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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH , 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NEXTCARD, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 6141 68-0384-606
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(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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595 MARKET STREET, SUITE 1800
SAN FRANCISCO, CALIFORNIA 94105
(415) 836-9700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JEREMY R. LENT
CHIEF EXECUTIVE OFFICER
NEXTCARD, INC.
595 MARKET STREET, SUITE 1800
SAN FRANCISCO, CALIFORNIA 94105
(415) 836-9700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
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RONALD H. STAR, ESQ. JAY K. HACHIGIAN, ESQ.
PAUL A. REINER, ESQ. BROOKS STOUGH, ESQ.
JOANNE BAL, ESQ. WILLIAM E. GROWNEY, ESQ.
ROLA J. YAMINI, ESQ. KIRIL M. DOBROVOLSKY, ESQ.
BRETT MCDONNELL, ESQ. GUNDERSON DETTMER STOUGH
HOWARD, RICE, NEMEROVSKI, CANADY, VILLENEUVE FRANKLIN & HACHIGIAN, LLP
FALK & RABKIN, A PROFESSIONAL CORPORATION 155 CONSTITUTION DRIVE
THREE EMBARCADERO CENTER, SUITE 700 MENLO PARK, CALIFORNIA 94025
SAN FRANCISCO, CALIFORNIA 94111 (650) 321-2400
(415) 434-1600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Common Stock, $.001 par value............................... $65,000,000 $20,780.50
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (Subject To Completion)
Issued , 1999
Shares
[NEXTCARD, INC. LOGO]
COMMON STOCK
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NEXTCARD, INC. IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR
INITIAL PUBLIC OFFERING AND
NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES.
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WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "NXCD."
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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PRICE $ A SHARE
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS NEXTCARD, INC.
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Per Share................................ $ $ $
Total.................................... $ $ $
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The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
NextCard has granted the underwriters the right to purchase up to an
additional shares of common stock to cover over-allotments. Morgan
Stanley & Co. Incorporated expects to deliver the shares of common stock to
purchasers on , 1999.
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MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
THOMAS WEISEL PARTNERS LLC
U.S. BANCORP PIPER JAFFRAY
, 1999
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[Inside Cover of Prospectus]
[Picture of www.nextcard.com web page]
Apply Now!
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[Prospectus Gatefold]
[NextCard online Double Rew@rds Points [NextCard Go Shopping!
balance transfer [NextCard Reward web page] web page]
web page]
Personal Shopping Tools
Transfer balances online
You're Approved!
[Picture of
NextCard Visa
credit cards]
[NextCard Customized [NextCard PictureCard
offers web page] web page]
Customized upgrade offers My Visa PictureCard
[NextCard account
statement web page]
Manage your
account online
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................. 3
Risk Factors........................ 5
Special Note Regarding
Forward-Looking Statements........ 15
Use of Proceeds..................... 15
Dividend Policy..................... 15
Capitalization...................... 16
Dilution............................ 17
Selected Consolidated Financial
Data.............................. 18
Management's Discussion and Analysis
of Financial Condition And Results
of Operations..................... 19
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Business............................ 26
Management.......................... 39
Certain Transactions................ 46
Principal Stockholders.............. 48
Description of Capital Stock........ 50
Shares Eligible for Future Sale..... 53
Underwriters........................ 55
Legal Matters....................... 57
Experts............................. 57
Additional Information.............. 58
Index to Consolidated Financial
Statements........................ 59
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Our corporate headquarters and business address is 595 Market Street, Suite
1800, San Francisco, California 94105 and our telephone number is (415)
836-9700. Our website is www.nextcard.com. The information on our website is not
incorporated by reference into this prospectus.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of common stock. In this prospectus, unless the context
indicates otherwise, "NextCard," "we," "us" and "our" refer to NextCard, Inc., a
Delaware corporation.
Unless otherwise indicated, all information in this prospectus: (1) gives
effect to the conversion of all of our outstanding shares of preferred stock
into shares of common stock upon the closing of this offering; (2) assumes no
exercise of the underwriters' over-allotment option; and (3) gives effect to our
anticipated reincorporation to Delaware. The shares of common stock we are
selling in this offering are voting shares. We also have a series of nonvoting
common stock that will be outstanding upon the closing of this offering. Except
as otherwise indicated, references to common stock and common shares do not
include our nonvoting common stock.
Until , 1999, all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to each dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to its unsold
allotments or subscriptions.
For investors outside the United States: Neither we nor any of the
underwriters have done anything that would permit this offering or possession or
distribution of this prospectus in any jurisdiction where action for that
purpose is required, other than in the United States. You are required to inform
yourselves about and to observe any restrictions relating to this offering and
the distribution of this prospectus.
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NextCard is our registered trademark. This prospectus also contains
trademarks of other companies.
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our financial statements and notes thereto appearing elsewhere in
this prospectus.
NEXTCARD, INC.
OUR BUSINESS
We are a leading Internet-based provider of consumer credit. We were the
first company to offer an online credit approval system for a Visa(R) card and
to provide interactive, customized offers for credit card applicants.
We combine expertise in consumer credit, an exclusive Internet focus and
sophisticated direct marketing techniques with the aim of attracting profitable
customer segments on the Internet. Our product, the NextCard(R) Visa, which we
call the First True Internet Visa, is marketed to consumers exclusively through
our website, www.nextcard.com. We offer credit card customers a unique
combination of convenience, customization, shopping enhancements and online
customer service. The NextCard Visa, which can be used for both online and
offline purchases, offers the following features:
- CUSTOMIZED APPLICATION PROCESS including: (a) online credit approval
within seconds of submitting an application; (b) online selection of
customized offers based upon the applicant's unique credit profile; (c)
automated account balance transfers, permitting the customer to transfer
balances from other credit cards using our website; and (d)
personalization of the look of the NextCard Visa through our My Visa
PictureCard product.
- ONLINE SHOPPING ENHANCEMENTS including: (a) GoShopping!, an
Internet-based shopping service; (b) NextCard Rewards, an Internet-based
incentives program allowing customers to earn NextCard points that can be
redeemed for a variety of goods and services; and (c) 100% protection
against credit card fraud.
- INTERNET-BASED ACCOUNT MANAGEMENT including: (a) online statements; (b)
the ability to download account activity into personal financial
management software; and (c) online customer service functionality.
OUR MARKET OPPORTUNITY
Due to the growth of electronic commerce, the ability to target customers
on the Internet and the dynamics of the credit card industry, we believe there
is a significant opportunity to offer credit cards through targeted marketing on
the Internet. NextCard was formed to capitalize on this opportunity.
OUR STRATEGY
Our objective is to enhance our position as a leading Internet-based
provider of customized consumer credit products and services. The key elements
of our strategy are:
- DIRECT MARKETING STRATEGY: Use data analysis techniques to expand our
expertise in Internet direct marketing in order to find and attract the
most profitable customers.
- PRODUCT STRATEGY: Offer customized product choices to our customers,
allowing them to design their own product interactively.
- TECHNOLOGY STRATEGY: Apply Internet innovations as they occur to provide
enhanced customer functionality more rapidly than our competitors.
- BRANDING STRATEGY: Leverage our leadership in Internet consumer
financial services to continue to build brand recognition.
The NextCard Visa has experienced significant consumer demand since its
introduction in December, 1997. As of February 28, 1999, we had received more
than one million applications for the NextCard Visa and had generated over
$125.0 million in new loans. We earn most of our revenues from the finance
charges paid by our customers based on their outstanding balances. We also earn
revenues from the amounts paid through the Visa system for purchases made with
the NextCard Visa and from fees paid by our cardholders.
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THE OFFERING
Common stock offered.......... shares
Common stock to be outstanding
after the offering.......... shares(1)
Over-allotment option......... shares
Use of proceeds............... For general corporate purposes, including
working capital, funding of credit card
receivables and potential future capitalization
of NextBank, N.A. See "Use of Proceeds."
Dividend policy............... We do not anticipate paying cash dividends in
the foreseeable future.
Proposed Nasdaq National
Market
symbol...................... NXCD
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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PERIOD FROM YEAR ENDED
JUNE 5, 1996 (INCEPTION) DECEMBER 31,
TO DECEMBER 31, 1997 1998
CONSOLIDATED STATEMENT OF OPERATIONS DATA: ------------------------ ------------
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Net interest income.................................. $ 93 $ 440
Non-interest income.................................. -- 697
Non-interest expenses................................ 1,977 16,699
Net loss............................................. (1,886) (15,564)
Basic and diluted net loss per share................. $(4.86) $(22.12)
Weighted-average shares of common stock outstanding
used in computing basic and diluted net loss per
share(2)........................................... 388 704
Pro forma basic and diluted net loss per share
(unaudited)........................................ -- $ (3.47)
Shares used in computing pro forma basic and diluted
net loss per share(2) (unaudited).................. -- 4,479
SUPPLEMENTAL OPERATING DATA -- ASSETS UNDER MANAGEMENT(3)
Total credit card receivables outstanding............ -- $66,042
Total number of open credit card accounts............ -- 40
Total revenue: finance charges, fees and interchange
income............................................. -- $ 1,199
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DECEMBER 31, 1998
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ACTUAL AS ADJUSTED(4)
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CONSOLIDATED BALANCE SHEET DATA: (UNAUDITED)
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Cash and cash equivalents................................... $40,134 $
Total assets................................................ 45,542
Total liabilities........................................... 5,606
Total stockholders' equity.................................. 39,937
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(1) Based on the number of shares outstanding as of December 31, 1998. Excludes
1,991,667 shares reserved under our 1997 Stock Plan, of which 1,550,125
shares are subject to outstanding options at a weighted average exercise
price of $0.60 per share and 441,542 shares are reserved for future
issuances, and outstanding warrants to purchase 253,202 shares at a weighted
average exercise price of $1.91 per share. See "Management -- Employee
Benefit Plans."
(2) See Note 2 of notes to Consolidated Financial Statements for an explanation
of the number of shares used in per share computations.
(3) Assets under management represent all credit card receivables generated
under the NextCard Visa and outstanding on Heritage Bank of Commerce's
balance sheet.
(4) Adjusted to reflect our sale of shares of common stock offered
hereby at an assumed initial public offering price of $ per share and
after deducting estimated underwriting discounts and commissions and
offering expenses payable by us and the application of our net proceeds from
the offering. See "Capitalization."
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RISK FACTORS
You should carefully consider the risks described below and the other
information in this prospectus before making an investment decision. The risks
and uncertainties described below are not the only ones facing our company.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business operations.
If any of the following risks occur, our business, financial condition or
results of operations could be materially adversely affected. In such case, the
trading price of our common stock could decline and you may lose all or part of
your investment.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES EVALUATION OF OUR BUSINESS AND
PROSPECTS DIFFICULT
NextCard was formed in June 1996. We introduced the NextCard Visa in
December 1997. We have only a limited operating history on which you can base an
evaluation of our business and prospects. Our business and prospects must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets such as the market
for Internet products and services.
WE HAVE A HISTORY OF LOSSES AND WE ANTICIPATE SIGNIFICANT FUTURE LOSSES
We incurred net losses of $1.9 million for the period from our inception
through December 31, 1997 and $15.6 million for the year ended December 31,
1998. As of December 31, 1998, we had an accumulated deficit of $17.5 million.
To date, we have not achieved profitability and we expect to incur significant
and increasing net losses for the foreseeable future. We intend to continue to
invest significantly in marketing, operations, technology and the development of
statistical analyses. As a result, we will need to generate significant revenues
to achieve profitability. We cannot be certain that we will be able either to
maintain our recent revenue growth rates or to generate adequate revenues to
achieve profitability. If we do achieve profitability, we cannot be certain that
we can sustain or increase profitability on a quarterly or annual basis in the
future. See "Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
OUR LIMITED OPERATING HISTORY MAKES OUR FINANCIAL FORECASTING DIFFICULT
Due to our limited operating history, we cannot forecast operating expenses
based on our historical results. Accordingly, we base our operating expenses, in
part, on future revenue projections. Most of these expenses are fixed in the
short term and we may not be able to quickly reduce spending if we achieve lower
than anticipated revenues. Our ability to accurately forecast our revenues is
limited. If our revenue levels do not meet our projections, our net losses will
be even greater than we anticipate and our business, operating results and
financial condition will be adversely affected.
WE HAVE AN UNSEASONED CREDIT CARD PORTFOLIO AND AN UNTESTED CUSTOMER BASE
Over 75% of our credit card accounts were generated in the last six months.
As a result, we cannot accurately predict the levels of delinquencies and losses
that can be expected from our portfolio over time. As our portfolio of accounts
becomes more seasoned, the level of losses may increase. Any material increase
in delinquencies or losses above our expectations could materially and adversely
impact our results of operations and financial condition. In addition, to
attract new customers, we generally offer low introductory interest rates that
increase after expiration of the introductory period. Given our limited
operating history, we do not know what percentage of our customers will continue
to use their NextCard Visa after the end of this period. If fewer customers than
we expect continue to use their NextCard Visa after the expiration of the
introductory offer, our results of operations would be adversely affected.
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We target our credit card products to Internet users. Lenders historically
have not solicited this market to the same extent as more traditional market
segments. As a result, there is less historical experience with respect to the
credit risk and performance of these consumers. We may not be able to
successfully target and evaluate the creditworthiness of such consumers to
manage the expected delinquencies and losses or to appropriately price our
products. In addition, we may consider using additional internally developed
criteria to enhance or replace our existing criteria. We have limited experience
developing and implementing such credit criteria. As a result, as compared to
issuers targeting traditional market segments, we could experience any or all of
the following:
- a greater number of customer payment defaults or other unfavorable
cardholder payment behavior;
- an increase in fraud by our cardholders and third parties; and
- changes in the traditional patterns of cardholder loyalty and usage.
In addition, because we are targeting a new customer base, we have
comparatively little information about the potential size of our target market,
our customer usage patterns and other factors that could significantly affect
the demand for our products and services. Moreover, general economic factors,
such as the rate of inflation, unemployment levels and interest rates may affect
our target market customers more severely than other market segments.
WE EXPECT OUR QUARTERLY REVENUES AND OPERATING RESULTS TO FLUCTUATE
Our quarterly operating results may fluctuate significantly as a result of
a variety of factors, many of which are outside our control. These factors
include:
- our ability to generate new customer relationships and retain profitable
customers;
- the volume of credit card loans generated from our products and our
ability to successfully manage our credit card loan portfolio;
- the announcement or introduction of new websites, services and products
by us or our competitors and the level of price competition for the
products and services we offer;
- the amount and timing of our operating costs and capital expenditures
relating to the expansion of our business, operations and infrastructure;
- technical difficulties, system downtime, Internet service problems and
our ability to expand and upgrade our computer systems to handle
increased traffic;
- the success of our brand building, advertising and marketing campaigns;
- the level of use of the Internet and online financial services;
- our ability to attract and retain high-quality employees;
- regulation by federal, state or local governments; and
- general economic conditions, including interest rate volatility, and
economic conditions specific to the Internet, online commerce and the
credit card industry.
Our revenue consists of the finance charges paid by our customers based on
their outstanding balances, the amounts received through the Visa system based
upon a percentage of our customers' purchases and the fees paid by our
customers. As a result, we depend substantially on the level of customer
balances, the level of interest rates on our credit card portfolios and the
volume of NextCard Visa purchases, all of which could affect our quarterly
revenues. Any shortfall in our revenue would have a direct impact on our
operating results for a particular quarter. Quarterly fluctuations in our
earnings could affect the market price of our common stock in a manner unrelated
to our long-term operating
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performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
FUTURE CAPITAL NEEDS AND RISKS OF FUNDING
We expect that our existing capital resources, including the net proceeds
raised in this offering, will adequately satisfy our working capital
requirements for the next 12 months, excluding the funding of our loan
portfolio. To date, we have funded our working capital requirements through the
private sale of equity securities and certain corporate lines of credit. Future
working capital requirements, however, depend on many factors, including our
ability to execute on our business plan. If our current funding, including the
net proceeds generated by this offering, becomes insufficient to support future
operating requirements, we will need to obtain additional funding either by
increasing our lines of credit or by raising additional debt or equity from the
public or private capital markets. There can be no assurance that such
additional funding will be available on terms attractive to us, or at all.
Failure by us to raise additional funding when needed could have a material
adverse effect on our business, results of operations and financial condition.
If additional funds are raised through the issuance of equity securities, the
ownership percentage of our then-current stockholders would be reduced.
Furthermore, such equity securities might have rights, preferences or privileges
senior to those of our common stock.
We currently fund our loan portfolio through a $100.0 million secured
credit facility arranged by Credit Suisse First Boston, of which approximately
$58.5 million was unutilized as of February 28, 1999. The credit facility is
subject to a number of conditions and terminates on December 29, 1999. We may
not be able to continue to satisfy all of the lending conditions of the credit
facility, to renew the credit facility upon its termination or to obtain
alternate or additional funding on terms favorable to us, if at all.
Our ability to grow our business is limited by the amount of credit we can
extend to our customers and potential customers. Although our credit facility is
sufficient to fund our current loan portfolio, it is not sufficient to cover our
anticipated loan portfolio over the next 12 months. Therefore, any loss of
funding under this credit facility or failure to increase or extend the term of
the credit facility or to obtain alternative financing on commercially
reasonable terms would have a material adverse effect on our results of
operations and financial condition.
We are in the process of applying for a charter to form a subsidiary,
NextBank, as a limited purpose national bank, which would be limited to
generating and financing credit card loans. If we successfully create NextBank,
our strategy will be to assist funding our loan portfolio primarily through
short-term deposits received by NextBank. We may not be able to attract or
retain sufficient deposits at attractive interest rates to fund our loan
portfolio through NextBank. Moreover, if adequate capital is not available, we
also may be subject to an increased level of regulatory supervision that could
have an adverse effect on our operating results and financial condition. See
"Business -- NextBank."
RISKS OF CAPACITY CONSTRAINTS, SYSTEM DISRUPTION AND SYSTEM FAILURE
Our website must accommodate a high volume of users and deliver frequently
updated information. The number of visitors and credit card applicants to our
website has increased substantially since we introduced the NextCard Visa, and
we anticipate that this traffic will further increase over time. However, it is
difficult to predict the future traffic on our website. Marketing efforts and
other events, such as publicity resulting from this offering, could cause
traffic to strain our site's capacity. If the number of users of our website
increases substantially, we will need to significantly expand and upgrade our
technology, transaction processing systems and network infrastructure. We do not
know whether we will be able to accurately project the rate or timing of any
such increases, or expand and upgrade our systems and infrastructure to
accommodate such increases in a timely manner.
Our systems and operations also are vulnerable to damage or interruption
from human error, natural disasters, power loss, telecommunication failures,
break-ins, sabotage, computer viruses, intentional acts
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of vandalism and similar events. As we currently do not have redundant systems
in most aspects of our operations, a failure of a single aspect of our system
could cause interruption or delay in our entire operations. We do not carry
sufficient business interruption insurance to compensate for losses that could
occur.
Our website has in the past experienced, and may in the future experience,
slower than normal response times or other problems, such as system
unavailability. Customers may become dissatisfied by any system failure that
interrupts or delays our ability to provide our services to them. Any
interruption or delay in our operations could materially and adversely affect
our business.
WE DEPEND ON SOLE-SOURCE AND LIMITED-SOURCE PROVIDERS FOR ESSENTIAL
SERVICES
We rely on a number of services furnished to us by either a single provider
or a limited number of providers. For example, all of the NextCard Visa credit
cards generated on our website are issued by Heritage Bank of Commerce pursuant
to an account origination agreement. Under the agreement, Heritage issues credit
cards to each applicant who qualifies under specified credit card guidelines.
Heritage's obligation to establish new credit card accounts terminates on
September 30, 1999. If successfully created, NextBank would issue the NextCard
Visa. If we are not successful in creating NextBank on a timely basis, our
failure to extend our arrangement with Heritage or enter into an alternative
arrangement would have a material adverse effect on us.
We also depend, directly and indirectly, on other key third party vendors
to provide essential services:
- First Data Resources Inc. provides essential fulfillment and customer
service functions, and hosts online customer service capabilities;
- Response Data Corporation provides online balance transfer support to
NextCard customers;
- Exodus Communications provides us technical support and a secure facility
for Internet hosting services;
- Three major credit bureaus (TransUnion, Experian and Equifax) furnish the
credit information that we require to process our credit card
applications;
- National Processing Corporation provides collections and lockbox services
for customer payments;
- MyPoints.com furnishes administrative and fulfillment services for our
NextCard Rewards incentive program; and
- Binary Compass Enterprises, Inc. and WebCentric, Inc. provide software
technology underlying our GoShopping! program.
Any interruption, deterioration or termination in these third-party
services could be disruptive to our business. In the event that any of our
agreements with any of these third parties is terminated, we may not be able to
find an alternative source of support on a timely or commercially reasonable
basis, if at all. As a result, any such interruption, deterioration or
termination would have a material adverse effect on our results of operations
and financial condition.
WE MAY BE ADVERSELY AFFECTED IF WE FAIL TO ATTRACT AND RETAIN KEY PERSONNEL
Our success depends largely on the skills, experience and performance of
certain key members of our management. If we lose one or more of these key
employees, particularly Jeremy Lent, our Chairman of the Board, Chief Executive
Officer and President, our business, operating results and financial condition
would be materially adversely affected. Our success also depends on our
continued ability to attract, retain and motivate highly skilled employees.
Competition for employees both for Internet-based
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businesses and for financial services businesses is intense, particularly for
personnel with technical training and experience. We may be unable to retain our
key employees or to attract, assimilate or retain other highly qualified
employees in the future. We have from time to time in the past experienced, and
we expect to experience in the future, difficulty in hiring and retaining highly
skilled employees with appropriate qualifications. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Management."
WE NEED TO MANAGE GROWTH
Since the introduction of our NextCard Visa product in December 1997, we
have experienced rapid growth in our operations. From December 31, 1997 through
February 28, 1999, we increased from approximately 18 to 122 employees. We are
planning for continued rapid growth of our operations. This growth requires us
to expand our marketing, customer service and support, credit and technology
organizations. There can be no assurance that we will be able to attract and
retain sufficient numbers of personnel to satisfy our anticipated growth. In
particular, as we rely heavily on temporary personnel to satisfy our growing
personnel demands, we may be unable to continue to attract and retain a
sufficient number of temporary employees to support our future growth. Rapid
growth places a significant strain on our financial reporting, information and
management systems and resources. Our business, results of operations and
financial condition will be materially and adversely affected if we are unable
to effectively manage our expanding operations. For example, if we are unable to
maintain and scale our financial reporting and information systems, we may not
have access to adequate, accurate and timely financial information.
RISKS ASSOCIATED WITH DEVELOPMENT OF NEXTCARD AS A BRAND
The dynamics of a brand name have traditionally worked differently in the
credit card market than in many other industries. In the credit card market,
consumers have responded more to the brand name of Visa(R) or MasterCard(R) than
to the identity of the issuer. The Internet may change the underlying market
dynamics for brand recognition as compared to the offline market. Accordingly,
we are aggressively implementing our marketing plan to establish brand
recognition early on with Internet users in order to persuade customers to
switch to our products and services, particularly because we compete, or expect
to compete, with larger financial institutions that have well-established brand
names. We cannot assure you that we will successfully develop our brand name. If
the brand name of online credit card issuers becomes important, and if other
credit card issuers begin to compete with us for online brand name recognition,
our business, results of operations and financial condition could be materially
adversely affected.
RISKS RELATED TO OUR INDUSTRY
OUR PERFORMANCE WILL DEPEND ON THE GROWTH OF THE INTERNET AND INTERNET
COMMERCE
Our future success depends heavily on the overall continued growth and
acceptance of the Internet, including its use in electronic commerce. If
Internet usage or commerce does not continue to grow or grows more slowly than
expected, our business, operating results and financial condition will be
adversely affected. Consumers and businesses may reject the Internet as a viable
medium for a number of reasons. These include potentially inadequate network
infrastructure, slow development of enabling technologies and insufficient
commercial support. The Internet infrastructure may not be able to support the
demands placed on it by increased Internet usage and bandwidth requirements. In
addition, delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity, or increased
government regulation, could cause the Internet to lose its viability as a
commercial medium. Even if the required infrastructure, standards, protocols or
complementary products, services and facilities are developed, we may incur
substantial expenses adapting our solutions to changing or emerging
technologies.
9
<PAGE> 13
OUR PERFORMANCE WILL DEPEND ON THE CONTINUED GROWTH OF THE FINANCIAL
SERVICES MARKET
Our business would be adversely affected if the growth in Internet
financial products and services does not continue or is slower than expected.
Although we believe the Internet has the potential to transform the delivery of
consumer financial products, consumers' acceptance of recently introduced
financial products and services is at an early stage and is subject to a high
level of uncertainty. To date, there exist relatively few proven online
financial institutions. Although our long-term vision is to redefine the banking
experience for the Internet consumer, presently we offer only a single product,
the NextCard Visa, and we have no specific plans for additional products. In
addition, as the online financial services industry matures, government-imposed
regulations could become so stringent that we may be economically precluded from
offering online financial products and services.
INTENSE AND INCREASING COMPETITION IN FINANCIAL SERVICES
The financial services market is rapidly evolving and intensely
competitive. We operate in this intensely competitive environment with a number
of other companies, many of whom have significantly longer operating histories,
greater name recognition, larger customer bases and significantly greater
financial, technical and marketing resources than we do. Our business model
anticipates that we will derive a large majority of our revenue from the
interest charged on credit card balances contained in the portfolio of loans we
hold. Increased competition could require us to reduce the interest rates we
charge on our customers' balances. This could have a material adverse effect on
our business, results of operations and financial condition.
Other credit card issuers and traditional commercial banks may increasingly
compete in the online credit card market. In addition, existing Internet
providers and new Internet entrants may launch new websites using commercially
available software. While the credit card market traditionally has been very
fragmented, the Internet could change traditional market dynamics and enable new
competitors to rapidly acquire significant market share.
Our competitors may respond more quickly than we can to new or emerging
technologies and changes in customer requirements. They may be able to:
- devote greater resources than we can to the development, promotion and
sale of their products and services;
- replicate our products and services;
- engage in more extensive research and development;
- undertake farther-reaching marketing campaigns;
- adopt more aggressive pricing policies;
- make more attractive offers to existing and potential employees and
strategic partners;
- more quickly develop new products and services or enhance existing
products and services;
- bundle consumer products and services in a manner that we cannot provide;
and
- establish cooperative relationships among themselves or with third
parties to increase the ability of their products and services to address
the needs of our prospective customers.
We cannot assure you that we will be able to compete successfully or that
competitive pressures will not materially and adversely affect our business,
results of operations or financial condition. See "Business -- Competition."
10
<PAGE> 14
OUR OPERATING RESULTS ARE SUBJECT TO INTEREST RATE FLUCTUATIONS
The majority of our revenues are generated by the interest rates we charge
on outstanding balances in the form of finance charges, which are based on
prevailing interest rates. Accordingly, fluctuations in interest rates will
affect our revenues. At the same time, our borrowing costs under our secured
lending facility, and the interest we will pay on deposits when and if NextBank
is created and begins to accept deposits, may also fluctuate based on general
interest rate fluctuations. A rise in our borrowing costs may not be met by a
corresponding increase in revenues generated by finance charges. Likewise, a
decrease in revenues generated by finance charges may not be met by a
corresponding decrease in borrowing costs. Thus, either a rise or a fall in the
prevailing interest rates could materially adversely affect our results of
operations and financial condition. We intend to manage our interest rate risk
through interest rate hedging techniques. However, we currently do not use such
techniques and they may not be successful in reducing or eliminating our
interest rate risk in the future.
RISKS ASSOCIATED WITH NEW SERVICES, FEATURES AND FUNCTIONS
The Internet and related financial institutions marketplaces are
characterized by rapidly changing technologies, evolving industry standards,
frequent new product and service introductions and changing customer demands.
Our future success will depend on our ability to adapt to rapidly changing
technologies and to enhance existing products and services, as well as to
develop and introduce a variety of new products and services to address our
customers' changing demands. We may experience difficulties that could delay or
prevent the successful design, development, introduction or marketing of our
products and services. In addition, material delays in introducing new products
and services and enhancements may cause customers to forego purchases of our
products and services and purchase instead those of our competitors.
ONLINE COMMERCE SECURITY RISKS
The secure transmission of confidential information over the Internet is
essential to maintain consumer and supplier confidence in the NextCard service.
Advances in computer capabilities, new discoveries or other developments could
result in a compromise or breach of the technology used by us to protect
customer transaction data.
A party that is able to circumvent our security systems could steal
proprietary information or cause interruptions in our operations. Security
breaches could damage our reputation and expose us to a risk of loss or
litigation and possible liability. Our insurance policies carry low coverage
limits, which may not be adequate to reimburse us for losses caused by security
breaches. We cannot guarantee that our security measures will prevent security
breaches. See "Business -- Operations."
Consumers generally are concerned with security and privacy on the Internet
and any publicized security problems could inhibit the growth of the Internet as
a means of conducting commercial transactions. Our ability to provide financial
services over the Internet would be severely impeded if consumers became
unwilling to transmit confidential information online. As a result, our
operations and financial condition would be materially adversely affected.
GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES
To date, communications and commerce on the Internet have not been highly
regulated. However, Congress has held hearings on whether to regulate providers
of services and transactions in the electronic commerce market. It is possible
that Congress or individual states could enact laws regulating Internet banking
that address issues such as user privacy, pricing and the characteristics and
quality of products and services. Any restrictions on the collection and use of
such consumer information over the Internet could adversely affect our direct
marketing efforts. In addition, several telecommunications companies have
petitioned the Federal Communications Commission to regulate Internet service
providers in a
11
<PAGE> 15
manner similar to long distance telephone carriers and to impose access fees on
these companies. This could increase the cost of transmitting data over the
Internet. Moreover, it may take years to determine the extent to which existing
laws relating to issues such as property ownership, libel and personal privacy
are applicable to the Internet. Any new laws or regulations relating to the
Internet could adversely affect our business.
Our business is subject to extensive federal and state regulation,
including regulation under consumer protection laws. If we successfully form
NextBank, it would be subject to regulation under federal and California banking
laws as well as regulatory supervision from the Office of the Comptroller of the
Currency, or OCC, and the FDIC. As an affiliate of NextBank, we also will be
subject to oversight by the OCC and FDIC. Existing and future legislation and
regulatory supervision could have a material adverse effect on our business,
including our credit and authentication policies, pricing and products. See
"Business -- Government Regulation."
NextBank also will be subject to minimum capital and leverage requirements
prescribed by federal statute and OCC regulations. If NextBank fails to meet
these regulatory capital requirements, NextBank will be subject to additional
restrictions that could have a material adverse effect on our ability to conduct
normal operations and possibly result in the seizure of NextBank by government
regulators under certain circumstances. Our ability to maintain or increase
NextBank's capital levels in the future will be subject to, among other things,
general economic conditions, our ability to raise new capital and our ability
and willingness to make additional capital contributions to NextBank or a
related institution. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations -- Funding of NextCard Receivables."
PROTECTION AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
Our success and ability to compete are substantially dependent on our
proprietary technology and trademarks, which we attempt to protect through a
combination of patent, copyright, trade secret and trademark laws as well as
confidentiality procedures and contractual provisions. However, any steps we
take to protect our intellectual property may be inadequate, time consuming and
expensive. Furthermore, despite our efforts, we may be unable to prevent third
parties from infringing upon or misappropriating our intellectual property. Any
such infringement or misappropriation could have a material adverse effect on
our business, results of operations and financial condition. In addition, we may
infringe upon the intellectual property rights of third parties, including third
party rights in patents that have not yet been issued. Any such infringement, or
alleged infringement, could have a material adverse effect on our business,
results of operations and financial condition.
We have filed three patent applications and applied to register several of
our trademarks in the United States. We cannot assure you that our patent
applications or trademark registrations will be approved. Moreover, even if
approved, they may not provide us with any competitive advantages or may be
challenged by third parties. Legal standards relating to the validity,
enforceability and scope of intellectual property rights in Internet-related
industries are uncertain and still evolving, and the future viability or value
of any of our intellectual property rights is uncertain. Any litigation
surrounding such rights could force us to divert important financial and other
resources away from our business operations.
We collect and utilize data derived from applications on the NextCard
website and through transactions made using our products. Although we believe
that we have the right to use such data and compile such data in our database,
we cannot assure you that any intellectual property protection will be available
for such information. In addition, third parties may claim rights to such
information.
We have licensed, and may license in the future, elements of our
trademarks, trade dress and similar proprietary rights to third parties. While
we attempt to ensure that the quality of our brand is maintained by such
business partners, such partners may take actions that could materially and
adversely affect the
12
<PAGE> 16
value of our proprietary rights or our reputation. This could, in turn, have a
material adverse effect on our business, results of operations and financial
condition.
PROTECTION OF OUR DOMAIN NAME IS UNCERTAIN
We currently hold the domain name nextcard.com. The regulations governing
the acquisition and maintenance of domain names are subject to change. Governing
bodies could, among other things, modify the requirements for holding domain
names. Accordingly, we may be unable to acquire or maintain our domain name in
all jurisdictions in which we would otherwise seek to do so. Furthermore, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. Therefore, we may be
unable to prevent third parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of our trademarks and other
proprietary rights.
YEAR 2000 RISKS
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
The risks posed by year 2000 issues could adversely affect our business in
a number of significant ways. We are in the process of reviewing the year 2000
compliance of our internally developed proprietary software, which includes
substantially all of the systems for the operation of our website, such as our
instant online approval system, customer interaction and transaction systems and
our security, monitoring and back-up capabilities. Our information technology
systems also depend on information technology and services supplied by third
parties. We are currently assessing the year 2000 readiness of these third party
vendors. Year 2000 problems experienced by us or any of such third parties could
materially adversely affect our business. Additionally, the Internet could face
serious disruptions arising from the year 2000 problem.
We cannot guarantee that:
- our or our suppliers' systems will be year 2000 compliant in a timely
manner, or that there will not be significant interoperability problems
among information technology systems;
- consumers will be able to visit our website without serious disruptions
arising from the year 2000 problem;
- disruptions in other industries and market segments will not adversely
affect our business; or
- our costs related to year 2000 compliance will be insignificant.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000."
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE VOLATILE
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering. We negotiated and determined the initial public
offering price with the representatives of the underwriters based on several
factors. This price may vary from the market price of the common stock after the
offering. The market price of the
13
<PAGE> 17
common stock may fluctuate significantly in response to the following factors,
some of which are beyond our control:
- variations in quarterly operating results;
- changes in financial estimates by securities analysts;
- changes in market valuations of Internet or financial services companies;
- announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- sales of common stock or termination of stock transfer restrictions; and
- fluctuations in stock market price and volume, which are particularly
common among securities of Internet companies.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation often has been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of management's attention and our resources.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK
PRICE
Sales of a substantial number of shares of common stock after the offering
could adversely affect the market price of the common stock by potentially
introducing a large number of sellers of our common stock into a market in which
the common stock price is already volatile, thus driving the common stock price
down. In addition, the sale of these shares could impair our ability to raise
capital through the sale of additional equity securities. On completion of this
offering, we will have shares outstanding, or shares if the
underwriters' over-allotment option is exercised in full, and shares
subject to currently exercisable options and warrants. The shares sold in
this offering, or shares if the underwriters' over-allotment option is
exercised in full, will be freely tradable without restriction or further
registration under the federal securities laws unless purchased by "affiliates"
of NextCard as that term is defined in Rule 144 under the Securities Act. The
remaining shares outstanding on completion of the offering will be
"restricted securities" as that term is defined in Rule 144.
All of our directors, executive officers and substantially all of our
stockholders have executed lock-up agreements that limit their ability to sell
common stock. These stockholders have agreed not to sell or otherwise dispose of
any shares of common stock for a period of at least 180 days after the date of
this prospectus without the prior written approval of Morgan Stanley & Co.
Incorporated. When the lock-up agreements expire, these shares and the shares
underlying the options will become eligible for sale, in some cases only
pursuant to the volume, manner of sale and notice requirements of Rule 144. See
"Shares Eligible for Future Sale."
CONTROL BY PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS
Upon completion of this offering, our executive officers, directors and 5%
or greater stockholders, and their respective affiliates, will, in the
aggregate, own approximately [ ]% of our outstanding common stock. As a result,
they could act together to control all matters submitted to stockholders for
approval (including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets). In addition,
their large ownership position could enable them to effectively control our
management and affairs. Accordingly, such concentration of ownership may have
the effect of delaying, deferring or preventing a change in control, impede a
merger, consolidation, takeover or other business combination involving us or
discourage a potential acquirer from making a tender offer or
14
<PAGE> 18
otherwise attempting to obtain control of us. This could, in turn, have an
adverse effect on the market price of our common stock. See "Management" and
"Principal Stockholders."
CERTAIN ANTI-TAKEOVER PROVISIONS
Provisions of our Certificate of Incorporation, our Bylaws and Delaware law
could make it more difficult for a third party to acquire control of us without
the consent of our board of directors, even if such change was favored by our
stockholders. See "Description of Capital Stock."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined under "Risk Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform such statements to actual results
or to change in our expectations.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the
shares of common stock offered will be approximately $ million, after
deducting estimated underwriting discounts and commissions and offering
expenses. If the underwriters' over-allotment option is exercised in full, we
estimate that such net proceeds will be approximately $ million. We
intend to use the balance of the net proceeds of this offering to finance our
growth through the origination and purchase of credit card receivables and for
general corporate purposes, including working capital, and possibly for
potential future capital contributions to NextBank, N.A. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- NextBank."
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. In addition, our lending facilities contain certain
restrictions on our ability to pay dividends.
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<PAGE> 19
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998:
(1) on an actual basis; (2) on an unaudited pro forma basis, after giving effect
to the conversion of all outstanding shares of preferred stock into common
stock; and (3) as adjusted (unaudited) to reflect our receipt of the estimated
net proceeds from our sale of shares of common stock in this offering
at an assumed initial offering price of $ per share (after deducting the
estimated underwriting discounts and commissions and offering expenses) and the
application of our proceeds from this offering:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Convertible preferred stock, 9,022,913 shares
authorized, 7,250,163 shares outstanding actual;
9,022,913 shares authorized, no shares outstanding
pro forma; shares authorized, no shares
outstanding as adjusted............................ $ 54,727 $ -- $ --
-------- -------- --------
Common stock (including nonvoting common stock),
13,977,087 shares authorized, 1,096,083 shares
outstanding actual; shares authorized,
8,346,246 shares outstanding pro forma;
shares authorized, shares outstanding as
adjusted(1)........................................ 11 54,738
Notes receivable from officers....................... (26) (26) (26)
Additional paid-in capital........................... 7,575 7,575 7,575
Deferred stock compensation.......................... (4,900) (4,900) (4,900)
Accumulated deficit.................................. (17,450) (17,450) (17,450)
-------- -------- --------
Total stockholders' equity......................... 39,937 39,937
-------- -------- --------
Total capitalization....................... $ 39,937 $ 39,937 $
======== ======== ========
</TABLE>
- ------------
(1) Excludes 1,550,125 shares of common stock issuable upon exercise of options
outstanding on December 31, 1998, with a weighted average exercise price of
$0.60 per share, and 441,542 shares of common stock reserved for issuance
under our 1997 Stock Plan. Also excludes 253,202 shares of common stock
subject to outstanding warrants, with a weighted average exercise price of
$1.91 per share.
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<PAGE> 20
DILUTION
Our pro forma net tangible book value as of December 31, 1998 was
approximately $39.9 million, or $4.78 per share of common stock. Net tangible
book value per share represents the amount of stockholders' equity, less total
liabilities, divided by the number of shares outstanding. After giving effect to
the issuance and sale of the shares of common stock offered by us
and deducting underwriting discounts and commissions and estimated offering
expenses payable by us, our adjusted net tangible book value as of December 31,
1998 would have been $ , or $ per share. This represents an
immediate increase in the net tangible book value of $ per share to the
existing stockholders and an immediate dilution of $ per share to the new
public investors purchasing shares in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of December
31, 1998.................................................. $ 4.78
Increase per share attributable to new public investors.....
--------
Pro forma net tangible book value per share after the
offering..................................................
--------
Dilution per share to new investors......................... $
========
</TABLE>
The following table sets forth on a pro forma basis, as of December 31,
1998, after giving effect to the conversion of all outstanding shares of
preferred stock into common stock (including nonvoting common stock) upon
completion of this offering, the differences between the existing stockholders
and the purchasers of shares of common stock in this offering (before deducting
underwriting discounts and commissions and estimated offering expenses) with
respect to the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 8,346,246 % $54,921,503 % $6.58
New stockholders..........
--------- ----- ----------- -----
Total........... 100.0% $ 100.0%
========= ===== =========== =====
</TABLE>
The foregoing discussion and tables assume no exercise of stock options to
purchase 1,550,125 shares of common stock and warrants to purchase 253,202
shares of common stock outstanding as of December 31, 1998, with weighted
average exercise prices of $0.60 and $1.91, respectively. To the extent any of
these options or warrants are exercised, there will be further dilution to new
public investors. See "Capitalization," "Management -- Director Compensation"
and Note 2 of notes to Financial Statements.
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<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for the period
from June 5, 1996 (date of inception) through December 31, 1997 and for, and as
of, the year ended December 31, 1998 are derived from our consolidated financial
statements, which have been audited by Ernst & Young LLP, independent certified
public accounts, and are included elsewhere in this prospectus. The selected
consolidated financial data set forth is qualified in its entirety by, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 5, 1996
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
-------------- ------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net interest income:
Interest income from investments.......................... $ 93 $ 502
Interest expense on borrowings............................ -- 62
-------- ----------
Net interest income......................................... 93 440
-------- ----------
Non-interest income:
Servicing and profit sharing.............................. -- 662
Other..................................................... -- 35
-------- ----------
Total non-interest income................................... -- 697
-------- ----------
Non-interest expenses:
Salaries and employee benefits............................ 1,495 6,730
Marketing and advertising................................. 49 4,325
Credit card origination and servicing costs............... 1 2,327
Occupancy and equipment................................... 137 958
Professional fees......................................... 168 520
Amortization of deferred compensation..................... -- 1,300
Other..................................................... 127 539
-------- ----------
Total non-interest expenses................................. 1,977 16,699
-------- ----------
Loss before income taxes.................................... (1,884) (15,562)
Provision for income taxes.................................. 2 2
-------- ----------
Net loss.................................................... $ (1,886) $ (15,564)
======== ==========
Basic and diluted net loss per share........................ $ (4.86) $ (22.12)
======== ==========
Weighted average shares outstanding used in computing basic
and diluted net loss per share(1)......................... 388 704
======== ==========
Pro forma basic and diluted net loss per share
(unaudited)............................................... -- $ (3.47)
==========
Shares used in computing pro forma basic and diluted net
loss per share(1) (unaudited)............................. -- 4,479
==========
SUPPLEMENTAL OPERATING DATA -- ASSETS UNDER MANAGEMENT(2)
Total credit card receivables outstanding................... -- $ 66,042
Total number of open credit card accounts................... -- 40
Total revenue: finance charges, fees and interchange
income.................................................... -- $ 1,199
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998
-------------- ------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,840 $ 40,134
Total assets................................................ 3,688 45,542
Total liabilities........................................... 901 5,606
Total stockholders' equity.................................. 2,787 39,937
</TABLE>
- ---------------
(1) See Note 2 of notes to Consolidated Financial Statements for an explanation
of the number of shares used in per share computations.
(2) Assets under management represent all credit card receivables generated
under the NextCard Visa and outstanding on Heritage's balance sheet.
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<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the notes thereto which appear elsewhere
in this prospectus. The following discussion contains forward-looking statements
that reflect our plans, estimates and beliefs. Our actual results could differ
materially from those projected in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed below and elsewhere in this prospectus, particularly in "Risk
Factors."
OVERVIEW
We are a leading Internet-based provider of consumer credit. We were the
first company to offer an online approval system for a Visa card and to provide
interactive, customized offers for credit card applicants.
We combine expertise in consumer credit, an exclusive Internet focus and
sophisticated direct marketing techniques with the aim of attracting profitable
customer segments on the Internet. Our product, the NextCard Visa, which we call
the First True Internet Visa, is marketed to consumers exclusively through our
website, www.nextcard.com. We offer credit card customers a unique combination
of convenience, customization, shopping enhancements and online customer
service. The NextCard Visa can be used for both online and offline purchases.
We were incorporated on June 5, 1996. The NextCard Visa was first offered
to the public on December 23, 1997. During the period from our inception through
December 31, 1997 (the "Inception Period"), we had no operating income. Our
operating activities were limited primarily to developing the necessary computer
infrastructure, planning and developing our website, building our operations
capacity and establishing vendor relationships.
Our operating costs have increased significantly since our inception. This
reflects the costs associated with the formation of our company, as well as
increased efforts to promote the NextCard brand, build market awareness, attract
new customers, recruit personnel, build operating infrastructure and develop our
credit card application system and customer servicing infrastructure.
We have grown rapidly since launching our product in December 1997. As of
December 31, 1997, we had 18 employees, and as of December 31, 1998, we had 107
employees. During 1998, we significantly increased the new loans generated
through our website as well as the total loans under management. This increase
was primarily due to our application process which allows customers to
automatically transfer balances from their other credit cards to their new
NextCard Visa. From December 31, 1997 to December 31, 1998, our loans under
management grew from $0 to $66.0 million. As of December 31, 1998, we had over
39,000 open credit card accounts.
As of February 28, 1999, we had received more than one million applications
for the NextCard Visa and had generated over $125.0 million in new credit card
loans. Due to our underwriting criteria, the number of customer applications we
approve is limited relative to the number of applications we receive.
Since our inception, we have incurred significant losses. As of December
31, 1998, we had an accumulated deficit of $17.5 million. The net losses and
accumulated deficit resulted from the significant infrastructure, marketing,
technology and other costs incurred in the development of our NextCard Visa
product. We expect to incur significant additional losses from operations for
the foreseeable future and expect that the rate and amount at which such losses
will be incurred will increase significantly from current levels. These expected
costs are related to: advertising, marketing and other promotional activities;
expansion of our direct marketing, database and testing capabilities; expansion
of our product offerings; and strategic relationship development.
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<PAGE> 23
Until January 12, 1999, Heritage funded all of the credit card accounts and
loans originated on our website pursuant to the Consumer Credit Card Program
Agreement. Under that agreement, we charge Heritage for origination and
servicing of the accounts and share 50% of the resulting net profits or losses.
In January 1999, we began purchasing credit card receivables utilizing a
$100.0 million secured lending facility extended to our subsidiary, NextCard
Funding Corp. Pursuant to the terms of the Account Origination Agreement,
Heritage continues to fund newly originated credit card receivables, which are
then purchased on a daily basis by NextCard Funding using borrowings from Credit
Suisse First Boston. The purchased receivables are pledged as security for the
Credit Suisse borrowings. By holding and managing those credit card receivables,
we earn income from: (a) finance charges paid by our customers based on their
outstanding balances; (b) amounts paid through the Visa system for purchases
made with the NextCard Visa; and (c) fees paid by our cardholders, such as late
fees, overlimit fees and program fees.
NEXTBANK
We have taken initial steps to establish a limited purpose national credit
card bank, which would be our wholly owned subsidiary. NextBank may in the
future be a vehicle for issuing NextCard Visa accounts and funding our NextCard
Visa loan portfolio. See "Business -- NextBank."
RESULTS OF OPERATIONS
NET INTEREST INCOME
Interest Income. Interest income consists of earnings on our cash and cash
equivalents. Interest income increased $409,000 from $93,000 in the Inception
Period to $502,000 in 1998. The increase was attributable to higher average cash
and cash equivalent balances from sales of our preferred stock during 1998. We
expect our interest income to increase in the future as we purchase credit card
receivables from Heritage. The amount of interest income we recognize will
depend primarily on: (a) the amount of our credit card receivables; (b) the
percentage of those receivables that are not paid off on a monthly basis; and
(c) the interest rate we charge on those unpaid receivables.
Interest Expense. Interest expense consists of interest we pay associated
with our borrowings. We had no debt during 1997. In 1998, we had interest
expense of $62,000 attributable to our equipment loan. We expect our interest
expense to increase in the future as we increase our borrowings and potentially
raise deposits through NextBank to fund the purchase of credit card receivables
from Heritage.
NON-INTEREST INCOME
Servicing and Profit Sharing. We did not recognize any non-interest income
during the Inception Period. In 1998, we recognized $662,000 of servicing and
profit sharing income under our Consumer Credit Card Program Agreement with
Heritage. However, we anticipate non-interest income will decrease in 1999
because we will be purchasing all of the new credit card receivables from
Heritage pursuant to the Account Origination Agreement.
NON-INTEREST EXPENSES
Salaries and Employee Benefits. Salaries and employee benefits include all
of our employees' salaries and benefit expenses, contract labor expenses,
consulting fees and recruiting fees. Salaries and employee benefit expenses
increased $5.2 million from $1.5 million in the Inception Period to $6.7 million
in 1998. This increase was caused by the growth of employees from 18 as of
December 31, 1997 to 107 as of December 31, 1998. We expect salaries and
employee benefit expenses to continue to increase as we expand our staffing and
incur additional costs related to the growth of our business.
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<PAGE> 24
Marketing and Advertising. Marketing and advertising expenses consist
primarily of Internet-based advertising, promotional expenditures and public
relations. Marketing and advertising expenditures increased $4.3 million from
$50,000 in the Inception Period to $4.3 million in 1998. This increase in
marketing and advertising expenditures in 1998 was primarily attributable to the
expansion of Internet-based advertising. We expect our marketing and advertising
expenses to increase significantly as we further expand our Internet-based
advertising campaigns and branding activities.
Credit Card Origination and Servicing Costs. Credit card origination and
servicing costs consist of all costs associated with processing new credit card
accounts and servicing the NextCard Visa credit card portfolio. These costs
include the payments made for accessing applicants' credit bureau reports,
maintaining the security over our network, the card issuance fees we pay to
Heritage as well as the payments we make to First Data and other third-party
vendors who provide selected fulfillment and service functions. There were no
credit card activation or servicing costs during the Inception Period. In 1998,
these costs were $2.3 million and are expected to increase as we increase our
credit card loan portfolio.
Occupancy and Equipment. Occupancy and equipment expenses include office
lease payments for our office space in both San Francisco and San Ramon, as well
as all utilities and depreciation expenses recognized on all of our furniture
and equipment. Occupancy and equipment expenses increased $821,000 from $137,000
in the Inception Period to $958,000 in 1998. The increase was due to significant
increases in both our San Francisco and San Ramon office space requirements and
purchasing additional equipment. We expect our occupancy and equipment costs to
increase as we expand our staffing, network infrastructure and office space
requirements in both the San Francisco and San Ramon locations.
Professional Fees. Professional fees include primarily outside legal and
accounting fees. Professional fees increased $352,000 from $168,000 in the
Inception Period to $520,000 in 1998. We expect professional fees to increase as
we engage outside legal and accounting firms to assist us in a number of
corporate activities, including the application and the potential chartering of
NextBank.
Amortization of Deferred Compensation. As a result of this offering, a
portion of the value of certain stock options granted in 1998 have been
considered to be compensatory. Deferred compensation associated with such
options amounts to $6.2 million. This amount represents the difference between
the exercise price of certain stock option grants and the deemed fair value of
our common stock at the time of such grants. Of this amount, $1.3 million was
charged to operations in 1998 and $4.9 million will be amortized using an
accelerated method over the vesting periods of the applicable options through
2002. The remaining amortization of this deferred compensation charge will be
approximately $2.5 million in 1999, $1.2 million in 2000 and $600,000 in 2001
and 2002.
Other Expenses. Other expenses include primarily travel, insurance and
general corporate expenses. Other expenses increased $412,000 from $127,000 in
the Inception Period to $539,000 in 1998. We expect other expenses to increase
as we anticipate incurring additional costs related to being a publicly held
entity, including directors and officers liability insurance and investor
relations programs.
TAXES
Income Taxes. We have had a net loss for each period since inception. As
of December 31, 1998, we had approximately $14.2 million of net operating loss
carryforwards for federal and state income tax purposes. The federal net
operating loss carryforward will start expiring in 2012 and the state net
operating loss carryforward will start expiring in 2005. Because of uncertainty
regarding realizability, we have provided a full valuation allowance on our
deferred tax assets consisting primarily of net operating loss carryforwards.
See Note 9 of notes to the Consolidated Financial Statements.
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<PAGE> 25
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of operating
data for the seven quarters ended December 31, 1998. This information has been
derived from our unaudited consolidated financial statements. In our opinion,
this unaudited information has been prepared on the same basis as the annual
consolidated financial statements and includes all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation for the
quarters presented. This information should be read in conjunction with the
Consolidated Financial Statements and accompanying notes. The operating results
for any quarter are not necessarily indicative of the operating results for any
future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1998 1998 1998 1998
-------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net interest income:
Interest income from
investments............... $ 10 $ 24 $ 49 $ 33 $ 79 $ 116 $ 274
Interest expense on
borrowings................ -- -- -- -- 1 47 14
----- ----- ----- ------- ------- ------- -------
Net interest income........... 10 24 49 33 78 69 260
----- ----- ----- ------- ------- ------- -------
Non-interest income:
Servicing and profit
sharing................... -- -- -- 34 130 137 361
Other....................... -- -- -- 3 2 30
----- ----- ----- ------- ------- ------- -------
Total non-interest income..... -- -- -- 34 133 139 391
----- ----- ----- ------- ------- ------- -------
Non-interest expenses:
Salaries and employee
benefits.................. 193 363 763 789 1,349 2,124 2,468
Marketing and advertising... 6 5 33 209 936 1,056 2,124
Credit card origination and
servicing costs........... -- -- 1 51 391 880 1,005
Occupancy and equipment..... 24 32 62 116 160 326 356
Professional fees........... 23 44 77 41 77 49 353
Amortization of deferred
compensation ............. -- -- -- 39 110 343 808
Other....................... 17 43 45 71 133 106 229
----- ----- ----- ------- ------- ------- -------
Total non-interest expenses... 263 487 981 1,316 3,156 4,884 7,343
----- ----- ----- ------- ------- ------- -------
Loss before income taxes...... (253) (463) (932) (1,249) (2,945) (4,676) (6,692)
Provision for income taxes.... -- -- 2 -- -- -- 2
----- ----- ----- ------- ------- ------- -------
Net loss...................... $(253) $(463) $(934) $(1,249) $(2,945) $(4,676) $(6,694)
===== ===== ===== ======= ======= ======= =======
SUPPLEMENTAL OPERATING DATA -- ASSETS UNDER MANAGEMENT(1)
Total credit card receivables
outstanding................. -- -- -- $ 1,626 $ 9,402 $35,334 $66,042
Total number of open credit
card accounts at period
end......................... -- -- -- 1 5 19 40
Total revenue: finance
charges, fees and
interchange income.......... -- -- -- $ 3 $ 59 $ 292 $ 845
</TABLE>
- ------------
(1) Assets under management represents all credit card receivables generated
under the NextCard Visa and outstanding on Heritage's balance sheet.
We have a limited operating history and are operating in a new and rapidly
changing environment. Therefore, we believe that quarterly comparisons of our
financial results are not necessarily indicative of
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<PAGE> 26
our future performance. Our quarterly operating results may fluctuate
significantly as a result of a variety of factors, many of which are outside of
our control. These factors include, but are not limited to:
- our ability to generate new customer relationships and retain profitable
customers;
- the volume of credit card loans generated from our products and our
ability to successfully manage our credit card loan portfolio;
- the announcement or introduction of new websites, services and products
by us or our competitors and the level of price competition for the
products and services we offer;
- the amount and timing of operating costs and capital expenditures
relating to the expansion of our business, operations and infrastructure;
- technical difficulties, system downtime, Internet service problems and
our ability to expand and upgrade our computer systems to handle
increased traffic;
- the success of our brand building, advertising and marketing campaigns;
- the level of use of the Internet and online financial services;
- our ability to attract and retain high-quality employees;
- regulation by federal, state or local governments; and
- general economic conditions, including interest rate volatility, and
economic conditions specific to the Internet, online commerce and the
credit card industry.
Our future revenue will primarily consist of the finance charges paid by
our customers based on their outstanding balances, the amounts paid through the
Visa system for purchases made with the NextCard, and other fees paid by our
cardholders. As a result, we will depend substantially on the amount of loans
outstanding in our loan portfolio, the level of new loans originated through the
NextCard website and customer purchases using the NextCard Visa. Therefore, our
quarterly revenues and operating results are likely to be particularly affected
by these variables.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
sales of preferred stock. Net proceeds from these sales from inception to
December 31, 1998 have totaled approximately $54.7 million.
Net cash used in operating activities was $1.5 million in the Inception
Period and $11.2 million in 1998. Net cash used in operating activities was
primarily attributable to net losses, offset in part by increases in accounts
payable, accrued expenses and amortization of deferred compensation.
Net cash used in investing activities was $309,000 in the Inception Period
and $2.1 million in 1998. Net cash used in investing activities was primarily
related to the purchase of property and equipment.
Net cash provided by financing activities was $4.7 million in the Inception
Period and $50.5 million in 1998. Net cash provided by financing activities
resulted primarily from the issuance of preferred stock and the borrowing of
$546,000 against an equipment loan from a financial institution.
At December 31, 1998, our principal source of liquidity was approximately
$40.1 million of cash and cash equivalents. In February 1999, we entered into a
$5.0 million line of credit with a finance company. Borrowings under the line of
credit accrue interest at 12.25% per year and are secured by a secondary
security interest in all of our tangible and intangible assets.
In addition, during 1998, we entered into a $1.2 million equipment loan and
security agreement with a finance company. The loan is secured by a pledge of
all equipment purchased with the proceeds from
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<PAGE> 27
borrowings under the loan agreement and bears interest at 7.55% per year. The
ability to borrow on the loan expires on May 31, 1999. The loan had an
outstanding balance of $504,000 at December 31, 1998. This loan matures in
installments in the following years: 1999 -- $147,000; 2000 -- $159,000; 2001 --
$171,000; and 2002 -- $27,000.
Also during 1998, we entered into a $1.0 million lease/loan financing
arrangement with a finance company. The lease/loan financing arrangement is
secured by a pledge of all equipment leased under the arrangement and bears
interest at 7.50% per year. The lease/loan financing arrangement expires on May
22, 2000 and no balance was outstanding at December 31, 1998.
In addition, on December 29, 1998, we executed a $100.0 million secured
borrowing facility with Credit Suisse. The revolving credit facility is secured
by credit card receivables, which may be purchased, from time to time, using the
revolving credit facility's proceeds. The revolving credit facility bears
interest, at our option, at either 2.50% over LIBOR or the prime rate, and
matures on December 29, 1999.
In December 1997, we signed a five-year agreement with First Data for
processing of the credit card portfolio. Under that agreement, we are obligated
to make aggregate minimum servicing payments of $7.5 million over the next five
years. In connection with our principal executive office lease, in September
1998, we executed a $450,000 irrevocable standby letter of credit in favor of
the landlord which expires on October 31, 1999. This letter of credit can be
drawn on by our landlord under certain circumstances if we default under our
lease agreement.
We expect that our existing capital resources, including the net proceeds
raised in this offering, will adequately satisfy our working capital
requirements for the next 12 months, except for the funding of our loan
portfolio. Future working capital requirements, however, depend on many factors
including our ability to execute on our business plan. If our current funding,
including the net proceeds generated by this offering, becomes insufficient to
support future operating requirements, we will need to obtain additional funding
either by increasing our lines of credit or by raising additional debt or equity
from the public or private capital markets. Such funding alternatives, if
available at all, may be on terms that are not favorable to us. Failure by us to
raise additional capital or additional funding when needed could have a material
adverse effect on our business, results of operations and financial condition.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of our then-current stockholders would be reduced.
Furthermore, such equity securities might have rights, preferences or privileges
senior to those of our common stock.
Our ability to grow our business is limited by the amount of credit we can
extend to our customers and potential customers. Although our credit facility is
sufficient to fund our current loan portfolio, it is not sufficient to cover our
anticipated loan portfolio over the next 12 months. Therefore, any loss of
funding under this credit facility or failure to increase or extend the terms of
this credit facility or obtain alternative financing on commercially reasonable
terms would have a material adverse effect on our results of operations and
financial condition.
In the future, if we successfully create NextBank, a bank limited to
generating and financing credit card loans, we will seek to fund our loan
portfolio through short-term deposits raised by NextBank as well as capital
contributed by us. However, we may not be able to attract or retain sufficient
deposits at attractive interest rates to fund our loan portfolio. Moreover, if
adequate capital is not available, we also may be subject to an increased level
of regulatory supervision that could have an adverse affect on our operating
results and financial condition. See "Business -- NextBank."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement on
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which is effective
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<PAGE> 28
for financial statements for fiscal years beginning after June 15, 1999. This
new standard will require us to record all derivatives on the balance sheet at
fair value. Changes in derivative fair values will be either recognized in
earnings as offsets to the changes in fair value of related hedged assets,
liabilities and firm commitments, or, for forecasted transactions, deferred and
recorded as a component of comprehensive income in stockholders' equity until
the hedged transactions occurs and are recognized in earnings. The ineffective
portion of a hedging derivative's change in fair value will be immediately
recognized in earnings. While we currently have no derivative financial
instruments and do not currently engage in hedging activities, we anticipate
engaging in derivative and hedging activity in the future, and therefore expect
to be impacted by the pronouncement. The impact of this new standard on our
consolidated financial statements, however, will depend on a variety of factors,
including the level of future hedging activity, the types of hedging instruments
used and the effectiveness of such instruments.
YEAR 2000
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We use internally developed software, as well as computer technology and
other services provided to us by third-party vendors that may fail due to the
year 2000 phenomenon. For example, we are dependent on First Data Resources for
account processing and other customer functions. We are also dependent on
telecommunications vendors to maintain our network and a third party that hosts
our servers.
As we started NextCard less than three years ago, we developed our systems
and technology in light of the year 2000 problem as opposed to many older
companies who rely on legacy systems designed before the year 2000 problem was
known. We are in the process of reviewing the year 2000 compliance of our
internally developed proprietary software, which include substantially all of
the systems for the operation of our website, such as our instant online
approval system, customer interaction and transaction systems and our security,
monitoring and back-up capabilities.
We are currently assessing the year 2000 readiness of our third-party
supplied software, computer technology and other services and of our vendors. We
are in the process of requesting representations as to year 2000 compliance from
each third party providing us software or computer technology or other vital
services. Based upon the results of the responses we receive from such third
parties, we will develop and implement, if necessary, a remediation plan with
respect to third-party suppliers, third-party vendors and computer technology
and services that may fail to be year 2000 compliant. We anticipate our total
expense for year 2000 testing and remediation will be less than $1.0 million.
All of these expenses will be incurred in 1999. The failure of our software and
computer systems and of our third-party suppliers to be year 2000 complaint
would have a material adverse effect on us.
The year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the integrity
and stability of the Internet to provide our services. We also depend on the
year 2000 compliance of the computer systems and financial services used by
consumers. A significant disruption in the ability of consumers to reliably
access the Internet or portions of it or to use their credit cards would have an
adverse effect on demand for our services and would have a material adverse
effect on us.
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<PAGE> 29
BUSINESS
OVERVIEW
We are a leading Internet-based provider of consumer credit. We were the
first company to offer an online credit approval system for a Visa card and to
provide interactive, customized offers for credit card applicants.
We combine expertise in consumer credit, an exclusive Internet focus and
sophisticated direct marketing techniques with the aim of attracting profitable
customer segments on the Internet. Our product, the NextCard Visa, which we call
the First True Internet Visa, is marketed to consumers exclusively through our
website, www.nextcard.com. We offer credit card customers a unique combination
of convenience, customization, shopping enhancements and online customer
service. The NextCard Visa, which can be used for both online and offline
purchases, offers the following features:
CUSTOMIZED APPLICATION PROCESS
- online credit approval within seconds of submitting an application;
- online selection of customized offers based upon the applicant's unique
credit profile;
- automated account balance transfers, permitting the customer to transfer
balances from other credit cards using our website; and
- personalization of the look of the NextCard Visa through our My Visa
PictureCard product.
ONLINE SHOPPING ENHANCEMENTS
- GoShopping!, an Internet-based shopping service;
- NextCard Rewards, an Internet-based incentives program allowing customers
to earn NextCard points that can be redeemed for a variety of goods and
services; and
- 100% protection against credit card fraud.
INTERNET-BASED ACCOUNT MANAGEMENT
- online statements;
- the ability to download account activity into personal financial
management software; and
- online customer service functionality.
The NextCard Visa has experienced significant consumer demand since its
introduction in December, 1997. As of February 28, 1999, we had received more
than one million applications for the NextCard Visa and had generated over
$125.0 million in new loans. We earn most of our revenues from the finance
charges paid by our customers based on their outstanding balances. We also earn
revenues from the amounts paid through the Visa system for purchases made with
the NextCard Visa and from fees paid by our cardholders.
INDUSTRY BACKGROUND
Our business lies at the intersection of Internet-based electronic
commerce, sophisticated application of direct marketing and the credit card
industry, as depicted in the following diagram:
[Venn Diagram depicting intersection of Internet, direct marketing, and credit
card industries]
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GROWTH OF THE INTERNET AND ELECTRONIC COMMERCE
The Internet is an increasingly significant medium for communication,
information and commerce. International Data Corporation, commonly referred to
as IDC, estimates that there were 97 million Internet users worldwide at the end
of 1998 and anticipates that number will grow to approximately 320 million users
by the end of 2002. In addition, IDC estimates that the worldwide consumer
electronic commerce market is expected to grow from approximately $11 billion in
1998 to approximately $94 billion in 2002. That growth is being driven by a
number of factors, including:
- a growing base of PCs in the home and workplace;
- improvements in network security, infrastructure and bandwidth;
- faster and less expensive Internet access;
- increases in the quantity and quality of content available on the
Internet;
- the overall increased public awareness of the Internet; and
- the convenience, timeliness and reduced costs of electronic commerce.
Over the last few years, consumers have significantly increased their usage
of the Internet and expanded the categories of products and services they
purchase over the Internet. Consumers increasingly are using the Internet to
obtain information, make purchases and manage their personal finances. As a
result, a new class of Internet-based companies has emerged to address these
online opportunities. These companies are focusing on such areas as retail
consumer goods and services, travel, health care and, increasingly, consumer
financial products and services.
INTERNET DIRECT MARKETING
The Internet provides unique opportunities to apply direct marketing
techniques to target and acquire new customer relationships and enhance existing
customer relationships. This Internet-based approach is relatively new, and
offers significant advantages over the traditional direct marketing techniques
of mass mailing and telemarketing. These advantages include the ability to:
- rapidly evaluate and respond to consumer reactions to marketing programs
and product offerings;
- target the most attractive customer segments and customize advertising to
them across different websites;
- acquire demographic and behavioral data about an individual customer and
quickly customize product offerings for that customer; and
- frequently analyze ongoing purchasing patterns and tailor ongoing product
offerings, thereby strengthening customer relationships and increasing
customer loyalty.
As a result of these factors, we believe the Internet has the potential to
be the most efficient and effective one-to-one direct marketing tool created to
date.
THE CREDIT CARD INDUSTRY
The credit card industry is large and continues to grow. According to The
Nilson Report, the amount of debt owed by U.S. consumers on their Visa and
MasterCard credit cards totaled $413 billion as of December 31, 1998. According
to The Nilson Report, the total charges by U.S. consumers on Visa and MasterCard
credit cards were $678 billion in 1997 and are expected to increase to $896
billion by the year 2000. We believe that the projected growth of the credit
card industry will be driven in part by:
- the shift from more traditional forms of consumer credit (e.g., consumer
installment lending) to credit cards;
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<PAGE> 31
- the shift from paper-based payments (e.g., cash and personal checks) to
credit card and other electronic forms of payment; and
- growth in Internet commerce, where credit cards are currently the primary
form of consumer payment.
While the credit card market is very large, it is also highly fragmented.
According to The Nilson Report, there are more than 6,600 financial institutions
in the United States that are issuers of credit cards. Of the total Visa and
MasterCard balances outstanding, no credit card issuer has more than 17%, and
only five have more than 5%, of this market. We believe this market
fragmentation is largely the result of the use of the Visa brand, recognized as
one of the more powerful brands in the world and generally available to any
insured depository institution. Consumers traditionally have focused more on the
credit card brand (e.g., Visa, MasterCard and Discover(R)) than on the issuing
bank when choosing a credit card.
Unlike many industries, in the credit card industry a company can be
profitable without achieving significant market share if its customers have
attractive borrowing and credit profiles. For example, a large credit card
company may be less profitable relative to a small credit card company if the
customers of the large company maintain lower balances or have higher default
rates. As a result, profitability in the credit card industry can be achieved by
targeting specific customers with attractive characteristics, rather than using
mass marketing techniques to achieve large market share.
Certain credit card companies have achieved success through targeting
strategies utilizing the direct mail and telemarketing channels. However, we
believe these traditional channels are becoming less effective. In particular,
we believe that the direct mail channel has become saturated. According to
BAIGlobal's Mail Monitor, the number of credit card offers communicated through
the mail exceeded 3.4 billion in 1998. Credit card issuers must also wait
several weeks or months to determine the response rate to their offers. This
slows the company's ability to make competitive offers based on marketplace
feedback. We also believe that telemarketing is often perceived as intrusive and
untrustworthy. As a result, we believe that the use of targeting strategies on
the Internet offers significant advantages over traditional target marketing
approaches.
THE NEXTCARD OPPORTUNITY
Due to the growth of electronic commerce, the ability to target customers
on the Internet and the dynamics of the credit card industry, we believe there
is a significant opportunity to offer credit cards through targeted marketing
over the Internet. NextCard was formed to capitalize on this opportunity.
We believe our exclusive focus on the Internet provides us with a
significant competitive advantage. Our business represents the specialized
application of the multiple skills required for credit card lending -- direct
marketing, credit analysis, fraud detection, regulatory compliance, security,
customer service and operations -- to an exclusively Internet-focused business.
We have developed the first Internet-focused credit card -- the NextCard
Visa. Our products and services include:
CUSTOMIZED APPLICATION PROCESS AND PRODUCT OFFERINGS
- At our website, customers can apply easily and quickly for the NextCard
Visa, receive credit approval within seconds, choose customized upgrades,
automatically transfer balances from other credit cards and personalize
their NextCard Visa. Through the application process, we are able to
gather information that we utilize to refine our direct marketing
efforts, thereby increasing the effectiveness of our future targeted
marketing programs and lowering customer acquisition costs. The automated
balance transfer feature enables us to quickly build our loan portfolio.
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- By acquiring demographic and credit data about an individual consumer, we
can customize our product offerings for that consumer at the time of the
initial offer. This helps us target offers that we believe are attractive
to the customer.
- Our My Visa PictureCard product enables cardholders to personalize the
look of their NextCard Visa by sending us via the Internet their own
picture or selecting from our online library of artwork. We believe that
personalization increases customer loyalty and card usage.
ONLINE SHOPPING ENHANCEMENTS
- Our Internet-based shopping services, our pledge of 100% protection
against credit card fraud and our NextCard Rewards program may enhance
our customers' tendency to purchase goods and services, especially over
the Internet. By providing these value-added services, we expect to be
able to broaden our relationship with our customers and help to build our
brand. Further, by tracking our customers' ongoing purchases, we intend
to target future offers to particular customers that would be attractive
to them and profitable for us.
ONLINE CUSTOMER SERVICE
- Our customers can access statements online, check recent account
activity, download information to many personal financial management
software programs and communicate with us by e-mail. These customer
support features are available 24 hours a day, seven days a week. These
features should assist us in building customer relationships and
improving customer loyalty.
BUSINESS STRATEGY
Our objective is to enhance our position as a leading Internet-based
provider of customized consumer credit products and services. The key elements
of our strategy are:
Direct Marketing Strategy. We will enhance our data analysis
techniques to expand our expertise in Internet direct marketing in order to
find and attract our target customers. Our exclusive focus on the Internet
consumer allows us to apply the power of Internet direct marketing to a
significant and growing market. We plan to continue to develop and use our
database and data analysis capabilities as a competitive advantage to
refine our marketing programs, lower customer acquisition costs and
increase potential customer profitability.
Product Strategy. We will continue to offer customized product
choices to our customers, allowing them to design their own products
interactively. The Internet allows us to review an applicant's credit and
existing credit card usage in real-time. As a result, we can provide online
offers to particular applicants that are customized to meet their specific
needs. For example, our profile-based pricing capability allows us to use
customer information to offer specific interest rate, credit limit and
NextCard Rewards combinations. Such profile-based pricing improves our
ability to match our products to the credit risk/reward profile of our
applicants. For applicants who become customers, we intend to offer an
array of financial products and services over time based upon the
customer's credit and spending profile.
Technology Strategy. We seek to apply Internet technology innovations
to provide enhanced customer functionality more rapidly than our
competitors. We believe our technology represents one of the most advanced
online credit review and approval systems available. We believe
technological innovations will continue to transform the Internet and that
we must maintain technological superiority in the delivery of our products
and services. Therefore, we plan to lead in the application of new Internet
technologies to offer enhanced product and services and thereby
differentiate ourselves from our competitors.
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Branding Strategy. We plan to leverage our leadership in Internet
consumer financial services to continue to build brand recognition.
Branding on the Internet is becoming an increasingly important
differentiating factor for consumers. We believe that our exclusive focus
on the Internet has enabled us to begin to establish name recognition among
online consumers of financial products and services. We intend to continue
to expand our marketing activities to enhance our brand awareness. As
competition increases for online financial products and services, we
believe that our brand name will provide us with a competitive advantage.
Ultimately, our long-term vision is to redefine the banking experience for
the Internet consumer. We are focusing on consumer credit cards because the
credit card business is a proven direct marketing business, there is significant
consumer demand for applying for credit online and we believe the credit card
business is one of the most profitable businesses in consumer financial
services.
THE NEXTCARD VISA
The NextCard Visa is bundled with a unique combination of Internet-based
functionality, including an automated application process, customized terms,
personalization options and add-on services. We believe the features of the
NextCard Visa increase potential customers' desire to obtain our credit card and
increase existing customers' usage of the NextCard Visa.
CUSTOMIZED APPLICATION PROCESS
- INSTANT ONLINE CREDIT APPROVAL. Through our RapidResults system,
applicants can apply for the NextCard Visa quickly and easily on our
website, with a credit decision returned online within seconds of
submitting an application.
- CUSTOMIZED OFFERS. Based upon an applicant's unique credit and spending
profile, we offer each approved applicant up to three customized upgrade
opportunities that vary based on interest rate, NextCard Rewards
opportunities, balance transfer amount, type of card (i.e., Classic, Gold
or Platinum) and credit limit. This allows customers to choose the
offering that best suits their needs and interests.
- AUTOMATED ONLINE BALANCE TRANSFERS. As part of our enrollment process,
customers can elect to transfer balances automatically from their other
credit cards to their new NextCard Visa.
- PERSONALIZATION. Our My Visa PictureCard enables cardholders to
personalize the look of their cards online by scanning in a picture of
choice or choosing from an online library of more than a thousand
pictures.
ONLINE SHOPPING ENHANCEMENTS
- NEXTCARD REWARDS. For each dollar charged, cardholders can earn double
reward points simply by transferring and maintaining a balance on their
NextCard Visa. These points can be used to obtain a variety of goods and
services, including discounts at major retailers as well as miles that
can be redeemed on major airlines. In this way, customers can apply their
points towards offerings of interest to them.
- GOSHOPPING! Our cardholders can use our Internet-based shopping service,
GoShopping!, to search for products and obtain consumer product
information. Our service includes Bargain Finder, to help customers
search for the best prices on specific products, Shopping Guide, which
helps NextCard customers evaluate various Internet merchants based on
customer reviews and ratings, and electronic incentives, which provide
discounts to NextCard customers.
- 100% SAFE FOR INTERNET SHOPPING. We provide our customers with 100%
protection against credit card fraud to assure our customers that the
Internet is a safe medium for making transactions.
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INTERNET-BASED ACCOUNT MANAGEMENT
- ONLINE CUSTOMER SUPPORT. At our website, customers can perform most
service and account management functions, including receiving and
downloading statements, checking balances and available credit, viewing
and sorting transaction history and communicating with us through secure
e-mail. Our website is available 24 hours a day, seven days a week,
enabling our customers to access the support they need when most
convenient for them.
FUTURE PRODUCTS AND SERVICES
We intend to add new credit card products and services in the future. Most
of those products and services will be designed to attract and retain targeted
consumer segments on the Internet and stimulate the use of the NextCard Visa,
particularly in electronic commerce. Potential future offerings may include
electronic wallets, targeted sweepstakes programs and special incentive offers.
