be deemed to have assumed the respective obligations of Sublessor
or Master Lessor under this Paragraph 10. Broker shall be deemed to be a third-
party beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an
action to enforce the terms hereof or to declare rights hereunder, the
prevailing party in any such action, on trial and appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
Court.
12. ADDITIONAL PROVISIONS. [If there are no additional provisions, draw a
line from this point to the next printed word after the space left here. If
there are additional provisions place the same here]
12.1 ASSIGNMENT AND SUBLETTING. Notwithstanding anything contained
herein to the contrary, Sublessee shall have the right with the prior written
consent of Sublessor, which shall not be unreasonably withheld or delayed, to
sublease or assign its interest in Premises. If, within ten (10) business days
of Sublessee's notification to Sublessor of its intent to assign or sublease all
or a part of the Premises, Sublessor does not withhold its consent in writing,
such consent shall be deemed to be granted.
Sublessee shall be entitled to any profit from such sublease or assignment.
12.2 SUBLESSEE IMPROVEMENTS. Sublessor at Sublessor's sole expense
shall remove all personal property from Premises and deliver Premises in a broom
swept conditions.
Sublessee shall have the right to install new data service and electrical
distribution system from main service and sub-panels throughout Premises.
Sublessee shall install sub-meter to monitor Sublessee's electrical usage.
Sublessee shall have the right to perform Sublessee improvements not
inconsistent with the Master Lease, so long as Sublessee performs such work
through a licensed contractor approved in writing by Sublessor and Owner and
said work is done in a good workmanlike manner to City and county
specifications. In such event, Lessee shall be bounded by all of the terms,
covenants and conditions of this Lease Agreement and the Master Lease.
In no event shall Sublessee's improvements trigger seismic upgrading and/or
compliance with Americans with Disabilities Act on the building. If said Seismic
or Disabilities work is required, it shall be Sublessee's sole responsibility
and Expense to comply. However, Sublessee shall have the right to terminate this
sub-lease with no further obligation to Sublessee.
12.3 PAYMENT OF SUBLEASE RENT. In the event that Sublessor defaults or
otherwise breaches the Master Lease, Master Lessor hereby warrants that it will
honor this Sublease.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
---------
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY REAL ESTATE BROKER AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE
TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
SUBLEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PROPERTY, THE
STRUCTURAL INTEGRITY, THE CONDITION OF
<PAGE>
THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR
SUBLESSEE'S INTENDED USE.
WARNING: IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
- -------
CERTAIN PROVISIONS OF THE SUBLEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAW
OF THE STATE IN WHICH THE PROPERTY IS LOCATED.
Executed at: __________________________ __________________________________
on: ___________________________________ By _______________________________
Address: ______________________________ By _______________________________
"Sublessor" (Corporate Seal)
Executed at: __________________________ __________________________________
on: ___________________________________ By _______________________________
Address: ______________________________ By _______________________________
"Sublessee" (Corporate Seal)
Executed at: __________________________ __________________________________
on: ___________________________________ By _______________________________
Address: ______________________________ By _______________________________
"Master Lessor" (Corporate Seal)
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower
St., Suite 600, Los Angeles, CA 90017. (213) 687-8777.
Page 3 of 3
<PAGE>
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the
Lease referred to in this Article One explain and define the Basic Terms and are
to be read in conjunction with the Basic Terms.
Section 1.01. DATE OF LEASE: December 1, 1995
Section 1.02. LANDLORD (INCLUDE LEGAL ENTITY): Ringrose Corporation,
a California corporation
Address of Landlord: c/o O'Donnell, Waiss, Wall & Meschke
100 Broadway, Third Floor, San Francisco, CA 94111
Section 1.03. TENANT (INCLUDE LEGAL ENTITY): Jaran, Inc., a
California corporation
Address of Tenant: 275 Brannan Street, San Francisco, CA 94107
Section 1.04 PROPERTY: (Include street address, approximate square
footage and description)
Entire building at 275 Brannan Street, which is
approximately 52,000 square feet of building on three
floors.
Section 1.05 LEASE TERM: Five (5) years ____ months beginning on
December 1, 1995 or such other date as is specified in this Lease, and ending on
November 30, 2000.
Section 1.06 PERMITTED USES: (See Article Five) Sewing factory,
ground floor retail outlet of administrative office.
Section 1.07 TENANT'S GUARANTOR: (If none, so state) Supercom, Inc.
for lease term ending on Oct. 31, 1998.
Section 1.08 BROKERS: (See Article Fourteen) (If none, so state)
Landlord's Broker: CB Commercial Real Estate Group, Inc. (George Little)
Tenant's Broker: TRI Commercial (Gary S. Cohen)
Section 1.09 COMMISSION PAYABLE TO LANDLORD'S BROKER: (See Article
Fourteen) $Per listing agreement
Section 1.10 INITIAL SECURITY DEPOSIT: (See Section 3.03) $33,000.00
Section 1.11 VEHICLE PARKING SPACES ALLOCATED TO TENANT: None
Section 1.12 RENT AND OTHER CHARGES PAYABLE BY TENANT: _____________
(a) BASE RENT Sixteen thousand five hundred Dollars ($16,500.00) per month
for the first Twenty-four months, as provided in Section 3.01, and shall be
increased on the first day of the 25th, 37th, and 49th month(s) after the
Commencement Date, either (i) as provided in Section 3.02, or (ii) In no event
shall the increase be less than four (4%) percent per year or greater than seven
(7%) percent per year. (If (ii) is completed, than (i) and Section 3.02 are
inapplicable.)
(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes above the "Base Real
Property Taxes" (See Section 4.02); (ii) Utilities (See Section 4.03); (iii)
Increased insurance Premiums above "Base Premiums" (See Section 4.04); (iv)
Impounds for Tenant's Share of Insurance Premiums and Property Taxes (See
Section 4.07); (v) Maintenance, Repairs and Alterations (See Article Six).
Section 1.13 COSTS AND CHARGES PAYABLE BY LANDLORD: (a) Base Real
Property Taxes (See Section 4.02); (b) Base Insurance Premiums (See Section
4.04(c); (c) Maintenance and Repair (See Article Six).
Section 1.14 LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE:
(See Section 9.05) and Section 16.09 percent (Fifty (50%) of the Profit (the
"Landlord's Share").
<PAGE>
Section 1.15 RIDERS: The following Riders are attached to and made a part
of this Lease: (If none, so state)
Addendum, Article Sixteen, Sections 16.01 - 16.10,
EXHIBIT I
ARTICLE TWO: LEASE TERM
Section 2.01. LEASE OF PROPERTY FOR LEASE TERM. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 1.05 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.05 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
(c) 1988 Southern California Chapter
of the Society of industrial SIOR 2 Initials_________________
and Office Realtors,(R) Inc. (Single-Tenant _________________
Gross Form)
<PAGE>
If Landlord does not deliver possession of the Property to Tenant within sixty
(60) days after the Commencement Date, Tenant may elect to cancel this Lease by
giving ?? days written notice to Landlord. If Tenant gives such notice, the
Lease shall be cancelled and neither Landlord nor Tenant shall have any further
obligations to the other except for the return of any monies received by
Landlord. If Tenant does not give such notice, Tenant's right to cancel the
Lease shall expire and the Lease Term shall commence upon the delivery of
possession of the Property to Tenant. If delivery of possession of the Property
to Tenant is delayed, Landlord and Tenant shall, upon such delivery, execute an
amendment to this Lease setting forth the actual Commencement Date and
expiration date of the Lease. Failure to execute such amendment shall not affect
the actual Commencement Date and expiration date of the Lease.
Section 2.03. EARLY OCCUPANCY. If Tenant occupies the Property prior to
the Commencement Date, Tenant's occupancy of the Property shall be subject to
all of the provisions of this Lease. Early occupancy of the Property shall not
advance the expiration date of this Lease.
Section 2.04. HOLDING OVER. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse Landlord
for and indemnify Landlord against all damages which Landlord incurs from
Tenant's delay in vacating the Property. If Tenant does not vacate the Property
upon the expiration or earlier termination of the Lease and Landlord thereafter
accepts rent from Tenant, Tenant's occupancy of the Property shall be a "month-
to-month" tenancy, subject to all of the terms of this Lease applicable to a
month-to-month tenancy, except that the Base Rent then in effect shall be
increased by fifteen percent (15%).
ARTICLE THREE: BASE RENT
Section 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without approved offset, deduction or prior
demand. The Base Rent shall be payable at Landlord's address or at such other
place as Landlord may designate in writing.
Section 3.02. COST OF LIVING INCREASES. The Base Rent shall be increased
on each date (the "Rental Adjustment Date") stated in Paragraph 1.12(a) above in
accordance with the increase in the United States Department of Labor, Bureau of
Labor Statistics, Consumer Price Index for All Urban Consumers (all items for
the geographical Statistical Area in which the Property is located on the basis
of 1982-1984 = 100) (the "Index") as follows:
(a) The Base Rent (the "Comparison Base Rent") in effect immediately before
each Rental Adjustment Date shall be increased by the percentage that the index
has increased from the date (the "Comparison Date") on which payment of the
Comparison Base Rent began through the month in which the applicable Rental
Adjustment Date occurs. The Base Rent shall not be reduced by reason of such
computation. Landlord shall notify Tenant of each increase by a written
statement which shall include the index for the applicable Comparison Date, the
index for the applicable Rental Adjustment Date, the percentage increase between
those two indices, and the new Base Rent. Any increase in the Base Rent provided
for in this Section 3.02 shall be subject to any minimum or maximum increase, if
provided for in Paragraph 1.12(a).
(b) Tenant shall pay the new Base Rent from the applicable Rental
Adjustment Date until the next Rental Adjustment Date. Landlord's notice may be
given after the applicable Rental Adjustment Date of the increase, and Tenant
shall pay Landlord the accrued rental adjustment for the months elapsed between
the effective date of the increase and Landlord's notice of such increase within
ten (10) days after Landlord's notice. If the format or components of the index
are materially changed after the Commencement Date, Landlord shall substitute an
index which is published by the Bureau of Labor Statistics or similar agency and
which is most nearly equivalent to the index in effect on the Commencement Date.
The substitute index shall be used to calculate the increase in the Base Rent
unless Tenant objects to such index in writing within thirty (30) days after
receipt of Landlord's notice. If Tenant objects, Landlord and Tenant shall
submit the selection of the substitute index
<PAGE>
for binding arbitrations in accordance with the rules and regulations of the
American Arbitration Association at its office closes to the Property. The costs
of arbitration shall be borne equally by Landlord and Tenant.
Section 3.03. SECURITY DEPOSIT; INCREASES.
(a) Upon the execution of this Lease, Tenant shall deposit with Landlord a
cash Security Deposit in the amount set forth in Section 1.10 above. after ten
(10) days written notice Landlord may apply all or part of the Security Deposit
to any unpaid rent or other charges due from Tenant or to cure any other
defaults of Tenant. If Landlord uses any part of the Security Deposit, Tenant
shall restore the Security Deposit to its full amount within ten (10) days after
Landlord's written request. Tenant's failure to do so shall be a default under
this Lease. No interest shall be paid on the Security Deposit. Landlord shall
not be required to keep the Security Deposit separate from its other accounts
and no trust relationship is created with respect to the Security Deposit.
(b) Each Time the Base Rent is increased, Tenant shall deposit additional
funds with Landlord sufficient to increase the Security Deposit to an amount
which bears the same relationship to the adjusted Base Rent as the initial
Security Deposit bore to the initial Base Rent.
Section 3.04. TERMINATION; ADVANCE PAYMENTS. Upon termination of this
Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation)
or any other termination not resulting from Tenant's default, and after Tenant
has vacated the Property in the manner required by this Lease, Landlord shall
refund or credit to Tenant upon written request by Tenant (or Tenant's
successor) the unused portion of the Security Deposit, any advance rent or other
advance payments made by Tenant to Landlord, and any amounts paid for real
property taxes and other reserves which apply to any time periods after
termination of the Lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
(c) 1988 Southern California Chapter
of the Society of industrial SIOR 2 Initials_________________
and Office Realtors,(R) Inc. (Single-Tenant _________________
Gross Form)
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of the Property after completion of the structures. Tenant shall pay Landlord
the amount, if any, by which the real property taxes during the Lease Term
exceed the Base Real Property Taxes. Subject to Paragraph 4.02(c), Tenant shall
make such payments within fifteen (15) days after receipt of Landlord's
statement showing the amount and computation of such increase. Landlord shall
reimburse Tenant for any real property taxes paid by Tenant covering any period
of time prior to or after the Lease Term.
(b) DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means: (i) any
fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalks,
road maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) (v) any charge or fee replacing any tax previously
included within the definition of real property tax. "Real property tax" does
not, however, include Landlord's federal or state income, franchise, inheritance
or estate taxes.
(c) JOINT ASSESSMENT. If the Property is not separately assessed, Landlord
shall reasonably determine. Tenant's share of the real property tax payable by
Tenant under Paragraph 4.02(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord within
fifteen (15) days after receipt of Landlord's written statement.
(d) PERSONAL PROPERTY TAXES.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the
Property.
(ii) If any of Tenant's personal property is taxed with the Property,
Tenant shall pay Landlord the taxes for the personal property within
fifteen (15) days after Tenant receives a written statement from Landlord
for such personal property taxes.
Section 4.03. Utilities. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
Section 4.04. INSURANCE POLICIES.
(a) Liability Insurance. During the Lease Term, Tenant shall maintain a
policy of commercial general liability insurance (sometimes known as broad form
comprehensive general liability insurance) insuring Tenant against liability for
bodily injury, property damage (including loss of use of property) and personal
injury arising out of the operation, use or occupancy of the Property. Tenant
shall name Landlord as an additional insured under such policy. The initial
amount of such insurance shall be One Million Dollars ($1,000,000) per
occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.04(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.05, if the matters giving rise to the indemnity
under Section 5.05 result from the negligence of Tenant. The amount and coverage
of such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary insurance.
(b) PROPERTY AND RENTAL INCOME INSURANCE. During the Lease Term, Landlord
shall maintain policies of insurance covering loss of or damage to the Property
in the full amount
<PAGE>
of its replacement value. Such policy shall contain an inflation Guard
Endorsement and shall provide protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief,
special extended perils (all risk), sprinkler leakage and any other perils which
Landlord deems reasonably necessary. Landlord shall have the right to obtain
flood and earthquake insurance if required by any lender holding a security
interest in the Property. Landlord shall not obtain insurance for Tenant's
fixtures or equipment or building improvements installed by Tenant on the
Property. During the Lease Term, Landlord shall also maintain a rental income
insurance policy, with loss payable to Landlord, in an amount equal to one
year's Base Rent, plus estimated real property taxes and insurance premiums.
Tenant shall be liable for the payment of any deductible amount under Landlord's
or Tenant's insurance policies maintained pursuant to this Section 4.04, in an
amount not to exceed Ten Thousand Dollars ($10,000). Tenant shall not do or
permit anything to be done which invalidates any such insurance policies.
(c) PAYMENT OF PREMIUMS.
(i) Landlord shall pay the "Base Premiums" for the insurance policies
maintained by Landlord under Paragraph 4.04(b). If the Property has been
previously fully occupied, the "Base Premiums" are the insurance premiums
paid during or applicable to the last twelve (12) months of such prior
occupancy. If the Property has not been previously fully occupied or has
been occupied for less than twelve (12) months, the Base Premiums are the
lowest annual premiums reasonably obtainable for the required insurance for
the Property as of the Commencement Date.
(ii) Tenant shall pay Landlord the amount, if any, by which the
insurance premiums for all policies maintained by Landlord under Paragraph
4.04(b) have increased over the Base Premiums, whether such increases
result from the nature of Tenant's occupancy, any act or omission of
Tenant, the requirement of any lender referred to in Article Eleven
(Protection of Lenders), the increased value of the Property or general
rate increases. However, if Landlord substantially increases the amount of
insurance carried or the percentage of insured value after the period
during which the Base Premiums were calculated, Tenant shall only pay
Landlord the amount of increased premiums which would have been charged by
the
(c) 1988 Southern California Chapter
of the Society of industrial SIOR 3 Initials_________________
and Office Realtors,(R) Inc. (Single-Tenant _________________
Gross Form)
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other than the Property, Landlord shall also deliver to Tenant a statement of
the amount of the premiums applicable to the Property showing, in reasonable
detail, how such amount was computed. If the Lease Term expires before the
expiration of the insurance period. Tenant's liability shall be pro rated on an
annual basis.
(d) General Insurance Provisions.
(i) Any Insurance which Tenant is required to maintain under this
Lease shall include a provision which requires the insurance carrier to
give Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) If Tenant falls to deliver any policy, certificate or renewal to
Landlord required under this Lease within the prescribed time period or if
any such policy is cancelled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case
Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant shall maintain all insurance required under this Lease
with companies holding a "General Policy Rating" of A-12 or better, as set
forth in the most current issue of "Best Key Rating Guide". Landlord and
Tenant acknowledge the insurance markets are rapidly changing and that
insurance in the form and amounts described in this Section 4.04 may not be
available in the future. Tenant acknowledges that the insurance described
in this Section 4.04 is for the primary benefit of Landlord. If at any time
during the Lease Term, Tenant is unable to maintain the insurance required
under the Lease, Tenant shall nevertheless maintain insurance coverage
which is customary and commercially reasonable in the insurance industry
for Tenant's type of business, as that coverage may change from time to
time. Landlord makes no representation as to the adequacy of such insurance
to protect Landlord's or Tenant's interests. Therefore, Tenant shall obtain
any such additional property or liability insurance which Tenant deems
necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by
any insurance policy in force (whether or not described in this Lease) at
the time of such loss or damage. Upon obtaining the required policies of
insurance, Landlord and Tenant shall give notice to the insurance carriers
of this mutual waiver of subrogation.
Section 4.05. LATE CHARGES. Tenant's failure to pay rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does not receive any rent payment within ten
(10) days after it becomes due, Tenant shall pay Landlord a late charge equal to
five percent (5%) of the overdue amount. The parties agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of such late payment.
Section 4.06. INTEREST ON PAST DUE OBLIGATIONS.
Section 4.07. IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. PERMITTED USES. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.
Section 5.02. MANNER OF USE. Tenant shall not cause or permit the Property
to be used in any way which constitutes a violation of any law, ordinance, or
governmental
<PAGE>
regulation or order, which annoys or interferes with the rights of other tenants
of Landlord, or which constitutes a nuisance or waste. Tenant shall obtain and
pay for all permits, including a Certificate of Occupancy, required for Tenant's
occupancy of the Property and shall promptly take all actions necessary to
comply with all applicable statutes, ordinances, rules, regulations, orders and
requirements regulating the use by Tenant of the Property including the
Occupational Safety and Health Act. Tenant shall not be responsible for the
removal or remediation of any hazardous materials, hazardous substances,
hazardous waste, or toxic substances as defined in Section 5.03 which existed
prior to Tenant's possession or not direct caused by Tenant.
Section 5.03. HAZARDOUS MATERIALS. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to be
generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent
(c) 1988 Southern California Chapter
of the Society of industrial SIOR 4 Initials_________________
and Office Realtors,(R) Inc. (Single-Tenant _________________
Gross Form)
<PAGE>
consent: which shall not unreasonably be withheld. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
Section 5.05. INDEMNITY. Tenant shall indemnity Landlord against and hold
Landlord harmless from any and all costs. claims or liability arising from: (a)
Tenant's use of the Property; (b) the conduct of Tenant's business or anything
else done or permitted by Tenant to be done in or about the Property, including
any contamination of the Property or any other property resulting from the
presence or use of Hazardous Material caused or permitted by Tenant; (c) any
breach or default in the performance of Tenant's obligations under this Lease;
(d) any misrepresentation or breach of warranty by Tenant under this Lease; or
(e) other acts or omissions of Tenant. Tenant shall defend Landlord against any
such cost, claim or liability at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs incurred by Landlord in connection with any
such claim. As a material part of the consideration to Landlord, Tenant assumes
all risk of damage to property or injury to persons in or about the Property
arising from any cause, and Tenant hereby waives all claims in respect thereof
against Landlord, except for any claim arising out of Landlord's gross
negligence or willful misconduct. As used in this Section, the term "Tenant"
shall include Tenant's employees, agents, contractors and invitees, if
applicable.
Section 5.06. LANDLORD'S ACCESS. Landlord or its agents may enter the
Property at all reasonable times with 48 hours notice to show the Property to
potential buyers, investors or tenants or other parties; to do any other act or
to inspect and conduct tests in order to monitor Tenant's compliance with all
applicable environmental laws and all laws governing the presence and use of
Hazardous Material; or for any other purpose Landlord deems necessary. Landlord
shall give Tenant 48 hours notice prior notice of such entry, except in the case
of an emergency. Landlord may place customary "For Sale" or "For Lease" signs on
the Property.
Section 5.07. QUIET POSSESSION. If Tenant pays the rent and complies with
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property or the suitability
of the Property for Tenant's intended use. Tenant represents and warrants that
Tenant has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto. If Landlord or Landlord's Broker has provided a Property
Information Sheet or other Disclosure Statement regarding the Property, a copy
is attached as an exhibit to the Lease.
Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be
liable for any damage or injury to the person, business (or any loss of income
therefrom), goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from: (a) fire, steam,
electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures or any other cause; (c) conditions arising in or about the
Property or from other sources or places; or (d) any act or omission of any
other tenant of Landlord. The provisions of this Section 6.02 shall not,
however, exempt Landlord from liability for Landlord's gross negligence or
willful misconduct.
Section 6.03. LANDLORD'S OBLIGATIONS. Subject to the provisions of Article
Seven (Damage or Destruction) and Article Eight (Condemnation), and except for
damage caused by any act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on the Property in good order,
condition and repair. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the surfaces of walls.
<PAGE>
Landlord shall not be obligated to make any repairs under this Section 6.03
until a reasonable time after receipt of a written notice from Tenant of the
need for such repairs.
Section 6.04. TENANT'S OBLIGATIONS.
(a) Except as provided in Article Seven (Damage or Destruction) and Article
Eight (Condemnation), Tenant shall keep all portions of the Property (including
nonstructural, interior, and portions, systems and equipment) in good order,
condition and repair (including interior repainting and refinishing, as needed).
If any portion of the Property or any system or equipment in the Property which
Tenant is obligated to repair cannot be fully repaired or restored, Tenant shall
promptly replace such portion of the Property or system or equipment in the
Property, regardless of whether the benefit of such replacement extends beyond
the Lease Term; but if the benefit or useful life of such replacement extends
beyond the Lease Term (as such term may be extended by exercise of any options),
the useful life of such replacement shall be prorated over the remaining portion
of the Lease Term (as extended), and Tenant shall be liable only for that
portion of the cost which is applicable to the Lease Term (as extended). Tenant
shall maintain a preventive maintenance contract providing for the regular
inspection and maintenance of the heating and air conditioning system by a
licensed heating and air conditioning contractor. Landlord shall have the right,
upon written notice to Tenant, to undertake the responsibility for preventive
maintenance of the heating and air conditioning system at Tenant's expense. In
addition, Tenant shall, at Tenant's expense, repair any damage to the roof,
foundation or structural portions of walls caused by Tenant's acts or omissions.
It is the intention of Landlord and Tenant that, at all times during the Lease
Term, Tenant shall maintain the Property in an attractive, reasonable.
(b) Tenant shall fulfill all of Tenant's obligations under this Section
6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or replace
the Property as required by this Section 6.04, Landlord may, upon ten (10) days'
prior notice to Tenant (except
(c) 1988 Southern California Chapter
of the Society of industrial SIOR 5 Initials_________________
and Office Realtors,(R) Inc. (Single-Tenant _________________
Gross Form)
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consent, except for non-structural alterations which do not exceed Ten Thousand
Dollars ($10,000) in cost cumulatively ?? over the Lease Term and which are not
visible from the outside of any building of which the Property is part. Landlord
may require Tenant to provide demolition and/or lien and completion bonds in
form and amount satisfactory to Landlord. Tenant shall promptly remove any
alterations, additions, or improvements constructed in violation of this
Paragraph 6.05(a) upon Landlord's written request. All alterations, additions,
and improvements shall be done in a good and workmanlike manner, in conformity
with all applicable laws and regulations, and by a contractor approved by
Landlord, Upon completion of any such work, Tenant shall provide Landlord with
"as built" plans, copies of all construction contracts, and proof of payment for
all labor and materials.
(b) Tenant shall pay when due all claims for labor and material furnished
to the Property. Tenant shall give Landlord at least twenty (20) days' prior
written notice of the commencement of any work on the Property, regardless of
whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property.
Section 6.06. Condition upon Termination. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article Seven (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery equipment furniture, fixtures and personal
belongings which can be removed without material damage to the Property. Tenant
shall repair, at Tenant's expense, any damage to the Property caused by the
removal of any such machinery equipment furniture, fixtures and personal
belongings. In no event, however, shall Tenant remove any of the following
materials or equipment (which shall be deemed Landlord's property) without
Landlord's prior written consent: any power wiring or power panels; lighting or
lighting fixtures; wall coverings; drapes, blinds or other window coverings;
carpets or other floor coverings; heaters, air conditioners or any other heating
or air conditioning equipment except for portable heaters and air conditioning,
fencing or security gates; or other similar building operating equipment and
decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. PARTIAL DAMAGE TO PROPERTY.
(a) Tenant shall notify Landlord in writing immediately upon the occurrence
of any damage to the Property. If the Property is only partially damaged (i.e.,
less than fifty percent (50%) of the Property is untenantable as a result of
such damage or less than fifty percent (50%) of Tenant's operations are
materially impaired) and if the proceeds received by Landlord from the insurance
policies described in Paragraph 4.04(b) are sufficient to pay for the necessary
repairs, this Lease shall remain in effect and Landlord shall repair the damage
as soon as reasonably possible. Landlord may elect (but is not required) to
repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient to
pay the entire cost of repair, or if the cause of the damage is not covered by
the insurance policies which Landlord maintains under Paragraph 4.04(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect except
for the abatement of rent described in Section 7.03 (ii) terminate this Lease as
of the date the damage occurred. Landlord shall notify Tenant within thirty (30)
days after receipt of notice of the occurrence of the damage whether Landlord
elects to repair the damage or terminate the Lease. If Landlord elects to repair
the damage, Tenant shall pay Landlord the "deductible amount" (if any) under
Landlord's insurance
<PAGE>
policies and, if the damage was due to an act or omission of Tenant, or Tenant's
employees, agents, contractors or invitees, the difference between the actual
cost of repair and any insurance proceeds received by Landlord. If Landlord
elects to terminate the Lease, Tenant may elect to continue this Lease in full
force and effect, in which case Tenant shall repair any damage to the Property
and any building in which the Property is located. Tenant shall pay the cost of
such repairs, except that upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6) months of
the Lease Term and such damage will require more than thirty (30) days to
repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
Section 7.02. SUBSTANTIAL OR TOTAL DESTRUCTION. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the preceding
sentence, if the Property can be rebuilt within six (6) months after the date of
destruction, Landlord may elect to rebuild the Property at Landlord's own
expense, in which case this Lease shall remain in full force and effect except
for the abatement of rent described in Section 7.03. Landlord shall notify
Tenant of such election within thirty (30) days after Tenant' 's notice of the
occurrence of total or substantial destruction. If Landlord so elects, Landlord
shall rebuild the Property at Landlord's sole expense, except that if the
destruction was caused by an act or omission of Tenant, Tenant shall pay
Landlord the difference between the actual cost of rebuilding and any insurance
proceeds received by Landlord.
Section 7.03 TEMPORARY REDUCTION OF RENT. If the Property is destroyed or
damaged and Landlord of Tenant repairs or restores the Property pursuant to the
provisions of this Article Seven, any rent payable during the period of such
damage, repairs and/or restoration shall be reduced according to the degree, if
any, to which Tenant's use of the Property is impaired. the Except
(c) 1988 Southern California Chapter
of the Society of industrial SIOR 6 Initials_________________
and Office Realtors,(R) Inc. (Single-Tenant _________________
Gross Form)
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to of Section 7.02 above shall govern the rights and obligations of Landlord and
Tenant in the event of any substantial or total destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
takes title or possession). If neither Landlord nor Tenant terminates this
Lease, this Lease shall remain in effect as to the portion of the Property not
taken, except that the Base Rent and Additional Rent shall be reduced in
proportion to the reduction in the floor area of the Property. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to any
ground lessor, mortgagee or beneficiary under a deed of trust encumbering the
Property, the amount of its interest in the Property; (b) second, to Tenant,
only the amount of any award specifically designated for loss of or damage to
Tenant's trade fixtures or removable personal property; and (c) third, to
Landlord, the remainder of such award, whether as compensation for reduction in
the value of the leasehold, the taking of the fee, or otherwise. If this Lease
is not terminated, Landlord shall repair any damage to the Property caused by
the Condemnation, except that Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. LANDLORD'S CONSENT REQUIRED. No portion of the Property or
of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, mortgage, sublease, transfer, operation of
law, or act of Tenant, without Landlord's prior written consent; not
unreasonably withheld except as provided in Section 9.02 below. Landlord has the
right to grant withhold its consent as provided in Section 9.05 below. Any
transfer without consent shall be void and shall constitute a non-curable breach
of this Lease. If Tenant is a corporation, any change in the ownership of a
controlling interest of the voting stock of the corporation shall require
Landlord's consent.
Section 9.02. TENANT AFFILIATE. Tenant may assign this Lease or sublease
the Property, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all of
Tenant's obligations under this Lease.
Section 9.03. NO RELEASE OF TENANT. No transfer permitted by this Article
Nine, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article Nine. Consent to one transfer
is not a consent to any subsequent transfer. If Tenant's transferee defaults
under this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, after without notifying
Tenant or obtaining its consent. Such action shall not relieve Tenant's
liability under this Lease.
Section 9.04. OFFER TO TERMINATE. If Tenant desires to assign the Lease or
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination
<PAGE>
shall apply. If Landlord does not so elect, the Lease shall continue in effect
until otherwise terminated and the provisions of Section 9.05 with respect to
any proposed transfer shall continue to apply.
Section 9.05. LANDLORD'S CONSENT.
(a) Tenant's request for consent to any transfer described in Section 9.01
shall set forth in writing the details of the proposed transfer, including the
name, business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g., the term of and the rent and security
deposit payable under any proposed assignment or sublease), and any other
information Landlord deems relevant. Landlord shall have the right to withhold
consent, if reasonable, or to grant consent, based on the following factors: (i)
the business of the proposed assignee or subtenant and the proposed use of the
Property; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) (iv) such other factors as Landlord may reasonably deem
relevant. If Landlord objects to a proposals assignment solely because of the
net worth and/or financial reputation of the proposed assignee, Tenant may
nonetheless sublease (but not assign), all or a portion of the Property to the
proposed transferee, but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the Lease
the Landlord's Share (stated in Section 1.14) of the Profit (defined below)
on such transaction as and when received by Tenant, upon expiration of
guarantee and default of Tenant unless Landlord give s written notice to
Tenant and the assignee or subtenant that Landlord's Share shall be paid by
the assignee or subtenant to Landlord directly. The "Profit" means (A) all
amounts paid to Tenant for such assignment or sublease, including "key"
money, monthly rent in excess of the monthly rent payable under the Lease,
and all fees and other consideration paid for the assignment or sublease,
including fees under any collateral agreements, less (B) costs and expenses
directly incurred by Tenant in connection with the execution and
performance of such assignment or sublease for real estate broker's
commissions and
(c) 1988 Southern California Chapter
of the Society of industrial SIOR 7 Initials_________________
and Office Realtors,(R) Inc. (Single-Tenant Gross Form)______________
<PAGE>
(ii) Tenant shall provide Landlord a written statement certifying all
amounts to be paid from any assignment or sublease of the Property within
thirty (30) days after the transaction documentation is signed, and
Landlord may inspect Tenant's books and records to verify the accuracy of
such statement. On written request, Tenant shall promptly furnish to
Landlord copies of all the transaction documentation, all of which shall be
certified by Tenant to be complete, true and correct. Landlord's receipt of
Landlord's Share shall not be a consent to any further assignment or
subletting. The breach of Tenant's obligation under this Paragraph 9.05(b)
shall be a default of the Lease.
Section 9.06. NO MERGER. No merger shall result from Tenant's sublease of
the Property under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the Interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. COVENANTS AND CONDITIONS. Both parties performance of each
each parties of obligations under this Lease is a condition as well as a
covenant. Tenant's right to continue in possession of the Property and
Landlord's right to receive rent conditioned upon such performance. Time is of
the essence in the performance of all covenants and conditions.
Section 10.02. DEFAULTS. Tenant or Landlord shall be in material default
under this Lease:
(a) If Tenant abandons the Property or if Tenants vacation of the Property
results in the cancellation of any insurance described in Section 4.04;
(b) If Tenant falls to pay rent or any other charge when due;
(c) If Either party fails to perform any of its non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from the
other provided that if more than thirty (30) days are required to complete such
performance, either party shall not be in default if it commences such
performance within the thirty (30) day period and thereafter diligently pursues
its completion. However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of this Lease. The
notice required by this Paragraph is intended to satisfy any and all notice
requirements imposed by law on either party and is not in addition to any such
requirement.
(d) (i) If Tenant makes a general assignment or general arrangement for
the benefit of creditors; (ii) If a petition or adjudication of bankruptcy or
for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) If a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) If substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.03. REMEDIES. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
<PAGE>
(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including (i) the worth at the time of the award of the unpaid
Base Rent, Additional Rent and other charges which Landlord had earned at the
time of the termination; (ii) the worth at the time of the award of the amount
by which the unpaid Base Rent, Additional Rent and other charges which Landlord
would have earned after termination until the time of the award exceeds the
amount of such rental loss that Tenant proves Landlord could have reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid Base Rent, Additional Rent and other charges which Tenant would have paid
for the balance of the Lease Term after the time of award exceeds the amount of
such rental loss that Tenant proves Landlord could have reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under the
Lease or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, any costs or expenses Landlord incurs
in maintaining or preserving the Property after such default, the cost of
recovering possession of the Property, expenses of reletting, including
necessary renovation or alteration of the Property, Landlord's reasonable
attorneys' fees incurred in connection therewith, and any real estate commission
paid or payable. As used in subparts (i) and (ii) above, the "worth at the time
of the award" is computed by allowing interest on unpaid amounts at the rate of
fifteen percent (15%) per annum, or such lesser amount as may then be the
maximum lawful rate. As used in subpart (iii) above, the "worth at the time of
the award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus one percent
(1%). If Tenant has abandoned the Property, Landlord shall have the option of
(i) retaking possession of the Property and recovering from Tenant the amount
specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph
10.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant has abandoned the Property. In such
event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decisions of the state in which the Property is located.
(c) 1988 Southern California Chapter
of the Society of industrial SIOR 8 Initials_____________
and Office Realtors,(R) Inc. (Single-Tenant Gross Form)_______________
<PAGE>
Section 10.05. Automatic Termination. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the affirmation
of the Landlord's intention to terminate the Lease as provided in Section 10.03
hereof, including the filing of an unlawful detainer action against Tenant. On
such termination, Landlord's damages for default shall include all costs and
fees, including reasonable attorneys' fees that Landlord incurs in connection
with the filing, commencement, pursuing and/or defending of any action in any
bankruptcy court or other court with respect to the Lease; the obtaining of
relief from any stay in bankruptcy restraining any action to evict Tenant; or
the pursuing of any action with respect to Landlord's right to possession of the
Property. All such damages suffered (apart from Base Rent and other rent payable
hereunder) shall constitute pecuniary damages which must be reimbursed to
Landlord prior to assumption of the Lease by Tenant or any successor to Tenant
in any bankruptcy or other proceeding.
Section 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. SUBORDINATION. Landlord shall have the right to subordinate
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall execute
such further documents and assurances as such lender may require, provided that
Tenant's obligations under this Lease shall not be increased in any material way
(the performance of ministerial acts shall not be deemed material), and Tenant
shall not be deprived of its rights under this Lease. Tenant's right to quiet
possession of the Property during the Lease Term shall not be disturbed if
Tenant pays the rent and performs all of Tenant's obligations under this Lease
and is not otherwise in default. If any ground lessor, beneficiary or mortgagee
elects to have this Lease prior to the lien of its ground lease, deed of trust
or mortgage and gives written notice thereof to Tenant, this Lease shall be
deemed prior to such ground lease, deed of trust or mortgage whether this Lease
is dated prior or subsequent to the date of said ground lease, deed of trust or
mortgage or the date of recording thereof.
Section 11.02. ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale. Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease.
Section 11.03. SIGNING OF ATTORNMENT AND SUBORDINATION DOCUMENT. Tenant
shall sign and deliver any instrument or documents necessary or appropriate to
evidence any such attornment or subordination or agreement to do so. If Tenant
fails to do so within ten (10) days after written request. Tenant hereby makes,
constitutes and irrevocably appoints Landlord, or any transferee or successor or
Landlord, the attorney-in-fact of Tenant to execute and deliver any such
instrument or document.
Section 11.04. ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been cancelled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why); and (v) such other representations or information with respect to Tenant
or the Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Property may require. Tenant shall deliver such
statement to Landlord within ten (10) days after Landlord's request. Landlord
may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
<PAGE>
(b) If Tenant does not deliver such statement to Landlord within such ten
(10) -day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been cancelled or terminated except as
otherwise represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that Landlord is not
in default under the Lease. In such event, Tenant shall be estopped from denying
the truth of such facts.
Section 11.05. TENANT'S FINANCIAL CONDITION. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents to Landlord that each such financial statement is a true and
accurate statement as of the date of such statement. All financial statements
shall be confidential and shall be used only for the purposes set forth in this
Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. LEGAL PROCEEDINGS. (pursuant to Civil Code Section 1717) If
Tenant or Landlord shall be in breach or default under this Lease, such party
(the "Defaulting Party") shall reimburse the other party (the "Nondefaulting
Party") upon demand for any costs or expenses that
(c) 1988 Southern California Chapter
of the Society of industrial SIOR 9 Initials__________
and Office Realtors,(R) Inc. (Single-Tenant Gross Form)______________
<PAGE>
attorneys fees and costs, Landlord against and hold Landlord harmless from
all costs, expenses, demands and liability Landlord may incur if Landlord
becomes or is made a party to any claim or action (a) Instituted by Tenant
against any third party, or by any third party against Tenant, or by or against
any person holding any interest under or using the Property by license or
agreement with Tenant; (b) for foreclosure of any lien for labor or material
furnished to or for Tenant or such other person; (c) otherwise arising out of or
resulting from any act or transaction of Tenant or such other person; or (d)
necessary to protect Landlord's Interest under this Lease in a bankruptcy
proceeding, or other proceeding under Title 11 of the United States Code, as
amended. Tenant shall defend Landlord against any such claim or action at
Tenant's expense with counsel reasonably acceptable to Landlord on a Landlord's
election, Tenant shall reimburse Landlord for any legal fees or costs Landlord
incurs in any such claim or action.
Section 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's reasonable
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article Nine (Assignment and Subletting), or in connection with
any other act which Tenant proposes to do and which requires Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. NON-DISCRIMINATION. Both parties promises, and it is a
condition to the continuance of this Lease, that there will be no discrimination
against, or segregation of, any person or group of persons on the basis of race,
color, sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES.
(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is obligated
to perform the obligations of Landlord under this Lease only during the time
such Landlord owns such interest or title. Any Landlord who transfers its title
or interest is relieved of all liability with respect to the obligations of
Landlord under this Lease to be performed on or after the date of transfer.
However, each Landlord shall deliver to its transferee all funds that Tenant
previously paid if such funds have not yet been applied under the terms of this
Lease.
(b) Tenant shall give written notice of any failure by Landlord to perform
any of its obligations under this Lease to Landlord and to any ground lessor,
mortgagee or beneficiary under any deed of trust encumbering the Property whose
name and address have been furnished to Tenant in writing. Landlord shall not be
in default under this Lease unless Landlord (or such ground lessor, mortgagee or
beneficiary) falls to cure such non-performance within thirty (30) days after
receipt of Tenant's notice. However, if such non-performance reasonably requires
more than thirty (30) days to cure, Landlord shall not be in default if such
cure is commenced within such thirty (30) -day period and thereafter diligently
pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, officers or other principals shall have
any personal liability under this Lease.
Section 13.03. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.04. INTERPRETATION. The captions of the Articles or Sections of
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and
<PAGE>
neuter genders shall each include the other. In any provision relating to the
conduct, acts or omissions of either party, the term "Tenant" shall include
Tenant's agents, employees, contractors, invitees, successors or others using
the Property with either party's expressed or implied permission.
Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This Lease
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.06. NOTICES. All notices required or permitted under this Lease
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.03 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.02 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.07. WAIVERS. All waivers must be in writing and signed by the
waiving party either party's failure to enforce any provision of this Lease or
its acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.08. NO RECORDATION. Tenant shall not record this Lease without
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds any party
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights on interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY: Either party is
a corporation, each person signing this Lease on behalf of Either party
represents and warrants that he has full authority to do so and that this Lease
binds the corporation. Within thirty (30) days after this Lease is signed,
Tenant shall deliver to the other Landlord a certified copy of a resolution of
either parties Board of
(c) 1988 Southern California Chapter
of the Society of industrial SIOR 10 Initials_________
and Office Realtors,(R) Inc. (Single-Tenant Gross Form)______________
<PAGE>
Section 13.11. JOINT AND SEVERAL LIABILITY. All parties signing this Lease
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12. FORCE MAJEURE. If either party cannot perform any of its
obligations due to events beyond control, the time provided for performing such
obligations shall be extended by a period of time equal to the duration of such
events. Events beyond control include, but are not limited to, acts of God, war,
civil commotion, labor disputes, strikes, fire, flood or other casualty,
shortages of labor or material, government regulation or restriction and weather
conditions.
Section 13.13. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14. SURVIVAL. All representations and warranties of Landlord and
Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
Section 14.01. BROKER'S FEE. When this Lease is signed by and delivered to
both Landlord and Tenant, Landlord shall pay a real estate commission to
Landlord's Broker named in Section 1.08 above, if any, as provided in the
written agreement between Landlord and Landlord's Broker, or the sum stated in
Section 1.09 above for services rendered to Landlord by Landlord's Broker in
this transaction. Nothing contained in this Lease shall impose any obligation on
Landlord to pay a commission or fee to any party other than Landlord's Broker.
Section 14.02. PROTECTION OF BROKERS.
Section 14.03. AGENCY DISCLOSURE; NO OTHER BROKERS. Landlord and Tenant
each warrant that they have dealt with no other real estate broker(s) in
connection with this transaction except: CB COMMERCIAL REAL ESTATE GROUP, INC.,
who represents Ringrose Corporation
______________________________________________________________________________,
and TRI Commercial, who represents Lilli Ann/Jaran, Inc.
______________________________________________________________________________.
In the event that CB COMMERCIAL REAL ESTATE GROUP, INC. represents both
Landlord and Tenant, Landlord and Tenant hereby confirm that they were timely
advised of the dual representation and that they consent to the same, and that
they do not expect said Broker to disclose to either of them the confidential
information of the other party.
ARTICLE FIFTEEN: COMPLIANCE
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this Agreement,
including, but not limited to, the 1964 Civil Rights Act and all amendments
thereto, the Foreign Investment in Real Property Tax Act, the Comprehensive
Environmental Response Compensation and Liability Act, and The Americans With
Disabilities Act.
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
(c) 1988 Southern California Chapter
of the Society of industrial SIOR 11 Initials____________
and Office Realtors,(R) Inc. (Single-Tenant Gross Form)_______________
<PAGE>
Signed on November, 1995 RINGROSE CORPORATION
at San Francisco, CA
By: /s/ Signature Illegible
Its: _________________________
By: __________________________
Its:__________________________
"TENANT"
Signed on November, 1995 JARAN, INC., a California
corporation
at San Francisco, CA ______________________
By: /s/ Signature Illegible
Its: President
By:_____________________________
Its:___________________________
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION
OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS; INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN
CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS, INC. ITS
LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR EMPLOYEES OR
AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD RETAIN LEGAL COUNSEL TO
ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL
COUNSEL.
(c) 1988 Southern California Chapter
of the Society of industrial SIOR 12 Initials_________
and Office Realtors,(R) Inc. (Single-Tenant Gross Form)______________
<PAGE>
ADDENDUM
ARTICLE SIXTEEN - Miscellaneous
- ---------------
Section 16.01 FREE RENT. Base rental payments shall commence on February 1,
1996.
Section 16.02 OCCUPANCY. Tenant shall be given occupancy of the premises on
December 1, 1995 or upon execution of the lease, whichever occurs later.
Tenant shall be responsible for all other costs from date of occupancy,
other than Base Rent.
Section 16.03 RENEWAL OPTION. Tenant shall have the right to extend the Lease
for two additional five (5) year terms. Tenant shall notify Landlord in writing
not less than one hundred and twenty (120) days prior to expiration of original
lease term or any extension thereof.
Section 16.04 RENTAL DURING RENEWAL OPTION. The base rental rate for the first
renewal term shall be at ninety-five (95%) percent of Fair Market Value but not
less than the then current base rental. If Landlord and Tenant are unable to
agree upon such Fair Market Value, it shall be established by binding
arbitration, under the Rules of the American Arbitration in San Francisco,
California.
Section 16.05 EXISTING TENANCIES. Upon execution of lease and receipt of
payment of first month's rent (for February 1996) and security deposit (Section
1.10), Landlord shall give thirty (30) days written notice to existing tenant.
If existing tenant fails to vacate at the end of tenancy, Landlord, at
Landlord's expense, will institute legal proceedings to evict existing tenant.
Any rent received from tenant for any period prior to February 1, 1996 shall be
paid to Landlord, and rent received after February 1, 1996 shall be paid to
tenant.
Section 16.06 INSPECTIONS BY TENANT. Tenant has had the opportunity to inspect
and/or investigate, as Tenant deemed necessary, with architects, engineers,
consultants, contractors, City of San Francisco agencies, etc. to evaluate
electrical and plumbing systems, mechanical building components (including
heating, ventilation systems, and sprinkler systems) to determine the
feasibility for Tenant's proposed use.
Section 16.07 CONDITION OF PREMISES. Landlord, at Landlord's cost, shall
deliver the building in a clean condition, and have performed the following
items of maintenance: 1) replace all broken windows and clean interior and
exterior of all windows; 2) removed floor tiles from warehouse areas on second
and third floors and paint said floors with deck coat of Tenant's choice; 3)
freight elevator to be in good working order; 4) paint all interior walls with a
color of Tenant's choice (except brick and wood walls); 5)
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repair or replace broken light fixtures and reinstall any dismantled fixtures;
6) replace any burned-out bulbs.* Tenant shall then take possession of the
property in "as is" condition.
Section 16.08 FIRST OFFER TO SELL. During the term of the lease and any
extensions thereof, if Landlord decides to sell the building, Landlord will
first notify Tenant in writing of such intention. Tenant shall have ten (10)
days after such notification from Landlord to indicate to Landlord of Tenant's
willingness to purchase the building. If Tenant so notifies Landlord, then
Landlord and Tenant shall enter into good faith negotiations for a period of
ninety (90) days to reach a purchase price. At the end of the ninety (90) day
period, if no purchase contract has been entered into between Landlord and
Tenant, then Landlord shall be free to offer the property for sale to others.
Section 16.09 PROFIT ON ASSIGNMENT OR SUBLEASE. Landlord shall receive fifty
(50%) percent of any profit only in the event that tenant assigns the lease or
subleases the entire building.
Section 16.10 INDEMNITY BY LANDLORD. Landlord shall indemnify Tenant against
and hold Tenant harmless from any and all costs, claims on liability arising
from (a) any breach or default in the performance of Landlord's obligations
under this lease; (b) any misrepresentation or breach of warranty by Landlord
under this lease; or (c) other acts or omissions of Landlord. Landlord shall
defend Tenant against any such cost, claim or liability at Landlord's expense
with counsel reasonably acceptable to Tenant or, at Tenant's election, Landlord
shall reimburse Tenant for any legal fees or costs incurred by Tenant in
connection with any suit claim. As used in this section, the term "landlord"
shall include Landlord's employees, agents, contractors and invitees, if
applicable.
* 7) Complete all electrical and plumbing work noted (additional
comments) in T. Read Lagedrost Inspection Report dated 10/25/95.
(EXHIBIT I)
8) Service and clean all heating units. Any heating units not
operable shall be put in good working order (three ceiling units
on ground floor, two in front half of building; and one in
southeast corner).
9) Provide Title XIX (five year) Performance Test Certification on
sprinkler system.
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EXHIBIT 10.15
OFFICE LEASE
by and between
ROSENBERG SOMA INVESTMENTS III, LLC
(Landlord)
and
LOOKSMART, LTD.
(Tenant)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. The Premises 5
2. Term 5
3. Possession 7
4. Monthly Basic Rent/Parking Lot Rent 9
5. Operating Expenses 13
6. Security Deposit 19
7. Use 22
8. Payments and Notices 24
9. Brokers 24
10. Holding Over 25
11. Taxes on Tenant's Property 25
12. Condition of Premises 26
13. Alterations 26
14. Repairs 30
15. Liens 31
16. Entry by Landlord 31
17. Utilities and Services 32
18. Indemnification 32
19. Damage to Tenant's Property 33
20. Insurance 33
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
21. Damage or Destruction 35
22. Eminent Domain 37
23. Bankruptcy 38
24. Defaults and Remedies 39
25. Assignment and Subletting 41
26. Quiet Enjoyment 43
27. Subordination 43
28. Estoppel Certificate 44
29. Rules and Regulations 44
30. Conflict of Laws 45
31. Successors and Assigns 45
32. Surrender of Premises 45
33. Professional Fees 45
34. Performance by Tenant 45
35. Mortgagee and Senior Lessor Protection 46
36. Definition of Landlord 46
37. Waiver 46
38. Identification of Tenant 47
39. Year 2000 47
40. Terms and Headings 47
41. Examination of Lease 47
42. Time 47
43. Prior Agreement; Amendments 47
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
44. Severability 48
45. Recording 48
46. Limitation on Liability 48
47. Riders 48
48. Signs 48
49. Modification for Lender 49
50. Accord and Satisfaction 49
51. Financial Statements 49
52. Tenant as Corporation 49
53. No Partnership or Joint Venture 49
54. Rooftop Deck/Rooftop Antennae 49
55. Landlord's Representations 50
56. Arbitration 50
</TABLE>
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SUMMARY OF BASIC LEASE INFORMATION
The undersigned hereby agree to the following terms of this Summary of
Basic Lease Information (the "Summary"). This Summary is hereby incorporated
into and made a part of the attached Office Lease (this Summary and the Office
Lease to be known collectively as the "Lease") which pertains to the office
building (the "Building") which is located at 625 Second Street, San Francisco,
California. Each reference in the Office Lease to any term of this Summary shall
have the meaning as set forth in this Summary for such term. In the event of a
conflict between the terms of this Summary and the Office Lease, the terms of
the Office Lease shall prevail. Any capitalized terms used herein and not
otherwise defined herein shall have the meaning as set forth in the Office
Lease.
TERMS OF LEASE DESCRIPTION
-------------- -----------
(a). Date: May 5, 1999
(b). Landlord: Rosenberg SOMA Investments III, LLC,
a Delaware limited liability company
(c). Address of Landlord: c/o ROK Properties, Inc.
(Paragraph 8) 501 Second Street, Suite 214
San Francisco, California 94107
with a copy to: The Rosenberg Company
580 California Street, Suite 2225
San Francisco, California 94104
(d). Tenant: LookSmart, Ltd., a Delaware
corporation
(e). Address of Tenant (Paragraph 8): Prior to Commencement Date:
LookSmart Ltd.
487 Bryant Street
San Francisco, California 94107-1516
Attention: Mr. Ed O'Dea
and
After Lease Commencement Date, to:
625 Second Street
San Francisco, California 94107
Attention: Mr. Ed O'Dea
With a copy to: Director of
Facilities
(f). Premises (Paragraph 1): All space existing on all four (4)
floors of office space in the
Building (referred to as "Floor One"
"Floor Two", "Floor Three" and
"Floor Four", respectively)
consisting of approximately 134,847
rentable square feet, and all of the
basement parking garage and basement
storage area consisting of
approximately 2,162 rentable square
feet, all as set forth in Exhibit A
hereto.
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(g). Building (Paragraph 1): 625 Second Street, San Francisco,
California.
(h). Term (Paragraph 2): Ten (10) years.
(i) Lease Commencement Date: October 15, 1999, subject to
adjustment pursuant to Paragraph 3
of the Lease.
(ii) Lease Expiration Date: In the event that the Lease
Commencement Date occurs on the
first day of a calendar month, the
Lease Expiration Date shall be the
last day of the calendar month
immediately preceding the calendar
month in which the tenth (10th)
anniversary of the Lease
Commencement Date occurs and in the
event that the Lease Commencement
Date occurs on a date other than
the first day of a calendar month,
the Lease Expiration Date shall be
the last day of the calendar month
in which the tenth (10th)
anniversary of the Lease
Commencement Date occurs.
(i). Renewal Options (Paragraph 2): Two (2) consecutive five (5) year
terms.
(j). Monthly Basic Rent (Paragraph 4):
During First Lease Year: Three Hundred Sixteen Thousand
Eight Hundred Ninety Dollars and 45
CENTS ($316,890.45)
During Second Lease Year: Three Hundred Twenty-Eight Thousand
One hundred Twenty-Seven Dollars
and 70 CENTS ($328,127.70)
During Third Lease Year: Three Hundred Thirty-Nine Thousand
Three Hundred Sixty-Four Dollars
and 95 CENTS ($339,364.95)
During Fourth Lease Year: Three Hundred Fifty-Six Thousand
Two Hundred Twenty Dollars and 82
CENTS ($356,220.82)
During Fifth Lease Year: Three Hundred Sixty-One Thousand
Eight Hundred Thirty-Nine Dollars
and 45 CENTS ($361,839.45)
During Sixth Lease Year: Three Hundred Seventy-Six Thousand
Four Hundred Forty-Seven Dollars
and 87 CENTS ($376,447.87)
During Seventh Lease Year: Three Hundred Eighty-Two Thousand
Sixty-Six Dollars and 50 CENTS
($382,066.50)
During Eighth Lease Year: Three Hundred Eighty-Seven Thousand
Six Hundred Eighty-Five Dollars and
12 CENTS ($387,685.12)
During Ninth Lease Year: Three Hundred Ninety-Three Thousand
Three Hundred Three Dollars and 75
CENTS ($393,303.75)
During Tenth Lease Year: Three Hundred Ninety-Eight Thousand
Nine Hundred Twenty-Two Dollars and
37 CENTS ($398,922.37)
(k). Parking Lot Rent (Paragraph 4.3): See Paragraph 4.3.
(l). Aggregate Monthly Basic Rent
(Paragraph 4.5): Monthly Basic Rent plus Parking Lot
Rent plus Storage Rent
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(m). Operating Expenses (Paragraph 5):
(i) Base Year: 1999, subject to Paragraph 5.3, and
subject to readjustment at the
commencement of the option terms
(see Paragraph 5.1).
(ii) Tenant's Percentage Share: 100%
(n). Security Deposit (Paragraph 6): See Paragraph 6.
(o). Prepaid Rent (Paragraph 4.1): $316,890.45, representing the first
month's Monthly Basic Rent.
(p). Broker (Paragraph 9):
Tenant Broker: Colliers International (Michael D.
McCarthy) Two Embarcadero Center,
Suite 1000 San Francisco, California
94111
Landlord Broker: ROK Properties, Inc.
501 Second Street, Suite 214
San Francisco, California 94107
(q). Work Letter (Exhibit E): Attached.
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The foregoing terms of this Summary are agreed to by Landlord and Tenant.
LANDLORD: TENANT:
Rosenberg SOMA Investments III, LLC, a LookSmart, Ltd., a Delaware
Delaware limited liability company corporation
By: /s/ Signature Illegible
By: TRC Investors III, LLC, a California
limited liability company, Manager Name: Edward M. O'DEA
Its: VP Corp Div.
