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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Fiscal Year Ended December 31, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-25681
ILIFE.COM, INC.
(exact name of registrant specified in its charter)
Florida 65-0423422
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11811 U.S. Highway One, Suite 101
North Palm Beach, Florida 33408
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (561) 630-2400
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the average of the closing bid and ask quotations for the
Common Stock on March 31, 2000 as reported by the Nasdaq National Market, was
approximately $9,822,138. The shares of Common Stock held by each officer and
director and by each person known to the Company who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes. As of March 31, 2000, Registrant
had outstanding 13,548,405 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Stockholders are incorporated by reference into Parts I and III of this report.
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ITEM 1. BUSINESS
EXCEPT FOR HISTORICAL INFORMATION, THE FOLLOWING DESCRIPTION OF THE COMPANY'S
BUSINESS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE OUTCOME OF THE EVENTS DESCRIBED IN THESE FORWARD-LOOKING
STATEMENTS IS SUBJECT TO RISKS AND ACTUAL RESULTS COULD DIFFER MATERIALLY. THE
SECTIONS ENTITLED "ITEM 1. BUSINESS - RISK FACTORS THAT COULD IMPACT FUTURE
OPERATING RESULTS", "ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AS WELL AS THOSE DISCUSSED ELSEWHERE IN
THIS ANNUAL REPORT CONTAIN A DISCUSSION OF SOME OF THE FACTORS THAT COULD
CONTRIBUTE TO THESE DIFFERENCES.
Overview
Based in North Palm Beach, Florida, ilife.com, Inc. (NASDAQ: ILIF) is an
industry leader in creating, producing, broadcasting and syndicating personal
finance information for the consumer through a broad portfolio of Web sites,
print publications and television segments that have a potential to reach an
estimated 36.5 million visitors, viewers and readers, as determined by Media
Metrix, Nielson and Editor & Publisher International Year Book. The Company's
personal finance portal, www.ilife.com, features original content that deals
with financial planning, taxes, insurance, investing and banking. The portal
serves as a gateway to ilife.com's family of Web sites and broadcast segments,
including the award-winning bankrate.com, Pivot.com, theWhiz.com,
IntelligentTaxes.com, Consejero.com, CPNet.com, GreenMagazine.com and the
television version of "Cost of Life". Content from ilife.com is published on
co-branded Internet sites through more than 90 relationships, including
Snap.com/NBC Internet, Inc. (NASDAQ: NBCI), Yahoo! (NASDAQ: YHOO), CNN, America
Online (NYSE: AOL) and Smart Money. The Company's original research is also
distributed through more than 100 national, regional and local print
publications. Ilife.com Web sites have approximately one million unique visitors
per month, according to Media Metrix.
ilife.com, Inc.
Internet Advertising Views and Page Views
(in millions)
Six Months Ending
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6/30/98 12/31/98 6/30/99 12/31/99
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Ad Views (1) 29 75 128 160
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Page Views (2) 14 26 40 49
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Source of Data: ilife.com, Inc. server reports
(1) Ad Views - served from the Company's ad servers. Includes ads served in
the CPNet.com college advertising network in which we serve into
externally hosted college newspaper web pages.
(2) Page Views - does not include externally hosted pages served in the
CPNet.com college network (non-Company produced content pages).
Prior to 1996, and dating back to 1976, our principal business was the
publication of print newsletters, the syndication of unbiased editorial bank and
credit product research to newspapers and magazines, and advertising sales of
the Consumer Mortgage Guide. We currently syndicate editorial research to 85
newspapers that have combined single day circulation in excess of 27 million
copies and three national magazines with combined monthly circulation in excess
of 2.5 million copies. The Consumer Mortgage Guide is a weekly newspaper
advertising table consisting of product and rate information from local mortgage
companies and financial institutions. The Consumer Mortgage Guide appears weekly
in approximately 12 U.S. metropolitan newspapers with combined single day
circulation in excess of 3.5 million copies. Together,
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these bankrate.com branded print activities have the potential of reaching 33
million readers, according to Editor & Publisher International 1998 Year Book.
In 1996, we started our online operations by displaying our editorially
unbiased research through our Web site, bankrate.com. By offering our
information online, we created new revenue opportunities through the sale of
graphical and hyperlink advertising associated with our rate and yield tables.
In fiscal 1997, we implemented a strategy to concentrate on building our online
operations. Since that time, we have significantly expanded the scope and depth
of bankrate.com and made investments in seven new online Internet Web sites:
theWhiz.com, Consejero.com, CPNet.com, GreenMagazine.com, IntelligentTaxes.com,
Pivot.com and our personal finance portal, ilife.com. Additionally, we formed a
Broadcast Division which syndicates ilife.com branded television segments that
reach an estimated 2.5 million viewers per week, according to Nielson the
November 1999 ratings.
We believe that the recognition of our research as a leading source of
independent, objective information on banking and credit products is essential
to our success. As a result, we have sought to maximize distribution of our
research to gain brand recognition as a research authority. We are seeking to
build greater brand awareness of all of our Web sites and to reach a greater
number of online users.
We publish our editorial and research data online through our principal Web
site, bankrate.com, and through distribution (or syndication) arrangements with
more than 90 third party Web sites. Information is available covering over 100
financial products within 126 geographic markets. The information includes data
regarding mortgage and home equity loans, credit cards, automobile loans,
checking accounts, ATM fees, and yields on savings instruments. Our unique
information, which is compiled by 45 researchers, is accompanied by extensive
editorial content designed to assist consumers with their decision-making
process. Due to the average per capita income, level of education and
professional status of bankrate.com's visitors, we believe this audience
represents a desirable group of target customers for our advertisers.
We have used the resources of bankrate.com to create new online publications
which provide personal finance information to additional targeted audiences.
These publications include: theWhiz.com, which targets the financial novice;
Consejero.com, which targets the Spanish-speaking audience; CPNet.com, which
targets the college market; GreenMagazine.com for the novice investor;
IntelligentTaxes.com for those interested in personal income tax issues; and
Pivot.com, which sells insurance and annuity products. Our goal is to develop a
broad base of loyal users of our family of Web sites.
Effective November 12, 1999, we changed our name from "Intelligent Life
Corporation" to "ilife.com, Inc." to more accurately reflect the Company's major
revenue generating activities, which are derived from the Internet.
Our Opportunity
Many financial services customers are relatively uninformed with respect to
financial products and services and often rely upon personal relationships when
choosing such products and services. Many of these products and services are not
well explained and viable, equivalent alternatives typically are not presented
when marketed to consumers through traditional media. As the sale of many of
these products and services moves to the Internet, where there is little
personal contact, we believe that consumers will seek sources of independent
objective information such as bankrate.com to facilitate and support their
buying decisions. Because of the interactive nature of the Internet, where Web
technology allows us to display extensive research on financial products and
services that was previously unavailable to consumers, we believe we are able to
provide a superior vehicle to educate consumers in the selection and purchase
process.
We believe the majority of financial information available on the Web is
oriented toward investment advice and providing business news and financial
market information, rather than personal and consumer
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finance data. Our publications are targeted to fulfill the market need for
personal and consumer finance information.
By expanding our comparative data regarding financial products and related
editorial content, we are creating a unique Web-based service designed to enable
our audience to keep abreast of personal finance trends and to better manage
their financial affairs. As a result, we believe we can assemble a loyal base of
users comprised of targeted audiences that are attractive to advertisers.
We believe that advertising spending by financial producers and services
components is growing relatively rapidly as compared to advertising spending in
other categories. According to Advertising Age, advertising spending by
financial products and services companies grew at an annual rate of 15.1% from
1997 to 1998.
We believe ilife.com, Inc. will benefit significantly from the anticipated
growth in Internet usage and spending on Internet advertising, direct marketing
and electronic comments. The following table highlights anticipated growth in
these areas.
Internet Growth In the United States
(in millions)
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1998 2000 2003
Estimate Estimate
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Number of Internet users 83.4 115.6 157.0
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Spending by advertisers $2,100 $4,700 $11,500
online
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E-commerce spending $7,800 $23,100 $78,000
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Source: Jupiter Communications, LLC
Strategy
Our objective is to create a series of online publications that are trusted
sources of editorial content and e-commerce for consumers in the area of
personal finance. Elements of our strategy include:
. Increase awareness of our publications. We intend to promote our online
publications and move toward more uniformed branding for the family of
ilife.com Web sites while significantly reducing the level of marketing
expenses in 2000. Developing greater awareness of our brand names should
increase traffic and increase the value of our Web sites to potential
advertisers and Web sites with which we may enter into distribution
arrangements. During the last two quarters of fiscal 1999, we significantly
increased our marketing efforts in order to create brand awareness of our Web
sites.
. Expanding existing online publications. We plan to expand and improve our
existing online publications by including additional editorial and research
content. Recent additions to bankrate.com include information regarding 30
year jumbo mortgages, VA mortgages, money market accounts, credit unions, and
bank ratings. The IntelligentTaxes.com Web site has been added to provide
personal income tax advice and planning and GreenMagazine.com was purchased
to provide investment editorial content.
. Continue to develop new distribution relationships. We intend to pursue new
and expand existing distribution relationships in order to increase site
traffic and raise the profile of our brand names.
. Provide high value added selections to advertisers. Delivering audiences to
our advertisers on a targeted demographic basis, segmented by geographic
region and product of interest, provides high value added marketing solutions
to advertisers. With expanded breadth and depth of our online publications
which
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added to our advertising inventory, we believe we have expanded the scope
of our services, thereby increasing sales to existing advertisers and
attracting new advertisers.
bankrate.com
Bankrate.com provides consumers with financial data, research and editorial
information on non-investment financial products. A large research team surveys
approximately 4,800 financial institutions every week in order to provide
objective rate information on banking products including mortgages, credit cards
and auto loans. Bankrate.com is unique in its approach to offering objective
rate information on 120 markets in all 50 states and Puerto Rico. We gather and
present this information by metropolitan area, which provides more valuable
information to consumers than aggregated national information and allows
advertisers to target prospective customers geographically.
Bankrate.com also distributes electronic newsletters weekly to approximately
107,000 subscribers covering topics such as mortgages, credit cards, banking,
small businesses, certificate of deposit rates, and Federal Funds rates. We also
maintain message boards where visitors can post questions for members of the
bankrate.com community. Topics parallel the channels offered by bankrate.com.
Distribution Arrangements
A significant portion of the traffic to bankrate.com, as well as our other
Web sites, is attributable to the distribution (or syndication) arrangements we
have with other Web site operators. Our distribution arrangements fall into two
categories: (1) co-branding in which we establish a "co-branded" site with
another Web site operator, and (2) licensing in which we provide content to the
other operator's Web site together with a hyperlink to our own site. We have
found co-branding to be more effective in driving traffic to our sites.
Co-branded sites are created pursuant to agreements with other Web site
operators. Generally, agreements relating to co-branded sites provide for us to
host the co-branded Web pages, sell and serve the graphical advertising, and
collect advertising revenues which are split with the third party Web site.
Under licensing arrangements we provide content to other Web sites in
exchange for a fee. The content identifies bankrate.com as its source and
typically includes a hyperlink to the bankrate.com Web site.
The table below lists parties with which we have distribution agreements as
of December 31, 1999:
Access Atlanta Edmunds On Money
America Online Family Money Oxygen
AT&T Worldnet Fiera Providence Online
Austin 360 Go Carolinas RealTimes
AutoByInternet Go Hampton Roads Realtor.com
Auto Connect Go PBI San Antonio Express
Auto Site Hispanic Online San Diego Insider
Black Families HomeStore ScarsdaleNet.com
Bloomberg Housenet.com SecureTax.com
Business Today Houston Chronicle Sign on San Diego
CarBuyer.com Inman News Features Sign on San Diego en
CarPrices.com INPHO Inc. Espanol
Classified Ventures Intellichoice Smart Money Magazine
CNNfn.com Kiplinger's Snap.com
Columbus Dispatch MarketWatch.com SoFla.com
Compuserve Microsoft Network Sybercuse.com
Cosmos.com Milwaukee Journal Tegris
Sentinel The Money Maven
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Credit Info MindSpring US News & World Report
Cyberhomes Money Magazine USA Today
Dallas Morning News Moneywise Magazine Yahoo!
Digital Cities Motley Fool Your New House
Discover Omaha My Simon YUPI Internet
Dollar Stretcher NandoNet ZDTV.com
Financial Product Research
Our research staff is made up of 45 people who track comparative information
on over 100 financial products and services, including checking accounts,
consumer loans, lines of credit, mortgages, certificates of deposit, savings
accounts, credit cards, money market accounts, and online accounts. We cover
both personal and small business accounts offered through branch offices and on
the Internet by banks, thrifts, credit unions, credit card issuers, mortgage
bankers and mortgage brokers. We estimate that over 350,000 items of data are
gathered each week for over 126 markets across the United States and Puerto Rico
from over 4,800 financial institutions. The information obtained includes not
only interest rates and yields, but related data such as lock periods, fees,
points, and loan sizes for mortgages and grace periods, late penalties, cash
advance fees, cash advance APRs, APYs, minimum payments, and terms and
conditions for credit cards.
We adhere to a strict methodology in developing our markets and our
institutional survey group. The market survey includes the 100 largest U.S.
markets, as defined by the U.S. Census Bureau's Metropolitan Statistical Area
categories, along with the largest market in each state that does not include
one of the largest 100 markets. We provide a comparative analysis of data by
market as well as on a national basis.
Institutions in the survey group include the largest banks and thrifts
within each market area based on total deposits. The number of institutions
tracked within a given market is based on product availability and number of
institutions in the market area. In each of the largest 50 markets, at least 10
institutions are tracked. In each of the smaller markets we track four or more
institutions. The institutions included in the survey group are verified, and
adjusted if necessary, on an annual basis using FDIC deposit data from year-end
call reports. Credit unions are not included in the market survey group since
product availability is based upon membership. The 50 largest U.S. credit unions
along with the five largest credit unions in each state, based on share
deposits, are tracked as a separate survey group for comparison purposes.
All products included in our database have closely defined criteria so that
information provided by institutions is truly comparative in nature. Collected
data undergoes three levels of quality control prior to being accepted for
inclusion in the database. The first level is automatically performed by our
editing software, which identifies unusual changes. The second level is visual
proofing, which is performed by the researcher who gathers rates from
institutions. The researcher reviews the surveys to determine whether there have
been any changes in the data on a weekly basis. If there has been a change that
is outside of a specified range, the researcher verifies that the data is
correct by calling the institution. Once the data is verified, it is forwarded
to a senior researcher for review and approval. The third level is a dedicated
quality control staff consisting of senior researchers who verify that the
information has been correctly updated and entered into our databank. Our
quality control staff reviews each listing in relation to regional and national
trends and for overall accuracy and consistency fees and related information
prior to disclosure of the information to consumers. The staff also reviews the
comparability of products, institutional accuracy and survey accuracy. In
addition, the quality control team performs anonymous shopping on a weekly
basis, in which we place calls to institutions in order to obtain rate
information without identifying ourselves as bankrate.com. Such anonymous
shopping allows us to validate the data in a consumer setting. Institutions
providing invalid data are contacted by our quality control staff to ensure that
future information will be accurate. Institutions listed in our bankrate.com
online tables who purchase hyperlinks to their own sites or purchase other
advertising must comply with the same criteria for product listings that apply
to other institutions or they will be removed.
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The criteria for product listings consists of specific attributes, such as loan
size and term, that are used to define each type of financial instrument in
order to ensure uniformity in the products that are compared. With the exception
of the "Internet Banking Deals" table, no special offers are listed on our
Internet sites. All of our new research employees are provided with a four-week
program of classroom and on-the-job training to ensure consistency of
data-gathering and validation techniques. Follow-up refresher training is
provided to our research employees on an ongoing basis to ensure that skill
levels are maintained.
At the end of each weekly survey, data is archived as part of our 16-year
old cumulative historical data file. This file provides a unique resource for
our financial analysts and editorial team in developing trend graphs, charts and
narrative analysis that is used by national and local media.
We are aware of the potential conflict of interest resulting from the sale
of advertising to financial institutions while providing independent and
objective research. However, no conflicts of interests have compromised or are
expected to compromise our ability to provide independent and objective
research.
Editorial Content
In addition to our research department, we maintain an editorial staff of 18
senior editors and 17 full-time reporters for our family of Web sites. We also
have relationships with over 50 freelance writers. Most of our editorial staff
are experienced journalists with newspaper or broadcast experience. For example,
the reporters and editors of bankrate.com have professional journalistic work
experience ranging from one to 21 years, with an average of ten years of
experience. We believe the quality of our original content plays a critical role
in attracting visitors to our sites and co-branded partners to the ilife.com Web
sites.
While the majority of the content within our Web sites is original and
produced internally, we also include third-party content. This content is
acquired under advertising revenue-sharing agreements and licenses which allow
us to incorporate relevant information on our Web site that would otherwise
require additional resources for us to produce. An example of this type of
arrangement is the incorporation in bankrate.com of financial calculators
created and owned by SmartMoney as well as stock quotes on the GreenMagazine.com
site which are provided by Stockpoint.com.
Print Publications
We continue to produce traditional print publications to absorb part of the
cost of producing research and original editorial content. Additionally, we
believe that print publishing activities contribute to greater exposure and
branding opportunities for our Internet Web sites. These publications are as
follows:
Consumer Mortgage Guide. We generate revenue through the sale of mortgage
rate and product listings in 12 metropolitan newspapers across the United States
with combined Sunday circulation of 3.5 million copies. We enter into agreements
with the newspapers for blocks of print space which is in turn sold to local
mortgage lenders and we split the revenue with the newspapers on a percentage
basis.
Syndication of Editorial Content and Research. We syndicate editorial
research to 85 newspapers which have combined Sunday circulation in excess of 27
million copies and three national magazines with combined monthly circulation in
excess of 2.5 million copies.
Newsletters. We publish three newsletters: 100 Highest Yields and Jumbo
Flash Report, which target individual consumers, and Bank Rate Monitor, which
targets an institutional audience. These newsletters provide bank deposit
interest rate information with minimal editorial content.
Green Magazine. A compliment to our GreenMagazine.com Web site, the Green
Magazine print edition shares the common mission of simplifying money matters
with special emphasis on those strategies important
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to young investors. Green Magazine provides content and tools to make sound
investment decisions and is published quarterly and sold by subscription.
Ilife.com
In addition to serving as the Company name, we launched the ilife.com Web site
as a vertical personal finance portal that makes our family of Web sites more
accessible to consumers. The site not only links ilife.com's sites together, but
also provides consumers a free and easy way to get useful financial tips, tools,
news and original editorial content. Ilife.com features content areas for
banking, financial planning, investing, insurance and taxes.
theWhiz.com
TheWhiz.com Web site presents conventional money issues in an unconventional
way. Through original editorial content and community activities - chats and
message boards - the financial novice can learn how to establish credit, get out
of debt, develop a budget, invest in the stock market and have fun without
spending a lot. As with bankrate.com, theWhiz.com is divided into channels, each
of which includes original editorial content.
Consejero.com
Consejero.com is a Spanish-language personal finance Web site geared toward
Spanish-speakers in the United States, Latin America and Spain. Editorial
content on finance issues in Spanish is complemented by opportunities for users
to interact with the site, and with each other, through chat rooms and message
boards. Consejero.com features country-specific personal content for the United
States as well as Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, El
Salvador, Mexico, Nicaragua, Panama, Peru, Puerto Rico, Spain, and Venezuela.
Spanish is the second most common language found on the Internet, yet we believe
that little useful content on financial topics in Spanish currently exists on
the Internet. Our goal is to satisfy the need for such data and capitalize on
the anticipated rapid growth of Internet use by people who speak Spanish.
Consejero.com provides twice-daily updated news as well as feature articles
written by established journalists working from major cities in Latin America
and Spain. The topics are picked from day-to-day issues consumers face in their
particular countries. The site also provides general and entertainment news
acquired through arrangements with traditional media.
Consejero.com also includes information translated from the bankrate.com
site, specifically, certain editorial stories and a full translation of the
financial product interest rate data base. This translation provides the same
information and many of the services of bankrate.com, but with supplementary
articles and tables to facilitate understanding for those who may not be
familiar with U.S. financial products and terms.
CPNet.com
Through CPNet.com, our online advertising network, we provide content and
advertising management to over 50 college newspaper Web sites across the
country. CPNet.com provides news and feature articles to these Web sites
covering events and issues of interest to college students. Topics include
current events, lifestyle and entertainment. In addition to creating advertising
relationships that allow us to offer an integrated outlet for advertisers
seeking to reach the college market, we have the opportunity to develop user
relationships that allow us to cross-promote our publications to these
consumers. We believe that college students use the Internet more than many
other segments of the population. We also believe that this network can be
highly attractive to advertisers since very few online publications offer a
mechanism for national advertisements to reach college students with one
advertisement purchase.
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GreenMagazine.com
An extension of Green Magazine's print edition, the GreenMagazine.com Web
site shares the print publication's central mission of demystifying money
matters, with special emphasis on those strategies important to young investors.
GreenMagazine.com provides content and tools to make sound investment decisions,
including professional quality investment tools, such as free real-time quotes,
multiple portfolio tracking, interactive stock charting and advanced stock and
mutual fund finders through a license relationship with Stockpoint.com.
IntelligentTaxes.com
IntelligentTaxes.com offers a substantial array of information taxpayers
need to negotiate the bewildering maze of tax planning and preparation. It is a
one-stop tax preparation tool for individual taxpayers - from beginners to pros.
IntelligentTaxes.com offers information on federal and state taxes along with
hyperlinks to online tax forms. Other features include basics focused on
life-stage issues, planning calendars, a unique column called Tax Watch, as well
as personalized custom email alerts to remind users of approaching deadlines.
Free downloadable software is available on the site.
Pivot.com (Professional Direct Agency, Inc.)
Pivot, a subsidiary of ilife.com, Inc. and headquartered in Columbus, Ohio,
is a virtual insurance agency and fulfillment/call center specializing in direct
insurance sales over the Internet and other direct media. Pivot.com has teamed
up with industry-leading insurance companies to engineer a means of providing
national turnkey insurance solutions to businesses. Pivot offers insurance
companies, banks, large agencies and affinity groups a means of increasing their
revenues through a variety of partnership possibilities. Pivot's fulfillment
services utilize the Internet and telephone as a means of generating leads and
managing current business opportunities while eliminating channel conflict.
Pivot's efficient marketing capabilities have enabled the agency to be selected
as the fulfillment arm for various third party marketing arrangements.
Because the agency is licensed nationally, Pivot's insurance services are
also available to consumers and businesses nationwide. Pivot.com allows
consumers to search for annuities, term life insurance and auto insurance.
Broadcast Operations
Our broadcast program called "Cost of Life" is a unique personal finance
video segment distributed to 33 television stations for bi-weekly news
programming. It is estimated that the weekly exposure is 24.4 million TV
households within which an estimated 2.6 million viewers may see the segments,
according to Nielsen's November 1999 Ratings. These segments are aimed at
helping viewers take action with their personal finances. Featured topics
include ways to save money tax-free for a college education, what financial
documents are needed in the event of a natural disaster, how to boost a credit
rating using the Internet and ways to trim down family medical bills.
Each television segment refers viewers to ilife.com Web sites and has a
complementary online column that runs simultaneously on bankrate.com or
theWhiz.com.
Garzarelli.com
In October 1998, we launched a new electronic subscription site for Wall
Street investment advisor Elaine Garzarelli called Garzarelli.com. We are
responsible for the site's design, electronic subscription fulfillment, partner
linking, site management, and advertising sales. Ms. Garzarelli owns the
Internet site address, selects
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the content of the site and has the sole authority to determine whether the
content can be distributed to other Websites. The subscription revenues
generated from Garzarelli.com are divided between us and Ms. Garzarelli. We
receive 17% of subscription revenues, and she receives the remainder. We also
receive 50% of all advertising revenues from Garzarelli.com. Our agreement with
Ms. Garzarelli extends until August 2000.
Consumer Marketing
Prior to December 31, 1998, our expenditures on marketing and promotion were
limited to a distribution or syndication strategy in which we relied on our
co-branded distribution network to increase traffic to our Web sites. This
approach was supplemented with public relations activities and limited
direct-response expenditures. In addition, the Company's history of providing
editorial content to newspapers and broadcasters has earned bankrate.com a high
level of awareness among journalists. As a result, bankrate.com is often cited
as an authority on banking and credit products in an editorial context.
Beginning in January 1999, we initiated a direct-response marketing campaign
which consisted of placing banner advertising on third party Web sites. Our
strategy is to purchase advertising at either a fixed cost per clickthrough or
at a low CPM. We believe that the advertising proceeds from one of our visitors
generally allow us to immediately recover much of the per visitor cost of
placing our advertising. If the majority of this cost can be recovered on an
initial visit, we may build a substantial base of repeat users at a low cost.
In addition to our Web-based efforts, we developed an award winning
traditional campaign, utilizing print and television advertising. This
integrated marketing effort resulted in our becoming a top personal finance
destination.
After spending substantially on our marketing to establish the bankrate.com
brand in 1999, we plan to reduce marketing expenditures in 2000 to a maintenance
level. We anticipate the majority of our future marketing efforts will be
Web-based.
Advertising Sales
Our advertising sales staff consists of salespeople and support staff. Most
of our salespersons are located in our North Palm Beach corporate headquarters
and we maintain two smaller satellite offices in New York and Los Angeles. Each
salesperson is responsible for a designated geographic area covering the
Southeast, Mid-Atlantic, New England, Great Lakes, Midwest, Great Plains,
Northwest or Southwest regions of the United States. Salespeople sell
advertising related to all of our internet Web sites and the Consumer Mortgage
Guide. We believe our sales force is highly effective.
Our salespeople present advertising solutions to potential advertisers using
inventory created by our own Web sites, co-branded Web sites and through the
CPNet college network. We believe this combined network of sites enhances value
for advertisers and direct marketers by (1) alleviating the need to purchase a
series of advertising campaigns from numerous Web sites, (2) providing
advertisers and direct marketers with advertising opportunities on a wide
variety Web pages containing business and personal finance content, and (3)
providing targeted access to Internet users with desirable demographics.
Advertisers and direct marketers can enhance the effectiveness of their
campaigns by customizing advertising delivery on our networks within a
particular content channel or across an entire network.
Advertising Alternatives
Our advertisers can target prospective customers using three different
approaches:
. targeting specific geographic and product areas, for example, mortgage
rates in Atlanta, Georgia;
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. targeting specific product channels, for example, all borrowers
interested in the home equity channel; or
. general rotation throughout a particular site, such as bankrate.com or
across our entire family of ilife.com Web sites.
Our most common graphical advertisement sizes are banners, which are
prominently displayed at the top of a page (486 x 60 pixels) and badges, which
are smaller than banners and less visible (125 x 125 pixels). Banners and badges
are offered for general rotation or specific sites. List prices may vary
depending upon the quantity of advertisements purchased by an advertiser and the
length of time an advertiser runs an advertisement on our sites. List prices for
banner and badge advertisements with premium placement may be as low as $30 CPM
and as high as $90 CPM. Discounts and commissions are available based upon the
volume of advertisements purchased.
We also sell posters, which are oversize advertisements that contain more
information than traditional advertisements. We position posters on certain
pages so that they dominate the page. The actual price ranges from $120 to $135
CPM. Advertisers may also purchase sponsorship positions on the bankrate.com
home page and the main page for each product channel. The cost of the
sponsorship is based on banner rates for impressions received and ranges from
$20 to $30 CPM. Advertisers can also sponsor an entire channel. In addition, we
offer a reference bar above all rate tables. A reference bar is an advertising
feature that contains tab references for consumers on such topics as insurance,
credit reports, credit problems and moving rates. Users who click on the tabs
are taken to an advertiser's Web site for answers to their particular questions
or needs. The cost of these tab advertisements is approximately $20 CPM.
Providing effective tools for managing advertising campaigns is essential to
maintaining advertising relationships. We use a state-of-the-art program under
license that allows our advertisers to monitor their spending on our Web sites
in real-time for impressions received and clickthrough ratios generated.
Hyperlinks
Financial institutions that are listed in our rate tables have the
opportunity to hyperlink their listings. By clicking on the hyperlink, users are
taken to the institution's Web site. A substantial benefit to advertisers with
the hyperlink rate listing is that the hyperlinks are in fixed placement on the
rate pages and are shown every time a user accesses a page. In contrast, banner
advertisements are rotated based on the number of impressions purchased.
Hyperlink fees are sold for three-month periods. The number of hyperlinked rate
listings that can be added to a rate page is limited only by the number of
institutions listed, while banner positions are limited by available space. The
actual rates for hyperlinks range from $35 to $45 CPM.
Rate Alert E-Mail Sponsorships
We issue weekly updates on mortgage rates via e-mail to customers who
subscribe to this free service. Rate alerts are issued for credit card and
savings account updates on a less-frequent basis. Advertisers can sponsor the
e-mails with text listings that are hyperlinked to their Web site. The cost for
sponsoring a rate alert is $0.25 per subscriber.
Chat Room Sponsorships
We offer advertisers chat rooms in bankrate.com and theWhiz.com in which
they may promote their spokespeople or products and acquire valuable real-time
feedback from consumers. In these chat rooms, a moderator from theWhiz.com's
staff screens questions from visitors. The advertiser or host then answers
questions and receives "virtual focus group" feedback from users.
Advertisers
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We market to local advertisers targeting a specific audience in a city or
state and also to national advertisers targeting the entire country. No
advertiser accounts for more than 10% of our revenues. As of December 31, 1999,
we had approximately 260 graphical advertisers and 400 hyperlink advertisers. A
representative sample of our national and regional advertisers includes:
Abba Funding Mortgagebot.com
American Express Mortgage.com
American Home Loans Mackinac Savings
Ameritrade MasterCard
BankDirect Microsoft
Bank of America Mortgage Expo
Capital One Bank NetBank
Crestar Mortgage NextCard
Downey Savings Next Direct
First Union Pacific Shore Funding
GMAC PNC Bank
H. D. Vest Providian Financial
Household Finance Superior Bank
Loansurf.com Wells Fargo
All of the listed advertisers have been our customers for at least six
months and are representative of the types of industries, as well as national
and regional scope of our advertising base.
Competition
We compete for advertising revenues across the broad category of personal
finance information provided in traditional media such as newspapers, magazines,
radio, and television and in the developing market for online financial
publications. There are many competitors that have substantially greater
resources than ilife.com. Our online competition includes the following:
. personal finance sections of general interest sites such as Yahoo! and
America Online;
. personal finance destination sites such as MoneyCentral, Forbes, Business
Week, Fortune, Smart Money, Kiplinger's and Money.com; and
. e-commerce sites that provide bank and credit product information such as
e-Loan and GetSmart.
Competition in the online segment is generally directed at growing users and
revenue using marketing and promotion to increase traffic to Web sites. We
believe that original content and objective product information differentiate us
from our competitors.
As a direct seller of insurance products, Pivot.com competes with other
insurance sales sites, as well as insurance aggregators.
Operations
We host our proprietary Web sites and control all of our network operation
from our principal office in North Palm Beach, Florida. Internet access is
maintained through a fiber optic data circuit with AT&T. The
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computer equipment used to operate our Web sites is powered by uninterruptible
power supply units and a generator.
Proprietary Rights
Our proprietary intellectual property consists of our unique research and
editorial content. We rely primarily on a combination of copyrights, trademarks,
trade secret laws, our user policy and restrictions on disclosure to protect
this content.
Employees
As of December 31, 1999, we had 237 full-time employees, of which 78 were in
Web site operations, 34 in advertising sales and marketing, 29 in insurance
agency operations, 45 in content research, 11 in advertising operations, 15 in
information technology, 20 in administration and five in broadcast. We have
never had a work stoppage and none of our employees are represented under
collective bargaining agreements. We consider our employee relations to be good.
All employees, with the exception of our subsidiary, Professional Direct Agency,
Inc. (Pivot.com), are legally employed by Vincam Human Resources, Inc., and work
for us under an employee leasing arrangement. See "Management - Employee
Leasing."
Government Regulation of Insurance Business
In most states, there are two broad categories of insurance agency
licenses, one for property and casualty insurance and the other for life and
health insurance. Ilife.com's wholly-owned subsidiary, Pivot an Ohio
corporation, is licensed as a resident insurance agency for life and health and
property and casualty insurance by the state of Ohio.
Pivot has nonresident corporate life and health insurance licenses in 13
states. At least one employee of Pivot is individually licensed as a
nonresident insurance agent in all 50 states for life and health insurance.
Pivot is licensed as a nonresident corporate insurance agency for property and
casualty insurance business in two states, it is applying for such licenses in
an additional 38 states. One of Pivot's employee agents is currently
individually licensed as a nonresident insurance agent for property and casualty
insurance in 39 states and is in the process of applying for individual
insurance agent licenses for property and casualty insurance in the remaining 11
states.
Because of the lack of uniformity in state insurance agency licensing laws,
a corporate insurance agency cannot obtain an insurance agency license in all 50
states. Some states do not issue insurance agency licenses to corporations but
only issue insurance agent licenses to individuals. Other states issue corporate
insurance agency licenses only if the state of residence of the applicant for a
corporate insurance agency license applicant reciprocates by issuing corporate
insurance agency licenses to insurance agencies resident in the foreign state.
In some states where Pivot does not have a nonresident corporate insurance
agency license, a Pivot agent is individually licensed in those states as a
nonresident insurance agent and the Pivot employee agent transacts the business
of Pivot where permitted. If any Pivot employee agent's employment with Pivot is
terminated, Pivot may not be able to transact its business unless and until it
has another employee who is individually licensed as a nonresident insurance
agent in the states where Pivot does not hold a nonresident corporate insurance
agency license. If a state in which Pivot does not hold a nonresident corporate
insurance agency license determines that Pivot is transacting business in such
state as an unlicensed insurance agency, Pivot could be subject to fines and
prohibited from engaging in its insurance agency business in that state.
It is not guaranteed that a state in which Pivot does not hold a
nonresident corporate insurance agency license will not assert that Pivot is
transacting business in such state as an unlicensed insurance agency.
Generally, commissions payable for the sale of insurance products in a given
state cannot be paid to, or received by, a person or entity that is not licensed
as an insurance agent or agency in such state, as applicable. There is no
guarantee that a state in which Pivot does not hold a nonresident corporate
insurance agency license will not assert that commissions assigned by Pivot
employee agent to Pivot are an assignment of insurance commissions occurring in
such state to an unlicensed corporate insurance agency. In the states in which
Pivot does not hold a nonresident corporate insurance agency license, the
insurance companies that have contracted with Pivot pay commissions to the Pivot
employee agent, who then assigns such commissions to Pivot. If a state in which
Pivot does not hold a nonresident corporate insurance agency license determines
that Pivot is wrongfully receiving an assignment of insurance commissions in, or
with respect to insurance policies sold in, that state as an unlicensed
insurance agency, both Pivot and the subject Pivot employee agent could be
subject to fines and prohibited from doing business in that state.
Both the U.S. Congress and state insurance regulators have taken steps
towards the adoption of uniform state insurance agent licensing laws. Under the
Gramm-Leach-Bliley Act of 1999 ("GLBA), if a majority of the states have not
adopted laws providing for a uniform state insurance agent licensing within
three years of the passage of GLBA, then such a system, known as the National
Association of Registered Agents and Brokers, would be implemented under GLBA.
The National Association of Insurance Commissioner, an national association of
the state insurance regulators which develops model insurance laws and
regulations for adoption by state legislatures, has also promulgated a model law
providing for uniform state insurance agent licensing.
Risk Factors that Could Impact Future Operating Results
We have a history of losses
The Company is working to manage its cash by actively controlling expenses and
pursuing additional sources of revenue. For instance, the Company substantially
reduced marketing expenditures beginning January 2000 compared to the second
half of 1999, and has current plans to sell CPNet.com by mid 2000. Based on
these actions and the Company's current plan, we believe our existing liquidity
and capital resources will be sufficient to satisfy our cash requirements into
2001. There are no assurances that such actions will ensure cash sufficiency
into 2001 or that reducing marketing expenses would not potentially curtail
revenue growth.
The Company is also committed to rationalizing its ownership of ancillary,
non-core business units that have historically had significant negative cash
contributions. This effort could include: changing these non-core business
units' strategy and/or focus, seeking out strategic or financial partners,
selling/divesting these assets, or closing them. The beginning of these efforts
is our current plan to sell CPNet.com. These actions should result in lower
operating expenses, and may result in the Company receiving additional capital
and/or equity in other companies. In addition, some of these actions, if taken,
could result in material charges to operations and, could potentially result in
lower that anticipated revenue growth
The Company may consider additional options, which include, but are not
limited to, the following: forming strategic partnerships or alliances;
considering other strategic alternatives, including: a merger or sale of the
Company, or an acquisition; or raising new debt and/or equity capital. There
can be no assurance that we will be able to raise such funds or realize our
strategic alternatives on favorable terms or at all.
Further, due to the purported class-action lawsuit discussed in Note 12 which
the Company intends to vigorously defend, management could be required to spend
significant amounts of time and resources defending this matter which may impact
our ability to manage the Company.
We have incurred net losses in each of our last four fiscal years. We had an
accumulated deficit of approximately $42 million as of December 31, 1999.
Therefore, we believe that period-to-period comparisons of our financial results
should not be relied on as an indication of our future performance. We
anticipate that we will incur operating losses and negative cash flows in the
foreseeable future due to high levels of planned expenditures to enhance our
services, develop new content, build brand awareness and hire personnel to
support our growth. We may also incur significant additional costs related to
the acquisition of or technologies to respond to the constant change in our
industry. These costs could have an adverse impact on our future financial
condition and results of operations.
Our success depends upon Internet advertising revenue
We expect to derive approximately 70% of our revenues for the foreseeable
future through the sale of advertising space on our Internet Web pages. Any
factors that limit the amount advertisers are willing to spend on advertising on
our Web sites could have a material adverse effect on our business. These
factors may include: (1) lack of standards for measuring Web site traffic or
effectiveness of Web site advertising; (2) lack of established pricing models
for Internet advertising; (3) failure of traditional media advertisers to adopt
Internet advertising; (4) introduction of alternative advertising sources; and
(5) a lack of significant growth in Web site traffic.
The Internet is a relatively new medium for advertising and its
effectiveness is unproven. Demonstrating the effectiveness of advertising on our
Web sites is critical to our ability to generate advertising revenue. Currently,
there are no widely accepted standards to measure the effectiveness of Internet
advertising, and we cannot be certain that such standards will develop
sufficiently to support our growth through Internet advertising.
Currently, a number of different pricing models are used to sell advertising
on the Internet. Pricing models are typically either CPM-based (cost per
thousand) or performance-based (cost per-click). We predominantly utilize the
CPM-based model, which is based upon the number of advertisement impressions.
The
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performance based, or per click, model is payable on each individual click even
though it may take multiple advertisement impressions to generate one
clickthrough. We cannot predict which pricing model, if any, will emerge as the
industry standard. Therefore, it is difficult for us to project our future
advertising rates and revenues. For instance, banner advertising, which is
currently our primary source of online revenue, may not be an effective
advertising method in the future. If we are unable to adapt to new forms of
Internet advertising and pricing models, our business could be adversely
affected.
Financial services companies account for a majority of our advertising
revenues. We will need to sell advertising to customers outside of the financial
services industry in order to significantly increase our revenues. To date,
relatively few advertisers from industries other than the technology and
financial services industries have devoted a significant portion of their
advertising budgets to Internet advertising. If we do not attract advertisers
from other industries, our business could be adversely affected.
Our success depends upon interest rate activity and mortgage refinancing
During 1999, approximately 83% and 74% of our advertisement views and page
views, respectively, were attributable to the bankrate.com site. Given that this
site provides interest rate information for mortgages and other loans, credit
cards and savings accounts, visitor traffic to this site may increase with
interest rate movements and decrease with interest rate stability. Factors that
have caused significant visitor fluctuations in the past have been Federal
Reserve Board actions and general market conditions affecting home mortgage
interest rates. During 1999, approximately 26% of advertisement views on
bankrate.com were on its mortgage pages. Accordingly, the level of traffic to
bankrate.com is can be dependent on the general level of interest rates as well
as mortgage refinancing activity. A slowdown in mortgage production volumes
could have a material adverse effect on our business.
We believe that as we continue to develop Web site channels with broader
personal finance topics, the percentage of overall ilife.com network traffic
seeking mortgage information will remain stabilize at current levels. To
accelerate the growth of traffic to sites other than bankrate.com, we are
working with our syndication partners to program more intensively, and we are
promoting these sites aggressively. We cannot assure you that we will be
successful in these efforts.
Our success depends upon establishing and maintaining distribution
arrangements
Our business strategy includes the distribution of our content through the
establishment of co-branded Web pages with high-traffic business and personal
finance sections of online services and Web sites. A co-branded site is
typically a custom version of our Web sites with the graphical look, feel, and
navigation, of the other Web site. Providing access to these co-branded Web
pages is a significant part of the value we offer to our advertisers. We compete
with other Internet content providers to maintain our current relationships with
other Web site operators and establish new relationships. In addition, as we
expand our personal finance content, some of these Web site operators may
perceive us as a competitor. As a result, they may be unwilling to promote
distribution of our banking and credit content. For example, in June 1999, we
learned that Quicken.com, which accounted for approximately 6% of our total site
traffic during the three months ended March 31, 1999, would not be renewing its
distribution agreement with us. We cannot guarantee you that our distribution
arrangements will attract a sufficient number of users to support our current
advertising model. During 1999, 36% of the traffic to our Web sites originated
from the Web sites of operators with which we have distribution arrangements .
In addition, our business could be adversely affected if we do not establish and
maintain distribution arrangements on favorable economic terms.
Our success depends upon increasing brand awareness of our Web sites
Although ilife.com and its predecessors have been in business since 1976, we
commenced our Internet operations by introducing bankrate.com in 1996. Due to
the limited operating history of our Internet
<PAGE>
operations, it is important that we develop brand awareness of our Web sites in
order for them to be attractive to advertisers. The importance of our brand
recognition will increase as competition in the Internet advertising market
increases. As a result, developing and maintaining awareness of our Web sites by
promoting our brand names is critical to maintaining our growth. As competing
Web sites become established on the Internet, the cost of developing brand
awareness increases significantly.
Successfully promoting and positioning our Web sites and brand names will
depend largely on the effectiveness of our marketing efforts and our ability to
develop favorable traffic patterns to our Web sites.
Therefore, we may need to modify our financial commitment to creating and
maintaining brand awareness among users. If we fail to successfully promote our
Web sites and brand names or if we incur significant expense in doing so, it
could have a material adverse effect on our business.
Our markets are highly competitive
We compete for Internet advertising revenues with a number of
finance-related Web sites, such as MarketWatch.com, CNNfn.com, MoneyCentral, and
Money.com and traditional publishers and distributors of personal finance
content such as MSNBC, CNN, Money Magazine and USA Today. In addition, new
competitors may easily enter this market as there are few barriers to entry.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than us. Many competitors have complementary products or services that
drive traffic to their Web sites. Increased competition could result in lower
Web site traffic, advertising rate reductions, reduced margins or loss of market
share, any of which would adversely affect our business. We cannot be certain
that we will be able to compete successfully against current or future
competitors.
Our Web sites may encounter technical problems and service interruptions
In the past, our Web sites have experienced significant increases in traffic
in response to interest rate movements and other business or financial news
events. The number of our users has continued to increase over time, and we are
seeking to further increase our user base. As a result, our Internet servers
must accommodate spikes in demand for our Web pages in addition to potential
significant growth in traffic.
Our Web sites have in the past and may in the future experience slower
response times or interruptions as a result of increased traffic or other
reasons. These delays and interruptions resulting from failure to maintain
Internet service connections to our site could frustrate users and reduce our
future Web site traffic, which could have a material adverse effect on our
business.