MARKETING
We use direct marketing on the Internet both to attract targeted customers
to our website and as a one-to-one marketing channel to provide customized
offers. To attract potential customers to our website, we focus on three
distinct marketing channels:
TARGETED INTERNET-BASED ADVERTISING
We believe the Internet offers a unique opportunity to build a
database-oriented, direct marketing capability. We use advertisements on
websites, primarily banners, and sponsored e-mails to attract potential
customers to our website. Because we offer online application and credit
approval, we automatically receive information that is well suited for targeted
marketing. We make direct placements of advertising on a diversified selection
of websites that provide millions of ad impressions each day.
Diversification is a key driver of our success. To date, no particular site
has accounted for more than 15% of our new customers. As a result, we are not
reliant on any particular website to attract applicants to our website.
We have constructed an Internet Database Marketing system, which we call
IDM, that can monitor the click-path of customers who come to our site. With
this system, we are able to evaluate the success of a particular advertisement
on a particular site. For each banner/site configuration, we are able to
monitor:
- the click-through rate (percent of people who click from the banner to
our site);
- the application rate (percent of those people who then decide to apply
for our product);
- the credit approval rate (percent of those applicants whom we approve for
credit);
- the booking rate (percent of those approvals who order a NextCard Visa);
and
- the balance transfer rate (the average amount of balances transferred by
a customer to us from their other credit card accounts).
AFFILIATE MARKETING
We form relationships with companies that have Internet sites to drive new
account volume and strengthen customer loyalty and retention. Companies meeting
our quality standards can post a NextCard logo, providing a direct link to our
website. These affiliates receive payments from us for each new customer we
acquire through their website link. We have developed an automated affiliate
sign-up process that has resulted in rapid growth of our affiliates. As of
January 31, 1999, we had more than 4,200 affiliates and have gained
approximately 500 new affiliates each month since September 1998.
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CO-BRANDING
In the traditional credit card market, co-branding has been an important
approach to acquiring customers but frequently has failed to promote the brand
of the credit card issuer. Traditionally, a credit card issuer will enter into
an agreement with a consumer branded company to offer credit cards under the
brand of the partner. However, the identity of the credit card issuer generally
is subordinate to the identity of the partner. As a result, these relationships
typically do not allow credit card issuers to build their credit card brands.
As an alternative, we have begun to work with partners to offer the power
of our customization to their customer base, with both brands marketed together.
We believe that the power of two Internet brands can create an important message
to the customer, and promote our brand.
In addition to the above three marketing channels, we will continue to
build the NextCard brand and leverage it to attract new customers, affiliates
and partners. Through our marketing of the NextCard Visa, we have received over
seven million visits to our website.
UNDERWRITING AND CREDIT MANAGEMENT
One of the most significant drivers of profitability in the credit card
industry is the ability to effectively manage credit card losses. Losses from
consumer defaults vary widely by issuer. We believe that credit card issuers
using more advanced information-based credit risk management techniques have
experienced lower loss rates than the industry average.
Members of our team have significant experience in credit risk management
from operational, marketing and strategic perspectives. We have developed a set
of underwriting criteria based on risk models utilizing industry data as well as
our own internally developed decision rules and analytic techniques. In
addition, we consider the potential profitability of a particular customer prior
to making customized offers. Our policies are designed to balance credit risk
and potential profitability by adjusting the interest rate, credit limit and
required minimum balance transfers offered to a particular customer.
Our credit policies have been written, and are administered, by our credit
committee, comprised of members of our senior management. These policies have
also been reviewed and adopted by Heritage. The credit committee meets regularly
to review actual credit performance as compared to plan assumptions. The
committee reviews proposed changes to credit policies and risk management
procedures with a focus on portfolio profitability. Because we have an
unseasoned credit card portfolio, we may be unable to predict accurately the
level of future credit loss.
CREDIT UNDERWRITING ALGORITHM
Our credit approval process is performed on a fully automated basis.
Although a NextCard Visa applicant receives a credit approval decision within
seconds of applying, during that interval we conduct an automated credit
analysis. We access up to three credit bureau reports on each applicant, and
capture the credit score developed by Fair, Isaac & Company, Inc., a nationally
recognized provider of credit bureau scoring information on each of the credit
reports. The credit score is commonly referred to as a FICO score. We then apply
a set of internally developed criteria to further augment the FICO score. If the
applicant meets both our minimum FICO score criteria and passes all of our
internally developed criteria, the applicant is approved for a NextCard Visa,
subject to authentication of customer information. Further, to prevent customers
from obtaining additional accounts and thereby increasing our credit exposure to
them, we automatically verify that the applicant is not already a NextCard Visa
holder and has not submitted a duplicate application. On a periodic basis, we
monitor the effectiveness of our credit algorithm and credit review process and
adjust our procedures as necessary. As we further refine our credit algorithm
and credit process, we may consider using additional internally developed
criteria to enhance or replace our existing credit approval criteria. We have
limited experience developing and
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implementing such credit criteria and we may experience higher credit losses
than we had expected using such enhanced or replaced credit approval criteria.
CREDIT LINE MANAGEMENT
Several objectives are considered in credit line management, including:
increasing potential revenue per customer, reducing potential losses and
reducing contingent liabilities. Using credit bureau information, we review the
balances on other credit cards maintained by the applicant. The credit line made
available to the applicant is a function of the customer's risk profile, income
and balances maintained on other cards. Our decisions are based on the
probability of future credit loss projected based on the FICO score, application
of our own criteria and the applicant's income level. In addition, we
periodically monitor our customer accounts and in the future we may adjust
credit lines accordingly.
OPERATIONS
Our operations function is organized and designed to support rapid product
introduction and customer growth. We use internal and external resources for
different functions. For outsourced functions, our operations management team
provides procedural and management oversight. During 1999, we intend to migrate
certain functions in-house as volumes increase and economies of scale can be
achieved. We may experience unexpected interruptions or deterioration in our
operations due to such migration of operations. The key functional components of
our operations function are as follows:
ACCOUNT ORIGINATION SUPPORT
We have developed an innovative application processing approach, leveraging
an automated credit decision process with a multi-step customer authentication
routine. The authentication and new account risk management process is a central
function for the operations group.
Once an applicant has been approved through our credit process, our
operations group performs several customer authentication tests. The
authentication process involves a set of internally developed procedures using
third-party databases and credit bureau information to determine the probability
that an application may involve fraud.
Each application is processed through a series of fraud databases. We also
have developed an internal database of fraud addresses. Based upon the presence
of certain indicators, the customer will either be approved for the card,
declined for the card, sent correspondence requesting additional information or
routed to an operations specialist who has been trained to look for occurrences
of Internet application fraud. After reviewing the account, telephone contact
may be initiated to attempt to verify the identity of the applicant. We plan to
automate further our authentification process during the next several years.
At the conclusion of this process, which typically takes one to three
weeks, the customer is sent their NextCard Visa.
CUSTOMER SERVICE AND SUPPORT
Customer service and support functions are performed by our operations
staff, as well as through an arrangement with First Data. During the second half
of 1999, we expect to migrate most customer service and support activities to
our San Ramon operations facility.
Customers can access account information on our website or call a customer
service representative 24 hours a day, seven days a week. The quality of our
customer service is reviewed through monitoring of telephone contacts with
customers. In addition, we use call management software to monitor call
abandonment, call length and other call center productivity measurements.
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COLLECTIONS
Collections activities currently are performed by First Data under our
direction and policy-making. Accounts are recognized as delinquent one day after
a monthly cycle in which no payment is received for an account that had a
balance in the prior billing cycle. Collection activity involves contacting the
customer and taking other appropriate actions. We review the effectiveness of
the collection efforts and make recommendations for process improvements to
First Data. During the second half of 1999, we expect to move a portion of
collections activities to our San Ramon operations facility.
PROCESSING
First Data performs certain core processing services for us. These services
include authorizing customer transactions through the Visa system (including
monitoring for purchase-related fraud), performing billing and settlement
processes, generating and monitoring monthly billing statements, and issuing
credit card plastics and new account agreements.
KEY OUTSIDE RELATIONSHIPS
We rely on third parties to provide essential value-added services:
- Heritage issues the NextCard Visa;
- First Data provides essential fulfillment and customer service functions,
and hosts online customer service capabilities;
- Response Data Corporation provides online balance transfer support to
NextCard customers;
- Exodus Communications provides us technical support and secure facility
for Internet hosting services;
- Three major credit bureaus (TransUnion, Experian and Equifax) furnish the
credit information that we require to process our credit card
applications;
- National Processing Corporation provides collection and lockbox services
for customer payments;
- MyPoints.com furnishes administrative and fulfillment services for our
NextCard Rewards incentive program; and
- Binary Compass Enterprises, Inc. and WebCentric, Inc. provide software
technology underlying our GoShopping! program.
Any interruption, deterioration or termination of these third party
services could have a material adverse effect on our business and reputation. In
addition, as we do not have fully redundant systems in place for most of our key
functions at this time, any interruption of any of our systems could cause a
material interruption or deterioration in our operations.
TECHNOLOGY AND SECURITY
Our business model is based on consumer access to the NextCard website both
to acquire new customers as well as to service existing relationships. As a
result, our development efforts are focused on creating and enhancing
specialized software that enhances our Internet-based customer functionality. In
addition, because we offer a financial product, we seek to offer a high level of
data security to build customer confidence.
Our security infrastructure is designed to protect data from unauthorized
access, both physically and over the Internet. The major components of our
network are located in San Francisco, at our corporate headquarters; San Ramon,
California, in our operations center; and Santa Clara, California, in the Exodus
Data Center. Additionally, we rely upon the security infrastructure of First
Data and Response
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Data. Each of these key business locations is connected through private leased
lines. In all locations, access to the network servers is tightly restricted.
Internet security is addressed with leading technologies, vendors and design
approaches.
Our most sensitive data and hardware reside at one of the Exodus Data
Centers in Santa Clara, California. Exodus Communications provides Internet
co-location services for hundreds of Internet businesses in seven locations
nationwide. With redundant connections to the Internet, as well as fault
tolerant power and waterless fire suppression, Exodus Communications provides us
with the benefits of a high-end data center without the excessive cost of
building and maintaining our own data center. Because of our special security
needs, our equipment is located in an Exodus Vault. The Exodus Vault represents
a higher level of security in server hosting spaces.
Our customer service website was designed and developed in conjunction with
First Data. The site resides on a web server located in their main data center
in Omaha, Nebraska. Security for the system is provided through a multi-tiered
security design, which includes physical and logical components.
FUNDING THE LOAN PORTFOLIO
In the credit card business, it is necessary to fund the resulting credit
card receivables owed by the cardholder. To date, our funding arrangements for
the NextCard Visa have involved relationships with Heritage Bank and Credit
Suisse First Boston.
HISTORICAL ARRANGEMENTS
Heritage Bank issues the NextCard Visa credit cards. From introduction of
the product through January 12, 1999, all credit card receivables associated
with the NextCard Visa program were funded by Heritage. Under that arrangement,
we billed Heritage for the origination and servicing of the accounts and
participated in 50% of the resulting net profits and losses.
As of January 12, 1999, a majority of the funding of NextCard Visa
receivables began to be provided by Credit Suisse, in cooperation with Heritage.
Under an Account Origination Agreement, Heritage continues to issue the NextCard
Visa, and our wholly-owned subsidiary, NextCard Funding Corp., purchases the
receivables from Heritage on a daily basis. Credit Suisse provides a $100
million revolving credit facility for this purpose. Our subsidiary has pledged
all of its assets to secure the loans under the Credit Suisse credit facility,
including an $8.0 million demand note we contributed to our subsidiary. Loans
fund 85% of the credit card receivables and bear interest, at our option, at
either 2.50% over LIBOR or Credit Suisse's prime rate. Our subsidiary is also
required to pay a fee of 0.25% per annum on the undrawn portion of the total
available commitment of $100.0 million. We may increase Credit Suisse's
financing to 90% of the credit card receivables upon payment of additional
compensation to Credit Suisse. Our arrangement with Credit Suisse terminates
December 29, 1999.
Heritage's obligation to establish new credit card accounts terminates on
September 30, 1999, and the remaining terms of the agreement (other than certain
indemnification and similar obligations) terminate on December 31, 1999. The
agreement may be extended if certain conditions are satisfied. However, if we
are successful in creating NextBank, our proposed credit card banking
subsidiary, we expect to have NextBank issue the NextCard Visa. If we are not
successful in creating NextBank on a timely basis, our failure to extend our
agreement with Heritage or enter into an alternative arrangement with Heritage
or a third party would have a material adverse effect on us. Heritage's
compensation under the Account Origination Agreement is primarily an origination
fee for each credit card account. In addition, Heritage is entitled to
reimbursement for certain out-of-pocket expenses.
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FUTURE ARRANGEMENTS
Growth of our business depends on our ability to finance the creation of
credit card receivables associated both with new and existing accounts. Our plan
is to continue primarily to employ debt financing to fund credit card
receivables until we successfully establish NextBank. At that point in time, we
anticipate taking deposits in our NextBank subsidiary to assist funding our
credit card receivables.
NEXTBANK
We have taken initial steps to establish a limited purpose national credit
card bank that may in the future be a vehicle for issuing NextCard Visas and
funding our NextCard Visa loan portfolio. In December 1998, we filed a limited
purpose national bank application with the Office of the Comptroller of the
Currency, or the OCC, to charter NextBank, a nationally chartered bank limited
to generating and financing credit card loans. We have also filed, on behalf of
NextBank, an application for federal deposit insurance with the FDIC. If we are
successful in obtaining a charter from the OCC and federal deposit insurance
from the FDIC, we intend to begin originating NextCard accounts through NextBank
and funding credit card receivables by accepting deposits of $100,000 or more.
We anticipate operating NextBank as a virtual bank that primarily interacts with
its customers through the Internet. As a limited purpose national credit card
bank, NextBank will be subject to the following restrictions on its activities:
(a) it may engage only in credit card operations; (b) it may not accept demand
deposits or deposits that the depositor may withdraw by check or similar means;
(c) it may not accept savings or time deposits of less than $100,000 (except as
security for its loans); (d) it may maintain only one office that accepts
deposits; and (e) it may not engage in the business of making commercial loans.
COMPETITION
The market for consumer credit card products in the United States is highly
competitive. This competition primarily has been focused in the offline areas of
direct mail, telemarketing and traditional bricks-and-mortar branch banking. In
contrast, our strategy focuses on the Internet channel, a rapidly evolving and
intensely competitive arena. Our ability to compete effectively depends on many
factors, both within and beyond our control.
We believe that the principal factors upon which we will compete for
customers include the pricing of our products and services, reliability and
customer support, the features of our products and services, and brand
recognition. In turn, our ability to be an effective competitor against
established and new entrants into the industry will depend on a number of
factors, including our ability to identify and retain attractive customers, the
quality of our credit decisions, the cost of acquiring customers, our ability to
gain technological expertise, the cost of funding our loan portfolio, our
ability to create strategic partnerships with third parties and our ability to
control fraud and delinquencies.
We expect significant additional competition in the future as the Internet
channel grows and many financial institutions become increasingly aware of the
market opportunities available. Many of the current and potential competitors
have greater financial resources and name recognition than we have. We currently
compete, or anticipate competing, for online consumers, directly and indirectly,
with the following categories of companies:
Traditional Credit Card Companies. Established credit card companies,
such as BancOne and Providian Financial, have historically generated
accounts through direct mail and telemarketing. Our products and services
compete with the offline offerings of these companies, as well as the
online offerings that certain of these companies have begun to make
available. In particular, certain of these companies are entering into
Internet related branding arrangements, as well as significant
arrangements, including exclusive arrangements, with Internet portals to
market their products.
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Traditional Banks. Banks, such as Citibank, Wells Fargo and Chase
Manhattan, have historically issued credit cards to consumers through
traditional channels and have begun to provide online credit card services.
As the Internet channel grows, we expect banks to offer more credit card
products and services over the Internet.
Internet-Focused Entrants. We anticipate the addition of new forms of
financial institutions to compete in the online consumer financial services
industry. Several companies, such as TeleBank and Net.B@nk, are
establishing themselves as Internet-based providers of consumer financial
products and services. We also anticipate that established Internet
participants will be attracted into the marketplace, through partnering or
co-branding arrangements with existing financial institutions. For example,
BancOne, in partnership with Yahoo!, has introduced a Yahoo! branded credit
card and promoted that credit card on the Internet.
GOVERNMENT REGULATION
The relationship between an issuer of credit cards and its applicants and
customers is extensively regulated by federal and state consumer protection
laws, most particularly Truth-in-Lending, Equal Credit Opportunity, Fair Credit
Reporting, Telemarketing and Consumer Fraud and Abuse Prevention, Electronic
Funds Transfer and Fair Debt Collection Practices Acts. These statutes, as well
as their enabling regulations, among other things, impose disclosure
requirements when a consumer loan is advertised, when an application is
presented, when an application is processed, when a billing statement is
prepared and when a delinquent account is presented for collection. In addition,
various statutes limit the liability of a credit card holder for unauthorized
use, prohibit discriminatory practices when extending credit, impose limits on
the types and amounts of fees and charges that may be imposed and restrict the
use of consumer credit reports and other account related information.
Changes in any of these laws or regulations, or in their interpretation or
application, could harm our business. Various proposals which could affect our
business have been introduced in Congress in recent years, including, among
others, proposals relating to imposing a statutory cap on credit card interest
rates, substantially revising the laws governing consumer bankruptcy, limiting
the use of social security numbers and other regulatory restructuring proposals.
There have also been proposals in state legislatures in recent years to restrict
telemarketing activities, impose statutory caps on consumer interest rates,
limit the use of social security numbers and expand consumer protection laws. It
is difficult to determine whether any of these proposals will become law and, if
so, what impact they will have on us.
We believe that we are in compliance with all relevant statutes and
regulations in relation to our business. However there can be no assurance that
we will be able to maintain such compliance. The failure to comply with consumer
protection statutes and regulations could have a material adverse effect on our
business, financial condition and results of operations. In addition, due to the
consumer-oriented nature of the credit card industry, there is a risk that we or
other industry participants could be named as defendants in class action
litigation alleging fraud or violations of federal or state laws and
regulations, including fraud. While we currently are not a party to any such
litigation, a significant judgement against us or the industry, with respect to
any business practice followed by us, could have a material adverse effect on
our business, financial condition and results of operations or our stock price.
To date, all NextCard Visa accounts have been issued by Heritage, a
California bank. Therefore, all of our current accounts are subject to the
provisions of California law with respect to fees, charges, interest rates and
other restrictions imposed on California-based lenders. Our ability to export
the interest rates charged by California banks into other states, and thereby
preempt the interest rate limits that might otherwise be imposed by those
states, has been recognized by the United States Supreme Court, as well as by
the Depository Institutions Deregulation and Monetary Control Act. However, with
respect to state chartered banks seeking to export interest rates, this act
provided that states could "opt out" of the reciprocity provisions. We have
determined not to offer the NextCard in any opt-out jurisdiction and
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other select jurisdictions. We do not currently offer the NextCard in Alabama,
Iowa, Wisconsin and Puerto Rico.
We are not currently a regulated financial institution; however, we have
applied to the OCC for a charter for NextBank, a to-be-organized national bank
limited to credit card operations. In addition, we have applied for insurance of
deposit accounts for NextBank from the FDIC. Following the chartering of
NextBank, NextBank will commence the solicitation of deposits, in amounts of
$100,000 or more, and it, and to a lesser extent, we, will be subject to
regulations under federal and state banking laws and the supervision of the OCC
and the FDIC. These laws and supervision could have a material impact on our
operations including our credit and authentication policies, pricing and
products.
INTELLECTUAL PROPERTY
We rely primarily on a combination of copyrights, trademarks and trade
secrets, as well as certain restrictions on disclosure, to protect our
intellectual property. We have filed three patent applications pending in the
United States to protect certain proprietary systems applications covering the
method and apparatus for credit analysis, application approval or rejection and
the presentation of multiple credit card offers. In addition, we have applied to
register our trademarks in the United States and our United States trademark for
"NextCard" has been issued. We cannot assure you that our patent applications or
trademark registrations will be approved or that they will provide us with any
competitive advantages. We also enter into confidentiality agreements with our
employees and consultants, and seek to control access to and distribution of our
other proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use certain intellectual property without authorization.
These precautions may not prevent misappropriation or infringement of our
intellectual property. In addition, we can not assure you that we will not
infringe upon the intellectual property rights of third parties. The costs of
defending our proprietary rights or claims that we infringe third-party
proprietary rights may be high.
EMPLOYEES
As of February 28, 1999, we employed 122 people, of which 18 were in
marketing, 40 were in technology, 39 were in operations, 18 were in finance and
administration and 7 were in decision analytics. All but two of our employees as
of December 31, 1998 were located either in San Francisco or San Ramon,
California. None of our employees are represented by a collective bargaining
agreement. We consider our relations with our employees to be good, and we will
continue to strive to provide a positive working environment for our employees.
FACILITIES
We have a five year lease on our principal executive offices of
approximately 14,000 square feet in San Francisco, California. That lease
expires in 2003. In addition, we sublease approximately 7,000 square feet of
office space in San Ramon, California, where most of our operations and customer
service activities are located. That lease expires in 2001. We have entered into
a sublease for an additional 10,000 square feet of space in San Ramon,
California. That space is contiguous to our current space. The sublease also
expires in 2001. Our current facilities will not be sufficient to meet our
anticipated growth. As such, we will need to secure additional space to satisfy
this growth. There can be no assurance we will be able to secure such additional
space.
LEGAL PROCEEDINGS
From time to time we may be involved in litigation concerning claims
arising in the ordinary course of our business. We are not presently a party to
any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of December 31, 1998
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jeremy R. Lent(3)........................... 38 Chairman of the Board, Chief Executive
Officer and President
Yinzi Cai................................... 32 Senior Vice President, Decision
Analytics
Timothy J. Coltrell......................... 38 Chief Operating Officer
Olivia V. Dillan............................ 41 Senior Vice President, Technology
John V. Hashman............................. 39 Chief Financial Officer
Molly Lent.................................. 53 Chief Corporate Development Officer
Robert Linderman............................ 47 General Counsel and Secretary
Daniel D. Springer.......................... 35 Chief Marketing Officer
Jeffrey D. Brody(1)......................... 39 Director
Alan N. Colner(2)........................... 44 Director
Tod H. Francis.............................. 39 Director
Safi U. Qureshey(1)(2)...................... 48 Director
Bruce G. Rigione(2)(3)...................... 41 Director
</TABLE>
- ---------------
(1) Member of compensation committee
(2) Member of audit committee
(3) Member of nominating committee
Jeremy R. Lent co-founded NextCard with his wife, Molly Lent, in June 1996
and has been Chairman of the Board, Chief Executive Officer and President since
our inception. From May 1991 to January 1995, Mr. Lent served as Chief Financial
Officer of Providian Bancorp, a direct marketing credit card issuer. From 1994
to January 1995, Mr. Lent also served as a Senior Vice President of Providian.
While at Providian, Mr. Lent was responsible for the company's planning,
treasury, securitization, corporate development and accounting functions. Mr.
Lent received a B.A. and an M.A. from Cambridge University and an M.B.A. from
the University of Chicago.
Yinzi Cai has served as our Senior Vice President, Decision Analytics since
February 1999. From July 1997 to January 1999, she served as our Vice President,
Decision Analytics. From July 1994 to June 1997, Ms. Cai was a Principal in the
Finance Industry Group of American Management Systems, focusing on risk
management and direct marketing strategies for financial institutions. Ms. Cai
served as a Risk Manager for GE Capital from June 1993 to June 1994. Ms. Cai
holds a B.S. from Fudan University and an M.S. from Case Western Reserve
University.
Timothy J. Coltrell has served as our Chief Operating Officer since June
1997. From August 1996 to June 1997, he served as our Senior Vice President of
Operations. From November 1994 to June 1996, he was the Operations Center
Manager, President and Chief Executive Officer of GE Capital Consumer Credit
Card Company. From April 1987 to November 1994, he held a variety of positions
at Providian Bancorp including Assistant Vice President of Collections, Vice
President of Acquisitions, Vice President of Risk Control and Vice President of
Joint Ventures. Most recently, from August 1994 to November 1994, he held the
position of Vice President of Telemarketing at Worldwide Insurance, a subsidiary
of
39
<PAGE> 43
Providian Corporation. Mr. Coltrell received a B.A. and an M.B.A. from the
University of California at Irvine.
Olivia V. Dillan has served as our Senior Vice President, Technology since
March 1999. From August 1998 to March 1999, Ms. Dillan served as Vice President,
Engineering, NetDynamics Business Unit, Java Software Division, for Sun
Microsystems, Inc. From March 1998 to August 1998, prior to the purchase of
NetDynamics, Inc. by Sun Microsystems, Ms. Dillan served as Vice President,
Engineering at NetDynamics. Prior to this position, from March 1997 to February
1998, Ms. Dillan was Vice President, Product Development at Pretty Good Privacy
Inc. From September 1996 to March 1997, she served as Vice President,
Engineering for Portal Information Network and from February to August 1996, she
served as Vice President, Product Development for Internet Profiles Corporation.
From April 1994 to February 1996, Ms. Dillan served as Vice President, New Media
Tools and Applications Division at Oracle Corporation. Ms. Dillan holds a B.A.
in Computer Science from Hunter College.
John V. Hashman has served as our Chief Financial Officer since September
1997. Prior to joining us, Mr. Hashman worked at Providian Financial, where he
served as Vice President, Direct Telemarketing from June 1995 to September 1997,
Vice President, Operations from November 1993 to June 1995 and Treasurer from
November 1989 to November 1993. Mr. Hashman holds a B.S. from Southeast Missouri
State University and an M.B.A. from the University of San Francisco.
Molly Lent co-founded NextCard with her husband, Jeremy Lent, and, since
April 1998, has served as our Chief Corporate Development Officer. Prior to the
founding of NextCard, Ms. Lent was President of Art Forms, an art distribution
company. Ms. Lent graduated Phi Beta Kappa, cum laude, with a B.A. degree from
State University of New York at Buffalo.
Robert Linderman has served as our General Counsel and Secretary since
October 1997. From January 1993 to January 1996, he served as Associate General
Counsel for San Francisco Federal Savings, and from February 1996 to July 1997,
he served as General Counsel for SIFE Trust Fund. Mr. Linderman received a B.A.
and a J.D. from Boston University.
Daniel D. Springer has served as our Chief Marketing Officer since March
1998. Prior to joining us, from September 1991 to December 1997, Mr. Springer
worked at McKinsey & Co., an international consulting firm, where he consulted
for a wide range of enterprises. Mr. Springer holds a B.A. from Occidental
College and an M.B.A. from Harvard University.
Jeffrey D. Brody has served as a Director of NextCard since August 1997.
Mr. Brody has been employed by Brentwood Venture Capital since April 1994, and
has been a General Partner since October 1995. From December 1988 to April 1994,
Mr. Brody was Senior Vice President of Comdisco Ventures, a venture leasing
company. Mr. Brody holds a B.S. from the University of California at Berkeley
and an M.B.A. from Stanford University Graduate School of Business. Mr. Brody is
a member of the board of directors of Concur Technologies, and serves on its
compensation committee. Mr. Brody also is a member of the board of directors of
several private companies.
Tod H. Francis has served as a Director of NextCard since May 1998. Mr.
Francis has been a General Partner of Trinity Ventures since March 1996. Prior
to being named as a General Partner, Mr. Francis worked at Trinity Ventures as a
Principal from March 1995 to March 1996 and as an Associate from March 1993 to
March 1995. Prior to joining Trinity Ventures, Mr. Francis was a Partner at RAM
Group, a marketing management firm, and worked at Johnson & Johnson in brand
management. Mr. Francis holds a B.A. and an M.B.A. from Northwestern University.
Mr. Francis serves on the board of directors of Computer Literacy, Inc. and the
boards of directors of several private companies.
Alan N. Colner has served as a Director of NextCard since November 1998.
Since August 1996, he has served as Managing Director, Private Equity
Investments at Moore Capital Management, Inc. Before joining Moore, he was a
Managing Director of Corporate Advisors, L.P., the general partner of Corporate
Partners, a private equity fund affiliated with Lazard Freres & Co. LLC. Mr.
Colner also
40
<PAGE> 44
serves as a director of iVillage Inc., as well as a director of several
privately held companies. Mr. Colner received a B.A. from Yale University and an
M.B.A. from the Stanford University Graduate School of Business.
Safi U. Qureshey has served as a Director of NextCard since June 1997. Mr.
Qureshey was the founder of AST Research, a personal computer manufacturer, and
served as its Chairman and Chief Executive Officer from 1980 to 1997. Mr.
Qureshey is an active investor and sits on the boards of several private
companies. In addition, Mr. Qureshey is President of the Southern California
Chapter of The Indus Entrepreneurs, a networking and mentoring organization for
entrepreneurs, and a former member of President Clinton's Export Counsel, a
private advisory group focusing on increasing exports of United States goods and
services. Mr. Qureshey holds a B.S. from the University of Karachi, and a B.S.
from the University of Texas at Arlington.
Bruce G. Rigione has served as a Director of NextCard since March 1997. Mr.
Rigione has been a private consultant since January 1999. From April 1996 to
December 1998, Mr. Rigione was a Managing Director and Global Head of Asset
Securitization for HSBC Markets, the capital markets subsidiary of HongKong
Shanghai Banking Corporation. From November 1987 to April 1996, Mr. Rigione was
a Managing Director and Head of Securitization for Chase Securities, Inc., a
subsidiary of Chase Manhattan Bank. Mr. Rigione holds a B.A. from Fairfield
University and an M.B.A. from Columbia University.
BOARD COMMITTEES
The board of directors has a compensation committee, an audit committee and
a nominating committee.
Compensation Committee. The compensation committee, among other things,
reviews and approves the salary, stock option and stock purchase grants,
benefits and other compensation of our Chief Executive Officer and reviews and
approves policies regarding the compensation of other senior officers. Approval
of stock option grants to other officers and directors is performed by our full
board of directors. The current members of the compensation committee are
Messrs. Brody and Qureshey.
Audit Committee. The audit committee, among other things, makes
recommendations to the board of directors concerning the engagement of
independent public accountants, monitors and reviews the quality and activities
of our internal audit and quality assurance functions and monitors the results
of our operating and internal controls as reported by management and the
independent public accountants. The current members of the audit committee are
Messrs. Colner, Qureshey and Rigione.
Nominating Committee. The nominating committee, among other things, screens
and nominates candidates for election to our board. The current members of the
nominating committee are Messrs. Lent and Rigione.
DIRECTOR COMPENSATION
Although we reimburse members of the board of directors for their
out-of-pocket expenses associated with their participation, directors receive no
other specific compensation for their service as directors or for their service
on any committee of the board of directors. We may, in the future, adopt a
compensation plan for non-employee members of our board of directors.
On May 15, 1997, we entered into a consulting agreement with Safi U.
Qureshey. At that time, Mr. Qureshey was not one of our directors. Mr.
Qureshey's consulting agreement provided that, in exchange for consulting
services including, but not limited to, assisting in our early stage financing
efforts, Mr. Qureshey was to receive (a) a fee warrant exercisable for five
years to acquire 15,706 shares of our common stock at $2.50 per share, and (b) a
consulting warrant exercisable for five years to acquire 21,325 shares of our
common stock at $2.50 per share and vesting semi-annually in eight equal
41
<PAGE> 45
increments, subject to our continuing to renew Mr. Qureshey's consultancy. Mr.
Qureshey joined our board of directors on June 30, 1997. On April 29, 1998, Mr.
Qureshey surrendered the consulting warrant in exchange for a non-statutory
stock option exercisable for 10 years for 21,325 shares of our common stock at
$0.25 per share, which the board of directors determined to be the then fair
market value of such common stock. The fee warrant continues to be outstanding.
In March 1999, Mr. Qureshey assigned 500 shares of such warrant to each of six
persons, for an aggregate assignment of 3,000 shares.
On April 29, 1998, Bruce G. Rigione, one of our directors, was granted a
non-statutory stock option exercisable for 10 years for 15,000 shares of our
common stock at $0.25 per share, which the board of directors determined to be
the then fair market value of such common stock. Effective as of January 20,
1999, Mr. Rigione entered into a Consulting Agreement with us under which he
will be paid $15,000 per month. The agreement is terminable by either party upon
30 days' notice.
On March 11, 1999, our board of directors approved the grant of
non-statutory stock options exercisable for ten years for 10,000 shares of our
common stock at $30.00 per share to each of Alan Colner, Tod Francis and Jeffrey
Brody. Each option vests over four years, commencing as of the date of each such
director's first board meeting with us.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the board of directors or the
compensation committee and the board of directors or the compensation committee
of any other company, nor has any such interlocking relationship existed in the
past.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
As permitted by the Delaware General Corporation Law, our Amended and
Restated Certificate of Incorporation provides that no director will be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; and
- for any transaction from which the director derived an improper personal
benefit.
Our Amended and Restated Bylaws further provide that we must indemnify our
directors and executive officers and may indemnify our other officers and
employees and agents to the fullest extent permitted by Delaware law. We believe
that indemnification under our Certificate of Incorporation covers negligence
and gross negligence on the part of indemnified parties. We currently maintain
liability insurance for our officers and directors.
We have entered into indemnification agreements with each of our directors
and officers. These agreements require us, among other things, to indemnify such
directors and officers for certain expenses (including attorneys' fees),
judgments, fines, penalties and settlement amounts incurred by any such person
in any threatened, pending or completed action, suit, proceeding or alternative
dispute resolution mechanism by reason of any event or occurrence arising out of
such person's services as a director or officer.
There is no pending litigation or proceeding involving any of our
directors, officers, employees or agents as to which indemnification is being
sought. We are not aware of any pending or threatened litigation or proceeding
that might result in a claim for such indemnification.
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<PAGE> 46
EXECUTIVE COMPENSATION
The following table sets forth, for the year ended December 31, 1998, all
compensation of the Chief Executive Officer and each of our four other most
highly compensated executive officers who earned more than $100,000 in 1998 and
were serving as executive officers at the end of 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
--------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
--------------------------- --------- -------- ----------
<S> <C> <C> <C>
Jeremy R. Lent.......................................... $209,375 $175,000 300,000
Chairman, Chief Executive Officer and President
Yinzi Cai............................................... 105,125 50,000 38,000
Senior Vice President, Decision Analytics
Timothy J. Coltrell..................................... 129,167 50,000 --
Chief Operating Officer
John V. Hashman......................................... 115,000 50,000 50,000
Chief Financial Officer
Daniel D. Springer...................................... 113,650 50,000 125,000
Chief Marketing Officer
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth each grant of stock options to our Chief
Executive Officer and each of our four other most highly compensated executive
officers for the year ended December 31, 1998.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
--------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(4)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ------------------
NAME GRANTED(1) FISCAL YEAR(2) PER SHARE(3) DATE 5% 10%
---- ---------- -------------- -------------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Jeremy R. Lent............ 50,000 4.15% $0.275 3/24/03 $ 3,799 $ 8,395
250,000 20.76 0.638 9/29/03 44,067 97,376
Yinzi Cai................. 13,000 1.08 0.58 7/28/08 4,742 12,017
25,000 2.08 2.50 11/19/08 39,306 99,609
Timothy J. Coltrell....... -- -- -- -- -- --
John V. Hashman........... 50,000 4.15 0.25 3/24/08 7,861 19,922
Daniel D. Springer........ 85,000 7.06 0.25 3/24/08 13,364 33,867
40,000 3.32 0.58 9/29/08 14,590 36,975
</TABLE>
- ---------------
(1) Each such option vests as follows: 1/4 of the shares of common stock
underlying such option vests at the first anniversary of the option vesting
date, which is typically the first day of employment, and 1/36 of the
remainder of such shares vests each month thereafter, such that the optionee
is fully vested on the fourth anniversary of the vesting commencement date.
Certain of the options granted to Jeremy R. Lent are subject to certain
performance based vesting conditions. Such options also are subject to
accelerated vesting under certain circumstances. See
"Management -- Executive Compensation -- Lent Employment Agreement."
(2) Based on a total of 1,204,225 option shares granted to our employees,
directors and consultants under our 1997 Stock Plan during fiscal 1998.
(3) The exercise price per share of each option was equal to the fair market
value of the common stock on the date of grant as determined by the board of
directors. The exercise price may be paid in cash, in shares of our common
stock valued at the full market value of such stock on the exercise date.
(4) The potential realizable value is calculated based on the term of the option
at the time of grant. Stock price appreciation of 5% and 10% is assumed
pursuant to rules promulgated by the Securities and Exchange Commission and
does not represent our prediction of our stock price performance. The
potential realizable value at 5% and 10% appreciation is calculated by
assuming that the exercise price on the date of grant
43
<PAGE> 47
appreciates at the indicated rate for the entire term of the option and that the
option is exercised at the exercise price and sold on the last day of its term
at the appreciated price.
FISCAL YEAR END-OPTION VALUES
The following table sets forth, for our Chief Executive Officer and each of
our four other most highly compensated executive officers, the number and value
of securities underlying options that were held by such executive officers as of
December 31, 1998. No options were exercised by such executive officers in 1998.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, AT DECEMBER 31,
1998(#)(1) 1998($)(2)
-------------------- -------------------------
NAME VESTED UNVESTED VESTED UNVESTED
- ---- ------ -------- ------ --------
<S> <C> <C> <C> <C>
Jeremy R. Lent............................ -- 300,000 $ -- $11,826,750
Yinzi Cai................................. 14,875 65,125 592,025 2,529,535
Timothy J. Coltrell....................... 85,313 109,687 3,395,457 4,365,543
John V. Hashman........................... 25,000 100,000 993,750 3,975,000
Daniel D. Springer........................ -- 125,000 -- 4,955,550
</TABLE>
- ---------------
(1) The heading "Vested" refers to shares that are exercisable as of December
31, 1998; the heading "Unvested" refers to shares that are unexercisable as
of December 31, 1998.
(2) Based on a fair market value of our common stock at the end of 1998 of
$40.00 per share.
LENT EMPLOYMENT AGREEMENT
In January 1999, we entered into an employment agreement with Jeremy R.
Lent to employ him as our Chairman of the Board, Chief Executive Officer, and
President. The employment agreement provides that Mr. Lent is entitled to
receive a base salary of $250,000 per year and will be eligible to receive an
annual performance bonus. Mr. Lent may terminate the agreement at any time upon
30 days' prior written notice. If such termination is for "good reason," Mr.
Lent will receive (a) a lump sum severance payment equal to 24 times his highest
monthly base salary during the 12-month period immediately preceding the date of
termination, (b) full acceleration of the vesting provisions governing any stock
options and restricted stock held by him, (c) health plan, life insurance and
disability insurance coverage for a period of 24 months after the date of
termination and (d) any bonus that would otherwise have been paid to him,
prorated through the date of termination. "Good reason" is defined to include an
adverse change in Mr. Lent's position, duties and responsibilities or status,
certain reductions in Mr. Lent's base salary, certain geographic office
relocations, our failure to provide Mr. Lent reasonable support, our failure to
continue certain material benefits and any other material breach of his
employment agreement by us. We may terminate Mr. Lent's employment for any
reason without "cause" upon 30 days' prior written notice. If we terminate Mr.
Lent's employment without "cause," Mr. Lent will receive (a) a lump sum
severance payment equal to 24 times the higher of his base salary in effect on
the date of notice of termination and his base salary rate in effect six months
prior to such date, (b) reasonable outplacement services, (c) health plan, life
insurance and disability insurance coverage for a period of 24 months after the
date of termination, (d) full acceleration of the vesting provisions governing
any stock options and restricted stock held by him and (e) any bonus that would
otherwise have been paid to him, prorated through the date of termination. The
agreement also may be terminated upon the death or disability of Mr. Lent or for
"cause." If the termination is due to death or disability, then half of the
remaining balance of any unvested options held by Mr. Lent and all of the
remaining balance of any
44
<PAGE> 48
restricted stock held by him immediately will become fully vested, and we will
continue to pay Mr. Lent (or his estate) an amount equal to his salary for 12
months following his termination.
EMPLOYEE BENEFIT PLANS
1997 STOCK PLAN
In April 1997, the board of directors adopted, and in June 1997 the
stockholders approved, our 1997 Stock Plan. The plan provides for the grant of
(a) incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, to employees (including officers and employee
directors), (b) nonstatutory stock options to employees, directors and
consultants, and (c) the right to purchase restricted common stock to employees,
directors and consultants. The plan is administered and interpreted by the board
of directors or a committee designated by the board. It will terminate in April
2007.
As of December 31, 1998, the plan authorized the issuance of up to
2,000,000 shares of common stock. As of December 31, 1998, options to purchase
1,550,125 shares were outstanding, no shares of restricted stock were
outstanding, and 441,542 shares remained available for future grants. As of
December 31, 1998, options to purchase an aggregate of 8,333 shares of common
stock had been exercised. On March 11, 1999, our board of directors approved an
increase in the authorized number of shares issuable under the plan to 2,750,000
shares.
The plan administrator has discretion, within the limits of the plan, to
select optionees and to determine the number of shares to be subject to each
option and the exercise price and vesting schedule of each option. The exercise
price of incentive stock options granted under the plan must at least be equal
to the fair market value per share of the common stock on the date of grant and
the exercise price of nonstatutory stock options granted under the plan must be
greater than or equal to 85% of the fair market value per share of the common
stock on the date of the grant. With respect to any participant who is a 10%
stockholder, the per share exercise price of any stock option granted under the
plan must equal at least 110% of the fair market value of the common stock on
the grant date and the maximum term of the option must not exceed five years.
The term of all other options granted under the plan may not exceed ten years.
Upon the occurrence of certain transactions deemed under the plan to
constitute a change in control, the plan provides that all options and shares of
restricted stock issued under the plan that are not assumed or substituted with
equivalent options or shares of restricted stock by the successor corporation
immediately shall become vested.
The plan administrator has the discretion, subject to applicable law, to
determine the terms related to any restricted stock offer, including the number
of shares that a recipient may be entitled to purchase and the purchase price.
The administrator also has the discretion to determine whether and to what
extent the restricted stock will be subject to our right to repurchase the stock
upon the purchaser's termination of employment or engagement for any reason.
45
<PAGE> 49
CERTAIN TRANSACTIONS
On July 15, 1996, we sold 1,000,000 shares of common stock to Jeremy and
Molly Lent for an aggregate purchase price of $5,000 ($0.005 per share). On
April 2, 1997, Mr. and Ms. Lent executed a capital contribution agreement
pursuant to which 100,000 of such shares were transferred back to us.
Seventy-five percent of the shares held by the Lents are subject to a repurchase
option in our favor which lapses biannually over a four-year period. Vesting of
such shares may be accelerated under certain circumstances. See
"Management -- Executive Compensation -- Lent Employment Agreement." As of
February 28, 1999, 181,250 shares remained subject to such repurchase option.
On September 18, 1996, we sold 105,000 shares of common stock to Timothy
Coltrell for an aggregate purchase price of $2,100 ($0.02 per share). The shares
are subject to a repurchase option in our favor which lapses according to the
following schedule: 1/10 of such shares vested on September 18, 1996 and the
remaining shares vest biannually over a four-year period. As of February 28,
1999, 47,250 shares remained subject to such repurchase option.
In March 1997, Jeremy Lent and Timothy Coltrell each executed a promissory
note in the principal amount of $12,500 in connection with the purchase by each
of 6,250 shares of Series A Preferred Stock. Each promissory note is secured by
such shares of Series A Preferred Stock and matures in March 2000. The aggregate
balance due as of December 31, 1998 was $26,280.
Certain of our directors were granted options and warrants to purchase
shares of our common stock in connection with the provision of services to us.
See "Management -- Director Compensation."
Effective as of January 1, 1999, Jeremy Lent, our Chairman, Chief Executive
Officer and President, entered into an Employment Agreement with us. See
"Management -- Executive Compensation -- Lent Employment Agreement."
Effective as of January 20, 1999, Bruce Rigione, one of our directors,
entered into a Consulting Agreement with us under which he will be paid $15,000
per month. The agreement is terminable by either party upon 30 days' notice.
On , 1999, each of our executive officers and directors
entered into indemnification agreements. Such agreements may require us, among
other things, to indemnify our officers and directors (other than for
liabilities arising from willful misconduct of a culpable nature) and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified. See "Management -- Indemnification of Directors and
Executive Officers and Limitations of Liability."
The following table summarizes the shares of preferred stock purchased by
our directors and 5% stockholders, and persons and entities associated with
them, in private placement transactions. Each share of Series A, Series B-1,
Series C-1 and Series D-1 Preferred Stock automatically converts into one share
of voting common stock, and each share of Series B-2, Series C-2 and Series D-2
Preferred Stock automatically converts into one share of non-voting common
stock, upon the closing of this offering. We sold our preferred stock for the
following per share prices on the following dates: Series A Preferred
Stock -- $2.00 per share, December 1996 - March 1997; Series B-1 and B-2
Preferred Stock -- $2.50
46
<PAGE> 50
per share, August -- September 1997; Series C-1 and C-2 Preferred Stock -- $5.80
per share, May -- June 1998; and Series D-1 and D-2 Preferred Stock -- $12.00
per share, November 1998.
<TABLE>
<CAPTION>
SERIES B-1 AND SERIES C-1 AND SERIES D-1 AND
SERIES A SERIES B-2 SERIES C-2 SERIES D-2
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
ENTITIES ASSOCIATED WITH
DIRECTORS(1)
Entities associated with
Brentwood Venture Capital
(Jeffrey D. Brody)............ -- 1,040,000 269,397 415,072
Entities associated with Moore
Capital Management (Alan N.
Colner)....................... -- -- -- 833,333
Entities associates with Trinity
Ventures (Tod H. Francis)..... -- -- 517,242 95,000
Safi U. Qureshey(2)............. 50,000 68,000 46,552 45,617
Bruce G. Rigione................ 25,000 50,000 36,247 43,024
OTHER 5% STOCKHOLDERS(1)
Forrest, Binkley & Brown........ -- -- 508,620 112,500
Kleiner Perkins Caulfield &
Byers VIII, L.P............... -- -- -- 666,667
Entities associated with St.
Paul Venture Capital.......... -- -- 508,620 95,794
Entities associated with Sequoia
Capital....................... -- -- -- 416,667
</TABLE>
- ------------
(1) See "Principal Stockholders" for a summary of the affiliations of each of
the persons and entities described above.
(2) Includes 7,724 shares held by Wasi Qureshey, a brother of Mr. Qureshey, and
7,724 shares held by Lubna Bokhari, a sister of Mr. Qureshey.
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<PAGE> 51
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of December 31, 1998 as adjusted to reflect the
conversion of all outstanding shares of preferred stock into common stock
(including nonvoting common stock) and the sale of common stock offered hereby.
The information is provided with respect to (a) each person who is known to us
to own beneficially more than 5% of the outstanding shares of common stock
(including nonvoting common stock), (b) each of our directors, (c) our Chief
Executive Officer and each of our four other most highly compensated executive
officers for the year ended December 31, 1998 and (d) all of our directors and
executive officers as a group (13 persons). Except as otherwise indicated by
footnote, and subject to community property laws where applicable, the named
person has sole voting and investment power with respect to all of the shares of
common stock shown as beneficially owned. An asterisk indicates beneficial
ownership of less than 1% of the common stock (including nonvoting common stock)
outstanding. The percentages shown assume that the underwriters' overallotment
option is not exercised.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES BENEFICIALLY
OWNED(1)
NAME AND ADDRESS OF NUMBER OF -----------------------------------
BENEFICIAL OWNER SHARES PRIOR TO OFFERING AFTER OFFERING
------------------- --------- ----------------- --------------
<S> <C> <C> <C>
Entities associated with Brentwood Venture
Capital(2)................................... 1,724,469 20.66%
3000 Sand Hill Road,
Building 1, Suite 260,
Menlo Park, CA 94025
Entities associated with Moore Capital
Management, Inc.(3).......................... 833,333 9.98
1251 Avenue of the Americas,
New York, NY 10020
Entities associated with Kleiner Perkins
Caulfield & Byers(4)......................... 666,667 7.99
2750 Sand Hill Road
Menlo Park, CA 94025
Entity associated with Forrest Binkley &
Brown(5)..................................... 621,120 7.44
800 Newport Center Drive
Suite 725
Newport Beach, CA 92660
Entities associated with Trinity Ventures(6)... 612,242 7.34
3000 Sand Hill Road
Building 1, Suite 240
Menlo Park, CA 94025
Entities associated with St. Paul Venture
Capital(7)................................... 604,414 7.24
8500 Normandale Lake Blvd.
Suite 1940
St. Paul, MN 55437
Entities associated with Sequoia Capital(8).... 416,667 4.99
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Jeffrey D. Brody(2)............................ 1,724,469 20.66
Alan N. Colner(3).............................. 833,333 9.98
Tod H. Francis(6).............................. 612,242 7.34
Safi U. Qureshey(9)............................ 218,423 2.62
Bruce G. Rigione(10)........................... 159,896 1.92
Jeremy R. Lent and Molly Lent.................. 897,252 10.75
Yinzi Cai(11).................................. 16,625 *
Timothy J. Coltrell(12)........................ 204,437 2.45
</TABLE>
48
<PAGE> 52
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES BENEFICIALLY
OWNED(1)
NAME AND ADDRESS OF NUMBER OF -----------------------------------
BENEFICIAL OWNER SHARES PRIOR TO OFFERING AFTER OFFERING
------------------- --------- ----------------- --------------
<S> <C> <C> <C>
John V. Hashman(13)............................ 28,125 *
Daniel D. Springer............................. -- *
All directors and executive Officers as a
Group (13 persons)........................... 4,712,302 56.46
</TABLE>
- ------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to the securities. Shares of common stock subject to options,
warrants or other rights to purchase which are currently exercisable or are
exercisable within 60 days after December 31, 1998 are deemed outstanding
for purposes of computing the percentage ownership of the persons holding
such options, warrants or other rights, but are not deemed outstanding for
purposes of computing the percentage ownership of any other person. The
address of each of the directors and executive officers named in the table
is c/o NextCard, Inc., 595 Market Street, Suite 1800, San Francisco,
California 94105.
(2) Represents 50,776 shares held by Brentwood Affiliates Fund, L.P., 1,258,621
shares held by Brentwood Associates VII, L.P., 398,470 shares held by
Brentwood Associates VIII, L.P. and 16,602 shares held by Brentwood
Affiliates Fund II, L.P., of which 50,776 shares, 631,955 shares, 398,470
and 16,602 shares, respectively, are shares of nonvoting stock that may be
converted into an equal number of shares of voting stock provided that the
holder of such shares will not own more than 9.999% of the voting power of
any class of our equity securities. See "Description of Capital
Stock -- Common Stock." Jeffrey Brody is a general partner of Brentwood
Venture Capital, which is the general partner of each of the entities. He
is also a director of NextCard. Mr. Brody disclaims beneficial ownership of
the shares held by the entities except to the extent of his interest
therein.
(3) Includes 445,033 shares of Series D-1 Preferred Stock and 238,300 shares of
Series D-2 Preferred Stock held by Moore Global Investments, Ltd. ("MGI"),
and 150,000 shares of Series D-1 Preferred Stock held by Remington
Investment Strategies, Ltd. ("RIS"). Moore Capital Management, Inc., a
Connecticut corporation, is vested with investment discretion with respect
to portfolio assets held for the account of MGI. Moore Capital Advisors,
L.L.C., a New York limited liability company, is the sole general partner
of RIS. Mr. Louis M. Bacon is the majority shareholder of Moore Capital
Management, Inc., and is the majority equity holder of Moore Capital
Advisors, L.L.C. As a result, Mr. Bacon, though he disclaims beneficial
ownership of such shares, may be deemed to be the beneficial owner of the
aggregate shares held by MGI and RIS. Alan Colner is a Managing Director,
Private Equity Investments, at Moore Capital Management, Inc., which is the
trading advisor of MGI. He is also a director of NextCard. Mr. Colner does
not have voting or investment power with respect to the shares of
securities owned by MGI or RIS, and disclaims beneficial ownership of such
shares. The address of Moore Capital Management, Inc. is 1251 Avenue of the
Americas, New York, NY 10020.
(4) Represents 614,400 shares held by Kleiner Perkins Caulfield & Byers, VIII,
L.P., 35,600 shares held by KPCB VIII Founders Fund, L.P. and 16,667 shares
held by KPCB Information Sciences Ziabatsu Fund II, L.P.
(5) Such shares are held of record by Mesquite Transaction Partners, L.P.
(6) Represents 33,308 shares held by Trinity V Side-By-Side Fund, L.P. and
578,934 shares held by Trinity Ventures V, L.P. Tod Francis is a general
partner of Trinity Ventures, which is the general partner of Trinity V
Side-By-Side Fund, L.P. and Trinity Ventures V, L.P. He also is a director
of NextCard. Mr. Francis disclaims beneficial ownership of the shares held
by the entities except to the extent of his interest therein.
(7) Represents 16,621 shares held by St. Paul Venture Capital Affiliates Fund
I, LLC and 587,793 shares held by St. Paul Venture Capital IV, LLC.
(8) Represents 916 shares held by Sequoia 1997 Fund, 4,792 shares held by
Sequoia International Technology Partners VIII, 377,626 shares held by
Sequoia Capital VII L.P., 25,000 shares held by Sequoia International
Technology Partners VIII (Q) and 8,333 shares held by CMS Partners LLC.
(9) Includes 15,706 shares issuable upon exercise of a warrant and 7,996 shares
issuable upon exercise of an option that vests within 60 days of December
31, 1998. Also includes 151,655 shares held by the Safi Qureshey Family
Trust, of which Safi U. Qureshey is the grantor, and 43,066 shares held by
Skyline Nevada LLC, of which Mr. Qureshey is a trustee.
(10) Includes 5,625 shares issuable upon exercise of an option that vests within
60 days of December 31, 1998.
(11) Represents 16,625 shares issuable upon exercise of an option that vests
within 60 days of December 31, 1998.
(12) Includes 93,187 shares issuable upon exercise of an option that vests
within 60 days of December 31, 1998.
(13) Represents 28,125 shares issuable upon exercise of an option that vests
within 60 days of December 31, 1998.
49
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of shares of common stock,
$0.001 par value, shares of nonvoting common stock, $0.001 par value
and shares of preferred stock, $0.001 par value. As of December 31,
1998, 1,096,083 shares of common stock were issued and outstanding, no shares of
nonvoting common stock were issued and outstanding and 7,250,163 shares of
preferred stock, convertible into 7,250,163 shares of common stock and nonvoting
common stock upon the completion of the offering, were issued and outstanding.
As of December 31, 1998, we had 64 stockholders.
The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our Amended and
Restated Certificate of Incorporation to be effective after the closing of this
offering, our bylaws and the provisions of applicable Delaware law.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders.
Subject to the preferences to which holders of any shares of preferred
stock issued after the offering may be entitled, holders of the common stock are
entitled to receive ratably such dividends and other distributions, if any, that
the board of directors may, from time to time, declare out of funds legally
available therefor. See "Dividend Policy." In the event of our liquidation,
dissolution or winding up, holders of common stock would be entitled to share in
any of our assets remaining after the payment of liabilities and the
satisfaction of any liquidation preference granted to the holders of any
outstanding shares of preferred stock.
Holders of common stock have no preemptive or conversion rights or other
subscription rights, nor are there any redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are, and
the shares of common stock offered by us in this offering, when issued and paid
for, will be, fully paid and nonassessable. The rights, preferences and
privileges of the holders of the common stock are subject to, and may be
adversely affected by, the rights of the holders of any shares of preferred
stock that we may designate in the future.
NONVOTING COMMON STOCK
Holders of nonvoting common stock will have the same rights, preferences
and privileges as the holders of voting common stock except that the holders of
nonvoting common stock will have no voting rights except with respect to
approval of amendments to our Certificate of Incorporation that could adversely
affect their rights. Shares of nonvoting common stock may be converted into
shares of common stock by the holder only when the holder's total shares will
not exceed 9.999% of any class of our equity securities outstanding after giving
effect to the conversion or in connection with a widely disbursed distribution
or private placement of shares in certain circumstances.
PREFERRED STOCK
The board of directors is authorized, subject to any limitations prescribed
by law, without stockholder approval, from time to time, to issue up to an
aggregate of shares of preferred stock in one or more series,
each of such series to have such rights, preferences and privileges, including
voting rights, conversion rights, dividend rights, redemption privileges and
liquidation preferences as shall be determined by the board of directors. The
rights of the holders of the common stock will be subject to, and may be
adversely affected by, the rights of the holders of any such preferred stock
that may be issued in the future. Issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third
50
<PAGE> 54
party to acquire, or of discouraging a third party from attempting to acquire, a
majority of our outstanding voting stock. We have no present plans to issue any
shares of preferred stock.
WARRANTS
Upon completion of the offering, we will have outstanding warrants to
acquire 253,202 shares of common stock, at a weighted average exercise price of
$1.91 per share. These warrants have net exercise provisions under which the
holder may, in lieu of payment of the exercise price in cash, surrender the
warrant and receive a net amount of shares, based on their fair market value of
the common stock at the time of exercise of the warrant, after deducting the
exercise price of the warrant. These warrants expire on dates ranging from two
years from the closing of this offering to May 2003.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
We have adopted provisions in an Amended and Restated Certificate of
Incorporation and in our Amended and Restated Bylaws that do the following:
- eliminate the right of stockholders to call a special meeting of
stockholders;
- require stockholders to give NextCard advance notice of intent to
nominate directors or bring matters before a meeting of stockholders;
- eliminate the ability of stockholders to take action by written consent;
- stagger the board into three classes so that only one-third of the board
members are elected each year, and effectively provide that directors may
not be removed from office other than for cause;
- provide that vacancies on the board resulting from increases in the size
of the board or from death, resignation, retirement or removal may only
be filled by the board; and
- permit the board of directors to create one or more series of preferred
stock and to issue the shares thereof.
These provisions could adversely affect the rights of the holders of common
stock by delaying, deferring or preventing a change in control. These provisions
are intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and in the policies formulated by the
board of directors and to discourage certain types of transactions that may
involve an actual or threatened change of control. These provisions are designed
to reduce our vulnerability to an unsolicited acquisition proposal and to
discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for our shares and, as a consequence, they also may inhibit fluctuations
in the market price of our shares that could result from actual or rumored
takeover attempts. Such provisions also may have the effect of preventing
changes in our management.
DELAWARE TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a publicly held Delaware
corporation from engaging in any "business combination" with any "interested
stockholder" for a period of three years following the date that such
stockholder became an interested stockholder, unless:
- prior to such date, the board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
51
<PAGE> 55
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced; and
- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of our
assets involving the interested stockholder;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by us of any of our stock to the interested
stockholder;
- any transaction involving us that has the effect of increasing the
proportionate share of the stock of any class or series beneficially
owned by the interested stockholder; and
- the receipt by the "interested stockholder" of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as an entity or
person beneficially owning 15% or more of our outstanding voting stock and any
entity or person affiliated with or controlling or controlled by such entity or
person.
REGISTRATION RIGHTS
After this offering, the holders of % of the outstanding shares of
common stock (including shares of common stock issuable upon the exercise of
certain warrants) will be entitled to certain demand registration rights with
respect to the registration of such shares under the Securities Act. Under the
terms of our Third Amended and Restated Investors' Rights Agreement, we are not
required to effect more than three such registrations pursuant to such demand
rights; further, the demand registration rights expire on the six-month
anniversary of the closing of the offering. In the event that we propose to
register any of our securities under the Securities Act, the holders of shares
entitled to "piggyback" registration rights are entitled to receive notice of
such registration and, subject to certain limitations, include their shares
therein.
At any time after we become eligible to file a registration statement on
Form S-3, stockholders who are parties to the Rights Agreement may require us to
file an unlimited number of registration statements on Form S-3 with respect to
their shares of common stock, provided that we are not required to effect more
than one such registration statement in any 12-month period.
Each of the foregoing registration rights is subject to certain conditions
and limitations, among them the right of the underwriters in any underwritten
offering to limit the number of share of common stock held by stockholders with
registration rights to be included in such registration statement. We are
generally required to bear all expenses associated with such registration
statements, except underwriting discounts and commissions, as well as to
indemnify the holders of such registration rights, subject to certain
limitations.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is .
52
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering (assuming no exercise of the underwriters'
overallotment option), we will have shares of common stock outstanding,
assuming no exercise of options or warrants. Of these shares, the shares
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares held by our
affiliates, as that term is defined under the Securities Act, may generally only
be sold in compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 8,346,246 shares of common stock (including nonvoting common
stock) are deemed restricted shares under Rule 144. Sale in the public market of
these restricted shares is limited by restrictions under the Securities Act and
lock-up agreements or similar arrangements under which the holders of such
shares have agreed not to sell or otherwise dispose of any of their shares for a
period of 180 days after the date of this prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated. On the date of this prospectus, no
shares other than the shares offered hereby will be eligible for sale in
the public market. Beginning 180 days after the date of this prospectus, or
earlier with the consent of Morgan Stanley & Co. Incorporated, 8,346,246
restricted shares will become available for sale in the public market, subject
to certain limitations of Rule 144 of the Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year,
including a person who may be deemed an affiliate, is entitled to sell within
any three-month period a number of shares that does not exceed the greater of 1%
of the then-outstanding shares of our common stock (approximately
shares after giving effect to this offering) and the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding such sale. Sales under Rule 144 of the
Securities Act are subject to certain restrictions relating to manner of sale,
notice and the availability of current public information about us. A person who
is not our affiliate at any time during the 90 days preceding a sale, and who
has beneficially owned shares for at least two years, would be entitled to sell
such shares immediately following this offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of Rule
144 of the Securities Act. However, the transfer agent may require an opinion of
counsel that a proposed sale of shares comes within the terms of Rule 144 of the
Securities Act prior to effecting a transfer of such shares.
Prior to this offering, there has been no public market for our common
stock and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional common stock will have on the
market price of our common stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could adversely affect the market price of the common stock and could impair our
future ability to raise capital through an offering of our equity securities.
OPTIONS
As of December 31, 1998, options to purchase a total of 178,120 shares of
common stock pursuant to the 1997 Stock Plan were exercisable. All of the shares
subject to options are subject to lock-up agreements or similar arrangements.
See "Lock-up Agreements." An additional 441,542 shares of common stock were
reserved as of December 31, 1998 for future option grants or direct issuances
under the 1997 Stock Plan. See "Management -- 1997 Stock Plan and Note 8 of
notes to Consolidated Financial Statements.
We intend to file a registration statement on Form S-8 under the Securities
Act to register all shares of common stock subject to outstanding stock options
and common stock issued or issuable pursuant to
53
<PAGE> 57
our 1997 Stock Plan. We expect to file a registration statement covering shares
offered pursuant to the 1997 Stock Plan shortly after the closing of this
offering. Such registration statement is expected to become effective upon
filing. Shares covered by this registration statement will thereupon be eligible
for sale in the public markets, subject to the lock-up agreements.
LOCK-UP AGREEMENTS
NextCard, our directors, executive officers and substantially all other
stockholders and optionholders have each agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, he,
she or it will not, during the period ending 180 days after the date of this
prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock; or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or similar arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock;
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
54
<PAGE> 58
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement, the underwriters named below, for whom Morgan Stanley & Co.
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Thomas Weisel
Partners LLC and U.S. Bancorp Piper Jaffray Inc. are acting as representatives,
have severally agreed to purchase, and NextCard has agreed to sell to them,
severally, the respective number of shares of common stock set forth opposite
their respective names below:
<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
- ---- ------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Thomas Weisel Partners LLC..................................
U.S. Bancorp Piper Jaffray Inc..............................
--------
Total.............................................
========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from NextCard and subject to prior sale. The
underwriting agreement provides that the obligations of the several underwriters
to pay for and accept delivery of the shares of common stock offered hereby are
subject the approval of certain legal matters by their counsel and to certain
other conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of a share under the public offering price. Any
underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other underwriters or to certain dealers. After the
initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this Prospectus, to purchase up to an aggregate of additional
shares of common stock at the initial public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The underwriters
may exercise such option to purchase solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered hereby. To the extent such option is exercised, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of common stock as
the number set forth next to such underwriter's name in the preceding table
bears to the total number of shares of common stock set forth next to the names
of all underwriters in the preceding table. If the underwriters' option is
exercised in full, the total price to the public for this offering would be
$ , the total underwriters' accounts and commissions would be
$ and the total proceeds to NextCard would be $ .
The underwriters have informed us that each principal underwriter in this
offering may, subject to the approval of Morgan Stanley & Co. Incorporated, sell
to discretionary accounts over which such principal underwriter executes
discretionary authority. The underwriters have further informed us that
55
<PAGE> 59
they estimate that such will not exceed five percent of the total number of
shares of common stock offered by them.
NextCard has applied to list the common stock on the Nasdaq National Market
under the symbol "NXCD."
At the request of NextCard, the underwriters will reserve up to
shares of common stock to be issued by NextCard and offered hereby for sale, at
the initial public offering price, to directors, officers, employees, business
associates and related persons of NextCard. The number of shares of common stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered hereby.
NextCard, our directors, executive officers, and certain other stockholders
and optionholders have each agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, he, she or it
will not, during the period ending 180 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly, or indirectly, any shares of common stock; or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or similar arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock;
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the sale of shares to the underwriters;
- the issuance by NextCard of shares of common stock upon the exercise of
an option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing;
- transactions by any person other than NextCard relating to shares of
common stock or other securities acquired in open market transactions
after the completion of the offering of the shares;
- the granting of stock options pursuant to existing NextCard employee
benefit plans, provided that such options do not become exercisable and
such options do not vest during such 180-day period; and
- certain gifts, distributions or transfers to trusts, provided that
transferees in transactions described in this clause enter into lock-up
agreements similar to those described in the previous paragraph.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may agree to sell or
allot more shares than the shares of common stock NextCard has agreed
to sell them. This over-allotment would create a short position in the common
stock for the underwriters' account. To cover any over-allotments or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above
interdependent market
56
<PAGE> 60
levels. The underwriters are not required to engage in these activities, and may
end any of these activities at any time.
NextCard and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
Mark Lieberman, a Thomas Weisel Partners LLC partner, holds 1,250 shares of
our Series D-1 Preferred Stock, which will be converted into common stock upon
completion of this offering.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the shares of
our common stock or any other of our securities. The initial public offering
price for the shares of common stock was determined by negotiations between the
representatives and us. Among the factors considered in determining the initial
public offering price were our future prospects and our industry in general,
sales, earnings and certain other financial and operating information of about
us in recent periods, and the price-earnings ratios, price-sales ratios, market
prices of securities and certain financial and operating information of
companies engaged in activities similar to ours.
LEGAL MATTERS
The validity of the shares of common stock being offered by NextCard will
be passed upon for NextCard by Howard, Rice, Nemerovski, Canady, Falk & Rabkin,
A Professional Corporation ("Howard, Rice"), San Francisco, California, which
has acted as our counsel in connection with this offering. Howard, Rice holds a
warrant to purchase 1,000 shares of NextCard's common stock at an exercise price
of $2.00 per share. Certain bank regulatory legal matters in connection with
this offering will be passed upon for NextCard by Sidley & Austin, Washington,
D.C., which has acted as our special bank regulatory counsel in connection with
this offering. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP, Menlo Park, California.
EXPERTS
The consolidated financial statements of NextCard, Inc. and subsidiary as
of December 31, 1997 and 1998, for the period from June 5, 1996 (inception) to
December 31, 1997 and for the year ended December 31, 1998 appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
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<PAGE> 61
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock being offered. This
prospectus, which forms a part of the registration statement, does not contain
all of the information set forth in the registration statement. For further
information with respect to us and our common stock, reference is made to the
registration statement. Statements contained in this prospectus as to the
contents of any contract or other document are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the registration statement, and each such statement is
qualified in all respects by such reference.
Copies of the registration statement may be examined without charge at the
Public Reference Section of the Securities and Exchange Commission, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and the Securities and Exchange
Commission's Regional Offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of all or any portion of the registration
statement can be obtained from the Public Reference Section of the Securities
and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of certain prescribed fees. The Securities and Exchange Commission
maintains a website that contains registration statements, reports, proxy and
information statements and other information regarding registrants (including
us) that file electronically. The address of such website is http://www.sec.gov.
We intend to distribute annual reports containing audited financial
statements and will make copies of quarterly reports available for the first
three quarters of each fiscal year containing unaudited interim financial
statements.
58
<PAGE> 62
NEXTCARD, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-1
Consolidated Financial Statements
Consolidated Balance Sheets............................... F-2
Consolidated Statements of Operations..................... F-3
Consolidated Statements of Changes in Shareholders'
Equity................................................. F-4
Consolidated Statements of Cash Flows..................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
59
<PAGE> 63
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
NextCard, Inc. and subsidiary
We have audited the accompanying consolidated balance sheets of NextCard,
Inc. and subsidiary as of December 31, 1997 and 1998, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for the period from June 5, 1996 (inception) to December 31, 1997 and for
the year ended December 31, 1998. These financial statements are the
responsibility of NextCard, Inc.'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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NextCard,
Inc. and subsidiary at December 31, 1997 and 1998, and the results of their
operations and their cash flows for the period from June 5, 1996 (inception) to
December 31, 1997, and for the year ended December 31, 1998 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
San Francisco, California
February 5, 1999, except as to Note 4,
as to which the date is
February 26, 1999
F-1
<PAGE> 64
NEXTCARD, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------------- DECEMBER 31,
1997 1998 1998
---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................ $ 2,840,267 $ 40,134,274
Receivable from third-party processor............ 500,000 --
Servicing and profit-sharing receivable.......... -- 965,825
Prepaid loan fees................................ -- 2,100,000
Equipment and leasehold improvements, net........ 293,298 2,102,647
Other assets..................................... 54,184 239,666
----------- ------------
Total assets..................................... $ 3,687,749 $ 45,542,412
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable................................. $ 134,701 $ 3,366,350
Accrued expenses................................. 266,401 1,242,238
Equipment loan................................... -- 504,101
Deferred revenue................................. 500,000 493,119
----------- ------------
Total liabilities................................ 901,102 5,605,808
Shareholders' equity:
Convertible preferred stock, Series A, no par
value (612,500 and 607,812 shares
authorized, issued and outstanding for 1997
and 1998), net of costs of issuance......... 1,204,614 1,195,240 $ --
Convertible preferred stock, Series B, no par
value (authorized 1,600,000 and 1,777,000
shares in 1997 and 1998; issued and
outstanding 1,412,000 shares for 1997 and
1998), net of costs of issuance............. 3,494,426 3,494,426 --
Convertible preferred stock, Series C, no par
value (authorized 2,138,101 shares in 1998;
issued and outstanding 2,029,480 shares for
1998), net of costs of issuance............. -- 11,671,346 --
Convertible preferred stock, Series D, no par
value (authorized 4,500,000 shares in 1998;
issued and outstanding 3,200,871 shares for
1998), net of costs of issuance 38,365,361 --
Common stock, no par value (authorized
20,000,000 and 13,977,087 shares in 1997 and
1998, issued and outstanding 1,087,750 and
1,096,083 shares for 1997 and 1998)......... 9,555 11,347 54,737,720
Additional paid-in capital..................... -- 7,575,000 7,575,000
Deferred stock compensation (4,900,000) (4,900,000)
Notes receivable from shareholders............. (35,654) (26,280) (26,280)
Accumulated deficit............................ (1,886,294) (17,449,836) (17,449,836)
----------- ------------ ------------
Total shareholders' equity....................... 2,786,647 39,936,604 $ 39,936,604
----------- ------------ ============
Total liabilities and shareholders' equity....... $ 3,687,749 $ 45,542,412
=========== ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 65
NEXTCARD, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 5, 1996
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
-------------- ------------
<S> <C> <C>
Net interest income:
Interest income from investments.......................... $ 92,726 $ 501,879
Interest expense on borrowings............................ -- (61,574)
----------- ------------
92,726 440,305
Non-interest income:
Servicing and profit and loss sharing..................... -- 661,825
Other..................................................... -- 34,968
----------- ------------
-- 696,793
Non-interest expenses:
Salaries and employee benefits............................ 1,495,155 6,730,079
Marketing and advertising................................. 49,656 4,324,638
Credit card origination and servicing costs............... 799 2,327,646
Occupancy and equipment................................... 137,141 958,074
Professional fees......................................... 167,608 519,737
Amortization of deferred compensation..................... -- 1,300,000
Other..................................................... 127,061 538,866
----------- ------------
1,977,420 16,699,040
----------- ------------
Loss before income taxes.................................... (1,884,694) (15,561,942)
Provision for income taxes.................................. 1,600 1,600
----------- ------------
Net loss.................................................... $(1,886,294) $(15,563,542)
=========== ============
Basic and diluted net loss per common share................. $ (4.86) $ (22.12)
=========== ============
Weighted average common shares used in net loss per common
share calculation......................................... 388,192 703,626
=========== ============
Pro forma basic and diluted net loss per common share
(unaudited, see Note 11).................................. $ (3.47)
============
Weighted average common shares used in computing pro forma
basic and diluted net loss per common share (unaudited,
see Note 11).............................................. 4,478,998
============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 66
NEXTCARD, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK SERIES A-D COMMON STOCK ADDITIONAL NOTES
----------------------- -------------------- PAID-IN DEFERRED STOCK RECEIVABLE FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION SHAREHOLDERS
--------- ----------- ---------- ------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuances of common
stock.............. -- $ -- 1,505,000 $15,100 $ -- $ -- $ --
Issuances of
convertible
preferred stock
Series A........... 612,500 1,204,614 -- -- -- -- (35,654)
Issuances of
convertible
preferred stock
Series B........... 1,412,000 3,494,426 -- -- -- -- --
Return of common
stock.............. -- -- (140,000) -- -- -- --
Repurchase of common
stock.............. -- -- (277,250) (5,545) -- -- --
Net loss from
inception to
December 31,
1997............... -- -- -- -- -- -- --
--------- ----------- ---------- ------- ---------- ------------ --------
Balances at December
31, 1997........... 2,024,500 4,699,040 1,087,750 9,555 -- -- (35,654)
--------- ----------- ---------- ------- ---------- ------------ --------
Issuances of
convertible
preferred stock
Series C........... 2,029,480 11,671,346 -- -- -- -- --
Issuances of
convertible
preferred stock
Series D........... 3,200,871 38,365,361 -- -- -- -- --
Issuances of common
stock upon exercise
of stock options... -- -- 8,333 1,792 -- -- --
Issuance of preferred
stock warrants..... 1,375,000
Return of convertible
preferred stock
Series A in
settlement of notes
receivable......... (4,688) (9,374) -- -- 9,374
Deferred stock
compensation....... -- -- 6,200,000 (6,200,000) --
Amortization of
deferred stock
compensation....... -- -- -- -- -- 1,300,000 --
Net loss............. -- -- -- -- -- -- --
--------- ----------- ---------- ------- ---------- ------------ --------
Balances at December
31, 1998........... 7,250,163 $54,726,373 1,096,083 $11,347 $7,575,000 $ (4,900,000) $(26,280)
========= =========== ========== ======= ========== ============ ========
<CAPTION>
TOTAL
ACCUMULATED SHAREHOLDERS'
DEFICIT EQUITY
------------ -------------
<S> <C> <C>
Issuances of common
stock.............. $ -- $ 15,100
Issuances of
convertible
preferred stock
Series A........... -- 1,168,960
Issuances of
convertible
preferred stock
Series B........... -- 3,494,426
Return of common
stock.............. -- --
Repurchase of common
stock.............. -- (5,545)
Net loss from
inception to
December 31,
1997............... (1,886,294) (1,886,294)
------------ -----------
Balances at December
31, 1997........... (1,886,294) 2,786,647
------------ -----------
Issuances of
convertible
preferred stock
Series C........... -- 11,671,346
Issuances of
convertible
preferred stock
Series D........... -- 38,365,361
Issuances of common
stock upon exercise
of stock options... -- 1,792
Issuance of preferred
stock warrants..... 1,375,000
Return of convertible
preferred stock
Series A in
settlement of notes
receivable......... -- --
Deferred stock
compensation....... -- --
Amortization of
deferred stock
compensation....... -- 1,300,000
Net loss............. (15,563,542) (15,563,542)
------------ -----------
Balances at December
31, 1998........... $(17,449,836) $39,936,604
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 67
NEXTCARD, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 5, 1996
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
-------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(1,886,294) $(15,563,542)
Adjustments to net loss to arrive at cash used in operating
activities:
Depreciation and amortization............................. 15,500 250,512
Amortization of deferred stock compensation............... -- 1,300,000
Changes in operating assets and liabilities:
Increase in servicing and profit and loss sharing
receivable........................................... -- (965,825)
Decrease in receivable from third party processor...... -- 500,000
Increase in accounts payable........................... 134,701 3,231,649
Increase in accrued expenses........................... 266,401 968,956
Increase in other assets............................... (54,184) (910,482)
----------- ------------
Net cash used in operating activities....................... (1,523,876) (11,188,732)
INVESTING ACTIVITIES
Purchase of equipment and leasehold improvements............ (308,798) (2,059,861)
----------- ------------
Net cash used in investing activities....................... (308,798) (2,059,861)
FINANCING ACTIVITIES
Proceeds from issuances of convertible preferred stock...... 4,663,386 50,036,707
Proceeds from issuances of common stock..................... 9,555 1,792
Proceeds from equipment loan................................ -- 545,545
Payments made on equipment loan............................. -- (41,444)
----------- ------------
Net cash provided by financing activities................... 4,672,941 50,542,600
Net increase in cash and cash equivalents................... 2,840,267 37,294,007
Cash and cash equivalents at the beginning of period........ -- 2,840,267
----------- ------------
Cash and cash equivalents at the end of period.............. $ 2,840,267 $ 40,134,274
=========== ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 68
NEXTCARD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
NextCard, Inc., formerly known as Internet Access Financial Corporation
("NextCard"), was incorporated on June 5, 1996 in the state of California for
the purpose of offering Internet-based consumer financial services. For the
period from June 5, 1996 (inception) to December 31, 1996, NextCard developed
and implemented its corporate structure. Operations during that period consisted
of approximately $50,000 in expenses. Beginning in 1997, NextCard focused on the
initial planning and development of an Internet-based credit card ("NEXTCARD(R)
VISA(R)"), and the development of the necessary systems infrastructure, website
and supporting operations. Prior to 1998, NextCard was in the development stage.