By: The Rosenberg Company, a
California corporation, By: ____________________
Manager Name: __________________
Its: ___________________
By: /s/ Signature Illegible
Douglas C. Rosenberg,
President
By: /s/ Signature Illegible
Douglas C. Rosenberg,
Secretary
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The foregoing terms of this Summary are agreed to by Landlord and Tenant.
LANDLORD: TENANT:
Rosenberg SOMA Investments III, LLC, a LookSmart, Ltd., a Delaware
corporation
Delaware limited liability company
By: _____________________
By: TRC Investors III, LLC, a California Name: ___________________
limited liability company, Manager Its: ____________________
By: The Rosenberg Company, a
California corporation, By: _____________________
Manager Name: ___________________
Its: ____________________
By: /s/ Signature Illegible
Douglas C. Rosenberg,
President
By: /s/ Signature Illegible
Douglas C. Rosenberg,
Secretary
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OFFICE LEASE
This Office Lease ("LEASE"), dated May 5, 1999 (the "EFFECTIVE DATE"), is made
and entered into by and between Rosenberg SOMA Investments III, LLC, a Delaware
limited liability company ("LANDLORD") and LookSmart, Ltd., a Delaware
corporation ("TENANT").
1. The Premises.
------------
1.1 Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises designated in the Summary and as outlined on the Floor
Plan attached hereto as Exhibit "A" in the building at the address designated in
-----------
the Summary (the "BUILDING"), located on the parcel of real property (the
"SITE") under the Building, subject to those rules and regulations attached
hereto as Exhibit D, and such additional reasonable rules and regulations as
---------
Landlord may deliver in writing to Tenant from time to time. Tenant acknowledges
that Landlord has made no representation or warranty regarding the condition of
the Premises, Building, or Site except as specifically stated in this Lease. The
parties hereto agree that Tenant's leasing of the Premises is upon and subject
to the terms, covenants and conditions herein set forth and Tenant covenants as
a material part of the consideration for this Lease to keep and perform each and
all of said terms, covenants and conditions by it to be kept and performed and
that this Lease is made upon the condition of such performance.
1.2 The rights and obligations of the parties regarding the construction
of the Premises are described in Paragraphs 2 and 3 of this Lease, and in the
Work Letter ("Work Letter") attached as Exhibit E. Any inconsistency between the
---------
provisions of the Work Letter and the provisions of the balance of the Lease
shall be governed by the provisions of the Work Letter.
1.3 The Premises as described herein shall include the right of Tenant to
use the loading dock. The obligations of Tenant with respect to the Premises as
provided in this Lease shall be applicable to the loading dock as well as to the
remainder of the Premises.
1.4 References in this Lease to "rentable square feet", "rentable square
footage" and "rentable area" shall have the same meanings, and Tenant hereby
acknowledges and agrees that the rentable square footage of the Premises shall
be deemed, and is, 134,847 rentable square feet excluding the basement parking
and storage areas. No adjustment in the Monthly Basic Rent, Tenant's Percentage
Share, any monetary or other obligation of Tenant, or any other term of this
Lease shall be made by reason of any discrepancy in the rentable square footage
which is later discovered.
2. Term.
----
2.1 Subject to Paragraphs 2.2 and 3.1, the term of this Lease ("Term")
shall commence on the Lease Commencement Date, and terminate on the Lease
Expiration Date, as such terms are defined in the Summary, unless the Term is
earlier terminated as hereinafter provided. Landlord shall provide Tenant, and
Tenant's consultant's and contractors, with access to the Premises at least
three (3) weeks prior to the anticipated Lease Commencement Date for purposes of
installation by Tenant of its fixtures, equipment, wiring, furniture and other
similar matters. In connection with any such early entry by Tenant, Tenant and
its consultants and contractors shall not interfere with the completion of
construction by Landlord of the Landlord's Work and the Tenant's Improvements
(as defined below). At all times that Tenant has access to the Premises, the
provisions of this Lease shall be applicable, provided only that the obligation
of Tenant to
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pay Monthly Basic Rent, Parking Lot Rent and Operating Rent (as defined below)
shall not commence until the Lease Commencement Date.
2.2 Landlord shall substantially complete the initial, base improvements
to the Building and the Premises, as required of Landlord pursuant to the terms
of the Work Letter, ("LANDLORD'S WORK") and shall further substantially complete
the Tenant's Improvements ("TENANT'S IMPROVEMENTS") as described in the Work
Letter on or before October 15, 1999 with respect to Floor Three and Floor Four
and October 22, 1999 with respect to Floor One and Floor Two. The Lease
Commencement Date shall be October 15, 1999 as specified in the Summary,
subject, however, to adjustment pursuant to the provisions of Paragraph 3 below.
The Lease Commencement Date shall occur notwithstanding that Floor One and Floor
Two have not been delivered by Landlord to Tenant, it being acknowledged that it
is anticipated that Floor One and Floor Two will be delivered subsequent to
delivery of Floor Three and Floor Four. The actual Lease Commencement Date shall
be specified in Landlord's Notice of Lease Term Dates ("NOTICE"), in the form of
Exhibit "B" attached hereto, and shall be served upon Tenant as provided in
- -----------
Paragraph 8, as soon as Landlord determines that the Landlord's Work and the
Tenant's Improvements with respect to Floor Three and Floor Four have been
substantially completed as provided in Paragraph 3.1 below. The Notice shall be
binding upon Tenant unless Tenant objects to the Notice in writing, served upon
Landlord as provided in Paragraph 8, within five (5) business days of Tenant's
receipt of the Notice.
2.3 Tenant shall have two (2) consecutive options (the "EXTENSION
OPTIONS"; each an "EXTENSION OPTION") to extend the Term, each for a five (5)
year period (the "FIRST EXTENDED TERM" and "SECOND EXTENDED TERM", respectively;
each an "EXTENDED TERM") on all the terms and conditions contained in this Lease
with the exception of the Monthly Basic Rent and the Base Year which shall be
adjusted pursuant to the provisions of Paragraphs 4.2 and 5.1 below. Upon
commencement of the First Extended Term, the only remaining option to extend the
Term shall be the Second Extended Term, and upon exercise of the option with
respect to the Second Extended Term, no further right to extend the Term shall
exist. In the event Tenant fails to timely exercise the option for the First
Extended Term, Tenant's option for the Second Extended Term shall be void. In
order to exercise an Extension Option, Tenant shall deliver written notice of
its exercise of the option ("OPTION NOTICE") to Landlord at least two hundred
twenty-five (225) days but not more than one (1) year before the expiration of
the initial Term or First Extended Term, as the case may be. The Extension
Options shall be subject to the following terms and conditions:
(a) An Extension Option may be exercised only by delivery of the
Option Notice as provided in this Paragraph and only if, as of the date of
delivery of the Option Notice, Tenant is not in default, beyond applicable cure
periods, under this Lease.
(b) The rights contained in this Paragraph shall be personal to the
originally named Tenant and may be exercised only by the originally named Tenant
(and not any assignee, sublessee, or other transferee of Tenant's interest in
this Lease other than a Permitted Transferee as defined in Paragraph 25 below)
and only if the originally named Tenant (or Permitted Transferee) occupies the
entire Premises as of the date it exercises an Extension Option in accordance
with the terms of this Paragraph.
(c) If Tenant properly exercises an Extension Option and is not in
default, beyond applicable cure periods, under this Lease at the end of the
initial Term (or the First Extended Term, as the case may be), the Term shall be
extended for the applicable Extended Term.
References in this Lease to the "Term" shall include the initial Term of
ten (10) years and shall, in
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addition, include the First Extended Term and the Second Extended Term, as
applicable.
2.4 For purposes of this Lease the term "Lease Year" shall mean each
consecutive twelve (12) month period during the Term provided that (i) the first
Lease Year commences on the Lease Commencement Date and in the case in which the
Lease Commencement Date occurs on the first (1st) day of a calendar month, the
first Lease Year ends on the last day of the twelfth (12th) calendar month
thereafter (inclusive of the calendar month in which the Lease Commencement Date
occurs) and in the case in which the Lease Commencement Date occurs on other
than the first (1st) day of a calendar month, the first Lease Year ends on the
last day of the calendar month in which the first (1st) anniversary of the Lease
Commencement Date occurs; (ii) the second and each succeeding Lease Year
commences on the first day of the next calendar month; and (iii) the last Lease
Year ends on the Lease Expiration Date or earlier date of termination.
3. Possession.
----------
3.1 Tenant agrees that in the event Landlord is unable to deliver
possession of Floor Three and Floor Four to Tenant, with Landlord's Work and the
Tenant's Improvements having been substantially completed on or before October
15, 1999, this Lease shall not be void or voidable, nor shall Landlord be liable
to Tenant for any loss or damage resulting therefrom. In the event that Landlord
fails to deliver Floor Three and Floor Four to Tenant with Landlord's Work and
Tenant's Improvements substantially completed on or before October 15, 1999, the
Lease Commencement Date shall be extended to the date on which Landlord delivers
Floor Three and Floor Four to Tenant with Landlord's Work and Tenant's
Improvements substantially completed subject to the limitations as provided in
Paragraph 3.2 below. For purposes of this Lease, Landlord's Work and Tenant's
Improvements shall be considered as having been substantially completed (i) upon
completion in all material respects of Landlord's Work and the Tenant's
Improvements with respect to Floor Three and Floor Four or Floor One and Floor
Two, as the case may be, as certified by Landlord's architect as identified in
the Work Letter ("LANDLORD'S ARCHITECT") subject only to such punch list items
as may have been identified by Landlord's Architect or by Tenant pursuant to the
provisions of Paragraph 12 below, and (ii) upon Landlord obtaining all
governmental approvals and occupancy certificates required for the legal
occupancy of the Floor Three and Floor Four or Floor One and Floor Two, as the
case may be, (collectively, "GOVERNMENT APPROVALS").
3.2 Notwithstanding the provisions of Paragraph 3.1 to the contrary, any
extension of the Lease Commencement Date in accordance with the provisions of
Paragraph 3.1 shall be reduced by the aggregate number of days of Tenant Delay
(as defined below). By way of example, if pursuant to the provisions of
Paragraph 3.1 the Lease Commencement Date occurs on October 25, 1999 but there
is an aggregate number of ten (10) days of Tenant Delay, then notwithstanding
the provisions of Paragraph 3.1, the Lease Commencement Date (and the obligation
of Tenant to pay Monthly Basic Rent [subject to the provisions of Paragraph 3.3
below], Parking Lot Rent and Operating Rent) shall commence as of October 15,
1999. A delay by Tenant ("TENANT DELAY") shall occur upon: (i) Tenant's failure
to perform any obligation of Tenant to be performed under the Work Letter on or
before the date or within the time period set forth in the Work Letter
including, without limitation, any failure by Tenant to timely satisfy a Tenant
Benchmark (as defined in the Work Letter); (ii) any change by Tenant in the
Construction Drawings (as defined in the Work Letter) which Tenant has
previously approved or a change by Tenant in the work to be performed in
connection with the Tenant's Improvements from that work otherwise specified in
the Construction Drawings, which change results in a delay in the construction
of the Tenant's Improvements; (iii) failure of Tenant to timely pay on or before
the date required all amounts required to be paid by Tenant as provided in the
Work Letter; or (iv) any other delay caused by Tenant or Tenant's Architect in
connection with the design, construction or bidding
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process with respect to the Tenant's Improvements including, without limitation,
the failure by Tenant or Tenant's Architect to promptly respond to reasonable
requests from the Contractor (as defined in the Work Letter) for clarification
and/or additional detail relating to the work to be performed pursuant to the
Construction Drawings. The period of any Tenant Delay with respect to the
matters described in clauses (i) or (iii) above, shall be the number of days
from the date on which the matter was to be performed by Tenant through and
including the day on which the matter is fully cured and performed by Tenant and
the number of days of any Tenant Delay as specified in clause (ii) and clause
(iv) above shall be equal to the number of days of delay in the performance of
the work in connection with the Tenant's Improvements resulting from the failure
by Tenant or by Tenant's consultants or representatives or the delay resulting
from any change made by Tenant as described in clause (ii). In the event that
Landlord during the construction of Tenant's Improvements asserts that a Tenant
Delay has occurred, Landlord shall give written notice of such asserted Tenant
Delay to Tenant and to Tenant's Architect as defined in the Work Letter
("TENANT'S ARCHITECT") which notice ("DELAY NOTICE") shall state specifically
the nature of the purported Tenant Delay. In the event that Landlord fails to
give a Delay Notice within five (5) business days following the occurrence of
the asserted Tenant Delay, Landlord shall be deemed to have waived such asserted
delay and shall thereafter not be entitled to assert such Tenant Delay in
connection with the provisions of this Paragraph 3.2 or Paragraph 3.3 below. In
the event that Landlord timely gives a Delay Notice and Tenant disagrees with
the assertion of the claimed delay by giving written notice of such disagreement
to Landlord within five (5) business days following the date on which the Delay
Notice is given, then within ten (10) days following the substantial completion
of the Landlord's Work and the Tenant's Improvements with respect to Floor One,
Floor Two, Floor Three and Floor Four as evidenced by the certificate of
Landlord's architect and receipt of the Government Approvals (collectively,
"COMPLETION CERTIFICATE"), Landlord's Architect and Tenant's Architect shall
attempt to come to an agreement, which agreement shall be binding on Landlord
and Tenant, as to whether any Tenant Delay has occurred and the number of days
of such Tenant Delay. A copy of the Completion Certificate shall be given by
Landlord to Tenant which, with respect to the Government Approvals, shall
consist of the certificate of occupancy. In the event that Landlord's Architect
and Tenant's Architect are unable to so agree within twenty (20) days following
the date on which the Landlord's Completion Certificate is given to Tenant then
the issue of the occurrence and the extent of any delay caused by Tenant shall
be subject to arbitration in accordance with the provisions of Paragraph 57. In
the event that Tenant fails to object to any Delay Notice given by Landlord by
timely giving written notice of such objection to Landlord, Tenant shall be
considered to have approved the Tenant Delay as set forth in the Delay Notice.
In the event that a final determination with respect to the occurrence of any
Tenant Delay as provided in this Paragraph 3.2 has not occurred on or before the
date asserted by Landlord to be the Lease Commencement Date (taking into account
any Tenant Delay as asserted by Landlord) then the Lease Commencement Date shall
be considered to have occurred on the date as provided in the Summary and in
accordance with the provisions of Paragraphs 2.2 and 3.1 subject to adjustment
as asserted by Landlord pursuant to the provisions of this Paragraph 3.2. In the
event that subsequent to such date it is finally determined that a further delay
in the occurrence of the Lease Commencement Date should have occurred by reason
of the provisions of Paragraph 3.1 and the provisions of this Paragraph 3.2,
then Tenant shall be entitled to a credit in an amount equal to the per day
amount in connection with the Monthly Basic Rent, the Parking Lot Rent and the
Operating Rent as then having been paid by Tenant for the period of the
additional delay as finally determined pursuant to the provisions of this
Paragraph 3.2. Such credit shall be applied against the next payment of Monthly
Basic Rent, Parking Lot Rent and/or Operating Rent as then due pursuant to this
Lease from Tenant to Landlord.
3.3 It is anticipated that Floor Three and Floor Four, with the Landlord's
Work and the Tenant's Improvements substantially completed, will be delivered by
Landlord to Tenant prior to delivery of Floor One and Floor Two. Notwithstanding
any provision to the contrary of this Lease, in the event that Floor One and
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Floor Two are delivered by Landlord to Tenant with the Landlord's Work and the
Tenant's Improvements substantially completed subsequent to the delivery of
Floor Three and Floor Four then, the Monthly Basic Rent otherwise payable as of
the Lease Commencement Date shall be reduced by fifty percent (50%) until such
time as Floor One and Floor Two are delivered by Landlord to Tenant with
Landlord's Work and Tenant's Improvements substantially completed in accordance
with the provisions of Paragraph 3.1. Commencing on such date (the "SUBSEQUENT
COMMENCEMENT DATE") and continuing thereafter, the full Monthly Basic Rent shall
be payable each month as otherwise provided in this Lease. The date on which the
Subsequent Commencement Date occurs (and thus the date on which the obligation
of Tenant to pay the full Monthly Basic Rent commences) shall be adjusted to a
date earlier than the date otherwise provided pursuant to this Paragraph 3.3 by
the number of days equal to the number of days of Tenant Delay occurring prior
to the Lease Commencement Date as described in Paragraph 3.2 together with the
number of days of Tenant Delay occurring on and after the Lease Commencement
Date in connection with delivery by Landlord of Floor One and Floor Two with the
Landlord's Work and the Tenant's Improvements substantially completed. The
determination of the number of days of Tenant Delay, including the number of
days of Tenant Delay occurring on and after the Lease Commencement Date shall be
made in accordance with the provisions of Paragraph 3.2 and shall be subject to
arbitration in accordance with the provisions of Paragraph 56. In connection
with any partial calendar month, the portion of the Monthly Basic Rent payable
in connection with Floor One and Floor Two (i.e. fifty percent) for each such
day of any partial calendar month shall be pro-rated on the basis of the actual
number of days in such calendar month.
3.4 Notwithstanding the anticipated delivery dates with respect Floor
Three and Floor Four of October 15, 1999 and with respect to Floor One and Floor
Two of October 22, 1999, Landlord, by giving at least six (6) weeks prior
written notice to Tenant, shall be entitled to delivery Floor Three and Floor
Four substantially complete prior to October 15, 1999 but no earlier than
October 1, 1999 and/or deliver Floor One and Floor Two substantially complete
prior to October 22, 1999 but no earlier than October 8, 1999. In the event that
Landlord gives such notice to Tenant with respect to Floor Three and Floor Four,
the Lease Commencement Date shall occur on the date set forth in such notice
given by Landlord, notwithstanding the provisions to the contrary of this Lease,
including without limitation the provisions of the Summary subject, however, to
adjustment in accordance with the provisions of Paragraphs 2.2, 3.1 and 3.2
above. In the event that Landlord gives such notice with respect to Floor One
and Floor Two, the Subsequent Commencement Date shall occur on the date set
forth by such notice given by Landlord, subject to delay, in accordance with the
provisions of Paragraph 3.3 above. In the event that Landlord gives any notice
of early delivery pursuant to the provisions of this Paragraph 3.4, Tenant
hereby agrees to accept such early delivery in connection with Floor Three and
Floor Four and/or in connection with Floor One and Floor Two.
3.5 Notwithstanding anything in the foregoing Paragraphs to the contrary,
if the Landlord's Work and the Tenant's Improvements are not substantially
completed (as evidenced by a Completion Certificate) with respect to Floor Three
and Floor Four and Floor One and Floor Two on or before January 15, 2000, then
Tenant shall have the right to terminate this Lease by written notice given to
Landlord at any time prior to the date a certificate of occupancy is obtained
for the Premises. Termination of the Lease hereunder shall be Tenant's sole
remedy in the event of a failure of delivery of possession of the Premises to
Tenant.
4. Monthly Basic Rent/Parking Lot Rent/Storage Rent.
------------------------------------------------
4.1 Tenant agrees to pay to Landlord as Monthly Basic Rent for the
Premises the Monthly Basic Rent designated in the Summary for each respective
period ("Monthly Basic Rent"), each in advance on the first day of each and
every calendar month during said Term, except that the first month's Monthly
Basic Rent
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shall be paid upon the execution hereof. In the event the Term of this Lease
ends on a day other than the last day of a calendar month, then the rental for
such period shall be prorated in the proportion that the number of days this
Lease is in effect during such period bears to thirty (30), and such rental
shall be paid at the commencement of such period. In the event that the Lease
Commencement Date occurs other than on the first day of a calendar month, and
the full first month's Monthly Basic Rent has been previously paid as provided
in this Lease, then the rent for the initial partial calendar month commencing
as of the Lease Commencement Date shall be prorated in the proportion that the
number of days this Lease is in effect during such calendar month bears to
thirty (30) and the prepaid first month's Monthly Basic Rent shall be applied to
such prorated amount with the balance of the prepaid first month's Monthly Basic
Rent being applied to reduce the payment of Monthly Basic Rent to be paid on the
first day of the first full calendar month of the Term of this Lease (and to the
extent not entirely applied by reasons of the provisions of Paragraph 3.3,
applied to reduce the payment of the subsequent month's Monthly Basic Rent until
fully applied). In addition to said Monthly Basic Rent, Tenant agrees to pay the
amount of the rental adjustments as and when provided in this Lease. Said
Monthly Basic Rent and all additional rent including, without limitation,
Parking Lot Rent, Storage Rent and Operating Rent, shall be paid to Landlord,
without any prior demand therefor and without any deduction or offset whatsoever
in lawful money of the United States of America, which shall be legal tender at
the time of payment, at the address of Landlord designated in Subparagraph (c)
of the Summary or to such other person or at such other place as Landlord may
from time to time designate in writing. Further, all charges to be paid by
Tenant hereunder, including, without limitation, payments for repairs and other
costs and expenses shall be considered additional rent for the purposes of this
Lease, and the word "rent" in this Lease shall include such additional rent as
well as Monthly Basic Rent, Parking Lot Rent, Storage Rent and Operating Rent
unless the context specifically or clearly implies that only the Monthly Basic
Rent, Parking Lot Rent, Storage Rent and/or Operating Rent is referenced. Tenant
shall deliver to Landlord as prepaid rent that amount set forth in the Summary
upon execution of this Lease.
4.2 In the event Tenant exercises either of the options to extend the Term
pursuant to the provisions of Paragraph 2.3, the Monthly Basic Rent shall be
adjusted at the commencement of each Extended Term to reflect the then-fair
market rental value of the Premises pursuant to the terms of this Paragraph. The
fair market rental value of the Premises shall be determined in good faith by
Landlord, who shall notify Tenant of such determination in writing within thirty
(30) days of receipt of the Option Notice. If Tenant does not agree with
Landlord's determination, Tenant shall deliver written notice of Tenant's
objection to Landlord within fifteen (15) days of receipt of notice from
Landlord, or Landlord's determination of the fair market rental value shall be
final. If Tenant timely objects to Landlord's determination, Landlord and Tenant
shall diligently attempt in good faith to agree on the fair market rental value
of the Premises on or before the tenth (10th) day following delivery of Tenant's
written objection to Landlord's determination (the "OUTSIDE AGREEMENT DATE"). If
Landlord and Tenant are unable to agree on the new Monthly Basic Rent by the
Outside Agreement Date, the fair market rental value of the Premises shall be
determined by appraisal. Landlord and Tenant shall first attempt to select a
mutually agreeable appraiser to conduct the appraisal, which appraiser's
conclusion shall be binding on the parties. In the event they are unable to
agree on one appraiser within ten (10) days of the Outside Agreement Date, the
parties shall each select an appraiser within twenty (20) days of the Outside
Agreement Date, who together shall attempt to determine the fair market rental
value of the Premises. If either party fails to appoint an appraiser within such
time period, the appraiser timely appointed by the other party shall be the sole
appraiser, whose determination shall be binding on both parties. If two
appraisers are timely appointed, but they are unable to agree on the fair market
rental value of the Premises within fifty (50) days of the Outside Agreement
Date, they shall mutually select a third appraiser and the three appraisers
shall each submit their appraisal of the fair market rental value of the
Premises within thirty (30) days of selection of the third appraiser. The fair
market rental value of the Premises shall be the
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average of the three appraisals; provided, however, that if either the high or
low appraisal differs from the middle appraisal by ten percent (10%) or more, it
shall be disregarded and the two remaining appraisals shall be averaged to
determine the fair market rental value. If both the high and low appraisals
differ from the middle appraisal by ten percent (10%) or more, then both shall
be disregarded, and the fair market rental value of the Premises shall be as
determined by the middle appraisal. Each party shall bear the cost of their
respective appraisers; if a third appraiser is necessary, the parties shall
share equally the cost of the third appraiser. All appraisers shall be MAI
qualified appraisers, and shall have a minimum of five (5) years experience in
the appraisal of commercial properties in the San Francisco Bay Area and no
appraiser shall have worked previously for Landlord or Tenant in any capacity.
The fair market rental value shall be based on comparable space in San
Francisco, which shall (i) not be subleased, (ii) shall be comparable in size,
location and quality with the Premises, (iii) shall be leased for a term
comparable to the subject option term (five years), and (iv) shall take into
account the value of any rent abatement, tenant improvement allowances or other
concessions given to the tenant of the comparable space. The Monthly Basic Rent
shall be adjusted to reflect the fair market rental value, as so determined. The
Base Year for each Extended Term shall be adjusted as set forth in Paragraph 5.1
below.
4.3 In addition to the Monthly Basic Rent, Tenant shall pay an additional
monthly rental amount (the "PARKING LOT RENT") for Tenant's use of the Garage
located in the basement of the Building. The Parking Lot Rent shall be payable,
in advance, on the first day of each and every calendar month during the Term
with amounts payable for any partial month to be prorated in proportion to the
number of days that this Lease is in effect during such period bears to thirty
(30) with such rental to be paid at the commencement of such period. The Garage
shall be delivered by Landlord to Tenant on or before the Lease Commencement
Date. The Garage shall constitute a portion of the Premises and shall be subject
to all terms and conditions of this Lease. During the Term, Landlord shall
provide a parking valet/attendant on all business days during the hours of 8:00
a.m. to 6:00 p.m. Tenant, at its election, shall be entitled to request Landlord
to adjust the hours during which valet/attendant parking is provided so that
such hours commence one (1) hour earlier or one (1) hour later, and end one (1)
hour earlier or one (1) hour later, as the case may be, provided that, in all
events, Landlord shall not be obligated to provide valet/attendant parking for
in excess of ten (10) hours and further provided that any adjustment in such
hours requested by Tenant shall be subject to compliance with any collective
bargaining agreements then in effect with respect to the employees providing
parking and any excess cost incurred by reason of any such adjustment in the
hours shall be borne solely by Tenant. It is agreed that the number of vehicles
which can be reasonably valet parked in the Garage is ninety (90), subject to an
increase or decrease to a maximum of one hundred (100) and a minimum of seventy
(70) which increase or decrease shall be subject to the reasonable determination
of Landlord and Tenant. Entrance to the Garage shall be pursuant to a card key
access system. Prior to the Lease Commencement Date, Landlord shall
substantially complete installation of a card key reader apparatus at the Garage
entrance facing Colin P. Kelly Street which shall allow 24 hour/7 days per week
access to the Garage via the use of magnetic card keys. The Parking Lot Rent
which Tenant shall pay to Landlord shall be the product of the sum of Two
Hundred Dollars ($200.00) multiplied by the number of vehicles which can be
reasonably valet parked in the Garage. The Parking Lot Rent shall be adjusted
upward on an annual basis, commencing on the first day (the "FIRST ADJUSTMENT
DATE") of the second Lease Year and continuing thereafter on each subsequent
anniversary of the First Adjustment Date thereafter (each, an "ADJUSTMENT DATE")
throughout the initial ten (10) year Term of this Lease, by an amount equal to
four percent (4%) of the Parking Lot Rent in effect for the month immediately
preceding the subject Adjustment Date. Thereafter during the Extended Terms (if
applicable), in the sole and absolute discretion of Landlord, the Parking Lot
Rent shall be periodically adjusted upward to reflect then-current market
conditions. In no event shall the Parking Lot Rent be decreased from the Parking
Lot Rent in effect for the month immediately preceding any adjustment.
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In the event that Landlord and Tenant are unable to agree upon the amount
of the increase or decrease in the number of vehicles which can be reasonably
valet parked in the Garage within ten business days following the written
request of either given to the other ("OUTSIDE PARKING DATE"), then the amount
of such increase or decrease shall be determined by a third party parking
company experienced in the valet parking of vehicles. The right to request a
determination by a third party parking company (or companies) as described in
this Paragraph shall be a one-time right and after exercise by either Landlord
or Tenant shall thereafter not be further exercisable by either Landlord or
Tenant. Landlord and Tenant shall first attempt to select a mutually agreeable
parking company to conduct a review of the Garage and determine on a basis
binding on both parties the amount of increase or decrease in the number of
vehicles which can be reasonably valet parked in the Garage (referred to as the
"AMOUNT OF ADJUSTMENT"). In the event Landlord and Tenant are unable to agree on
a parking company within ten (10) days of the Outside Parking Date, the parties
shall each select a parking company within twenty (20) days of the Outside
Parking Date, who together shall attempt to determine the Amount of Adjustment.
If either party fails to appoint a parking company within such time period, the
parking company timely appointed by the other party shall be the sole parking
company, whose determination shall be binding on both parties. If two parking
companies are timely appointed but they are unable to agree on the Amount of
Adjustment within forty (40) days of the Outside Parking Date, they shall
mutually select a third parking company and the three parking companies shall
each submit their determination of the Amount of Adjustment within ten (10)
business days following the selection of the third parking company. The Amount
of Adjustment shall be the average of the three determinations, provided,
however, that if either the high or low determination differs from the middle
determination by 10% or more, it shall be disregarded and the two remaining
determinations shall be averaged to determine the Amount of Adjustment. If both
the high and low determinations differ from the middle determination by 10% or
more, then both shall be disregarded, and the Amount of Adjustment shall be as
determined by the middle parking company. Each party shall bear the cost of its
respective parking company; if a third parking company is necessary, the parties
shall share equally the cost of the third parking company. All parking companies
shall have a minimum of five (5) years experience in the management and
operation of valet parking lots and/or garages and no parking company shall have
previously worked for either the Tenant or the Landlord.
If the Amount of Adjustment is determined subsequent to the Lease
Commencement Date, the Parking Lot Rent payable as of the Lease Commencement
Date shall be based upon the number of ninety (90) vehicles. In the event that
it is finally determined that an adjustment is required, then the Parking Lot
Rent payable on the first day of the next succeeding calendar month and
thereafter, shall be based upon the number of vehicles as so adjusted. In
addition, in the event that the Amount of Adjustment results in an increase in
the number of vehicles from the initially determined ninety (90), then within
twenty (20) days following receipt by Landlord and Tenant of final determination
of such Amount of Adjustment, Tenant shall pay to Landlord the amount of
additional Parking Lot Rent attributable to such adjustment based upon Two
Hundred Dollars ($200) per month per additional vehicle (pro rated if necessary
on the basis of a partial month). In the event that the Amount of Adjustment
results in a decrease in the number of vehicles from the initial ninety (90),
then Tenant shall be entitled to a credit against the next Parking Lot Rent then
due based upon such decrease in the number of vehicles at a rent of Two Hundred
Dollars ($200) per vehicle per month (with any partial month to be pro rated).
4.4 In addition to the Monthly Basic Rent and Parking Lot Rent, Tenant
shall be obligated to pay an additional monthly rental amount, (the "STORAGE
RENT") in accordance with the provisions of this Paragraph 4.4. Tenant shall be
entitled to use of the storage area within the Building ("STORAGE AREA"), which
Storage Area is described on Exhibit A attached hereto. The Storage Area
consists of Two Thousand One Hundred
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and Sixty-two (2,162) useable square feet. Notwithstanding any other provision
of this Lease to the contrary, Landlord shall have no obligation to repair or
maintain any portion of the Storage Area or provide services of any kind
whatsoever with respect to the Storage Area. Tenant shall not be obligated to
pay any Storage Rent during the first five (5) Lease Years of the Term.
Commencing as of the first day of the sixth Lease Year of the Term and
continuing on the first (1st) day of each and every calendar month thereafter,
Tenant shall be obligated to pay storage rent in the amount of Two Thousand One
Hundred and Sixty-two Dollars ($2,162) per month. The Storage Rent for each
Extended Term, if applicable, shall be as determined by Landlord in its
reasonable discretion.
4.5 The aggregate of the Monthly Basic Rent, the Parking Lot Rent and the
Storage Rent from time to time to be paid pursuant to the provisions of this
Lease may sometimes be referred to as the "AGGREGATE MONTHLY BASIC RENT". The
Aggregate Monthly Basic Rent shall be payable in advance on the first day of
each and every calendar month during the Term as provided herein in connection
with the Monthly Basic Rent, the Parking Lot Rent and the Storage Rent,
respectively.
4.6 All payments received by Landlord from Tenant for Monthly Basic Rent,
Parking Lot Rent, Storage Rent, Operating Rent or any other sums due under this
Lease shall be applied to the oldest payment obligation owed by Tenant to
Landlord. No designation by Tenant, either in a separate writing or on a check
or money order, shall modify this clause or have any force or effect.
4.7 Landlord shall use commercially reasonable efforts to make available
to Tenant, to the extent required to satisfy parking requirements associated
with the Premises, up to one hundred (100) additional parking spaces located
among the following existing parking facilities controlled by Landlord, or an
affiliate of Landlord, so long as such control exists: 96 Townsend Street; 670-
680 Second Street; 635/699 Second Street; 160 King Street and 501 Second Street,
San Francisco, California. In no event, however, shall Landlord (or any
affiliate of Landlord) be required to impair the use of any of the above
described buildings or incur any material costs by reason of provision of the
above described additional parking to Tenant. Further, in connection with the
provision of any such parking, it is agreed that Landlord, and the applicable
affiliate of Landlord, shall retain the right to terminate or otherwise limit
the parking at any particular facility to the extent required in connection with
the use of such facility for the described property and shall further have the
right to terminate any provision of such parking in the event of any sale of the
above described property by Landlord (or the applicable affiliate of Landlord).
In connection with any additional parking as made available to Tenant in
accordance with the provisions of this Paragraph 4.7, Tenant shall pay the
parking fee and any and all other charges made in connection with such parking
on a basis consistent with market rates as determined by Landlord.
5. Operating Expenses.
------------------
5.1 For the purposes of this Subparagraph 5.1, the following terms are
defined as follows:
Tenant's Percentage Share. Tenant's Percentage Share shall mean the
-------------------------
percentage set forth in the Summary.
Base Year. Base Year shall mean the year set forth in the Summary;
---------
provided, however, that should Tenant exercise its option for the First
Extended Term and/or the Second Extended Term, then the Base Year for the
applicable Extended Term shall be revised to mean the calendar year in which the
applicable Extended Term commences.
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Operating Expenses. Operating Expenses shall consist of all costs of
------------------
operation and maintenance of the Building, the common areas and the Site as
determined by standard accounting practices, calculated assuming the Building is
ninety-five percent (95%) occupied (unless actually occupied in a greater
percentage, in which case the actual occupancy percentage shall be used),
including the following costs by way of illustration, but not limitation: real
property taxes and assessments and any taxes or assessments hereafter imposed in
lieu thereof; gross receipt taxes (whether assessed against Landlord or assessed
against Tenant and collected by Landlord, or both); the net cost and expense of
insurance for which Landlord is responsible hereunder or which Landlord or any
first mortgagee with a lien affecting the Premises reasonably deems necessary in
connection with the operation of the Building (including the deductible portion
of any insured loss); janitorial services; security; parking valet/attendant
expenses; card key parking apparatus repair and maintenance; any and all Garage-
related expenses, with all such valet/attendant, car key apparatus repair,
maintenance and other Garage-related expenses not to exceed such expenses
incurred by prudent operators of substantially similar sized garages within the
geographical location of the Premises; labor; utilities and utilities
surcharges, and any other costs levied, assessed or imposed by, or at the
direction of, or resulting from statutes or regulations or interpretations
thereof, promulgated by any federal, state, regional, municipal or local
government authority in connection with the use or occupancy of the Building or
the Premises or the parking facilities serving the Building or the Premises; the
cost (amortized over the useful life of the improvement or equipment in question
as reasonably determined by Landlord in accordance with generally accepted
accounting principles at an interest rate of ten percent (10%)) of (a) any
capital improvements made to the Building by the Landlord which are reasonably
anticipated to increase the efficiency of the Building or made to the Building
by Landlord that are required under any governmental law or regulation that was
not applicable to the Building at the time it was constructed, or (b)
replacement of any building equipment needed to operate the Building at the same
quality levels (or levels of efficiency) as prior to the replacement; costs
incurred in the management of the Building, if any (including supplies, wages
and salaries of employees used in the management, operation and maintenance of
the Building, and payroll taxes and similar governmental charges with respect
thereto); on site Building management office rental; a management fee (not to
exceed 3% of the gross revenue receivable by Landlord from time to time in
connection with the Premises pursuant to this Lease); air conditioning; waste
disposal; heating; ventilating; elevator maintenance; supplies; materials;
equipment; tools; repair and maintenance of the structural portions of the
Building and the plumbing, heating, ventilating, air conditioning and electrical
systems installed or furnished by Landlord; and maintenance, costs and upkeep of
all parking and common areas, rental of personal property used in maintenance;
costs and expenses of gardening and landscaping, maintenance of signs (other
than Tenant's signs); personal property taxes levied on or attributable to
personal property used in connection with the entire Building, including the
common areas; reasonable audit or verification fees; and costs and expenses of
repairs, resurfacing, repairing, maintenance, painting, lighting, cleaning,
window washing, refuse removal, security and similar items, including
appropriate reserves.
Notwithstanding anything contained in this Paragraph 5.1 to the contrary,
Operating Expenses shall not include any of the following:
(a) electrical, water, sewer, gas, garbage, and janitorial costs
(including janitorial supplies) with respect to the Premises which are to be
paid directly by Tenant or reimbursed to Landlord as having been separately
billed by Landlord to Tenant as provided in Paragraph 5.2 below;
(b) depreciation on the Building or equipment therein;
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(c) Landlord's executive salaries;
(d) real estate brokers' commissions;
(e) interest expense on Building financing;
(f) amortization of cost of tenant improvements in the Building;
(g) ground rent;
(h) income and franchise taxes;
(i) Landlord's cost of electricity or other service sold to tenants
to the extent Landlord is reimbursed therefore as a charge over the Monthly
Basic Rent and any additional rent payable under the lease with that tenant;
(j) third party accountants' fees, attorneys' fees and other
professional fees and costs incurred in connection with disputes or lease
negotiations with tenants or other occupants or prospective tenants or occupants
of the Building, the enforcement of any leases (including unlawful detainer
proceedings and the collection of rents), other than de minimis amounts, and
requests to assign or sublet;
(k) overhead and profit paid to subsidiaries or affiliates of the
Landlord for management or other services on or to the Building for supplies or
other materials, to the extent that the overall cost of the services, supplies
or materials provided by Landlord materially exceeds the competitive cost of the
services, supplies, or materials if obtained from an unrelated third party on an
arm's length basis;
(l) compensation paid to clerks, attendants, or other persons in
commercial concessions operated by the Landlord;
(m) rentals and other related expenses incurred in leasing air
conditioning systems, elevators, or other equipment ordinarily considered to be
of a capital nature;
(n) items and services for which Tenant reimburses the Landlord or
pays third parties or that the Landlord provides selectively to one or more
tenants of the Building other than Tenant without reimbursement;
(o) maintenance costs incurred in connection with repairs or other
work needed because of fire, windstorm, or other casualty or cause insured
against by Landlord or to the extent Landlord's insurance required under the
terms of the Lease would have provided insurance, whichever is greater;
(p) all voluntary contributions to any political or charitable
organizations or other industry related associations (e.g., BOMA);
(q) capital costs for the acquisition of sculpture, paintings or
other art objects;
(r) advertising, marketing and promotion costs;
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(s) costs associated with the operation of the corporation or other
entity which constitutes the Landlord, as distinguished from costs of operation
of the Building, including accounting and legal costs, costs of defending
lawsuits with any mortgagee, and the costs of selling, syndicating, financing,
mortgaging or hypothecating any ownership interest in Landlord, or any of the
Landlord's interests in the Building;
(t) costs that are actually reimbursed to the Landlord by insurance
companies or other third parties; provided that the Landlord shall use
commercially reasonable efforts to pursue payment from such insurance companies
or other third parties (the costs of such efforts to procure payment to be
included as an Operating Expense);
(u) reserves for capital items, bad debts, or rental losses;
(v) the costs incurred to investigate the presence of any Hazardous
Material (as defined below), costs to respond to any claim of Hazardous Material
contamination or damage, costs to remove any Hazardous Material from the
Premises, Building or Site or to remediate any Hazardous Material contamination,
any judgments or other costs incurred in connection with any Hazardous Material
exposure or release, except to the extent that the cost is caused by the
storage, use, release or disposal of the subject Hazardous Material by Tenant;
(w) fines and penalties incurred due to Landlord's operation of the
Building in violation of applicable laws or due to Landlord's failure to timely
pay real property taxes;
(x) except to the extent expressly permitted, any repairs of a
capital nature or costs for items that would normally be capitalized under
generally accepted accounting principles; and
(y) interest, charges and fees incurred with respect to mortgage
financing for the Building or Site.
As used herein, the term "real property taxes" shall include any form of
assessment, license fee, license tax, business license fee, tax, levy, charge,
or similar imposition, imposed by any authority having the direct power to tax,
including any city, county, state or federal government, or any school,
agricultural, lighting, drainage or other improvement or special assessment
district thereof, as against any legal or equitable interest of Landlord in the
Premises, including, but not limited to, the following:
(i) any tax on Landlord's "right" to rent or "right" to other income from
the Premises or as against Landlord's business of leasing the Premises;
(ii) any assessment, tax, fee, levy or charge in substitution, partially or
totally, of any assessment, tax, fee, levy or charge previously included within
the definition of real estate tax, it being acknowledged by Tenant and Landlord
that Proposition 13 was adopted by the voters of the State of California in the
June, 1978 Election and that assessments, taxes, fees, levies and charges may be
imposed by governmental agencies for such services as fire protection, street,
sidewalk and road maintenance, refuse removal and for other governmental
services formerly provided without charge to property owners or occupants. It is
the intention of Tenant and Landlord that all such new and increased
assessments, taxes, fees, levies and charges be included within the definition
of "real property taxes" for the purposes of
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this Lease;
(iii) any assessment, tax, fee, levy or charge allocable to or
measured by the area of the Premises or the rent payable hereunder, including,
without limitation, any excise tax levied by the State, City or Federal
government, or any political subdivision thereof, with respect to the receipt of
such rent, or upon or with respect to the possession, leasing, operating,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises, or any portion thereof;
(iv) any assessment, tax, fee, levy or charge upon this transaction
or any document to which Tenant is a party, creating or transferring an interest
or an estate in the Premises;
(v) any assessment, tax, fee, levy or charge by any governmental
agency related to any transportation plan, fund or system instituted within the
geographic area of which the Building is a part; or
(vi) reasonable legal and other professional fees, costs and
disbursements incurred in connection with proceedings to contest, determine or
reduce real property taxes.
Notwithstanding any provision of this Paragraph 5.1 expressed or implied to
the contrary, "real property taxes" shall not include Landlord's federal or
state income, franchise, inheritance, gift or estate taxes. Real property taxes
also shall not include any tax or assessment expense (i) in excess of the amount
which would be payable if such tax or assessment expense were paid in
installments over the longest possible term; or (ii) imposed on land and
improvements other than the Building and/or Site. Tenant may in good faith
contest any tax or assessment, provided that Tenant indemnifies Landlord from
any loss or liability in connection therewith and further provided that Tenant
bears the cost of any such contest including without limitation the cost of any
interest and penalties which may be assessed.
5.2 Tenant shall directly and timely pay all electrical, gas, water,
garbage and sewer costs as well as janitorial costs (including the cost of
janitorial supplies) relating to the Premises. With respect to janitorial costs
(including the cost of janitorial supplies) Tenant shall be entitled to contract
with such supplier of janitorial services as Tenant may elect (subject to the
approval of Landlord, which approval shall not be unreasonably withheld or
delayed), or in the alternative, shall be entitled to internally provide
janitorial services in connection with the Premises. In all events, Tenant shall
provide janitorial services in connection with the Premises in a commercially
reasonable fashion consistent with janitorial services provided in first class
commercial buildings in the geographical area in which the Premises is located.
The cost of all janitorial supplies in connection with the Premises shall be the
responsibility of Tenant. All such janitorial costs (including the costs of
janitorial supplies) shall be paid directly by Tenant. Upon request of the
Landlord, from time to time, but no more frequently than once during each Lease
Year, Tenant shall provide to Landlord evidence reasonably satisfactory to
Landlord of the payment of such costs. In the event that such costs are not
timely paid by Tenant, Landlord shall be entitled (but not obligated), upon ten
(10) days prior notice to Tenant, to pay such costs which payment shall promptly
be reimbursed by Tenant to Landlord within twenty (20) days after receipt of
Landlord's invoice, together with interest equal to the annual rate of the
lesser of ten percent (10%) or the maximum rate allowed by law from the date of
payment to the date of receipt by Landlord.
5.3 No later than April of each calendar year following the Lease
Commencement Date during the Term of this Lease, or as soon thereafter as
possible, Landlord shall endeavor to deliver to Tenant a statement ("ESTIMATE
STATEMENT") wherein Landlord shall estimate the Operating Expenses for the
current
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calendar year, and Tenant's Percentage Share of the excess, if any, of the
estimated Operating Expenses for the current calendar year over the Operating
Expenses for the Base Year. If Operating Expenses estimated in the Estimate
Statement of the current calendar year exceed the Operating Expenses of the Base
Year then Tenant's Percentage Share of such excess amount shall be divided into
twelve (12) equal monthly installments and Tenant shall pay to Landlord within
thirty (30) days, following the receipt of such statement, an amount equal to
one (1) monthly installment multiplied by the number of months from January in
the calendar year in which said statement is submitted to the month of such
payment, both months inclusive. Subsequent installments shall be paid
concurrently with the regular monthly rent payments for the balance of the
calendar year and shall continue until the next calendar year's Estimate
Statement is rendered. If Landlord determines that Tenant's Percentage Share of
the excess Operating Expenses for such current calendar year is greater than
that set forth in the Estimate Statement, then Landlord may, at any time, but
not more frequently than once during each calendar year, deliver a revised
Estimate Statement and Tenant shall pay to Landlord, within thirty (30) days of
the delivery of such revised Estimate Statement, the difference between such
revised Estimate Statement and the original Estimate Statement for the portion
of the current calendar year which has then expired and Tenant shall pay during
the balance of such current calendar year a fraction of the balance of such
difference as would fully amortize such excess over the remaining months of the
then current calendar year. Notwithstanding anything to the contrary set forth
in this Paragraph 5.3, or elsewhere in this Lease or the Summary, Tenant shall
have no obligation to pay Tenant's Percentage Share of the increase in Operating
Expenses over the Base Year for the first twelve full calendar (12) months
following the Lease Commencement Date. Tenant's first obligation to pay
Operating Rent shall accrue in the thirteenth full calendar (13th) month
following the Lease Commencement Date. Notwithstanding the designation of Base
Year in the Summary, for purposes of calculating Tenant's share of the increase
in real property taxes, the initial real property taxes for purposes of
determining any increase, shall be the real property taxes based on an assessed
value of the Premises, Building and Site which takes into account the
construction of Landlord's Work and the Tenant's Improvements. Tenant's
obligation to pay increases in real property taxes, if any, shall commence as of
the thirteenth (13th) full calendar month following the Lease Commencement Date
even if such increases, if any, cannot be calculated until subsequent to such
time.
By the first day of June of each succeeding calendar year during the Term
of this Lease, or as soon thereafter as possible (but, in any event, no later
than December 31 of such succeeding calendar year), Landlord shall endeavor to
deliver to Tenant a statement ("ACTUAL STATEMENT") wherein Landlord shall state
the actual. Operating Expenses for the preceding calendar year. If the Actual
Statement reveals a greater increase in Tenant's Percentage Share of Operating
Expenses in excess of the Base Year than was estimated by Landlord in the
Estimate Statement delivered as provided herein, then within thirty (30) days
following receipt of the Actual Statement by Landlord, Tenant shall pay a lump
sum equal to said total increase over the Operating Expenses for the Base Year,
less the total of the monthly installments of increases set forth on the
Estimate Statement which were paid in the previous calendar year. If the Actual
Statement reveals that Tenant overpaid Operating Expenses for any calendar year,
any overpayment made by Tenant on the monthly installment basis provided above
shall be credited toward the next monthly rent falling due and the monthly
installment of Tenant's Percentage Share of Operating Expenses to be paid
pursuant to the then current Estimate Statement shall be adjusted to reflect
such lower expenses for the most recent calendar year, or if this Lease has been
terminated, such excess shall be credited against any amount which Tenant owes
Landlord pursuant to this Lease and, to the extent all amounts which Tenant owes
Landlord pursuant to this Lease have been paid, Landlord shall promptly pay such
excess to Tenant. Landlord shall not be entitled to deliver an Actual Statement
more than one time per calendar year. Any delay or failure by Landlord in
delivering any estimate or statement pursuant to this Paragraph shall not
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constitute a waiver of its right to require an increase in Tenant's share of the
Operating Expenses in excess of the Base Year nor shall it relieve Tenant of its
obligations pursuant to this Paragraph, except that Tenant shall not be
obligated to make any payments based on such estimate or statement until thirty
(30) days after receipt of such estimate or statement.
5.4 Even though the Term has expired and Tenant has vacated the Premises,
when the final determination is made of Tenant's Percentage Share of Operating
Expenses for the calendar year in which this Lease terminates, Tenant, within
twenty (20) days after receipt of Landlord's determination, shall pay any
increase due over the estimated expenses paid and conversely any overpayment
made in the event said expenses decrease shall be rebated by Landlord to Tenant,
within twenty (20) days after Landlord's determination.
5.5 Notwithstanding anything contained in this Paragraph 5, the rental
payable by Tenant each month shall in no event be less than the Monthly Basic
Rent specified in Paragraph 4 hereof. The excess Operating Expenses to be paid
by Tenant to Landlord pursuant to the provisions of this Paragraph 5 shall
sometimes be referred to in the aggregate as the "OPERATING RENT".
5.6 Notwithstanding any provision to the contrary contained in this Lease,
within sixty days after receipt by Tenant of Landlord's Operating Expenses for
any prior calendar year during the Term, Tenant or its authorized representative
shall have the right to inspect the books of Landlord upon reasonable notice and
during the business hours of Landlord at Landlord's office in the Building, or,
at Landlord's option, at such other location as Landlord reasonably may specify,
for the purpose of verifying the information contained in the statement. Unless
Tenant asserts specific errors within sixty (60) days after receipt of the
statement, the statement shall be deemed correct as between Landlord and Tenant.
6. Security Deposit.
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6.1 As and for security for Tenant's full and faithful performance of all
the terms, covenants and conditions of this Lease to be kept and performed by
Tenant, Tenant shall deposit with Landlord (i) cash in the amount of Three
Hundred Sixty Thousand Dollars ($360,000) and (ii) an unconditional, irrevocable
letter of credit ("LOC") in favor of Landlord in the sum of One Million Six
Hundred Forty Thousand Dollars ($1,640,000) (subject to adjustment pursuant to
Subparagraph 6.2) from a bank or other financial institution and in a form
reasonably acceptable to Landlord. If at any time during the Term, any item
constituting rent as provided herein, or any other sum payable by Tenant to
Landlord hereunder, shall be overdue and unpaid, beyond applicable cure periods,
then Landlord may, at the sole option of Landlord, but without any requirement
to do so, draw down or make a claim or demand for draw against the LOC (or at
the election of Landlord against the cash portion of the security deposit) an
amount equal to the overdue and unpaid amount, together with Landlord's actual
and reasonable expenses incurred in connection with the default, beyond any
applicable cure period, and apply such sum to payment of such overdue rent or
other sum. The LOC shall provide that any draw thereunder shall be accompanied
by a certificate of an officer of Landlord stating that Tenant is in default
under the Lease beyond the applicable notice and cure period, if any, and that
Landlord or its authorized agent is entitled to draw down on the LOC the amount
requested pursuant to the terms of this Lease. Further in the event of the
failure of Tenant to keep and perform any term, covenant or condition of this
Lease to be kept or performed by Tenant, beyond any applicable cure period,
then, at the sole option of Landlord, and after termination of this Lease,
Landlord may draw down the entire LOC (and draw against any remaining cash
portion of the security deposit), or so much thereof as may be necessary to
compensate Landlord for any loss or damage sustained or suffered
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by Landlord due to such breach on the part of Tenant. In the event that all or
any portion of the LOC is drawn down by Landlord to pay overdue rent or other
sums due and payable to Landlord by Tenant hereunder, then Tenant shall, within
ten (10) days after receipt of written demand of Landlord, promptly remit to
Landlord a sufficient amount in cash or an additional letter of credit to
restore Landlord's security to the original amount of the LOC as provided in
this Paragraph. In the event that all or any portion of the cash portion of the
security deposit is charged against by Landlord to pay overdue rent or other
sums due and payable to Landlord by Tenant hereunder, then Tenant shall, within
ten (10) days after receipt of written demand of Landlord, promptly remit to
Landlord a sufficient amount in cash to restore the cash portion of Landlord's
security deposit as drawn against by Landlord. Any failure on the part of Tenant
to restore either the cash portion of the security deposit or the LOC in
accordance with the provisions immediately above within ten (10) days following
the date on which demand for restoration is deemed given hereunder, shall
constitute a default by Tenant pursuant to this Lease. In the event Landlord
transfers the LOC and the cash portion of the security deposit to any successor
in interest of Landlord to title of the Site and Building, then, in such event,
Landlord shall be discharged from any further obligation or liability with
respect to the LOC and the cash portion of the security deposit. Tenant waives
the provisions of California Civil Code Section 1950.7 and all other provisions
of law now in force or that become in force after the date of execution of this
Lease that provide that Landlord may claim from a security deposit only those
sums reasonably necessary to remedy defaults in the payment of rent, to repair
damages caused by Tenant, or to clean the Premises. Landlord and Tenant agree
that Landlord may, in addition, claim those sums reasonably necessary to
compensate Landlord for any out-of-pocket (but not consequential) loss or damage
caused by any act or omission of Tenant or Tenant's officers, agents, employees,
independent contractors or invitees. Landlord's obligations with respect to the
cash portion of the security deposit are those of a debtor and not of a trustee,
and Landlord is entitled to commingle the cash portion of the security deposit
with Landlord's general funds. Landlord shall not be required to pay Tenant
interest on any portion of the security deposit including without limitation the
cash portion of the security deposit.
The cash portion of the security deposit shall be delivered by Tenant to
Landlord within five (5) days following execution and delivery by Landlord and
Tenant of this Lease. The LOC shall be delivered by Tenant to Landlord within
ten (10) days after execution and delivery of this Lease by Landlord and Tenant.
6.2 The LOC shall be subject to adjustment under the following
circumstances:
(a) Provided that Tenant completely and faithfully performs all
terms, conditions and obligations imposed upon Tenant by this Lease for the
first nine full calendar (9) months of the Term, and provided that Tenant is not
then in default, beyond any applicable cure period, of this Lease, the LOC may
be reduced by ten percent (10%) of its original amount at the conclusion of said
nine (9) month period. Thereafter, on each subsequent anniversary date of the
first reduction, and provided Tenant has not been in default, beyond any
applicable cure period, of this Lease since the prior reduction in the LOC, the
LOC may be further reduced by ten percent (10%) of the outstanding amount of the
LOC. Notwithstanding any provision to the contrary of this Lease including,
without limitation, the provisions of this Paragraph 6.2, in no event shall the
security deposit to be given by Tenant, pursuant to the provisions of Paragraph
6 be reduced to an amount less than a cash deposit in the amount of Three
Hundred Sixty Thousand Dollars ($360,000), Such minimum cash deposit shall be
subject to return to Tenant upon the expiration or earlier termination of this
Lease only in accordance with the provisions of Paragraph 6.5 below.
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(b) In the event that (i) Tenant becomes subject to the reporting
requirements of the Securities and Exchange Commission (after the filing of a
Form S-1 Registration Statement), and shares of Tenant become publicly traded on
a nationally recognized exchange, and (ii) the audited net worth of the Tenant
is equal to or greater than One Hundred and Twenty-five Million ($125,000,000)
for an entire calendar quarter and (iii) during the same calendar quarter the
arithmetic average market capitalization value of Tenant exceeds 1.5 Billion
Dollars, then the provisions of this Paragraph 6.2(b) shall be applicable. The
date on which all of the matters specified in clauses (i), (ii) and (iii) above
shall have occurred shall be referred to as the "Public Date". Prior to the
occurrence of the Public Date, the provisions of this Paragraph 6.2(b) shall not
be applicable.