All of our communications and network equipment is located at our corporate
headquarters in North Palm Beach, Florida. Any system failure at this location
could lead to interruptions or delays in service for our Web sites, which could
have a material adverse effect on our business. Our operations are dependent
upon our ability to protect our systems against damage from fires, hurricanes,
earthquakes, power losses, telecommunications failures, break-ins, computer
viruses, hacker attacks and other events beyond our control. Although we
maintain business interruption insurance, it may not adequately compensate us
for losses that may occur due to failures of our systems.
We rely on the protection of our intellectual property
Our intellectual property consists of the content of our Web sites and print
publications. We rely on a combination of copyrights, trademarks, trade secret
laws and our user policy and restrictions on disclosure to protect our
intellectual property. We may also enter into confidentiality agreements with
our employees and consultants and seek to control access to and distribution of
our proprietary information. Despite these
<PAGE>
precautions, it may be possible for other parties to copy or otherwise obtain
and use the content of our Web sites or print publications without
authorization. A failure to protect our intellectual property in a meaningful
manner could have a material adverse effect on our business.
Because we license some of our data and content from other parties, we may
be exposed to infringement actions if such parties do not possess the necessary
proprietary rights. Generally, we obtain representations as to the origin and
ownership of licensed content and obtain indemnification to cover any breach of
any such representations. However, such representations may not be accurate and
such indemnification may not be sufficient to provide adequate compensation for
any breach of such representations.
Any future infringement or other claims or prosecutions related to our
intellectual property could have a material adverse effect on our business. Any
such claims, with or without merit, could be time-consuming, result in costly
litigation and diversion of technical and management personnel or require us to
introduce new content or trademarks, develop new technology or enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on acceptable terms, if at all.
We may face liability for information on our Web sites
Much of the information published on our Web sites relates to the
competitiveness of financial institutions' rates, products and services. We may
be subjected to claims for defamation, negligence, copyright or trademark
infringement or other theories relating to the information we publish on our Web
sites. These types of claims have been brought, sometimes successfully, against
online services as well as print publications. Our insurance may not adequately
protect us against these types of claims.
Future government regulation of the Internet is uncertain and subject to change
As Internet commerce continues to evolve, increasing regulation by federal
or state agencies or foreign governments may occur. Such regulation is likely in
the areas of user privacy, pricing, content and quality of products and
services. Additionally, taxation of Internet use or electronic commerce
transactions may be imposed. Any regulation imposing fees for Internet use or
electronic commerce transactions could result in a decline in the use of the
Internet and the viability of Internet commerce, which could have a material
adverse effect on our business.
Our ownership is heavily concentrated in our management
Our officers and directors beneficially own approximately 71% of ilife.com's
outstanding common stock. Peter C. Morse, our largest shareholder, beneficially
owns approximately 41% of ilife.com's outstanding common stock. As a result, our
officers and directors will be able to exercise control over all matters
requiring shareholder approval. In particular, these controlling shareholders
will have the ability to elect all of our directors and approve or disapprove
significant corporate transactions. This control could be used to prevent or
significantly delay another company or person from acquiring or merging with us.
Our rapid growth may strain our operations
Since we began our Internet operations in 1996, we have expanded our
operations significantly, and we may continue to do so. Our future expansion may
place a significant strain on our management. To manage the expected growth of
our operations and personnel, we may need to expand and improve our existing
management, operational and financial systems. If we fail to expand and improve
these systems in a timely manner, this failure could have a material adverse
effect on our business.
Our new managers must work together effectively as a team
<PAGE>
We have recently added key managerial, technical and operations personnel.
For example, our interim President and Chief Executive Officer was hired in
1999, our Senior Vice President-Administration was hired in 1998, and our
Executive Vice President-Strategy and Acquisitions was hired in 1999. During
this time, we also significantly increased our employee base. These new
personnel must integrate themselves into our daily operations and work
effectively as a team in order for us to be successful. We cannot be certain
that this will occur in all instances.
Our success depends upon management and key employees
Our success depends largely upon retaining the continued services of our
executive officers and other key management and developing personnel as well as
hiring and training additional employees. We have a number of key employees on
whom we depend and who may be difficult to replace. Specifically, William P.
Anderson, III, resigned as our President and Chief Executive Officer, in
February 2000, and G. Cotter Cunningham was elected as interim President and
Chief Executive Officer. We currently are conducting a search for a replacement
for Mr. Anderson. Key employees include Edward V. Blanchard, Jr., Peter W.
Minford and Robert J. DeFranco. All of our employees with the exception of our
subsidiary, Professional Direct Agency, Inc. (Pivot.com) are employed by the
Vincam Human Resources, Inc. under an employee leasing contract. This contract
has a one-year term which expires on June 1, 2000. Beginning June 1, 2000, we
plan to convert all leased employees into direct employees of ilife.com. A
failure to retain our current key employees or to hire enough qualified
employees to sustain our growth could have a material adverse effect on our
business.
Our Articles of Incorporation and Bylaws, as well as Florida law, may prevent
or delay a future takeover
Our Articles of Incorporation and Bylaws may have the effect of delaying or
preventing a merger or acquisition, or making such a transaction less desirable
to a potential acquirer, even when shareholders may consider the acquisition or
merger favorable. For example, our Articles of Incorporation and Bylaws provide
that: (1) the board of directors has the authority, without shareholder
approval, to issue up to 10,000,000 shares of preferred stock and to determine
the rights (including voting rights) associated with such preferred stock (which
issuance may adversely affect the market price of the common stock and the
voting rights of the holders of common stock); (2) the board of directors is
classified and directors have three-year terms; (3) cumulative voting for the
election of directors is prohibited; (4) approval by 66 2/3% of the shareholders
is required for material amendments to the Articles of Incorporation or Bylaws:
and (5) certain procedures must be followed before matters can be proposed by
shareholders for consideration at shareholder meetings. Florida law also
contains "control share acquisition" and "affiliate transaction" provisions that
may also delay, prevent, or discourage an acquisition of or merger with
ilife.com.
We may encounter difficulties with future acquisitions
We may acquire complementary Web sites and other content providers as a part
of our business strategy. Any acquisitions may present a number of potential
risks that could result in a material adverse effect on our business. These
risks include the following: failure to integrate the technical operations and
personnel in a timely and cost-effective manner; failure to retain key personnel
of the acquired company; and assumption of unexpected material liabilities. In
addition, we cannot assure you that we will be able to identify suitable
acquisition candidates that are available for sale at reasonable prices.
We may finance future acquisitions with debt financing, which would increase
our debt service requirements, or through the issuance of additional common or
preferred stock, which could result in dilution to our shareholders. We cannot
assure you that we will be able to arrange adequate financing on acceptable
terms.
Our results of operations may fluctuate significantly
<PAGE>
Our results of operations may fluctuate significantly in the future as a
result of several factors, many of which are beyond our control. These factors
include: (1) changes in fees paid by advertisers; (2) traffic levels on our Web
sites, which can fluctuate significantly; (3) changes in the demand for Internet
products and services; (4) changes in fee or revenue-sharing arrangements with
our distribution partners; (5) our ability to enter into or renew key
distribution agreements; (6) the introduction of new Internet advertising
services by us or our competitors; (7) changes in our capital or operating
expenses as we expand our operations; and (8) general economic conditions.
Our future revenues and results of operations may be difficult to forecast
due to these factors. As a result, we believe that period-to-period comparisons
of our results of operations may not be meaningful, and you should not rely on
past periods as indicators of future performance.
In future periods, our results of operations may fall below the expectations
of securities analysts and investors, which could adversely affect the trading
price of the common stock.
Our stock price may be volatile in the future
The stock prices and trading volume of Internet-related companies have been
extremely volatile. Accordingly, our stock price can be volatile as well. In
addition, following periods of downward volatility in the market price of a
company's securities, class action litigation is often brought against the
Company. Downward volatility of our stock prices could lead to class action
litigation, resulting in substantial costs and a diversion of our management's
attention and resources.
ITEM 2. PROPERTIES
Our principal administrative, sales, Web operations, marketing and research
functions are located in two buildings in North Palm Beach, Florida. One lease
is for approximately 14,500 square feet which expires September 2000. The
second lease is for 5,200 square feet which expires in September 2000 and has
two four month renewal options. We currently plan to vacate the existing North
Palm Beach properties at the expiration of their terms and we have signed a ten
year lease to move into a 40,000 square foot facility. The Company also leases
5,600 square feet in Miami, Florida which is used for CPNet.com and
Consejero.com Web operations. The Miami lease expires in December 2001. We
also maintain an office in New York City which is principally used for
administration, sales and the GreenMagazine.com editorial staff. The New York
office lease expires in September 2006. Pivot leases 6,700 square feet in
Columbus, Ohio which expires in September 2001.
ITEM 3. LEGAL PROCEEDINGS
On March 28, 2000, a purported class-action lawsuit was filed against the
Company and certain of its directors and officers, its auditor and underwriters
in the United States District Court for the Southern District of New York (Civil
Action No. 00CIV.2337). The complaint, which seeks an unspecified amount of
money damages, was filed by Brian DeMaria, a single stockholder, purportedly on
behalf of all stockholders who purchased shares of our stock during the period
from May 13, 1999 through March 27, 2000. The plaintiff alleges that the Company
violated federal securities laws by, among other things, misrepresenting and/or
omitting material information concerning the Company's financial results for the
quarter ended March 31, 1999, in its registration statement and prospectus filed
with the Securities and Exchange Commission in connection with the Company's
initial public offering. More particularly, the plaintiff alleges, among other
things, that the Company failed to disclose in its registration statement and
prospectus the fact that the Company incurred a net loss of approximately $6
million in the quarter ended March 31, 1999. The plaintiff alleges that the
information was not made public until May 24, 1999 when the Company issued a
press release with respect to the results for that quarter. The Company contends
that the loss for the quarter ended March 31, 1999 was properly disclosed. The
Company intends to vigorously defend against the lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The names, ages at December 31, 1999, and current positions of ilife.com's
current executive officers are listed below in accordance with General
Instruction G(3) of Form 10-K and Instruction 3 of Item 401(b) of Regulation
S-K. Unless otherwise stated, each executive officer has held their position for
at least the last five years. All officers are elected for one year terms or
until their respective successors are chosen. There are no family relationships
among the executive officers nor is there any agreement or understanding between
any officer and any other person pursuant to which the officer was elected.
G. Cotter Cunningham, 37, has served as interim President and Chief
Executive Office of ilife.com, Inc. since February 25, 2000. Prior to that time,
he served as Senior Vice President-Marketing and Sales of the Company since
February 1999. From August 1997 to January 1999, Mr. Cunningham was Vice
President and General Manager of Valentine McCormick Ligibel, Inc., an
advertising agency specializing in new media. From August 1992 to July 1997, Mr.
Cunningham was Vice President of Block Financial Corporation, where he created,
launched and directed the CompuServe Visa and WebCard Visa credit card programs.
Mr. Cunningham holds a B.S. in Economics from the University of Memphis and an
M.B.A. from Vanderbilt University's Owen Graduate School of Management.
Edward V. "Monty" Blanchard, Jr., 48, has served as Executive Vice President
of ilife.com, Inc. since May 1999. Mr. Blanchard is responsible for identifying
and consummating acquisitions and other strategic ventures for the Company. From
1986 to 1999, Mr. Blanchard was a member of the Financial Institutions Mergers &
Acquisitions Group at Merrill Lynch & Co., Inc., serving as a Managing Director
since 1990 and as Co-Head of the group from 1995-1997. From 1994, Mr. Blanchard
also acted as a senior internal M&A Advisor and negotiator for a number of
Merrill Lynch's major acquisitions. Mr. Blanchard has worked as an investment
banker since 1979. He has a BA from Harvard College and an MBA from the
University of North Carolina at Chapel Hill.
Peter W. Minford, 42, has served as Chief Financial Officer, Senior Vice
President-Administration and Corporate Secretary of ilife.com since February
1998. Mr. Minford is responsible for the areas of research, information
systems, finance, administration and human resources. From August 1992 to
February 1998, Mr. Minford served as Senior Vice President-Administration at
The Bank of Tampa. Mr. Minford has held various senior management positions
in commercial banking for over 19 years including roles in credit
administration, commercial lending, general administration, compliance,
operations and technology. Mr. Minford holds a B.S. in Finance from Florida
State University and an M.B.A. from the University of South Florida.
Robert J. DeFranco, 43, has served as Vice President - Finance and Chief
Accounting Officer since March 1999. Mr. DeFranco is a Certified Public
Accountant and a member of the American Institute of Certified Public
Accountants. From 1978 to 1986 he was part of the commercial audit division of
Arthur Andersen & Co., Miami, Florida, where he last served as senior audit
manager for a variety of publicly held and privately held companies in
industries including banking and other financial institutions, manufacturing,
distribution and real estate development. From 1986 to 1999 he has held various
positions in corporate accounting and finance for companies including Ocwen
Financial Corporation from January 1998 through March 1999, SunTrust Banks, Inc.
from February 1995 through December 1997, Ryder System, Inc. and Southeast
Banking Corporation. His experience includes all aspects of corporate accounting
and finance, internal and external financial reporting (including SEC
reporting), mergers and acquisitions (analysis, integration and accounting),
corporate reengineering, budgeting and forecasting and investor relations. Mr.
DeFranco received a B.S. degree with a major in accounting from Florida State
University in 1978.
<PAGE>
William P. Anderson, III, 50, served as President, Chief Executive Officer
and director of ilife.com, Inc. from July 1997 until his departure in February
2000. Mr. Anderson was previously President and CEO of Block Financial
Corporation, a subsidiary of H&R Block, Inc. engaged in consumer lending,
software and online financial service delivery. He joined H&R Block as Vice
President of Corporate Development. Anderson later served as Chief Financial
Officer of the parent company. Prior to his tenure at H&R Block, he spent 19
years at KPMG Peat Marwick, beginning as an auditor and reaching the role of
partner-in-charge of the national corporate finance practice within the
management consulting department. Mr. Anderson holds a BS in mechanical
engineering from Auburn University and an MBA from Emory University in Atlanta.
Sara Campbell Taylor, 42, served as Sr. Vice President - Sales and
Syndication until her departure from the Company in January 2000. She has worked
for such firms as Chase Manhattan Bank, Dial Corporation, Ocwen Financial
Corporation and most recently ABN AMRO Securities. Ms. Taylor holds a BS in
Finance from Pennsylvania State University.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
(a) ilife.com's Common Stock has been traded on the Nasdaq National Market
under the symbol "ILIF" since May 13, 1999. Prior to that time there was no
established market for the shares.
The price per share reflected in the table below represents the range of
low and high closing sale prices for the Company's Common Stock as reported by
the Nasdaq National Market for the periods indicated:
Fiscal 1999
High Low
---- ---
Second Quarter $13.00 $6.13
Third Quarter $7.81 $3.81
Fourth Quarter $7.31 $3.38
The closing sale price of the Company's Common Stock as reported by the
Nasdaq National Market on March 31, 2000 was U.S. $2.625 per share.
The number of shareholders of record of the Company's Common Stock as of
March 31, 2000, was approximately 2,000.
As of March 31, 2000, options to purchase 2,009,676 shares of our common
stock were outstanding of which 246,567 were exercisable.
<PAGE>
The Company has never paid cash dividends on its capital stock. The Company
currently intends to retain any earnings for use in the business and does not
anticipate paying any cash dividends in the foreseeable future.
On March 9, 1999, ilife.com issued a note to Antares Capital Fund II Limited
Partnership for aggregate cash consideration of $1,000,000 that was converted
into 6,784 shares of Series B Preferred Stock on April 9, 1999.
On May 13, 1999, immediately prior to the closing of ilife.com's initial
public offering of Common Stock, the holders of all of ilife.com's outstanding
Series A Preferred Stock and Series B Preferred Stock were converted into an
aggregate of 5,698,550 shares of Common Stock.
The issuance of the securities in the transactions described above were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder as transactions by an issuer not involving any public
offering.
Ilife.com issued stock options to purchase an aggregate of 236,720 shares to
Julio Fernandez and Sherry Fernandez on January 7, 1999; Sara Campbell, Roberto
Casin, G. Cotter Cunningham, Robert J. DeFranco, Sharon Giannotti, Linda Green,
Joseph Jones, Peter Minford, Gilbert Morejon and Brian O'Connor on March 2,
1999; and Monica Lewman on March 12, 1999. No shares of common stock have been
issued pursuant to the exercise of such options.
The issuance of securities in the transaction described above was deemed to
be exempt from registration under the Securities Act in reliance on Rule 701 of
the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below 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 Form 10-K. The consolidated statement of
operations data for the year ended December 31, 1999, the six months ended
December 31, 1998 and the years ended June 30, 1998 and 1997, and the
consolidated balance sheet data as of December 31, 1999 and 1998, are derived
from, and are qualified by reference to, the audited consolidated financial
statements of ilife.com, Inc. included elsewhere in this Form 10-K. The
consolidated statement of operations data for the year ended June 30, 1996, and
the consolidated balance sheet data as of June 30, 1997 and 1996 have been
derived from audited consolidated financial statements not included in this
Form 10-K. The statement of operations data for the year ended June 30, 1995 and
the balance sheet data as of June 30, 1995 are derived from unaudited
consolidated financial statements not included in this Form 10-K. The unaudited
consolidated financial statements have been prepared on substantially the same
basis as the consolidated audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of the financial position and results of
operations for the period. Historical results are not necessarily indicative of
results to be expected in the future.
<TABLE>
<CAPTION>
Year Six Months Year Year Year Year
Ended Ended Ended Ended Ended Ended
December 3 December 31, June 30, June 30, June 30, June 30,
1999 1998 1998 1997 1996 1995
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
(In thousands, except share and per share amounts)
Revenue:
Online publishing $ 8,497 $ 1,809 $ 1,282 $ 485 $ 70 $ --
Print publishing and licensing 3,473 1,660 2,559 2,058 1,558 1,109
Other 148 -- -- -- -- --
---------- --------- --------- --------- --------- ---------
Total revenue 12,118 3,469 3,841 2,543 1,628 1,109
---------- --------- --------- --------- --------- ---------
Cost of operations:
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Online publishing 4,786 979 862 582 18
Print publishing and licensing 2,387 1,101 1,962 1,186 971
Sales 2,851 817 665 90 96
Marketing 17,079 305 145 1 34
Product research 2,984 916 1,216 721 508
General and administrative expenses 7,206 871 1,663 768 522
Depreciation and amortization 574 98 67 74 98
Goodwill amortization 655 -- -- -- --
Noncash stock based compensation 3,305 669 89 -- --
------------ ------------ ------------ ------------ ------------
Total cost of operations 41,827 5,756 6,669 3,422 2,247
------------ ------------ ------------ ------------ ------------
Loss from operations (29,709) (2,287) (2,828) (879) (619)
------------ ------------ ------------ ------------ ------------
Other income (expense) 877 192 46 (77) (53)
Noncash financing charge (2,656) -- -- -- --
------------ ------------ ------------ ------------ ------------
Loss before income taxes (31,488) (2,095) (2,782) (956) (672)
Income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss (31,488) (2,095) (2,782) (956) (672)
Accretion of Convertible Series A and
Series B preferred stock to redemption value (2,281) -- -- -- --
Charge for conversion of nonredeemable convertible
Series A preferred stock to redeemable -- (4,438) -- -- --
------------ ------------ ------------ ------------ ------------
Net loss applicable to common stock $ (33,769) $ (6,533) $ (2,782) $ (956) $ (672)
============ ============ ============ ============ ============
Basic and diluted net loss per share $ (3.34) $ (1.63) $ (0.72) $ (0.20) $ (0.13)
============ ============ ============ ============ ============
Weighted average shares outstanding used in
basic and diluted per-share calculation 10,113,928 4,018,700 3,846,200 4,743,590 5,000,000
============ ============ ============ ============ ============
<CAPTION>
As of As of
December 31, June 30,
1999 1998 1998 1997 1996
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
(In thousands)
Cash and cash equivalents $ 22,504 $ 1,633 $ 910 $ 1,783 $ --
Working capital 13,144 658 164 887 (1,649)
Total assets 33,462 3,099 1,768 2,193 311
Subordinated note payable 4,350 -- -- -- --
Redeemable preferred stock -- 12,198 -- -- --
Total stockholders' equity (deficit) 17,445 (10,985) 657 1,035 (1,508)
<CAPTION>
<S> <C>
Online publishing --
Print publishing and licensing 884
Sales --
Marketing 23
Product research 274
General and administrative expenses 404
Depreciation and amortization 69
Goodwill amortization --
Noncash stock based compensation --
------------
Total cost of operations 1,654
------------
Loss from operations (545)
------------
Other income (expense) (410)
Noncash financing charge --
------------
Loss before income taxes (955)
Income taxes --
------------
Net loss (955)
Accretion of Convertible Series A and
Series B preferred stock to redemption value --
Charge for conversion of nonredeemable convertible
Series A preferred stock to redeemable --
------------
Net loss applicable to common stock $ (955)
============
Basic and diluted net loss per share $ (0.19)
============
Weighted average shares outstanding used in
basic and diluted per-share calculation 5,000,000
============
<CAPTION>
As of
June 30,
1995
----------
<S> <C>
Consolidated Balance Sheet Data:
(In thousands)
Cash and cash equivalents $ (4)
Working capital (997)
Total assets 273
Subordinated note payable 700
Redeemable preferred stock --
Total stockholders' equity (deficit) (1,906)
</TABLE>
<PAGE>
ITEM 7. 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 related notes contained in this Form 10-K. The
following discussion contains forward-looking statements that involve risks and
uncertainties. In some cases, you can identify forward-looking statements by
terms such as "may," "will," "should," "expect," "plan," "anticipate,""believe,"
"estimate," "predict," "potential,"or "continue," or the negative of these terms
or other comparable terminology. The forward-looking statements contained in
this Form 10-K involve known and unknown risks, uncertainties and other factors
that may cause our or our industry's actual results, level of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these
statements. These factors include those listed under Item 1. Business "Risk
Factors That Could Impact Future Operating Results" and elsewhere in this Form
10-K. Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not place undue reliance on
these forward-looking statements.
Overview
Ilife.com, Inc. creates, produces, broadcasts and syndicates personal
finance information for the consumer through a broad portfolio of Web sites,
print publications and television programs. The Company's wholly-owned
subsidiary, Professional Direct Agency, Inc. ("Pivot"), is a virtual insurance
agency and fulfillment/call center specializing in direct insurance sales over
the Internet and through other direct media. The Company's personal finance
portal, www.ilife.com, features original content that deals with financial
planning, taxes, insurance, investing and banking. The portal serves as a
gateway to ilife.com's family of Web sites and broadcast segments, including the
award-winning bankrate.com, Pivot.com, theWhiz.com, IntelligentTaxes.com,
Consejero.com, CPNet.com, GreenMagazine.com and the television version of "Cost
of Life". The Company has decided to sell CPNet.com. Content from ilife.com is
published on co-branded Internet sites through more than 90 relationships,
including Snap.com/NBC Internet, Inc. (NASDAQ: NBCI), Yahoo! (NASDAQ: YHOO),
CNN, America Online (NYSE: AOL) and Smart Money. The Company's original research
is also distributed through more than 100 national, regional and local print
publications. Ilife.com Web sites have approximately one million unique visitors
per month, according to Media Metrix.
Our online operations are the principal focus of our activities today. Prior
to 1995, our principal businesses were the publication of print newsletters and
syndication of bank and credit product research to newspapers and magazines. In
1995, we introduced the Consumer Mortgage Guide, which is an advertisement for
newspapers consisting of product and rate information in tabular form from local
mortgage companies that pay a weekly fee for inclusion in the table.
In 1996, we started our online operations by displaying our editorially
unbiased research through our Web site, bankrate.com. By offering our
information online, we created new revenue opportunities through the sale of
graphical and hyperlink advertising associated with our rate and yield tables.
In 1997, we implemented a strategy to concentrate on building our online
operations. Since that time, we have significantly expanded the scope and depth
of bankrate.com and made investments in seven new online Internet Web sites:
theWhiz.com, Consejero.com, CPNet.com, GreenMagazine.com, IntelligentTaxes.com,
Pivot.com and our personal finance portal, ilife.com. Additionally, we formed a
Broadcast Division which syndicates ilife.com branded television segments that
reach an estimated 2.5 million viewers per week, according to the November
1999 Nielson ratings.
We believe that the recognition of our research as a leading source of
independent, objective information on banking and credit products is essential
to our success. As a result, we have sought to maximize distribution of our
research to gain brand recognition as a research authority. We are seeking to
build greater brand awareness of all of our Web sites and to reach a greater
number of online users.
Recent Developments
On April 12, 1999 our Board of Directors approved changing our fiscal
year-end to December 31 from June 30.
<PAGE>
On August 20, 1999, the Company acquired Pivot pursuant to a Stock Purchase
Agreement, dated August 20, 1999, by and between the Company, the shareholders
of Pivot and The Midland Life Insurance Company ("Midland"), a note and warrant
holder of Pivot (the "Agreement"), for approximately $4,744,000 including
acquisition costs. Pursuant to the Agreement, the Company acquired a 100%
interest in Pivot and as a result of the acquisition, Pivot became a wholly-
owned subsidiary. The transaction was accounted for using the purchase method of
accounting. The net assets acquired were estimated to be at fair market value.
The excess of the purchase price over the fair value of the net assets acquired
(approximately $4,609,000) was recorded as goodwill and is being amortized over
three years, the expected benefit period.
The total consideration paid in connection with the acquisition consisted of
$290,000 in cash paid to the Pivot shareholders and a $4,350,000 five-year
convertible subordinated note to Midland. The note bears interest at 10% and is
due in one payment on August 20, 2004. Interest is due beginning on August 20,
2002 and thereafter every six months until conversion or payment in full. The
note is convertible at any time by Midland into 625,000 shares of our common
stock. The Company has the right to require conversion beginning any time after
the earlier of (1) August 20, 2000 or (2) the date that the Company files a
registration statement under the Securities Act of 1933, as amended (the "Act"),
registering the conversion shares for sale under the Act; provided that, within
the 55-day period immediately prior to the date the Company notifies Midland of
the required conversion, the closing price of our common stock has been at least
$10.00 per share for at least twenty consecutive trading days.
On August 27, 1999, the Company acquired certain assets and assumed certain
liabilities of Green pursuant to an Asset Purchase Agreement, dated August 27,
1999, by and among the Company, Green, Kenneth A. Kurson, John F. Packel and
James Michaels (the "Agreement"), for approximately $831,000 including
acquisition costs. Pursuant to the Agreement, the Company acquired the rights
to all agreements, contracts, commitments, licenses, copyrights, trademarks and
the subscriber/customer list of Green. Kenneth A. Kurson and John F. Packel were
also employed by the Company. The total consideration paid was approximately
$784,000 consisting of $200,000 in cash and 100,000 unregistered shares of the
Company's common stock valued at approximately $584,000. The transaction was
accounted for using the purchase method of accounting. The net assets acquired
were estimated to be at fair market value. The excess of the purchase price over
the fair value of the net assets acquired (approximately $883,000) was recorded
as goodwill and is being amortized over three years, the expected benefit
period.
On April 5, 2000 Jeff M. Cunningham was appointed to the Company's Board of
Directors as non-executive chairman. In accordance with the terms of a Stock
Purchase Plan and Subscription Agreement entered into as of that date, Mr.
Cunningham subscribed to purchase 431,499 shares of the Company's common stock
for $997,841 in cash, or $2.3125 per share which was the closing price per share
of the Company's common stock on April 5, 2000. In addition, on April 5, 2000
Mr. Cunningham was granted stock options under the 1999 Equity Compensation Plan
to purchase 141,905 at $4.50 per share and 125,622 shares at $3.75 per share.
The options vest over a 24 month period. The company will recognize compensation
expense of approximately $217,000 over the vesting period.
On November 12, 1999, we changed our name from "Intelligent Life
Corporation" to "ilife.com, Inc." to more accurately reflect the Company's major
revenue generating activities, which are derived from the Internet.
Legal Proceedings
On March 28, 2000, a purported class-action lawsuit was filed against the
Company and certain of its directors and officers, its auditor and underwriters
in the United States District Court for the Southern District of New York (Civil
Action No. 00CIV.2337). The complaint, which seeks an unspecified amount of
money damages, was filed by Brian DeMaria, a single stockholder, purportedly on
behalf of all stockholders who purchased shares of our stock during the period
from May 13, 1999 through March 27, 2000. The plaintiff alleges that the Company
violated federal securities laws by, among other things, misrepresenting and/or
omitting material information concerning the Company's financial results for the
quarter ended March 31, 1999, in its registration statement and prospectus filed
with the Securities and Exchange Commission in connection with the Company's
initial public offering. More particularly, the plaintiff alleges, among other
things, that the Company failed to disclose in its registration statement and
prospectus the fact that the Company incurred a net loss of approximately $6
million in the quarter ended March 31, 1999. The plaintiff alleges that the
information was not made public until May 24, 1999 when the Company issued a
press release with respect to the results for that quarter. The Company contends
that the loss for the quarter ended March 31, 1999. The Company intends to
vigorously defend against the lawsuit.
The following are descriptions of the revenue and expense components of our
statement of operations:
Online publishing revenue represents the sale of advertising, sponsorships
and hyperlinks in connection with our web sites. Such advertising is sold to
advertisers according to the cost per thousand impressions, or CPM, the
advertiser receives. The amount of advertising we sell is a function of (1) the
number of advertisements we have per page, (2) the number of visitors viewing
our pages, and (3) the capacity of our sales force. Revenue from advertising
sales is invoiced monthly based on the expected number of advertisement
impressions, or number of times that an advertisement is viewed. Revenue is
recognized monthly based on the percentage of impressions received to the total
number of impressions purchased. Revenue for impressions that have been invoiced
but not delivered is deferred. Hyperlinks to various third-party web sites are
sold for a fixed monthly fee, which is recognized as revenue in the month
earned. For our revenue sharing distribution arrangements with web site
operators, revenue is recorded on a gross basis, with payments for our
distribution arrangements being included in online publishing costs.
In June 1999, we were advised by Quicken.com that it would not be renewing
its distribution agreement with us. Quicken.com accounted for approximately 6%
of our total site traffic during the three months ended March 31, 1999.
Management does not believe that the loss of this distribution partner will have
a material adverse impact on future results of operations.
Print publishing and licensing revenue represents advertising revenue from
the sale of advertising in Consumer Mortgage Guide rate tables, newsletter
subscriptions, and licensing of research information. We charge a commission for
placement of Consumer Mortgage Guide in a print publication. Advertising revenue
and commission income is recognized when Consumer Mortgage Guide runs in the
publication. Revenue from our newsletters is recognized ratably over the period
of the subscription, which is generally up to one year. Revenue from the sale of
research information is recognized ratably over the contract period.
Online publishing costs represent expenses directly associated with the
creation of online publishing revenue. These costs include contractual revenue
sharing obligations resulting from our distribution arrangements (distribution
payments), editorial costs, and allocated overhead. Distribution payments are
made to web site operators for visitors directed to our web sites. These costs
increase with gains in traffic to our sites. Editorial costs relate to writers
and editors who create original content for our online publications and
associates who build web
<PAGE>
pages. These costs have increased as we have added online publications and
co-branded versions of our sites under distribution arrangements. These sites
must be maintained on a daily basis.
Print publishing and licensing costs represent expenses directly associated
with print publishing revenue. These costs include contractual revenue sharing
obligations with newspapers related to Consumer Mortgage Guide, personnel costs,
printing and allocated overhead.
Sales costs represent direct selling expenses, principally for online
advertising, and include sales commissions, personnel costs and allocated
overhead.
Marketing costs represent expenses associated with expanding brand awareness
of our products and services to consumers and include advertising, including
banner advertising, marketing and promotion costs.
Product research costs represent expenses related to gathering data on
banking and credit products and include compensation and benefits, facilities
costs, telephone costs and computer systems expenses.
General and administrative costs represent compensation and benefits for
administration, advertising management, accounting and finance, facilities
expenses, professional fees and non-allocated overhead.
Depreciation and amortization represents the cost of capital asset
acquisitions spread over their expected useful lives. These expenses are spread
over three to seven years and are calculated on a straight-line basis.
Goodwill amortization represents the excess of the purchase price over the
fair market value of net assets acquired spread over the expected benefit
periods which is between three to five years.
Noncash stock based compensation represents expenses associated with stock
grants to our officers and employees as additional compensation for their
services.
Other income (expense) is comprised of interest income on invested cash and
interest expense. Also included is a noncash finance charge recorded upon the
conversion of a note payable to a stockholder into shares of convertible
preferred stock which, upon completion of our IPO, was subsequently converted
into common stock.
We have compared our results of operations for the years ended December 31,
1999 and 1998, and the years ended June 30, 1998 and 1997.
The following table displays our results for the respective periods expressed
as a percentage of total revenues.
<TABLE>
<CAPTION>
Year Six Months Year Year
Ended Ended Ended Ended
December 31, December 31, June 30, June 30,
1999 1998 1998 1997
------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
Online publishing 70.1% 52.1% 33.4% 19.1%
Print publishing and licensing 28.7% 47.9% 66.6% 80.9%
Other 1.2% 0.0% 0.0% 0.0%
------- ------ ------ ------
Total revenue 100.0% 28.6% 31.7% 21.0%
------- ------ ------ ------
Cost of operations:
Online publishing 39.5% 28.2% 22.4% 22.9%
Print publishing and licensing 19.7% 31.7% 51.1% 46.6%
Sales 23.5% 23.6% 17.3% 3.5%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Marketing 140.9% 8.8% 3.8% 0.1%
Product research 24.6% 26.4% 31.7% 28.3%
General and administrative expenses 59.5% 25.1% 43.3% 30.2%
Depreciation and amortization 4.7% 2.8% 1.7% 2.9%
Goodwill amortization 5.4% 0.0% 0.0% 0.0%
Noncash stock based compensation 27.3% 19.3% 2.3% 0.0%
------- ------ ------ ------
Total cost of operations 345.2% 165.9% 173.7% 134.6%
------- ------ ------ ------
Loss from operations (245.2%) (65.9%) (73.7%) (34.6%)
------- ------ ------ ------
Other income (expense):
Interest income 9.0% 0.5% 1.4% 0.1%
Interest expense (1.9%) (0.4%) (0.2%) (3.4%)
Noncash financing charge (21.9%) 0.0% 0.0% 0.3%
Other 0.2% 5.3% 0.0% 0.0%
Other income (expense), net (14.7%) 5.5% 1.2% (3.0%)
------- ------ ------ ------
Loss before income taxes (259.9%) (60.4%) (72.4%) (37.6%)
Income taxes
Net loss (259.9%) (60.4%) (72.4%) (37.6%)
------- ------ ------ ------
Accretion of Convertible Series A and
Series B preferred stock to redemption value (18.8%) 0.0% 0.0% 0.0%
Charge for conversion of nonredeemable convertible
Series A preferred stock to redeemable 0.0% (127.9%) 0.0% 0.0%
------- ------ ------ ------
Net loss applicable to common stock (278.7%) (188.3%) (72.4%) (37.6%)
======= ====== ====== ======
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
The following table displays selected financial data for the year ended
December 31, 1999 and unaudited selected financial data for the years ended
December 31, 1998 and 1997 for comparison and analysis purposes.
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
(In thousands, except share and per share amounts)
Revenue:
Online publishing $ 8,497 $ 2,582 $ 847
Print publishing and licensing 3,473 3,039 2,260
Other 148 -- --
------------ ------------ ------------
Total revenue 12,118 5,621 3,107
------------ ------------ ------------
Cost of operations:
Online publishing 4,786 1,520 671
Print publishing and licensing 2,387 2,105 1,578
Sales 2,851 1,365 159
Marketing 17,079 432 19
Product research 2,984 1,639 855
General and administrative expenses 7,206 1,840 1,278
Depreciation and amortization 574 140 67
Goodwill amortization 655 -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <C> <C>
Noncash stock based compensation 3,305 757 --
------------ ------------ ------------
Total cost of operations 41,827 9,798 4,627
------------ ------------ ------------
Loss from operations (29,709) (4,177) (1,520)
------------ ------------ ------------
Other income (expense) 877 203 (10)
Noncash financing charge (2,656) -- --
------------ ------------ ------------
Loss before income taxes (31,488) (3,974) (1,530)
------------ ------------ ------------
Income taxes -- -- --
Net loss (31,488) (3,974) (1,530)
Accretion of Convertible Series A and
Series B preferred stock to redemption value (2,281) -- --
Charge for conversion of nonredeemable
convertible Series A preferred stock to
redeemable -- (4,438) --
Net loss applicable to common stock $ (33,769) $ (8,412) $ (1,530)
============ ============ ============
Basic and diluted net loss per share $ (3.34) $ (2.14) $ (0.35)
============ ============ ============
Weighted average shares outstanding used in
basic and diluted per-share calculation 10,113,928 3,925,597 4,383,586
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
As of
December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
(In thousands)
Cash and cash equivalents $ 22,504 $ 1,633 $ 1,113
Working capital 13,144 658 564
Total assets 33,462 3,099 1,783
Subordinated note payable 4,350 -- --
Redeemable preferred stock -- 12,198 --
Total stockholders' equity (deficit) 17,445 (10,985) 2,447
</TABLE>
Revenue
Total revenue for the year ended December 31, 1999 of $12,117,512 increased
$6,495,983, or 116%, over the comparable period in 1998. Online publishing
revenue increased $5,914,461, or 229%, to $8,496,905 and represented 70% of
total revenue compared to 46% in 1998. These increases were due to higher levels
of advertising sales and higher advertising rates facilitated by an increase in
advertising inventory resulting from an increase in the number of distribution
partners and higher overall site traffic. Additionally, in July 1999, the
Company launched a multi-media integrated communications program to establish
brand awareness and build site traffic. This program included a print
advertising campaign with insertions in news, business, computer and personal
finance publications; an online banner and sponsorship program; a comprehensive
public relations program; and various media delivery systems including
television. Beginning in January 2000, the Company substantially reduced its
levels of spending on marketing compared to the second half of 1999,which could
have the effect of substantially slowing down our revenue growth.
Print publishing and licensing revenue increased $433,695, or 14%, to
$4,785,889 due primarily to a $618,713, or 48%, increase in Consumer Mortgage
Guide revenues. This increase was a result of an increased sales effort, higher
rates charged per unit sale and an increase in the number of advertisers.
Cost of Operations
Online publishing costs increased 215% to $4,785,889 for the year ended
December 31, 1999 from $1,519,755 in the comparable period in 1998. This
$3,266,134 increase was due to higher advertising costs, expenses incurred in
promoting and staffing theWhiz.com, GreenMagazine.com and Consejero.com,
increases in revenue sharing obligations and higher personnel costs.
Print publishing and licensing costs increased 13% to $2,387,229 during the
year ended December 31, 1999 from $2,104,960 in 1998, due primarily to higher
revenue sharing payments to newspapers based on higher levels of revenue.
Sales costs for the year ended December 31, 1999 were $1,485,559, or 109%,
higher than 1998 due to higher human resource costs as a result of a doubling of
the sales force staff, lead generators and telemarketers, and the opening of the
Northern California and Chicago sales offices.
Marketing expenses of $17,078,673 for the year ended December 31, 1999 were
$16,646,246 higher than in 1998 primarily due to online advertising monies spent
for bankrate.com, theWhiz.com, Consejero.com and GreenMagazine.com with the goal
of driving more online traffic to our web sites. In July 1999, the Company
launched a multi-media integrated communications program to establish brand
awareness and build site traffic. This program included a print advertising
campaign with insertions in news, business, computer and personal finance
publications; an online banner and sponsorship program; a comprehensive public
relations program; and various media delivery systems including television.
Beginning in January 2000, the Company substantially reduced its levels of
spending on marketing compared to the second half of 1999, which could have the
effect of substantially slowing down our revenue growth.
Product research costs increased $1,345,691, or 82%, for the year ended
December 31, 1999 compared to 1998 due to higher personnel expenses to support
the growth in hyperlinked advertisers, Consumer Mortgage Guide advertisers, new
editorial newspaper tables and an expanded number of markets to support
additional advertisements and co-branding. Additionally, quality control
personnel have been added to lend support to this growth.
General and administrative expenses of $7,206,075 for the year ended December
31, 1999 were $5,366,481, or 292%, higher than the comparable period in 1998 due
primarily to higher human resource costs, facilities and professional services
expenses supporting the growth in the business. Approximately $1,089,000 of this
increase relates to Pivot which was acquired in August, 1999.
Depreciation and amortization of $573,706 for the year ended December 31,
1999 was $433,637, or 310%, higher compared to 1998 due to purchases of
software, computer equipment and components, and the acquisition of Pivot in
August, 1999. Goodwill amortization of $557,541 and $98,124 is a result of the
Pivot and Green acquisitions, respectively. Goodwill of $4,609,015 and $883,117
was recorded for Pivot and Green, respectively, and is being amortized over a
three-year period.
Noncash stock based compensation expense of $3,305,104 was recorded in the
year ended December 31, 1999 compared to $757,563 in the same period in 1998. In
1999 and 1998, approximately $2,113,000 and $460,000, respectively, was recorded
as a result of a variable stock option arrangement with our former President and
Chief Executive Officer. The variable stock option arrangement was terminated in
March 1999. Approximately $1,120,000 was recorded for options granted under the
1997 and 1999 Equity Compensation Plans during the first quarter of 1999 below
fair market value on the date of grant. In 1998, compensation expense was
recorded in connection with certain restricted stock grants.
A noncash financing charge of $2,656,000 was recorded in March 1999 compared
to none in 1998. In March 1999 one of the Series B convertible preferred
stockholders loaned us $1,000,000, at 8% interest due April 9, 1999. If unpaid
on April 9, 1999 the loan, plus accrued interest, converted to fully paid Series
B convertible preferred stock at a conversion price of $2.97 per share. On April
9, 1999 the principal amount of the loan plus accrued interest was converted
into 6,784 shares of Series B convertible preferred stock and, accordingly, the
finance charge was recorded
Interest income of $1,090,409 for the year ended December 31, 1999 was up from
$36,006 in the comparable 1998 period due to investing the proceeds from our
initial public offering in short-term, interest bearing instruments. Interest
expense was up $213,855 over the comparable period in 1998 due to the increase
in debt associated with equipment under capital leases and the 10% convertible
subordinated note payable issued in connection with the Pivot acquisition.
Year Ended June 30, 1998 Compared to Year Ended June 30, 1997
Revenues
Total revenue increased to $3,841,000 in fiscal 1998 from $2,543,000 in
fiscal 1997, representing a 51% increase.
Online publishing revenue increased to $1,282,000 in fiscal 1998 from
$485,000 in fiscal 1997, representing a 164% increase. This increase was due to
more advertisements being sold, higher advertising rates and an increase in
inventory available for sale. A change of site design for bankrate.com to allow
for a larger number of advertisements per page also contributed to the revenue
growth.
<PAGE>
Print publishing and licensing revenue increased to $2,559,000 in fiscal
1998 from $2,058,000 in fiscal 1997, representing a 24% increase. The increase
resulted from the sale of a higher number of advertisements for Consumer
Mortgage Guide, which resulted primarily from growth in the number of
participating newspapers.
Cost of Operations
Online publishing costs increased to $862,000 in fiscal 1998 from $582,000
in fiscal 1997, representing a 48% increase. The increase resulted from higher
payments made under distribution arrangements and additional editorial staff.
Print publishing and licensing costs increased to $1,962,000 in fiscal 1998
from $1,186,000 in fiscal 1997, representing a 65% increase. The increase was
substantially a result of higher payments to newspapers given the higher level
of Consumer Mortgage Guide revenues.