On December 23, 1997, NextCard began accepting applications for the
NEXTCARD VISA, which are issued through a strategic alliance with Heritage Bank
of Commerce ("Heritage Bank" or "Heritage"), a San Jose, California based
depository institution. NextCard originates credit card relationships and
services the related credit card accounts on behalf of Heritage pursuant to a
profit and loss sharing agreement. NextCard markets its credit card product
solely through the Internet and provides online approval and customized product
pricing. Other key product features include a customer service interface which
enables the customer to review statements online, review recent account activity
and download data into different formats.
NextCard has experienced operating losses to date and had an accumulated
deficit at December 31, 1998. Increasing and significant net losses are expected
for the foreseeable future. Since its formation, NextCard has raised significant
capital through private placements of equity securities. At December 31, 1998,
NextCard had $40.1 million in cash and cash equivalents. Future capital
requirements, however, depend on many factors including NextCard's ability to
execute its business plan. NextCard may need to raise additional capital through
the issuance of debt or equity securities. There can be no assurance that
NextCard will be able to raise additional financing, or that such financing will
be available on terms satisfactory to NextCard, if at all. Failure by NextCard
to raise additional funding when needed could have a material adverse effect on
its business, results of operations and financial condition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include NextCard, Inc. and its wholly
owned subsidiary, NextCard Funding Corp. ("NC Funding"). All significant
intercompany transactions and balances have been eliminated. Certain
reclassifications have been made to prior year financial statements to conform
to the 1998 presentation.
CASH AND CASH EQUIVALENTS, AND CONCENTRATION OF CREDIT RISK
Cash and cash equivalents include cash on hand and investments in money
market funds. NextCard considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents. The carrying
amount reported in the balance sheets for cash and cash equivalents approximates
its fair value.
Financial instruments that potentially subject NextCard to concentrations
of credit risk consist principally of cash deposits at financial institutions.
NextCard places its cash deposits with a high credit quality financial
institution. Balances in NextCard's cash accounts exceed the Federal Deposit
Insurance Corporation (FDIC) limits of $100,000 per account.
F-6
<PAGE> 69
NEXTCARD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at cost, less accumulated
depreciation and amortization computed on a straight-line basis over the
estimated useful lives of the respective assets or lease term. Depreciation is
computed using a three-year life for computer equipment and a five-year life for
furniture and office equipment.
PROVISION FOR INCOME TAXES
The liability method of accounting is used for income taxes. Under the
liability method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of existing differences between financial
reporting and tax reporting basis of assets and liabilities, as well as for
operating losses and tax credit carryforwards, using enacted tax laws and rates.
Deferred tax expense represents the net change in the deferred tax asset or
liability balance during the year. This amount, together with income taxes
currently payable or refundable for the current year, represents the total
income tax expense for the year.
REVENUE RECOGNITION
NextCard generates servicing and profit and loss sharing non-interest
income pursuant to the Consumer Credit Card Program Agreement (the "Agreement")
which NextCard executed with Heritage. Under the Agreement, NextCard charges
Heritage for certain credit card origination and servicing costs associated with
credit card accounts originated and shares equally with Heritage in the profit
and loss sharing income (as defined in the Agreement) generated from these
credit card accounts. The servicing and profit or loss sharing income is
recognized when realized based on the terms of the Agreement.
MARKETING, ADVERTISING, CREDIT CARD ORIGINATION AND SERVICING COSTS
NextCard expenses all marketing and advertising costs as incurred. Credit
card origination costs are recognized when the account is originated and credit
card servicing costs are recognized as incurred.
COMPREHENSIVE INCOME (LOSS)
NextCard adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130") at December 31, 1998. Under FAS
130, NextCard is required to display comprehensive income (loss) and its
components as part of the financial statements. Other comprehensive income
(loss) includes certain changes in equity that are excluded from net income
(loss). Specifically, FAS 130 requires unrealized holding gains and losses on
available-for-sale securities, to be included in accumulated other comprehensive
income (loss). NextCard has no material components of other comprehensive loss
and, accordingly, the comprehensive loss is the same as net loss for all periods
presented.
SEGMENT INFORMATION
The Financial Accounting Standards Board (the "FASB") issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("FAS 131"), which is effective for
financial statements for periods beginning after December 15, 1997.
F-7
<PAGE> 70
NEXTCARD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT INFORMATION (CONTINUED)
FAS 131 establishes standards for the way that public business enterprises
report financial and descriptive information about reportable operating segments
in annual financial statements and interim reporting to shareholders. NextCard
adopted FAS 131 in 1998. NextCard has determined that it has one operating and
reportable segment, origination and servicing of Internet-based credit card
relationships for United States cardholders, which is further described in Note
1.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of NextCard's consolidated financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect amounts reported in the consolidated
financial statements and the accompanying notes. These estimates are based on
information available as of the date of the consolidated financial statements;
therefore, actual results could differ from those estimates, although management
does not believe that any differences would materially affect NextCard's
consolidated financial position or results of operations.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"), encourages but does not require companies
to record compensation cost for stock-based employee compensation plans at fair
value. NextCard has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations ("APB Opinion No. 25") in accounting for its stock options
plans.
NET LOSS PER COMMON SHARE
Basic net loss per common share and diluted net loss per common share are
presented in conformity with Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("FAS 128"), for all periods presented. In accordance
with FAS 128, basic and diluted net loss per common share has been computed
using the weighted-average number of shares of common stock outstanding during
the period, less shares subject to repurchase. Shares associated with stock
options and convertible preferred stock are not included because their inclusion
would be antidilutive (i.e., reduce the net loss per share). Pro forma basic and
diluted net loss per common share, as presented in the consolidated statements
of operations, has been computed for the year ended December 31, 1998 as
described above, and also gives effect, under Securities and Exchange Commission
guidance, to the conversion of the convertible preferred stock (using the
if-converted method) from the original date of issuance.
F-8
<PAGE> 71
NEXTCARD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER COMMON SHARE (CONTINUED)
The following table presents the calculation of basic and diluted and pro
forma (See Note 11) basic and diluted net loss per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998
---- ----
<S> <C> <C>
Net loss............................................ $(1,886,294) $(15,563,542)
=========== ============
Basic and diluted:
Weighted-average shares of common stock
outstanding.................................... 1,164,867 1,090,430
Less: Weighted-average shares subject to
repurchase..................................... (776,675) (386,804)
----------- ------------
Weighted-average shares used in computing basic
and diluted net loss per common share.......... 388,192 703,626
=========== ============
Basic and diluted net loss per share................ $ (4.86) $ (22.12)
=========== ============
Pro forma (See Note 11):
Net loss.......................................... $(15,563,542)
============
Shares used above................................. 703,626
Pro forma adjustment to reflect weighted effect of
assumed conversion of convertible preferred
stock (unaudited).............................. 3,775,372
------------
Shares used in computing pro forma basic and
diluted net loss per common share
(unaudited).................................... 4,478,998
============
Pro forma basic and diluted net loss per common
share (unaudited).............................. $ (3.47)
============
</TABLE>
NextCard has excluded all convertible preferred stock, warrants for common
stock, warrants for convertible preferred stock, outstanding stock options and
shares subject to repurchase from the calculation of diluted loss per common
share because their inclusion would be antidilutive (i.e., reduce the net loss
per share) for all periods presented. The total number of shares excluded from
the calculations of diluted net loss per share are 3,105,737 and 9,362,412 for
the period from inception to December 31, 1997 and for the year ended December
31, 1998. Such securities, had they been dilutive, would have been included in
the computations of diluted net loss per share using the treasury stock method.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
No. 133"), which is effective for financial statements for fiscal years
beginning after June 15, 1999. FAS No. 133 will require NextCard to record all
derivatives on the balance sheet at fair value. Changes in derivative fair
values will either be recognized in earnings as offsets to the changes in fair
value of related hedged assets, liabilities and firm
F-9
<PAGE> 72
NEXTCARD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
commitments or, for forecasted transactions, deferred and recorded as a
component of accumulated comprehensive income in shareholders' equity until the
hedged transactions occur and are recognized in earnings. The ineffective
portion of a hedging derivative's change in fair value will be immediately
recognized in earnings. While NextCard currently has no derivative financial
instruments and does not currently engage in hedging activities, NextCard
anticipates engaging in derivative and hedging activity in the future, and
therefore expects to be impacted by the pronouncement. The impact of FAS No. 133
on NextCard's consolidated financial statements, however, will depend on a
variety of factors including the level of future hedging activity, the types of
hedging instruments used and the effectiveness of such instruments.
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The following is a summary of equipment and leasehold improvements:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1997 1998
-------- ----------
<S> <C> <C>
Computer equipment.......................................... $262,121 $1,360,293
Furniture and office equipment.............................. 32,897 490,692
Leasehold improvements...................................... 13,780 517,674
-------- ----------
308,798 2,368,659
Less: Accumulated depreciation and amortization............. 15,500 266,012
-------- ----------
$293,298 $2,102,647
======== ==========
</TABLE>
4. CREDIT FACILITIES
During 1998, NextCard entered into a $1,250,000 equipment loan and security
agreement with a finance company. The loan is secured by a pledge of all
equipment purchased with the proceeds from borrowings under the loan agreement
and bears interest at 7.55% per year. NextCard's ability to borrow under this
agreement expires on May 31, 1999. The loan had an outstanding balance of
$504,101 at December 31, 1998. This loan matures in installments in the
following years: 1999 -- $147,496; 2000 -- $159,026; 2001 -- $171,457; and
2002 -- $26,122.
In addition, during 1998 NextCard entered into a $1,000,000 lease/loan
financing arrangement with a finance company. The lease/loan financing
arrangement is secured by a pledge of all equipment leased under the arrangement
and bears interest at 7.5% per year. The lease/loan financing arrangement
expires on May 22, 2000 and was unutilized at December 31, 1998.
In February 1999, NextCard entered into a $5.0 million line of credit with
a finance company. Borrowings under the line of credit accrue interest at 12.25%
per year, are repayable in 36 monthly installments of principal and interest
through February 2002 and are secured by a subordinated security interest in all
tangible and intangible assets.
F-10
<PAGE> 73
NEXTCARD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. SECURED BORROWING
On December 29, 1998, NextCard operating through a wholly owned,
bankruptcy-remote, special purpose subsidiary, NC Funding, executed a $100
million secured borrowing facility (the "revolving credit facility") with an
investment banking company ("the bank"). The revolving credit facility will be
secured by credit card receivables which may be purchased using the revolving
credit facility's proceeds. The revolving credit facility bears interest at the
prime rate or LIBOR plus 2.50% at NextCard's option, matures on December 29,
1999, requires that NextCard pay an annual 25 basis point fee on the unutilized
commitment and provides for certain financial covenants. The revolving credit
facility provides financing for 85% of the purchase price of the receivables
with NC Funding providing the remaining 15%. NextCard may increase the bank's
financing to 90% upon payment of an additional fee including warrants to the
bank.
NextCard paid the bank a loan origination fee of $2,100,000 consisting of
$725,000 in cash and warrants to purchase 125,000 shares of preferred stock. The
warrants' estimated fair market value was $1,375,000. These warrants are
immediately exercisable at a price of $1.00 per warrant. This loan origination
fee has been capitalized and is being amortized on a straight-line basis over
the term of the revolving credit facility.
Effective January 1999, pursuant to the terms of the Account Origination
Agreement, Heritage continues to fund newly originated credit card receivables
which NC Funding is now required to purchase on a daily basis. On January 12,
1999, NC Funding utilized the revolving credit facility to purchase
approximately $24.0 million of credit card receivables from Heritage.
NextCard, through NC Funding, expects to continue to utilize the proceeds
of the revolving credit facility to purchase additional credit card receivables
on a continuous basis from Heritage. NextCard paid $130,000 in November 1998 to
acquire the right to purchase all remaining credit card receivables from
Heritage on or prior to September 30, 1999 at a negotiated fair value. The
option fee has been capitalized and is included in other assets. The option fee
is being amortized on a straight-line basis over ten months beginning in
December 1998.
6. COMMITMENTS AND CONTINGENCIES
RENTAL COMMITMENTS
NextCard leases its office space under separate lease agreements and has
operating leases for office equipment. The minimum payments, by year and in the
aggregate, under lease obligations with initial or remaining terms of one year
or more, some of which contain renewal options based on the then current fair
market values, consist of the following:
<TABLE>
<S> <C>
1999........................................ $ 779,592
2000........................................ 786,206
2001........................................ 715,945
2002........................................ 649,540
2003........................................ 663,360
----------
$3,594,643
==========
</TABLE>
In connection with NextCard's principal office lease, NextCard executed a
$450,000 irrevocable standby letter of credit in favor of the landlord which
expires on October 31, 1999. This letter of credit
F-11
<PAGE> 74
NEXTCARD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
RENTAL COMMITMENTS (CONTINUED)
can be drawn on by the landlord under certain circumstances if NextCard defaults
on the lease agreement. Rent expense for the period from inception to December
31, 1997 and for the year ended December 31, 1998 was $54,800 and $346,855,
respectively.
PROCESSING AGREEMENT
In December 1997, NextCard signed a five-year agreement with a third-party
for processing of credit card receivables with a renewal option. The minimum
payments, which must be made by NextCard, by year and in the aggregate, under
the agreement are as follows:
<TABLE>
<S> <C>
1999........................................ $ 275,000
2000........................................ 1,000,000
2001........................................ 2,500,000
2002........................................ 3,750,000
----------
$7,525,000
==========
</TABLE>
Under the terms of the processing agreement, NextCard also received a
$500,000 signing bonus from its third party processor which is being recognized
as a reduction of servicing expense on a pro-rata basis over the five-year term
of the contract. Cash payment of the signing bonus was received in January 1998.
The unamortized portion of this bonus is included in deferred revenue on the
consolidated balance sheet.
7. SHAREHOLDERS' EQUITY
NextCard has two classes of authorized stock: common stock and preferred
stock. In October 1998, the Shareholders approved a decrease in the originally
authorized number of shares of common stock from 20,000,000 to 13,977,087 and
preferred stock from 10,000,000 to 9,022,913.
COMMON STOCK
On July 15, 1996, the Chairman, Chief Executive Officer and President of
NextCard purchased 1,000,000 shares of newly issued common stock at $0.005 per
share, 75% of which were issued subject to NextCard's right, but not its
obligation, to repurchase at the original issue price. NextCard's repurchase
rights lapse semi-annually over a four year period, subject to continuing
employment by NextCard. On April 2, 1997, the Chairman and Chief Executive
Officer returned 100,000 of such shares to NextCard without consideration.
Accordingly, as of December 31, 1997, and 1998, 462,500 and 275,000 shares were
subject to repurchase. In the event that a sale of any such shares to any
competitor, former employee or certain other persons is proposed, NextCard has a
right of first refusal to repurchase such shares at a negotiated price.
On September 18, 1996, NextCard sold 505,000 shares of common stock to
three of its employees (two of whom have since left NextCard's employment) for a
purchase price of $0.02 per share. Those shares of common stock are subject to
NextCard's right to repurchase at the original issuance price. NextCard's
repurchase rights to ten percent of the stock lapsed at the date of sale and the
repurchase rights to the remaining shares lapse semi-annually over a four year
period subject to continued
F-12
<PAGE> 75
NEXTCARD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
COMMON STOCK (CONTINUED)
employment by NextCard. During 1997, one of the employees returned 40,000 of
such shares to NextCard without consideration, and NextCard exercised its right
to repurchase 277,250 shares from employees who left NextCard. As of December
31, 1997 and 1998, 70,875 and 47,250 shares remain subject to repurchase.
At December 31, 1998, common stock was reserved for issuances as follows:
<TABLE>
<S> <C>
Conversion of convertible preferred stock................... 7,250,163
Exercise of outstanding stock options....................... 1,550,125
Shares of common stock available for grant under the 1997
Stock Plan................................................ 441,542
Exercise of outstanding warrants............................ 253,202
---------
9,495,202
=========
</TABLE>
CONVERTIBLE PREFERRED STOCK
NextCard is authorized to issue 9,022,913 shares of convertible preferred
stock in one or more series. Dividends on each series of convertible preferred
stock are non cumulative and are payable, in any fiscal year, when and as
declared by NextCard.
Convertible preferred stock issued and outstanding is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
---------------------------- -----------------------------
SHARES SHARES
OUTSTANDING(1) AMOUNT(2) OUTSTANDING(1) AMOUNT(2)
-------------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Series A............... 612,500 $1,204,614 607,812 $ 1,195,240
Series B-1, B-2........ 1,412,000 3,494,426 1,412,000 3,494,426
Series C-1, C-2........ -- -- 2,029,480 11,671,346
Series D-1, D-2........ -- -- 3,200,871 38,365,361
--------- ---------- --------- -----------
2,024,500 $4,699,040 7,250,163 $54,726,373
========= ========== ========= ===========
</TABLE>
- ------------
(1) The per share issuance cost for Series A, Series B, Series C, and Series D
was $2.00, $2.50, $5.80 and $12.00, respectively.
(2) Amount is net of issuance costs.
Holders of Series C and D Convertible Preferred Stock are entitled to
receive a liquidation preference prior and in preference to any distribution to
the holders of Series A or Series B Convertible Preferred Stock and the common
shareholders in an amount equal to all declared but unpaid dividends, if any,
attributable to the Series C and D Convertible Preferred Stock, plus $5.80 and
$12.00 per share of Series C and D Convertible Preferred Stock, respectively,
adjusted for any combinations, consolidations, stock distributions or dividends.
The liquidation preference for holders of Series C and D Convertible Preferred
Stock was $11,770,984 and $38,410,452 at December 31, 1998.
After payment of the prior liquidation preference to Series C and D
Convertible Preferred Stock, holders of Series A and B Convertible Preferred
Stock are entitled, prior and in preference to any
F-13
<PAGE> 76
NEXTCARD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
CONVERTIBLE PREFERRED STOCK (CONTINUED)
common shareholders to receive an amount equal to all declared but unpaid
dividends, if any, attributable to the Series A and B Convertible Preferred
Stock plus $2.00 and $2.50 per share of Series A and B Convertible Preferred
Stock, respectively, as adjusted for any combinations, consolidations, stock
distributions or dividends. The liquidation preference for holders of Series A
and B Convertible Preferred Stock was $1,225,000 and $3,530,000, respectively,
at December 31, 1997 and $1,215,624 and $3,530,000, respectively, at December
31, 1998.
If the distributable assets are insufficient to permit payment to the
Series C and D Preferred Shareholders of their preferential amount, then the
entire amount of distributable assets, shall be distributed pro rata among the
Series C and D Preferred Shareholders in proportion to their respective
preferential amounts. Similarly, if the remaining distributable assets after
payment of the Series C and D Preferred Shareholders' initial liquidation amount
is insufficient to permit payment to the Series A and B Preferred Shareholders
of their preferred amount, then the remaining distributable assets shall be
distributed pro rata among the Series A and B Preferred Shareholders in
proportion to their respective preferential amounts.
Following payment of such liquidation preference, the remaining assets, if
any, will be available for distribution to the holders of NextCard's Common
Stock, except that the holders of the Series C and D Convertible Preferred Stock
are entitled to participate with the holders of NextCard's Common Stock until
holders of Series C Convertible Preferred Stock have received a total of $11.60
per share and the holders of Series D Convertible Preferred Stock have received
a total of $30.00 per share.
Each share of Series A, B-1, C-1 and D-1 Convertible Preferred Stock
carries voting rights ("Voting Preferred"). Each holder of Voting Preferred is
entitled to the number of votes equal to the number of shares of common stock
into which such shares of Voting Preferred held by such Preferred Shareholder
could then be converted; provided, however, that each holder of Series A
Convertible Preferred Stock shall be entitled to the number of votes equal to
the number of shares of common stock into which such shares of Series A
Convertible Preferred Stock held by such Preferred Shareholder could then be
converted, times 1.1. Shares of Series B-2, C-2 and D-2 Convertible Preferred
Stock are non-voting, except as otherwise required by the relevant provisions of
California law.
Each share of Voting Preferred is convertible at the option of the holder
into shares of common stock equal to the number of preferred shares multiplied
by the then effective Conversion Rate. At December 31, 1997 and 1998, the
Conversion Rate for each series of voting and non-voting Preferred Stock was one
share of common stock for each share of preferred stock.
In addition, each share of convertible preferred stock shall automatically
be converted into shares of common stock at the then effective Conversion Rate
for such share immediately upon the consummation of a firmly underwritten public
offering of common stock (other then a registration on Form S-8 or comparable
form), provided that the price per share is not less than $25.00 (subject to
appropriate adjustment for stock splits, stock dividends, combinations,
recapitalizations and the like) and the aggregate gross proceeds to NextCard are
not less than $25 million after deduction of underwriters' commissions and
expenses.
F-14
<PAGE> 77
NEXTCARD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK OPTION PLAN AND WARRANTS
STOCK OPTION PLAN
Under the 1997 Stock Plan ("the Plan"), NextCard offers options to purchase
shares of its common stock to employees, including officers and directors of,
and consultants to, NextCard who are not also employees of NextCard. At December
31, 1997 and 1998, NextCard had reserved 1,140,000 and 2,000,000 shares of
common stock for issuance through the Plan. The Plan is administered by the
Board of Directors. The Board of Directors may award a number of forms of
stock-based compensation to eligible participants including incentive and
nonqualified stock options which generally vest over a four year period.
Restricted stock purchase rights may also be granted under the Plan.
The following summarizes stock option activity and related information
during the years ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES EXERCISE PRICE PRICE
------ -------------- --------
<S> <C> <C> <C>
Outstanding at April 2, 1997 (Plan
inception)............................... -- -- --
Granted.................................. 521,000 $0.20 - $0.25 $0.21
Forfeited................................ (70,000) $ 0.20 $0.20
--------- ------------- -----
Outstanding at December 31, 1997........... 451,000 $0.20 - $0.25 $0.22
Granted.................................. 1,204,225 $0.25 - $2.50 $0.72
Exercised................................ (8,333) $0.20 - $0.25 $0.22
Forfeited................................ (96,767) $0.25 - $1.50 $0.41
--------- ------------- -----
Outstanding at December 31, 1998........... 1,550,125 $0.20 - $2.50 $0.60
========= ============= =====
Options exercisable at December 31, 1997... 45,437 $ 0.20 $0.20
========= ============= =====
Options exercisable at December 31, 1998... 178,120 $0.20 - $0.58 $0.22
========= ============= =====
</TABLE>
F-15
<PAGE> 78
NEXTCARD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK OPTION PLAN AND WARRANTS (CONTINUED)
STOCK OPTION PLAN (CONTINUED)
Exercise prices for stock options outstanding as of December 31, 1997 and
1998 and the weighted average remaining contractual life are as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES REMAINING NUMBER
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- --------------- ----------- ---------------- -----------
<S> <C> <C> <C>
December 31, 1997
$0.20................................ 287,000 9.5 years 45,437
$0.25................................ 164,000 9.8 years --
--------- -------
451,000 45,437
========= =======
December 31, 1998
$0.20................................ 267,000 8.5 years 111,124
$0.25................................ 477,725 9.6 years 64,184
$0.28................................ 50,000 4.6 years --
$0.58................................ 318,450 9.7 years 2,812
$0.64................................ 250,000 4.7 years --
$1.50................................ 55,150 9.8 years --
$2.50................................ 131,800 9.9 years --
--------- -------
1,550,125 178,120
========= =======
</TABLE>
As discussed in Note 2, NextCard has elected to follow APB Opinion No. 25
and related interpretations in accounting for its employee and director
stock-based awards because, as discussed below, the alternative fair value
accounting provided for under FAS 123 requires use of option valuation models
that were not developed for use in valuing employee stock-based awards. Under
APB Opinion No. 25, NextCard does not recognize compensation expense with
respect to such awards if the exercise price equals or exceeds the fair value of
the underlying security on the date of grant and other terms are fixed.
The fair value of these awards for the purpose of the alternative fair
value disclosures required by FAS 123 was estimated as of the date of grant
using the minimum value option pricing model. This model was developed for use
in estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected life of the
options. Because NextCard's stock-based awards have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock-based awards. For the purposes of
NextCard's pro forma disclosures, the fair value of options granted during the
period ended December 31, 1997, and the year ended December 31, 1998 was
determined using the minimum value method with a risk-free interest rate of
approximately 5.0%, an expected life of five years, and a dividend yield of
zero.
F-16
<PAGE> 79
NEXTCARD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK OPTION PLAN AND WARRANTS (CONTINUED)
STOCK OPTION PLAN (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. NextCard's pro
forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998
----------- ------------
<S> <C> <C>
Net Loss:
As reported....................................... $(1,886,294) $(15,563,542)
Pro Forma......................................... (1,888,511) (16,033,081)
Basic and diluted net loss per common share
As reported....................................... $ (4.86) $ (22.12)
Pro Forma......................................... (4.87) (22.79)
</TABLE>
The compensation cost associated with NextCard's stock-based compensation
plans determined using the minimum value method prescribed above did not result
in a material difference from the reported net income for the period from June
5, 1996 (inception) to December 31, 1997 and the year ended December 31, 1998.
Future pro forma net income results may be materially different from actual
amounts reported.
DEFERRED STOCK COMPENSATION
In connection with certain stock option grants to employees during the year
ended December 31, 1998, NextCard recorded deferred stock compensation of
$6,200,000 representing the difference between the exercise price and the deemed
fair value of NextCard's common stock on the date such stock options were
granted. Such amount is included as a reduction of shareholders' equity and is
being amortized by charges to operations on a graded vesting method over the
corresponding vesting period of each respective option, generally four years. In
fiscal 1998, NextCard recorded amortization of deferred stock compensation
expense of $1,300,000. At December 31, 1998, $4,900,000 of deferred stock
compensation remained unamortized.
WARRANTS
At December 31, 1998, NextCard had outstanding the following warrants to
purchase its securities:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
WARRANTS PRICE PER
DESCRIPTION OF SERIES ISSUED SHARE
--------------------- --------- ---------------
<S> <C> <C>
Common Stock............................................... 114,581 $0.58 - $2.50
Series C-1 Convertible Preferred Stock..................... 8,621 $5.80
Series D-1 Convertible Preferred Stock..................... 130,000 $1.00 - $12.00
-------
253,202
=======
</TABLE>
These warrants were issued to third parties for services rendered and loan
fees. At December 31, 1998, 239,874 warrants were exercisable. Expenses related
to the deemed fair market value of these warrants for services rendered by third
parties were not material. As described further in Note 5, NextCard paid a loan
origination fee of $2,100,000 consisting of $725,000 in cash and 125,000
warrants
F-17
<PAGE> 80
NEXTCARD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK OPTION PLAN AND WARRANTS (CONTINUED)
WARRANTS (CONTINUED)
with a deemed fair value of $1,375,000. The warrants are exercisable from March
24, 1997 to March 24, 2007.
9. INCOME TAXES
The provision for income taxes consists of the minimum California state
franchise tax of $1,600 and results in an effective tax rate that differs from
the federal statutory rate primarily due to net operating losses for which a
valuation allowance has been established.
The following is a summary of deferred tax assets:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $ 95,307 $ 6,021,000
Deferred start-up costs.............................. 718,202 541,000
Deferred revenue..................................... -- 209,000
Other................................................ 31,708 72,000
--------- -----------
Total deferred tax assets.............................. 845,217 6,843,000
Valuation allowance.................................... (845,217) (6,843,000)
--------- -----------
Net deferred tax assets................................ $ -- $ --
========= ===========
</TABLE>
At December 31, 1998, NextCard has federal and California net operating
loss carryforwards (NOLs) of approximately $14,200,000 available to offset
future taxable income. The NOLs expire beginning in 2012 for federal purposes
and 2005 for California purposes.
Realization of NOLs is dependent on future earnings, if any, the timing and
the amount of which are uncertain. Accordingly, a valuation allowance in an
amount equal to the deferred tax assets as of December 31, 1997 and 1998 has
been established to reflect these uncertainties. The change in the valuation
allowance was a net increase of $5,997,783 for the year ended December 31, 1998.
During the period ended December 31, 1997, NextCard provided a valuation
allowance of $845,217.
Utilization of tax carryforwards may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986, as amended, and similar state provisions. The annual
limitation could result in expiration of NOLs before full utilization.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1997 and 1998, the respective carrying values of
NextCard's financial instruments approximated their fair values. These financial
instruments include cash and cash equivalents, due from third-party processor
amounts, accounts payable, accrued expenses, short-term borrowings and certain
other assets and liabilities that are considered financial instruments. Carrying
values were estimated to approximate fair values for these financial instruments
as they are short-term in nature and are receivable or payable on demand.
F-18
<PAGE> 81
NEXTCARD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair value of NextCard's long-term borrowings was estimated using a
discounted cash flow model. The discount rates used were based on yield-curves
appropriate for the remaining maturities of the instruments. The fair value of
long-term debt at December 31, 1998 approximated its carrying value.
11. PROPOSED INITIAL PUBLIC OFFERING AND OTHER SUBSEQUENT EVENTS
NextCard is contemplating filing a registration statement with the
Securities and Exchange Commission relating to an initial public offering of
shares of its unissued common stock. If the initial public offering is
consummated under the terms presently anticipated, all of the preferred stock
outstanding will automatically convert into common stock. At December 31, 1998,
on an unaudited pro forma basis, 7,250,163 shares of common stock would be
issued upon automatic conversion of preferred stock. The pro forma effect on
stockholders' equity and pro forma effect on basic and diluted net loss per
common share, as adjusted for the assumed conversion of the preferred stock, is
set forth on the accompanying consolidated balance sheet and statement of
operations, and in Note 2 under Net Loss per Common Share. NextCard also intends
to reincorporate in Delaware.
F-19
<PAGE> 82
[INSIDE BACK COVER OF PROSPECTUS]
[MY VISA WEB PAGE]
<PAGE> 83
[NEXTCARD LOGO]
<PAGE> 84
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by us in
connection with the sale of the common stock we are offering, other than
underwriting commissions and discounts. All amounts, except the SEC registration
fee, the NASD Filing Fee and the Nasdaq National Market listing fee, are
estimates.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ------
<S> <C>
SEC registration fee........................................ $20,780.50
NASD filing fee............................................. 7,975.00
Nasdaq National Market listing fee..........................
Blue Sky fees and expenses..................................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Transfer Agent and Registrar fees...........................
Miscellaneous expenses......................................
Total.............................................
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Delaware law, our Amended and Restated Certificate of
Incorporation provides that no director will be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability:
- for any breach of duty of loyalty to us or to our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; and
- for any transaction from which the director derived an improper personal
benefit.
The Amended and Restated Certificate of Incorporation further provides that
we must indemnify our directors and executive officers and may indemnify our
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our Amended and Restated
Certificate of Incorporation covers negligence and gross negligence on the part
of indemnified parties. The Amended and Restated Certificate of Incorporation
also permits us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in such
capacity, regardless of whether Delaware law would permit indemnification.
We have entered into indemnification agreements with each of our directors
and officers. These agreements, among other things, require us to indemnify such
directors and officers for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in our right, arising out of
such person's services as a director or officer to us, any subsidiary of us or
any other company or enterprise to which the person provides services at our
request.
The underwriting agreement (Exhibit 1.1) provides for indemnification by
our underwriters, our directors, our officers who sign the registration
statement, and our controlling persons for certain
II-1
<PAGE> 85
liabilities, including liabilities arising under the Securities Act, and affords
certain rights of contribution with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On July 15, 1996, we issued 1,000,000 shares of common stock to our
founders for an aggregate consideration of $5,000. Of such shares, 100,000
subsequently were transferred to us as a capital contribution. A portion of the
remaining 900,000 shares held by the founders are subject to our repurchase
right. See "Certain Transactions."
On September 18, 1996, we issued an aggregate of 505,000 shares of common
stock to certain key employees for an aggregate consideration of $10,100. Of
such shares, 40,000 were transferred to us as capital contributions and 277,250
were repurchased by us at a repurchase price of $0.02 per share.
From December 1996 to March 1997, we issued an aggregate of 612,500 shares
of Series A Preferred Stock to 27 accredited investors for an aggregate
consideration of $1,225,000. We subsequently repurchased 4,688 such shares in
settlement of certain promissory notes.
On April 2, 1997, we issued one consultant a warrant to purchase 15,000
shares of common stock at an exercise price of $2.00 per share.
On May 15, 1997, we issued one consultant a warrant to purchase 21,325
shares of common stock at an exercise price of $2.50 per share. On August 15,
1997, we issued the same consultant an additional warrant to purchase 15,706
shares of common stock at an exercise price of $2.50 per share. We issued both
warrants in connection such consultant's provision of certain consulting
services to us. The warrants are exercisable, in whole or in part, in exchange
for cash or for shares equal to the value of the warrant. The warrants will
expire upon the closing of this offering.
From August to September 1997, we issued an aggregate of 1,412,000 shares
of Series B-1 and Series B-2 Preferred Stock to 23 accredited investors for an
aggregate consideration of $3,530,000.
On August 15, 1997, we issued one consultant warrants to purchase 15,706
shares of common stock and 21,325 shares of common stock, respectively, at an
exercise price of $2.50 per share in connection with such consultant's provision
of certain consulting services to us. Such consultant subsequently became one of
our directors and surrendered to us the warrant to purchase 21,325 shares of
common stock in exchange for a non-statutory option to purchase 21,325 shares of
common stock, at an exercise price of $0.25 per share. The remaining outstanding
warrant is exercisable, in whole or in part, in exchange for cash or for shares
equal to the value of the warrant. Such warrant will expire upon the closing of
this offering.
On November 6, 1997, we issued one consultant a warrant to purchase 1,800
shares of common stock at an exercise price of $2.50 per share in connection
with such consultant's provision of certain consulting services to us. The
warrant is exercisable in whole or in part, in exchange for cash or for shares
equal to the value of the warrant. The warrant will expire upon the closing of
this offering.
On December 10, 1997, we issued one consultant a warrant to purchase 4,000
shares of common stock at an exercise price of $2.50 per share in connection
with such consultant's provision of certain consulting services to us. The
warrant is exercisable, in whole or in part, in exchange for cash or shares
equal to the value of the warrant. The warrant will expire upon the closing of
this offering.
On December 10, 1997, we issued one consultant a warrant to purchase 1,000
shares of common stock at an exercise price of $2.50 per share in connection
with such consultant's provision of certain consulting services to us. The
warrant is exercisable, in whole or in part, in exchange for cash or shares
equal to the value of the warrant. The warrant will expire upon the closing of
this offering.
II-2
<PAGE> 86
On February 24, 1998, we issued our legal counsel a warrant to purchase
1,000 shares of common stock at an exercise price of $2.00 per share in
connection such legal counsel's provision of legal services to us. The warrant
is exercisable, in whole or in part, in exchange for cash or shares equal to the
value of the warrant. The warrant will expire upon the closing of this offering.
From May to June 1998, we issued an aggregate of 2,029,480 shares of Series
C-1 and Series C-2 Preferred Stock to 24 accredited investors for an aggregate
consideration of $11,770,984.
On June 1, 1998, we issued one financial institution a warrant to purchase
8,621 shares of Series C Preferred Stock at an exercise price of $5.80 per share
in connection with the execution of a loan and security agreement. Upon the
closing of this offering, the warrant will be exercisable for shares of our
common stock. The warrant is exercisable at any time, in whole or in part, prior
to May 28, 2003, in exchange for cash or shares equal to the value of the
warrant.
On July 28, 1998, we issued one former director a warrant to purchase
15,000 shares of common stock for an exercise price of $0.58 in connection with
such individual's service as a member of our board of directors. Such warrant is
exercisable, in whole or in part, in exchange for cash or shares equal to the
value of the warrant. The warrant will expire upon the closing of this offering.
On July 28, 1998, we issued one consultant a warrant to purchase 24,044
shares of common stock for an exercise price of $2.50 per share. The warrant is
exercisable, in whole or in part, in exchange for cash or shares equal to the
value of the warrant. The warrant will expire upon the closing of this offering.
In November 1998, we issued an aggregate of 3,200,871 shares of Series D-1
and D-2 Preferred Stock to 45 accredited investors for an aggregate
consideration of $38,410,452.
On November 5, 1998, we issued to Silicon Valley Bank a warrant to purchase
5,000 shares of Series D-1 Preferred Stock at an exercise price of $12.00 per
share in connection with its provision of our revolving line of credit. Upon the
closing of this offering, the warrant will be exercisable for shares of our
common stock. The warrant is exercisable at any time, in whole or in part, prior
to November 5, 2003, in exchange for cash or shares equal to the value of the
warrant.
On December 29, 1998, we issued to NextCard Funding Corp. two warrants to
purchase 125,000 and 116,667 shares of Series D-1 Preferred Stock, respectively,
at exercise prices of $1.00 and $12.00 per share, respectively, in connection
with the establishment of a secured lending facility arranged by Credit Suisse
First Boston. Upon the closing of this offering, the warrants will be
exercisable for shares of our common stock. Each warrant is exercisable, in
whole or in part, at any time prior to December 29, 2005, for cash or shares
equal to the value of the warrant. The warrant to purchase 125,000 shares of
Series D-1 Preferred Stock was transferred to Credit Suisse First Boston as
partial payment for an origination fee. The warrant to purchase 116,667 shares
of Series D Preferred Stock has not yet been transferred to Credit Suisse First
Boston and therefore, is not deemed "outstanding" for purposes of computing our
capitalization.
On February 9, 1999, we issued to Comdisco, Inc., a warrant to purchase
29,167 shares of Series D-1 Preferred Stock at an exercise price of $12.00 per
share in connection with the execution of a loan and security agreement. Upon
the closing of this offering, the warrant will be exercisable for shares of our
common stock. The warrant is exercisable, in whole or in part, at any time prior
to two years after the closing of this offering, for cash or shares equal to the
value of the warrant.
Since our inception, we have issued options to purchase an aggregate of
1,725,225 shares of our common stock to a number of our employees, directors and
consultants.
The issuance of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such
Securities Act as transactions by an issuer not involving any public offering.
In addition, certain issuances of stock options described above were deemed
exempt from registration under the Securities Act in reliance upon Rule 701
promulgated under
II-3
<PAGE> 87
the Securities Act. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and warrants issued
in such transactions. All recipients had adequate access, through their
relationships with us. To information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation.
3.2* Bylaws.
3.3* Amended and Restated Certificate of Incorporation.
3.4* Amended and Restated Bylaws.
4.1* Form of Stock Certificate.
5.1* Opinion of Howard, Rice, Nemerovski, Canady, Falk & Rabkin,
A Professional Corporation, as to the validity of issuance
of the common stock registered hereby.
5.2* Opinion of Sidley & Austin as to certain regulatory matters.
10.1 Form of Indemnification Agreement between NextCard and each
of its officers and directors.
10.2* Amended and Restated Stock Restriction Agreement dated March
, 1999 between NextCard and Jeremy Lent.
10.3 Stock Purchase and Restriction Agreement dated September 18,
1996 between NextCard and Timothy Coltrell.
10.4 Form of Subscription Agreement for Series A Preferred Stock.
10.5 Series B Preferred Stock Purchase Agreement dated August 15,
1997 among NextCard and certain investors.
10.6 Office Lease dated September 24, 1997 between NextCard and
Market & Second, Inc., as amended.
10.7 1997 Stock Plan and form of Option Agreement under 1997
Stock Plan.
10.8+ Consumer Credit Card Program Agreement dated November 25,
1997 between NextCard and Heritage Bank of Commerce.
10.9* Remittance Processing Services Agreement dated December 1,
1997 between Heritage Bank of Commerce and National
Processing Company.
10.10* Addendum to Information Services Agreement dated December
, 1997 between Heritage Bank of Commerce and Response Data
Corporation.
10.11+ Service Agreement dated December 22, 1997 between NextCard
and First Data Resources Inc.
10.12* Master Services Agreement dated December 23, 1997 between
NextCard and Exodus Communications, Inc.
10.13 License Agreement dated May 1, 1998 between NextCard and
Binary Compass Enterprises, Inc.
10.14 Series C Preferred Stock Purchase Agreement dated May 13,
1998 among NextCard and certain investors.
10.15 Sublease dated May 15, 1998 between NextCard and KAO
Infosystems Company.
10.16 Master Lease Agreement dated May 22, 1998 between NextCard
and Comdisco, Inc.
</TABLE>
II-4
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBITS
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<C> <S>
10.17 Loan and Security Agreement dated June 17, 1998 by and
between NextCard and Lighthouse Capital Partners II, L.P.
10.18 Cardholder Rewards Program Agreement dated June 22, 1998
between NextCard and Intellipost Corporation (subsequently
renamed MyPoints.com).
10.19 Form of Bottom Dollar Network Membership Agreement.
10.20 Series D Preferred Stock Purchase Agreement dated November
5, 1998 among NextCard and certain investors.
10.21+ Loan Agreement dated December 29, 1998 between NextCard
Funding Corp. and Credit Suisse First Boston.
10.22+ Account Origination Agreement dated December 29, 1998 among
NextCard, NextCard Funding Corp. and Heritage Bank of
Commerce.
10.23 Employment Agreement dated as of January 1, 1999 between
NextCard and Jeremy R. Lent.
10.24 Subordinated Loan and Security Agreement dated February 9,
1999 between NextCard and Comdisco, Inc.
10.25 Consulting Agreement dated as of January 20, 1999 between
NextCard and Bruce Rigione.
23.1* Consent of Howard, Rice, Nemerovski, Canady, Falk & Rabkin,
A Professional Corporation (included in Exhibit 5.1).
23.2 Independent Auditors' Consent.
23.3* Consent of Sidley & Austin (included in Exhibit 5.2).
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the consolidated financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreements certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
our payment of expenses incurred or paid by a director, officer or controlling
person in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-5
<PAGE> 89
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offerings of such securities at that time shall be
deemed to be the initial bona fide offerings thereof.
II-6
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act, we have had duly caused
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of San Francisco, State of California, on
the day of March, 1999.
NEXTCARD, INC.
By: /s/ JEREMY R. LENT
------------------------------------
Jeremy R. Lent
Chairman of the Board,
Chief Executive Officer and
President
Each person whose signature appears below constitutes and appoints John V.
Hashman and Robert Linderman as his or her true and lawful attorneys-in-fact and
agents, with full power of substitution for him or her in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
or she might or could do in person.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ JEREMY R. LENT Chairman of the Board, Chief March 18, 1999
- --------------------------------------------------- Executive Officer, President
Jeremy R. Lent and Director (Principal
Executive Officer)
/s/ JOHN V. HASHMAN Chief Financial Officer March 18, 1999
- --------------------------------------------------- (Principal Financial and
John V. Hashman Accounting Officer)
/s/ JEFFREY D. BRODY Director March 18, 1999
- ---------------------------------------------------
Jeffrey D. Brody
/s/ ALAN N. COLNER Director March 18, 1999
- ---------------------------------------------------
Alan N. Colner
/s/ TOD H. FRANCIS Director March 18, 1999
- ---------------------------------------------------
Tod H. Francis
/s/ SAFI U. QURESHEY Director March 18, 1999
- ---------------------------------------------------
Safi U. Qureshey
/s/ BRUCE G. RIGIONE Director March 18, 1999
- ---------------------------------------------------
Bruce G. Rigione
</TABLE>
II-7
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBITS
NUMBER EXHIBIT INDEX PAGE
- -------- ------------- ----
<C> <S> <C>
1.1* Form of Underwriting Agreement..............................
3.1* Certificate of Incorporation................................
3.2* Bylaws......................................................
3.3* Amended and Restated Certificate of Incorporation...........
3.4* Amended and Restated Bylaws.................................
4.1* Form of Stock Certificate...................................
5.1* Opinion of Howard, Rice, Nemerovski, Canady, Falk & Rabkin,
A Professional Corporation, as to the validity of issuance
of the common stock registered hereby.......................
5.2* Opinion of Sidley & Austin as to certain regulatory
matters.....................................................
10.1 Form of Indemnification Agreement between NextCard and each
of its officers and directors...............................
10.2* Amended and Restated Stock Restriction Agreement dated March
, 1999 between NextCard and Jeremy Lent...................
10.3 Stock Purchase and Restriction Agreement dated September 18,
1996 between NextCard and Timothy Coltrell..................
10.4 Form of Subscription Agreement for Series A Preferred
Stock.......................................................
10.5 Series B Preferred Stock Purchase Agreement dated August 15,
1997 among NextCard and certain investors...................
10.6 Office Lease dated September 24, 1997 between NextCard and
Market & Second, Inc., as amended...........................
10.7 1997 Stock Plan and form of Option Agreement under 1997
Stock Plan..................................................
10.8+ Consumer Credit Card Program Agreement dated November 25,
1997 between NextCard and Heritage Bank of Commerce.........
10.9* Remittance Processing Services Agreement dated December 1,
1997 between Heritage Bank of Commerce and National
Processing Company..........................................
10.10* Addendum to Information Services Agreement dated December ,
1997 between Heritage Bank of Commerce and Response Data
Corporation.................................................
10.11+ Service Agreement dated December 22, 1997 between NextCard
and First Data Resources Inc. ..............................
10.12* Master Services Agreement dated December 23, 1997 between
NextCard and Exodus Communications, Inc. ...................
10.13 License Agreement dated May 1, 1998 between NextCard and
Binary Compass Enterprises, Inc. ...........................
10.14 Series C Preferred Stock Purchase Agreement dated May 13,
1998 among NextCard and certain investors...................
10.15 Sublease dated May 15, 1998 between NextCard and KAO
Infosystems Company.........................................
10.16 Master Lease Agreement dated May 22, 1998 between NextCard
and Comdisco, Inc. .........................................
10.17 Loan and Security Agreement dated June 17, 1998 by and
between NextCard and Lighthouse Capital Partners II, L.P....
10.18 Cardholder Rewards Program Agreement dated June 22, 1998
between NextCard and Intellipost Corporation (subsequently
renamed MyPoints.com).......................................
10.19 Form of Bottom Dollar Network Membership Agreement..........
</TABLE>
II-8
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBITS
NUMBER EXHIBIT INDEX PAGE
- -------- ------------- ----
<C> <S> <C>
10.20 Series D Preferred Stock Purchase Agreement dated November
5, 1998 among NextCard and certain investors................
10.21+ Loan Agreement dated December 29, 1998 among NextCard
Funding Corp. and Credit Suisse First Boston................
10.22+ Account Origination Agreement dated December 29, 1998 by and
between NextCard and Heritage Bank of Commerce..............
10.23 Employment Agreement dated as of January 1, 1999 between
NextCard and Jeremy R. Lent.................................
10.24 Subordinated Loan and Security Agreement dated February 9,
1999 between NextCard and Comdisco, Inc. ...................
10.25 Consulting Agreement dated as of January 20, 1999 between
NextCard and Bruce Rigione .................................
23.1* Consent of Howard, Rice, Nemerovski, Canady, Falk & Rabkin,
A Professional Corporation (included in Exhibit 5.1)........
23.2 Independent Auditors' Consent...............................
23.3* Consent of Sidley & Austin (included in Exhibit 5.2)........
24.1* Power of Attorney...........................................
27.1 Financial Data Schedule.....................................
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested.
II-9
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is entered into as of this _____
day of March, 1999, by and between NextCard, Inc., a Delaware corporation, (the
"Company"), and _________________ ("Indemnitee").
RECITALS
A. The Company is aware that because of the increased exposure to
litigation costs, talented and experienced persons are increasingly reluctant to
serve or to continue to serve as directors and officers of corporations unless
they are protected by comprehensive liability insurance and indemnification.
B. The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors and officers with adequate guidance
regarding the proper course of action.
C. The Company believes that it is fair and proper to protect the
Company's directors and certain of its officers, from the risk and judgments,
settlements and other expenses which may occur as a result of their service to
the Company, even in cases in which such persons received no personal profit or
were not otherwise culpable.
D. The Board of Directors of the Company (the "Board") has concluded
that, to retain and attract talented and experienced individuals to serve as
officers and directors of the Company and to encourage such individuals to take
the business risks necessary for the success of the Company, the Company should
contractually indemnify its officers and directors, in connection with claims
against such officers and directors in connection with their services to the
Company, and has further concluded that the failure to provide such contractual
indemnification could be detrimental to the Company, and its stockholders.
NOW, THEREFORE, the parties, intending to be legally bound,
hereby agree as follows:
1. Definitions:
(a) Agent. "Agent" means any person who is or was a director,
officer, employee or other Agent of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of, the
Company as a director, officer, employee or Agent of another entity or
enterprise; or was a director, officer, employee or Agent of a predecessor
corporation of the Company (including, without limitation, NextCard, Inc., a
California corporation), or was a director, officer, employee or Agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
(b) Expenses. "Expenses" means all direct and indirect costs
of any type or nature whatsoever (including, without limitation, all attorneys'
fees, costs of investigation and related disbursements) incurred by the
Indemnitee in connection with the investigation,
<PAGE> 2
settlement, defense or appeal of a claim or Proceeding covered hereby or
establishing or enforcing a right to indemnification under this Agreement.
(c) Proceeding. "Proceeding" means any threatened, pending, or
completed claim, suit or action, whether civil, criminal, administrative,
investigative or otherwise.
2. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees with Indemnitee
that, subject to Section 2(b), the Company shall obtain and maintain in full
force and effect directors' and officers' liability insurance ("D&O Insurance")
in reasonable amounts as the Board shall determine from established and
reputable insurers, but no less than the amounts in effect upon initial
procurement of the D&O Insurance. In all policies of D&O Insurance, Indemnitee
shall be named as an insured.
(b) Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines in good
faith that the premium costs for such insurance are (i) disproportionate to the
amount of coverage provided after giving effect to exclusions, and (ii)
substantially more burdensome to the Company than the premiums charged to the
Company for its initial D&O Insurance.
3. Mandatory Indemnification. The Company shall defend, indemnify
and hold harmless Indemnitee:
(a) Third Party Actions. If Indemnitee is a person who was or
is a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that Indemnitee
is or was or is claimed to be an Agent of the Company, or by reason of anything
done or not done by Indemnitee in any such capacity, or by reason of the fact
that Indemnitee personally guaranteed any obligation of the Company at any time,
against any and all Expenses and liabilities or any type whatsoever (including,
but not limited to, legal fees, judgments, fines, ERISA excise taxes or
penalties, and amounts paid in settlement) incurred by such person in connection
with the investigation, defense, settlement or appeal of such proceeding, so
long as the Indemnitee acted in good faith and in a manner the Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or Proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
(b) Derivative Actions. If Indemnitee is a person who was or
is a party or is threatened to be made a party to any Proceeding by or in the
right of the Company by reason of the fact that Indemnitee is or was an Agent of
the Company, or by reason of anything done or not done by Indemnitee in any such
capacity, against any amounts paid in settlement of any such Proceeding, and all
other Expenses incurred by such person in connection with the investigation,
defense, settlement or appeal of such Proceeding so long as the Indemnitee acted
in good faith and in a manner the Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company; except that no indemnification
under this subsection shall be made, and Indemnitee shall repay all amounts
previously advanced by the Company, in respect of any claim, issue or matter for
which such person is judged in a final, non-appealable decision to be
2
<PAGE> 3
liable to the Company by a court of competent jurisdiction due to willful
misconduct in the performance of such person's duties to the Company, unless and
only to the extent that the court in which such Proceeding was brought shall
determine that Indemnitee is fairly and reasonably entitled to indemnity.
(c) Actions Where Indemnitee is Deceased. If Indemnitee is a
person who was or is a party or is threatened to be made a party to any
Proceeding by reason of the fact that Indemnitee is or was an Agent of the
Company, or by reason of anything done or not done by Indemnitee in any such
capacity, and prior to, during the pendency of, or after completion of, such
Proceeding, the Indemnitee shall die, then the Company shall defend, indemnify
and hold harmless the estate, heirs and legatees of the Indemnitee against any
and all Expenses and liabilities incurred by or for such persons or entities in
connection with the investigation, defense, settlement or appeal of such
Proceeding on the same basis as provided for the Indemnitee in Sections 3(a) and
3(b) above.
The Expenses and liabilities covered hereby shall be net of any
payments by D&O Insurance carriers or others.
4. Partial Indemnification. If Indemnitee is found under Section
3(b), 6 or 9 hereof not to be entitled to indemnification for all of the
Expenses relating to a Proceeding, the Company shall indemnify the Indemnitee
for any portion of such Expenses not specifically precluded by the operation of
such Section 3(b), 6 or 9.
5. Indemnification Procedures; Mandatory Advancement of Expenses.
(a) Promptly after receipt by Indemnitee of notice to him or
her of the commencement or threat of any Proceeding covered hereby, Indemnitee
shall notify the Company of the commencement or threat thereof, provided that
any failure to so notify shall not relieve the Company of any of its obligations
hereunder.
(b) If, at the time of the receipt of a notice pursuant to
Section 5(a) above, the Company has D&O Insurance in effect, the Company shall
give prompt notice of the Proceeding or claim to its insurers in accordance with
the procedures set forth in the applicable policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay
all amounts payable as a result of such Proceeding in accordance with the terms
of such policies.
(c) Indemnitee shall be entitled to retain one or more counsel
from time to time selected by him or her in such person's sole discretion to act
as his or her counsel in and for the investigation, defense, settlement or
appeal of each Proceeding.
(d) The Company shall bear all fees and Expenses (including
invoices for advance retainers) of such counsel, and all fees and Expenses
invoiced by other persons or entities, in connection with the investigation,
defense, settlement or appeal of each such Proceeding. Such fees and Expenses
are referred to herein as "Covered Expenses."
(e) Until a determination to the contrary under Section 6
hereof is made, the Company shall advance all Covered Expenses in connection
with each Proceeding. If required by law, as a condition to such advances,
Indemnitee shall, at the request of the Company, agree
3
<PAGE> 4
to repay such amounts advanced if it shall ultimately be determined by a final
order of a court that Indemnitee is not entitled to be indemnified by the
Company by the terms hereof or under applicable law.
(f) Each advance to be made hereunder shall be paid by the
Company to Indemnitee within 10 days following delivery of a written request
therefor by Indemnitee to the Company.
(g) The Company acknowledges the potentially severe damage to
Indemnitee should the Company fail timely to make such advances to Indemnitee.
6. Determination of Right to Indemnification.
(a) To the extent Indemnitee has been successful on the merits
or otherwise in defense of any Proceeding, claim, issue or matter covered
hereby, Indemnitee need not repay any of the Expenses advanced in connection
with the investigation, defense or appeal of such Proceeding.
(b) If Section 6(a) is inapplicable, the Company shall remain
obligated to indemnify Indemnitee, and Indemnitee need not repay Expenses
previously advanced, unless the Company, by motion before a court of competent
jurisdiction, obtains an order for preliminary or permanent relief suspending or
denying the obligation to advance or indemnify for Expenses.
(c) Notwithstanding a determination by a court that Indemnitee
is not entitled to indemnification with respect to a specific Proceeding,
Indemnitee shall have the right to apply to the Court of Chancery of Delaware
for the purpose of enforcing Indemnitee's right to indemnification pursuant to
this Agreement.
(d) Notwithstanding any other provision in this Agreement to
the contrary, the Company shall indemnify Indemnitee against all Expenses
incurred by Indemnitee in connection with any Proceeding under Section 6(b) or
6(c) and against all Expenses incurred by Indemnitee in connection with any
other Proceeding between the Company and Indemnitee involving the interpretation
or enforcement of the rights of Indemnitee under this Agreement unless a court
of competent jurisdiction finds that the material claims and/or defenses of
Indemnitee in any such Proceeding were frivolous or made in bad faith.
7. Certificate of Incorporation and Bylaws. The Company agrees
that the Company's Certificate of Incorporation and Bylaws in effect on the date
hereof shall not be amended to reduce, limit, hinder or delay (i) the rights of
Indemnitee granted hereby, or (ii) the ability of the Company to indemnify
Indemnitee as required hereby. The Company further agrees that it shall exercise
the powers granted to it under its Certificate of Incorporation, its Bylaws and
by applicable law to indemnify Indemnitee to the fullest extent possible as
required hereby.
8. Witness Expenses. The Company agrees to compensate Indemnitee
for the reasonable value of his or her time spent, and to reimburse Indemnitee
for all Expenses (including attorneys' fees and travel costs) incurred by him or
her, in connection with being a
4
<PAGE> 5
witness, or if Indemnitee is threatened to be made a witness, with respect to
any Proceeding, by reason of Indemnitee's serving or having served as an Agent
of the Company.
9. Exceptions. Notwithstanding any other provision hereunder to
the contrary, the Company shall not be obligated pursuant to the terms of this
Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance
Expenses to Indemnitee with respect to Proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense (other than
Proceedings brought to establish or enforce a right to indemnification under
this Agreement or the provisions of the Company's Certificate of Incorporation
or Bylaws unless a court of competent jurisdiction determines that each of the
material assertions made by Indemnitee in such Proceeding were not made in good
faith or were frivolous).
(b) Unauthorized Settlements. To indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any Proceeding covered
hereby without the prior written consent of the Company to such settlement.
10.Non-exclusivity. This Agreement is not the exclusive
arrangement between the Company and Indemnitee regarding the subject matter
hereof and shall not diminish or affect any other rights which Indemnitee may
have under any provision of law, the Company's Certificate of Incorporation or
Bylaws, under other agreements, or otherwise. To the extent that this Agreement
provides for rights to the Indemnitee in excess of or in addition to those
provided under any agreements signed heretofore, this Agreement cancels and
supersedes all such prior agreements.
11.Continuation After Term. Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as a director or Agent of the
Company and the benefits hereof shall inure to the benefit of the heirs,
executors and administrators of Indemnitee.
12.Interpretation of Agreement. This Agreement shall be
interpreted and enforced so as to provide indemnification to Indemnitee to the
fullest extent now or hereafter permitted by law.
13.Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable, provisions of the
Agreement shall not in any way be affected or impaired thereby, and to the
fullest extent possible, the provisions of this Agreement shall be construed or
altered by the court so as to remain enforceable and to provide Indemnitee with
as many of the benefits contemplated hereby as are permitted under law.
14.Counterparts, Modifications and Waiver. This Agreement may be
signed in counterparts. This Agreement constitutes a separate Agreement between
the Company and Indemnitee and may be supplemented or amended as to Indemnitee
only by a written instrument signed by the Company and Indemnitee, with such
amendment binding only the Company and Indemnitee. All waivers must be in a
written document signed by the party to be charged. No waiver of any of the
provisions of this Agreement shall be imposed by the conduct of the parties. A
waiver of any right hereunder shall not constitute a waiver of any other right
hereunder.
5
<PAGE> 6
15. Notices. All notices, demands, consents, requests, approvals
and other communications required or permitted hereunder shall be in writing and
shall be deemed to have been properly given if hand delivered (effective upon
receipt or when refused), or if sent by a courier freight prepaid (effective
upon receipt or when refused), in the case of the Company, at the address listed
below, and in the case of Indemnitee, at Indemnitee's address of record at the
office of the Company, or to such other addresses as the parties may notify each
other in writing.
To the Company: NextCard, Inc.
595 Market Street, Suite 1800
San Francisco, CA 94105
Attention: Jeremy R. Lent
With a copy to: Ronald H. Star, Esq.
Howard, Rice, Nemerovski, Canady,
Falk & Rabkin, A Professional Corporation
Three Embarcadero Center, 7th Floor
San Francisco, CA 94111
To Indemnitee: At the Indemnitee's residence address on the
records of the Company from time to time.
16.Evidence of Coverage. Upon request by Indemnitee, the Company
shall provide evidence of the liability insurance coverage required by this
Agreement. The Company shall promptly notify Indemnitee of any change in the
Company's D&O Insurance coverage.
17.Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have entered into this
Indemnification Agreement effective as of the date first above written.
NEXTCARD, INC.
By:
----------------------------------------
Jeremy R. Lent,
Chief Executive Officer
INDEMNITEE:
----------------------------------------
6
<PAGE> 1
EXHIBIT 10.3
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND
THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN
EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
OR SUCH EXEMPTION BEING AVAILABLE.
STOCK PURCHASE AND RESTRICTION AGREEMENT
This Stock Purchase and Restriction Agreement (the "Agreement") is
made and entered into as of the eighteenth day of September, 1996 (the
"Effective Date",) by and between Internet Access Financial Corporation, a
California corporation (the "Company") and Timothy Coltrell ("Employee").
THE PARTIES agree as follows:
1. Purchase of Stock.
a. Contemporaneously herewith, the Company agrees to issue and sell
to Employee, and Employee hereby agrees to purchase one hundred and five
thousand (105,000) shares (the "Shares") of the Company's authorized but
unissued common stock for a cash purchase price of $.02 per Share.
b. Such sale by the Company is being made in reliance upon the
following representations and warranties of Employee, which by Employee's
execution hereof Employee hereby confirms:
i. The Shares are being acquired by Employee for investment for
Employee's own account (not as a nominee or agent) and not with a view to the
sale or distribution of any part thereof, and Employee has no present intention
of selling or engaging in any public distribution of the same
-1-
<PAGE> 2
except pursuant to a registration or exemption therefrom under applicable
federal and state securities laws.
ii. Employee has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of
Employee's investment in the Shares.
iii. Employee understands that the Shares have not been and are
not, in the foreseeable future, likely to be registered under the Securities Act
of 1933, as amended (the "Securities Act"), or qualified under applicable state
securities laws on the ground that the issuance of Shares will be exempt from
the registration and qualification requirements thereof.
iv. Employee has the ability to bear the economic risks of
Employee's investment in the Shares. Employee is able, without materially
impairing Employee's financial condition, to hold Employee's investment in the
Company for an indefinite period of time and to suffer a complete loss on
Employee's investment. Employee understands and has fully considered for
purposes of Employee's investment the risks of Employee's investment and
understands that (1) an investment in the Company is suitable only for an
investor who is able to bear the economic consequences of losing Employee's
entire investment, (2) the Company has no financial or operating history, (3) an
investment in the Company represents an extremely speculative investment which
involves a high degree of risk of loss, (4) there are substantial restrictions
on the transferability of, and there will be no public market for, the Company's
securities, (5) there have been no representations as to the possible future
value, if any, of the Company's securities, and (6) Employee has received all
the information Employee has requested from the Company and considers necessary
or appropriate for deciding whether to purchase Company securities.
-2-
<PAGE> 3
v. Employee understands that the Shares Employee is receiving
will be "restricted securities" under the federal securities laws inasmuch as
they are being acquired from the Company in a transaction not involving a public
offering and that under such laws and applicable regulations such securities may
be resold without registration under the Securities Act only in certain limited
circumstances. Employee is familiar with Rule 144, as amended, promulgated under
the Securities Act and understands the resale limitations imposed thereby and by
the Securities Act. Employee acknowledges that the certificate or certificates
for the Shares will have a restrictive legend fixed upon it or them which
expresses the limitations set forth herein.
vi. Employee's principal place of business and residency is in
California.
vii. Employee understands that the Company is entering into this
Agreement, and is willing to issue the Shares, only in reliance upon the
foregoing representations and warranties for the benefit of the Company, its
successors and assigns.
2. Vested and Unvested Shares. The parties agree that the Shares shall be
deemed "Vested" and "Unvested" as follows:
a. Ten percent (10%) of the Shares shall be deemed "Vested" as of
the Effective Date.
b. Ninety percent (90%) of the Shares shall be deemed "Unvested" as
of the Effective Date. The Unvested Shares shall vest biannually over a four
year period, based on biannual anniversaries from the Effective Date. Eleven and
one quarter per cent (11.25%) of the Shares shall Vest on each such biannual
anniversary following the Effective Date until all of the shares of Shares have
become Vested, except as otherwise provided herein.
-3-
<PAGE> 4
3. Continued Retention by Company as Condition to Further Vesting.
Notwithstanding Section 2, no Shares will Vest as of a date set for further
Vesting pursuant to Section 2 unless Employee shall have been continuously
retained by the Company (and/or its affiliates) as an employee from the
Effective Date through and including such Vesting date.
3a. Acceleration. Fifty per cent (50%) of Employee's Unvested Shares shall
immediately become Vested, in the event that Employee's employment with the
Company is terminated without Cause as herein defined. The term "Cause," solely
as used for the purposes of this Agreement, means the commission of a criminal
act related and detrimental to the Company; actions by Employee in bad faith and
to the detriment of the Company; failure of the Employee to perform competently
Employee's duties in connection with Employee's employment by the Company (or
its affiliates) following written notice and twenty (20) business days to cure
such failure; or the Employee remaining in breach of a material provision of
this or any other agreement with or obligation to the Company ten (10) business
days after receiving detailed written notice of such breach from the Company.
4. Company Right to Repurchase. At such time as Employee becomes
unemployed by the Company or any of its affiliates for any reason whatsoever
(whether due to death, Total Disability, voluntary resignation, involuntary
termination or any other reason) , the Company will have an assignable right,
but not an obligation, to repurchase any Unvested Shares owned by Employee at
the time of termination for a price equal to two cents ($.02) per share, subject
to appropriate adjustment for stock splits and combinations.
5. Right of First Refusal. In addition to any other limitation on transfer
created by applicable securities laws, while Employee holds any Shares, Employee
will not assign, encumber or dispose of any interest in the Shares except as
provided below:
-4-
<PAGE> 5
a. If Employee intends (or is required by operation of law or other
involuntary transfer) to sell or transfer in any manner any Shares, whether
Vested or Unvested, Employee first will offer to sell the same number (but not
less) of such Shares to the Company at the same price, and upon the same terms
(or terms as similar as reasonably possible) as Employee is proposing to
dispose, or is to dispose, of said Shares; provided, however, that if such
transfer does not establish a price, then the price will be fair market value as
determined by the Board of Directors of the Company. The Company (or its
assignee) may elect to purchase all (but not less than all) of such Shares upon
such terms within a period of thirty (30) days following receipt by the Company
of written notice from Employee of the terms and conditions of said proposed
sale or transfer. In the event the Shares are not disposed of by Employee upon
terms not substantially the same as offered to the Company within sixty (60)
days following expiration of the thirty (30) day period of the Company's right
of first refusal, such Shares will once again be subject to the right of first
refusal as herein provided.
b. In the event of a transfer by operation of law or other
involuntary transfer, the person acquiring such Shares will promptly notify the
Secretary of the Company of such transfer and the Company's right of first
refusal will commence upon receipt by the Company of written notice by the
person acquiring such Shares. The Company's right of first refusal, in such
circumstances, shall be at a price per share determined, in the reasonable
judgment of the Board of Directors of the Company, to be the fair market value
of such shares.
c. The rights of first refusal contained in this Paragraph 5 will
terminate upon the effectiveness of a registration statement covering Company
equity securities as filed with the Securities and Exchange Commission under the
Securities Act (a "Public Offering").
-5-
<PAGE> 6
6. Escrow. Unless and until a Public Offering, the Shares shall be held by
the Secretary of the Company as escrow agent (the "Escrow Agent"). The
certificate or certificates representing such Shares, along with executed stock
powers therefor shall be delivered to the Escrow Agent by Employee.
7. Miscellaneous. This Agreement will be governed by and construed under
the substantive laws of the State of California. This Agreement may be amended
only in writing. The waiver by a party of a breach hereof will not operate or be
construed as a waiver of any subsequent breach. This Agreement will inure to the
benefit of the successors and assigns of the parties hereof. This Agreement may
be entered into in counterparts.
IN WITNESS WHEREOF, the parties have entered into this Agreement.
/s/ TIMOTHY COLTRELL /s/ JEREMY R. LENT
- ----------------------- -----------------------------------
TIMOTHY COLTREL INTERNET ACCESS FINANCIAL
CORPORATION
By: JEREMY R. LENT
Its: Chief Executive Officer
-6-
<PAGE> 7
ELECTION TO INCLUDE VALUE OF RESTRICTED PROPERTY IN GROSS INCOME IN YEAR OF
TRANSFER UNDER CODE SECTION 83(b)
The undersigned hereby elects pursuant to Section 83(b) of the Internal
Revenue Code with respect to the property described below and supplies the
following information in accordance with the regulations promulgated thereunder.
1. THE NAME, ADDRESS, AND SOCIAL SECURITY NUMBER OF THE UNDERSIGNED ARE:
Timothy Coltrell
____________________________
____________________________
Social Security Number:___________________
2. DESCRIPTION OF PROPERTY WITH RESPECT TO WHICH THE ELECTION IS BEING MADE:
105,000 shares of common stock in Internet Access Financial Corporation,
a California corporation.
3. THE DATE ON WHICH THE PROPERTY WAS TRANSFERRED WAS ____________ 1996.
The taxable year to which this election relates is calendar year 1996.
4. THE NATURE OF THE RESTRICTIONS TO WHICH THE PROPERTY IS SUBJECT IS:
The property is subject to certain restrictions set forth in a Stock
Purchase and Restriction Agreement by and between the electing taxpayer and
Internet Access Financial Corporation (the "Agreement"). Briefly, the Agreement
provides substantial restrictions on the transferability of the property and a
period over which the taxpayer's rights in the property vest. Ninety percent
(90%) of the property will be deemed "unvested" on the date the property is
transferred to the undersigned and is subject to substantial risk of forfeiture.
5. FAIR MARKET VALUE:
The fair market value at the time of transfer (determined without regard
to any restrictions, other than those which by their terms will never lapse) of
the property with respect to which this election is made is two cents ($0.02)
per share.
<PAGE> 8
6. AMOUNT PAID FOR THE PROPERTY:
The undersigned paid $2,100 for the property.
7. FURNISHING STATEMENT TO EMPLOYER:
A copy of this statement has been furnished to Internet Access Financial
Corporation.
Dated: October __, 1996
______________________________________
Timothy Coltrell
<PAGE> 1
Exhibit 10.4
TO WHOM IT MAY CONCERN:
This is to acknowledge that Internet Access Financial Corporation (the
"Company") has waived certain of its rights under the Subscription Agreement for
shares of the Company's Series A Preferred Stock (the "Agreement") and,
accordingly, has agreed to delete Section III of the Agreement, entitled
"Restrictions on Transfer; Right of First Refusal."
The undersigned subscriber hereby acknowledges and accepts such
deletion.
Subscriber
Date
<PAGE> 2
Internet Access Financial Corporation
595 Market Street - Suite 950
San Francisco, Ca 94105
Tel: (415) 836-9700 Fax: (415) 836-9701
Ladies and Gentlemen:
The undersigned (the "Investor") has received and reviewed a copy of the
Business Plan and each of the documents referenced therein (collectively, the
"Plan"), of Internet Access Financial Corporation, a California corporation (the
"Company"), related to the Company's offer to sell shares of Series A Preferred
Stock (the "Offered Securities").
1. Subscription. Subject to the terms and conditions hereof, the
undersigned hereby irrevocably subscribes for and agree to purchase $________ in
Offered Securities at a price of $2.00 per share.
In payment of the aggregate purchase price for the Offered Securities,
the undersigned is tendering herewith a check, payable to the order of the
Company in the amount set forth above.
2. Acceptance of Subscription. The undersigned understands and agrees
that this subscription is made subject to the unconditional right of the Company
to reject any subscription, in whole or in part, in its sole and absolute
discretion. This Agreement shall become effective upon acceptance by the
Company. Interest (if any) on funds received prior to closing will be for the
account of the Company if the undersigned's subscription is accepted. This
subscription is made subject to the terms and conditions set forth below.
3. Background Information.
A. Individuals (TO BE FILLED OUT BY INVESTORS WHO ARE
INDIVIDUALS, ONLY).
(1) Investor's Name:
----------------------------------------
Telephone: (___)
----------------------------------------
Home Address:
-------------------------------------------
City: State: Zip:
------------------- ------------- -----
U.S. Citizen: Yes No
------- --------
Education:
----------------------------------------------
Social Security No.:
-2-
<PAGE> 3
(2) Principal positions held during the last five years.
<TABLE>
<CAPTION>
DATES COMPANY POSITION
----- ------- --------
<S> <C> <C>
</TABLE>
(3) I previously have purchased private (restricted)
securities.
Yes No
(4) My gross income* from all sources (excluding spousal
income) is as follows:
[Please check one box for each year.]
<TABLE>
<S> <C> <C> <C>
1994 Actual [ ] $50,000-100,000 [ ] $100,001-199,999 [ ] $200,000 or more
1995 Actual [ ] $50,000-$100,000 [ ] $100,001-199,999 [ ] $200,000 or more
1996 estimated [ ] $50,000-100,000 [ ] $100,001-199,999 [ ] $200,000 or more
</TABLE>
(5) My gross income from all sources (including spousal
income) is as follows:
<TABLE>
<S> <C> <C> <C>
1994 Actual [ ] $50,000-200,000 [ ] $200,001-299,999 [ ] $300,000 or more
1995 Actual [ ] $50,00-200,000 [ ] $200,001-299,9999 [ ] $300,000 or more
1996 estimated [ ] $50,000-200,000 [ ] $200,001-299,999 [ ] $300,000 or more
</TABLE>
- --------
* For purposes of this Agreement, "income" shall mean your adjusted
gross income, increased by any deduction for long-term capital gain under
Section 1.02 of the Internal Revenue Code (the "Code"), any deduction for
depletion under Section 611 et seq. of the Code, any exclusion for interest
under Section 103 of the Code and any losses of a partnership allocated to you
as reported on Schedule E of Form 1040 (or any successor report).
** For purposes of this Agreement, "net worth" shall include the joint
net worth of you and your spouse and shall include all of your assets, liquid or
illiquid (including, in addition to home, home furnishings and automobiles, such
items as restricted securities, ownership in a business, stocks, bonds, etc.),
less any liabilities (including home mortgages and other debts and obligations).
-3-
<PAGE> 4
(6) My total personal net worth** (including spousal net
worth, if any), valuing my personal residence at its fair
market value (less encumbrances) is as follows:
[ ] less than $500,000
[ ] $500,001 -$999,999
[ ] $1,000,000 or more
B. Entities (TO BE FILLED OUT BY INVESTORS WHO ARE ENTITIES,
ONLY).
(1) Investor's Name:
----------------------------------------
Telephone: (___)
----------------------------------------
Address:
-------------------------------------------------
City: State: Zip:
------------------- ------------- -----
Taxpayer Identification No.:
------------------------------
Taxpayer Identification No.:
------------------------------
Jurisdiction of Formation:
------------------------------
(2) Total Assets
[ ] less than $1,000,000
[ ] 1,000,000 - $4,999,999
[ ] $5,000,000 or more
(3) This entity, or its decisionmakers, previously have
purchased private (restricted) securities.
Yes No
---- ----
- ----------
** For purposes of this Agreement, "net worth" shall include the joint
net worth of you and your spouse and shall include all of your assets, liquid or
illiquid (including, in addition to home, home furnishings and automobiles, such
items as restricted securities, ownership in a business, stocks, bonds, etc.),
less any liabilities (including home mortgages and other debts and obligations).
-4-
<PAGE> 5
(4) This entity was formed for the purposes of making this
investment.