If, on the tenth (10) month anniversary of the occurrence of the
Public Date, or at any time thereafter, Tenant provides Landlord with
satisfactory evidence (such as audited financial statements) that Tenant's
earnings before income taxes, depreciation and amortization (but including
interest) ("EBITDA") reflect a profit for the immediately preceding three (3)
consecutive calendar quarters, and Tenant's net worth is no less than Seventy-
Five Million Dollars ($75,000,000.00), then the LOC may be terminated and
Landlord shall, subject to the provisions below, thereafter hold only the cash
security deposit in the amount of Three Hundred and Sixty Thousand Dollars
($360,000). Thereafter, the LOC shall be reinstated in, or increased to, as the
case may be, an amount equal (i) to two (2) month's Monthly Basic Rent if
Tenant's net worth as determined in accordance with generally accepted
accounting principles falls below Seventy-Five Million Dollars ($75,000,000.00),
(ii) to four (4) month's Monthly Basic Rent if Tenant's net worth falls below
Fifty Million Dollars ($50,000,000.00), and (iii) to six (6) month's Monthly
Basic Rent if Tenant's net worth falls below Thirty Million Dollars
($30,000,000.00). Further, in the event that the financial statements of Tenant
at any time reflect a loss for two or more consecutive calendar quarters on the
basis of EBITDA, then the amount of the LOC otherwise then in effect shall be
increased by an amount equal to one month of Monthly Basic Rent. If the LOC has
been terminated at the time that an increase is required by the preceding
sentence, then the LOC shall be reinstated in the amount required by the
preceding sentence. All multiples of Monthly Basic Rent shall be calculated on
the then applicable Monthly Basic Rent. Notwithstanding any provisions to the
contrary contained in this Paragraph 6.2, if Tenant's net worth, after falling
below any of the variables described above in this Paragraph 6.2(b),
subsequently rises to a higher net worth threshold and remains at such higher
threshold for three consecutive months, at the end of such three month period
Tenant shall have the right to replace the LOC in the higher amount with an LOC
for the lower amount provided for with respect to the higher net worth threshold
as described above in this Paragraph 6.2(b) that Tenant has maintained for the
preceding three month period subject, however, to subsequent increase in the
amount of the LOC should Tenant's net worth again fall below such higher
threshold amount. Tenant shall from time to time promptly provide to Landlord
for each calendar quarter during the Term hereof a copy of Tenant's financial
statement (audited if available) provided that Tenant shall not be obligated to
provide Landlord with a copy of Tenant's financial statement more often than
once per calendar quarter.
6.3 If, after any default by Tenant beyond applicable cure periods and a
termination of this Lease by Landlord as set forth in Paragraph 6.1 above and
Landlord has drawn down the entire LOC, any proceeds of the LOC in excess of the
sum equal to the amount necessary to compensate Landlord for any loss or damage
sustained or suffered by Landlord due to Tenant's default, together with
Landlord's actual and reasonable expenses incurred in connection therewith,
shall be held in a separate, interest-bearing account ("Account") in Landlord's
name at such national bank as Landlord reasonably selects ("Bank"). Tenant shall
have no rights to the money in the Account, except for (i) the return rights
specified below, and (ii) the right to receive interest on the Account, as
specified herein. Landlord agrees to place on the
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signature card for the Account the following language "[name of Landlord] is
holding the funds in the Account in accordance with a Lease dated [date of
Lease] between [name of Landlord] and LookSmart, Ltd., The rights of [name of
Landlord] and LookSmart, Ltd. in and to the funds are subject to the terms of
such Lease." Within ten (10) business days after Landlord signs the signature
card (or any replacement signature card) on the Account, Landlord agrees to
provide Tenant with a copy of the signature card for the Account. Landlord
agrees to request the Bank to pay interest on the Account directly to Tenant on
a quarterly basis, and to report to the appropriate taxing authorities that such
interest has been paid to Tenant; provided, however, that if, despite Landlord's
request, the Bank will not or cannot pay the interest directly to Tenant, the
(x) the Bank shall pay interest on the Account directly to Landlord, in which
case, within ten (10) business days after Landlord receives such payment of
interest, Landlord shall pay to Tenant the interest Landlord receives from the
Bank on the Account, and (y) Landlord shall have the right to report to the
appropriate taxing authorities that such income is the income of Tenant. Tenant
represents to Landlord that Tenant's Federal Taxpayer Identification Number is
13-3904355. If the proceeds of the LOC are placed in a fixed term instrument,
such as a certificate of deposit, then Landlord shall not be liable for any
prepayment penalty if Landlord uses the Account, or a portion thereof, in
accordance with the provisions of this Paragraph 6.
6.4 Notwithstanding anything contained in this Paragraph 6 to the
contrary, if Landlord draws on the LOC an amount in excess of the amount
necessary to compensate Landlord in full for any loss or damage sustained or
suffered by Landlord due to the default of Tenant, then Tenant shall have the
right, upon ten (10) days' prior written notice to Landlord, to obtain a refund
from Landlord of any excess proceeds of the LOC which Landlord has drawn upon,
any such refund being conditioned upon Tenant simultaneously delivering to
Landlord a new replacement LOC in the amount then required, and otherwise
meeting the requirements contained in this Paragraph 6.
6.5 Upon the expiration or earlier termination of this Lease, Landlord
shall return to Tenant so much of the LOC (and the cash portion of the security
deposit) as has not been applied or entitled to be held by Landlord to be
applied to cure any and all defaults by Tenant occurring prior to the expiration
or earlier termination of this Lease and any default by Tenant pursuant to the
provisions of Paragraph 13.1(f) below.
7. Use.
---
7.1 Tenant shall use the Premises for general office purposes and purposes
incident thereto and shall not use or permit the Premises to be used for any
other purpose without the prior written consent of Landlord, which consent may
be granted or withheld in Landlord's sole discretion. Tenant shall not use or
occupy the Premises in violation of any recorded covenants, conditions and
restrictions affecting the Site or of any law or of the Certificate of Occupancy
issued for the Building, and shall upon five (5) days' written notice from
Landlord, discontinue any use of the Premises which is declared by any
governmental authority having jurisdiction to be a violation of any recorded
covenants, conditions and restrictions affecting the Site or of any law or of
said Certificate of Occupancy. Subject to the provision of Paragraph 54.2,
Tenant shall not install any radio or television antenna, loudspeaker or other
device on the roof or exterior walls of the Building. Tenant shall not interfere
with radio or television broadcasting or reception from or in the Building or
elsewhere. Tenant shall comply with any direction of any governmental authority
having jurisdiction which shall, by reason of the nature of Tenant's specific
use or alteration of the Premises, impose any duty upon Tenant or Landlord with
respect to the Premises or with respect to the use or occupation thereof. Tenant
shall not do or permit to be done anything which will invalidate or
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increase the cost of any fire, extended coverage or any other insurance policy
covering the Building and/or property located therein and shall comply with all
rules, orders, regulations and requirements of the Pacific Fire Rating Bureau or
any other organization performing a similar function. Tenant shall within twenty
(20) days after receipt of demand reimburse Landlord as additional rent for any
additional premium charged for such policy by reason of Tenant's failure to
comply with the provisions of this Paragraph 7. Tenant shall not do or permit
anything to be done in or about the Premises which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Building, or
injure them, or use or allow the Premises to be used for any unlawful purpose,
nor shall Tenant cause, maintain or permit any nuisance in, on or about the
Premises. Tenant shall not commit or suffer to be committed any waste in or upon
the Premises and shall keep the Premises in first-class repair and appearance.
Tenant shall not place a load upon the Premises exceeding the average pounds of
live load per square foot of floor area specified for the Building by Landlord's
Architect, with the partitions to be considered a part of the live load.
Landlord reserves the right to prescribe the weight and position of all safes,
files and heavy equipment which Tenant desires to place in the Premises so as to
distribute properly the weight thereof. Tenant's business machines and
mechanical equipment which cause vibration or noise that may be transmitted to
the Building structure or to any other space in the Building shall be so
installed, maintained and used by Tenant as to eliminate such vibration or
noise. Tenant shall be responsible for all structural engineering required to
accommodate the structural load. Tenant shall fasten all files, bookcases and
like furnishings to walls in a manner to prevent tipping over in the event of
earth movements. Landlord shall not be responsible for any damage or liability
for such events.
7.2 Except for the normal and proper use and storage of typical cleaning
fluids and solutions, and office equipment supplies (such as copier toner), in
amounts commensurate with Tenant's use and occupancy of the Premises, Tenant
shall not use, introduce to the Premises, generate, manufacture, produce, store,
release, discharge or dispose of, on, under or about the Premises or transport
to or from the Premises any Hazardous Material (as defined below) or allow its
employees, agents, contractors, invitees or any other person or entity to do so.
Tenant warrants that it shall not make any use of the Premises which may cause
contamination of the soil, the subsoil or ground water. Tenant shall keep and
maintain the Premises in compliance with, and shall not cause or permit the
Premises to be in violation of any and all federal, state or local laws,
ordinances, rules or regulations pertaining to health, industrial hygiene or the
environmental conditions on, under or about the Premises. Tenant shall give
immediate written notice to Landlord of (i) any action, proceeding or inquiry by
any governmental authority or any third party with respect to the presence of
any Hazardous Material on the Premises or the migration thereof from or to other
property or (ii) any spill, release or discharge of Hazardous Materials that
occurs with respect to the Premises or Tenant's operations.
(a) Tenant shall indemnify and hold harmless Landlord, its directors,
officers, employees, agents, successors and assigns (collectively "Landlord")
from and against any and all claims arising from Tenant's use of the Premises in
violation of this paragraph. The indemnity shall include all costs, fines,
penalties, judgments, losses, reasonable attorney's fees, expenses and
liabilities incurred by Landlord for any such claim or any action or proceeding
brought thereon including, without limitation, (a) all foreseeable consequential
damages including without limitation loss of rental income and diminution in
property value; and (b) the costs of any cleanup, detoxification or other
ameliorative work of any kind or nature required by any governmental agency
having jurisdiction thereof or Landlord. This indemnity shall survive the
expiration or termination of this Lease. In any action or proceeding brought
against Landlord by reason of any such claim, upon notice from Landlord if
Landlord does not elect to retain separate counsel, Tenant shall defend the same
at Tenant's expense by counsel reasonably satisfactory to Landlord.
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(b) Landlord shall indemnify and hold harmless Tenant, its directors,
officers, employees, agents, successors and assigns (collectively, "Tenant")
from and against any and all claims arising from or relating to Hazardous
Materials actually existing and present at the Building or the Site or within
the Premises as of the Lease Commencement Date. The indemnity shall include all
costs, fines, penalties, judgments, losses, reasonable attorney's fees, expenses
and liabilities incurred by Tenant for any such claim or any action or
proceeding brought thereon including, without limitation, (a) all foreseeable
consequential damages; and (b) the cost of any clean up, detoxification or other
ameliorative work of any kind or nature required by any governmental agency
having jurisdiction thereof. This indemnity shall survive the expiration or
termination of this Lease. Any action or proceeding brought against Tenant by
reason of any such claim, upon notice from Tenant, if Tenant does not elect to
retain separate counsel, Landlord shall defend the same at Landlord's expense by
counsel reasonably satisfactory to Tenant.
(c) As used herein, the term "Hazardous Material" shall mean any
substance or material which has been determined by any state, federal or local
governmental authority to be capable of posing a risk of injury to health,
safety or property, including all of those materials and substances designated
as hazardous or toxic by the city in which the Premises are located, the U.S.
Environmental Protection Agency, the Consumer Product Safety Commission, the
Food and Drug Administration, the California Water Resources Control Board, the
Regional Water Quality Control Board, San Francisco Bay Region, the California
Air Resources Board, CAL/OSHA Standards Board, Division of Occupational Safety
and Health, the California Department of Food and Agriculture, the California
Department of Health Services, and any federal agencies that have overlapping
jurisdiction with such California agencies, or any other governmental agency now
or hereafter authorized to regulate materials and substances in the environment.
Without limiting the generality of the foregoing, the term "Hazardous Material"
shall included all of those materials and substances defined as "hazardous
materials" or "hazardous waste" in Sections 66680 through 66685 of Title 22 of
the California Administrative Code, Division 4, Chapter 30, as the same shall be
amended from time to time, petroleum, petroleum-related substances and the by-
products, fractions, constituents and sub-constituents of petroleum or
petroleum-related substances, asbestos, and any other materials requiring
remediation now or in the future under federal, state or local statutes,
ordinances, regulations or policies.
8. Payments and Notices. All rents and other sums payable by Tenant to
--------------------
Landlord hereunder shall be paid to Landlord by check at the address designated
by Landlord in the Summary or at such other places as Landlord may hereafter
designate in writing. Any notice required or permitted to be given hereunder
must be in writing and may be given by personal delivery, mail, or by recognized
overnight courier. If notice is given by personal delivery, such notice shall be
deemed to be given upon delivery, if notice is given by registered or certified
mail addressed to Tenant at the address designated in the Summary or to Landlord
at both of the addresses designated in the Summary, then such notice shall be
deemed given three (3) business days following deposit in the U.S. mail, postage
prepaid, addressed to Tenant as designated in the Summary or to Landlord at both
of the addresses designated in the Summary and if given by overnight courier
shall be deemed given one (1) business day following delivery to the courier,
charges prepaid, addressed as stated above. Either party may by written notice
to the other specify a different address for notice purposes. If more than one
person or entity constitutes the "Tenant" under this Lease, service of any
notice upon any one of said persons or entities shall be deemed as service upon
all of said persons or entities.
9. Brokers. The parties recognize that the brokers who negotiated this Lease
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are the brokers whose
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names are stated in the Summary, and agree that Landlord shall be solely
responsible for the payment of brokerage commissions to said brokers, and that
Tenant shall have no responsibility therefor. As part of the consideration for
the granting of this Lease, Tenant represents and warrants to Landlord that to
Tenant's knowledge no other broker, agent or finder negotiated or was
instrumental in negotiating or consummating this Lease and that Tenant knows of
no other real estate broker, agent or finder who is, or might be, entitled to a
commission or compensation in connection with this Lease. Any broker, agent or
finder of Tenant whom Tenant has failed to disclose herein shall be paid by
Tenant. Tenant shall hold Landlord harmless from all damages and indemnify
Landlord for all said damages paid or incurred by Landlord resulting from any
claims that may be asserted against Landlord by any broker, agent or finder who
has, or has claimed to have, rendered services to Tenant undisclosed by Tenant
herein. Landlord shall hold Tenant harmless from all damages and indemnify
Tenant for all said damages paid or incurred by Tenant resulting from any claims
that may be asserted against Tenant by any broker, agent or finder who has, or
has claimed to have, rendered services to Landlord undisclosed by Landlord
herein.
10. Holding Over. If Tenant remains in possession of the Premises after
------------
expiration or earlier termination of this Lease with Landlord's express consent,
Tenant's occupancy shall be a month to month tenancy at a rent agreed upon by
Landlord and Tenant but, in no event less than the aggregate of the Monthly
Basic Rent, Parking Lot Rent, Storage Rent and Tenant's Percentage Share of the
Operating Costs payable under this Lease during the last full month before the
date of expiration or earlier termination. The month to month tenancy shall be
on the terms and conditions of this Lease except as provided in the preceding
sentence and the Lease clauses concerning extension rights. If Tenant holds over
after the expiration or earlier termination of the Term hereof without the
express written consent of Landlord, Tenant shall become a tenant at sufferance
only, at a rental rate equal to one hundred fifty percent (150%) of the Monthly
Basic Rent, Storage Rent and Parking Lot Rent which would be applicable to the
Premises upon the date of such expiration (subject to adjustment as provided
herein and prorated on a daily basis) for the first sixty (60) days of such
holdover, and two hundred percent (200%) of such aggregate amount thereafter
during the pendency of such holdover, and otherwise subject to the terms,
covenants and conditions herein specified, so far as applicable including,
without limitation, the obligation to pay increased Operating Expenses as
provided in Paragraph 5. Acceptance by Landlord of rent after such expiration or
earlier termination shall not constitute a consent to a holdover hereunder or
result in a renewal. The foregoing provisions of this Paragraph 10 are in
addition to and do not affect Landlord's right of re-entry or any rights of
Landlord hereunder or as otherwise provided by law. If Tenant fails to surrender
the Premises upon the expiration of this Lease despite demand to do so by
Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or
liability arising out of such failure, including without limitation, any claim
made by any succeeding tenant founded on or resulting from such failure to
surrender. No provision of this Paragraph 10 shall be construed as implied
consent by Landlord to any holding over by Tenant. Landlord expressly reserves
the right to require Tenant to surrender possession of the Premises to Landlord
as provided in this Lease upon expiration or other termination of this Lease.
The provisions of this Paragraph 10 shall not be considered to limit or
constitute a waiver of any other rights or remedies of Landlord provided in this
Lease or at law.
11. Taxes on Tenant's Property. Tenant shall be liable for and shall pay before
--------------------------
delinquency, taxes levied against any personal property or trade fixtures placed
by Tenant in or about the Premises. If any such taxes on Tenant's personal
property or trade fixtures are levied against Landlord or Landlord's property or
if the assessed value of the Premises is increased by the inclusion therein of a
value placed upon such personal property or trade fixtures of Tenant and if
Landlord, after written notice to Tenant, pays the taxes based upon such
increased assessments, which Landlord shall have the right to do
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regardless of the validity thereof, but only under proper protest if requested
by Tenant, Tenant shall within ten (10) days after receipt of demand repay to
Landlord the taxes levied against Landlord, or the proportion of such taxes
resulting from such increase in the assessment; provided that in any such event,
at Tenant's sole cost and expense, Tenant shall have the right, in the name of
Landlord and with Landlord's full cooperation, to bring suit in any court of
competent jurisdiction to recover the amount of any such taxes so paid under
protest, any amount so recovered to belong to Tenant.
12. Condition of Premises. Other than with respect to the completion of
---------------------
Landlord's construction obligations set forth in the Work Letter, which shall be
done in a good and workmanlike manner in accordance with all applicable law
(including, without limitation, the Americans With Disabilities Act of 1990) and
in accordance with the provisions of the Work Letter, using materials and
equipment of good quality, Tenant acknowledges that neither Landlord nor any
agent of Landlord has made any representation or warranty of any kind whatsoever
with respect to the Premises or the Building or with respect to the suitability
of either for the conduct of Tenant's business. The acceptance of possession of
the Premises by Tenant after receipt of the Notice, without objection within the
time prescribed for such objection, shall conclusively establish that the
Premises and the Building were at such time in satisfactory condition. Tenant
acknowledges and agrees that Tenant is relying solely upon Tenant's own
inspection of the Premises, and Tenant is not relying on any representation or
warranty from the Landlord regarding the Premises or the Building, except as
specifically set forth in this Lease or the Work Letter, including, without
limitation, any representation or warranty as to the physical condition, design
or layout of the Premises. Notwithstanding the foregoing, as of the Lease
Commencement Date, the heating, ventilating and air conditioning system, and the
electrical, plumbing, sewer, life safety and, if applicable, security systems
(collectively, "Building Systems") serving Floor Three and Floor Four or Floor
One and Floor Two, as the case may be, shall be in good working order and
repair. In connection with delivery of possession of Floor Three and Floor Four
or Floor One and Floor Two, as the case may be, to Tenant with Landlord's Work
and the Tenant's Improvements having been substantially completed, Tenant,
together with Tenant's Architect and a representative of Landlord and Landlord's
Architect, shall conduct a walk through of the applicable portion of the
Premises and prepare a punch list setting forth a description of any and all of
Landlord's Work and/or Tenant's Improvements remaining to be completed or
defective and requiring repair or replacement as reasonably determined by
Tenant's Architect and Landlord's Architect. Landlord shall, following the
preparation of such punch list, diligently pursue completion or repair of the
punch list items and upon completing or repairing all such punch list items,
Landlord shall be considered to have fulfilled its obligations in connection
with construction of both the Landlord's Work and the Tenant's Improvements.
Landlord shall for a period of thirty (30) days following delivery of possession
of Floor Three and Floor Four or Floor One and Floor Two, as the case may be, to
Tenant, perform any repairs required in connection with the Building Systems so
as to maintain such systems in good working order and repair, provided, however,
that Landlord shall have no obligation to make any repairs in connection with
any portion of the Building Systems damaged by Tenant or any of Tenant's
contractors, employees or agents.
13. Alterations.
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13.1 Tenant may, at any time and from time to time during the Term of this
Lease, at its sole cost and expense, make alterations, additions, installations,
substitutions, improvements and decorations (hereinafter collectively called
"Changes" and individually, a "Change") in and to the Premises, excluding
structural changes, on the following conditions, and providing such Changes will
not result in a violation of or require a change in the Certificate of Occupancy
applicable to the Premises:
<PAGE>
(a) The outside appearance, character or use of the Building shall
not be affected, and no Changes shall weaken or impair the structural strength
or, in the reasonable opinion of Landlord, lessen the value of the Building or
create the potential for unusual expenses to be incurred upon the removal of
Changes and the restoration of the Premises upon the termination of this Lease.
(b) No part of the Building outside of the Premises shall be
physically affected.
(c) The proper functioning of any of the mechanical, electrical,
sanitary and other service systems or installations of the Building ("Service
Facilities") shall not be adversely affected and there shall be no construction
which might interfere with Landlord's free access to the Service Facilities or
interfere with the moving of Landlord's equipment to or from the enclosures
containing the Service Facilities.
(d) In performing the work involved in making such Changes, Tenant
shall be bound by and observe all of the conditions and covenants contained in
this Paragraph 13.
(e) All work shall be done at such times and in such manner as
Landlord from time to time may reasonably designate.
(f) At the date upon which the Term of this Lease shall end, or the
date of any earlier termination of this Lease, Tenant shall remove all Changes
with respect to which Landlord has given notice to Tenant requiring such removal
as provided in Paragraph 13.2 below and restore or repair the Premises in
accordance with the direction of Landlord as described in Paragraph 13.2 below.
Such removal and restoration or repair shall be made not later than the date of
expiration of this Lease or thirty (30) days following any earlier termination
of this Lease. If Tenant fails to complete the removal and restoration or
repair, as the case may be, before the expiration of the Term, or in the case of
any earlier termination of this Lease, within thirty (30) days following the
occurrence of such termination, Landlord may complete the removal and
restoration or repair and charge the cost of such to Tenant. At the expiration
or earlier termination of this Lease, Tenant shall, in addition, at the option
of Landlord, be required to remove and restore any Change (including a Minor
Change, as defined below) with respect to which Tenant has failed to give notice
to Landlord in accordance with the provisions of Paragraph 13.2 below. Any such
removal and restoration by Tenant shall be made within thirty (30) days
following the request by Landlord (which request by Landlord in the case of
expiration of this Lease, shall not be given later than thirty (30) days prior
to such expiration and, in the case of earlier termination of this Lease, shall
not be given later than the date of such earlier termination) and Landlord may
complete the removal and restoration of any such Change and charge the cost to
Tenant in the event that Tenant fails to timely complete such removal and
restoration.
13.2 Before proceeding with any Change (exclusive only of changes to items
constituting Tenant's personal property and non-structural Changes not costing
in the aggregate more than Twenty-five Thousand Dollars ($25,000) per work of
improvement and not requiring any building permit or other like permit from any
applicable governmental agency), Tenant shall submit to Landlord plans and
specifications for the work to be done, which shall in all cases require
Landlord's prior written approval which shall not be unreasonably withheld or
delayed. In connection with any nonstructural changes not costing in the
aggregate, more than Twenty-five Thousand Dollars ($25,000) per work of
improvement and not requiring any building permit or like permit from any
applicable governmental agency ("MINOR
27
<PAGE>
CHANGE"), Tenant shall deliver to Landlord at least ten (10) business days prior
to commencement of such Minor Change, a general description of the proposed
Change including a copy of any plans and specifications available. Landlord's
consent shall not be required in connection with any proposed Minor Change
although construction of any such Minor Change by Tenant shall otherwise be
performed in accordance with the provisions of this Paragraph 13. At the time
Tenant requests the consent of Landlord to a proposed Change (other than a Minor
Change) Landlord, in connection with granting any such consent shall advise
Tenant as to whether Landlord will require Tenant upon the expiration of this
Lease or any earlier termination of this Lease to remove any such Change and, in
the event that Landlord elects to require such removal, whether Landlord will
require Tenant to (i) restore the Premises to its condition prior to the making
of such Change or, (ii) merely to remove the Change and repair any damages
resulting from such removal. In connection with any Minor Change of which
Landlord receives notice from Tenant, Landlord shall advise Tenant as to whether
Landlord will require removal of such Change at the expiration or earlier
termination of this Lease and in connection with any required removal, as to
whether Landlord will require restoration or merely repair as described above.
In connection with any Change requiring Landlord's approval, Landlord may confer
with consultants in connection with the review of the plans and specifications.
If Landlord or such consultant(s) shall disapprove of any of the Tenant's plans
Tenant shall be advised of the reasons of such disapproval. In any event, Tenant
agrees to pay to Landlord, as additional rent, the reasonable cost of such
consultation and review (but not in excess of $1,000 per request) within twenty
(20) days after receipt of invoices either from Landlord or such consultant(s).
Any Change for which approval has been received shall be performed strictly in
accordance with the approved plans and specifications, and no material
amendments or additions to such plans and specifications shall be made without
the prior written consent of Landlord which shall not be unreasonably withheld
or delayed Minor Changes shall generally be performed in accordance with the
notice given by Tenant to Landlord.
13.3 If the proposed Change requires approval by or notice to the lessor of
a superior lease or the holder of a mortgage, no Change shall proceed until such
approval has been received, or such notice has been given, as the case may be,
and all applicable conditions and provisions of said superior lease or mortgage
with respect to the proposed Change or alteration have been met or complied with
at Tenant's expense; and Landlord, if it approves the Change, will promptly
request such approval or give such notice, as the case may be.
13.4 Tenant shall submit to Landlord the name and address of each
contractor intended to be used by Tenant in connection with construction of
Changes and Landlord's approval thereof shall not be unreasonably withheld or
delayed. No contractor which is reasonably unacceptable to Landlord shall be
engaged by Tenant. All costs and expenses incurred in Changes shall be timely
paid by Tenant after each billing therefor. If Landlord approves the
construction of specific interior improvements in the Premises by contractors or
mechanics selected by Tenant and approved by Landlord, then Tenant's contractors
shall obtain on behalf of Tenant and at Tenant's sole cost and expense, (i) all
necessary governmental permits and certificates for the commencement and
prosecution of Tenant's Changes and for final approval thereof upon completion,
and (ii) at Landlord's request, a completion and lien indemnity bond, or other
surety, reasonably satisfactory to Landlord, for the Changes. In the event
Tenant shall request any changes in the work to be performed after the
submission of the plans referred to in this Paragraph 13, such additional
changes shall be subject to the same approvals and notices as the changes
initially submitted by Tenant.
13.5 All Changes and the performance thereof shall at all times comply with
(i) all laws, rules, orders, ordinances, directions, regulations and
requirements of all governmental authorities, agencies,
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<PAGE>
offices, departments, bureaus and boards having jurisdiction thereof, (ii) all
rules, orders, directions, regulations and requirements of the Pacific Fire
Rating Bureau, or of any similar insurance body or bodies, and (iii) all
reasonable rules and regulations of Landlord, and Tenant shall cause Changes to
be performed in compliance therewith and in good and first class workmanlike
manner, using materials and equipment at least equal in quality and class to the
existing improvements and installations of the Building. Changes shall be
performed in such manner as not to delay or impose any additional expense upon
Landlord in construction, maintenance or operation of the Building, and shall be
performed by contractors or mechanics approved by Landlord and submitted to
Tenant pursuant to this Paragraph, who shall coordinate their work in
cooperation with any other work being performed with respect to the Building.
Throughout the performance of Changes, Tenant, at its expense, shall carry, or
cause to be carried, workmen's compensation insurance in statutory limits, and
general liability insurance for any occurrence in or about the Building, of
which Landlord and its managing agent shall be named as parties insured, in such
limits as Landlord may reasonably prescribe, with insurers reasonably
satisfactory to Landlord all in compliance with Subparagraph 20.2.
Notwithstanding any provision of this Lease to the contrary, in no event shall
Landlord be required to undertake any alteration or any improvements of any kind
whatsoever in connection with the Premises or the Building as a result of or in
connection with any Changes being made by Tenant and specifically, but without
limitation, Landlord shall not be required to make any improvements or
alteration of any kind whatsoever in order to comply with any applicable laws,
orders, ordinances, regulations or building codes which may be required in
connection with Changes being made by Tenant.
13.6 Tenant further covenants and agrees that any mechanic's lien filed
against the Premises or against the Building for work claimed to have been done
for, or materials claimed to have been furnished to Tenant, will be discharged
by Tenant, by bond or otherwise, within twenty (20) days after the receipt of
notice of filing thereof, at the cost and expense of Tenant. All alterations,
decorations, additions or improvements upon the Premises, made by either party,
including (without limiting the generality of the foregoing) all wallcovering,
built-in cabinet work, paneling and the like, shall, unless Landlord elects
otherwise, at the time set forth in Paragraph 13.1(f) above, become the property
of Landlord, and shall remain upon, and be surrendered with the Premises, as a
part thereof, at the end of the Term hereof. Notwithstanding any provision to
the contrary contained in this Paragraph 13.6, Tenant shall not be required to
remove or restore any Changes which Landlord agreed in accordance with the
provisions of Subparagraph 13.1(f) need not be removed or restored. In no event
shall Tenant be obligated to remove the Landlord's Work or the Tenant's
Improvements upon the expiration or earlier termination of this Lease.
13.7 All articles of personal property and all business and trade fixtures,
machinery and equipment, furniture and movable partitions owned by Tenant or
installed by Tenant at its expense in the Premises shall be and remain the
property of Tenant and may be removed by Tenant at any time during the Term
provided Tenant is not in default hereunder, and provided that Tenant shall
repair any damage caused by such removal. If Tenant shall fail to remove all of
its effects from said Premises upon termination of this Lease for any cause
whatsoever, Landlord may, at its option, remove the same in any manner that
Landlord shall choose, and store said effects without liability to Tenant for
loss thereof, and Tenant agrees to pay Landlord within ten (10) days after
receipt of demand any and all expenses incurred in such removal, including court
costs and reasonable attorneys' fees and storage charges on such effects for any
length of time that the same shall be in Landlord's possession or Landlord may,
at its option, without notice, sell said effects, or any of the same, at private
sale and without legal process, for such price as Landlord may obtain and apply
the proceeds of such sale against any amounts due under this Lease from Tenant
to Landlord and against the expense incident to the removal and sale of said
effects.
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<PAGE>
13.8 Subject to Landlord's agreement to minimize any disturbance of
Tenant's use of the Premises, Landlord reserves the right at any time and from
time to time without the same constituting an actual or constructive eviction
and without incurring any liability to Tenant therefor or otherwise affecting
Tenant's obligations under this Lease, to make such changes, alterations,
additions, improvements, repairs or replacements in or to the Site or the
Building (including the Premises if required so to do by any law or regulation)
and the fixtures and equipment thereof, as well as in or to the street
entrances, halls, passages and stairways thereof, on ninety (90) days advance
written notice to Tenant, and/or to change the name by which the Building is
commonly known, as Landlord may deem necessary or desirable. Nothing contained
in this Paragraph 13, shall be deemed to relieve Tenant of any duty, obligation
or liability of Tenant with respect to making any repair, replacement or
improvement or complying with any law, order or requirement of any government or
other authority and nothing contained in this Paragraph 13, shall be deemed or
construed to impose upon Landlord any obligation, responsibility or liability
whatsoever, for the care, supervision or repair of the Building or any part
thereof other than as otherwise provided in this Lease. Landlord's exercise of
the foregoing rights shall not materially increase Tenant's obligations nor
diminish Tenant's rights under this Lease, or interfere with Tenant's parking
rights.
13.9 The construction of the improvements to the Premises to be constructed
pursuant to the provisions of the Work Letter attached to this Lease as Exhibit
E shall be governed by the terms of such Work Letter and not by the provisions
of this Paragraph 13.
14. Repairs.
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14.1 Subject to the provisions of Paragraph 12, by entry hereunder, Tenant
accepts the Premises as being in good and sanitary order, condition and repair.
Tenant shall, when and if needed, at Tenant's sole cost and expense, maintain
and make all repairs to the Premises and every part thereof, to keep, maintain
and preserve the Premises in first class condition, excepting ordinary wear and
tear, casualties, condemnation and acts of God. Any such maintenance and repairs
shall be performed by Landlord's contractor, or a contractor or contractors
reasonably approved in advance in writing by Landlord. All costs and expenses
incurred in such maintenance and repair shall be paid by Tenant within twenty
(20) days after receipt of billing by Landlord or such contractor or
contractors. Tenant shall upon the expiration or sooner termination of the Term
hereof surrender the Premises to Landlord in the same condition as when
received, reasonable wear and tear, casualties, condemnation, Hazardous
Materials not existing, released or disbursed by Tenant or any of its employees,
agents, contractors or invitees, acts of God and Changes not required to be
removed excepted. Landlord shall have no obligation to alter, remodel, improve,
repair, decorate or paint the Premises or any part thereof and the parties
hereto affirm that Landlord has made no representations to Tenant respecting the
condition of the Premises or the Building except as specifically herein set
forth or in the Tenant's Work Letter. Notwithstanding anything set forth above
in this Paragraph to the contrary, Tenant shall have no obligation to install,
maintain, repair or replace any of the structural elements or systems of the
Building (including, without limitation, the Building Systems, as defined
above), unless such work is required due to Tenant's specific use or misuse of
the Premises. Notwithstanding any provision to the contrary contained in this
Lease, as part of its maintenance and repair obligations, Tenant shall not be
required to construct or pay the cost of (i) complying with any laws existing as
of the Commencement Date, including without limitation, all Hazardous Materials
Laws (as defined below) regarding the presence of Hazardous Materials, unless
the same are stored, used or disposed of by Tenant, its agents, invitees or
employees on, in, under or about the Premises; or (ii) the correction of any
condition existing on the Premises as of the Commencement Date;
30
<PAGE>
or (iii) the correction of any latent or structural defect in the Premises
during the Term, as it may be extended.
14.2 Anything contained in Subparagraph 14.1 above to the contrary
notwithstanding, Landlord shall repair and maintain the structural portions of
the Building, including the basic plumbing, heating, ventilating, air
conditioning and electrical systems installed or furnished by Landlord, unless
such maintenance and repairs are caused in part or in whole by the act, neglect,
fault of or omission of any duty by Tenant, its agents, servants, employees or
invitees, in which case Tenant shall pay to Landlord as additional rent, the
reasonable cost of such maintenance and repairs. Landlord shall not be liable
for any failure to make any such repairs, or to perform any maintenance unless
such failure shall persist for an unreasonable time after written notice of the
need of such repairs or maintenance is given by Tenant to Landlord. Except as
provided in Paragraph 21 hereof there shall be no abatement of rent and no
liability of Landlord by reason of any injury to or interference with Tenant's
business arising from the making of any repairs, alterations or improvements in
or to any portion of the Building or the Premises or in or to fixtures,
appurtenances and equipment therein. Tenant hereby waives the provisions of
California Civil Code Sections 1932(1), 1941 and 1942 and of any similar law,
statute or ordinance now or hereafter in effect. Notwithstanding anything to the
contrary contained in this Paragraph 14, Tenant shall maintain and repair at its
sole cost and expense, and with maintenance contractors approved by Landlord,
all non-base building facilities, including lavatory, shower, toilet, washbasin
and kitchen facilities and heating and air conditioning systems, including all
plumbing connected to said facilities or systems installed by Tenant or on
behalf of Tenant (including, without limitation, the Tenant's Improvements) or
existing in the Premises at the time of delivery of possession of the Premises
to Tenant by Landlord exclusive only of normal wear and tear. The provisions of
the immediately preceding sentence shall not apply to the Building basic heating
and air conditioning system or to the basic plumbing system (excluding lavatory,
shower, toilet, washbasin, and kitchen facilities actually located within the
Premises as well as base building facilities installed by Tenant or at Tenant's
request as a part of the Tenant's Improvements).
15. Liens. Tenant shall not permit any mechanic's, materialmen's or other
-----
liens to be filed against the real property of which the Premises form a part
nor against the Tenant's leasehold interest in the Premises. Landlord shall have
the right at all reasonable times to post and keep posted on the Premises any
notices which it deems necessary for protection from such liens. If any such
liens are filed and Tenant fails to remove such liens within twenty (20) days
after receipt of notice of attachment thereof, Landlord may, without waiving its
rights and remedies based on such breach of Tenant and without releasing Tenant
from any of its obligations, cause such liens to be released by any means it
shall deem proper, including payment in satisfaction of the claim giving rise to
such lien. Tenant shall pay to Landlord at once, upon notice by Landlord, any
sum paid by Landlord to remove such liens, together with interest at the maximum
rate per annum permitted by law from the date of such payment by Landlord.
16. Entry by Landlord. Upon reasonable prior notice, Landlord reserves and
-----------------
shall at any and all reasonable times (except in the case of emergency, in which
case, Landlord shall have the right for immediate entry without notice) have the
right to enter the Premises for any valid purpose including without limitation
to inspect the same, to supply any service to be provided by Landlord to Tenant
hereunder, to submit said Premises to prospective purchasers or
mortgagors/lenders or, during the last nine (9) months of the Term of this
Lease, to prospective tenants, to post notices of nonresponsibility, to alter,
improve or repair the Premises or any other portion of the Building, all without
being deemed guilty of any eviction of Tenant and without abatement of rent, and
may, in order to carry out such purposes, erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
<PAGE>
performed, provided that the business of Tenant shall be interfered with as
little as is reasonably practicable. Notwithstanding any provision to the
contrary contained in this Lease, any entry by Landlord or Landlord's agents
shall not impair Tenant's operations more than reasonably necessary, and Tenant
shall have the right to have an employee accompany Landlord and/or its agents at
all times that Landlord and/or its agents are present on the Premises except in
the case of an emergency in which event Landlord shall be entitled to enter the
Premises regardless of whether an employee is available to accompany Landlord.
Tenant hereby waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises, and any other loss occasioned thereby except to the extent caused
by the gross negligence or willful misconduct of Landlord, its agents, employees
or contractors. For each of the aforesaid purposes, Landlord shall at all times
have and retain a key with which to unlock all of the doors in, upon and about
the Premises excluding Tenant's vaults, safes, and security areas, and Landlord
shall have the means which Landlord may deem proper to open said doors in an
emergency in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord by any of said means, or otherwise, shall not
under any circumstances be construed or deemed to be a forcible or unlawful
entry into, or a detainer of, the Premises, or an eviction of Tenant from the
Premises or any portion thereof, and any damages caused on account thereof shall
be paid by Tenant except to the extent caused by the gross negligence or willful
misconduct of Landlord, its agents, employees or contractors. It is understood
and agreed that no provision of this Lease shall be construed as obligating
Landlord to perform any repairs, alterations or decorations except as otherwise
expressly agreed herein to be performed by Landlord. Landlord shall attempt in
the exercise of its rights under this Paragraph 16 to minimize any disturbance
of Tenant's use and possession of the Premises and to provide as much notice to
Tenant as may be reasonably possible prior to any such exercise of Landlord's
rights under this Paragraph 16.
17. Utilities and Services. Consistent with the provisions of Paragraph 5.2,
----------------------
Tenant is directly paying for and obtaining all utilities in connection with the
Premises as well as all janitorial services (including the cost of all
janitorial supplies). Landlord shall not be liable for, and Tenant shall not be
entitled to any abatement or reduction of rent by reason of the unavailability
or partial unavailability of utility service to the Premises. The cost of all
such utility services as being paid directly by Tenant, shall not be considered
to be a part of the Operating Expenses. Tenant hereby waives the provisions of
California Civil Code Section 1932(1) or any other applicable existing or future
law, ordinance or governmental regulation permitting the termination of this
Lease due to the interruption or failure of or inability to provide any services
required to be provided by Landlord hereunder. Landlord shall allow Tenant
access to the Premises on a twenty-four (24) hour per day basis, subject to
events beyond Landlord's reasonable control.
18. Indemnification.
---------------
18.1 To the fullest extent permitted by law, and except to the extent
caused by the gross negligence or willful misconduct of Landlord, its agents,
employees or contractors, Tenant hereby agrees to defend, indemnify, protect and
hold Landlord harmless against and from any and all loss, cost, damage or
liability arising in whole or in part from Tenant's use of the Premises or the
conduct of its business or from any activity, work, or thing done, permitted or
suffered by Tenant, its agents, contractors, employees or invitees in or about
the Premises, Building and/or Site, and hereby agrees to further indemnify and
hold harmless Landlord against and from any and all loss, cost, damage or
liability arising in whole or in part from any breach or default in the
performance of any obligation on Tenant's part to be performed under the terms
of this Lease or arising from any act, neglect, fault or omission of Tenant, or
of its agents,
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employees or invitees, and from and against all costs, reasonable attorneys'
fees, expenses and liabilities incurred for such claim or any action or
proceeding brought thereon. In case any action or proceeding is brought against
Landlord by reason of any such claim, Tenant upon notice from Landlord hereby
agrees to defend the same at Tenant's expense by counsel reasonably approved in
writing by Landlord. Tenant, as a material part of the consideration to
Landlord, hereby assumes all risk of damage to property or injury to persons in,
upon or about the Premises from any cause whatsoever except to the extent caused
by Landlord's gross negligence, intentional misconduct or the failure of
Landlord to observe any of the terms and conditions of this Lease where such
failure has persisted for an unreasonable period of time after written notice of
such failure, and Tenant hereby waives all its claims in respect thereof against
Landlord.
18.2 Landlord shall indemnify Tenant and hold it harmless from any loss by
reason of injury to person or property to the extent such injury is caused by
the gross negligence or intentional misconduct of Landlord or its agents,
employees or contractors, including without limitation any liability or injury
to the person or property of Landlord, its officers, directors, partners,
employees, agents, invitees or guests. Nothing herein shall relieve Tenant of
liability for its own willful acts or negligence.
19. Damage to Tenant's Property. Notwithstanding the provisions of Paragraph
---------------------------
18 to the contrary, except to the extent caused by the gross negligence or
willful misconduct of Landlord, its agents, employees or contractors, Landlord
or its agents shall not be liable for any damage to property entrusted to
employees of the Building (except by reason of the gross negligence of such
employees), nor for loss of or damage to any property by theft or otherwise, nor
for any injury or damage to persons or property resulting from fire, explosion,
falling plaster, steam, gas, electricity, water or rain which may leak from any
part of the Building or from the pipes, appliances or plumbing works therein or
from the roof, street or sub-surface or from any other place or resulting from
dampness or any other patent or latent cause whatsoever. Landlord or its agents
shall not be liable for interference with the light, air, view or intangible
characteristics or qualities of the Premises. Tenant shall give prompt notice to
Landlord in case of fire or accidents in the Premises or in the Building or of
defects known to Tenant therein or in the fixtures or equipment located therein.
Further, neither Landlord nor any partner, director, officer, agent, servant,
member or employee of Landlord shall be liable: (i) for any such damage caused
by other tenants or persons in, upon or about the Building, or caused by
operations in the construction of any private, public or quasi-public work (the
limitations of liability set forth in this clause (i) shall not apply to any
damage or liability caused by the gross negligence or intentional misconduct of
Landlord or its agents, employees or contractors); or (ii) for consequential
damages, including lost profits, of Tenant or any person claiming through or
under Tenant.
20. Insurance.
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20.1 During the Term hereof, Tenant, at its sole expense, shall obtain and
keep in force the following insurance:
(a) Commercial general liability insurance naming the Landlord as an
additional insured against any and all claims for bodily injury and property
damage occurring in, or about the Premises arising out of Tenant's use and
occupancy of the Premises. Such insurance shall have a combined single limit of
not less than Three Million Dollars ($3,000,000.00) per occurrence with a Six
Million Dollar ($6,000,000.00) aggregate limit. Such liability insurance shall
be primary and not contributing to any insurance available to Landlord and
Landlord's insurance shall be in excess thereto. In no event shall the limits of
such insurance be considered as limiting the liability of Tenant under this
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Lease.
(b) Personal property insurance insuring all equipment, trade
fixtures, inventory, fixtures and personal property located on or in the
Premises for perils covered by the causes of loss - special form (all risk) and
in addition, coverage for boiler and machinery (if applicable). Such insurance
shall be written on a replacement cost basis in an amount equal to the full
replacement value of the aggregate of the foregoing less any applicable
deductible.
(c) Workers' compensation insurance in accordance with statutory
law.
(d) Loss of income and extra expense insurance in such amounts as
will reimburse Tenant for direct or indirect loss of earnings attributable to
all perils commonly insured against by prudent tenants or attributable to
prevention of access to the Premises or to the Building as result of such
perils.
(e) Any other form or forms of insurance as Tenant, Landlord, or
Landlord's mortgagees or ground or primary lessors may reasonably require from
time to time (with additions not to be required more than once in any Lease
Year) in form, in amounts, and for insurance risks against which a prudent
tenant of a comparable size and in a comparable business would protect itself.
20.2 The policies required to be maintained by Tenant shall be with
companies rated AX or better in the most current issue of Best's Insurance
Reports. Insurers shall be licensed to do business in the state in which the
Premises are located and domiciled in the USA. Any deductible amounts under any
insurance policies required hereunder shall not exceed Ten Thousand Dollars
($10,000). Certificates of insurance shall be delivered to Landlord prior to the
Lease Commencement Date and annually thereafter at least thirty (30) days prior
to the expiration date of the old policy. Tenant shall have the right to provide
insurance coverage which it is obligated to carry pursuant to the terms hereof
in a blanket policy, provided such blanket policy expressly affords coverage to
the Premises and to Landlord as required by this Lease. Each policy of insurance
shall provide that Landlord and Landlord's managing agent (and any mortgagee or
lender) are additional insureds and shall provide notification to Landlord at
least thirty (30) days prior to any cancellation or modification to reduce the
insurance coverage.
20.3 During the Term hereof, Landlord shall insure the Building
(excluding any property which Tenant is obligated to insure under Subparagraph
20.1(b) hereof but including the Landlord's Work and Tenant's Improvements)
against damage with All Risk insurance in the amount of the full replacement
cost of the Building and shall maintain public commercial liability insurance,
all in such amounts and with such deductibles as Landlord considers appropriate
and consistent with the provisions of Paragraph 20.8. Landlord may, but shall
not be obligated to, obtain and carry any other form or forms of insurance as it
or Landlord's mortgagees may determine advisable. Landlord shall not be required
to maintain earthquake coverage. Notwithstanding any contribution by Tenant to
the cost of insurance premiums, as provided herein, Tenant acknowledges that it
has no right to receive any proceeds from any insurance policies carried by
Landlord.
20.4 Tenant will not knowingly keep, use, sell, or offer for sale in,
or upon, the Premises any article which may be prohibited by any insurance
policy periodically in force covering the Building. If Tenant's occupancy or
business in, or on, the Premises, whether or not Landlord has consented to the
same, results in any increase in premiums for the insurance periodically carried
by Landlord with respect to the Building, Tenant shall pay any such increase in
premiums as additional rent within twenty (20) days
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after being billed therefor by Landlord. In determining whether increased
premiums are a result of Tenant's use of the Premises, a schedule issued by the
organization computing the insurance rate on the Building or the Premises
showing the various components of such rate, shall be conclusive evidence of the
several items and charges which make up such rate. Tenant shall promptly comply
with all reasonable requirements of the insurance authority or any present or
future insurer relating to the Premises.
20.5 If any of Landlord's insurance policies shall be canceled or
cancellation shall be threatened or the coverage thereunder reduced or
threatened to be reduced in any way because of the specific use of the Premises
or any part thereof by Tenant or any assignee or sub-tenant of Tenant or by
anyone Tenant permits on the Premises and, if Tenant fails to remedy the
condition giving rise to such cancellation, threatened cancellation, reduction
of coverage, threatened reduction of coverage, increase in premiums, or
threatened increase in premiums, within 72 hours after receipt of notice
thereof, Landlord may, at its option, either terminate this Lease or enter upon
the Premises and attempt to remedy such condition, and Tenant shall promptly pay
the cost thereof to Landlord as additional rent. Landlord shall not be liable
for any damage or injury caused to any property of Tenant or of others located
on the Premises resulting from such entry. If Landlord is unable, or elects not,
to remedy such condition, then Landlord shall have all of the remedies provided
for in this Lease in the event of a default by Tenant. Notwithstanding the
foregoing provisions of this Subparagraph 20.5, if Tenant fails to remedy as
aforesaid, Tenant shall be in default of its obligation hereunder and Landlord
shall have no obligation to remedy such default.
20.6 Landlord and Tenant hereby mutually waive their respective rights
of recovery against each other for any loss of, or damage to, either parties'
property, to the extent that such loss or damage is insured by an insurance
policy required to be in effect at the time of such loss or damage. Each party
shall obtain any special endorsements, if required by its insurer whereby the
insurer waives its rights of subrogation against the other party. The provisions
of this clause shall not apply in those instances in which waiver of subrogation
would cause either party's insurance coverage to be voided or otherwise made
uncollectible.
20.7 In the event Tenant does not purchase the insurance required by
this Lease or keep the same in full force and effect, Landlord may, but shall
not be obligated to, purchase the necessary insurance and pay the premium. The
Tenant shall repay to Landlord, as additional rent the amount so paid promptly
upon demand. In addition, Landlord may recover from Tenant and Tenant agrees to
pay, as additional rent, any and all reasonable expense (including attorneys'
fees) and damages which Landlord may sustain by reason of the failure of Tenant
to obtain and maintain such insurance.
20.8 Landlord shall maintain insurance coverage comparable to insurance
coverage maintained by prudent landlords of buildings in the area in which the
Building is located that are comparable to the Building, and which in any event
includes fire and extended coverage insurance for the Building and commercial
liability coverage.
21. Damage or Destruction.
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21.1 In the event that the Premises is damaged by fire or other
casualty which is covered under insurance pursuant to the provisions of the
foregoing paragraph, Landlord shall restore such damage provided that: (i) the
destruction of the Building does not exceed fifty percent (50%) of the then
replacement value of the Building; (ii) insurance proceeds are available
(inclusive of any deductible amounts) to pay one hundred percent (100%) of the
cost of restoration; and (iii) in the reasonable
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judgment of Landlord, the restoration can be completed within three hundred and
sixty-five (365) days after the date of the damage or casualty under the laws
and regulations of the state, federal, county and municipal authorities having
jurisdiction. Landlord shall notify Tenant whether or not the Premises will be
restored under this paragraph within thirty (30) days of the occurrence of the
casualty. The deductible amount of any insurance coverage shall be paid by
Tenant. If such conditions apply so as to require Landlord to restore such
damage pursuant to this paragraph, this Lease shall continue in full force and
effect, unless otherwise agreed in writing by Landlord and Tenant. Tenant shall
be entitled to a proportionate reduction of Monthly Basic Rent, Parking Lot
Rent, Storage Rent and Operating Rent at all times during which Tenant's use of
the Premises is interrupted, such proportionate reduction to be based on the
extent to which the damage and restoration efforts actually interfere with
Tenant's business in the Premises. Tenant's right to a reduction of Rent
hereunder shall be Tenant's sole and exclusive remedy in connection with any
such damage. Notwithstanding the foregoing, if Landlord elects to terminate this
Lease pursuant to this Subparagraph 21.1, if within thirty (30) days after
receipt of Landlord's notice Tenant elects to provide the funds necessary to
make up the shortage (or absence) of insurance proceeds and provides Landlord
with reasonable assurance thereof, Landlord shall restore the Premises as
provided in this Subparagraph provided that the Premises are reasonably subject
to restoration within three hundred and sixty-five (365) days following the date
on which the casualty occurs. Tenant in connection with such election, shall
have the right to exercise the first or second (as applicable) option to extend
the Term provided by Paragraph 2.3 above, provided that Tenant otherwise meets
all requirements necessary for such exercise.
21.2 In the event that the Building is damaged by casualty and Landlord
is not required to restore such damage in accordance with the provisions of the
immediately preceding paragraph, Landlord shall have the option to either (i)
repair or restore such damage, with the Lease continuing in full force and
effect, but Monthly Basic Rent, Parking Lot Rent, Storage Rent and Operating
Rent to be proportionately abated as provided above; or (ii) give notice to
Tenant at any time within thirty (30) days after the occurrence of such damage
terminating this Lease as of a date to be specified in such notice which date
shall not be less than thirty (30) nor more than sixty (60) days after the date
on which such notice of termination is given. In the event of the giving of such
notice of termination, this Lease shall expire and all interest of Tenant in the
Premises shall terminate on the date so specified in such notice and the rent,
reduced by any proportionate reduction in Monthly Basic Rent, Parking Lot Rent,
Storage Rent and Operating Rent as provided for above, shall be paid to the date
of such termination. Notwithstanding the foregoing, if within thirty (30) days
after receipt of Landlord's notice, Tenant elects to advance to Landlord the
funds necessary to make up the shortage (or absence) in insurance proceeds and
provides Landlord with reasonable assurance thereof and the restoration can be
completed in a two hundred seventy (270) day period, as reasonably determined by
Landlord, Landlord shall restore the Premises as provided in the immediately
preceding paragraph. Tenant in connection with any such election, shall have the
right to exercise the first or second (as applicable) option to extend the Term
provided by Paragraph 2.3 above, provided that Tenant otherwise satisfies all
requirements in connection with such exercise.
21.3 Notwithstanding the foregoing, either Landlord or Tenant may
terminate this Lease if the Building damaged by fire or other casualty (and
Landlord's reasonably estimated cost of restoration of the Premises exceeds ten
percent (10%) of the then replacement value of the Building) and such damage or
casualty occurs during the last twelve (12) months of the Term of this Lease (or
the Term of any renewal option, if applicable) by giving the other notice
thereof at any time within thirty (30) days following the occurrence of such
damage or casualty. Such notice shall specify the date of such termination,
which date shall not be less than thirty (30) nor more than sixty (60) days
following the date on which such notice of
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termination is given. In the event of the giving of such notice of termination,
this Lease shall expire and all interest of Tenant in the Premises shall
terminate on the date so specified in such notice and the Rent shall be paid to
the date of such termination. Notwithstanding the foregoing to the contrary,
Landlord shall not have the right to terminate this Lease if damage or casualty
occurs during the last twelve (12) months of the Term if Tenant timely exercises
its option to extend the Term of this Lease (if any) within thirty (30) days
after the date of such damage or casualty.
21.4 In the event that the destruction to the Premises cannot be
restored as required herein under applicable laws and regulations within two
hundred seventy (270) days of the damage or casualty, notwithstanding the
availability of insurance proceeds, or if Landlord commences the restoration but
does not substantially complete the restoration within three hundred (300) days,
in either case Tenant shall have the right to terminate this Lease by giving the
Landlord notice thereof within thirty (30) days of date of the occurrence of
such casualty, or within thirty (30) days after the end of the three hundred
(300) day period, as applicable, specifying the date of termination which shall
not be less than thirty (30) days nor more than sixty (60) days following the
date on which such notice of termination is given. In the event of the giving of
such notice of termination, this Lease shall expire and all interest of Tenant
in the Premises shall terminate on the date so specified in such notice and the
rent, reduced by any proportionate reduction in Monthly Basic Rent, Parking Lot
Rent, Storage Rent and Operating Rent as provided for above, shall be paid to
the date of such termination.
21.5 Upon any termination of this Lease under any of the provisions of
this Paragraph 21, the parties shall be released thereby without further
obligation to the other from the date possession of the Premises is surrendered
to Landlord except for items which have already accrued and are then unpaid.