Sales costs increased to $665,000 in fiscal 1998 from $90,000 in fiscal
1997, representing a 639% increase. The increase was due to additional sales
staff, higher commissions resulting from increased revenues and higher
commission rates for our online sales staff.
Marketing costs increased to $145,000 in fiscal 1998 from $1,485 in fiscal
1997, representing a 9,664% increase. The increase was due to the hiring of a
public relations firm to promote our expanded online activities and the costs of
creating and producing sales-materials for online advertising. Additional costs
were incurred in fiscal 1998 when we purchased such advertising to test its
effectiveness in increasing visitors to bankrate.corn.
Product research costs increased to $1,216,000 in fiscal 1998 from $721,000
in fiscal 1997, representing a 69% increase. The increase was principally
related to the addition of 20 local markets in which we conducted research and
an expansion in the number of products for which we gathered data.
General and administrative costs increased to $1,663,000 in fiscal 1998 from
$768,000 in fiscal 1997, representing a 117% increase. The increase was
principally related to the hiring of new senior management, expansion of office
space and additional professional fees.
Depreciation and amortization decreased to $67,000 in fiscal 1998 from
$74,000 in fiscal 1997, representing a 9% decrease.
Quarterly Results of Operations
The following table presents certain unaudited quarterly statement of
operations data for each of the last 8 quarters through the year ended December
31, 1999. The information has been derived from our unaudited consolidated
financial statements. In the opinion of our management, the unaudited financial
statements have been prepared on a basis consistent with the financial
statements which appear elsewhere in this Form 10-K and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the financial position and results of operations for such unaudited periods.
Historical results are not necessarily indicative of results to be expected in
the future.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
March 31 June 30 September 30 December 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Online publishing $ 328 $ 446 $ 817 $ 992
Print publishing and licensing 622 757 766 894
Other -- -- -- --
-------- -------- -------- --------
Total revenue 950 1,203 1,583 1,886
Online publishing 210 331 458 521
Print publishing and licensing 536 468 495 606
Sales 139 409 442 375
Marketing 47 80 49 256
Product research 286 437 435 481
General and administrative expenses 422 546 426 445
Depreciation and amortization 21 21 42 56
Goodwill amortization -- -- -- 260
Noncash stock based compensation -- 89 409 --
-------- -------- -------- --------
Total cost of operations 1,661 2,381 2,756 3,000
-------- -------- -------- --------
Loss from operations (711) (1,178) (1,173) (1,114)
8 3 5 187
-- -- -- --
-------- -------- -------- --------
$ (703) $ (1,175) $ (1,168) $ (927)
======== ======== ======== ========
<CAPTION>
Year Ended December 31, 1999
March 31 June 30 September 30 December 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Online publishing $ 1,370 $ 1,926 $ 2,417 $ 2,785
Print publishing and licensing 856 886 880 850
Other -- -- 36 111
-------- -------- -------- --------
Total revenue 2,226 2,812 3,333 3,746
Online publishing 672 945 1,235 1,933
Print publishing and licensing 583 608 585 612
Sales 511 772 749 819
Marketing 714 1,987 6,274 8,104
Product research 569 659 810 946
General and administrative expenses 577 1,162 1,858 3,610
Depreciation and amortization 71 105 177 220
Goodwill amortization -- -- 198 458
Noncash stock based compensation 1,908 711 351 335
-------- -------- -------- --------
Total cost of operations 5,605 6,949 12,237 17,037
-------- -------- -------- --------
Loss from operations (3,379) (4,137) (8,904) (13,291)
8 213 404 254
(2,656) -- -- --
-------- -------- -------- --------
$ (6,027) $ (3,924) $ (8,500) $(13,037)
======== ======== ======== ========
</TABLE>
Liquidity and Capital Resources
ilife.com, Inc. has been funded using capital raised from shareholders, and
most recently, from the proceeds of our initial public offering in May 1999. As
of December 31, 1999, we had working capital of $13,143,967. Cash used in
operating activities was $19,372,729, $1,207,153, $2,760,717 and $833,716 for
the year ended December 31, 1999, the six months ended December 31, 1998 and the
years ended June 30, 1998 and 1997, respectively, and was primarily for funding
operating losses due to the continued expansion of our online publishing efforts
through personnel acquisitions and marketing expenditures. Additionally, we
funded approximately $1,014,000 of costs related to our IPO of stock during the
year ended December 31, 1999.
Cash used in investing activities was primarily for the purchase of computer
and office equipment and furniture. Additionally, during the year ended December
31, 1999, cash was used to acquire CPNet.com, Pivot and certain assets and
liabilities of Green Magazine, Inc. as well as certain other intellectual
property rights.
Net cash provided from financing activities in 1999 consisted of a
$1,000,000 convertible promissory note to one of the Series B preferred
stockholders which was subsequently converted to shares of Series B preferred
stock and ultimately into common stock in connection with the IPO, as well as
the net cash proceeds from our initial public offering of $42,315,000. Other
financing activities included cash used for payments on capital lease
liabilities. During the six months ended December 31, 1998 and the years ended
June 30, 1998 and 1997, cash flows from financing activities consisted primarily
of the cash proceeds from the issuance of preferred stock.
In connection with the acquisition of Pivot in August, 1999 the Company
signed a $4,350,000 five-year convertible subordinated note payable to Pivot's
former owner. The note bears interest at 10% and is due in one payment on August
20, 2004. Interest is due beginning August 20, 2002 and thereafter every six
months until conversion or payment in full. The note is convertible at any time
by the holder into 625,000 shares of our common stock.
We have incurred net losses in each of our last four fiscal years. We had an
accumulated deficit of approximately $42 million as of December 31, 1999. We
anticipate that we will incur operating losses and negative cash flows in the
foreseeable future due to high levels of planned expenditures to enhance our
services, develop new content, build brand awareness and hire personnel to
support our growth.
The Company is working to manage its cash by actively controlling expenses and
pursuing additional sources of revenue. For instance, the Company substantially
reduced marketing expenditures beginning January 2000 compared to the second
half of 1999, and has current plans to sell CPNet.com by mid 2000. Based on
these actions and the Company's current plan, we believe our existing liquidity
and capital resources will be sufficient to satisfy our cash requirements into
2001. There are no assurances that such actions will ensure cash sufficiency
into 2001 or that reducing marketing expenses would not potentially curtail
revenue growth.
The Company is also committed to rationalizing its ownership of ancillary,
non-core business units that have historically had significant negative cash
contributions. This effort could include: changing these non-core business
units' strategy and/or focus, seeking out strategic or financial partners,
selling/divesting these assets, or closing them. The beginning of these efforts
is our current plan to sell CPNet.com. These actions should result in lower
operating expenses, and may result in the Company receiving additional capital
and/or equity in other companies. In addition, some of these actions, if taken,
could result in material charges to operations and, could potentially result in
lower that anticipated revenue growth
The Company may consider additional options, which include, but are not
limited to, the following: forming strategic partnerships or alliances;
considering other strategic alternatives, including: a merger or sale of the
Company, or an acquisition ; or raising new debt and/or equity capital. There
can be no assurance that we will be able to raise such funds or realize our
strategic alternatives on favorable terms or at all.
Further, due to the purported class-action lawsuit which the Company intends
to vigorously defend, management could be required to spend significant amounts
of time and resources defending this matter which may impact our ability to
manage the Company.
<PAGE>
taken, could result in material charges to operations and, in addition, could
potentially result in lower that anticipated revenue growth.
We believe that our existing liquidity and capital resources will be
sufficient to satisfy our cash requirements for the foreseeable future. However,
if the rationalization efforts previously mentioned do not effect positive
change on our cash flow, based on the Company's current and anticipated future
capital funding requirements cash resources would be materially depleted by the
second quarter of 2001.
The Company may consider additional options, which include, but are not
limited to, the following: forming strategic partnerships or alliances;
considering other strategic alternatives, including: a merger or sale of the
Company, or an acquisition (as disclosed in our press release dated October 19,
1999); or raising new debt and/or equity capital. There can be no assurance that
we will be able to raise such funds on favorable terms or at all.
Further, due to the events surrounding the purported class-action lawsuit
discussed in Note 13, although the Company believes the suit is without merit,
management could be required to spend significant amounts of time and resources
defending this matter which could further impact our ability to manage the
Company.
Recent Accounting Pronouncements
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued and
was adopted by the Company as of July 1, 1998. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. This statement requires that an
enterprise (1) classify items of other comprehensive income by their nature in
financial statements and (2) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of statements of financial position. Comprehensive
income is defined as the change in equity during the financial reporting period
of a business enterprise resulting from non-owner sources. Comprehensive income
equals the net loss for all periods presented.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Software for Internal
Use," which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. The adoption of SOP 98-1 in the first
quarter of 1999 did not have an impact on the Company's financial position,
results of operations or cash flows.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in the statement of operations unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the statement
of operations, and requires that a company formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133 is effective for fiscal years beginning after June 15, 2000. A company may
also implement the provision of SFAS No. 133 as of the beginning of any fiscal
quarter after issuance. SFAS No. 133 cannot be applied retroactively, and must
be applied to (1) derivative instruments and (2) certain derivative instruments
embedded in hybrid contracts that were issued acquired, or substantively
modified after December 31, 1997. The Company has not yet determined the
applicability SFAS No. 133.
Income Taxes
Our effective tax rate differs from the statutory federal income tax rate,
primarily as a result of the uncertainty regarding our ability to utilize our
net operating loss carryforwards. Due to the uncertainty surrounding the timing
or realization of the benefits of net operating loss carryforwards in future tax
returns, have placed a valuation allowance against its otherwise recognizable
deferred tax assets. At December 31, 1999, we had approximately $32,624,000 of
net operating loss carryforwards for tax reporting purposes available to offset
future taxable income. Intelligent Life's net operating loss carryforwards
expire from 2012 through 2019. The Tax Reform Act of 1986 imposes substantial
restrictions on the utilization of net operating losses and tax credits in the
event of an "ownership
<PAGE>
change" of a corporation. Due to the change in our ownership interests in the
third quarter of 1997 and the acquisition of Pivot in August 1999, future
utilization of our net operating loss carryforwards will be subject to certain
limitations or annual restrictions. See Note 9 of Notes to Consolidated
Financial Statements appearing elsewhere in this Form 10-K.
Year 2000 Compliance
The Year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, software programs that have time-sensitive components may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure causing disruptions to our operations.
Our internal information technology and non-information technology systems
are generally licensed from third parties rather than being internally
developed. Our research and subscription systems are two of the major
information technology systems that have been internally developed. No
non-information technology systems have been internally developed. We have
received written certifications from all manufacturers of third-party systems
that they are Year 2000 compliant. We have completed the inventory and testing
of our mission critical hardware systems, including the routers and servers by
which we provide services to our customers.
Additionally, we have been advised that all of our mission critical
operating software has been tested by the manufacturers as well as internally
tested. All of the mission critical hardware and software passed our
predetermined Year 2000 criteria for compliance.
Our business is also dependent upon the computer-controlled systems of third
parties such as suppliers, customers and service providers. A systemic failure
outside of our control, such as a prolonged loss of Internet,
telecommunications, electrical or telephone services could prevent users from
accessing our web sites, which could have a material adverse effect on our
business.
We have experienced no material Year 2000 problems in the brief period since
January 1, 2000. We continue to monitor our systems for Year 2000 compliance.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The primary objective of our investment strategy is to preserve principal
while maximizing the income we receive from investments without significantly
increasing risk. To minimize this risk, to date we have maintained our portfolio
of cash equivalents in short-term and overnight investments which are not
subject to market risk as the interest paid on such investments fluctuates with
the prevailing interest rates. As of December 31, 1999 all of our cash
equivalents mature in three months or less.
Exchange Rate Sensitivity
Our exposure to foreign currency exchange rate fluctuations is minimal to
none as we do not have any revenues denominated in foreign currencies.
Additionally, we have not engaged in any derivative or hedging transactions to
date.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
Reports of Independent Auditors..........................................
Consolidated Balance Sheets as of December 31, 1999 and 1998.............
Consolidated Statements of Operations for the Year Ended
December 31, 1999, the Six Months Ended December 31, 1998, and the
Years Ended June 30, 1998 and 1997.....................................
Consolidated Statements of Redeemable Stock and Stockholders' Equity
(Deficit)for the Year Ended December 31, 1999, the Six Months Ended
December 31, 1998, and the Years Ended June 30, 1998 and 1997.........
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1999, the Six Months Ended December 31, 1998, and the
Years Ended June 30, 1998 and 1997.....................................
Notes to Consolidated Financial Statements...............................
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ilife.com, Inc.:
We have audited the accompanying consolidated balance sheets of ilife.com, Inc.
(formerly Intelligent Life Corporation) and subsidiary as of December 31, 1999
and 1998, and the related consolidated statements of operations, redeemable
stock and stockholders' equity (deficit) and cash flows for the year ended
December 31, 1999, the six months ended December 31, 1998, and the year ended
June 30, 1998. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ilife.com, Inc. and
subsidiary as of December 31, 1999 and 1998, and the results of their operations
and their cash flows for the year ended December 31, 1999, the six months ended
December 31, 1998, and the year ended June 30, 1998 in conformity with generally
accepted accounting principles.
KPMG LLP
Atlanta, Georgia
January 28, 2000
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
ilife.com, Inc.:
We have audited the accompanying balance sheet of ilife.com, Inc. (formerly
Intelligent Life Corporation), as of June 30, 1997, and the related statements
of operations, redeemable stock and stockholder's equity (deficit), and cash
flows for the two years then ended. 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 estimated by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 ilife.com, Inc. (formerly
Intelligent Life Corporation) as of June 30, 1997,and the results of its
operations and its cash flows of for the two years then ended in conformity with
generally accepted accounting principles.
Thomas & Clough Co., P.A.
Palm Beach, Florida
July 23, 1998
<PAGE>
ilife.com, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 22,503,540 $ 1,633,100
Accounts receivable, net of allowance for doubtful accounts
of $235,000 and $24,847 at December 31, 1999 and 1998, respectively 1,480,904 538,536
Other current assets 383,292 109,488
------------ ------------
Total current assets 24,367,736 2,281,124
Furniture, fixtures and equipment, net 2,488,394 813,659
Intangible assets, net 5,051,373 4,569
Other assets 1,554,254 --
------------ ------------
Total assets $ 33,461,757 $ 3,099,352
============ ============
Liabilities, Redeemable Stock and Stockholders' Equity (Deficit)
Liabilities:
Accounts payable $ 2,758,166 $ 308,667
Accrued stock compensation expense 1,159,309 --
Other accrued expenses 6,170,267 588,212
Deferred revenue 659,392 612,660
Current portion of obligations under capital leases 229,740 113,405
Other current liabilities 246,895 --
------------ ------------
Total current liabilities 11,223,769 1,622,944
10% Convertible subordinated note payable 4,350,000 --
Other liabilities 442,543 263,009
------------ ------------
Total liabilities 16,016,312 1,885,953
------------ ------------
Commitments and contingencies
Redeemable Convertible Series A preferred stock, noncumulative, par value
$.01 per share, liquidation value $65 per share, stated at redemption
value -- 90,000 shares authorized; no shares issued or outstanding at
December 31, 1999 and 89,612 shares issued and outstanding at
December 31, 1998 -- 10,215,768
Redeemable Convertible Series B preferred stock, noncumulative, par value $.01 per share,
liquidation value $114 per share, stated at redemption value -- 30,000 shares authorized;
no shares issued or outstanding at December 31, 1999 and 17,575 shares issued and outstanding at
December 31, 1998 -- 1,982,535
Redeemable Common Stock:
Redeemable common stock, par value $.01 per share, redemption value $0.52 per share --
no shares issued or outstanding at December 31, 1999 and 454,170 shares issued and outstanding
at December 31, 1998 -- 236,168
Loan receivable for redeemable common stock -- (236,168)
Stockholders' equity (deficit):
Preferred stock, 10,000,000 shares authorized and undesignated -- --
Common stock, par value $.01 per share-- 100,000,000 shares authorized; 13,540,988 and
4,053,200 shares issued and outstanding at December 31, 1999 and 1998, respectively 135,410 40,532
Additional paid in capital 59,543,111 --
Unamortized stock compensation expense -- (280,690)
Accumulated deficit (42,233,076) (10,744,746)
------------ ------------
Total stockholders' equity (deficit) 17,445,445 (10,984,904)
------------ ------------
Total liabilities stockholders' equity (deficit) $ 33,461,757 $ 3,099,352
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ilife.com, Inc. and Subsidiary
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Six Months
Year Ended Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 June 30, 1998 June 30, 1997
------------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Online publishing $ 8,496,905 $ 1,808,877 $ 1,281,284 $ 484,511
Print publishing and licensing 3,472,780 1,660,314 2,559,293 2,058,045
Other 147,827 -- -- --
------------ ------------ ------------ ------------
Total revenue 12,117,512 3,469,191 3,840,577 2,542,556
------------ ------------ ------------ ------------
Cost of operations:
Online publishing 4,785,889 978,964 862,007 582,399
Print publishing and licensing 2,387,229 1,100,693 1,961,714 1,185,969
Sales 2,850,669 817,403 665,007 89,848
Marketing 17,078,673 304,919 145,632 1,485
Product research 2,984,283 915,961 1,215,888 720,508
General and administrative expenses 7,206,075 871,057 1,663,728 767,957
Depreciation and amortization 573,706 98,491 66,666 73,754
Goodwill amortization 655,665 -- -- --
Noncash stock based compensation 3,305,104 669,000 88,563 --
------------ ------------ ------------ ------------
Total cost of operations 41,827,293 5,756,488 6,669,205 3,421,920
------------ ------------ ------------ ------------
Loss from operations (29,709,781) (2,287,297) (2,828,628) (879,364)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 1,090,409 18,924 52,351 2,141
Interest expense (232,504) (12,433) (6,216) (85,870)
Noncash financing charge (2,656,000) -- -- 7,473
Other 19,546 185,588 -- --
------------ ------------ ------------ ------------
Other income (expense), net (1,778,549) 192,079 46,135 (76,256)
------------ ------------ ------------ ------------
Loss before income taxes (31,488,330) (2,095,218) (2,782,493) (955,620)
Income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss (31,488,330) (2,095,218) (2,782,493) (955,620)
Accretion of Convertible Series A and
Series B preferred stock to redemption value (2,281,000) -- -- --
Charge for conversion of nonredeemable convertible
Series A preferred stock to redeemable -- (4,438,141) -- --
------------ ------------ ------------ ------------
Net loss applicable to common stock $(33,769,330) $ (6,533,359) $ (2,782,493) $ (955,620)
============ ============ ============ ============
Basic and diluted net loss per share $ (3.34) $ (1.63) $ (0.72) $ (0.20)
============ ============ ============ ============
Weighted average shares outstanding used in
basic and diluted per-share calculation 10,113,928 4,018,700 3,846,000 4,743,590
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ilife.com, Inc. and Subsidiary
Consolidated Statements of Redeemable Stock and Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Redeemable Redeemable
Convertible Series A Convertible Series B
Preferred Stock Preferred Stock
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances, June 30, 1996 -- $ -- -- $ --
Stockholder loans contributed to capital -- -- -- --
Exchange of common stock for preferred stock
by principal stockholder -- -- -- --
Issuance of preferred stock, net of issuance costs -- -- -- --
Net loss for the period -- -- -- --
Reclassification of accumulated deficit to
additional paid in capital due to change from
S corporation to C corporation -- -- -- --
------------ ------------ ------------ ------------
Balances, June 30, 1997 -- -- -- --
Issuance of preferred stock, net of issuance costs -- -- -- --
Stockholder loans converted to preferred stock -- -- -- --
Redeemable common stock issued -- -- -- --
Compensation expense related to common stock
vesting -- -- -- --
Net loss for the period -- -- -- --
------------ ------------ ------------ ------------
Balances, June 30, 1998 -- -- -- --
Issuance of common stock -- -- -- --
Compensation expense related to common stock grants -- -- -- --
Issuance of preferred stock, net of issuance costs -- -- 17,575 1,982,535
Conversion of nonredeemable convertible Series A
preferred stock to redeemable 89,612 10,215,768 -- --
Net loss for the period -- -- -- --
------------ ------------ ------------ ------------
Balances, December 31, 1998 89,612 10,215,768 17,575 1,982,535
Accretion of Series A and Series B preferred stock
to redemption value -- 1,908,000 -- 373,000
Conversion of Series A and Series B preferred
stock to common stock (89,612) (12,123,768) (17,575) (2,355,535)
Issuance and conversion of promissory note to
Series B preferred stock and conversion of Series B
preferred stock to common stock -- -- -- --
Foregiveness of note receivable for redeemable
common stock, reclassification of redeemable
common stock to common stock, cancellation of the
put right associated with such shares and
reacquisition of forfeited shares -- -- -- --
Initial public offering of common stock -- -- -- --
Compensation relating to stock grants -- -- -- --
Common stock issued for the acquisition of
Green Magazine, Inc. -- -- -- --
Net loss for the period -- -- -- --
------------ ------------ ------------ ------------
Balances, December 31, 1999 -- $ -- -- $ --
============ ============ ============ ============
<CAPTION>
Redeemable Common Stock Convertible Series A
Note Preferred Stock
Shares Amount Receivable Shares Amount
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances, June 30, 1996 -- $ -- $ -- -- $ --
Stockholder loans contributed to capital -- -- -- -- --
Exchange of common stock for preferred stock
by principal stockholder -- -- -- 23,076 1,499,940
Issuance of preferred stock, net of issuance costs -- -- -- 30,770 1,962,168
Net loss for the period -- -- -- -- --
Reclassification of accumulated deficit to
additional paid in capital due to change from
S corporation to C corporation -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances, June 30, 1997 -- -- -- 53,846 3,462,108
Issuance of preferred stock, net of issuance costs -- -- -- 28,074 1,815,519
Stockholder loans converted to preferred stock -- -- -- 7,692 500,000
Redeemable common stock issued 454,170 236,168 (236,168) -- --
Compensation expense related to common stock
vesting -- -- -- -- --
Net loss for the period -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances, June 30, 1998 454,170 236,168 (236,168) 89,612 5,777,627
Issuance of common stock -- -- -- -- --
Compensation expense related to common stock grants -- -- -- -- --
Issuance of preferred stock, net of issuance costs -- -- -- -- --
Conversion of nonredeemable convertible Series A
preferred stock to redeemable -- -- -- (89,612) (5,777,627)
Net loss for the period -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances, December 31, 1998 454,170 236,168 (236,168) -- --
Accretion of Series A and Series B preferred stock
to redemption value -- -- -- -- --
Conversion of Series A and Series B preferred
stock to common stock -- -- -- -- --
Issuance and conversion of promissory note to
Series B preferred stock and conversion of Series B
preferred stock to common stock -- -- -- -- --
Foregiveness of note receivable for redeemable
common stock, reclassification of redeemable
common stock to common stock, cancellation of the
put right associated with such shares and
reacquisition of forfeited shares (454,170) (236,168) 236,168 -- --
Initial public offering of common stock -- -- -- -- --
Compensation relating to stock grants -- -- -- -- --
Common stock issued for the acquisition of
Green Magazine, Inc. -- -- -- -- --
Net loss for the period -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances, December 31, 1999 -- $ -- $ -- -- $ --
============ ============ ============ ============ ============
<CAPTION>
Unamortized
Additional Stock
Common Stock Paid in Compensation
Shares Amount Capital Expense
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances, June 30, 1996 5,000,000 $ 50,000 $ 535,000 $ --
Stockholder loans contributed to capital -- -- 1,536,922 --
Exchange of common stock for preferred stock
by principal stockholder (1,153,800) (11,538) (1,488,402) --
Issuance of preferred stock, net of issuance costs -- -- -- --
Net loss for the period -- -- -- --
Reclassification of accumulated deficit to
additional paid in capital due to change from
S corporation to C corporation -- -- (583,520) --
------------ ------------ ------------ ------------
Balances, June 30, 1997 3,846,200 38,462 -- --
Issuance of preferred stock, net of issuance costs -- -- -- --
Stockholder loans converted to preferred stock -- -- -- --
Redeemable common stock issued -- -- 354,253 (354,253)
Compensation expense related to common stock
vesting -- -- -- 88,563
Net loss for the period -- -- -- --
------------ ------------ ------------ ------------
Balances, June 30, 1998 3,846,200 38,462 354,253 (265,690)
Issuance of common stock 207,000 2,070 266,930 (269,000)
Compensation expense related to common stock grants -- -- 415,000 254,000
Issuance of preferred stock, net of issuance costs -- -- -- --
Conversion of nonredeemable convertible Series A
preferred stock to redeemable -- -- (1,036,183) --
Net loss for the period -- -- -- --
------------ ------------ ------------ ------------
Balances, December 31, 1998 4,053,200 40,532 -- (280,690)
Accretion of Series A and Series B preferred stock
to redemption value -- -- 2,281,000) --
Conversion of Series A and Series B preferred
stock to common stock 5,359,350 53,593 14,425,710 --
Issuance and conversion of promissory note to
Series B preferred stock and conversion of Series B
preferred stock to common stock 339,200 3,392 3,659,608 --
Foregiveness of note receivable for redeemable
common stock, reclassification of redeemable
common stock to common stock, cancellation of the
put right associated with such shares and
reacquisition of forfeited shares 189,238 1,893 1,890,417 220,690
Initial public offering of common stock 3,500,000 35,000 41,265,596 --
Compensation relating to stock grants -- -- -- 60,000
Common stock issued for the acquisition of
Green Magazine, Inc. 100,000 1,000 582,780 --
Net loss for the period -- -- -- --
------------ ------------ ------------ ------------
Balances, December 31, 1999 13,540,988 $ 135,410 $ 59,543,111 $ --
============ ============ ============ ============
<CAPTION>
Total
Stockholders'
Accumulated Equity
Deficit (Deficit)
------------ ------------
<S> <C> <C>
Balances, June 30, 1996 $ (2,092,977) $ (1,507,977)
Stockholder loans contributed to capital -- 1,536,922
Exchange of common stock for preferred stock
by principal stockholder -- --
Issuance of preferred stock, net of issuance costs -- 1,962,168
Net loss for the period (955,620) (955,620)
Reclassification of accumulated deficit to
additional paid in capital due to change from
S corporation to C corporation 583,520 --
------------ ------------
Balances, June 30, 1997 (2,465,077) 1,035,493
Issuance of preferred stock, net of issuance costs -- 1,815,519
Stockholder loans converted to preferred stock -- 500,000
Redeemable common stock issued -- --
Compensation expense related to common stock
vesting -- 88,563
Net loss for the period (2,782,493) (2,782,493)
------------ ------------
Balances, June 30, 1998 (5,247,570) 657,082
Issuance of common stock -- --
Compensation expense related to common stock grants -- 669,000
Issuance of preferred stock, net of issuance costs -- --
Conversion of nonredeemable convertible Series A
preferred stock to redeemable (3,401,958) (10,215,768)
Net loss for the period (2,095,218) (2,095,218)
------------ ------------
Balances, December 31, 1998 (10,744,746) (10,984,904)
Accretion of Series A and Series B preferred stock
to redemption value -- (2,281,000)
Conversion of Series A and Series B preferred
stock to common stock -- 14,479,303
Issuance and conversion of promissory note to
Series B preferred stock and conversion of Series B
preferred stock to common stock -- 3,663,000
Foregiveness of note receivable for redeemable
common stock, reclassification of redeemable
common stock to common stock, cancellation of the
put right associated with such shares and
reacquisition of forfeited shares -- 2,113,000
Initial public offering of common stock -- 41,300,596
Compensation relating to stock grants -- 60,000
Common stock issued for the acquisition of
Green Magazine, Inc. -- 583,780
Net loss for the period (31,488,330) (31,488,330)
------------ ------------
Balances, December 31, 1999 $(42,233,076) $ 17,445,445
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ilife.com, Inc. and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Cash flows used in operating activities:
Net loss $(31,488,330) $ (2,095,218)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 1,229,371 98,491
Noncash stock compensation 3,305,104 669,000
Noncash financing charge 2,656,000 --
Allowance for doubtful accounts 210,153 --
Changes in operating assets and liabilities:
Increase in accounts receivable (1,156,584) (216,021)
(Increase) decrease in other assets (1,895,649) (84,375)
Increase (decrease) in accounts payable 2,187,572 102,876
Increase in accrued expenses 5,366,537 181,554
Increase in other current liabilities 311,027 --
Increase (decrease) in deferred revenue (5,174) 136,540
------------ ------------
Total adjustments 12,115,601 888,065
------------ ------------
Net cash used in operating activities (19,372,729) (1,207,153)
------------ ------------
Cash flows used in investing activities:
Purchases of equipment (1,395,079) (26,875)
Acquisitions, net of cash acquired (536,983) --
------------ ------------
Net cash used in investing activities (1,932,062) (26,875)
------------ ------------
Cash flows from financing activities:
Loans from stockholders 1,000,000 --
Principal payments on capital lease obligations (218,156) (25,834)
Proceeds from issuance of preferred stock -- 1,982,535
Proceeds from issuance of common stock 41,300,631 --
------------ ------------
Net cash provided by financing activities 42,082,475 1,956,701
------------ ------------
Net increase (decrease) in cash and cash equivalents 20,870,440 722,673
Cash and equivalents, beginning of period 1,633,100 910,427
------------ ------------
Cash and equivalents, end of period $ 22,503,540 $ 1,633,100
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 74,641 $ 12,433
============ ============
Supplemental schedule of noncash investing and finance activities:
Equipment acquired under capital leases $ 314,000 $ 380,000
============ ============
Accounts payable related to recapitalization and issuance of stock $ -- $ --
============ ============
Stockholder loans contributed to capital for preferred stock $ -- $ --
============ ============
Conversion of nonredeemable convertible Series A preferred stock
to redeemable and related charge $ -- $ 14,653,909
============ ============
Accretion of Series A and Series B preferred stock to redemption value $ 2,281,000 $ --
============ ============
Conversion of Series A and Series B preferred stock to common stock $ 14,479,303 $ --
============ ============
Issuance of common stock for business acquired $ 584,000 $ --
============ ============
Convertible subordinated note issued in connection with
business acquired $ 4,350,000 $ --
============ ============
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Cash flows used in operating activities:
Net loss $ (2,782,493) $ (955,620)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 66,666 73,754
Noncash stock compensation 88,563 --
Noncash financing charge -- --
Changes in operating assets and liabilities:
Increase in accounts receivable (42,451) (109,793)
Increase in deferred initial public offering costs -- --
(Increase) decrease in other assets (22,305) 7,480
Increase (decrease) in accounts payable (168,214) 59,238
Increase in accrued expenses 118,932 218,705
Increase in other current liabilities -- --
Increase (decrease) in deferred revenue (19,415) (127,480)
------------ ------------
Total adjustments 21,776 121,904
------------ ------------
Net cash used in operating activities (2,760,717) (833,716)
------------ ------------
Cash flows used in investing activities:
Purchases of equipment (407,203) (90,501)
Acquisitions, net of cash acquired -- --
------------ ------------
Net cash used in investing activities (407,203) (90,501)
------------ ------------
Cash flows from financing activities:
Loans from stockholders 500,000 687,000
Principal payments on capital lease obligations -- --
Proceeds from issuance of preferred stock, net 1,815,519 2,000,045
Proceeds from issuance of common stock, net -- --
------------ ------------
Net cash provided by financing activities 2,315,519 2,687,045
------------ ------------
Net increase (decrease) in cash and cash equivalents (852,401) 1,762,828
Cash and equivalents, beginning of period 1,762,828 --
------------ ------------
Cash and equivalents, end of period $ 910,427 $ 1,762,828
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 6,216 $ 113,200
============ ============
Supplemental schedule of noncash investing and finance activities:
Equipment acquired under capital leases $ 18,000 $ --
============ ============
Accounts payable related to recapitalization and issuance of stock $ -- $ 37,877
============ ============
Stockholder loans contributed to capital for preferred stock $ 500,000 $ 1,536,922
============ ============
Charge for conversion of nonredeemable convertible Series A preferred
stock to redeemable $ -- $ --
============ ============
Accretion of Series A and Series B preferred stock to redemption value $ -- $ --
============ ============
Issuance of common stock for business acquired $ -- $ --
============ ============
Convertible subordinated note issued in connection with
business acquired $ -- $ --
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ILIFE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
ilife.com, Inc. (the "Company") creates, produces, broadcasts and syndicates
personal finance information for the online consumer public through a broad
portfolio of Web sites and print publications. The Company's wholly-owned
subsidiary, Professional Direct Agency, Inc. ("Pivot"), is a virtual insurance
agency and fulfillment/call center specializing in direct insurance sales over
the Internet and through other direct media. The Company's personal finance
portal, www.ilife.com, features original content that deals with financial
-------------
planning, taxes, insurance, investing and banking. The Company is organized
under the laws of the state of Florida. Under the provisions of the Internal
Revenue Code of 1986, as amended, the Company elected to be taxed as an S
Corporation. On June 19, 1997, the Company ceased to be an S Corporation and
became a C corporation for income tax purposes.
On November 12, 1999, the Company changed its name from Intelligent Life
Corporation to ilife.com, Inc.
The Company has incurred net losses in each of its last four fiscal years. We
had an accumulated deficit of approximately $42 million as of December 31, 1999.
We anticipate that we will incur operating losses and negative cash flows in the
foreseeable future due to high levels of planned expenditures to enhance our
services, develop new content, build brand awareness and hire personnel to
support our growth.
The Company is working to manage its cash by actively controlling expenses and
pursuing additional sources of revenue. For instance, the Company substantially
reduced marketing expenditures beginning January 2000 compared to the second
half of 1999, and has current plans to sell or consider selling web sites. Based
on these actions and the Company's current plan, we believe our existing
liquidity and capital resources will be sufficient to satisfy our cash
requirements into 2001. There are no assurances that such actions will ensure
cash sufficiency into 2001 or that reducing marketing expenses would not
potentially curtail revenue growth.
The Company is also committed to rationalizing its ownership of ancillary,
non-core business units that have historically had significant negative cash
contributions. This effort could include: changing these non-core business
units' strategy and/or focus, seeking out strategic or financial partners,
selling/divesting these assets, or closing them. The beginning of these efforts
is our current plan to sell CPNet.com. These actions should result in lower
operating expenses, and may result in the Company receiving additional capital
and/or equity in other companies. In addition, some of these actions, if taken,
could result in material charges to operations and, could potentially result in
lower that anticipated revenue growth
The Company may consider additional options, which include, but are not
limited to, the following: forming strategic partnerships or alliances;
considering other strategic alternatives, including: a merger or sale of the
Company, or an acquisition; or raising new debt and/or equity capital. There
can be no assurance that we will be able to raise such funds or realize our
strategic alternatives on favorable terms or at all.
Further, due to the purported class-action lawsuit discussed in Note 12 which
the Company intends to vigorously defend, management could be required to spend
significant amounts of time and resources defending this matter which may impact
our ability to manage the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Change of Fiscal Year
On April 12, 1999, the Company's Board of Directors approved changing the
Company's fiscal year-end from June 30 to December 31.
<PAGE>
Consolidation
The consolidated financial statements include the accounts of ilife.com,
Inc. and it's wholly-owned subsidiary, Professional Direct Agency, Inc.
("Pivot"). All material intercompany accounts and transactions have been
eliminated.
Use of Estimates
The preparation of consolidated 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 gains and losses at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The cost of
these investments approximates fair value.
Fixed Assets
Property and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets which range
from three to seven years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or the estimated useful
lives of the improvements. Equipment under capital leases are stated at the
present value of the future minimum lease payments.
Intangible Assets
Intangible assets consist primarily of goodwill resulting from the
acquisitions of CPNet.com, Pivot and certain assets and liabilities of Green
Magazine, Inc. (Note 5), and trademarks. Goodwill is being amortized on a
straight-line basis over three years, the estimated benefit period. Trademarks
are being amortized over their estimated useful lives, which is three to five
years, on a straight-line basis. The Company reviews it intangible assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of the assets may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of the assets to
future undiscounted net cash flows expected to be generated by the assets. If
such assets are considered to be impaired, the impairment to be recognized is
measured by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Basic and Diluted Net Loss Per Share
The Company computes net loss per share in accordance with the provisions of
Statement of Financial Standards No. 128, "Earnings per Share" ("FAS 128") and
Staff Accounting Bulletin No. 98 ("SAB 98"). Under FAS 128 and SAB 98, basic and
diluted net loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of common
shares outstanding for the period. The calculation of diluted net loss per share
excludes common stock equivalents, consisting of outstanding stock options in
1999 and outstanding stock options, redeemable preferred stock and convertible
preferred stock for 1998 and 1997, as the effect of their conversion to common
stock would be antidilutive.
Common stock equivalents that could potentially dilute basic earnings per
share in the future were not included in diluted earnings per share because
their effect on periods presented was antidilutive total 1,888,358 at December
31, 1999.
<PAGE>
Stock-Based Compensation
The Company accounts for stock-based compensation arrangements in accordance
with the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees", and complies with the disclosure
requirements of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation". Under APB 25, compensation cost, if any, for
fixed plan accounting, is recognized over the respective vesting period based on
the difference, on the grant date, between the fair value of the Company's
common stock and the exercise price.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Revenue Recognition
The Company generates revenue from two primary sources: online publishing
and print publishing and licensing.
Online publishing-
The Company sells graphical advertisements for its various Internet sites
(including co-branded sites) consisting of banner and billboard advertisements.
Advertising sales are invoiced monthly based on the expected number of
advertisement "impressions" or the number of times the advertisement is viewed
by users of the Company's Internet sites. Revenue is recognized monthly based on
the percentage of actual impressions to the total number of impressions
contracted. Revenue for impressions invoiced but not delivered is deferred. The
Company is also involved in revenue sharing arrangements with its online
partners where the consumer uses co-branded sites principally hosted by the
Company. Revenue is effectively allocated to each partner based on the
percentage of advertisement views at each site. The allocated revenues are
shared according to distribution agreements. Revenue is recorded gross and
partnership payments are recorded in cost of operations. The Company also sells
hyperlinks to various third-party Internet sites that generate a fixed monthly
fee, which is recognized in the month earned.
Print publishing and licensing-
The Company sells advertisements for consumer mortgage rate tables. The
rate tables and advertising are published in various newspapers under revenue
sharing arrangements. Revenue is recognized when the tables are run in the
respective newspaper. Revenue is recorded gross and revenue sharing payments are
recorded in cost of operations. In addition, the Company earns subscription
revenue from the four newsletters. Revenue is recognized ratably over the period
of the subscription, which is generally up to one year. The Company also earns
print revenue through other means including licensing data for insertion into
newspapers and web sites and by providing product rates and yields to financial
institutions for publication. Revenue is recognized ratably over the contract
period.
Marketing Expenses
Marketing includes advertising costs, which are charged to expense as
incurred. Advertising costs were $16,459,305, $304,919, $145,632 and $1,485 for
the year ended December 31, 1999, the six month period ended December 31, 1998
and the years ended June 30, 1998 and 1997, respectively.
Comprehensive Income
No statements of comprehensive income (loss) have been included in the
accompanying consolidated financial statements since comprehensive income (loss)
and net loss presented in the accompanying consolidated statements of
operations, redeemable stock and stockholders' equity (deficit) and statements
of cash flows would be the same.
<PAGE>
Segment Reporting
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information". The Company operates
and manages its business in two segments; online publishing and print publishing
and licensing.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Software for Internal
Use," which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. The adoption of SOP 98-1 in the first
quarter of 1999 did not have an impact on the Company's financial position,
results of operations or cash flows.
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
No. 133"), "Accounting for Derivative Instruments and Hedging Activities", which
was subsequently deferred by SFAS No. 137. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal years beginning after June 15, 2000. The Company
has not yet determined the applicability of SFAS No. 133.
NOTE 3 - CAPITALIZATION
Initial Public Offering
On May 13, 1999 the Company completed an initial public offering ("IPO") of
3,500,000 shares of the Company's common stock resulting in net proceeds of
approximately $41.3 million. Upon closing of the IPO, both classes of
outstanding redeemable convertible preferred stock converted to common stock at
50 shares of common stock for each share of redeemable convertible preferred
stock. Additionally, upon the effective date of the IPO, the Company's articles
of incorporation were further amended and restated to among other matters,
designate 10 million shares of preferred stock with respect to which the Board
will have the authority to designate rights and privileges.
Stock Splits
In June 1997 and August 1997, the Company authorized and executed a 100-for-1
and a 10-for-1 stock split, respectively. Additionally, on April 9, 1999, the
Company authorized and executed a 5 to 1 stock split, effected as a stock
dividend, of each issued and outstanding share of common stock. The information
in the accompanying consolidated financial statements has been retroactively
restated to reflect the effects of these stock splits and dividend.
Authorized Shares
In April 1999, the Company amended and restated its articles of
incorporation. As a result, the total number of shares which the Company is
authorized to issue is 100,120,000; 100,000,000 of these shares are Common
stock, each having a par value of $.01; and 120,000 shares are Preferred stock,
each having a par value of $.01, of which 90,000 shares are Series A Convertible
Preferred stock and 30,000 are Series B Convertible Preferred stock.
Common Stock and Convertible Preferred Stock
In 1997, a director and then sole stockholder, Peter C. Morse ("Morse"),
contributed loans due to him to additional paid in capital in the aggregate
amounts of $1,536,922.
In June 1997, the Company and certain investors entered into a Series A
Preferred Stock Purchase Agreement ("the Agreement"). The Series A Preferred
Stock is voting, non-cumulative and preferred as to the first $4.55 per share
per year of funds legally available and declared by the Board of Directors, has
a liquidation preference above common stockholders of $65.00 per share, each
share is convertible into 50 shares of common stock at a conversion price of
$1.30, and has other rights and preferences. Pursuant to the Agreement,
investors acquired 30,770 shares of Series A Preferred Stock at $65.00 per
share. During 1997, Morse exchanged 1,153,800 shares of common stock for 23,076
shares of Series A preferred.
<PAGE>
In August and September 1997, 11,538 shares of Series A Preferred Stock were
issued at $65.00 per share, resulting in net proceeds to the Company of
$740,709.
In October 1997, an additional 1,154 shares of Series A Preferred Stock were
issued at $65.00 per share, resulting in net proceeds to the Company of $75,000.
Investors agreed to acquire 23,074 shares of Series A Preferred Stock at $65.00
per share, resulting in net proceeds to the Company of $1,499,810. This purchase
included the contribution of loans due to Morse in the amount of $200,000 and
the contribution of $300,000 in loans due to other investors for an aggregate of
7,692 shares of Series A Preferred Stock.
In November, 1998, the Series A Preferred Stock was converted from
non-redeemable Preferred Stock to redeemable Preferred Stock. This transaction
was treated as an extinguishment and the new instrument was recorded at fair
value on the conversion date. The difference between the fair value on the
conversion date and the carrying value was charged to equity.
In November 1998, the Company and certain investors entered into a Series B
Preferred Stock Purchase Agreement. Pursuant to this agreement, 17,575 shares of
Series B Preferred Stock were issued at $113.80 per share, resulting in net
proceeds to the Company of $1,982,535. The Series B Preferred Stock is voting,
non-cumulative and preferred as to the first $8.00 per share per year out of
funds legally available and declared by the Board of Directors, has liquidation
preferences over the Series A Preferred and common stockholders of $113.80 per
share, each share is convertible into 50 shares of common stock at a conversion
price of $2.28, and has other rights and preferences.