Yes No
---- ----
4. Representations and Warranties of the Undersigned. The undersigned
understands that the Offered Securities are being offered and sold under one or
more of the exemptions from registration provided for in Sections 4(2) and 3(b)
of the Securities Act of 1933 (the "Act"), including Regulation D promulgated
thereunder, that the undersigned is purchasing the Offered Securities without
being offered or furnished any offering literature or prospectus other than the
Plan, and the undersigned understands that this transaction has not been
scrutinized by the Securities and Exchange Commission or by any administrative
agency charged with the administration of the securities laws of any state. The
undersigned hereby further represents and warrants as follows:
A. If a natural person, I am a citizen of the United States and
at least 21 years of age, and a bona fide resident and domiciliary (not a
temporary or transient resident) of the state indicated on the signature page
hereto, and I have no present intention of becoming a resident of any other
state or jurisdiction;
B. The undersigned has such knowledge and experience in financial
and business matters as to be capable of evaluating the risks of an investment
in the Offered Securities and understand that (i) this investment is suitable
only for an investor who is able to bear the economic consequences of losing his
or her entire investment, (ii) an investment in the Offered Securities is a
speculative investment which involves a high degree of risk of loss of the
investment therein, and (iii) there are substantial restrictions on the
transferability of, and there will be no public market for, the Offered
Securities, and accordingly, it may not be possible to liquidate the
undersigned's investment in the Offered Securities in case of emergency;
C. The undersigned has the financial ability (i) to bear the
economic risk of an investment in the Offered Securities, (ii) to hold the
Offered Securities for an indefinite period of time, and (iii) currently to
afford a complete loss of this investment without experiencing any undue
financial difficulties and the undersigned's commitment to all speculative
investments (including this one if accepted by the Company) is reasonable in
relation to the undersigned's financial capabilities;
D. The undersigned acknowledges that an investment in the Company
is inherently risky and speculative.
E. In making the decision to purchase the Offered Securities, the
undersigned has relied solely upon independent investigation made by the
undersigned or the undersigned's representative(s);
F. The undersigned and the undersigned's representatives and
advisors have been given the opportunity to ask questions of, and to receive
answers from, persons acting on behalf of the Company concerning the terms and
conditions of this offering, and to obtain any additional
-5-
<PAGE> 6
information, to the extent such persons possess such information or can acquire
it without unreasonable effort or expense, necessary to verify the accuracy of
the information set forth in the Plan;
G. The Offered Securities are being acquired by the undersigned
in good faith solely for the undersigned's personal account, for investment
purposes only, and are not being purchased with a view to or for the resale,
resyndication, distribution, subdivision or fractionalization thereof;
H. The undersigned understands that no Federal or state agency
has passed on or made any recommendation or endorsement of the Offered
Securities and that the Company is relying on the truth and accuracy of the
representations, declarations and warranties herein made by the undersigned in
offering the Offered Securities for sale to the undersigned without having first
registered the Offered Securities under the Act;
I. The undersigned agrees that the undersigned will not sell,
transfer, pledge or otherwise dispose of any Offered Securities acquired
hereunder except pursuant to registration under the Act or an exemption from
registration thereunder (evidenced by a written opinion of counsel satisfactory
to the Company or a "no-action" letter of the Securities and Exchange Commission
to the effect that such registration is not required under the circumstances of
such sale or transfer). The undersigned realizes that, in the absence of
registration under the Act, any disposition of Offered Securities by the
undersigned may require compliance with an exemption under the Act, and that the
Company is under no obligation to take any action to make any such exemption so
available; and
J. The undersigned acknowledges that there have been no
representations, guarantees or warranties made to the undersigned by the
Company, its agents or employees, or by any other person, expressly or by
implication, with respect to:
(i) the approximate length of time that the undersigned will be
required to remain as the owner of the Offered Securities; or
(ii) the percentage of profit and/or amount of or type of
consideration, profit or loss to be realized, if any, as a result of the
undersigned's investment.
K. The undersigned understands that the Company may rely on the
foregoing representations and warranties in determining whether to accept this
subscription. If for any reason the representations and warranties are no longer
true and accurate prior to acceptance of this Agreement by the Company, the
undersigned will give the Company prompt written notice of the inaccuracy. By
initialing below, the undersigned represents that the undersigned has read and
confirmed the truth and accuracy of each of the foregoing representations and
warranties.
-6-
<PAGE> 7
Initials
5. Legends. The Company will place legends on the certificates
represented by the Offered Securities as required by applicable securities laws,
including a legend in form substantially as follows:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN TAKEN BY THE
ISSUEE FOR INVESTMENT PURPOSES. SAID SHARES MAY NOT BE SOLD OR
TRANSFERRED UNLESS (A) THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B)
THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS ITS OWN TRANSFER
AGENT) IS PRESENTED WITH EITHER A WRITTEN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY OR A "NO-ACTION" OR INTERPRETIVE LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH SALE OR
TRANSFER. THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTION AND LIMITATION AS SET FORTH IN THAT CERTAIN
SUBSCRIPTION AGREEMENT AND QUESTIONNAIRE BETWEEN THE COMPANY AND THE
HOLDER HEREOF, A COPY OF WHICH CAN BE OBTAINED FROM THE COMPANY.
6. Indemnification. The undersigned will indemnify and hold harmless the
Company, its officers, directors and any of its affiliates, associates, agents
or employees from and against any and all loss, damage or liability (including
costs and attorneys fees) due to or arising out of a breach of any
representation, warranty or acknowledgment made by the undersigned in this
Agreement.
7. Registration Rights. Upon acceptance hereof, the Company hereby
covenants and agrees as follows:
A. Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
(1) "1933 Act" means the Securities Act of 1933, as
amended.
(2) "1934 Act" means the Securities Exchange Act of 1934,
as amended.
(3) "Common Stock" means the Company's Common Stock.
(4) "Holder" means any person owning of record Registrable
Securities or any permitted assignee thereof in accordance with Section 7.10
hereof.
-7-
<PAGE> 8
(5) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the 1933 Act, and the
declaration or ordering of the effectiveness of such registration statement or
document by the SEC.
(6) The term "Registrable Securities" means: (i) the
Common Stock issued or issuable upon conversion of the Series A Preferred Stock
of the Company purchased by the Investor; and (ii) any Common Stock of the
Company issued (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued) by way of a stock split, stock
dividend, recapitalization, merger or other distribution with respect to, or in
exchange for, or in replacement of, such Series A Preferred Stock or Common
Stock, excluding in all cases, however, any Registrable Securities sold by a
person in a transaction in which its rights under this Section 7 are not
assigned.
(7) The number of shares of "Registrable Securities then
outstanding" shall be the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock which, upon issuance of then
exercisable or convertible securities, will be, Registrable Securities.
B. Piggy-back Registration Rights.
(1) Piggy-back Rights. If (but without any obligation to
do so) the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Holders)
any of its securities under the 1933 Act in connection with the public offering
of such securities solely for cash (other than registration (i) of the initial
sale to the public of the Company's Common Stock registered under the 1933 Act;
(ii) on Form S-8 or any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities, (iii) with respect to an
employee benefit plan, or (iv) solely in connection with a Rule 145 transaction
under the 1933 Act), the Company shall promptly give each Holder written notice
of such registration together with a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of each Holder given within twenty
(20) business days after delivery of such written notice by the Company in
accordance with Section 8(c), the Company shall, subject to the provisions of
Section 7.2(b) below, use its best efforts to cause to be registered under the
1933 Act all of the Registrable Securities that each such Holder has requested
to be registered.
(2) Underwriting Requirements in Piggy-back Registration.
The right of any Holder to registration pursuant to Section 7.2(a) shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and any other holders
distributing their
-8-
<PAGE> 9
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for underwriting by
the Company. Notwithstanding any other provision of this Section 7.2, if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the underwriter may (subject to the allocation
priority set forth below) exclude some or all Registrable Securities from such
registration and underwriting. Further, notwithstanding anything to the contrary
herein, no reduction shall be made with respect to securities offered by the
Company for its own account or by securities holders exercising demand
registration rights. The Company shall so advise all persons requesting
piggy-back registration, and the number of shares of securities that may be
included in the registration and underwriting shall be allocated among them in
proportion, as nearly as practicable, to the respective amounts of common
equivalent shares held by such persons. If any Holder disapproves of the terms
of any such underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the underwriter. Any Registrable Securities excluded
or withdrawn from such underwriting shall be withdrawn from such registration.
C. Obligations of the Company. Whenever required under this
Section 7 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(1) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred twenty (120) days.
(2) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(3) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(4) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement, provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in any
such jurisdiction, and further provided that (anything in this Agreement to the
contrary notwithstanding with respect to the bearing of expenses) if any
jurisdiction in which the securities shall be qualified shall require that
expenses incurred in connection with the qualification of the securities in that
jurisdiction be borne by selling
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<PAGE> 10
shareholders, then such expenses shall be payable by the selling Holders pro
rata, to the extent required by such jurisdiction if such Holders do not elect
to withdraw from the registration after notice of such requirement.
(5) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement with
terms generally satisfactory to the managing underwriter of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(6) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
D. Furnish Information. In connection with any action pursuant to
this Section 7, the selling Holders shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them, and
the intended method of disposition of such securities as shall be required to
effect the registration of their Registrable Securities. In that connection,
each selling Holder shall be required to represent to the Company that all such
information which is given is both complete and accurate in all material
respects when made.
E. Definition of Expenses.
(1) "Registration Expenses" shall mean all expenses
incurred by the Company in complying with Section 7.2 hereof, including, without
limitation, all registration, filing and qualification fees, underwriters'
expense allowance, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).
(2) "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of the Registrable
Securities in the registration and all fees and disbursements of any special
counsel (other than the Company's regular counsel) for any Holder.
F. Expenses of Registration. All Registration Expenses incurred
in connection with the first two registrations, qualifications or compliances
pursuant to Section 7.2 shall be borne by the Company. All Selling Expenses
shall be borne by the Holders of the securities so registered, pro rata on the
basis of the number of shares so registered (provided that each Holder shall
bear the full amount of the fees and disbursements of any counsel retained by
it).
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<PAGE> 11
G. Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 7.
H. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 7:
(1) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the officers, directors and partners of
each Holder, any underwriter (as defined in the 1933 Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the 1933 Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the 1933
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto; (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading; or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any state securities law
or any rule or regulation promulgated under the 1933 Act, the 1934 Act or any
state securities law; and the Company will reimburse each such Holder, officer,
director or partner, underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the Company's indemnity contained in this Section 7.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs (i) in reliance upon
and in conformity with written information furnished in writing and expressly
stated for use in connection with such registration by any such Holder, or such
Holder's officers, directors or partners, underwriter, or controlling person, or
(ii) based on the authority of an "expert" within the meaning of that term as
defined in the 1933 Act (but only if the Company had no reasonable ground to
believe, and did not believe, that the statements made on the authority of such
expert were untrue or that there was an omission to state a material fact). The
Company shall not be required to indemnify any person against any liability
arising (i) from any untrue or misleading statement or omission contained in any
preliminary prospectus if such deficiency is corrected in the final prospectus
or (ii) out of the failure of any person to deliver a prospectus as required by
the Securities Act. The indemnity provided for in this Section 7.8(a) shall
remain in full force and effect regardless of any investigation made by or on
behalf of such seller, underwriter, participating person or controlling person
and shall survive transfer of such securities by such seller.
(2) To the extent permitted by law, each selling Holder
will indemnify and
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<PAGE> 12
hold harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the Company
within the meaning of the 1933 Act, any underwriter (within the meaning of the
1933 Act) for the Company, any person who controls such underwriter, and any
other Holder selling securities in such registration statement or any of its
partners, directors or officers or any person who controls such Holder, against
any losses, claims, damages or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly stated in a writing for use in connection
with such registration; and each such Holder will reimburse any legal or other
expenses, as reasonably incurred, by any person intended to be indemnified
pursuant to this Section 7.8(b), in connection with investigating or defending
any such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 7.8(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
(3) Promptly after receipt by an indemnified party under
this Section 7.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 7.8, notify the
indemnifying party in writing of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party if the indemnified party reasonably
determines that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 7.8, but the omission so to notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 7.8.
I. Reports Under Securities Exchange Act of 1934. With a view of
making available to the Holders the benefits of Rule 144 promulgated under the
1933 Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration,
the Company agrees to:
(1) use its best efforts to make and keep public
information available, as those terms are understood and defined in SEC Rule
144, at all times after ninety (90) days after the effective date of the first
registration statement filed by the Company; and
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<PAGE> 13
(2) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the 1933
Act and the 1934 Act.
J. Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 7 may be
assigned by a Holder to a transferee or assignee of not less than 5,600
common-equivalent shares of such securities provided (i) the Company is, within
a reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned and (ii) that such assignment
shall be effective only if immediately following such transfer the transferee is
bound by the terms and conditions of this Agreement and such transfer of any
Registrable Securities is lawful under all applicable securities laws.
K. "Market Stand-off" Agreement. Each Holder agrees, in
connection with the Company's initial underwritten public offering of the
Company's securities that, upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Common Stock of the Company (other than those Common Stock shares
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
two hundred ten (210) days) from the effective date of such registration as may
be requested by the underwriters; provided that such covenants shall apply only
if all of the officers and directors of the Company who own stock of the Company
also agree to such restrictions.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
L. Termination of the Company's Obligations.
(1) The Company shall have no obligations pursuant to this
Section 7 from and after five years following the closing of the Company's
initial sale to the public of the Company's Common Stock registered under the
1933 Act.
(2) Notwithstanding any contrary provision of this Section
7, the Company shall not be required to effect any registrations under the 1933
Act or under any state securities laws on behalf of any Holder or Holders if, in
the opinion of counsel for the Company, the offering or transfer by such Holder
or Holders in the manner proposed (including, without limitation, the number of
shares proposed to be offered or transferred, the time of sale, and the method
of offering or transfer) is exempt from the registration requirements of the
1933 Act and the securities laws of applicable states and the Company consents
to such transfer, if required.
8. Restrictions on Transfer; Right of First Refusal. In addition to any
other limitation on
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<PAGE> 14
transfer created by applicable securities laws, no holder of any Investor
Securities, or any interest therein, except as provided below:
A. Permitted Transfers; Prohibited Transfers. A holder of
Investor Securities may Transfer the Investor Securities only after compliance
with the specific limitations and conditions set forth in this Section 8. All
Transfers of Investor Securities not complying with the specific limitations and
conditions set forth in this Section 8 are expressly prohibited. Any prohibited
Transfer is void and of no effect, and no purported transferee thereof will be
recognized as a shareholder of the Company for any purpose whatsoever. Should
such a Transfer purport to occur, the Company may refuse to carry out the
Transfer on its books, attempt to set aside the Transfer, enforce any
undertakings or rights under this Section 8, or exercise any other legal or
equitable remedy.
B. Conditions to Transfer. It will be a condition to the Transfer
of an Investor Securities, in the case of either a Permitted Transfer or the
Company's failure or refusal to exercise its rights of first refusal under
Section 8.3 below, that the transferee of such Investor Securities will execute
such documents as the Company may reasonably require to ensure that the
Company's rights under this Agreement are adequately protected with respect to
such Investor Securities, including, without limitation, the transferee's
agreement to be bound by all of the terms and conditions of this Agreement, as
if the original Investor to execute this Agreement.
C. Right of First Refusal. If any Investor Securities are
Transferred or are proposed to be Transferred, except in the case of a Permitted
Transfer, the Company will have an assignable right (but not an obligation) to
purchase such Investor Securities on the terms and conditions set out in this
Section 8.3. Such right of first refusal will be exercisable, in whole or in
part, as to any particular Transfer of Investor Securities, in the following
manner:
(1) The transferor of any Investor Securities subject to
this Section 8.3 will provide to the Company a notice of proposed Transfer (a
"TRANSFEROR Notice") stating: the number of Investor Securities that the
transferor proposes to Transfer and the transferor's bona fide intention to
Transfer such Investor Securities (except in the case of an Involuntary
Transfer, but including the case of a Donative Transfer, as those terms are
defined herein); the names and addresses of the transferor, the transferee or
proposed transferee, and subsequently such other information regarding the
transferee as the Company reasonably requests; the manner and date of such
proposed Transfer; and the bona fide cash price and/or other consideration (and
the fair market value thereof), if any, that the transferee has offered pay for
such Investor Securities (the "OFFERED PRICE").
(2) In the case of an Involuntary Transfer (as that term
is defined herein), the proposed transferee of such Investor Securities promptly
will provide to the Company a notice of proposed Transfer (a "TRANSFEREE
NOTICE") setting forth all of the information to be described in a Transferor
Notice, other than the Offered Price.
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<PAGE> 15
(3) The Company may exercise its right of first refusal
under this Section 8.3 at any time not more than thirty (30) days after the
Company has received either the Transferor Notice or Transferee Notice with
respect to such Investor Securities. The Company will exercise its right, if at
all, by informing the transferor (and in the case of any Involuntary Transfer,
the transferee) in writing of the Company's intention to do so, in a notice that
specifies a closing date that is no more than sixty (60) days (or such later
date as the transferee may have offered to consummate the Transfer or on which
the Transfer is otherwise scheduled to occur) after receipt of either the
Transferee or Notice or the Transferee Notice, whichever is applicable.
(4) In exercising its repurchase rights under this Section
8.3 the Company will pay the transferor (or, in the case of an Involuntary
Transfer that has already been consummated, the transferee) in cash, at such
closing to be held at the Company's principal executive offices, a price equal
to the Offered Price for (or, in the case of an Involuntary Transfer or Donative
Transfer, the Fair Market Value of) the Investor Securities that are Transferred
or proposed to be Transferred, subject to a appropriate adjustment to take into
account any deferred payment terms and the risk of nonpayment of any future
payments included in the Offered Price; provided that if the Offered Price
includes any non-cash consideration, the value thereof for purposes of this
Section 8.3 will be determined in good faith by the Board of the Directors of
the Company.
D. Definitions. For purposes of this Agreement:
(1) The term "Investor Securities" means the Offered
Securities, and includes all securities issued by the Company by reason of such
Offered Securities, whether as a result of conversion, a stock split, a stock
dividend, or a distribution of securities in the Company made upon, or in
exchange for, Offered Securities.
(2) The term "Transfer" with respect to Investor
Securities means and includes, without limitation, a voluntary or involuntary
sale, assignment, transfer, conveyance, pledge, hypothecation, encumbrance,
disposal, loan, gift, attachment or levy of those Investor Securities, including
without limitation any Involuntary Transfer (as defined herein) or Permitted
Transfer. To the extent that an entity holds any Investor Securities, any change
in control of such entity will be deemed an "Involuntary Transfer" of the
Investor Securities held by such entity for the purposes hereof.
(i) a Transfer by will or under the laws of descent
and distribution; or (B) a Transfer by a holder of Investor Securities to his or
her ancestors, descendants or spouse (other than pursuant to a decree of
divorce, dissolution or separate maintenance, a property settlement, or a
separation agreement or a similar agreement or arrangement with a spouse, except
for bona fide estate planning purposes), or to a trust, partnership,
custodianship or other fiduciary count for the benefit the holder and/or such
ancestors, descendants or spouse, including any Transfer in the form of a
distribution from any such trust, partnership, custodianship or other fiduciary
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<PAGE> 16
account to any of the foregoing permitted beneficiaries thereof.
(3) The term "INVOLUNTARY TRANSFER" with respect to
Investor Securities means any of the following: (i) an assignment of the
Investor Securities for the benefit of creditors of the Transferor; (ii) a
Transfer by operation of law, except in connection with a Permitted Transfer;
(iii) an execution of judgment against the Investor Securities or the
acquisition of record or beneficial ownership of Investor Securities by a lender
or creditor; (iv) Transfer pursuant to any decree of divorce, dissolution or
separate maintenance, any property settlement, any separation agreement or any
other agreement with a spouse (except for bona fide estate planning purposes)
under which any Investor Securities are Transferred or awarded to the spouse of
the transferor or are required to be sold; (v) a Transfer resulting from the
filing by the transferor of a petition for relief, or the filing of an
involuntary petition against the transferor, under the bankruptcy laws of the
United States or of any other nation; of (vi) as provided in paragraph (b),
above.
(4) The term "DONATIVE TRANSFER" with respect to Investor
Securities means any Transfer, other than a Permitted Transfer, without the
receipt of cash or other legal consideration in payment therefor.
(5) The term "FAIR MARKET VALUE" means (i) the most recent
closing price of the Company's Common Stock if the same trades on any national
or regional securities exchange; (ii) the average of the most recent "bid" and
"asked" price if the Common Stock trades on any over-the-counter market; or
(iii) if neither (i) or (ii) are applicable the fair market value as determined
in good faith by the Board of Directors of the Company.
9. Miscellaneous.
A. This Agreement shall be governed by and construed in
accordance with the laws of the State of California as applicable to contracts
wholly made and performed in California.
B. This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by all parties.
C. All notices hereunder will be effective upon delivery: (i) to
the Company, at the address set forth on the first page hereof; or (ii) to the
Investor, to the address set forth on the signature page hereof; or in each case
to such other address as other party shall notify the other of in writing.
D. This Agreement shall survive the death or disability of the
undersigned and will be binding upon the undersigned's heirs, executors,
administrators, successors and assigns. The representations, warranties and
acknowledgments herein will survive delivery of the Agreement to and acceptance
of the Agreement by the Company.
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<PAGE> 17
This Agreement will become effective upon its acceptance by the Company.
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<PAGE> 18
IN WITNESS WHEREOF, the undersigned has hereby executed this
Subscription Agreement and Questionnaire this ____ day of ___________, 1996.
NAME OF SUBSCRIBER
AUTHORIZED SIGNATURE
TITLE
State Residency of Subscriber
Address:
INTERNET ACCESS FINANCIAL
CORPORATION hereby accepts the
foregoing subscription subject to the terms
and conditions hereof as of
, 1997
By:
Name: Jeremy R. Lent
--------------
Title: Chairman and CEO
----------------
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<PAGE> 1
EXHIBIT 10.5
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
made as of the ___ day of August, 1997, by and among INTERNET ACCESS FINANCIAL
CORPORATION, a California corporation (the "Company"), with its principal office
at 595 Market Street, Suite 2250, San Francisco, California 94105 and the
Investors whose names and addresses are set forth on the Investor Schedule
attached as Exhibit A hereto (each of whom is an "Investor," and collectively,
the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series B Preferred Stock.
(a) The Company shall adopt and file with the Secretary of
State of California on or before the Closing (as defined below) the Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit B (the
"Restated Articles").
(b) Subject to the terms and conditions of this Agreement,
each Investor severally agrees to purchase at the Closing, and the Company
agrees to sell and issue to each Investor at the Closing, that number of shares
of the Company's Series B Preferred Stock (the "Series B Preferred") set forth
opposite such Investor's name on Exhibit A hereto for the purchase price set
forth thereon. The shares of Series B Preferred are referred to herein as the
"Shares."
1.2 Closing. The initial purchase and sale of the Shares shall
take place at the offices of Wilson Sonsini Goodrich and Rosati, 650 Page Mill
Road, Palo Alto, California, at ____ p.m., on August __, 1997, or at such other
time and place as the Company and the Investors purchasing a majority of the
Series B Preferred hereunder mutually agree upon orally or in writing (which
time and place are designated as the "Closing"). At the Closing, the Company
shall deliver to each Investor a certificate, registered in such Investor's name
as set forth on Exhibit A, representing the number of shares designated on
Exhibit A to be purchased by such Investor against payment of the purchase price
therefor by check or wire transfer at the Company's instruction.
1.3 Additional Closings. The Company may sell up to the balance
of the authorized shares of Series B Preferred not sold at the Closing to such
individuals or entities as are mutually agreed upon by Brentwood Venture Capital
and the Company, at a price not less than $2.50 per share and on the terms
continued herein and in the exhibits hereto, provided the closing for the sale
of such additional shares of Series B Preferred is completed not later than
sixty (60) days after the date of this Agreement. Upon execution of a signature
page counterpart and without need for an amendment hereto or thereto except to
add such purchaser's name to Exhibit A hereto, any such purchaser shall become a
party to this Agreement, and shall be
<PAGE> 2
deemed an "Investor" for purposes of this Agreement, and shall become a party to
that certain Amended and Restated Investors' Rights Agreement dated of even date
herewith, by and among the Company and the Investors hereto and shall have the
rights and obligations hereunder and thereunder.
2. Representations and Warranties of the Company. Except as set forth in
the Schedule of Exceptions attached hereto as Exhibit C, the Company hereby
represents and warrants as follows:
2.1 Organization, Good Standing and Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to own and operate its properties and assets, and to carry on its
business as currently conducted and as proposed to be conducted. The Company is
duly qualified to transact business and is in good standing in each jurisdiction
in which the failure to so qualify would have a material adverse effect on its
business or properties. True and accurate copies of the Restated Articles and
Bylaws, each as amended and in effect at the Closing, have been delivered to the
Investors and special counsel to the Investors.
2.2 Capitalization. The authorized capital stock of the Company,
immediately prior to the Closing, will consist of 20,000,000 shares of Common
Stock, of which 1,087,750 are issued and outstanding and 15,000 of which are
subject to an outstanding warrant (the "Warrant"); and 10,000,000 shares of
Preferred Stock, of which (a) 612,500 shares have been designated Series A
Preferred Stock, all of which are issued and outstanding; and (b) 1,600,000
shares have been designated Series B Preferred Stock, none of which are issued
and outstanding. All such issued and outstanding shares have been duly
authorized and validly issued and are fully paid and nonassessable. The Company
has reserved 1,400,000 shares of Series B Preferred for issuance hereunder. The
Company has further reserved 612,500 shares of Common Stock for issuance upon
conversion of the Series A Preferred, 1,600,000 shares of Common Stock for
issuance upon conversion of the Series B Preferred, 1,140,000 shares of Common
Stock for issuance under restricted stock purchase agreements and the Company's
1997 Stock Option Plan (the "Option Plan") for employees, officers, directors
and consultants of the Company as may be determined and approved by the
Company's Board of Directors from time to time, and 15,000 shares of Common
Stock for issuance upon exercise of the Warrant. Except as provided above, there
are no outstanding rights, options, warrants, preemptive rights, rights of first
refusal or similar rights for the purchase or acquisition from the Company of
any securities of the Company. All outstanding shares have been issued in
compliance with state and federal securities laws.
2.3 Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
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<PAGE> 3
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Amended and
Restated Investors' Rights Agreement attached hereto as Exhibit D (the
"Investors' Rights Agreement"), the performance of all obligations of the
Company hereunder and thereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Shares being sold hereunder
and the Common Stock issuable upon conversion of the Series B Preferred has been
taken or will be taken prior to the Closing, and this Agreement and the Amended
and Restated Investors' Rights Agreement constitute valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms, subject to: (i) judicial principles limiting the availability of specific
performance, injunctive relief, and other equitable remedies; (ii) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect generally relating to or affecting creditors' rights; and (iii)
limitations on the enforceability of the indemnification provisions of the
Amended and Restated Investors' Rights Agreement.
2.5 Valid Issuance of Preferred and Common Stock. The Shares that
are being purchased by the Investors hereunder, when issued, sold and delivered
in accordance with the terms of this Agreement for the consideration expressed
herein will be duly and validly issued, fully paid, and nonassessable, will have
the rights, preferences, privileges and restrictions described in the Restated
Articles, and will be free of restrictions on transfer other than restrictions
on transfer under this Agreement and the Amended and Restated Investors' Rights
Agreement and under applicable state and federal securities laws. The Common
Stock issuable upon conversion of the Series B Preferred purchased under this
Agreement has been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Restated Articles, will be duly and validly
issued, fully paid, and nonassessable and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and the
Amended and Restated Investors' Rights Agreement and under applicable state and
federal securities laws. Subject to applicable restrictions on transfer under
this Agreement and the Amended and Restated Investors' Rights Agreement and
under applicable state and federal securities laws, the issuance and delivery of
the Shares and the Common Stock issuable upon conversion thereof, as applicable,
are not subject to any preemptive or other similar rights or any liens or
encumbrances.
2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the offer, sale or issuance of the
Shares (and the Common Stock issuable upon conversion of the Series B
Preferred), or the consummation of any other transaction contemplated hereby,
except for the following: (i) the filing of the Restated Articles in the office
of the Secretary of State of the State of California, which shall be filed by
the Company on or prior to the Closing; (ii) the filing of such notices as may
be required under the Securities Act of 1933, as amended (the "Securities Act");
(iii) the filing of a notice of exemption pursuant to Section 25102(f) of the
California Corporate Securities Law of 1968, as amended (the "California
Securities Law"), which shall be
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filed by the Company promptly following the Closing; and (iv) the compliance
with other applicable state securities laws, which compliance will have occurred
within the appropriate time periods therefor. Based in part on the
representations of the Investors set forth in Section 3 below, the offer, sale
and issuance of the Shares in conformity with the terms of this Agreement are
exempt from the registration requirements of Section 5 of the Securities Act and
from the qualification requirements of Section 25110 of the California
Securities Law.
2.7 Litigation. There is no action, suit, proceeding or
investigation pending or, to the best of the Company's knowledge, currently
threatened before any court, administrative agency or other governmental body
against the Company which questions the validity of this Agreement or the
Amended and Restated Investors' Rights Agreement or the right of the Company to
enter into either of them, or to consummate the transactions contemplated hereby
or thereby, or which could result, either individually or in the aggregate, in
any material adverse change in the condition (financial or otherwise), business,
property, assets or liabilities of the Company. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or threatened
(or any basis therefor known to the Company) involving the prior employment of
any of the Company's employees, their use in connection with the Company's
business of any intellectual property, information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with their former employers. The Company is not a party or subject
to, and none of its assets is bound by, the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.
2.8 Employees. Each founder and officer of the Company and each
employee of the Company has executed a Confidential Information and Invention
Assignment Agreement (the "Confidentiality Agreement"), and the Company has
delivered a true and accurate copy of the form of such Confidentiality Agreement
to the Investors and their special counsel. To the best knowledge of the
Company, no officer or key employee is in violation of his Confidentiality
Agreement or any contract, proprietary information agreement or obligation,
whether written or oral, with his former employers. Each holder of Common Stock
of the Company has entered into a Restricted Stock Purchase Agreement in the
form provided to the Investors and their special counsel. The Company is not a
party to or bound by any currently effective employment contract, deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement or other employee compensation agreement or arrangement
with any collective bargaining agent. No employees of the Company are
represented by any labor union or covered by any collective bargaining
agreement. There is no pending or, to the best of the Company's knowledge,
threatened labor dispute involving the Company and any of its employees.
2.9 Patents and Trademarks. The Company has sufficient title and
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted and as proposed to be conducted. There are no
outstanding options, licenses, or agreements of any kind relating to
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the foregoing, nor is the Company bound by or a party to any options, licenses
or agreements of any kind with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company has
not received any communications alleging that the Company has violated or, by
conducting its business as now conducted or as proposed to be conducted, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity. None
of the Company's employees are obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict in any manner with the Company's business as
conducted. Neither the execution nor delivery of this Agreement or the Amended
and Restated Investors' Rights Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business, will conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. The Company does
not and will not need to utilize any inventions of any of its employees (or
people it currently intends to hire) made prior to their employment by the
Company that have not previously been fully and exclusively assigned to the
Company without restrictions.
2.10 Compliance with Other Instruments.
(a) The Company is not in violation or default of any
provision of its Articles of Incorporation or Bylaws, each as amended and in
effect on and as of the Closing. The Company is not in violation or default of
any material provision of any instrument, mortgage, deed of trust, loan,
contract, commitment, judgment, decree, order or obligation to which it is a
party or by which it or any of its properties or assets are bound which
violation or default would materially adversely affect the condition (financial
or otherwise), business, property, assets or liabilities of the Company or, to
the best of its knowledge, of any provision of any federal, state or local
statute, rule or governmental regulation which violation or default would
materially adversely affect the condition (financial or otherwise), business,
property, assets or liabilities of the Company. The execution, delivery and
performance of and compliance with this Agreement and the Amended and Restated
Investors' Rights Agreement, and the issuance and sale of the Shares and the
issuance of Common Stock upon the conversion thereof, will not result in any
such violation, be in conflict with or constitute, with or without the passage
of time or giving of notice, a default under any such provision, require any
consent or waiver under any such provision (other than any consents or waivers
that have been obtained), or result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such provision.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any right granted under any assignment, license, distribution or other
agreement, the loss of which would materially
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adversely affect the condition (financial or otherwise), business, property,
assets or liabilities of the Company.
2.11 Permits. The Company has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default under any of such franchises, permits, licenses, or
other similar authority and neither the execution, delivery nor performance of
this Agreement and the Amended and Restated Investors' Rights Agreement and the
consummation of the transactions contemplated hereby and thereby will result in
any suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
2.12 Registration Rights. Except as provided in the Amended and
Restated Investors' Rights Agreement, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity.
2.13 Title to Property and Assets. The Company has good and
marketable title to all of its properties and assets free and clear of all
mortgages, liens and encumbrances, except liens for current taxes and
assessments not yet due and possible minor liens and encumbrances which do not,
in any case, in the aggregate, materially detract from the value of the property
subject thereto or materially impair the operations of the Company. With respect
to the properties and assets it leases, the Company is in compliance with such
leases and holds a valid leasehold interest free of all liens, claims or
encumbrances, and to the best knowledge of the Company, all other parties to the
leases are in compliance with all material terms of such leases. The Company's
properties and assets are in good condition and repair in all material respects.
2.14 Brokers or Finders. The Company has not agreed to incur,
directly or indirectly, any liability for brokerage or finders' fees, agents'
commissions or other similar charges in connection with this Agreement or any of
the transactions contemplated hereby.
2.15 Corporate Documents. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein (the form
of which amendments has been approved by the special counsel to the Investors),
the Restated Articles and Bylaws of the Company are in the form previously
provided to the Investors or their counsel.
2.16 Financial Statements. The Company has delivered its
financial statements to the Investors, consisting of: (i) an unaudited balance
sheet as of June 30, 1997, and (ii) an unaudited income statement for the six
(6) month period ended June 30, 1997. The Financial Statements are complete and
correct in all material respects, present fairly the financial position and
results of operations of the Company at the dates and for the periods to which
they relate,
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have been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods involved, and show all material
liabilities, absolute or contingent, of the Company required to be recorded
therein in accordance with generally accepted accounting principles consistently
applied, except that the Financial Statements have been prepared by the Company
have not been audited and are subject to normal year-end audit adjustments, and
do not contain footnotes normally associated with year-end financial statements.
Except as set forth in the Financial Statements, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to June 30, 1997, which, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected in the Financial Statements, which, individually or
in the aggregate, are not material to the financial condition or operating
results of the Company and (iii) obligations under contracts or arrangements
described in this Agreement or in the Schedule of Exceptions.
2.17 Changes. Since June 30, 1997, there has not been:
(a) Any material adverse change in the business, property,
assets, liabilities, financial condition or results of operations of the Company
or its subsidiary;
(b) Any change (individually or in the aggregate), except
in the ordinary course of business, in the contingent obligations of the Company
or its subsidiary by way of guarantee, endorsement, indemnity, warranty or
otherwise;
(c) Any damage, destruction, or loss, whether or not
covered by insurance, materially and adversely affecting the condition of the
business, property, assets or liabilities of the Company;
(d) Any waiver or compromise by the Company or its
subsidiary of a valuable right or of a material debt owed to it;
(e) Any loans made by the Company or its subsidiary to its
employee, officers, or directors other than travel advances and other advances
made in the ordinary course of business;
(f) Any extraordinary increase in the compensation or
benefits payable to any of the Company's or its subsidiary's employees, officers
or directors;
(g) Any declaration or payment of any dividend by the
Company or its subsidiary on its capital stock, any redemption, purchase or
other acquisition of shares of its capital stock or any other distribution of
assets of the Company or its subsidiary, other then the
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<PAGE> 8
repurchase of shares at cost from terminated employees or consultants pursuant
to the terms of written stock purchase agreements calling for such repurchase;
(h) Any receipt of notice by the Company or its subsidiary
that there has been a cancellation of an order for its products or a loss of a
customer of the Company or its subsidiary, the cancellation or loss of which
would materially adversely affect the condition, business, property, assets or
liabilities of the Company;
(i) Any resignation or termination of employment of any
key officer to employee of the Company or its subsidiary and any impending
resignation or termination of employment known by the Company or its subsidiary
of any key officer or employee of the Company or its subsidiary in either case
which, if consummated, would materially adversely affect the condition
(financial or otherwise), business, property, assets or liabilities of the
Company;
(j) Any labor dispute involving the Company or its
subsidiary or any of its employees;
(k) Any other event or condition of any character known to
the Company or its subsidiary that has materially and adversely affected the
Company's or its subsidiary's business or prospects;
(l) Any amendment or other change to the Articles of
Incorporation or Bylaws of the Company or charter and organizational documents
of its subsidiary (except as contemplated by this Agreement);
(m) Any sale or other disposition of any right, title or
interest in or to any assets or properties of the Company or its subsidiary or
any revenues derived therefrom other than in the ordinary course of business and
consistent with past practice;
(n) Any creation, incurrence or assumption of any
indebtedness for money borrowed by the Company or its subsidiary exceeding
$25,000;
(o) Any capital expenditures by the Company or its
subsidiary; or
(p) Any agreement or commitment by the Company or its
subsidiary to do any of the things described in this Section 2.17.
2.18 Disclosures. The Company has provided the Purchasers with
all the information which the Purchasers have requested for deciding whether to
purchase the Shares. To the best of the Company's knowledge, after reasonable
investigation, no representation or warranty of the Company contained in this
Agreement and the Exhibits attached hereto, or any certificate furnished or to
be furnished to the Purchasers at the Closing contains any untrue
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<PAGE> 9
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading in light
of the circumstances under which they were made.
2.19 No Conflict of Interest. The Company is not indebted,
directly or indirectly, to any of its officers or directors or to their
respective spouses or children, in any amount whatsoever other than in
connection with expenses or advances of expenses incurred in the ordinary course
of business or relocation expenses of employees. None of said officers or
directors, or any members of their immediate families are indebted to the
Company (other than in connection with purchases of the Company's stock) or, to
the Company's knowledge, have any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation which competes
with the Company except that officers, directors and/or shareholders of the
Company may own stock in publicly traded companies which may compete with the
Company. No officer or director or any member of their immediate families, is,
directly or, to the Company's knowledge, indirectly, interested in any material
contract with the Company. The Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
2.20 Company's Contracts. All of the contracts and agreements
with expected receipts or expenditures in excess of $25,000 or involving a
license or grant of rights to or from the Company or its subsidiary involving
patents, trademarks, service marks, trade names, copyrights, trade secrets or
other proprietary information applicable to the business of the Company other
than non-disclosure agreements signed in the ordinary course with prospective
investors, suppliers, customers and licensees concerning prospective
relationships, to which the Company is a party as of the date of the Closing are
listed on the Schedule of Exceptions. To the Company's knowledge, all such
contracts and agreements are legally binding, valid and in full force and effect
in all material respects, and the Company is not aware of reduced activity
relating to any such contract or agreement (other than in the ordinary course of
business) by any of the parties to any such contract or agreement.
2.21 ERISA. The Company has no employee benefit plan subject to
the Employee Retirement Income Security Act of 1974.
2.22 Environmental Regulations. Except for failures which will
not materially adversely affect the business of the Company, the Company has
met, and continues to meet, all applicable local, state, federal and national
environmental regulations and has disposed of its waste products and effluents
and/or has caused others to dispose of such waste products and effluents, in
accordance with all applicable state, local, federal and national environmental
regulations and in such a manner that no harm has resulted or will result to any
of its respective employees or properties or to any other person or entities or
their properties.
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2.23 Confidentiality and Inventions Agreements. Each employee
with access to confidential information regarding the Company's operations
("Designated Employee") and each founder and officer of the Company has executed
a Confidentiality and Inventions Agreement. Each consultant of the Company has
executed a Consulting Agreement. All such Confidentiality and Inventions
Agreements and Consulting Agreements have been delivered to counsel for the
Purchasers. The Company, after reasonable investigation, is not aware that any
of its Designated Employees, officers or consultants are in violation of such
agreements.
2.24 Insurance. The Company maintains fire and casualty insurance
policies, with extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed. The Company maintains products liability and errors and omissions
insurance in amounts customary for companies similarly situated.
2.25 Agreements; Action. The Company has not engaged in the past
three months in any discussion (i) with any representative of any corporation or
corporations regarding the merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
merger, consolidation or other transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the Company would be
disposed of (other than with respect to the financing that is the subject of
this Agreement), or (iii) regarding any other form of liquidation, dissolution
or winding up of the Company.
2.26 Section 83(b) Elections. To the best of the Company's
knowledge, all elections and notices required by Section 83(b) of the Code and
any analogous provisions of applicable state tax laws have been timely filed by
all individuals who have purchased shares of the Company's Common Stock.
2.27 Distributions. There has been no declaration or payment by
the Company of any dividend, nor any distribution by the Company of any assets
of any kind, to any class or series of its capital stock.
2.28 Qualified Small Business Stock.
(a) As of and immediately following the Closing, the
Series B Preferred Stock will meet each of the requirements for qualification as
"qualified small business stock" set forth in Section 1202(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), including without limitation the
following: (i) the Company will be a domestic C corporation, (ii) the Company
will not have made any purchases of its own stock described in Code Section
1202(c)(3)(B) during the one-year period preceding the Closing and (iii) the
Company's (and any predecessor's) aggregate gross assets, as defined by Code
Section 1202(d)(2), at no time between August 10, 1993 and through the Closing
have exceeded
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$50 million, taking into account the assets of any corporations required to be
aggregated with the Company in accordance with Code Section 1202(d)(3).
(b) As of the Closing, at least 80% (by value) of the
assets of the Company are used by it in the active conduct of one or more
qualified trades or business, as defined by Code Section 1202(e)(3), and the
Company is an eligible corporation, as defined by Code Section 1202(e)(4). [THIS
SECTION 2.28 MAY BE REMOVED BASED ON ANALYSIS OF TAX ATTORNEY]
3. Representations and Warranties of the Investors. Each Investor hereby
severally represents and warrants to the Company with the respect to the
transactions contemplated hereby that:
3.1 Experience. Such Investor is experienced in evaluating
start-up companies such as the Company, is able to fend for itself in
transactions such as the one contemplated by this Agreement, has such knowledge
and experience in financial and business matters that Investor is capable of
evaluating the merits and risks of Investor's prospective investment in the
Company, and has the ability to bear the economic risks of the investment.
3.2 Investment. Such Investor is acquiring the Shares (and the
Common Stock issuable upon conversion of the Shares) for investment for such
Investor's own account and not with the view to, or for resale in connection
with, any distribution thereof. Such Investor understands that the Shares (and
the Common Stock issuable upon conversion of the Shares) have not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent as expressed herein. Such
Investor further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to any third person with respect to any of the Shares (or any
Common Stock acquired upon conversion of the Shares). Such Investor understands
and acknowledges that the offering of the Shares pursuant to this Agreement and
any issuance of Common Stock on conversion of the Shares will not be registered
under the Securities Act on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from the
registration requirements of the Securities Act.
3.3 Rule 144. Such Investor acknowledges that the Shares (and the
Common Stock issuable upon conversion of the Shares) must be held indefinitely
unless subsequently registered under the Securities Act or an exemption from
such registration is available. Such Investor is aware of the provisions of Rule
144 promulgated under the Securities Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions. Such Investor covenants that, in the absence of an effective
registration statement covering the stock in question, such Investor will sell,
transfer, or otherwise dispose of the Shares (and any Common Stock issued on
conversion of the Series B Preferred) only in a manner consistent with such
Investor's representations and covenants set forth in this Section 3. In
connection therewith, such Investor acknowledges that the Company will make a
notation on
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its stock books regarding the restrictions on transfers set forth in this
Section 3 and will transfer securities on the books of the Company only to the
extent not inconsistent therewith.
3.4 No Public Market. Such Investor understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for any of
the Company's securities.
3.5 Access to Data. Such Investor has received and reviewed
information about the Company and has had an opportunity to discuss the
Company's business, management and financial affairs with its management and to
review the Company's facilities.
3.6 Authorization. This Agreement when executed and delivered by
such Investor will constitute a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, subject to: (i) judicial
principles respecting election of remedies or limiting the availability of
specific performance, injunctive relief, and other equitable remedies; (ii)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors' rights; and
(iii) limitations on the enforceability of the indemnification provisions of the
Amended and Restated Investors' Rights Agreement.
3.7 Brokers or Finders. Such Investor has agreed not to incur,
directly or indirectly, any liability for brokerage or finder's fees, agents'
commissions or other similar charges in connection with this Agreement or any of
the transactions contemplated hereby.
4. Conditions of Investors' Obligations at Closing. The obligations of
the Investors under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective unless Investors purchasing a majority of
the Series B Preferred Stock hereunder consent in writing thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. The President of the Company shall
deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Bylaws. The Bylaws of the Company shall provide that the
Board of Directors of the Company shall consist of between three and five
persons, currently fixed at five, and Jeffrey D. Brody shall have been elected
to the Board as a representative of the Investors.
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4.5 Opinion of Company Counsel. The Investors shall have received
from Wilson, Sonsini, Goodrich & Rosati, counsel for the Company, an opinion,
dated as of the Closing, in the form attached hereto as Exhibit E.
4.6 Investors' Rights Agreement. The Company and the Investors
shall have entered into the Amended and Restated Investors' Rights Agreement.
4.7 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country for the offer and sale of the Shares.
4.8 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, and all documents and instruments incident to these transactions, shall
be reasonably satisfactory in substance to the Investors and its special
counsel.
4.9 Restated Articles. The Restated Articles shall have been
filed with and approved by the Secretary of State of California.
5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to the Investors under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by each
Investor:
5.1 Representations and Warranties. The representations and
warranties of each Investor contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 Payment of Purchase Price. Each Investor shall have delivered
the purchase price specified on Exhibit A hereto against delivery of the Shares
by the Company to such Investor.
5.3 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country for the offer and sale of the Shares.
5.4 Investors' Rights Agreement. Each Investor shall have
executed the Amended and Restated Investors' Rights Agreement on or prior to the
date of the Closing.
5.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, and all documents and instruments incident to these transactions, shall
be reasonably satisfactory in substance to the Company and its counsel.
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6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California.
6.2 Successors and Assigns. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
6.3 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
6.4 Notices, Etc. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, return receipt requested, or otherwise
delivered by hand or by messenger, addressed (a) if to an Investor, at such
Investor's address set forth on Exhibit A, or at such other address as such
Investor shall have furnished to the Company in writing, or (b) if to any other
holder of any Shares, at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Shares who has so
furnished an address to the Company, or (c) if to the Company, at its address
set forth on the first page of this Agreement addressed to the attention of the
President, or at such other address as the Company shall have furnished to the
Investors. If notice is provided by mail, notice shall be deemed to be given
upon proper deposit with the United States mail.
6.5 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Shares upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing or as provided in this
Agreement. All remedies, either under this Agreement or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
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6.6 California Corporate Securities Law. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
6.7 Expenses. At the Closing, following receipt from Venture Law
Group, counsel to the Investors, of an itemized bill for legal services in
connection with the transactions contemplated hereby, the Company shall pay
Venture Law Group the expenses and legal fees incurred on behalf of the
Investors with respect to this Agreement and the transactions contemplated
hereby up to an amount not to exceed $7,500.
6.8 Finder's Fee. The Company and each Investor shall each
indemnify and hold the other harmless from any liability for any commission or
compensation in the nature of a finder's fee (including the costs, expenses and
legal fees of defending against such liability) for which the Company or the
Investor, or any of their respective partners, employees, or representatives, as
the case may be, is responsible.
6.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all parties hereto,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
6.10 Severability of this Agreement. In the event that any
provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement will continue
in full force and effect without said provision and the parties agree to replace
such provision with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such provisions;
provided that no such severability will be effective against a party if it
materially and adversely changes the economic benefits of this Agreement to such
party.
(This space intentionally left blank.)
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INTERNET ACCESS FINANCIAL CORPORATION
By:
-------------------------------------------
Jeremy Lent, Chief Executive Officer
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
<PAGE> 17
INVESTORS:
-------------------------------------------
BRENTWOOD ASSOCIATES VII, L.P.
By: Brentwood VII Ventures, L.P.
Its General Partner
By:
----------------------------------------
Name:
Title:
-------------------------------------------
BRENTWOOD AFFILIATES FUND, L.P.
By: Brentwood VII Ventures, L.P.
Its General Partner
By:
----------------------------------------
Name:
Title:
<PAGE> 18
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
<PAGE> 19
EXHIBIT A
INVESTOR SCHEDULE
FIRST CLOSING
AUGUST __, 1997
<TABLE>
<CAPTION>
NAME NO. OF SHARES OF AGGREGATE
SERIES B PREFERRED CONSIDERATION PAID
<S> <C> <C>
Brentwood Associates VII, L.P. 1,000,000 $ 2,500,000
3000 Sand Hill Road, Bldg. 1, Ste. 260
Menlo Park, CA 94025
Brentwood Affiliates Fund, L.P. 40,000 $ 100,000
3000 Sand Hill Road, Bldg. 1, Ste. 260
Menlo Park, CA 94025
</TABLE>
<PAGE> 20
EXHIBIT B
AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE> 21
EXHIBIT C
SCHEDULE OF EXCEPTIONS
This disclosure of exceptions is made and given pursuant to Section 2 of
the Series B Preferred Stock Purchase Agreement dated as of August __, 1997 (the
"Agreement"), by and between INTERNET ACCESS FINANCIAL CORPORATION (the
"Company") and the Investors named therein. Unless the context otherwise
requires, all capitalized terms are used herein as defined in the Agreement. The
numbers below correspond to the section numbers of representations and
warranties in the Agreement that are most directly modified by the disclosures,
but all disclosures are intended to modify all of the Company's representations
and warranties.
<PAGE> 22
EXHIBIT D
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 23
EXHIBIT E
OPINION OF COMPANY COUNSEL
<PAGE> 24
INTERNET ACCESS FINANCIAL CORPORATION
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
AUGUST __, 1997
<PAGE> 25
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Purchase and Sale of Stock........................................................... 1
1.1 Sale and Issuance of Series B Preferred Stock................................. 1
1.2 Closing....................................................................... 1
1.3 Additional Closings........................................................... 1
2. Representations and Warranties of the Company........................................ 2
2.1 Organization, Good Standing and Qualification................................. 2
2.2 Capitalization................................................................ 2
2.3 Subsidiaries.................................................................. 2
2.4 Authorization................................................................. 2
2.5 Valid Issuance of Preferred and Common Stock.................................. 3
2.6 Governmental Consents......................................................... 3
2.7 Litigation.................................................................... 4
2.8 Employees..................................................................... 4
2.9 Patents and Trademarks........................................................ 4
2.10 Compliance with Other Instruments............................................. 5
2.11 Permits....................................................................... 5
2.12 Registration Rights........................................................... 6
2.13 Title to Property and Assets.................................................. 6
2.14 Brokers or Finders............................................................ 6
2.15 Corporate Documents........................................................... 6
2.16 Financial Statements.......................................................... 6
2.17 Changes....................................................................... 7
2.18 Disclosures................................................................... 8
2.19 No Conflict of Interest....................................................... 8
2.20 Company=s Contracts........................................................... 9
2.21 ERISA......................................................................... 9
2.22 Environmental Regulations..................................................... 9
2.23 Confidentiality and Inventions Agreements..................................... 9
2.24 Insurance..................................................................... 9
2.25 Agreements; Action............................................................ 10
2.26 Section 83(b) Elections....................................................... 10
2.27 Distributions................................................................. 10
2.28 Qualified Small Business Stock................................................ 10
3. Representations and Warranties of the Investors...................................... 10
3.1 Experience.................................................................... 10
3.2 Investment.................................................................... 11
</TABLE>
-i-
<PAGE> 26
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.3 Rule 144 ..................................................................... 11
3.4 No Public Market.............................................................. 11
3.5 Access to Data................................................................ 11
3.6 Authorization................................................................. 11
3.7 Brokers or Finders............................................................ 12
4. Conditions of Investors= Obligations at Closing...................................... 12
4.1 Representations and Warranties................................................ 12
4.2 Performance................................................................... 12
4.3 Compliance Certificate........................................................ 12
4.4 Bylaws........................................................................ 12
4.5 Opinion of Company Counsel.................................................... 12
4.6 Investors= Rights Agreement................................................... 12
4.7 Blue Sky...................................................................... 12
4.8 Proceedings and Documents..................................................... 12
4.9 Restated Articles............................................................. 13
5. Conditions of the Company=s Obligations at Closing................................... 13
5.1 Representations and Warranties................................................ 13
5.2 Payment of Purchase Price..................................................... 13
5.3 Blue Sky...................................................................... 13
5.4 Investors= Rights Agreement................................................... 13
5.5 Proceedings and Documents..................................................... 13
6. Miscellaneous........................................................................ 13
6.1 Governing Law................................................................. 13
6.2 Successors and Assigns........................................................ 13
6.3 Entire Agreement; Amendment................................................... 13
6.4 Notices, Etc.................................................................. 14
6.5 Delays or Omissions........................................................... 14
6.6 California Corporate Securities Law........................................... 14
6.7 Expenses...................................................................... 14
6.8 Finder=s Fee.................................................................. 14
6.9 Counterparts.................................................................. 15
6.10 Severability of this Agreement................................................ 15
</TABLE>
Exhibit A Investor Schedule
Exhibit B Amended and Restated Articles of Incorporation
Exhibit C Schedule of Exceptions
Exhibit D Investors' Rights Agreement
Exhibit E Opinion of Company Counsel
-ii-
<PAGE> 1
EXHIBIT 10.6
OFFICE LEASE
between
MARKET & SECOND, INC.,
a Delaware Corporation
as Landlord
and
INTERNET ACCESS FINANCIAL CORPORATION, INC.
a California corporation
as Tenant
Dated as of
September 24, 1997
San Francisco, California
<PAGE> 2
OFFICE LEASE
BASIC LEASE INFORMATION
Date: September 24, 1997
Landlord: MARKET & SECOND, Inc.
a Delaware Corporation
Tenant: INTERNET ACCESS FINANCIAL
CORPORATION, INC.
a California corporation
Building (Paragraph 1(a)): 595 Market Street
San Francisco, California, 94105
Premises (Paragraph 1(b)):
Term Commencement
(Paragraph 2): December 1, 1997 or the date that
Landlord delivers the Premises in
accordance with Exhibit C attached
hereto.
Term Expiration
(Paragraph 2): December 31, 1999
Rental Commencement
(Paragraph 3(a)): December 1, 1997 or the date that
Landlord delivers the Premises in
accordance with Exhibit C attached
hereto.
Base Rent (Paragraph 3(a)): $11,458.00 per month,
$137,496.00 per year
Base Year (Paragraph 1(c)): 1998
Tenant's Percentage Share
(Paragraph 1(h)): 1.016%
Security Deposit
(Paragraph 33): $22,916.00
Tenant's Address
for Notices (Paragraph 35): 595 Market Street, Suite 2250
San Francisco, Ca 94105
Landlord's Address
for Notices (Paragraph 35): Market & Second, Inc.,
c/o GSIC Realty Corporation
<PAGE> 3
255 Shoreline Drive, Suite 600
Redwood City, California 94065
With a copy to: Compass Management and Leasing
595 Market Street, Suite 2210
San Francisco, CA 94105
Brokers (Paragraph 40): CB Commercial
275 Battery Street, 13th Floor
San Francisco, CA 94104
Exhibit's and Addendum (Paragraph 43):
Exhibit A - Plan Outlining Premises
Exhibit B - Rules & Regulations
Exhibit C - Tenant Improvement Workletter
Addendum to Lease
The provisions of the Lease identified above in parentheses are those provisions
where references to particular Basic Lease Information appear. Each such
reference shall incorporate the applicable Basic Lease Information. In the event
of any conflict between any Basic Lease Information and the Lease, the latter
shall control.
TENANT LANDLORD
INTERNET ACCESS MARKET & SECOND, INC.,
FINANCIAL CORPORATION, INC. A DELAWARE CORPORATION
A CALIFORNIA CORPORATION
By: /s/ TIM COLTRELL By: /s/ [SIG]
------------------------------- -------------------------------
Its: C.O.O. Its: AUTHORIZED SIGNATORY
------------------------------ ------------------------------
By: /s/ PETER STANFORD
-------------------------------
Its: AUTHORIZED SIGNATORY
------------------------------
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Definitions ........................... 1
2. Term; Condition of Premises ........... 2
3. Rental ................................ 3
4. Escalation Rent Payments .............. 4
5. Use ................................... 5
6. Services .............................. 5
7. Impositions Payable by Tenant ......... 6
8. Alterations ........................... 7
9. Liens ................................. 8
10. Repairs .............................. 8
11. Destruction or Damage ................ 8
12. Insurance ............................ 8
13. Subrogation .......................... 9
14. Indemnification ...................... 10
15. Compliance with Legal Requirements ... 10
16. Assignment and subletting ............ 10
17. Rules; No Discrimination ............. 10
18. Entry by Landlord .................... 13
19. Events of Default .................... 13
20. Termination upon Default ............. 13
21. Continuation after Default ........... 14
22. Other Relief ......................... 15
23. Landlord's Right to Cure Defaults .... 15
24. Attorneys' Fees ...................... 15
25. Eminent Domain ....................... 16
26. Subordination ........................ 16
27. No Merger ............................ 17
28. Sale ................................. 17
29. Estoppel Certificate ................. 17
30. No Light, Air, or View Easement ...... 17
31. Holding Over ......................... 17
32. Abandonment .......................... 17
33. Security Deposit ..................... 18
34. Waiver ............................... 18
35. Notices and Consents ................. 18
36. Complete Agreement ................... 18
37. Corporate Authority .................. 18
38. Partnership Authority ................ 19
39. Limitation of Liability to Building .. 19
40. Brokers .............................. 19
41. Substitution of Premises ............. 19
42. Miscellaneous ........................ 19
43. Exhibits ............................. 20
44. Additional Provisions ................ 20
</TABLE>
Rules and Regulations
Exhibit ( s ) and Addendum
iii
<PAGE> 5
OFFICE LEASE
THIS LEASE, dated September 24, 1997, is made and entered into by MARKET &
SECOND, Inc., a Delaware Corporation (Landlord) and INTERNET ACCESS FINANCIAL
CORPORATION, Inc., a California corporation (Tenant).
WITNESSETH:
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord
the premises described in paragraph 1(b) below for the term and subject to the
terms, covenants, agreements and conditions hereinafter set forth, to each and
all of which Landlord and Tenant hereby mutually agree.
1. Definitions. Unless the context otherwise specifies or requires, the
following terms shall have the meanings herein specified:
(a) The term "Building" shall mean the land and other real property
described in the Basic Lease Information, as well as any property interest in
the area of the streets bounding the parcel described in the Basic Lease
Information, and all other improvements on or appurtenances to said parcel or
said streets.
(b) The term "Premises" shall mean the portion of the Building located
on the floor(s) specified in the Basic Lease Information which is crosshatched
on the floor plan(s) attached to this Lease as Exhibit A.
(c) The term "Base Year" shall mean the calendar year specified in the
Basic Lease Information as the Base Year.
(d) The term "Operating Expenses" shall mean (1) all costs of
management, operation and maintenance of the Building, including, without
limitation: wages, salaries and payroll burden of employees; property management
fees; janitorial, maintenance, lobby attendant and other services; Building
office rent or rental value; power, water, waste disposal and other utilities;
materials and supplies; maintenance, replacements and repairs; license costs;
insurance premiums and the deductible portion of any insured loss; and
depreciation of all personal property, fixtures and equipment (including window
washing machinery) used in the management, operation, maintenance and repair of
the Building and depreciation on exterior window coverings provided by Landlord
and carpeting in public corridors and common areas; and (2) the cost of any
capital improvements made to the Building by Landlord after the Base Year that
are reasonably anticipated to reduce other Operating Expenses or are required
for the health and safety of tenants, or made to the Building by Landlord after
the date of this Lease that are required under any governmental law or
regulation that was not applicable to the Building at the time it was
constructed, such cost or allocable portion thereof to be amortized over such
reasonable period as Landlord shall determine together with interest on the
unamortized balance at the rate of 10% per annum or such higher rate as may have
been paid by Landlord on funds borrowed for the purpose of constructing or
acquiring such capital improvements. Operating Expenses shall not include:
Property Taxes; depreciation on the Building other than depreciation on exterior
window covering provided by Landlord and carpeting in public corridors and
common areas; costs of tenants' improvements; real estate brokers' commissions;
interest (except as stated in clause (2) above); and capital items other than
those referred to in clause (2) above. Actual Operating Expenses for the Base
Year and each subsequent calendar year shall be adjusted, if necessary, to equal
Landlord's reasonable estimate of Operating Expenses for a full calendar year
and, if the
1
<PAGE> 6
total square footage of the Building occupied during such full calendar year is
less than ninety-five percent (95%), to reflect a ninety-five percent (95%)
occupancy level of the Building. Landlord and Tenant acknowledge that certain of
the costs of management, operation and maintenance of the Building and certain
of the costs of the capital improvements referred to in clause (2) above may be
allocated exclusively to a single component of the Building (e.g. to an office
area, a retail area or a parking facility) and certain of such costs may be
allocated among such components. The determination of such costs and their
allocation shall be in accordance with generally accepted accounting principles
applied on a consistent basis.
(e) The term "Base Operating Expenses" shall mean the Operating
Expenses paid or incurred by Landlord in the Base Year.
(f) The term "Property Taxes" shall mean all taxes, service payments
in lieu of taxes, assessments, general or special, excises, exactions, transit
charges, housing fund assessments or other housing charges, child care
assessments or levies, fees or charges, general or special, ordinary or
extraordinary, unforeseen as well as foreseen, of any kind which are assessed,
levied, charged, confirmed or imposed by any public authority upon the Building,
or its use, occupancy or operations, or upon any personal property used in the
operation of the Building, or with respect to services or utilities consumed in
the use, occupancy or operations of the Building, or upon Landlord with respect
to the Building, or upon the act of leasing any space within the Building, or in
connection with the business of renting space within the Building or with
respect to the possession, leasing, operation, use or occupancy by Tenant of the
Premises or any portion thereof, or upon or measured by the gross rentals
received by Landlord from the Building. Property Taxes shall also include (i)
any tax, fee or other excise, however described, which may be levied or assessed
in lieu of, or as a substitute, in whole or in part, for, or as an addition to,
any other Property Taxes, and (ii) any interest or penalties charged on account
of any such Property Taxes. Property Taxes shall not include (x) corporate
income or franchise taxes, (y) inheritance or estate taxes imposed upon or
assessed against the Building or any part thereof or interest therein, and (z)
taxes computed upon the basis of the net income derived from the Building by
Landlord or the owner of any interest therein, unless, due to a change in the
method of taxation, any of such taxes is levied or assessed against Landlord in
lieu of, or as a substitute; in whole or in part, for, or as an addition to, any
other charge which would otherwise constitute a Property Tax.
(g) The term "Base Property Taxes" shall mean the amount of Property
Taxes paid by Landlord allocable to the Base Year.
(h) The term "Tenant's percentage share" shall mean the percentage
figure specified in the Basic Lease Information.
2. Term; Condition of Premises. The term of this Lease shall commence and,
unless sooner terminated as hereinafter provided, shall end on the dates
respectively specified in the Basic Lease Information. Unless otherwise agreed
by Landlord and Tenant in this Lease, Landlord shall deliver the Premises to
Tenant on the commencement of the term in their then existing condition with no
alterations being made by Landlord. If Landlord has undertaken in this Lease to
make any alterations to the Premises prior to commencement of the term and the
alterations are completed prior to the date set forth in the Basic Lease
Information for commencement of the term, if Tenant desires to take
2
<PAGE> 7
occupancy in advance of such date and Landlord consents to such prior occupancy
Landlord shall deliver the Premises to Tenant on such advance date as shall be
mutually approved by Landlord and Tenant and, notwithstanding anything to the
contrary contained herein, the term of this Lease shall commence upon such
delivery. If Landlord, for any reason whatsoever, cannot deliver the Premises to
Tenant at the commencement of the term, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom, but in that event rental shall be waived for the period
between the commencement of the term and the time when Landlord delivers the
Premises to Tenant. No delay in delivery of the Premises shall operate to extend
the term hereof.
3. Rental.
(a) Tenant shall pay to Landlord throughout the term of this Lease as
rental for the Premises the sum specified in the Basic Lease Information as the
Base Rent, provided that the rental payable during each calendar year
subsequent to the Base Year shall be the Base Rent, increased by Tenant's
percentage share of the total dollar increase, if any, in Operating Expenses
paid or incurred by Landlord in such year over the Base Operating Expenses, and
also increased by Tenant's percentage share of the total dollar increase, if
any, in Property Taxes paid by Landlord in such year over the Base Property
Taxes. Tenant acknowledges that the Basic Lease Information may set forth
different percentage shares of Operating Expenses and Property Taxes or a single
percentage share applicable to both. The increased rental due pursuant to this
subparagraph (a) is hereinafter referred to as "Escalation Rent."
(b) Rental shall be paid to Landlord on or before the first day of the
term hereof and on or before the first day of each and every successive calendar
month thereafter during the term hereof. In the event the term of this Lease
commences on a day other than the first day of a calendar month or ends on a day
other than the last day of a calendar month, the monthly rental for the first
and last fractional months of the term hereof shall be appropriately prorated.
(c) All sums of money due from Tenant hereunder not specifically
characterized as rental shall constitute additional rent, and if any such sum is
not paid when due it shall nonetheless be collectible as additional rent with
the next installment of rental thereafter falling due, but nothing contained
herein shall be deemed to suspend or delay the payment of any sum of money at
the time it becomes due and payable hereunder, or to limit any other remedy of
Landlord.
(d) Tenant hereby acknowledges that late payment by Tenant to Landlord
of rent and other sums due hereunder after the expiration of any applicable
grace period described in paragraph 19(a) will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be difficult to
ascertain. Such costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed on Landlord by the terms of any
encumbrances covering the Building and the Premises. Accordingly, if any
installment of rent or any other sums due from Tenant shall not be received by
Landlord prior to the expiration of any applicable grace period described in
paragraph 19(a), Tenant shall pay to Landlord a late charge equal to 5% of such
overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant based on the circumstances existing as of the date of this
Lease. Acceptance of such late charge by Landlord shall in no event constitute a
3
<PAGE> 8
waiver of Tenant's default with respect to such overdue amount, nor prevent
Landlord from exercising any of the other rights and remedies granted hereunder.
(e) Any amount due from Tenant, if not paid when first due, shall bear
interest from the date due until paid at an annual rate equal to 4% over the
annual prime rate of interest announced publicly by Citibank, N.A. in New York,
New York from time to time (but in no event in excess of the maximum rate of
interest permitted by law), provided that interest shall not be payable on late
charges incurred by Tenant nor on any amounts upon which late charges are paid
by Tenant to the extent such interest would cause the total interest to be in
excess of that legally permitted. Payment of interest shall not excuse or cure
any default hereunder by Tenant.
(f) All payments due from Tenant shall be paid to Landlord, without
deduction or offset, in lawful money of the United States of America at
Landlord's address for notices hereunder, or to such other person or at such
other place as Landlord may from time to time designate by notice to Tenant.
4. Escalation Rent Payments.
(a) With respect to each calendar year during the term of this Lease
subsequent to the Base Year, Tenant shall pay to Landlord as additional rent, at
the times hereinafter set forth, an amount equal to the Escalation Rent. Prior
to or anytime after the commencement of any calendar year subsequent to the Base
Year Landlord may, but shall not be required to, notify Tenant of Landlord's
estimate of the amount, if any, of the Escalation Rent for such current calendar
year. Tenant shall pay to Landlord on the first day of each calendar month
during such current calendar year one-twelfth (1/12) of the amount of any such
estimated Escalation Rent for such current calendar year payable by Tenant
hereunder. If at any time or times Landlord determines that the amount of any
Escalation Rent payable by Tenant for the current year will vary from its
estimate by more than 5%, Landlord may, by notice to Tenant, revise Landlord's
estimate for such year, and subsequent payments by Tenant for such year shall be
based on such revised estimate. Following the close of each calendar year,
Landlord shall deliver to Tenant a statement of the actual amount of Escalation
Rent for the immediately preceding year, accompanied by a statement made by an
accounting or auditing officer designated by Landlord showing the Operating
Expenses and Property Taxes on the basis of which Escalation Rent was
determined. The statement of said accounting or auditing officer shall be final
and binding upon Landlord and Tenant. All amounts payable by Tenant as shown on
said statement, less any amounts theretofore paid by Tenant on account of
Landlord's earlier estimate of Escalation Rent for such calendar year made
pursuant to this paragraph 4, shall be paid by or, if Tenant theretofore shall
have paid more than such amounts, reimbursed to Tenant within ten (10) days
after delivery of said statement to Tenant. Landlord shall grant an independent
certified accountant appointed by Tenant, at Tenant's sole cost, access to
inspect Landlord's books and records relating to this Lease to ensure and verify
compliance with the provisions of this Section 4, provided that such independent
certified accountant and Tenant shall sign and be bound by any reasonable
non-disclosure agreement concerning any proprietary or confidential information
of Landlord revealed in the course of such access or inspection. Tenant shall
provide Landlord with reasonable advance notice of such inspection which shall
be performed on a non-interference basis during ordinary business hours, and no
more than once during any calendar year.
4
<PAGE> 9
(b) If this Lease shall terminate on a day other than the last day of
a calendar year, the amount of any Escalation Rent payable by Tenant for the
calendar year in which this Lease terminates shall be prorated on the basis by
which the number of days from the commencement of said calendar year to and
including said date on which this Lease terminates bears to 365 and shall be due
and payable when rendered notwithstanding termination of this Lease. Escalation
rent allocable to the calendar year in which this Lease terminates shall be
deemed to have been incurred evenly over the entire twelve-month period of the
calendar year.
5. Use. The Premises shall be used for general office purposes and no other
without the prior written consent of Landlord, which may be granted or denied in
Landlord's absolute discretion. Tenant shall not do or permit to be done in or
about the Premises, nor bring or keep or permit to be brought or kept therein,
anything which is prohibited by or would in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated, or which is prohibited by the standard form
of fire insurance policy, or would in any way increase the existing rate of or
affect any fire or other insurance upon the Building or any of its contents, or
cause a cancellation of any insurance policy covering the Building or any part
thereof or any of its contents. Without limiting the generality of the foregoing
or of paragraph 15 below, Tenant shall not bring, or permit to be brought, upon
the Premises, any hazardous or toxic materials or chemicals, except for ordinary
and customary office products and cleaning supplies which.3 are used, stored,
and removed in compliance with all applicable laws, statutes, ordinances and
governmental rules, regulations or requirements. Tenant shall promptly notify
Landlord of all hazardous or toxic substances maintained in the Premises. Tenant
shall not do or permit anything to be done in or about the Premises which would
in any way obstruct or interfere with the rights of other tenants of the
Building, or injure or annoy them, or use or allow the Premises to be used for
any improper, immoral, unlawful or objectionable purposes, nor shall Tenant
cause, maintain or permit any nuisance or waste in, on or about the Premises.
6. Services.
(a) Landlord shall maintain the public and common areas of the
Building, including lobbies, stairs, elevators, corridors and restrooms,
windows, mechanical, plumbing and electrical equipment, and the structure itself
in reasonably good order and condition except for damage occasioned by the acts
of Tenant, its employees, agents, contractors or invitees, which damage shall be
repaired by Landlord at Tenant's expense.
(b) Landlord shall furnish the Premises with (1) electricity for lighting
and the operation of customary office machines, (2) heat and air conditioning to
the extent reasonably required for the comfortable occupancy by Tenant in its
use of the Premises during reasonable and usual business hours (exclusive of
Saturdays, Sundays and holidays) as determined by Landlord and subject to the
Rules and Regulations of the Building (attached hereto as Exhibit B) as
established from time to time by Landlord, or such shorter period as may be
prescribed by any applicable policies or regulations adopted by any utility or
governmental agency, (3) elevator service, (4) lighting replacement (for
Building Standard lights), (5) restroom supplies, (6) window washing with
reasonable frequency, and (7) lobby attendant services and janitor service
during the times and in the manner that such services are customarily furnished
in comparable office buildings in the area. Landlord may establish reasonable
measures to conserve
5
<PAGE> 10
energy, including but not limited to, automatic switching of lights after hours,
so long as such measures do not unreasonably interfere with Tenant's use of the
Premises. Landlord shall not be in default hereunder or be liable for any
damages directly or indirectly resulting from, nor shall the rental herein
reserved be abated by reason of (i) the installation, use or interruption of use
of any equipment in connection with the furnishing of any of the foregoing
services, (ii) failure to furnish or delay in furnishing any such services when
such failure or delay is caused by accident or any condition beyond the actual
or reasonable control of Landlord or by the making of necessary repairs or
improvements to the Premises or to the building, or (iii) the limitation,
curtailment, rationing or restrictions on use of water, electricity, gas or any
other form of energy serving the Premises or the Building. Landlord shall use
reasonable efforts diligently to remedy any interruption in the furnishing of
such services.
(c) Tenant shall not, without Landlord's prior written consent, use
heat generating machines or equipment or lighting other than Landlord's
designated Building standard lights in the Premises which affect the temperature
otherwise maintained by the air conditioning system. if such consent is given,
Landlord shall have the right to install supplementary air conditioning units in
the Premises and the cost thereof, including the costs of installation,
operation and maintenance thereof, shall be paid Tenant to Landlord upon billing
by Landlord. Tenant shall not, without Landlord's prior written consent, install
lighting or equipment in the Premises that would cause the connected electrical
load in the Premises to exceed one and one-half (1.5) watts per square foot. If
such consent is given, Tenant shall pay Landlord upon billing for the cost of
such excess. All costs payable by Tenant under this Subparagraph 6(c) shall be
deemed to be, and shall be paid as, additional rent.
(d) In the event that Landlord, at Tenant's request, provides services
to Tenant that are not otherwise provided for in this Lease, Tenant shall pay
Landlord's reasonable charges for such services upon billing therefor.
7. Impositions Payable by Tenant. In addition to the monthly rental and
other charges to be paid by Tenant hereunder, Tenant shall pay or reimburse
Landlord for any and all of the following items (hereinafter collectively
referred to as "Impositions"), whether or not now customary or in the
contemplation of the parties hereto: taxes (other than local, state and federal
personal or corporate income taxes measured by the net income of Landlord from
all sources), assessments (including, without limitation, all assessments for
public improvements, services or benefits, irrespective of when commenced or
completed), excises, levies, business taxes, license, permit, inspection and
other authorization fees, transit development fees, assessments or charges for
housing funds, service payments in lieu of taxes and any other fees or charges
of any kind, which are levied, assessed, confirmed or imposed by any public
authority, but only to the extent the Impositions are (a) upon, measured by or
reasonably attributable to the cost or value of Tenant's equipment, furniture,
fixtures and other personal property located in the Premises, or the cost or
value of any leasehold improvements made in or to the Premises by or for Tenant,
regardless of whether title to such improvements shall be in Tenant or Landlord;
(b) upon or measured by the monthly rental or other charges payable hereunder,
including, without limitation, any gross receipts tax levied by the City and
County of San Francisco, the State of California, the Federal Government or any
other governmental body with respect to the receipt of such rental; (c) upon,
with respect to or by reason of the development, possession, leasing, operation,
management,
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maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (d) upon this transaction or any document to which
Tenant is a party creating or transferring an interest or an estate in the
Premises. In the event that it shall not be lawful for Tenant to reimburse
Landlord for the Impositions but it is lawful to increase the monthly rental to
take into account Landlord's payment of the Impositions, the monthly rental
payable to Landlord shall be revised to net Landlord the same net return without
reimbursement of the Impositions as would have been received by Landlord with
reimbursement of the Impositions.
8. Alterations.
(a) Tenant shall make no alterations, additions or improvements to the
Premises or install fixtures in the Premises without first obtaining Landlord's
consent, which consent shall not be unreasonably withheld. In no event, however,
may the Tenant make any alterations, additions or improvements or install
fixtures which in Landlord's reasonable judgment might adversely affect the
structural components of the Building or Building mechanical, utility or life
safety systems. At the time such consent is requested, Tenant shall furnish to
Landlord a description of the proposed work, an estimate of the cost thereof and
such information as shall reasonably be requested by Landlord substantiating
Tenant's ability to pay for such work. Landlord, at its sole option, may require
as a condition to the granting of such consent to any work costing in excess of
$10,000, that Tenant provide to Landlord, at Tenant's sole cost and expense, a
lien and completion bond in an amount equal to one and one-half (1.5) times any
and all estimated costs of the proposed work, to insure Landlord against any
liability from mechanics' and materialmen's liens and to insure completion of
the work. Before commencing any work, Tenant shall give Landlord at least five
(5) days written notice of the proposed commencement of such work in order to
give Landlord an opportunity to prepare, post and record such notice as may be
permitted by law to protect Landlord's interest in the Premises and the Building
from mechanics' and materialmen's liens. Tenant shall pay Landlord prior to
commencement of the work an administration fee equal to ten percent (10%) of the
cost of the work to compensate Landlord for the administrative costs incurred
and the Building services provided by Landlord in the supervision and
coordination of the work. Within a reasonable period following completion of any
work for which plans and specifications were required to obtain a building
permit for such work, Tenant shall furnish to Landlord "as built" plans showing
the changes made to the Premises.