21.6 Tenant shall not be released from any of its obligations under
this Lease except to the extent and upon the conditions expressly stated in this
Paragraph 21. Notwithstanding anything to the contrary contained in this
Paragraph 21, should Landlord be delayed or prevented from repairing or
restoring the damaged Premises within three hundred (300) days after the
occurrence of such damage or destruction by reason of acts of God, war,
governmental restrictions, inability to procure the necessary labor or
materials, or other cause beyond the control of Landlord, Landlord shall be
relieved of its obligation to make such repairs or restoration and Tenant shall
be released from its obligations under this Lease as of the end of said three
hundred (300) day period.
21.7 It is hereby understood that if Landlord is obligated to or elects
to repair or restore as herein provided, Landlord shall be obligated to make
repairs or restoration only of those portions of the Building and the Premises
which were originally provided at Landlord's expense (including, without
limitation, Landlord's Work or the Tenant's Improvements) or which were insured
by either party and the proceeds of such insurance have been received by
Landlord, and the repair and restoration of items not provided at Landlord's
expense shall be the obligation of Tenant.
21.8 Tenant hereby waives California Civil Code Sections 1932(2) and
1933(4), providing for termination of hiring upon destruction of the thing hired
and Sections 1941 and 1942, providing for repairs to and of Premises.
22. Eminent Domain.
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22.1 In case the whole of the Premises, or such part thereof as shall
substantially interfere with
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Tenant's use and occupancy thereof, shall be taken for any public or
quasi-public purpose by any lawful power or authority by exercise of the right
of appropriation, condemnation or eminent domain, or sold to prevent such
taking, either party shall have the right to terminate this Lease effective as
of the date possession is required to be surrendered to said authority. Tenant
shall not assert any claim against Landlord or the taking authority for any
compensation because of such taking (provided that Tenant may present a separate
claim for Tenant's relocation costs, moving expenses, loss of goodwill, the
unamortized cost of any Changes paid for by Tenant and lost personal property,
so long as such claim does not diminish any award otherwise available to
Landlord), and Landlord shall be entitled to receive the entire amount of any
award without deduction for any estate or interest of Tenant. In the event the
amount of property or the type of estate taken shall not substantially interfere
with the conduct of Tenant's business, Landlord shall be entitled to the entire
amount of the award without deduction for any estate or interest of Tenant. If
this Lease is not so terminated, Landlord shall promptly proceed to restore the
Premises to substantially their same condition prior to such partial taking, and
a proportionate allowance shall be made to Tenant for the rent corresponding to
the time during which, and to the part of the Premises of which, Tenant shall be
so deprived on account of such taking and restoration. Nothing contained in this
Paragraph shall be deemed to give Landlord any interest in any award separately
made to Tenant for the taking of personal property and trade fixtures belonging
to Tenant or for relocation costs incurred by Tenant in relocating Tenant's
business, moving expenses, loss of goodwill and the unamortized cost of any
Changes paid for by Tenant.
22.2 In the event of taking of the Premises or any part thereof for
temporary use, (i) this Lease shall be and remain unaffected thereby and rent
shall not abate, and (ii) Tenant shall be entitled to receive for itself such
portion or portions of any award made for such use with respect to the period of
the taking which is within the Term, provided that if such taking shall remain
in force at the expiration or earlier termination of this Lease, Tenant shall
then pay to Landlord a sum equal to the reasonable cost of performing Tenant's
obligations under Paragraph 14 with respect to surrender of the Premises and
upon such payment shall be excused from such obligations. For purpose of this
Subparagraph 22.2, a temporary taking shall be defined as a taking for a period
of 270 days or less.
22.3 Landlord and Tenant each hereby waive the provisions of California
Code of Civil Procedure Section 1265.130 and any other applicable existing or
future law, ordinance or governmental regulation providing for, or allowing
either party to petition the courts of the state of California for, a
termination of this lease upon a partial taking of the Premises and/or the
Building.
23. Bankruptcy. If Tenant shall file a petition in bankruptcy under any
----------
Chapter of federal bankruptcy law as then in effect, or if Tenant be adjudicated
a bankrupt in involuntary bankruptcy proceedings and such adjudication shall not
have been vacated within sixty (60) days from the date thereof, or if a receiver
or trustee be appointed of Tenant's property and the order appointing such
receiver or trustee not be set aside or vacated within sixty (60) days after the
entry thereof, or if Tenant shall assign Tenant's estate or effects for the
benefit of creditors, or if this Lease shall otherwise by operation of law pass
to any person or persons other than Tenant, then and in any such event Landlord
may, if Landlord so elects, with or without notice of such election and with or
without entry or action by Landlord, forthwith terminate this Lease.
Notwithstanding any other provisions of this Lease, Landlord, in addition to any
and all rights and remedies allowed by law or equity, shall upon such
termination be entitled to recover damages in the amount provided in
Subparagraph 24.2 below and neither Tenant nor any person claiming through or
under Tenant or by virtue of any statute or order of any court shall be entitled
to possession of the Premises but shall forthwith quit and surrender the
Premises to Landlord. Nothing herein contained shall
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limit or prejudice the right of Landlord to prove and obtain as damages by
reason of any such termination an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing the proceedings
in which, such damages are to be proved, whether or not such amount be greater,
equal to, or less than the amount of damages recoverable under the provisions of
this Paragraph 23.
24. Defaults and Remedies.
---------------------
24.1 The occurrence of any one or more of the following events shall
constitute a default hereunder by Tenant:
(a) The vacation or abandonment of the Premises by Tenant.
Abandonment is herein defined to include, but is not limited, to, any absence by
Tenant from the Premises for ten (10) days or longer while in default of any
provision of this Lease.
(b) The failure by Tenant to make any payment of Basic Rent,
Parking Lot Rent, Storage Rent, Operating Rent, other rent or sums deemed herein
as additional rent, or any other payment required to be made by Tenant hereunder
as and when due, where such failure continues for a period of five (5) business
days after written notice thereof from Landlord to Tenant.
(c) The failure by Tenant to observe or perform any of the
express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in Subparagraph 24.1(a) or 24.1(b)
above, where such failure shall continue for a period of thirty (30) days after
written notice thereof from Landlord to Tenant; provided, however, that any such
notice shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure 1161; provided, further, that if the nature
of Tenant's default is such that more than thirty (30) days are reasonably
required for its cure, then Tenant shall not be deemed to be in default if
Tenant shall commence such cure within said thirty-day period and thereafter
diligently and without interruption prosecute such cure to completion.
(d) (1) The making by Tenant of any general assignment for the
benefit of creditors; (2) the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or a petition for reorganization or arrangement under
any law relating to bankruptcy (unless, in the case of a petition filed against
Tenant, the same is dismissed within sixty (60) days); (3) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within sixty (60) days; or (4) the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease where such seizure
is not discharged within sixty (60) days.
(e) The failure by Tenant within ten (10) days after receipt of
written demand of Landlord to restore the security deposit by deposit of
additional cash or an additional letter of credit as required pursuant to the
provisions of Paragraph 6.1 of this Lease.
24.2 In the event of any such default by Tenant, in addition to any
other remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant hereunder.
Upon such termination of Tenant's right to possession of the Premises, this
Lease shall terminate and Landlord shall be entitled to recover damages from
Tenant as provided in California Civil Code Section 1951.2 or any other
applicable existing or future law, ordinance or
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regulation providing for recovery of damages for such breach, including but not
limited to the following:
(a) the worth at the time of award of any unpaid rent which
had been earned at the time of such termination; plus
(b) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(c) the worth at the time of award of the amount by which the
unpaid rent for the balance of the Term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; plus
(d) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform his obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom.
As used in Subparagraphs 24.2(a) and 24.2(b) above, the "worth at the
time of award" is computed by allowing interest at the maximum rate permitted by
law per annum. As used in Subparagraph 24.2(c) above, the worth at the time of
award is computed by discounting to present value such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%).
24.3 If a default exists under this Lease, Landlord shall also have the
remedy described in California Civil Code Section 1951.4 (Landlord may continue
this Lease in effect after Tenant has breached this Lease and abandoned the
Premises and recover rent as it becomes due; provided, however that Tenant has
the right to sublet or assign this Lease, subject only to reasonable
limitations). Acts of maintenance or preservation or efforts to relet the
Premises or the appointment of a receiver upon initiative of Landlord to protect
Landlord's interest under this Lease shall not constitute a termination of
Tenant's right to possession.
24.4 During the continuance of a default beyond applicable cure
periods, Landlord may enter the Premises without terminating this Lease and,
upon five (5) days prior written notice to Tenant, remove all Tenant's personal
property, any Changes and trade fixtures from the Premises and store them at
Tenant's risk and expense. If Landlord removes such property from the Premises
and stores it at Tenant's risk and expense, and if Tenant fails to pay the cost
of such removal and storage after written demand therefor and/or to pay any rent
then due, then after the property has been stored for a period of thirty
(30)-days or more Landlord may sell such property at public or private sale, in
the manner and at such times and places as Landlord deems commercially
reasonable following reasonable notice to Tenant of the time and place of such
sale. The proceeds of any such sale shall be applied first to the payment of the
expenses for removal and storage of the property, the preparation for and the
conducting of such sale, and for reasonable attorneys' fees and other legal
expenses incurred by Landlord in connection therewith; and the balance shall be
applied to any past due amount owing hereunder.
Tenant hereby waives all claims for damages that may be caused by
Landlord's reentering and taking possession of the Premises or removing and
storing Tenant's personal property pursuant to this Paragraph 24, and Tenant
shall hold Landlord harmless from and against any loss, cost or damage resulting
from any such act. No reentry by Landlord shall constitute or be construed as a
forcible entry by
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Landlord.
24.5 All rights, options' and remedies of Landlord contained in this
Lease shall be construed and held to be cumulative, and no one of them shall be
exclusive of the other, and Landlord shall have the right to pursue any one or
all of such remedies or any other remedy or relief which may be provided by law,
whether or not stated in this Lease. No waiver of any default of Tenant
hereunder shall be implied from any acceptance by Landlord of any rent or other
payments due hereunder or any omission by Landlord to take any action on account
of such default if such default persists or is repeated, and no express waiver
shall affect defaults other than as specified in said waiver. The consent or
approval or Landlord to or of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to waive or render unnecessary Landlord's consent
or approval to or of any subsequent similar acts by Tenant.
24.6 If Landlord is in default of any obligations under this Lease, and
fails to commence to cure within thirty (30) days after receipt of written
notice from Tenant which notice shall specify the nature of Landlord's default,
Tenant shall be entitled to exercise any and all remedies available to Tenant at
law or in equity except to the extent expressly waived by Tenant pursuant to
this Lease.
25. Assignment and Subletting. Tenant shall not voluntarily assign or
-------------------------
encumber its interest in this Lease or in the Premises, or sublease all or any
part of the Premises, or allow any other person or entity to occupy or use all
or any part of the Premises, without first obtaining Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed. Any
assignment, encumbrance or sublease without Landlord's prior written consent
shall be voidable, at Landlord's election, and shall constitute a default. If
Tenant is a partnership, a withdrawal or change, voluntary, involuntary or by
operation of law of any partner, or the dissolution of the partnership, shall be
deemed a voluntary assignment. If Tenant consists of more than one person, a
purported assignment, voluntary or involuntary or by operation of law from one
person to the other shall be deemed a voluntary assignment. If Tenant is a
nonpublic corporation, any dissolution of Tenant, or sale or other transfer of a
controlling percentage of the capital stock of Tenant, or the sale of at least
seventy percent (70%) of the value of the assets of Tenant shall be deemed a
voluntary assignment. If Tenant is a publicly traded corporation, any sale or
other transfer of a controlling percentage of the capital stock of Tenant in one
transaction or a series of related transactions to one person or entity or two
or more affiliated entities and/or persons shall be deemed a voluntary
assignment which requires Landlord's consent. Except as set forth in the
sentence immediately above, the transfer of publicly traded shares of Tenant,
whether or not in the aggregate constituting a transfer of a controlling
percentage of the capital stock of Tenant, shall not constitute a voluntary
assignment. No consent to any assignment, encumbrance, or sublease shall
constitute a further waiver of the provisions of this Paragraph. No later than
thirty (30) days prior to the effective date of the proposed assignment or
sublease, Tenant shall notify Landlord in writing of Tenant's intent to assign,
encumber, or sublease, the name of the proposed assignee or sublessee,
information concerning the financial responsibility of the proposed assignee or
sublessee and the terms of the proposed assignment or subletting, and Landlord
shall, within fifteen (15) days of receipt of such written notice as well as any
additional information requested by Landlord concerning the proposed assignee's
or sublessee's financial responsibility, elect one of the following:
(i) Consent to such proposed assignment,
encumbrance or sublease;
(ii) Refuse such consent, which refusal shall be on
reasonable grounds, including but not limited to those matters set forth
hereinbelow;
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(iii) In the case of an assignment, elect to
terminate this Lease. In the case of a sublease elect to terminate this Lease
with respect to that portion of the Premises being requested for sublease
consideration, but only in the event that a request to sublet would have the
result of in excess of fifty percent (50%) of the rentable square feet of the
Premises being subject to sublease at any time during the Term. In the event
that Landlord elects to terminate the Lease by reason of a proposed assignment
or by reason of a proposed sublease as described immediately above, Landlord
shall give notice of such election ("Recapture Notice") to Tenant within fifteen
(15) days after receipt of written notice from Tenant of the proposed assignment
or sublease as well as any additional information requested by Landlord
concerning the proposed assignee's or sublesee's financial responsibility. In
the case of a proposed sublease (and not a proposed assignment), in the event
that Landlord gives a Recapture Notice, Tenant shall be entitled to rescind its
proposed sublease (and thus avoid termination of the Lease) by giving written
notice to Landlord of such recission within five (5) days following receipt by
Tenant of the Recapture Notice. In the event that Tenant fails to give such
notice within such five (5) days, Tenant shall be considered to have waived its
right to give such recission notice. The Recapture Notice, if given, shall in
addition to stating Landlord's election to terminate this Lease, state a date of
termination of the Lease which, in no event, shall be earlier than thirty (30)
days following the date on which the Recapture Notice is given nor later than 90
days following the date on which the Recapture Notice is given.
Without limiting the other instances in which it may be reasonable for
Landlord to withhold its consent to an assignment or subletting, Landlord and
Tenant acknowledge that it shall be reasonable for Landlord to withhold its
consent in the following instances: (i) if at the time consent is requested or
at any time prior to the granting of consent, Tenant is in default, beyond any
applicable cure period, under this Lease or would be in default under this Lease
but for the pendency of any grace or cure period under Paragraph 24 above; (ii)
if the proposed assignee or sublessee is a governmental agency; (iii) if, in
Landlord's reasonable judgment, the use of the Premises by the proposed assignee
or sublessee (1) would be inconsistent with Paragraph 7 of this Lease, (2) would
contemplate any alterations which would lessen the value of the leasehold
improvements in the Premises, (3) would result in more than a reasonable number
of occupants per floor, or (4) would materially require increased services by
Landlord; (iv) if the proposed assignee's or sublessee's credit, character and
business or professional standing does not meet the commercially reasonable
standards of Landlord; (v) the proposed assignee has a net worth of less than
the net worth of Tenant as of the date of this Lease (in the approximate amount
of One Hundred Twenty-Five Million Dollars [$125,000,000]); or (vi) if Landlord
is currently marketing space in the Building to such proposed assignee or
sublessee.
Landlord may require that the rent payable by such assignee or
sublessee be at the then current rental rates for the Premises or comparable
premises in the Building and may require that the assignee remit directly to
Landlord on a monthly basis all monies due to Tenant by said assignee. Payments
with respect to any sublease, so long as the Tenant is not in default hereunder,
may be made directly to Tenant and Tenant shall then promptly pay to Landlord
any amount due Landlord in connection with such sublease. In the event that
Landlord shall consent to any assignment or sublease under the provisions of
this Paragraph 25, Tenant shall pay Landlord's reasonable processing costs and
attorneys' fees incurred in giving such consent, not to exceed one thousand
dollars ($1,000) per request for consent. If for any proposed assignment or
sublease Tenant receives rent or other consideration, either initially or over
the term of the assignment or sublease, in excess of the rent and monthly
amortization of Transfer Costs (defined below) called for hereunder, or, in case
of the sublease of a portion of the Premises, in excess of the monthly
amortization of all Transfer Costs and such rent fairly allocable to such
portion, after
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appropriate adjustments to assure that all other payments called for hereunder
are taken into account, Tenant shall pay to Landlord as additional rent
hereunder fifty percent (50%) of all of the excess of each such payment of rent
or other consideration received by Tenant promptly after its receipt. As used
herein, "Transfer Costs" shall mean the aggregate of (i) commercially reasonable
brokerage commissions and attorneys' fees incurred by Tenant in negotiating and
documenting such assignment or sublease and (ii) the actual third party costs
incurred by Tenant in connection with constructing improvements to the Premises
directly related to the assignment or sublease subject, however, to a maximum
cost of ten dollars ($10) per rentable square foot. Such Transfer Costs are to
be amortized (without interest) for the purposes of Tenant's recovery of same
from excess consideration, on a straight-line basis over the remaining initial
Term of this Lease as of the effective date of such assignment or subletting.
Landlord's waiver or consent to any assignment or subletting shall not relieve
Tenant from any obligation under this Lease.
Notwithstanding any provision to the contrary of this Paragraph 25,
Tenant, without Landlord's prior written consent, may sublet all or any portion
of the Premises or assign this Lease to (i) a corporation controlling,
controlled by or under common control with Tenant; (ii) a successor corporation
related to Tenant by merger, consolidation or non-bankruptcy reorganization
provided that if Tenant is not the surviving corporation, then the surviving
corporation shall have a minimum net worth as of the date of sublease or
assignment at least equal to that of Tenant immediately prior to completion of
the subject merger, consolidation or reorganization; or (iii) a purchaser of
substantially all of Tenant's assets, provided that immediately following such
purchase, such purchaser shall have a net worth at least equal to that of Tenant
immediately prior to completion of the subject purchase. In connection with any
such assignment or sublease, Tenant shall not be relieved of any liability or
obligations pursuant to this Lease. The entities described in clauses (i), (ii)
and (iii) above shall sometimes be referred to as a "PERMITTED TRANSFEREE". In
connection with any transfer to a Permitted Transferee, Tenant shall give
Landlord at least thirty (30) days prior written notice of such intended
transfer and shall provide to Landlord such information and copies of such
documents as Landlord may reasonably request in connection with such proposed
transfer. Notwithstanding any provision of this Lease to the contrary including,
without limitation, any provision of this Paragraph 25, no assignment or
sublease of this Lease shall relieve Tenant of any of its obligations or
liability pursuant to this Lease. Landlord acknowledges that Tenant intends to
sublease not more than fifty thousand square feet of the Premises within the
first twelve (12) months of the Term.
26. Quiet Enjoyment. Landlord covenants and agrees that, conditioned upon
---------------
Tenant paying the rent required under this Lease and paying all other charges
and performing all of the covenants and provisions to be observed and performed
by Tenant under this Lease, and subject to the terms and conditions of this
Lease, Tenant shall and may peaceably and quietly have, hold and enjoy the
Premises in accordance with this Lease.
27. Subordination. Without the necessity of any additional document being
-------------
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any mortgagee with a lien on the Building or any ground
lessor with respect to the Building, this lease shall be subject and subordinate
at all times to: (a) all ground leases or underlying leases which may now exist
or hereafter be executed affecting the Building or the land upon which the
Building is situated or both, and (b) the lien of any mortgage or deed of trust
which may now exist or hereafter be executed in any amount for which the
Building, land, ground leases or underlying leases, or Landlord's interest or
estate in any of said items is specified as security. Notwithstanding the
foregoing, Landlord shall have the right to subordinate or cause to be
subordinated any such ground leases or underlying leases or any such liens to
this lease. In the event that any ground lease or underlying lease terminates
for any reason or any mortgage or deed of trust is
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foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant
shall, if requested by the ground lessor, mortgagee or beneficiary, as
applicable, attorn to and become the Tenant of the successor in interest to
Landlord and in such event Tenant's right to possession of the Premises shall
not be disturbed if Tenant is not in default beyond acceptable cure periods and
so long as Tenant shall pay the rent and all other amounts required to be paid
to Landlord pursuant to the terms hereof and observe and perform all of the
provisions of this Lease, unless the Lease is otherwise terminated pursuant to
its terms. Tenant convenants and agrees to execute and deliver, upon demand by
Landlord and in the form reasonably requested by Landlord, any additional
documents evidencing the priority or subordination of this Lease with respect of
any such ground leases or underlying leases or the lien of any such mortgage or
deed of trust. Should Tenant fail to sign and return any such documents within
ten (10) business days of receipt, Tenant shall be in default, and Landlord may,
at Landlord's option, terminate this Lease provided written notice of such
termination is received by Tenant prior to Landlord's receipt of such documents.
In connection with any subordination by Tenant of its leasehold interest to any
future ground lease, or the lien of any mortgage or deed of trust, Tenant shall
be entitled to obtain a non-disturbance agreement in a form reasonably
satisfactory to Tenant providing that Tenant's right to occupancy of the
Premises shall not be disturbed in the event of any termination of the ground
lease or any foreclosure of the lien of the deed of trust or mortgage. Landlord
shall take such action as is reasonable (without cost to Landlord) so as to
cause a non-disturbance agreement to be available to Tenant in connection with
any subordination by Tenant of its leasehold interest. In connection with the
execution of this Lease by Landlord and Tenant, Landlord shall use its best
efforts (without cost to Landlord) to cause a Subordination and Non-Disturbance
Agreement to be made available to Tenant in a form reasonably acceptable to
Tenant within twenty (20) days following the execution and delivery of this
Lease by Landlord and Tenant in connection with any lender or lenders with
respect to any deed of trust currently constituting a lien against the Building
and Site.
28. Estoppel Certificate.
--------------------
28.1 Within ten (10) business days following receipt of Landlord's
written request, Tenant shall execute and deliver to Landlord a statement, in a
form substantially similar to the form of Exhibit "C" attached hereto,
-----------
certifying; (i) the Lease Commencement Date; (ii) the fact that this Lease is
unmodified and in full force and effect (or, if there have been modifications
hereto, that this Lease is in full force and effect, as modified, and stating
the date and nature of such modifications); (iii) the date to which the rent and
other sums payable under this Lease have been paid; (iv) the fact that there are
no current defaults under this Lease by either Landlord or Tenant except as
specified in such statement; and (v) such other matters reasonably requested by
the requesting party. Landlord and Tenant intend that any statement delivered
pursuant to this Paragraph 28 may be relied upon by any mortgagee, beneficiary,
purchaser or prospective purchaser of the Building or any interest therein.
28.2 Tenant's failure to deliver such statement within such time shall
be conclusive upon Tenant (i) that this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
that there are no uncured defaults in the requesting party's performance, and
(iii) that not more than one (1) month's rent has been paid in advance.
29. Rules and Regulations. Tenant shall faithfully observe and comply with
---------------------
the "Rules and Regulations," a copy of which is attached hereto and marked
Exhibit "D", and all reasonable and nondiscriminatory modifications thereof and
- -----------
additions thereto from time to time put into effect by Landlord that do not
increase any obligations or diminish any rights of Tenant. In the event of any
44
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conflict between the terms of this Lease and the Rules and Regulations, the
terms of this Lease shall prevail.
30. Conflict of Laws. This Lease shall be governed by and construed
----------------
pursuant to the laws of the State of California.
31. Successors and Assigns. Except as otherwise provided in this Lease, all
----------------------
of the covenants, conditions and provisions of this Lease shall be binding upon
and shall inure to the benefit of the parties hereto and their respective heirs,
personal representative, successors and assigns.
32. Surrender of Premises. The voluntary or other surrender of this Lease
---------------------
by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall,
at the option of Landlord, operate as an assignment to it of any or all
subleases or subtenancies. Upon the expiration or termination of this Lease,
Tenant shall peaceably surrender the Premises and all alterations and additions
thereto broom-clean, in good order, repair and condition, reasonable wear and
tear, casualty, condemnation, acts of God, Hazardous Materials not stored, used,
released or disposed of by Tenant, its agents, employees, invites or contractors
and Changes with respect to which Landlord has not reserved the right to require
removal excepted. The delivery of keys to any employee of Landlord or to
Landlord's agent or any employee thereof shall not be sufficient to constitute a
termination of this Lease or a surrender of the Premises.
33. Professional Fees.
-----------------
33.1 In the event that Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease, or
because of the breach of any provisions of this Lease, or for any other relief
against Tenant or Landlord hereunder, or should either party bring suit against
the other with respect to matters arising from or growing out of this Lease,
then all costs and expenses, including without limitation, its reasonable
professional fees such as appraisers', accountants' and attorneys' fees,
incurred by the prevailing party therein shall be paid by the other party, which
obligation on the part of the other party shall be deemed to have accrued on the
date of the commencement of such action and shall be enforceable whether or not
the action is prosecuted to judgment.
33.2 Should Landlord, without gross negligence or willful misconduct by
Landlord, be named as a defendant in any suit brought against Tenant in
connection with or arising out of Tenant's occupancy hereunder, Tenant shall pay
to Landlord its costs and expenses incurred in such suit, including without
limitation, its actual and reasonable professional fees such as appraiser's,
accountants' and attorneys' fees.
34. Performance by Tenant. All covenants and agreements to be performed by
---------------------
Tenant under any of the terms of this Lease shall be performed by Tenant at
Tenant's sole cost and expense and without any abatement of rent, except as
expressly set forth in this Lease. Tenant acknowledges that the late payment by
Tenant to Landlord of any sums due under this Lease will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of such cost being
extremely difficult and impractical to fix. Such costs include, without
limitation, processing and accounting charges, and late charges that may be
imposed on Landlord by the terms of any encumbrance and note secured by any
encumbrance covering the Premises or the Building of which the Premises are a
part. Therefore if, following five (5) business days after Landlord has notified
Tenant that such amount has not been received, any monthly installment of
Monthly Basic Rent is not received by Landlord, or if Tenant fails to pay any
other sum of money due hereunder and such failure continues for ten (10) days
after receipt by Tenant of notice thereof from
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Landlord, Tenant shall pay to Landlord, as additional rent, ten percent (10%) of
the overdue amount as a late charge. Such overdue amount shall also bear
interest, as additional rent, at the maximum rate permissible by law calculated,
as appropriate, from the date either (a) the monthly installment of Monthly
Basic Rent, or other amount, is due, or (b) of receipt of said notice, until the
date of payment to Landlord. Landlord's acceptance of any late charge or
interest shall not constitute a waiver of Tenant's default with respect to the
overdue amount or prevent Landlord from exercising any of the other rights and
remedies available to Landlord under this Lease or any law now or hereafter in
effect. Further, in the event such late charge is imposed by Landlord for three
(3) consecutive months for whatever reason, Landlord shall have the option to
require that, beginning with the first payment of rent due following the
imposition of the third consecutive late charge, rent shall no longer be paid in
monthly installments but shall be payable three (3) months in advance.
35. Mortgagee and Senior Lessor Protection. No act or failure to act on the
--------------------------------------
part of Landlord which would entitle Tenant under the terms of this Lease, or by
law, to be relieved of Tenant's obligations hereunder or to terminate this
Lease, shall result in a release of such obligations or a termination of this
Lease unless (a) Tenant has given notice by registered or certified mail to
Landlord and to any beneficiary of a deed of trust or mortgage covering the
Building and to the lessor under any master or ground lease covering the
Building, the Site or any interest therein whose identity and address shall have
been furnished to Tenant, and (b) Tenant offers such beneficiary, mortgagee or
lessor a reasonable opportunity (but in no event less than thirty (30) days) to
cure the default, including time to obtain possession of the Premises by power
of sale or of judicial foreclosure, if such should prove necessary to effect a
cure. Landlord shall, from time to time, give Tenant written notice of the
identity and address of the beneficiary of any deed of trust or mortgage
covering the Building and/or the lessor under any master or ground lease.
36. Definition of Landlord. The term "Landlord" as used in this Lease, so
----------------------
far as covenants or obligations on the part of Landlord are concerned, shall be
limited to mean and include only the owner or owners, at the time in question,
of the fee title to, or a lessee's interest in a ground lease of the Site or
master lease of the Building. In the event of any transfer, assignment or other
conveyance or transfer of any such title or interest, Landlord herein named (and
in case of any subsequent transfers or conveyances, the then grantor) shall be
automatically freed and relieved from and after the date of such transfer,
assignment or conveyance of all liability with respect to the performance of any
covenants or obligations on the part of Landlord contained in this Lease
thereafter to be performed and, without further agreement, the transferee of
such title or interest shall be deemed to have agreed to observe and perform any
and all obligations of Landlord hereunder, during its ownership of the Premises.
Landlord may transfer its interest in the Premises without the consent of Tenant
and such transfer or subsequent transfer shall not be deemed a violation on
Landlord's part of any of the terms and conditions of this Lease.
37. Waiver. The failure of Landlord or Tenant to seek redress for violation
------
of, or to insist upon strict performance of, any term, covenant or condition of
this Lease or the Rules and Regulations attached hereto as Exhibit "D", shall
-----------
not be deemed a waiver of such violation or prevent a subsequent act which would
have originally constituted a violation from having all the force and effect of
an original violation, nor shall the failure of Landlord to enforce any of said
Rules and Regulations against any other tenant of the Building be deemed a
waiver of any such Rule or Regulation, nor shall any custom or practice which
may become established between the parties in the administration of the terms
hereof be deemed a waiver of, or in any way affect, the right of either party to
insist upon the performance by the other in strict accordance with said terms.
The subsequent acceptance or payment of rent hereunder by Landlord or Tenant
shall not be deemed to be a waiver of any preceding breach by Tenant or Landlord
of any term,
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covenant or condition of this Lease, other than the failure of Tenant to pay the
particular rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such rent.
38. Identification of Tenant. Unless the provisions of Paragraph 52 herein
------------------------
below are applicable to this Lease, then if more than one person executes this
Lease as Tenant, (a) each of them is jointly and severally liable for the
keeping, observing and performing of all of the terms, covenants, conditions,
provisions and agreements of this Lease to be kept, observed and performed by
Tenant, and (b) the term "Tenant" as used in this Lease shall mean and include
each of them jointly and severally and the act of or notice from, or notice or
refund to, or the signature of, any one or more of them, with respect to the
tenancy or this Lease, including, but not limited to, any renewal, extension,
expiration, termination or modification of this Lease, shall be binding upon
each and all of the persons executing this Lease as Tenant with the same force
and effect as if each and all of them had so acted or so given or received such
notice or refund or so signed.
39. Year 2000. Notwithstanding any covenant or provision contained in the
---------
Lease to the contrary, Landlord shall have no liability or responsibility
whatsoever to Tenant for (i) any disruption or interruption in Tenant's
business, (ii) any disruption or interruption in Tenant's use or possession of
the Premises, or (iii) any other damage or consequence suffered or experienced
by Tenant, arising from or relating in any way to the malfunction, shut down or
other abnormal behavior of any computer or computer controlled system which
provides utilities or services to the Premises, or controls any systems serving
the Premises (whether such computer is within the control of Landlord or
otherwise) resulting from the inability or failure of any such computer or
computer controlled system to recognize the year 2000, and distinguish said year
from the year 1900 (sometimes referred to as the "Y2K problem", or the "failure
to be year 2000 complaint"). In connection with the construction of the
Landlord's Work and the Tenant's Improvements, Landlord shall request that the
Contractor (as defined in the Work Letter) take such action as is commercially
reasonable so that the systems being installed are year 2000 complaint.
40. Terms and Headings. The words "Landlord" and "Tenant" as used herein
------------------
shall include the plural as well as the singular. Words used in any gender
include other genders. If there be more than one Tenant, i.e., if two or more
persons or entities are jointly referred to in this Lease as "Tenant," the
obligations hereunder imposed upon Tenant shall be joint and several. The
Paragraph headings of this Lease are not a part of this Lease and shall have no
effect upon the construction or interpretation of any part hereof.
41. Examination of Lease. Submission of this instrument for examination or
--------------------
signature by Tenant does not constitute a reservation of or option for Lease,
and it is not effective as a Lease or otherwise until execution by and delivery
to both Landlord and Tenant.
42. Time. Time is of the essence with respect to the performance of every
----
provision of this Lease in which time or performance is a factor. For purposes
of this Lease, the term "business day" shall refer to any day other than a
Saturday, Sunday or a legal holiday for national banks in the location where the
Building is located.
43. Prior Agreement; Amendments. This Lease contains all of the agreements
---------------------------
of the parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreement or understanding, oral or written, express or
implied, pertaining to any such matter shall be effective for any purpose. No
provision of this Lease may be amended or added to except by an agreement in
writing signed by the parties hereto or their respective successors in interest.
The parties acknowledge that all prior agreements, representations and
negotiations are deemed superseded by the execution of this Lease to the extent
they
47
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are not incorporated herein.
44. Severability. Any provision of this Lease which shall prove to be
------------
invalid, void or illegal in no way affects, impairs or invalidates any other
provision hereof, and such other provisions shall remain in full force and
effect.
45. Recording. Neither Landlord nor Tenant shall record this Lease nor a
---------
short memorandum thereof without the consent of the other and if such recording
occurs, it shall be at the sole cost and expense of the party requesting the
recording, including any documentary transfer taxes or other expenses related to
such recordation.
46. Limitation on Liability. The obligations of Landlord under this Lease
-----------------------
do not constitute personal obligations of the individual partners, directors,
officers, members or shareholders of Landlord, and Tenant shall not seek
recourse against the individual partners, directors, officers, members or
shareholders of Landlord or any of their personal assets for satisfaction of any
liability in respect to this Lease. In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that in the
event of any actual or alleged failure, breach or default hereunder by Landlord,
the sole and exclusive remedy shall be against Landlord's interest in the
Building in the rental stream and sales proceeds thereof.
47. Riders. Clauses, plats and riders, if any, signed by Landlord and
------
Tenant and affixed to this Lease are a part hereof.
48. Signs. Tenant shall not place any sign upon the Premises or the
-----
Building without Landlord's prior written consent which consent in the case of
interior signage within the Building, shall not be unreasonably withheld or
delayed and which consent, in the case of exterior signage with respect to the
Building (except as specifically provided in this Paragraph 48) may be given or
withheld by Landlord in its discretion. Notwithstanding the sentence immediately
above, Tenant shall have the exclusive right to display its identity through
signage on the exterior of the Building without any additional compensation to
Landlord except during the Extended Terms as provided below. All such exterior
signage shall be subject to the approval of Landlord, which approval shall not
be unreasonably withheld or delayed. All signs shall be constructed, erected and
affixed to the Premises at Tenant's sole cost and expense, and Tenant shall be
responsible for the removal of such signage, and the repair of any damage to the
Building caused thereby, at the end of the Term. All signs shall be in full
compliance with all applicable ordinances, statutes and regulations imposed by
all applicable governmental authorities. During the Extended Terms, Landlord may
impose a reasonable signage rental fee, and adjust such fee periodically as
Landlord reasonably determines, based on the then-current rental value for
comparable signage. Tenant's rights to utilize the Building facades for signage
is limited to signage related to the business of Tenant only (and in the event
of an assignment or sublease pursuant to the provisions of this Lease, the
business of such assignee or sublessee). Tenant shall have no right to sublet
the signage space, nor otherwise earn a profit therefrom. Following the full
execution and delivery of this Lease by both Landlord and Tenant, Tenant shall
be entitled to place a banner at the roof line on the exterior facade of the
Building announcing the intended occupancy of the Building by Tenant. The
wording of such banner shall be subject to reasonable review by Landlord. Any
and all publicity or public announcements of any kind with respect to the
execution of this Lease or any other matter relating to the Lease (exclusive of
the banner described immediately above) to be made by Tenant shall be subject to
the prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed. Following the full execution and delivery of this Lease by
Landlord
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and Tenant, Landlord, at its cost, shall remove any existing signage on the
exterior of the Building.
49. Modification for Lender. If in connection with obtaining construction,
-----------------------
interim or permanent financing for the Building, the lender shall request
reasonable modifications in this Lease as a condition to such financing, Tenant
will not unreasonably withhold, delay or defer its consent thereto, provided
that such modifications do not increase the obligations of Tenant hereunder or
materially adversely affect the leasehold interest hereby created or Tenant's
rights hereunder, including Tenant's parking rights.
50. Accord and Satisfaction. No payment by Tenant or receipt by Landlord
-----------------------
of a lesser amount than the rent payment herein stipulated shall be deemed to be
other than on account of the rent, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such rent or pursue any
other remedy provided in this Lease. Tenant agrees that each of the foregoing
covenants and agreements shall be applicable to any covenant or agreement either
expressly contained in this lease or imposed by any statute or at common law.
51. Financial Statements. At any time during the Term of this Lease, and
--------------------
if requested by Landlord in connection with a potential sale or financing of the
Building, Tenant shall, upon ten (10) days prior written notice from Landlord,
provide Landlord with a current financial statement and financial statements of
the two (2) years prior to the current financial statement year. Except in
connection with a request by Landlord in connection with a potential sale or
financing, Landlord shall limit its requests for financial statements to once
per calendar quarter. Such statements shall be prepared in accordance with
generally accepted accounting principles and, if such is the normal practice of
Tenant, shall be audited by an independent certified public accountant. Landlord
shall use commercially reasonable efforts to protect the confidentiality of any
such statement and to request that any proposed buyer or lender similarly treat
the information contained in such statement as being confidential in nature,
such that such information shall only be disclosed to the consultants, analysts
or counsel as may be reasonably necessary in order to evaluate a potential
purchase of, or loan upon, the Building.
52. Tenant as Corporation. If Tenant executes this Lease as a corporation,
---------------------
then Tenant and the persons executing this Lease on behalf of Tenant represent
and warrant that the individuals executing this Lease on Tenant's behalf are
duly authorized to execute and deliver this Lease on its behalf in accordance
with a duly adopted resolution of the board of directors of Tenant, a copy of
which is to be delivered to Landlord on execution hereof, and in accordance with
the By-Laws of Tenant and that this Lease is binding upon Tenant in accordance
with its terms.
53. No Partnership or Joint Venture. Nothing in this Lease shall be
-------------------------------
deemed to constitute Landlord and Tenant as partners or joint venturers. It is
the express intent of the parties hereto that their relationship with regard to
this Lease be and remain that of landlord and tenant.
54. Rooftop Deck/Rooftop Antennae.
-----------------------------
54.1 Subject to Landlord's prior approval of the plans and
specifications, which approval shall not be unreasonably withheld or delayed,
Tenant shall have the right to construct a roof deck on the Building. Any such
improvement to the Building shall be done at Tenant's sole cost, by licensed,
bonded contractors reasonably approved by Landlord, and in strict compliance
with all applicable rules, regulations, ordinances and other requirements of
every nature imposed by any governmental authority
49
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with jurisdiction over the Building. Tenant shall obtain all applicable permits
and approvals as may also be required for such construction.
54.2 Subject to Landlord's prior approval, which approval shall not be
unreasonably withheld or delayed, Tenant may install, at Tenant's sole cost, an
antennae or satellite dish on the roof of the Building. Any such improvement to
the Building shall be done at Tenant's sole cost, by licensed, bonded
contractors reasonably approved by Landlord, and in strict compliance with all
applicable rules, regulations, ordinances and other requirements of every nature
imposed by any governmental authority with jurisdiction over the Building.
Tenant shall obtain all applicable permits and approvals as may also be required
for such modifications.
55. Landlord's Representations. Notwithstanding any provision to the
--------------------------
contrary of this Lease, Landlord represents and warrants to Tenant that, to the
best of Landlord's knowledge: (i) the Premises, the Building and the Site as of
the date of this Lease are in compliance in all material respects with all laws
regarding Hazardous Materials ("Hazardous Materials Laws"). Landlord further
represents and warrants that, to the best of Landlord's knowledge, no litigation
has been filed or threatened, nor are any settlements pending with any
governmental or private party, concerning the actual or alleged presence of
Hazardous Materials in or on the Premises, Building or Site, nor has Landlord
received any written notice of any violation, or any alleged violation, of any
Hazardous Materials Laws, pending claims or pending investigations with respect
to the presence of Hazardous Materials on or in the Premises, Building or Site.
In addition to Landlord's indemnification of Tenant pursuant to the provisions
of Paragraph 7.2(b) above, except to the extent that the Hazardous Material in
question was released, emitted, used, stored, manufactured, transported or
discharged by Tenant or any of its agents, employees, contractors or invitees,
Tenant shall not be responsible for and Tenant is hereby released from any
claim, remediation obligation, investigation obligation, removal obligation,
monetary obligation, liability, cause of action, penalty, attorneys' fees,
costs, expenses or damages owing or alleged to be owing to any third party with
respect to any Hazardous Materials present in or on the Premises, the Building
or the Site, or the soil, ground water or surface water thereof, without regard
to whether the Hazardous Materials were present in or on the Premises, the
Building or the Site as of the Lease Commencement Date or whether the presence
of the Hazardous Materials was caused by any person other than Landlord. In no
event, however, shall the indemnification obligations of Landlord in connection
with the Hazardous Materials be more expansive than the indemnification
obligation of Landlord as set forth in Paragraph 7.2(b) above. Landlord's
representations and warranties under this Paragraph 56 and Landlord's
indemnification obligation under Paragraph 7.2(b) shall survive termination of
this Lease.
56. Arbitration. Any dispute pursuant to the provisions of Paragraph 3.2
-----------
which is not resolved pursuant to such Paragraph shall be finally settled by
binding arbitration in accordance with and under the rules of practice and
procedure for arbitration hearings of Judicial Arbitration and Mediation
Services, Inc. ("JAMS"), or its successor in San Francisco, California. The
parties may agree upon a retired judge from the JAMS panel. If they are unable
to agree, JAMS shall provide a list of available judges containing one more
judge than there are parties to the arbitration and each party may strike one.
The remaining judge shall serve as the arbitrator. The arbitrator shall have the
authority to grant injunctive and/or other equitable relief. The arbitrator
shall not have the power to commit errors of law or legal reasoning and the
appropriate court shall have the authority to review the award for errors of
fact, law or legal reasoning. The award may also be vacated or corrected
pursuant to the California Code of Civil Procedure for any such error. If and
when a demand for arbitration is made by either party, the parties agree to
execute a submission agreement, provided by JAMS, setting forth the rights of
the parties and the rules and
50
<PAGE>
procedures to be followed at the arbitration hearing; provided, however, that
(i) the arbitration shall take place in San Francisco California; (ii) the
arbitrator shall apply the rules of evidence and substantive law of the State of
California; (iii) the arbitrator shall render written findings of fact and
conclusions of law; (iv) the parties shall be entitled to conduct such
pre-hearing discovery as would otherwise be permitted under California law; (v)
the arbitrator shall have the authority to entertain and decide motions before
the arbitration hearing as otherwise would be permitted in a court of law,
including, by way of example, motions to compel discovery and motions for
summary judgment; and (vi) remedies which the arbitrator shall have the
authority to grant shall be limited to the same remedies which could otherwise
be imposed by a court of law. Such arbitration shall be the sole remedy
available to the parties with respect to disputes involving the matters
described in Paragraph 3.2.
57. Other Available Space. Landlord shall give written notice to Tenant
---------------------
at any time that Landlord (or any affiliate of Landlord) has available for
lease, space in a building controlled by Landlord in the immediate geographical
area surrounding the Building, which space is suitable for occupancy by Tenant
as additional space. In no event, however, shall Landlord be in default pursuant
to this Lease in the event that Landlord fails to give any such notice to Tenant
and in no event shall this paragraph be construed as granting to Tenant an
option or first right of refusal or any other right of any kind whatsoever with
respect to any such additional space or controlled building.
IN WITNESS WHEREOF, the parties have executed and delivered this Lease
on the day and year first above written.
LANDLORD: TENANT:
Rosenberg SOMA Investments III, LLC, a LookSmart, Ltd., a
Delaware limited liability company Delaware corporation
By: TRC Investors III, LLC, a California
limited liability company, Manager By: /s/ Signature Illegible
By: The Rosenberg Company, a Name: Edward M. O'DEA
California corporation, Manager
Its: VP Corp Dev.
By: /s/ Signature Illegible
Douglas C. Rosenberg By: _______________________
President Name: ___________________________
Its: ____________________________
By: /s/ Signature Illegible
Douglas C. Rosenberg
Secretary
51
<PAGE>
[EXHIBIT OMITTED]
First Floor
<PAGE>
6.7 Incorporated into the Lease. For all purposes, this Work
---------------------------
Letter shall be and is hereby deemed a part of the Lease, and to the extent
necessary, they shall together be construed as one and the same document.
IN WITNESS WHEREOF, the parties have executed and delivered this Work
Letter on the day and year first above written.
LANDLORD: TENANT:
Rosenberg SOMA Investments III, LLC, a LookSmart, Ltd., a Delaware
Delaware limited liability company corporation
By: The Rosenberg Company, a
California corporation, Manager
By: ___________________________
By: /s/ Signature Illegible Name: _________________________
Douglas C. Rosenberg, Its: __________________________
President
By: ___________________________
By: /s/ Signature Illegible Name: _________________________
Douglas C. Rosenberg, Its: __________________________
Secretary
Page 14
<PAGE>
[EXHIBIT OMITTED]
Second Floor
<PAGE>
[EXHIBIT OMITTED]
Third Floor
<PAGE>
[EXHIBIT OMITTED]
FOURTH FLOOR
<PAGE>
[EXHIBIT OMITTED]
GARAGE
<PAGE>
EXHIBIT B
---------
LANDLORD'S NOTICE OF LEASE TERM DATES
-------------------------------------
To: LookSmart, Ltd., a Delaware corporation
Date: _______, 1999
Re: The Office Lease ("Lease") dated March _______, 1999 between
LookSmart, Ltd., a Delaware corporation, ("Tenant"), and Rosenberg SOMA
Investments III, LLC, a Delaware limited liability company, ("Landlord"),
concerning that certain premises (the "Premises") consisting of all four (4)
floors of office space, all of the basement parking garage and basement storage
area located in that certain building (the "Building") commonly known as 625
Second Street, San Francisco, CA.
In accordance with the Lease, Landlord and Tenant confirm as follows:
1. The Premises and the Building have been delivered to and accepted by
Tenant; Tenant acknowledges that all Tenant Improvements and other Landlord's
Work required under the Lease have been satisfactorily completed.
2. The Lease Commencement Date is _________, 1999; the Lease Expiration
Date is _________, 2009.
3. Tenant's obligation to pay Aggregate Monthly Basic Rent under the
Lease shall commence on the Lease Commencement Date, as specified in Paragraph 2
above.
4. Aggregate Monthly Basic Rent and Operating Rent (when accrued
pursuant to Paragraph 5.3 of the Lease) are due and payable in advance on the
first day of each and every month during the Term of Lease. All payments shall
be made payable to Landlord and
<PAGE>
delivered care of ROK Properties, Inc., 501 Second Street, Ste. 214, San
Francisco, CA 94107.
AGREED AND ACCEPTED
-------------------
LANDLORD: TENANT:
Rosenberg SOMA Investments III, LLC, a LookSmart, Ltd., a
Delaware limited liability company Delaware corporation
By: TRC Investors III, LLC, a California By: _____________________________
limited liability company, Manager Name: ___________________________
Its: ____________________________
By: The Rosenberg Company, a
California corporation, Manager By: _____________________________
Name: ___________________________
By: ________________________ Its: ____________________________
Douglas C. Rosenberg
President
By: __________________________
Douglas C. Rosenberg
Secretary
<PAGE>
EXHIBIT C
---------
SAMPLE FORM OF
--------------
TENANT ESTOPPEL CERTIFICATE
---------------------------
The undersigned, _________________________ ("LANDLORD"), with a mailing, address
c/o ______________________________________________ and ______________________
("TENANT"), hereby certify to_______________________, a ____________________
as follows:
1. Attached hereto is a true, correct and complete copy of that certain
lease dated _____________________ between Landlord and Tenant (the
"LEASE"), which demises premises which are located on the second (2nd)
floor of the Building located at ________________________.
The Lease is now in full force and effect and has not been amended,
modified or supplemented, except as set forth in Paragraph 4 below.
2. The term of the Lease commenced on _______________________.
3. The term of the Lease shall expire on _______________________.
4. The Lease has: (Initial one)
() not been amended, modified, supplemented, extended, renewed or
assigned.
() been amended, modified, supplemented, extended, renewed or
assigned by the following described agreements, copies of which are
attached hereto:
__________________________________________________
__________________________________________________
5. Tenant has accepted, is now in possession of and is now conducting
business in said Premises.
6. Tenant and Landlord acknowledge that the Lease will be assigned to and
that no modification, adjustment, revision or cancellation of the
Lease or amendments thereto shall be effective unless written consent
of is obtained, and that until further notice, payments under the
Lease may continue as heretofore.
7. The amount of Basic Annual Rent is $_______________
Basic Annual Rent shall be increased based upon operating expense
increases and as follows:
__________________________________________________.
8. The amount of security deposits (if any) is $ ________________
No other security deposits have been made.
<PAGE>
9. Tenant is paying the full lease rental, which has been paid in full as
of the date hereof. No rent under the Lease has been paid for more
than thirty (30) days in advance of its due date.
10. All Work required to be performed by Landlord under the Lease has been
completed and all required contributions by Landlord to Tenant on
account of Tenant Improvements have been received.
11. There are no defaults on the part of the Landlord or Tenant under
the Lease.
12. Tenant has no defense as to its obligations under the Lease and claims
no set-off or counterclaim against Landlord.
13. Tenant has no right to any concessions (rental or otherwise) or
similar compensation in connection with renting the space it occupies,
except as provided in the Lease.
14. The Lease, amended as noted in Item 4 above, represents the entire
agreement between Landlord and Tenant as to this leasing.
All provisions of the Lease and the amendments thereto (if any)
referred to above are hereby ratified.
DATED: ___________________, 19__
TENANT: LANDLORD:
- ------- ---------
_____________________, _____________________,
a______________________ a____________________
By:_____________________ By:___________________
Name:___________________ Name:_________________
Its:___________________ Its:__________________
<PAGE>
EXHIBIT D
---------
RULES AND REGULATIONS
---------------------
1. Subject to Paragraph 48 of the Lease, no sign, placard, picture,
advertisement, name or notice shall be installed or displayed on any part of the
outside or inside of the Building without the prior written consent of Landlord,
which shall not be unreasonably withheld or delayed. Landlord shall have the
right to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All approved signs or lettering on doors,
windows and walls shall be printed, painted, affixed or inscribed at the expense
of Tenant by a person reasonably approved by Landlord, using materials, style
and format reasonably acceptable to Landlord.
2. Landlord shall have the right to approve the window coverings in all
exterior and atrium window offices of the Premises, which approval shall not be
unreasonably withheld or delayed. No awning shall be permitted on any part of
the Premises. Tenant shall not place anything against or near glass partitions
or doors or windows which may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls passages, exits,
entrances, elevators or stairways of the Building in a manner which would
violate any applicable code or ordinance.
4. Landlord will furnish Tenant, free of charge, with 10 keys to each
door lock in the Premises and 90 parking garage entry cards. Landlord may make a
reasonable charge for any additional keys or parking entry cards. Tenant shall
not make or have made additional keys or cards without Landlord's prior consent.
Tenant may install a security system at the Premises at Tenant's expense, in
which event Tenant shall provide Landlord with a key and/or entry card for
purposes of Landlord's entry to the Premises as provided in the Lease. Tenant,
upon the termination of its tenancy, shall deliver to Landlord the keys for all
doors and all parking cards which have been furnished to Tenant, and in the
event of loss of any keys or card keys so furnished, shall pay Landlord
therefor.
5. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's reasonable
instructions in their installation.
6. No equipment, materials, furniture, packages, supplies, merchandise
or other property will be received in the Building or carried in the elevators
except between such hours and in such elevators as may be designated by
Landlord.
7. Tenant shall not place a load upon any floor of the Premises which
<PAGE>
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects, if such objects are considered
necessary by Tenant, as reasonably determined by Landlord, shall stand on such
platforms as determined by Landlord to be necessary to properly distribute the
weight. The persons employed to move such equipment in or out of the Building
must be reasonably acceptable to Landlord. Landlord will not be responsible for
loss of, or damage to, any such equipment or other property from any cause, and
all damage done to the Building by maintaining or moving such equipment or other
property shall be repaired at the expense of Tenant.
8. Tenant shall not use or keep in the Premises any kerosene, gasoline
or inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment.
Tenant shall not use or permit to be used in the Premises any foul or noxious
gas or substance, or permit or allow the Premises to be occupied or used in an
unlawful manner by reason of noise, odors or vibrations, nor shall Tenant bring
into or keep in or about the Premises any birds or animals, except animals
assisting disabled persons.
9. Tenant shall not use any method of heating or air conditioning other
than that reasonably approved by Landlord. No space heaters of any type are to
be used within the Premises. Landlord reserves the right to remove space heaters
found during normal inspection of Premises.
10. Heat and air conditioning shall be provided as set forth in the
Lease.
11. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
12. Landlord reserves the right to exclude from the building between
the hours of 6:00 p.m. and 7:00 a.m. the following day, or such other hours as
may be established from time to time by Landlord, and on Saturdays, Sundays and
legal holidays, any person unless that person is known to the person or employee
in charge of the Building and has a pass or is properly identified. Tenant shall
be responsible for all persons for whom it requests passes and shall be liable
to Landlord for all acts of such persons. Landlord shall not be liable for
damages for any error with regard to the admission to or exclusion from the
Building of any person. Landlord reserves the right to prevent access to the
Building in case of invasion, mob, riot, public excitement or other commotion by
closing the doors or by other appropriate action.
13. Tenant shall close and lock the doors of its Premises and entirely
shut off all water faucets or other water apparatus, and, except with regard to
Tenant's computers and other equipment which requires utilities on a twenty-four
hour basis, all electricity, gas or air outlets before Tenant and its employees
leave the Premises. Tenant shall be responsible for any damage or injuries
sustained by Landlord for noncompliance with this rule.
2
<PAGE>
14. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose employees or
invitees, shall have caused it.
15. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant shall not use the Premises for any
business or activity other than that specifically provided for in Tenant's
Lease.
16. Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises or any part
thereof, except to install normal wall hangings, and to secure files and
bookcases and other furniture that could fall over. Landlord reserves the right
to direct electricians as to where and how telephone and telegraph wires are to
be introduced to the Premises. Tenant shall not cut or bore holes for wires.
Tenant shall not affix any floor covering to the floor of the Premises in any
manner except as reasonably approved by Landlord. Tenant shall repair any damage
resulting from noncompliance with this rule.
17. Tenant shall not install, maintain or operate upon the Premises any
vending machine without the written consent of Landlord.
18. Landlord reserves the right to exclude or expel from the Building
any person who, in Landlord's reasonable judgment, is intoxicated or under the
influence of liquor or drugs or who is in violation of any of the Rules and
Regulations of the Building.
19. Tenant shall not place in any trash box or receptacle any material
which cannot be disposed of in the ordinary and customary manner of trash and
garbage disposal. All garbage and refuse storage and disposal shall be made in
accordance with directions issued from time to time by Landlord.
20. The Premises shall not be used for the storage of merchandise held
for sale to the general public, or for lodging or for manufacturing of any kind,
nor shall the Premises be used for any improper, immoral or objectionable
purpose. No cooking shall be done or permitted by any tenant on the Premises,
except that use by tenant of Underwriters' Laboratory-approved equipment for
brewing coffee, tea, hot chocolate and similar beverages shall be permitted, and
the use of a microwave oven shall be permitted, provided that such equipment and
use is in accordance with all applicable federal, state, county and city laws,
codes, ordinances, rules and regulations.
21. Except for mail carts and hand trucks, Tenant shall not bring any
vehicles
3
<PAGE>
of any kind into the Building except the Garage. Tenant shall comply with all
reasonable rules and regulations with respect to the use of the Garage as
Landlord may from time to time deliver to Tenant in writing.