The redemption clause of the Series A and Series B Preferred Stock allows the
holders of 20% or more of the aggregate number of shares of common stock
issuable upon conversion of the Series A and Series B Preferred then outstanding
to redeem their shares on or after January 2, 2003, provided that the maximum
number of shares of Series A and Series B Preferred which the Company is
obligated to redeem does not exceed the aggregate of 35,729 shares prior to
January 3, 2004 and 71,458 shares prior to January 3, 2005, and thereafter the
Company is obligated to redeem all such shares outstanding as to which such
right has been exercised. The redemption price is equal to the greatest of (as
defined in the respective agreement) (x) the Series A liquidation preference or
Series B liquidation preference, applicable to such shares or (y) the fair
market value of such shares or (z) an amount per share of Series A or Series B
Preferred equal to ten (10) times the net after tax earnings per share for the
most recently completed fiscal year of the Company times the number of shares of
common stock issuable upon the conversion of one (1) share of Series A or Series
B Preferred and the conversion price then in effect. The Company recorded
accretion on the Series A and Series B Preferred Stock equal to the difference
between the net proceeds received and the redemption amount of approximately
$14,500,000 based on the estimated fair value at December 31, 1998 using the
interest method from the conversion date for the Series A Preferred and original
issue date for the Series B Preferred through the final redemption date of
January 3, 2005.
Upon closing of the IPO, both classes of outstanding redeemable convertible
preferred stock converted to 5,359,350 shares of common stock at 50 shares of
common stock for each share of redeemable convertible preferred stock.
Loan From Stockholder
On March 9, 1999, one of the Series B convertible preferred stockholders
loaned the Company $1,000,000 bearing interest at 8%, due April 9, 1999. If
unpaid on the due date, the note was to convert into fully paid Series B
convertible preferred stock at a conversion price of $2.97 per share. On April
9, 1999, the principal amount of the loan plus accrued interest was converted
into 6,784 shares of Series B convertible preferred stock. The Company recorded
a finance charge of $2,656,000 representing the difference between the estimated
fair market value of the common stock (as if the 6,784 shares were converted) at
date of issuance and the $2.97 conversion price. Upon closing of the IPO, the
preferred stock was converted into 339,200 shares of common stock at 50 shares
of common stock for each share of convertible preferred stock.
Restricted Stock Grants
In August 1998, the Company entered into a Restricted Stock Grant Agreement
(the "Stock Agreement") with an employee of the Company (the "Grantee") that
provides for the issuance of restricted stock to the Grantee in accordance with
the 1997 Equity Compensation Plan (Note 4) in satisfaction of certain
obligations as described in an employment agreement between the Company and the
Grantee. The Company issued 207,000 shares of its common stock to the Grantee in
August 1998, subject to restrictions set forth in the Stock Agreement.
Restrictions lapsed on 138,000 shares during 1998 and the remainder lapsed in
1999. Total compensation expense recognized by the Company over the vesting
<PAGE>
period was $269,000 (based on estimated values from other transactions involving
sales of the Company's stock) of which $60,000 and $209,000 was recognized in
the year ended December 31, 1999 and the six month period ended December 31,
1998, respectively.
In March 1998, the Company entered into a Restricted Stock Grant Agreement
(the "Grant Agreement") with an officer of the Company (the "Officer") that
provided for the issuance of restricted stock to the Officer in accordance with
the 1997 Equity Compensation Plan (Note 4). On March 23, 1998, the Company
issued 454,170 shares of its common stock to the Officer for an aggregate
consideration of $236,168, which was paid by an interest-bearing promissory note
from the Officer. The Officer had a put right which required the Company to
repurchase the shares at the same price the Officer paid for the shares
including interest. Restriction lapsed as follows: 113,540 shares on July 1,
1998, and 9,460 shares on the first day of each month starting August 1, 1998
and ending July 1, 2001. In accordance with Emerging Issues Task Force 95-16,
this arrangement was accounted for as a variable plan which requires increases
or decreases in stock based compensation expense based on increases or decreases
in the fair market value of the Company's common stock. Compensation expense
recognized in accordance with FASB Interpretation No. 28 was approximately
$2,113,000, $460,000 and $88,000 for the year ended December 31, 1999, the six
months ended December 31, 1998 and the year ended June 30, 1998, respectively,
based on estimated values from other transactions involving sales of the
Company's stock.
On March 10,1999 the note receivable for the restricted stock grant to the
Officer was forgiven, the unvested shares (264,932) were effectively forfeited,
the Officer's put right was cancelled, and certain other changes were made.
Accordingly, "fixed" option accounting treatment was established on this date.
NOTE 4 - STOCK OPTION PLANS
1997 Equity Compensation Plan
During 1997, the Company adopted the 1997 Equity Compensation Plan (the
"Plan") to provide directors, officers, non-employee members of the Board of
Directors of the Company and certain consultants and advisors with the
opportunity to receive grants of incentive stock options, non-qualified stock
options and restricted stock. The Board of Directors has the sole authority to
determine who receives such grants, the type, size and timing of such grants,
and specify the terms of any noncompetition or other agreements relating to the
grants. The aggregate number of common shares that may be issued under the Plan
was 900,000. In January 1999, the Company amended the Plan to increase the
number of shares authorized to 1,500,000 shares. As of December 31, 1999 570,142
shares were available for grant under the Plan.
The exercise price of any option grant shall be determined by the Board of
Directors and may be equal to, greater than, or less than the fair market value
of the stock on the grant date. Provided, however, that the exercise price shall
be equal to or greater than the fair market value of the stock on the date of
grant and an option may not be granted to an employee who at the time of the
grant owns more than 10 % of the total combined voting power of all classes of
stock of the Company, unless the exercise price is not less than 110 % of the
fair market value of the stock on the date of the grant. Options granted
generally vest over four years, 25% after the first year and monthly thereafter
over the remaining three years, and expire ten years after the date of grant.
On March 2 and March 12, 1999, the Company granted 201,720 and 5,000 options,
respectively, under the Plan to purchase common stock at $2.97 per share. The
options vest over a 48 month period and, accordingly, the Company is recognizing
compensation expense of approximately $1,620,000 ratably over the vesting
period.
On April 12, 1999, the Board approved grants under the Plan for outside
directors of the Company. Under these grants, 80,000 options were granted on May
13, 1999 to purchase common stock at $13.00 per share. The options vest over 48
months and expire 10 years from date of grant, unless prohibited by the 1997
Plan.
1999 Equity Compensation Plan
In March 1999, the Company's stockholders approved the 1999 Equity
Compensation Plan (the "1999 Plan"), to provide designated employees of the
Company, certain consultants and non-employee members of the Board of Directors
with the opportunity to receive grants of incentive stock options, nonqualified
stock options and restricted stock. The 1999
<PAGE>
Plan is authorized to grant options for up to 1,500,000 shares. Options granted
generally vest over four years, 25% after the first year and monthly thereafter
over the remaining three years, and expire ten years after the date of grant. As
of December 31, 1999 541,500 shares were available for grant under the 1999
Plan.
In March 1999, the Company granted 358,500 options to an officer (the
"Officer") of the Company to purchase shares of common stock at $2.97 which vest
over a 36 month period. The Company is recognizing compensation expense of
approximately $2,807,000 ratably over the vesting period.
The per share weighted average fair value of stock options granted during the
year ended December 31, 1999 was between $9.70 and $13.00, and was between $0.40
and $1.30 for the six months ended December 31, 1998, and was approximately
$0.40 for the year ended June 30, 1998 on the date of grant using the
Black Scholes option pricing model. The following weighted average assumptions
were used: expected volatility of 100% in 1999 and 0% for the six months ended
December 31, 1998 and the year ended June 30, 1998, expected dividend yield of
0% for all periods presented, risk-free interest rates of 6.50% for the year
ended December 31, 1999 and 5.50% for the six months ended December 31, 1998 and
the year ended June 30, 1998, and expected lives of 5 years for all periods
presented. No options were granted in 1997.
Pro Forma Disclosures Under SFAS No. 123
The Company applies APB Opinion No. 25 in accounting for its Plan. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the net losses would have increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended Six months Ended Year Ended
December 31, 1999 December 31, 1998 June 30, 1998 June 30, 1997
----------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss applicable to common stock
As reported $ (33,769,330) $ (6,533,359) $ (2,782,493) $ (955,620)
Pro forma (35,429,943) (6,548,359) (2,792,493) (955,620)
Basic net loss per common share-as reported (3.34) (1.63) (0.72) (0.20)
Basic net loss per common share-pro-forma (3.50) (1.63) (0.73) (0.20)
</TABLE>
<PAGE>
Stock option activity during the year ended December 31, 1999, the six month
period ended December 31, 1998, and the years ended June 30, 1998 and 1997 is as
follows:
Number of Price Per Weighted Average
Shares Share Exercise Price
--------- ------------- ---------------
Balance, June 30, 1996 -- $ -- $ --
Granted -- -- --
Exercised -- -- --
Forfeited -- -- --
Expired -- -- --
--------- ------------- ----------
Balance, June 30, 1997 -- -- --
Granted 89,530 1.30 1.30
Exercised -- -- --
Forfeited -- -- --
Expired -- -- --
--------- ------------- ----------
Balance, June 30, 1998 89,530 1.30 1.30
Granted 102,750 1.30 1.30
Exercised -- -- --
Forfeited -- -- --
Expired -- --
--------- ----------
Balance, December 31, 1998 192,280 1.30
Granted 1,725,036 1.30 to 13.00 7.01
Exercised -- -- --
Forfeited (28,958) 1.30 to 13.00 6.63
Expired -- -- --
--------- ------------- ----------
Balance, December 31, 1999 1,888,358 $ 6.43
========= ===========
Additional information with respect to outstanding options as of December 31,
1999 is as follows:
Options Outstanding Options Exercisable
- --------------------------------------------------------- --------------------
Weighted Average Average Average
Number Remaining Exercise Number Exercise
Prices of Shares Contractual Life Price of Shares Price
- ------------ ---------- ---------------- ---------- --------- --------
$ 1.30 206,897 8.67 $ 1.30 69,711 $ 1.30
2.97 565,220 9.17 2.97 89,625 2.97
13.00 544,000 9.36 13.00 -- --
4.50-12.38 357,441 9.61 5.37 -- --
3.75-6.63 214,800 9.76 5.65 -- --
--------- -------
1,888,358 159,336
========= =======
NOTE 5 - ACQUISITIONS
CPNet.com
In January 1999, the Company acquired all of the assets of CPNet.com,
excluding cash and real or personal property leases, for $25,000 in cash and
stock options. An additional payment of $25,000 was made to the sellers in
January 2000. The transaction was accounted for using the purchase method of
accounting. The net assets acquired were estimated to be at fair market value.
The excess of the purchase price over the fair value of the net assets acquired
(approximately $50,000) was recorded as goodwill and is being amortized over 5
years, the expected
<PAGE>
benefit period. The sellers were employed by the Company and were granted 30,000
options under the 1997 Equity Compensation Plan with an exercise price of $1.30
which vest over a 48 month period. The Company will incur total compensation
expense of approximately $45,000 over the vesting period. CPNet.com's historical
statements of operations were not material to the Company.
Professional Direct Agency, Inc. ("Pivot")
On August 20, 1999, the Company acquired Pivot pursuant to a Stock Purchase
Agreement, dated August 20, 1999, by and between the Company, the shareholders
of Pivot and The Midland Life Insurance Company ("Midland"), a note and warrant
holder of Pivot (the "Agreement"), for approximately $4,744,000 including
acquisition costs. Pursuant to the Agreement, the Company acquired a 100%
interest in Pivot and as a result of the acquisition, Pivot became a
wholly-owned subsidiary. The transaction was accounted for using the purchase
method of accounting. The net assets acquired were estimated to be at fair
market value. The excess of the purchase price over the fair value of the net
assets acquired (approximately $4,609,000) was recorded as goodwill and is being
amortized over three years, the expected benefit period.
The total consideration paid in connection with the acquisition consisted
of $290,000 in cash paid to the Pivot shareholders and a $4,350,000 five-year
convertible subordinated note to Midland. The note bears interest at 10% and is
due in one payment on August 20, 2004. Interest is due beginning on August 20,
2002 and thereafter every six months until conversion or payment in full. The
note is convertible at any time by Midland into 625,000 shares of our common
stock. The Company has the right to require conversion beginning any time after
the earlier of (1) August 20, 2000 or (2) the date that the Company files a
registration statement under the Securities Act of 1933, as amended (the "Act"),
registering the conversion shares for sale under the Act; provided that, within
the 55-day period immediately prior to the date the Company notifies Midland of
the required conversion, the closing price of our common stock has been at least
$10.00 per share for at least twenty consecutive trading days.
Pivot is an Internet and direct agency for term life and other insurance
products through its interactive web site www.pivot.com.
Green Magazine, Inc. ("Green")
On August 27, 1999, the Company acquired certain assets and assumed certain
liabilities of Green pursuant to an Asset Purchase Agreement, dated August 27,
1999, by and among the Company, Green, Kenneth A. Kurson, John F. Packel and
James Michaels (the "Agreement"), for approximately $831,000 including
acquisition costs. Pursuant to the Agreement, the Company acquired the rights to
all agreements, contracts, commitments, licenses, copyrights, trademarks and the
subscriber/customer list of Green. Kenneth A. Kurson and John F. Packel were
also employed by the Company. The total consideration paid was approximately
$784,000 consisting of $200,000 in cash and 100,000 unregistered shares of the
Company's common stock valued at approximately $584,000. The transaction was
accounted for using the purchase method of accounting. The net assets acquired
were estimated to be at fair market value. The excess of the purchase price over
the fair value of the net assets acquired (approximately $883,000) was recorded
as goodwill and is being amortized over three years, the expected benefit
period.
Green delivers personal finance and investment advice through its magazine
publication, through Kenneth A. Kurson's appearances on national broadcast media
and through its interactive web site www.greenmagazine.com.
---------------------
Supplemental Pro Forma Information (Unaudited)
The following unaudited pro forma condensed consolidated results of
operations for ilife.com, Pivot and Green are presented as if the acquisitions
had occurred at the beginning of each period presented. These results are not
necessarily indicative of the actual results that would have occurred if these
acquisitions had taken place at the beginning of each period presented. For the
year ended December 31, 1998 Pivot's year ended June 30, 1999 statement of
operations was utilized since Pivot began operations in June 1998 (twelve month
period included).
<PAGE>
Year Ended December 31,
1999 1998
------------ ------------
Revenue $ 12,175,117 $ 5,682,357
Cost of operations 45,473,396 14,518,454
Loss from operations (33,298,279) (8,836,097)
Net loss (37,683,498) (13,510,694)
Basic and diluted net loss per share $ (3.70) $ (3.36)
Weighted average shares 10,213,928 4,025,597
The following adjustments were made to the historical statements of
operations to arrive at the unaudited pro forma condensed consolidated results
of operations shown above.
Pivot
(A) Eliminate interest expense on the loan payable to the former note and
warrant holder.
(B) Record goodwill amortization.
(C) Interest expense on convertible subordinated note payable to the former note
and warrant holder.
Green
(A) Record goodwill amortization.
(B) Record additional shares of common stock issued.
<PAGE>
NOTE 6 - FINANCIAL STATEMENT DETAILS
Furniture, Fixtures and Equipment-
Furniture, fixtures and equipment consist of the following:
December 31,
1999 1998
----------- -----------
Furniture and fixtures $ 481,527 $ 159,674
Computers and software, including assets under
capital leases of $694,721 and $379,887 at
December 31, 1999 and 1998, respectively 1,640,422 872,163
Equipment, including assets under capital leases
$17,950 at December 31, 1999 and 1998 947,921 108,417
Leasehold improvements 291,381 12,879
Land 63,354 --
----------- -----------
3,424,605 1,153,133
Less: accumulated depreciation and amortization,
including amounts related to assets under capital
leases of $253,134 and $31,194 at December 31, 1999
and 1998, respectively (936,211) (339,474)
----------- -----------
$ 2,488,394 $ 813,659
=========== ===========
Intangible Assets-
Intangible assets consist of the following:
December 31,
1999 1998
----------- -----------
Goodwill $ 5,558,832 $ --
Trademarks and URL's 177,973 5,550
Other 151,995 151,995
----------- -----------
5,888,800 157,545
Less: accumulated amortization (837,427) (152,976)
----------- -----------
$ 5,051,373 $ 4,569
=========== ===========
Amortization expense was $712,780, $543, $5,937and $8,960 for the year ended
December 31, 1999, the six month period ended December 31, 1998 and the years
ended June 30, 1998 and 1997, respectively.
<PAGE>
Other Assets-
Other assets consist of the following:
December 31,
1999 1998
---------- ---------
Restricted cash - letter of credit $ 436,905 $ --
Computers and software deposits 998,582 --
Deposits 118,767 --
---------- ---------
$1,554,254 $ --
========== =========
Restricted cash represents a prime money market account securing a ten year
irrevocable letter of credit required as a deposit on the lease of our new
corporate headquarters facility (Note 10) and rent escrow deposits.
Other Accrued Expenses-
Other accrued expenses consist of the following:
December 31,
1999 1998
---------- ----------
Accrued payroll and related benefits $ 330,466 $ 132,465
Vacation 259,419 129,050
Sales commissions 311,356 135,909
Marketing 4,612,254 --
Partner payments 140,231 71,068
Professional fees 503,384 --
Other 13,157 119,720
---------- ----------
$6,170,267 $ 588,212
========== ==========
NOTE 7 - SALE OF PUBLICATION
In December 1998, the Company sold substantially all of the assets, including
the intellectual property of one of its newsletters, Bank Advertising News. The
newsletter was sold for $125,000 in cash and assumed liabilities of
approximately $80,000. The gain on the sale was $185,588, net of $16,524 of
selling expenses, and has been recorded in other income.
Revenue for Bank Advertising News for the six month period ended December 31,
1998 and the year ended June 30, 1998 was $82,953 and $178,270, respectively.
Cost of operations for Bank advertising News for the six month period ended
December 31, 1998 and the year ended June 30, 1998 $53,138 and $57,445,
respectively. Net liabilities of Bank Advertising News at the date of sale were
approximately $80,000.
NOTE 8 - INCOME TAXES
The Company did not record any income tax expense during the year ended June
30, 1997 because it was operating as an S corporation. There was no pro forma
provision for income taxes for that year since the Company reported an operating
loss. The Company did not record any income tax expense or benefit for the year
ended December 31, 1999, the six months ended December 31, 1998 and the year
ended June 30, 1998 due to the losses incurred.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities consist of the following:
<PAGE>
<TABLE>
<CAPTION>
Six Months
Year Ended Ended Year Ended
December 31, December 31, June 30,
1999 1998 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Deferred Tax Assets
Net operating loss carryforward $ 12,276,287 $ 1,983,228 $ 1,196,975 $ 9,811
Intangible assets and other 253,712 143,438 143,438 127,667
Allowance for doubtful accounts 88,431 9,350 9,011 --
Deferred compensation 436,248 -- -- --
------------ ------------ ------------ ------------
Total gross deferred tax assets 13,054,678 2,136,016 1,349,424 137,478
Less valuation allowance (12,984,981) (2,136,016) (1,349,424) (137,478)
------------ ------------ ------------ ------------
Net deferred tax assets 69,697 -- -- --
Deferred Tax Liabilities
Depreciation (69,697) -- -- --
------------ ------------ ------------ ------------
$ -- $ -- $ -- $ --
============ ============ ============ ============
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1999 and
1998, and as of June 30, 1998 and 1997 was $12,984,981, $2,136,016, $1,349,424
and $137,478, respectively. The net change in the total valuation allowance for
the year ended December 31, 1999, the six month period ended December 31, 1998
and the years ended June 30, 1998 and 1997, was an increase of $10,848,965,
$786,592, $1,211,946 and $137,478, respectively. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred income tax liabilities,
projected future taxable income and tax planning strategies in making this
assessment.
An increase in the valuation allowance offset the deferred tax asset caused
by net operating losses which are not currently useable. This increase generates
the principal differences between the expected amounts of tax benefits computed
by applying the statutory Federal income tax rate to the Company's loss before
income taxes for the year ended December 31, 1999, the six month period ended
December 31, 1998 and the year ended June 30, 1998. The Company recorded no tax
benefit for these periods.
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $32,624,000 which expire beginning in 2012 through 2019. The
amount of net operating loss carryforwards may be limited if the Company has an
ownership change. In the event of an ownership change, the amount of taxable
income of a loss corporation for any postchange year which may be offset by
prechange losses shall not exceed the Internal Revenue Code Section 382
limitation for such year. Generally, an ownership change occurs if a 5%
stockholder or any equity structure shift increases the percentage of the stock
of the loss corporation owned by more than 50 percentage points over the lowest
percentage of stock of the loss corporation owned by such stockholders at any
time during a three-year look back testing period. The Section 382 limitation is
equal to the value of the old loss corporation (before the ownership change)
multiplied by the Federal long-term tax-exempt rate.
NOTE 9 - OTHER RELATED PARTY TRANSACTIONS
The Company leases office space in North Palm Beach, Florida from Bombay
Holdings, Inc. ("Bombay") which is wholly owned by Peter C. Morse ("Morse"), a
director and majority stockholder. Total rent paid to Bombay for the year ended
December 31, 1999, the six month period ended December 31, 1998, and the years
ended June 30, 1998 and 1997 was $265,815, $99,192, $164,552 and $85,591,
respectively.
<PAGE>
Morse has from time to time advanced capital to the Company. Such loans for
the year ended December 31, 1999, the six month period ended December 31, 1998
and the years ended June 30, 1998 and 1997 amounted to $0, $0, $200,000 and
$687,000, respectively. Interest rates for the loans were 6.5% - 7%. During
1997, certain stockholder loans were contributed to capital ( Note 3).
Morse Partners, Ltd., a partnership controlled by Morse, advanced the
Company $138,750 during 1997 which has since been repaid.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Leases
Bombay is wholly owned by Morse. The Company leases office space in North
Palm Beach, Florida from Bombay under the terms of lease agreements dated May 1,
1994 (amended July 28, 1998) and January 31, 1999. Both leases expire on August
31, 2000 and require the Company to pay a percentage of the common maintenance
charges. The lease payments are subject to an annual increase based on the
consumer price index of the Fort Lauderdale/Miami region.
Additional office space is leased in North Palm Beach, Florida under the
terms of a lease agreement dated July 17, 1999 which expires on September 17,
2000. Office space is leased in Miami, Florida under the terms of lease
agreements dated December 15, 1998 (amended July 8, 1999) expiring December 31,
2001, and an apartment is leased under the terms of a lease dated June 1 1999
expiring May 31, 2000. The Company leases office space in New York City under
the terms of a lease entered into on October 7, 1999 expiring September 30,
2006. Pivot leases office facilities in Columbus, Ohio under the terms of a
three year lease entered into on September 18, 1998. Facilities leased in Los
Angeles, California are on a month-to-month basis.
A lease agreement for new corporate office facilities to be constructed by
the lessor in Jupiter, Florida was entered into on September 27, 1999. The lease
term is ten years from occupancy, which is estimated to be sometime between
September 15 and November 30, 2000, with two five year renewal options. We
provided a $300,000 ten year irrevocable letter of credit to the lessor as a
security deposit (Note 6). Upon signing the lease agreement, a purchase
agreement was also executed on an adjoining 2.15 acre tract of land for
approximately $609,000. A $60,000 security deposit was paid with closing
expected by mid April 2000. This agreement provides that we may sell the
property back to the developer within 24 months of breaking ground on the
facility described above at our cost. The developer would then construct an
additional facility and lease it back to us at the same rental rate as the
original facility. After the 24 months expires, the property is not encumbered
by any other provisions.
Total rent expense for the year ended December 31, 1999, the six month period
ended December 31, 1998, and the years ended June 30, 1998 and 1997 amounted to
$485,718, $109,872, $164,552 and $85,591, respectively.
Future minimum lease payments under non-cancelable operating leases and
future minimum capital lease payments as of December 31, 1999 were:
<TABLE>
<CAPTION>
Operating Capital
Year Ending December 31, Leases Leases
----------- -----------
<S> <C> <C>
2000 $ 827,866 $ 281,633
2001 1,007,592 232,295
2002 844,244 40,504
2003 851,541 12,606
2004 857,545 --
Thereafter 4,452,122 --
----------- -----------
Total minimum lease payments $ 8,840,910 567,038
===========
Less amount representing interest at rates ranging from 3.94% to 23.23% (52,618)
-----------
Present value of net minimum capital lease payments 514,420
Less current installments (229,740)
-----------
Obligations under capital leases, excluding current installments, included in other liabilities $ 284,680
===========
</TABLE>
<PAGE>
Distribution Agreements
The Company has various agreements with advertisers, content providers and
other web sites that require it to feature such parties exclusively in certain
sections of its Internet sites.
Legal Proceedings
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity. See also Note
13 - Subsequent Events.
NOTE 11 - SEGMENT INFORMATION
The Company has business divisions: online publishing, print publishing and
licensing and insurance sales. The online publishing division is primarily
engaged in the sale of advertising, sponsorships, and hyperlinks in connection
with our Internet web sites bankrate.com, theWhiz.com, IntelligentTaxes.com,
GreenMagazine.com, Consejero.com and CPNet.com. In accordance with SFAS No. 131
bankrate.com, theWhiz.com and Consejero.com constitute segments and have been
accordingly disclosed. The print publishing and licensing division is primarily
engaged in the sale of advertising in the Consumer Mortgage Guide rate tables,
newsletter subscriptions and licensing of research information. We also charge a
commission for the placement of the Consumer Mortgage Guide in a print
publication. The insurance division operates through a virtual insurance agency
and fulfillment/call center specializing in direct insurance sales on the
Internet and through other direct media. The accounting policies are the same as
those described in Summary of Significant Accounting Policies in Note 2. The
Company evaluates the performance of its operating segments based on
contribution margin. Corporate is allocated between the operating segments based
on percentages of revenue and headcount.
Although no one customer accounted for more than 10% of total revenue for the
year ended December 31, 1999 and for the six month period ended December 31,
1998, the five largest customers accounted for approximately 14% and 18%,
respectively, of total revenue for those periods.
Summarized segment information as of December 31, 1999 and 1998, and for the
year and six month period ended December 31, 1999 and 1998, respectively, is
presented below.
<TABLE>
<CAPTION>
Year ended December 31, 1999
Online Publishing
bankrate.com theWhiz.com Consejero.com Other
------------ ----------- ------------- -----
<S> <C> <C> <C> <C>
Revenue $ 8,133,734 $ 304,049 $ 8,036 $ 51,086
Contribution margin (5,970,071) (2,972,618) (2,209,843) (701,817)
Sales - - - -
Product research - - - -
General and administrative expenses - - -
Depreciation and amortization - - - 28,124
Noncash stock based compensation - - - -
Noncash financing charge - - - -
Other - - - -
Net loss (5,970,071) (2,972,618) (2,209,843) (729,941)
Total assets - - - 784,993
Capital expenditures 936,430 35,005 925 5,881
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1999
Print
Publishing
and Licensing Pivot Other Total
------------- ----------- ----- -----
<S> <C> <C> <C> <C>
Revenue $ 3,472,780 $ 147,827 $ - $ 12,117,512
Contribution margin 1,085,653 (1,518,442) - (10,708,414)
Sales - - 2,850,668 2,850,668
Product research - - 2,984,283 2,984,283
General and administrative expenses - - 7,206,075 7,206,075
Depreciation and amortization - 621,350 579,897 1,229,371
Noncash stock based compensation - - 3,305,104 3,305,104
Noncash financing charge - - 2,656,000 2,656,000
Other - - - 548,415
Net loss 1,085,653 (2,139,792) (19,582,027) (31,488,330)
Total assets - 4,742,776 27,933,988 33,461,757
Capital expenditures 399,818 17,019 - 1,395,079
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1998
Online Publishing
bankrate.com theWhiz.com Consejero.com Other
------------ ----------- ------------- -----
<S> <C> <C> <C> <C>
Revenue $ 1,772,360 $ 33,176 $ 3,341 $ -
Contribution margin 517,235 (257,074) (109,166) -
Sales - - - -
Product research - - - -
General and administrative
expenses - - - -
Depreciation and
amortization - - - -
Noncash stock based
compensation - - - -
Other - - - -
Net loss 517,235 (257,074) (109,166) -
Total assets - - - -
Capital expenditures - - - -
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1998
Print
Publishing
and Licensing Pivot Other Total
------------- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue $1,660,314 $ - $ - $ 3,469,191
Contribution margin 558,441 - 381,670 1,091,106
Sales - - 817,403 817,403
Product research - - 915,961 915,961
General and administrative
expenses - - 871,057 871,057
Depreciation and
amortization - - 98,491 98,491
Noncash stock based
compensation - - 669,000 669,000
Other - - 185,588 185,588
Net loss 558,441 - (2,804,654) (2,095,218)
Total assets - - 3,099,352 3,099,352
Capital expenditures - - 380,000 380,000
</TABLE>
<PAGE>
NOTE 12 - SUBSEQUENT EVENTS (Unaudited)
On February 25, 2000 the Company announced that William P. Anderson resigned
as its President and Chief Executive Officer and as a director. Under the terms
of his Executive Employment Agreement entered into on March 10, 1999, Mr.
Anderson will receive cash compensation totaling approximately $150,000 and will
continue to vest in his stock options through November 15, 2000, which will
result in a noncash charge of approximately $860,000. Both the cash charge
($150,000) and the noncash charge ($860,000) will be recorded in the quarter
ended March 31, 2000. Further, in accordance with the terms of his agreement, if
there is a change in control of the Company prior to November 15, 2000, Mr.
Anderson would immediately vest in 100% of the remaining unvested shares and
accordingly, a noncash charge would be recorded at that time.
On March 28, 2000, a class-action lawsuit was filed against the Company in
the United States District Court for the Southern District of New York. The suit
alleges that the Company violated federal securities laws by, among other
things, misrepresenting and/or omitting material information concerning our
results for the quarter ended March 31, 1999 in our registration statement filed
with the Securities and Exchange Commission in connection with our initial
public offering. The complaint was filed by a single stockholder purportedly on
behalf of all stockholders who purchased shares of our stock during the period
from May 13, 1999 through March 27, 2000. The Company contends that the loss for
the quarter ended March 31, 1999 was properly disclosed. The Company intends to
vigorously defend against the lawsuit. In the opinion of management, the
ultimate disposition of this matter will not have a material adverse effect on
the Company's financial position, results of operations or liquidity.
On April 5, 2000 Jeff M. Cunningham was appointed to the Company's Board of
Directors as non-executive chairman. In accordance with the terms of a Stock
Purchase Plan and Subscription Agreement entered into as of that date, Mr.
Cunningham subscribed to purchase 431,499 shares of the Company's common stock
for $997,841 in cash, or $2.3125 per share which was the closing price per share
of the Company's common stock on April 5, 2000. In addition, on April 5, 2000
Mr. Cunningham was granted stock options under the 1999 Equity Compensation Plan
to purchase 141,905 at $4.50 per share and 125,622 shares at $3.75 per share.
The options vest over a 24 month period. The company will recognize compensation
expense of approximately $217,000 over the vesting period.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In accordance with General Instruction G(3) of the Form 10-K, the information
relating to the directors of ilife.com, including directors who are executive
officers of ilife.com, is set forth in ilife.com's Proxy Statement for the 2000
Annual Meeting of Shareholders (the "Proxy Statement") and is incorporated
herein by reference. Pursuant to Instruction 3 of Item 401(b) of Regulation S-K
and General Instruction G(3) of Form 10-K, information relating to the executive
officers of ilife.com is set forth under the caption "Executive Officers of the
Registrant" in Part I, Item 4A of this report.
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934:
Section 16(a) of the Securities Exchange of 1934, as amended, and regulations of
the Securities and Exchange Commission thereunder require ilife.com's directors
and executive officers and any persons who own more than 10% of ilife.com's
Common Stock, as well as certain affiliates of such persons, to file reports
with the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. with respect to their ownership of ilife.com's Common
Stock. Directors, executive officers and persons owning more than 10% of
ilife.com's Common Stock are required by Securities and Exchange Commission
regulations to furnish ilife.com with copies of all Section 16(a) reports they
file. Based solely on its review of the copies of such reports received by it
and written representations that no other reports were required of those
persons, ilife.com believes that during fiscal 1999, all filing requirements
applicable to its directors and executive officers were complied with in a
timely manner except that Peter C. Morse filed a late Form 4 and the following
persons filed a late Form 3: Edward V. Blanchard, Patricia Davis, David C.
Florian, Paul R. Hederman, Lou H. Hensley, Joseph W. Jones, Kenneth A. Kurson,
John F. Packel, Elizabeth Sensky and Procopia T. Skoran. Ilife.com is not aware
of any other persons other than directors and executive officers and their
affiliates who own more than 10% of ilife.com's Common Stock.
ITEM 11. EXECUTIVE COMPENSATION
In accordance with General Instruction G(3) of Form 10-K, the information
relating to executive compensation is set forth in the Proxy Statement and is
incorporated herein by reference; provided, such incorporation by reference
shall not be deemed to include or incorporate by reference the information
referred to in Item 402 (a)(8) of Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In accordance with General Instruction G(3) of Form 10-K, the information
relating to security ownership by certain persons is set forth in the Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with General Instruction G(3) of Form 10-K, the information
relating to certain relationships and related transactions is set forth under
the caption "Related Party Transactions" in the Proxy Statement and is
incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) Financial Statements.
See Index to Financial Statements under Item 8.
(2) Financial Statement Schedule.
All financial statement schedules have been omitted since the
required information is not material or is included in the consolidated
financial statements or notes thereto.
(3) Exhibits.
The following exhibits are filed with or incorporated by reference
in this report. Where filing is made by incorporation by reference to a
previously filed registration statement or report, such registration statement
or report is identified in parenthesis. Ilife.com will furnish any exhibit upon
request to Peter W. Minford, Secretary, ilife.com, Inc., 11811 U.S. Highway One,
Suite 101, North Palm Beach, Florida 33408.
3.1 Amended and Restated Articles of Incorporation.(1)
3.2 Articles of Amendment to Amended and Restated Articles of Incorporation.*
3.3 Amended and Restated Bylaws.(1)
4.1 See exhibits 3.1 and 3.3 for provisions of the Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws of the
registrant defining rights of the holders of common stock of the
registrant.
4.2 Specimen Stock Certificate.(1).
10.1 Lease Agreement dated May 1, 1994, between the registrant and Bombay
Holdings, Inc. as amended.(1)
10.2 Lease Agreement dated October 6, 1997, between the registrant and Bombay
Holdings, Inc.(1)
10.3 Lease Agreement dated January 31, 1999, between the registrant and Bombay
Holdings, Inc.(1)
10.4 Professional Employer Agreement dated February 25, 1999, between the
registrant and Viacom Human Resources, Inc.(1)
10.5 ilife.com, Inc. 1997 Equity Compensation Plan.(1)
10.6 ilife.com, Inc. 1999 Equity Compensation Plan.(1)
10.7 Form of Stock Option Agreement under the 1997 Equity Compensation
Plan.(1)
10.8 Promissory Note, dated March 9, 1999, executed by the registrant and
payable to Antares Capital Fund II Limited Partnership.(1)
10.9 Cancellation and Stock Repurchase Agreement, dated as of March 10, 1999,
by the registrant in favor of William P. Anderson, III.(1)
10.10 Agreement of Cancellation and Release, dated as of March 10, 1999,
between the registrant and William P. Anderson, III.(1)
10.11 Incentive Stock Option Grant Agreement, dated as of March 10, 1999,
between the registrant and William P. Anderson, III.(1)
10.12 Executive Employment Agreement, dated as of March 10, 1999, between
ilife.com and William P. Anderson, III.(1)
<PAGE>
10.13 Stock Purchase Agreement dated August 20, 1999, by and between the
registrant, the shareholders of Professional Direct Agency, Inc., and The
Midland Life Insurance Company.(2)
10.14 Asset Purchase Agreement dated August 27, 1999, by and among the
registrant, Green Magazine, Inc., Kenneth A. Kurson, John F. Packel, and
James Michaels.(3)
10.15 Lease Agreement dated September 27, 1999 between WK3 Investors, LTD and
registrant.*
10.16 Purchase and Sale Agreement dated September 27, 1999 by and between
registrant and Workplace Holdings, LTD.*
21 Subsidiaries of the Registrant.*
23.1 Consent of KPMG LLP.*
23.2 Consent of Thomas & Clough Co., P.A..*
27 Financial Data Schedule.*
- -----------------------------
* Filed herewith.
(1) The Exhibit is incorporated by reference to the exhibit filed in response to
Item 16(a), "Exhibits" of the registrant's Registration Statement on Form
S-1 (File No. 333-74291) declared effective on May 13, 1999.
(2) The Exhibit is incorporated by reference to Exhibit 2.1 included with the
registrant's Current Report on Form 8-K filed on August 27, 1999.
(3) The Exhibit is incorporated by reference to Exhibit 2.1 included with the
registrant's Current Report on Form 8-K filed on September 10, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of the 14th day of
April, 2000.
ILIFE.COM, INC.
By: /s/ G. Cotter Cunningham
-------------------------
G. Cotter Cunningham
Interim President and Chief
Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ G. Cotter Cunningham Interim President, April 14, 2000
- ------------------------ Chief Executive Officer
G. Cotter Cunningham (Principal Executive Officer)
/s/ Peter W. Minford Senior Vice President - Administration April 14, 2000
- ------------------------
Peter W. Minford
/s/ Robert J. DeFranco Vice President-Finance and April 14, 2000
- ------------------------ Chief Accounting
Robert J. DeFranco Officer
Chairman of the Board ________, 2000
- ------------------------
Jeff M. Cunningham
/s/ Bruns H. Grayson Director April 14, 2000
- ------------------------
Bruns H. Grayson
/s/ Peter C. Morse Director April 14, 2000
- ------------------------
Peter C. Morse
/s/ Robert P. O'Block Director April 14, 2000
- ------------------------
Robert P. O'Block
/s/ Randall E. Poliner Director April 14, 2000
- ------------------------
Randall E. Poliner
</TABLE>
<PAGE>
EXHIBIT 3.2
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
INTELIGENT LIFE CORPORATION
Pursuant to the provisions of Section 607.1006, Florida Statutes (the
"Code"), the undersigned hereby submits the following Articles of Amendment to
the Amended and Restated Articles of Incorporation of Intelligent Life
Corporation:
I.
The name of the corporation is Intelligent Life Corporation (the
"Corporation").
II.
Article One of the Corporation's Amended and Restated Articles of
Incorporation is hereby amended to read in its entirety as follows:
"ARTICLE I
Name
----
The name of the Corporation is ilife.com, Inc.
III.
The foregoing amendment was duly adopted by the board of directors of the
Corporation on November 5, 1999 without shareholder action. Shareholder action
was not required.
IN WITNESS WHEREOF, the undersigned duly authorized officer of the
Corporation has executed these Articles of Amendment to Restated Articles of
Incorporation on the 5th day of November, 1999
Intelligent Life Corporation
By: /s/ William P. Anderson, III
----------------------------
William P. Anderson, III
President & Chief Executive Officer
<PAGE>
EXHIBIT 10.15
LEASE AGREEMENT
Dated as of September 27, 1999
Between: WK3 INVESTORS, LTD.
as Landlord
and: INTELLIGENT LIFE CORPORATION,
as Tenant
<PAGE>
TABLE OF CONTENTS
PROVISIONS PAGE
1. RENT................................................ 2
2. COMMENCEMENT OF LEASE TERM; EXTENSION OPTIONS....... 3
3. PREMISES; COMMON AREAS; PARKING..................... 4
4. PREPARATION OF PREMISES; POSSESSION; RELOCATION..... 4
5. COMMON AREA MAINTENANCE COSTS....................... 5
6. PUBLIC UTILITIES.................................... 6
7. TAXES AND ASSESSMENTS............................... 6
8. REPAIRS AND MAINTENANCE............................. 7
9. ALTERATIONS......................................... 7
10. AFFIRMATIVE COVENANTS............................... 8
11. NEGATIVE COVENANTS OF TENANT........................ 9
12. HAZARDOUS WASTE DISPOSAL............................ 10
13. RIGHTS OF LANDLORD.................................. 12
14. DAMAGE TO PREMISES.................................. 12
15. INDEMNIFICATION AND INSURANCE REQUIREMENTS.......... 13
16. WAIVER OF CLAIMS BY TENANT.......................... 14
17. FIXTURES............................................ 14
18. ASSIGNING AND SUBLETTING............................ 15
19. SUBORDINATION; ATTORNMENT........................... 15
20. PERFORMANCE OF TENANT'S COVENANTS................... 16
21. CUSTOM AND USAGE; NO WAIVER......................... 17
22. SURRENDER AND HOLDING OVER.......................... 17
23. ADDITIONAL CONSTRUCTION............................. 17
24. CONDEMNATION........................................ 17
25. FORCE MAJEURE....................................... 18
26. ESTOPPEL STATEMENT.................................. 18
27. EVENTS OF DEFAULT................................... 18
28. LANDLORD'S REMEDIES UPON DEFAULT BY TENANT.......... 19
29. LETTER OF CREDIT.................................... 23
30. AUTHORITY........................................... 24
31. LIABILITY OF LANDLORD............................... 22
32. LEGAL EXPENSES...................................... 22
33. LAND DOCUMENTS; RULES AND REGULATIONS............... 22
34. TIME OF THE ESSENCE................................. 22
35. QUIET ENJOYMENT..................................... 22
36. SIGNS............................................... 23
37. SCOPE AND INTERPRETATION OF AGREEMENT............... 23
38. INVALID PROVISIONS.................................. 23
39. CAPTIONS............................................ 23
40. SUCCESSORS AND ASSIGNS.............................. 23
41. NOTICES............................................. 23
42. USE OF PREMISES..................................... 24
43. GENERAL PROVISIONS GOVERNING TENANT'S IMPROVEMENTS.. 24
44. WAIVER OF JURY TRIAL................................ 25
45. INSOLVENCY OR BANKRUPTCY............................ 25
46. NO REPRESENTATIONS; NO OFFER........................ 26
47. BROKERS............................................. 26
48. EXHIBITS............................................. 26
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is made as of the 27th day of September, 1999,
by and between WK3 INVESTORS, LTD., a Florida limited partnership (herein called
"Landlord"), and INTELLIGENT LIFE CORPORATION, a Florida corporation (herein
called "Tenant").
WITNESSETH:
A. Landlord intends to acquire title to certain real property located within
Tract WK3 of the Abacoa development in the Town of Jupiter, Palm Beach County,
Florida, which real property is more particularly described on Exhibit "A"
attached hereto and which is a parcel of approximately 4.35 acres (the "Project
Site"), and which is owned by The John D. and Catherine T. MacArthur Foundation,
a Illinois not-for-profit corporation, and is under option to Workplace
Holdings, Ltd., a Florida limited partnership that is under common control with
Landlord; and
B. Landlord intends to construct on the Project Site a two (2) story office
building (the "Project"); and
C. Subject to the terms and conditions of this Lease, Landlord has agreed to
lease to Tenant, and Tenant has agreed to lease from Landlord, all of the
rentable square footage of the Project, which is 40,000 rentable square feet
(collectively, the "Premises); and
D. Adjacent to the Project Site is a parcel of approximately 2.15 acres of
land (the "Adjacent Site"), which is being purchased by Tenant from an affiliate
of Landlord simultaneously with commencement of construction of the Project
subject to the reserved right of the seller to develop another project for
Tenant upon the Adjacent Site during the twenty four (24) month period from and
after the commencement of construction of the Project; and
E. Landlord and Tenant desire to set forth herein the terms and conditions of
their agreement, including (without limitation), the terms and conditions under
which Tenant will take possession of and occupy the Premises:
NOW, THEREFORE, for and in consideration of, and subject to the terms and
conditions of, the covenants and agreements hereafter reserved and contained on
the part of Landlord and Tenant to be observed and performed, including (without
limitation) the rents to be paid by Tenant to Landlord, Landlord demises and
leases the Premises to Tenant, and Tenant rents the Premises from Landlord.