(b) Any alterations, additions or improvements to the Premises shall
be made by Tenant at Tenant's sole cost and expense, and any contractor or other
person selected by Tenant to make the same shall be subject to Landlord's prior
approval, which approval shall not be unreasonably withheld. Tenant's contractor
and its subcontractors shall employ union labor to the extent necessary to
insure, so far as may be possible, the progress of the alterations, additions or
improvements and the performance of any other work or the provision of any
services in the Building without interruption on account of strikes, work
stoppage or similar causes of delay. All work performed by Tenant shall comply
with the laws, rules, orders, directions, regulations and requirements of all
governmental entities having jurisdiction over such work and shall comply with
the rules, orders, directions, regulations and requirements of any nationally
recognized board of insurance underwriters. All alterations, additions and
improvements shall immediately become Landlord's property and, at the end of the
term hereof, shall remain on the Premises without compensation to Tenant;
provided, however, that if Landlord at the time of
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consenting to the making of such alterations, additions and improvements
reserved the right to have Tenant remove such alterations, additions and
improvements, Tenant shall, prior to the end of the term, at its sole cost and
expense, remove the alterations, additions and improvements and repair and
restore the Premises to their condition at the commencement of the term.
9. Liens. Tenant shall keep the Premises and the Building free from any
liens (and claims thereof) arising out of any work performed, materials
furnished or obligations incurred by or for Tenant. Landlord shall have the
right to post and keep posted on the Premises any notices that may be provided
by law or which Landlord may deem to be proper for the protection of Landlord,
the Premises and the Building from such liens and claims.
10. Repairs. By entry hereunder Tenant accepts the Premises as being in the
condition in which Landlord is obligated to deliver the Premises, provided that
such acceptance shall not extend to latent defects which are not discoverable
through a diligent inspection of the Premises. Tenant shall, at all times during
the term hereof and at Tenant's sole cost and expense, keep the Premises in good
condition and repair, ordinary wear and tear and damage thereto by fire,
earthquake, act of God or the elements excepted. Tenant hereby waives all rights
to make repairs at the expense of Landlord or in lieu thereof to vacate the
Premises. Tenant shall at the end of the term hereof surrender to Landlord the
Premises and all Alterations thereto in the same condition as when received,
ordinary wear and tear and damage by fire, earthquake, act of God or the
elements excepted. Landlord has no obligation and has made no promise to alter,
remodel, improve, repair, decorate or paint the Premises or any part thereof,
except as specifically herein set forth. No representations respecting the
condition of the Premises or the Building have been made by Landlord to Tenant,
except as specifically herein set forth.
11. Destruction or Damage.
(a) In the event the Premises or the portion of the Building necessary
for Tenant's use and enjoyment of the Premises are damaged by fire, earthquake,
act of God, the elements or other casualty, Landlord shall repair the same,
subject to the provisions of this paragraph hereinafter set forth, if (i) such
repairs can, in Landlord's opinion, be made within a period of 180 days after
commencement of the repair work, (ii) the cost of repairing damage for which
Landlord is not insured shall be less than ten percent (10%) of the then full
insurable value of the Premises with respect to repairing any damage to the
Premises or five percent (5%) of the then full insurable value of the Building
with respect to repairing any damage to other areas of the Building, and (iii)
the damage or destruction does not occur during the last twelve (12) months of
the term of this Lease or any extension thereof. This Lease shall remain in full
force and effect except that so long as the damage or destruction is not caused
by the fault or negligence of Tenant, its contractors, agents, employees or
invitees, an abatement of rental shall be allowed Tenant for such part of the
Premises as shall be rendered unusable by Tenant in the conduct of its business
during the time such part is so unusable.
(b) As soon as is reasonably possible following the occurrence of any
damage, Landlord shall notify Tenant of the estimated time and cost required for
the repair or restoration of the Premises or the portion of the Building
necessary for Tenant's occupancy. If, in Landlord's opinion, such repairs cannot
be made within 180 days as set forth in subparagraph (a)(i) above, Landlord or
Tenant may
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elect by written notice to the other within 30 days after Landlord's notice of
estimated time and cost is given, to terminate this Lease effective as of the
date of such damage or destruction. If Landlord is not obligated to effect the
repair based upon the circumstances set forth in subparagraphs (a)(ii) or
(a)(iii) above, Landlord shall have the right to terminate this Lease, by
written notice to Tenant within 30 days after Landlord's notice of time and cost
is given, effective as of the date of such damage or destruction. If neither
party so elects to terminate this Lease, this Lease shall continue in full force
and effect, but the rent shall be partially abated as hereinabove in this
paragraph provided, and Landlord shall proceed diligently to repair such damage.
(c) A total destruction of the Building shall automatically terminate
this Lease. Tenant waives California Civil Code Sections 1932, 1933, 1941 and
1942 providing for (among other things) termination of hiring upon destruction
of the thing hired and the right to make repairs and to vacate the Premises
under certain conditions.
(d) In no event shall Tenant be entitled to any compensation or
damages from Landlord, specifically including, but not limited to, any
compensation or damages for (i) loss of the use of the whole or any part of the
Premises, (ii) damage to Tenant's personal property in or improvements to the
Premises, or (iii) any inconvenience, annoyance or expense occasioned by such
damage or repair (including moving expenses and the expense of establishing and
maintaining any temporary facilities).
(e) Landlord, in repairing the Premises, shall not be required to
repair any injury or damage to the personal property of Tenant, or to make any
repairs to or replacement of any alterations, additions, improvements or
fixtures installed on the Premises by or for Tenant.
12. Insurance.
(a) Tenant agrees to procure and maintain in force during the term
hereof, at Tenant's sole cost and expense, Commercial General Liability
insurance in an amount not less than three million dollars ($3,000,000) combined
single limit for bodily injury and property damage for injuries to or death of
persons and property damage occurring in, on or about the Premises or the
Building. Such policy shall name Landlord, Landlord's managing agent as
additional insured, shall be issued by a company licensed to do business in the
State of California and otherwise reasonably acceptable to Landlord a breach of
the foregoing shall not constitute an Event of Default if Tenant can provide
landlord with written evidence that Tenant has maintained continuous insurance
coverage pursuant to the terms of this Article. Tenant may carry said insurance
under a blanket policy, provided however, said insurance by Tenant shall include
an endorsement confirming application to and coverage of Landlord. Said
insurance shall be primary insurance to any other insurance that may be
available to Landlord. Any other insurance available to Landlord shall be
non-contributing with and excess to this insurance.
(b) A Certificate of insurance shall be delivered to Landlord by
Tenant prior to commencement of the term of this Lease and upon each renewal of
such insurance.
(c) Tenant shall, prior to and throughout the term of this Lease,
procure from each of its insurers under all policies of fire, theft, public
liability, workers' compensation and any other insurance policies of Tenant now
or hereafter existing, pertaining in any way to the Premises
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or the Building or any operation therein, a waiver, as set forth in paragraph 13
of this Lease, of all rights of subrogation which the insurer might otherwise,
if at all, have against the Landlord or any officer, agent or employee of
Landlord (including Landlord's managing agent).
13. Subrogation. Landlord and Tenant shall each obtain from its respective
insurers under all policies of fire, theft, public liability, worker's
compensation and other insurance maintained by either of them at any time during
the term hereof insuring or covering the Building or any portion thereof or
operations therein, a waiver of all rights of subrogation which the insurer of
one party might have against the other party, and Landlord and Tenant shall each
indemnify the other against and reimburse the other for any and all loss or
expense, including reasonable attorneys' fees, resulting from the failure to
obtain such waiver.
14. Indemnification. Tenant hereby waives all claims against Landlord for
damage to any property or injury or death of any person in, upon or about the
Premises arising at any time and from any cause other than principally by reason
of gross negligence or willful act of Landlord, its employees or contractors,
and Tenant shall defend Landlord against, hold Landlord harmless from, and
reimburse Landlord for any and all claims, liability, damage and loss arising
out of (a) injury to or death of any person, and (b) damage to or destruction of
any property, attributable to or resulting from the condition, use or occupancy
of the Premises by Tenant or Tenant's failure to perform its obligations under
this Lease, except such as is caused principally by gross negligence or willful
act of Landlord, its contractors or employees. The foregoing indemnity
obligation of Tenant shall include reasonable attorneys fees, investigation
costs and all other reasonable costs and expenses incurred by Landlord from the
first notice that injury, death or damage has occurred or that any claim or
demand is to be made or may be made. The provisions of this paragraph shall
survive the termination of this Lease with respect to any damage, injury or
death occurring prior to such termination.
15. Compliance with Legal Requirements. Tenant, at its sole cost and
expense, shall promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force, with the requirements of any board of fire underwriters
or other similar body now or hereafter constituted, with any direction or
occupancy certificate issued pursuant to any law by any public officer or
officers, as well as the provisions of all recorded documents affecting the
Premises (including, without limitation, any ground lease, mortgage or
covenants, conditions and restrictions), insofar as any thereof relate to or
affect the condition, use or occupancy of the Premises, including structural
utility system and life safety system changes necessitated by Tenant's acts, use
of the Premises or by improvements made by or for Tenant.
16. Assignment and Subletting.
(a) Tenant shall not hypothecate or encumber this Lease or any
interest herein without the prior written consent of Landlord, which may be
granted or denied in Landlord's absolute discretion. Tenant shall not, without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld by Landlord, transfer or assign this Lease or any interest herein,
sublet the Premises or any part thereof, or permit the use of the Premises by
any party other than Tenant. This Lease shall not, nor shall any interest
herein, be assignable as to the interest of Tenant by operation of law without
the consent of Landlord, which consent shall not be unreasonably withheld. Any
of
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the foregoing acts without such consent shall be void and shall, at the option
of Landlord, terminate this Lease. In connection with each consent requested by
Tenant, Tenant shall submit to Landlord the terms of the proposed transaction,
the identity of the parties to the transaction, the proposed documentation for
the transaction, and all other information reasonably requested by Landlord
concerning the proposed transaction and the parties involved.
(b) If the Tenant is a privately held corporation, or is an
unincorporated association or partnership, the transfer, assignment, or
hypothecation of any stock or interest in such corporation, association, or
partnership in excess of fifty percent (50%) in the aggregate shall be deemed an
assignment or transfer within the meaning and provisions of this paragraph 16.
If Tenant is a publicly held corporation, the public trading of stock in Tenant
shall not be deemed an assignment or transfer within the meaning of this
paragraph.
(c) Without limiting the other instances in which it may be reasonable
for Landlord to withhold its consent to an assignment or subletting, Landlord
and Tenant acknowledge that it shall be reasonable for Landlord to withhold its
consent in the following instances:
(1) if at the time consent is requested or at any time prior to
the granting of consent, Tenant is in default under this Lease or would be in
default under this Lease but for the pendency of any grace or cure period under
paragraph 19 below;
(2) if the proposed assignee or sublease is a governmental
agency;
(3) if, in landlord's reasonable judgment, the use of the
Premises by the proposed assignee or sublessee would not be comparable to the
types of office use by other tenants in the building, would entail any
alterations which would lessen the value of the leasehold improvements in the
Premises, or would conflict with any so called "exclusive" or percentage lease
then in favor of another tenant of the Building;
(4) if, in Landlord's reasonable judgment, the financial worth of
the proposed assignee or sublessee does not meet the credit standards applied by
Landlord for other tenants under leases with comparable terms, or the character,
reputation, or business of the proposed assignee or sublessee is not consistent
with the quality of the other tenancies in the Building;
(5) if in case of subletting, such subletting is of less than 25%
of the entire Premises; and
(6) if the proposed assignee or sublessee is an existing tenant
of the Building.
(d) If at any time during the term of this Lease Tenant desires to
assign its interest in this Lease or sublet all or any part of the Premises,
Tenant shall give notice to Landlord setting forth the terms of the proposed
assignment or subletting ("Tenant's Notice"). Landlord shall have the option,
exercisable by notice given to Tenant within thirty (30) days after Tenant's
Notice is given ("Landlord's Option Period"), either (1) to consent to the
assignment in which event the provisions of subparagraph (g) shall be
applicable, or to consent to the subletting in which event the provisions of
subparagraph (h) shall be applicable; (2) to become the assignee or sublessee of
Tenant (instead of the entity specified in Tenant's Notice) upon the terms set
forth in Tenant's Notice; (3) in the
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event of a proposed assignment, to terminate this Lease and to retake possession
of the Premises; or (4) in the event of a proposed subletting of the entire
Premises, or a portion of the Premises for all or substantially all of the
remainder of the term, to terminate this Lease with respect to, and to retake
possession of, the space in question, together with, if only a portion of the
Premises is involved, such rights of access to and from such portion as may be
reasonably required for its use and enjoyment.
(e) The provisions of subparagraphs (a) and (b) above notwithstanding,
Tenant may assign this Lease or sublet the Premises or any portion thereof, with
prior notice to Landlord but without the necessity of Landlord's consent and
without extending any option to Landlord pursuant to subparagraph (d) above, to
any corporation which controls, is controlled by or is under common control with
Tenant, to any corporation resulting from the merger or consolidation with
Tenant, or to any person or entity which acquires all the assets of Tenant as a
growing concern of the business that is being conducted on the Premises.
(f) No sublessee (other than Landlord if it exercises its option
pursuant to subparagraph (d) above) shall have a right further to sublet without
Landlord's prior consent, which Tenant acknowledges may be withheld in
Landlord's absolute discretion, and any assignment by a sublessee of its
sublease shall be subject to Landlord's prior consent in the same manner as if
Tenant were entering into a new sublease. No sublease, once consented to by
Landlord, shall be modified or terminated by Tenant without Landlord's prior
consent, which consent shall not be unreasonably withheld.
(g) In the case of an assignment to an entity other than Landlord, 50%
of any sums or other economic consideration received by Tenant as a result of
such assignment shall be paid to Landlord after first deducting the unamortized
cost of leasehold improvements paid for by Tenant, and the cost of any real
estate commissions incurred by Tenant in connection with such assignment.
(h) In the case of a subletting to an entity other than Landlord, 50%
of any sums or economic consideration received by Tenant as a result of such
subletting shall be paid to Landlord after first deducting (1) the rental due
hereunder, prorated to reflect only rental allocable to the sublet portion of
the Premises, (2) the cost of leasehold improvements made to the sublet portion
of the Premises at Tenant's cost, amortized over the term of this Lease except
for leasehold improvements made for the specific benefit of the sublessee, which
shall be amortized over the term of the sublease, and (3) the cost of any real
estate commissions incurred by Tenant in connection with such subletting,
amortized over the term of the sublease.
(i) Regardless of Landlord's consent, no subletting or assignment
(except to Landlord) shall release Tenant of Tenant's obligation or alter the
primary liability of Tenant to pay the rental and to perform all other
obligations to be performed by Tenant hereunder. The acceptance of rental by
Landlord from any other person shall not be deemed to be a waiver by Landlord of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Tenant or any successor of Tenant in the performance
of any of the terms hereof, Landlord may proceed directly against Tenant without
the necessity of exhausting remedies against such assignee or successor.
Landlord may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees of
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Tenant, without notifying Tenant, or any successor of Tenant, and without
obtaining its or their consent thereto, and such action shall not relieve Tenant
of liability under this Lease.
(j) In the event Tenant shall assign this Lease or sublet the Premises
or request the consent of Landlord to any assignment, subletting, hypothecation
or other action requiring Landlord's consent hereunder, then Tenant shall pay
Landlord's then reasonable and standard processing fee and Landlord's reasonable
attorneys, fees incurred in connection therewith.
17. Rules: No Discrimination. Tenant shall faithfully observe and comply
with the rules and regulations annexed to this Lease, and after notice thereof,
all reasonable modifications thereof and additions thereto from time to time
promulgated in writing by Landlord. Landlord shall not be responsible to Tenant
for the nonperformance by any other tenant or occupant of the Building of any of
said rules and regulations. Tenant specifically covenants and agrees that Tenant
shall not discriminate against or segregate any person or group of persons on
account of race, sex, creed, color, national origin, or ancestry in the
occupancy, use, sublease, tenure or enjoyment of the Premises.
18. Entry by Landlord. Landlord may enter the Premises at reasonable hours
to (a) inspect the same; (b) exhibit the same to prospective purchasers, lenders
or tenants, provided, however, that Landlord shall only exhibit the Premises to
prospective tenants during the final 90 days of Tenant's occupancy of the
Premises; (c) determine whether Tenant is complying with all its obligations
hereunder; (d) supply janitor service and any other service to be provided by
Landlord to Tenant hereunder; (e) post notices of nonresponsibility; and (f)
make repairs or perform maintenance required of Landlord under the terms hereof
or repairs to any adjoining space or utility services or make repairs,
alterations or improvements to any other portion of the Building; provided,
however, that all such work shall be done as promptly as reasonably possible and
so as to cause as little interference to Tenant as reasonably possible. Tenant
hereby waives any claim for damages for any inconvenience to or interference
with Tenant's business or any loss of occupancy or quiet enjoyment of the
Premises occasioned by such entry. Landlord shall at all times have and retain a
key with which to unlock all of the doors in, on or about the Premises
(excluding Tenant's vaults, safes and similar areas designated in writing by
Tenant in advance); and Landlord shall have the right to use any and all means
which Landlord may deem proper to open Tenant's doors in an emergency in order
to obtain entry to the Premises, and any entry to the Premises obtained by
Landlord in an emergency shall not be construed or deemed to be forcible or
unlawful entry into or be a detainer of the Premises or of Tenant from the
Premises or an eviction, actual or constructive, of Tenant from the Premises or
any portions thereof.
19. Events of Default. The following events shall constitute Events of
Default under this Lease:
(a) A default by Tenant in the payment when due of any rent or other
sum payable hereunder and the continuation of such default for a period of 10
days after the same is due;
(b) A default by Tenant in the performance of any of the other terms,
covenants, agreements or conditions contained herein and, if the default is
curable, the continuation of such default for a period of 20 days after notice
by Landlord or beyond the time reasonably necessary.
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for cure if the default is of a nature to require more than 20 days to remedy;
(c) The bankruptcy or insolvency of Tenant, transfer by Tenant in
fraud of creditors, an assignment by Tenant for the benefit of creditors, or the
commencement of any proceedings of any kind by or against Tenant under any
provision of the Federal Bankruptcy Act or under any other insolvency,
bankruptcy or reorganization act unless, in the event any such proceedings are
involuntary, Tenant is discharged from the same within 60 days thereafter;
(d) The appointment of a receiver for a substantial part of the asset
of Tenant;
(e) The abandonment of the Premises; and
(f) The levy upon this Lease or any estate of Tenant hereunder by any
attachment or execution and the failure to have such attachment or execution
vacated within 20 days thereafter.
20. Termination Upon Default. Upon the occurrence of any Event of Default
by Tenant hereunder, Landlord may, at its option and without any further notice
or demand, in addition to any other rights and remedies given hereunder or by
law, terminate this Lease and exercise its remedies relating thereto in
accordance with the following provisions:
(a) Landlord shall have the right, so long as the Event of Default
remains uncured, to give notice of termination to Tenant, and on the date
specified in such notice this Lease shall terminate.
(b) In the event of any such termination of this Lease, Landlord may
then or at any time thereafter by judicial process, re-enter the Premises and
remove therefrom all persons and property and again repossess and enjoy the
Premises, without prejudice to any other remedies that Landlord may have by
reason of Tenant's default or of such termination.
(c) In the event of any such termination of this Lease, and in
addition to any other rights and remedies Landlord may have, Landlord shall have
all of the rights and remedies of a landlord provided by Section 1951.2 of the
California Civil Code. The amount of damages which Landlord may recover in event
of such termination shall include, without limitation, (1) the worth at the time
of award (computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent) of
the amount by which the unpaid rent for the balance of the term after the time
of award exceeds the amount of rental loss that Tenant proves could be
reasonably avoided, (2) all legal expenses and other related costs incurred by
Landlord following Tenant's default, (3) all costs incurred by Landlord in
restoring the Premises to good order and condition, or in remodeling, renovating
or otherwise preparing the Premises for reletting, and (4) all costs (including,
without limitation, any brokerage commissions) incurred by Landlord in reletting
the Premises.
(d) After terminating this lease, Landlord may remove any and all
personal property located in the Premises and place such property in a public or
private warehouse or elsewhere at the sole cost and expense of Tenant. In the
event that tenant shall not immediately pay the cost of storage of such property
after the same has been stored for a period of thirty (30) days or more,
Landlord may sell any or all thereof at a public or private sale in such manner
and at such times and places as Landlord in its sole
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discretion may deem proper, without notice to or demand upon Tenant. Tenant
waives all claims for damages that may be caused by Landlord's removing or
storing or selling the property as herein provided, and Tenant shall indemnify
and hold Landlord free and harmless from and against any and all losses, costs
and damages, including without limitation all costs of court and attorneys' fees
of Landlord occasioned thereby.
(e) In the event of the occurrence of any of the events specified in
paragraph 19(c) of this Lease, if Landlord shall not choose to exercise, or by
law shall not be able to exercise, its rights hereunder to terminate this Lease,
then, in addition to any other rights of Landlord hereunder or by law, (1)
Landlord may discontinue the services provided pursuant to paragraph 6 of this
Lease, unless Landlord has received compensation in advance for such services in
the amount of Landlord's reasonable estimate of the compensation required with
respect to such services, and (2) neither Tenant, as debtor-in-possession, nor
any trustee or other person (collectively, the "Assuming Tenant") shall be
entitled to assume this Lease unless on or before the date of such assumption,
the Assuming Tenant (a) cures, or provides adequate assurance that the Assuming
Tenant will promptly cure, any existing default under this Lease, (b)
compensates, or provides adequate assurance that the Assuming Tenant will
promptly compensate, Landlord for any pecuniary loss (including, without
limitation, attorneys' fees and disbursements) resulting from such default, and
(c) provides adequate assurance of future performance under this Lease. For
purposes of this subparagraph (e) "adequate assurance" of such cure,
compensation or future performance shall be effected by the establishment of an
escrow fund for the amount at issue or by bonding.
21. Continuation after Default. Landlord shall have the remedy described in
California Civil Code Section 1951.4 (i.e. Landlord may continue this Lease in
effect after Tenant's abandonment and recover rental as it becomes due, because
Tenant has the right to sublet or assign, subject only to reasonable
limitations). Even though Tenant has breached this Lease and abandoned the
Premises, this Lease shall continue in effect for so long as Landlord does not
terminate Tenant's right to possession, and Landlord may enforce all its rights
and remedies under this Lease, including the right to recover the rental as it
becomes due under this Lease. Acts of maintenance or preservation or efforts to
relet the Premises or the appointment of a receiver upon initiative of Landlord
to protect Landlord's interest under this Lease shall not constitute a
termination of Tenant's right to possession.
22. Other Relief. The remedies provided for in this Lease are in addition
to any other remedies available to Landlord at law or in equity by statute or
otherwise.
23. Landlord's Right to Cure Defaults. All agreements and provisions to be
performed by Tenant under any of the terms of this Lease shall be at its sole
cost and expense and without any abatement of rental. If Tenant shall fail to
pay any sum of money, other than rental, required to be paid by it hereunder or
shall fail to perform any other act on its part to be performed hereunder and
such failure shall continue for 20 days after notice thereof by Landlord, or
such longer period as may be allowed hereunder, Landlord may, but shall not be
obligated so to do, and without waiving or releasing Tenant from any obligations
of Tenant, make any such payment or perform any such other act on Tenant's part
to be made or performed as in this Lease provided to the extent Landlord may
deem desirable, with full right of offset. All sums so paid by Landlord (with
interest at an annual rate equal to four percent (4%) over
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the annual prime rate of interest announced publicly by Citibank, N.A., in New
York, New York from time to time, but in no event in excess of the maximum
interest rate permitted by law) and all necessary incidental costs shall be
payable to Landlord on demand.
24. Attorneys' Fees. If any action arising out of this Lease is brought by
either party hereto against the other, then and in that event the unsuccessful
party to such action shall pay to the prevailing party all costs and expenses,
including reasonable attorneys' fees, incurred by such prevailing party, and if
the prevailing party shall recover judgment in such action, such costs, expenses
and attorneys' fees shall be included in and as part of such judgment.
25. Eminent Domain. If all or any part of the Premises shall be taken as a
result of the exercise of the power of eminent domain, this Lease shall
terminate as to the part so taken as of the date of taking, and, in the case of
a partial taking, either Landlord or Tenant shall have the right to terminate
this Lease as to the balance of the Premises by notice to the other within 30
days after such date, provided, however, that a condition to the exercise by
Tenant of such right to terminate shall be that the portion of the Premises
taken shall be of such extent and nature as substantially to handicap, impede or
impair Tenant's use of the balance of the Premises. In the event of any taking,
Landlord shall be entitled to any and all compensation, damages, income, rent,
awards, or any interest therein whatsoever which may be paid or made in
connection therewith, and Tenant shall have no claim against Landlord for the
value of any unexpired term of this Lease or otherwise. In the event of a
partial taking of the Premises which does not result in a termination of this
Lease, the monthly rental thereafter to be paid shall be equitably reduced.
26. Subordination.
(a) This Lease shall be subject and subordinate to any ground lease,
mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the Building and to any and all advances made on the
security thereof or Landlord's interest therein, and to all renewals,
modifications, consolidations, replacements and extensions thereof. In the event
any mortgage or deed of trust to which this Lease is subordinate is foreclosed
or a deed in lieu of foreclosure is given to the mortgagee or beneficiary,
Tenant shall attorn to the purchaser at the foreclosure sale or to the grantee
under the deed in lieu of foreclosure; in the event any ground lease to which
this Lease is subordinate is terminated, Tenant shall attorn to the ground
lessor. Tenant agrees to execute any documents required to effectuate such
subordination, to make this Lease prior to the lien of any mortgage or deed of
trust or ground lease, or to evidence such attornment.
(b) In the event any mortgage or deed of trust to which this Lease is
subordinate is foreclosed or a deed in lieu of foreclosure is given to the
mortgagee or beneficiary, or in the event any ground lease to which this Lease
is subordinate is terminated, this Lease shall not be barred, terminated, cut
off or foreclosed nor shall the rights and possession of Tenant hereunder be
disturbed if Tenant shall not then be in default in the payment of rental and
other sums due hereunder or otherwise be in default under the terms of this
Lease, and if Tenant shall attorn to the purchaser, grantee, or ground lessor
as provided in subparagraph (a) above or, if requested, enter into a new lease
for the balance of the term hereof upon the same terms and provisions as are
contained in this Lease. Tenant's covenant under subparagraph (a) above to
subordinate this
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Lease to any ground lease, mortgage, deed of trust or other hypothecation
hereafter executed is conditioned upon each such senior instrument containing
the commitments specified in this subparagraph (b).
27. No Merger. The voluntary or other surrender of this Lease by Tenant, or
a mutual cancellation thereof, shall not work a merger, and shall, at the option
of Landlord, terminate all or any existing subleases or subtenancies, or operate
as an assignment to it of any or all such subleases or subtenancies.
28. Sale. In the event the original Landlord hereunder or any successor
owner of the Building, shall sell or convey the Building, all liabilities and
obligations on the part of the original Landlord, or such successor owner, under
this Lease accruing thereafter shall terminate, and thereupon all such
liabilities and obligations shall be binding upon the new owner Tenant agrees to
attorn to such new owner.
29. Estoppel Certificate. At any time and from time to time but on not less
than 10 days' prior notice by Landlord, Tenant shall execute, acknowledge, and
deliver to Landlord, promptly upon request, a certificate certifying (a) that
this Lease is unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full force and effect, as modified, and
stating the date and nature of each modification), (b) the date, if any, to
which rental and other sums payable hereunder have been paid, (c) that no notice
has been received by Tenant of any default which has not been cured, except as
to defaults specified in the certificate, (d) whether there is then existing any
claim by Tenant of default hereunder by Landlord, and, if so, specifying the
nature thereof, and (e) such other matters as may be reasonably requested by
Landlord. Any such certificate may be relied upon by any prospective purchaser,
mortgagee or beneficiary under any deed of trust on the Building or any part
thereof.
30. No Light, Air, or View Easement. Any diminution or shutting off of
light, air or view by any structure which may be erected on lands adjacent to
the Building shall in no way affect this Lease or impose any liability on
Landlord.
31. Holding Over. If Tenant holds possession of the Premises after
expiration of the term of this Lease, Tenant shall become a tenant from month to
month upon the terms herein specified but at a monthly rental equivalent to 200%
of the then prevailing monthly rental payable by Tenant at the expiration of the
term of this Lease, payable in advance on or before the first day of each month,
and shall indemnify Landlord and any replacement tenant for the Premises for any
damages or loss suffered by either Landlord or the replacement tenant resulting
from Tenant's failure timely to vacate the Premises.
32. Abandonment. Tenant shall not vacate or abandon the Premises or any
part thereof at any time during the term hereof. Tenant understands that if
Tenant should leave the Premises or any part thereof vacant, the risk of fire,
other casualty, and vandalism to the Premises and the Building will be increased
and that, therefore, such action by Tenant shall constitute a material breach of
this Lease, whether or not Tenant continues to pay rent and additional rent
under this Lease. If Tenant shall vacate, abandon or surrender the Premises, or
be dispossessed by process of law or otherwise, any personal property belonging
to Tenant and left on the Premises shall be deemed to be abandoned, at the
option of Landlord, and Landlord may sell or otherwise dispose of such personal
property in any commercially reasonable manner.
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33. Security Deposit. Tenant shall, upon execution of this Lease, deposit
with Landlord the sum specified in the Basic Lease Information (the "deposit").
The deposit shall be held by Landlord as security for the faithful performance
by Tenant of all the provisions of this Lease to be performed or observed by
Tenant. If Tenant fails to pay rent or other sums due hereunder, or otherwise
defaults with respect to any provision of this Lease, Landlord may use, apply or
retain all or any portion of the deposit for the payment of any rent or other
sum in default or for the payment of any other sum to which Landlord may become
obligated by reason of Tenant's default, or to compensate Landlord for any loss
or damage which Landlord may suffer thereby. If Landlord so uses or applies all
or any portion of the deposit, Tenant shall within 10 days after demand therefor
deposit cash with Landlord in an amount sufficient to restore the deposit to the
full amount thereof and Tenant's failure to do so shall be a material breach of
this Lease. Landlord shall not be required to keep the deposit separate from its
general accounts.
34. Waiver. The waiver by Landlord of any agreement, condition or provision
herein contained shall not be deemed to be a waiver of any subsequent breach of
the same or any other agreement, condition or provision herein contained, nor
shall any custom or practice which may grow up between the parties in the
administration of the terms hereof be construed to waive or to lessen the right
of Landlord to insist upon the performance by Tenant in strict accordance with
such terms. The subsequent acceptance of rental hereunder by Landlord shall not
be deemed to be a waiver of any preceding breach by Tenant of any agreement,
condition or provision of this Lease, other than the failure of Tenant to pay
the particular rental so accepted, regardless of Landlord's knowledge of the
preceding breach at the time of acceptance of the rental.
35. Notices and Consents. All notices, consents, demands and other
communications from one party to the other that are given pursuant to the terms
of this Lease shall be in writing and shall be deemed to have been fully given
when deposited in the United States mail, certified or registered, postage
prepaid, and addressed as follows: to Tenant at the address specified in the
Basic Lease Information, or to such other place as Tenant may from time to time
designate in a notice to Landlord; to Landlord at the address specified in the
Basic Lease Information, or to such other place as Landlord may from time to
time designate in a notice to Tenant; or, in the case of Tenant, delivered to
Tenant at the Premises.
36. Complete Agreement. There are no oral agreements between Landlord and
Tenant affecting this Lease, and this Lease supersedes and cancels any and all
previous negotiations, arrangements, brochures, agreements, letters of intent
and understandings if any, between Landlord and Tenant or displayed by Landlord
to Tenant with respect to the subject matter of this Lease, the Building or
related facilities.
37. Corporate Authority. if Tenant signs as a corporation, each of the
persons executing this Lease on behalf of Tenant warrants that Tenant is a duly
authorized and existing corporation and that Tenant has and is qualified to do
business in California, that the corporation has full right and authority to
enter into this Lease and that each and both of the persons signing on behalf of
the corporation were authorized to do so.
38. Partnership Authority. If Tenant is a partnership, joint venture, or
other unincorporated association, each individual executing this Lease on behalf
of Tenant warrants that this Lease is binding on Tenant and that each and both
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of the persons signing on behalf of Tenant were authorized to do so.
39. Limitation of Liability to Building. The liability of Landlord to
Tenant for any default by Landlord under this Lease or arising in connection
with Landlord's operation, management, leasing, repair, renovation, alteration,
or any other matter relating to the Building or the Premises, shall be limited
to the interest of Landlord in Building. Tenant agrees to look solely to
Landlord's interest in the Building for the recovery of any judgment against
Landlord, and Landlord shall not be personally liable for any such judgment or
deficiency after execution thereon. The limitations of liability contained in
this paragraph 38 shall apply equally and inure to the benefit of Landlord, its
successors and their respective, present and future partners of all tiers,
beneficiaries, officers, directors, trustees, shareholders, agents and
employees, and their respective heirs, successors and assigns. Under no
circumstances shall any present or future general partner of Landlord (if
Landlord is a partnership) or individual trustee or beneficiary (if Landlord or
any partner of Landlord is a trust) have any liability for the performance of
Landlord's obligations under this Lease.
40. Brokers. Tenant confirms and represents that Tenant has contacted and
dealt with solely the broker identified in the Basic Lease Information and that
no other broker has participated in the negotiation of this Lease or is entitled
to any commission in connection with this Lease.
41. Substitution of Premises. Landlord hereby reserves the right from time
to time to relocate the Premises to another part of the low rise portion of
Building prior to or during the term of this Lease so long as the number of net
rentable square feet so substituted approximately equals the number of net
rentable square feet in the Premises designated in Exhibit A hereto, and
Tenant's base rent due and payable hereunder shall not increase thereto.
Landlord shall not have any liability with respect to any such relocation and
substitution. From and after the date of such relocation and substitution, the
term "Premises" as used herein shall mean the substituted space in the Building,
and Landlord and Tenant shall initial, date and attach to this Lease a
substitute Exhibit A showing the new Premises. If such relocation occurs after
Tenant has occupied the Premises, or any such substituted Premises, then
Landlord shall bear the reasonable out-of-pocket expense of moving Tenant's
furnishings and equipment from the occupied Premises to such substitute Premises
and shall at Landlord's sole cost and expense improve the substituted Premises
with improvements substantially similar in quality and scope to those located in
the Premises then occupied by Tenant.
42. Miscellaneous. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. If there be more than one Tenant,
the obligations hereunder imposed upon Tenant shall be joint and several. Time
is of the essence of this Lease and each and all of its provisions. Submission.
of this instrument for examination or signature by Tenant does not constitute a
reservation of or option for lease, and it is not effective as a lease or
otherwise until execution and delivery by both Landlord and Tenant. The
agreements, conditions and provisions herein contained shall, subject to the
provisions as to assignment, apply to and bind the heirs, executors,
administrators, successors and assigns of the parties hereto. Tenant shall not,
without the consent of Landlord, use the name of the Building for any purpose
other than as the address of the business to be conducted by Tenant in the
Premises. Upon the request of Landlord, Tenant shall provide to Landlord from
time to time, at no expense to Landlord, copies of such financial statements
with respect to Tenant as may have been
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prepared by or for Tenant. Landlord's acceptance of a partial rent payment shall
not constitute a waiver of any rights of Tenant or Landlord, including, without
limitation, any right Landlord may have to recover possession of the Premises,
in unlawful detainer, or otherwise. If any provision of this Lease shall be
determined to be illegal or unenforceable, such determination shall not affect
any other provision of this Lease and all such other provisions shall remain in
full force and effect. This Lease shall be governed by and construed pursuant to
the laws of the State of California.
43. Exhibits. The exhibit(s) and addendum, if any, specified in the Basic
Lease Information are attached to this Lease and by this reference made a part
hereof.
44. Additional Provisions.
IN WITNESS WHEREOF, the parties have executed this Lease on the respective
dates indicated below:
TENANT: LANDLORD:
INTERNET ACCESS MARKET & SECOND, Inc.
FINANCIAL CORPORATION, Inc. a Delaware corporation
a California corporation
BY: /s/ TIMOTHY COLTRELL BY: [SIG]
------------------------------- ---------------------------------
ITS: C.O.O. ITS: AUTHORIZED SIGNATORY
------------------------------ --------------------------------
DATE: 10/3/97 DATE: 10/16/97
----------------------------- -------------------------------
BY: /s/ PETER STANFORD
---------------------------------
PETER STANFORD
ITS: AUTHORIZED SIGNAT0RY
---------------------------------
DATE: 10/16/97
---------------------------------
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ADDENDUM TO LEASE
This Addendum ("Addendum") is an addendum to that certain Office Lease
between MARKET &,SECOND, Inc. ("Landlord") and INERNET ACCESS FINANCIAL
CORPORATION, Inc. ("Tenant"), dated as of September 24, 1997 (the "Lease"). To
the extent there is any inconsistency between the terms and provisions of the
Lease and the terms and provisions of this Addendum, this Addendum shall govern
and control. All capitalized words used herein which have defined meanings in
the Lease shall have the same defined meanings herein. Landlord and Tenant have
agreed as follows:
1. Temporary Premises
(a) Subject to the terms and conditions of the Lease, excepting Monthly
Base Rent, Tenant shall have right to use Suite 1450 ("Temporary Premises")
consisting of approximately 1,471 rentable square feet effective October 6, 1997
through such date that Landlord delivers the Premises, as defined in the Lease,
to Tenant in accordance with Exhibit C attached thereto.
Tenant shall pay Landlord the amount of $4,167.83 as Monthly Base Rent for its
use of the Temporary Premises. Landlord shall have no obligation to alter or
remodel the Temporary Premises and shall deliver the Temporary Premises to
Tenant in its "as is" condition.
Tenant shall occupy the Temporary Premises under all other terms and conditions
contained in the Lease. Notwithstanding the above, Landlord shall have the right
to terminate this Lease in connection with Suite 1450 should Landlord not
deliver the Premises to Tenant as of December 1, 1997. If the Premises is not
delivered to Tenant by January 1, 1998, Tenant shall have the right to terminate
this Lease by providing Landlord with five (5) days prior written notice. In
such event, Landlord shall incur no liability and shall return all monies paid
by Tenant in connection with the Premises (e.g. Security Deposit, first month's
rent).
TENANT: LANDLORD:
INTERNET ACCESS MARKET & SECOND, Inc.
FINANCIAL CORPORATION, Inc. a Delaware corporation
a California corporation
BY: /s/ TIMOTHY COLTRELL BY: [SIG]
------------------------------- ---------------------------------
ITS: C.O.O. ITS: AUTHORIZED SIGNATORY
------------------------------ --------------------------------
BY: /s/ PETER STANFORD
---------------------------------
PETER STANFORD
ITS: AUTHORIZED SIGNAT0RY
---------------------------------
<PAGE> 26
EXHIBIT A
"PREMISES"
[GRAPHIC]
<PAGE> 27
EXHIBIT B
595 MARKET STREET
RULES AND REGULATIONS
1. The sidewalks, halls, passages, exits, entrances, shopping malls,
elevators, escalators and stairways of the Building shall not be obstructed by
any of the tenants or used by them for any purpose other than for ingress to and
egress from their respective premises. The halls, passages, exits, entrances,
shopping malls, elevators, escalators and stairways are not for the general
public and Landlord shall in all cases retain the right to control and prevent
access thereto of all persons whose presence in the judgment of Landlord would
be prejudicial to the safety, character, reputation and interests of the
Building and its tenants, provided that nothing herein contained shall be
construed to prevent such access to persons with whom any tenant normally deals
in the ordinary course of its business, unless such persons are engaged in
illegal activities. No tenant and no employee or invitee of any tenant shall go
upon the roof of the Building. Landlord shall have the right at any time without
the same constituting an actual or constructive eviction and without incurring
any liability to Tenant therefor to change the arrangement and/or location of
entrances or passageways, doors or doorways, corridor, elevators, stairs,
toilets or other common areas of the Building.
2. No sign, placard, picture, name, advertisement or notice visible from
the exterior of any tenant's premises shall be inscribed, painted, affixed or
otherwise displayed by any tenant on any part of the Building without the prior
written consent of Landlord. Landlord will adopt and furnish to tenants general
guidelines relating to signs inside the Building. Tenant agrees to conform to
such guidelines. All approved signs or lettering on doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved by
Landlord. Material visible from outside the Building will not be permitted.
3. The Premises shall not be used for the storage of merchandise held for
sale to the general public or for lodging. No cooking shall be done or permitted
on the Premises, except that private use by Tenant of Underwriters' Laboratory
approved equipment for brewing coffee, tea, hot chocolate and similar beverages
shall be permitted, provided that such use is in accordance with all applicable
federal, state and municipal laws, codes, ordinances, rules and regulations.
4. No tenant shall employ any person or persons other than the janitor of
Landlord for the purpose of cleaning its premises unless otherwise agreed to by
Landlord in writing. Except with the written consent of Landlord, no person or
persons other than those approved by Landlord shall be permitted to enter the
Building for the purpose of cleaning the same. No tenant shall cause any
unnecessary labor by reason of such tenant's carelessness or indifference in the
preservation of good order and cleanliness. Landlord shall not be responsible to
any tenant for any loss of property on the Premises, however occurring, or for
any damage done to the effects of any tenant by the janitor or any other
employee or any other person. Janitor service will not be furnished on nights
when rooms are occupied after 6 p.m. unless, by agreement in writing, service is
extended to a later hour for specifically designated rooms.
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5 Landlord will furnish each tenant free of charge with two keys to each
door lock provided in the Premises by Landlord. Landlord may make a reasonable
charge for any additional keys. No tenant shall have any such keys copied or any
keys made. No tenant shall alter any lock or install a new or additional lock or
any bolt on any door of its premises. Each tenant, upon the termination of its
lease, shall deliver to Landlord all keys to doors in the Building.
6. Landlord shall designate appropriate entrances and a "Freight"
elevator for deliveries or other movement to or from the Premises of equipment,
materials, supplies, furniture or other property, and Tenant shall not use any
other entrances or elevators for such purposes. The Freight elevator shall be
available for use by all tenants in the Building, subject to such reasonable
scheduling as Landlord in its discretion shall deem appropriate. All persons
employed and means or methods used to move equipment, materials, supplies,
furniture or other property in or out of the Building must be approved by
Landlord prior to any such movement. The scheduling and manner of all move-ins
and move-outs shall be coordinated through the Building office and shall only
take place after 6 p.m. on weekdays, on weekends (subject to additional
charges), or at such other times as Landlord may designate. Landlord shall have
the right to prescribe the maximum weight, size and position of all equipment,
materials, furniture or other property brought into the Building. Heavy objects
shall, if considered necessary by Landlord, stand on a platform of such
thickness as is necessary to properly distribute the weight. Landlord will not
be responsible for loss of or damage to any such property from any cause, and
all damage done to the Building by moving or maintaining such property shall be
repaired at the expense of Tenant.
7. No tenant shall use any method of heating or air conditioning other than
that supplied by Landlord. No tenant shall use or keep or permit to be used or
kept any foul or noxious gas or substance in the Premises, or permit or suffer
the Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors or
vibrations, or interfere in any way with other tenants or those having business
in the Building, nor shall any animals or birds be brought or kept in the
Premises or the Building.
8. Landlord shall have the right, exercisable without notice and without
liability to any tenant, to change the name or street address of the Building.
9. Landlord establishes the hours of 7 a.m. to 6 p.m. of each day other
than Saturdays, Sundays and legal holidays as reasonable and usual business
hours for the purposes of Subparagraph 6(b) of the Lease. If Tenant requests
electricity or heat or air conditioning during any hours on Saturdays, Sundays
or legal holidays, or during the hours of 6 p.m. to 7 a.m. on any other day, and
if Landlord is able to provide the same, Tenant shall pay Landlord such charge
as Landlord shall establish from time to time for providing such services
during such hours. Any such charges which Tenant is obligated to pay shall be
deemed to be additional rent under the Lease, and should Tenant fail to pay the
same within five (5) days after demand, such failure shall be a default by
Tenant under the Lease.
10. Landlord reserves the right to exclude from the Building between the
hours of 6 p.m. and 7 a.m., and at all hours on Saturdays, Sundays and legal
holidays, all persons who do not present identification acceptable to Landlord.
All persons entering the Building during said hours shall comply with Landlord's
sign-in and sign-out procedures. Each tenant shall provide Landlord with a list
of all persons authorized by Tenant to enter its premises and shall
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be liable to Landlord for all acts of such persons. Landlord shall in no case be
liable for damages for any error with regard to the admission to or exclusion
from the Building of any person. In the case of invasion, mob, riot, public
excitement or other circumstances rendering such action advisable in Landlord's
opinion, Landlord reserves the right to prevent access to the Building during
the continuance of the same by such action as Landlord may deem appropriate,
including closing doors.
11. The directory of the Building wi11 be provided exclusively for the
display of the name and location of tenants of the Building and Landlord
reserves the right to exclude any other names therefrom. Additional names which
Tenant may decide to have placed on the Building directory must first be
approved by Landlord and shall be at such charges as may be established by
Landlord. Landlord reserves the right to restrict the amount of directory space
utilized by any tenant.
12. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with any window of the Building without the prior written
consent of Landlord. In any event, with the prior written consent of Landlord,
such items shall be installed on the office side of Landlord's standard window
covering and shall in no way be visible from the exterior of the Building.
Tenant shall keep window coverings closed when the effect of sunlight (or the
lack thereof) would impose unnecessary loads on the Building's heating or air
conditioning systems.
13. No tenant shall obtain for use in the Premises ice, drinking water,
food, beverage, towel or other similar services, except at such reasonable hours
and under such reasonable regulations as may be fixed by Landlord.
14. Each tenant shall ensure that the doors of its premises are closed and
locked and that all water faucets, water apparatus and utilities are shut off
before Tenant or Tenant's employees leave the Premises so as to prevent waste or
damage, and for any default or carelessness in this regard, Tenant shall make
good all injuries sustained by other tenants or occupants of the Building or
Landlord. On multiple-tenancy floors, all tenants shall keep the doors to the
Building corridors closed at all times except for ingress and egress.
15. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were construed,
no foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of this
rule shall be borne by the tenant who, or whose employees or invitees, shall
have caused it.
16. Except with the prior written consent of Landlord, no tenant shall sell
any newspapers, magazines, periodicals, theater or travel tickets or any other
goods or merchandise to the general public in or on the Premises, nor shall any
tenant carry on or permit or allow any employee or other person to carry on the
business of stenography, typewriting, printing or photocopying or any similar
business in or from the Premises for the service or accommodation of occupants
of any other portion of the Building, nor shall the premises of any tenant be
used for manufacturing of any kind, or any business or activity other than that
specifically provided for in such tenant's lease.
17. No tenant shall install any radio or television antenna, loudspeaker or
other device on the roof or exterior walls of the Building. No television or
radio or recorder
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shall be played in such a manner as to cause a nuisance to any other tenant.
18. There shall not be used in any space, or in the public halls of the
Building, either by any tenant or others, any hand trucks except those equipped
with rubber tires and side guards or such other material handling equipment as
Landlord may approve. No other vehicles of any kind shall be brought by any
tenant into the Building or kept in or about its premises.
19. Each tenant shall store all its trash and garbage within its premises.
No material shall be placed in the trash boxes or receptacles if such material
is of such nature that it may not be disposed of in the ordinary and customary
manner of removing and disposing of office Building trash and garbage in the
City of San Francisco without being in violation of any law or ordinance
governing such disposal. All garbage and refuse disposal shall be made only
through entryways and elevators provided for such purposes and at such times as
Landlord shall designate.
20. Canvassing, soliciting, distribution of handbills or any other written
material and peddling in the Building are prohibited, and each tenant shall
cooperate to prevent the same.
21. The requirements of tenants will be attended to only upon application
in writing at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of their regular duties unless under
special instructions from Landlord.
22. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules and Regulations against any or all of the tenants of the Building.
23. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the agreements,
covenants, conditions and provisions of any lease of premises in the Building.
24. Landlord reserves the right to make such other rules and regulations as
in its judgment may from time to time be needed for the safety, care and
cleanliness of the Building and for the preservation of good order therein.
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<PAGE> 31
EXHIBIT C
TENANT IMPROVEMENT WORK LETTER
This Exhibit C is made part of that certain Lease dated September 24, 1997
between MARKET & SECOND, INC. ("Landlord") and INTERNET ACCESS FINANCIAL
CORPORATION, Inc. ("Tenant") respecting certain premises located at 595 Market
Street, San Francisco, CA. ("Premises").
I. SCOPE OF LANDLORD'S WORK.
Landlord shall deliver the Premises to Tenant in good operating condition
and repair. Landlord shall perform, at Landlord's sole cost and expense,
building standard paint throughout the Premises and steam clean the carpets. Any
alterations to be made by Tenant shall be made in accordance with the terms of
the Lease. Except as provided above, Tenant shall accept the Premises in its "as
is" condition.
IN WITNESS WHEREOF, the undersigned have executed this Exhibit C
concurrently with the execution of the Lease.
TENANT: LANDLORD:
INTERNET ACCESS MARKET & SECOND, Inc.
FINANCIAL CORPORATION, Inc. a Delaware corporation
a California corporation
BY: /s/ TIM COLTRELL BY: [SIG]
------------------------------- ---------------------------------
ITS: C.O.O. ITS: AUTHORIZED SIGNATORY
------------------------------ --------------------------------
BY: /s/ PETER STANFORD
---------------------------------
PETER STANFORD
ITS: AUTHORIZED SIGNAT0RY
---------------------------------
<PAGE> 32
TENANT EXPANSION AGREEMENT
THIS AGREEMENT made and entered into as of this 20th day of May 1998, by
and between MARKET & SECOND, Inc., a Delaware corporation ("Landlord"), and
Internet Access Financial Corporation, Inc., a California corporation
("Tenant").
A. Landlord and Tenant have heretofore entered into that certain lease
dated the September 24, 1997 (the "Lease") for premises (the "Premises")
described as Suite 950, initially containing approximately 4,044 rentable square
feet, in the property known as 595 Market Street, San Francisco, CA (the
"Property") .
B. Tenant has requested that additional space in the Property more commonly
known as Suite 760 consisting of approximately 3,820 square feet of rentable
space shown on Exhibit A, attached hereto and incorporated herein (the
"Expansion Space") be added to the Premises, and that the Lease be appropriately
amended, and Landlord is willing to do the same, all on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, the parties do
hereby agree as follows:
1. EXPANSION. Effective as of the 1st day of June, 1998 (the "Commencement
Date"), the Expansion Space shall be added to and become a part of the Premises,
subject to all of the terms and conditions of the Lease currently in effect,
except as expressly modified herein. Tenant's amended rentable square footage
under the Lease will be approximately 7,864 rsf. The Commencement Date shall be
subject to adjustment as described in Paragraph 5, below.
2. TERM. Landlord and Tenant agree that this Tenant Expansion Agreement is
on a month to month basis and therefore the obligations therewith may be
terminated by either party on thirty (30) days prior written notice. Any holding
over by Tenant upon such termination shall be subject to the provisions of
Paragraph 31 of the Lease.
3. RENTALS AND OTHER CHARGES. The minimum or base monthly rent due under
the Lease for the Expansion Space shall be Thirteen Thousand Three Hundred
Seventy Dollars and 00/100 ($13,370.00).
In addition, on the Commencement Date, all increases in rentals, additional rent
or other charges based or computed on the square footage of the Premises under
the Lease, including without limitation, real estate taxes, insurance costs,
common area maintenance expenses, operating expenses, shall be adjusted
proportionately to reflect the Expansion Space square footage.
The minimum or base rentals and all other charges respecting the Expansion Space
are sometimes herein called the "Expansion Space Rent".
4. ADDITIONAL SECURITY DEPOSIT. Upon Tenant's execution hereof, Tenant
shall submit the amount of Thirteen Thousand Three Hundred Seventy Dollars and
00/100 ($13,370.00) (the "Additional Security Deposit") in cash or certified
check, which shall be added to and become part of the security deposit, if any,
under the Lease, which shall be held by Landlord as security for payment of
rentals and other charges, and the performance of other terms and conditions of
the Lease by Tenant, without obligation to pay interest or segregate such amount
from other funds, and otherwise as provided under the Lease.
5. POSSESSION. Tenant has inspected the Expansion Space and agrees to
accept the same "as is" without any agreements, representations, understandings
or obligations on the part of Landlord to perform any alterations, repairs or
improvements except as expressly provided in any separate agreement that may be
signed by the parties in connection herewith. Any construction, alterations or
improvements made to the
<PAGE> 33
Expansion Space by Tenant shall be subject to Landlord's prior written approval
including without limitation, approval of the plans, specifications, contractors
and subcontractors therefor, and all applicable terms and conditions of the
Lease relating to construction, alterations or improvements of the Premises, and
such other reasonable requirements or conditions as Landlord may impose. During
any period that Tenant shall be permitted to enter the Expansion Space prior to
the Commencement Date other than to occupy the same (e.g., to perform
alterations or improvements), Tenant shall comply with all terms and provisions
of the Lease, except those provisions requiring payment of Expansion Space Rent.
If Tenant shall be permitted to enter the Expansion Space prior to the
Commencement Date for the purpose of occupying the same, Expansion Space Rent
shall commence on such date; if Tenant shall commence occupying only a portion
of the Expansion Space prior to the Commencement Date, such rent and charges
shall be prorated based on the number of rentable square feet occupied by
Tenant.
Any delay in the Commencement Date shall not subject Landlord to any liability
for any loss or damage resulting therefrom, and Tenant's sole remedy with
respect thereto shall be the abatement of Expansion Space Rent.
6. WHOLE AGREEMENT. This Agreement sets forth the entire Agreement between
the parties with respect to the matters set forth herein. There have been no
additional oral or written representations or agreements. As amended herein, the
Lease between the parties shall remain in full force and effect. In case of any
inconsistency between the provisions of the Lease and this Agreement, the latter
provisions shall govern and control. Under no circumstances shall this Agreement
be deemed to grant any right to Tenant to further expand the Premises.
7. NOT AN OFFER. Submission of this Agreement by Landlord is not an offer
to enter this Agreement, but a solicitation for such an offer by Tenant.
Landlord shall not be bound by this Agreement until Landlord has executed and
delivered the same to Tenant.
IN WITNESS WHEREOF, the Landlord and Tenant have duly executed this
Agreement as of the day and year first above written.
WITNESSES; ATTESTATION
TENANT LANDLORD
INTERNET ACCESS MARKET & SECOND, INC.
FINANCIAL CORPORATION, INC. A DELAWARE CORPORATION
A CALIFORNIA CORPORATION
BY: /s/ JOHN HASHMAN By: /s/ TIM CAHILL
------------------------------- ---------------------------------
TIM CAHILL
Its: C.F.O. Its: AUTHORIZED SIGNATORY
------------------------------ --------------------------------
By: /s/ RON KILBY
---------------------------------
RON KILBY
Its: AUTHORIZED SIGNAT0RY
---------------------------------
<PAGE> 34
EXHIBIT A
EXPANSION SPACE
[MAP OF 7TH FLOOR]
595 MARKET STREET
7TH FLOOR
<PAGE> 35
AMENDMENT NO. 2 TO OFFICE LEASE
This Amendment No. 2 to Office Lease is made and entered into as of
September 9, 1998, by and between MARKET & SECOND, INC., a Delaware corporation
("Landlord"), and INTERNET ACCESS FINANCIAL CORPORATION, INC., a California
corporation ("Tenant").
RECITALS:
A. Landlord and Tenant have heretofore entered into that certain Office
Lease dated September 24, 1997 for premises described as Suite 950 in the
property known as 595 Market Street, San Francisco, California (the "Building").
Such lease was amended by that certain Tenant Expansion Agreement entered into
by Landlord and Tenant dated May 2, 1998, adding to the premises the space known
as Suite 760 in the Building. Such lease, as amended, is hereinafter referred to
as the "Lease." All capitalized terms not otherwise defined herein shall have
the meaning set forth in the Lease.
B. Tenant desires to relocate from Suites 950 and 760 to Suite 1800 in the
Building, which comprises approximately 13,820 rentable square feet, and covers
the entire floor of the Building.
C. Landlord and Tenant desire to amend the Lease such that the leased
Premises shall be Suite 1800, and to terminate the Lease with respect to Suites
950 and 760, all on the terms and conditions set forth below.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Commencement of Lease of Suite 1800. As of the "Suite 1800
Commencement Date" as defined below, Landlord shall lease to Tenant and Tenant
shall lease from Landlord the premises located on the 18th floor of the
Building, comprising approximately 13,820 rentable square feet, referred to as
Suite 1800, and shown on the diagram attached hereto as Appendix I. As of the
Suite 1800 Commencement Date, for all purposes of the Lease, the term "Premises"
shall mean Suite 1800.
(a) The Suite 1800 Commencement Date shall be the earlier of
January 1, 1999 or substantial completion of the Tenant Improvements pursuant to
Exhibit C hereto.
(b) Tenant may enter Suite 1800 at any time after execution of
this Amendment and prior to the Suite 1800 Commencement Date for the purpose of
constructing Tenant Improvements and furnishing the Suite 1800 Premises. Such
entry shall be subject to all terms and conditions of this Lease, except that
Tenant shall not be required to pay Base Rent for Suite 1800 or Escalation Rent
for Suite 1800 prior to the Suite 1800 Commencement Date.
2. Extension of Lease Term. The Lease Term shall be extended to expire
December 31, 2003. When the Suite 1800 Commencement Date has been determined,
Landlord and Tenant shall execute a Memorandum of Commencement and Expiration
Dates, setting forth the Suite 1800 Commencement Date and the expiration date of
the Lease Term.
3. TWA Lease Amendment. Prior to the Suite 1800 Commencement Date,
Landlord and Trans World Airlines, a Delaware corporation ("TWA") shall enter
into an amendment agreement (the "TWA Amendment") to amend that certain Office
Lease entered into by and between Landlord and TWA dated as of August 8, 1994
(the "TWA Original Lease") in order to remove approximately one thousand eight
hundred fifty-five (1,855) square feet from the approximately two thousand five
hundred fifty (2,550) square feet leased to TWA as Suite 2250 pursuant to the
TWA Original Lease. Effective December 31, 1998, that certain Sublease Agreement
entered into by and between TWA and Tenant and dated as of February 20, 1997
shall terminate and shall be of no other force and effect.
-1-
<PAGE> 36
4. Termination of Lease of Suites 2250, 950 and 760. Effective as of
the Suite 1800 Commencement Date, Tenant shall vacate and surrender possession
of Suites 2250, 950 and 760 to Landlord in accordance with the provisions of
paragraphs 8 and 10 of the Lease, and Tenant shall pay to Landlord all Base
Rent, Escalation Rent and any other sums due Landlord under the Lease with
respect to Suites 2250, 950 and 760 accruing to the Suite 1800 Commencement
Date, and the rights and obligations of Landlord and Tenant with respect to
Suites 2250, 950 and 760 shall end, except for such obligations of Tenant which
expressly or by their nature survive termination of the Lease with respect to
Suites 2250, 950 and 760.
5. Base Rent, Base rent for Suite 1800 shall be as follows:
<TABLE>
<S> <C>
Jan. 1, 1999 - Dec. 31, 1999: $50,673.00 per month, $608,080.00 per year
Jan. 1, 2000 - Dec. 31, 2000: $51,825.00 per month, $621,900.00 per year
Jan. 1, 2001 - Dec. 31, 2001: $52,977.00 per month, $635,720.00 per year
Jan. 1, 2002 - Dec. 31, 2002: $54,128.00 per month, $649,540.00 per year
Jan. 1, 2003 - Dec. 31, 2003: $55,280.00 per month, $663,360.00 per year.
</TABLE>
6. Tenant's Percentage Share. Tenant's percentage share with respect
to Suite 1800 shall be 3.45%.
7. Condition of Premises! Tenant Improvements. Tenant shall accept
Suite 1800 in its as-is condition,and Landlord shall have no obligation to do
any repairs or alterations thereto except as expressly set forth in Exhibit C
hereto. Landlord shall improve Suite 1800 in accordance with provisions of the
Work Letter attached hereto as Exhibit C.
8. Security Deposit.
(a) Concurrently with execution and delivery of this Lease
Amendment, Tenant shall deliver to Landlord a letter of credit ("Letter of
Credit") in the amount of $450,000.00 for the benefit of Landlord, issued by a
major banking institution, and in form and substance reasonably acceptable to
Landlord. The Letter of Credit shall be held by Landlord as security for the
faithful performance by Tenant of all of the provisions of this Lease to be
performed by Tenant. If Tenant fails to pay rent or other sums due hereunder, or
otherwise defaults with respect to any provision of this Lease, Landlord may
draw on the Letter of Credit and use, apply or retain all or any portion of the
proceeds thereof for the payment of any rent or other sum in default or for the
payment if any other sum to which Landlord may become obligated by reason of
Tenant's default, or to compensate Landlord for any loss or damage which
Landlord may suffer thereby. If Landlord so uses or applies all or any portion
of the proceeds of the Letter of Credit, Tenant shall within ten (10) days after
demand therefor either deposit with Landlord a substitute Letter of Credit in
the amount of the Letter of Credit prior to such draw by Landlord hereunder, or
deposit with Landlord as a security deposit cash equal to the amount drawn by
Landlord under the Letter of Credit, and Tenant's failure to do so shall be a
material breach of this Lease. Landlord shall not be required to pay interest
on, or keep any cash deposited by Tenant hereunder, or drawn by Landlord under
the Letter of Credit, separate from its general accounts.
(b) Provided that Tenant has not been in default under the Lease,
the Letter of Credit amount shall be reduced to $365,000.00 at the end of the
first Lease Year, $280,000.00 at the end of the second Lease Year, and
$195,000.00 at the end of the third Lease Year. Tenant shall provide to Landlord
a Letter of Credit in the amount of $195,000.00 for the balance of the Lease
Term. If at any time during the Lease Term, Tenant shall not have provided to
Landlord a substitute Letter of Credit or renewal of the Letter of Credit at
least ten (10) days prior to the expiration date of the Letter of Credit held by
Landlord hereunder, Landlord may draw the full amount of the Letter of Credit,
and hold the proceeds thereof as the security deposit hereunder.
(c) On the Suite 1800 Commencement Date, Landlord shall return to
Tenant the security deposit in the amount of $22,916.00 currently held by
Landlord under the Lease in connection with Suite 950, and the additional
security deposit in the amount of $13,370.00 held by Landlord under the Tenant
Expansion Agreement in connection with Suite 750, provided that Tenant
-2-
<PAGE> 37
has paid to Landlord all sums due under the Lease, and otherwise fully complied
with all terms and provisions of the Lease, and less any deductions made by
Landlord in accordance with the Lease.
9. Amendment of Paragraph 3(a). Paragraph 3(a) is amended by adding at
the end the following: "In no event shall a decrease in Property Taxes below the
amount of Base Property Taxes, or a decrease in Operating Expenses below the
amount of Base Operating Expenses, cause the Base Rent to be reduced."
10. Base Year. As of the Suite 1800 Commencement Date, the Base Year
shall be 1998.
11. Amendment of Paragraph 8(b). Paragraph 8(b) of the Lease is
amended by adding at the end the following:
If Landlord consents to, inspects the work of, supervises, recommends
or designates any architects, engineers, contractors, subcontractors
or suppliers, the same shall not be deemed a warranty as to the
adequacy of the design, workmanship or quality of the materials of the
work, or as to the compliance of the work with the plans and
specifications or any legal requirements.
12. Amendment of Paragraph 10. Paragraph 10 of the Lease is hereby
amended by modifying the fourth sentence thereof to read as follows:
Tenant shall at the end of the term hereof surrender to Landlord the
Premises and all alterations, additions and improvements thereto
(except to the extent Tenant is required to remove any such
alterations, additions or improvements pursuant to Subparagraph 8(b)
above) in the same condition as when received, ordinary wear and tear
and damage by fire, earthquake, act of God or the elements excepted.
13. Amendment of Paragraph 12(a). Paragraph 12(a) of the Lease is
hereby amended by adding at the end the following:
The insurance maintained by Tenant hereunder shall also name as
additional insureds any other party designated by Landlord, shall
insure Landlord's and Landlord's managing agent's contingent liability
as respects acts or omissions of Tenant, and shall provide that the
policy may not be canceled nor amended without thirty (30) days prior
written notice to Landlord. Tenant shall also procure and maintain in
force during the term hereof full replacement cost "all risk"
insurance on its personal property and trade fixtures in the Premises.
14. Amendment of Paragraph 16. Paragraph 16 of the Lease is amended by
adding the following new Subparagraph 16(k):
(k) Any sublease hereunder shall be subordinate and subject to the
provisions of this Lease, and if this Lease shall be terminated during
the term of any sublease, Landlord shall have the right to: (a) deem
such sublease as merged and canceled and repossess the subject space
by any lawful means, or (b) deem such termination as an assignment of
such sublease to Landlord and not as a merger, and require that such
subtenant attorn to and recognize Landlord as its landlord under any
such sublease. If an Event of Default shall occur under this Lease,
Landlord is hereby irrevocably authorized, as Tenant's agent and
attorney-in-fact, to direct any subtenants and assignees to make all
payments under or in connection with the sublease or assignment
directly to Landlord (which Landlord shall apply towards Tenant's
obligations under this Lease).
15. Amendment of Paragraph 19: Paragraph 19 of the Lease is amended by
adding at the end the following Subparagraphs 19(g) and (h):
-3-
<PAGE> 38
(g) a violation by Tenant or any affiliate of Tenant under any
other lease or agreement with Landlord which is not cured within the
time permitted for cure thereunder; and
(h) if Tenant violates the same term or condition of this Lease
on two (2) occasions during any twelve (12) month period, Landlord
shall have the right to exercise all remedies for any violations of
the same term or condition during the next twelve (12) months without
providing further notice or an opportunity to cure.
16. Amendment of Paragraph 31. Paragraph 31 of the Lease is amended
by adding at the end the following:
The foregoing provisions, and Landlord's acceptance of any such
amounts, shall not serve as permission for Tenant to hold over, nor
serve to extend the term (although Tenant shall remain a tenant at
sufferance bound to comply with all provisions of this Lease until
Tenant properly vacates the Premises. Landlord shall have the right at
any time after expiration or earlier termination of this Lease to
re-enter and possess the Premises and remove all property and persons
therefrom and Landlord shall have such other remedies for holdover as
may be available to Landlord under other provisions of this Lease or
applicable law.
17. Deletion of Paragraph 44 and Addendum to Lease. Paragraph 44 of
the Lease and Addendum to Lease are hereby deleted in their entirety.
18. New Paragraph 44, 45 and 46. The following new paragraphs are
hereby added to the Lease:
44. Telecommunication Lines.
(a) Lines. Subject to Landlord's continuing right of supervision
and approval, and the other provisions hereof, Tenant may: (i) install
telecommunication fines ("Lines") connecting the Premises to
Landlord's terminal block on the floor or floors on which the Premises
are located, or (ii) use such Lines as may currently exist and already
connect the Premises to such terminal block. Landlord's predecessor or
independent contractor has heretofore connected such terminal block
through riser system Lines to Landlord's main distribution frame
("MDF") for the Building. Landlord disclaims any representations,
warranties or understandings concerning the capacity, design or
suitability of Landlord's riser Lines, MDF or related equipment. If
there is, or will be, more than one tenant on any floor, at any time,
Landlord may allocate, and periodically reallocate, connections to the
terminal block based on the proportion of square feet each tenant
occupies on such floor, or the type of business operations or
requirements of such tenants, in Landlord's reasonable discretion.
Landlord may arrange for an independent contractor to review Tenant's
requests for approval hereunder, monitor or supervise Tenant's
installation, connection and disconnection of Lines, and provide other
such services, or Landlord may provide the same. In each case, Tenant
shall pay Landlord's fees and costs therefor as provided in Paragraph
8 of this Lease.
(b) Installation. Tenant may install and use Tenant's Lines and
make connections and disconnections at the terminal blocks as
described above, provided Tenant shall: (i) obtain Landlord's prior
written approval of all aspects thereof, (ii) use an experienced and
qualified contractor designated or approved in writing in advance by
Landlord (whom Landlord may require to enter an access and indemnity
agreement on Landlord's then standard form of agreement therefor),
(iii) comply with such inside wire standards as Landlord may adopt
from time to time, and all other provisions of this Lease, including
Paragraph 8 respecting alterations, and the Building rules respecting
access to the wire closets, (iv) not install Lines in the same sleeve,
chaseway or other enclosure in close proximity with electrical wire,
and not install PVC-coated Lines under any circumstances, (v)
thoroughly test any riser Lines to which Tenant intends to connect any
-4-
<PAGE> 39
Lines to ensure that such riser Lines are available and are not then
connected to or used for telephone, data transmission or any other
purpose by any other party (whether or not Landlord has previously
approved such connections), and not connect to any such unavailable or
connected riser Lines, and (vi) not connect any equipment to the Lines
which may create an electromagnetic field exceeding the normal
insulation ratings of ordinary twisted pair riser cable or cause
radiation higher than normal background radiation, unless the Lines
therefor (including riser Lines) are appropriately insulated to
prevent such excessive electromagnetic fields or radiation (and such
insulation shall not be provided by the use of additional unused
twisted pair Lines). As a condition to permitting installation of new
Lines, Landlord may require that Tenant remove any existing Lines
located in or serving the Premises.
(c) Limitation of Liability. Unless due solely to Landlord's
intentional misconduct or grossly negligent acts, Landlord shall have
no liability for damages arising, and Landlord does not warrant that
the Tenant's use of the Lines will be free, from the following
(collectively called "Line Problems"): (i) any eavesdropping,
wire-tapping or theft of long distance access codes by unauthorized
parties, (ii) any failure of the Lines to satisfy Tenant's
requirements, (iii) any capacitance, attenuation, cross-talk or other
problems with the Lines, any misdesignation of the Lines in the MDF
room or wire closets, or any shortages, failures, variations,
interruptions, disconnections, loss or damage caused by or in
connection with the installation, maintenance, replacement, use or
removal of any other Lines or equipment at the Building by or for
other tenants at the Building, by any failure of the environmental
conditions at or the power supply for the Building to conform to any
requirements of the Lines, or (iv) any other problems associated with
any Lines by any cause whatsoever. Under no circumstances shall any
Line Problems be deemed an actual or constructive eviction of Tenant,
render Landlord liable to Tenant for abatement of any rent or other
charges under this Lease, or relieve Tenant from performance of
Tenant's obligations under this Lease. Landlord in no event shall be
liable for damages by reason of loss of profits, business interruption
or other consequential damage arising from any Line Problems.
45. Disabilities Acts. The parties acknowledge that the Americans
With Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq.) and
regulations and guidelines promulgated thereunder ("ADA"), and any
similarly motivated state and local laws ("Local Barriers Acts"), as
the same may be amended and supplemented from time to time
(collectively referred to herein as the "Disabilities Acts") establish
requirements for business operations, accessibility and barrier
removal, and that such requirements may or may not apply to the
Premises and Building depending on, among other things: (i) whether
Tenant's business is deemed a "public accommodation" or "commercial
facility," (ii) whether such requirements are "readily achievable,"
and (iii) whether a given alteration affects a "primary function area"
or triggers "path of travel" requirements. The parties hereby agree
that: (a) Landlord shall perform any required ADA Title III and
related Local Barriers Acts compliance in the common areas, except as
provided below (the cost of which shall be included in Operating
Expenses, other than Base Operating Expenses), (b) Tenant shall
perform any required ADA Title III and related Local Barriers Acts
compliance in the Premises (except as expressly set forth in Exhibit C
and other Landlord may perform, or require that Tenant perform, and
Tenant shall be responsible for the cost of, ADA Title III and related
Local Barriers Acts "path of travel" and other requirements triggered
by any public accommodation or other use of, or alterations in, the
Premises. Tenant shall be responsible for ADA Title I and related
Local Barriers Acts requirements relating to Tenant's employees, and
Landlord shall be responsible for ADA Title I and related Local
Barriers Acts requirements relating to Landlord's employees.
46. Confidentiality. Tenant shall keep the content and all copies
of this Lease, related documents or amendments now or hereafter
entered, and all proposals, materials, information and matters
relating thereto strictly confidential, and shall not disclose,
disseminate or distribute any of the same, or permit the same to
occur, except to the extent reasonably required for proper business
purposes by Tenant's employees, attorneys,
-5-
<PAGE> 40
insurers, auditors, lenders and subtenants or assignees (and Tenant
shall obligate any such parties to whom disclosure is permitted to
honor the confidentiality provisions hereof), and except as may be
required by law or court proceedings.
19. Exhibit C - Work Letter. Exhibit C, Work Letter, is hereby added
to and incorporated into the Lease by this reference.
20. Landlord and Tenant hereby ratify and confirm each and every term
of the Lease, as amended by Paragraphs 1 through 18 above.
LANDLORD
MARKET & SECOND, INC.
a Delaware Corporation
By /s/ L. ALMELEH
----------------------------------
9/24/98
Name: L. ALMELEH
-------------------------------
Title: AUTHORIZED SIGNATORY
------------------------------
TENANT
INTERNET ACCESS FINANCIAL
CORPORATION, INC.,
a California corporation
By /s/ JOHN HASHMAN
----------------------------------
Name: JOHN HASHMAN
-------------------------------
Title: CFO
------------------------------
-6-
<PAGE> 41
APPENDIX I
SUITE 1800
595 MARKET STREET
[18TH FLOOR MAP]
595 MARKET STREET
18TH FLOOR
<PAGE> 42
EXHIBIT C
WORK LETTER
This Work Letter is an Exhibit to that certain document captioned
Amendment No. 2 to Office Lease (referred to herein for convenience as the
"LEASE") between MARKET & SECOND, INC., a Delaware corporation ("Landlord"), and
INTERNET ACCESS FINANCIAL CORPORATION, INC., a California corporation
("Tenant"), dated September 9, 1998.
<TABLE>
<S> <C>
I. DATES AND ALLOWANCE.
Space Plan Date: September ____, 1998.
Construction Drawings Date: October ____, 1998.
Allowance: Up to Thirty-Five and No/100 Dollars ($35.00) per
rentable square foot of area within the Premises
(i.e., $483,700.00), as further described in Section IV(b).
</TABLE>
II. CONSTRUCTION REPRESENTATIVES, SPACE PLANNER, ARCHITECT AND
ENGINEER. Landlord's and Tenant's construction representatives for coordination
of planning, construction, approval of change orders, substantial and final
completion, and other such matters (unless either party changes its
representative upon written notice to the other), and the other parties involved
in planning the Work, are:
<TABLE>
<S> <C>
Landlord's Representative: COMPASS Management & Leasing, Inc.
Frank Miskus
Address: 595 Market Street
San Francisco, CA 94105
Telephone: (415) 512-6801
Fax: (415) 512-6809
Tenant's Representative: John Hashman
Address: 595 Market Street, Suite 950
San Francisco, CA 94105
Telephone: (415) 836-9700
Fax: (415) 836-9790
Space Planner: Chandler Eason
Blunk Demattei & Assoc.
1555 Bayshore Highway, #300
Burlingame, CA 94010
Telephone: (650) 692-9911
Fax: (650) 692-0181
Architect: Same as above
Engineer: To be designated by Landlord in writing.