22. Without the written consent of Landlord, Tenant shall not use the
name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
23. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by any governmental agency or reasonably
established by Landlord.
24. Tenant assumes any and all responsibility for protecting its Premises
from theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
25. The requirements of Tenant will be attended to only upon appropriate
application to the office of the Building by an authorized individual. Employees
of Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord, and no employee of
Landlord will admit any person (tenant or otherwise) to any office without
specific instructions from Landlord.
26. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant, but no such waiver by Landlord shall be construed as a
permanent or continuing waiver of such Rules and Regulations in favor of Tenant,
nor prevent Landlord from thereafter enforcing any such Rules and Regulations
against Tenant.
27. These Rules and Regulations are in addition to the terms, covenants,
agreements and conditions of the Lease. In the event these Rules and Regulations
conflict with any provision of the Lease, the Lease shall control.
28. Landlord reserves the right to make such other and reasonable Rules
and Regulations as, in its judgment, may from time to time be needed for safety
and security, for care and cleanliness of the Building and for the preservation
of good order therein, provided such rules and regulations do not materially
increase Tenant's obligation hereunder or diminish Tenant's rights hereunder.
Tenant agrees to abide by all such Rules and Regulations hereinabove stated and
any additional rules and regulations which are adopted.
29. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and guests.
30. Smoking is prohibited in all enclosed areas of the Building without
limitation. When smoking outside the Building, ash receptacles must be used and
provided by
4
<PAGE>
the smoker if not provided by Landlord. Smokers must not leave any ashtrays,
smoking material or debris in the area where they have been smoking, except in
ash receptacles.
5
<PAGE>
EXHIBIT E
---------
WORK LETTER
-----------
625 SECOND STREET, SAN FRANCISCO, CALIFORNIA
TENANT WORK LETTER
This Tenant Work Letter ("WORK LETTER") is entered into effective MAY 5th
1999, and shall set forth the terms and conditions controlling the construction
of the Premises. Unless otherwise defined herein, all capitalized terms shall
have the meanings ascribed to them in that certain lease between LookSmart,
Ltd., a Delaware corporation ("TENANT") and Rosenberg SOMA Investments III, LLC,
a Delaware limited liability company ("LANDLORD") dated ________, 1999 (the
"LEASE").
SECTION 1
SELECTION OF CONTRACTOR
1.1 Selection of General Contractor. Tenant acknowledges and agrees that
-------------------------------
Landlord shall engage Cannon Constructors ("CONTRACTOR") to act as the general
contractor for construction of all Landlord's Work (as defined below) and the
Tenant's Improvements (as defined below) to be performed to the Building.
Landlord shall enter into separate contracts with Contractor for the
construction of Landlord's Work and the Tenant's Improvements (sometimes
referred to collectively as the "IMPROVEMENT WORK"). The contract between
Landlord and Contractor with respect to the Landlord's Work shall separately
reference and describe the Landlord's Work and the costs and charges therefor,
and the contract for the Tenant's Improvements shall separately reference and
describe the Tenant's Improvements and the costs and charges therefor. Landlord
shall use commercially reasonable efforts to cause the Improvement Work to be
substantially completed with respect to Floor Three and Floor Four not later
than October 15, 1999 and with respect to Floor One and Floor Two not later than
October 22, 1999. It is acknowledged, that substantial completion of the
Tenant's Improvements is dependant, in part, on the timely performance by
Landlord of those matters required of Landlord in connection with construction
of the Tenant's Improvements and on the timely performance by Tenant of those
matters required by Tenant in connection with construction of the Tenant's
Improvements, including without limitation, those certain Tenant Benchmarks as
defined and set forth in Paragraph 5.2 below. Tenant's failure to meet a Tenant
Benchmark shall constitute a Tenant Delay and shall be subject to Paragraph 3.2
and 3.3 of the Lease. For purposes of the Lease and this Work Letter,
"substantial completion" of the Improvement Work shall mean the date on which
all of the following have occurred: (i) Landlord has substantially completed the
Improvement Work with respect to Floor Three and Floor Four or with respect to
Floor One and Floor Two, as the case may be, in accordance with this Work
Letter, as certified by Landlord's Architect (as defined below) subject only to
completion of punch list items and such other items as do not materially affect
the ability of Tenant to occupy and use the Premises for general office
purposes; and (ii) Landlord has obtained all governmental approvals and
occupancy certificates required for the legal occupancy of Floor Three and Floor
Four or Floor One and Floor Two, as the case may be. Upon substantial completion
of the Improvement Work with respect to Floor Three and Floor Four or with
respect to Floor One and Floor Two, as the case may be, Landlord shall give
Page 1
<PAGE>
written notice thereof to Tenant. Within three (3) business days after Tenant's
receipt of such written notice, a representative of Tenant, a representative of
Landlord and Tenant's Architect (as defined below) and Landlord's Architect
shall conduct a physical inspection and walk through of the Premises for the
purpose of determining which components of the Improvement Work with respect to
Floor Three and Floor Four or with respect to Floor One and Floor Two, as the
case may be, if any, have not been completed, and which require additional work
or repair. Within three (3) business days thereafter, Tenant's Architect and
Landlord's Architect shall prepare a punch list setting forth such components of
the Improvement Work. Landlord shall thereafter diligently pursue completion
and/or repair of the punch list items. Upon completion of all such punch list
items, Landlord shall be considered to have completely fulfilled its obligations
in connection with the Improvement Work with respect to Floor Three and Floor
Four or Floor One and Floor Two, as the case may be, subject to the provisions
of Paragraph 12 of the Lease. Notwithstanding any provision to the contrary
contained in the Lease or in this Work Letter, Tenant's acceptance of the
Improvement Work or submission of a "punch list" with respect to Improvement
Work shall not be deemed a waiver of Tenant's right to have latent defects in
Improvement Work repaired at no cost to Tenant. Tenant shall give written notice
to Landlord whenever any such defect becomes reasonably apparent and Landlord
shall repair such defect as soon as practicable so long as Tenant gives such
notice to Landlord within one (1) year following substantial completion of the
Improvement Work (as defined in Section 1.1) with respect to Floor Three and
Floor Four or Floor One and Floor Two, as the case may be. Notwithstanding the
above provisions, Landlord shall have no obligation to repair any defect in the
Tenant's Improvements resulting from or relating to design defects attributable
to Tenant's Architect or any one or more of Tenant's Engineers (as defined
below). Subsequent to one (1) year following substantial completion of the
Improvement Work, the repair obligation of Landlord with respect to latent
defects shall be as otherwise set forth in the Lease. Following such one year
period Landlord, upon the request of Tenant shall assign to Tenant without
representation of any kind Landlord's rights, if any, against Contractor in
connection with any latent defects with respect to construction of the Tenant's
Improvements. Landlord, at no cost to Landlord, shall reasonably cooperate with
Tenant in connection with any action commenced by Tenant against the Contractor
with respect to any latent defects in connection with the Tenant's Improvements.
In connection with any assignment of such rights against Contractor to Tenant,
Tenant shall agree to indemnify, defend and hold Landlord harmless from any and
all costs, obligations or liabilities of any kind whatsoever (including
reasonable attorneys' fees) arising out of or relating to any action taken by
Tenant with respect to the Contractor pursuant to such assignment.
1.2 General Contractor's Contract for Improvements. As a condition of
----------------------------------------------
Contractor's contract with Landlord for the construction of the
Tenant's Improvements (the "Construction Contract"), Contractor shall solicit
and employ commercially reasonable effort to obtain bids reasonably satisfactory
to Tenant for each component of work contemplated by the Construction Drawings
(as defined below) to be performed pursuant to subcontract. Contractor shall
provide Landlord and Tenant with a copy of all such bids related to the Tenant's
Improvements. Contractor shall also provide Landlord and Tenant with an itemized
breakdown of all general conditions proposed under the Construction Contract
Page 2
<PAGE>
related to the Tenant's Improvements. All general conditions shall be subject to
Landlord's approval and to Tenant's approval as provided below in this
paragraph. Contractor shall be limited to three and one-half percent (3 1/2%) of
the total cost of construction of the Tenant's Improvements incurred by
Contractor as Contractor's profit in connection with construction of the
Tenant's Improvements. The proposed form of Construction Contract shall set
forth the cost of construction for Tenant's Improvements (either on fixed basis
or on a guaranteed maximum basis) and relate to the construction of the Tenant's
Improvements in accordance with the Construction Drawings. A copy of the
proposed form of Construction Contract shall be delivered by Landlord to Tenant.
Within five (5) business days following delivery by Landlord to Tenant of (i) a
copy of the proposed form of Construction Contract; (ii) a copy of all bids of
subcontractors in connection with the Construction Contract; and (iii) an
itemized breakdown of the general conditions proposed in the Construction
Contract, Tenant shall deliver written approval or disapproval of all such items
to Landlord. If Tenant disapproves any such items, Tenant's notice to Landlord
shall specify the basis for the disapproval. In the event that Tenant approves
all of such items, Landlord shall proceed with construction of the Tenant's
Improvements in accordance with the Construction Contract as so approved. In the
event that Tenant disapproves any such items, Landlord shall reasonably attempt
to satisfy any such objections of Tenant and shall give Tenant written notice of
suggested resolutions which in each case Tenant shall approve or disapprove in
writing within one (1) business day after receipt. Landlord may elect not to
proceed with construction of the Tenant's Improvements pursuant to the
Construction Contract until all objections as raised by Tenant have been fully
satisfied and Tenant has given written approval of the Construction Contract in
full, including without limitation all of the above described items. In the
alternative, Landlord shall be entitled to proceed with construction of the
Tenant's Improvements pursuant to the Construction Contract even if Tenant's
final approval to all components of the Construction Contract has not yet been
obtained provided that Landlord gives written notice to Tenant of its intent to
so proceed and Tenant fails to object to such notice within two (2) business
days following receipt by giving written notice to Landlord of such objection.
SECTION 2
LANDLORD'S WORK
2.1 Scope of Landlord's Work. The following work and improvements
------------------------
("LANDLORD'S WORK") shall be specified in construction drawings (and
specifications) prepared by Landlord's Architect ("LANDLORD'S DRAWINGS") and
shall be constructed at Landlord's sole cost. Prior to Landlord's entry into the
Construction Contract for construction of the Tenant's Improvements, Landlord
shall provide Tenant with a copy of Landlord's Drawings. Landlord shall not be
required to enter into the Construction Contract for the construction of the
Tenant's Improvements until and unless Tenant has given written approval of
Landlord's Drawings. The Landlord's Drawings shall set forth the scope of the
Landlord's Work and shall include, but not be limited to, the improvements set
forth below.
2.1.1 Installation of the primary heating, ventilating, and air-
conditioning system ("HVAC") for the Building, stubbed out to each floor, ready
for local distribution.
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2.1.2 Installation of one hour rated electrical closets on each floor
with 480 volt, 3 phase electrical power supply with distribution of 450 amps. to
each floor of the Building as specified in the Construction Drawings.
2.1.3 Installation of life-safety systems as required by applicable
building codes on an unimproved basis (i.e., an unoccupied building), including
all strobes (to the extent required by applicable building code), sprinkler
systems, emergency exit systems (including required lighting and signage) and
other required fire safety systems.
2.1.4 Installation of the main telephone terminal panel with
appropriately sized services in the telephone/electrical room specified in the
Construction Drawings, and installation of telephone closets on each floor of
the Building, ready for secondary line branching throughout each floor.
2.1.5 Construction of Men's and Women's restrooms on each floor of
the Building, as specified in the Landlord's Drawings, with the exception of the
basement.
2.1.6 Construction of lighted and gated basement parking and
installation of a card key access system.
2.1.7 Installation of two (2) new passenger elevators serving all
floors, as specified in the Landlord's Drawings.
2.1.8 Installation of new or refurbished windows throughout the
Building including new windows to be installed into the south side of the
Building.
2.1.9 Performance of all work necessary for the Building to comply
with all applicable seismic regulations, the Americans with Disabilities Act of
1980 (except with respect to those compliances associated exclusively with the
Tenant's Improvements) and all applicable path of travel regulations.
2.1.10 Installation of a least one (1) fiber optic system to a
location in the Garage ready for distribution throughout the Building provided
that Tenant selects Landlord's pre-existing provider in connection with such
fibre optic system.
2.1.11 Sandblasting of substantially all interior brick and wood
surfaces followed by air blasting of such surfaces with clear seal only to be
applied to sand blasted brick.
SECTION 3
TENANT'S IMPROVEMENTS
3.1 Scope of Tenant's Improvements. The physical improvements to the
------------------------------
Premises and the Building (in addition to Landlord's Work) set forth and
described in the Construction
Page 4
<PAGE>
Drawings shall constitute the "TENANT'S IMPROVEMENTS". For purposes of this Work
Letter, the "TENANT IMPROVEMENT ALLOWANCE ITEMS" shall consist of the following:
(i) all costs incurred in connection with or arising from the Construction
Contract; (ii) all fees and costs of Tenant's Architect and Tenant's Engineers
(as defined below): (iii) all space planning costs (subject to the limitations
of paragraph 3.4); (iv) the cost of Tenant's security system to be installed at
the Premises; (v) Landlord's supervision/construction management fee (as
described in Paragraph 4.3 below); (vi) all costs related to obtaining all
necessary construction and other permits necessary for construction of the
Tenant's Improvements; (vii) all fees and costs associated with the hiring of an
expediter, if any, to assist in obtaining all building and planning department
consents and approvals with respect to the Tenant's Improvements; (viii) the
cost of other items related to the design and construction of the Tenant's
Improvements; and (ix) all other costs and expenses incurred in connection with
the Construction Contract or construction of the Tenant's Improvements. Tenant
shall be responsible for the full amount of all such costs in connection with
the Tenant's Improvements, all of which shall be paid in accordance with the
provisions of this Work Letter. Tenant shall be responsible for the full amount
of all such costs in connection with the Tenant's Improvements, all of which
shall be paid in accordance with the provisions of this Work Letter. The Tenant
Improvement Allowance Items shall include fifty percent (50%) of the cost of the
technology cabling to be installed within the Premises, which cost Landlord may
pay and if paid by Landlord, Tenant agrees that such technology cabling will
remain in the Premises upon the termination of the Lease. Notwithstanding
anything to the contrary contained in the Lease or this Work Letter, the cost of
the Tenant's Improvements and the Tenant Improvement Allowance Items shall not
include (and Tenant shall have no responsibility for) the following components:
(i) costs attributable to Landlord's Work or improvements installed "off-site"
(such as streets, curbs, gutters, traffic lights, lights for parking and street
lighting); (ii) costs incurred to remove hazardous materials from the Building
unless the presence of such materials was caused by Tenant or its agents,
contractors, employees or invitees in violation of hazardous materials laws (as
such may exist from time to time); (iii) attorneys' fees incurred in connection
with the Construction Contract (or any subcontracts), or attorneys' fees,
experts' fees and other costs of legal and arbitration proceedings to resolve
construction disputes with third parties except for attorney's fees and other
costs incurred in connection with construction disputes relating to or arising
out of decisions made, actions taken or positions taken by Tenant's Architect;
(iv) loan fees, mortgage brokerage fees, interest and other costs of financing
construction costs; (v) costs incurred as a consequence of a delay by Landlord
or construction defects except for construction defects arising or relating in
whole or in part to services provided or decisions made by Tenant's Architect or
any other consultant or contractor engaged by Tenant; (vi) restoration costs in
excess of insurance proceeds as a consequence of a casualty during construction,
unless the casualty is caused by Tenant, its agents, contractors, employees or
invitees; (vii) costs recovered by Landlord by reason of warranties or
insurance; and (viii) penalties and late charges attributable to the failure to
pay construction costs in accordance with the Construction Contract, except to
the extent such penalties and late charges arise due to delays caused by Tenant,
its agents, contractors, employees or invitees including, without limitation,
Tenant's Architect.
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<PAGE>
3.2 Tenant Improvement Allowance. Tenant shall be entitled to a one-time
----------------------------
tenant improvement allowance (the "TENANT IMPROVEMENT ALLOWANCE") in the amount
of Thirty-One and 50/100 Dollars ($31.50) per rentable square foot of office
space within the Premises. For purposes of calculation of the total Tenant
Improvement Allowance, the maximum amount of the Improvement Loan (as defined
below) and Landlord's obligation to advance space planning costs, the rentable
square feet of the Premises shall be 134,847. The Tenant Improvement Allowance
shall be exclusively applied toward the costs of completing the Tenant's
Improvements. Landlord shall be entitled to employ the Tenant's Improvement
Allowance in connection with payment of the Tenant Improvement Allowance Items.
In no event shall Landlord be obligated to make disbursements pursuant to this
Work Letter, or otherwise for the construction of the Tenant's Improvements, in
excess of the Tenant Improvement Allowance, except as provided in Paragraph 3.3.
Tenant shall be solely responsible for all costs incurred in constructing the
Tenant's Improvements in excess of the Tenant Improvement Allowance, whether
resulting from cost overruns, changes to the Construction Drawings requested by
Tenant (or made necessary by reason of design or other issues in connection with
the Construction Drawings prepared by Tenant's Architect or Tenant's Engineers)
or otherwise.
3.3 Additional Funds for Tenant's Improvements. Notwithstanding the
------------------------------------------
limitation on the Tenant Improvement Allowance to be provided by Landlord in the
immediately preceding Paragraph, Tenant may request that Landlord loan Tenant
additional funds (the "IMPROVEMENT LOAN") to be used to complete the Tenant's
Improvements, if reasonably necessary, in the event the Tenant Improvement
Allowance is insufficient to pay in full the cost of the Tenant's Improvements,
taking into account any changes to the Construction Drawings made by Tenant
(which shall be at Tenant's sole cost). In the event that the Tenant Improvement
Allowance is insufficient as described above, Landlord shall loan to Tenant an
additional amount not to exceed Three and 50/100 Dollars ($3.50) per rentable
square foot of office space within the Premises. The obligation of Landlord to
make the Improvement Loan shall be conditioned on (i) exhaustion of the Tenant
Improvement Allowance in connection with Tenant Improvement Allowance Items,
(ii) Tenant contributing an amount equal to the Improvement Loan ("MATCHING
FUNDS") and (iii) the Improvement Loan and Matching Funds being applied only
towards hard construction costs as set forth in the Construction Contract, fees
and costs of Tenant's Architect and Tenant's Engineers and fifty percent (50%)
of the costs of the technology cabling to be installed within the Premises
(provided that such technology cabling remains in the Premises at the
termination of the Lease). If, at the time the Construction Contract is approved
by Tenant, the costs of the Tenant Improvement Allowance Items are reasonably
anticipated to be in excess of the Tenant Improvement Allowance, then as a
condition to Landlord's obligation to execute the Construction Contract, Tenant
shall fund the full amount of the reasonably anticipated Matching Funds to
Landlord as provided below. The amount of the Improvement Loan shall be
evidenced by an installment promissory note (the "NOTE") made by Tenant in favor
of Landlord in a form reasonably acceptable to Landlord and Tenant. The Note
shall provide for interest at the rate of nine percent (9%) per annum, for a
term of ten (10) years commencing as of the Lease Commencement Date and for
equal monthly installment payments of principal and interest due on the first
day of each calendar month, which
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<PAGE>
payments shall be sufficient to fully amortize the principal amount of the
Improvement Loan over the ten (10) year term of the Note. In the event that at
the time the Construction Contract is finally approved by Tenant, it is not
anticipated that any amount in excess of the Tenant Improvement Allowance will
be required in connection with the cost of the Tenant Improvements, then to the
extent that excess costs are thereafter incurred, Landlord shall be required to
make the Improvement Loan in the maximum amount as described above, subject
however, to the conditions provided in Clauses (i), (ii) and (iii) above. In
connection with any such excess costs anticipated to be incurred and the
requirement for Matching Funds or additional Matching Funds to be contributed by
Tenant, such funds shall be deposited with Landlord as described below.
Tenant shall solely be responsible for bearing the cost of the Tenant's
Improvements in excess of the Tenant Improvement Allowance and the Improvement
Loan. In the event it becomes reasonably apparent from the Construction Drawings
and Construction Contract that the cost of the Tenant's Improvements will exceed
the Tenant Improvement Allowance, the Improvement Loan and the Matching Funds,
within ten (10) business days following final approval of the Construction
Contract by Tenant, Tenant shall deposit with Landlord (to be held in an
interest bearing account by Landlord) an amount equal to the cost of the
Tenant's Improvements in excess of the Tenant Improvement Allowance, the
Improvement Loan and the Matching Funds as reasonably determined by Landlord.
Tenant shall, in addition, within ten (10) business days following final
approval of the Construction Contract, deposit the Matching Funds with Landlord
to be held in an interest bearing account by Landlord. The amount so deposited
by Tenant ("TENANT'S FUNDS") shall be disbursed and/or employed in accordance
with Paragraph 3.5 below; provided however, that Tenant's Funds shall not be
used or applied towards the cost of completing the Tenant's Improvements until
such time as the Tenant Improvement Allowance has been exhausted in accordance
with the provisions of this Work Letter. In the event that following final
approval of the Construction Contract by Tenant, additional funds are required
by reason of additional costs attributable to change orders or other reasons
approved by Tenant (or Tenant's Architect), which approval shall not be
unreasonably withheld or delayed, Landlord may, thereafter, from time to time
upon written notice to Tenant, require that Tenant deposit additional funds with
Landlord (within ten (10) business days following receipt by Tenant of the
request for an additional deposit) to be held by Landlord in an interest bearing
account as a part of the Tenant's Funds in an amount as reasonably determined by
Landlord equal to such excess amount of costs to be incurred in connection with
construction of the Tenant's Improvements. Any and all interest accruing on the
Tenant's Funds shall accrue for the benefit of Tenant. In the event that Tenant
fails to deposit additional funds with Landlord within ten (10) business days
following receipt by Tenant of the request for an additional deposit as
described above, then Landlord may, at the sole option of Landlord, but without
any requirement to do so, draw down from the cash portion of the security
deposit made by Tenant pursuant to the provisions of Paragraph 6.1 of the Lease
the amount of additional deposit requested by Landlord which Tenant has failed
to timely make. In the event of any such withdrawal by Landlord, the funds so
withdrawn shall be held by Landlord as a portion of the Tenant's Funds and
disbursed by Landlord as otherwise provided herein. Further, in the event of any
draw by Landlord against the cash
Page 7
<PAGE>
portion of the security deposit. Tenant shall be obligated to restore such drawn
amount to the security deposit within ten (10) days after receipt of written
demand of Landlord requiring such restoration in accordance with the provisions
of Paragraph 6.1 of the Lease. Within ten (10) business days following
completion of construction of the Tenant's Improvements and payment in full of
all costs incurred by Landlord in connection with such construction, any
Tenant's Funds then held by Landlord, together with any accrued interest then
held, shall be disbursed by Landlord to Tenant.
3.4 Cost of Initial Space Planning. In connection with the Tenant's
------------------------------
Improvements, Landlord shall advance the cost of initial space planning for the
Premises up to the maximum amount of Ten Cents ($0.10) per rentable square foot
of office space within the Premises, which amount actually advanced by Landlord
shall be debited against the Tenant Improvement Allowance otherwise available.
3.5 Landlord's Disbursement Process. During the construction of the
-------------------------------
Tenant's Improvements, Landlord shall make monthly disbursement of the Tenant
Improvement Allowance (and to the extent necessary, the Improvement Loan, the
Matching Funds and Tenant's Funds) for Tenant Improvement Allowance Items for
the benefit of Tenant and shall authorize the release of monies for the benefit
of Tenant as follows:
3.5.1 Monthly Disbursements. On or before the first day of each
---------------------
calendar month during the construction of the Tenant's Improvements (or such
other date as Landlord may designate), and before Landlord shall be required to
disburse any funds hereunder, Contractor shall deliver to Landlord: (i) a
request for payment of Contractor (and others as appropriate), approved by
Tenant's Architect (which approval shall not be unreasonably withheld or
delayed), in a form to be provided by Landlord, showing the schedule, by trade,
of percentage of completion of the Tenant's Improvements in the Building,
detailing the portion of the work completed and the portion not completed; (ii)
invoices from Contractor (and others as appropriate), for labor rendered and
materials delivered to the Building; (iii) executed mechanic's lien releases
from Contractor (and all others requesting payment) which shall comply with the
appropriate provisions, as reasonably determined by Landlord, of California
Civil Code Section 3262(d); and (iv) all other information reasonably requested
by Landlord. Tenant's Architect's approval of any request for payment shall be
deemed Tenant's acceptance and approval of the work furnished and/or the
materials supplied as set forth in the subject payment request. Tenant's
Architect and Tenant's Representative (as defined below) shall approve or
disapprove any request for payment within three (3) business days following
receipt of Tenant's Architect of such request and, in connection with any
disapproval of the request, shall specifically state the reason for disapproval.
In connection with any disapproval, Tenant's Architect shall, thereafter,
respond within two (2) business days following receipt by Tenant's Architect of
any revised request for payment. Within five (5) business days following written
approval by Tenant's Architect, Landlord shall deliver a check made payable to
Contractor (or other party as appropriate) in payment of: (A) amounts so
requested by Contractor, as set forth in this Paragraph, less a retention in
accordance with the provisions of the Construction Contract (the aggregate
amount of such retentions to be
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<PAGE>
known as the "FINAL RETENTION"), provided that Landlord does not dispute any
request for payment based on non-compliance of any work with the approved
Construction Drawings, or due to any substandard work, or for any other reason.
Landlord's payment of such amounts shall not be deemed Landlord's approval or
acceptance of the work furnished or materials supplied as set forth in the
subject payment request. In addition to the disbursement described immediately
above, Landlord shall be entitled to disburse funds in payment of obligations
incurred by Landlord for Tenant Improvement Allowance Items as Landlord may,
from time to time, deem appropriate. Landlord shall provide to Tenant and
Tenant's Architect, copies of invoices in connection with any such disbursements
within five (5) business days following disbursement. Tenant shall, in addition,
be entitle to submit, from time to time, invoices of Tenant's Architect and
Tenant's Engineers, which invoices shall be approved by Tenant. Landlord shall
pay such invoices as approved by Tenant within thirty (30) days following
receipt by Landlord of approved invoices, but no more often than once per
calendar month.
In no event shall Landlord have any obligation to make disbursements
in excess of the aggregate of; (i) the Tenant Improvement Allowance, (ii) the
Improvement Loan, (iii) the Matching Funds as having been deposited by Tenant
with Landlord, and (iv) the Tenant's Funds as having been deposited by Tenant
with Landlord (exclusive of Matching Funds).
3.5.2 Final Retention. Subject to the provisions of this Work Letter,
---------------
a check for the Final Retention payable to Contractor shall be delivered by
Landlord to Contractor following the completion of construction of the Tenant's
Improvements, provided that (i) Contractor delivers to Landlord properly
executed mechanics lien releases in compliance with both California Civil Code
Section 3262(d)(2) and either Section 3262(d)(3) or Section 3262(d)(4), (ii)
Landlord has determined that no substandard work exists which adversely affects
the mechanical, electrical, plumbing, heating, ventilating and air conditioning,
life-safety or other systems of the Building, the structure or exterior
appearance of the Building, and (iii) Tenant's Architect delivers to Landlord a
certificate, in a form reasonably acceptable to Landlord, certifying that the
construction of the Tenant's Improvements in the Building has been substantially
completed.
3.6 Unused Allowance. In the event that there remains any unused portion
----------------
of the Tenant Improvement Allowance following disbursements by Landlord in
connection with the Tenant's Improvements, any such amount shall be retained by
Landlord. Tenant shall have no entitlement to any excess of the Tenant
Improvement Allowance not in good faith consumed in the construction of the
Tenant's Improvements.
SECTION 4
CONSTRUCTION DRAWINGS; SUPERVISION OF WORK
4.1 Selection of Architect/Construction Drawings. Tenant hereby selects
--------------------------------------------
Keith Hooks, Hooks Design and Architecture ("TENANT'S ARCHITECT") to prepare the
Construction
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<PAGE>
Drawings and Landlord hereby consents to such selection of Tenant's Architect.
Tenant shall enter into a written contract with Tenant's Architect reasonably
acceptable to Landlord. To the extent required or appropriate, Tenant also shall
select engineering consultants reasonably acceptable to Landlord ("TENANT'S
ENGINEERS") to prepare and/or review plans and drawings relating to the Tenant's
Improvements. The plans and specifications to be prepared by Tenant's Architect
and Tenant's Engineers shall be known collectively as the "CONSTRUCTION
DRAWINGS". In connection with the preparation of the Construction Drawings,
Tenant shall submit to Landlord, the schematic plans ("SCHEMATIC PLANS") prior
to and in connection with the Construction Drawings, which Schematic Plans shall
be subject to the approval of Landlord which approval shall not be unreasonably
withheld or delayed. Following the approval by Landlord of the final Schematic
Plans, the Construction Drawings shall be prepared and a copy delivered to
Landlord. The Construction Drawings shall be subject to Landlord's written
approval, which shall not be unreasonably withheld or delayed. The Construction
Drawings shall be full and complete and sufficient to obtain all necessary
governmental permits and approvals required in connection with the construction
of the Tenant's Improvements. Tenant's Architect shall respond within three (3)
business days upon receipt of any written request of Landlord or Contractor for
clarification or further definition in connection with the Construction
Drawings. Tenant and Tenant's Architect shall verify in the field the actual
dimensions and surface conditions of the Building, and Tenant and Tenant's
Architect shall be solely responsible therefor and shall rely exclusively
thereon. Landlord shall have no responsibility whatsoever for determination of
the dimensions and conditions of the Building, and makes no representations in
connection therewith. Landlord's review of the Construction Drawings as set
forth in this Paragraph shall be for its sole purpose and shall not imply
Landlord's review of the same, or obligate Landlord to review the same, for
quality, design, code compliance or other like matters. Accordingly,
notwithstanding that any Construction Drawings are reviewed by Landlord or its
architect, engineers and consultants (if any), and notwithstanding any advice or
assistance which may be rendered to Tenant by Landlord or Landlord's Architect,
engineers, and consultants (if any), Landlord shall have no liability whatsoever
in connection therewith and shall not be responsible for any omissions or errors
contained in the Construction Drawings. No changes, modifications or alterations
in the Construction Drawings may be made without the prior written consent of
Landlord, which shall not be unreasonably withheld or delayed. Any delay in the
completion of construction of the Tenant's Improvements resulting from any
defect or omission in the Construction Drawings including, without limitation,
the failure of the Construction Drawings to satisfy or to comply with any
applicable law, code or regulations shall constitute a Tenant Delay for purposes
of Paragraph 3.2 of the Lease.
4.2 Permits. Prior to the commencement of construction of the Tenant's
-------
Improvements, Landlord, with the assistance and cooperation of Tenant's
Architect, shall submit the Construction Drawings as approved by Landlord to the
appropriate municipal authorities and Landlord shall obtain all applicable
building permits necessary to allow the Contractor to commence and fully
complete the construction of the Tenant's Improvements
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<PAGE>
(the "PERMITS"). Tenant shall reasonably cooperate with Landlord in taking such
action as may be reasonably required so as to enable Landlord to obtain all such
Permits and approvals.
4.3 Landlord's Supervision Fee. In connection with Landlord's review and
--------------------------
supervision of construction of the Tenant's Improvements as provided in this
Work Letter, Landlord has designated Douglas C. Rosenberg ("LANDLORD'S
SUPERVISOR") to serve as its representative and supervisor of the construction
of the Tenant's Improvements and all related matters, and in connection with
such function, Landlord shall be entitled to a supervision fee equal to Twenty-
five Thousand Dollars ($25,000), which fee shall be payable incrementally from
time to time from the Tenant Improvement Allowance, Improvement Loan, Matching
Funds and Tenant's Funds. The supervision fee shall be payable at least once
each calendar month and shall generally be payable on a basis consistent with
the percentage of the total cost for the Tenant's Improvements then having been
incurred as approved by Landlord's Architect in accordance with Paragraph 3.5.1
above.
SECTION 5
TENANT'S COVENANTS AND BENCHMARKS; LEASE COMMENCEMENT DATE
5.1 Tenant Indemnity. Tenant hereby indemnifies Landlord from any loss,
----------------
claims, damages, actions or courses of action (including, without limitation,
reasonable attorney's fees) arising from or relating to the actions of Tenant's
agents, employees or contractors in the Premises or the Building or in the event
Tenant shall conduct additional work to the Premises separate and apart from the
Tenant Improvements prior to substantial completion of the Tenant Improvements,
such as fixture installation or workstation set up, Tenant shall do so in strict
compliance with any and all rules and regulations related thereto that
Contractor or Landlord shall reasonably impose. Tenant shall only have the right
to conduct such activities prior to substantial completion provided that such
activities do not interfere with Landlord's completion of the Tenant's
Improvements.
5.2 Tenant's Benchmarks. The obligations of Tenant in connection with the
-------------------
Tenant's Improvements include the following (each a "TENANT BENCHMARK" and
collectively, the "TENANT BENCHMARKS") which Tenant Benchmarks, notwithstanding
any provision to the contrary of this Work Letter or the Lease, are to be
completed by the date indicated below:
Description of Tenant Benchmark Date of
- ------------------------------- -------
Completion
----------
(i) Tenant's written approval and delivery to Landlord and the May 17, 1999
Contractor of final schematic drawings.
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<TABLE>
<S> <C>
(ii) Tenant's written approval and delivery to Landlord and June 7, 1999
the Contractor of final design development drawings and
written identification of long lead architectural items, light
fixtures and other mechanical, electrical and plumbing items
(and written agreement on specifications for each of
such
items).
(iii) Delivery by Tenant to Landlord of final approval and 4 business days
release of the long lead architectural items described following receipt
immediately above. Landlord will provide to Tenant pricing by Tenant of the
information and availability information in connection with the Long Lead
long lead items ("LONG LEAD SUBMISSION") for purposes of Submission
obtaining Tenant's final approval with respect to
all such items.
(iv) Delivery by Tenant to Landlord and the Contractor of July 2, 1999
complete construction drawings and specifications (collectively,
the ("CONSTRUCTION DRAWINGS").
(iv) Final written approval by Tenant of the bid pricing of the 4 business days
Tenant's Improvements (and the guaranteed maximum price) as following receipt
set forth in the Construction Drawings which bid pricing shall by Tenant of the
be set forth in a submission by Landlord and the Contractor to Pricing
Tenant ("PRICING SUBMISSION") and authorization to proceed Submission
with construction of the Tenant's Improvements. Tenant may
authorize the Contractor to proceed with portions of the Tenant's
Improvements prior to approval of the Pricing Submission in its
entirety, but in any event approval of the Pricing Submission in
its entirety shall be made within the four business days as
provided herein.
</TABLE>
SECTION 6
MISCELLANEOUS
6.1 Early Access. Prior to the anticipated Lease Commencement Date and at
------------
such time as construction of the Improvement Work allows, and as the status of
such construction is appropriate, Landlord shall provide Tenant and Tenant's
consultants and contractors with access to the Premises for the purpose of
installation by Tenant, at its cost (subject to payment of fifty percent [50%]
of such cabling costs as provided above) of Tenant's technology cabling within
the Premises. Landlord shall attempt to provide access to Tenant at least three
(3) weeks prior to the anticipated Lease Commencement Date. In connection with
any such early entry by Tenant, Tenant and its consultants and contractors shall
not interfere with the completion of construction by Landlord and any delay in
completion of the Improvement Work resulting from the early access by Tenant and
its contractors or consultants shall
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<PAGE>
constitute a Tenant Delay for purposes of Section 3.2 of the Lease. In
connection with any early access to the Premises by Tenant, the provisions of
the Lease shall be applicable provided only that the obligation of Tenant to pay
Monthly Basic Rent, Parking Lot Rent and Operating Rent shall not commence until
the Lease Commencement Date. Any and all contractors and consultants acting on
behalf of Tenant in connection with any such early access shall generally follow
the directives of the Contractor in connection with their performance of work
with respect to the Premises so as to facilitate the continuing and orderly
performance by the Contractor of its work
6.2 Tenant's Representative. Tenant has designated Matt Oliver as its sole
-----------------------
representative with respect to the matters set forth in this Work Letter, who
shall have full authority and responsibility to act on behalf of the Tenant as
required in this Work Letter.
6.3 Landlord's Representative. Landlord has designated Landlord's
-------------------------
Supervisor, as defined above, as its sole representative with respect to the
matters set forth in this Work Letter, who, until further notice to Tenant,
shall have full authority and responsibility to act on behalf of the Landlord as
required in this Work Letter.
6.4 Time of the Essence. Unless otherwise indicated, all references herein
-------------------
to a "number of days" shall mean and refer to calendar days. If any item
requiring approval is timely disapproved by Landlord or Tenant, the procedure
for preparation of the document and approval thereof shall be repeated until the
document is approved by Landlord or Tenant, as the case may be. Unless otherwise
provided in this Work Letter, Landlord's approval or Tenant's approval of any
submittals required to be approved by the other shall be given or withheld
within three (3) business days after receipt by the approving party of the
submittal. In connection with any disapproved matter, any resubmittal by
Landlord or Tenant, as the case may be, shall be approved or disapproved within
two (2) business days and this procedure shall continue until Landlord's or
Tenant's approval, as the case may be, of any submittal or resubmittal has been
approved. For purposes of this Paragraph 6.3, references to submittals to and
approvals by Tenant, shall be equally applicable to submittals to and approvals
by Tenant's Architect.
6.5 Hazardous Materials. Landlord shall be responsible for the lawful
-------------------
treatment and/or disposal of all hazardous or toxic materials (as such terms may
be defined from time to time by any governmental authority with jurisdiction)
existing at the Building prior to the Lease Commencement Date which are
disrupted or disturbed in connection with construction of the Improvement Work,
with the exception of any such materials which were introduced to the Building
or at the Site by Tenant or any of Tenant's representatives, agents, contractors
or invitees.
6.6 Landlord's Architect. Landlord hereby designates SMP/SHG Incorporated
--------------------
("LANDLORD'S ARCHITECT") to act as architect on behalf of Landlord in connection
with this Work Letter and the Lease.
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<PAGE>
6.7 Incorporated into the Lease. For all purposes, this Work Letter shall
---------------------------
be and is hereby deemed a part of the Lease, and to the extent necessary, they
shall together be construed as one and the same document.
IN WITNESS WHEREOF, the parties have executed and delivered this Work
Letter on the day and year first above written.
LANDLORD: TENANT:
Rosenberg SOMA Investments III, LLC, a LookSmart, Ltd., a Delaware
Delaware limited liability company corporation
By: The Rosenberg Company, a
California corporation, Manager
By: /s/ Signature Illegible
Name: Edward M.O'DEA
By: /s/ Signature Illegible
Douglas C. Rosenberg, Its: VP Corp Div.
President
By: __________________________
By: /s/ Signature Illegible Name: _______________________
Douglas C. Rosenberg, Its: ________________________
Secretary
Page 14
<PAGE>
procedures to be followed at the arbitration hearing; provided, however, that
(i) the arbitration shall take place in San Francisco California; (ii) the
arbitrator shall apply the rules of evidence and substantive law of the State of
California; (iii) the arbitrator shall render written findings of fact and
conclusions of law; (iv) the parties shall be entitled to conduct such pre-
hearing discovery as would otherwise be permitted under California law; (v) the
arbitrator shall have the authority to entertain and decide motions before the
arbitration hearing as otherwise would be permitted in a court of law,
including, by way of example, motions to compel discovery and motions for
summary judgment; and (vi) remedies which the arbitrator shall have the
authority to grant shall be limited to the same remedies which could otherwise
be imposed by a court of law. Such arbitration shall be the sole remedy
available to the parties with respect to disputes involving the matters
described in Paragraph 3.2.
57. Other Available Space. Landlord shall give written notice to Tenant at any
---------------------
time that Landlord (or any affiliate of Landlord) has available for lease, space
in a building controlled by Landlord in the immediate geographical area
surrounding the Building, which space is suitable for occupancy by Tenant as
additional space. In no event, however, shall Landlord be in default pursuant to
this Lease in the event that Landlord fails to give any such notice to Tenant
and in no event shall this paragraph be construed as granting to Tenant an
option or first right of refusal or any other right of any kind whatsoever with
respect to any such additional space or controlled building.
IN WITNESS WHEREOF, the parties have executed and delivered this Lease on
the day and year first above written.
LANDLORD: TENANT:
Rosenberg SOMA Investments III, LLC, a LookSmart, Ltd., a
Delaware limited liability company Delaware corporation
By: TRC Investors III, LLC, a California
limited liability company, Manager
By: ________________________
By: The Rosenberg Company, a Name: _______________________
California corporation, Manager Its: ___________________
By: /s/ Signature Illegible
Douglas C. Rosenberg By: ____________________
President Name: ________________________
Its: ________________________
By: /s/ Signature Illegible
Douglas C. Rosenberg
Secretary
51
<PAGE>
EXHIBIT 10.16
CONSENT TO SUBLEASE
-------------------
NINETY PARK PROPERTY LLC, a New York limited liability company, having an
office at 330 Madison Avenue, New York, New York 10017 ("Landlord") hereby
--------
consents to the subletting by FIRST MANHATTAN CONSULTING GROUP, INC., a Delaware
corporation, having an office at 90 Park Avenue, New York, New York 10016
("Tenant") to LOOKSMART LTD., a Delaware corporation, having an office at 90
------
Park Avenue, New York, New York 10016 ("Subtenant"), pursuant to a Sublease and
---------
Letter Agreement, both dated as of September 29, 1998 (collectively, the
"Sublease"), a copy of which has been delivered to Landlord, of certain space
--------
(the "Sublease Space"), as more particularly described in the Sublease, which
--------------
Sublease Space is a portion of the premises (the "Premises") presently leased
--------
and demised by Carol Management Corporation, Howard Kaskel, Anita Kaskel Roe
(formerly known as Anita Blum) and Carole Schragis, collectively, Landlord's
predecessor-in-interest, to Tenant, pursuant to a Lease, dated July 1, 1987
(which Lease, as the same may heretofore have been or may hereafter be amended,
is referred to as the "Lease"). Such consent is subject to, and in reliance
-----
upon, the representations, warranties, covenants, terms and conditions contained
herein. All capitalized terms contained herein shall have the meaning ascribed
to them in the Lease unless otherwise indicated herein.
1. Sublease Subordinate to Lease. The Sublease shall be subject and
-----------------------------
subordinate at all times to the Lease and to all of the provisions, covenants,
agreements, terms and conditions of the Lease and this Consent, and Subtenant
shall not do or permit anything to be done in connection with Subtenant's use
and occupancy of the Sublease Space which would violate any of said provisions,
covenants, agreements, terms and conditions. Any breach or violation of any
provision of this Consent by Subtenant shall be deemed to be and shall
constitute a default by Tenant in fulfilling such provision.
2. Representations and Warranties. Tenant and Subtenant represent and
------------------------------
warrant that no rent or other consideration is being paid or is payable to
Tenant by Subtenant for the right to use or occupy the Sublease Space or for the
use, sale or rental of Tenant's fixtures, leasehold improvements, equipment,
furniture or other personal property, except as set forth in the Sublease, and
if such rent or other consideration exceeds the pro-rata portion of the fixed
rent and any additional rent payable pursuant to the Lease, Tenant shall comply
with paragraph I of Article 45 of the Lease and Tenant shall pay to Landlord
fifty percent (50%) of such excess in accordance with, and subject to, the
provisions of the Lease. Tenant and Subtenant further represent and warrant that
the Sublease is the complete, true and correct agreement between the parties.
3. Amendment of Sublease, Waiver. Tenant and Subtenant agree that they
-----------------------------
shall not change, modify or amend the Sublease or enter into any additional
agreements relating to or affecting the use or occupancy of the Sublease Space,
or the use,
<PAGE>
sale or rental of Tenant's fixtures, leasehold improvements, equipment,
furniture or other personal property, without first obtaining Landlord's prior
written consent thereto in accordance with the terms of the Lease, except that
Tenant may terminate the Sublease without Landlord's prior consent. Neither this
Consent, the Sublease, the Lease, nor any acceptance of rent or other
consideration from the Subtenant by Landlord or Landlord's agent shall operate
to waive, modify, impair, release or in any manner affect Tenant's liability
under the Lease or Subtenant's liability under the Sublease, nor shall the
foregoing operate to waive any breach or violation of any provision of the Lease
or any rights of Landlord against any person, firm, association, corporation or
other entity liable or responsible for the performance of any of the provisions,
covenants, agreements, terms or conditions contained in the Lease, nor shall the
foregoing enlarge or increase Landlord's obligations or Tenant's rights or
diminish Tenant's obligations under the Lease or otherwise; and all provisions,
covenants, agreements, terms and conditions of the Lease are hereby declared by
Tenant to be in full force and effect. No assignment of the Lease or the
Sublease or further sublease of all or any part of the Premises or the Sublease
Space shall be made by Tenant or Subtenant without the prior written approval of
Landlord, to the extent required pursuant to, and in accordance with, the
provisions of the Lease and the Sublease.
4. Ratification of Sublease. Nothing contained in the Sublease or this
------------------------
Consent shall be construed as a consent to, or approval of, or ratification by
Landlord, of any of the particular provisions of the Sublease (except as may be
expressly provided herein) or as a representation or warranty by Landlord.
Landlord has not, and shall not, review or pass upon any of the provisions of
the Sublease and shall not be bound or estopped in any way by the provisions of
the Sublease, except as may be expressly provided herein. Notwithstanding the
foregoing, Tenant and Subtenant acknowledge that Landlord is consenting to the
Sublease as an accommodation to Tenant and Subtenant, and that Landlord's
consent is strictly limited to Tenant's subletting of the Sublease Space to
Subtenant pursuant to the Sublease. By executing and delivering this Consent,
Landlord shall be deemed not to have modified or waived any of Tenant's
obligations under the Lease.
5. Remedies for Default. In the event of any default by Tenant or
--------------------
Subtenant in the full performance and observance of any of their respective
obligations hereunder or in the event any of the respective representations or
warranties by the respective party made herein shall prove to be false or
misleading in any material respect, such event may, at Landlord's option and
subject to applicable notice and grace periods provided in the Lease, be deemed
a default under the Lease, and Landlord shall have the right to and may pursue
all of the rights, powers and remedies provided for in the Lease or at law or in
equity or by statute or otherwise with respect to defaults. Subtenant hereby
agrees to indemnify and hold Tenant harmless from and against any and all loss,
cost, liability or expense resulting from any and all claims that may be made
against Tenant by Landlord by reason of a default by Subtenant referred to under
this paragraph 5.
-2-
<PAGE>
6. Use. Subject to all of the provisions, covenants, agreements, terms
---
and conditions of the Lease, the Sublease Space and each part thereof shall be
used by Subtenant in accordance with the provisions of Article 2 of the Lease,
as modified by Article 34(C)(1)(a) of the Lease, as further modified by Section
4.01 of the Sublease, and for no other purpose.
7. Termination: Attornment. A. If at any time prior to the expiration
-----------------------
date of the Lease, the term of the Lease with respect to the Sublease Space
shall terminate or be terminated for any reason whatsoever due to a default
thereof by Tenant, the Sublease and the term thereof shall terminate on or prior
to the day of such termination and Subtenant, at Subtenant's sole cost and
expense, shall (i) quit and surrender the Sublease Space to Landlord, broom
clean, in good order and condition, ordinary wear and tear and damage for which
Subtenant is not responsible for under the terms of the Sublease excepted, (ii)
remove from the Sublease Space and the Building all of Subtenant's personal
property and all other property and effects of Subtenant and all persons
claiming through or under Subtenant, and (iii) repair all damage to the Sublease
Space and the Building occasioned by such removal and otherwise to the Building,
as required by the Lease. Except as otherwise provided in the Lease, Landlord
shall have the right to retain any property and personal effects which shall
remain in the Sublease Space or the Building, on the date of termination of the
Sublease, without any obligation or liability to Tenant or Subtenant, and to
retain any net proceeds realized from the sale thereof, in accordance with all
applicable law, without waiving Landlord's rights with respect to any default by
Subtenant under the foregoing provisions of this paragraph and the provisions of
the Lease and Sublease. If Subtenant shall fail to vacate and surrender the
Sublease Space in accordance with the provisions of this paragraph, Landlord
shall be entitled to all of the rights and remedies which are available to a
landlord against a tenant holding over after the expiration of a term, and any
such holding over shall be and be deemed to be a default under the Lease.
Subtenant expressly waives for itself and for any person claiming through or
under Subtenant, any rights which Subtenant or any such person may have under
the provisions of Section 2201 of the New York Civil Practice Law and Rules and
of any successor law of like import then in force, in connection with any
holdover summary proceedings which Landlord may institute to enforce the
foregoing. If the date of the termination of the Sublease shall fall on a Sunday
or holiday, then Subtenant's obligations under the first sentence of this
paragraph shall be performed on or prior to the Saturday or business day
immediately preceding such Sunday or holiday. Subtenant's obligations under this
paragraph shall survive the expiration or earlier termination of the terms of
the Lease and Sublease.
B. The foregoing provisions of paragraph 7A notwithstanding, Landlord
may, at its option, upon written notice to Tenant and Subtenant on or before the
date of termination of the term of the Lease with respect to the Sublease Space
and without any additional or further agreement of any kind on the part of the
Tenant or Subtenant, elect to require Subtenant to attorn to Landlord and to
continue the Sublease with the same force and effect as if Landlord, as lessor,
and Subtenant, as lessee, had
-3-
<PAGE>
entered into a lease as of such effective date, for a term equal to the then
unexpired term of the Sublease and containing the same provisions as those
contained in the Sublease. In the event of such election by Landlord, (i)
Subtenant agrees to so attorn to Landlord, and Landlord and Subtenant shall have
the same rights, obligations, and remedies as were had by Tenant and Subtenant,
respectively, under the Sublease prior to such effective date and the Sublease
shall be deemed to be a direct lease between Landlord and Subtenant, except that
in no event shall Landlord be (a) liable for any act or omission by Tenant, (b)
subject to any offsets or defenses which Subtenant had or might have against
Tenant, (c) bound by any rent or additional rent or other payment paid by
Subtenant to Tenant in advance for a period in excess of thirty (30) days, (d)
bound by any covenant to undertake or complete any work to the Sublease Space or
any part thereof, or (e) bound by any obligation to make any payment to
Subtenant; and (ii) Tenant shall deliver to Landlord any security deposit which
Tenant is then holding under the Sublease. The foregoing provisions of this
paragraph 7B shall apply notwithstanding that, as a matter of law, the Sublease
may terminate upon the expiration, termination or surrender of the Lease and
shall be self-operative upon any such election by Landlord to require
attornment; provided, however, that the Subtenant, upon demand of Landlord,
agrees to execute and deliver such instrument or instruments as Landlord may
reasonably request to evidence and confirm the foregoing provisions of this
paragraph 7B. If Landlord elects to exercise its option under this paragraph 7B,
then the foregoing provision of paragraph 7A shall be of no force or effect.
8. Indemnity. A. Tenant hereby indemnifies and holds harmless Landlord
---------
and Landlord's agents from and against all loss, cost, liability, claims, damage
and expenses, including, without limitation, reasonable attorneys' fees and
expenses and court costs, penalties and fines, incurred in connection with or
arising from (i) any default by Tenant in the observance or performance of, or
compliance with, any of the terms, covenants or conditions of the Sublease on
Tenant's part, to be observed, performed or complied with, including, without
limitation, reasonable attorneys' fees and expenses and court costs resulting
from any delay by Tenant in surrendering the Sublease Space upon termination of
the Sublease, or (ii) any acts, omissions or negligence by Tenant, or the agents
of Tenant, or any person claiming through or under Tenant, or the agents of
Tenant or any such person, in or about the Sublease Space or the Building during
the term of the Sublease. Tenant shall not be liable to Landlord under this
indemnity to the extent of any insurance proceeds collectible under policies
owned by (or otherwise insuring) Landlord with respect to such damage or injury
provided that nothing contained herein shall be deemed a release of Tenant of
any liability that any such party would otherwise have to Landlord by reason of
such damage or injury in the absence of this indemnity.
B. Subtenant hereby indemnifies and holds harmless Landlord and
Landlord's agents from and against all loss, cost, liability, claims, damage and
expenses, including, without limitation, reasonable attorneys' fees and expenses
and court costs, penalties and fines, incurred in connection with or arising
from (i) any default by Subtenant in the observance or performance of, or
compliance with, any of the terms,
-4-
<PAGE>
covenants or conditions of the Sublease on Subtenant's part, to be observed,
performed or complied with, including, without limitation, reasonable attorneys'
fees and expenses and court costs resulting from any delay by Subtenant in
surrendering the Sublease Space upon termination of the Sublease, (ii) the use
or occupancy or manner of use or occupancy of the Sublease Space by Subtenant or
any person claiming through or under Subtenant of any rights granted to
Subtenant hereunder, or (iii) any acts, omissions or negligence by Subtenant, or
the agents of Subtenant, or any person claiming through or under Subtenant, or
the agents of Subtenant or any such person, in or about the Sublease Space or
the Building during the term of the Sublease. Subtenant shall not be liable to
Landlord under this indemnity to the extent of any insurance proceeds
collectible under policies owned by (or otherwise insuring) Landlord with
respect to such damage or injury provided that nothing contained herein shall be
deemed a release of Subtenant of any liability that any such party would
otherwise have to Landlord by reason of such damage or injury in the absence of
this indemnity.
C. If any action or proceeding is brought against Landlord by reason of
any such claim, Tenant or Subtenant, upon written notice from Landlord, shall,
at Tenant's or Subtenant's sole cost and expense, as the case may be, resist or
defend such action or proceeding using counsel approved by Landlord, which
approval shall not be unreasonably withheld or delayed. Counsel for the insurers
of Tenant or Subtenant shall hereby be deemed approved for purposes of this
paragraph 8. The provisions of this paragraph shall survive the expiration or
earlier termination of the term of the Sublease and this Consent. The indemnity
and any rights granted to Landlord pursuant to this paragraph shall be in
addition to, and not in limitation of, any of Landlord's rights under the Lease.
9. Conflict. If there shall be any conflict or inconsistency between the
--------
non-monetary terms, covenants and conditions of this Consent or the Lease and
the terms, covenants and conditions of the Sublease, then the non-monetary
terms, covenants and conditions of this Consent or the Lease shall prevail.
Notwithstanding the foregoing, any conflict or inconsistency between the terms,
covenants and conditions of this Consent and the Sublease, as between the Tenant
and Subtenant only, shall be resolved in favor of the Sublease.
10. Notices. Any bills, statements, notices, demands, requests, consents
-------
or other communications given or required to be given under this Consent shall
be effective only if rendered or given in writing and delivered personally or
sent by mail (registered or certified, return receipt requested), postage
prepaid, delivered to the respective party at the address hereinabove set forth
or at such other address for such purpose by notice in accordance with the
provisions hereof, or, if addressed to Tenant or Subtenant at the Building; the
same shall be deemed to have been rendered or given on the date delivered, if
delivered personally, or on the date mailed, if mailed.
-5-
<PAGE>
11. Entire Agreement. This Consent contains the entire agreement of the
----------------
parties with respect to the matters contained herein and may not be modified,
amended or otherwise changed except by written instrument signed by the parties
sought to be bound. Furthermore, Tenant and Subtenant each acknowledge and
represent that, other than this Consent, the Lease, and the Sublease, there are
no other agreements, oral or otherwise, or representations or warranties of any
kind or nature referring or relating to, or in connection with, the Lease, the
Sublease or the use and occupancy of the Sublease Space or any other portion of
the Building.
12. Governing Law. This Consent shall for all purposes be construed in
-------------
accordance with, and governed by, the laws of the State of New York.
13. Broker. Tenant and Subtenant each represent and warrant to Landlord
------
that they have not dealt with any broker in connection with the Sublease or this
Consent other than Williamson, Picket, Gross, Inc., and Julien J. Studley, Inc.