[CONTINUED WITH LEASE SUMMARY BEGINNING ON THE FOLLOWING PAGE]
Page 1
<PAGE>
LEASE SUMMARY
(a) "Landlord's Address": 222 Lakeview Avenue, Suite 1700
West Palm Beach, Florida 33401
Attn.: Vice President
(b) "Tenant's Address":
(prior to commencement) 11811 U.S. Highway One, Suite 101
North Palm Beach, Florida 33408
Attn: ____________________
(after commencement) The Premises
(c) Tenant's Trade Name: Intelligent Life
(d) Square Footage: 40,000 rentable square feet. The rentable square
footage as set forth in this Lease shall be used in the calculation of rent
and other sums as applicable under this Lease.
(e) "Commencement Date": Except as otherwise provided in Section 4 of the
Lease Provisions, the Commencement Date of this Lease shall be the date of
issuance by the applicable governmental authority of a certificate of
completion for the building shell of the Project.
(f) "Lease Term": Ten (10) years from the Commencement Date. Tenant shall
have the option to renew this Lease for two (2) additional terms of five (5)
years each.
(g) "Base Rent": Base Rent for the first "Lease Year" (as defined in
Section 1(b) below) shall be Six Hundred Sixty Thousand and 00/100 Dollars
($660,000.00), which is equal to Sixteen and 50/100 Dollars ($16.50) per
rentable square foot per annum, payable in equal monthly installments of
$55,000.00. Base Rent shall be adjusted thereafter in accordance with the
following schedule:
Lease Year Base Rent Base Rent per Rentable Square Foot
------------ ----------- ----------------------------------
Two $660,000.00 $16.50
Three-Five $680,000.00 $17.00
Six-Eight $720,000.00 $18.00
Nine-Ten $760,000.00 $19.00
Eleven-Twelve $820,000.00 $20.50
Thirteen-Fifteen $850,000.00 $21.25
Sixteen-Eighteen $880,000.00 $22.00
Nineteen-Twenty $920,000.00 $23.00
In each instance, Base Rent shall be payable in equal monthly installments.
(h) Sales Tax: Tenant will pay all sales, use and other taxes (except
Landlord's income taxes), charges and/or impositions on the Base Rent,
Additional Rent and any and all other amounts paid under this Lease.
Page 2
<PAGE>
(i) "Security Deposit": $300,000.00, in the form of a letter of credit in the
form of Exhibit "F" hereto and issued by a bank acceptable to Landlord in its
reasonable discretion and otherwise in accordance with Section 29 of the Lease
Provisions.
(j) "Permitted Use": Operation of a business office.
(k) "Improvement Allowance": $25.00 per rentable square foot.
(l) "Additional Improvement Allowance": $100,000.00 for an emergency
generator and data center.
(m) "Design Allowance": $120,000.00 for interior space plan and design.
[CONTINUED WITH LEASE PROVISIONS BEGINNING ON THE FOLLOWING PAGE]
Page 3
<PAGE>
LEASE PROVISIONS
1. RENT
(a) This is a pure "Net Lease". All Base Rent payments, together with
Tenant's Operating Expense obligations (as defined below) and any other payments
or charges that may be due or payable under this Lease (collectively,
"Additional Rent"), shall be due and payable, without notice and without offset,
abatement or deduction, at Landlord's Address or at such other place as may be
designated in writing by Landlord, in advance without demand, on the first day
of each month during the term of this Lease, together with applicable sales tax
on all such payments. In the event any amounts due hereunder have not been paid
by the fifth (5th) day of the applicable month, Tenant shall pay $100.00 as a
late fee to cover Landlord's administrative costs, and all unpaid amounts shall
bear interest from the first day of the month at the lesser of eighteen percent
(18%) per annum or the maximum rate allowed by law. Notwithstanding the
foregoing, Landlord agrees that, not more than twice in any consecutive twelve
(12) month period, Landlord or its agent shall give Tenant written notice of any
overdue Rent and Tenant shall not be in default, and no interest or late fee
shall be due with respect to such overdue Rent, provided that Tenant pays the
overdue Rent within seven (7) days following the date of deemed delivery of the
notice in accordance with Section 41 of this Lease. After Rent is overdue more
than twice in any consecutive twelve (12) month period, Tenant shall be in
default without any prior notice from Landlord or its agent, and interest and
late fees shall be due with respect to such overdue Rent as provided in this
subsection. Adjustments to the Base Rent shall be made annually as provided in
subsection (b) below. The term "Rent" as used in this Lease shall include both
Base Rent and Additional Rent. Tenant's obligations to pay Rent under this Lease
are completely independent of any of Landlord's obligations under this Lease.
(b) Each twelve (12) month period commencing on the Commencement Date
or any anniversary thereof is referred to in this Lease as a "Lease Year";
provided that, if the Commencement Date is other than the first day of a
calendar month, then the first Lease Year shall include such partial month
together with the next succeeding twelve (12) months, and each succeeding Lease
Year shall begin on the first day of the calendar month that corresponds to the
month following the Commencement Date. For each Lease Year, the amount of Base
Rent shall be as provided in paragraph (g) of the Lease Summary.
(c) Payment of prorated Rent from the Commencement Date of this Lease
until the first day of the following month (when the first full monthly payment
is due) shall be due and payable on the Commencement Date, together with
applicable sales tax.
(d) All taxes, charges, costs, assessments and expenses that are due
and payable by Tenant hereunder, together with all interest and late charges
that may accrue thereon in the event of the failure of Tenant to pay those
items, and all other damages, costs, expenses and sums that Landlord may suffer
or incur, or that may become due by reason of any default of Tenant or failure
by Tenant to comply with the terms and conditions of this Lease, shall be deemed
to be Additional Rent, and in the event of non-payment Landlord shall have all
the rights and remedies as herein provided for failure to pay Base Rent.
(e) Tenant will pay all sales, use and other taxes, charges and/or
impositions imposed at any time or from time to time by any and all governmental
authorities on the Rent and any all other amounts of any nature paid under or in
connection with this Lease, including (without limitation), sales, use and other
taxes, charges and/or impositions imposed by any and all governmental
authorities upon the manufacture, sales, use, transmission, distribution or
other services to the Premises. All such taxes, charges and/or impositions shall
be paid by Tenant even though the taxing statute or ordinance may purport to
impose such taxes, charges and/or impositions against Landlord. Tenant shall pay
before delinquency all personal taxes and assessments on the furniture,
fixtures, equipment, and other property of Tenant located in the Premises and on
additions and improvements in the Premises belonging to Tenant.
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2. COMMENCEMENT OF LEASE TERM; EXTENSION OPTIONS
(a) The Commencement Date of this Lease and the Lease Term shall be as
provided in the Lease Summary.
(b) When the Commencement Date of this Lease has been determined,
Tenant shall execute, acknowledge and deliver to Landlord an acceptance letter
in the form attached hereto as Exhibit "B", specifying, among other things, the
Commencement Date. Tenant's failure to do so, after demand by Landlord, shall
not affect the occurrence of the Commencement Date but shall be deemed a default
under this Lease.
(c) Tenant may, at its option and subject to the conditions herein
stated, extend the original term of this Lease for two (2) additional terms of
five (5) years each. Each such extension shall be subject to all of the
provisions of this Lease, including provisions for adjustments to Rent as
provided in paragraph (g) of the Lease Summary. Tenant's right to exercise each
such option is subject to the following conditions precedent:
(i) Tenant shall give written notice to Landlord irrevocably
exercising the option not more than eighteen (18) months and not less than
twelve (12) months prior to expiration of the initial Lease Term. Landlord shall
give Tenant written notice of Tenant's rights under this subparagraph 2(c)(i)
not less than eighteen (18) months prior to expiration of the initial Lease Term
and the first extension term, as applicable.
(ii) This Lease shall be in full force and effect at the time
notice of exercise is given and on the last day of the initial Lease Term.
(iii) Without limiting Tenant's curing rights hereunder (to the
extent applicable), no uncured event of default shall exist under any provision
of this Lease (and there shall be no event which, with the giving of notice or
the passage of time, or both, would constitute such a default) at the time
notice of exercise is given by Tenant or during the period from the giving of
notice through and including the last day of the initial Lease Term.
3. PREMISES; COMMON AREAS; PARKING
(a) In connection with the construction of the Premises, Landlord will
improve the Project Site with parking areas for use by Tenant. The parking
areas available for use by Tenant in connection with the Project shall contain a
total of three hundred twenty (320) parking spaces. Tenant shall have the right
(for the Lease Term and the option term) to the use of all such parking areas as
well as driveways, walkways, and other facilities designed for common use as may
be made available by Landlord with respect to the Project (collectively, "Common
Areas"), subject to the terms and conditions of this Lease and subject to the
terms and conditions of all covenants, restrictions, easements and similar
encumbrances which may affect all or any portion of the Project from time to
time, including, without limitation, all deed and plat restrictions (such
covenants, restrictions, easements and encumbrances, as the same may be modified
from time to time, as well as such additional covenants, restrictions, easements
and encumbrances to which all or any portion of the Project may be submitted or
subject from time to time, are collectively referred to as the "Land
Documents"); provided that the Land Documents shall not prohibit the conduct of
the Permitted Use at the Premises . Landlord shall not be liable for any damage
of any nature to, or any theft of, vehicles, or contents thereof, in or about
the parking facilities, except for damages resulting from Landlord's negligence
or intentional misconduct. Tenant shall have access to the Premises and the
Common Areas 24 hours per day, seven days per week.
(b) Neither Tenant nor its agents, employees or invitees shall utilize the
Common Areas or any part thereof for any of the following purposes: (i) to
solicit signatures on any petition or for any other purpose, disseminate any
information in connection therewith, or distribute any circular, booklet,
handbill, placard or other material that has no relationship to any purpose for
which the Premises was built or is permitted to be used; (ii) to
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solicit membership in any organization, group or association, or contribution
for any purpose that has no relationship to the Premises; (iii) to parade,
rally, patrol, picket, demonstrate or engage in any other such conduct; (iv) to
throw, discard or deposit any paper, glass or extraneous matter of any kind,
except in designated receptacles, or create litter or hazards of any kind; or
(v) to deface, damage or demolish any sign, light standard or fixture,
landscaping material or other improvement within the Project.
4. PREPARATION OF PREMISES; POSSESSION
(a) Landlord, at its sole cost and expense, shall construct and complete
the site work and building shell of the Project, as well as the Common Areas, as
provided in Exhibit "C" ("Landlord's Work"). Landlord shall also cause to be
constructed by the "Target Date" (hereinafter defined), subject to force
majeure, the two roadways proximate to the Project Site identified on Exhibit
"C" hereto, and Landlord shall use reasonable efforts to have the roadway which
runs in an east-west direction as depicted on Exhibit "C" designated as
"Intelligent Drive". The building shell shall be constructed substantially in
accordance with plans and specifications prepared by Landlord's architect and
approved by Tenant, such approval not to be unreasonably delayed, withheld or
conditioned. The design of the building shell shall be in accordance with
required standards and approvals for the Abacoa community and consistent with
Exhibit "C". Landlord shall cause its general contractor to obtain payment and
performance bonds for Landlord's Work and to name Tenant as an obligee of such
bonds. Further, subject to Tenant's obligation to deposit the "Tenant's
Contribution" with Landlord as provided in Exhibit "C", Landlord shall construct
all demising walls and all interior improvements to the Premises in accordance
with final architectural and engineering working drawings for the interior
improvements to the Premises as approved by Tenant and Landlord. Except as
otherwise expressly set forth in the two immediately preceding sentences,
Landlord shall have no obligations to perform any work, supply any materials,
incur any other expenses or make any installations in order to prepare the
Premises for Tenant's occupancy.
(b) Landlord shall assure that Landlord's Work, as performed by the general
contractor engaged by Landlord, shall be undertaken in a workmanlike manner and
shall be completed with new materials (unless otherwise agreed by Tenant).
Within ten (10) days following the Commencement Date, Tenant shall give Landlord
written notice of any defects in construction of the Premises, and Tenant shall
otherwise accept the Premises in their then existing condition and state of
repair, latent defects excepted. Landlord shall diligently correct any defects
in Landlord's Work that do not conform to the approved plans and specifications.
Tenant agrees that no representations, statements, or warranties, express or
implied, have been made by or on behalf of Landlord with respect to the
condition of the Project or the Premises unless expressly provided for in this
Lease. Following completion of Landlord's Work, Landlord shall cause its general
contractor to furnish Tenant an affidavit that all sums owing from Landlord to
the general contractor have been paid and that the general contractor has paid
all sums owing to its subcontractors, materialmen and suppliers. Landlord agrees
to assign to Tenant all applicable construction and manufacturers warranties,
although any such assignment shall include a reservation of Landlord's rights
under any such warranties.
(c) Without limitation of any other provision of this Lease, Tenant
acknowledges that, in order to avoid delays in completion of Landlord's Work and
Tenant's occupancy of the Premises, Tenant must provide to Landlord complete
space plans and interior program information, material, equipment wiring and
color selections, and other such matters, diligently and in good faith, and in a
timely manner in accordance with established schedules for space planning,
architectural and engineering design, and construction, which schedules shall be
in accordance with the requirements of subsection (d) below. Without limitation
of the foregoing, Tenant must furnish all information necessary for the
preparation of construction documents (including, without limitation, all
material, equipment wiring and color selections) in a timely manner and in CAD
format compatible with the building shell plans. Tenant acknowledges that
failure to timely deliver such information will delay the interior improvement
of the Premises, the issuance of a certificate of occupancy, and accordingly,
Tenant's occupancy thereof, but that Tenant nonetheless will be obligated to
commence the payment of Rent not later than the Commencement Date specified in
this Lease.
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(d) Notwithstanding any other provision in this Lease to the contrary,
provided that Tenant satisfies each and every one of the conditions set forth in
subparagraphs (i) - (v) below and Tenant is not in default of the Lease,
paragraph (e) of the Lease Summary will be deemed modified to substitute "three
(3) days following the date of issuance of a certificate of occupancy for the
Premises" in place of "the date of issuance by the applicable governmental
authority of a certificate of completion for the building shell of the Project".
Furthermore, provided that Tenant satisfies each and every one of the conditions
set forth in subparagraphs (i) -(v) below, Tenant is not in default of the
Lease, and the certificate of occupancy for the Premises is not issued by
September 15, 2000 (the "Target Date"), subject to force majeure, Landlord shall
as Tenant's sole remedy) make payment to Tenant in an amount equal to $1,000 per
day (the "Daily Amount") for each day later than the Target Date which elapses
prior to issuance of the certificate of occupancy for the Premises, provided
that if more than thirty days elapses from Target Date until issuance of a
certificate of occupancy, the Daily Amount shall be increased by $500 per day
from and after such thirtieth (30th) day and shall similarly increase by $500
per day from and after each following thirty day anniversary of the Target Date
(e.g., after 60 days following the Target Date, the Daily Amount shall be
$2,000). For example, if the certificate of occupancy is issued for the Premises
on October 17, 2000, Landlord shall pay to Tenant an amount equal to $30,000
((30 x $1,000) + (2 x $1,500) = $33,000).
(i) Tenant gives Landlord written approval of the site plan, building
elevations and building floor plates for the Project not later than September
30, 1999. Landlord is permitted, without the further consent of Tenant, to make
such changes to the approved site plan, building elevations and building floor
plates as may be required by the Town of Jupiter.
(ii) Tenant gives Landlord the final space plans, furniture location plan,
wiring requirements, and architectural and engineering plans for the interior
improvements to the Premises, evidencing Tenant's written approval thereof, not
later than the seventieth (70th) day after the date of this Lease; and
(iii) Tenant gives Landlord written approval of final selections for all
interior finishes for the Premises not later than the one hundredth (100th) day
after the date of this Lease; and
(iv) Tenant gives Landlord written approval of final pricing for the
interior improvements to the Premises by the date that is the later of (A) the
one hundredth fortieth (140th) day after the date of this Lease, or (B) seven
(7) days following delivery of the proposed pricing to Tenant; and
(v) Tenant deposits with Landlord the excess cost for the interior
improvement work, as required by Exhibit "C", by the date that is the later of
(A) the one hundredth fiftieth (150th) day after the date of this Lease, or (B)
ten (10) days following Tenant's written approval of the final pricing for the
interior improvements to the Premises.
Tenant acknowledges that Landlord has agreed to the provisions of this
subsection 4(d) on the condition that Tenant does not intend to include in the
Premises any long lead items or any improvements or equipment that would require
licensure or review by any Federal, state or local agency or instrumentality,
and the provisions of this subsection 4(d) shall be inapplicable in the event
that Tenant elects to include any such long lead items or improvements or
equipment in the Premises. Further, nothing herein shall in any event serve to
extend the Commencement Date beyond the date three (3) days following the date
on which the Tenant opens the Premises for business or otherwise commences its
operations therein.
Landlord shall provide Tenant with notice of: (i) receipt of site plan
approval for the Project, (ii) submission for a building permit for the Project,
and (iii) receipt of a building permit for the Project. Landlord and Tenant
shall hold monthly meetings during the period following the date hereof through
the Commencement Date for the purpose of reviewing the progress of the
development and construction of the Project (including the status of progress
drawings, the status of construction and the results of any studies or analyses
conducted with respect to the Project)
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and obtaining required input from Tenant. Such meetings shall be attended by
representatives of Tenant and Landlord knowledgeable about the Project and the
Project architect.
(e) If Tenant shall occupy the Premises prior to the Commencement Date, but
not open for business, such occupancy by Tenant shall be deemed to be that of a
tenant under all of the terms, covenants, and conditions of this Lease, except
that Tenant's obligation to pay Rent shall not commence until the Commencement
Date. Tenant shall be entitled to access to the Premises, subject to reasonable
coordination by and scheduling with Landlord and its general contractor, for
purposes of installing equipment, cabling, moving furniture, and otherwise
preparing the Premises for occupancy, provided that no such activities cause a
delay in issuance of a certificate of occupancy for the Premises.
5. COMMON AREA MAINTENANCE COSTS
(a) Tenant acknowledges that this Lease is on a net, net, net basis.
Accordingly, in addition to Base Rent, Tenant shall pay in a timely manner
before they become delinquent directly to the billing parties beginning on the
Commencement Date and ending on the last day of the Term, all expenses
("Operating Expenses") accruing during the Lease Term hereof and arising out of
or attributable to the Project including, but not limited to, real estate taxes
and assessments including special assessments; property owners' association and
similar association fees and assessments if any, the imposition of which taxes
the Tenant shall have the right to contest with the appropriate governmental or
private entity; (and Landlord shall cooperate with any such contest provided
there is no cost or expense to Landlord); amounts due under the Land Documents;
insurance required to be carried by Tenant under the terms of this Lease or by
applicable laws; maintenance; repairs, operation; parts; water; sewer;
electricity; and all other utilities; if any; trash removal; landscaping;
management; supplies; tools; materials; security services (if any); energy
control services; sound system; exterminating; service contracts; the costs of
any capital improvements, machinery or equipment which are reasonably necessary
or are imposed by applicable law, rule, regulation or code; all costs of the
maintenance, repair and replacement of the Project and any structural and non-
structural portions thereof, and maintenance, repair and replacement of the
roof.
(b) In the event for reasons other than a default hereunder by Tenant any
Operating Expense shall pertain to a specified or definite period of time some
of which accrued during the Lease Term and some of which accrued either before
the Commencement Date or after the last day of the Lease Term, then Tenant shall
pay all of such Operating Expense which accrued during the Lease Term. For
example only, in the event the last day of the Lease Term shall, for reasons
other than a default hereunder by Tenant, be other than December 31st of any
calendar year, then Tenant shall pay upon the issuance of the real estate tax
bill(s) for the Project for the calendar year in which the Lease Term shall end
the amount of taxes as set forth on such tax bill(s) multiplied by a fraction,
the numerator of which shall be the number of days during the calendar year at
issue prior to the expiration of the Lease Term and the denominator of which
shall be the number of days in such calendar year (i.e., the denominator of
which shall be either 365 or 366). Notwithstanding the foregoing, Operating
Expenses shall not include, and Tenant shall not be obligated to pay (1)
franchise or partnership taxes, gross receipts taxes, income taxes, inheritance
taxes or any similar or like taxes on Landlord (except to the extent based upon
the rent collected for the Project or any portion thereof as hereinabove
provided); (2) interest, amortization and other charges paid in respect of
mortgage or other loans made by Landlord; (3) ground lease and other rent paid
by Landlord (if any); (4) depreciation of the Project; and (5) fines, penalties,
and other costs incurred by Landlord due to its violation of any applicable law.
(c) In furtherance of Section 8 below and not in limitation thereof, Tenant
covenants and agrees with Landlord that during the continuance of this Lease
Tenant at its sole expense shall keep the Project in a good state of repair and
in as good condition as they were at the beginning of the Lease Term, ordinary
wear and tear and casualty damage to the extent Landlord receives insurance
proceeds therefor excepted, and Tenant will not suffer or permit any strip,
waste or neglect of the Project, and Tenant at its sole expense will maintain,
repair, replace and renovate the Project, including without limitation all
structural and non-structural portions thereof, and all portions of the roof
thereof, in order to keep the Project in first class repair and condition. In
the event Tenant does not pay Operating
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Expenses as required by this Lease, keep and maintain the Project as required by
this Lease or make the said repairs or replacements within thirty (30) days
after notice from Landlord, or in case of repairs which, for causes beyond
Tenant's control cannot with reasonable diligence be cured within said thirty
(30) day period, if Tenant shall not have promptly after notice commenced such
repairs and thereafter diligently prosecuted same to completion, within a
reasonable time, then Landlord shall have the right, in addition to any other
remedies it may have under law or this Lease, but not the obligation, after
notice to Tenant to pay such Operating Expenses and/or enter upon the Project
and maintain the Project and/or make the said repairs or replacements itself, as
the case may be, and charge the cost thereof to Tenant as Additional Rent
hereunder which cost thereof shall be due and payable by Tenant within thirty
(30) days after Tenant deemed to have received a bill therefor from Landlord
together with interest at the Rate of eighteen percent per annum. In the event
Tenant fails to pay in full said cost within said thirty (30) days after Tenant
is billed therefor, then, in addition to and not in limitation or waiver of any
other remedies which may arise out of a default hereunder by Tenant, interest
shall accrue on all unpaid amounts from the due date to the date of payment by
Tenant and such interest shall be due and payable immediately as Additional
Rent. For purposes of this Lease and without limitation of subparagraph 1(a)
above, "Additional Rent" includes all costs, expenses, interest and sums other
than Base Rent which become due hereunder whether payable to Landlord or to
other parties (such as with regard to Operation Expenses), but which are not
paid by Tenant within the time required by, it being the intent of the parties
that all such other costs, expenses, interest and sums due hereunder from Tenant
to Landlord shall be construed as Additional Rent due from Tenant to Landlord.
6. PUBLIC UTILITIES
(a) Landlord shall, at Tenant's sole cost and expense, arrange for the
initial hook-up of all utilities needed for the Permitted Use. Tenant shall
separately arrange with, and pay directly to, the applicable local public
authorities or utilities, as the case may be, for the furnishing, installation
and maintenance of all utilities, telephone services and equipment required by
Tenant for the Permitted Use.
(b) In addition, pursuant to Section 5 above, Tenant shall pay all water
and sewer charges for the Project, which payment shall be made when due to the
appropriate public utility provider.
7. TAXES AND ASSESSMENTS
(a) Pursuant to Section 5 above, Tenant shall pay all real estate taxes,
fees, assessments and charges of any kind or nature whatsoever (excluding
Landlord's income taxes) associated with or attributable to the ownership,
operation, maintenance or repair of all or any portion of the Project,
including, without limitation, any charges or assessments against the Project
for public betterments or improvements, and all expenses and fees incurred in
connection with contesting the amount or the validity of any of the foregoing.
In connection with the development of the Project, Landlord shall cause the
Project Site to be platted and a separate tax parcel established. Landlord shall
provide to Tenant copies of all tax bills promptly following receipt of such
bills by Landlord.
(b) Landlord shall have the option to take the benefit of the provisions
of any statute or ordinance permitting any taxes or assessments to be paid over
a period of time, in which case Tenant shall be obligated to pay only the
portion of the installments which become due and payable during the term of this
Lease, as extended, prorated for any partial Lease Year.
(c) The provisions of this Section 7 are predicated upon the present
system of taxation in the State of Florida. Should any governmental authority
having jurisdiction over all or any portion of the Project impose a tax and/or
assessment or any kind or nature upon, against, measured by or with respect to
the Rent payable to Landlord under this Lease or with respect to the ownership
of the Project or any part thereof by Landlord (or any individual or entity
forming Landlord), either by way of substitution for all or any part of the
present real estate taxes or
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assessments or in addition thereto, then such tax and/or assessment shall be
deemed to constitute "real estate taxes" for purposes of this Lease and Tenant
shall be obligated to pay the same as set forth in this Section 7.
8. REPAIRS AND MAINTENANCE
(a) During the original term of this Lease and each extension term, Tenant
shall, at Tenant's sole cost and expense, maintain, repair, replace and renovate
all portions of the roof, the exterior walls and all structural and non-
structural elements of the Project; the elevators, electrical, plumbing,
heating, air conditioning, and other mechanical installations that serve the
Project and the Premises; and the interior of the Premises, including (without
limitation) all interior glass and doors that are a part of the Premises, all in
first class condition and good working order, and shall use materials and labor
of a kind and quality equal to the original work. Landlord shall have no
obligation to repair, maintain, alter, replace, or modify the Project or the
Premises or any part thereof, including (without limitation) any elevators,
electrical, plumbing, heating, air conditioning, or other mechanical
installation. Tenant agrees that the roof, elevators, electrical, heating and
air conditioning equipment for the Project shall be maintained by contractors
reasonably approved by Landlord and fully licensed to maintain such improvements
in the State of Florida. Tenant shall, upon the request of Landlord from time to
time, provide Landlord with copies of maintenance contracts entered into with
respect to the Project or the Premises, as well as written service records that
shall be maintained by Tenant or its contractor during the Lease Term.
(b) Any interruption of any services with respect to the Project or the
Premises, whether such failure is caused by acts of God; accidents; breakage;
repairs; strikes; lockouts; other labor disputes; the making of repairs,
alterations, or improvements to the Premises or any part of the Project;
inability to obtain an adequate supply of fuel, steam, water, electricity, labor
or other supplies; or by any other condition, including, without limitation, any
governmental energy conservation program, shall not constitute a default by
Landlord under this Lease, shall not render Landlord liable for any damages
directly or indirectly resulting from such failure or delay, shall not permit
Tenant to abate any Rent or relieve Tenant from any of its obligations under
this Lease, and shall not constitute a constructive or other eviction of Tenant,
unless such interruption of services was caused by the negligence or intentional
misconduct of Landlord.
(c) Except as provided in Section 9 below, at the expiration or earlier
termination of this Lease, Tenant shall surrender the Premises in the same
condition as when received, reasonable wear and tear and, subject to Tenant's
obligations under this Lease, casualty or condemnation excepted.
9. ALTERATIONS
Tenant shall not make any alterations, improvements, or additions to the
Project or the Premises, including (without limitation) drilling into, or
securing any fixture, apparatus, or equipment of any kind to, any part of the
Premises, without first obtaining the written consent of Landlord in each
instance, which consent shall not be unreasonably withheld or delayed. Without
limitation of the foregoing, it is the intention of Landlord and Tenant that
Landlord shall maintain complete aesthetic control over any and every portion of
the Premises visible from outside of the Premises. Tenant shall present to the
Landlord plans and specifications for work at the time approval is sought. All
such alterations, improvements, and additions made by Tenant shall remain upon
the Premises at the expiration or earlier termination of this Lease and shall
become the property of Landlord, unless Landlord shall, prior to or
simultaneously with such expiration or termination, have given written notice to
Tenant to remove same, in which event Tenant shall remove such alterations,
improvements, and additions and restore the Premises to the same good order and
condition as at the Commencement Date, reasonable wear and tear and, subject to
Tenant's obligations under this Lease, casualty or condemnation excepted. Upon
default by Tenant, Landlord may perform such restoration and collect the cost
thereof from Tenant as Additional Rent. In addition, Landlord may apply
Tenant's security deposit against such obligation. Tenant's obligations under
this Section 9 shall, in all events, be carried out in conformance with the
provisions of Section 10(h) below.
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10. AFFIRMATIVE COVENANTS
(a) Tenant covenants that it shall:
(i) Pay all Rent at the times, and in the manner, set forth in this
Lease.
(ii) Comply with the terms of all statutes, ordinances and regulations
applicable to Tenant or its use of the Premises, including, without limitation,
zoning ordinances, resolutions, orders, development orders, master plans, site
plans, licenses, agreements, arrangements, plans, rules or regulations of or
issued by governmental, quasi-governmental or utility authorities having
jurisdiction over the Premises or declarations of property owner associations
having jurisdiction over the Premises, and save Landlord harmless from
penalties, fines, costs, expenses, or damages resulting from Tenant's failure to
do so. Tenant shall provide to Landlord copies of each licensure inspection
report within ten (10) days after receipt of same, and shall provide to
Landlord, within ten (10) days following the applicable deadline for corrective
action, evidence of compliance with any corrective action recommended or
required as a result of any such inspection.
(iii) Comply with the terms and conditions set forth herein relating
to the use, operation, and maintenance of the Project, including the Premises
and the Common Areas.
(iv) Give to Landlord prompt written notice of any accident, fire, or
damage occurring on or to the Project, including the Premises and the Common
Areas.
(v) Conduct its operations at the Premises in a professional manner and
keep the Premises in first-class condition and good working order.
(vi) Comply with all reasonable rules and regulations of Landlord with
respect to the Project, including the Premises and the Common Areas, whether in
effect at the time of execution of this Lease or amended or promulgated from
time to time thereafter by Landlord in its reasonable discretion, including
(without limitation) the installation of fire extinguishers and other safety
equipment as Landlord may require and compliance with the recommendations of
Landlord's insurance carriers and their rate-making bodies.
(vii) Comply with all terms and provisions of the Land Documents
affecting all or any portion of the Project.
(viii) Tenant shall have no power or authority to create any lien or
permit any lien to attach to the Premises, or any interest of Landlord in the
Premises or the Project, and all suppliers, contractors, artisans, mechanics,
laborers and other persons contracting with Tenant with respect to the Premises
or any part thereof shall be so notified in writing by Tenant. Landlord may
record a memorandum (referring to this provision) that the interest of Landlord
shall not be subject to liens for improvements made by or on behalf of Tenant,
and Tenant agrees to do all things necessary to prevent the filing of any
mechanic's or other liens against the Premises or any part thereof by reason of
work, labor, services, or materials supplied or claimed to have been supplied to
Tenant, or anyone holding the Premises, or any part thereof, through or under
Tenant. If any such lien shall at any time be filed against the Premises,
Tenant shall cause the same to be discharged of record within ten (10) days
after Tenant has notice of the of filing of the same. If Tenant shall fail to
discharge the lien within such period of time, then, in addition to any other
right or remedy of Landlord resulting from Tenant's default, Landlord may, but
shall not be obligated to, discharge the same by paying the amount claimed to be
due, procuring the discharge of the lien by giving security, or taking such
other action as may be permitted by law. Notice is hereby given that landlord
is not and shall not be liable for any labor, services or materials furnished to
tenant or anyone holding the premises, and that no construction, mechanic or
other lien for any such labor, services or materials shall attach to or affect
the interest of landlord in and to the premises or the project.
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(ix) Subject to the notice and cure provisions of Section 27(g) of this
Lease, repay to Landlord as Additional Rent, on demand, any and all liabilities,
costs or expenses incurred by Landlord as a result of the breach of any covenant
set forth in this Section 10 or in Section 11 below, and interest thereon at the
lesser of eighteen percent (18%) per annum or the maximum amount allowed by law.
(x) So long as Tenant is a corporation the shares of which are traded
on a recognized stock exchange and Tenant is required to file with the
Securities and Exchange Commission on an annual basis a Form 10k,provide
Landlord within ninety (90) days following the end of each calendar year copies
of Tenant's Form 10k for such year. If Tenant is not a corporation the shares of
which are traded on a recognized stock exchange or for any other reason Tenant
is not required to file with the Securities and Exchange Commission a Form 10k,
provide to Landlord, within ninety (90) days following the end of each calendar
year, copies of audited financial statements for such year for Tenant, and
provide to Landlord, upon request, copies of unaudited quarterly financial
statements for the most recent quarter for Tenant. All documents provided to
Landlord pursuant to this subsection will remain confidential, subject to lender
review, and will be used only for asset management purposes related to the
Project. Tenant acknowledges that, as a material inducement to Landlord to enter
into this Lease, Tenant has provided to Landlord current financial statements
for Tenant. Tenant further acknowledges that Landlord has relied on such
documents and information in determining the net worth of Tenant and in
evaluating such other criteria as Landlord may have deemed relevant in entering
into this Lease.
(b) Landlord covenants that it shall: (i) comply in all material
respects with the terms of all statutes, ordinances and regulations applicable
to Landlord; (ii) comply with the terms and provisions of the Land Documents to
the extent they apply to the Project; and (iii) provide Tenant copies of any
notices received from any governmental agency or property owner's association
regarding the Project.
11. NEGATIVE COVENANTS OF TENANT
Tenant covenants that it shall not do any of the following without obtaining the
prior written consent of Landlord:
(a) Permit the emission of any noises or noxious odors from the Premises
that are harmful to person or property.
(b) Do, or suffer to be done, anything at the Premises or the Project that
causes the fire insurance or any other insurance now in force or hereafter to be
placed on the Premises or the Project to become void or suspended.
(c) Commit, or suffer to be committed, any waste upon the Project,
including the Premises or Common Areas.
(d) Tenant shall neither use nor occupy the Premises or any part thereof
for any unlawful, disreputable, or ultra-hazardous purpose, nor operate or
conduct its practice or business in a manner constituting a nuisance of any kind
in the reasonable judgment of Landlord. Tenant shall, immediately on discovery
or notice of any unlawful, disreputable, or ultra-hazardous use, take action to
halt such activity.
12. HAZARDOUS WASTE DISPOSAL
(a) For purposes of this Lease, "Hazardous Materials" shall mean any
material, substance or waste that is or has the characteristic of being
hazardous, toxic, ignitable, reactive or corrosive, including, without
limitation, (i) petroleum, PCB's, asbestos, materials known to cause cancer or
reproductive problems; (ii) any materials, substances and/or wastes, including,
without limitation, infectious waste, which are or hereafter become regulated by
any local governmental authority, the State of Florida or the United States; and
(iii) substances defined
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as "hazardous substances," "hazardous materials," "toxic substances," "hazardous
wastes," "oil," "regulated substances," "restricted hazardous wastes," "special
wastes" or words of similar import in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et
seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq.; the Federal Water Pollution Control Act; the Federal Clear Air Act; the
Resource Conversation and Recovery Act, 42 U.S.C. Section 6901, et seq; and all
other corresponding or related State of Florida and local statutes, ordinances
and regulations, including, without limitation, any dealing with underground
storage tanks; and any other environmental law, regulation or ordinance now
existing or hereinafter enacted (collectively, "Hazardous Materials Laws").
Notwithstanding the foregoing, the term Hazardous Substances as defined herein
shall not include (a) pharmaceuticals, cleaning agents of the types and in the
quantities and concentrations normally stocked by health care providers similar
to the Project, or (b) oil in de minimis amounts typically associated with the
use of certain portions of the Project for driving and parking motor vehicles;
provided that the foregoing are used, stored, transported and disposed of in
accordance with all Hazardous Materials Laws.
(b) Tenant, and all of its officers, directors, employees,
representatives, agents, contractors, subcontractors, successors, assigns,
lessees, sublessees, concessionaires, invitees and any other occupants of the
Premises (collectively, "Tenant Representatives"), shall abide by all Hazardous
Materials Laws and other municipal, county, state and federal statutes, laws,
ordinances, administrative rules and regulations and guidelines applicable to
the disposal of Hazardous Materials. Tenant shall not use, handle, deposit or
dispose of any Hazardous Materials which requires special handling into the
waste disposal facilities provided by Landlord. Tenant shall, at Tenant's
expense, employ or engage private waste management services to dispose of any
and all waste of Tenant which must be handled in any manner other than general
waste collection provided by Landlord through public or private waste collection
service. Without limiting the foregoing, Tenant shall employ or engage a
licensed waste disposal service to provide any required containers or storage
facilities and to remove any Hazardous Materials which Tenant must handle in a
manner as provided for by Hazardous Materials Laws.
(c) Tenant shall indemnify, defend and hold harmless Landlord and the
holder ("Mortgagee") of any mortgage encumbering all or any portion of the
Project or the real property upon which the Project is situated ("Mortgage"),
and their respective partners, shareholders, directors, officers, agents and
employees (the "Indemnified Parties") from and against any and all claims
arising from or in connection with any act, omission or negligence of Tenant, or
any of its subtenants or licensees or its or their partners, directors, offices,
agents, employees or contractors, relating to or arising out of the disposal of
Hazardous Materials from the Premises, such indemnity to include all costs,
expenses and liabilities incurred in or in connection with each such claim,
action or proceeding with respect thereto, including, without limitation, all
attorney's fees and expenses. In the event any Indemnified Party shall be made a
party to any litigation or proceeding commenced by or against Tenant, then
Tenant shall protect, indemnify and hold such Indemnified Party harmless with
respect thereto, and Tenant shall pay all costs, expenses and reasonable
attorneys' fees (in all proceedings) incurred or paid by such Indemnified Party
in connection with such litigation or proceeding, or in enforcing the covenants
and agreements of this Section. TENANT ACKNOWLEDGES AND AGREES THAT IT IS THE
SOLE RESPONSIBILITY OF TENANT TO ASCERTAIN AND COMPLY WITH THE HAZARDOUS
MATERIALS LAWS IN CONNECTION WITH THE HANDLING AND DISPOSAL OF HAZARDOUS
MATERIALS OR ANY OTHER MATERIALS FROM THE PREMISES.
(d) Tenant hereby agrees that Tenant and Tenant's Representatives shall
not use, generate, manufacture, refine, produce, process, store or dispose of,
on, under or about the Premises or the Project, or transport to or from the
Premises or the Project in the future for the purpose of generating,
manufacturing, refining, producing, storing, handling, transferring, processing
or transporting Hazardous Materials, except in compliance with all applicable
Hazardous Materials Laws. Furthermore, Tenant shall, at its own expense,
procure, maintain in effect and comply with all conditions of any and all
permits, licenses and other governmental and regulatory approvals required for
the storage or use by Tenant or any of Tenant's Representatives of Hazardous
Materials on the Premises, including (without limitation) discharge of
(appropriately treated) materials or wastes only as provided
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by law. Tenant further agrees that Tenant and Tenant's representatives shall not
permit any lien arising under or related to any of the Hazardous Materials Laws
to attach to the Premises or the Project.
(e) If at any time during the Lease Term (or any extended term) any
contamination of the Premises or the Project by Hazardous Materials shall occur,
where such contamination is caused by the act or omission of Tenant or Tenant's
Representatives ("Tenant Contamination"), then Tenant, at its sole cost and
expense, shall promptly and diligently remove such Hazardous Materials from the
Project or the groundwater underlying the Project to the extent reasonably
possible in accordance with the requirements of the applicable Hazardous
Materials Laws and industry standards then prevailing in the Hazardous Materials
management and remediation industry in Florida. However, Tenant shall not take
any required remedial action in response to any Tenant's Contamination in or
about the Project or enter into any settlement agreement, consent, decree or
other compromise in respect to any claims relating to any Tenant's Contamination
without first notifying Landlord and any Mortgagee of Tenant's intention to do
so, and affording Landlord and any Mortgagee the opportunity to appear,
intervene or otherwise appropriately assert and protect their interests with
respect thereto.
(f) In addition to all other rights and remedies of Landlord or any
Mortgagee, if Tenant does not promptly and diligently take all steps to prepare
and obtain all necessary approvals of a remediation plan for any Tenant's
Contamination and thereafter commence the required remediation of any Hazardous
Materials released or discharged in connection with Tenant's Contamination
within thirty (30) days after Landlord and any Mortgagee have reasonably
approved Tenant's remediation plan and all necessary approvals and consents have
been obtained, and thereafter continue to prosecute said remediation to
completion in accordance with the approved remediation plan, then Landlord or
any Mortgagee, at their sole discretion, shall have the right, but not the
obligation, to cause said remediation to be accomplished, and Tenant shall
reimburse, within fifteen (15) business days of demand for reimbursement, all
amounts reasonably paid by Landlord (together with interest on said amounts at
the highest lawful rate until paid), when said demand is accompanied by proof of
payment of the amounts demanded. Tenant shall promptly deliver to Landlord and
any Mortgagee copies of hazardous waste manifests reflecting the legal and
proper disposal of all Hazardous Materials removed from the Project as part of
Tenant's remediation of any Tenant's Contamination.
(g) Each party hereto (for purposes of this Section 12, a "Notifying
Party") shall immediately notify the other party (the "Notice Recipient") in
writing of: (i) any enforcement, clean-up, removal or other governmental or
regulatory action instituted, contemplated or threatened concerning the Project
pursuant to any Hazardous Materials Laws; (ii) any claim made or threatened by
any person against the Notifying Party or the Project relating to damage
contribution, cost recovery, compensation, loss or injury resulting from or
claimed to result from any Hazardous Materials on or about the Project; and
(iii) any reports made to any environmental agency arising out of or in
connection with any Hazardous Materials in or removed from the Project including
any complaints, notices, warnings or asserted violations in connection
therewith, all upon receipt by the Notifying Party of actual knowledge of any of
the foregoing matters. Notifying Party shall also supply to Notice Recipient as
promptly as possible, and in any event within five (5) business days after
Notifying Party first receives or sends the same, with copies of all claims,
reports, complaints, notices, warnings or asserted violations relating in any
way to the Premises or Tenant's use thereof.
(h) If at any time during the Lease Term (or any extended term) any
contamination of the Project by Hazardous Materials shall occur, where such
contamination (i) is not caused by Tenant or Tenant's Representatives, and (ii)
is caused by the act or omission of Landlord or "Landlord's Representatives"
(which shall include Landlord's officers, directors, employees, representatives,
agents, contractors, subcontractors, successors, and assigns, but shall not
include lessees, sublessees or other occupants of the Project) ("Landlord
Contamination"), then Landlord, at its sole cost and expense, shall promptly and
diligently remove such Hazardous Materials from the Project or the groundwater
underlying the Project to the extent reasonably practical in accordance with the
requirements of the applicable Hazardous Materials Laws and industry standards
then prevailing in the Hazardous Materials management and remediation industry
in Florida. Landlord shall indemnify and hold harmless Tenant and Tenant's
Representatives from and against any and all claims arising from or in
connection with any act, omission or negligence of Landlord,
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or any of its partners, shareholders, directors, officers, and employees,
relating to or arising out of the disposal of Hazardous Materials from the
Project, such indemnity to include all reasonable costs, expenses and
liabilities incurred in or in connection with each such claim, action or
proceeding with respect thereto, including, without limitation, all reasonable
attorney's fees and expenses. Landlord has no knowledge of the presence of
Hazardous Materials on the Project Site, provided that the only investigation
undertaken in that regard is documented in that certain report from ATC
Associates, Inc. dated September 21, 1999 under ATC Project Number 03353.0001;
Task 2, a copy of which report has previously been provided to Tenant.