</TABLE>
C-1
<PAGE> 43
III. PLANS. The term "Plans: herein shall refer to the Space Plan and
Construction Drawings collectively. The term Planner herein shall refer to the
Space Planner, Architect or Engineer, as appropriate, each of whom shall be
retained by Landlord. Tenant has sole responsibility to provide all information
concerning its space planning requirements to the Planner. Landlord shall cause
the Planner to prepare the Plans, and to obtain Tenant's final approval thereof
(including all revisions) by the dates set forth above. Such dates are critical
and of the essence hereof with respect to contracting out the Work, obtaining
permits, and achieving substantial completion by the Commencement Date. The
commencement of Base Rent and all other rent due under the Lease (collectively
referred to herein as "Rent") shall not be postponed based on any delays in
planning except to the extent expressly provided below. The Plans shall be
signed or initialed by Tenant, if requested by Landlord, and shall be prepared
and approved in accordance with the following provisions:
(a) Space Plan. By the Space Plan Date, Tenant shall: (1) provide
Space Planner with all information concerning Tenant's requirements in order for
Space Planner to prepare the Space Plan, (2) cause Space Planner to complete
Tenant's Space Plan, (3) obtain Landlord's written approval thereof, and (4)
provide three (3) copies thereof to Architect. "Space Plan" herein means a floor
plan, drawn to scale, showing (i) demising walls, interior walls and other
partitions, including type of wall or partition and height, (ii) doors and other
openings in such walls or partitions, including type of door and hardware, (iii)
any floor or ceiling openings, and any variations to building standard floor or
ceiling heights, (iv) electrical outlets, and any restrooms, kitchens, computer
rooms, file cabinets, file rooms and other special purpose rooms, and any sinks
or other plumbing facilities, or other special electrical, HVAC, plumbing or
other facilities or equipment, including all special loading, (v) communications
system, including location and dimensions of equipment rooms, and telephone and
computer outlet locations, (vi) special cabinet work or other millwork items,
(vii) any space planning considerations under the Disabilities Acts, (viii)
finish selections (i.e., color selection of painted areas, and selection of
floor and any special wall coverings from Landlord's available building standard
selections) (which selections Tenant may defer until the Construction Drawings
Date), and (ix) any other details or features reasonably required in order to
obtain a preliminary cost estimate as described in Section IV or otherwise
reasonably requested by Architect, Engineer or Landlord in order for the Space
Plan to serve as a basis for preparing the Construction Drawings.
(b) Construction Drawings. By the Construction Drawings Date, Tenant
shall: (1) provide all information concerning Tenant's requirements in order for
Architect and Engineer to prepare the Construction Drawings, (2) cause Architect
and Engineer to complete the Construction Drawings (which shall include at least
three (3) mylar sepias, or such other quantity as Landlord may reasonably
require), and (3) obtain Landlord's written approval thereof. "Construction
Drawings" herein means fully dimensioned architectural construction drawings and
specifications, and any required engineering drawings (including mechanical,
electrical, plumbing, air-conditioning, ventilation and heating), and shall
include any applicable items described above for the Space Plan, and to the
extent applicable: (i) electrical outlet locations, circuits and anticipated
usage therefor, (ii) reflected ceiling plan, including lighting, switching, and
any special ceiling specifications, (iii) duct locations for heating,
ventilating and air-conditioning equipment, (iv) details of all millwork, (v)
dimensions of all equipment and cabinets to be built in, (vi) furniture plan
showing details of space occupancy, (vii) keying schedule, (viii) lighting
arrangement, (ix) location of print machines, equipment in lunch rooms,
concentrated file and library loadings and any other equipment or systems (with
brand names wherever possible) which require special consideration relative to
air-conditioning, ventilation, electrical, plumbing, structural, fire
protection, life-fire-safety system, or mechanical systems, (x) special heating,
ventilating and air conditioning equipment and requirements, (xi) weight and
location of heavy equipment, and anticipated loads for special usage rooms,
(xii) demolition plan, (xiii) partition construction plan, (xiv) all
requirements under the Disabilities Acts and other governmental requirements,
and (xv) final finish selections, and any other details or features reasonably
required in order to obtain a final cost estimate as described in Section IV or
otherwise reasonably requested by Architect, Engineer or Landlord in order for
the Construction Drawings to serve as a basis for contracting the Work.
(c) Landlord's approval of Plans. Landlord shall either approve any
Plans or revisions submitted pursuant hereto or disapprove of the same with
suggestions for making the same acceptable. Landlord shall not unreasonably
withhold approval if the Plans provide for a customary office layout, with
finishes and materials generally conforming to building standard finishes and
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materials currently being used by Landlord at the Building, are compatible with
the Building's shell and core construction, and if no modifications will be
required for the Building electrical heating, airconditioning, ventilation,
plumbing, fire protection, life-fire-safety, or other systems or equipment, and
will not require any structural modifications to the Building, whether required
by heavy loads or otherwise. Landlord may request that Tenant approve Landlord's
suggested changes in writing (such approval shall not be unreasonably withheld),
or Landlord may arrange directly with the Planner for revised Plans to be
prepared incorporating such suggestions (in which case, Tenant shall sign or
initial the revised Plans and/or Landlord's notice concerning the suggested
changes, if requested by Landlord). Landlord's approval of the Plans shall not
be deemed a warranty as to the adequacy or legality of the design, and Landlord
hereby disclaims any responsibility or liability for the same.
(d) Governmental Approval of Plans. Landlord shall cause its
contractor to apply for any normal building permits required for the Work which
are issued pursuant to a local building code as a ministerial matter. If the
Plans must be revised in order to obtain such building permits, Landlord shall
promptly notify Tenant. In such case, Tenant shall promptly arrange for the
Plans to be revised to satisfy the building permit requirements and shall submit
the revised Plans to Landlord for approval as a Change Order under Section
III(e). Landlord shall have no obligation to apply for any zoning, parking or
sign code amendments, approvals, permits or variances, or any other governmental
approval, permit or action (except normal building permits as described above).
If any such other matters are required, Tenant shall promptly seek to satisfy
such requirements or revise the Plans to eliminate such requirements. Delays in
substantially completing the Work by the Commencement Date as a result of
requirements for building permits or other governmental approvals, permits or
actions shall affect the Commencement Date and commencement of Rent only to the
extent provided in Section V.
(e) Changes After Plans Are Approved. If Tenant shall desire any
changes, alterations, or additions to the Plans after they have been approved by
Landlord, Tenant shall submit a detailed written request or revised Plans (the
"Change Order") to Landlord for approval. If reasonable and practicable and
generally consistent with the Plans theretofore approved, Landlord shall not
unreasonably withhold approval, but all costs in connection therewith,
including, without limitation, construction costs, permit fees, and any
additional plans, drawings and engineering reports or other studies or tests, or
revisions of such existing items, shall be paid for by Tenant as a Tenant's Cost
under Section IV. The cost of any corrections for errors or omissions made by
any space planner, architect, engineer or contractor recommended or engaged by
Tenant, including corrections for unforeseen or concealed conditions, shall be
borne by Tenant.
(f) Planning Delays. If the Plans are not prepared and approved by the
dates set forth above for any reason (including revisions required by Landlord
pursuant to this Section and revisions by Tenant to reduce Tenant's Cost
pursuant to Section IV (collectively called "Delays in Planning"), the
commencement of Rent shall not be postponed under any circumstances, except to
the extent that Tenant is unable to use the Premises because substantial
completion of the Work is delayed beyond the Commencement Date as a result of
one or more of the following events (collectively called "Landlord Delays"): (1)
Landlord takes more than fifteen (15) working days to approve or disapprove the
Plans or revisions thereof after receiving the same (or such longer time as may
be reasonably required in order to obtain any additional engineering or HVAC
report or due to other special or unusual features of the Work or Plans), or (2)
Landlord takes more than thirty (30) working days to provide Tenant with cost
estimates after receiving Plans sufficiently detailed for such purposes (this
provision shall only apply if Landlord elects to provide cost estimates under
Section IV below).
(g) Planning for Disabilities Acts. Tenant shall be responsible for
matters under the Disabilities Acts relating to the Premises or improvements
thereto. Without limiting the generality of the forgoing, Tenant shall: (a)
provide complete and accurate information such that the Plans will comply with
the Disabilities Acts, and update such information as needed, and (b) be
responsible for any changes to the Work or Premises resulting from changes in
Tenant's employees, business operations or the Disabilities Acts. Without
limitation as to other provisions, Tenant hereby expressly acknowledges that
Tenant's indemnity and related obligations under the Lease shall apply to
violations of this provision.
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IV. COST OF THE WORK, ALLOWANCE AND TENANT'S COST.
(a) Cost of the Work. Except for the Allowance to be provided by
Landlord hereunder, Tenant shall pay the entire cost (herein referred to as the
"Cost of the Work") for or related to: (1) the Work, including, without
limitation, costs of labor, hardware, equipment and materials, contractors'
charges for overhead and fees, and so-called "general conditions" (including
rubbish removal, utilities, freight elevators, hoisting, field supervision,
building permits, occupancy certificates, inspection fees, utility connections,
bonds, insurance, sales taxes, and the like), (2) the Plans, including, without
limitation, all revisions thereto, and engineering reports, or other studies,
reports or tests, air balancing or related work in connection therewith, and (3)
Landlord's costs and administrative fee described below. "Work" herein means:
(i) the improvements and items of work shown on the final approved Plans
(including changes thereto approved by Landlord), and (ii) any demolition,
preparation or other work required in connection therewith, including without
limitation, structural or mechanical work, additional HVAC equipment or
sprinkler heads, or modifications to any building mechanical, electrical,
plumbing or other systems and equipment or relocation of any existing sprinkler
heads, either within or outside the Premises required as a result of the layout,
design, or construction of the Work or in order to extend any mechanical
distribution, fire protection or other systems from existing points of
distribution or connection, or in order to obtain building permits for the work
to be performed within the Premises (unless Landlord requires that the Plans be
revised to eliminate the necessity for such work). The Cost of the Work shall
include a Landlord administrative fee equal to five percent (5%) of all other
amounts included in the Cost of the Work.
(b) Allowance. Landlord shall provide a construction allowance (the
"Allowance") of up to Thirty-Five Dollars ($35.00) per rentable square foot of
area within which the Work will be performed in the Premises (i.e., $483,700.00)
towards: (i) costs of the Space Plan and Construction Drawings, provided such
costs, as a share of the Allowance, shall not exceed Two and One-Half Dollars
($2.50) per rentable square foot (ie., $34,550.00), (ii) costs of permanent
leasehold improvements included in the Work, including labor, hardware,
equipment and materials, contractors' charges for overhead and fees, and general
conditions, and (iii) Landlord's costs and administrative fee, as described
above. The Allowance shall not be used for any other purpose, such as, but not
limited to, furniture, trade fixtures, cabling or personal property. If all or
any portion of the Allowance shall not be used, Landlord shall allocate to
Tenant the unused portion at a rate of One and One-Half Dollars ($1.50) per
rentable square foot of the Premises for payment of Tenant's real estate
consulting fees. If Landlord terminates the Lease or Tenant's right to
possession based on an Event of Default by Tenant, Tenant shall repay Landlord
on demand for the amount of the Allowance provided hereunder, as additional
damages, without in any way limiting Landlord's other rights or remedies.
(c) Tenant's Cost: Estimates and Payments. Any portion of the Cost of
the Work exceeding the Allowance is referred to herein as "Tenant's Cost."
Landlord may at any time estimate Tenant's Cost in advance, or revise any such
estimate, in which case, Tenant shall deposit the estimated amount (or the
increase reflected in any revised estimate) with Landlord within three (3) days
after Landlord so requests. If the Work involves progress payments, Landlord
shall apply the amounts deposited by Tenant first. If, after final completion
and payment for the Work, the actual amount of Tenant's Cost exceeds the
estimated amount, Tenant shall pay the difference to Landlord within three (3)
days after Landlord so requests. If such estimated amount exceeds the actual
amount of Tenant's Cost, Landlord shall provide a refund of the difference.
Tenant's Cost shall be deemed "rent" under the Lease (and all remedies for the
non-payment of rent shall be available to Landlord therefor), and Tenant's
obligations under the Lease to keep the Premises and Building free of liens
shall apply to any liens arising from any failure to pay Tenant's Cost
hereunder.
(d) Tenant's Approval and Nature of Cost Estimates. Landlord may
request Tenant's written approval of any cost estimate hereunder. Tenant shall
not unreasonably withhold such approval, and shall approve or disapprove the
same in writing within three (3) days after Landlord so requests. If Tenant
reasonably disapproves of any such estimate, Tenant shall meet with the Planner
and eliminate or substitute items in order to reduce Tenant's Cost in connection
with preparing a revised version of the Plans as a Change Order pursuant to
Section III above, but the foregoing dates to complete the Plans shall not be
extended thereby. Any cost estimates based on a Space Plan will be preliminary
in nature, and may not be relied on by Tenant. Any written estimate of Tenant's
Cost prepared by Landlord's
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contractor based on the approved Construction Drawings is also an estimate only
and not a price guaranty, and is subject to increases, including, but not
limited to, increases based on: (a) changes in the Construction Drawings or the
Work, (b) increases in costs of labor or materials or the delivery thereof, (c)
concealed conditions encountered on the job site, (d) new legal requirements
becoming effective following preparation of the estimate, (e) overtime labor
required in order to substantially complete the Work by the Commencement Date,
or (f) strikes, acts of God, shortages of materials or labor, or other causes
beyond Landlord's reasonable control.
V. CONSTRUCTION.
(a) Landlord to Arrange Work. Provided Tenant completes the Plans on
time and deposits with Landlord an amount equal to Landlord's estimate of
Tenant's Cost as provided above, and is not then in violation of the Lease
(including this exhibit), Landlord shall use reasonable efforts to cause
Landlord's contractor to substantially complete the Work by the Commencement
Date. Landlord reserves the right to substitute comparable or better materials
and items for those shown in the Plans, so long as they do not materially and
adversely affect the appearance of the Premises. Landlord shall use Skyline
Construction as its general contractor. Landlord's general contractor shall
competitively bid all major subcontractors.
(b) Landlord's Work. Landlord shall, at Landlord's sole expense, prior
to Tenant's taking occupancy of the Premises, complete any work in the restrooms
located in the Premises necessary to cause such restrooms to comply with
applicable building codes, including, without limitation, the Disabilities Act.
(c) Substantial Completion and Walk-Through. Landlord shall be deemed
to have "substantially completed" the Work for purposes hereof if Landlord has
caused the Work to be sufficiently completed such that Tenant can reasonably use
the Premises or complete any improvements or changes to the Premises to be made
by Tenant. When Landlord notifies Tenant that the Work has been substantially
completed, either party may request a joint walk-through inspection in order for
Tenant to identify any necessary final completion or other "punchlist" items.
Neither party shall unreasonably withhold approval concerning such items. If
Tenant fails to participate in a walk-through as provided above, or otherwise
fails to object to Landlord's notice of substantial completion in writing within
three (3) business days thereafter specifying in detail the items of work needed
to be performed in order for substantial completion, Tenant shall be deemed
conclusively to have agreed that the Work is substantially completed for
purposes of the Commencement Date and commencement of Rent under the Lease as of
the date set forth in Landlord's notice. If there is any dispute as to whether
Landlord has substantially completed the Work, Landlord may request a good faith
decision by Landlord's architect which shall be final and binding on the
parties.
(d) Final Completion. Substantial completion shall not prejudice
Tenant's rights to require full completion of any remaining items of Work, which
Landlord shall use reasonable efforts to complete promptly after substantial
completion has occurred. If Landlord notifies Tenant in writing that the Work is
fully completed, and Tenant fails to object thereto in writing within five (5)
business days thereafter specifying in detail the items of work needed to be
completed and the nature of work needed to complete said items, Tenant shall be
deemed conclusively to have accepted the Work as fully completed (or such
portions thereof as to which Tenant has not so objected). In connection with the
Work, Landlord: (1) shall cause building standard suite identification signage,
and building standard window blinds, to be installed (to the extent not already
existing), and (2) will cause a contractor to perform air balancing tests on the
Premises and adjust the HVAC system as a result thereof. The costs of such items
may be charged against the Allowance, and if the Allowance shall be
insufficient, Tenant shall pay Landlord for such costs as additional rent within
thirty (30) days after billed.
(e) Construction Delays. If the Work is not substantially completed by
the Commencement Date, commencement of Rent shall be postponed to the extent
that Tenant is unable to use the Premises as a result, except to the extent that
delays occur as a result of one or more of the following (collectively called
"Tenant Delays"): (1) Delays in Planning as described above (except for Landlord
Delays), (2) Tenant's requests for changes to the Work or Change Orders under
Section III, or otherwise, whether or not approved by Landlord, (3) Tenant's
failure to approve estimates of Tenant's
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Cost or furnish an amount equal to Landlord's estimate of Tenant's Cost within
the time required under Section IV (which shall give Landlord the absolute right
to postpone or suspend the Work until such amount is furnished to Landlord,
without limiting Landlord's other remedies), (4) any upgrades, special work or
other non-building standard items, or items not customarily provided by Landlord
to office tenants, to the extent that the same involve longer lead times,
installation times, delays or difficulties in obtaining building permits,
requirements for any governmental approval, permit or action beyond the issuance
of normal building permits (as described in Section III), or other delays not
typically encountered in connection with Landlord's standard office
improvements, (5) the performance by Tenant or Tenant's Contractors, agents or
employees of any work at or about the Premises or Building, or (6) any act or
omission of Tenant or Tenant's Contractors, agents or employees, or any breach
by Tenant of any provisions contained in the Lease, or any failure of Tenant to
cooperate with Landlord or otherwise act in good faith in order to cause the
Work to be designed and performed in a timely manner.
(f) Landlord's Role. The parties acknowledge that neither Landlord nor
its managing agent is an architect or engineer, and that the Work will be
designed and performed by independent architects, engineers and contractors.
Landlord and its managing agent shall have no responsibility for construction
means, methods or techniques or safety precautions in connection with the Work,
and do not guarantee that the Plans or Work will be free from errors, omissions
or defects, and shall have no liability therefor. In the event of such errors,
omissions or defects, Landlord shall cooperate in any action Tenant desires to
bring against such parties.
VI. WORK PERFORMED BY TENANT. Landlord, at Landlord's discretion, may
permit Tenant and any of Tenant's space planners, architects, engineers,
contractors, suppliers, employees, agents and other such parties (collectively,
"Tenant's Contractors") to enter the Premises prior to completion of the Work in
order to make the Premises ready for Tenant's use and occupancy. If Landlord
permits such entry prior to completion of the Work, then such permission shall
be deemed a license only and not a lease, and is conditioned upon: (a) Tenant
obtaining Landlord's prior written approval of such entry, Tenant's Contractors
and the work they will perform, and complying with all of the other requirements
of the Lease pertaining to work performed by Tenant in the Premises, all
insurance requirements under the Lease, and all other conditions imposed by
Landlord for the prior submission of security, affidavits and lien waivers or
otherwise in connection therewith, (b) Tenant and Tenant's Contractors working
in harmony and not interfering with Landlord and Landlord's space planners,
architects, engineers, contractors, suppliers, employees, agents and other such
parties (collectively, "Landlord's Contractors") in doing the Work or with other
tenants and occupants of the Building, and (c) Tenant paying for any utilities
and services consumed in connection with such work. If at any time such entry
shall cause or threaten to cause such disharmony or interference, or violate any
of the other foregoing requirements, in Landlord's sole opinion, Landlord shall
have the right to revoke such license immediately upon oral or written notice to
Tenant. Landlord shall not be liable in any way for any injury, loss or damage
which may occur to any decorations, fixtures, personal property, installations
or other improvements or items of work installed, constructed or brought upon
the Premises by or for Tenant or Tenant' Contractors prior to completion of the
Work, all of the same being at Tenant's sole risk, and Tenant hereby agrees to
protect, defend, indemnify and hold Landlord and its employees, agents, and
affiliates harmless from all liabilities, losses, damages, claims, demands, and
expenses (including attorneys' fees) arising from early entry to the Premises
pursuant hereto.
VII. MISCELLANEOUS.
(a) Interpretation. If this Work Letter is attached as an Exhibit to
an amendment to an existing lease ("Original Lease"), whether such amendment
adds space, relocates the Premises or makes any other modifications, the term
"Lease" herein shall refer to such amendment, or the Original Lease as amended,
as the context implies. By way of example, in such case, references to the
"Premises" and "Commencement Date" herein shall refer, respectively, to such
additional or relocated space and the effective date for delivery thereof under
such amendment, unless expressly provided to the contrary herein. Capitalized
terms not otherwise defined herein shall have the meanings ascribed thereto in
the Lease.
(b) Application. This Exhibit shall not apply to any additional space
added to the Premises at any time, whether by any options or rights under the
Lease or otherwise, or to any portion of
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the Premises in the event of a renewal or extension of the Term of the Lease,
whether by any options or rights under the Lease or otherwise, unless expressly
so provided in the Lease or any amendment or supplement thereto.
(c) Lease Provisions and Modification. This Exhibit is intended to
supplement and be subject to the provisions of the Lease, including, without
limitation, those provisions requiring that any modification or amendment be in
writing and signed by authorized representatives of both parties.
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TENANT EXPANSION AGREEMENT
THIS AGREEMENT made and entered into as of this 29th day of January, 1999,
by and between MARKET & SECOND, Inc., a Delaware corporation ("Landlord"), and
NextCard, Inc., a California corporation, successor in interest to Internet
Access Financial Corporation, Inc., a California corporation ("Tenant").
A. Landlord and Tenant have heretofore entered into that certain lease
dated September 27, 1997, for premises (the "Premises") described as Suite
1800, initially containing approximately 13,820 rentable square feet, in the
property known as 595 Market Street, San Francisco, CA (the "Building"), which
lease has hereto been amended by instrument dated May 2, 1998 and September 9,
1998 (collectively, the "Lease").
B. Tenant has requested that additional space in the Building consisting
of approximately 1,855 square feet of rentable space shown on Exhibit A,
attached hereto and incorporated herein (the "Expansion Space") be added to the
Premises, and that the Lease be appropriately amended, and Landlord is willing
to do the same, all on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, the parties do
hereby agree as follows:
1. EXPANSION. Effective as February 1, 1999 (the "Commencement Date"),
the Expansion Space shall be added to and become a part of the Premises,
subject to all of the terms and conditions of the Lease currently in effect,
except as expressly modified herein. Tenant's amended rentable square footage
during the term of this Tenant Expansion Agreement shall be 15,675 rsf.
2. TERM. The term of this Tenant Expansion Agreement for the Expansion
Space shall commence effective February 1, 1999 and shall terminate effective
February 28, 1999.
3. RENTALS AND OTHER CHARGES. The base monthly rent due under the Lease
for the Expansion Space shall be $7,110.83 for the period from February 1, 1999
through and including February 28, 1999. The rent payable by Tenant during any
holdover period shall be subject to the provisions of Article 18 of the Lease,
including the payment of holdover rent. The base rentals and all other charges
respecting the Expansion Space are sometimes herein called the "Expansion Space
Rent".
4. POSSESSION. Tenant is currently in possession of the Expansion Space
and has inspected the Expansion Space and agrees to accept the same "as is"
without any agreements, representations, understandings or obligations on the
part of Landlord to perform any alterations, repairs or improvements. Any
construction, alterations or improvements made to the Expansion Space by Tenant
shall be subject to Landlord's prior written approval including without
limitation, approval of the plans, specifications, contractors and
subcontractors therefor, and all applicable terms and conditions of the Lease
relating to construction, alterations or improvements of the Premises, and such
other reasonable requirements or conditions as Landlord may impose. During any
period that Tenant shall be permitted to enter the Expansion Space prior to the
Commencement Date other than to occupy the same (e.g., to perform alterations
or improvements), Tenant shall comply with all terms and provisions of the
Lease, except those provisions requiring payment of Expansion Space Rent.
5. WHOLE AGREEMENT. This Agreement and the Lease sets forth the entire
agreement between the parties with respect to the matters set forth herein.
There have been no additional oral or written representations or agreements. As
amended herein, the Lease between the parties shall remain in full force and
effect. In case of any inconsistency between the provisions of the Lease and
this Agreement, the latter
<PAGE> 50
provisions shall govern and control. Under no circumstances shall this
Agreement be deemed to grant any right to Tenant to further expand the Premises.
6. NOT AN OFFER. Submission of this Agreement by Landlord is not an
offer to enter this Agreement, but a solicitation for such an offer by Tenant.
Landlord shall not be bound by this Agreement until Landlord has executed and
delivered the same to Tenant.
IN WITNESS WHEREOF, the Landlord and Tenant have duly executed this
Agreement as of the day and year first above written.
WITNESSES; ATTESTATION
TENANT: LANDLORD:
NEXTCARD, INC. MARKET & SECOND, INC.
A CALIFORNIA CORPORATION A DELAWARE CORPORATION
By: /s/ [SIG] By: /s/ RON KILBY
---------------------- ----------------------
RON KILBY
Its: VP, Human Resources Its: Authorized Signatory
---------------------- ----------------------
By: /s/ [SIG] By: /s/ [SIG]
---------------------- ----------------------
Its: General Counsel & Its: Authorized Signatory
Secretary
---------------------- ----------------------
<PAGE> 51
EXHIBIT A
EXPANSION SPACE
[MAP OF FLOOR 22]
<PAGE> 52
[SILICON VALLEY BANK LETTERHEAD]
IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB98IS1090
BENEFICIARY: MARKET & SECOND, INC. SEPTEMBER 23, 1998
C/O GSIC REALTY CORP
255 SHORELINE DR., STE 600
REDWOOD CITY, CA 94065
AS "LANDLORD"
APPLICANT: INTERNET ACCESS FINANCIAL CORP.
595 MARKET ST. # 950
SAN FRANCISCO, CA 94105
AS "TENANT"
AMOUNT: USD 450,000.00
(FOUR HUNDRED FIFTY THOUSAND AND 00/100 USDOLLARS)
EXPIRY DATE: OCTOBER 31, 1999
LOCATION: AT OUR COUNTER IN SANTA CLARA
DEAR SIR/MAM:
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB98IS1090 IN
YOUR FAVOR. AVAILABLE BY PAYMENT WITH SILICON VALLEY BANK, 3003 TASMAN DRIVE,
SANTA CLARA, CA 95054, ATTN: INT'L DEPT. OF BENEFICIARY'S DRAFT AT SIGHT DRAWN
ON US, AND ACCOMPANIED BY THE FOLLOWING DOCUMENTS:
1. THE ORIGINAL OF THIS LETTER OF CREDIT AND AMENDMENT IF ANY.
2. A SIGNED AND DATED CERTIFICATION FROM THE BENEFICIARY STATING THE
FOLLOWING:
"(a). AN EVENT OF DEFAULT (AS DEFINED IN THE LEASE) HAS OCCURRED
BY INTERNET ACCESS FINANCIAL CORP. AS TENANT UNDER THAT
CERTAIN LEASE AGREEMENT BETWEEN TENANT, AND MARKET & SECOND,
INC., AS LANDLORD. FURTHERMORE THIS IS TO CERTIFY THAT: (I)
LANDLORD HAS GIVEN WRITTEN NOTICE TO TENANT TO CURE THE
DEFAULT PURSUANT TO THE TERMS OF THE LEASE; (II) SUCH
DEFAULT HAS NOT BEEN CURED UP TO THIS DATE OF DRAWING UNDER
THIS LETTER OF CREDIT; AND (III) THE TERMS AND CONDITIONS OF
THE LEASE AUTHORIZE LANDLORD TO NOW DRAW DOWN ON THE LETTER
OF CREDIT, OR
(b). LANDLORD HAS NOT RECEIVED A REPLACEMENT LETTER OF CREDIT OR
AN EXTENSION TO THIS LETTER OF CREDIT PURSUANT TO THE TERMS
OF THE LEASE BY THE DATE WHICH IS TEN (10) DAYS PRIOR TO
EXPIRATION OF THIS LETTER OF CREDIT, AND
(c). THIS IS TO CERTIFY THAT LANDLORD WILL HOLD FUNDS DRAWN
UNDER THIS LETTER OF CREDIT AS SECURITY DEPOSIT FOR TENANT
OR APPLY SAID FUNDS TO TENANT'S OBLIGATION UNDER THE LEASE."
PAGE 1 OF 2
<PAGE> 53
[SILICON VALLEY BANK LETTERHEAD]
IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB98IS1090
DATED SEPTEMBER 23, 1998
ALL DOCUMENTS INCLUDING DRAFT(S) MUST INDICATE THE NUMBER AND DATE OF THIS
CREDIT.
EACH DRAFT PRESENTED HEREUNDER MUST BE ACCOMPANIED BY THIS ORIGINAL LETTER OF
CREDIT FOR OUR ENDORSEMENT THEREON OF THE AMOUNT OF SUCH DRAFT(S).
DOCUMENTS MUST BE SENT TO US VIA OVERNIGHT COURIER (I.E. FEDERAL EXPRESS, UPS,
DHL OR ANY OTHER EXPRESS COURIER) AT OUR ADDRESS:
SILICON VALLEY BANK, 3003 TASMAN DRIVE, SANTA CLARA, CA 95054
ATTN: INTERNATIONAL DIVISION.
WE HEREBY ENGAGE WITH DRAWERS AND/OR BONAFIDE HOLDERS THAT DRAFT(S) DRAWN UNDER
AND NEGOTIATED IN CONFORMANCE WITH THE TERMS AND CONDITIONS OF THE SUBJECT
CREDIT WILL BE DULY HONORED ON PRESENTATION.
THIS CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY
CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION 500.
[SIG] [SIG]
- -------------------------------- -------------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
PAGE 2 OF 2
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EXHIBIT 10.7
NEXTCARD, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
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The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
Grant Number ------------------
Date of Grant ------------------
Vesting Commencement Date ------------------
Exercise Price per Share $
-----------------
Total Number of Shares Granted ------------------
Total Exercise Price $
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Type of Option: X Incentive Stock Option
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--- Nonstatutory Stock Option
Term/Expiration Date: ------------------
Vesting Schedule:
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule: Twenty-five percent (25%) of the Shares subject to
the Option shall vest twelve months after the Vesting Commencement Date, and one
thirty-sixth (1/36) of the remainder shall vest each month thereafter, subject
to Optionee's continuing to be a Service Provider on such dates.
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Termination Period:
This Option shall be exercisable for three (3) months after Optionee
ceases to be a Service Provider. Upon Optionee's death or disability, this
Option may be exercised for such longer period as provided in the Plan. In no
event may Optionee exercise this Option after the Term/Expiration Date as
provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option shall be exercisable by delivery
of an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise
Price.
No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise complies with Applicable laws. Assuming
such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
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3. Optionee's Representations. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
B.
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash or check;
(b) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(c) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
6. Restrictions on Exercise. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
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9. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of ISO Following Disability. If the Optionee ceases to
be an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a regular
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are held
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares. Any
additional gain will be taxed as capital gain, short-term or long-term depending
on the period that the ISO Shares were held.
(e) Notice of Disqualifying Disposition of ISO Shares. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
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10. Entire Agreement; Governing Law. The Plan is incorporated herein
by reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE: NextCard, Inc.
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Signature By
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Print Name Title
- ------------------------------
- ------------------------------
Residence Address
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EXHIBIT A
NEXTCARD, INC.
1997 STOCK PLAN
EXERCISE NOTICE
NextCard, Inc.
595 Market Street, Suite 1800
San Francisco, CA 94105
Attention: Secretary
1. Exercise of Option. Effective as of today,___________________(date),
the undersigned ("Optionee") hereby elects to exercise Optionee's option to
purchase _________________ shares of the Common Stock (the "Shares") of
NextCard, Inc. (the "Company") under and pursuant to the 1997 Stock Plan (the
"Plan") and the Stock Option Agreement dated ___________________ (the "Option
Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares shall be issued to
the Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance.
5. Company's Right of First Refusal. Before any Shares held by Optionee
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the
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Shares (the "Offered Price"), and the Holder shall offer the Shares at the
Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to any Shares upon the first sale of Common Stock of
the Company to the general public
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pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR,
IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER,
PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST
REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH
IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT
THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions
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of this Agreement or (ii) to treat as owner of such Shares or to accord the
right to vote or pay dividends to any purchaser or other transferee to whom such
Shares shall have been so transferred.
8. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
10. Governing Law; Severability. This Agreement is governed by the
internal substantive laws but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated
herein by reference. This Agreement, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.
Submitted by: Accepted by:
OPTIONEE NextCard, Inc.
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Signature By
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Print Name Its
Address: Address:
- ------------------------------ 595 Market Street, Suite 1800
San Francisco, CA 94105
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Date Received
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EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE: -----------------------------
COMPANY: NextCard, Inc.
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities. Optionee
is acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, a legend prohibiting their
transfer without the consent of the Commissioner of Corporations of the State of
California and any other legend required under applicable state securities laws.
<PAGE> 11
(c) Optionee is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
------------------------------
Date:
-------------------------
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ACTION BY UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF DIRECTORS OF
NEXTCARD, INC.
FEBRUARY 9, 1999
In accordance with Section 307(b) of the California Corporations code and
Article III, Section 12 of the Bylaws of NextCard, Inc., a California
corporation (the "Company"), the undersigned, constituting all of the directors
of the Company, hereby adopt the following resolutions by unanimous written
consent:
COMPENSATION COMMITTEE
WHEREAS, this Board of Directors acknowledges its previous
creation of a Compensation Committee as serving the best interests of
the Company and its shareholders;
NOW THEREFORE BE IT RESOLVED that, pursuant to Article IV,
Section 4.1 of the Bylaws of the Company, this Board of Directors
hereby acknowledges the previous establishment by it (and ratifies such
establishment) of a Compensation Committee (the "Committee"), composed
of Messrs. Jeff Brody and Bruce Rigione; and
RESOLVED FURTHER, that, in particular, the Committee shall
have the right and authority, on behalf of the Company, to negotiate,
authorize, enter into, and direct the entering into of any and all
employment and compensatory arrangements with the Company's President
and Chief Executive Officer, including without limitation, a written
employment agreement.
This unanimous written consent may be executed in one or more counterparts, each
of which shall be an original document and all of which, when taken together,
shall constitute a single instrument. This unanimous written consent is
effective as of the date first set forth above.
/s/ JEREMY LENT /s/ JEFFREY D. BRODY
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Jeremy Lent, Chairman Jeffrey D. Brody
/s/ ALAN COINER /s/ TOD FRANCIS
- ------------------------------ ------------------------------
Alan Coiner Tod Francis
/s/ SAFI QURESHEY /s/ BRUCE RIGIONE
- ------------------------------ ------------------------------
Safi Qureshey Bruce Rigione
<PAGE> 1
EXHIBIT 10.8
CONSUMER CREDIT CARD PROGRAM AGREEMENT
This Agreement (the "AGREEMENT") is made this 25th day of
November, 1997 (the "EFFECTIVE DATE") between Internet Access Financial
Corporation ("IAFC"), a California corporation, and Heritage Bank of Commerce
("HERITAGE"), a California state-chartered bank.
WHEREAS, IAFC has developed a program pursuant to which consumers
may be offered an opportunity to apply for and maintain an open end, revolving
VISA credit card account through which credit may be extended for personal,
family, or household use; and
WHEREAS, Heritage is a VISA member and wishes to issue VISA
credit cards to customers solicited by IAFC and approved by Heritage; and
WHEREAS, Heritage and IAFC wish to cooperate in a deposit-raising
program in support of the credit card program contemplated by the parties,
NOW, THEREFORE, the parties agree as follows:
1. Definitions.
a. "ACCOUNT" means an open-end, revolving VISA
"NextCard"-branded credit card account opened by Heritage pursuant to an
Application solicited by IAFC, other credit card accounts opened pursuant to the
Program, and any Heritage- or IAFC-owned credit accounts into which Accounts may
from time to time be converted.
b. "APPLICABLE LAW" means any federal, state, or local
law, statute, rule or regulation, or judicial, governmental, or administrative
order, decree or ruling, applicable to the Program or the actions of either
party to this Agreement in the performance of their respective obligations
hereunder.
c. "APPLICANT" means any person who submits an
Application.
d. "APPLICATION" means an application referred by IAFC to
Heritage to open an Account under the Program.
e. "CARD" means a VISA credit card issued by Heritage to
Cardholders under the Program.
f. "CARDHOLDER" means any person for whom Heritage opens
an Account under the Program.
g. "CHARGEABLE HERITAGE PROGRAM EXPENSES," for any month,
means (i) the sum of the Loan Loss Provision, Cost of Funds, Program fraud
losses for such month and the Servicing Costs, plus (ii) the lesser of (A)
actual Heritage Program Expenses for such month, or (B) the Heritage Program
Expense Cap for such month. For this purpose, "Heritage Program Expenses" means
reasonable variable expenses incurred by Heritage in
<PAGE> 2
connection with establishing and administering the Program and servicing Program
Deposits. Heritage Program Expenses are limited to marginal costs incurred by
Heritage in connection with the Program. Heritage Program Expenses will include,
without limitation, legal expenses relating to the Program and the drafting and
negotiation of this Agreement. Heritage Program Expenses will not include
non-Program-related Heritage costs.
h. "CHARGEABLE IAFC PROGRAM EXPENSES," for any month,
means the lesser of (i) actual IAFC Program Expenses, or (ii) the IAFC Program
Expense Cap for such month. For this purpose, "IAFC Program Expenses" means the
reasonable variable expenses incurred by IAFC in connection with the promotion
of the Program and servicing of Cardholders and Program depositors, including,
without limitation the cost of maintaining the Program Web site, developing,
printing, and distributing Program Materials, and any costs associated with the
ongoing analysis, targeting and management of the customer relationship. IAFC
Program Expenses are limited to marginal costs incurred by IAFC in connection
with the Program. IAFC Program Expenses will include, without limitation, legal
expenses relating to the Program and the drafting and negotiation of this
Agreement. IAFC Program Expenses do not include non-Program-related IAFC costs.
i. "COMMENCEMENT DATE" means the first date that
Applications are accepted under the Program.
j. "COST OF FUNDS" means accrued interest on Program
Deposits, plus associated regulatory charges where charges are based on the
amount of average or period-end deposits.
k. "CUT-OFF AMOUNT" means the target level of originations
of Program Assets that, assuming asset growth, will in time result in Program
Assets approximating the Maximum Program Size. The Cut-Off Amount will be agreed
upon by the parties from time to time.
l. "EXCESS DEPOSITS" means the amount by which Program
Deposits exceed Program Assets.
m. "FEES" means any accrued fees owed by a Cardholder
related to his or her Account, including, without limitation, late fees,
overlimit fees and other amounts paid by a Cardholder pursuant to the
Cardholder's Account agreement.
n. "FINANCE CHARGE" means interest accrued on Program
Assets, as defined under Section 226.4 of the Federal Reserve Board's Regulation
Z.
o. "FULLY ORIGINATED" is defined in paragraph 4.b.
p. "FUNDING CONSTRAINT" is defined in paragraph 4.c.
q. "HERITAGE PROGRAM EXPENSE CAP" shall mean: (i) [ * ]
per month for the period from December 1, 1997 through March 31, 1998; (ii)
[ * ] per month for the
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
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period from April 1, 1998 through December 31, 1999; and (iii) [ * ] per month
for the period from January 1, 2000 through December 31, 2002. To the extent
that the parties agree in writing, such agreement not to be unreasonably
withheld, the Heritage Program Expense Cap may be changed for any month.
r. "IAFC PROGRAM EXPENSE CAP" shall mean: (i) [ * ] per
month for the period from December 1, 1997 through March 31, 1998; (ii) [ * ]
per month for the period from April 1, 1998 through December 31, 1998; (iii)
[ * ] per month for the period from January 1, 1999 through December 31, 1999;
and (iv) [ * ] per month for the period from January 1, 2000 through December
31, 2002. To the extent that the parties agree in writing, such agreement not to
be unreasonably withheld, the IAFC Program Expense Cap may be changed for any
month.
s. "INTERCHANGE INCOME" means amounts accrued through the
VISA settlement system and payable to Heritage by a Third Party Data Processor
with respect to a Customer's transactions.
t. "INTEREST RECEIVED ON EXCESS DEPOSITS" means the
interest accrued on the balance of the Excess Deposits during any calendar
month.
u. "LOAN LOSS PROVISION" means, for any month, the amount
expensed during such month for actual or anticipated losses (including without
limitation fraud losses) in the Program's loan portfolio. The amount expensed
will be the sum of the actual charge-offs experienced in the accounting period
plus or minus an amount added to or subtracted from the Loan Loss Reserve
according to GAAP and RAP.
v. "LOAN LOSS RESERVE" means the reserve established for
anticipated (as distinguished from actual) losses in the Program's loan
portfolio, as mutually agreed by IAFC and Heritage, according to GAAP and RAP.
w. "MAXIMUM PROGRAM SIZE" means the maximum level of
Program Assets agreed to by the parties from time to time, as provided in
paragraph 4.a.
x. "PERFORMANCE SHORTFALL" means a material failure of the
Program to meet the financial expectations set forth in the Program Pro Forma
which failure presages, in the reasonable judgment of a party, significant
long-term underperformance of the Program.
y. "PRICING ALGORITHM" is defined in paragraph 8.b.
z. "PROGRAM PRO FORMA" means the pro forma spreadsheet
attached as Exhibit "A." The Program Pro Forma shows the parties' expectations
with regard to the financial performance of the Program.
aa. "PROGRAM" means the program pursuant to which IAFC
will solicit, and Heritage will accept, Accounts and Deposits.
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
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ab. "Program Assets" means the aggregate outstanding
balances from time to time of receivables in connection with the Accounts;
provided, however, that, for purposes of calculating the Cut-off Amount and
Maximum Program Size, the term "Program Assets" will be deemed to exclude
Account balances which have been charged off.
ac. "PROGRAM DEPOSITS" means certificates of deposits and
other deposits raised from institutional or individual customers through
national deposit-raising efforts by or through IAFC, and all renewals of such
deposits and accounts. "Program Deposits" will include deposits designated by
Heritage pursuant to paragraph 9.e.
ad. "PROGRAM EARNINGS (LOSSES)," for any month, will mean
(i) Program Revenues for such month minus (ii) the sum of (A) Chargeable
Heritage Program Expenses and (B) Chargeable IAFC Program Expenses for such
month.
ae. "PROGRAM MATERIALS" is defined in paragraph 7.a.
af. "PROGRAM REVENUES" means all revenues accrued from (i)
Finance Charges and Fees charged on Accounts, (ii) Interest Received on Excess
Deposits, and (iii) Interchange Income.
ag. "ORIGINATION SUSPENSION" is defined in paragraph 5.a.
ah. "SERVICING COSTS" means amounts paid by Heritage to
IAFC or a Third Party Data Processor for servicing the Accounts, including but
not limited to processing Applications, servicing and support of Program Assets,
collection activities, and credit bureau reports on Applicants.
ai. "THIRD PARTY DATA PROCESSORS" means any third party
providing any of the data processing services described in either Section 6.b or
Section 7.c.
aj. "UNDERWRITING ALGORITHM" is defined in paragraph 3.a.
2. Solicitation of Accounts.
a. IAFC will use direct marketing channels, including the
Internet, to solicit potential Applicants to submit Applications to open
Accounts. IAFC's Internet marketing activities may include, in IAFC's
discretion, targeted e-mail solicitations, banner advertising, hyperlinks, and
agreements with other sites and companies on the Internet. The Accounts and
Cards offered under the Program will include Internet-enhanced features,
including online approval, online balance transfers, and online customer
service. IAFC may, in consultation with Heritage, from time to time implement
additional Internet-enhanced features.
b. All advertising and marketing materials will indicate
that Heritage is the issuer of Cards under the Program and the party with whom
the Accounts are maintained.
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c. IAFC does not warrant or guarantee that it will
generate any particular number of Applications or Accounts under the Program.
This negative representation is not meant to exclude or limit any right either
party may have under any other paragraph of this Agreement.
3. Approval of Applications and Acceptance of Accounts.
a. IAFC will propose an Underwriting Algorithm (the
"UNDERWRITING ALGORITHM") to manage the underwriting of Applications. The
Underwriting Algorithm will determine whether a prospective Cardholder will be
approved, and will determine the credit line for an approved Cardholder. The
Underwriting Algorithm will use data supplied by the prospective Cardholder and
by at least one of the three of the following national credit bureaus:
TransUnion; Equifax; or Experian.
b. Prior to the Commencement Date, Heritage will review
and approve the Underwriting Algorithm.
c. IAFC will process each Application using the
Underwriting Algorithm. Provided that an Application meets the underwriting
criteria contained in the Underwriting Algorithm, Heritage will approve such
Application and open an Account with the credit line as determined by the
Underwriting Algorithm for such Customer. However, Heritage will have no
obligation to approve Applications during an Origination Suspension or after
termination of this Agreement.
d. The Card will be issued by Heritage and will bear
IAFC's "NextCard" brand name. All assets and liabilities relating to the Program
will be reflected on the books of Heritage.
e. Either party may from time to time propose to the other
in writing changes in the Underwriting Algorithm that (i) the parties mutually
agree would improve the economic performance of the Program or (ii) cause the
Program to comply with the requests or directions of the banking regulators.
f. IAFC will from time to time provide to Heritage
analyses concerning the performance of the Underwriting Algorithm and the
performance of the marketing programs and other Account acquisition costs and
expenses.
g. The parties will cooperate in good faith to ensure that
the Underwriting Algorithm and other procedures related to the processing of
Applications and establishment of Accounts are in compliance with all fair
lending and other applicable federal and California banking laws and
regulations. The parties intend that the Underwriting Algorithm, all
solicitations and evaluations of Applications, opening of Accounts, and
extensions of credit under the Program will comply with applicable law,
including laws proscribing discrimination on the basis of race, color, religion,
national origin, sex, marital status, or age.
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4. Maximum Program Size and Funding Constraints.
a. The Maximum Program Size is set initially at [ * ]
million. The parties will set a Cut-Off Amount by agreement prior to the time
Program Assets exceed [ * ] million. The parties may change the Maximum Program
Size or the Cut-Off Amount by agreement at any time.
b. At any time when Program Assets materially exceed the
Cut-Off Amount, the Program will be deemed to be "FULLY ORIGINATED."
c. A "FUNDING CONSTRAINT" will be deemed to exist from the
time when Program Assets exceed Program Deposits by more than [ * ] until
the time when sufficient additional Program Deposits are raised such that
Program Deposits substantially equal Program Assets. Heritage may by written
notice to IAFC declare that a Funding Constraint does not exist, notwithstanding
the existence of the condition stated in the preceding sentence.
5. Suspension of Originations.
a. Either party may (i) effective upon the giving of
written notice (if either the Program is Fully Originated or the regulators have
directed changes in the Underwriting Algorithm that, in the reasonable judgment
of either party are likely to result in a Performance Shortfall), or (ii)
effective upon 90 days prior written notice (in all other cases), declare an
"ORIGINATION SUSPENSION" if, at the time such notice is given: (i) the Program
is experiencing, or may reasonably be expected to experience, a Performance
Shortfall and the parties are unable to agree on changes to the terms of the
Underwriting Algorithm, the Pricing Algorithm or the terms and conditions
governing the Accounts; (ii) there exists a Funding Constraint; (iii) the
Program is Fully Originated; or (iv) there exists a Performance Shortfall. An
Origination Suspension will also automatically occur upon termination of this
Agreement.
b. For purposes of this paragraph, the effect of an
Origination Suspension will be that (i) IAFC will have no further obligation to
solicit Applications and otherwise market the Program under paragraph 2; (ii)
Heritage will have no further obligation to accept Applications and open
Accounts under paragraph 3; (iii) IAFC will have no further obligation to
solicit, and Heritage will have no further obligation to accept, Program
Deposits under paragraph 9; and (iv) the restrictions in paragraph 15 on IAFC's
right to market or sponsor competitive programs will lapse. All of the parties'
other rights and obligations under this Agreement will remain in effect
notwithstanding the pendency of an Origination Suspension.
c. An Origination Suspension will terminate, and the
parties' duties referred to in paragraph 5.b will be reinstated, if the
condition that precipitated the Origination Suspension ceases to exist and the
party responsible for declaring the Origination Suspension notifies the other
party; provided, however, that if any Origination Suspension
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
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<PAGE> 7
shall last more than sixty (60) calendar days, such termination and
reinstatement will only occur if the parties mutually agree in writing.
6. Additional Heritage Obligations.
a. Prior to the Commencement Date, Heritage will become a
member of VISA. Heritage will maintain its membership in VISA in good standing
during the term of this Agreement.
b. Heritage will enter into such contractual relationships
with Third Party Data Processors as shall be mutually agreed to by IAFC and
Heritage as may be necessary or appropriate to ensure (1) management of the
applications process, (2) settlement of payments as between Cardholders and
Heritage, (3) settlement of payments as between Heritage and its merchant
creditors, and (4) any other feature required to implement or operate the
Program. Heritage will maintain such contractual relationships in good standing
during the term of the Program.
7. Additional IAFC Obligations.
a. IAFC will create, maintain, and update the form of
Applications, advertising, Web sites and content, disclosures, Account
agreements, Account statements, billing and collection notices, and other
documentation relating to the Accounts ("PROGRAM MATERIALS"). In its discretion,
IAFC may acquire some or all of the Program Materials from one or more third
parties. IAFC may offer online delivery of Program Materials. Heritage will have
the right to approve all Program Materials, provided that such approval will not
be unreasonably withheld.
b. IAFC will be responsible for Account collection
activities. All Account collection activities will be conducted in accordance
with Applicable Law. IAFC may utilize the services of Third Party Data
Processors to perform certain collection activities. Heritage will have the
right to approve the collection policies used in the Program, provided that such
approval will not be unreasonably withheld.
c. IAFC will enter into such contractual arrangements with
Third Party Data Processors (including but not limited to the three major credit
bureaus) as may be necessary or appropriate to ensure (1) management of the
applications process, (2) settlement of payments as between Cardholders and
Heritage, (3) settlement of payments as between Heritage and its merchant
creditors, and (4) any other feature required to implement or operate the
Program. IAFC will maintain such contractual relationships in good standing
during the term of the Program
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<PAGE> 8
8. Terms and Conditions of the Accounts; Pricing.
a. Heritage and IAFC will determine by mutual agreement
the terms and conditions to be offered to Cardholders under the Program,
including the credit limit, annual percentage rate to be charged on Accounts,
Fees and minimum monthly payment rates.
b. IAFC will propose an algorithm pursuant to which the
interest rates and certain other charges on the Accounts will be set (the
"PRICING ALGORITHM"). The Pricing Algorithm will include ranges of pricing
elements to provide flexibility for marketing tests and differing market
conditions. Heritage will approve the Pricing Algorithm prior to the
Commencement Date.
c. Either party may from time to time propose to the other
changes in the Account terms and conditions or the Pricing Algorithm that would
improve the economic performance of the Program. Such changes will subject to
the approval of both parties.
9. Deposit-Raising Activities.
a. Heritage and IAFC will target the monthly average
amount of Program Deposits to be within [ * ] of the monthly average amount of
Program Assets. Program Deposits are initially expected to be in the form of
institutional certificates of deposit.
b. IAFC will use its reasonable efforts to assist Heritage
in raising Program Deposits. IAFC will not solicit Program Deposits during any
period when an Excess Deposit Constraint exists. An "EXCESS DEPOSIT CONSTRAINT"
will be deemed to exist from the time when Program Deposits exceed Program
Assets by more than [ * ] until the time when Program Deposits exceed Program
Assets by less than [ * ]. Heritage may by written notice to IAFC declare that
an Excess Deposit Constraint does not exist, notwithstanding the existence of
the above conditions.
c. The parties will cooperate in facilitating the raising
of deposits. Heritage will use its ITI deposit system and provide wire services
for the raising of Program Deposits, statementing and tax reporting. Heritage
will provide reasonable assistance to support the marketing of Program Deposits,
including, but not limited to, supplying financial statements and other
materials and discussing financial results with potential depositors.
d. Heritage and IAFC will consult with each other on the
setting of interest rates for Program Deposits, in conjunction with Heritage's
weekly pricing committee.
e. Subject to IAFC's approval, from time to time Heritage
may designate as Program Deposits deposits not solicited by IAFC for a specified
period. The foregoing notwithstanding, Heritage may not so designate or
originate Program Deposits if such designation or origination would cause
Program Deposits to exceed Program Assets by more than [ * ] of the amount of
such Program Assets.
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
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<PAGE> 9
f. Excess Deposits will be invested in short-term,
low-risk investments in a manner consistent with Heritage's
investment policy until such time as they are required to fund Program Assets.
g. IAFC and Heritage will attempt to structure the Program
Deposit program to avoid the deposits being considered "brokered deposits" for
regulatory purposes. However, the parties acknowledge that there is no assurance
as to the classification of the Program Deposits. The classification of Program
Deposits as brokered deposits will not excuse Heritage's obligation to accept
Applications and open Accounts as long as Heritage remains a "well-capitalized"
financial institution as defined in the Federal Deposit Insurance Corporation
Improvement Act.
h. Heritage will use its reasonable best efforts to
maintain sufficient capital to be considered "well capitalized" in order to help
facilitate the Program Deposit raising activities. If and for so long as
Heritage is not considered "well capitalized," IAFC will be relieved of any
obligations in connection with the solicitation of Program Deposits to the
extent that such obligations could reasonably be determined to be "deposit
broker" activities, as defined in the Federal Deposit Insurance Act.
i. IAFC does not warrant or guarantee that it will
generate any particular level of Program Deposits.
10. Commencement Date.
a. Each of the parties will use commercially reasonable
efforts to cause the Commencement Date to occur and to commence offering
Accounts and accepting Program Deposits by December 8, 1997. If the Commencement
Date does not occur by March 31, 1998 despite each party's performance of its
duties hereunder, either party may terminate this Agreement pursuant to the
terms of paragraph 19.a(2). The preceding sentence shall not be construed as
excusing or relieving any party of any undertaking or obligation assumed under
this Agreement.
11. Regulatory Compliance.
a. IAFC will be responsible for compliance of the Program
Materials with federal and state Applicable Law. IAFC will also be responsible
for compliance of the Program with federal and state Applicable Law relating to
consumer credit and consumer debt collection. The foregoing notwithstanding,
IAFC will not be responsible for Heritage's failure to act in compliance with
Applicable Law.
b. Heritage will be responsible for the Program's
compliance with banking laws and regulations applicable to it (other than
consumer credit laws and regulations).
12. Servicing of Accounts. IAFC and Heritage, as the case may
be, will
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<PAGE> 10
contract with one or more Third Party Data Processors in order to ensure that
the Accounts originated pursuant to the Program are serviced in accordance with
industry standards for the servicing of such Accounts.
13. Sharing of Program Revenues and Expenses. It is the express
intent of this Agreement that the parties will share equally in the Program
revenues and expenses.
a. On a monthly basis, IAFC will provide to Heritage a
statement in reasonable detail itemizing the IAFC Chargeable Program Expenses.
b. Within 15 business days after receiving the statement
of IAFC Chargeable Program Expenses, Heritage will deliver to IAFC a monthly
profit and loss statement (the "Monthly P&L") setting forth Program Revenues,
IAFC Chargeable Program Expenses, Heritage Chargeable Program Expenses, and
Program Earnings (Losses). The Monthly P&L will include an attachment itemizing
in reasonable detail the Heritage Chargeable Program Expenses.
c. The Monthly P&L will also include a calculation
indicating for such month whether Heritage owes money to IAFC,
or IAFC owes money to Heritage. The rules set forth below provide an example of
how program revenues and expenses will be equally shared.
(1) If Program Revenues ("PR") exceed the
difference between Heritage Chargeable Program Expenses
("HCPE") and IAFC Chargeable Program Expenses ("ICPE"),
Heritage will pay to IAFC 50% of such difference:
For example, if PR for a month are 150, HCPE is 110, and ICPE is
20, Heritage would pay to IAFC 50% x [150 - (110-20)] = 30, and
Heritage would retain the remaining 120 of PR.
(2) If PR does not exceed [HCPE -ICPE], IAFC will
pay to Heritage 50% of such difference:
For example, if PR is 80, HCPE is 110, and ICPE is 20, IAFC would
pay 50% x [(110-20) - 80] = 5.
d. Amounts payable as indicated in the Monthly P&L will be
due and payable upon delivery of the Monthly P&L to IAFC (if money is due IAFC),
or 30 days after such delivery (if money is due Heritage). Amounts not paid by
such date will bear interest at the rate of 1.5% per month until paid. The
foregoing notwithstanding, such amounts will accrue for the period from the
Commencement Date until April 1, 1998, and the cumulative accrued amounts will
be due and payable on the normal billing cycle after such period.
e. Payment obligations arising under this paragraph will
continue notwithstanding the pendency of an Origination Suspension. Upon
termination of this Agreement, neither party will have any further obligation to
make payments other than
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obligations that have accrued prior to termination.
14. Trademarks and Other Intellectual Property.
a. Trademarks.
(1) Heritage acknowledges that, as between IAFC
and Heritage, IAFC owns and will own the service marks "NextBank," "NextCard,"
"Credit Choice," and derivatives of the foregoing, and any other presently
existing or future trademarks, service marks, trade names, rights in packaging,
rights of publicity, merchandising rights, advertising rights, and similar
rights by which the Program is or becomes known or with which the Program is or
becomes associated, other than the mark "Heritage" and derivatives thereof
(collectively, the "IAFC Marks").
(2) Heritage acknowledges that IAFC owns all
rights in the URL addresses used in conjunction with the Program, including
without limitation "nextcard.com," "nextbank.com," and "creditchoice.com."
(3) IAFC acknowledges that Heritage owns the
service mark "Heritage," and derivatives thereof (collectively, the "Heritage
Marks").
(4) All goodwill that is or becomes associated
with the above-referenced marks as a result of the use of such marks in
association with the Program will accrue solely to the benefit of the respective
owner of such marks. After termination of this Agreement, either party may use
its marks free of any claim whatsoever of ownership or interest by the other
party.
(5) Heritage hereby licenses IAFC during the term
of this Agreement the use of the "Heritage" mark solely in connection with the
performance of its marketing and other obligations hereunder. Specifically, IAFC
may use the "Heritage" mark in any marketing or advertising materials relating
to the Program. IAFC will follow Heritage instructions regarding the appearance,
use, and display of such mark.
(6) IAFC hereby licenses to Heritage during the
term of this Agreement the use of the Program Materials and the mark "NextCard"
to identify the Card and the Program. Heritage will follow IAFC's instructions
regarding the appearance, use, and display of such mark.
b. Copyright. IAFC will own all copyrights in all Program
Materials and derivative works thereof.
15. Activities Outside the Program. IAFC may during the term
hereof engage in origination, marketing, and other activities with respect to
credit card, loan, or deposit-taking programs offered by IAFC's own bank,
whether or not such activities and programs compete with the Program; provided,
however, that IAFC's competitive activities may not create a Performance
Shortfall. Until the Program Assets exceed the Cut-Off Amount, IAFC
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<PAGE> 12
will direct at least [ * ] of the credit card approvals it generates to the
Program; provided, that this obligation will lapse after the effective date of
an Origination Suspension. IAFC will not be restricted with regard to marketing
or sponsoring competitive programs in association with third parties after the
effective date of an Origination Suspension. IAFC may use the IAFC Marks in
connection with competitive activities and programs permitted by this paragraph.
IAFC will from time to time notify Heritage of its progress in purchasing its
own bank, and when it has entered into a definitive agreement to purchase a
financial institution and that information is made publicly available.
16. Ownership and Use of Program Information.
a. Cardholder names, postal and electronic mail addresses,
telephone numbers and Cardholder-specific transaction information will be
referred to collectively as "CARDHOLDER-SPECIFIC INFORMATION," and will be owned
by Heritage. IAFC will have a perpetual, unrestricted license (i) during the
term of this Agreement, to use the Cardholder-Specific Information for Program
purposes, including but not limited to the servicing of the Accounts, and (ii)
following the termination of this Agreement, to use the Cardholder-Specific
Information only for statistical and analytic purposes.
b. All information (other than Cardholder-Specific
Information) acquired through the Program or concerning the Accounts will be
referred to collectively as "PROGRAM INFORMATION." Program Information will
include the Cardholder-Specific Information to the extent that the
Cardholder-Specific Information is redacted to mask any correlation between the
Cardholder-Specific Information and the identity of any specific Cardholder.
IAFC and Heritage will own jointly the Program Information, and each party may
use the Program Information for its own purposes; provided, that each party will
treat any Program Information in its possession at any time as Program
Proprietary Information.
c. Heritage and IAFC (i) acknowledge that the Program
Information will be used by each of them to create certain analyses and
statistical models which may have predictive value beyond the Program, and (ii)
agree that such analyses and statistical models will be the sole and exclusive
property of the party creating such analyses and statistical models and will be
treated as Party Proprietary Information. IAFC represents and warrants to
Heritage that no such analyses or statistical models will include information
that is identified with any specifically identifiable Cardholder.
d. During the term of this Agreement, (i) IAFC shall not
use the Program Information to market any proprietary or third party product,
other than pursuant to the Program, without first having obtained the written
consent of Heritage, and (ii) Heritage shall not use the Program Information to
market any proprietary or third party product which competes with the products
or services offered pursuant to the Program. After the termination of the
Program, the non-acquiring party may not use the Program Information to market
any proprietary or third party product to customers of the acquiring party
without first having obtained the written consent of the acquiring party;
provided, that Heritage may market any proprietary or third party product to any
Cardholder with whom it has developed an independent business relationship.
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
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17. Reporting, Recordkeeping, and Audit Rights.
a. Reporting. Heritage will generate, on a monthly basis,
a Balance Sheet and Profit and Loss Statement for the Program. Key asset,
liability, income and expense items will be detailed on such statement. IAFC and
Heritage will work to develop the form of the statement prior to the end of the
first calendar month after the Commencement Date.
b. Recordkeeping. Heritage will create and maintain
records in reasonable detail concerning all Accounts, Program Deposits, and
transactions related to the Program. Such recordkeeping will (i) be sufficient
to meet all GAAP and RAP requirements, and (ii) segregate Program-related
assets, liabilities, revenues and expenses from non-Program-related Heritage
activities. Heritage will maintain records of Program-related assets,
liabilities, income, and expenses at a reasonable level of detail. IAFC will
assist Heritage in setting up general ledger and other accounts at Heritage for
the proper monitoring and accounting of the Program. IAFC will arrange, as
Heritage's agent, for appropriate training of Heritage personnel by FDR. IAFC
will comply with all reasonable requests by Heritage for information required so
that Heritage may fulfill its recordkeeping responsibilities.
c. Financial Statements. Each of Heritage and IAFC will
provide to the other on a quarterly basis unaudited financial statements. Such
obligation will terminate upon the effective date of an Origination Suspension.
d. Audit Rights. Either party, through its employees,
accountants, or agents, may audit the other's relevant records to the extent
reasonably necessary to verify the accuracy of reports and statements relating
to Accounts, Program Deposits, Program Revenues and Earnings, Chargeable Program
Expenses, and transactions originating with or effected through the Program. A
party may exercise its audit rights upon reasonable written notice during normal
business hours and in a manner that does not unreasonably burden the party being
audited. A party may conduct the audit either through its employees or its
authorized representatives.
18. Representations and Warranties.
a. Each party represents and warrants that (i) it is a
corporation duly incorporated, or an entity duly organized, under the laws of
the jurisdiction where it is incorporated or organized, is validly existing and
in good standing under the laws of such jurisdiction, and has and will have at
all times during the term hereof all requisite power and authority, corporate or
otherwise, to perform its obligations under this Agreement; (ii) the execution
and delivery of this Agreement has been approved by all necessary corporate
action; and (iii) the Agreement is enforceable against such party in accordance
with its terms, except as limited by bankruptcy and other laws of general
application relating to insolvency or the protection of creditors' rights.
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b. Each party represents and warrants that the execution,
delivery, and performance by such party of this Agreement will not (i) conflict
with or result in a breach of or constitute a default under or result in the
termination of any contract, agreement, or other instrument to which such party
is a party or by which it is bound or to which any of its assets are subject, or
result in the creation of any lien or encumbrance upon any of said party's
assets, or impair the ability of the parties hereto to perform their obligations
under the Agreement; or (ii) conflict with, violate, or result in a breach of or
constitute a default under any judgment, order, decree, law, rule, regulation,
or other restriction of any court, government or governmental agency to which
such party is subject.
c. Each party represents and warrants that the execution,
delivery, and performance by such party of this Agreement will not require the
consent or approval of any governmental agency or other regulatory authority
with jurisdiction over such party, or if such consent or approval is required,
such consent or approval has been obtained.
d. Heritage represents and warrants that it is a bank duly
chartered under the laws of the State of California, and that as of the
Effective Date its regulatory classification is "well-capitalized."
19. Term and Termination
a. The term of this Agreement will commence on the date
first set forth above and will continue indefinitely until terminated in
accordance with the following provisions:
(1) By mutual agreement of the parties;
(2) By either party effective 90 days after the
giving of written notice if the Commencement Date has not occurred by March 31,
1998; provided, however, that neither party will have the right to terminate
this Agreement under this subparagraph after the Commencement Date actually
occurs;
(3) At any time after the Program Assets first
equal or exceed the Cut-Off Amount, by either party effective upon written
notice to the other party if Program Assets are then less than 10% of the
Maximum Program Size;
(4) If a party is in material breach of any of its
material obligations under this Agreement the other party may give written
notice to the party in default citing this section and specifying in detail the
nature of the breach. The party in default will have 60 days in which to cure
such breach, or, if such breach cannot be completely cured within such period, a
reasonable time (but no more than 90 days) to cure such breach as long as the
party in default is diligently pursuing the cure of such breach (the "Cure
Period"). If the party in default has not cured the default within the Cure
Period, the other party may terminate this Agreement upon the giving of written
notice to the party in default; and
14
<PAGE> 15
(5) By either party, if the other party (i)
generally becomes unable to pay its debts when due whether or not said debts are
subject to a bona fide dispute, otherwise becomes insolvent or admits in writing
that it is insolvent; (ii) makes a general assignment for the benefit of
creditors; (iii) enters into a composition agreement or similar agreement for
the compromise and settlement of claims of its creditors; (iv) makes a general
assignment to an agent authorized to liquidate any substantial amount of its
property; (v) files, or consents to the filing of, any proceeding, petition or
case under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors which
constitutes the commencement of a case and/or constitutes an order for relief or
which seeks: (A) an adjudication that it is bankrupt or insolvent, (B) a
reorganization, arrangement, winding up, liquidation, dissolution, composition
or other relief with respect to its debts, or (C) the appointment of a receiver,
trustee, custodian or other similar official for it or any substantial portion
of its assets; (vi) has filed against it such a proceeding, petition or case if
such proceeding, petition or case remains undischarged, undismissed or unbonded
for 60 days or results in such an adjudication, the entry of an order for such
relief or such an appointment; or (vii) becomes subject to a proceeding
initiated by a governmental authority or self-regulatory organization having
jurisdiction over such party or its assets in the country of its organization or
principal office, which proceeding is taken pursuant to any insolvency, banking,
insurance, or similar law or regulation governing the operation of such party,
and which prevents such party from performing its obligations under this
Agreement as and when due.
b. Immediately following any termination of this
Agreement, the parties will negotiate in good faith an estimate of the fair
market value of the Program Assets; provided, however, if the parties are unable
to agree within thirty (30) calendar days following termination, a third party
shall be chosen by mutual agreement for the sole purpose of establishing a fair
market value of the Program Assets. The cost of such third party evaluation
shall be borne equally by the parties, and the decision of such third party
shall be binding upon both parties. Following the establishment of the fair
market value of the Program Assets, the parties will negotiate in good faith (i)
the amount and form of the purchase price to Heritage by IAFC, if it is
determined that IAFC is to purchase the Program Assets, or (ii) the amount and
form of a payment to IAFC, if Heritage is to retain the Program Assets;
provided, however, that in either case the amount to be paid by one party to the
other shall take into consideration the fact that the Program has established
and maintained the Loan Loss Reserve.
c. The provisions of paragraphs 14.a(1)-(5), 14.b, 16,
17.d, 18, 21, 22, 23, 24 and 26 hereof will survive termination of this
Agreement.
20. Purchase and Sale of Program Assets Other than at
Termination.
a. In the event (i) there exists a Performance Shortfall,
(ii) IAFC proposes modifications to the terms of certain Accounts that, in the
reasonable judgment of IAFC, will improve the financial performance of such
Accounts, and (iii) Heritage declines to approve of such proposed modifications,
then IAFC will have the right to purchase the Accounts that are the subject of
the proposed modifications at their fair market value.
15
<PAGE> 16
b. Heritage will not sell, transfer, or assign the Program
Assets without IAFC's approval, which approval may not be unreasonably withheld.
In the event that Heritage proposes to sell the Program Assets pursuant to a
bona fide offer from a third party, IAFC will have a right of first refusal to
purchase the Program Assets on the same terms and conditions offered by such
third party.
21. Indemnification.
a. By IAFC. IAFC will defend, indemnify, and hold Heritage
and its directors, officers, shareholders, employees, agents, and affiliates
("Heritage Indemnitees") harmless from and against any claims by third parties
(including governmental authorities) and any losses, damages, settlements,
fines, penalties, liabilities or expenses resulting therefrom (collectively,
"Claims"), to the extent such Claims relate to the Program and arise out of or
are based on:
(1) failure of the Program Materials developed
by IAFC to comply with, or any action or omission by IAFC that constitutes a
violation of, the Federal Truth in Lending Act, Federal Truth in Savings Act,
Federal Fair Debt Collection Act, California laws and regulations relating to
the solicitation and offering of consumer credit, California laws relating to
collection of debts, and California laws relating to false, unfair, and
deceptive advertising;
(2) failure of the Underwriting Algorithm to
comply with the Federal Equal Credit Opportunity Act or with other laws and
regulations relating to non-discrimination in the offering of consumer credit;
(3) a breach of any representation or warranty made
by IAFC herein;
(4) a claim that the IAFC Marks infringe on the
intellectual property rights of any third party; or
(5) IAFC's negligent or intentionally improper acts
or omissions.
The foregoing notwithstanding, such indemnification obligation will not extend
to Claims to the extent that they arise out of circumstances as to which
Heritage has an obligation to indemnify IAFC Indemnitees under the following
subparagraph. IAFC will reimburse Heritage Indemnitees for attorney's fees and
other reasonable expenses as incurred by them in connection with investigating
or defending any Claim as to which IAFC has an obligation to indemnify.
b. Heritage will defend, indemnify, and hold IAFC and its
directors, officers, shareholders, employees, agents,
and affiliates ("IAFC Indemnitees") harmless from and against any claims by
third parties (including governmental authorities) and any losses, damages,
settlements, fines, penalties, liabilities or expenses resulting therefrom
(collectively,
16
<PAGE> 17
"Claims"), to the extent such Claims relate to the Program and arise out of or
are based on:
(1) any action or omission by Heritage that
constitutes a violation of the Federal Truth in Lending Act, Federal Truth in
Savings Act, Federal Fair Debt Collection Act, California laws and regulations
relating to the solicitation and offering of consumer credit, California laws
relating to collection of debts, and California laws relating to false, unfair,
and deceptive advertising;
(2) a breach of any representation or warranty made
by Heritage herein;
(3) a claim that the Heritage Marks infringe on the
intellectual property rights of any third party; or
(4) Heritage's negligent or intentionally improper
acts or omissions.
The foregoing notwithstanding, Heritage's indemnification obligation will not
extend to Claims to the extent that they arise out of circumstances as to which
IAFC has an obligation to indemnify Heritage Indemnitees under the preceding
subparagraph. Heritage will reimburse IAFC Indemnitees for attorney's fees and
other reasonable expenses as incurred by them in connection with investigating
or defending any Claim as to which Heritage has an obligation to indemnify.
c. Upon receiving notice of a Claim for which
indemnification may be sought under this Agreement, a Heritage
Indemnitee or IAFC Indemnitee (an "Indemnitee") will promptly notify the party
from whom such Indemnitee seeks indemnification (an "Indemnitor") in writing of
such Claim; provided, that any failure to give such notice will not waive any
rights of the Indemnitee except to the extent the rights of the Indemnitor are
materially prejudiced by such failure. The Indemnitor will elect whether to
participate with Indemnitee in the defense of such Claim or to defend against
such Claim in its own name, in the name of Indemnitee or in the name of the
party against whom the Claim is made. Provided the Indemnitor acknowledges in
writing its obligation to indemnify hereunder, such Indemnitor may elect to
defend and control the course of any defense. In such event, Indemnitee will
cooperate with Indemnitor in such defense. If the Indemnitor elects not to
control the defense, the Indemnitor will have the right to select counsel of its
choice and participate in such defense. In any event, Indemnitor will not be
responsible for any Claim settled or compromised, or for any judgment resulting
from a stipulation or confession of judgment, unless Indemnitor has consented in
writing to the Indemnitee's entering into such settlement, compromise, or
stipulation or confession of judgment.
22. Non-Solicitation of Employees. Except as may be otherwise
agreed to in writing by the parties, each party will refrain from soliciting the
other party's employees for the period commencing with the Effective Date and
ending two years after the date of termination of this Agreement.
17
<PAGE> 18
23. Proprietary Information.
a. In the course of performing under this Agreement, each
of IAFC and Heritage will come into possession of confidential and proprietary
information belonging to the other party ("PARTY PROPRIETARY INFORMATION").
Information will become Party Proprietary Information only if a party designates
it as such in a written notice given to the other party. IAFC hereby designates
the following information as its Party Proprietary Information: IAFC's
confidential business plans, projections, and analyses, and financial statements
and information relating to IAFC; the website design developed by IAFC for the
Program; and all computer coding used by IAFC to create and operate the Program.
Heritage hereby designates as its Party Proprietary Information all material
non-public information concerning Heritage's confidential business plans,
projections, and analyses, and financial statements which have been delivered to
IAFC in connection with the Program. Each of IAFC and Heritage will hold in
confidence any Party Proprietary Information disclosed to it by the other party,
and will not use such Party Proprietary Information for any purpose other than
the performance of their duties hereunder.
b. As used herein, "PROGRAM PROPRIETARY INFORMATION" means
the Underwriting Algorithm, the Pricing Algorithm and the Program Information
(as that term is defined in paragraph 16). Prior to the effective date of an
Origination Suspension, each party will hold Program Proprietary Information in
confidence, and may use Program Proprietary Information only in connection with
the performance of its duties hereunder. The foregoing notwithstanding, IAFC may
use Program Proprietary Information (other than Program Information, the use of
which is governed by paragraph 16) in connection with activities permitted under
paragraph 15. For a period ending two years after the effective date of an
Origination Suspension, Heritage may not, for the purpose of marketing credit
cards over the Internet, (i) disclose Program Proprietary Information to any
third party, or (ii) copy Program Proprietary Information. After the effective
date of an Origination Suspension, IAFC will not be restricted in its right to
disclose to third parties Program Proprietary Information.
c. In furtherance of its performance hereunder, either
party may disclose Party or Program Proprietary Information to its auditors and
attorneys and, if required, to a regulatory authority with jurisdiction over
such party. Such information may also be disclosed to the extent necessary to
each party's employees or others in a confidential relationship with such party
who have a need for access to such information.
d. The foregoing notwithstanding, "Party and Program
Proprietary Information" will not include information that (i) is, or has
become, readily publicly available without restriction through no fault of the
disclosing party or its employees, agents or contractors; (ii) is received by
either party without restriction from a third party who is lawfully in
possession of such information and who is lawfully empowered to disclose such
information; (iii) was lawfully in the possession of the disclosing party
without restriction prior to its disclosure to such party, or (iv) was developed
independently by employees, agents or contractors of the disclosing party who
had no prior access to such Proprietary Information.
18
<PAGE> 19
e. The parties agree that in the event of a breach or
threatened breach by either of them of the provisions of this paragraph, the
non-breaching party will have no adequate remedy in money damages and, that
accordingly, injunctive relief is an appropriate remedy, in addition to all
other remedies available at law or in equity.
24. Dispute Resolution.
a. Any dispute or claim arising out this Agreement will be
resolved through a binding arbitration procedure conducted before a single
arbitrator selected according to the Rules of the American Arbitration
Association. The party wishing to resolve such a dispute or claim may commence
such arbitration procedure by delivering a written notice (the "Arbitration
Notice") to the other party. Arbitration will be held in San Francisco,
California, in accordance with the commercial arbitration rules and regulations
of the American Arbitration Association. The parties will instruct the
arbitrator to take all reasonable measures to ensure that the arbitration
proceeding is completed and a decision is rendered as expeditiously as possible,
and in any event within 180 days of the date of the Arbitration Notice.
b. During the 60-day period following delivery of the
Arbitration Notice, the parties will consult with a view to defining and
limiting the issues. The arbitrator may in his or her discretion order the
parties to provide discovery, including document discovery, designation of
experts and other witnesses, and depositions.
c. The arbitrator will be directed to render a decision in
a written opinion stating the rationale for such decision. The arbitrator's
decision will be conclusive and binding upon the parties, and any resulting
award may be filed with the clerk of a court of competent jurisdiction as a
final adjudication of the claim involved, or application may be made to such
court for judicial acceptance of the award and an order of enforcement, as the
case may be. The expenses of each party, including legal and accounting fees, if
any, with respect to the arbitration shall be borne by each such party.