(collectively, the "Brokers"), and that no broker negotiated the Sublease or is
-------
entitled to any commission in connection therewith other than the Brokers, and
the execution and delivery of this Consent by Landlord shall be conclusive
evidence that Landlord has relied upon the foregoing representation and warranty
of Tenant and Subtenant. Tenant and Subtenant shall each indemnify and hold
Landlord harmless from and against any and all claims for commission, fee or
other compensation by any person who shall claim to have dealt with any such
party in connection with the Sublease and this Consent other than the Brokers,
and for any and all costs incurred by Landlord in connection with such claims,
including, without limitation, reasonable attorneys' fees and disbursements.
Tenant or Subtenant, as the case may be, shall be entitled, at the applicable
party's sole cost and expense, to defend any such claim with counsel reasonably
approved by Landlord, and to settle any such claim at such party's sole cost and
expense. The provisions of this paragraph 13 shall survive the cancellation or
expiration of the Sublease and this Consent.
14. Miscellaneous. A. Each right and remedy of Landlord provided for in
-------------
this Consent or in the Lease shall be cumulative and shall be in addition to
every other right and remedy provided for herein and therein or now or hereafter
existing at law or in equity or by statute or otherwise, and the exercise by
Landlord of any one or more of the rights or remedies so provided for or
existing shall not preclude the simultaneous or subsequent exercise by Landlord
of any or all other rights or remedies so provided for or so existing.
B. Neither the partners, directors or officers of Landlord (collectively,
the "Parties") shall be liable for the performance of Landlord's obligations
-------
under this Consent, nor shall the Parties be liable for the performance of
Landlord's obligations under the Sublease pursuant to any attornment by
Subtenant to Landlord. Tenant and Subtenant, as the case may be, shall look
solely to Landlord to enforce Landlord's obligations hereunder and thereunder
and shall not seek any damages against any of the
-6-
<PAGE>
Parties. The liability of Landlord for Landlord's obligations under this Consent
and the Sublease shall be limited to Landlord's interest in the Building and
Tenant and Subtenant shall not look to any other property or assets of Landlord
or the property or assets of any of the Parties in seeking either to enforce
Landlord's obligations under the Sublease pursuant to such attornment or to
satisfy a judgment for Landlord's failure to perform such obligations. If,
subsequent to an attornment by Subtenant to Landlord, Landlord shall sell,
convey, assign or transfer (or any subsequent landlord shall sell, convey,
assign or transfer) its interest in the Building or the Premises, as the case
may be, Landlord shall thereafter be and hereby is entirely freed and relieved
of all covenants and obligations of Landlord hereunder, and under the Sublease,
from and after the date of such sale, conveyance, assignment or transfer to the
extent that such transferee assumes the obligations of Landlord hereunder and
under the Sublease.
C. The terms and provisions of this Consent shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns except
that no violation of the provisions of paragraph 3 shall operate to vest any
rights in any successor or assignee of Tenant or Subtenant.
D. If any one or more of the provisions contained in this Consent shall be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
E. The captions contained in this Consent are for convenience only and
shall in no way define, limit or extend the scope or intent of this Consent, nor
shall such captions affect the construction hereof.
F. This Consent may be executed in several counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
agreement.
G. Landlord, Tenant and Subtenant each represent and warrant that each has
full right, power and authority to enter into this Consent and that the person
or persons executing this Consent on behalf of Landlord, Tenant or Subtenant, as
the case may be, are duly authorized to do so.
H. It is expressly understood and agreed that this Consent shall not
create or constitute, nor shall it be deemed to create or constitute, any
landlord-tenant relationship, or occupancy or license agreement between Landlord
and Subtenant.
I. This Consent is offered for signature by Tenant and Subtenant and it is
understood that this Consent shall not be binding upon Landlord unless and until
Landlord and each of the other parties hereto shall have executed and delivered
a fully executed original counterpart of this Consent to both Tenant and
Subtenant.
-7-
<PAGE>
J. Tenant shall pay, or cause to be paid, to Landlord on demand any
reasonable costs, including attorneys' fees and disbursements incurred by
Landlord in connection with the Sublease and this Consent.
K. If Tenant shall terminate, or shall give any notice to Subtenant
terminating the Sublease, Tenant shall notify Landlord thereof promptly
thereafter.
-8-
<PAGE>
IN WITNESS WHEREOF, Landlord, Tenant and Subtenant have respectively
executed this Consent as of the 22nd day of October, 1998.
LANDLORD:
NINETY PARK PROPERTY LLC
By: Vornado Realty L.P.,
Sole Member
By: Vornado Realty Trust,
General Partner
By: /s/ Irwin Goldberg
Name: Irwin Goldberg
Title: Vice-President and
Chief Financial Officer
TENANT:
FIRST MANHATTAN CONSULTING GROUP, INC.
By: ________________________________________________
Name:
Title:
SUBTENANT:
LOOKSMART LTD.
By: __________________________________________
Name:
Title:
-9-
<PAGE>
IN WITNESS WHEREOF, Landlord, Tenant and Subtenant have respectively
executed this Consent as of the 22nd day of October, 1998.
LANDLORD:
NINETY PARK PROPERTY LLC
By: Vornado Realty L.P.,
Sole Member
By: Vornado Realty Trust,
General Partner
By: _______________________________
Name: Irwin Goldberg
Title: Vice-President and
Chief Financial Officer
TENANT:
FIRST MANHATTAN CONSULTING GROUP, INC.
By: /s/ Robert M. Tetenbaum
Name: ROBERT M. TETENBAUM
Title: EXEC V.P.
SUBTENANT:
LOOKSMART LTD.
By: _______________________________________
Name:
Title:
-10-
<PAGE>
IN WITNESS WHEREOF, Landlord, Tenant and Subtenant have respectively
executed this Consent as of the 22nd day of October, 1998.
LANDLORD:
NINETY PARK PROPERTY LLC
By: Vornado Realty L.P.,
Sole Member
By: Vornado Realty Trust,
General Partner
By: _______________________________
Name: Irwin Goldberg
Title: Vice-President and
Chief Financial Officer
TENANT:
FIRST MANHATTAN CONSULTING GROUP, INC.
By: _______________________________________
Name:
Title:
SUBTENANT:
LOOKSMART LTD.
By: /s/ Evan Thornley
Name: EVAN THORNLEY
Title: CEO
-11-
<PAGE>
EXHIBIT 10.17
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF LEASE 1
LEASE 3
GRANT OF LEASE AND GUARANTOR'S GUARANTEE 3
1. LEASE 3
HOW LONG IS THIS LEASE? 3
2. STARTING AND ENDING 3
3. CONTINUING OCCUPATION AFTER EXPIRY DATE 3
CAN THIS LEASE BE RENEWED? 3
4. RENEWING THIS LEASE 3
5. WHAT ARE THE PROVISIONS OF THE NEW LEASE? 4
6. WHAT RENT IS PAYABLE UNDER THE NEW LEASE? 4
WHAT MUST THE TENANT PAY? 4
7. WHAT THE TENANT HAS TO PAY 4
8. INTEREST ON LATE PAYMENTS 4
9. ADJUSTMENTS AND ERRORS 4
HOW MUCH RENT MUST THE TENANT PAY? 5
10. HOW MUST THE TENANT PAY RENT? 5
11. MARKET RENT REVIEWS 5
12. MARKET RENT REVIEW DISPUTES 5
WHAT OTHER MONEY MUST THE TENANT PAY? 6
13. SERVICES 6
14. TENANT MUST PAY INCREASE IN RATES AND TAXES 7
15. LANDLORD'S LEGAL AND OTHER COSTS 7
SECURITY DEPOSIT 8
16. SECURITY DEPOSIT 8
WHAT ARE THE TENANT'S GENERAL OBLIGATIONS? 8
17. THE TENANT MUST OBEY THE LAW AND THE BUILDING RULES 8
18. HOW THE TENANT SHOULD BEHAVE 9
19. USING THE COMMON AREA 9
</TABLE>
<PAGE>
ii
<TABLE>
<S> <C>
ASSIGNMENT 9
20. LETTING OTHERS OCCUPY THE PREMISES 9
21. USING THIS LEASE ETC AS SECURITY 9
WHAT ARE THE TENANT'S OBLIGATIONS CONCERNING THE PREMISES? 9
22. USE 9
23. LETTING OTHERS ONTO THE PREMISES 10
24. MAINTAINING THE PREMISES AND THE TENANT'S PROPERTY 10
25. DAMAGE CAUSED BY THE TENANT 10
26. ALTERING THE PREMISES 10
27. AT THE END OF THE LEASE 11
WHAT IS THE TENANT'S RISK AND WHAT INSURANCE IS REQUIRED? 11
28. TENANT'S INSURANCE 11
29. THE TENANT RELEASES AND INDEMNIFIES AND LANDLORD AND THE MANAGING AGENT 11
WHAT ARE THE LANDLORD'S RIGHTS AND OBLIGATIONS? 12
30. QUIET ENJOYMENT 12
31. OUTGOINGS 12
32. SERVICES 12
33. THE LANDLORD MAY ENTER THE PREMISES 12
34. THE LANDLORD MAY DO THINGS ON THE TENANT'S BEHALF 12
35. LANDLORD'S CONSENT 13
36. RELETTING OF PREMISES OR SALE OF BUILDING 12
WHEN THE LANDLORD DOES REPAIRS OR BUILDING WORK 13
37. THE LANDLORD MAY DO ANY REPAIRS OR BUILDING WORK 13
38. WHEN THE LANDLORD DOES REPAIRS OR BUILDING WORK 13
WHAT HAPPENS IF THE BUILDING OR PREMISES ARE DAMAGED, DESTROYED OR RESUMED? 13
39. IF DAMAGED OR DESTROYED 13
40. IF RESUMED 14
41. RESOLVING DISPUTES ABOUT REDUCTION IN RENT AND OTHER MONEY PAYABLE 14
WHAT HAPPENS IF THE TENANT BREACHES THIS LEASE? 15
42. TENANT BREACHES 15
</TABLE>
<PAGE>
iii
<TABLE>
<S> <C>
43. NOTICE OF BREACH 15
44. LANDLORD'S RIGHTS IF THE TENANT BREACHES 15
COMMUNICATION BETWEEN THE PARTIES 15
45. NOTICES MUST BE IN WRITING 15
46. DELIVERING NOTICES 16
OTHER MATTERS 16
47. INDIVIDUAL AND JOINT LIABILITY 16
48. VICTORIAN LAW APPLIES 16
49. VALIDITY OF MANAGING AGENT'S ACTIONS 16
50. SIGNING OF LANDLORD'S DOCUMENT 16
51. SATURDAYS, SUNDAYS AND PUBLIC HOLIDAYS 16
52. SEVERABILITY 17
53. INTERPRETATION 17
54. MEANING OF WORDS 17
55. FITOUT AND SIGNAGE 18
EXECUTION 18
RULES AND REGULATIONS
</TABLE>
<PAGE>
SUMMARY OF LEASE
This is a lease covering the Tenant's occupation of the premises in the
Building. The lease sets out the rights and obligations of both the Landlord and
the Tenant concerning the premises and the Building.
The Building is managed by the managing agent.
DATE:
1. LANDLORD
Name: Euro Asia Properties Pty Ltd ACN 006 604 922
Address: Level 13, 256 Queen Street, Melbourne
Phone: (03) 9602 3288
Fax: (03) 9602 3299
Contact name and position: Mr Richard Wong, Property Manager
Landlord includes the Landlord's managing agent, employee, and any person
authorised by the Landlord.
2. TENANT
Name: Looksmart International Pty Ltd ACN 074 789
263
Address: Level 5, 388 Lonsdale Street, Melbourne
Phone:
Fax:
Contact name and position: Kerri Lee Sinclair. Operations Manager
2A GUARANTOR
Name: There is no guarantor
Address:
Phone:
Fax:
3. BUILDING 388 Lonsdale Street, Melbourne
4. PREMISES The whole of Level 5 of the Building having
an area of approximately 495M/2/
It is the whole of the land in certificate of
title Volume 10275 Folio 194
<PAGE>
2
5. USE Offices.
6. (A) COMMENCING DATE 1 September 1998
(B) RENT COMMENCING DATE 1 September 1998
7. EXPIRY DATE 31 AUGUST 2001
8. OPTION PERIOD One further period of 3 years.
9. RENT
(a) Term of this Lease Year 1
1 September 1998 - 31 August 1999: $66,825.00
Year 2
1 September 1999 - 31 August 2000; $70,166.25
Year 3
1 September 2000 - 31 August 2001: $73,674.56
(b) Option Period Year 1
1 September 2001 - 31 August 2002: Market
Review
Year 2
1 September 2002 - 31 August 2003: Percentage
increase of 5% on the rent for Year 1 of
Option Period.
Year 3
1 September 2003 - 31 August 2004: Market
Review
10. MARKET RENT REVIEW ALLOWED? Yes at the option of the landlord for the
Market Review Date in Item 9.
11. MARKET RENT REVIEW DATE The commencement date of Year 1 of the option
Period.
12. PERCENTAGE INCREASE IN RENT There is no Item 12.
13. SECURITY DEPOSIT Bank guarantee equivalent to three (3) months
current rent to be held for the duration of
the lease and option period.
14. PUBLIC LIABILITY INSURANCE AMOUNT $10 million
15. BASE YEAR FOR RATES AND TAXES AND
OUTGOINGS FOR THE BUILDING 31 December 1998.
<PAGE>
3
LEASE
GRANT OF LEASE AND GUARANTOR'S GUARANTEE
1. LEASE
1.1 The Landlord leases the premises to the Tenant on the terms set out in
this lease.
HOW LONG IS THIS LEASE?
2. STARTING AND ENDING
2.1 This lease begins on the commencing date in item 6(a) and ends at
midnight on the expiry date in item 7.
3. CONTINUING OCCUPATION AFTER EXPIRY DATE
3.1 If the Tenant has not given a notice under clause 4.1 but continues
the tenancy by occupying the premises after the expiry date, the
Tenant does so on the same provisions as are in this lease. However,
the Landlord or the Tenant may and the tenancy on any day by giving at
least 30 days notice to the other.
CAN THIS LEASE BE RENEWED?
4. RENEWING THIS LEASE
4.1 The Tenant may not renew this lease unless the following criteria are
satisfied:
* the Tenant has remedied all breaches of which the Tenant has been
given notice; and
* the Tenant has not been persistently in breach.
4.2 If the Tenant is entitled to renew this lease and wants to renew this
lease for the period stated in item 8, the Tenant must give the
Landlord a notice to this effect in the period which is between 180
days and 90 days before the expiry date.
4.3 If the Tenant does not give the notice on time, the Tenant loses the
right to renew this lease.
4.4 If the Tenant gives the notice on time, and if at the expiry date the
Tenant has remedied all breaches of which the Tenant has been given
notice, the Landlord must grant a new lease of the premises to the
Tenant.
4.5 The commencing date of the new lease is the day after this lease ends.
4.6 The Landlord's solicitors must prepare the new lease and the Tenant
must pay the following costs:
* the Landlord's costs as permitted by the Retail Tenancies Reform
Act 1998; and
* stamp duty on the new lease.
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4
5. WHAT ARE THE PROVISIONS OF THE NEW LEASE?
5.1 The provisions of the new lease must be the same as the provisions of
this lease, except that there is no right to renew the new lease.
6. WHAT RENT IS PAYABLE UNDER THE NEW LEASE?
6.1 If the commencing date of the new lease is a rent review date, the
rent payable under the new lease must be set as follows:
* if the commencing date is a market rent review date, the rent
payable under the new lease is set under clauses 11 and 12;
* if the commencing date is a market review date and the Landlord
does not set the rent using the market rent review procedure, the
rent payable for the first year of the new lease is the rent
payable during the last year of this lease;
6.2 If the commencing date of the new lease is not a rent review date, the
rent payable for the first year of the new lease is the same as the
rent payable during the last year of this lease.
WHAT MUST THE TENANT PAY?
7. WHAT THE TENANT HAS TO PAY
7.1 The Tenant must pay to the Landlord:
* the rent in item 9; and
* the charges for services supplied to the premises (see clause
13); and
* any other money owed under this lease.
8. INTEREST ON LATE PAYMENTS
8.1 If the Tenant does not pay any money to the Landlord within 7 days of
the time it is due, the Landlord may charge daily interest on that
money at a rate equal to the rate fixed under the Penalty Interest
Rates Act 1983 plus 2%.
8.2 The Landlord may calculate the interest on any unpaid money from the
day the unpaid money was due until the day it is paid.
8.3 On the last day of each month, the Landlord may add the interest for
that month to the unpaid money, and charge interest on the total
amount.
9. ADJUSTMENTS AND ERRORS
9.1 If the Landlord has to calculate the money the Tenant owes by using a
time period, and this lease starts or ends during that time period,
the Landlord must make the necessary proportional adjustment.
9.2 If either the Tenant or the Landlord prove an error in any
calculation, the Landlord must correct it and make any necessary
adjustment in the Tenant's next monthly statement (or as soon as
possible if this lease has expired).
<PAGE>
5
HOW MUCH RENT MUST THE TENANT PAY?
10. HOW MUST THE TENANT PAY RENT?
10.1 The Tenant must pay the rent:
* in equal monthly instalments; and
* in advance; and
* on or before the first day of each month.
11. MARKET RENT REVIEWS
11.1 If item 10 allows a market rent review, the Landlord may give the
Tenant notice of the new rent based on the current market rent at the
market rent review date in item 11. The Landlord must give the notice
during the period from 90 days before to 90 days after each market
rent review date.
11.2 The Tenant must pay the Landlord the new rent from the market rent
review date.
11.3 Until the Landlord notifies the Tenant of the new rent, the Tenant
must pay the current rent to the Landlord.
11.4 Any necessary adjustment between the rent the Tenant has paid and the
rent the Tenant should have paid is calculated from the market rent
review date.
11.5 If the Landlord is late in giving the Tenant notice, the Landlord
does not lose the right to a rent review. But, if the rent is
increased, the adjustment is only calculated from the day the
Landlord gave notice to the Tenant.
12. MARKET RENT REVIEW DISPUTES
12.1 If the Tenant disputes the rent nominated by the Landlord under
clause 11, the procedure in clause 12.2 must be followed. Each time
limit set out in clause 12.2 is consecutive. If a time limit is not
kept, the right attached is lost.
12.2 This is the procedure for rent review disputes.
* If the Tenant disputes the new rent, the Tenant must give the
Landlord notice of the dispute within 30 days of receiving the
Landlord's notice about the new rent.
* The Tenant and the Landlord must negotiate in good faith to agree
on a new rent within 30 days of the date of the Tenant's notice
of dispute.
* If the Tenant and the Landlord agree, the Tenant must pay the new
agreed rent from the market rent review date.
* If the Tenant and the Landlord to not agree, then within 7 days
either the Tenant or the Landlord may ask the President of the
Australian Institute of Valuers and Land Economists Inc -
Victorian Division (or an equivalent organisation) ("AIVLE") to
appoint an independent valuer to decide the new rent.
* The independent valuer must decide the current market rent at the
market rent review date within 30 days of being appointed.
<PAGE>
6
12.3 Until a dispute is resolved, or a right is lost, the Tenant must pay
the current rent. Any adjustment must be calculated from the relevant
date in clause 11. The Tenant must pay any adjustment (or the
Landlord must credit the Tenant with any adjustment) when the
Tenant's next monthly payment is due.
12.4 The valuation of the rent must take into account the following
factors:
* the use of the premises; and
* any inducement or incentive or both (for example: allowances,
payments, benefits, rent free periods, discounted rent periods,
assuming a liability) given by the Landlord to the Tenant, or a
person associated with the Tenant, for the Tenant entering into
this lease; and
* the fair market rent that can be obtained for the premises; and
* the provisions of this lease; and
* the rent payable for space comparable to the premises; and
* the basis for the determination is as follows:
- the premises are vacant and available for leasing by a
willing landlord to a willing tenant; and
- the Tenant is not in breach of this lease; and
* the requirements specified in Section 12(5) Retail Tenancies
Reform Act 1998.
12.5 But the valuation of the rent must not take into account the
following factors:
* the value of the Tenant's property; and
* any goodwill attributable to the premises due to the Tenant's
business; and
* any part of the fit-out that the Tenant may remove.
12.6 The independent valuer must have the following qualifications:
* current membership of the AIVLE; and
* at least five (5) years experience in valuing office space in the
Melbourne CBD.
12.7 In deciding the dispute, the independent valuer must act as an
independent expert and not as an arbitrator and must give written
reasons for the decision. The decision is final and binding on the
parties.
12.8 The Landlord and Tenant must share the cost of appointing the
independent valuer equally.
WHAT OTHER MONEY MUST THE TENANT PAY?
13. SERVICES
13.1 The Tenant must pay on time for all services supplied to the premises
including water consumption, electricity, gas, telephone, on floor
airconditioning costs and after hours airconditioning (including non
routine service calls requested by the Tenant).
<PAGE>
7
13.2 The premises are supplied with a self contained airconditioning
system and the Tenant is responsible for the cost of operating and
using the system (including non routine service calls requested by
the Tenant).
13.3 The Tenant is responsible for the cost of the activation and
maintenance of the electronic security devices servicing the
premises.
14. TENANT MUST PAY INCREASES IN RATES AND TAXES AND BUILDING OUTGOINGS
14.1 The Tenant must pay to the Landlord the Tenant's share of increases
in rates taxes or building outgoings assessed or levied on the
Building occurring after the commencing date.
14.2 If a new rate or tax or outgoings (that is, one that does not exist
at the commencing date) is assessed or levied on the Building, the
Tenant must pay to the Landlord the Tenant's share of the new rate or
tax or outgoings.
14.3 The Landlord must calculate the Tenant's share of the new rate tax or
outgoings or increases in rates taxes or outgoings using this
formula:
$ = N x P/B
where,
$ is the amount of the Tenant's share;
N is:
(i) the amount of the new rate; and/or
(ii) the difference between annual amount of the rates taxes and
outgoings levied or assessed on the Building from year to
year and the amount payable for the base year ending 31
December 1998.
P is the lettable area of the Premises; and
B is the net lettable area of the Building.
The lettable areas are calculated according to the Building Owners
and Managers Association Method of Measurement (1989 revision) or any
equivalent that the Landlord consents to. If the net lettable area
changes, the Landlord must adjust the Tenant's share proportionally.
14.4 The Landlord must tell the Tenant by notice of the amount payable.
The Tenant must pay this amount within 7 days of the date of the
Landlord's notice.
15. LANDLORD'S LEGAL AND OTHER COSTS
15.1 The Tenant must pay:
* the Landlord's costs permitted by the Retail Tenancies Reform Act
1998 arising out of this lease and any other transaction arising
out of this lease (for example: assignment, subletting); and
* stamp duty on this lease or any other document arising out of
this lease; and
<PAGE>
8
* the Landlord's reasonable legal and other costs arising out of
the Tenant's breach of this lease (for example, preparing a
notice of breach (see clause 43), remedying the breach (see
clauses 43 and 44)); and
* the Landlord's reasonable costs of considering the Tenant's
request for the Landlord's consent [for example, the cost of
employing consultants to review the Tenant's plans or altering
the premises (see clause 25), the cost of investigating the
financial position of a proposed assignee (see clause 20)]; and
* cost of additional keys and any security passes requested by the
Tenant; and
* cost of basic plumbing repairs; and
* cost of establishing and maintaining the Tenant's name on the
ground floor directory board.
SECURITY DEPOSIT
16. SECURITY DEPOSIT
16.1 On or before the commencing date, the Tenant must give the Landlord
the security deposit in item 13 by bank cheque or unconditional bank
guarantee.
16.2 The Landlord may use the security deposit to recover the Landlord's
loss due to the Tenant's breach (see clause 44). The Tenant must
promptly replace any amount used.
16.3 If the rent increases, the amount of the security deposit increases
in the same proportion. The Tenant must give the extra amount for the
security deposit to the Landlord by bank cheque or by increasing the
unconditional bank guarantee within 14 days of any rent increase.
16.4 When this lease ends and the Tenant has vacated the premises, the
Landlord must promptly refund to the Tenant any part of the security
deposit not needed to recover the Landlord's loss.
16.5 If the Landlord sells the premises or the Building, the Tenant must
do whatever is necessary to give the new owner the benefit of the
security deposit.
WHAT ARE THE TENANT'S GENERAL OBLIGATIONS?
17. THE TENANT MUST OBEY THE LAW AND THE BUILDING RULES
17.1 The Tenant must obey any law or proper notice from the body corporate
that requires the Tenant to do anything concerning:
* the premises; or
* the Tenant's use of the premises; or
* this lease.
17.2 But the Tenant is not required to do anything of a structural nature.
The Landlord is responsible for all items of a structural nature.
17.3 The Tenant must obey the building rules. A notice from the body
corporate or the Landlord listing the building rules is conclusive
proof of the rules in force.
<PAGE>
9
18. HOW THE TENANT SHOULD BEHAVE
18.1 The Tenant must not do anything that is, or may be, dangerous,
annoying, indecent, immoral, obscene or offensive to, or that may
interfere with, other tenants or people in the Building or adjacent
buildings.
18.2 In particular, the Tenant must not allow nude or partially dressed
people on the premises.
19. USING THE COMMON AREA
19.1 The Tenant may use the common area in common with other tenants or
people in the Building.
ASSIGNMENT
20. LETTING OTHERS OCCUPY THE PREMISES
20.1 The Tenant must get the Landlord's consent before the Tenant deals
with the premises or the Tenant's interest in the premises (for
example: mortgaging, assigning, subleasing, sharing or licensing it).
20.2 The Landlord must give consent if the following criteria are obeyed:
* the Tenant proves to the Landlord that the new person is
financially secure, able to make the payments required by this
lease on time and able to comply with the Tenant's other
obligations;
* the Tenant does anything that the Landlord reasonable requires
concerning the dealing (for example: giving the Landlord a
stamped assignment of lease in a form approved by the Landlord);
* the Tenant and the new person sign any agreement (for example:
deed of consent) or give any security (for example: personal
guarantee, bank guarantee, security deposit) that the Landlord
reasonably requires; and
* the Tenant is not in breach of this lease.
20.3 Section 144 of the Property Law Act 1958 does not apply to this lease
(this deals with withholding the Landlord's consent and the money
payable by the Tenant for getting the Landlord's consent).
21. USING THIS LEASE ETC AS SECURITY
21.1 The Tenant must get the Landlord's consent before the Tenant uses
this lease as security.
WHAT ARE THE TENANT'S OBLIGATIONS CONCERNING THE PREMISES?
22. USE
22.1 The Tenant may only use the premises for the purpose set out in item
5.
22.2 The Tenant must not put any safe or other heavy articles in the
premises unless the Tenant gets the Landlord's consent to do so.
22.3 The Tenant must not put any plate, sign or advertisement outside the
premises or on the inside face of the windows unless the Tenant gets
the Landlord's consent to do so.
<PAGE>
10
22.4 The Tenant must not use the premises in way that interferes with the
usual operation of services which the Landlord supplies to the
premises or the Building.
22.5 The Tenant must not store dangerous substances (for example:
hazardous chemicals, flammable liquids, acetylene gas or alcohol,
explosive oils compounds or substances) on the premises or in the
Building.
23. LETTING OTHERS ONTO THE PREMISES
23.1 The Tenant is responsible for the conduct of all people that the
Tenant allows on the premises (for example, the Tenant's customers,
employees, contractors and agents).
23.2 But the Tenant is not responsible for the conduct of the people the
Landlord requires to be on the premises (for example, the Landlord's
employees and agents).
24. MAINTAINING THE PREMISES AND THE TENANT'S PROPERTY
24.1 The Tenant must keep the premises clean and tidy and in the same
condition as they were in at the commencing date, except for fair
wear and tear (for example, the Tenant must repair damage and replace
broken fittings). The Tenant is responsible for the tenancy area
cleaning and waste management costs.
24.2 The Tenant must maintain, repair and keep the Tenant's property in
good condition.
24.3 The Tenant must repair or replace all broken glass with glass of the
same or similar quality. The Tenant must repair or replace all light
tubes and associated fittings.
24.4 Unless the Tenant causes the damage, the Tenant does not have to
repair structural or capital items.
25. DAMAGE CAUSED BY THE TENANT
25.1 The Tenant must promptly repair any damage the Tenant causes to the
Building or the premises.
26. ALTERING THE PREMISES
26.1 The Tenant must get the Landlord's consent before the Tenant does
building work in the premises, for example:
* alterations,
* installation of equipment,
* re-designing the interior,
* building of partitions.
26.2 The Tenant must get the necessary permits (for example: building
permits, plumbing permits) to allow the Tenant to carry out building
work and must get an occupancy permit or certificate of final
inspection when necessary.
26.3 If the Landlord asks, the Tenant must promptly give copies of all
permits and certificates to the Landlord.
<PAGE>
11
27. AT THE END OF THE LEASE
27.1 When this lease ends, the Tenant must do the following:
* vacate the premises and give it back to the Landlord in the same
layout and condition as they were in at the commencing date,
except for fair wear and tear; and
* remove any plate, sign or advertisement installed inside or
outside the premises including the directory board and repair any
damage caused; and
* repaint those walls of the premises where there is clear
indication of damage done to those walls not apparent at the
commencement date.
27.2 The Tenant must make sure any Tenant's fixture or fitting and any
other property of the Tenant is removed. Anything left becomes the
Landlord's property and the Landlord may keep it, sell it or give it
away.
27.3 The Tenant must pay the Landlord's costs of dealing with any of the
Tenant's property left in the premises (for example, removing the
property and restoring the premises to the required condition).
WHAT IS THE TENANT'S RISK AND WHAT INSURANCE IS REQUIRED?
28. TENANT'S INSURANCE
28.1 The Tenant must have current insurance policies covering:
* public liability arising out of the use or occupation of the
premises for the amount in item 14; and
* insurance policy for the usual risks and covering the Tenant's
property and any of the Landlord's property in the premises for
its replacement value.
28.2 If the Landlord asks, the Tenant must give the Landlord written
evidence of the Tenant's insurance including Certificates of
Currency.
28.3 The Tenant must not do anything that may cancel the Tenant's
insurance or the Landlord's insurance or make either insurances
invalid, or that may increase the Landlord's insurance premium.
29. THE TENANT RELEASES AND INDEMNIFIES AND LANDLORD AND THE MANAGING AGENT
29.1 The Tenant occupies and uses the premises at the Tenant's own risk.
The Tenant also carries out building work in the premises at the
Tenant's own risk.
29.2 The Tenant releases the Landlord and the managing agent from
liability for any damage, loss, injury, or death occurring in the
premises, or the Building, except to the extent that this was caused
by the Landlord's or the managing agent's act or negligence. The
Landlord or the managing agent are liable to the extent that their
respective act or negligence caused the damage, loss, injury or
death.
<PAGE>
12
29.3 The Tenant indemnifies the Landlord and the managing agent against
any action or demand arising from any damage, loss, injury, or death,
caused by:
* the Tenant's act or negligence; or
* the Tenant's use or occupation of the premises, the car bays or
the Building; or
* services to or facilities of the premises or the Building; or
* the machinery servicing the premises or Building.
29.4 However, the Tenants indemnity does not apply to the extent that the
Landlord or the managing agent caused the damage, loss, injury or
death by their act or negligence. To this extent, the Landlord or
managing agent are liable.
WHAT ARE THE LANDLORD'S RIGHTS AND OBLIGATIONS?
30. QUIET ENJOYMENT
30.1 The Landlord must allow the Tenant to occupy and use the premises
without interruption or disruption, except where this lease allows
the Landlord to do so.
31. OUTGOINGS
31.1 The Landlord is responsible for current outgoings as at the date of
this Lease (for example, rates, taxes, body corporate charges) for
the premises which are not the responsibility of the Tenant.
32. SERVICES
32.1 For common area base services such as airconditioning and lifts, the
Landlord must do all the Landlord reasonably can to ensure that the
services are working efficiently during the hours the Building is
open. However, the Landlord is not liable for any compensation and
the Tenant cannot end this lease if the Landlord does not do so.
33. THE LANDLORD MAY ENTER THE PREMISES
33.1 After giving at least 2 working days notice, the Landlord may enter
the premises at any reasonable time:
* for inspection;
* to carry out maintenance, repairs, or building work;
* to show the premises to prospective tenants or to allow
prospective buyers of the premises or the Building to inspect the
premises.
33.2 But if there is an emergency, the Landlord may enter the premises at
any time without giving the Tenant notice.
34. THE LANDLORD MAY DO THINGS ON THE TENANT'S BEHALF
34.1 The Landlord may carry out any of the Tenant's obligations on the
Tenant's behalf if the Tenant does not carry them out on time after
receiving a notice of breach (for example: if the Tenant does not do
repairs). The Tenant must promptly reimburse the Landlord's costs of
doing this.
<PAGE>
13
35. LANDLORD'S CONSENT
35.1 If the Landlord's consent is required, the Landlord must consider the
request promptly, and must be fair and reasonable in giving or
withholding it. The Landlord may also require the Tenant to obey any
reasonable conditions before the Landlord gives the Landlord's
consent.
35.2 The Landlord can refuse to give the Landlord's consent for any reason
if it concerns structural building work to the premises.
36. RELETTING OF PREMISES OR SALE OF BUILDING
36.1 If the Landlord wants to sell the premises or the Building, the
Landlord may put up a "sale" sign on the building.
WHEN THE LANDLORD DOES REPAIRS OR BUILDING WORK
37. THE LANDLORD MAY DO ANY REPAIRS OR BUILDING WORK
37.1 The Landlord may do any building work to extend or change the
premises or the Building.
37.2 The Landlord must not do building work to the premises or the
Building, except where this lease allows the Landlord to do so (see
clause 33), or the law requires it.
38. WHEN THE LANDLORD DOES REPAIRS OR BUILDING WORK
38.1 The Landlord must give the Tenant at least 24 hours notice of any
repairs, maintenance or building work in the premises that the
Landlord wants to do. The Landlord must act reasonably if this work
disrupts the Tenant's use of the premises.
WHAT HAPPENS IF THE BUILDING OR PREMISES ARE DAMAGED, DESTROYED OR RESUMED?
39. IF DAMAGED OR DESTROYED
39.1 If the premises or the Building or both are damaged or destroyed, and
as a result the Tenant cannot use or have access to the premises,
then the Tenant may ask the Landlord to re-build either or both of
them.
39.2 The Landlord may give a notice to the Tenant ("the Rebuilding
Notice") within 90 days of the Tenant's request stating whether the
Landlord intends to rebuild.
39.3 If the Landlord does not give the Rebuilding Notice on time, or if
the Landlord decides not to rebuild, the Landlord or the Tenant may
end this lease by notice to the other. This lease ends on the date of
the notice.
39.4 But the Tenant cannot end this lease and must continue to pay the
full rent and other money payable under this lease up to the expiry
date if the Tenant caused or substantially contributed to the damage
or destruction.
39.5 The Landlord is not liable to pay the Tenant compensation. But if the
Tenant did not cause or substantially contribute to the damage or
destruction, the Landlord must reduce the Tenant's rent (and other
money payable) by a reasonable amount from the date of the damage or
destruction. The amount of the reduction depends on the type and
extent of the damage or destruction, and applies until the premises
are again fit for use or this lease is ended.
<PAGE>
14
IF RESUMED
40.1 If a competent authority resumes the premises or the Building, and
this makes the premises unfit for the Tenant's use, then the Landlord
or the Tenant may end this lease by notice to the other. The Landlord
is not liable to pay the Tenant any compensation in these
circumstances.
1. RESOLVING DISPUTES ABOUT REDUCTION IN RENT AND OTHER MONEY PAYABLE
41.1 If the Landlord and the Tenant dispute the amount of a reduction in
rent (and any other money payable), the procedure in clause 41.2 must
be followed. Each time limit is consecutive. If a time limit is not
kept the right attached is lost.
41.2 This is the procedure for disputes about reducing the money payable
under this lease.
* If the Tenant contends that the money payable should be reduced
but the Landlord does not agree or the Landlord or the Tenant do
not agree the reduced amount, the Tenant must give the Landlord
notice of the dispute.
* The Tenant and the Landlord must negotiate in good faith to agree
on a new amount within 30 days of the date of the Tenant's
notice.
* If the Tenant and the Landlord agree, the Tenant must pay the
agreed reduced amount from the agreed date.
* If the Tenant and the Landlord do not agree then within 7 days
either the Tenant or the Landlord may ask the President of the
Australian Institute of Valuers and Land Economists Inc.
Victorian Division (or an equivalent organisation) "AIVLE") to
appoint an independent valuer to decide the reduced amount.
* The independent valuer must decide the reduced amount within 30
days of being appointed.
41.3 Until a dispute is resolved, the Tenant must pay the current rent
(and other money payable). Any adjustment must be calculated from the
appropriate date. The Landlord must refund the amount of any
adjustment within 7 days of the decision.
41.4 The independent valuer must have the following qualifications:
* current membership of the AIVLE; and
* at least 5 years experience in valuing office space in the
Melbourne CBD.
41.5 In deciding the dispute, the independent valuer must act as an
independent expert and not as an arbitrator and must give written
reasons for the decision. The decision if final and binding on the
parties.
41.6 The Landlord and the Tenant must share the cost of appointing the
independent valuer equally.
<PAGE>
15
WHAT HAPPENS IF THE TENANT BREACHES THIS LEASE?
42. TENANT BREACHES
42.1 The Tenant breaches this lease if the Tenant disobeys any provision
of this lease, for example:
* if the Tenant does not pay the rent or the Tenant's share of the
operating expenses on time; or
* if the Tenant disobeys the provision about the use of the
premises (see clause 22.1).
43. NOTICE OF BREACH
43.1 If the Tenant breaches this lease, the Landlord must give the Tenant
a notice (this may be a demand for rent) describing the breach and
requiring the Tenant to remedy it.
43.2 The Landlord must give the Tenant at least 14 days to remedy a
breach.
44. LANDLORD'S RIGHTS IF THE TENANT BREACHES
44.1 If the Tenant breaches this lease or any other ancillary agreements
associated with the premises and does not remedy within the time
required, the Landlord may do any one or more of the following:
* re-enter and take possession of the premises;
* terminate this lease;
* recover from the Tenant or the Guarantor any loss the Landlord
suffers due to the Tenant's breach;
* use the security deposit (see clause 16) to recover any loss the
Landlord suffers due to the Tenant's breach;
* carry out the Tenant's obligations on the Tenant's behalf (see
clause 34); or
* exercise any of the Landlord's other legal rights.
44.2 If the Tenant breaches an essential term of this lease and the
Landlord reenters and takes possession of the premises, then the
Landlord may recover all money payable by the Tenant under this lease
up to the expiry date. The Landlord must minimise the Landlord's
loss. The essential terms are clauses 10, 13, 15, 15, 20.1 and 21.1
COMMUNICATION BETWEEN THE PARTIES
45. NOTICES MUST BE IN WRITING
45.1 A notice required by this lease must be in writing.
<PAGE>
16
46. DELIVERING NOTICES
46.1 If the Landlord wants to give a notice to the Tenant, the Landlord
must:
* give it to the Tenant personally; or
* leave it at, or post or fax it to the premises; or
* leave it at, or post or fax it to, the Tenant's registered office
or the Tenant's last known business address.
46.2 If the Tenant wants to give a notice to the Landlord, the Tenant must
leave it at, or post or fax it to:
* the Landlord's registered office; or
* any other address that the Landlord nominates.
46.3 If the Landlord wants to give a notice to the Guarantor, the Landlord
must:
* give it to the Guarantor personally; or
* leave it at, or post or fax it to, the Guarantor's registered
office or last known business address.
OTHER MATTERS
47. INDIVIDUAL AND JOINT LIABILITY
47.1 If two or more people are described in item 2 each person described
in the item is liable for their obligations individually and together
with each other person in that item.
48. VICTORIAN LAW APPLIES
48.1 This lease is governed by Victorian law.
49. VALIDITY OF MANAGING AGENT'S ACTIONS
49.1 The managing agent may do anything that the Landlord may or must do
in this lease.
50. SIGNING OF LANDLORD'S DOCUMENT
50.1 A Landlord's document or notice is valid when:
* signed under the Landlord's common seal; or
* signed under the Landlord's power of attorney or by the
Landlord's lawyer or employee; or
* signed by the managing agent.
51. SATURDAYS, SUNDAYS AND PUBLIC HOLIDAYS
51.1 Anything to be done on a Saturday, Sunday or a public holiday in
Victoria must be done on the next business day.
<PAGE>
17
52. SEVERABILITY
52.1 If a court decides that:
* any part of this lease is void. voidable, illegal or
unenforceable; or
* this lease would be void, voidable, illegal or unenforceable
unless a part is severed from this lease, then that part is
severed from this lease and does not affect the continued
operation of the rest of this lease.
53. INTERPRETATION
53.1 When this lease requires anything not to be done, this includes not
allowing or permitting the thing to be done.
53.2 A word or expression in the singular includes the plural and the
plural includes the singular.
53.3 A person includes an individual and a corporation.
53.4 Examples are descriptive only, and not exhaustive.
53.5 A heading may be used to help interpretation, but is not legally
binding.
54. MEANING OF WORDS
54.1 In this lease:
* "body corporate" means Body Corporate No. PS301310H and includes
the secretary, agents, employees and any person authorised by
this body corporate;
* "body corporate charges" means any fee imposed by the body
corporate for expenses that have been or will be incurred for the
Building;
* "Building" means the building in item 3, and includes the land on
which it is build and the premises and common area;
* "building rules" means the rules and regulations for occupiers of
the Building, presently comprising the rules in Form 2 of
Schedule 1 of the Subdivision (Body Corporate) Regulations 1989,
as amended by the body corporate and the attached Rules and
Regulations;
* "common area" means the areas of the Building which are provided
for common use, for example car parking areas, footpaths, access
ways, entrances, stairs, escalators, lifts, toilers and loading
docks;
* "CPI" means the All Groups Consumer Price Index for the City of
Melbourne published by the Australian Bureau of Statistics. If
the CPI no longer exists, it means an index that the President of
the Australian Institute of Valuers and Land Economists decides
reflects changes in the cost of living in Melbourne;
* "financial year" means 1 July to 30 June;
* "item" means an item in the summary of lease;
* "managing agent" means any managing agent for the Building
appointed by the Landlord;
<PAGE>
18
* "premises" means the premises described in item 4 and includes
the Landlord's property within the premises. It includes the area
from the undersurface of the floor to the upper surface of the
ceiling, and to the inside surface of the walls;
* "rates" includes council rates, water rates, sewerage rates,
State Deficit Levy and all other rates assessments and fees;
* "taxes" includes the Landlord's land tax (calculated on the basis
that the Building is the only property the Landlord owns) and any
other property tax assessed on the Building but excludes the
Landlord's income tax and capital gains tax; and
* "Tenant's property" means all the Tenant's property inside the
premises and includes all the Tenant's fixtures, fittings, signs,
equipment and goods.
55. Fitout and Signage
55.1 The fit-out currently at the premises shall be available for the
Tenant's use during the term of the lease and option period.
55.2 The Tenant will be provided with a place on the tenant directory
board in the foyer of the building.
EXECUTED AS A DEED
[STAMP OMITTED]
THE COMMON SEAL of EURO ASIA )
PROPERTIES PTY LTD (ACN 006 604 922) )
was hereunto affixed in accordance with its )
Articles of Association in the presence of: )
/s/ Signature Illegible Director
/s/ Signature Illegible Director/Secretary
[STAMP OMITTED]
THE COMMON SEAL of LOOKSMART )
INTERNATIONAL PTY LTD (ACN 074 789 )
263) was hereunto affixed in accordance with )
its Articles of Association in the presence of: )
/s/ Signature Illegible Director
/s/ Signature Illegible Director/Secretary
<PAGE>
SECOND SCHEDULE
---------------
RULES AND REGULATIONS
---------------------
1. Not to obstruct entrances etc.
------------------------------
The footpath entrances passages halls lifts escalators and staircases shall
not be obstructed by the Lessee or the employees clients customers or
visitors of the Lessee or be used by them for any other purpose than for
ingress to or egress from the premises.
2. Not to obstruct air-conditioning ducts etc.
-------------------------------------------
The Lessee shall not in any way cover or obstruct the air-conditioning
ducts and outlets or the skylights and windows which reflect or admit light
into any part of the said building.
3. Use of water closets etc.
-------------------------
The water closet and other water supply apparatus shall not be used for any
purpose other than that for which they are constructed and no tea leaves
sweepings rubbish rags ashes or other substance shall be placed therein.
The cost of making good re replacing any damage resulting to such apparatus
or otherwise from such misuse by the Lessee or by the employee of the
Lessee shall be borne by the Lessee.
4. Signs
-----
No sign advertisement or notice shall be inscribed painted affixed or
displayed on any part of the outside or inside of the premises or of the
building except with the consent in writing of the Lessor and then only of
such colour size and style and in such places upon or in the building as
shall be approved by the Lessor. Signs on glass doors and on the directory
tablet will be painted or affixed for the Lessee by the Lessor at the cost
of the Lessee.
5. Blinds
------
No window blind screen or awning shall be erected without the consent in
writing of the Lessor.
6. Heavy Articles
--------------
No heavy materials or articles shall be placed or stored on any of the
floors of the building without the consent in writing of the Lessor and the
Lessor shall in all cases be entitled to prescribe the weight and proper
position thereof and of iron safes, mobile shelving equipment, heavy
furniture and office equipment in the building and all damage done to the
building or any part thereof by taking in or removing the same or during
the time it is in the building shall be made good and paid by the Lessee
who or whose agent shall cause it. Before any safe or any other heavy
article is moved into or out of or within the building at least twenty-four
(24) hours notice in writing of the intention to move such safe or article
shall be given by the Lessee to the supervisor of the building and the
moving of the same into or out of or within the building shall only be done
under the supervision of such supervisor.
7. Cleanliness
-----------
<PAGE>
The Lessee shall keep the premises in a good state of preservation and
cleanliness and shall not suffer any accumulation of useless property or
rubbish therein. All waste materials garbage dirt rubbish and trash shall
be deposited in the proper receptacles therefore and the Lessee shall
arrange for the prompt and regular removal thereof from the premises and/or
the building in accordance with any other instructions in this regard
issued by the Lessor. The Lessee shall also take all reasonable precautions
to keep the premises free of rodents, vermin, insects and pests and shall
if so required by the Lessor, meet the cost of any additional services
supplied by to the premises by pest exterminators employed by the Lessor.
<PAGE>
8. "To Let"
--------
The Lessor shall have the right during the last sixty (60) days prior to
the expiration of the Lease to bring prospective tenants and occupiers upon
and into the premises and to place thereon the usual notice "To Be Let" or
"To Let" which said notice shall not be removed by the Lessee.
9. Keys
----
All keys (including mil-access cards and other entry passes by whatever
name so called) belonging to the building and provided by the Lessor to the
Lessee for use during the Lessee's occupancy shall be forthwith surrendered
to the Lessor on the termination of the Lessee's tenancy. The Lessee shall
not cause any duplicate or facsimile thereof to be made. Any duplicate or
facsimile required by the Lessee shall be supplied by the Lessor at the
cost of the Lessee.
10. Noise
-----
The Lessee his clerks servants employees agents workmen clients customers
and visitors shall not make or permit any improper or unseemly noises in
the building or interfere in any way with other lessees or persons in the
building or mark or otherwise defile the building.
11. T.V. and Radio
--------------
No television or radio mast or antenna should be affixed to any part of the
building without the consent in writing of the Lessor and any consent so
given may be withdrawn at any time without notice if the Lessor considers
it to be in the interests of the other tenants and occupiers of the
building so to do.
12. No rubbish out of windows
-------------------------
Nothing shall be thrown by the Lessee his clerks servants employees agents
workmen clients customers and visitors out of the windows or doors or in
the lift wells or passages or on sky-lights or areas of the building.
13. Animals
-------
No animals or birds shall be kept in or about the building
14. Security Access
---------------
(a) The Lessor may lock the outer doors to the building and car park and
terminate automatic operation of the lifts outside the hours
determined from time to time by the Lessor as the normal operating
hours of the building.
(b) The Lessee and the authorised servants, agents or invitees of the
Lessee may have admission to the premises and use of the lifts at
times when the outer doors are locked but, in the absence of some
other written arrangement with the Lessor, access to the premises and
use of the lifts at such times shall only be permitted by use of a
security pass issued by the Lessor.
(c) The Lessor will provide to the Lessee at the Lessee's expense so many
security passes identified by number or computer coding as the Lessee
shall reasonably require and the Lessee shall forthwith after issue of
any such security passes
<PAGE>
to authorised servants agents or invitees of the Lessee provide to the
Lessor a list of such persons and identify the security pass issued to
each.
(d) The Lessor shall be under no liability to the Lessee for any loss or
damage occasioned by the Lessee and shall indemnify the Lessor against
any loss occasioned to the Lessor arising as a result of or incidental
to an improper entry into the premises by means of a security passes
issued to the Lessee.
(e) The Lessee shall retain control over all security passes issued to it
and shall recover possession of any security pass from any servant
agent or other person who no longer requires the use thereof for the
purposes of the Lessee's business. The Lessee shall as soon as may be
reasonably possible thereafter notify the Lessor of any alteration to
the list of personnel issued with such security passes or of any loss
or theft of any such pass.
(f) The Lessee shall upon vacation of the premises return all issued
security passes to the Lessor and shall not permit any security pass
to come into the possession of unauthorised persons or the duplication
of any such pass.
<PAGE>
(g) The Lessee shall be responsible to ensure that any person entering the
premises by means of a security pass shall od so without causing any
harm to any of the common areas or facilities of the building nor
interfere with or enter upon areas of the building occupied by Lessees
other than the Lessee.
15. Lifts
-----
The working hours and use of the lifts and other services shall be
regulated by and be under the control of the Lessor and the Lessor shall
not be responsible for any inconvenience loss damage or harm arising out of
any stoppages to the lifts. The Lessee shall use the Passenger lifts only
for passengers and shall not except with the express consent of the Lessor
or its building supervisor use them for the carriage of goods.
Notwithstanding the foregoing the Lessee shall be entitled to use the lifts
for the carrying of goods in the ordinary course of the Lessee's use of the
premises as offices, including the fitting out of the premises during which
the Lessee shall use the lift safety covers supplied by the Lessor,
provided always that the Lessee shall make good any damage thereby caused.
16. Accident or Defect
------------------
The Lessee shall give to the Lessor prompt notice in writing of any
accident to or defect in any of the services connected to the building
PROVIDED THAT if any fire flooding explosion or other sudden peril or
emergency occurs to the knowledge of the Lessee the Lessee shall
immediately give notice or warning thereof to the Lessor.
17. Lighting
--------
The Lessee shall inform the Lessor of the existence of any defective,
damaged or broken electric light fittings bulbs tubes and globes in the
premises and the Lessor shall arrange any necessary repair and/or
replacement the cost of which shall be paid by the Lessee to the Lessor on
demand. The Lessor, however, reserves the right to replace from time to
time under a group replacement programme all fluorescent tubes in the
premises and the cost of such replacement of such tubes, globes or other
light sources caused by circumstances beyond its control and upon the
expiration or sooner determination of the Lease, to which these rules
apply, the Lessee shall deliver up to the Lessor all such rubes, globes and
other light sources as are then installed in the premises in proper working
order.
18. Parking
-------
The Lessee shall not use any parking area for any purpose other than the
parking of a motor vehicle.
19. Vending Machines
----------------
The Lessee shall not install in the demised premises any machine for
entertainment vending or dispensing food refreshments or merchandise
without the written consent of the Lessor.
20. Plate Glass
-----------
The Lessee shall be responsible for replacing any plate or other glass in
the windows or other parts of the premises which become broken or damaged
to a standard and by a contractor (if any) nominated by the lessor.
21. Food
----
<PAGE>
The Lessee shall not prepare nor cook food other than in areas which may be
provided and which are approved by the Lessor for this purpose.
22. Air-Conditioning
----------------
The following provisions shall apply in respect to air-conditioning:-
(a) The windows or doors fitted with closers in the premises shall not be
opened or be permitted to remain open by the Lessee or any employee
agent client workman clerk customer or visitor of the Lessee;
<PAGE>
(b) The air-conditioning plant will so far as practicable be operated on
Mondays to Fridays (both inclusive) other than public holidays between
the normal hours of operation as determined by the Lessor. The Lessee
may activate the air-conditioning plant to supply conditioned air to
the premises on days and times other than as so specified but shall
comply with the procedures laid down from time to time by the Lessor
in relation to the operation of the after hours air-conditioning which
shall include the actuation and switching off by the Lessee of the
air-conditioning in such manner as the Lessor from time to time
nominates. When actuated the air-conditioning shall operate in
relation to the entire floor of the building on which the premises are
located.
(c) The Lessee will be required to keep the sun protection devices (if
any) installed for the purpose of reflecting solar heat, in the proper
operational position (as determined by the Lessor from time to time)
to ensure the designed performance of the air-conditioning equipment.
(d) The Lessee will not do any act or thing whereby the working of the
air-conditioning plant in the premises and/or the building shall be
affected and in particular without affecting the generality of the
foregoing the Lessee shall not install or cause to be installed any
fittings or equipment or keep articles or furniture where they may or
will interfere with the access panels or the front of air registers,
thermostats, or diffusers or where they are liable to obstruct or
reduce air movement.
23. Lock External Doors
-------------------
All lockable doors of the premises shall be securely fastened by the Lessee
on all occasions when the premises are left unoccupied or unattended and
the Lessor reserves the right to enter and fasten the same if left
insecurely fastened.
24. Lessor Not Liable for Enforcement of Rules
------------------------------------------
The Lessor shall not be liable for any enforcement or non-enforcement of
these Rules and Regulations or any of them.
<PAGE>
EXHIBIT 10.18
DATED DAY OF 1999
BETWEEN
-------
TONICALON PTY LIMITED
("the Licensor")
of the one part
AND
LOOKSMART INTERNATIONAL PTY LIMITED
("the Licensee")
of the other part
CAR PARKING LICENCE AGREEMENT
PREPARED IN CONJUNCTION WITH LEASE FOR PART LOT 7 SP 56293
BUILDING: 68 ALFRED STREET, MILSONS POINT
NO. OF SPACES: TWO (2)
M.C. ANTUNES
LAWYERS AND ADVOCATES
Ground Floor
53 Walker Street
NORTH SYDNEY NSW 2060
AUSTRALIA
Tel: (02) 9964 0499
Fax: (02) 9964 0626
DX: 10524 NORTH SYDNEY
REF: GP:99162
<PAGE>
THIS DEED made the day of 1999.
BETWEEN TONICALON PTY LIMITED (ACN 063 619 125) a company duly
- -------
incorporated in New South Wales and having its registered office
at 1st Floor, 1049 Victoria Road, West Ryde in the said State
(hereinafter called "the Licensor") of the one part
AND LOOKSMART INTERNATIONAL PTY LIMITED (ACN 074 789 263) a company
- ---
duly incorporated Victoria and having its registered office at
Level 5, 388 Lonsdale Street, Melbourne in the said State
(hereinafter called "the Licensee") of the other part
WHEREAS the Licensee has requested the Licensor to grant to the Licensee
- -------
permission to park a motor vehicle on the basement floors (hereinafter called
"the Car Parking Area") of the building situate at 68 ALFRED STREET, MILSONS
POINT (hereinafter called "the Building") which the Licensor has agreed to do
upon the terms and subject to the conditions hereinafter set forth
NOW THIS DEED WITNESSETH:
- -------------------------
1. The Licensor grants to the Licensee licence and privilege to park not more
than TWO (2) MOTOR VEHICLE (the tare weight or any of each such motor
vehicle not to exceed thirty (30) hundredweight) at any one time in the Car
Parking Area in or upon such spaces therein as may be specified from time
to time by the Licensor.
2. The Licensee its employees servants and agents (and visitors as
hereinbefore stated) shall enter and leave the Building by such entrances
and exits as the Strata
<PAGE>
2
Manager for SP No. 56293 ("the Strata Manager") may from time to time
determine.