13. RIGHTS OF LANDLORD
In addition to any other rights of Landlord reserved herein, Landlord
reserves the right, at all reasonable times after prior notice to Tenant, by
itself or its duly authorized agents, to enter into the Premises to inspect same
and to perform any obligation of Tenant under this Lease that is not performed
by Tenant within any cure period provided for in this Lease; to take photographs
of the Premises for promotional or other purposes of Landlord (although Landlord
shall not take photographs of the interior of the Premises which photographs
include information regarding Tenant's business, without the prior consent of
Tenant, which consent shall not be unreasonably withheld, delayed or
conditioned); to enforce any rights and remedies of Landlord under this Lease;
and, after notice from Landlord of intention to terminate this Lease in
accordance with the terms of this Lease, at any time within three (3) months
prior to the expiration of the Lease Term or any extension term, or in
connection with a potential sale or refinancing of the Project or any portion
thereof, to show the Premises. If Tenant does not make itself available or
otherwise refuses to admit Landlord or its agents to the Premises during regular
business hours after prior notice from Landlord, or if an entry into the
Premises shall be necessary in the case of an emergency, Landlord or Landlord's
agents may make forcible entry without rendering Landlord or such agents liable
therefor and without in any manner affecting the obligations and covenants of
Tenant under this Lease. Tenant hereby irrevocably grants Landlord the necessary
licenses to carry out the terms of this subsection. The exercise of any right
reserved to Landlord in this Section 13 (or otherwise) shall not be deemed an
eviction or disturbance of Tenant's use and possession of the Premises, shall
not render Landlord liable in any manner to Tenant, any of Tenant's
Representatives or to any other person, and shall not diminish any other rights
or remedies of Landlord with respect to a default by Tenant under this Lease.
14. DAMAGE TO PREMISES
(a) If the Premises or any other portion of the Project shall be damaged
or destroyed by fire or other casualty of any kind, Tenant shall promptly cause
such damage to be repaired and replaced, and the Rent shall not be abated. There
shall be no obligation on Landlord to repair or replace the Premises or any
other portion of the Project in case of fire or other casualty. Notwithstanding
the foregoing, if during the last two years of the Lease Term the Project is
damaged by fire or any other cause to such extent that the cost of restoration,
as reasonably estimated by Landlord, will equal or exceed fifty percent (50%) of
the replacement value of the Project (exclusive of foundation) as of the day
preceding the day of the occurrence of the damage, then Tenant may, no later
than the sixtieth (60th) day following the occurrence of the damage, give
Landlord notice of Tenant's election to terminate this Lease. In the event of
such termination election by Landlord or Tenant as set forth above, (i) this
Lease shall be deemed to terminate on the sixtieth (60th) day after such notice;
(ii) Tenant shall surrender possession of the Premises on or before the sixtieth
(60th) day after such notice of election to terminate; (iii) Base Rent shall be
equitably abated as of the date of damage; and (iv) all rent, including Base
Rent and any Additional Rent, shall be apportioned as of the date of surrender
and any rent for any period beyond such date shall be refunded to Tenant. In the
event of any such termination, all proceeds from the insurance on the Project
required to be maintained by Tenant under the Lease shall be paid to Landlord.
Tenant acknowledges and agrees that in no event shall Landlord be liable to
Tenant or any of Tenant's Representatives for any inconvenience or loss of
business on account of any loss or damage to the Premises or any other portion
of the Project. Tenant shall promptly commence all repairs and replacements
under this Section 14, and shall diligently complete such repairs in a good and
workmanlike manner in accordance with the
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terms of this Lease (including the terms of Section 8 above), and in accordance
with all applicable laws, rules and regulations.
(b) The obligations of Tenant in the event of any damage to or destruction
of the Premises, or any other portion of the Project, are governed exclusively
by this Lease. Tenant hereby waives the provisions of any law to the contrary.
15. INDEMNIFICATION AND INSURANCE REQUIREMENTS
(a) Tenant shall:
(i) Indemnify, defend and save the Indemnified Parties harmless from and
against any and all claims, actions, damages, liability, and expense, including
attorney's fees and costs in all proceedings, in connection with loss of life,
personal injury, or damage to property occurring in or about the Project,
including the Premises and the Common Areas. The foregoing indemnity shall
include, without limitation, all claims, actions, damages, liability, and
expense, including attorney's fees and costs in all proceedings, that are
excluded from Tenant's liability insurance coverage (as required under this
Section 15), whether as a deductible or otherwise.
(ii) At all times during the term hereof, keep in force, at its own
expense, commercial general liability insurance, including automobile liability
for non-owned and hired, in companies acceptable to Landlord and naming as
additional insureds Landlord, the Project property manager and each Mortgagee,
with a combined single limit of $3,000,000. The commercial general liability
insurance policy shall include a contractual liability endorsement which shall
insure Landlord against liability arising from any of the claims against which
Tenant is required by this Lease to indemnify Landlord.
(iii) At all times during the term hereof, keep in force, at its own
expense, insurance against loss or damage by fire and lightning, and such other
perils as are covered under a standard "all-risk" or special form policy. Such
insurance shall be carried with companies acceptable to Landlord, in an amount
not less than one hundred percent (100%) of the replacement costs of the Project
including Tenant's betterments and improvements to of the Premises, and naming
Landlord, and each Mortgagee of which Tenant has actual notice as an additional
insured. The foregoing coverage shall include business interruption insurance
for a period of twenty four (24) months following the occurrence of any insured
casualty or occurrence.
(iv) Furnish to Landlord, within ten (10) days prior to the Commencement
Date (or, if earlier, the date that Tenant takes possession of the Premises),
and thereafter within ten (10) after request by Landlord at any time and from
time to time, copies of all policies and endorsements of insurance evidencing
coverage required by this Lease. All policies required hereunder shall contain
an endorsement providing that the insurer will not cancel or materially change
the coverage of such policies without first giving thirty (30) days prior
written notice thereof to Landlord and each named Mortgagee.
(b) Landlord may, at its option, purchase fire and extended coverage
insurance on the Project (other than Tenant's betterments and improvements to
the Premises) under a standard "all-risk" or special form policy and in such
amounts as may be required by each Mortgagee from time to time. Any such
purchase of insurance by Landlord shall not limit the obligations of Tenant as
set forth above.
(c) Landlord and Tenant hereby mutually waive and release their respective
rights of recovery against one another and their officers, agents and employees
for any damage to real or personal property, including resulting loss of use,
interruption of business, and other expenses occurring as a result of the use or
occupancy of the Premises if, and only to the extent that, the same is insured
against under a standard "all-risk" or special form policy of property insurance
required to be maintained by the parties hereto. Landlord and Tenant agree that
all policies of insurance obtained by them pursuant to the provisions of this
Lease shall contain provisions or endorsements thereto
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waiving the insurer's rights of subrogation with respect to claims against the
other, to the extent obtainable at no additional cost; provided, however, that
if there is an additional cost, then the party benefiting from waiver of
subrogation shall have the option of paying such cost.
16. WAIVER OF CLAIMS BY TENANT
Landlord and its agents, employees, and contractors shall not be liable
for, and Tenant hereby releases all claims for damages to person or property
sustained by Tenant or any person claiming by, through or under Tenant resulting
from, any fire, accident, occurrence, or condition in or upon the Premises or
Landlord's property, including, but not limited to, claims for damage resulting
from: (i) any defect in or failure of plumbing, heating, or air conditioning
equipment, electrical wiring or installation thereof, water pipes, stairs,
railings, or walks; (ii) any equipment or appurtenances becoming out of repair;
(iii) the bursting, leaking, or running of any tank, washstand, water closet,
waste pipe, drain or any other pipe or tank in, upon or about the Premises; (iv)
the backing-up of any sewer pipe or downspout, (v) the escape of steam or hot
water; (vi) water being upon or coming through the roof or any other place upon
or near the Premises; (vii) the falling of any fixture, plaster, or stucco;
(viii) broken glass; (ix) any act, negligence, or omission of Tenant or other
occupants of the Project; and (x) vandalism or theft. Notwithstanding the
foregoing, Tenant shall not be deemed to have released any claims for damages to
person or property sustained by reason of the negligence or intentional
misconduct of Landlord or its agents, employees, or contractors.
17. FIXTURES
(a) Any and all improvements to the Premises that are funded with the
Improvement Allowance, the Additional Improvement Allowance and/or the Design
Allowance, regardless of whether such improvements constitute fixtures
(including, without limitation, trade fixtures), shall remain a part of the
Premises, and in no event may be removed by or on behalf of Tenant during the
Lease Term or any extension thereof, or upon the expiration or earlier
termination of this Lease or any extension thereof.
(b) Any trade fixtures installed in the Premises by Tenant, which trade
fixtures are not funded with the Improvement Allowance, the Additional
Improvement Allowance and/or the Design Allowance, shall remain the property of
Tenant and shall be removable at the expiration or earlier termination of this
Lease or any extension thereof, provided Tenant shall not at such time be in
default; and, provided further, that in the event of such removal, Tenant shall,
at the time of removal, repair the damage caused by such removal and promptly
restore the Premises to its original improved order and condition, reasonable
wear and tear and, subject to Tenant's obligations under this Lease, casualty
and condemnation excepted. Any such trade fixture not removed at or prior to
expiration or earlier termination of this Lease shall become the property of
Landlord. Without limitation of the foregoing, light fixtures, cabinetry, and
plumbing equipment, whether or not installed by Tenant or funded with the
Improvement Allowance, the Additional Improvement Allowance and/or the Design
Allowance, shall not be removable at the expiration or earlier termination of
this Lease, or at the expiration of any extension thereof, and shall be the
property of Landlord. If the removal of trade fixtures would leave any wall or
floor indentations or other non-standard improvement finishes, then the
obligation of Tenant to restore the Premises (as a condition of removal of any
such trade fixtures) includes the obligation to eliminate any such indentations
or other non-standard improvement finishes and paint or otherwise finish the
applicable areas in the same manner as surrounding areas, such that, in the
reasonable judgment of Landlord, Landlord shall not be required to incur any
expense to make the Premises ready for a successor tenant as relates to the
areas of the Premises from which trade fixtures have been removed.
18. ASSIGNING AND SUBLETTING
(a) Tenant covenants that it shall not, by operation of law or otherwise,
assign this Lease, sublease all or any part of the Premises, or permit the
Premises to be used by others without the prior written consent of
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Landlord in each instance, which consent shall not be unreasonably withheld or
delayed, provided the proposed assignee or sublessee has a then current net
worth sufficient for it to meet its monetary obligations under this Lease or its
sublease, as the case may be. Notwithstanding anything in this Section 18 of the
Lease to the contrary, Tenant shall have the right, at any time or times without
the consent of the Landlord, to assign the Lease or to sublease all or any
portion of the Premises to any wholly-owned subsidiary of Tenant or any
affiliate of Tenant which is wholly-owned by a common parent corporation with
Tenant. In the event of any assignment or sublease, Tenant shall nevertheless
remain liable for the full and timely payment and performance of all of Tenant's
obligations under the Lease. Any attempt by Tenant to assign, sublet, encumber
or mortgage this Lease without Landlord's consent (under circumstance where such
consent is required) shall be voidable at Landlord's election. The consent by
Landlord to any assignment, subletting or use of the Premises by others shall
not constitute a waiver of Landlord's right to withhold its consent to any other
assignment, subletting or use by others of the Premises. Whether or not
Landlord's consent shall be granted to any proposed assignment or subletting,
Tenant shall reimburse Landlord for the reasonable expenses, including
attorneys' fees and disbursements, incurred by Landlord in connection with
Tenant's request for such consent. In addition, Tenant shall pay to Landlord, as
Additional Rent, all reasonable direct and indirect expenses incurred by
Landlord due to any such assignee or sublessee taking possession of the
Premises, including freight elevator operation, security service, cleaning
service, janitorial service and rubbish removal. The prohibitions set forth in
this Section 18(a) and Tenant's agreement thereto are material inducements to
Landlord to enter into this Lease with Tenant, and any breach or attempted
breach thereof shall constitute an event of default under this Lease for which
no notice or opportunity to cure need be given.
(b) No consent by Landlord to an assignment of this Lease shall be
effective unless and until Tenant shall deliver to Landlord an agreement, in
form and substance satisfactory to Landlord, pursuant to which such assignee
assumes and agrees to be bound by all of the provisions of this Lease. In no
event shall Tenant be released from its obligations hereunder as a result of any
assignment of this Lease, and the Tenant named herein and any assignee of such
Tenant who assumes the obligations of the named Tenant under this Lease, from
and after such assignment, shall be jointly and severally liable for performance
of all obligations of Tenant under this Lease.
(c) For the purposes of this Section 18, (i) the transfer or issuance of
stock or other form of voting interest ultimately resulting in ownership of a
majority of the issued and outstanding capital stock or other voting interest of
any corporate tenant, or the transfer of a majority of the total interests in
any partnership tenant or tenant which is a limited liability company, however
accomplished, whether in a single transaction or in a series of related or
unrelated transactions, shall be deemed an assignment of this Lease, except that
the transfer of the outstanding capital stock of any corporate tenant shall not
be deemed to include the sale of such stock by persons or parties through the
"over-the-counter market" or through any recognized stock exchange (ii) a
takeover agreement or similar agreement whereby the obligations of Tenant under
this Lease are assumed by another party shall be deemed a transfer of this
Lease, (iii) any person or legal representative of Tenant, to whom Tenant's
interest under this Lease passes by operation of law, or otherwise, shall be
bound by the provisions of this Section 18, and (vi) if Tenant consists of more
than one person, a purported assignment, voluntary, involuntary, or by operation
of law by any of the persons executing this Lease shall be deemed a voluntary
assignment of this Lease by Tenant.
19. SUBORDINATION; ATTORNMENT
(a) This Lease is subject and subordinate to the Land Documents and any
Mortgages, and to any renewals, modifications, increases, extensions,
replacements, and substitutions of any of the foregoing provided that such
subordination is expressly conditioned on each Mortgagee providing Tenant non-
disturbance protection pursuant to which Tenant shall not be disturbed in its
possession of the Premises for so long as Tenant is not in default of this
Lease. Each Mortgagee shall provide such non-disturbance protection pursuant to
a subordination, non-disturbance and attornment agreement in required form for
such Mortgagee (an "SNDA"), and Tenant shall execute and deliver each such SNDA
promptly upon request. In furtherance of the foregoing, Tenant shall not be
required to subordinate to any Mortgagee who does not agree to provide such non-
disturbance protection pursuant to an SNDA in required form for such Mortgagee.
Tenant acknowledges that each such SNDA may be subject to
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exceptions similar to those set forth in paragraphs (i) and (vi) of subsection
19(b) below. At the option of any Mortgagee, this Lease shall be made superior
to such Mortgage.
(b) If any Mortgagee succeeds to the rights of Landlord under this Lease,
whether through foreclosure, deed-in-lieu of foreclosure, delivery of a new
lease or otherwise (a "Successor Landlord"), then at the request of the
Successor Landlord and upon Successor Landlord's written agreement to accept
Tenant's attornment, Tenant shall be deemed to have attorned to and recognized
such Successor Landlord as Tenant's Landlord under this Lease. This provision
shall be self-operative and no further instrument of attornment shall be
required; provided, however, that Tenant shall execute, acknowledge and deliver
such further instrument(s) conforming such attornment as may be reasonably
requested by such Successor Landlord. Upon such attornment, this Lease shall
continue in full force and effect as a direct lease between Successor Landlord
and Tenant upon all of the terms set forth in this Lease after such attornment,
except that the Successor Landlord shall not:
(i) be liable for any previous act or omission of Landlord under this
Lease;
(ii) be subject to any offset;
(iii) be bound by any previous modification of this Lease, or by any
previous prepayment of more than one month's Base Rent or Additional Rent,
unless such modification or prepayment shall have been expressly approved in
writing by such Successor Landlord;
(iv) be obligated to perform any alteration of the Premises;
(v) be obligated in respect of any security deposit it shall not have
received (Landlord shall cooperate with any required transfer of the LOC to the
Successor Landlord); or
(vi) be obligated to repair the Premises or the Project or any part
thereof.
20. PERFORMANCE OF TENANT'S COVENANTS
Tenant shall perform all of the covenants and conditions on its part to be
performed under this Lease, and upon receipt of written notice from Landlord
(where notice of non-performance is required by this Lease) will immediately
comply with the requirements of such notice. If Tenant shall violate any
covenant or condition of this Lease, whether or not notice is required, Landlord
may following the expiration of any applicable cure period, at its option, do or
cause to be done any or all of the things required by this Lease. In so doing
Landlord shall have the right to cause its agents, employees, and contractors to
enter upon the Premises, and in such event shall have no liability to Tenant,
its agents and employees, for any loss or damages resulting in any way from such
action. Tenant hereby grants Landlord all necessary licenses required to carry
out the terms of this Section. Tenant shall pay to Landlord, within ten (10)
days of demand, any monies paid or expenses incurred by Landlord in taking such
actions, including attorney's fees and costs in all proceedings, and such sums
shall be collectible from Tenant as Additional Rent hereunder.
21. CUSTOM AND USAGE; NO WAIVER
Any law, usage, or custom to the contrary notwithstanding, Landlord shall
have the right at all times to enforce the covenants and conditions of this
Lease in strict accordance with the terms hereof, notwithstanding any conduct or
custom on the part of Landlord in refraining from so doing at any time or times.
The waiver by Landlord of any term, covenant or condition in this Lease shall
not be deemed to be a waiver of any subsequent breach of the same or of any
other term, covenant or condition herein. The subsequent acceptance of Base
Rent, Additional Rent or any other monetary obligation of Tenant hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach or default
by Tenant of any term, covenant or condition of this Lease, other than the
failure of
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Tenant to make the particular payment so accepted, regardless of Landlord's
knowledge of such preceding breach or default at the time of acceptance of such
payment. No covenant, term or condition of this Lease shall be deemed to have
been waived by Landlord unless such waiver is in writing and executed by
Landlord.
22. SURRENDER AND HOLDING OVER
(a) Tenant, upon expiration or termination of this Lease, either by lapse
of time or otherwise, shall peaceably surrender the Premises to Landlord in
broom-clean condition and in good repair as required in this Lease, reasonable
wear and tear and, subject to Tenant's obligations under this Lease, casualty or
condemnation excepted. In the event that Tenant shall fail to surrender the
Premises upon demand, Landlord, in addition to all other remedies available to
it hereunder or at law or in equity, shall have the right to receive, as
liquidated damages for all the time Tenant shall so retain possession of the
Premises or any part thereof, an amount equal to twice the Base Rent specified
in this Lease as applied to such period, together with all other payments
required hereunder as Additional Rent, provided that Tenant shall nonetheless be
a tenant at sufferance. If Tenant shall provide Landlord a written request not
less than six (6) months prior to the expiration of the Lease Term and Tenant is
not in default of the Lease and no event has occurred which with notice, the
lapse of time or both would result in such a default, Landlord has agreed to
provide a ninety (90) day period following the date upon which the Lease would
otherwise expire to surrender the Premises so that Tenant can vacate the
Premises in an orderly fashion, and Tenant shall take reasonable actions to
promptly and completely vacate the Premises during such ninety (90) day period.
Tenant shall pay Landlord Base Rent during such ninety (90) day period at a rate
equal to 150% of the Base Rent applicable during the final Lease year of the
Lease Term together with all Additional Rent owing under this Lease. Under such
circumstances and without limitation of Landlord's rights under Section 13 of
this Lease, during the ninety (90) day period following demand for surrender,
Landlord may with the prior consent of Tenant, such consent not to be
unreasonably withheld, delayed or conditioned, enter the Premises for all
purposes, including, without limitation, preparation of the Premises for a
successor tenant, provided that Landlord shall undertake reasonable efforts not
to unreasonably interfere with Tenant's business operations or damage the
personal property of Tenant remaining in the Premises during such ninety (90)
day period.
(b) If Tenant remains in possession of the Premises with Landlord's
consent but without a new lease in writing and duly executed by Landlord, Tenant
shall be deemed to be occupying the Premises as a Tenant from month to month,
but otherwise subject to all the covenants and conditions of this Lease.
23. ADDITIONAL CONSTRUCTION
Landlord reserves the right at any time, and from time to time, to
construct other, or add to other, buildings or improvements on surrounding
property, and to permit others to do so from time to time. In the event of such
additional construction, Landlord shall not unreasonably interfere with Tenant's
occupancy.
24. CONDEMNATION
(a) If the whole of the Premises shall be taken or condemned by any
competent authority for any public or quasi-public use or purpose, or if only a
portion of the Premises shall be taken or condemned but Tenant is not able to
carry on sufficient operations at the Premises in a manner that the purpose of
Tenant's occupancy of the Premises as for its Permitted Use is not frustrated,
this Lease shall cease and terminate as of the date on which title shall vest
thereby in that authority and the Rent reserved hereunder shall be apportioned
and paid up to such date. sale by Landlord to any authority having the power of
eminent domain or its designee, either under threat of condemnation or while
condemnation proceeding are pending, shall be deemed a taking under the power of
eminent domain for all purposes under this Article.
(b) If only a portion of the Premises shall be taken or condemned, this
Lease and the term hereof shall not cease or terminate, but the Rent payable
after the date on which Tenant shall be required to surrender possession
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of such portion shall be reduced in proportion to the decreased use suffered by
Tenant, as determined by agreement of the parties or by arbitration.
(c) In the event of any taking or condemnation in whole or in part, the
entire award of damages shall belong to Landlord, without any deduction
therefrom for the value of the unexpired term of this Lease or for any other
estate or interest in the Premises now or later vested in Tenant. Tenant assigns
to Landlord all its right, title, and interest in any and all such awards.
However, Tenant shall not be prohibited from pursuing its own action for damages
against the condemning authority for its business damages and relocation
expenses.
(d) In case of any governmental action not resulting in the taking or
condemnation of any portion of the Premises but creating a right to compensation
therefor, or if less than a fee title to all or any portion of the Premises
shall be taken or condemned by any governmental authority for temporary use or
occupancy, and provided such condemnation shall not have reduced significantly
the previously available parking for Tenant, this Lease shall continue in full
force and effect without reduction or abatement of Rent.
25. FORCE MAJEURE
With the exception of the obligation of Tenant to pay Rent and all other
amounts that may be due from time to time under this Lease, if either party
shall be delayed or hindered in or prevented from doing or performing any act or
thing required hereunder by reason of any matters beyond the reasonable control
of such party, then such party shall not be liable or responsible for any such
delays and the doing or performing of such act or thing shall be extended for a
period equivalent to the period of such delay. In such event, this Lease and
the obligations of both parties to perform and comply with all of the other
terms and provisions of this Lease shall in no way be affected, impaired, or
excused.
26. ESTOPPEL STATEMENT
Within ten (10) days after request therefor by Landlord or any Mortgagee,
Tenant shall deliver in recordable form (and signed by Tenant, if an
individual, or a duly authorized representative of Tenant if Tenant is not an
individual) a statement to Landlord, any Mortgagee, or any proposed Mortgagee or
transferee of the Project (as the case may be), certifying (if such be the case)
that this Lease is in full force and effect, that Tenant is in possession of the
Premises, that Tenant has commenced the payment of Rent, and that there are no
defenses or offsets to this Lease claimed by Tenant, as well as any other
information reasonably requested. If Tenant fails or refuses to give a
certificate hereunder within the time period herein specified, then the
information contained on such certificate as submitted by Landlord shall be
deemed correct for all purposes, but Landlord shall have the right to treat such
failure or refusal as a default by Tenant. Further, Landlord agrees that upon
Tenant's reasonable request (but not more than twice annually), Landlord shall
deliver a statement to Tenant that this Lease is in full force and effect.
27. EVENTS OF DEFAULT
The occurrence of any of the following shall, in addition to any other
events of default provided herein, constitute an event of default hereunder:
(a) Failure of Tenant to pay, when due (i.e., by the fifth day of the
month) and without notice or offset, any Base Rent or monthly installment of
Common Area Maintenance Costs provided for in this Lease; or failure of Tenant
to pay any other Additional Rent or other charges of any nature required to be
paid by Tenant under this Lease within ten (10) days after written notice from
Landlord. Notwithstanding the foregoing, Landlord agrees that, not more than
twice in any consecutive twelve (12) month period, Landlord or its agent shall
give Tenant written notice of any overdue Rent and Tenant shall not be in
default, and no interest or late fee shall be due
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with respect to such overdue Rent, provided that Tenant pays the overdue Rent
within seven (7) days following the date of deemed delivery of the notice in
accordance with Section 41 of this Lease.
(b) The filing of a petition by or against Tenant Lease for relief under
the United States Bankruptcy Code ("Bankruptcy Code"), reorganization, or
appointment of a receiver or trustee of Tenant or Tenant's property; or an
assignment by Tenant for the benefit of creditors; or the taking of possession
of the property of Tenant by any governmental officer or agency pursuant to
statutory authority for the dissolution or liquidation of Tenant; or if a
temporary or permanent receiver or trustee shall be appointed for Tenant or for
Tenant's property and such temporary or permanent receiver or trustee shall not
be discharged within thirty (30) days from the date of appointment; or any other
execution, levy, attachment or other process of law upon Tenant's leasehold
interest hereunder (or any part thereof); or if any judgment entered against
Tenant has not been satisfied or bonded within thirty (30) days of the date of
the judgment.
(c) Vacation or desertion of the Premises, or failure of Tenant to open
and actively conduct its business for a period of one hundred eighty (180)
consecutive calendar days.
(d) Tenant's failure to deliver the initial LOC (hereinafter defined) or
otherwise post or maintain in effect an LOC as required by this Lease.
(e) The removal or attempted removal of Tenant's goods or property from
the Premises, whether by Tenant or any third party pursuant to execution of a
levy, enforcement of a security interest or otherwise, other than in the
ordinary and usual course of business, without having first paid and satisfied
Landlord for all Rent which may become due during the entire Lease Term (or
extension term, as applicable).
(f) The transfer or attempted transfer of any legal or equitable interest,
whether by operation of law or otherwise, of this Lease or Tenant's interest in
this Lease, except strictly in accordance with the express terms of this Lease.
(g) Tenant's failure to perform or observe any other provision of this
Lease (including, without limitation, Tenant's covenants not to change the
Permitted Use without the prior written consent of Landlord), within thirty (30)
days after written notice and demand, provided that, if such failure is of a
character as not to permit immediate compliance in the reasonable opinion of
Landlord, then Tenant's failure to proceed diligently and immediately upon
receipt of notice to commence the cure of such failure, and thereafter to
complete such cure with all reasonable diligence within a reasonable period
thereafter.
28. LANDLORD'S REMEDIES UPON DEFAULT BY TENANT
(a) Upon the occurrence of any event of default as set forth in this
Lease, Landlord, at its option, may at such times as it may determine,
concurrently or successively, without being deemed to have waived any rights or
to have made an election of remedies in any circumstance, do any or all of the
following, in addition to any right or remedy provided by law or allowed in
equity:
(i) Landlord may serve upon Tenant notice that this Lease and the
then unexpired Lease Term shall terminate and become absolutely void on a date
specified in such notice, to be not less than ten (10) days after the date of
such notice, and this Lease, as well as the right, title, and interest of Tenant
hereunder shall, except as to the rights and remedies of Landlord upon
termination as provided herein, terminate and become void in the same manner and
with the same force and effect as if the date provided in such notice were the
date originally specified for the expiration of the Lease Term. Tenant shall
then immediately quit and surrender to Landlord the Premises and all rights of
Tenant with respect to the Common Areas, and Landlord may then or at any time
thereafter, as permitted by law after appropriate judicial proceedings, enter
into and repossess the Premises, opening locked doors, if necessary, to effect
such entrance, and may remove all occupants and any property thereon without
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being liable for any action or prosecution of any kind for such entry or the
manner thereof or loss of or damage to any property upon the Premises.
(ii) Without terminating this Lease and without notice, Landlord may,
as permitted by law after appropriate judicial proceedings, enter into and
repossess the Premises for the account of Tenant, opening locked doors if
necessary to effect such entrance, and may remove all occupants and any property
thereon without being liable for any action or prosecution of any kind for such
entry or the manner thereof or loss of or damage to any property upon the
Premises. Landlord may, in addition to its other rights and remedies, store
Tenant's property in a public warehouse or at a place selected by Landlord, at
the expense of Tenant.
In the event of either (i) or (ii) above, Landlord may, but shall not be
obligated to, obtain possession of the Premises by any judicial proceeding,
which it may, in its sole discretion, institute for such purpose. Landlord's
obtaining of possession of the Premises, shall not, of itself, terminate this
Lease.
(iii) With or without terminating this Lease and with or without
reentering and obtaining possession of the Premises, Landlord may lease the
Premises to any other person upon such terms as Landlord may deem reasonable, in
its sole discretion, and for a term within or beyond the term of this Lease.
Landlord shall apply the rent received from reletting the Premises to reduce the
obligations of Tenant under this Lease. Tenant shall remain liable for all Rent
for the balance of the then current term, together with any expenses or costs
incurred by Landlord in reentering the Premises, such as the payment of
commissions, attorney's fees, the making of alterations or otherwise, and
Landlord may recover such costs and expenses at any time, and from time to time,
after any of the foregoing events, whether prior to the end of the term herein
granted or otherwise. Landlord shall have no obligation to relet the Premises,
or any part thereof, and shall in no event be liable for failure to relet the
Premises, or any part thereof, or, in the event of any such reletting, for
refusal or failure to collect any rent due upon such reletting, and no such
refusal or failure shall operate to relieve Tenant of any liability under this
Lease or otherwise affect any such liability.
(iv) Landlord is hereby granted a valid lien, for all Rent and other
sums of money which may at any time be owing by Tenant to Landlord, upon all
furniture, fixtures (excluding trace fixtures), equipment, inventory and other
property of Tenant which may at any time be in or about the Premises. Said
property shall not be removed from the Premises without the consent of Landlord
until all arrears in Rent, as well as any and all other sums of money due
hereunder, shall first have been paid, provided further that the lien herein
granted may be enforced in accordance with the provisions of Article 9 of the
Uniform Commercial Code as in effect in the State of Florida, or in any other
manner provided by law. Tenant shall, at the request of Landlord, execute and
deliver such additional documents as may be reasonably required to perfect this
security interest. Landlord shall have all of the rights of a secured party
under the Uniform Commercial Code as in effect in Florida. Landlord agrees to
subordinate its lien to the lien of financing obtained by Tenant from an
institutional lender for property located in the Premises, provided that the
subordination is in form reasonably acceptable to Landlord.
(b) Without limitation of or by the foregoing, Tenant waives any and all
demands and notices of any kind which may be required by law to be given prior
to any entry or reentry by Landlord, by means of judicial proceedings for that
purpose or otherwise. In the event Landlord shall terminate this Lease prior to
the date of expiration of the Lease Term as set forth herein, or in the event
Landlord shall repossess the Premises, by judicial process or otherwise, with or
without termination of this Lease, Tenant waives all right to recover or regain
possession of the Premises to save forfeiture of possession or of this Lease, as
the case may be, by payment of Rent due or by other performance of the covenants
and conditions hereof, and without limitation of or by the foregoing, Tenant
waives all right to reinstate or redeem this Lease notwithstanding any
provisions of any statute, law, or decision hereafter in force and effect.
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(c) Tenant shall not interpose or assert any claim or counterclaim in any
action or proceeding brought by Landlord under this Lease. Tenant acknowledges
that any such claim or counterclaim would be inconvenient to Landlord and would
prejudice the rights of Landlord under this Lease. If Tenant violates this
subsection, Landlord and Tenant stipulate that any such claim or counterclaim
shall be severed and tried separately from the action or proceeding brought by
Landlord if permitted pursuant to applicable rules of civil procedure or other
applicable law. This subsection 28(c) shall in no way impair the right of Tenant
to commence a separate action against Landlord for any violation by Landlord of
the provisions of this Lease or to which Tenant has not waived any claim
pursuant to the provisions of this Lease, so long as notice is first given to
Landlord and any Mortgagee, and a reasonable opportunity is granted to Landlord
and/or the Mortgagee to correct such violation. In no event shall Landlord or
any Mortgagee be responsible for any consequential damages incurred by Tenant,
including lost profits or interruption of business, as a result of any default
by Landlord.
(d) The various rights, remedies, powers, options and elections of
Landlord reserved, expressed, or contained in this Lease are distinct, separate
and cumulative, and no one of them shall be deemed to be exclusive of the other
rights, remedies, powers or options provided herein, or as are now or may
hereafter be conferred upon Landlord by statute or by law or equity.
(e) On the occurrence of any of the foregoing acts of default, the entire
Rent for the balance of the then current term of this Lease, or any part
thereof, shall, at the option of Landlord, immediately become due and payable as
if by the terms of this Lease it were payable in advance, and Landlord may
immediately proceed to collect or bring an action for such Rent, or such part
thereof, as Rent being in arrears, or may file a proof of claim in any
bankruptcy or insolvency proceedings for such Rent, or may institute any other
proceedings to enforce payment thereof.
(f) No termination of this Lease, nor taking or recovering possession of
the Premises with or without termination of this Lease, shall deprive Landlord
of any remedies or actions against Tenant for Rent or any damages for the breach
of any covenant or condition herein contained, nor shall the bringing of any
such action for Rent or breach of any covenant or condition, nor the resort to
any other remedy herein or otherwise provided for the recovery of Rent or
damages for such breach, be construed as a waiver of the right to insist upon
the forfeiture and to obtain possession in the manner herein provided.
(g) No payment by Tenant or receipt by Landlord of a lesser amount than
the Rent herein stipulated shall be deemed to be other than on account of the
earliest Rent due, 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.
(h) No receipt of money by Landlord from Tenant after default or
cancellation of this Lease shall: (i) reinstate, continue, or extend the term or
affect any notice given to Tenant, (ii) operate as a waiver of the right of
Landlord to enforce the payment of Rent then due or to become due, or (iii)
operate as a waiver of the right of Landlord to recover possession of the
Premises by suit, action, proceeding, or other remedy. After: (x) service of
notice of termination and forfeiture as herein provided and the expiration of
the time specified therein, (y) the commencement of any suit, action,
proceeding, or other remedy, or (z) final order or judgment for possession of
the Premises, Landlord may demand, receive and collect any monies due, without
in any manner affecting such notice, order or judgment. Any and all such monies
so collected shall be deemed to be payment on account of the use and occupation
of the Premises or, at the election of Landlord, on account of the liability of
Tenant hereunder.
(i) Any sums which may be expended by Landlord in accordance with the
terms of this Lease that are paid on behalf of Tenant or due to Tenant's default
hereunder shall bear interest at the lesser of eighteen percent (18%) per annum
or the maximum rate allowed by law, and Tenant shall be liable for such sums
plus such interest as Additional Rent hereunder.
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29. LETTER OF CREDIT
Simultaneously with the execution and delivery of the Lease, Tenant shall
deliver an irrevocable letter of credit in the form of Exhibit "F" hereto in the
amount of $300,000 (the "LOC"). Tenant shall keep a renewal/replacement LOC in
effect through the entire term of the Lease including the renewal option term.
Landlord shall be authorized to draw under each LOC upon a default by Tenant
under this Lease which remains uncured beyond the applicable cure period,
including, without limitation, the failure of Tenant to post a replacement LOC
at least thirty (30) days before each LOC expiration date during the Lease term
as set forth in subsection 27(d) above. Landlord will draw under the LOC
amounts due Landlord as a result of the applicable default, including, without
limitation, amounts due under Section 28(e). Each replacement LOC shall be in
the same amount as the initial LOC. The issuing bank must be approved by
Landlord and the then Mortgagee, such approval not to be unreasonably withheld,
delayed or conditioned. Each LOC must include the right of Landlord to assign
the LOC to each Mortgagee as security and to Landlord's successors in interest
to the Project. Each issuing bank shall have an office in Palm Beach County,
Florida at which draws may be made by Landlord on the LOC.
30. AUTHORITY
If Tenant signs as a corporation, each of the persons executing this Lease
on behalf of Tenant represents and warrants that Tenant has been and is
qualified to do business in the state in which the Project is located, that the
corporation has full right and authority to enter into this Lease, and that all
persons signing on behalf of the corporation were authorized to do so by
appropriate corporate actions. If Tenant signs as a partnership, trust or other
legal entity, each of the persons executing this Lease on behalf of Tenant
represents and warrants that Tenant has complied with all applicable laws, rules
and governmental regulations relative to its right to do business in the state
in which the Project is located, and that each of the persons or entities acting
on behalf of the Tenant was authorized to do so by any and all appropriate
partnership, trust or other actions. Tenant agrees to furnish promptly upon
request a corporate resolution, proof of due authorization by partners, or other
appropriate documentation evidencing the due authorization of Tenant to enter
into this Lease.
31. LIABILITY OF LANDLORD
(a) Tenant shall look solely to Landlord's interest in the Project and
Landlord's personal property used in connection with the Project for the
satisfaction of any judgment or decree requiring the payment of money by
Landlord, based upon any default hereunder, and no other property or asset of
Landlord shall be subject to levy, execution, or other enforcement procedure for
the satisfaction of such judgment or decree.
(b) Tenant shall be in exclusive control and possession of the Premises,
and Landlord shall not be liable for any injury or damages to any property or to
any person on or about the Premises, nor for any injury or damage to any
property of Tenant, except for damages resulting from Landlord's negligence or
intentinal misconduct. The provisions herein permitting Landlord to enter and
inspect the Premises are made to ensure that Tenant is in compliance with the
terms and conditions hereof and to make repairs that Tenant has failed to make.
Landlord shall not be liable to Tenant for any entry on the Premises for
purposes permitted under this Lease, except with respect to the negligence or
intentional misconduct of Landlord or its agents.
32. LEGAL EXPENSES
If any legal action or other proceeding is brought for the enforcement of
this Lease, or because of an alleged dispute, breach, default or
misrepresentation in connection with any provisions of this Lease, the
successful or prevailing party or parties shall be entitled to recover
reasonable fees of attorneys, paralegals, and legal assistants, court costs and
all expenses even if not taxable as court costs (including, without limitation,
all such fees, costs and expenses incident to appeals), together with any sales
tax thereon, incurred in that action or proceeding, in addition to any other
relief to which such party or parties may be entitled.
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33. LAND DOCUMENTS; RULES AND REGULATIONS
The parties shall be bound by all existing and future Land Documents and
the Rules and Regulations, in the form of Exhibit "D" hereto, governing the
Premises and the Project or any part thereof as same may be amended. The Rules
and Regulations shall be subordinate to the terms and provisions of this Lease.
34. TIME OF THE ESSENCE
Time is of the essence in all provisions of this Lease.
35. QUIET ENJOYMENT
Upon payment by Tenant of the Rents and other charges herein provided, and
upon the observance and performance of all the covenants, terms and conditions
on Tenant's part to be observed and performed, Tenant shall peaceably and
quietly hold and enjoy the Premises for the term hereby demised without
hindrance or interruption by Landlord or any other person or persons lawfully or
equitably claiming by, through or under Landlord, subject, nevertheless, to the
terms and conditions of this Lease and all existing or future Mortgages
encumbering the Project.
36. SIGNS
Without the prior written consent of Landlord, which consent may be
withheld in Landlord's sole and absolute discretion, no sign or other
promotional or informational materials of any nature shall be placed on the
exterior of the Premises, in any window visible from the exterior of the
Project. Signage shall be permitted only as provided in Exhibit "E".
37. SCOPE AND INTERPRETATION OF AGREEMENT; CONFIDENTIALITY
This Lease and all Exhibits set forth all of the covenants, promises,
agreements, conditions, and understandings between Landlord and Tenant
concerning the Premises, and there are no covenants, promises, conditions, or
understandings, either oral or written, other than as set forth herein. No
subsequent alteration, change or addition to this Lease shall be binding upon
Landlord or Tenant unless reduced to writing and signed by both parties. The
laws of the State of Florida shall govern the validity, interpretation,
performance, and enforcement of this Lease. This Lease shall not be more
strictly enforced against either party regardless of who was more responsible
for its preparation. A memorandum of this Lease in form and content mutually
acceptable to Landlord and Tenant (such acceptance not to be unreasonably
withheld, delayed or conditioned) may be recorded in the public records of Palm
Beach County, and upon termination or expiration of this Lease, Tenant shall
immediately record a termination of the memorandum of lease in the public
records of Palm Beach County. Except as set forth in the preceding sentence,
except at Landlord's option, no part of this Lease or any memorandum thereof may
be recorded in the public records of any municipality or county. Tenant will
maintain the confidentiality of this Lease and, except as required by applicable
law, will not divulge the economic or other terms of this Lease, whether
verbally or in writing, to any person, other than Tenant's officers, directors,
partners or shareholders; Tenant's attorneys, accountants and other professional
consultants; any governmental agencies; and pursuant to subpoena or other legal
process.
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38. INVALID PROVISIONS
If any provision of this Lease shall be determined to be void by any court
of competent jurisdiction or by any law enacted subsequent to the date hereof,
then such determination shall not affect any other provisions hereof, all of
which other provisions shall remain in full force and effect.
39. CAPTIONS
Any headings preceding the text of the provisions and subparagraphs hereof
are inserted solely for convenience of reference and shall not constitute a part
of this Lease, nor shall they affect its meaning, construction or effect.
40. SUCCESSORS AND ASSIGNS
All rights, obligations, and liabilities given to, or imposed upon, the
parties hereto shall extend to and bind the respective heirs, executors,
administrators, successors, sublessees, licensees, concessionaires and assigns
of such parties, subject to the terms of Section 18 hereof. No rights, however,
shall inure to the benefit of any assignee or sublessee of Tenant unless the
assignment or sublease has been approved by Landlord in writing as required
under this Lease. Nothing contained in this Lease shall in any manner restrict
Landlord's right to assign or encumber this Lease. The original Landlord named
herein, and each successive owner of the Project, shall be liable only for
obligations accruing during the period of its ownership.
41. NOTICES
All notices, requests, consents and other communications required or
permitted under this Lease shall be in writing (including telex, facsimile and
telegraphic communication) and shall be (as elected by the person giving such
notice) hand delivered by messenger or overnight courier service, faxed or
telecommunicated (with original to follow by overnight commercial courier for
delivery on the next business day), or mailed by registered or certified mail
(postage prepaid), return receipt requested, addressed to Landlord's Address and
Tenant's Address, as appropriate, or to such other address as any party may
designate by notice complying with the terms hereof. Each such notice shall be
deemed delivered (a) on the date delivered if by personal or overnight delivery,
(b) on the date telecommunicated if by telegraph or facsimile (with original to
follow as provided above), (c) on the date of transmission if by telex, and (d)
on the date upon which the return receipt is signed or delivery is refused or
the notice is designated by the postal authorities as not deliverable, as the
case may be, if mailed.
42. USE OF PREMISES
Tenant shall use and occupy the Premises only for the Permitted Use and for
no other purpose, without the prior written consent of Landlord.
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43. GENERAL PROVISIONS GOVERNING TENANT'S IMPROVEMENTS
(a) This section shall apply to all alterations, improvements, or
additions (collectively, "improvements") made to the Premises during the Lease
Term, as permitted in this Lease, other than the improvements to be made with
-------------------------------------------
the Improvement Allowance and the Additional Improvement Allowance pursuant to
- -------------------------------------------------------------------------------
Section 4 above.
- ---------------
(b) Before entering the Premises for the purpose of performing
improvements, Tenant shall deposit with Landlord certificates of workmen's
compensation insurance and liability insurance of Tenant's general contractor,
or, if none, from each of Tenant's independent contractors. Liability insurance
shall be in an amount not less than $1,000,000 per occurrence, or such greater
amount as Landlord may reasonably require from time to time, and shall name
Landlord and each Mortgagee as additional insureds. The liability insurance
shall be on a comprehensive form, and shall cover all hazards related to any
work performed by any such contractor on the Premises. At Landlord's option, in
connection with any improvements reasonably expected to cost in excess of
$25,000, Tenant shall provide, at Tenant's sole expense, a payment and
performance or completion bond in an amount equal to the estimated cost of any
improvements to the Premises to be made by Tenant and otherwise in form and
substance satisfactory to Landlord.