25. Force Majeure. Neither party will be liable for
non-performance hereunder to the extent such performance is prevented by fire,
earthquake, tornado, flood, explosion, embargo, war, riot, governmental
regulation or act, act of God, act of public enemy, or by reason of any other
cause beyond such party's reasonable control (a "Force Majeure Event"). A
party's obligations to perform timely will be excused to the extent, but only to
the extent, that such performance is prevented by a Force Majeure Event.
26. General.
a. Remedies Not Exclusive. Any remedy conferred on a party
by this Agreement will be considered cumulative with and not exclusive of any
other remedy conferred by this Agreement or available at law or in equity, and
the exercise of any one remedy shall not preclude the exercise of any other.
19
<PAGE> 20
b. Attorney's Fees. The prevailing party in any dispute
over the performance or construction of this Agreement will be entitled to
recover its reasonable attorney's fees and costs.
c. Limitation on Damages. In no event will either party be
entitled to recover special, punitive, incidental or consequential damages,
including damages based on lost profits or lost business opportunities, arising
out of a breach of the other party's obligations hereunder, even if the party in
breach has been advised of the possibility of such damages.
d. Costs. Each party will bear its own costs incurred in
the performance of this Agreement and all development activities hereunder,
except as otherwise provided.
e. Notices. Unless otherwise provided herein, all notices
or other communications under this Agreement must be in writing and signed by a
duly authorized representative of the party giving such notice, or such other
persons as either party shall specify in a written notice to the other.
All such notices shall be deemed given and received (i) if by
hand delivery, upon receipt thereof; (ii) if mailed, three days after deposit in
the U.S. mails, postage prepaid, certified mail, return receipt requested, or
(iii) as of the day received by Express mail, Federal Express, or other similar
services, or (iv) upon facsimile transmission by the sender and issuance by the
transmitting machine of a confirmation slip confirming the number of pages
constituting the notice have been transmitted without error. In the case of
notices sent by facsimile transmission, the sender shall contemporaneously send
a copy of the notice to the addresses at the addresses provided for below, by an
overnight courier service; however such mailing shall not alter the time at
which the facsimile notice is deemed received. The parties' notice addresses
are:
20
<PAGE> 21
If to Heritage: Heritage Bank of Commerce
150 Almaden Boulevard
San Jose, CA 95113
ATTN: Kenneth B. Silveira
Sr. Vice President-Operations &
Administration
With a copy to: James M. Rockett, Esq.
McCutcheon, Doyle, Brown & Enersen, L.L.P.
Three Embarcadero Center
San Francisco, CA 94111-4067
If to IAFC: Internet Access Financial Corporation
595 Market Street - Suite 2250
San Francisco, CA 94105
ATTN: John Hashman
Chief Financial Officer
f. Compliance with Laws. Each party shall comply with all
laws, rules and regulations, whether local, state, or federal, applicable to its
activities hereunder, but only to the extent such laws, rules and regulations
are applicable to such party.
g. Assignment. Other than as set forth in any agreement
with any Third Party Data Processor, neither party may assign or subcontract its
rights, duties, or obligations under this Agreement to any person or entity, in
whole or in part, without the other party's prior written consent. The foregoing
notwithstanding, upon 30 days written notice a party may assign this Agreement
without first obtaining consent to (i) a company controlling, controlled by, or
under common control with the assigning party, provided that the assigning party
will guarantee the performance of the assignee's performance hereunder; or (ii)
the assigning party's successor in interest in the event of a corporate
reorganization, merger, or acquisition of all or substantially all of a party's
assets, provided that such successor gives reasonable assurances to the
non-assigning party that the successor will perform its obligations hereunder.
The foregoing notwithstanding, in no event will a party assign its rights and
obligations to an entity which, at the time of such assignment, is in
substantial and direct competition with the other party, or under common control
with an entity in substantial and direct competition with the other party. Any
attempt by either party to assign or subcontract its rights or obligations under
this Agreement will be deemed both void and a material breach of this Agreement.
21
<PAGE> 22
h. Modification, Amendment, and Waiver. No modification,
amendment, supplement to, or waiver of this Agreement shall be binding upon the
respective parties unless such modification, etc., specifically refers to this
section and is consented to in a writing signed by an authorized representative
of the party against whom such modification, etc. is asserted. A party's failure
or delay to enforce at any time any of the provisions of this Agreement, or to
exercise any option herein provided, or to require strict performance of any
term hereof, shall not be deemed a continuing waiver of rights under this
Agreement. Nor shall any single or partial exercise of any such right preclude
any other or further exercise thereof or of any other right.
i. Relationship of the Parties. Nothing contained in this
Agreement will be construed to create a joint venture, partnership, or agency
relationship. Rather, the relationship between the parties will be one of
independent contractors. Neither party will have any right, power or authority
to act on behalf of or bind the other party.
j. Severability. If any one or more provisions of this
Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired; provided, however, that in
such case the parties will in good faith use their best efforts to achieve the
purpose of the invalid provision by agreeing on a substitute provision that is
legally enforceable.
k. Headings. The section headings in this Agreement are
for purposes of reference only and shall not limit or otherwise affect any of
the terms hereof.
l. Choice of Law. This Agreement will be construed under
the laws of the State of California, as applied to contracts entered into and
performed completely within California; provided, however, that the arbitration
provisions of paragraph will be governed by the Federal Arbitration Act.
m. Entire Agreement. This Agreement states the entire
agreement between the parties with respect to the subject matter hereof, and all
prior or
22
<PAGE> 23
contemporaneous written or oral agreements and understandings are merged herein
and superseded hereby.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective the date first stated above.
HERITAGE BANK OF COMMERCE INTERNET ACCESS FINANCIAL CORPORATION
By: /s/ ROSSEL By: /s/ JEREMY LENT
------------------------------ -----------------------------------
Name: ROSSEL Name: JEREMY R. LENT
---------------------------- --------------------------------
Title: CEO Title: CHIEF EXECUTIVE OFFICER
--------------------------- --------------------------------
23
<PAGE> 24
HERITAGE BANK/NEXTCARD ASSET GENERATION ANALYSIS
EXHIBIT A DOLLAR STATEMENT
<TABLE>
<CAPTION> 1998
<S> <C> <C> <C> <C> <C> <C>
Average assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------- ----------- ----------- ----------- -------------- -----------
Q1 Q2 Q3 Q4 Full year 1998 1999
----------- ----------- ----------- ----------- -------------- -----------
Finance charge $ [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
---------- ----------- ----------- ----------- ----------- -----------
Total yield [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Aq. Cost - deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acq. Cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAPC costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribution to LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
---------- ----------- ----------- ----------- ----------- -----------
Total expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Pre-tax earnings [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Taxes [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
---------- ----------- ----------- ----------- ----------- -----------
After-tax earnings [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
========== =========== =========== =========== =========== ===========
$ sharing of revenues/costs:
- ----------------------------
Heritage Bank share $ [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Nextcard share $ [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Average assets $ [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------- ----------- -----------
2000 2001 2002
----------- ----------- -----------
Finance charge $ [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ]
----------- ----------- -----------
Total yield [ * ] [ * ] [ * ]
Cost of funds [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ]
Aq. Cost - deferred - - -
Acq. Cost - expensed - - -
Account servicing [ * ] [ * ] [ * ]
IAPC costs [ * ] [ * ] [ * ]
Heritage costs [ * ] [ * ] [ * ]
Contribution to LLR [ * ] [ * ] [ * ]
----------- ----------- -----------
Total expenses [ * ] [ * ] [ * ]
Pre-tax earnings [ * ] [ * ] [ * ]
Taxes [ * ] [ * ] [ * ]
----------- ----------- -----------
After-tax earnings [ * ] [ * ] [ * ]
=========== =========== ===========
5 year
$ sharing of revenues/costs: time horizon
- ---------------------------- ------------
Heritage Bank share $ [ * ] [ * ] [ * ] [ * ]
Nextcard share $ [ * ] [ * ] [ * ] [ * ]
</TABLE>
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
<PAGE> 25
HERITAGE BANK/NEXTCARD ASSETS GENERATION ANALYSIS
EXHIBIT A SPREAD STATEMENTS
<TABLE>
<CAPTION>
1998
----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------------------------------------------
Full Year
Q1 Q2 Q3 Q4 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
------ ------ ------ ------ ------ ------ ------ ------ ------
Total yield [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost -
expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAPC costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribution to LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
------ ------ ------ ------ ------ ------ ------ ------ ------
Total expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Pre-tax spread [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Taxes [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------------------------------------------
After-tax spread [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
==========================================================================================================
Heritage annualized
pretax average ROA [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
- ----------------------------------------------------------------------
ASSUMPTIONS
- ----------------------------------------------------------------------
Heritage Bank share of earnings 50%
Nextcard share of earnings 50%
Servicing cost cap 0.00% No cap
IAPC program cost cap 0.00% Cap specified in agreement
HBC program cost cap 0.00% Cap specified in agreement
- ----------------------------------------------------------------------
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
<PAGE> 26
HERITAGE BANK/NEXTCARD ASSET GENERATION ANALYSIS
<TABLE>
<CAPTION>
EXHIBIT A
SPREAD ANALYSIS
----------------------------------------------------------------------------------------------------
DEC-97 JAN-98 FEB-98 MAR-98 APR-98 MAY-98 JUN-98
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BASE CASE
New accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total Accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total active accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Average no. of accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Avg. Account Balance [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month end assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month average assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
SPREADS
- --------------------------
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Intercharge income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------------------------------------
Total yield [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------------------------------------
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost -
deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost -
expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs - IAPC [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs - Heritage [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribution to LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------------------------------------
Total expense [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Pre-tax spread [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage Bank ROA [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------
JUL-98 AUG-98 SEP-98 OCT-98 NOV-98 DEC-98
-------------------------------------------------------------------------------------
BASE CASE
New accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total Accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total active accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Average no. of accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Avg. Account Balance [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month end assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month average assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
SPREADS
- --------------------------
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Intercharge income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
[ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total yield [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
---------------------------------------------------------------------------------------
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost -
deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost -
expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs - IAPC [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs - Heritage [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribution to LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
---------------------------------------------------------------------------------------
Total expense [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Pre-tax spread [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage Bank ROA [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
<PAGE> 27
HERITAGE BANK/NEXTCARD ASSET GENERATION ANALYSIS
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
SPREAD ANALYSIS
- --------------- ----------------------------------------------------------------------
JAN-99 FEB-99 MAR-99 APR-99 MAY-99 JUN-99
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASE CASE
New accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total Accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total active accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Average no. of accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Avg. Account Balance [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month end assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month average assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
SPREADS
- -------
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------
Total yield [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs--IAPC [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs--Heritage [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribution to LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------
TOTAL EXPENSES [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
PRE-TAX SPREAD [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
HERITAGE BANK ROA [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
HERITAGE BANK/NEXTCARD ASSET GENERATION ANALYSIS
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
SPREAD ANALYSIS
- --------------- ----------------------------------------------------------------------
JUL-99 AUG-99 SEP-99 OCT-99 NOV-99 DEC-99
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASE CASE
---------- ---------- ---------- ---------- ---------- ----------
New accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total Accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total active accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Average no. of accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Avg. Account Balance [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month end assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month average assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
SPREADS
- -------
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------
Total yield [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs--IAPC [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs--Heritage [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribution to LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------
TOTAL EXPENSES [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
PRE-TAX SPREAD [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
HERITAGE BANK ROA [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
<PAGE> 28
HERITAGE BANK/NEXTCARD ASSET GENERATION ANALYSIS
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
SPREAD ANALYSIS
- ---------------
-----------------------------------------------------------------------------
JAN-00 FEB-00 MAR-00 APR-00 MAY-00 JUN-00
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASE CASE
New accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total Accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total active accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Average no. of accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Avg. Account Balance [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month end assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month average assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
SPREADS
- -----------------------------
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
Total yield [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs - IAFC [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs - Heritage [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribution to LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
TOTAL EXPENSE [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
PRE-TAX SPREAD [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
HERITAGE BANK ROA [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
SPREAD ANALYSIS
- ---------------
-----------------------------------------------------------------------------
JUL-00 AUG-00 SEP-00 OCT-00 NOV-00 DEC-00
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASE CASE
New accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total Accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total active accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Average no. of accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Avg. Account Balance [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month end assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month average assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
SPREADS
- -----------------------------
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
Total yield [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs - IAFC [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs - Heritage [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribution to LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
TOTAL EXPENSE [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
PRE-TAX SPREAD [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
HERITAGE BANK ROA [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
<PAGE> 29
HERITAGE BANK/NEXTCARD ASSET GENERATION ANALYSIS
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
SPREAD ANALYSIS
- ---------------
-----------------------------------------------------------------------------
JAN-01 FEB-01 MAR-01 APR-01 MAY-01 JUN-01
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASE CASE
New accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total Accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total active accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Average no. of accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Avg. Account Balance [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month end assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month average assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
SPREADS
- -----------------------------
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
Total yield [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs - IAFC [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs - Heritage [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribution to LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
Total expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Pre-tax spread [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage Bank ROA [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
SPREAD ANALYSIS
- ---------------
-----------------------------------------------------------------------------
JUL-01 AUG-01 SEP-01 OCT-01 NOV-01 DEC-01
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASE CASE
New accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total Accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total active accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Average no. of accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Avg. Account Balance [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month end assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month average assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
SPREADS
- -----------------------------
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
Total yield [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs - IAFC [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs - Heritage [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribution to LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
Total expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Pre-tax spread [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage Bank ROA [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
<PAGE> 30
HERITAGE BANK/NEXTCARD ASSET GENERATION ANALYSIS
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
SPREAD ANALYSIS
- --------------- ----------------------------------------------------------------------
JAN-02 FEB-02 MAR-02 APR-02 MAY-02 JUN-02
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASE CASE
New accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total Accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total active accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Average no. of accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Avg. Account Balance [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month end assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month average assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
SPREADS
- -------
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------
Total yield [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs--IAFC [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs--Heritage [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribution to LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------
Total Expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Pre-tax spread [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage Bank ROA [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
HERITAGE BANK/NEXTCARD ASSET GENERATION ANALYSIS
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
SPREAD ANALYSIS
- --------------- ----------------------------------------------------------------------
JUL-02 AUG-02 SEP-02 OCT-02 NOV-02 DEC-02
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASE CASE
New accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total Accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Total active accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Average no. of accounts [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Avg. Account Balance [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month end assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Month average assets [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
SPREADS
- -------
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------
Total yield [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs--IAFC [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other costs--Heritage [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribution to LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
----------------------------------------------------------------------
Total Expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Pre-tax spread [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage Bank ROA [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
<PAGE> 31
HERITAGE BANK/NEXTCARD ASSET GENERATION ANALYSIS
EXHIBIT A
<TABLE>
<CAPTION>
Dollar analysis Dec-97 Jan-98 Feb-98 Mar-98 Apr-98 May-98 Jun-98 Jul-98 Aug-98 Sep-98 Oct-98 Nov-98 Dec-98
- -------------- ------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
------ -------- ------- ------- ------- -------- -------- -------- -------- -------- -------- ------- --------
Total revenues [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Cot of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
cost-deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acq. cost - [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAFC costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribute/ [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Reduce LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
------ -------- ------- ------- ------- -------- -------- -------- -------- -------- -------- ------- --------
Total Expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Pre-tax
earnings
(loss) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
Revenue/Cost Sharing Structure (note: cash settlement for the months of December
through March will be done in April 1998.)
<TABLE>
<CAPTION>
Apr-98 May-98 Jun-98 Jul-98 Aug-98 Sep-98 Oct-98 Nov-98 Dec-98
-------- --------- --------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Programme revenue [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAFC Expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Earnings [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Party Proportionate shares (50%) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage pre-split income (loss) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard (HBC) sends to other
party [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage-final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Nextcard-final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
<PAGE> 32
HERITAGE BANK/NEXTCARD ASSET GENERATION ANALYSIS
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
DOLLAR ANALYSIS
- ---------------
-----------------------------------------------------------------------------
JAN-99 FEB-99 MAR-99 APR-99 MAY-99 JUN-99
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
TOTAL REVENUES [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost-deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acq cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAPC Costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribute/Reduce LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
TOTAL EXPENSES [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
PRE-TAX EARNINGS (LOSS) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
DOLLAR ANALYSIS
- ---------------
-----------------------------------------------------------------------------
JUL-99 AUG-99 SEP-99 OCT-99 NOV-99 DEC-99
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
TOTAL REVENUES [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost-deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acq cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAPC Costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribute/Reduce LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
TOTAL EXPENSES [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
PRE-TAX EARNINGS (LOSS) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
REVENUE/COST SHARING STRUCTURE
- ------------------------------
-----------------------------------------------------------------------------
JAN-99 FEB-99 MAR-99 APR-99 MAY-99 JUN-99
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Program revenues [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAPC expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Earnings [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Party proportionate shares
(50%) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage pre-split
income(loss) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard (HBC) sends to
other party [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Nextcard - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
REVENUE/COST SHARING STRUCTURE
- ------------------------------
-----------------------------------------------------------------------------
JUL-99 AUG-99 SEP-99 OCT-99 NOV-99 DEC-99
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Program revenues [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAPC expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Earnings [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Party proportionate shares
(50%) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage pre-split
income(loss) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard (HBC) sends to
other party [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Nextcard - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
<PAGE> 33
HERITAGE BANK/NEXTCARD ASSET GENERATION ANALYSIS
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
DOLLAR ANALYSIS
- ---------------
-----------------------------------------------------------------------------
JAN-00 FEB-00 MAR-00 APR-00 MAY-00 JUN-00
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
Total revenues [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAFC costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribute/Reduce LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
Total expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
PRE-TAX EARNINGS (LOSS) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
REVENUE/COST SHARING STRUCTURE
Program revenues [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAFC expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
EARNINGS [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Party proportionate shares (50%) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage pre-split income (loss) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard (HBC) sends to other party [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
[ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
DOLLAR ANALYSIS
- ---------------
-----------------------------------------------------------------------------
JUL-00 AUG-00 SEP-00 OCT-00 NOV-00 DEC-00
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
Total revenues [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAFC costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribute/Reduce LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
Total expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
PRE-TAX EARNINGS (LOSS) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
REVENUE/COST SHARING STRUCTURE
Program revenues [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAFC expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
EARNINGS [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Party proportionate shares (50%) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage pre-split income (loss) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard (HBC) sends to other party [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
[ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
<PAGE> 34
HERITAGE BANK/NEXTCARD ASSET GENERATION ANALYSIS
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
DOLLAR ANALYSIS
- ---------------
-----------------------------------------------------------------------------
JAN-01 FEB-01 MAR-01 APR-01 MAY-01 JUN-01
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
TOTAL REVENUES [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAFC costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribute/Reduce LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
TOTAL EXPENSES [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
PRE-TAX EARNINGS (LOSS) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
REVENUE/COST SHARING STRUCTURE
Program revenues [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAFC expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
EARNINGS [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Party proportionate shares (50%) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage pre-split income (loss) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard (HBC) sends to other party [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
DOLLAR ANALYSIS
- ---------------
-----------------------------------------------------------------------------
JUL-01 AUG-01 SEP-01 OCT-01 NOV-01 DEC-01
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
TOTAL REVENUES [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAFC costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribute/Reduce LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
-----------------------------------------------------------------------------
TOTAL EXPENSES [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
PRE-TAX EARNINGS (LOSS) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
REVENUE/COST SHARING STRUCTURE
Program revenues [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAFC expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
EARNINGS [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Party proportionate shares (50%) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage pre-split income (loss) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard (HBC) sends to other party [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
<PAGE> 35
HERITAGE BANK/NEXTCARD ASSET GENERATION ANALYSIS
<TABLE>
<CAPTION>
EXHIBIT A EXHIBIT A
- -------------------------------------------------------------------------------------------------------------------
DOLLAR ANALYSIS Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
--------------------------------------------------------------------------
TOTAL REVENUES [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost-deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acq cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAFC costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribute/Reduce LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
- -------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
PRE-TAX EARNINGS (LOSS) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
REVENUE/COST SHARING STRUCTURE
Program revenues [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAFC expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
EARNINGS [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Party proportionate shares (50%) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage pre-split income (loss) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard (HBC) sends to other party [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
<CAPTION>
EXHIBIT A EXHIBIT A
- -------------------------------------------------------------------------------------------------------------------
DOLLAR ANALYSIS Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Finance charge [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Interchange income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Annual fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Other fees [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
--------------------------------------------------------------------------
TOTAL REVENUES [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Cost of funds [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Servicing cost [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acquisition cost-deferred [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Acq cost - expensed [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Account servicing [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAFC costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage costs [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Contribute/Reduce LLR [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
- -------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
PRE-TAX EARNINGS (LOSS) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
REVENUE/COST SHARING STRUCTURE
Program revenues [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
IAFC expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
EARNINGS [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Party proportionate shares (50%) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage pre-split income (loss) [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard (HBC) sends to other party [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Heritage - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
NextCard - final [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
<PAGE> 36
[NEXTCARD LETTERHEAD]
August 24, 1998
Kenneth Silveira
Senior Vice President
Heritage Bank of Commerce
150 Almaden Boulevard
San Jose, CA 95113
Dear Mr. Silveira:
Pursuant to Section 4(a) and Section 26(h) of the Consumer Credit Card Program
Agreement, dated November 25, 1997 (the "Agreement"), between Heritage Bank of
Commerce ("Heritage") and Internet Access Financial Corporation ("IAFC"), the
parties hereby agree to raise the Maximum Program Size, as set forth in Section
4(a) of the Agreement, from [ * ] million to [ * ] million.
If the foregoing correctly sets forth our mutual intent, please execute the
enclosed duplicate original of this letter and return it to the undersigned,
signifying your agreement to amend the Agreement.
Very truly yours,
/s/ John Hashman
John Hashman
Chief Financial Officer
ACCEPTED & AGREED:
Heritage Bank of Commerce
By: /s/ Kenneth Silveira
-------------------------------
Kenneth Silveira
Senior Vice President
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 10.11
EXECUTION COPY
SERVICE AGREEMENT
DATED DECEMBER 22, 1997
BETWEEN
FIRST DATA RESOURCES INC.
AND
INTERNET ACCESS FINANCIAL CORPORATION
<PAGE> 2
TABLE OF CONTENTS
Article 1
Definitions ............................................................. 1
1.1 "AAA" ............................................................ 1
1.2 "Acquirer" ....................................................... 1
1.3 "Affiliate" ...................................................... 1
1.4 "Agreement" ...................................................... 1
1.5 "Alternative" .................................................... 2
1.6 "Arbitration Demand" ............................................. 2
1.7 "Arbitration Panel" .............................................. 2
1.8 "Basic Qualifications" ........................................... 2
1.9 "Business Continuity Plan" ....................................... 2
1.10 "Cardholder" ..................................................... 2
1.11 "Cardholder Account" ............................................. 2
1.12 "cc:Mail Software" ............................................... 2
1.13 "Core Processing Services" ....................................... 2
1.14 "Customer's Agent Bank" .......................................... 2
1.15 "Customer's Accounts" ............................................ 2
1.16 "Customer's Issuer Affiliate" .................................... 2
1.17 "Customer's Proprietary Information" ............................. 2
1.18 "Customer's Transaction Card Affiliates" ......................... 2
1.19 "Customer's Transaction Card Affiliate Agreement" ................ 2
1.20 "Daily Amount" ................................................... 2
1.21 "Deconversion" ................................................... 3
1.22 "Dispute" ........................................................ 3
1.23 "Disputing Party" ................................................ 3
1.24 "Entity" ......................................................... 3
1.25 "Failed Guideline" ............................................... 3
1.26 "Failed Month" ................................................... 3
1.27 "FDR's Proprietary Information" .................................. 3
1.28 "FDR System" ..................................................... 3
1.29 "FDR Settlement Rules" ........................................... 3
1.30 "Growth Credit" .................................................. 3
1.31 "Indemnified Party" .............................................. 3
1.32 "Indemnifying Party" ............................................. 3
1.33 "InfoSight Software" ............................................. 3
1.34 "Insolvency Event" ............................................... 3
1.35 "Interchange" .................................................... 4
1.36 "Interchange Settlement" ......................................... 4
1.37 "Issuer" ......................................................... 4
1.38 "Liquidated Damages" ............................................. 4
i
<PAGE> 3
1.39 "MasterCard" ..................................................... 4
1.40 "Merchant" ....................................................... 4
1.41 "Merchant Account" ............................................... 4
1.42 "Minimum Processing Fees" ........................................ 4
1.43 "Net Settlement Amount" .......................................... 4
1.44 "Non-Core Processing Services" ................................... 4
1.45 "Non-Performance" ................................................ 5
1.46 "Notice" ......................................................... 5
1.47 "Old Year" ....................................................... 5
1.48 "Original Term" .................................................. 5
1.49 "Performance Guidelines" ......................................... 5
1.50 "Processing Fees" ................................................ 5
1.51 "Processing Year" ................................................ 5
1.52 "Processing Year 1" .............................................. 5
1.53 "Recovery 1 Software" ............................................ 5
1.54 "Renewal Term" ................................................... 5
1.55 "Scheduled Start-Up Date" ........................................ 5
1.56 "Settlement Account" ............................................. 5
1.57 "Settlement Late Payment Fee" .................................... 5
1.58 "Settlement System" .............................................. 5
1.59 "Signing Bonus" .................................................. 5
1.60 "Special Fees" ................................................... 5
1.61 "Start-Up" ....................................................... 5
1.62 "Term" ........................................................... 5
1.63 "Total Annual Processing Fees" ................................... 6
1.64 "Transaction Card" ............................................... 6
1.65 "Transaction Card Ticket" ........................................ 6
1.66 "VISA" ........................................................... 6
1.67 "Year 1 Minimum Processing Feel" ................................. 6
1.68 "Year 2000 Compliant" ............................................ 6
Article 2
Services ................................................................ 6
2.1 Basic Services ................................................... 6
2.2 Communication Links .............................................. 6
2.3 Ancillary Services ............................................... 7
2.4 Start-Up ......................................................... 7
2.5 Compliance With Laws ............................................. 7
2.6 Performance Guidelines .......................................... 10
2.7 Failed Performance .............................................. 10
2.8 Sole Remedy ..................................................... 10
ii
<PAGE> 4
Article 3
Exclusivity and Execution by Affiliates ................................ 11
3.1 Sole and Exclusive Provider ..................................... 11
3.2 Execution of Agreement by Customer's Affiliates ................. 11
Article 4
Payment for Services ................................................... 12
4.1 Fees and Charges ................................................ 12
Article 5
Indemnification ........................................................ 13
5.1 Customer's Indemnification ...................................... 13
5.2 FDR's Indemnification ........................................... 13
5.3 Notification .................................................... 13
5.4 Claims Period ................................................... 14
Article 6
Limitation of Liability ................................................ 14
6.1 Limitation on Liability ......................................... 14
6.2 No Special Damages .............................................. 15
Article 7
Disclaimer of Warranties ............................................... 15
Article 8
Term of Agreement ...................................................... 15
Article 9
Termination ............................................................ 15
9.1 Termination by FDR .............................................. 15
9.2 Termination by Customer ......................................... 16
9.3 Effect of Termination ........................................... 17
9.4 Payments Upon Termination ....................................... 18
9.5 Liquidated Damages .............................................. 18
Article 10
Confidential Nature of Data ............................................ 19
10.1 Customer's Proprietary Information .............................. 19
10.2 FDR's Proprietary Information ................................... 19
10.3 Confidentiality of Agreement .................................... 19
10.4 Confidentiality ................................................. 20
10.5 Release of Information .......................................... 20
10.6 Exclusions ...................................................... 20
iii
<PAGE> 5
10.7 Remedy ............................................................ 21
Article 11
Representations ........................................................ 21
11.1 Presentations ................................................... 21
11.2 Customer's Representations ...................................... 22
11.3 Financial Information ........................................... 23
Article 12
Transaction Settlement ................................................. 23
12.1 Interchange Settlement Account .................................. 23
12.2 Transfer of Funds ............................................... 23
12.3 Daily Amount .................................................... 24
12.4 Failure to Transfer ............................................. 24
12.5 Settlement Late Payment Fee ..................................... 24
12.6 No Independent Obligation ....................................... 25
12.7 Violation of Rules .............................................. 25
12.8 Reliance on Other Parties ....................................... 25
12.9 Compliance with Instructions .................................... 25
12.10 Restrictions on Setoff .......................................... 26
12.11 Trailing Activity ............................................... 26
Article 13
General ................................................................ 26
13.1 Assignment ...................................................... 26
13.2 Relationship of Parties ......................................... 26
13.3 Business Continuity Plan ........................................ 27
13.4 State Law ....................................................... 27
13.5 Notice .......................................................... 27
13.6 Headings ........................................................ 28
13.7 Waiver .......................................................... 28
13.8 Force Majeure and Restricted Performance ........................ 28
13.9 Severability .................................................... 29
13.10 Audit ........................................................... 29
13.11 Risk of Loss .................................................... 29
13.12 Equal Employment Opportunity .................................... 29
13.13 Informal Dispute Resolution ..................................... 29
13.14 Arbitration ..................................................... 30
13.15 Judicial Procedure .............................................. 32
13.16 Federal Arbitration Act ......................................... 32
13.17 Insurance ....................................................... 32
13.18 Entire Agreement ................................................ 32
iv
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EXHIBITS
Exhibit Title
- ------- -----
A Services
B Payment and Term
C Customer Transaction Card Affiliate Agreement
D Performance Guidelines
v
<PAGE> 7
SERVICE AGREEMENT
This Service Agreement dated as of December 22,1997, is between Internet
Access Financial Corporation, 595 Market Street, Suite 2250, San Francisco,
California 94105 ("Customer") and First Data Resources Inc., 7302 Pacific
Street, Omaha, Nebraska 68114 ("FDR").
RECITALS
A. Customer and Customer's Transaction Card Affiliates desire to
obtain data processing and other related services from FDR in connection with
their respective Transaction Card businesses.
B. FDR is willing to perform data processing and other related
services for the Transaction Card businesses in accordance with the terms and
conditions of this Agreement, including the acknowledgment of Customer and
Customer's Transaction Card Affiliates that FDR is acting solely as an agent in
performing the settlement functions and that FDR has no obligation to supply or
advance funds for settlement purposes.
In consideration of the foregoing premises and of the mutual covenants
and conditions hereinafter set forth, the parties hereto, intending to be
legally bound, agree as follows:
ARTICLE I
DEFINITIONS
The following definitions apply to the terms set forth below when used
in this Agreement:
1.1 "AAA" is defined in Section 13.14(a) of this Agreement.
1.2 "Acquirer" means an Entity which has an arrangement with a
Merchant to obtain Transaction Card Tickets from the Merchant and present the
Transaction Card Tickets through an Interchange to an Issuer.
1.3 "Affiliate" means, with respect to Customer, any Entity which,
directly or indirectly, owns or controls, is owned or controlled by, or is under
common ownership or common control with Customer. As used herein, "control"
means the power to direct the management or affairs of an Entity and "ownership"
means the beneficial ownership of 50% or more of the equity securities of the
Entity.
1.4 "Agreement" shall mean this Service Agreement as amended from
time to time including any Exhibits attached hereto from time to time and the
executed Affiliate Agreements, if any.
<PAGE> 8
1.5 "Alternative" is defined in Section 2.5(f) of this Agreement.
1.6 "Arbitration Demand" is defined in Section 13.14(b) of this
Agreement.
1.7 "Arbitration Panel" is defined in Section 13.14(b) of this
Agreement.
1.8 "Basic Qualifications" is defined in Section 13.14(b) of this
Agreement.
1.9 "Business Continuity Plan" is defined in Section 13.3 of this
Agreement.
1.10 "Cardholder" means an individual or Entity which has a
Cardholder Account with an Issuer.
1.11 "Cardholder Account" means an arrangement between an individual
or an Entity and an Issuer which provides that the Entity may use one or more
Transaction Cards issued by the Issuer.
1.12 "cc:Mail Software" is defined in Section III - B of Exhibit "A"
to this Agreement.
1.13 "Core Processing Services" is defined in Section 3.1 of this
Agreement.
1.14 "Customer's Agent Bank" means an Entity which at any time during
the Term of this Agreement has an arrangement with Customer or an Affiliate of
Customer which (a) permits the Entity to act as an Issuer or an Acquirer and
obtain services related to the activities from either or both of Customer or one
or more of Customer's Affiliates, or (b) provides that an Entity may act as an
Issuer or Acquirer in conjunction with Customer or one or more of Customer's
Affiliates.
1.15 "Customer's Accounts" means the Cardholder Accounts and Merchant
Accounts of Customer or any of Customer's Transaction Card Affiliates.
1.16 "Customer's Issuer Affiliate" means an Affiliate of Customer
that acts as an Issuer (either alone or in conjunction with one of Customer's
Agent Banks) at any time during the Term.
1.17 "Customer's Proprietary Information" is defined in Section 10.1
of this Agreement.
1.18 "Customer's Transaction Card Affiliates" means any and all of
Customer's Issuer Affiliates and Customer's Agent Banks.
1.19 "Customer's Transaction Card Affiliate Agreement" shall mean an
agreement substantially in the form of Exhibit "C" which is executed by
Customer's Issuer Affiliates.
1.20 "Daily Amount" is defined in Section 12.2 of this Agreement.
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1.21 "Deconversion" means the removal of information concerning
Customer's Accounts from the FDR System.
1.22 "Dispute" is defined in Section 13.13 of this Agreement.
1.23 "Disputing Party" is defined in Section 13.14(a) of this
Agreement.
1.24 "Entity" means a corporation, partnership, sole proprietorship,
joint venture, or other form of organization.
1.25 "Failed Guideline" is defined in Section 2.7(a) of this
Agreement.
1.26 "Failed Month" is defined in Section 2.7(b) of this Agreement.
1.27 FDR's Proprietary Information" is defined in Section 10.2 of
this Agreement.
1.28 "FDR System" means the computer equipment, computer software and
related equipment and documentation used at any time and from time to time by
FDR to provide the services contemplated by this Agreement.
1.29 "FDR Settlement Rules" means the policies, rules and procedures
adopted by FDR from time to time and in effect from time to time to provide for
the payment of amounts due as the result of Interchange Settlement.
1.30 "Growth Credit" is defined in Section I-h of Exhibit "B" to this
Agreement.
1.31 "Indemnified Party" is defined in Section 5.3 of this Agreement.
1.32 "Indemnifying Party" is defined in Section 5.3 of this
Agreement.
1.33 "InfoSight Software" is defined in Section III - A of Exhibit
"A" to this Agreement.
1.34 "Insolvency Event" occurs, with respect to any party, when such
party:
(i) is dissolved, becomes insolvent, generally fails
to pay or admits in writing its inability generally to pay its
debts as they become due;
(ii) makes a general assignment, arrangement, or
composition agreement with or for the benefit of its creditors;
or
(iii) files a petition in bankruptcy or institutes any
action under federal or state law for the relief of debtors or
seeks or consents to the appointment of an administrator,
receiver, custodian, or similar official for the wind up of its
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business (or has such a petition or action filed against it and
such petition action or appointment is not dismissed or stayed
within thirty (30) days).
1.35 "Interchange" means the contracts, agreements, rules,
regulations and procedures governing the relationships between, or the actions
in accordance with the contracts, agreements, rules, regulations and procedures
by, any two or more Entities in connection with the Interchange Settlement.
1.36 "Interchange Settlement" means the process by which FDR, on
behalf of either or both of Customer or Customer's Transaction Card Affiliates,
(a) initiates payment for MasterCard and VISA Transaction Card Tickets presented
by Acquirers to Customer and Customer's Transaction Card Affiliates, (b)
receives payment for MasterCard and VISA Transaction Card Tickets presented by
Customer and Customer's Transaction Card Affiliates to Issuers, and (c) remits
and receives payments for chargebacks and other Interchange fees and expenses of
or payable by Customer or Customer's Transaction Card Affiliates.
1.37 "Issuer" means an Entity that has a Cardholder Account with a
Cardholder.
1.38 "Liquidated Damages" is defined in Section 9.5 of this
Agreement.
1.39 "MasterCard" means MasterCard International Incorporated or its
successors or assigns.
1.40 "Merchant" means an Entity that has the right to acquire or
otherwise acquires a Transaction Card Ticket as payment for goods, services, or
otherwise.
1.41 "Merchant Account" means an arrangement between an Acquirer and
a Merchant which permits a Merchant to present Transaction Card Tickets to the
Acquirer for payment through the Interchange. It is understood and agreed that
any Merchant Accounts of Customer hereunder shall be considered Processing
Merchants (i.e. - branch bank locations performing Merchant related transactions
such as authorizations, cash advances, etc.).
1.42 "Minimum Processing Fees" is defined in Section I-d of Exhibit
"B" to this Agreement.
1.43 "Net Settlement Amount" means the net dollar amount for each
business day of FDR of all (a) transactions processed for Customer and
Customer's Transaction Card Affiliates for the day determined in accordance with
the applicable rules of MasterCard, VISA and the FDR Settlement Rules, (b)
Interchange fees and expenses relating to Customer and Customer's Transaction
Card Affiliates, and (c) account expenses including overdraft charges, activity
charges, wire transfer fees and other charges relating to Customer and
Customer's Transaction Card Affiliates.
1.44 "Non-Core Processing Services" is defined in Section 3.1 of this
Agreement.
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1.45 "Non-Performance" is defined in Section 2.7(a) of this
Agreement.
1.46 "Notice" is defined in Section 2.5(f) of this Agreement.
1.47 "Old Year" is defined in Section I-a of Exhibit "B" to this
Agreement.
1.48 "Original Term" is defined in Section III-a of Exhibit "B" to
this Agreement.
1.49 "Performance Guidelines" is defined in Section 2.6 of this
Agreement.
1.50 "Processing Fees" means all fees and charges incurred (prior to
any Growth Credit for which Customer qualifies pursuant to Exhibit "B", Section
I-h) for services performed at the prices set forth in Exhibit "B", as adjusted
from time to time consistent with this Agreement, with the exception of Special
Fees and specifically excluding all charges for taxes and interest.
1.51 "Processing Year" is defined in Section III-a of Exhibit "B" to
this Agreement.
1.52 "Processing Year 1" is defined in Section III-a of Exhibit "B"
to this Agreement.
1.53 "Recovery 1 Software" is defined in Section III-H of Exhibit "A"
to this Agreement.
1.54 "Renewal Term" is defined in Section III-b of Exhibit "B" to
this Agreement.
1.55 "Scheduled Start-Up Date" is defined in Section 2.4 of this
Agreement.
1.56 "Settlement Account" is defined in Section 12.1 of this
Agreement.
1.57 "Settlement Late Payment Fee" is defined in Section 12.5 of this
Agreement.
1.58 "Settlement System" is defined in Section 12.1 of this
Agreement.
1.59 "Signing Bonus" is defined in Section I-g of Exhibit "B" to this
Agreement.
1.60 "Special Fees" means the tariff line rates, WATS lines rates,
data circuit charges or any other rates charged to FDR by a communications
common carrier, postage, courier and any other similar charges and methods of
reimbursement described in Exhibit "B".
1.61 "Start-Up" means the preparation of the FDR System for the entry
of Customer's and Customer's Transaction Card Affiliates' data relating to
Customer's Accounts.
1.62 "Term" means the Original Term together with any Renewal Term or
any other extension of this Agreement.
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1.63 "Total Annual Processing Fees" is defined in Section I-d of
Exhibit "B" to this Agreement.
1.64 "Transaction Card" means a payment card issued pursuant to a
license from MasterCard, VISA or any other card issuing organization for which
FDR currently provides service support. This shall include any credit card,
debit card or any small business account card, purchasing account card or
corporate travel and expense account card ("Commercial Card") program offered by
Customer.
1.65 "Transaction Card Ticket" means a record (whether paper,
magnetic, electronic or otherwise) which is created to evidence the use of a
Transaction Card as payment for goods, services, cash advances or otherwise or
for a credit or refund or otherwise.
1.66 "VISA" means, individually or collectively, as appropriate, VISA
U.S.A. Inc. or VISA INTERNATIONAL or either of their successors or assigns.
1.67 "Year 1 Minimum Processing Fee" is defined in Section I-d of
Exhibit "B" to this Agreement.
1.68 "Year 2000 Compliant" is defined in Section 11.1(d) of this
Agreement.
ARTICLE 2
SERVICES
2.1 BASIC SERVICES. FDR shall make available to and perform for
Customer and Customer's Transaction Card Affiliates the services described in
Exhibit "A" which are applicable to their respective Issuer and Acquirer
businesses or as specifically provided in Exhibit "A". Exhibit "A" and any
document or service referred to as Exhibit "A" shall be subject to revision by
FDR from time to time during the Term of this Agreement to reflect changes and
improvements to the FDR System or the services provided by FDR and offered
generally to FDR customers and to reflect any changes and improvements in the
specific services provided to Customer and Customer's Transaction Card
Affiliates; provided, however, that: (i) FDR shall not effect any change to the
FDR System which would eliminate or materially degrade the services provided by
FDR under this Agreement unless such change is required by the MasterCard or
VISA rules or regulations or applicable federal or state statutes, laws or
regulations applicable to FDR or its customers and (ii) FDR shall not increase
the fees set forth in Exhibit "B" (except as provided for in Exhibit "B",
Section 1, Paragraph (a)) pursuant to this Section 2.1.
2.2 COMMUNICATION LINKS. FDR from time to time shall install,
provide or cause to be installed or provided the means for communicating data
from its facilities or equipment to the facilities or equipment of Customer,
Customer's Transaction Card Affiliates and third parties designated by Customer
as FDR determines is desirable to perform this Agreement. The method
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<PAGE> 13
of transmission and the media employed will be determined by FDR taking into
consideration relevant factors such as traffic type, inbound and outbound
message sizes, traffic loading distribution, and the equipment or devices which
are or may be used.
2.3 ANCILLARY SERVICES. The ancillary services to be provided by FDR
or made available to Customer and Customer's Transaction Card Affiliates are set
forth in Exhibit "A".
2.4 START-UP.
(a) FDR will provide, subject to any applicable approvals of
VISA or MasterCard, for completion of the Start-Up on or before December
18, 1997, or at an earlier or later date as may be mutually agreed upon
by FDR and Customer (the "Scheduled Start-Up Date"). To the extent that
FDR and Customer mutually agree, the Scheduled Start-Up Date may be
modified from time to time prior to Start-Up. FDR will use all
reasonable resources, including the assignment of adequate personnel to
assure timely performance of those functions required of FDR under the
Start-Up so as to enable Start-Up to be completed on or by the Scheduled
Start-Up Date.
(b) Customer will (i) use all reasonable resources,
including the assignment of adequate personnel to assure timely
performance of those functions required of Customer under the Start-Up,
and (ii) comply with any directions of FDR given thereunder so as to
enable Start-Up to be completed on or before the Scheduled Start-Up
Date.
(c) Except as otherwise provided herein, each party shall be
responsible for and pay all costs and expenses incurred by it in
connection with the Start-Up.
2.5 COMPLIANCE WITH LAWS.
(a) Prior to the Scheduled Start-Up Date, Customer will
review the parameter settings and options within the FDR System, as
described in the User Manuals set forth in Exhibit "A", Section 1, and
determine that FDR's System provides such features and options, which
will, if properly selected by or on behalf of Customer, allow Customer
and Customer's Transaction Card Affiliates to comply with all applicable
federal and state laws and contractual agreements of Customer and
Customer's Transaction Card Affiliates. To the extent that Customer
notifies FDR of any change in federal and state law, subject to the
limitations set forth below, FDR agrees to develop reasonable
enhancements to the FDR System responsive to the identified change in
federal and state law as specifically requested by Customer. The
obligation of FDR set forth in the previous sentence is subject to the
following limitations:
(i) the change in federal and state law is generally
applicable to a significant portion of FDR's client base and
does not relate solely to a requirement or preference of
Customer or Customer's Transaction Card Affiliates;
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(ii) the responsive enhancement requested by Customer
is consistent with the response requested by the majority of the
affected client base (Customer acknowledges that in many
instances, responsive enhancements will be mediated by certain
client advisory groups maintained by FDR and agrees that
development of an enhancement approved by such client advisory
groups as responsive to the change in law shall satisfy FDR's
obligations under this subsection (a));
(iii) FDR shall have a reasonable time from the date
Customer notifies FDR of the change in law and specifies the
requested enhancement in which to design, code, test and
implement the enhancement (in the determination of
reasonableness, the extent and impact of the change in law on
the FDR client base, the relative importance of other
enhancements, the complexity of the enhancement, and related
issues of impact and resource allocation shall be considered and
the effective date of the change in law shall not be
determinative); and
(iv) the responsive enhancement requested by Customer
does not impose a burden on FDR (or the FDR System) to determine
the facts not available on the FDR System, to make legal
interpretations or conclusions, or to in any way shift
Customer's and Customer's Transaction Card Affiliates'
compliance responsibility to FDR.
(b) Customer acknowledges and agrees that it is solely
responsible for monitoring legal developments applicable to the
operation of its business and Transaction Card operations, interpreting
applicable state and federal laws, determining the requirements for
compliance with all applicable state and federal laws, and maintaining
an ongoing compliance program. Consequently, Customer agrees that FDR
has no responsibility to monitor or interpret laws applicable to
Customer's or Customer's Transaction Card Affiliates' business, to
monitor or review the terms and conditions of Customer's or Customer's
Transaction Card Affiliates' Transaction Card programs or Customer's
selection of system options and programming, or to assure that
Customer's selection of any system option or programming (either alone
or acting in conjunction with other system options and programming
selected by Customer) is consistent with laws applicable to Customer and
Customer's Transaction Card Affiliates or the terms and conditions of
Customer's or Customer's Transaction Card Affiliates' credit agreements
with, or disclosure to, its Cardholders. FDR shall use its reasonable
best efforts to give Customer timely notice by bulletin, notice, or
other method, of all changes to the FDR System which are being made to
comply with any known changes in federal, state or card association
laws, rules, or regulations.
(c) FDR shall be entitled to rely upon and use, without
verification, any and all information, data and instructions any time
submitted to FDR by Customer having to do with
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Customer or Customer's Accounts, and FDR shall have no responsibility or
liability whatsoever for (i) the accuracy or inaccuracy thereof, (ii)
the wording or text authored or submitted by Customer to FDR, for
materials to be prepared or for other purposes, (iii) the wording or
text appearing on any forms, Transaction Cards or other materials
furnished by Customer to FDR, or (iv) any noncompliance of such
information, data, instruction, wording or text with applicable laws,
rules or regulations.
(d) If any change in the services provided by FDR hereunder
is required by the applicable operating rules of VISA and MasterCard
relating to the business of Customer, FDR shall notify Customer of such
modifications or changes and make modifications or changes, as necessary
to, (i) the FDR System and/or (ii) the manner and methods used to
provide the services hereunder as soon as practicable after FDR has been
notified of such required changes by VISA or MasterCard. In the event
such changes cannot reasonably be implemented, FDR shall provide
customer with reasonable alternatives to allow Customer to comply with
such requirements. Any such change or alternative required by the
applicable operating rules of VISA and MasterCard shall be made at FDR's
sole expense.
(e) If any enhancement developed by FDR pursuant to Section
2.5(a) is required by federal law, such enhancement shall be developed
by FDR at FDR's expense; provided, however, if any change in federal law
is not generally applicable to a significant portion of FDR's client
base, based on the number of Cardholder Accounts on file of such
clients, or if such change relates solely to a requirement or preference
of Customer, then subject to the provisions of Section 2.5(a)(iii) and
(iv), FDR will develop the requested enhancement at Customer's expense
or at the equal expense of Customer and any other FDR customers subject
to such federal law as appropriate. If any enhancement developed by FDR
pursuant to Section 2.5(a) is required by state law and is not generally
applicable to a significant portion of FDR's client base, based on the
number of Cardholder Accounts on file of such clients, or if such change
relates solely to a requirement or preference of Customer, then such
enhancement shall be developed subject to the provisions of Section
2.5(a)(iii) and (iv) by FDR at the expense of Customer or at the equal
expense of Customer and any other FDR customers subject to such state
law as appropriate.
(f) If Customer, in its reasonable determination, concludes
that any enhancement which FDR developed pursuant to the notification
from Customer regarding the change in federal or state law does not
allow Customer to be in compliance with the applicable federal or state
law, then Customer shall notify FDR in writing (the "Notice"). The
Notice shall specify in reasonable detail Customer's basis for its
position together with all information regarding the requirements which
Customer reasonably needs to be in compliance with the federal or state
law. After receipt of the Notice, FDR shall provide Customer with any
alternative enhancements which FDR can reasonably propose based on the
Notice from Customer (the "Alternative"). If Customer, in its reasonable
determination, concludes that the Alternative does not allow Customer to
be in compliance with the applicable federal or state law, then Customer
may elect to terminate this Agreement; provided, however, that this
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termination option is exercised within sixty (60) days after Customer
receives the Alternative, and provided that such termination shall
become effective on a date specified by Customer, which date shall not
be later than nine (9) months after Customer's delivery to FDR of a
written notice of its intention to so terminate this Agreement. Other
than payment to FDR of the unamortized portion of the Signing Bonus as
specified in Section 9.4 of this Agreement, Customer shall not be
responsible for any other termination fees, including costs of
Deconversion, if this Agreement is terminated pursuant to this Section
2.5(f).
2.6 PERFORMANCE GUIDELINES. While this Agreement is in effect, FDR
shall at all times maintain the necessary telephone lines, computer capacity and
staff necessary to provide service in accordance with the list of performance
guidelines set forth in Exhibit "D" as such list may, from time to time, be
amended by the parties (the "Performance Guidelines"). By the twentieth (20th)
day of each calendar month, FDR agrees to provide Customer with a monthly report
setting forth the Performance Guidelines and its performance during the just
concluded calendar month in connection with those services which Customer used
during the calendar month.
2.7 FAILED PERFORMANCE.
(a) During any calendar month, each failure to achieve a
Performance Guideline shall constitute a "Failed Guideline". If FDR,
during any six (6) consecutive calendar months, fails to achieve the
same Performance Guideline, then such failure shall constitute "Non
Performance" and the sole and exclusive provisions of Section 3.1 of
this Agreement shall not apply for such Failed Guideline for the
remainder of the Tenn.
(b) In addition to the provisions of paragraph (a) of this
Section 2.7, if FDR fails to achieve five (5) or more Performance
Guidelines in any one calendar month, then such month shall be
considered to be a "Failed Month" for purposes of this Section 2.7 (b).
If FDR experiences three (3) consecutive Failed Months, then FDR shall
provide Customer with a credit equal to two percent (2%) of the
Processing Fees paid during the third such Failed Month. If FDR
experiences four (4) consecutive Failed Months, then FDR shall provide
Customer with a credit equal to 3% of the Processing Fees paid during
the fourth such Failed Month. If FDR experiences five (5) consecutive
Failed Months, then FDR shall provide Customer with a credit equal to
four percent (4%) of the Processing Fees paid during the fifth such
Failed Month. If FDR experiences six (6) consecutive Failed Months, then
Customer, at its election, may terminate this Agreement; provided,
however, that this termination option is exercised within sixty (60)
days after Customer receives notice of FDR's sixth Failed Month, and
provided that such termination shall become effective on a date
specified by Customer, which date shall be not later than nine (9)
months after Customer's delivery to FDR of a written notice of its
intention to so terminate this Agreement.
2.8 SOLE REMEDY. Customer hereby agrees that due to the difficulty
of determining and calculating its damages upon FDR's failure to perform in
accordance with the Performance Guidelines, the remedies, as set forth in
Sections 2.7(a), and 2.7 (b) are its sole and exclusive
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remedies for such failures and that Customer hereby elects to waive any and all
other remedies to which Customer may be entitled under this Agreement, at law or
in equity, based on the failure of FDR to perform in accordance with the
Performance Standards; provided, however, that nothing in this Section 2.7 shall
be construed as a waiver of any of Customer's rights under any other provision
of this Agreement which are not based on the failure of FDR to perform in
accordance with the Performance Guidelines.
ARTICLE 3
EXCLUSIVITY AND EXECUTION BY AFFILIATION
3.1 SOLE AND EXCLUSIVE PROVIDER. During the Term of this Agreement,
FDR shall be the sole and exclusive third party provider to Customer and
Customer's Transaction Card Affiliates of all services set forth in Exhibit "A"
of this Agreement which are not preceded by an * ("Core Processing Services").
Neither Customer nor Customer's Transaction Card Affiliate shall agree with any
third party to have such third party perform or provide any of the Core
Processing Services. Those services set forth in Exhibit "A" which are preceded
by an * shall be known as "Non-Core Processing Services". Customer and/or
Customer's Transaction Card Affiliate may perform or provide, or have a third
party perform or provide, any of the Non-Core Processing Services for themselves
or for each other. If Customer, after the effective date of this Agreement,
elects to discontinue use of any or all of the Cardholder Support Services
described in Section III G of Exhibit "A", then Customer shall provide FDR with
written notice of such discontinuance at least ninety (90) days prior thereto.
Such notice may not be given prior to February 28, 1998.
3.2 EXECUTION OF AGREEMENT BY CUSTOMER'S AFFILIATES. Subject to the
terms and conditions of Exhibit "C", each of Customer's Issuer Affiliates shall
be or become a party to this Agreement and each has executed a Customer
Transaction Card Affiliate Agreement or shall execute Customer Transaction Card
Affiliate Agreement when it becomes a Customer Issuer Affiliate. Customer and
each of Customer's Issuer Affiliates, in addition to the terms of Customer
Transaction Card Affiliate Agreement, covenant and represent the following:
(a) Customer shall have full authority to represent
Customer's Issuer Affiliate and to act fully on Customer's Issuer
Affiliate's behalf in connection with this Agreement and the Customer
Transaction Card Affiliate Agreement including the negotiating with FDR
of any amendments, extensions or revisions of this Agreement or the
Customer Transaction Card Affiliate Agreement, the asserting,
negotiating and resolving any controversy, dispute or claim under this
Agreement or the Customer Transaction Card Affiliate Agreement and the
execution or delivery of any documents.
(b) If Customer shall fail to pay any amounts due under this
Agreement (and payment of such amounts by Customer's Transaction Card
Affiliates are not specifically excluded in the Customer Transaction
Card Affiliate Agreement), including but not limited to any Processing
Fees, Special Fees, or other fees, taxes, interest payments, charges, or
amounts due or payable by Customer, Customer's Issuer Affiliate shall
pay FDR on demand
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the portion of the amounts due from Customer to FDR for services
performed by FDR for or on behalf of Customer's Issuer Affiliate, as
determined by FDR, which approximates the percentage that the Processing
Fees relating to processing for Customer's Issuer Affiliate are of the
total Processing Fees under this Agreement.
ARTICLE 4
PAYMENT FOR SERVICES
4.1 FEES AND CHARGES.
(a) The initial Processing Fees for the services to be
performed under this Agreement are set forth in Exhibit "B". Exhibit "B"
also contains initial prices to be charged or methods for computing
charges by FDR for Special Fees such as but not limited to
reimbursements, assessments and pass through fees. If FDR commences to
offer any new services or products to its customers after the execution
of this Agreement and Customer or Customer's Transaction Card Affiliates
use any such service or product, then FDR shall provide and Customer and
Customer's Transaction Card Affiliates shall receive any such service or
product at FDR's then current fees and charges, as such fees and charges
may be increased pursuant to Exhibit "B", Section I.
(b) Six (6) months following the execution of this
Agreement, and annually thereafter, the parties may review the prices
charged by FDR for Core Processing Services. If either party determines,
in the exercise of its reasonable business judgement, that pricing for
Core Processing Services does not properly reflect (i) in the case of
FDR, FDR's ability to recover the cost of delivering such Core
Processing Services, or (ii) in the case of Customer, the price that
Customer would pay for similar services from an unaffiliated third party
(considering factors such as, but not limited to, the mix of services,
volumes associated therewith, service levels, features, functionality,
contractual terms and quality of any such similar services) then the
parties may agree to negotiate, in good faith, an appropriate revision
to the prices charged for Core Processing Services.
(c) Within sixty (60) days following the Start-Up Date, FDR
and Customer will review the method of computing charges for the
Cardholder Support Services set forth in Section III-G of Exhibit "A" to
this Agreement. If Customer and FDR determine, in the exercise of their
reasonable business judgement, that each party would benefit by
computing charges for the Cardholder Support Services on a talk-time or
other basis, rather than per active account basis, then the parties
agree to amend this Agreement to reflect such alternative method of
computing charges. If the parties are unable to agree on an alternative
method for computing charges for the Cardholder Support Services, then
the current pricing structure shall remain in effect.
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ARTICLE 5
INDEMNIFICATION
5.1 CUSTOMER'S INDEMNIFICATION. Customer and Customer's Transaction
Card Affiliates shall indemnify and hold harmless FDR and its directors,
officers, employees, agents and affiliates from and against any and all claims,
liabilities, losses and damages (including reasonable attorney fees, expert
witness fees, expenses and costs of settlement) arising out of or with respect
to this Agreement, to the extent that the claim, liability, loss or damage is
caused by, relates to or arises out of:
(a) The negligence of Customer or any of Customer's
Transaction Card Affiliates;
(b) The breach by Customer or any of Customer's Transaction
Card Affiliates of any promises or covenants of Customer or Customer's
Transaction Card Affiliates set forth in Article 12 of this Agreement,
including but not limited to any amount which FDR may be called upon to
pay under the applicable rules of VISA or MasterCard with respect to any
Interchange obligations of Customer or Customer's Transaction Card
Affiliates following the failure of FDR to receive any Daily Amount; or
(c) FDR's payment of fees and charges relating to Customer's
Accounts pursuant to Section 12.11, Trailing Activity.
Customer and Customer's Transaction Card Affiliates shall not have any
obligation to indemnify FDR against any claim, liability, loss or damage FDR or
its directors, officers, employees, agents or affiliates may suffer arising
solely out of FDR's negligent performance of any of the services provided under
this Agreement.
5.2 FDR's INDEMNIFICATION. FDR shall indemnify Customer and
Customer's Transaction Card Affiliates, and their respective directors,
officers, employees and agents from and against any and all claims, liabilities,
losses or damages (including reasonable attorney fees, expert witness fees,
expenses and costs of settlement) arising out of or with respect to FDR's
negligent performance of any of the services provided under this Agreement,
provided that FDR's obligation to indemnify Customer and Customer's Transaction
Card Affiliates and their respective directors, officers, employees and agents,
shall be limited to:
(a) The actual cost to FDR of reprocessing to correct the
negligent performance; and
(b) The additional out-of-pocket expenses incurred by
Customer and Customer's Transaction Card Affiliates as a direct result
of the negligent performance.
5.3 NOTIFICATION. In the event a claim, suit or proceeding by a
third party for which indemnification may be available under this Agreement is
made or filed against a party or any Entity,
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the party against which the claim, suit or proceeding is made (the "Indemnified
Party"), shall promptly notify the other party (the "Indemnifying Party") in
writing of the claim, suit or proceeding. The Indemnifying Party, within thirty
(30) days, or such shorter period as is required to avoid any prejudice in the
claim, suit or proceeding, after the notice, may elect to defend, compromise, or
settle the third party claim, suit or proceeding at its expense. In any third
party claim, suit or proceeding which the Indemnifying Party has elected to
defend, compromise or settle, the Indemnifying Party shall not after the
election be responsible for the expenses, including counsel fees, of the
Indemnified Party but the Indemnified Party may participate therein and retain
counsel at its own expense. In any third party claim, suit or proceeding the
defense of which the Indemnifying Party shall have assumed, the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the matter without the consent of the Indemnifying Party and the
Indemnifying Party will not consent to the entry of any judgment or enter into
any settlement affecting the Indemnified Party to the extent that the judgment
or settlement involves more than the payment of money without the written
consent of the Indemnified Party. The Indemnified Party shall provide to the
Indemnifying Party all information, assistance and authority reasonably
requested in order to evaluate any third party claim, suit or proceeding and
effect any defense, compromise or settlement.
5.4 CLAIMS PERIOD. Any claim for indemnification under this
Agreement must be made prior to the earlier of:
(a) One year after the party claiming indemnification
becomes aware of the event for which indemnification is claimed, or
(b) One year after the earlier of the termination of this
Agreement or the expiration of the Term of this Agreement.
ARTICLE 6
LIMITATION OF LIABILITY
6.1 LIMITATION ON LIABILITY.
(a) Except as provided in Section 6.1(b), FDR's cumulative
liability for any loss or damage, direct or indirect, for any cause
whatsoever (including, but not limited to those arising out of or
related to this Agreement) with respect to claims relating to events in
any one Processing Year shall not under any circumstances exceed the
amount of the Processing Fees paid to FDR pursuant to this Agreement for
services performed in the immediately preceding twelve (12) month
period, and in the case of the Processing Year 1, the Year 1 Minimum
Processing Fees specified in Section I of Exhibit "B".
(b) Notwithstanding the limitation of liability provided for
in Section 6.1(a), in the event that FDR's liability in connection
with this Agreement arises out of the gross negligence or wilful
misconduct of FDR with respect to those obligations of FDR contained
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in Section 2.5 of this Agreement, then FDR's liability in connection
with this Agreement shall not exceed two (2) times the amount of
Processing Fees paid to FDR for services performed in the immediately
preceding twelve (12) month period, and, in the case of Processing Year
1, the Year 1 Minimum Processing Fees specified in Section I of Exhibit
"B".
6.2 NO SPECIAL DAMAGES. IN NO EVENT SHALL FDR OR CUSTOMER BE LIABLE
UNDER ANY THEORY OF TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE
THEORY FOR ANY LOST PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT
OR CONSEQUENTIAL DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE
PARTIES REGARDLESS OF WHETHER OR NOT FDR OR CUSTOMER HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
ARTICLE 7
DISCLAIMER OF WARRANTIES
FDR SPECIFICALLY DISCLAIMS ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED
ARISING OUT OF OR RELATED TO THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
NONINFRINGEMENT, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES.
FDR, CUSTOMER AND CUSTOMER'S TRANSACTION CARD AFFILIATES HEREBY AGREE THAT FDR'S
OBLIGATIONS TO CUSTOMER AND CUSTOMER'S TRANSACTION CARD AFFILIATES ARE RELATED
TO FDR PROVIDING SERVICES, THAT THIS AGREEMENT IS A SERVICE AGREEMENT FOR
PURPOSES OF THE UNIFORM COMMERCIAL CODE AND THEREFORE THE PROVISIONS OF THE
UNIFORM COMMERCIAL CODE SHALL NOT APPLY TO THIS AGREEMENT.
ARTICLE 8
TERM OF AGREEMENT
8.1 TERM AND RENEWALS. This Agreement is effective from the date
hereof and shall extend for the Original Term and Renewal Term(s) set forth in
Exhibit "B", Section III.
ARTICLE 9
TERMINATION
9.1 TERMINATION BY FDR. Despite anything to the contrary herein
contained, FDR, at its option, may terminate this Agreement under the following
circumstances:
(a) If Customer fails to establish the account required by
Section I-b of Exhibit "B" within three (3) business days after written
notice to Customer of its failure to establish the account or within
thirty (30) business days after written notice to Customer of its
failure thereafter to maintain the account during the Term of this
Agreement;
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(b) If FDR is unable to receive payment from Customer
because sufficient funds are not available in the account established
pursuant to Section I-b of Exhibit "B" and Customer, within thirty (30)
business days after written notice to Customer, fails to provide and
maintain sufficient funds in the account to permit FDR to receive full
payment from the account or within ten (10) business days after written
notice to Customer if FDR has given notice more than three times in any
twelve month period;
(c) Immediately without notice upon the termination of
Customer's membership in VISA or MasterCard or either of their
successors in interest, or if FDR has the right to give notice to
MasterCard or VISA under Section 12.4 whether or not the notice is
given;
(d) Immediately, without notice, with respect to any of
Customer's Transaction Card Affiliates upon termination of such
Transaction Card Affiliates' membership in VISA or MasterCard or either
of their successors in interest, or if FDR has the right to give notice
to MasterCard or VISA under Section 12.4 with respect to such
Transaction Card Affiliate, whether or not notice is given.
(e) If Customer fails to pay any Daily Amount when required
under Article 12 of this Agreement and does not cure the failure within
two (2) business days after written notice to Customer of the failure or
within one (1) business day after written notice to Customer if FDR has
given notice of a failure to pay more than three times in any twelve
month period;
(f) If Customer, without explanation, fails to pay any
amount due under this Agreement which does not give rise to the right to
terminate under any other provision of this Section 9.1 within thirty
(30) business days after written notice to Customer of its failure to
pay the amount;
(g) Upon twenty-four (24) hours notice by FDR if FDR has
terminated Interchange Settlement of transactions on behalf of Customer
or Customer's Transaction Card Affiliates pursuant to Section 12.7 for
more than ten (10) consecutive days or for more than twenty (20) days in
any Processing Year;
(h) If any Insolvency Event occurs with respect to Customer.
The rights of FDR to terminate under this Section 9.1 are cumulative and the
existence of the right under any provision or subsection is not exclusive of the
right under any other provision or subsection.
9.2 TERMINATION BY CUSTOMER. Despite anything to the contrary herein
contained, Customer, at its option, may terminate this Agreement under the
following circumstances:
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(a) Immediately, without notice to FDR, in the event any
Insolvency Event occurs with respect to FDR.
(b) With advance written notice if directed to terminate
this Agreement by the Federal Deposit Insurance Corporation, the Office
of the Comptroller of the Currency, the Federal Financial Institutions
Examination Council, the Office of Thrift Supervision and, with respect
to Customer's Transaction Card Affiliate, regulatory banking authorities
of the State of California.
(c) If FDR shall fail to perform or observe any of the
material terms, covenants and conditions to be performed hereunder so
that Customer, considering FDR's performance as a whole, is not
receiving the services for which it contracted and such failure
materially jeopardizes Customer's ability to operate its business and
continues unremedied for a period of sixty (60) days after written
notice from Customer to FDR specifying the failure and demanding that
the same be remedied; or
(d) As provided in Sections 2.5(f) or 2.7(b).
9.3 EFFECT OF TERMINATION. Upon the termination of this Agreement,
FDR shall have no further obligation to provide services to Customer or
Customer's Transaction Card Affiliates and all outstanding unpaid amounts due
and owing to FDR under the terms of this Agreement shall become immediately due
and payable. The termination of this Agreement shall not affect the following:
(a) The obligation of Customer to pay for services rendered
or any other obligation or liability owing or which becomes owing under
this Agreement whether the obligations arise prior to or after the date
of termination including the obligations to make the payments provided
in Sections 9.4, 9.5, 12.1 and Section I of Exhibit "B";
(b) The obligations set forth in this Agreement in
connection with the InfoSight Software, the cc:Mail Software, the
Recovery 1 Software and the HNC Software;
(c) The provisions of Article 5 or any other indemnification
obligations of either party;
(d) The provisions of Article 6;
(e) The provisions of Article 7; and
(f) The provisions of Article 10 or any other
confidentiality obligations of either party.
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9.4 PAYMENTS UPON TERMINATION. Despite anything in this Agreement to
the contrary, if FDR terminates this Agreement in accordance with the provisions
of Section 9.1 (other than as provided for in Section 9.1(d)) at any time prior
to the expiration of the Term, Customer shall pay to FDR upon the termination,
and prior to Deconversion, an amount equal to the sum of:
(a) Minimum Processing Fees, as set forth in Section I-d of
Exhibit "B", for the Processing Year in which the termination occurs
(after crediting Customer for any Processing Fees paid for services
provided in the Processing Year); and
(b) Liquidated Damages calculated as set forth
in Section 9.5.
In addition, in the event that this Agreement is terminated, for any reason,
prior to the conclusion of the Original Term, Customer hereby agrees to pay FDR
an amount equal to the Signing Bonus; provided, that such amount shall be
reduced by an amount equal to one-sixtieth (1/60) of the Signing Bonus for each
whole calendar month of the Original Term which has elapsed prior to the
effective date of such termination.
9.5 LIQUIDATED DAMAGES. The prices for services under this Agreement
were determined by mutual agreement based upon certain assumed volumes of
processing activity and the length of the Term of this Agreement. Customer
acknowledges that without the certainty of revenue from the Year 1 Minimum
Processing Fees and the Minimum Processing Fees provided in Section I of Exhibit
"B", FDR would have been unwilling to provide processing services at the prices
set forth in this Agreement. The parties agree it would be difficult or
impossible to ascertain FDR's actual damages for a termination or other breach
of this Agreement by Customer resulting in a termination of this Agreement
before the end of the Term. The parties further agree that an amount equal to
the sum of the present values of the payment in each full Processing Year which
remains during the Term of this Agreement in an amount equal to thirty five
percent (35%) of the Year 1 Minimum Processing Fee or Minimum Processing Fees,
as applicable, for the Processing Year in which termination occurs (the
"Liquidated Damages") is a reasonable estimation of the actual damages which FDR
would suffer if FDR were to fail to receive the processing business for the full
Term. In determining the present value of the amount, an interest rate equal to
the three (3) month Treasury Bill Rate, as quoted by The Wall Street Journal for
the date on which termination occurs, or if not available on the date of
termination, as soon thereafter as the next edition of The Wall Street Journal
is published, shall be assumed and the payments shall be assumed to be made on
the first day of each Processing Year. Each party acknowledges and agrees, after
taking into account the terms of this Agreement and all relevant circumstances
at the date hereof, that the Liquidated Damages payable under this Section 9.5
represents a reasonable and genuine pre-estimate of the damages which would be
suffered by FDR in the event of early termination of this Agreement and does not
constitute a penalty. Despite the foregoing, nothing in this Agreement shall
limit FDR's right to recover from Customer or Customer's Transaction Card
Affiliates (a) any amounts advanced by FDR on behalf of Customer or Customer's
Transaction Card Affiliates for Interchange Settlement, (b) any amounts for
which Customer or Customer's Transaction Card Affiliates are liable other than
for Processing Fees, or
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(c) any payment under any provision for indemnification under this Agreement.
Nothing in this Agreement shall limit the right of any party to this Agreement
to seek injunctive relief, to the extent available, in respect of breaches of
this Agreement.
ARTICLE 10
CONFIDENTIAL NATURE OF DATA
10.1 CUSTOMER'S PROPRIETARY INFORMATION. FDR shall not obtain any
proprietary rights in any proprietary or confidential information which has been
or at any time after the date of this Agreement is disclosed, directly or
indirectly, to FDR by Customer or any of Customer's Transaction Card Affiliates
("Customer's Proprietary Information"). FDR shall maintain in confidence and
shall not disclose to any third party, except as otherwise provided herein,
Customer's Proprietary Information and FDR agrees that such information will be
used by FDR only to perform services in accordance with this Agreement and for
internal research and development with the intent of improving the Services or
other services to be offered pursuant to this Agreement. FDR agrees to return to
Customer upon the expiration or termination of this Agreement and payment for
Deconversion as provided in Section I of Exhibit "B" and upon written request
from Customer, all or any requested portion of Customer's Proprietary
Information including, but not limited to:
Cardholder Master Files
Merchant Master Files
Agent Bank Master Files
Cardholder Revolving Transaction Files
CIS Memo Files
Authorizations, posted transactions, statement files, and all
other data relating to Customer's Accounts
10.2 FDR'S PROPRIETARY INFORMATION. Neither Customer nor Customer's
Transaction Card Affiliates shall obtain any proprietary rights in any
proprietary or confidential information which has been or at any time after the
date of this Agreement is disclosed, directly or indirectly, to Customer or any
of Customer's Transaction Card Affiliates by FDR, including without limitation,
any data or information that is a trade secret or competitively sensitive
material, FDR's user manuals, screen displays and formats, FDR's computer
software and documentation, software performance results, flow charts and other
specifications (whether or not electronically stored), data and data formats
(collectively, "FDR's Proprietary Information") whether any of the materials are
developed or purchased specifically for performance of this Agreement or
otherwise. Customer agrees to, and shall cause its Affiliates to, return to FDR
all of FDR's Proprietary Information upon the expiration or termination of this
Agreement.
10.3 CONFIDENTIALITY OF AGREEMENT. Except as required by law,
Customer shall keep confidential and not disclose, and shall cause its
Affiliates and their respective directors, officers, employees, representatives,
agents and independent contractors to keep confidential and not
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disclose, any of the terms and conditions of this Agreement to any third party
without the prior written consent of FDR.
10.4 CONFIDENTIALITY. FDR, Customer and Customer's Transaction Card
Affiliates agree to maintain Customer's Proprietary Information and FDR's
Proprietary Information, respectively, in strict confidence. Without limiting
the generality of the foregoing, FDR, Customer and Customer's Transaction Card
Affiliates each agree:
(a) Not to disclose or permit any other person or Entity
access to Customer's Proprietary Information or FDR's Proprietary
Information, as appropriate, except that the disclosure or access shall
be permitted to an employee, officer, director, agent, representative,
external or internal auditors or independent contractor of the party
requiring access to the same in the course of his or her employment or
services;
(b) To ensure that its employees, officers, directors,
agents, representatives and independent contractors are advised of the
confidential nature of Customer's Proprietary Information and FDR's
Proprietary Information, as appropriate, and are precluded from taking
any action prohibited under this Article 10, provided that in any event
Customer and FDR shall each be liable for any breach of this Article 10
by their respective employees, officers, directors, agents,
representatives and independent contractors;
(c) Not to alter or remove any identification, copyright or
proprietary rights notice which indicates the ownership of any part of
Customer's Proprietary Information or FDR's Proprietary Information, as
appropriate; and
(d) To notify the other promptly and in writing of the
circumstances surrounding any possession, use or knowledge of Customer's
Proprietary Information or FDR's Proprietary Information, as
appropriate, at any location or by any Entity other than those
authorized by this Agreement.
10.5 RELEASE OF INFORMATION. Despite the foregoing, Customer agrees
that Customer's Proprietary Information may be made available to VISA,
MasterCard or to supervisory or regulatory authorities of Customer or Customer's
Transaction Card Affiliates upon the written request of the Entity and notice to
Customer.
10.6 EXCLUSIONS. Nothing in this Article 10 shall restrict either
party with respect to information or data identical or similar to that contained
in Customer's Proprietary Information or FDR's Proprietary Information, as
appropriate, but which:
(a) That party rightfully possessed before it received the
information from the other as evidenced by written documentation;
(b) Subsequently becomes publicly available through no fault
of that party;
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(c) Is subsequently furnished rightfully to that party by a
third party (no Affiliate of Customer shall be considered to be a third
party) not known to be under restrictions on use or disclosure;
(d) Is independently developed by an employee, agent or
contractor of such party; or
(e) Is required to be disclosed by law, regulation or court
order, provided that the disclosing party will exercise reasonable
efforts to notify the other party prior to disclosure.
10.7 REMEDY. In the event of any breach of this Article 10, the
parties agree that the non-breaching party will suffer irreparable harm and the
total amount of monetary damages for any injury to the non-breaching party from
any violation of this Article 10 will be impossible to calculate and will
therefore be an inadequate remedy. Accordingly, the parties agree that the
non-breaching party shall be entitled to temporary and permanent injunctive
relief against the breaching party, its employees, officers, directors, agents,
representatives or independent contractors, and the other rights and remedies to
which the non-breaching party may be entitled to at law, in equity and under
this Agreement for any violation of this Article 10. The provisions of this
Article 10 shall survive the expiration or termination of this Agreement.
ARTICLE 11
REPRESENTATIONS
11.1 FDR'S REPRESENTATIONS. FDR represents and warrants that:
(a) It is a corporation validly organized and existing under
the laws of the State of Delaware;
(b) It has full power and authority under its organizational
documents and the laws of the State of Delaware to execute and deliver
this Agreement and to perform its obligations hereunder;
(c) It has by proper action duly authorized the execution
and delivery of this Agreement and when validly executed and delivered
this Agreement shall constitute a legal, valid and binding Agreement of
FDR enforceable in accordance with its terms; and
(d) The execution and delivery of this Agreement and the
consummation of the transaction herein contemplated does not conflict in
any material respect with or constitute a material breach or material
default under its organizational documents or under the terms and
conditions of any documents, agreements or other writings to which it is
a party.