3. (a) This Licence shall be for the period from month to month until
determined at any time by either the Licensor or the Licensee by
giving to the other of them one (1) month's previous notice in
writing.
(b) The Licensee shall pay to the Licensor or as the Licensor shall direct
a licence fee of $350.00 per calendar month for each motor vehicle
(making a total of $700.00 per calendar month) payable by CALENDAR
MONTHLY INSTALMENTS in advance on the FIRST day of each and every
month (and proportionately for any part of a month) the first of such
payments to be made on 1 JUNE 1999 (hereinafter called "the
commencement date").
4. The Licensee shall keep a record (and if so required from time to time
shall supply thereof to the Licensor) of the registration numbers of the
motor vehicle using the parking space the subject of the Licence hereby
granted on each day during the continuance of the Licence.
5. The Licensee shall not introduce into, do or suffer to be done by itself,
its employees or visitors any act matter or thing within the Building or
keep anything in the said motor vehicle or otherwise within the Car Parking
Area which shall or may increase the rate of fire insurance in respect
thereof or (without limiting the generality of the foregoing) which may
conflict with the laws or regulations relating to fires or any insurance
policy over any part of the Building or any property therein or the
regulations or ordinances of any public authority or the by-laws of the
Owners Corporation in SP56293 or any direction from the Strata
<PAGE>
3
Manager or the provisions of any statute for the time being in force.
6. The Licensee shall not clean, grease, oil, repair or wash any motor vehicle
in the Car Parking Area or any part thereof.
7. No vehicle shall be driven within the Car Parking Area at a speed in excess
of eight (8) K.P.H.
8. The Licensor shall not be responsible for any damage to or theft of any
motor vehicle or any part of parts thereof or the contents of any motor
vehicle which is parked in the Car Parking Area or which is otherwise
within the Building and the Licensee undertakes to indemnify the Licensor
in respect of any claim or claims made as a result of any damage to or
theft of any Licensee's motor vehicle or any part thereof or the contents
of any Licensee's motor vehicle parked in the Car Parking Area or otherwise
within the Building.
9. (a) The Licensee shall indemnify and keep indemnified the Licensor from
and against:-
(i) all claims demands writs summonses actions, suits proceedings
judgments orders decrees damages costs losses and expenses of any
nature whatsoever which the Licensor may suffer or incur in
connection with loss of life, personal injury and/or damage to
property arising from and out of any occurrence in, upon or at
the Car Parking Area or the use of the Car Parking Area or any
part thereof by the Licensee or by any of the Licensee's
employees, servants or agents;
(ii) all loss and damage to the Car Parking Area to the Building and
to
<PAGE>
4
all property therein cause by the Licensee or the Licensee's
employees, servants, agents or visitors, whether arising out of
the use of a motor vehicle or otherwise.
10. This Licence may be determined by the Licensor by 14 days notice in writing
upon default by the Licensee in the performance or observance of any
covenant or agreement:-
(i) on the part of the Licensee under this Licence; or
(ii) on the part of the Licensee as Lessee under its Lease.
11. This Licence shall not confer any right of exclusive occupation of all or
any particular car parking space within the Car Parking Area and the
Licensor may at any time and at all times and from time to time exercise
all it's rights as owner of the Building and may at any time and from time
to time vary the particular parking space(s) occupied by the Licensee and
the Licensee shall not be entitled to make any objection or claim for
compensation in respect of such alteration.
12. Notwithstanding anything contained in Clause 4 the Licensor shall have the
right to review the monthly fee every month and to determine a reasonable
monthly fee which the Licensor considers to be a current market fee for the
privileges hereby granted. Upon such determination by the Licensor and
notification thereof to the Licensee the Licensee shall pay the licence fee
so determined as and from the date so notified.
13. The Licensor may deliver up the vehicle from time to time parked pursuant
hereto to any person producing this Licence or offering such other evidence
of ownership or authority to receive the said vehicle as the Licensor may
in its absolute and
<PAGE>
5
unfettered judgment deem satisfactory.
14. No modification or variation of any term or condition hereof shall be made
unless evidenced in writing signed by the Licensee and by the Licensor.
15. The Licensee acknowledges that no representations or warranties have been
made to the Licensee by the Licensor with respect to the foregoing terms
and conditions and that the Licensee has not entered into any collateral
agreement or warranty with respect to the matters referred to in this
Licence.
IN WITNESS WHEREOF the parties hereto have executed this Deed on the date first
hereinbefore written.
TONICALON PTY LIMITED
ACN 063 619 125 by its
Attorney MARGARET ANTUNES
pursuant to registered Power
of Attorney Book 4081 No 203.
...................................
Margaret Antunes
...................................
Witness
<PAGE>
6
[STAMP OMITTED]
THE COMMON SEAL of )
LOOKSMART INTERNATIONAL )
PTY LIMITED ACN 074 789 263 )
is affixed in accordance with )
its articles of association in )
the presence of: )
/s/ Tracey Ellery
Signature of Director
TRACEY ELLERY
- -------------
Name of Director
(print)
/s/ Evan Thornley
Signature of Secretary
EVAN THORNLEY
- -------------
Name of Secretary
(print)
<PAGE>
Form: 97-07L LEASE
Licence: MID/0750/97 New South Wales
Real Property Act 1900
Office of State Revenue use only
(A) PROPERTY LEASED
If appropriate, specify Office premises situate at level 3, 68 Alfred
Street, the part or premises. Milsons Point, being Part Lot 7 in Strata
Plan 56293 being Part 7/SP56293
(B) LODGED BY LTO Box Name, Address or DX And Telephone
Reference (15 character max):
(C) LESSOR TONICALON PTY LIMITED (ACN 063 619 125)
The lessor leases to the lessee the property described above.
(D) Encumbrances (if applicable): 1. 2. 3.
(E) LESSEE
L LOOKSMART INTERNATIONAL PTY LIMITED (ACN 074
789 263) OF LEVEL 5, 388 LONSDALE STREET,
MELBOURNE 3000
(F)
(G) 1. TERM: Three (3) years
2. COMMENCING DATE: 1 June 1999
3. TERMINATING DATE: 31 May 2002
4. With an OPTION TO RENEW for a period of THREE (3) years set out
in clause B.2
5. With an OPTION TO PURCHASE set out in (NOT APPLICABLE)
6. Together with and reserving the RIGHTS set in Annexure "A".
7. Incorporates the provisions set out in ANNEXURE "B" hereto.
8. Incorporates the provisions set out in (NOT APPLICABLE)
PAGE 1 OF 2
<PAGE>
<TABLE>
<S> <C>
(H) We certify this dealing correct for the
purposes of the Real Property Act 1900. DATE__________
Signed in my presence by the Lessor who is personally known to me.
TONIC. LON PTY LIMITED (ACN 063 619 125) by
________________________________________
Signature of Witness its attorney MARGARET ANTUNES pursuant to
Power of Attorney Book 4081 Number 203
________________________________________
Name of Witness (BLOCK LETTERS)
________________________________________ ____________________________________________
Address of Witness MARGARET ANTUNES
THE COMMON SEAL of LOOKSMART )
INTERNATIONAL PTY LIMITED )
(ACN 074 789 263) was hereunto affixed in )
accordance with the memorandum and articles of )
association:
________________________________________ ____________________________________________
Secretary Director
(I) STATUTORY DECLARATION
I solemnly and sincerely declare that: the time for the exercise of Option
to Renew/Purchase in expired lease No. ______ has ended; the lessee under
that lease has not exercised the option; and a variation of lease extending
the term has not been entered into. I make this solemn declaration
conscientiously believing the same to be true and by virtue of the Oaths
Act 1900.
Made and subscribed at ______________ in the State of _____________ on
_______ 19 _____ in the presence of:
________________________________________
Signature of Witness
________________________________________
Name of Witness (BLOCK LETTERS)
________________________________________ ____________________________________________
Address and Qualification of Witness Signature of Lesser
</TABLE>
PAGE 2 OF 2
<PAGE>
THIS THE SCHEDULE REFERRED TO IN A LEASE BETWEEN TONICALON PTY LIMITED A.C.N.
- -----------------------------------------------------------------------------
063 619 125
- -----------
(LESSOR) AND LOOKSMART INTERNATIONAL PTY LIMITED A.C.N. 074 789 263 (LESSEE)
- ----------------------------------------------------------------------------
DATED this day of 1999
- ------------------------------------------------------------
58 ALFRED STREET, MILSONS POINT
-------------------------------
CERTIFICATE OF TITLE FOLIO IDENTIFIER PART 7/SP56293
----------------------------------------------------
<PAGE>
THIS IS ANNEXURE "A" REFERRED TO IN A LEASE BETWEEN TONICALON PTY LIMITED A.C.N.
- --------------------------------------------------------------------------------
063 619 125
- -----------
(LESSOR) AND LOOKSMART INTERNATIONAL PTY LIMITED A.C.N. 074 789 263 (LESSEE)
- ----------------------------------------------------------------------------
DATED the day of 1999
- ------------------------------------------------------------------------------
THE LESSOR RESERVES UNTO ITSELF AND THE OWNERS CORPORATION THE FOLLOWING RIGHTS
AND LIBERTIES:-
EXCEPTING AND RESERVING to the Lessor the right to maintain and repair or
replace all airconditioning, sprinkler, gas, water and other service pipes,
conduits, ducts or apparatus, electricity and telephone wires passing
through or situated on the Premises and the right to run water, oil, gas,
wastes and electricity in or through the said pipes, conduits, ducts and
wires to other parts of the Building.
<PAGE>
THIS IS ANNEXURE "B" REFERRED TO IN A LEASE BETWEEN TONICALON PTY LIMITED A.C.N.
- --------------------------------------------------------------------------------
063 619 125
- -----------
(LESSOR) AND LOOKSMART INTERNATIONAL PTY LIMITED A.C.N. 074 789 263 (LESSEE)
- ----------------------------------------------------------------------------
DATED the day of 1999
- ------------------------------------------------------------------------------
DEFINITIONS AND INTERPRETATIONS
- -------------------------------
1. In the interpretation of this Lease except to the extent that such
interpretation shall be excluded by or be repugnant to the context when
used herein:
(a) "the lessor" shall means and include Tonicalon Pty Limited and its
assigns;
(b) "the Lessee" shall mean and include the Lessee or Lessees and if a
person or persons his or their respective executors administrators and
permitted assigns or if a company the Lessee and its permitted assigns
and where there are two or more Lessees, shall mean and include the
Lessees and each and every of them and each and every of their
executors administrators and permitted assigns;
(c) "the Lessee's employees and visitors" shall mean each and every of the
Lessee's clerks, servants, workmen, employees, agents, customers,
clients visitors and any other person or persons who may at any time
be on or upon the Premises;
(d) "the Premises" means the part of the Building hereby demised with all
rights hereby granted and subject to every covenant power and
provision herein contained or implied;
(e) "the Building" means 68 Alfred Street, Milsons Point; and
(f) "person" shall be deemed to include a corporation;
(g) "the Council" means the Council of North Sydney or any Authority for
the time being replaced or acting in the place and instead of that
Council.
(h) "Appendix" means the Appendix to this Annexure "B".
(i) "Strata Plan" means Strata Plan No. 56293.
(j) "Owners Corporation" means the Owners Corporation for Strata Plan No.
56293.
(k) "Strata Manager" means the managing agent appointed by the Owners
<PAGE>
PAGE 2
Corporation.
(l) "Common Property" means the common property of Strata Plan No. 56293.
(m) Any provision of this Lease to be performed by two or more persons
shall bind those persons jointly and severally.
(n) The index to this Lease and any headings in this Lease have been
inserted for convenience only and shall not in any way limit or govern
the construction of the terms of this Lease.
(o) Any reference in this Lease to any legislation or delegated
legislation shall be deemed to include all amendments and revisions
made from time to time to that legislation or delegated legislation.
(p) Any reference in this Lease to a "month" or "monthly" shall mean
respectively calendar month and calendar monthly.
(q) References to any Authority institute association or body whether
statutory or otherwise shall in the event of any such Authority
institute Association or body ceasing to exist or being reconstituted
renamed or replaced or the powers or functions thereof being
transferred to any other organisation be deemed to refer respectively
to the organization established or constituted in lieu of or
replacement for or which serves substantially the same purposes or
subjects of such authority institute association or body.
(r) Where the word "deleted" appears against a paragraph or clause number
in this Lease it shall indicate that the Clause in the draft Lease
upon which this Lease is based has been considered inappropriate to
this Lease.
(s) Words importing the singular or plural number shall be deemed to
include the plural or singular number respectively and words importing
the masculine gender only shall include the feminine or neuter gender
and vice versa as the case may require;
(t) When two or more persons are Lessees all covenants agreements
restrictions conditions and provisions shall bind the Lessee's and any
two or greater number of them jointly and each of them severally and
shall also bind the executors administrators and permitted assigns of
them and every two or greater number of them jointly and severally;
(u) "Item" means an Item on the Appendix.
(v) The words "review date" where used in this Lease means those dates
referred to in Item 6A.
<PAGE>
PAGE 3
(w) The expression "the Consumer Price Index number" where used in this
Lease shall mean the index number published quarterly by the
Australian Bureau of Statistics and known as the Consumer Price Index
for Sydney (All Groups) PROVIDED THAT should at any time the Consumer
Price Index number cease to be published then the Lessor and the
Lessee shall agree to replace the Consumer Price Index number with
such other index number as shall be published to replace the Consumer
Price Index number and in the absence of such agreement being reached
that other index number shall be as selected as being the index number
which most appropriately reflects fluctuations in the cost of living
in Sydney by the President for the time being of the Australian
Institute of Valuers and Land Economists (Inc) NSW Division or his
nominee whose fees shall be paid equally by the Lessor and the Lessee
and whose decision shall be made as an expert and not as an arbitrator
and shall be final and binding on both the Lessor and the Lessee.
A. EXCLUSION OF STATUTORY PROVISIONS
---------------------------------
The covenants powers and provisions implied in Leases by virtue of Sections
84, 84A, 85 and 86 of the Conveyancing Act 1919 as amended are hereby
expressly negatived.
B. TERM
----
B.1 This Lease shall commence on the date stated in Item 3 and shall terminate
on the date stated in Item 4.
B.2. If the Lessee desires to have a further Lease of the Premises granted to it
for the period stated in Item 5 after the expiration of the term hereby
demised and gives to the Lessor not more than nine (9) months' and not less
than six (6) months' notice in writing to that effect prior to the date
stated in Item 4 then (provided that at the date of the exercise of this
option and at the date of the expiration of the term hereby demised there
is no subsisting breach by the Lessee of the covenants terms conditions and
provisions herein contained) the Lessor shall grant to the Lessee a Lease
of the Premises for the period stated in Item 5 commencing on the day
following the date stated in Item 4 upon and subject to the same covenants
terms conditions and provisions contained in this Lease except that;-
(a) the dates to be inserted in Item 3 and 4 shall be the first and last
days of the said further term respectively;
(b) the amount of the base rent to be inserted in Item 6 shall be the base
rent determined in accordance with the formula pursuant to Clause C2
hereof;
<PAGE>
PAGE 4
(c) the review dates stated in ITEM 6B shall be substituted in that
further lease for the review dates stated in ITEM 6A;
(d) the provisions of Clause C.2 shall be substituted as follows:
(a) On the FIRST AND SECOND ANNIVERSARY of the commencing date,
the rent shall be subject to review and adjusted by
reference to the following formula:
The greater of:
(i) Adjusted rent = R x 12 x CPI(2)
--------
CPI(1)
where R = the monthly rent payable by the Lessee
immediately prior to the then applicable review
date;
CPI(1) = The Consumer Price Index ending
immediately prior commencement date or
the review date as the number for the
quarter to the later of the immediately
preceding case may be.
CPI(2) = The Consumer Price Index ending
immediately prior review date. number for
the quarter to the then applicable
or
(ii) the base rent payable immediately prior to the relevant
date for review of rent increased by THREE PER CENTUM
(3%).
(b) Deleted.
(c) Deleted.
(e) The covenants by the Lessee in Clause C1 shall apply from time to time
as if the base rent for the time being applicable under this Clause
were the base rent stated in ITEM 6."
(f) the provisions of Clause P shall be omitted from such further Lease
and the following Clause P shall be substituted in its place:
"P.01 The Lessee acknowledges that pursuant to the terms of
<PAGE>
PAGE 5
Clause P of the Lease immediately preceding this Lease, the
Lessee/Lessor fitted out the Premises (such fitout being
hereinafter called "the Works") on the basis that upon the
expiration or earlier determination of that Lease, the
lessor could require the lessee to remove the whole or any
part of the Works and to reinstate the Premises, unless the
Lessee exercised any option for renewal therein contained.
P.02 This Lease is granted pursuant to such exercised option and
the Lessee accordingly hereby agrees with the Lessor that
upon the expiration or earlier determination of this Lease,
the Lessor shall be entitled to require the Lessee at the
Lessee's expense to reinstate the Premises either wholly or
partly (in the Lessor's absolute discretion) to the state in
which they were immediately prior to the commencement date
of such immediately preceding Lease and to do so in a proper
and workmanlike manner. If the Lessor shall require such
reinstatement then it shall following the expiration or
earlier determination of this Lease give notice in writing
to the Lessee stating the works required to be effected
pursuant to this clause and in the event that within 21 days
after such service of such notice upon the Lessee the
Premises have not been reinstated as required by such
notice, then at any time thereafter the Lessor shall be
entitled to procure such reinstatement to be effected by an
independent contractor and to recover the cost of so doing
from the Lessee as a liquidated debt."
(g) the provisions of this Clause B2 and Item 5 shall be omitted from such
further Lease.
B.3 Should the Lessee continue to occupy the Premises beyond the expiration of
the term of this Lease with the consent of the Lessor, otherwise than
pursuant to a further Lease granted by the Lessor to the Lessee, he shall
do so as a monthly tenant only, at a rent payable monthly in advance, the
first payment to be made on the day following the date stated in Item 4,
equal to one-twelfth of the sum of the following amounts:-
(a) the amount (per annum) of the base rent payable hereunder immediately
prior to the expiration of the term of this Lease; and
(b) the sum referred to in Clauses C3 and K3; and
(c) the Cleaning Charge referred to in Clause L.
Such tenancy shall be determinable at any time by either the Lessor or the
Lessee giving to the other one (1) month's notice in writing expiring at
any time. All other terms and conditions of this Lease shall, mutaris
mutandis, apply to such
<PAGE>
PAGE 6
holding over.
B.4 Notwithstanding anything herein contained, upon the Lessor becoming
entitled to re-enter or determine this Lease, the residue of the term
hereof for the time being unexpired shall at the option of the Lessor
immediately upon notice of the exercise of such option being given by the
Lessor to the Lessee become reduced to one (1) month and thereafter the
tenancy hereby created shall be and remain tenancy from month to month at a
rent payable monthly in advance, the first payment to be made upon the date
on which notice of the exercise of such option is given by the Lessor to
the Lessee, equal to one-twelfth of the sum of the following amounts:-
(a) the amount (per annum) of the base rent payable hereunder immediately
prior to the expiration of the term of this Lease; and
(b) the sum referred to in Clauses C3 and K3; and
(c) the Cleaning Charge referred to in Clause L.
Such tenancy shall be determinable at any time by either the Lessor or the
Lessee giving to the other one (1) month's notice in writing.
C. RENT, ETC.
----------
C.1 The Lessee covenants with the Lessor that the Lessee will pay to the Lessor
during the term of this Lease rent (hereinafter called "base rent") at the
rate of the amount per annum stated in Item 6 (subject however to Clause
C2). The base rent shall be paid by the Lessee to the Lessor as follows:-
(a) Where the commencing date of this Lease is the first day of any month,
by a payment to be made on or before such commencing date equal to
one-twelfth of the amount of the base rent.
(b) Where the commencing date of this Lease is not the first day of any
month, by a payment to be made on or before such commencing date equal
to that amount which bears to the amount of the base rent the same
ratio as the number of days in the period from such commencing date to
the first day of the month following bears to 365.
(c) By payments to be made on the first day of each month following the
commencing date of this Lease during the term of this Lease, each
equal to one-twelfth of the amount of the base rent provided however
that where that date stated in Item 4 is not the last day of any month
then the last of such payments shall be that amount which bears to the
amount of the base rent the same ratio as the number of days in the
period from the first day of the month stated in Item 4 to the day of
that month stated in Item 4 bears to 365.
<PAGE>
PAGE 7
C.2
(a) At any time prior to or after the commencing date the Lessor may
notify the Lessee in writing of the amount which the Lessor considers
to be the annual market rent of the premises as from that particular
review date until the next applicable review date or the termination
date whichever shall be the sooner to occur and unless the Lessee
within one (1) month of the date of delivery of the Lessor's notice
referred to in this Clause notifies the Lessor in writing that the
Lessee requires such rent to be determined then the amount stated in
the Lessor's notice given under this Clause shall become the rent
reserved by this Lease as and from that particular review date in
substitution for the amount stated in ITEM 6 or where applicable the
rent determined at any previous review date.
(b) In the event that the Lessee disputes the Lessor's assessment as
aforesaid then the Lessor may request the President or other senior
office bearer of the Australian Institute of Valuers and Land
Economists (Inc.) NSW Division or its successor to nominate a member
of the Institute or its successor who shall determine a proper base
rent for the premises having regard to the current market rental value
thereof and:-
(i) any such determination when made shall be deemed to have been
made by such valuer as an expert and not as an arbitrator;
(ii) the cost of any such determination shall be paid by the Lessor
and the Lessee equally;
(iii) the base rent payable HEREUNDER SHALL BE THE GREATER OF:
(aa) the amount so determined, OR
(bb) the amount which is the sum of the base rent payable
immediately prior to such determination and the total of
the Outgoings paid or payable under this lease during the
12 months immediately prior to such determination,
(iv) any variation in the base rent resulting therefrom shall take
effect on and from the review date.
(c) The covenants by the Lessee in Clause C1 shall apply from time to time
as if the base rent for the time being applicable under this Clause
were the base rent stated in ITEM 6.
<PAGE>
PAGE 8
(d) On the first and second anniversaries of the commencing date, the rent
shall be subject to review and adjusted by reference to the following
formula:
The greater of:-
(i) Adjusted rent = R x 12 x CPI(2)
------
CPI(1)
where R = the monthly rent payable by the Lessee
immediately prior to the then applicable review
date;
CPI(1) = The Consumer Price Index number for the quarter
ending immediately prior to the later of the
commencement date or the immediately preceding
review date as the case may be.
CPI(2) = The Consumer Price Index number for the quarter
ending immediately prior to the then applicable
review date.
OR
(ii) the base rent payable immediately prior to the relevant date for
review of rent increased by three per centum (3%).
C.3 The Lessee shall pay to the Lessor in addition to the rent reserved by this
Lease the amount by which the Outgoings paid or incurred by the Lessor
during any period in which the Lessee is in occupation of the Premises
exceed the amount of the Outgoings for the base year stated in Item 7(b)
and the following provisions shall apply.
(i) the "OUTGOINGS" where used in this Lease shall mean the total sum of
all Outgoings costs and expenses assessed charged imposed levied paid
or payable by the Lessor in respect of the premises (including in such
term, for the purposes of this sub-clause, common property, the
curtilage of the Building and all levels thereof including but without
limiting the generality of the foregoing, those levels below ground
level, whether used for parking of motor vehicles or otherwise) and in
particular but without limiting the generality of the foregoing shall
include:
(a) all taxes rates assessments duties levies impositions and fees
whatsoever imposed by any Municipal or Local Government State
Government or Federal Government or other Authority imposed
<PAGE>
PAGE 9
levied or charged upon the premises including any State or
Federal Land Tax which may be imposed and including all taxes for
local improvements or works related to the premises assessed upon
the Lessor or which the Lessor is liable to pay.
(b) All rates costs and charges payable in relation to the supply of
water sewerage and drainage to or from the premises.
(c) All amounts payable by the Lessor in respect of insurances
effected by the Lessor relating to the premises or risks
associated therewith.
(d) All charges incurred or paid by the Lessor for lighting heating
air conditioning ventilating the premises or providing
electricity gas or fuel to the premises.
(e) The costs and expenses incurred by the Lessor in servicing
maintaining and repairing the premises and the Lessor's fixtures
fittings plant and equipment installed therein BUT excluding
repairs of a structural nature.
(f) The costs of operating and providing any services for the benefit
of the premises or the tenants therein such as security and/or
caretaking landscaping and/or gardening services.
(g) All costs (including wages and administrative costs) incurred by
the Lessor in or about the management control or administration
of the premises but excluding contributions made by the Lessor to
any promotional fund established for the Building.
(h) All strata levies (including administrative, sinking and special
strata levies) payable in relation to the premises.
(ii) The Lessee shall pay to the Lessor the percentage of the Outgoings
payable by the Lessee within fourteen (14) days of the Lessor giving
to the Lessee written notice of the amount thereof together with
reasonable details of the calculation of such amount which notice
shall be prima facie evidence of the detail set out therein.
(iii) Notwithstanding the provisions of the foregoing paragraph the Lessor
may from time to time notify the Lessee of the Lessor's reasonable
estimate of the Lessee's proportion of the Outgoings for any period
not exceeding one (1) year in advance of the estimate whereupon the
Lessee will pay to the Lessor during such period such estimate
proportion by equal monthly instalments in advance on the days
hereinbefore fixed for payment of the rent provided always that upon
computation of the Lessor's Outgoings at the end of the then current
year as aforesaid any necessary adjustment between the estimated and
actual Lessee's proportion shall be
<PAGE>
PAGE 10
made and any refund to or further payment by the Lessee shall be allowed or
made by or to the Lessor accordingly.
C.4 If any rent or other moneys payable by the Lessee under this Lease remain
unpaid for fourteen (14) days after their due date then the Lessee shall
pay to the Lessor interest on those moneys at the annual percentage rate
which is equivalent to the annual percentage interest rate charged from
time to time for cash advances by the Westpac Banking Corporation to its
customers having "Bankcard" accounts (or where such accounts are totally
discontinued such accounts as shall then have replaced such "Bankcard"
accounts) calculated from the due date for payment of those moneys to the
date of payment and the Lessor shall be entitled to recover those moneys
and/or that interest with all costs incurred in such recovery as if the
same were rent arrears.
D. INSURANCE
---------
D.1 The Lessee shall at all times during the term of this Lease and during any
period of holding over keep current an adequate public risk insurance
policy for an amount not less than the amount stated in Item 9 (being the
amount which may be paid arising out of any one single accident or event)
or such higher amount as the Lessor may from time to time require in
respect of the Premises.
D.2 The Lessee shall at all times during the term of this Lease and during any
period of holding over keep current an insurance policy in the joint names
of the Lessor and the Lessee for the full insurable value on a replacement
basis against all insurable risks of all glass (including plate glass) in
or enclosing the Premises.
D.3 The Lessee shall at all times during the term of this Lease and during any
period of holding over keep current a policy of workers' compensation
insurance with unlimited common law extension covering all persons employed
or otherwise retained by the Lessee (including any persons retained by the
Lessee to effect any repairs alterations or additions to the Premises)
effectively insuring the interests and liabilities of the Lessor to any
such person so employed or retained.
D.4 The Lessee shall indemnify and keep indemnified the Lessor from and
against:-
(a) all claims demands writs summonses actions suits proceedings judgments
orders decrees damages costs losses and expenses of any nature
whatsoever which the Lessor may suffer or incur in connection with the
loss of life, personal injury and/or damage to property arising from
or out of any occurrence in, upon or at the Premises or the use of the
Premises or any part thereof by the Lessee or by any of the Lessee's
employees or visitors;
(b) all loss and damage to the premises, to the Building and to all
property therein caused by the Lessee or the Lessee's employees or
visitors and in
<PAGE>
PAGE 11
particular but without limiting the generality of the foregoing caused
by the use or misuse waste or abuse of water gas or electricity or
faulty fittings or fixtures of the Lessee.
D.5 The Lessee shall not bring on to, do or suffer to be done or allow any act,
matter or thing upon the Premises or keep anything in the Premises which
shall or may increase the rate of fire insurance on the Building or any
property therein or which may vitiate or render void or voidable any
insurances in respect thereof or (without limiting the generality of the
foregoing) which may conflict with the laws or regulations relating to
fires or any insurance policy over any part of the Building or any property
therein or the regulations or ordinances of any public authority or the
provisions of any statute for the time being in force.
D.6 The Lessee will from time to time as and when required by notice in writing
from the Lessor pay all extra premiums and stamp duties payable by the
Lessor on account of extra risk caused by the use to which the Premises are
put by the Lessee.
D.7 All policies of insurance liable or required to be effected by the Lessee
hereunder shall be taken out with an insurance office approved by the
Lessor.
D.8 The Lessee will if requested by the Lessor forthwith produce to the Lessor
any policy of insurance which the Lessee is required to effect hereunder
and the receipt for the last premium payable in respect of any such policy.
D.9 The Lessor shall not be liable or in any way responsible to the Lessee or
to any of the Lessee's employees or visitors or to any other person for any
injury loss or damage which may be suffered or sustained to any property or
by any person in the Building or on the land howsoever occurring.
E. ADDITIONAL COVENANTS OF LESSEE
------------------------------
E.1 The Lessee covenants that the Lessee shall not:-
(a) open or permit or cause to be opened or to remain open any window in
the Building;
(b) cover or obstruct or permit to be covered or obstructed in any manner
or by any article or thing (other than curtails or blinds supplied by
or approved of by the Lessor) the windows sky-lights or ventilating
shafts or air inlets or outlets which reflect or admit light or enable
air to flow into or out of the Premises or any part of the Building;
(c) use or cause or permit to be used for any purposes other than for
those for which they were constructed in the light areas, lift shafts,
water-closets,
<PAGE>
PAGE 12
lavatories, conveniences and other services in the Building;
(d) throw place or allow to fall or cause or permit to be thrown or placed
in the light areas, lift shafts, water-closets, lavatories,
conveniences or other services in the Building, sweeping, rubbish,
waste paper or any unsuitable substances and the Lessee shall on
demand pay to the Lessor the amount of any damage resulting to such
light areas, lift shafts, water-closets, lavatories, conveniences or
other services from misuse of such facilities by the Lessee or by any
of the Lessee's employees or visitors;
(e) use or permit to be used any lavatories, water-closets, or washroom
accommodation in the building, other than that available from time to
time for general use;
(f) use the Premises or any part thereof for the storage or cooking of
food whether for consumption upon the Premises or not;
(g) apply at any time for or allow any application to be made for a
license or licences for the sale of beer, wine, spirits or similar
intoxicating liquors on the Premises or any part thereof or allow the
Premises or any part thereof to be used for the carrying on therein of
the trade of a publican or licensed victualler of for the sale of
beer, wine, spirits or similar intoxicating liquors or for the purpose
of a club or association where such liquor may be sold supplied to or
received, stored or bought for consumption by members or any other
person;
(h) other than in accordance with the specified use of the Premises
approved by the Lessor store chemicals, inflammable liquids,
acetylene, gas or alcohol volatile or explosive oils, compounds or
substances upon the premises or use any such substances or fluids in
the Premises for any purpose;
(i) use or permit the use of the Premises as dwelling house or sleeping
place or keep permit or suffer to be kept any animals, fishes,
reptiles or birds in or about the premises;
(j) cause obstruction or smoke or expectorate in any of the common areas
or keep any musical instruments, radios or television sets in or about
the Premises;
(k) use the Premises or permit the Premises to be used in any noisy
noxious immoral or offensive manner or do or permit on the Premises or
on the common areas anything which in the opinion of the Lessor may be
or become a nuisance disturbance or cause damage to the Lessor or its
tenants or other persons using the Building;
<PAGE>
PAGE 13
(l) make any disturbing or irritating noises or install or use any engine
or machine which shall cause or may be likely to cause noise or
vibration in the Building;
(m) use or permit to be used any heating or cooling devices or any other
device or machine which may interfere with the efficient running of
the air conditioning system;
(n) without the written consent of the Lessor;
(i) use or occupy the Premises otherwise than as office Premises in
connection with the profession trade or business stated in Item
8; or
(ii) paint affix or erect on the interior or exterior of the
Premises or of the Building any notices advertisements signs or
other devices; or
(iii) carry on any auction sale upon the Premises or any part of the
Building; or
(iv) make or permit to be made any alterations or additions in or to
the Premises or any of the Lessor's fittings (including but
without limiting the generality of the foregoing any partitions
and floor coverings) in the Building;
(o) drive nails or screws into or in any way damage or deface any floors
ceilings walls partitions or any part thereof;
(p) assign sublet or in any way dispose of or part with possession of the
Premises or any part thereof without the consent in writing of the
Lessor such consent (subject as hereinafter provided) not to be
unreasonably withheld in the case of an assignment of the whole of the
Premises or a sublease of the whole or any part of the Premises to an
assignee or sublessee proved by the Lessee to be a respectable solvent
and responsible sublessee or assignee PROVIDED THAT should the Lessee
at any time or from time to time wish to assign the whole of the
Premises or to sublet the whole or any part of the Premises the Lessee
shall before doing so offer in writing to the Lessor to surrender this
Lease in respect of such whole or part of the Premises without any
consideration and the Lessor may accept such offer in writing at any
time within fourteen (14) days of the receipt thereof (such acceptance
to be without prejudice to the rights and remedies of the Lessor in
respect of any rent in arrear or any breach of the covenants herein
contained) but if the Lessor shall fail to accept such offer within
fourteen (14) days as required the Lessor shall be deemed to have
rejected it. For the purposes hereof any change in the principal
shareholding altering the effective control of the Lessee (if a
company) shall be deemed an
<PAGE>
PAGE 14
assignment of the Lease and require the consent of the Lessor as
aforesaid;
(q) erect or construct any sign, device, furnishing, ornament or object
which is visible from the street or from any other building and which,
in the opinion of the Lessor, is incongruous or unsightly or may
detract from the general appearance of the Building;
(r) use any lifts in the Building for the carriage of goods, without first
obtaining the consent of the Lessor or its managing agent or building
supervisor for the time being;
(s) permit or suffer any of the Lessee's employees or visitors or any
other person to do any of the foregoing.
(t) make any application for development consent to North Sydney Council
or approach or enquire of North Sydney Council regarding development
consent with respect to the premises without the prior written
approval of the Lessor or it's managing agent.
E.2 The Lessee covenants that the Lessee shall:-
(a) keep the interior of the Premises and all fixtures and fittings
therein (including, without limiting the generality of the foregoing,
all doors, carpets and floor coverings, locks, window frames, window
glass, window fittings, curtains, blinds, floors, plaster or other
covering to walls and ceilings, pipes, and electrical installations
from the points where the supplies enter any meters that may serve the
Premises) in good and tenantable repair and condition, fair wear and
tear, damage by fire, lighting, explosion, storm, tempest, flood, war,
riot and civil commotion, strikes, aircraft, other aerial devices or
articles dropped therefrom, and earthquake excepted (save where any
insurance moneys are irrecoverable by the Lessor by reason of the
neglect default or misconduct of the Lessee) and (subject always to
Clause E.2.(p) hereof) in such repair and condition (except as
aforesaid) to yield up the same at the expiration or sooner
determination of the term of this Lease;
(b) allow the person or persons for the time being having the contract for
the cleaning of the Premises and their servants workmen employees
agents contractors and sub-contractors access to the Premises for the
purpose of cleaning the Premises at all reasonable times and in
particular, but without limiting the generality of the foregoing,
allow the cleaning of the windows of the Premises during business
hours;
(c) use internal partitions within the Premises only of such standards as
to type, quality, colour, and size as the Lessor shall decide and
cause such partitions to be installed in the Premises in accordance
with plans and specifications previously approved by the Lessor by a
builder approved of by the Lessor
<PAGE>
PAGE 15
under the supervision of an architect nominated by the Lessor and the
Lessee shall not make any additions or alterations to the partitions
except according to the said standards and under such supervision and
with the prior approval in writing of the Lessor which approval shall
not be unreasonably withheld and the fees of any architect or other
consultant employed by the Lessor and all other costs and expenses of
the Lessor in connection therewith shall be borne by the Lessee and
paid by the Lessee to the Lessor on demand;
(d) pay the cost of all internal partitions within the Premises and the
cost of installing such partitions including all doors, vents, glass
and other items included in, or incidental to, the same, all
additional lights and power outlets, switches and telephone outlets,
any re-location of fire sprinklers, and any alteration to the air
conditioning which may be required by reason of the position of any
such partitions, together with all architects' and other consultants'
fees incurred in connection with the same;
(e) be responsible for the maintenance and insurance of all such internal
partitions;
(f) if so required by the Lessor, remove all such internal partitions or
any part thereof nominated by the Lessor from all portions of the
Premises vacated by the Lessee at or prior to the expiration of the
occupation thereof by the Lessee and in default thereof the Lessor may
remove and dispose of the same. Any such partitions not so removed by
the Lessee shall become the property of the Lessor. All damage done to
the Premises by such removal shall be made good by the Lessee on or
prior to the expiration of the occupation thereof by the Lessee and if
the Lessee fails to so do the Lessor may make good all such damage.
All costs incurred by the Lessor in such removal or disposal or in
making good such damage shall be paid by the Lessee to the Lessor
within seven (7) days of the Lessor notifying the Lessee of the amount
thereof;
(g) pay all the proper authorities all charges for telephones and
electricity and for all excess water (if separately metered) used on
the Premises and if the Lessee makes default in the payment thereof it
shall be optional for the Lessor to pay the same and to recover the
amount so paid as if the same was rent payable hereunder on the date
on which the Lessor pays the same;
(h) except where this Lease contains an option for a further term which
the Lessee is entitled to exercise and the Lessee exercises such
option, within three (3) calendar months, immediately preceding the
expiration of this Lease allow at all reasonable times prospective
tenants or occupiers to inspect the Premises and allow the Lessor to
exhibit where the Lessor shall think fit a notice indicating that the
Premises are to become vacant which notice the Lessee shall not remove
or conceal;
<PAGE>
PAGE 16
(i) upon the expiration or sooner determination of the term of this Lease
surrender to the Lessor all keys giving access to all parts of the
Premises held by the Lessee or any of the Lessee's employees and
visitors, irrespective of whether or not the same have been supplied
by the Lessor, and remove at his expense all lettering and distinctive
marks or signs put by the Lessee or the Lessor for the Lessee on any
of the doors walls or windows of the Premises or the Building and make
good any damage or disfigurement caused to such doors walls or windows
by reason of such removal:
(j) duly and continuously observe and perform and have duly and
continuously observed and performed by all the Lessee's employees and
visitors all of the rules and regulations from time to time made by
the Lessor for the better functioning of the Building;
(k) comply promptly with and observe at his own expense all notices
received from any statutory, public or municipal authority with
respect to the Premises except such notices as would have been given
irrespective of the Lessee's occupancy of the Premises;
(l) should any infectious illness transpire in or about the Premises
forthwith give written notice thereof to the Lessor, its building
supervisor, or managing agents and thoroughly fumigate and disinfect
the Premises at his own expense and to the satisfaction of the local
health officer;
(m) should the Lessee receive any notice from any statutory public or
municipal authority with respect to the Premises, forthwith give
notice thereof in writing to the Lessor;
(n) the lessee will pay the Lessor's legal costs and all duties, fees,
charges and expenses of or incidental to the preparation completion
stamping and registration of this Lease and any renewal hereof and any
application for the consent of the Lessor hereunder and of or
incidental to any and every breach or default by the Lessee hereunder
and in or incidental to the exercise of any right power privilege
authority or remedy of the Lessor under or by virtue of this Lease and
the fees of all professional consultants properly incurred by the
Lessor in consequence of or in connection with breach or default by
the Lessee hereunder.
Where the average annual rent secured by this Lease is in excess of
one hundred thousand dollars ($100,000,00) the Lessor's legal costs
hereinbefore described shall be calculated generally in accordance
with Schedule One of the Conveyancing General Order as it existed
immediately prior to 2 December 1985 or shall be such other amount as
the Lessor shall properly agree with its solicitors;
<PAGE>
PAGE 17
(o) forthwith give notice to the Lessor its caretaker or managing agent of
any damage that may occur to the Premises and of any accident to or
defects in the water pipes gas pipes electrical wiring and fittings
fixtures or other facility provided by the Lessor;
(p) redecorate the Premises throughout to the satisfaction of the Lessor's
architect for the time being immediately prior to the expiration of
the term or the sooner determination of this Lease PROVIDED ALWAYS
that in the event that:
(i) this Lease contains an option for a further term which the Lessee
is entitled to exercise and the Lessee exercises such option, the
Lessee shall not be obliged to redecorate the Premises prior to
the expiration of the term of this Lease as aforesaid;
(ii) the Lessee shall fail to redecorate the Premises as aforesaid the
Lessor may redecorate the Premises and recover from the Lessee
the costs of such redecoration together with such rents and other
amounts which the Lessor would have been entitled to receive from
the Lessee had the period within which such redecoration is
effected by the Lessor been added to the term of the Lease. The
Lessee will pay such costs, rents and other amounts to the Lessor
within seven days of the Lessor notifying the Lessee of the
amount thereof. For the purposes hereof the term "redecorate"
shall include the washing down of the whole of the interior of
the Premises, the painting with two coats of oil paint or
emulsion paint or other appropriate treatment of all of the
internal parts of the Premises previously so treated
respectively, the repolishing of all the internal parts
previously polished and the graining and varnishing of all the
internal parts previously grained and varnished, and also the
replacing of all carpet and floor tiles which in the opinion of
the Lessor's architect for the time being are worn or damaged and
in need of replacement;
(q) before any safe, furniture, partition or fitting is moved into or out
of the Building, give due notice of the intention to move the same to
the Lessor, or to its managing agent for the time being, and shall not
move the same otherwise than under the supervision of the Lessor's
building supervisor for the time being and at a time approved of by
the Lessor or the Lessor's managing agent for the time being;
(r) from time to time advise the Lessor in writing of the address of the
place where the Lessee or, if the Lessee is a corporation, a
responsible officer of the Lessee, ordinarily resides;
(s) replace all electric light bulbs, tubes and globes in the Premises
which may
<PAGE>
PAGE 18
become damaged or broken or fail to light;
(t) keep all doors and other means of access to the Premises securely
fastened on all occasion when the Premises are left unoccupied, except
so far as is necessary to comply with sub-clause (b) of this Clause;
(u) (i) maintain all carpets and floor coverings installed by the Lessor
within the premises to the satisfaction of the Lessor;
(ii) fit at the expense of the Lessee and use on all office furniture
and equipment used by the Lessee within the Premises such
castors and/or other carpet protection devices as may from time
to time be required by the Lessor;
(v) on or before the date of any assignment transfer or sub-letting of
this Lease pay to the Lessor the greater of:-
(i) all proper charges, costs and expenses including legal costs and
commissions incurred by the Lessor or payable by the Lessor to
its authorised managing agent of and incidental to any inquiries
which shall have been made by or on behalf of the Lessor as to
the responsibility, solvency, fitness and suitability of any
proposed assignee, transferee or sub-lessee, or
(ii) that amount which is equal to one (1) week's rent calculated by
reference to the annual rent current at the date of such
assignment or transfer.
(w) comply with all by-laws of the Strata Plan and all directions of the
Strata Manager.
F. ADDITIONAL RIGHTS OF THE LESSEE
-------------------------------
F.1 The lessee may install supplementary floor coverings including carpet at
his own cost PROVIDED THAT such installation and any subsequent removal
shall not cause any damage to the Premises or the building or to the floor
covering (if any) of the lessor and in the event that any damage shall be
caused thereto the same shall be forthwith rectified by the Lessee and in
default thereof by the Lessee the Lessor may rectify the same. The Lessee
shall pay to the Lessor the cost of any such rectification by the Lessor
within seven days of the Lessor notifying the Lessee of the amount thereof.
Any such installation and subsequent removal of such supplementary floor
coverings and any rectification of damage as aforesaid may if the Lessor so
requires be supervised by an architect nominated by the
<PAGE>
PAGE 19
Lessor whose fees shall be paid by the Lessee.
F.2 The Lessee shall be entitled during the said term or on the expiration
thereof to remove all trade fixtures including partitions (if any) erected
by the Lessee with the consent of the Lessor provided the Lessee thereupon
immediately make good all damage done to the Premises by reason of such
damage. The Lessee shall pay to the Lessor any cost incurred by the Lessor
in making good all such damage within seven days of the Lessor notifying
the Lessee of the amount thereof.
G. COVENANTS OF THE LESSOR
-----------------------
The Lessor covenants with the Lessee that:
G.1 The Lessor shall pay all rates taxes and assessments charged upon the land
except those which the Lessee has covenanted to pay.
G.2 The Lessor shall pay to the proper authorities the cost of all water
consumed or used in the Building except any excess water which the Lessee
has covenanted to pay.
G.3 The Lessee, upon paying the rent and other moneys payable hereunder and
performing and observing his covenants and obligation hereunder, shall and
may peaceably possess and enjoy the Premises during the continuance of this
Lease without any interruption or disturbance from the Lessor or any person
or persons lawfully claiming by from or under him.
H. ADDITIONAL RIGHTS OF THE LESSOR
-------------------------------
H.1 The Lessor shall have the right for itself, its servants, agents,
architects, surveyors, builders, workmen and persons authorised by the
Lessor with all necessary materials, equipment and appliances from time to
time to enter upon the Premises at all reasonable times and upon reasonable
notice but at any time and without any notice in the case of an emergency:
(a) to carry out any works or make any repairs to alterations or additions
to the Premises and to enter upon all or any part of the Premises and
to use the same for the purposes of effecting or carrying out any
repairs alterations or additional or other work which the lessor may
consider necessary or desirable to any part of the Building or
buildings adjacent thereto;
(b) when as often as the Lessor shall require to view the state of repairs
and condition thereof and make such reasonable investigations as it or
they may deem necessary for the purpose of ascertaining whether
<PAGE>
PAGE 20
or not there has been any breach of any of the covenants and
conditions herein contained and to serve upon the Lessee a notice in
writing of any defect requiring him to repair the same in accordance
with any covenant herein contained.
(c) where the Lessee has failed to repair any defect within twenty-one
days of the date of service of any notice of the Lessor requiring him
so to do in accordance with that notice, to execute all or any of the
required repairs as the Lessor shall think fit without prejudice to
the Lessor's other remedies, the Lessee shall pay to the Lessor the
cost (or any part thereof) of such repairs as the Lessee ought to have
effected including all sums paid on account of any insurances
indemnities or compensation under the Workers' Compensation Acts or
otherwise howsoever with respect thereto within seven days of the
Lessor notifying the Lessee of the amount thereof;
(d) for the purposes of complying with the terms of any present or future
legislation affecting the Premises or the Building or of any notice
served upon the Lessor or the Lessee by the Board of Health,
licensing, municipal or other competent authority, for the purpose of
carrying out any repairs alterations or works (including the providing
of lighting power and telephone services to the Lessee and other
tenants of the Building and any other purpose the effecting of which
necessitates access to the ceilings in the Premises) and also for the
purpose of exercising the powers and authorities of the Lessor
hereunder;
(e) in the event of the Premises or the Building being destroyed or
damaged, for the purpose of rebuilding the same or the Building or
making them fit for the occupation and use thereof by the Lessee and
by the other occupiers thereof; and
(f) without limiting the generality of the foregoing to remove any ceiling
in the Premises and carry out any work in connection therewith but the
Lessor shall replace such ceiling as expeditiously as possible and
shall make good any damage or injury to the Premises occasioned by
such removal.
H.2 The Lessor may if the Lessor so elects remedy at any time without notice
any default by the Lessee under this Lease and whenever the Lessor so
elects all costs and expenses incurred by the Lessor (including legal costs
and expenses) in remedying a default shall be paid by the Lessee to the
Lessor within twenty-four hours of the Lessor notifying the Lessee of the
amount thereof.
H.3 If at any time during the time of this Lease or during the occupation of
the Premises by the Lessee:
<PAGE>
PAGE 21
(a) the Lessee shall fail to pay any rent or other moneys payable by the
Lessee to the Lessor by the due date for the payment of such moneys in
terms of this Lease, which failure shall be deemed to be a fundamental
breach of the Lessee's obligations under this Lease; or
(b) The Lessee shall consistently fail to make payments of rent or other
moneys as they fall due and shall require by its conduct the Lessor to
make formal demands for such late payment of rent or other moneys on
as many as six (6) or more occasions in any period of twelve (12)
months; or
(c) in case of default by the Lessee in respect of any obligation on the
part of the Lessee arising out of any term of this Lease and such
default is continued for fourteen (14) days after such default occurs
or in the case of repairs required to be effected by the Lessee such
repairs are not completed within a reasonable time; or
(d) execution be levied against any of the assets of the Lessee; or
(e) the Lessee (not being a company) becomes bankrupt or assigns his
estate or enters into a deed of arrangement for the benefit of
creditors; or
(f) the Lessee (being a company) either:
(i) goes into liquidation (other than a voluntary liquidation for
the purposes of reconstruction or re-organisation); or
(ii) is wound up or dissolved; or
(iii) enters into a scheme of arrangement with its creditors or any
class thereof; or
(iv) is placed under official management; or
(v) a receiver or manager of any of its assets is appointed; or
(vi) an inspector or investigator is appointed pursuant to the
Corporations Law;
THEN notwithstanding any prior waiver or failure to take action by the
Lessor or indulgence granted by the Lessor to the Lessee in respect of any
such matter or default whether past or continuing the Lessor shall have the
following rights (which shall be in addition to any other rights or
remedies of the Lessor):
(1) to re-enter (forcibly if necessary) upon the Premises or any part
thereof in the name of the whole and thereby determine the estate of
the Lessee;
<PAGE>
PAGE 22
and/or
(2) to remove or otherwise deal with as provided in Clause F.2 all
partitions alterations additions or other fixtures fittings or goods
and effects found on the Premises;
(3) to recover all arrears of rent and any other moneys payable by the
Lessee to the Lessor;
(4) to recover as damages for breach of any covenant contained in this
Lease all losses damages and expenses (including legal costs and
disbursements on a solicitor/client basis) which are suffered or
incurred by the Lessor following such breach including without
limiting the generality of the foregoing any rent or other moneys lost
to the Lessor after any such breach.
H.4 The Lessor shall in all cases retain and have the power to prescribe the
weight and proper position of iron or steel safes and other heavy articles
or goods and all damage caused to the Building or any part thereof or to
the lifts by the Lessee or anyone on his behalf by taking in or putting out
a safe, furniture, goods, or other articles or during the time such are in
the Building shall be made good by the Lessee, or, if the Lessor so elects,
by the Lessor at the expense of the Lessee. The Lessee shall pay to the
Lessor the amount of such damage made good by the Lessor within seven days
of the Lessor notifying the Lessee of the amount thereof.
H.5 Deleted.
H.6 Should the Lessor re-enter upon the Premises or any part thereof and
determine the estate of the Lessee pursuant to any of its rights to do so
in terms of this Lease then without prejudice to any other right or remedy
of the Lessor herein contained or implied IT IS HEREBY EXPRESSLY AGREED AND
DECLARED that the Lessee shall be obliged to pay to the Lessor upon demand
made by the Lessor and the Lessor shall be entitled to recover from the
Lessee as and by way of liquidated damages for such breach the DIFFERENCE
between the aggregate of rent and other moneys which would have been paid
by the Lessee but for such determination such rent and other moneys being
calculated from and relating to the period from the date of such
determination to the date of termination of this Lease referred to in Item
4 less the aggregate of the several rents and other moneys which the Lessor
----
by having taken proper and reasonable steps to re-let the Premises during
the same period shall have been paid or could reasonably be expected to
have been paid by such re-letting. PROVIDED ALWAYS THAT in so doing the
Lessor shall not be required or obliged to offer or accept in respect of
such re-letting any terms, covenants, conditions or stipulations differing
from those herein contained or implied.
I. GUARANTORS
----------
<PAGE>
PAGE 23
1.1 In consideration of the Lessor at the request of the person(s) or
corporation(s) named in Item 10 (which person(s) or corporation(s) is/are
hereinafter called "the Guarantor" which expression shall mean and include
the said person(s) or corporation(s) their respective executors
administrators and assigns) entering into this Lease with the Lessee the
Guarantor covenants and agrees with the Lessor that:
(a) The Guarantor guarantees to the Lessor that he will be with the Lessee
jointly and severally liable to the Lessor for the due payment of all
moneys to be paid by the Lessee under this Lease and the due
performance and observance by the Lessee of all the covenants terms
and conditions of this Lease on the part of the Lessee to be performed
and observed.
(b) The Guarantor will indemnify the Lessor and agrees at all times
hereafter to keep the Lessor indemnified from and against all losses
and expenses which the Lessor may suffer or incur in consequence of
any breach of non-observance of any of the covenants terms and
conditions of this Lease on the part of the Lessee to be performed or
observed and the Guarantor agrees that the Guarantor shall remain
liable to the Lessor under this indemnity notwithstanding as a
consequence of such breach or non-observance the Lessor has exercised
any of its rights under this Lease including its rights of re-entry
and notwithstanding that the Lessee (being a company) may be wound
upon or dissolved or (being a natural person) may be declared bankrupt
and notwithstanding that any guarantee given by the Guarantor may for
any reason whatsoever be unenforceable either in whole or in part.
(c) On any default or failure by the Lessee to observe and perform any of
the covenants terms and conditions of this Lase the Guarantor will
forthwith on demand by the lessor pay the rent and make good to the
lessor all losses and expenses sustained or incurred by the Lessor by
reason or in consequence of any such default or failure by the Lessee
in the payment of rent or in performing or observing any of the
covenants terms and conditions of this Lease without the necessity of
any prior demand having been made on the Lessee.
(d) The liability of the Guarantor under this Clause shall not be affected
by the granting of time or any other indulgence to the Lessee or by
the compounding compromise release abandonment waiver variation
amendment or renewal of any of the rights of the Lessor against the
Lessee or of the obligations of the Lessee in terms of this Lease or
by any neglect or omission to enforce such right or by any other thing
which under the law relating to sureties would or might but for this
provision release the Guarantor in whole or in part from his
<PAGE>
PAGE 24
obligations under this Clause.
(e) Notwithstanding that as between the Guarantor and the Lessee the
Guarantor may be a surety only nevertheless as between the Guarantor
and the Lessor the Guarantor shall be deemed to be a primary debtor
and contractor jointly and severally with the Lessee.
(f) To the fullest extent permitted by law the Guarantor hereby waives
such of his rights as surety or indemnifier (legal equitable statutory
or otherwise) which may at any time be inconsistent with any of the
provisions of the guarantee and indemnity contained in this Clause.
(g) The covenants and agreements made or given by the Guarantor shall not
be conditional or contingent in any way or dependent upon the validity
or enforceability of the covenants and agreements of any other person
and shall be and remain binding notwithstanding that any other person
shall not have executed or duly executed this Lease or this guarantee
and indemnity.
(h) If this Lease shall contain an option for a further lease and the
Lessee shall exercise such option then the Guarantor shall guarantee
the obligations of the Lessee under such further lease and indemnify
the Lessor in respect of such further lease in the terms of the
guarantees and indemnities contained in this Clause.
(i) The obligations of the Guarantor under the guarantee and indemnity
contained in this Clause shall continue and remain in force until all
rent or other moneys payable by the Lessee shall have been paid and
until all other obligations and indemnities shall have been performed
observed and satisfied and such obligations shall not be reduced or
affected by assignment or sub-letting or by any notice to quite given
by either party to this Lease or by the death insolvency liquidation
or dissolution of the Lessee or the Guarantor or either of them.
(j) Where there is more than one person or corporation which together
constitute the Guarantor to this Lease the obligations and liabilities
of each and every such person or corporation shall be joint and
several.
(k) The Guarantor hereby expressly agrees with the Lessor that this
Guarantor shall have full force and effect as and from the execution
of this Lease and shall for all purposes constitute a guarantee of
this Lease whether or not this Lease is registered and regardless of
whether or not the Lease is required under the provisions of the Real
Property Act to be registered.