(c) Any damage to the Premises or the Project caused by Tenant or any of
its employees, contractors, or workmen shall be repaired promptly by and at the
expense of Tenant. Tenant shall be responsible for the disposal of waste
generated with respect to its work.
(d) All improvements within the Premises shall be completed with new
materials, unless otherwise approved in writing by Landlord. Materials used and
workmanship performed shall be of a uniformly high quality in accordance with
the best standards of practice, and shall be subject to the approval of
Landlord.
(e) The opinion of Landlord's architect shall be final and binding upon
Landlord and Tenant respecting all matters of dispute regarding any
improvements, including the state of completion and whether or not the work is
completed in a good and workmanlike manner.
(f) Upon completion of the improvements, Tenant shall cause to be
furnished to Landlord a final contractor's affidavit, stating that there are no
liens outstanding against the Premises or the Project on account of the
improvements, and that all accounts for work, service and materials have been
paid in full.
44. WAIVER OF JURY TRIAL
LANDLORD AND TENANT HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS LEASE OR THE
OBLIGATIONS EVIDENCED HEREBY, OR ANY OTHER DOCUMENT OR INSTRUMENT CONTEMPLATED
TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT TO EACH OF LANDLORD AND TENANT IN ENTERING
INTO THIS LEASE.
45.
INSOLVENCY OR BANKRUPTCY
Upon the filing of a petition by or against Tenant under the Bankruptcy
Code, Tenant, as debtor and as debtor in possession, and any trustee who may be
appointed, agree as follows:
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(a) to perform each and every obligation of Tenant under this Lease until
such time as Tenant's interest in this Lease is either rejected or assumed by
order of the U.S. Bankruptcy Court;
(b) to pay monthly in advance, on the first day of each month, as
reasonable compensation for use and occupancy of the Premises, an amount equal
to all Rent and other charges due pursuant to this Lease;
(c) to reject or assume this Lease within 60 days after the filing of such
petition under Chapter 7 of the Bankruptcy Code or within 120 days (or such
shorter term as Tenant, in its sole discretion, may deem reasonable so long as
notice of such period is given) of the filing of a petition under any other
Chapter;
(d) to give Landlord at least 45 days prior written notice of any
proceeding relating to any assumption of this Lease;
(e) to give at least 30 days' prior written notice of any abandonment of
the Premises; any such abandonment to be deemed a rejection of this Lease;
(f) to do all other things of benefit to Landlord otherwise required under
the Bankruptcy Code;
(g) to be deemed to have rejected this Lease in the event of the failure
to comply with any of the above; and
(h) to have consented to the entry of an order by an appropriate U.S.
Bankruptcy Court providing all of the above, and waiving notice and hearing
prior to the entry of such order. No default of this Lease by Tenant, either
prior to or subsequent to the filing of such petition, shall be deemed to have
been waived unless expressly done so in writing by Landlord, and included within
and in addition to any other conditions or obligations imposed upon Tenant or
its successor in the event of assumption and/or assignment of this Lease are the
following:
(i) the cure of any monetary defaults and the reimbursement of
pecuniary loss within not more than 30 days of assumption and/or assignment of
the Lease; and
(ii) the use of the Premises strictly in accordance with the
requirements of this Lease.
46. NO REPRESENTATIONS; NO OFFER
(a) Tenant acknowledges and agrees that it has not relied upon any
statements, representations, agreements or warranties except those expressed in
this Lease, and that this Lease contains the entire agreement of the parties
hereto with respect for the subject matter hereof.
(b) The submission of this document for examination and review does not
constitute an option, an offer to lease space, or an agreement to lease space.
This document shall have no binding effect on the parties unless and until
executed and delivered by both Landlord and Tenant, and will be effective only
upon Landlord's execution and delivery of the same.
47. BROKERS
Tenant represents and warrants that it has not dealt with any brokers,
finders or like agents in connection with the negotiation, execution or delivery
of this Lease, with the exception of Ben DeVries. Landlord shall be solely
responsible for the payment of the commission due to Ben DeVries with respect to
this Lease. Tenant agrees to, indemnify, defend and hold Landlord harmless from
and against obligations, losses, claims, liabilities, damages, costs and
expenses including all attorneys' fees and disbursements) incurred by reason of
any claim or of liability to any other broker, finder, like agent or other
person claiming by, through or under Tenant or claiming to have
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<PAGE>
rendered services for Tenant for commissions or other compensation or charges
with respect to the negotiation, execution and delivery of this Lease, and such
obligations shall survive the expiration or sooner termination of this Lease.
48. EXHIBITS
The following exhibits are a part of this Lease and are incorporated herein
by reference:
Exhibit "A" - Legal Description
Exhibit "B" - Acceptance Letter
Exhibit "C" - Tenant's Allowances and Landlord's Work
Exhibit "D" - Rules and Regulations
Exhibit "E" - Signage Requirements
IN WITNESS WHEREOF, the parties have caused this Lease to be executed as of the
day and year first above written.
TENANT:
INTELLIGENT LIFE CORPORATION, a Florida corporation
By: _____________________________________
Name:____________________________________
Title: __________________________________
LANDLORD:
WK3 INVESTORS, LTD., a Florida limited partnership
By: WK3 EQUITY INVESTORS, LTD., a Florida limited
partnership, its general partner
By: WK3 EQUITY CORPORATION, a Florida corporation, its
general partner
By: _____________________________________
Name:____________________________________
Title: __________________________________
Page 30
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EXHIBIT "A"
LEGAL DESCRIPTION
Page 31
<PAGE>
EXHIBIT "B"
TENANT ACCEPTANCE LETTER
Date: ___________________
Intelligent Life Corporation
____________________
____________________
Attn: ______________________
Re: Lease Agreement ("Lease") dated September 27, 1999, between WK3
-----
Investors, Ltd. ("Landlord") and Intelligent Life Corporation
--------
("Tenant")
------
Please confirm the following information by filling in any spaces below, as
applicable, and counter-signing this letter as provided below:
1. The Commencement Date (as defined in the Lease) occurred on ________.
2. All alterations and improvements required to be performed by Landlord
pursuant to the provisions of the Lease to prepare the entire Premises
for Tenant's initial occupancy have been satisfactorily completed.
3. As of the date hereof, Landlord and Tenant have each fulfilled all of
their respective obligations under the Lease.
4. The Lease is in full force and effect and has not been modified,
altered, or amended, except as follows [if none, state "None"]:
______________________________________________.
5. There are no offsets or credits against Base Rent or Additional Rent
(as defined in the Lease).
Very truly yours,
WK3 Equity Corporation, General Partner of the
General Partner of the Landlord
By: ______________________________
Name: ____________________________
Title: ___________________________
Agreed to and accepted as of ______________, 19___
Intelligent Life Corporation, a Florida corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
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<PAGE>
EXHIBIT "C"
TENANT'S ALLOWANCES AND LANDLORD'S WORK
Landlord shall provide Tenant (a) an allowance of TWENTY FIVE DOLLARS
($25.00) per rentable square foot for initial improvement work in preparing the
Premises for Tenant's use (the "Improvement Allowance"); (b) an additional
allowance of $100,000.00 for an emergency generator and data center (the
"Additional Improvement Allowance"); and (c) an additional allowance of
$120,000.00 for interior space plan and design (the "Design Allowance"). All
such allowances shall be disbursed by, and in accordance with the draw
requirements of, Landlord's construction lender. The Improvement Allowance and
the Additional Improvement Allowance shall be available solely for the hard
costs of leasehold improvements (the "Improvement Work"), and no portion thereof
shall be used for furniture, personal property, working capital or other such
purposes.
Tenant shall be responsible for developing all plans and specifications for
the Improvement Work, but all such work shall be done by Landlord's general
contractor. Landlord will instruct its general contractor to obtain three bids
from subcontractors for each major component of the Improvement Work expected to
have a cost to compete in excess of $10,000. If the cost of the Improvement Work
will exceed the Improvement Allowance and the Additional Improvement Allowance,
Tenant will be solely responsible for such excess cost, and the full amount of
the excess cost must be deposited with Landlord (or its construction lender, if
so required) within ten (10) days after Tenant's approval of the cost of the
Improvement Work. The failure to deposit the excess cost in full at such time
shall constitute a default under the Lease.
Tenant acknowledges and agrees that no changes to the approved plans and
specifications for the Improvements will be made following the approval thereof
except pursuant to a written change order executed by Landlord and Tenant and
providing for Tenant's agreement to bear all of the costs associated with such
change order, as well as Tenant's agreement to pay Rent during any period that
the Commencement Date is delayed as a result of such change order. In no event
will Tenant communicate any changes or other directives to the general
contractor unless Tenant obtains Landlord's prior written approval.
Landlord's Work shall be as detailed on Exhibit "C-1" attached hereto.
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT "C-1"
<S> <C>
Sitework: A. Clearing of site as required.
B. Clean fill spread and compacted to subgrade for one (1)
building pad, parking lot and landscape areas.
C. Storm water and retention systems as required.
D. Water and sewer services to building.
E. Fire hydrants as required to meet fire marshal
requirements.
F. Conduit for tenant phone and power service from property
line to building.
G. Paving layout in accordance with site plan.
1. Parking spaces for three hundred twenty (320) vehicles.
2. Six (6") inch compacted limerock base auto parking and
secondary driveways.
3. One and one-half (1 1/2" inch type II asphaltic
concrete.)
4. Stripes, bumpers, handicapped signage as required.
H. Concrete walks at building entries and extruded curbs at
parking lot end islands.
I. Six foot high dumpster enclosure with gates.
J. Code required landscape and irrigation of site.
K. Soil Compaction: Dynamic Compaction
Structure - Foundation: A. Concrete - Footings
1. Footings excavated, compacted formed as required with
grade 60 steel rebar, poured using 3,000 P.S.I. concrete.
Continuous at walls.
2. Spread footings at columns excavated, compacted formed
placing of grade 60 rebar, poured using 3,000 P.S.I.
concrete.
B. Concrete - Slab on Grade
1. Building corners to be laid out by a Professional Land
Surveyor.
2. Soil bearing capacity at 2,500 psf.
3. Slab on grade to be formed as required compacted to 95%
density.
4. Termite soil treatment with one (1) year warranty
5. Rough-in plumbing and electrical as required.
6. Lay 6 mil visqueen vapor barrier.
7. Lay 6 x 6 - 10/10 welded wire mesh.
8. Pour 3,000 P.S.I. concrete 5" thick.
9. Cure slab using Silco Seal 77 or equal
A stem wall survey will be made to assure building meets all
required set backs per code.
Building - Structure & A. Structural engineering of panels and engineering for
Tilt Up Wall lifting.
Panels:
B. Form panels on existing slab, set structural embeds,
lifting accessories, rustications, door frames and place
reinforcing.
C. Pour panels using 3,000 P.S.I. concrete minimum 7 1/2"
thick reinforced.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
D. Level pads, erect panels, plumb and align walls.
E. Brace panels for 28 days. Grout at footings.
F. Prepare and patch ext. ready for texcote.
G. Egress doors for emergency exit per code.
H. Exterior finish textured oil base paint (texcote).
I. Special inspector, as required, throughout all
structural operations of the project.
J. Floor loads are as follows:
1. Dead loads: 62 lbs. per square foot.
2. Live loads: 60 lbs. per square foot.
3. Partition load 20 lbs. per square foot.
K. Roof loads:
1. Dead load 20 lbs. per square foot.
2. Live load 30 lbs. per square foot.
Structural Steel: A. Steel bar joists and girders.
B. Steel columns on grid system.
C. All steel fabricated, erected and shop primed, gray.
D. Galvanized corrugated roof deck.
E. Miscellaneous angles and air conditioning support frames as
required.
F. Structural bay spacing 30' x 30' typical or most economical.
Roofing: A. Insulation with R value of R-19 throughout.
B. 4-ply built up roofing system, making a continuous,
waterproof membrane per manufacturer's specifications.
C. Interior roof drains as per mechanical engineer's design.
D. Provide ship's ladder to roof inside one stair tower.
E. Manufacturer 15 year bond included.
Glass & Glazing: A. Exterior glass to cover approximately 15% of exterior wall
area.
B. Glass to be tinted.
C. Two pairs of entrance doors 3'0" x 8'0" glass doors with
standard stile. Glass transom above doors to be 2'0" high.
D. Typical windows at office perimeter walls to be 5'0" x 5'0"
at 10'0" on center.
E. All exterior glass to be impact resistant system for
compliance with hurricane code.
Fire Sprinklers: Building to be fully fire sprinkled according to NFPA standards.
NFPA 101 ordinary hazard fire sprinklers. Special system for
computer room.
Common Areas: A. Building shell includes 2 code required exit stairwells and
1 lobby stairway, men's and women's restrooms to code, one (1)
elevator, elevator machine room, electrical and phone rooms and
ventilation chases as required.
B. Other common areas (lobby and hallways) may be provided
based upon final tenant requirements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
C. Common areas include all items necessary to completely
finish them to Class A standards.
Plumbing: A. Briggs fixtures or equal.
B. Public restrooms provided each floor with fixture quantity
based on minimum code requirements for 300 employees and 20
visitors. Includes all local handicap and ADA requirements.
C. Provide hose bibs and water coolers per code.
D. Provide five (5) wet stacks for hookup of tenant's plumbing
at various locations in building.
Electric: A. Electrical main 3000 amp switch. Service to be 277/480
volt.
B. One (1) distribution panel for HVAC 480 volt.
C. One (1) distribution panel for lighting and ventilation
277/480 volt at each floor.
D. One (1) distribution panel on each floor for general
power using step down transformers 120/208 volt at each
floor.
E. All exit signs, battery emergency lights, fire alarm
control wiring and panel for common areas.
F. Site lighting to consist of shoebox fixtures on precast
concrete poles, 25' high in sufficient arrangement to
provide 1.5 foot candles over the site.
G. Gutter provided for hookup of and metering of tenant's
power.
H. Conduit provided for main phone feed to central phone
room from property boundary.
I. Electrical capacity 18 to 20 watts per square foot.
J. All fluorescent electrical lighting shall be
electronically ballasted high efficiency.
Elevators: A. Provide one (1) Dover Seville 35 elevator or equal.
B. Capacity to be 3,500 lbs. Each.
C. Cab to be 10' clear height.
</TABLE>
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EXHIBIT "D"
RULES AND REGULATIONS
Tenant covenants and agrees with Landlord to obey the following Rules and
Regulations:
(a) All deliveries of shipments of any kind to and from the Premises,
including loading and unloading of goods, shall be made only at such locations
and times reasonably designated by Landlord, and only designated for such
purpose by Landlord, and all deliveries shall be unloaded in accordance with any
jurisdictional rights of any interested labor unions as determined by Landlord.
Any damage to the Project caused by Tenant's movers or personnel shall be
reimbursed to Landlord within ten (10) days of receipt of and invoice therefor.
(b) All garbage and refuse shall be kept in the kind of container
specified by Landlord, and shall be placed outside of the Premises prepared for
collection in the manner and at the times and places specified by Landlord.
Landlord shall provide or designate a service for picking up refuse and garbage,
and the cost thereof shall be included as a Common Area Maintenance Cost.
(c) No antenna, dish or other communication device shall be erected on the
roof, exterior walls, or grounds of the Project without, in each instance, the
written consent of Landlord, which consent will not be unreasonably withheld,
delayed or conditioned. Landlord acknowledges that Tenant intends to place
communication devices on the roof of the Project. Any antenna, dish or other
communication device so installed without such written consent shall be subject
to removal at the expense of Tenant.
(d) The plumbing facilities shall not be used for any purpose other than
that for which they are constructed, no foreign substance of any kind shall be
thrown therein, and the expense of any breakage, stoppage, or damage resulting
from a violation of this rule shall be borne by Tenant.
(g) Tenant shall pay for and maintain a termite and pest extermination
service for the Premises.
(h) Tenant shall not burn any trash or garbage of any kind in or about the
Premises.
(i) Tenant agrees that Landlord may amend, modify, delete, or add new and
additional reasonable rules and regulations for the use and care of the Premises
and the Project. Tenant agrees to comply with all such reasonable rules and
regulations upon notice to Tenant from Landlord, or upon the posting of the same
in such place within the Project as Landlord may designate.
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EXHIBIT "E"
SIGNAGE REQUIREMENTS
Tenant shall be provided with directory and lobby signage. Exterior signage
shall be subject to approval by Landlord (and all governmental authorities, as
applicable). Subject to the receipt of all required governmental approvals, such
exterior signage may be back-lit. The cost of such signage shall be paid from
the Improvement Allowance.
Promptly following execution of the Lease, Tenant shall provide Tenant's
signage information to Landlord.
Any changes in signage from time to time as requested by Tenant shall be
coordinated by Landlord and the costs thereof shall be charged to Tenant as
Additional Rent.
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EXHIBIT F
(BANK LETTERHEAD)
RE: Irrevocable Letter of Credit No.______________________
Gentlemen:
By order of our client, [Insert Name And Address Of Tenant], we hereby open our
irrevocable letter of credit No. _________________ in favor for an amount not to
exceed in the aggregate $300,000.00. Effective immediately and expiring at our
[Insert Bank Street Address] office, ________, _______, with our close of
business on [Insert Date One Year From Date Of Issuance].
We hereby agree with you that drafts drawn under and in compliance with the
terms and condition of this Credit shall be duly honored if presented together
with: (a) the original of this Credit, and (b) an affidavit executed by an
authorized representative of the Beneficiary stating that a default by the
tenant has occurred under that certain lease agreement dated as of _________ ,
1999 between Intelligent Life Corporation and ____________, and such default
remains uncured beyond the applicable grace period, entitling the Beneficiary to
the proceeds of this Credit.
We will honor your draft, prior to 2:00 p.m. ([insert city], Florida time), on
the same Business Day the draft is presented, if the draft is presented at or
before 11;00 a.m. ([insert city], Florida time) on any Business Day, or not
later than 10:00 a.m. ([insert city], Florida time) on the next following
Business Day, if the draft is presented after 11:00a.m. ([insert city], Florida
time) on any Business Day. For the purposes hereof, a "Business Day" shall mean
a day on which banks located in the State of Florida are not required or
authorized to remain closed.
This letter of credit shall be automatically reserved from year to year until
the earlier of [Insert The Expiration Date Of This Lease] or terminated by the
undersigned by notice to you given not less than ninety (90) --- days prior to
the then expiration date therefor.
This letter of credit is transferable.
Except as far as otherwise expressly stated herein, this letter of credit is
subject to the uniform customs and practice for documentary credits (1983
revision) International Chamber of Commerce Publications No. 400.
[Name Of Bank]
Authorized Signature
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EXHIBIT 10.16
PURCHASE AND SALE AGREEMENT
---------------------------
THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made as of September 27,
1999 by and between INTELLIGENT LIFE CORPORATION, a Florida corporation
("Buyer"), having an address at 11811 U.S. Highway One, Suite 101, North Palm
Beach, Florida 33408, and WORKPLACE HOLDINGS, LTD., a Florida limited
partnership ("Seller"), having an address at 222 Lakeview Avenue, 17th Floor,
West Palm Beach, FL 33401.
W I T N E S S E T H:
--------------------
A. Abacoa Development Company, a Delaware corporation ("Abacoa") is the
developer of a planned community known as Abacoa (the "Abacoa Project") located
on certain real property (which includes the real property referred to in this
Agreement) in the Town of Jupiter, Florida ("Town");
B. Seller intends to purchase from Abacoa certain real property comprising
the "Workplace District" of the Abacoa Project;
C. Buyer and WK3 Investors, Ltd., a Florida limited partnership ("WK3
Investors") that is an affiliate of Seller, have entered into a certain Lease
Agreement of even date herewith (the "Initial Project Lease"), pursuant to which
WK3 Investors will construct an office building, to be occupied by Buyer, on
certain land within the Workplace District (the "Initial Project") which is also
a portion of the "Workplace District" property to be purchased by Seller from
Abacoa;
D. Buyer has agreed to purchase from Seller, on the terms and conditions
of this Agreement, a portion of the "Workplace District" adjacent to the land on
which the Initial Project will be located in order to provide for the
construction of a second building as expansion space for Buyer when needed:
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Buyer and Seller hereby agree as
follows:
1. AGREEMENT TO SELL AND PURCHASE. Conditioned on Seller acquiring title to
------------------------------
the "Property", Seller agrees to convey to Buyer, and Buyer agrees to purchase
from Seller, for the price and upon and subject to the terms and conditions set
forth herein, a parcel of real property located in Palm Beach County, Florida,
containing approximately two and 15/100 (2.15) acres and shown on the sketch
attached hereto as Exhibit 1(a) (the "Property"). The Property is a portion of
Tract WK3 of Abacoa Plat No. 1, according to the plat thereof, as recorded in
Plat Book 78, Pages 145 through 163 inclusive, Public Records of Palm Beach
County, Florida. Seller shall deliver to Buyer the legal description for the
Property within thirty (30) days after the date of this Agreement. Seller's
obligations hereunder are expressly contingent upon Seller acquiring title to
the Property. In the event Seller does not acquire title to the Property by
December 31, 1999, this Agreement shall terminate, in which event the Deposit,
together with all interest thereon, shall be refunded to Buyer, whereupon all
obligations of the parties hereto shall cease and this Agreement shall be null
and void and without recourse to the parties hereto except with respect to
provisions hereof which specifically survive such termination.
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2. PURCHASE PRICE; DEPOSIT; ADJUSTMENTS; ESCROW.
--------------------------------------------
(a) Purchase Price: The purchase price for the Property ("Purchase Price")
--------------
shall be Six and 50/100 Dollars ($6.50) per square foot of the Property, which
is equal to Six Hundred Eight Thousand Seven Hundred Fifty One and No/100
Dollars ($608,751.00) based on the estimate of two and 15/100 (2.15) acres. The
actual Purchase Price shall be determined when the legal description of the
Property has been finalized. The Purchase Price shall be payable as follows:
(i) A deposit (the "Deposit") in the amount of Sixty Thousand and No/100
Dollars ($60,000.00) shall be paid to Escrow Agent (as defined below) by
Buyer, when the last party executes and delivers this Agreement, by wire
transfer of immediately available federal funds and is to be delivered to
Seller by Escrow Agent at the "Closing" (as hereinafter defined); and
(ii) The balance of the Purchase Price, equal to Five Hundred Forty Eight
Thousand Seven Hundred Fifty One and No/100 Dollars ($548,751.00), shall be paid
by Buyer to Seller, subject to adjustments for the Property square footage and
as otherwise provided for in this Agreement, by wire transfer of immediately
available federal funds at Closing upon the delivery and acceptance of the Deed.
(b) Deposit.
-------
(i) The Deposit shall be held in an interest-bearing escrow account as
provided in Section 2(d) below, subject to the terms of this Agreement, and
shall be duly accounted for at Closing (as defined below). All interest on the
Deposit is to be accounted for and accrue to the account of Buyer if the Closing
occurs; or paid to Buyer if the Deposit (or any portion thereof) is returned to
Buyer under the terms of this Agreement; or if Seller shall retain the Deposit
under the provisions of Section 9(b) of this Agreement, then the entire amount
of the interest shall be paid to Seller.
(ii) The Deposit shall be refundable to Buyer only if Seller does not
acquire title to the Property and record the Plat or if Seller shall fail to
fulfill its agreement herein to convey the Property on the Closing Date and
Buyer does not obtain specific performance as provided in Section 9(a) below.
(c) Adjustments; Prorations; Credits. The Purchase Price shall be adjusted
--------------------------------
to reflect the following:
(i) Water and sewer use charges, charges for utilities, property owners'
association assessments, and real property taxes and assessments with respect to
the Property for the year in which the Closing occurs (with full discount) shall
be apportioned as of the Closing Date, and the net amount shall be added to or
deducted from the Purchase Price, as the case may be. Buyer shall have no
liability for real property taxes or assessments with respect to the Property
for years prior to the year in which the Closing occurs, and Seller shall have
no liability for real property taxes or assessments with respect to the Property
for the year in which the Closing occurs (other than the prorations provided
herein) or years following the year in which the Closing occurs. If the
Property is a portion of a larger tax or assessment parcel, then the amount of
real estate taxes and assessments to be prorated hereunder shall be limited to
the Proportionate Share (as calculated below) of the taxes and assessments which
are attributable to the Property. The "Proportionate Share" shall be calculated
by multiplying the total amount of real estate taxes and assessments by a
fraction, the numerator of which shall be the total acreage (or fraction
thereof) comprising the Property, and the denominator of which shall be the
total acreage of the larger tax or assessment parcel.
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(ii) If, on the Closing Date, the current real property tax or assessment
bill with respect to the Property is not available, the amount of real property
taxes and assessments shall be apportioned based on the current year's millage
and the current year's assessment. If the current year's millage is not fixed
and the current year's assessment is available, taxes and assessments will be
apportioned based on such assessment and the prior year's millage. If the
current year's assessment is not available, then real property taxes and
assessments will be apportioned on the prior year's taxes and assessments. Any
apportionment of taxes or assessments based upon any figures other than a final
tax and assessment bill shall, at the request of either Buyer or Seller, be
subsequently reapportioned based upon receipt of the final tax and assessment
bill for the current year.
(iii) Each party shall pay its own attorneys' fees and costs incurred in
connection with the negotiation of this Agreement and consummation of the
transactions contemplated by this Agreement, except as otherwise expressly
provided herein. Seller shall pay the cost of all deed or other transfer taxes
(including all documentary stamp taxes), with respect to the transactions
contemplated by this Agreement, all recording costs (including recording costs
associated with releases and other documents required to clear title or to
comply with Seller's obligations hereunder), and an ALTA owner's title insurance
policy insuring Buyer's title to the Property. Buyer shall pay the cost of a
current survey of the Property meeting ALTA requirements or the technical
standards set forth in Florida Administrative Code Rule 61G17-6.002 ("Survey"),
if Buyer elects to obtain a Survey. Any items of cost or expense not
specifically allocated above shall be paid by the party to the transaction that
customarily bears such cost or expense within Palm Beach County, Florida.
(iv) If at any time following the making of any of the adjustments to the
Purchase Price, the amount thereof shall prove to be incorrect, or it should be
discovered that some adjustment which should have been made was inadvertently
omitted altogether, the party in whose favor the error was made shall pay the
sum necessary to correct such error to the other party within fifteen (15) days
following receipt of notice of such error from such other party and resolution
of any dispute with respect thereto.
(d) Escrow Account.
--------------
(i) The Deposit shall be held by Gunster, Yoakley, Valdes-Fauldi &
Stewart, P.A., as escrow agent ("Escrow Agent"), in a separate interest-bearing
account. Such account shall be maintained until the Deposit and the interest
thereon have been delivered to Buyer, Seller or a court of competent
jurisdiction in accordance with the provisions of this Agreement and shall
terminate on the date of such delivery.
(ii) Escrow Agent shall account for the Deposit in accordance with the
terms of this Agreement or in such other manner as may be directed in a joint
written notice from Seller and Buyer directing some other disbursement of the
Deposit. If Escrow Agent receives written notice from either Buyer or Seller
that the other party has defaulted in the performance of its obligations under
this Agreement or that any condition to the performance of obligations under
this Agreement has not been fulfilled within the time period stipulated, which
notice shall describe in reasonable detail such default or non-performance, then
Escrow Agent shall (A) unless the notice evidences that a copy has been given to
the party alleged to have defaulted or to have failed to fulfill its obligation,
within two (2) business days give notice to such party of Escrow Agent's receipt
of such notice from the other party and shall enclose a copy of such notice from
the other party, and (B) subject to the provisions of Section 2(d)(iii) below
which shall apply if a conflict arises, on the tenth (10th) calendar day after
the giving of the notice referred to in clause (A) above, deliver the Deposit
(or the appropriate portion thereof) and the interest thereon to the party
claiming the right to receive it.
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(iii) If Escrow Agent is uncertain as to its duties or actions
hereunder, it shall be entitled to take any of the following courses of action:
(A) hold the Deposit as provided above in this Section 2(d) and decline to take
any further action until Escrow Agent receives a joint written direction from
Buyer and Seller or an order of a court of competent jurisdiction directing the
disbursement of the Deposit, in which case Escrow Agent shall then disburse the
Deposit in accordance with such direction; (B) in the event of litigation
between Buyer and Seller, deliver the Deposit and all interest thereon to the
clerk of any court in which such litigation is pending; or (C) deliver the
Deposit and all interest thereon to a court of competent jurisdiction and
commence an action for interpleader in such court, whereupon Escrow Agent shall
have no further duty with respect to the Deposit.
(iv) Escrow Agent shall not be liable for any action taken or omitted in
good faith and may rely, and shall be protected in acting or refraining from
acting in reliance, upon an opinion of counsel and upon any directions,
instructions, notices, certificates, instruments, requests, papers or other
documents believed by it to be genuine and to have been made, sent, signed or
presented by the proper party or parties.
(v) Buyer acknowledges that Escrow Agent is counsel for Buyer and may
continue to act as such counsel notwithstanding its duties as Escrow Agent
hereunder or any dispute or litigation arising as to its duties as Escrow Agent.
(vi) Escrow Agent shall have no liability with regard to any duty under
this Agreement nor be responsible for the loss of any moneys held by it except
in the event of willful and intentional misconduct on the part of Escrow Agent.
Notwithstanding any other provisions of this Agreement, Buyer and Seller jointly
indemnify and hold harmless Escrow Agent against any losses, costs, liabilities,
claims and expenses incurred by Escrow Agent arising out of or in connection
with its services under the terms of this Agreement, including attorneys' fees
and expenses and the costs and expenses of any interpleader action involving the
Deposit or of defending itself against any claim or liability. However, Escrow
Agent will not charge any fee for its normal services hereunder as Escrow Agent.
3. CLOSING.
-------
(a) Replatting.
----------
Buyer agrees and acknowledges that Seller will prepare and submit to the
applicable governmental authorities a replat of Tract WK3 which includes the
Property within its boundaries (the "Plat"). Seller shall provide to Buyer each
draft of the Plat as submitted to the Town, shall advise Buyer from time to time
as to the progress of review and approval of the Plat, shall promptly provide to
Buyer copies of comment letters received with respect to the Plat, and shall
consult with Buyer to the extent that the Plat is required to contain any
matters that would have an impact on development of the Property. The Plat shall
be recorded prior to the Closing Date.
(b) Closing Date.
------------
The time for the delivery of the Deed and for the performance of the
other terms and conditions of this Agreement ("Closing") shall be 9:00 A.M.
E.S.T. on the date ("Closing Date") that is five (5) days following the date on
which Seller delivers to Buyer a copy of the final Plat and evidence of
recordation thereof, but in no event later than June 30, 2000. The Closing shall
take place at the offices of Escrow Agent or at such other place as shall be
mutually agreed upon by Buyer and Seller.
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<PAGE>
4. REPRESENTATIONS AND WARRANTIES.
------------------------------
(a) Representations and Warranties of Buyer. Buyer warrants and represents
---------------------------------------
to, and covenants and agrees with, Seller that Buyer is duly organized, validly
existing and in good standing under the laws of the State of Florida and has the
legal right, power and authority to enter into this Agreement and to perform all
of its obligations hereunder; that execution and delivery of this Agreement, and
the performance by Buyer of its obligations hereunder, have been duly authorized
by all necessary corporate action; that the officer signing this Agreement on
behalf of Buyer is duly authorized to execute the same on behalf of Buyer; and
that this Agreement and Buyer's performance hereunder will not conflict with, or
result in a breach of, any of the terms, covenants and provisions of the
articles of organization or by-laws of Buyer, as same may have been amended or,
to the best of Buyer's knowledge, any order, judgment, writ, injunction or
decree of any court or any agreement or instrument to which Buyer is a party or
by which it is bound. The foregoing warranties and representations of Buyer
shall survive Closing for a period of six (6) months.
(b) Representations and Warranties of Seller. Seller warrants and
-----------------------------------------
represents to, and covenants and agrees with, Buyer that Seller is duly
organized, validly existing and in good standing under the laws of the State of
Florida and has the legal right, power and authority to enter into this
Agreement and to perform all of its obligations hereunder; that the execution
and delivery of this Agreement, and the performance by Seller of its obligations
hereunder, have been duly authorized by all necessary corporate action; that the
officer signing this Agreement on behalf of Seller is duly authorized to execute
the same on behalf of Seller; and that this Agreement and Seller's performance
hereunder will not conflict with, or result in a breach of, any of the terms,
covenants and provisions of the partnership agreement of Seller, as same may
have been amended or, to the best of Seller's knowledge, any order, judgment,
writ, injunction or decree of any court or any agreement or instrument to which
Seller is a party or by which it is bound. Seller further warrants and
represents that Seller has not entered into any leases or contracts with respect
to the Property and will not enter into any such leases or contracts that
survive Closing (other than utility or other such agreements as may be necessary
for development of any other property within Tract WK3); Seller is not aware of
any claims or lawsuits with respect to the Property, including any such claims
or lawsuits involving hazardous materials; and Seller has no knowledge of the
presence of Hazardous Materials on the Property, provided that the only
investigation undertaken by Seller in that regard is documented in that certain
report from ATC Associates, Inc. dated September 21, 1999 under ATC Project
Number 03353.0001, Task 2, a copy of which report has previously been provided
to Buyer. The foregoing warranties and representations of Seller shall survive
Closing for a period of six (6) months.
5. TITLE INSURANCE. Within fifteen (15) days after the last party executes and
---------------
delivers this Agreement, Seller shall provide to Buyer a commitment issued by
Chicago Title Insurance Company, pursuant to which such company agrees to issue
to Buyer, upon recording of the Deed, an owners' policy of title insurance in
the amount of the Purchase Price insuring Buyer's title to the Property. In the
event such title insurance commitment contains any Schedule B-II exceptions
which render title to the Property unmarketable, Buyer may notify Seller in
writing, within fifteen (15) days after receipt of the title insurance
commitment, specifying Buyer's objection to such exception(s). At its option,
Seller may cure or cause to be cured such objection within thirty (30) days
following receipt of such notice (the "Cure Period"), except that Seller will be
obligated to remove any liens or encumbrances resulting from Seller's actions.
At the expiration of the Cure Period, all title matters affecting the Property,
other than (a) any liens or encumbrances resulting from Seller's actions, and
(b) any other title matters that Seller has expressly agreed in writing to cure,
shall be deemed to be accepted by Buyer. In the event that any title matter
arises after the Cure Period that would render title unmarketable or would have
a material and substantial adverse effect on Buyer's intended development of the
Property, then, within ten (10) days after Buyer has written notice of same,
Buyer may notify Seller in writing, specifying Buyer's objection to such title
matter. If Seller does
Page 5
<PAGE>
not cure such title matter within thirty (30) days after receipt of Buyer's
written notice (as extended for a reasonable period, not to exceed 90 days, if
necessary for Seller to effect such cure), then Buyer shall have the option, to
be exercised by giving written notice to Seller within ten (10) days after
Seller gives Buyer written notice that Seller cannot or will not effect such
cure, of either accepting title to the Property as it then exists without any
reduction of the Purchase Price or terminating this Agreement. In such event the
Deposit, together with all interest thereon, shall be refunded to Buyer, all
obligations of the parties hereto shall cease, and this Agreement shall be void
and without recourse to the parties hereto except with respect to provisions
hereof which specifically survive termination. If Buyer does not give written
notice of termination within said ten day period, Buyer shall be deemed to have
elected to accept title to the Property as it then exists without any reduction
of the Purchase Price.
6. SURVEY. Buyer shall have the option to obtain a Survey of the Property in
------
such form and content as Buyer may elect in its sole discretion. Not later than
twenty five (25) days after Buyer receives the title commitment, Buyer shall
notify Seller in writing specifying its objection to any Survey matters which
render title to the Property unmarketable. In the event Buyer fails to object
to any such matters during this period, such matters shall be deemed to be
accepted by Buyer. At its option, Seller may cure or cause to be cured such
objection with thirty (30) days following receipt of such notice. At the
expiration of the Cure Period, all survey matters affecting the Property, other
than those that Seller has expressly agreed in writing to cure, shall be deemed
to be accepted by Buyer. In the event that any survey matter arises after the
Cure Period that would render title unmarketable or would have a material and
substantial adverse effect on Buyer's intended development of the Property,
then, within ten (10) days after Buyer has written notice of same, Buyer may
notify Seller in writing, specifying Buyer's objection to such title matter. If
Seller does not cure such title matter within thirty (30) days after receipt of
Buyer's written notice (as extended for a reasonable period, not to exceed 90
days, if necessary for Seller to effect such cure), then Buyer shall have the
option, to be exercised by giving written notice to Seller within ten (10) days
after Seller gives Buyer written notice that Seller cannot or will not effect
such cure, of either accepting title to the Property as it then exists without
any reduction of the Purchase Price or terminating this Agreement. In such
event the Deposit, together with all interest thereon, shall be refunded to
Buyer, all obligations of the parties hereto shall cease, and this Agreement
shall be void and without recourse to the parties hereto except with respect to
provisions hereof which specifically survive termination. If Buyer does not give
written notice of termination within said ten day period, Buyer shall be deemed
to have elected to accept title to the Property as it then exists without any
reduction of the Purchase Price.
7. CLOSING OBLIGATIONS.
-------------------
(a) Seller's Closing Obligations. On the Closing Date, Seller shall:
----------------------------
(i) Deliver to Buyer full possession of the Property.
(ii) Deliver to Buyer, the following:
(A) A special warranty deed ("Deed") conveying good and marketable
title to the Property in accordance with the terms of this Agreement, which
shall be subject to all rights and reservations accruing to or for the benefit
of Seller under Section 10 of this Agreement.
(B) An affidavit to the title insurer in a form sufficient to delete
the so-called "gap", "parties in possession" and "mechanics lien" exceptions in
the title insurance commitment referred to in Section 5 above.
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<PAGE>
(C) An affidavit certifying that Seller is not a "foreign person"
within the meaning of the Section 1445 of the Internal Revenue Code.
(D) Florida DR-219 form.
(b) Buyer's Closing Obligations. At the Closing, Buyer shall:
---------------------------
(i) Deliver to Seller, by wire transfer of immediately available federal
funds, the balance of the Purchase Price, as adjusted pursuant to this
Agreement.
(ii) Deliver to Seller a signed acceptance copy of the Deed.
(iii) Deliver any other documents or monies expressly required by this
Agreement to be delivered by Buyer, including, without limitation, the consent
and waiver required by Northern Palm Beach County Improvement District
("NPBCID") in the form attached hereto as Exhibit 7(b), and the reproration
agreement provided for in subsection 2(c)(ii) above.
8. CONDEMNATION. In the event that all of the Property, or a portion
------------
thereof that prevents development of the Property in conformance with Buyer's
permitted use as described in Section 10(b)(vi), shall be acquired or condemned
for any public or quasi-public use or purpose, or if any such acquisition or
condemnation proceedings shall be threatened or begun prior to the Closing of
this transaction, Buyer shall have the option to either (a) terminate this
Agreement, in which event Escrow Agent shall return to Buyer the Deposit,
together with accrued interest thereon, and the obligations of all parties
hereunder shall cease except with respect to provisions hereof which
specifically survive termination, or (b) proceed, subject to all other terms,
covenants, conditions, representations and warranties of this Agreement, to the
Closing of the transaction contemplated hereby and receive title to the Property
without any reduction of the Purchase Price; provided, however, that Seller
shall direct all such proceedings with respect to the Property and pay to the
Buyer any sums received by it in connection with such proceedings and
attributable to that portion of the Property acquired or condemned.
9. FAILURE OR INABILITY TO PERFORM; DEFAULTS; REMEDIES.
---------------------------------------------------
(a) Seller's Default. If Seller shall fail to fulfill its agreement
----------------
herein to convey the Property on the Closing Date or if Seller shall fail to
fulfill its obligations with respect to the "Expansion Option", as defined in
Section 10(a) below, Buyer shall have the following as its sole remedies, each
of which shall be mutually exclusive:
(i) Buyer may file an action for specific performance, which must be
filed, if at all, within six (6) months after Seller's failure to close as
provided in this Agreement; or
(ii) Buyer may seek damages from Seller solely for the lost opportunity
to have the "Expansion Project" constructed for and leased to Buyer pursuant to
the "Expansion Project Lease", all as defined in Section 10(a) below; provided,
however, that Buyer and Seller agree that the sole measure of damages
recoverable by Buyer (in addition to attorneys' fees and costs as provided in
Section 12(f) below) shall be the excess, if any, of (x) the amounts payable by
Buyer under a lease for office space in substitution of the Expansion Project,
less (y) the amounts payable by Buyer under the Expansion Project Lease on the
assumption that Buyer exercised the Expansion Option after the date that is
twelve (12) months following the date of commencement of construction of the
Initial Project and before the "Option Deadline Date", as defined in Section
10(a) below.
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<PAGE>
If Seller shall fail to fulfill any of its agreements herein other than the
agreement to convey the Property on the Closing Date or its obligations with
respect to the Expansion Option, whether before or after the Closing Date, and
such failure continues for more than fifteen (15) days after written notice of
default is given by Buyer (subject to extension if Seller is diligently pursuing
the cure but the default cannot be cured in such period, but in no event longer
than thirty days), Buyer shall have all remedies available at law or in equity
with respect to any such default (other than the failure of Seller to fulfill
its agreement herein to convey the Property on the Closing Date or its
obligations with respect to the Expansion Option).
(b) Buyer's Default. If Buyer shall fail to fulfill its agreement herein
---------------
to purchase the Property on the Closing Date, Seller's sole and exclusive remedy
shall be to retain or recover from Buyer or the Escrow Agent the Deposit and any
interest thereon as full and complete liquidated damages, both at law and in
equity, whereupon this Agreement shall terminate without further recourse to
either party except with respect to provisions hereof which specifically survive
termination. If Buyer shall fail to fulfill any of its other agreements herein,
whether before or after the Closing Date, within fifteen (15) days after written
notice of default is given by Seller (subject to extension if Buyer is
diligently pursuing the cure but the default cannot cure in such period, but in
no event longer than thirty days), Seller shall have all remedies available at
law or in equity.
10. ADDITIONAL ACKNOWLEDGMENTS, COVENANTS AND AGREEMENTS.
-----------------------------------------------------
(a) Development by Seller. Buyer acknowledges that, except as provided
----------------------
below in Section 10(a), Seller shall have no obligation to make any improvements
of any type to the Property, including, without limitation, placing any fill on
the Property, compacting the soil or any other matter whatsoever.
Notwithstanding the foregoing, Seller agrees that, during the construction of
the Initial Project, it will cause the Property to be cleared, seeded (or its
equivalent) and irrigated, and Seller and its agents shall have an easement to
enter upon and under the Property from time to time for such purposes. Seller
shall have no obligation to maintain, repair, replace, or insure any portion of
the Property or any installations therein, and Buyer agrees to assume full
responsibility for all such matters.
(i) Expansion Option of Buyer. Buyer shall have the option (the
-------------------------
"Expansion Option"), to be exercised (if at all) on or before the date that is
twenty four (24) months following the date of commencement of construction of
the Initial Project (the "Option Deadline Date"), to have Seller or Seller's
affiliated assignee, as determined by Seller (the "Repurchaser") repurchase the
Property from Buyer and simultaneously enter into a lease with Buyer (the
"Expansion Project Lease") for a one-story office building of approximately
20,000 square feet (the "Expansion Project") to be constructed on the Property.