<PAGE>
PAGE 25
J. BANK GUARANTEE
--------------
J.1 As security for the due performance and satisfaction by the Lessee of its
obligations and liabilities to the Lessor under this Lease the Lessee
shall on or before the commencing date provide to the Lessor an
unconditional written Guarantee by a Bank licensed under the Banking Act
(1959) carrying on business in New South Wales to pay to the Lessor on
demand the sum specified in Item 11, which Guarantee may be retained by
the Lessor until such time as the Lessee shall have duly performed and
satisfied all of its obligations under this Lease and such Guarantee shall
be held by the Lessor as security for the performance by the Lessee of the
Lessee's obligations under this Lease.
J.02 The Lessor shall be entitled from time to time to call upon the said
Guarantee in or towards satisfaction of any amounts of rent other monies
payable under this Lease or in or towards satisfaction of any amount which
may become payable as a result of any breach by the Lessee of any of the
covenants and conditions on the part of the Lessee contained in the Lease
PROVIDED ALWAYS that any such action or application shall not be deemed to
constitute a waiver or release in respect of any such breach.
J.03 In the event that either:-
(a) the Lessor requires the Lessee's Bank to make a payment pursuant to
the Guarantee or,
(b) the annual rent payable by the Lessee increases such that the
guaranteed amount becomes less than four (4) months rent at the then
applicable rate under this Lease then the Lessee shall, within
fourteen (14) days of notification by the Lessor to the Lessee that
such a requirement for payment has been made or that the rent has
increased, deliver to the Lessor a further Banker's Guarantee (which
Banker's Guarantee shall be in the same form as that previously
delivered) for or in respect of a sum equal to the difference between
the amount then required to be provided by the Lessee under the
preceding provisions of this clause and the balance the remaining
available pursuant to the original Guarantee.
J.04 Upon delivery to the Lessor of such further Guarantee the provisions of
this clause shall apply to such Guarantee.
J.05 Upon termination of this Lease and payment of all moneys payable by the
Lessee to the Lessor pursuant to this Lease, the Lessor shall return to
the Lessee any Guarantee then held.
J.06 In the event that for any reason the Guarantee ceases to operate for the
full term, the Lessee shall immediately upon this coming to the notice of
the Lessee, provide to the Lessor a new replacement Guarantee, failing
which the Lessee shall be in
<PAGE>
PAGE 26
breach of an essential term of the Lease entitling the Lessor to take such
action as the Lessor sees fit as set out in Clause H.3 hereof.
K. CLEANING SERVICE
----------------
K.1 The Lessor may if it so elects, provide a cleaning service. In such case
the Lessor shall use its best endeavours to provide a satisfactory and
price competitive cleaning service for all parts of the Building including
without limiting the generality of the foregoing the exterior and interior
of all windows, all car parking areas, all toilet and wash room facilities
(including the provision of towels and other toilet requisites) all kitchen
areas, and the removal of any waste or rubbish from the common areas of the
Building and the immediately adjacent areas.
K.2 The lessee shall permit the Lessor or the Strata Manager or such persons
authorised by them access to the Premises during the hours as the Lessor
may notify the Lessee from time to time (including normal office hours) for
the purpose of window cleaning PROVIDED ALWAYS that the Lessor shall not be
responsible to the Lessee for any loss of or damage to the Premises or any
property therein or the Lessee's fitting, fixtures, furniture and effects
suffered by the Lessee and/or the Lessee's employees and agents occasioned
by the Lessor or its servants or contractors arising out of the Lessor's
obligations under this Clause.
K.3 In addition to the base rent and the Lessee's proportion of Outgoings, the
Lessee shall pay to the Lessor without demand from the Lessor and without
any deduction whatsoever that percentage stated in Item 12 of the basic
cleaning charge for the Building which charge relates to the Lessee's
proportion of the cost of providing the cleaning service referred to in
this Clause.
K.4 The Lessee will pay the cleaning charge by equal monthly instalments in
advance the first of such payments to be made on the commencement date.
K.5 From time to time the Lessor shall be entitled to review the basic cleaning
charge in the event that there be an increase or increases in the cost to
the Lessor of providing the cleaning service.
K.6 The Lessor shall notify the Lessee in writing of the amount of any increase
in the basic cleaning charge and will state in the Notice the date from
which the increase will be payable and the increased basic cleaning charge
will be paid by the Lessee on the date next following the receipt of such
Notice.
L. CLEANING OF PREMISES
--------------------
L.1 The Lessee shall use exclusively the cleaning service provided by the
Lessor at the expense of the Lessee and will permit access to the Premises
during the hours as the Lessor may notify the Lessee from time to time
(including normal office hours)
<PAGE>
PAGE 27
for the purpose of window cleaning and outside normal office hours for the
purpose of other cleaning.
L.2 The Lessee will pay the cleaning charge by equal monthly instalments
thereof in advance the first of such payments to be made on the
commencement date.
L.3 The term "the cost of cleaning the Premises" shall mean all amounts paid or
payable by the Lessor in respect of the cleaning of the Premises to the
person or persons for the time being having the contract for the cleaning
of the Premises.
L.4 The Lessor shall not be responsible to the Lessee for any loss of or damage
to the Premises or any property therein or the Lessee's fitting, fixtures,
furniture and effects suffered by the Lessee and/or the Lessee's employees
and agents occasioned by the Lessor or its servants or contractors arising
out of the Lessor's obligations under paragraph 1 of this Clause.
M. MISCELLANEOUS
-------------
M.1 (a) The Lessor does not in any way warrant that the Premises are or will
remain suitable or adequate for any of the purposes of the Lessee and
to the fullest extent permitted by law all warranties as to
suitability and as to adequacy otherwise applicable are expressly
negatived.
(b) Should the use to which the Premises are put by the Lessee require the
licence, consent or approval of any competent Authority then the
Lessee warrants to the Lessor that it has prior to entering into this
Lease obtained such license, consent or approval and the Lessee shall
at its own expense maintain such licence, consent or approval as valid
and operative during its occupation of the Premises AND the Lessee
shall comply with and satisfy all conditions attaching to any such
--
licence, consent or approval.
M.2 No consent or waiver express or implied by the Lessor to or of any breach
of any covenant condition or duty of the Lessee shall be construed as a
consent or waiver to or of any other breach of the same or any other
covenant condition or duty.
M.3 Each reference in this Lease to any of the items in the Appendix shall be
construed to incorporate the data stated under that Item.
M.4 The headings and marginal notes appearing in this Lease are inserted only
as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of the Sections or Clauses of this Lease nor
in any way affect this Lease.
M.5 All references to statutes herein shall include all statutes amending
consolidating or replacing the statues referred to.
<PAGE>
LEASE
NEW SOUTH WALES
REAL PROPERTY ACT 1900
Office of State Revenue use only
(A) PROPERTY LEASED
If appropriate specify the Office premises situate at level 3, 68
part or premises Alfred Street, Milsons Point, being Part Lot
7 in Strata Plan 56293 being Part 7/SP56293
(B) LODGED BY LTO Box Name, Address or DX and Telephone
Reference (15 character max):
(C) LESSOR TONICALON PTY LIMITED (ACN 063 619 125)
The lessor leases to the lessee the property described above.
(D) Encumbrances (if applicable): 1. 2. 3.
(E) LESSEE
L LOOKSMART INTERNATIONAL PTY LIMITED (ACN 074 789
263) OF LEVEL 5, 388 LONSDALE STREET, MELBOURNE
3000
(F)
(G) 1. TERM: Three (3) years
2. COMMENCING DATE: 1 June 1999
3. TERMINATING DATE: 31 May 2002
4. With an OPTION TO RENEW for a period of THREE (3) years set out in
clause B.2
5. With an OPTION TO PURCHASE set out in (NOT APPLICABLE)
6. Together with and reserving the RIGHTS set out in Annexure "A".
7. Incorporates the provisions set out in ANNEXURE "B" hereto.
8. Incorporates the provisions set out in (NOT APPLICABLE)
PAGE 1 OF 2
<PAGE>
(H) We certify this dealing correct for DATE _______
the purposes of the Real Property Act 1900
Signed in my presence by the Lessor who is personally known to me.
___________________________________ TONICALON PTY LIMITED (ACN
Signature of Witness 063 619 125) by its attorney
MARGARET ANTUNES pursuant to
Power of Attorney Book 4081
Number 203
___________________________________
Name of Witness (BLOCK LETTERS)
____________________________________ ______________________________
Address of Witness MARGARET ANTUNES
[STAMP OMITTED]
THE COMMON SEAL of LOOKSMART )
INTERNATIONAL PTY LIMITED )
(ACN 074 789 263) was hereunto affixed in )
accordance with the memorandum and articles of )
association:
/s/ Signature Illegible /s/ Signature Illegible
- ------------------------------- ------------------------------
Secretary Director
(I) STATUTORY DECLARATION
I solemnly and sincerely declare that: the time for the exercise of Option
to Renew/Purchase in expired lease No. ............... has ended: the
lessee under that lease has not exercised the option; and a variation of
lease extending the term has not been entered into. I make this solemn
declaration conscientiously believing the same to be true and by virtue of
the Oaths Act 1900.
Made and subscribed at ___________ in the State of ____________ on _______
19 ______ in the presence of:
_____________________________________________
Signature of Witness
_____________________________________________
Name of Witness (BLOCK LETTERS)
_____________________________________________ _________________________
Address and Qualification of Witness Signature of Lessor
PAGE 2 OF 2
<PAGE>
3
LEASE
GRANT OF LEASE AND GUARANTOR'S GUARANTEE
1. LEASE
1.1 The Landlord leases the premises to the Tenant on the terms set out in
this lease.
HOW LONG IS THIS LEASE?
2. STARTING AND ENDING
2.1 This lease begins on the commencing date in item 6(a) and ends at
midnight on the expiry date in item 7.
3. CONTINUING OCCUPATION AFTER EXPIRY DATE
3.1 If the Tenant has not given a notice under clause 4.1 but continues
the tenancy by occupying the premises after the expiry date, the
Tenant does so on the same provisions as are in this lease. However,
the Landlord or the Tenant may end the tenancy on any day by giving at
least 30 days notice to the other.
CAN THIS LEASE BE RENEWED?
4. RENEWING THIS LEASE
4.1 The Tenant may not renew this lease unless the following criteria are
satisfied:
* the Tenant has remedied all breaches of which the Tenant has been
given notice; and
* the Tenant has not been persistently in breach.
4.2 If the Tenant is entitled to renew this lease and wants to renew this
lease for the period stated in item 8, the Tenant must give the
Landlord a notice to this effect in the period which is between 180
days and 90 days before the expiry date.
4.3 If the Tenant does not give the notice on time, the Tenant loses the
right to renew this lease.
4.4 If the Tenant gives the notice on time, and if at the expiry date the
Tenant has remedied all breaches of which the Tenant has been given
notice, the Landlord must grant a new lease of the premises to the
Tenant.
4.5 The commencing date of the new lease is the day after this lease ends.
4.6 The Landlord's solicitors must prepare the new lease and the Tenant
must pay the following costs:
* the Landlord's costs as permitted by the Retail Tenancies Reform
Act 1998; and
* stamp duty on the new lease.
<PAGE>
2
5. Use Offices.
6. (A) COMMENCING DATE 1 September 1998
(B) RENT COMMENCING DATE 1 September 1998
7. EXPIRY DATE 31 August 2001
8. OPTION PERIOD One further period of 3 years.
9. RENT
(a) Term of this Lease Year 1
1 September 1998 - 31 August 1999; $66,825.00
Year 2
1 September 1999 - 31 August 2000: $70,166.25
Year 3
1 September 2000 - 31 August 2001: $73,674.56
(b) Option Period Year 1
1 September 2001 - 31 August 2002: Market
Review
Year 2
1 September 2002 - 31 August 2003: Percentage
increase of 5% on the rent for Year 1 of
Option Period.
Year 3
1 September 2003 - 31 August 2004: Market
Review
10. MARKET RENT REVIEW ALLOWED? Yes at the option of the landlord for the
Market Review Date in Item 9.
11. MARKET RENT REVIEW DATE The commencement date of Year 1 of the Option
Period.
12. PERCENTAGE INCREASE IN RENT There is no Item 12.
13. SECURITY DEPOSIT Bank guarantee equivalent to three (3) months
current rent to be held for the duration of
the lease and option period.
14. PUBLIC LIABILITY INSURANCE
AMOUNT $10 million
15. BASE YEAR FOR RATES AND
TAXES AND OUTGOINGS FOR THE
BUILDING 31 December 1998.
<PAGE>
4
5. WHAT ARE THE PROVISIONS OF THE NEW LEASE?
5.1 The provisions of the new lease must be the same as the provisions of
this lease, except that there is no right to renew the new lease.
6. WHAT RENT IS PAYABLE UNDER THE NEW LEASE?
6.1 If the commencing date of the new lease is a rent review date, the
rent payable under the new lease must be set as follows:
* if the commencing date is a market rent review date, the rent
payable under the new lease is set under clauses 11 and 12;
* if the commencing date is a market review date and the Landlord
does not set the rent using the market rent review procedure, the
rent payable for the first year of the new lease is the rent
payable during the last year of this lease;
6.2 If the commencing date of the new lease is not a rent review date, the
rent payable for the first year of the new lease is the same as the
rent payable during the last year of this lease.
WHAT MUST THE TENANT PAY?
7. WHAT THE TENANT HAS TO PAY
7.1 The Tenant must pay to the Landlord:
* the rent in item 9; and
* the charges for services supplied to the premises (see clause
13); and
* any other money owed under this lease.
8. INTEREST ON LATE PAYMENTS
8.1 If the Tenant does not pay any money to the Landlord within 7 days of
the time it is due, the Landlord may charge daily interest on that
money at a rate equal to the rate fixed under the Penalty Interest
Rates Act 1983 plus 2%.
8.2 The Landlord may calculate the interest on any unpaid money from the
day the unpaid money was due until the day it is paid.
8.3 On the last day of each month, the Landlord may add the interest for
that month to the unpaid money, and charge interest on the total
amount.
9. ADJUSTMENTS AND ERRORS
9.1 If the Landlord has to calculate the money the Tenant owes by using a
time period, and this lease starts or ends during that time period,
the Landlord must make the necessary proportional adjustment.
9.2 If either the Tenant or the Landlord prove an error in any
calculation, the Landlord must correct it and make any necessary
adjustment in the Tenant's next monthly statement (or as soon as
possible if this lease has expired).
<PAGE>
5
HOW MUCH RENT MUST THE TENANT PAY?
10. HOW MUST THE TENANT PAY RENT?
10.1 The Tenant must pay the rent:
* in equal monthly instalments; and
* in advance; and
* on or before the first day of each month.
11. MARKET RENT REVIEWS
11.1 If item 10 allows a market rent review, the Landlord may give the
Tenant notice of the new rent based on the current market rent at the
market rent review date in item 11. The Landlord must give the notice
during the period from 90 days before to 90 days after each market
rent review date.
11.2 The Tenant must pay the Landlord the new rent from the market rent
review date.
11.3 Until the Landlord notifies the Tenant of the new rent, the Tenant
must pay the current rent to the Landlord.
11.4 Any necessary adjustment between the rent the Tenant has paid and the
rent the Tenant should have paid is calculated from the market rent
review date.
11.5 If the Landlord is late in giving the Tenant notice, the Landlord
does not lose the right to a rent review. But, if the rent is
increased, the adjustment is only calculated from the day the
Landlord gave notice to the Tenant.
12. MARKET RENT REVIEW DISPUTES
12.1 If the Tenant disputes the rent nominated by the Landlord under
clause 11, the procedure in clause 12.2 must be followed. Each time
limit set out in clause 12.2 is consecutive. If a time limit is not
kept, the right attached is lost.
12.2 This is the procedure for rent review disputes.
* If the Tenant disputes the new rent, the Tenant must give the
Landlord notice of the dispute within 30 days of receiving the
Landlord's notice about the new rent.
* The Tenant and the Landlord must negotiate in good faith to
agree on a new rent within 30 days of the date of the Tenant's
notice of dispute.
* If the Tenant and the Landlord agree, the Tenant must pay the
new agreed rent from the market rent review date.
* If the Tenant and the Landlord to not agree, then within 7 days
either the Tenant or the Landlord may ask the President of the
Australian Institute of Valuers and Land Economists Inc -
Victorian Division (or an equivalent organisation) ("AIVLE") to
appoint an independent valuer to decide the new rent.
* The independent valuer must decide the current market rent at
the market rent review date within 30 days of being appointed.
<PAGE>
6
12.3 Until a dispute is resolved, or a right is lost, the Tenant must pay
the current rent. Any adjustment must be calculated from the relevant
date in clause 11. The Tenant must pay any adjustment (or the
Landlord must credit the Tenant with any adjustment) when the
Tenant's next monthly payment is due.
12.4 The valuation of the rent must take into account the following
factors:
* the use of the premises; and
* any inducement or incentive or both (for example: allowances,
payments, benefits, rent free periods, discounted rent periods,
assuming a liability) given by the Landlord to the Tenant, or a
person associated with the Tenant, for the Tenant entering into
this lease; and
* the fair market rent that can be obtained for the premises; and
* the provisions of this lease; and
* the rent payable for space comparable to the premises; and
* the basis for the determination is as follows:
* the promises are vacant and available for leasing by a
willing landlord to a willing tenant; and
* the Tenant is not in breach of this lease; and
* the requirements specified in Section 12(5) Retail Tenancies
Reform Act 1998.
12.5 But the valuation of the rent must not take into account the
following factors:
* the value of the Tenant's property; and
* any goodwill attributable to the premises due to the Tenant's
business; and
* any part of the fit-out that the Tenant may remove.
12.6 The independent valuer must have the following qualifications:
* current membership of the AIVLE; and
* at least five (5) years experience in valuing office space in
the Melbourne CBD.
12.7 In deciding the dispute, the independent valuer must act as an
independent expert and not as an arbitrator and must give written
reasons for the decision. The decision is final and binding on the
parties.
12.8 The Landlord and Tenant must share the cost of appointing the
independent valuer equally.
WHAT OTHER MONEY MUST THE TENANT PAY?
13. SERVICES
13.1 The Tenant must pay on time for all services supplied to the premises
including water consumption, electricity, gas, telephone, on floor
airconditioning costs and after hours airconditioning (including non
routine service calls requested by the Tenant).
<PAGE>
7
13.2 The premises are supplied with a self contained airconditioning
system and the Tenant is responsible for the cost of operating and
using the system (including non routine service calls requested by
the Tenant).
13.3 The Tenant is responsible for the cost of the activation and
maintenance of the electronic security devices servicing the
premises.
14. TENANT MUST PAY INCREASES IN RATES AND TAXES AND BUILDING OUTGOINGS
14.1 The Tenant must pay to the Landlord the Tenant's share of increases
in rates taxes or building outgoings assessed or levied on the
Building occurring after the commencing date.
14.2 If a new rate or tax or outgoings (that is, one that does not exist
at the commencing date) is assessed or levied on the Building, the
Tenant must pay to the Landlord the Tenant's share of the new rate or
tax or outgoings.
14.3 The Landlord must calculate the Tenant's share of the new rate tax or
outgoings or increases in rates taxes or outgoings using this
formula:
$ = N X P
-
B
where,
$ is the amount of the Tenant's share;
N is:
(i) the amount of the new rate; and/or
(ii) the difference between annual amount of the rates taxes and
outgoings levied or assessed on the Building from year to
year and the amount payable for the base year ending 31
December 1998.
P is the lettable area of the Premises; and
B is the net lettable area of the Building.
The lettable areas are calculated according to the Building Owners
and Managers Association Method of Measurement (1989 revision) or any
equivalent that the Landlord consents to. If the net lettable area
changes, the Landlord must adjust the Tenant's share proportionally.
14.4 The Landlord must tell the Tenant by notice of the amount payable.
The Tenant must pay this amount within 7 days of the date of the
Landlord's notice.
15. LANDLORD'S LEGAL AND OTHER COSTS
15.1 The Tenant must pay:
* the Landlord's costs permitted by the Retail Tenancies Reform
Act 1998 arising out of this lease and any other transaction
arising out of this lease (for example: assignment, subletting);
and
* stamp duty on this lease or any other document arising out of
this lease; and
<PAGE>
8
* the Landlord's reasonable legal and other costs arising out of
the Tenant's breach of this lease (for example, preparing a
notice of breach (see clause 43), remedying the breach (see
clauses 43 and 44)); and
* the Landlord's reasonable costs of considering the Tenant's
request for the Landlord's consent [for example, the cost of
employing consultants to review the Tenant's plans or altering
the premises (see clause 25), the cost of investigating the
financial position of a proposed assignee (see clause 20)]; and
* cost of additional keys and any security passes requested by the
Tenant; and
* cost of basic plumbing repairs; and
* cost of establishing and maintaining the Tenant's name on the
ground floor directory board.
SECURITY DEPOSIT
16. SECURITY DEPOSIT
16.1 On or before the commencing date, the Tenant must give the Landlord
the security deposit in item 13 by bank cheque or unconditional bank
guarantee.
16.2 The Landlord may use the security deposit to recover the Landlord's
loss due to the Tenant's breach (see clause 44). The Tenant must
promptly replace any amount used.
16.3 If the rent increases, the amount of the security deposit increases
in the same proportion. The Tenant must give the extra amount for the
security deposit to the Landlord by bank cheque or by increasing the
unconditional bank guarantee within 14 days of any rent increase.
16.4 When this lease ends and the Tenant has vacated the premises, the
Landlord must promptly refund to the Tenant any part of the security
deposit not needed to recover the Landlord's loss.
16.5 If the Landlord sells the premises or the Building, the Tenant must
do whatever is necessary to give the new owner the benefit of the
security deposit.
WHAT ARE THE TENANT'S GENERAL OBLIGATIONS?
17. THE TENANT MUST OBEY THE LAW AND THE BUILDING RULES
17.1 The Tenant must obey any law or proper notice from the body corporate
that requires the Tenant to do anything concerning:
* the premises; or
* the Tenant's use of the premises; or
* this lease.
17.2 But the Tenant is not required to do anything of a structural nature.
The Landlord is responsible for all items of a structural nature.
17.3 The Tenant must obey the building rules. A notice from the body
corporate or the Landlord listing the building rules is conclusive
proof of the rules in force.
<PAGE>
9
18. HOW THE TENANT SHOULD BEHAVE
18.1 The Tenant must not do anything that is, or may be, dangerous,
annoying, indecent, immoral, obscene or offensive to, or that may
interfere with, other tenants or people in the Building or adjacent
buildings.
18.2 In particular, the Tenant must not allow nude or partially dressed
people on the premises.
19. USING THE COMMON AREA
19.1 The Tenant may use the common area in common with other tenants or
people in the Building.
ASSIGNMENT
20. LETTING OTHERS OCCUPY THE PREMISES
20.1 The Tenant must get the Landlord's consent before the Tenant deals
with the premises or the Tenant's interest in the premises (for
example: mortgaging, assigning, subleasing, sharing or licensing it).
20.2 The Landlord must give consent if the following criteria are obeyed:
* the Tenant proves to the Landlord that the new person is
financially secure, able to make the payments required by this
lease on time and able to comply with the Tenant's other
obligations;
* the Tenant does anything that the Landlord reasonable requires
concerning the dealing (for example: giving the Landlord a
stamped assignment of lease in a form approved by the Landlord);
* the Tenant and the new person sign any agreement (for example;
deed of consent) or give any security (for example; personal
guarantee, bank guarantee, security deposit) that the Landlord
reasonably requires; and
* the Tenant is not in breach of this lease.
20.3 Section 144 of the Property Law Act 1958 does not apply to this lease
(this deals with withholding the Landlord's consent and the money
payable by the Tenant for getting the Landlord's consent).
21. USING THIS LEASE ETC AS SECURITY
21.1 The Tenant must get the Landlord's consent before the Tenant uses
this lease as security.
WHAT ARE THE TENANT'S OBLIGATIONS CONCERNING THE PREMISES?
22. Use
22.1 The Tenant may only use the premises for the purpose set out in item
5.
22.2 The Tenant must not put any safe or other heavy articles in the
premises unless the Tenant gets the Landlord's consent to do so.
22.3 The Tenant must not put any plate, sign or advertisement outside the
premises or on the inside face of the windows unless the Tenant gets
the Landlord's consent to do so.
<PAGE>
10
22.4 The Tenant must not use the premises in way that interferes with the
usual operation of services which the Landlord supplies to the
premises or the Building.
22.5 The Tenant must not store dangerous substances (for example:
hazardous chemicals, flammable liquids, acetylene gas or alcohol,
explosive oils compounds or substances) on the premises or in the
Building.
23. LETTING OTHERS ONTO THE PREMISES
23.1 The Tenant is responsible for the conduct of all people that the
Tenant allows on the premises (for example, the Tenant's customers,
employees, contractors and agents).
23.2 But the Tenant is not responsible for the conduct of the people the
Landlord requires to be on the premises (for example, the Landlord's
employees and agents).
24. MAINTAINING THE PREMISES AND THE TENANT'S PROPERTY
24.1 The Tenant must keep the premises clean and tidy and in the same
condition as they were in at the commencing date, except for fair
wear and tear (for example, the Tenant must repair damage and replace
broken fittings). The Tenant is responsible for the tenancy area
cleaning and waste management costs.
24.2 The Tenant must maintain, repair and keep the Tenant's property in
good condition.
24.3 The Tenant must repair or replace all broken glass with glass of the
same or similar quality. The Tenant must repair or replace all light
tubes and associated fittings.
24.4 Unless the Tenant causes the damage, the Tenant does not have to
repair structural or capital items.
25. DAMAGE CAUSED BY THE TENANT
25.1 The Tenant must promptly repair any damage the Tenant causes to the
Building or the premises.
26. ALTERING THE PREMISES
26.1 The Tenant must get the Landlord's consent before the Tenant does
building work in the premises, for example:
* alterations,
* installation of equipment,
* re-designing the interior,
* building of partitions.
26.2 The Tenant must get the necessary permits (for example: building
permits, plumbing permits) to allow the Tenant to carry out building
work and must get an occupancy permit or certificate of final
inspection when necessary.
26.3 If the Landlord asks, the Tenant must promptly give copies of all
permits and certificates to the Landlord.
<PAGE>
Exhibit 10.19
Plan Highlights Sheet
for the Looksmart 401(k) Plan
- -----------------------------
Introduction
- ------------
Plan Name: LookSmart 401(k) Plan
Plan Sponsor & Plan Administrator: LookSmart, Ltd.
487 Bryant Street
San Francisco, CA 94107
Contact: Carol Alverson
Phone: 415-597-8544
Eligibility & Participation
- ---------------------------
1. All employees are eligible to participate in the plan except those employees
covered by a collective bargaining agreement and non-resident aliens.
2. There is no service requirement for participation.
3. The age requirement for participation is: 18
Contributions to the Plan
- -------------------------
1. Your employer has the option to make profit sharing contributions to the
Plan. An employee must be credited with at least 500 hours of service during
the plan year. to be eligible for profit sharing.
2. You may make 401(k) salary deferral contributions of up to 15% to the Plan.
3. Your employer will match your contributions. Matching will be 100% of your
contribution up to 5% of your compensation.
4. You may make a rollover contribution.
Vesting in Accounts
- -------------------
1. Rollover contributions will always be 100% vested.
2. Employee deferral contributions will always be 100% vested.
3. Employer profit sharing or matching contributions will vest according to the
following schedule:
-1-
<PAGE>
Years of Vesting
Vesting Service Schedule
----------------- -----------------
0 0%
1 50%
2 100%
Withdrawals From Account While Actively Employed:
1. Your Plan allows you to take a loan from your account of up to 1/2 of your
balance. The minimum loan is $ 1,000 and the maximum loan is $50,000.
2. Your Plan allows hardship withdrawals. The minimum amount is $500.
3. You may withdraw all or any portion of your account from the plan at age
59 1/2.
Retirement Benefits
4. Normal retirement age for your Plan is 65.
5. If you become disabled, you may begin to take retirement distributions from
the plan.
6. You may select either a lump sum or installments when you receive benefits
from the Plan.
Additional Plan Information
- ---------------------------
Plan Trustee: LaSalle National Bank
135 So. LaSalle Street
Chicago, IL 60690
Attn: Bill Kursar
Type of Plan: Defined Contribution
Plan Number: 001
Employer Identification Number: 13-3904355
Plan Year: January 1 - December 31
Legal Process: Service of legal process may be made upon the Plan
Administrator, Plan Sponsor or Trustee at the above address.
For additional information, contact:
The RTF Retirement Plan, 50 Braintree Hill Office Park, Suite 200, Braintree,
MA 02184 800-837-6993
-2-
<PAGE>
Summary Plan Description
The RTF Retirement Plan
- -----------------------
For additional information, contact:
The RTF Retirement Plan, 50 Braintree Hill Office Park, Suite 200, Braintree,
MA 02184 800-837-6993
-3-
<PAGE>
Table Of Contents
- -----------------
Plan highlights sheet for your plan
- -----------------------------------
Introduction
- ------------
Eligibility & Participation
- ---------------------------
. Who is Eligible to Participate in the Plan?
. Service Requirements
. Age Requirements
. Once I Become Eligible, When Can I Start Participating?
. How are hours of Service Counted?
Plan accounts
- -------------
. How is My Money in the Plan Monitored?
Contributions to the plan
- -------------------------
. Contributions to Profit Sharing Plans
. Contributions to 401(k) Plans
. Employer Matching Contributions
. Are There any Other Types of Contributions That can be Made to my
Account?
Investment options
. How are my Contributions Invested?
. What if I Want to Change my Investments?
. How do I Know How Much is in my Account?
Vesting in accounts
- -------------------
. When I Take Money Out of the Plan, How Much of my Account Will I Receive?
. How is my Vested Amount Determined?
. What Vesting Schedule Applies to my Account?
. How Are Years of Service Counted for Vesting?
. What Happens to any Money That Isn't Vested?
-4-
<PAGE>
Distributions or withdrawals from the plan
- ------------------------------------------
. When Can I Take Money Out of the plan?
. What if I'm Still Working for the Employer?
. What are the Rules for a Hardship?
. What are the Rules for a Loan?
. What Happens When I Retire?
. How Will My Benefits be Paid to Me?
. What if I Leave The Employer Before Retirement?
. What Happens if I Die Before Retirement?
Administration of the plan
- --------------------------
. Who is Responsible for Running Plan on a Daily Basis
. Where is my Money?
Plan amendment or termination
- -----------------------------
. Can my Employer Change or Terminate the Plan?
Assignment
- ----------
. Can my Account be Transferred to Someone Else?
Your rights as a plan participant
- ---------------------------------
. What do I Need to do to Start Receiving Benefits?
. What if I Don't Believe I'm Receiving the Correct Amount?
. What if the Employer Denies My Claim?
. What is the Appeal Process?
. What Other Rights Do I Have as a Plan Participant?
Definitions
- -----------
Introduction:
- -------------
Your employer has adopted the 401(k)/ Profit Sharing Plan (the "Plan") to help
you arrange for and meet your financial needs in retirement. The Plan allows
each employee who has met the Plan's eligibility requirements to be a
Participant. As a Participant, you may elect to contribute part of your own
compensation to the Plan. In addition, your employer may make matching
contributions or profit sharing contributions to the Plan.
This document is called the Summary Plan Description. This description plus the
attached Plan Highlights Sheet explain the
-5-
<PAGE>
terms and condition of the Plan and how you can participate. The Plan Highlights
Sheet details specific provisions that your employer has selected for your
company's Plan. This sheet will help you to understand how your Plan works.
However, this description is not the actual Plan. The actual Plan is a complex
legal document. A copy of the actual Plan is available from your employer for
review and copying by any employee who wishes to do so. If there are any
differences between this description and the Plan's provisions, the provisions
of the Plan will govern.
If you have any questions about the Plan after reviewing this description,
please contact either your employer or call RTF at 800-837-6993.
Eligibility & participation:
- ----------------------------
Who is Eligible To Participate In the Plan?
- -------------------------------------------
Generally all employees will be eligible to participate in the Plan. Your
employer does have the ability to exclude certain classes of employees from the
Plan. Please review the Plan Highlights Sheet for specific eligibility for your
Plan.
Service Requirements
- --------------------
Your employer may require that you complete a certain number of years of service
before you are eligible to become a participant. Please see the Plan Highlights
Sheet for the service requirement in your Plan. If your Plan has a one year
service requirement, you will become eligible on the 12 month anniversary of
your date of hire. The Plan requires that you have worked at least 1,000 hours
during that period.
Under some circumstances, your employer may include service with a predecessor
company towards meeting this requirement.
Age Requirements
- ----------------
Your employer may also require that you reach a certain age before you are
eligible to participate. Please see the Plan Highlights Sheet for the age
requirement in your Plan.
Once I Become Eligible, When can I Start Participating.
- ------------------------------------------------------
You may start participating on the first day of your employer's next payroll
period after you become eligible.
How are Hours of Service Counted?
- --------------------------------
An hour of service is counted for every hour that you actually work (and for
most non-working hours, such as vacation, holidays, and sick days).
However, no more than 501 Hours of Service will be credited for any single
continuous period of non-working hours.
Plan accounts:
- --------------
How is my Money in the Plan Monitored?
- --------------------------------------
Your contributions and any contributions that your employer makes for you will
be kept in an account in your name. This account will also include all
investment gains, losses and income, as well as expenses, attributable to your
account.
-6-
<PAGE>
Each of the different types of contributions as described in the contribution
section will be kept separately in your account. The Plan Highlights Sheet shows
the specific contribution types available in your Plan and the rules for each.
Your employer may maintain any or all of the following types of contributions:
. Employer Profit Sharing: These are the discretionary contributions that your
employer may make to all participants.
. Employee Salary Deferral: These are the 401(k) pre-tax contributions that you
have elected to make to the Plan.
. Employer Matching: These are any matching contributions that your employer
has made based on your 401(k) contribution.
. Rollover Contribution: These are any rollovers that you have made from a
previous tax-qualified plan in which you participated.
Contributions to the plan:
- --------------------------
Your employer has elected to allow certain types of contributions to your Plan;
each type of contribution is described below. Please see the Plan Highlights
Sheet for the type(s) of contributions allowed to your Plan.
Contributions to Profit Sharing Plans
- -------------------------------------
How Much Will my Employer Contribute?
- -------------------------------------
Each year your employer will decide whether and how much to contribute to the
Plan as a profit sharing contribution. Generally, your employer will make this
decision based on the company's financial situation that year.
How Much of the Contribution Will I Receive?
- --------------------------------------------
Your employer may contribute up to 15% of compensation to each participant. The
contribution will be allocated to all employees who are participants in the Plan
based on their compensation. A part of the contribution is allocated to the
account of each participant based on the ratio that the participant's
compensation bears to the total compensation paid to all eligible participants
for the plan year. (See Definitions and Plan Highlights Sheet for a definition
of compensation.)
Your employer may require that you work at least 500 hours during the plan year
or that you are employed on the last day of the plan year in order to share in
that year's contribution. If you don't meet these requirements due to
retirement, disability or death, you will still receive your share. Please see
Plan Highlights Sheet to determine if this applies to you.
When Will the Employer Make this Contribution?
- ----------------------------------------------
Most employers will make the profit sharing contribution, if any, towards the
end of the year. The contribution must be made before the employer files its
federal income tax return for that taxable year.
Contributions to 401(k) Plans Employee Salary Deferral 401(k) Contributions
- ----------------------------------------------------------------------------
You may elect to contribute part of your compensation to the Plan. This
contribution will be deducted each payroll period from your paycheck and put
into the Plan on a pre-tax basis. The enrollment form
-7-
<PAGE>
authorizes your employer to contribute this to the Plan for you.
You may change or stop the amount you are contributing by notifying your
employer. This change will be effective on the first day of the payroll period
in which your employer can reasonably process the request.
How Much Can I Contribute?
- --------------------------
You may contribute up to 15% of your compensation to the Plan each year. The
government has also limited your contribution to $ 10,000 in 1998. (This amount
will increase in the future as inflation increases.)
Another limit is that a "highly compensated employee's" contributions may be
restricted because the Plan must pass a special test each year. If this limit
applies to you, your employer will let you know.
If you contribute too much to the Plan, the Plan will return any excess
contributions to you, so that the Plan stays within the required limits. In
general, this refund will show up as current year compensation on your W-2.
Employer Matching Contributions
- -------------------------------
Your employer may have elected to make matching contributions to your Plan.
How Much Will My Employer Contribute For Me?
- -------------------------------------------
Your employer's matching contribution will be based on the amount that you have
elected to contribute to the Plan as a 401(k) contribution. The Plan Highlights
Sheet shows the specific matching formula, if any, that your employer has
chosen.
Your employer may have elected not to make matching contributions for highly
compensated employees. Please see the Plan Highlights Sheet to determine if this
applies to you. Matching contributions for highly compensated employees may also
have to be limited in certain years in order for the Plan to pass a special
test.
At the end of the year, your employer may also decide to make an additional
matching contribution to all participants who made 401(k) contributions.
Are There any Other Types of Contributions That can be Made to my Account?
- --------------------------------------------------------------------------
The Plan allows you to make "rollover contributions." If you previously worked
for another company which had a similar retirement or 401(k) plan, you may be
able to roll that into your new Plan. Please contact us if you have any
questions about whether you can roll money into this Plan.
Your previous employer may be able to make a direct transfer from your old plan
into this Plan. Or you can transfer money which is now in an IRA that was
previously in another plan to this Plan. However, this rollover contribution
must be made within 60 days after you receive the distribution from the old
plan.
You may make a rollover contribution even if you have not yet become eligible to
participate in this Plan.
-8-
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OPTIONS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
How Are My Contributions Invested?
- ---------------------------------
Your Plan allows you to select from among the Retirement Trust Funds (the
"Funds") which are available in the Plan. You may pick one or any combination of
these Funds for both your own and your employees contribution. For additional
information on the Funds, please contact us at the number shown on the Plan
Highlights Sheet.
What if I Want to Change my Investment?
- --------------------------------------
You may change either your allocation of current contributions or your existing
account balances on any business day. Please contact us at the number shown on
the Plan Highlights Sheet for specific details regarding changing your
investments.
How do I Know how Much is in my Account?
- ---------------------------------------
Your account will be valued daily at its fair market value. You will receive a
written statement quarterly showing your account balance. You may call us any
day for your current account balance.
Any income or distributions earned or any losses or expenses in the Funds you
selected will be allocated to your account. They will be reinvested in the same
Fund that generated them.
- --------------------------------------------------------------------------------
VESTING IN ACCOUNTS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
When I Take Money out of the Plan, How Much of my Account Will I Receive?
- ------------------------------------------------------------------------
The amount that you can take out of the Plan will depend on the reason you are
withdrawing money and on your vested amount.
How is my Vested Amount Determined?
- ----------------------------------
You will receive the entire value of your account (meaning you will be 100%
vested):
. If you reach the normal retirement age of 65.
. If your employer terminates your Plan.
. If you reach early retirement age. See the Plan Highlights Sheet for the
early retirement age.
. If you become disabled or die.
If you have not met the above requirements, then the vested amount will depend
on the type of contribution and the vesting schedule. The vesting schedule
determines how many years of service you must complete in order for your account
balance to belong to you.
. Any employee deferral contributions (i.e., 401(k) contributions) will always
be 100% vested and belong to you.
. All employer matching and employer profit sharing contributions (see Plan
Highlights Sheet to see which apply to your Plan) will be vested according to
the vesting schedule.
.
Any rollover contributions that you make to the Plan are always 100% vested
and non-forfeitable.
-9-
<PAGE>
What Vesting Schedule Applies to my Account?
- -------------------------------------------
The vesting schedule for your Plan is indicated on the Plan Highlights Sheet.
How are Years of Service Counted for Vesting?
- --------------------------------------------
Years of service for vesting begin on the date that you first work for your
employer. Each anniversary date adds an additional year.
If you have completed at least one hour of service and you quit, retire or are
absent from work for any other reason and you return within 12 months, then you
will get credit for an entire year of service.
If you terminate employment with no vested interest in the employer. profit
sharing or matching contributions, then you will not get credit for vesting
service if you are gone for over 5 years.
Your employer may also count service with a predecessor employer towards vesting
service. Please see Plan Highlights Sheet to determine if this applies to you.
What Happens to any Money That Isn't Vested?
- -------------------------------------------
Any amount that is not vested will be forfeited if you leave your employer.
These forfeitures will be used by your employer to reduce future contributions.
If you return to the employer within 5 years, then any forfeitures will be
reinstated or returned to your account.
- --------------------------------------------------------------------------------
DISTRIBUTIONS OR WITHDRAWALS FROM THE PLAN:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
When Can I Take Money out of the Plan and What are the Tax Considerations?
- -------------------------------------------------------------------------
In general, the government views your Plan as a program to provide retirement
benefits. Therefore, withdrawals or distributions before retirement are
restricted and may be subject to penalty taxes in certain circumstances, in
addition to regular incomes taxes.
Pre-Age 59-1/2 Distribution Penalty Tax.
- ---------------------------------------
Subject to certain exceptions, distributions from the Plan made before the
participant attains age 59-1/2 are subject to normal income taxes plus a 10%
----
federal penalty tax. Some of the exceptions include: distributions on account of
the participant's death, disability, separation from service after age 55 and
annuity distributions for life.
Because of the complexity of the rules, the frequency with which they are
changed, and the fact that each person's circumstances are unique, you are urged
to consult with a personal tax advisor regarding the tax aspect of your
participation in the Plan or receipt of benefits from it.
What if I'm Still Working for the Company?
- -----------------------------------------
As long as you are an active employee, then withdrawals or distributions can
only be made in certain situations.
. Hardship: Your employer may allow you to take a financial hardship
--------
distribution. Please see the Plan Highlights Sheet to determine if a hardship
distribution is available in your Plan.
-10-
<PAGE>
. Loans: Your employer may allow you to take a loan from the Plan. Please see
-----
the Plan Highlights Sheet to determine if your Plan allows loans.
. Age 59 1/2: Any participant who is age 59-1/2 may elect to withdraw all or
----------
any portion of his account balance.
What are the Rules for a Hardship Withdrawal?
- ---------------------------------------------
A hardship withdrawal has a $500 minimum amount and it may only be for the
amount you need to meet your financial obligations resulting from the hardship.
You may only take a hardship withdrawal for certain, very specific reasons:
. Extraordinary medical expenses for a member of your immediate family.
. Purchasing your primary residence.
. Post-secondary education expenses for member of your immediate family.
. Expenses necessary to prevent eviction from your primary residence or
foreclosure on your mortgage of your primary residence.
A hardship withdrawal is subject to income tax and is also subject to a 10%
penalty tax if received before age 59-1/2.
Your employer can only authorize the hardship withdrawal if you have exhausted
all other sources, including a Plan loan, if that's an option in your Plan. If
you take a hardship withdrawal, you must suspend all 401(k) deferral
contributions for the next 12 months. And your hardship withdrawal cannot exceed
the amount of your immediate need (including taxes and penalties).
What are the Rules for a Loan?
- ------------------------------
If your Plan allows you to take a loan, you may take a loan from your account of
up to half your vested balance (subject to a $50,000.00 maximum). You must repay
the loan plus interest back to your account over not more than 4-1/2 years. A
loan for your primary residence may be paid back over a longer period. The
interest rate will be set when you initially take the loan at then current
market rates.
You may only take out one loan per year and may only have one loan outstanding.
The minimum loan amount is $1,000.
The loan proceeds will be withdrawn pro-rata from all of the Funds in which you
are invested. Your repayments will be invested according to your current
contribution direction.
The interest that you pay on a loan is not tax deductible, even if you borrow to
pay for a house.
What Happens When I Retire? What is Normal Retirement?
- ------------------------------------------------------
Normal retirement age is 65. As an active employee, you will be 100% vested once
you reach retirement age, even if you have not met the vesting requirements. You
may receive a distribution after you reach 65 and retire from, the employer. If
you continue to work after age 65, distributions will begin after you return.
Note that you must begin taking distributions by April 1 of the calendar year
following the later of the, calendar year in which you attain age 70 1/2 or
retire.
What is Early Retirement?
- ------------------------
Your employer may have chosen to set an early retirement age. Please see the
Plan Highlights Sheet for age and years of service
-11-
<PAGE>
required. Once you meet these requirements, the provisions under normal
retirement will apply.
What is Disability Retirement?
- ------------------------------
If you become disabled, you will become 100% vested in your account. You are
disabled if you cannot engage in any substantial, gainful activity because of a
medically determinable physical or mental impairment likely to result in death
or likely to last more than 12 months.
How Will my Benefits be Paid to Me?
- -----------------------------------
You have the option to select the method in which your distribution will be paid
to you. You may select:
. Lump sum distribution in which your entire account is paid at one time.
. Installment payments over your fife expectancy or the joint He expectancy o
yourself and your beneficiary.
. Special rules may apply regarding your benefit distribution options if, in
general and for example, you have made a direct transfer of funds from
another employer's qualified plan into this Plan or if this Plan directly
acquired assets of another plan, through plan merger, trustee-to-trustee
transfer, or otherwise. We will provide you with information if you are
affected by these circumstances. You may contact us at the number shown on
the Plan Highlights Sheet if you have questions about this.
. If you have less than $5,000 in your account, you may be forced by your
employer to receive a lump sum distribution.
When you are about to retire, we will provide you with additional information on
each of your benefit options so you can choose the one that best meets your
needs. During a 90-day election period prior to your retirement you will be
given the option of choosing any payment form described above.
What if I Leave the Employer Before Retirement?
- -----------------------------------------------
If you terminate employment for any reason other than retirement, death or
disability, you are entitled to receive 100% of your vested account. See the
section discussing vesting for details on how your account will vest. The types
of distributions available will be the same as above.
What Happens if I Die Before Retirement?
- ----------------------------------------
If you die, then you automatically become 100% vested. Your beneficiary will
receive your total account balance. Your beneficiary will have the same
distribution options described above.
During the enrollment process, you designate your beneficiary by completing a
beneficiary designation form. If you are married, your beneficiary will be your
spouse unless you have filed a designated of beneficiary form naming another
beneficiary and your spouse has given notarized written consent. If you are not
married and become married, your previous designation of beneficiary form will
cease to be effective. In that event, your new spouse will automatically become
your beneficiary, unless you file a new designation of beneficiary form and your
new spouse gives notarized written consent.
-12-
<PAGE>
- --------------------------------------------------------------------------------
ADMINISTRATION OF THE PLAN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Who is Responsible for Running my Plan on a Daily Basis?
- -------------------------------------------------------
Your employer is your Plan's administrator. This means that your employer is
responsible for day-to-day administration and management of the Plan. This
includes answering employees' questions maintaining records, filing reports with
the government, receiving and transmitting your election forms, etc.
Your employer has the authority to appoint others to perform some of these
duties. The RTF Retirement Plan will handle these for your Plan. Call us at the
number on the Plan Highlights sheet if you have questions about your Plan.
Where Is My Money?
- -----------------
Your account is held in a Trust Agreement with LaSalle National Bank, N.A., the
Plan's Trustee. It is not part of the general assets of your employer.
- --------------------------------------------------------------------------------
PLAN AMENDMENT OR TERMINATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Can My Employer Change or Terminate the Plan?
- --------------------------------------------
Your employer has the right to amend or terminate the Plan at any time. However,
no amendment may deprive you of any of your vested benefits. You and your
beneficiaries will be notified of any material amendments to the Plan.
Although your employer expects to continue this Plan indefinitely, it has the
right to terminate the Plan at any time. If the employer must terminate the
Plan, then you will become 100% vested in your account regardless of your years
of service.
- --------------------------------------------------------------------------------
ASSIGNMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Can my Account be Transferred to Someone Else?
- ---------------------------------------------
Generally, you cannot sell, give away or transfer your account to anyone else.
In addition, your creditors may not attach or garnish your rights to benefits
under the Plan.
However, the Plan must pay out your benefits in accordance with a "qualified
domestic relations order," ("QDRO") which is a court decree obligating you to
----
pay alimony or child support or otherwise allocating part of your account to
your spouse, former spouse, child or other dependent. If a QDRO is received by
your employer, all or a portion of your account may be used to satisfy this
obligation.
-13-
<PAGE>
- --------------------------------------------------------------------------------
YOUR RIGHTS AS A PLAN PARTICIPANT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
What do I Need to do to start Receiving Benefits?
- ------------------------------------------------
Under normal circumstances, payment of your account balance will begin following
your retirement, death, disability or termination of employment according to
your election.
What if I Don't Believe I'm Receiving the Correct Amount?
- --------------------------------------------------------
If you or your beneficiary believe that you are not receiving the correct amount
or that you are not receiving a benefit to which you believe you are entitled
under the Plan, you or your beneficiary must file a written claim with the
employer.
Your claim will be reviewed by your employer. Your employer will notify you
within 90 days (or 180 days if special circumstances require an extension) of
its decision.
What If the Employer Denies the Claim?
- -------------------------------------
If your employer denies the claim, it must provide in writing its reasons for
denial with specific reference to Plan provisions, additional material needed to
complete the claim, an explanation of why it's needed and the steps to take if
you wish to have it reviewed again.
What is the Appeal Process?
- --------------------------
You or your beneficiary may appeal a denied claim within 60 days after receiving
the denial notice. You or your beneficiary will have the right to review
pertinent documents and submit issues and comments in writing to the employer.
The employer will make a full and fair review of the claim and may require
additional documents as it feels necessary. A final decision will be made within
60 days (or 120 in special circumstances) after receipt of the written request
for review. The final review will be in writing and will include reasons for the
decision.
- --------------------------------------------------------------------------------
YOUR RIGHTS AS A PLAN PARTICIPANT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
What Other Rights do I Have as a Plan Participant?
- -------------------------------------------------
The Employee Retirement Income Security Act of 1974 ("ERISA") provides that all
Plan Participants shall be entitled to:
1. Examine, without charge, at the Plan administrator's office Plan documents
any copies of documents filed by the Plan with the U.S. Department of Labor,
such as detailed annual report and Plan descriptions.
2. Obtain copies of Plan documents and other Plan information upon written
request to the Plan administrator. A reasonable charge may be made for the
copies.
3. Receive a summary of the Plan's annual financial report. The Plan
administrator is required by law to furnish each participant with a copy of
this summary annual report.
-14-
<PAGE>
4. Obtain a statement telling you whether you have a right to receive a benefit
at age 65 and, if so, what the benefit would be at age 65 if you were to
stop working under the Plan now. If you do not have a right to a benefit,
the statement will explain how many more years you have to work to get a
benefit. This statement must be requested in writing and is not required to
be given more than once a year. The Plan must provide the statement free of
charge.
In addition to creating rights for Plan participants, ERISA imposes duties upon
the people who are responsible for the operation of employee benefit Plans. The
people who operate the Plan, called "fiduciaries" of the Plan, have a duty to do
so prudently and in the interest of you and other Plan participants and
beneficiaries. No one may fire you or otherwise discriminate against you in any
way to prevent you from obtaining a pension benefit or exercising your rights
under ERISA.
If your claim for a benefit is denied in whole or in part, you must receive a
written explanation of the reason for denial. You have the right to have the
employer review and reconsider your claim. Under ERISA, there are steps you can
take to enforce the above rights. For instance, if you request materials from
the employer and do not receive them within 30 days, you may file suit in a
federal court. In such a case, the court may require the employer to provide the
materials and pay you up to $ 100 a day until you receive the materials, unless
the materials were not sent because of reasons beyond the control of the
employer. If you have a claim for benefits which is denied or ignored, in whole
or in part, you may file suit in a state or federal court.
If it should happen that the Plan fiduciaries misuse the Plan's money, or if you
are discriminated against for asserting your rights, you may seek assistance
from the U.S. Department of Labor, or you may file a suit in federal court. The
court will decide who should pay court costs and legal fees. If you are
successful, the court may order the person you have sued to pay these costs and
fees. If you lose, the court may order you to pay these costs and fees, for
example, if it finds your claim is frivolous.
If you have any questions about the Plan, you should contact your employer. If
you have any questions about this statement or about your rights under ERISA,
you should contact the nearest Area Office of the Labor Management Services
Administration, U. S. Department of Labor.
* * * * * *
Benefits under the Plan are not insured by the Pension Benefit Guaranty
Corporation (the "PBGC") if the Plan terminates. Generally, the PBGC guarantees
benefits under defined benefit plans, but not under defined contributions plans,
such as this Plan.
-15-
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Participants. Any employee who has completed the age, service and other
- ------------
requirements to become covered by the Plan.
Compensation: Generally, compensation is defined as the earnings you receive
- ------------
during the year which is shown on your W-2, Wage and Tax Statement. Your
employer may have elected to exclude certain types of compensation under the
Plan, such as bonuses or commissions. Please see your Plan Highlights Sheet for
details on your Plan.
Highly Compensated Employee: Your employer will notify you if you are in this
- ---------------------------
category. This may impact the amount of contribution you can make.
This definition is subject to change each year in accordance with adjustments
for inflation. For 1998, the following are generally treated as highly-
compensated employees:
. Any employee who owns 5% of the employer's stock (or owns 5% of the
partnership);
. Any employee who earns in excess of $80,000 from the employer during
the year.
Vesting: Any employer contributions will belong to you, subject to a "vesting"
- -------
schedule. This means that if you leave the employer before you complete a
specified number of years of service, then some or all of the employer
contribution will be forfeited back to the employer.
-16-
<PAGE>
Exhibit 21.1
Subsidiary
- ----------
BeSeen.com, Inc., a Delaware corporation
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 7, 1999, relating to
the consolidated financial statements and financial statement schedule of
LookSmart, Ltd. and Subsidiaries. We also consent to the references to us under
the headings "Experts" and "Selected Consolidated Financial Data" in such
prospectus. However, it should be noted that PricewaterhouseCoopers LLP has not
prepared or certified such "Selected Consolidated Financial Data."
/s/ PricewaterhouseCoopers LLP
San Francisco, California
June 11, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 7, 1999, relating
to the financial statements of BeSeen.com, Inc., which appears in such
prospectus. We also consent to the reference to us under the heading "Experts"
in such prospectus.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
June 11, 1999
<PAGE>
Exhibit 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 24, 1999 (except for Note 6, as to which the
date is April 9, 1999), with respect to the financial statements of Guthy-
Renker Internet, LLC included in the Registration Statement on Form S-1 to be
filed on or about June 11, 1999 and related Prospectus of LookSmart, Ltd. for
the registration of its common stock.
/s/ Ernst & Young LLP
Riverside, California
June 11, 1999
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 4, 1999, relating
to the financial statements of ITW NewCorp, Inc. which appears in such
prospectus. We also consent to the reference to us under "Experts" in such
prospectus.
/s/ PricewaterHouse Coopers LLP
San Francisco, California
June 11, 1999
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 4, 1999, relating
to the financial statements of HomeBase Directories Pty Ltd., which appears in
such prospectus. We also consent to the reference to us under the heading
"Experts" in such prospectus.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
June 11, 1999
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<PAGE>
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,501
<SECURITIES> 0
<RECEIVABLES> 2,895
<ALLOWANCES> (127)
<INVENTORY> 0
<CURRENT-ASSETS> 7,248
<PP&E> 1,979
<DEPRECIATION> (1,219)
<TOTAL-ASSETS> 13,590
<CURRENT-LIABILITIES> 13,755
<BONDS> 0
0
18
<COMMON> 14
<OTHER-SE> (1,793)
<TOTAL-LIABILITY-AND-EQUITY> 13,590
<SALES> 8,785
<TOTAL-REVENUES> 8,785
<CGS> 0
<TOTAL-COSTS> 6,819
<OTHER-EXPENSES> 13,864
<LOSS-PROVISION> 127
<INTEREST-EXPENSE> (675)
<INCOME-PRETAX> (12,712)
<INCOME-TAX> 146
<INCOME-CONTINUING> (12,858)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<EPS-BASIC> (0.47)
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