For purposes of this Section 10(a), the commencement of construction of the
Initial Project shall be defined as the pouring of the footers, and Buyer and
Seller shall execute a written acknowledgment of such date within ten (10) days
following notice from Seller to Buyer that such footers have been poured. The
Expansion Project Lease shall be on substantially the same terms and conditions
(including optional extension rights of Buyer) as the Initial Project Lease
except as follows:
(x) Exercise During First 12 Months. If the Expansion Option is
-------------------------------
exercised within twelve (12) months following the date of commencement of
construction of the Initial Project, then the "Base Rent" under the Expansion
Project Lease will be the same for each lease year as the "Base Rent" under the
Initial Project Lease, including "Base Rent" during each extension option term.
(y) Exercise Between 12 and 24 Months. If the Expansion Option is
---------------------------------
exercised after the date that is twelve (12) months following the date of
commencement of construction of the Initial Project
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<PAGE>
and before the Option Deadline Date, then the "Base Rent" under the Expansion
Project Lease will be as follows:
Lease Year Base Rent Base Rent per Rentable Square Foot
------------- ----------- ----------------------------------
One-Two $340,000.00 $17.00
Three-Five $350,000.00 $17.50
Six-Eight $370,000.00 $18.50
Nine-Ten $390,000.00 $19.50
Eleven-Twelve $420,000.00 $21.00
Thirteen-Fifteen $435,000.00 $21.75
Sixteen-Eighteen $450,000.00 $22.50
Nineteen-Twenty $470,000.00 $23.50
Upon commencement of the initial term of the Expansion Project Lease, the
initial lease term under the Initial Project Lease shall be extended for the
period (the "Initial Term Extension Period") ending on the date of expiration of
the initial lease term under the Expansion Project Lease, and Buyer agrees to
execute all documentation reasonably requested by the "Landlord" under the
Initial Project Lease to confirm such extension. The "Base Rent" applicable
under the Initial Project Lease during the Initial Term Extension Period shall
be the same Base Rent that would have been due under the Initial Project Lease
if Buyer had exercised its first extension option under the Initial Project
Lease, and each Base Rent adjustment thereafter shall occur on the corresponding
anniversary of the "Commencement Date" of the Initial Project Lease without
regard to the fact that such adjustment dates will not correspond to the
beginning of a lease year. With respect to any portion of the second extension
option period that extends beyond the 20 years for which Base Rent rates are set
forth in the Initial Project Lease (the "Post 20-Year Period"), the Base Rent
shall be increased by One Dollar ($1.00) per rentable square foot at the
twentieth (20th) anniversary of the Commencement Date of the Initial Project
Lease and shall be increased again by the same amount at each second anniversary
of the Commencement Date of the Initial Project Lease thereafter (e.g., 22nd,
24th, etc.)
(ii) Limitation. The rental rates set forth in Section 10(a)(i) above
----------
shall apply only if the Expansion Option is exercised timely; otherwise, the
"Base Rent" with respect to the Expansion Option shall be subject to mutual
agreement of Buyer and the Repurchaser if Buyer elects to have the Repurchaser
develop the Property.
(iii) Condition of Option. As a condition of Buyer's exercise of the
-------------------
Expansion Option, Buyer shall submit to Seller then current financial and other
related information regarding Buyer and/or its affiliates as may be required by
Seller to confirm that Buyer's then current financial condition is similar or
equal to Buyer's financial condition at the date of this Agreement. Further,
Seller shall not be obligated to cause the Repurchaser to repurchase the
Property from Buyer or otherwise perform pursuant to the Option if Buyer's then
current financial condition is not sufficient for the Repurchaser to obtain
mortgage financing for the Expansion Project on terms reasonably acceptable to
the Repurchaser. Without limitation of any other provisions of this Agreement,
Buyer acknowledges that Seller's exercise of its rights under this Section
10(a)(iii) shall not be a default by Buyer under this Agreement and shall not
give rise to any action for specific performance or damages pursuant to Section
9(a) above.
(iiv) Repurchase Terms. The repurchase price for the Property pursuant
----------------
to exercise of the Option shall be equal to Six and 50/100 Dollars ($6.50) per
square foot of the Property (the "Repurchase Price"). At the time of closing of
the repurchase, which shall be simultaneous with the closing of the construction
loan for the Expansion Project, the Repurchaser shall pay to Buyer an amount
equal to the
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Repurchase Price, less (a) the unpaid balance of any liens or assessments
against the Property (subject to applicable prorations), (b) any costs and
expenses incurred by the Repurchaser in clearing the title of all encumbrances
that were not applicable to the Property at the date of the initial conveyance;
and (c) the documentary stamp tax on the deed of conveyance to the Repurchaser.
At closing, Buyer shall convey to the Repurchaser good and marketable title to
the Property and any improvements thereon by special warranty deed, subject only
to maters of record in existence at the date of Seller's conveyance of the
Property to Buyer and matters appearing subsequent thereto for which Buyer is
not responsible in any manner. Once the Expansion Option has been exercised,
Seller or the Repurchaser may enforce the provisions of this Section 10(a) by an
action for specific performance.
(v) Exclusive Rights. In consideration of the covenants of Seller set
----------------
forth in this Section 10(a), Buyer acknowledges and agrees that the right of
Seller (or the Repurchaser) to repurchase the Property and construct
improvements thereon shall be exclusive prior to the Option Deadline Date, and
Buyer shall be prohibited from conveying the Property (or any interest therein)
to any other transferee and from developing or constructing any improvements on
the Property in violation of this subsection.
(vi) Fill. Seller will cause Abacoa to make available sufficient fill
----
for the Property to comply with the stormwater storage, detention, retention,
and minimum finished floor elevations set forth in the "SFWMD Conceptual Plan"
as defined in Section 10(b)(i)(a) below, provided that transportation of such
fill from Abacoa's stockpile to the Property shall be at the expense of Buyer
(or shall be included within the development budget for the Expansion Project)
if Buyer timely exercises the Expansion Option and executes and delivers the
Expansion Project Lease.
(b) Buyer's Additional Acknowledgments, Covenants and Agreements. In
-------------------------------------------------------------
addition to its other acknowledgments, covenants and agreements hereunder, Buyer
acknowledges, covenants and agrees as follows:
(i) Matters Regarding the Property and the Abacoa Project.
-----------------------------------------------------
(a) Entitlement Documents. The Property, and the planning,
---------------------
development, occupation and use thereof, is subject to the obligations and
requirements of, is governed by the uses and entitlements permitted by, and
shall be conducted in accordance with the requirements and assumptions of, that
certain Development Order dated June 6, 1995 known as Resolution No. 9-95 of the
Town as amended to date (and as further amended from time to time, "Development
Order"), Town Ordinance No. 1-95 (and as further amended from time to time, "MXD
Ordinance"), the Master Plan for the Abacoa Project approved by the Town (and as
further amended from time to time, "Abacoa Master Plan"), a Conceptual Water
Management Plan of the South Florida Water Management District ("SFWMD") (and as
further amended from time to time, "SFWMD Conceptual Plan"), a Water Management
Plan of NPBCID (and as further amended from time to time, "NPBCID Water
Management Plan"), and certain other permits, approvals, licenses, agreements,
arrangements and the like from or with various other governmental authorities
and/or utility companies (including, without limitation, Loxahatchee River
Environmental Control District. ("Encon")) relating to the development of the
Abacoa Project (all of the foregoing, as further amended from time to time,
being collectively referred to as the "Entitlement Documents"). Buyer
acknowledges and agrees that it will provide any non-confidential information in
Buyer's possession or readily available to Buyer that is necessary to complete
and file any reports required by the Entitlement Documents, that the Entitlement
Documents do not guarantee that any particular portion of the Abacoa Project or
any particular use may be developed at any time, and that the Entitlement
Documents include conditions and obligations to which Buyer, as owner of the
Property, will be subject. Seller has not assumed, and does not hereby assume,
responsibility for any obligations under the Entitlement Documents, and Buyer
acknowledges and agrees
Page 10
<PAGE>
that it shall have no claim against Seller for the failure of any person or
entity to perform any duty or obligation arising out of or related to the
Entitlement Documents.
(b) Modification of Entitlement Documents. The John D. and Catherine
-------------------------------------
T. MacArthur Foundation, a Illinois not-for-profit corporation (the
"Foundation"), Abacoa and/or Seller, their successors and assigns, may, from
time to time, request that the appropriate governmental authorities modify,
amend, limit or terminate the Entitlement Documents. Buyer will not object to
or contest any such modification, amendment, limitation or termination, provided
it does not modify, amend, limit or terminate any of the Entitlement Documents
in any manner that would have a material adverse effect on development of the
Property as permitted under this Agreement. Buyer acknowledges and agrees that
it shall have no claim against Seller for any modification, amendment,
limitation or termination of any of the Entitlement Documents by any person or
entity.
(c) Use of Names. Buyer shall not utilize the names "Abacoa", "Abacoa
------------
Workplace", or any variation of any of the foregoing in any manner without the
prior written consent of Seller and, where applicable, Abacoa.
(ii) Buyer's Approvals. With respect to Buyer's development of the
-----------------
Property, Buyer shall, at Buyer's sole cost and expense, apply for and obtain
all licenses, permits, approvals and the like from the Town, SFWMD, NPBCID, the
Florida Department of Environmental Protection and any other federal, state or
local governmental agency or authority having jurisdiction over the Property
necessary or desirable to permit Buyer to construct and operate its permitted
use (collectively, the "Buyer's Approvals"). Buyer shall be responsible for all
infrastructure and improvement obligations required by any governmental agency
or authority as a condition of obtaining any Buyer's Approvals, and Seller
agrees to cooperate with Buyer, at Buyer's expense, in connection with Buyer's
efforts to obtain Buyer's Approvals. Buyer acknowledges and agrees that Buyer's
obligations to purchase the Property in accordance with the terms of this
Agreement are not, expressly or impliedly, contingent or conditioned upon Buyer
obtaining all or any of the Buyer's Approvals. The provisions of this Section
10(b)(ii) shall not apply if Buyer timely exercises the Expansion Option and
executes and delivers the Expansion Project Lease; in such event, the
Repurchaser shall be responsible for obtaining all of the Buyer's Approvals.
(iii) Development Matters.
-------------------
(a) Utilities, Utility Capacity and Utility Charges. Prior to
-----------------------------------------------
Closing, Seller may, but is not obligated to, enter into: (i) a water agreement
required by the Town for the portion of the Workplace District that includes the
Property, (ii) a standard developer's agreement for sanitary sewer service
required by Encon for the portion of the Workplace District that includes the
Property, and (iii) a reuse irrigation quality ("IQ") agreement required by
Encon for the portion of the Workplace District that includes the Property.
Buyer will, at the Closing, reimburse Seller for any and all sums paid by Seller
pursuant to such agreements with the Town and Encon that are allocable to the
Property, and assume all remaining obligations thereunder that are allocable to
the Property. Without limitation of the foregoing, Buyer shall be solely
responsible for the timely payment of all potable water, wastewater/sewer and IQ
water connection charges, carrying charges (including any accrued guaranteed
revenue fees of the Town for the Property), hook-up and tap-in fees and for any
initial start-up, tie-in, deposit, tap-in, meter installation or any other cost
normally charged by a utility company providing potable water, wastewater/sewer,
IQ water, telephone, electric, alarm monitoring, cable television or other
service for the Property; provided, however, that if Buyer timely exercises the
Expansion Option and executes and delivers the Expansion Project Lease, then the
Repurchaser shall be responsible for all such costs associated with development
of the Property (as opposed to any costs associated with carrying the Property
until development thereof). In connection with any site plan
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<PAGE>
application filed by Buyer with respect to the Property, Seller will permit
Buyer to avail itself of any right of Seller to borrow reservation capacity from
Abacoa pending approval of the site plan application, but solely on condition
that Buyer pay all fees charged with respect thereto and otherwise comply with
all conditions associated therewith.
(b) Impact Fees. Buyer shall be responsible for paying any and all
-----------
impact fees of the Town, Palm Beach County ("County") or any other governmental
authority that would normally be required or collected in connection with the
application or issuance of any building permit for any portion of the Property,
regardless of any impact fee credit that might be available as a result of
actions of any other person or entity besides Buyer. When impact fee credit is
available to any person or entity other than Buyer, Buyer will pay the amount of
impact fee that would normally be required in order to reimburse Abacoa or
Seller for actions taken by Abacoa or Seller or any person or entity besides
Buyer in accumulating the impact fee credit. Buyer will pay impact fees in the
following manner:
(1) For each type of impact fee, when no impact fee credit is
available or when there is no pending credit determination for that type of
impact fee, Buyer shall pay the required impact fee directly to the applicable
governmental authority as required by the impact fee regulations.
(2) For each type of impact fee that has a pending credit
determination and escrow agreement with the applicable governmental authority,
except roads, Buyer shall pay the required impact fee directly to the escrow
agent established under such escrow agreement ("Impact Fee Escrow Agent"). Once
the amount of credit is determined, any impact fees paid into escrow that would
normally be returned to the party paying them into escrow will be turned over to
Abacoa or Abacoa's designee. Future impact fees of this type will be paid
directly to Abacoa when each building permit is issued until the credit is fully
utilized. Once the credit is fully utilized, future impact fees will be paid
pursuant to subparagraph (1) above, unless additional impact fee credits are
determined or a credit determination is pending. In that instance, the
provisions of this subparagraph will apply.
(3) For roads, impact fees will initially be paid directly to Gary,
Dytrych & Ryan, P.A., as escrow agent. Buyer acknowledges that Abacoa and
NPBCID are currently working on an agreement with the County dealing with the
collection and disbursement of road impact fees based on the road impact fee
credit that will be available to Abacoa as a result of the road improvements
constructed by NPBCID ("Collection Agreement"). Once the Collection Agreement
is executed, future road impact fees will be paid by Buyer and previously paid
impact fees will be disbursed by Gary, Dytrych & Ryan, P.A., as escrow agent,
pursuant to the terms of the Collection Agreement. If Abacoa or Seller notifies
Buyer that the Collection Agreement will not be executed, then the provisions of
subparagraph (2) above will also apply to road impact fees.
(4) For any type of impact fee that is being paid pursuant to
subparagraph (1) above, Seller will notify Buyer if impact fee credits will
become available for that type of impact fee in the future. Buyer will follow
Seller's instructions on how to pay that type of impact fee.
(c) Easements. Prior to the Closing Date, Abacoa and/or Seller,
---------
their successors and assigns, may grant and record easements encumbering the
Property in the ordinary course of business, provided that each such easement
(i) is necessary for development of the Abacoa Project or the portion of the
Workplace District that includes the Property, (ii) does not directly affect the
use of the Property or the intensity of development or timing of development of
the Property, and (iii) does not directly affect the cost of development with
respect to the Property (unless Seller or Abacoa agrees to bear such cost).
After the Closing Date and in connection with the approval of any site plan
submitted by Buyer with respect to the
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Property, Buyer shall, without compensation of any kind, grant Abacoa and/or
Seller, or any parties designated by Abacoa and/or Seller, easements for access,
utilities, irrigation, landscaping, cable television, roads, bicycle paths,
medians, turn lanes, drainage and other similar services or purposes, provided
such easements are non-exclusive, the location of the easements and the use
thereof do not prevent or materially interfere with Buyer's proposed development
of the Property, and Buyer has the right to relocate the easements at Buyer's
expense.
Notwithstanding the foregoing, if Buyer timely exercises the Expansion Option
and executes and delivers the Expansion Project Lease, then the Repurchaser
shall be responsible for all impact fees associated with development of the
Property.
(d) Intentionally Omitted.
---------------------
(e) Clearing. Buyer will not burn or allow burning as part of the
--------
land development process for the Property.
(f) Debris. Buyer will not permit trash and debris from the
------
Property to be carried by the wind or otherwise scattered, and shall keep all
roadways and other portions of the Property clear of silt, construction
materials and trash from its construction activities. Buyer shall ensure that
all trash and debris is contained in appropriate trash receptacles or removed
regularly from its construction sites and will abide by any Town debris
management plans.
(g) Telecommunication Plan. Buyer acknowledges that Abacoa may
----------------------
develop a master telecommunication plan, including the planning, design,
construction and operation of public and/or private telecommunications
infrastructure and/or services within the boundaries of the Abacoa Project,
including, but not limited to nonresidential buildings, contracts for telephone
services, data or information services, video and/or cable television services
and wireless services and broadcast and/or communications facilities. In the
event Abacoa does develop such a master telecommunications plan, Buyer agrees to
abide by such plan, including but not limited to the installation by Buyer of
the proper wiring within building improvements to accommodate the master
telecommunication plan.
(iv) Property Owners Associations. The Property is subject to the
----------------------------
Declaration of Covenants, Conditions and Restrictions for Abacoa recorded in
Official Records Book 9739, Page 1629, Public Records of Palm Beach County,
Florida ("Master Declaration"), the Articles of Incorporation and By-Laws of
Abacoa Property Owner's Assembly, Inc., a Florida corporation not-for-profit
(the "Master POA"), which has been established as a master community or property
owners association for all of the Abacoa Project under the Master Declaration.
The Property also will be subject to a Workplace District master and/or sub
declaration of covenants, conditions and restrictions to be recorded in the
Public Records of Palm Beach County, Florida (collectively, the "Project
Declaration") establishing a master and/or sub property owners' association(s)
(collectively, the "Project POA"), and the articles of incorporation and by-laws
of the Project POA, which will be established as a property owners
subassociation under the Master Declaration. Buyer acknowledges that Seller will
be preparing the Project Declaration and that the Project Declaration may
contain provisions concerning, among other matters, reconveyance of the Property
to Seller, at Seller's option, in the event that construction of vertical
improvements to the Property does not commence within a specified time period,
cross access and parking easements, common area maintenance, assessments for
common area maintenance and other expenses (such as real property taxes and
assessments), lien rights with respect to assessments, and site plan and
architectural review and approval. Subject to the foregoing, Buyer shall have
the right to approve the Project Declaration, provided that such approval shall
not be unreasonably withheld, delayed or conditioned. If Buyer objects to any
provision(s) of the Project Declaration and Seller believes in good
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<PAGE>
faith that such provision(s) are commercially reasonable and consistent (as
applicable) with other declarations in the Abacoa Project, then Seller shall
have the right to include such provision(s) in the Project Declaration
notwithstanding Buyer's objection provided that such provision(s) do not
directly affect the use of the Property or the intensity of development or
timing of development of the Property. Buyer agrees to accept title to the
Property subject to the Master Declaration and the Project Declaration and to
abide by and comply with all of the terms and conditions thereof. Buyer
acknowledges and agrees that construction of all improvements on the Property
will be subject to the requirements of the Master Declaration and the Project
Declaration, design guidelines promulgated under the Master Declaration and
Project Declaration, and the approval of architects and/or architectural review
committees under the Master Declaration and the Project Declaration. Buyer
acknowledges that a maintenance agreement for the maintenance of the preserve
areas, streets, drainage and landscaping or any other items deemed appropriate
by the Master POA or the Project POA may be entered into by the Master POA or
the Project POA with NPBCID or other governmental agencies, and that a portion
or all of the expenses referred to in such agreements may be assessed to the
Property as a common expense.
(v) Signage. Buyer acknowledges that the Property is also subject to
-------
sign codes and approval rights of the Town, the Foundation, Abacoa, and the
Master POA.
(vi) Limitations on Use. Buyer, and its successors and assigns, may
------------------
develop and use the Property for a commercial office building and for no other
purpose whatsoever.
(vii) Seller's Approval Rights.
------------------------
(a) In each instance in which Buyer intends to cause improvements to
be developed on the Property, Buyer shall, at Buyer's sole cost and expense,
submit to Seller, for Seller's review and approval (the "Seller Approval"), the
proposed site plan application and all supporting materials (the "Application
Package") not less than ten (10) days prior to submission of same to the Town.
Seller shall have a period of seven (7) business days following its receipt of
the Application Package, or any modification thereof, within which to provide
Buyer with written approval thereof or objections thereto stating, with
reasonable specificity, Seller's objections and what changes must be made to
obtain the Seller Approval. In the event Seller shall fail to provide Buyer
with a written approval of or objection to the Application Package, or any
modification thereto, within seven (7) business days following its receipt
thereof, or any Modification thereof, Seller shall be deemed to have approved
the Plans or the applicable Modification thereof.
(b) No improvements of any kind, including, without limitation, any
building, fence, wall, sign, satellite dish, tower or other telecommunication
facility, site paving, grading, building, building addition, alteration, mail
box, air conditioning equipment, pump, fill, excavation, decorative feature,
landscaping, or any other improvements (collectively, "Improvements") shall be
commenced, erected, placed or maintained upon the Property by Buyer, its
successors or assigns, nor shall any addition, change or alteration be made by
Buyer, its successors or assigns, with respect to any Improvements, unless and
until the plans, specifications and locations of same shall have been submitted
to and approved in writing by Seller, its successors or assigns. Buyer shall
submit to Seller two (2) complete sets of all plans and specifications for any
Improvements (including, without limitation, building and landscaping plans and
specifications), the construction or placement of which is proposed on or under
the Property, together with a copy of any governmental or other required
permits. Seller, its successors or assigns, may also require the submission of
samples of building materials and colors proposed for use on or under the
Property, and may require such additional information as is reasonably necessary
to completely evaluate the proposed Improvements. Within ten (10) days
following receipt of all required submissions (whether an initial submission or
re-submission following disapproval), Seller shall give Buyer written notice of
Seller's
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<PAGE>
approval or disapproval and, if applicable, stated reasons for disapproval;
absent such notice, Buyer's plans and specifications shall be deemed approved.
Seller's review of the plans, specifications and other materials with respect to
the proposed Improvements is intended to ensure the aesthetic harmony,
compatibility, and quality of Improvements within the Abacoa Project and the
Workplace District in order to protect and preserve the value of all such
Improvements, and Seller shall not unreasonably withhold or delay any such
approval. Seller's rights with respect to approval of the plans, specifications
and locations of Improvements shall not apply to any construction, addition,
change or alteration to any Improvement not visible from outside of any
structure and not creating any aesthetic impact upon the Abacoa Project or the
Workplace District.
(c) If Buyer timely exercises the Expansion Option and executes and
delivers the Expansion Project Lease, then the Repurchaser shall be responsible
for obtaining all approvals required under this Section 10(b)(vii).
(viii) As Is. Buyer acknowledges and agrees that Seller has not made,
-----
does not make and specifically negates and disclaims any representations,
warranties (other than the warranty of title as set forth in the deed),
promises, covenants, agreements or guaranties of any kind or character
whatsoever, whether express or implied, oral or written, past, present or
future, of, as to, concerning or with respect to the Property, including,
without limitation, the value, nature, quality or condition of the Property, the
water, soil and geology of the Property, including the existence or absence of
any hazardous materials, the suitability of the Property for any and all
activities and uses which Buyer may conduct thereon, the compliance of or by the
Property or its operation with any laws, rules, ordinances or regulations of any
applicable governmental authority or body, the habitability, merchantability,
marketability, profitability or fitness for a particular purpose of the
Property, or any other matter with respect to the Property, and, to the maximum
extent permitted by law, hereby waives, releases and discharges Seller, its
partners, employees, agent and attorneys from any and all claims relating to any
of the foregoing matters. Buyer further acknowledges and agrees that to the
maximum extent permitted by law, the sale of the Property as provided for herein
is made on an "AS IS", "WHERE IS" condition and basis "WITH ALL FAULTS". It is
understood and agreed that the Purchase Price has been adjusted by prior
negotiation to reflect that the Property is being sold by Seller and purchased
by Buyer subject to the foregoing.
11. INSPECTIONS.
------------
(a) Indemnity. During the term of the Agreement, Buyer shall have the
---------
right to enter upon the Property at reasonable times for the purposes of
inspection and making tests and studies thereon; provided, however, that until
Seller acquires title to the Property, Seller's sole obligation hereunder shall
be to endeavor in good faith to obtain access to the Property for Buyer from
Abacoa and the Foundation, and all inspections, test and studies of Buyer shall
be subject to the approval of Abacoa and the Foundation. Buyer's activities
shall be conducted in a commercially reasonable manner and in compliance with
all applicable laws, ordinances, rules and regulations of any governmental
authority or agency. Buyer shall (a) cause all borings to be plugged or capped
in a safe manner, (b) cause any property damaged or destroyed to be repaired or
replaced to its preexisting condition, (c) cause all debris resulting from its
activities to be removed, (d) not cut or uproot any vegetation without the prior
written consent of Seller, (e) not disturb any wetland or land subject to any
ordinance in respect of environmentally sensitive land, (f) not destroy, injure
or move any species of endangered or threatened animal or habitat, (g) exercise
its rights hereunder in the least obtrusive manner possible, and (h) not take
any actions or do anything which would constitute a breach or violation of any
of the Entitlement Documents. Buyer agrees to indemnify, defend and hold
harmless Abacoa, the Foundation, Seller and deGuardiola Development Ventures,
Inc. ("GDVI"), and all of the partners, officers, directors, employees, agents
and independent contractors of Seller or GDVI at any time
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<PAGE>
and from time to time (collectively, "Seller"s Group"), from and against all
liabilities, obligations, claims, damages, judgments, awards, penalties, costs
and expenses, including, without limitation, attorneys' fees and costs at both
trial and appellate levels and fines or impositions of any governmental or
quasi-governmental authority or agency, which Abacoa, the Foundation, Seller,
GDVI or any of Seller's Group, may incur, suffer or sustain by reason of any
breach or violation by Buyer, or any of its directors, officers, employees,
agents or independent contractors at any time and from time to time
(collectively, "Buyer's Group"), of the provisions of this Section, any injury
to or death of persons or loss of or damage to property in connection with, or
as a result of, any activities hereunder and any labor or services performed, or
any materials furnished, by or for the account or benefit of, Buyer in respect
of the Property. In any action, suit or proceeding brought against Abacoa, the
Foundation, Seller, GDVI or any of Seller's Group, by reason or on account of
any of the foregoing, Buyer shall, at Buyer's expense, defend such action, suit
or proceeding with legal counsel approved by Seller in its sole discretion.
(b) Soil Test. In the event Buyer's soil test of the Property reveals any
---------
unanticipated soil conditions that would (i) prevent construction of the
Expansion Project or a comparable building on the Property or (ii) increase the
cost thereof by more than Two Hundred Thousand Dollars ($200,000), then, except
as hereinafter provided, Buyer shall have the option of terminating this
Agreement, in which event the Deposit, together with all interest thereon, shall
be refunded to Buyer, whereupon all obligations of the parties hereto shall
cease and this Agreement shall be void and without recourse to the parties
hereto except with respect to provisions hereof which specifically survive
termination; provided, however, that Buyer must exercise such option, if at all,
by delivering written notice of such termination to Seller, together with a
complete copy of such soil report and all exhibits thereto, within the period
ending at 5:00 P.M., local time, on the date that is twenty (20) days following
the date of this Agreement, time being of the essence. Notwithstanding the
foregoing, Buyer's termination shall be ineffective, and this Agreement shall
continue in full force and effect, if Seller gives written notice to Buyer,
within twenty (20) days after receipt of Buyer's termination notice, evidencing
Seller's agreement to reimburse Buyer (promptly after payment by Buyer) for all
costs in excess of $200,000 incurred by Buyer with respect to such unanticipated
soil conditions.
12. MISCELLANEOUS.
-------------
(a) Tax Identification Number. Seller warrants and represents that
-------------------------
Seller's federal tax identification number is 65-0874148, and Buyer warrants and
represents that Buyer's federal tax identification number is ______________.
Seller and Buyer each acknowledge that the foregoing information will be relied
upon in reporting the transactions contemplated hereby to appropriate
governmental authorities.
(b) Agreement Not an Offer. The submission of any draft of this Agreement
----------------------
or any portion thereof does not constitute an offer to buy the Property, it
being acknowledged and agreed that neither Buyer nor Seller shall be legally
obligated with respect to the purchase or sale of the Property unless and until
this Agreement has been executed by both Buyer and Seller and a fully executed
copy has been delivered to each of Buyer and Seller, and Seller has acquired
title to the Property.
(c) Exhibits. The Exhibits attached hereto are incorporated herein by this
--------
reference and made a part hereof.
(d) Notices. All notices or communications required or permitted hereunder
-------
shall be in writing and delivered by hand or mailed by certified mail, return
receipt requested, postage and registration or certification charges prepaid, or
by nationally recognized overnight courier service, or by telefax, to the party
entitled thereto as follows:
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<PAGE>
If to Seller:
Workplace Holdings, Ltd.
222 Lakeview Avenue, 17th Floor
West Palm Beach, FL 33401
Attention: Patrick J. DiSalvo
With a courtesy copy to:
Lawrence B. Juran, P.A.
222 Lakeview Avenue, 17th Floor
West Palm Beach, FL 33401
Attention: Lawrence B. Juran, Esquire
If to Buyer:
Intelligent Life Corporation
11811 U.S. Highway One, Suite 101
North Palm Beach, Florida 33408
Attn: ______________________
With a courtesy copy to:
Lewis F. Crippen, Esq.
Gunster, Yoakley
777 S. Flagler Drive
Suite 500 East
West Palm Beach, FL 33401
or such other party(ies), address(es) or telefax number(s) as either party shall
specify by written notice to the other from time to time. Any such notice or
communication shall be deemed to have been given as of the date of its receipt
or delivery. Any legal counsel designated above or any substitute counsel as
designated by Seller and/or Buyer by written notice to the other party is
authorized to give (but not receive) notices under this Agreement on behalf of
its respective client.
(e) Time is of the Essence. TIME IS OF THE ESSENCE with respect to each
----------------------
provision of this Agreement which requires that action be taken by either party
within a stated time period, or upon a specified date.
(f) Attorneys' Fees and Costs. In the event of any dispute or litigation
-------------------------
arising out of this Agreement, the prevailing party shall be entitled to recover
all fees, expenses and costs incurred, including reasonable attorneys' fees at
both trial and appellate levels.
(g) Venue. The venue of any litigation arising out of this Agreement shall
-----
be Palm Beach County, Florida.
(h) Captions. The descriptive captions contained herein are for
--------
convenience only and shall not control or affect the meaning or construction of
any provision hereof.
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<PAGE>
(i) Binding Effect. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Florida, and shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective legal
representatives, successors and assigns.
(j) Broker.
------
(i) Each of Buyer and Seller hereby represents, covenants and warrants to
the other that the party so representing has dealt with no broker or other
person entitled to a commission in connection with the negotiation or execution
of this Agreement or the consummation of the transactions contemplated hereby,
with the exception of Ben DeVries ("Broker"). If, as and when the transaction
contemplated by this Agreement closes in accordance with the terms and
provisions hereof, Seller shall pay to Broker, in full satisfaction of all
commissions, fees or compensation of any kind owed or owing to Broker arising
out of or related to the transaction contemplated by this Agreement, the sum
equal to four percent (4%) of the Purchase Price (the "Property Sale
Commission"). As a condition thereof, Broker shall execute and deliver to
Seller such documents and instruments as Seller may reasonably request to
evidence the full and complete satisfaction of any claims or demands of Broker
for any commissions, fees or compensation of any kind owed or owing to Broker
arising out of or related to the transaction contemplated by this Agreement and
Broker shall be solely responsible for all commissions, fees or compensation of
any kind owed or owing to any broker, salesperson or finder claiming by, through
or under Broker or having dealt with Broker in connection with the transaction
contemplated by this Agreement. Broker shall not be due any commission, fee or
compensation of any kind in the event the transaction contemplated by this
Agreement fails to close for any reason whatsoever and, in such event, it shall
not be entitled to all or any portion of the Deposit. Each of Buyer and Seller
agrees to indemnify and hold harmless the other from any loss, cost or expense
which such non-indemnifying party may incur as a result of any inaccuracy in the
other party's warranties and representations as set forth in this subsection.
(ii) In the event that Buyer exercises the Expansion Option and Buyer and
the Repurchaser enter into the Expansion Project Lease, Broker shall be due a
commission equal to Six Dollars ($6.00) per square foot of the Expansion
Project, or a total of One Hundred Twenty Thousand and 00/100 Dollars ($120,000)
(the "Expansion Project Lease Commission"), which shall be payable to Broker by
the Repurchaser on the same payment schedule and subject to the same terms and
conditions as the Commission Agreement of even date herewith between Broker and
WK3 Investors with respect to the Initial Project; provided, however, that the
full amount of the Property Sale Commission shall be credited against the
Expansion Project Lease Commission, which shall reduce the Expansion Project
Lease Commission from $120,000 to $95,650.
(k) Entire Agreement; Rules of Construction. This Agreement may be
---------------------------------------
executed in multiple counterparts; sets forth the entire agreement between the
parties; merges all prior and contemporaneous agreements, understandings,
warranties, or representations; shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns; and may be
canceled, modified or amended only by a written instrument executed by both
Seller and Buyer.
(l) Further Assurances. Upon Seller's request, Buyer agrees to execute and
------------------
deliver to Seller such additional instruments, certificates and documents as
Seller may reasonably require, whether or not after the Closing Date, in order
to provide Seller with the rights and benefits to which Seller is entitled under
this Agreement.
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<PAGE>
(m) No Recording. Buyer may not record this Agreement or a memorandum
------------
thereof or of the rights granted herein without the prior written approval of
Seller, which approval may be withheld in Seller's sole and absolute discretion.
(n) No Assignment. Buyer may not assign or transfer this Agreement or
-------------
any right or interest herein without the prior written consent of Seller, which
consent may be withheld in the sole and absolute discretion of Seller. Seller
may assign or transfer this Agreement or any right or interest herein to any
person or entity whatsoever without the consent of Buyer, provided that Seller
shall remain liable for its obligations under this Agreement.
(o) Confidentiality. During the term of this Agreement and at all times
---------------
thereafter, neither Buyer nor any of its directors, officers, employees, agents
or attorneys shall in any manner, directly or indirectly, divulge, disclose or
communicate to any person or entity any information of any kind concerning any
matters affecting or relating to Seller nor the terms or provisions of this
Agreement, provided that the foregoing shall not apply to any disclosures or
filings required of Buyer as a company whose shares are registered or traded on
a securities exchange.
(p) Survival. The terms of the following Sections shall survive the
--------
Closing or any termination of this Agreement: Section 2, Section 4, Section 9,
Section 10, Section 11, and Section 12.
IN WITNESS WHEREOF, the parties have executed this Agreement, or caused it
to be executed by their respective duly authorized representatives, as an
instrument under seal as of the day and year first above written.
WITNESSES: BUYER:
INTELLIGENT LIFE CORPORATION, a Florida
corporation
By: __________________________________
__________________________ Name:__________________________________
Title:_________________________________
__________________________
SELLER:
WORKPLACE HOLDINGS, LTD., a Florida limited
partnership
By: Workplace Investors, Ltd., a Florida
limited partnership, its general partner
By: Workplace Equity Corporation, a Florida
corporation, its general partner
By:_____________________________________
__________________________ Name:___________________________________
Title: _________________________________
__________________________
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<PAGE>
ESCROW AGENT:
GUNSTER, YOAKLEY, VALDES-FAULI & STEWART, P.A.,
a Florida professional corporation
By:____________________________________
__________________________ Name:__________________________________
Title:_________________________________
__________________________
Schedule of Exhibits
--------------------
Exhibit 1(a) Sketch of Property
Exhibit 7(b) Consent and Waiver
Page 20
<PAGE>
Exhibit 1(a)
------------
Sketch of Property
Page 21
<PAGE>
Exhibit 7(a)
------------
PREPARED BY AND RETURN TO:
Lawrence B. Juran, Esq.
222 Lakeview Avenue, 17th Floor
West Palm Beach, FL 33401
CONSENT AND WAIVER
NORTHERN PALM BEACH COUNTY WATER CONTROL DISTRICT
UNITS OF DEVELOPMENT NUMBER 9, 9A, 9B and 28
THE UNDERSIGNED, having purchased the property more particularly
described in Exhibit "A" attached hereto and made a part hereof which is located
within Northern Palm Beach County Improvement District, Units of Development
Number 9, 9A, 9B and 28 and being otherwise fully informed in the premises does
hereby acknowledge, consent and agree as follows:
W I T N E S S E T H :
WHEREAS, Northern Palm Beach County Improvement District f/k/a
Northern Palm Beach County Water Control District (hereinafter referred to as
the "District"), is a political subdivision of the State of Florida, having been
created by Chapter 59-994, Laws of Florida, Act of 1959, as amended and
supplemented; and
WHEREAS, in accordance with Chapter 59-994, Laws of Florida, Act of
1959, as amended and supplemented, and Chapter 298 of Florida Statutes, the
Board of Supervisors of the District have the authority to create Units of
Development and have done so by creating Units of Development Number 9, 9A, 9B
and 28, the lands of which are fully contained within the boundaries of the
District and include the real property described in Exhibit "A" attached hereto,
which has been purchased by the undersigned; and
WHEREAS, the District, in accordance with the aforementioned Act and
Chapter 298 of Florida Statutes, also has the authority to adopt and
subsequently amend, if necessary, Water Management Plans for Units of
Development and does intend to adopt a Water Management Plan for Units of
Development Number 9, 9A, 9B and 28; and
WHEREAS, the District, prior to implementing a Water Management Plan
or any amendment thereto, is required to file with the Fifteenth Judicial
Circuit in and for Palm Beach County, Florida, a Petition for Approval of the
Water Management Plan or any amendments thereto; and
WHEREAS, subsequent to the filing of the aforementioned Petition for
Approval, three (3) Commissioners are appointed by the Court to prepare a
Commissioner's Report setting forth their assessment of the benefits or damages,
if any, that will accrue to the real property located within said Unit due to
the implementation of the Water Management Plan or any amendments thereto; and
WHEREAS, the District is required, following preparation of the
aforementioned Report of Commissioners to send to each owner of real property
located within the Unit of Development for which said Water Management Plan or
amendment thereto is being proposed, copies of the following:
Page 22
<PAGE>
(a) Report of Commissioners; and
(b) A conformed copy of the published Notice of Filing of the Report
of Commissioners; and
WHEREAS, the undersigned, together with all other real property owners
within Units of Development Nos. 9, 9A, 9B and 28, have the statutory right to
file exceptions with the Fifteenth Judicial Circuit Court in and for Palm Beach
County, Florida, to all or any part of any Commissioners' Report filed for the
Water Management Plan or amendments thereto for Units of Development Nos. 9, 9A,
9B and 28.
WHEREAS, the District in order to implement a Water Management Plan
for Units of Development Nos. 9, 9A, 9B and 28, will be required to issue bonds
in accordance with Chapter 75 of Florida Statutes and, in order to issue said
bonds, the District will be required to publish an Order to Show Cause setting
forth the filing of the Complaint for Validation of said Bonds and the Hearing
date for same; and
WHEREAS, the undersigned as a real property owner within Units of
Development Nos. 9, 9A, 9B and 28 has the statutory authority to be present at
the Hearing held on the aforementioned Order to Show Cause and at said Hearing
is entitled to set forth the undersigned's position as to whether or not the
District should be authorized by the Court to issue the proposed bonds.
NOW, THEREFORE, the Undersigned does hereby
acknowledge, consent and agree as follows:
1. The undersigned hereby waives its right to receive and the
requirement of the District to serve upon it a copy of the Report of
Commissioners assessing benefits or damages, if any, for the Water Management
Plan or Amendments thereto filed for Northern Palm Beach County Water Control
District, Units of Development Nos. 9, 9A, 9B and 28.
2. The undersigned hereby waives any and all rights and/or
requirements of the District to serve a copy of the Notice of Filing in the
Fifteenth Judicial Circuit in and for Palm Beach County, Florida, of any
Commissioners Report on a Water Management Plan or amendments thereto for
Northern Palm Beach County Water Control District, Units of Development Nos. 9.
9A, 9B and 28.
3. The undersigned hereby waives any and all rights to file
exceptions as to all or any part thereof of any Commissioners' Report that is
filed for a Water Management Plan or Amendments thereto for Northern Palm Beach
County Water Control District, Units of Development Nos. 9, 9A, 9B and 28.
4. The undersigned hereby consents to the entry of an Order and all
subsequent Orders that are entered by the Fifteenth Judicial Circuit in and for
Palm Beach County, Florida, approving any Report of Commissioner's filed for the
Water Management Plan or amendments thereto for Northern Palm Beach County Water
Control District, Units of Development Nos. 9, 9A, 9B and 28.
5. The undersigned hereby consents and agrees to the entry of an
Order by the Fifteenth Judicial Circuit in and for Palm Beach County, Florida,
for validation of any and all bonds that the District may submit to said Court,
the proceeds of which will be used to implement and/or construct the Water
Management Plan or amendments thereto for Northern Palm Beach County Water
Control District, Units of Development Nos. 9, 9A, 9B and 28.
6. The undersigned does hereby acknowledge, consent and agree that
this Consent and Waiver shall be binding on the undersigned, and all of said
undersigned's successors and/or assigns.
Page 23
<PAGE>
7. The undersigned does hereby acknowledge, consent and agree, that
the undersigned had the opportunity, if the undersigned so desired, to have this
document reviewed by the undersigned's own legal counsel prior to the signing of
same.
8. The undersigned does hereby consent to the recording of this
instrument in the Public Records in and for Palm Beach County, Florida.
Executed this ______ day of ___________, 19__.
Signed, sealed and delivered
in the presence of: _______________________
Witness
_________________________ By:________________________
Printed Witness Name:
Name: _____________________
_________________________
Witness Title:_____________________
_________________________
Printed Witness Name:
STATE OF FLORIDA
COUNTY OF __________________
The foregoing instrument was acknowledged before me this _____ day of
______, 1999, by ___________________________, as __________________ of
______________, who is personally known to me or who has produced
___________________________ as identification.
__________________________
Printed Name:
Notary Public, State of Florida
Serial Number:
My Commission Expires:
(NOTARY SEAL)
Page 24
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Professional Direct Agency, Inc.
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Ilife.com, Inc.:
We consent to incorporation by reference in the registration statement (No.
33-87955) on Form S-8 of ilife.com, Inc. of our report dated January 28, 2000,
relating to the consolidated balance sheets of ilife.com, Inc. and subsidiary as
of December 31, 1999 and 1998, and the related consolidated statements of
operations, redeemable stock and stockholders' equity (deficit) and cash flows
for the year ended December 31, 1999, the six months ended December 31, 1998 and
the year ended June 30, 1998, which report appears in the December 31, 1999
annual report on Form 10-K of ilife.com, Inc.
KPMG LLP
Atlanta, Georgia
April 14, 2000
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
Ilife.com, Inc.:
We consent to incorporation by reference in the registration statement (No.
33-87955) on Form S-8 of ilife.com, Inc. (formerly Intelligent Life Corporation)
of our report dated July 23, 1998 relating to the balance sheet of ilife.com,
Inc. as of June 30, 1997, and the related statements of operations, redeemable
stock and stockholders' equity (deficit) and cash flows for the year ended June
30, 1997, which report appears in the December 31, 1999 annual report on Form
10-K of ilife.com, Inc.
Thomas & Clough Co., P.A.
Palm Beach, Florida
April 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ILIFE.COM,
INC.'S FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 22,503,540
<SECURITIES> 0
<RECEIVABLES> 1,715,904
<ALLOWANCES> (235,000)
<INVENTORY> 0
<CURRENT-ASSETS> 24,367,736
<PP&E> 3,424,605
<DEPRECIATION> (936,211)
<TOTAL-ASSETS> 33,461,757
<CURRENT-LIABILITIES> 11,223,769
<BONDS> 0
0
0
<COMMON> 135,410
<OTHER-SE> 17,310,055
<TOTAL-LIABILITY-AND-EQUITY> 33,461,757
<SALES> 12,117,512
<TOTAL-REVENUES> 12,117,512
<CGS> 0
<TOTAL-COSTS> 29,709,781
<OTHER-EXPENSES> 4,292,053
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 232,504
<INCOME-PRETAX> (33,769,330)
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,769,330)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,769,330)
<EPS-BASIC> (3.34)
<EPS-DILUTED> (3.34)
</TABLE>