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(e) FDR represents and warrants that the Services shall be
Year 2000 Compliant by December 31, 1999. "Year 2000 Compliant" means
that, for mission-critical applications:
(i) date data from at least 1900 through 2049 will
process without error or interruption due solely to the change
in century, in any level of computer hardware, software or
services FDR provides, including, but not limited to, microcode,
firmware, system and application programs, files, databases and
computer services;
(ii) there will be no loss of any functionality of
the Services due solely to the change in century, with respect
to the introduction, processing or output of records containing
dates falling on or after January 1, 2000;
(iii) On and after January 1, 2000, Services that FDR
provides will continue to be interoperable, in the same manner
as they are prior to January 1, 2000, with software and hardware
which may deliver records to, receive records from or interact
with the Services in the course of processing data, provided
that such other software and hardware uses a century windowing
or interpretive approach (with a pivot year of 50).
(f) The Services design shall accommodate, at a minimum, all
of the following: (i) date data century recognition; (ii) calculations
which accommodate same- and multi-century formulas and date values; and
(iii) implied century on input/output of data.
11.2 CUSTOMER'S REPRESENTATIONS. Customer represents and warrants
that:
(a) It is a corporation validly organized and existing under
the laws of the California;
(b) It has full power and authority under its organizational
documents and the laws of the California to execute and deliver this
Agreement and to perform its obligations hereunder;
(c) It has by proper action duly authorized the execution
and delivery of this Agreement and when validly executed and delivered
this Agreement shall constitute a legal, valid and binding agreement of
Customer enforceable in accordance with its terms; and
(d) The execution and delivery of this Agreement and the
consummation of the transaction herein contemplated does not conflict in
any material respect with or constitute
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a material breach or material default under its organizational documents
or under the terms and conditions of any documents, agreements or other
writings to which it is a party.
(e) Customer represents and warrants that any hardware or
software provided by Customer or its vendors which is intended to
deliver records to, receive records from or interact with the Services
is Year 2000 Compliant as defined in this Section.
(f) Customer agrees to cooperate fully, and to ensure that
its vendors cooperate fully, with FDR to ensure the interoperability of
the Services with hardware and software of the Customer or its vendors.
FDR shall have the right, at its discretion, to reject any data file
which it in good faith believes will interfere with the ability of the
Services to be Year 2000 Compliant.
11.3 FINANCIAL INFORMATION. In 1998, Customer shall, on quarterly
basis, provide FDR with current copies of Customer's Balance Sheet and Income
Statements in order to allow FDR to monitor Customer's financial status. In the
event that Customer, in the reasonable opinion of FDR, is unable to pay its
debts in the ordinary course of business or as they become due, or in the
reasonable opinion of FDR Customer is unable to perform its obligations under
this Agreement, then the parties agree to negotiate, in good faith, can
amendment to or a revision of this Agreement to reflect Customer's changed
financial status. All information provided under this Section 11.3 shall be
Customer's Proprietary Information and shall be subject to the provisions of
Article 10 of this Agreement.
ARTICLE 12
TRANSACTION SETTLEMENT
12.1 INTERCHANGE SETTLEMENT ACCOUNT. In order for FDR to provide its
services to Customer and Customer's Transaction Card Affiliates pursuant to this
Agreement, it is necessary for FDR to handle and settle Interchange Settlement
for Customer and Customer's Transaction Card Affiliates through the
international Interchange networks of MasterCard and VISA. It shall be the
responsibility of Customer and Customer's Transaction Card Affiliates to provide
ICA and BIN numbers from MasterCard and VISA, respectively, for use by FDR in
the settlement of transactions for Customer and Customer's Transaction Card
Affiliates. Customer and Customer's Transaction Card Affiliates understand that
FDR handles the Interchange Settlement with MasterCard and VISA for its clients
including Customer and Customer's Transaction Card Affiliates on a net
settlement basis (the "Settlement System"). To facilitate the Settlement System,
FDR has established, will establish or will direct Customer to establish and may
in the future establish or direct Customer to establish one or more interchange
settlement Central Clearing Accounts (collectively the "Settlement Account") at
one or more banks.
12.2 TRANSFER OF FUNDS. FDR shall calculate and inform Customer on
each business day of the amount of funds to be transferred (the "Daily Amount")
as the result of (a) current transaction processing, and (b) funding required
for incoming transactions of Customer and
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Customer's Transaction Card Affiliates. If the Daily Amount is negative,
Customer must transfer to the Settlement Account, by the close of business of
the Federal Reserve System in New York, an amount equal to the Daily Amount. If
the Daily Amount is positive, FDR will transfer to Customer, or will cause
MasterCard or VISA to transfer to Customer, immediately available funds equal to
the Daily Amount prior to the close of business of the Federal Reserve System in
New York on such date.
12.3 DAILY AMOUNT. The Daily Amount shall equal:
(a) The Net Settlement Amount for Customer and Customer's
Transaction Card Affiliates, plus
(b) The amount necessary to fund incoming Interchange
transactions not yet processed, determined in accordance with the FDR
Settlement Rules, minus
(c) The amount previously advanced by Customer with respect
to prior incoming Interchange transactions for which processing is
complete.
12.4 FAILURE TO TRANSFER. In the event of the failure of Customer on
any business day when required by the terms of this Agreement or the FDR
Settlement Rules, to transfer the Daily Amount to the Settlement Account, FDR
may refuse, after two (2) business days' written notice to Customer and without
incurring any liability to Customer or Customer's Transaction Card Affiliates,
to act as Customer's agent in discharging any VISA or MasterCard Interchange
obligations of Customer and Customer's Transaction Card Affiliates and shall
have the right to immediately notify MasterCard and VISA that it will no longer
cause the MasterCard or VISA Interchange obligations of Customer and Customer's
Transaction Card Affiliates to be discharged. In addition to the foregoing, FDR
may take such actions with respect to Customer's and Customer's Transaction Card
Affiliate's obligations under the Settlement System as FDR deems reasonable to
protect FDR or its customers from any loss arising from Customer's non-payment
of the Daily Amount. If Customer, within two (2) business days after written
notice from FDR pays FDR the Daily Amount which Customer had failed to transfer
to the Settlement Account together with late payment fees as set forth in
Section 12.5 of this Agreement, then FDR shall continue to act as Customer's
agent in discharging Customer's VISA or MasterCard Interchange Settlement
obligations.
12.5 SETTLEMENT LATE PAYMENT FEE. In addition to any other provisions
in this Agreement, in the event of Customer's failure to transfer or make
available the Daily Amount for any business day, Customer shall pay to FDR a
late payment fee (the "Settlement Late Payment Fee") which shall be equal to the
amount Customer and Customer's Transaction Card Affiliates would have been
required to pay as a late payment fee under MasterCard and VISA rules. The
amount shall be calculated in accordance with the rules and shall continue to
accrue until FDR shall have received the Daily Amount from Customer. Settlement
Late Payment Fees shall be
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paid to FDR based upon the rules even though FDR may have elected to make
settlement with MasterCard or VISA in a timely manner on behalf of Customer and
Customer's Transaction Card Affiliates. If FDR has received funds from VISA
and/or MasterCard as a result of Interchange Settlement on behalf of Customer or
Customer's Transaction Card Affiliates and fails to make available the Daily
Amount to Customer, FDR shall pay to Customer a late payment fee based on the
Daily Amount calculated in the same manner as the Settlement Late Payment Fee.
12.6 NO INDEPENDENT OBLIGATION. The obligation of FDR to discharge
any VISA or MasterCard Interchange obligations of Customer or Customer's
Transaction Card Affiliates shall be solely as an agent of Customer and
Customer's Transaction Card Affiliates in accordance with the terms and
provisions of this Agreement and the FDR Settlement Rules. FDR shall have no
independent obligation with respect to the discharge of the Interchange
obligations of Customer or Customer's Transaction Card Affiliates.
12.7 VIOLATION OF RULES. In the event that MasterCard or VISA shall
notify FDR of any violation of the rules and regulations of MasterCard or VISA,
relating to Customer or Customer's Transaction Card Affiliates or transactions
processed for Customer or Customer's Transaction Card Affiliates, FDR shall have
the right, without liability to Customer or Customer's Transaction Card
Affiliates, to terminate Interchange Settlement of transactions on behalf of
Customer and Customer's Transaction Card Affiliates under this Agreement until
the time as FDR shall have been notified by MasterCard or VISA that the
violation has been corrected.
12.8 RELIANCE ON OTHER PARTIES. Customer acknowledges that
performance of Interchange Settlement involves the settlement of certain of
Customer's and Customer's Transaction Card Affiliates' transactions jointly and
on a combined net basis with the settlement of transactions of other customers
of FDR. Accordingly, the payment or receipt by FDR of settlement monies on
behalf of Customer and Customer's Transaction Card Affiliates may be dependent
on equivalent payments or receipts being received or made by or for other
customers of FDR and in respect of transactions involving Transaction Cards
issued by such other customers. FDR and Customer will cooperate and use all
reasonable resources to identify the reason for any settlement failure and shall
attempt to work to its resolution.
12.9 COMPLIANCE WITH INSTRUCTIONS. FDR shall be entitled without
further inquiry to execute or otherwise act upon (a) instructions or information
or purported instructions or information received through the MasterCard and
VISA payment systems and instructions or information, or (b) purported
instructions or information received in accordance with the MasterCard and VISA
rules or settlement manuals otherwise than through the payment systems or in
accordance with the FDR Settlement Rules notwithstanding that it may afterwards
be discovered that the instructions or information were not genuine or were not
initiated by Customer or Customer's Transaction Card Affiliates. Such execution
or action shall constitute a good discharge to FDR, and FDR shall not be liable
for any liability, damage, expense, claim or loss (including loss of business,
loss of profit or exemplary, punitive, special, indirect or consequential
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damages of any kind) whatsoever arising in whatever manner, directly or
indirectly, from or as a result of the execution or action.
12.10 RESTRICTIONS ON SETOFF. Customer and Customer's Transaction Card
Affiliates agree to discharge their Interchange Settlement obligations to FDR
under this Article 12 in full and on first written demand waiving any defense,
setoff or right of counterclaim (without prejudice to the ability of Customer or
Customer's Transaction Card Affiliates to pursue these independently) and
notwithstanding any act or omission or alleged act or omission or any
insufficiency or deficiency that there is or has been or that may be alleged in
the performance by FDR of its obligations under this Agreement or otherwise. FDR
agrees, however, that it shall not setoff against any payment to be made by it
to Customer or Customer's Transaction Card Affiliates or on their behalf
pursuant to this Article 12 any amount due and payable by Customer or Customer's
Transaction Card Affiliates to FDR (without prejudice to the ability of FDR to
pursue these independently) other than amounts due and payable by Customer or
Customer's Transaction Card Affiliates or on their behalf to FDR pursuant to
this Article 12.
12.11 TRAILING ACTIVITY. If Customer terminates this Agreement or if
Customer or any of Customer's Transaction Card Affiliates ceases to obtain
processing services from FDR under this Agreement in a manner which results in
fees or charges relating to Customer's Accounts continuing to be included as a
part of FDR's net settlement with MasterCard or VISA, FDR may obtain daily
payment from the Settlement Account established under Section 12.1 or, if the
Settlement Account no longer exists, Customer will provide FDR immediately upon
notice with access to an account of Customer's funds, not requiring signature,
which FDR may draw upon in order to receive payment for such fees and charges.
FDR will provide Customer with documentation for all fees and charges paid on
behalf of Customer.
ARTICLE 13
GENERAL
13.1 ASSIGNMENT. Except as otherwise provided herein, the rights and
obligations of Customer and Customer's Transaction Card Affiliates, on the one
hand, and FDR on the other hand, under this Agreement are personal and not
assignable by either party, either voluntarily or by operation of law, without
the prior written consent of the other party, which consent shall not be
unreasonably withheld. Subject to the foregoing, all provisions contained in
this Agreement shall extend to and be binding upon the parties hereto or their
respective successors and permitted assigns.
13.2 RELATIONSHIP OF PARTIES. Nothing contained in this Agreement
shall be deemed or construed by the parties, or by any third party, to create
the relationship of partnership or joint venture between the parties hereto, it
being understood and agreed that neither the method of computing compensation
nor any other provision contained herein shall be deemed to create any
relationship between the parties hereto other than the relationship of
independent parties contracting for services and, for purposes of Interchange
Settlement only, the relationship of
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principal and agent as set forth in Section 12.6. Neither Customer or FDR has,
and shall not hold itself out as having, any authority to enter into any
contract or create any obligation or liability on behalf of, in the name of, or
binding upon the other except as specifically provided in connection with the
Interchange Settlement.
13.3 BUSINESS CONTINUITY PLAN. FDR has created a business continuity
plan (the "Business Continuity Plan"). FDR shall provide Customer with a written
summary of such Business Continuity Plan upon the written request of Customer.
Despite the foregoing, FDR reserves the right to change such Business Continuity
Plan from time to time during the Term of this Agreement. At any time, upon
Customer's request, FDR shall explain all changes made to the Business
Continuity Plan. Any such change shall not degrade the quality of the Business
Continuity Plan in a manner which has a material, adverse impact on the services
provided hereunder. FDR will undertake and make certain revisions to its
Business Continuity Plan which will meet or exceed regulatory agency contingency
planning criteria. FDR's Business Continuity Plan includes a time frame schedule
for recovering critical business functions.
13.4 STATE LAW. Except as provided for in Section 13.16, this
Agreement shall be governed by the laws of the State of New York as to all
matters including validity, construction, effect, performance and remedies
without giving effect to the principles of choice of law thereof. For purposes
of any suit, action or proceeding Customer agrees that any process to be served
in connection therewith shall, if delivered, sent or mailed in accordance with
Section 13.5, constitute good, proper and sufficient service thereof.
13.5 NOTICE. All notices which either party may be required or desire
to give to the other party shall be in writing and shall be given by personal
service, telecopy, registered mail or certified mail (or its equivalent), or
overnight courier to the other party at its respective address or telecopy
telephone number set forth below. Mailed notices and notices by overnight
courier shall be deemed to be given upon actual receipt by the party to be
notified. Notices delivered by telecopy shall be confirmed in writing by
overnight courier and shall be deemed to be given upon actual receipt by the
party to be notified.
If to FDR:
First Data Resources Inc.
10825 Farnam Drive
Omaha, Nebraska 68154
Attn: President
Telecopy Number: 402-222-7334
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With a copy to:
First Data Resources Inc.
10825 Farnam Drive
Omaha, Nebraska 68154
Attn: Counsel
Telecopy Number: 402-222-7700
If to Customer:
Internet Access Financial Corporation
595 Market Street
Suite 2250
San Francisco, California 94105
A party may change its address or addresses set forth above by giving the other
party notice of the change in accordance with the provisions of this section. In
the event FDR provides notice hereunder to Customer of any default by Customer
in the performance of the provisions of this Agreement, which default could
result in the termination of this Agreement, FDR may, at its option, deliver a
copy of the notice to any of Customer's Transaction Card Affiliates receiving
services under this Agreement.
13.6 HEADINGS. The section headings in this Agreement are solely for
convenience and shall not be considered in its interpretation. The recitals set
forth on the first page of this Agreement are incorporated into the body of the
Agreement. The Exhibits referred to throughout this Agreement are attached to
this Agreement and are incorporated into this Agreement. Unless the context
clearly indicates, words used in the singular include the plural, words in the
plural include the singular and the word "including" means "including but not
limited to".
13.7 WAIVER. The failure of either party at any time to require
performance by the other party of any provision of this Agreement shall not
affect in any way the full right to require the performance at any subsequent
time. The waiver by either party of a breach of any provision of this Agreement
shall not be taken or held to be a waiver of the provision itself. Any course of
performance shall not be deemed to amend or limit any provision of this
Agreement.
13.8 FORCE MAJEURE AND RESTRICTED PERFORMANCE. If performance by
either FDR or Customer of any service or obligation under this Agreement,
including Start-Up or Deconversion, is prevented, restricted, delayed or
interfered with by reason of labor disputes, strikes, acts of God, floods,
lightning, severe weather, shortages of materials, rationing, utility or
communication failures, failure of MasterCard or VISA, failure or delay in
receiving electronic data, earthquakes, war, revolution, civil commotion, acts
of public enemies, blockade, embargo, or any law, order, proclamation,
regulation, ordinance, demand or requirement having legal effect of any
government or any judicial authority or representative of any such government,
or any other act or omission whatsoever, whether similar or dissimilar to those
referred to in this clause, which are beyond the reasonable control of either
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<PAGE> 35
FDR or Customer, as the case may be, then either FDR or Customer, as the case
may be shall be excused from the performance to the extent of the prevention,
restriction, delay or interference. As a condition to continuing to perform
embossing services for card issuing members of VISA U.S.A. Inc., FDR was
required to enter into a VISA Card Personalization Agreement dated May 1, 1993,
(the "VISA Agreement"). Under certain circumstances VISA is permitted, pursuant
to the VISA Agreement, to temporarily or permanently prevent or restrict FDR's
right to perform embossing services for card issuing members of VISA U.S.A. Inc.
Customer and Customer's Transaction Card Affiliates hereby agree that if, as a
result of VISA exercising its rights under the VISA Agreement, FDR is prevented
or restricted by VISA from performing embossing services for Customer or
Customer's Transaction Card Affiliates, then FDR shall be excused from the
performance of such embossing services to the extent of such prevention or
restriction by VISA.
13.9 SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable for any reason, the invalidity shall not affect the validity of
the remaining provisions of this Agreement, and the parties shall substitute for
the invalid provisions a valid provision which most closely approximates the
intent and economic effect of the invalid provision.
13.10 AUDIT. From time to time during the Term of this Agreement, FDR
will allow a third party, selected by FDR, to perform an audit of the electronic
data processing environment maintained by FDR to provide the services
contemplated under this Agreement. FDR shall provide Customer or Customer's
Transaction Card Affiliate with a copy of the results of the audit if Customer
or Customer's Transaction Card Affiliate request a copy in writing.
13.11 RISK OF LOSS. Customer shall be responsible for any and all risk
of loss to any tangible item (a) provided by FDR for Customer (including without
limitation statements and embossed cards) upon the delivery of such items to the
U.S. Postal Service or such other courier as Customer may select, and (b)
provided by Customer to FDR until actual receipt of such items by FDR. It is
expressly understood that the U.S. Postal Service and any courier selected by
Customer are the agents of Customer and not FDR.
13.12 EQUAL EMPLOYMENT OPPORTUNITY. FDR will not discriminate against
any employee or applicant for employment because of race, color, religion, sex,
national origin, disability, age or veteran status as ordered by the Secretary
of Labor pursuant to Section 202 of Executive Order 11246, Section 503 of the
Rehabilitation Act of 1973, and Section 402 of the Vietnam Era Veterans
Readjustment Assistance Act of 1974.
13.13 INFORMAL DISPUTE RESOLUTION. Any controversy or claim between
FDR, on the one hand, and Customer on the other hand, arising from or in
connection with this Agreement or the relationship of the parties under this
Agreement whether based on contract, tort, common law, equity, statute,
regulation, order or otherwise, ("Dispute") shall be resolved as follows:
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(a) Upon written request of either FDR, on the one hand, or
Customer, on the other hand, the parties will appoint a designated
representative whose task it will be to meet for the purpose of
endeavoring to resolve such Dispute.
(b) The designated representatives shall meet as often as
the parties reasonably deem necessary to discuss the problem in an
effort to resolve the Dispute without the necessity of any formal
proceeding.
(c) Formal proceedings for the resolution of a Dispute may
not be commenced until the earlier of:
(i) the designated representatives concluding in
good faith that amicable resolution through
continued negotiation of the matter does not
appear likely; or
(ii) the expiration of the thirty (30) day period
immediately following the initial request to
negotiate the Dispute;
provided, however, that this Section 13.13 will not be construed to prevent a
party from instituting formal proceedings earlier to avoid the expiration of any
applicable limitations period, to preserve a superior position with respect to
other creditors or to seek temporary or preliminary injunctive relief pursuant
to Section 10.7.
13.14 ARBITRATION.
(a) If the parties are unable to resolve any Dispute as
contemplated by Section 13.13, such Dispute shall be submitted to
mandatory and binding arbitration at the election of either FDR, on the
one hand, and Customer, on the other hand (the "Disputing Party").
Except as otherwise provided in this Section 13.14, the arbitration
shall be pursuant to the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA").
(b) To initiate the arbitration, the Disputing Party shall
notify the other party in writing (the "Arbitration Demand"), which
shall (i) describe in reasonable detail the nature of the Dispute, (ii)
state the amount of the claim, (iii) specify the requested relief and
(iv) name an arbitrator who (A) has been licensed to practice law in the
U.S. for at least ten years, (B) is not then an employee of Customer or
FDR or an employee of an Affiliate of either Customer or FDR, and (C) is
experienced in representing clients in connection with commercial
agreements (the "Basic Qualifications"). Within fifteen (15) days after
the other party's receipt of the Arbitration Demand, such other party
shall file, and serve on the Disputing Party, a written statement (i)
answering the claims set forth in the Arbitration Demand and including
any affirmative defenses of such party; (ii) asserting any counterclaim,
which shall (A) describe in reasonable detail the nature of the Dispute
relating to the counterclaim, (B) state the amount of the counterclaim,
and (C) sped the
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requested relief; and (iii) naming a second arbitrator satisfying the
Basic Qualifications. Promptly, but in any event within fifteen (15)
days thereafter, the two arbitrators so named will select a third
neutral arbitrator from a list provided by the AAA of potential
arbitrators who satisfy the Basic Qualifications and who have no past or
present relationships with the parties or their counsel, except as
otherwise disclosed in writing to and approved by the parties. The
arbitration will be heard by a panel of the three arbitrators so chosen
(the "Arbitration Panel"), with the third arbitrator so chosen serving
as the chairperson of the Arbitration Panel. Decisions of a majority of
the members of the Arbitration Panel shall be determinative.
(c) The arbitration hearing shall be held in such neutral
location as the parties may mutually agree. The Arbitration Panel is
specifically authorized to render partial or full summary judgment as
provided for in the Federal Rules of Civil Procedure. In the event
summary judgment or partial summary judgment is granted, the
non-prevailing party may not raise as a basis for a motion to vacate an
award that the Arbitration Panel failed or refused to consider evidence
bearing on the dismissed claim(s) or issue(s). The Federal Rules of
Evidence shall apply to the arbitration hearing. The party bringing a
particular claim or asserting an affirmative defense will have the
burden of proof with respect thereto. The arbitration proceedings and
all testimony, filings, documents and information relating to or
presented during the arbitration proceedings shall be deemed to be
information subject to the confidentiality provisions of this Agreement.
The Arbitration Panel will have no power or authority, under the
Commercial Arbitration Rules of the AAA or otherwise, to relieve the
parties from their agreement hereunder to arbitrate or otherwise to
amend or disregard any provision of this Agreement, including, without
limitation, the provisions of this Section 13.14.
(d) Should an arbitrator refuse or be unable to proceed with
arbitration proceedings as called for by this Section 13.14, the
arbitrator shall be replaced by the party who selected such arbitrator,
or if such arbitrator was selected by the two party appointed
arbitrators, by such two party-appointed arbitrators selecting a new
third arbitrator in accordance with Section 13.14(b). Each such
replacement arbitrator shall satisfy the Basic Qualifications. If an
arbitrator is replaced pursuant to this Section 13.14(d) after the
arbitration hearing has commence, then a rehearing shall take place in
accordance with the provisions of this Section 13.14 and the Commercial
Arbitration Rules of the AAA.
(e) At the time of granting or denying a motion for summary
judgment as provided for in (c) and within fifteen (15) days after the
closing of the arbitration hearing, the Arbitration Panel shall prepare
and distribute to the parties a writing setting forth the Arbitration
Panel's finding of facts and conclusions of law relating to the Dispute,
including the reasons for the giving or denial of any award. The
findings and conclusions and the award, if any, shall be deemed to be
information subject to the confidentiality provisions of this Agreement.
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(f) The Arbitration Panel is instructed to schedule promptly
all discovery and other procedural steps and otherwise to assume case
management initiative and control to effect an efficient and expeditious
resolution of the Dispute. The Arbitration Panel is authorized to issue
monetary sanctions against either party if, upon a showing of good
cause, such party is unreasonably delaying the proceeding.
(g) Any award rendered by the Arbitration Panel will be
final, conclusive and binding upon the parties and any judgment hereon
may be entered and enforced in any court of competent jurisdiction.
(h) Each party will bear a pro rata share of all fees, costs
and expenses of the arbitrators, and notwithstanding any law to the
contrary, each party will bear all the fees, costs and expenses of its
own attorneys, experts and witnesses; provided, however, that in
connection with any judicial proceeding to compel arbitration pursuant
to this Agreement or to confirm, vacate or enforce any award rendered by
the Arbitration Panel, the prevailing party in such a proceeding will be
entitled to recover reasonable attorneys' fees and expenses incurred in
connection with such proceeding, in addition to any other relief to
which it may be entitled.
13.15 JUDICIAL PROCEDURE. Nothing in Sections 13.13 or 13.14 shall be
construed to prevent any party from seeking from a court a temporary restraining
order or other temporary or preliminary relief pending final resolution of a
Dispute pursuant to Section 13.13 or 13.14.
13.16 FEDERAL ARBITRATION ACT. The parties acknowledge and agree that
performance of the obligations under this contract necessitates the use of
instrumentalities of interstate commerce and, notwithstanding other general
choice of law provisions in this Agreement, the parties agree that the Federal
Arbitration Act shall govern and control with respect to relevant provisions of
Sections 13.13 and 13.14.
13.17 INSURANCE. FDR agrees that during the Term of this Agreement it
will obtain and maintain commercially reasonable levels of insurance covering
various types of liabilities, including but not limited to comprehensive crime
and employee fidelity bond coverage, which FDR, in its reasonable business
judgment, determines is appropriate to cover the potential exposure that FDR and
its customers could experience. FDR shall provide certificates or other suitable
evidence of such insurance upon Customer's request; provided, however, that FDR,
at its sole election, shall be permitted to make any modification, change,
reduction or increase in the types of coverage or the amount of coverage which
FDR, in its reasonable judgment, determines is appropriate. The certificates of
evidence of insurance shall provide that the insurance carrier will use
reasonable efforts to endeavor to provide Customer with written notice when FDR
or the insurance carrier makes any changes in the types or levels of insurance
maintained by FDR.
13.18 ENTIRE AGREEMENT. This Agreement, including Exhibits and the
executed Affiliate Agreements, if any, sets forth all of the promises,
agreements, conditions and understandings
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between the parties respecting the subject matter hereof and supersedes all
negotiations, conversations, discussions, correspondence, memorandums and
agreements between the parties concerning the subject matter. This Agreement may
not be modified except by a writing signed by authorized representatives of both
parties to this Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties to this agreement have caused it to be
executed by their duly authorize officers as of the day and year first written
above.
FIRST DATA RESOURCES INC.
By: /s/ JOHN THIELEN
-------------------------------------------
Name: JOHN THIELEN
-----------------------------------------
Title: SENIOR VICE PRESIDENT
----------------------------------------
INTERNET ACCESS FINANCIAL CORPORATION
By: /s/ JEREMY LENT
-------------------------------------------
Name: JEREMY LENT
-----------------------------------------
Title: CHIEF EXECUTIVE OFFICER
----------------------------------------
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EXHIBIT "A"
SERVICES
I. THE FOLLOWING DOCUMENTS SPECIFICALLY DESCRIBE THE SERVICES REFERRED TO IN
SECTION II:
User Manuals:
Adjustments
Application Controls
Applications
Authorizations
Authorization Only
Cardholder Account Maintenance
Cardholder Billing
Cardholder New Accounts
Cardholder Non-Monetary Transactions
Cardholder Plastics
Cardholder Select
Cardholder System Features
Chargeback Message Codes
Chargebacks
Client-Defined Screens
Collections
Company Cards
Credit
Customer Inquiry Management System
Customer Inquiry System
Equasion Correspondence
Monetary Entry
PIN Management
Plastics Related Formats
Product Control File
Product Control File Utilities
Reference Manual
Reports Management System
Retrievals
Security
Settlement
Strategy Management
System Administration
System Overview
<PAGE> 41
Customer bulletins issued by FDR
II. SERVICES
A. FDR will provide Customer with an on-line terminal facility (not
the terminals themselves), on-line access to Transaction Card
processing software, adequate computer time and other mechanical
Transaction Card services as more specifically described in the
documents referred to in Section I.
B. Reports will be made available to Customer in accordance with FDR's
Reports Management System (RMS): (i) on hardcopy which shall be
express mailed (overnight delivery) to Customer from FDR, (ii) via
remote job entry (RJE) or Network Data Mover (NDM) transmission
from FDR, (iii) on-line from FDR, (iv) via Microfiche and/or (v) on
CD-ROM disk, based upon Customer's needs. Other pertinent documents
shall also be made available to Customer on hardcopy.
C. Issuer's Clearinghouse Services (ICS): The system whereby FDR
processes and submits to the Issuer's Clearinghouse Service (ICS),
on behalf of Customer, information concerning potential and
existing Cardholders in accordance with the operating regulations
of MasterCard and VISA. Inquiries into FDR's ICS on-line files
utilizing FDR's ICS on-line transactions by an employee of Customer
via Customers's CRT terminals will be counted as a non-monetary
transaction. Anything in this Agreement to the contrary
notwithstanding, it is understood and agreed that FDR's sole
responsibility under the ICS services is to provide electronic data
processing services to Customer in connection with Customer's use
of the ICS. FDR shall not be responsible for and assumes no
responsibility for: (i) any damages, losses or liabilities
whatsoever arising out of the use by Customer of the ICS data
bases, including any liability or obligation of Customer arising
out of or related to its compliance with the Fair Credit Reporting
Act or any other applicable federal, state or local law or
ordinance; (ii) the accuracy of any information supplied by
Customer to the ICS or for any verification of such information
based upon reports provided to Customer through the ICS; and (iii)
Customer's compliance with the operating regulations of MasterCard
and VISA with respect to the ICS service. IN ADDITION, CUSTOMER
UNDERSTANDS THAT FDR DISCLAIMS ALL WARRANTIES WITH RESPECT TO THE
USE AND OPERATION OF THE ICS, BOTH EXPRESS AND IMPLIED, INCLUDING
BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE.
D. FDR shall provide Customer and Customer's Transaction Card
Affiliates with PC Remote Access Services as described in Section
III of this Exhibit "A". In order for Customer and Customer's
Transaction Card Affiliates to have access to the PC Remote Access
Services, Customer and Customer's Transaction Card Affiliates
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shall be responsible, at their expense, for all computer equipment
and PC software at Customer's and Customer's Transaction Card
Affiliates' locations necessary to so access the services, as such
hardware and software requirements are specified by FDR. All
communication charges associated with accessing the FDR computers
and equipment used to provide the PC Remote Access Services shall
be paid by Customer.
E. Specific Services are defined in Section IV.
III. ANCILLARY SERVICES
A. InfoSight Services FDR agrees to update on a monthly basis certain
selected fields of the master files of Customer. Such files may be selected at
the system and/or system principal level of the FDR System. FDR agrees to
provide Customer with dial-up access to such files each business day of each
week. The hours of access during such business days shall be 7:00 a.m. to 7:00
p.m. Central Standard or Central Daylight Time, as appropriate. FDR agrees to
provide customer service support to Customer in its use of such services
provided by FDR. The amount and type of customer service support shall be that
which FDR determines is reasonably necessary in its exercise of good faith
business judgment. In order for Customer and Customer's Transaction Card
Affiliates to obtain InfoSight Services as described in this section, FDR shall
permit Customer and Customer's Transaction Card Affiliates to access Customer's
data base pursuant to the use of certain software which FDR licensed from Oracle
Corporation ("Oracle") pursuant to a Software License and Services Agreement
dated November 20, 1992 (the "InfoSight Software").
(1) Customer and Customer's Transaction Card Affiliates represent
and warrant to FDR that each will permit the InfoSight
Services to be utilized or accessed in its internal business
only by its own personnel. Customer and Customer's Transaction
Card Affiliates shall not copy the InfoSight Software.
Customer and Customer's Transaction Card Affiliates will not
reverse assemble or reverse compile the InfoSight Software
program, nor transfer, sublicense, rent, lease or assign the
InfoSight Software.
(2) The provisions set forth in this section only grant Customer
and Customer's Transaction Card Affiliates the right to use
the InfoSight Software and do not grant any rights of
ownership to Customer or Customer's Transaction Card
Affiliates. Customer and Customer's Transaction Card
Affiliates shall not publish any results of any benchmark
tests run on the InfoSight Software.
(3) If FDR's right to license the use of the InfoSight Software to
Customer and Customer's Transaction Card Affiliates is
terminated because the InfoSight Software infringes upon the
copyright, patent, or other proprietary rights
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of any party or for any other reason, FDR shall have the right
to terminate the provision of the InfoSight Services upon
thirty (30) days notice to Customer and Customer's Transaction
Card Affiliates, or such shorter period of notice as coincides
with the termination of FDR's right to license the use of the
InfoSight Software, and FDR shall have no further liability to
Customer and Customer's Transaction Card Affiliates with
respect to the terminated services.
(4) Within thirty (30) days after the termination of this
Agreement, or the earlier termination of Customer's and
Customer's Transaction Card Affiliates' license to use the
InfoSight Software, Customer and Customer's Transaction Card
Affiliates shall deliver to FDR all copies of the
documentation, together with all separate informational
materials provided with respect to the InfoSight Services or
the InfoSight Software, in Customer's or Customer's
Transaction Card Affiliates' possession, custody or control
or, at Customer's or Customer's Transaction Card Affiliates'
discretion, shall destroy the same, as directed by FDR.
(5) Customer and Customer's Transaction Card Affiliates agree to
indemnify and hold harmless Oracle, its subsidiaries,
Affiliates, officers, directors, employees and agents from and
against any and all claims, demands, liability, loss, cost,
damage or expense, including attorneys' fees and costs of
settlement, resulting from or arising out of (i) the failure
of Customer or Customer's Transaction Card Affiliates to
observe any covenant or condition set forth in this section,
(ii) the violation by Customer or Customer's Transaction Card
Affiliates of any applicable statute, law or regulation
associated with the InfoSight Software, or (iii) Customer's or
Customer's Transaction Card Affiliates' use of the InfoSight
Services in a manner not provided for in this section.
(6) Customer and Customer's Transaction Card Affiliates
acknowledge that the InfoSight Software product is subject to
restrictions and controls imposed under the U.S. Export
Administration Act. Customer and Customer's Transaction Card
Affiliates each certify that neither the InfoSight Software
nor any direct product thereof is being or will be acquired,
shipped, transferred or reexported, directly or indirectly,
into any country prohibited under the Act.
(7) NEITHER FDR NOR ORACLE MAKES ANY WARRANTIES, WHETHER ORAL OR
WRITTEN, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTS OR
SERVICES TO BE PROVIDED HEREUNDER, INCLUDING WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
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PARTICULAR PURPOSE. ORACLE DOES NOT WARRANT THAT THE FUNCTIONS
CONTAINED IN THE INFOSIGHT SOFTWARE WILL MEET CUSTOMER'S OR
CUSTOMER'S TRANSACTION CARD AFFILIATES' REQUIREMENTS OR THAT
THE OPERATION OF THE INFOSIGHT SOFTWARE WILL BE ERROR FREE, OR
THAT DEFECTS IN THE SOFTWARE WILL BE CORRECTED. IN NO EVENT
WILL CUSTOMER OR CUSTOMER'S TRANSACTION CARD AFFILIATES HAVE
ANY CAUSE OF ACTION AGAINST ORACLE, NOR WILL ORACLE BE LIABLE
TO CUSTOMER OR CUSTOMER'S TRANSACTION CARD AFFILIATES FOR ANY
LOSSES, DAMAGES OR ANY ECONOMIC CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS OR SAVINGS), INCIDENTAL DAMAGES OR
PUNITIVE DAMAGES INCURRED OR SUFFERED BY CUSTOMER OR
CUSTOMER'S TRANSACTION CARD AFFILIATES EVEN IF ORACLE IS
INFORMED OF THEIR POSSIBILITY.
B. FDR LinkUp Services FDR agrees to provide to Customer and Customer's
Transaction Card Affiliates electronic mail services consisting of a system
whereby Customer or Customer's Transaction Card Affiliates may create, edit,
transmit, store and retrieve data, in the form of textual messages and binary
files, utilizing Customer's telephone communication lines to FDR and certain
data storage facilities residing on Customer's computer equipment ("Mailboxes").
FDR shall assign to Customer a number of Mailboxes, which may be increased or
decreased by Customer at any time following at least thirty (30) days written
notice to FDR, provided that Customer shall be required to maintain at least one
(1) Mailbox at all times. In order for Customer and Customer's Transaction Card
Affiliates to obtain FDR LinkUp Services as described in this section, FDR shall
distribute to Customer and Customer's Transaction Card Affiliates cc:Mail
Software and related documentation (collectively, the "cc:Mail Software").
(1) Customer and Customer's Transaction Card Affiliates represent
and warrant to FDR that each will permit the FDR LinkUp
Services to be utilized or accessed in its internal business
only by its own personnel. Each copy of the cc:Mail Software
provided to Customer and Customer's Transaction Card
Affiliates may be used by Customer or Customer's Transaction
Card Affiliate on a single computer only, and in no event may
Customer or Customer's Transaction Card Affiliates install any
cc:Mail product given to Customer or Customer's Transaction
Card Affiliates by FDR on a network server. Neither Customer
nor Customer's Transaction Card Affiliates shall copy the
cc:Mail Software except that Customer and Customer's
Transaction Card Affiliates may make archival copies of the
cc:Mail Software for the sole purpose of having a backup copy.
Customer and Customer's Transaction Card Affiliates each agree
that it will not reverse assemble or reverse compile the
cc:Mail Software program, nor transfer, sublicense, rent,
lease or assign the cc:Mail Software. The
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cc:Mail Software is owned by cc:Mail, Inc., a division of
Lotus Development Corporation ("Lotus") and is protected by
United States copyright laws and international treaty
provisions.
(2) Customer and Customer's Transaction Card Affiliates shall be
responsible, at their expense, for all computer equipment at
Customer's or Customer's Transaction Card Affiliates'
locations necessary to use the cc:Mail Software. All
communication charges associated with accessing the FDR
computers and equipment used to provide FDR LinkUp Services
shall be paid by Customer.
(3) If FDR's right to distribute the cc:Mail Software is
terminated because the software infringes upon the copyright,
patent, or other proprietary rights of any party or for any
other reason, FDR shall have the right to terminate the
provision of FDR LinkUp Services upon thirty (30) days notice
to Customer, or such shorter period of notice as coincides
with the termination of FDR's right to distribute the
software, and FDR shall have no further liability to Customer
or Customer's Transaction Card Affiliates with respect to the
terminated services.
(4) Within thirty (30) days after the termination of this
Agreement, or the earlier termination of Customer's and
Customer's Transaction Card Affiliates' right to use the
cc:Mail Software, Customer and Customer's Transaction Card
Affiliates shall deliver to FDR all copies of the relevant
software and associated documentation, together with all
separate informational materials provided with respect to the
services or the software, in their possession, custody or
control or shall destroy the same, as directed by FDR. In
addition, an officer of Customer shall certify in writing to
FDR that use of the relevant software has been discontinued
and all items have been returned or destroyed as required in
this section.
(5) Customer and Customer's Transaction Card Affiliates agree to
indemnify and hold harmless Lotus, its subsidiaries,
affiliates, officers, directors, employees and agents from and
against any and all claims, demands, liability, loss, cost,
damage or expense, including attorneys' fees and costs of
settlement, resulting from or arising out of (i) the failure
of Customer or Customer's Transaction Card Affiliates to
observe any covenant or condition set forth in this Section,
(ii) the violation by Customer or Customer's Transaction Card
Affiliates of any applicable statute, law or regulation, or
(iii) Customer's or Customer's Transaction Card Affiliates'
use of the FDR LinkUp Services.
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(6) Customer and Customer's Transaction Card Affiliates
acknowledge that the cc:Mail Software product is subject to
restrictions and controls imposed under the U.S. Export
Administration Act. Customer and Customer's Transaction Card
Affiliates certify that neither the cc:Mail Software nor any
direct product thereof is being or will be acquired, shipped,
transferred or reexported, directly or indirectly, into any
country prohibited under the Act. RESTRICTED RIGHTS LEGEND.
Use, duplication or disclosure by the U.S. Government is
subject to restrictions as set forth in subparagraph
(c)(1)(ii) of the Rights in Technical Data and Computer
Software clause at DFARS 52.227-7013. cc:Mail, Inc., 2141
Landings Drive, Mountain View, CA 94043.
(7) NEITHER FDR NOR LOTUS MAKES ANY WARRANTIES, WHETHER ORAL OR
WRITTEN, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTS OR
SERVICES TO BE PROVIDED HEREUNDER, INCLUDING WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. LOTUS DOES NOT WARRANT THAT THE FUNCTIONS
CONTAINED IN THE CC:MAIL SOFTWARE WILL MEET CUSTOMER'S OR
CUSTOMER'S TRANSACTION CARD AFFILIATES' REQUIREMENTS OR THAT
THE OPERATION OF THE SOFTWARE WILL BE ERROR FREE, OR THAT
DEFECTS IN THE SOFTWARE WILL BE CORRECTED. IN NO EVENT WILL
CUSTOMER OR CUSTOMER'S TRANSACTION CARD AFFILIATES HAVE ANY
CAUSE OF ACTION AGAINST LOTUS, NOR WILL LOTUS BE LIABLE TO
CUSTOMER OR CUSTOMER'S TRANSACTION CARD AFFILIATES FOR ANY
LOSSES, DAMAGES OR ANY ECONOMIC CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS OR SAVINGS), INCIDENTAL DAMAGES OR
PUNITIVE DAMAGES INCURRED OR SUFFERED BY CUSTOMER OR
CUSTOMER'S TRANSACTION CARD AFFILIATES EVEN IF LOTUS IS
INFORMED OF THEIR POSSIBILITY.
C. Equasion APS Services FDR shall make available to and perform for
Customer and Customer's Transaction Card Affiliates Application Processing
Services and On-Line Credit Bureau Report Request Services using the Equasion(R)
Automated Credit Application Processing System/Bureau Link(R) ("Equasion APS")
in accordance with the description of services set forth in Section IV of this
Exhibit "A". Customer shall indemnify and hold harmless FDR and its employees
from and against all claims, damages, losses and expenses arising out of FDR's
performance of Application Processing Services and On-Line Credit Bureau Report
Request Services under this Agreement, to the extent that such claim, damage,
loss or expense is caused by any error, omission or negligence of Customer,
employees of Customer or of any other persons or Entities who are directly or
indirectly associated with Customer or who directly or
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indirectly participate with Customer in connection with its operations of a
Transaction Card program as Affiliates, Agent Banks or otherwise. Customer shall
have no obligation to indemnify FDR against any liability, loss or damage FDR
might suffer arising solely out of FDR's negligent performance of Application
Processing Services and On-Line Credit Bureau Report Request Services called for
by this Agreement. FDR will use due diligence in processing the application
materials received from Customer, and the performance by FDR of the Application
Processing Services and the On-Line Credit Bureau Report Request Services called
for in this Agreement shall be consistent with industry standards. Customer
acknowledges that the supplier of Equasion APS to FDR is a third party
beneficiary to this Agreement. Equasion is a registered trademark of First Data
Resources Inc. Bureau Link is a registered trademark of American Management
Systems, Incorporated.
D. Recovery 1 Services In order for Customer and Customer's Transaction
Card Affiliates to obtain Recovery 1 Services as described in this Exhibit "A",
FDR shall permit Customer to access FDR's data base and to use the Recovery 1
Shared Services System software and all human readable user documentation
including additions, updates, revisions, corrections and modifications to the
foregoing delivered to Customer or Customer's Transaction Card Affiliates from
time to time (collectively, the "Recovery 1 Software") in accordance with the
terms and conditions contained herein.
(1) Customer and Customer's Transaction Card Affiliates represent
and warrant to FDR that the Recovery 1 Software will be
accessed and utilized only in conjunction with their
respective internal businesses and only by their own
personnel. Neither Customer nor Customer's Transaction Card
Affiliates shall copy, decompile, reverse compile or reverse
assemble the Recovery 1 Software nor transfer, sublicense,
rent, lease or assign the same. The provisions set forth in
this section only grant to Customer and Customer's Transaction
Card Affiliates a right to use the Recovery I Software and in
no way grant or convey any rights of ownership.
(2) If FDR's right to license the use of the Recovery 1 Software
to Customer and Customer's Transaction Card Affiliates is
terminated because the Recovery I Software infringes upon the
copyright, patent or other proprietary rights of any party or
for any other reason, FDR shall have the right to terminate
the provision of Recovery 1 Services and Customer's and
Customer's Transaction Card Affiliates' license to the
Recovery 1 Software upon thirty (30) days' written notice and
FDR shall have no further liability to Customer or Customer's
Transaction Card Affiliates with respect to such Services or
Software.
(3) Within thirty (30) days after the termination of this
Agreement, or the earlier termination of Customer's license to
use the Recovery I Software, Customer shall deliver to FDR all
copies of the documentation, together
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with all separate informational materials provided with
respect to the Recovery 1 Services or the Recovery 1 Software,
in Customer's possession, custody or control or, at Customer's
discretion, shall destroy the same, as directed by FDR. In
addition, an officer of Customer shall certify in writing to
FDR that, to the best of its knowledge, use of the Recovery 1
Software has been discontinued and all items have been
returned or destroyed as required in this section.
(4) Customer agrees to indemnify and hold harmless FDR, its
subsidiaries, Affiliates, officers, directors, employees and
agents from and against any and all claims, demands,
liability, loss, cost, damage or expense, including attorneys'
fees and costs of settlement, resulting from or arising out of
(i) the failure of Customer or Customer's Transaction Card
Affiliates to observe any covenant or condition set forth in
this section, (ii) the violation by Customer or Customer's
Transaction Card Affiliates of any applicable statute, law or
regulation associated with the Recovery 1 Software, or (iii)
Customer's or Customer's Transaction Card Affiliates' use of
the Recovery 1 Services or the Recovery 1 Software in a manner
not provided for in this section.
(5) Customer acknowledges that the Recovery 1 Software product is
subject to restrictions and controls imposed under the U.S.
Export Administration Act. Customer certifies that neither the
Recovery 1 Software nor any direct product thereof is being or
will be acquired, shipped, transferred or reexported, directly
or indirectly, into any country prohibited under the Act.
(6) FDR MAKES NO WARRANTIES, WHETHER ORAL OR WRITTEN, EXPRESS OR
IMPLIED, WITH RESPECT TO THE PRODUCTS OR SERVICES TO BE
PROVIDED UNDER THIS SECTION, INCLUDING WITHOUT LIMITATION, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. FDR DOES NOT WARRANT THAT THE FUNCTIONS CONTAINED IN
THE RECOVERY 1 SOFTWARE WILL MEET CUSTOMER'S OR CUSTOMER'S
TRANSACTION CARD AFFILIATES' REQUIREMENTS OR THAT THE
OPERATION OF THE RECOVERY 1 SOFTWARE WILL BE ERROR FREE, OR
THAT DEFECTS IN THE SOFTWARE WILL BE CORRECTED. IN NO EVENT
WILL CUSTOMER OR CUSTOMER'S TRANSACTION CARD AFFILIATES HAVE
ANY CAUSE OF ACTION AGAINST FDR, NOR WILL FDR BE LIABLE TO
CUSTOMER OR CUSTOMER'S TRANSACTION CARD AFFILIATES FOR ANY
LOSSES, DAMAGES OR ANY ECONOMIC. CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS OR
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SAVINGS), INCIDENTAL DAMAGES OR PUNITIVE DAMAGES INCURRED OR
SUFFERED BY CUSTOMER OR CUSTOMER'S TRANSACTION CARD AFFILIATES
IN CONNECTION WITH THE RECOVERY 1 SERVICES OR SOFTWARE EVEN IF
FDR IS INFORMED OF THEIR POSSIBILITY.
E. FRAUD MANAGEMENT/FRAUD DETECTION (FALCON) SERVICES FDR shall provide
Customer and Customer's Transaction Card Affiliates (hereinafter referred to as
"Customer") with Credit Card Fraud Management/Fraud Detection Services in
conjunction with HNC, Inc., and its Falcon(TM) software (hereinafter referred to
as the "HNC Software"), which services shall consist of those services set forth
in this section.
(1) FDR shall provide Customer with Credit Card Fraud
Management/Fraud Detection Services by utilizing the output of
the Falcon Neural Engine computational model (designed to
detect credit card fraud) which encompasses or contains the
Falcon Credit neural network-based system, as such same
software is licensed to FDR by HNC and is commonly known as
the Falcon Credit Card Fraud Detection Model (hereinafter
referred to as the 'Credit Card Output Access') solely for the
purpose of assisting Customer in detecting possible fraudulent
transaction account activity on the credit card accounts of
Customer and for no other purpose. Except as expressly
provided in this section, no right or license under any
patent, copyright, trade secret, trademark or other
intellectual property of FDR or other person is granted or is
to be inferred from this section. Customer agrees that FDR's
providing of Credit Card Fraud Management/Fraud Detection
Services does not confer upon Customer any license in or to
the Credit Card Computational Model.
(2) The parties acknowledge that the HNC Software, from which the
Credit Card Output Access is generated, is licensed to FDR
pursuant to a license agreement (the "HNC License Agreement").
FDR shall use commercially reasonable efforts to extend or
renew the initial or any renewal terms, as the case may be, of
the HNC License Agreement and if the HNC License Agreement
expires or is terminated, FDR shall promptly notify Customer
of such termination or expiration. FDR shall use commercially
reasonable efforts to substitute for HNC one or more software
vendors from whom FDR shall license, on commercially
reasonable terms, one or more software packages that will
generate output access that provides, in all material
respects, the utility and performance provided by the Credit
Card Output Access generated by the HNC Software.
(3) FDR and Customer shall mutually establish a fraud detection
strategy designed to fulfill Customer's fraud detection
requirements. Customer's
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fraud detection strategy shall be summarized in an
authorization report which shall set forth the variables and
computational parameters which reflect such fraud detection
strategy (the "Strategy Approval Form"). Customer will provide
a single point of contact, prior to beginning of service, to
establish start-up requirements. Customer shall notify FDR in
writing of the contact's identity. Customer's contact person
will be authorized to build and approve the fraud detection
strategy, to determine the fraud score criteria, to approve
product control file changes and to approve the Strategy
Approval Form. FDR shall assist Customer in the establishment
of the processing parameters designed to effectively implement
Customer's fraud detection strategy. Customer shall be solely
responsible for approving the processing parameters set forth
in the Strategy Approval Form, and shall verify that such
parameters effectively satisfy the requirements of Customer's
fraud detection strategy. FDR shall construct, or cause to be
constructed, a computational process which reasonably conforms
to Customer's Strategy Approval Form. In no event, however,
shall FDR be liable to any person for any damages caused by
either the HNC Software, any deficiency in the construction of
the processing parameters or any deficiency in the content of
the approved Strategy Approval Form. Furthermore, Customer
shall be responsible for the accuracy of all Customer data and
fraud control data provided to FDR. If Customer desires to
alter its fraud detection strategy, Customer shall notify FDR
in writing at least 30 days before such changes are to become
effective. Customer shall submit to FDR a modified Strategy
Approval Form setting forth the processing parameter changes
desired.
(4) Together with HNC, FDR will provide Customer with the
following Credit Card Call Processing Services:
(a) FDR will utilize its Fraud Detection WorkCenter, using
the HNC Software, to monitor authorizations queued as a
result of the fraud detection criteria and/or fraud
score.
(b) FDR will initiate outbound telephone calls to the
Cardholders of Customer who have had authorization
activity on their account and appear in a Fraud
Detection WorkCenter Queue Group.
(c) FDR will make up to four attempts to reach the
Cardholder within a 48-hour period. All attempts will be
made within the hours of 8:00 a.m. and 9:00 p.m.
(Central Time Zone).
(d) FDR will attempt all home and business telephone numbers
as provided by Customer's Cardholder masterfile.
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(e) If FDR is unable to contact the Cardholder, a message
for the Cardholder to contact FDR at a to-be-provided
800 number will be delivered to the Cardholder's home
message machine and/or to responsible adults.
(f) When the FDR call results in contact with the
Cardholder, and the Cardholder validates the
authorization activity, FDR will record an on-line
account memo (to the Customer Inquiry System) indicating
the results of the call.
(g) When the FDR call results in contact with the Cardholder
and the Cardholder is unable to validate the activity,
FDR will initiate a Lost/Stolen Report and place a block
on the account. (Standard fees apply for the Lost/Stolen
Report.) FDR will record an on-line account memo (to the
Customer Inquiry System) indicating the results of the
call.
(h) If FDR encounters activity which appears
uncharacteristic or unusual for a Cardholder Account and
FDR is unable to contact successfully the Cardholder,
then FDR may place a block on the Cardholder Account to
prevent further authorization approvals until either the
Cardholder or Customer successfully verifies the
activity. On a daily basis, FDR will fax to Customer a
list of accounts which have been blocked because of
uncharacteristic or unusual account activity. The
account will remain blocked until Customer instructs FDR
in writing via fax to remove such block.
(i) Upon the request of Customer, FDR may at its option,
provide additional services, including the following:
telephone number look-ups, inbound call processing after
the 48-hour period, fraud control services, customized
reporting, etc. These services would be provided at an
additional cost to Customer.
(j) At least annually, HNC shall analyze two separate
month-end reports within the 12-month period being
analyzed produced by the HNC Software that measure the
effectiveness of Customer's existing algorithms,
provided that Customer has over 200,000 Gross Active
Credit Card Accounts. HNC shall then provide Customer
with a written analysis of the reports interpreting the
performance of the existing algorithms and strategies
and written recommendations for changes or updates to
such algorithms or strategies to improve their
performance, provided that Customer promptly provides
HNC with the two necessary month-end reports.
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(k) At Customer's request, HNC shall provide Customer with
up to five hours per month, for the first six months
following the date of commencement of Fraud
Management/Fraud Detection Services (the "Falcon Start
Date"), and three hours per month thereafter, of
strategy design assistance over the telephone at no
additional charge, provided that Customer has over
200,000 Gross Active Credit Card Accounts as of the
Falcon Start Date. This service will include
recommendations on fraud strategy design and results
interpretation. If such service exceeds the hours
permitted for that particular month, HNC will be
entitled to charge Customer for such services. HNC and
Customer shall independently negotiate the terms and
costs of such additional assistance. Customer will be
entitled to on-site strategy design assistance at an
additional charge; provided, however, that Customer will
receive credit against such additional charge for any
unused telephone strategy design assistance it was
eligible to receive from HNC in that month under this
paragraph at the same rate charged for additional
telephone strategy design assistance.
(l) Upon request by Customer, HNC or FDR may, at its option,
provide the following to Customer: custom system
installation, additional training, and fraud user
interface licensing. HNC shall provide the following to
Customer upon request: fraud strategy consulting and
custom fraud models. Customer will contract directly
with HNC for these services, which will be provided at
an additional cost to Customer.
(m) HNC has established a Fraud Control Consortium whereby
users of Credit Card Output Access contribute data for
use by HNC to study fraud patterns, which enables HNC to
improve fraud detection methods. If Customer chooses to
join such Consortium, Customer shall provide data to the
Fraud Control Consortium as required and requested by
HNC within 30 days after the Falcon Start Date and on a
calendar quarterly basis thereafter. If Customer does
not wish to join the Fraud Control Consortium, HNC, upon
request of Customer shall construct a custom fraud model
for Customer, as an additional service, at a cost agreed
upon among FDR, Customer and HNC. Customer acknowledges
that FDR will employ the HNC Software using the Fraud
Control Consortium algorithms to produce Credit Card
Output Access for Customer only if Customer contributes
data to the Fraud Control Consortium.
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(5) Notwithstanding any other Provisions of this Agreement, either
party may terminate the Credit Card Fraud Management/Fraud
Detection Services hereunder upon 30 days written notice to
the other party.
*F. CREDIT PERFORMANCE SERVICES FDR will make available to Customer and
Customer's Transaction Card Affiliates the following Credit Performance
Services:
(1) Credit Performance Services shall consist of those services
described both in this section. FDR shall supply all
equipment, facilities, and personnel necessary to provide the
Credit Performance Services.
(2) In the event FDR determines that performance of Credit
Performance Services in accordance with the terms of this
section in any jurisdiction requires licensing by such
jurisdiction, FDR shall, with notice to Customer, cause the
Credit Performance Services to be performed by an entity which
meets the requirements of such jurisdiction, unless otherwise
directed by Customer to cease performing Credit Performance
Services in such jurisdiction. If no such entity is available
to provide such Services in accordance with the terms of this
Agreement, FDR shall advise Customer, and FDR shall have no
further obligation to provide or cause to be provided the
Credit Performance Services in such jurisdictions.
(3) In order to assist FDR with its performance of the Credit
Performance Services, Customer hereby agrees:
(i) to notify FDR, on a monthly basis, regarding those
Cardholder Accounts On File for which Customer elects to
have FDR perform Credit Performance Services;
(ii) to approve all payment plans and receive all payments
from the Cardholder Accounts On File;
(iii) to make all decisions, in its sole discretion, as to if
and when any Cardholder Accounts On File are to be
turned over to a collection agency;
(iv) that FDR is hereby authorized to contact the Cardholder
Accounts On File, whether in writing or verbally, in
Customer's clients' names;
(v) that FDR is acting as an agent of Customer in providing
the Credit Performance Services; and
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(vi) to establish all parameters regarding the content and
timing of all telephone and letter contact which FDR
will initiate on Customer's behalf with the Cardholder
Accounts On File.
*G. CARDHOLDER SUPPORT SERVICES During the Cardholder Support Services
Terrm (as defined in this section G), FDR will make available to Customer and
Customer's Transaction Card Affiliates the following Cardholder Support
Services.
(1) CUSTOMER SERVICE-CARDHOLDER/BANK
Telephone Customer Service: Includes toll-free 800 number for
direct Cardholder interface for general account inquiries and
problem resolution twenty-four (24) hours per day, seven (7)
days per week. FDR will answer incoming automated call
distribution (ACD) telephone inquiries from Cardholders (in
addition, Voice Response Unit ('VRU') information shall be
provided 24 hours per day, 7 days per week);
Mail Customer Service: Resolution of written inquiries,
notices, and posting of non-monetary changes.
Account Maintenance: Data entry of new account information and
monetary and non-monetary changes.
Exception Item Handling: Research and resolution of unposted
charges, or other maintenance transactions.
(2) DISPUTE/CHARGEBACK CORRESPONDENCE SERVICES (8:00 A.M. THROUGH
5:00 P.M., CTZ, MONDAY THROUGH FRIDAY (EXCLUDING FDR
HOLIDAYS))
FDR shall, for all such inquiries relating cardholder accounts
provided that FDR has access to appropriate backup for such
resolution, provide resolution of customer service inquiries
received via written correspondence, including answering
incoming correspondence from Cardholders of Customer and from
Customer's own personnel via referral of written
correspondence. FDR shall provide on behalf of Customer
Cardholder initiated chargeback processing for disputes
(excluding those items relating to collections and/or fraud
activity), as more specifically defined below.
(a) Dispute/Chargeback Processing: FDR will respond to
incoming mail and phone inquiries regarding charges
posted to Customer's Cardholder Accounts that are not
recognizable to the Cardholder, duplicate charges, or
for which the Cardholder disputes the quality of goods
or services received, non-receipt of goods or services,
or
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otherwise asserts a claim of a billing error. FDR will
provide research of inquiries in accordance with
Regulation Z and MasterCard and VIA rules and
regulations, perform sales draft retrieval requests and
respond to the Cardholders in accordance with the
Procedures Manual (as defined below).
(b) Dispute Processing: FDR will process incoming mail and
phone inquiries, research the inquiries, and fulfill
sales draft retrieval requests, if necessary, and
respond to Cardholder in accordance with the Procedures
Manual.
(c) Dispute Processing (Operational Losses): In the event an
incoming dispute is in an amount less than $30.00, FDR
will work the dispute and write it off in accordance
with the Procedures Manual.
(d) Chargeback Processing (Outgoing): FDR will initiate
outgoing chargebacks in accordance with Regulation Z and
MasterCard and VISA rules, regulations and timeframes.
(e) Chargeback Processing (Representment - Operational
Losses): In the event an incoming chargeback is in an
amount LESS than $45.00, FDR will write it off in
accordance with the Procedures Manual.
(f) Chargeback Processing (Representment - Post Charge to
Cardholder): In the event FDR determines that a disputed
charge is the Cardholder's responsibility, FDR will post
the charges to the Cardholder Account and send a letter
of explanation to the Cardholder, in accordance with the
Procedures Manual.
(g) Chargeback Processing (Representment - Incoming): FDR
will work such chargebacks in accordance with MasterCard
rules and regulations.
(h) Pre-Arbitration Processing: FDR will research and take
action in accordance with MasterCard and VISA rules and
regulations.
(i) Pre-Arbitration Processing (Operational Losses): In the
event an incoming pre-arbitration is in an amount less
than $50.00, FDR will write it off in accordance with
the Procedures Manual.
(j) Pre-Arbitration Processing (Post to Cardholder Account):
If FDR determines that the incoming pre-arbitration is
the Cardholder responsibility, FDR will post the
transaction back to the Cardholder
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Account and send letter of explanation to the
Cardholder, in accordance with the Procedures Manual.
(k) Arbitration Filing: FDR will research and take action in
accordance with Regulation Z and MasterCard and VISA
rules and regulations.
(1) Pre-Compliance Processing: FDR will research and take
action in accordance with Regulation Z and MasterCard
and VISA rules and regulations.
(m) Pre-Compliance Processing (Operational Losses): In the
event an incoming pre-compliance is in an amount less
than $50.00, FDR will work the pre-compliance and write
it off in accordance with the Procedures Manual.
(n) Pre-Compliance Processing (Post to Cardholder Account):
If FDR determines that the incoming pre-compliance is
the Cardholder responsibility, FDR will post the
transaction back to the Cardholder Account and send
letter of explanation to the Cardholder, in accordance
with the Procedures Manual.
(o) Compliance Filing: FDR will research and take action in
accordance with Regulation Z and MasterCard and VISA
rules and regulations.
(p) Collection Letters (Outgoing good faith letter): FDR
will research and send a letter to the acquiring bank to
attempt resolution on Cardholder's behalf in the event
no recourse is available to the Cardholder under
Regulation Z, MasterCard and VISA rules and regulations.
(q) Collection Letters (Incoming from acquiring banks): FDR
will research and attempt to resolve the item by
contacting the Cardholder on behalf of the acquiring
bank. FDR will work with acquiring banks and comply with
acquiring bank's collection policy as published in the
VISA BIN and MasterCard Information Manuals.
(r) File Transfer to Fraud: FDR will re-route fraud
inquiries to Customer's Fraud Department when inquiries
are received in the Chargeback/Dispute Processing
Department.
(s) File Transfer to Customer Service: FDR will re-route
non-dispute inquiries to Customer's Customer Service
Department when inquiries are received in the
Chargeback/Dispute Processing Department.
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(t) Change to Arbitration: FDR will revise a dispute
inquiries status when a dispute or representment of a
dispute results in a prearbitration case.
(u) Change to Compliance: FDR will revise a dispute
inquiries status when a dispute or representment of A
dispute results in a compliance case.
(v) Change to Good Faith: FDR will change a dispute from
'dispute' status to 'good faith' status if it is
discovered the dispute has no recourse available through
Regulation E or MasterCard rules and regulations."
(3) CREDIT SERVICES
FDR will perform or handle the following credit related services on
behalf of Customer from 8:00 a.m. through 5:00 p.m., CTZ, Monday
through Friday, excluding FDR Holidays. For the purpose of this
Section G, FDR Holidays shall mean New Years Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
(a) Inbound/Outbound Servicing via Telephone or Written
Correspondence: FDR will place outbound calls to applicants to
verify application information as requested by Customer.
Additionally, FDR will answer inbound calls from applicants
inquiring about application status and other general credit
inquiries. FDR will provide resolution of written inquiries
received from applicants.
(4) CREDIT ENHANCED SERVICES
FDR will perform the following services on behalf of Customer from
8:00 a.m. through 5:00 p.m., CTZ, Monday through Friday, excluding
FDR Holidays:
(a) FDR will receive transmission of application data from
Customer and provide services to include application loading
into A system that interfaces with the Equasion APS System
("EAPS") which will perform a fraud prescreen check, enter DC
activity code known fraud files, apply approval code and
account set-up code. FDR will transmit a response file back to
Customer for handling.
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(b) FDR will process balance transfer requests in connection with
the Services. The processing of such requests shall include
the preparation and transmission of the balance transfers to a
third party vendor.
(5) TECHNICAL SYSTEMS SUPPORT SERVICES
Set-up: Consists of creating, programming, testing and implementing
program requirements including but not limited to VRU Configuration,
Reports, Mail Tapes, and as mutually agreed upon by Customer and
FDR.
Transaction Routing: Transaction routing within the FDR processing
system of monetary entries, non-monetary entries and applications
that does or doses not require a decision.
Reporting: Client requested reports.
Facsimile Support: Facsimile communication both to and from the
client.
File Processing: File manipulation to include receipt from or
creation and transmission to client.
Programming: Programming support for client requested changes after
initial set-up.
Data Lines/Modems: Installation of client requested data
communication lines and modems.
Quality Call Monitoring: Remote call monitoring by Customer at
location specified by Customer.
Record Filming: Microfilming/imaging of paper records.
(5) During the Cardholder Support Services Term, Customer will provide
FDR with access to Customer's credit card related Cardholder
Accounts as required for FDR to provide the Cardholder Support
Services. Customer will also provide training of FDR personnel with
respect to Customer's Cardholder customer service policies and
procedures sufficient to enable FDR to perform the Cardholder
Support Services. Training will be provided at FDR's Bankcard
Program Services facility at Customer's expense prior to the
commencement of the Cardholder Support Services Term. Customer shall
be responsible and pay for all travel expenses incurred by either
party in connection with such training. In addition, Customer will
designate a
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manager to serve as the interface between Customer and FDR and to
coordinate communication and implementation of customer service
policies to be applied by FDR in connection with the Cardholder
Support Services.
(6) FDR shall provide Customer with the Cardholder Support Services for
a period of twelve (12) months (herein referred to as the
"Cardholder Support Services Term"). The date of commencement of the
Cardholder Support Services shall be mutually agreed upon by the
parties. Upon the conclusion of the initial term, FDR shall continue
to provide the Cardholder Support Services to Customer in six (6)
month increments, unless and until either party gives to the other
party written notice of its desire to terminate FDR's performance of
the Cardholder Support Services. Termination shall be effective
ninety (90) days after receipt of such written notice.
(7) A Policies and Procedures Manual shall be mutually agreed upon by
Customer and FDR on or before sixty (60) days after the date of
execution of this Amendment to Service Agreement with respect to the
Cardholder Support Services, to be known as: Customer Service,
Credit and Chargeback/Dispute Processing (the "Procedures Manual").
Should a mutual agreement with respect to the Procedures Manual not
be reached by the parties on or before sixty (60) days after the
date of execution of this Amendment to Service Agreement, then a
dispute resolution process shall be initiated, as defined in
Sections 13.13 and 13.14 of the Service Agreement. FDR and Customer
agree to review the Procedures Manual periodically and, if necessary
or appropriate, to revise or update the Procedures Manual as
mutually agreed. FDR will implement mutually agreed upon changes to
the Procedures Manual within agreed upon time frames, and, if no
agreement on time frames is reached, within thirty (30) days.
(8) Customer shall provide at least sixty (60) days notice to FDR of the
formatted volumes of incoming cardholder calls and applications.
IV. DEFINITIONS:
ACCD Downloaded
Account Each selected Cardholder Account of Customer
which is transmitted to Customer, or any other
third party acting on Customer's behalf, for
collection purposes in connection with Customer's
Automated Customer Calling Device (ACCD).
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Account-Level Processing
(ALP) - Cardholder
Pricing Account on
File Each account of a Cardholder of Customer using
Account-Level Processing that remains on
Customer's masterfile on the last processing day
of the calendar month as defined on the CD-121
Ledger Activity Report or the equivalent report.
ALP Services-Cardholder Pricing allow Customer
the ability to set, change and monitor pricing
parameters (including but not limited to annual
percentage rate, penalty fees, minimum payment
calculations and annual charges) on a Cardholder
Account automatically at the level of the
individual Account based upon decision tables
built by Customer.
Application Processing
Services An on-line system supporting the data entry,
credit investigation, credit analysis,
decisioning, documentation and booking of credit
applications on the FDR System. Services include
automated credit scoring and credit limit
assignment.
APS Relationship Account
Storage Each storage of a record of Customer depository
accounts on the FDR System. Upon entry of
application data, a search of the deposit file is
executed with matches reported to allow
identification of an existing consumer
relationship. Resulting matches can be queued by
the system for verification.
Auto PIN Change Each call made by a Cardholder of Customer
requesting a change to the Personal
Identification Number (PIN) associated with the
Cardholder's Transaction Card by the use of a
touch-tone telephone.
Automatic Chargeback Each automatic initiation of a chargeback by the
FDR System based upon predefined parameters for
transactions involving an expired account
plastic, an account listed in the Combined
Warning Bulletin, or an account which exceeds
presentment parameters.
Automatic Rush Embossing Each rush servicing of a Customer request for a
Cardholder embossed plastic and/or PIN/Post
Mailers through use of on-line rush program on
the FDR System.
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*Balance Consolidation An online system for the production, processing
and management of balance transfer checks,
including authorization and posting of checks,
creation of a check data file, transmission of
the check data file to a third-party vendor
selected by FDR for printing and mailing of
checks and related letters and inserts and
product management through production of online
balance consolidation reports and generation of a
CIS Memo entry for each balance consolidation
request. The third party vendor selected by FDR
for check print and mail services may be an
Affiliate of FDR. At Customer's option,
reconciliation services and an Official Check
product may be provided through a separate
agreement between Customer and Integrated Payment
Systems (IPS), an Affiliate of FDR.
Reconciliation services include payment of cashed
items, reconciling issues to paids, researching
and processing exception items, processing stop
payments, and microfilming, storage and retrieval
of paid items. Official Checks are centralized
teller checks that receive next-day availability.
If such services are obtained through contract
with IPS, third-party print and mail services
also will be provided through the IPS contract.
FDR shall not be responsible for nonperformance,
negligent performance or default by IPS or its
third-party vendor under such separate written
agreement, or for providing such services in the
event the agreement with IPS expires or is
terminated.
Braille Embossing Each plastic card for which FDR has embossed
Braille characters on the front of the plastic.
Card Activation-ANI Call Each automatic initiation of an on-line
transaction in conjunction with an Automatic
Number Identification (ANI) process via an audio
response unit (ARU), changing the status of a
Cardholder Account associated with certain newly
issued or reissued plastics (as determined by
Customer), from "inactive" (under certain
parameters) to "active" for transaction
authorization purposes.
Card Activation-ARU
Call-FDR Each initiation of an on-line transaction by the
confirmation of Customer requested data captured
from Customer's Cardholder, via an audio response
unit (ARU), changing the status of a Cardholder
Account associated with certain newly issued or
reissued plastics (as determined by Customer),
from "inactive" (under certain parameters) to
"active" for transaction authorization purposes.
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Card Activation-Customer
Processed Each entry of an on-line transaction by Customer
to change the status of a Cardholder Account
associated with certain newly issued or reissued
plastics (as determined by Customer), from
"inactive" (under certain parameters) to "active"
for transaction authorization purposes.
Card Activation-Voice
Call-FDR Each entry of an on-line transaction by FDR, on
behalf of Customer, in conjunction with the
confirmation of Customer requested data obtained
from the Customer's Cardholder via a voice call,
changing the status of a Cardholder Account
associated with certain newly issued or reissued
plastics (as determined by Customer), from
"inactive" (under certain parameters) to "active"
for transaction authorization purposes.
Card Activation Labeling
-General Use Each affixation of a sticker to each embossed
plastic in a Customer Cardholder embossing run;
generic sticker included at no additional charge.
Card Activation Labeling
-Selective Use Each affixation of a sticker to each embossed
plastic selectively identified by Customer;
generic sticker included at no additional charge.
Card Carrier Printing The printing of Customer's Cardholder information
on a Customer-specified card carrier form.
Cardholder Account
on File Each account of a Cardholder of Customer
(including but not limited to charged off,
authorization only and debit accounts) that
remains on Customer's master file at FDR on the
last processing day of the calendar month as
defined on the CD-121 Ledger Activity Report or
the equivalent report.
Cardholder Annual
Activity Summary Each annual summarization of activity associated
with a Transaction Card issued by Customer.
Cardholder Annual Activity
Summary Detail Storage Each Cardholder Account for which annual activity
summary detail is stored in an electronic format.
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Cardholder Authorization
Inquiry Each instance in which the Cardholder
records of Customer are accessed for an
authorization, including but not limited to
personal identification number (PIN)
verification and Cardholder address
verification services, or when the
authorization request is switched to
Customer's location to access the off-site
Cardholder masterfile of Customer.
Cardholder Hot Call Fraud
Referral Each authorization attempt on a Cardholder
Account of Customer statused lost/stolen or
Code 10 authorization transaction where
FDR's Fraud Management Voice Operations
conducts an identification process,
instructs the Merchant on the
authorization's disposition and attempts
recovery of the Transaction Card if the Card
is identified as Lost/Stolen. Additionally,
FDR may instruct the Merchant to recover the
Transaction Card and, at Customer's option
based upon predefined criteria, FDR shall
dispatch the police to Merchant location.
Cardholder Hot Call
Referral Each authorization requiring intervention
because Customer has requested recovery of
the account plastic or positive
identification in order to complete the
authorization transaction.
Cardholder Monetary
Transaction Each posting of a monetary transactio to
Customer's Cardholder Accounts, including but
not limited to sales, returns, cash advances,
payments, reversals, adjustments and annual
charges.
Cardholder Non-Monetary/
On-line Transaction Each entry of non-monetary information
subsequently posted or unposted to a
Cardholder masterfile of Customer, or an
inquiry into the computer records of
Customer and its Cardholders (potential and
existing) by the use of a terminal, through
an ATM, or by tape.
Cardholder Notice Each brief notification to a Cardholder of
Customer prepared by FDR's computer at the
request of Customer based upon Customer's
Product Control File or a CRT entry request
made by an employee of Customer, including
but not limited to delinquency notices,
delinquency statements, overlimit notices and
first activity notices. This service includes
any preparation required for delivery.
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Cardholder Selected PIN
(SMR/SMC) Transaction Each transaction generated in connection with a
Cardholder Account of Customer for which Customer
enters an on-line transaction into the FDR System
from a Solicitation Mailer Response (SMR) screen
or Solicitation Mailer call (SMC) through
Customer's ARU system, to generate a Personal
Identification Number (PIN) which has been
selected by the Cardholder in connection with the
Cardholder Account.
Cardholder Statement Each periodic summarization of activity (whether
printed or otherwise) associated with a
Transaction Card issued by Customer or Customer's
Transaction Card Affiliates, including but not
limited to single statements, dual statements,
and reprints of information from a CIS Statement
currently stored on-line on the FDR System.
Service includes statement messaging on original
statements and preparation required for delivery.
Cardholder Statement Insert Each inserting of advertising or other item of
information not contained on a Cardholder
Statement into an envelope containing a
Cardholder Statement: inserts required by state
or federal law do not apply.
Cardholder Statement Mail
Preparation Each Cardholder Statement which is prepared by
FDR on behalf of Customer for first class mailing
via the United States Postal Service.
Cardholder Support Services The credit, customer service, chargeback
processing and other related services performed
by FDR on behalf of Customer.
Carrier Insert/Meter/Mail Each inserting of a prefolded card carrier,
containing merged Cardholder plastic, into #10
window envelope: a standard envelope is included.
CD-ROM Services The storage, on Compact Disc-Read Only memory
("CD-ROM"), of statements and reports for
purposes of record retention, accessing and
archival purposes. Customer, at its option, may
elect to utilize the CD-ROM Services, Microfiche
Services and/or On-Line Report Services for the
same items. Notwithstanding anything in this
Agreement to the contrary, Customer is
responsible for determining the acceptance of the
CD-ROM Services under state and Federal
regulations, including but not
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limited to obligations to retain information for
a specified period of time, signature
verification and the admissibility of documents
into evidence. It is Customer's responsibility to
keep written or microform records, if such are
required under state and Federal regulations
because of the limited acceptance or
admissibility of the CD-ROM Services or the
technology to be used under this Agreement to
provide the CD-ROM Services.
Check Order Service Daily or monthly downloading of Cardholder data,
via transmission or magnetic tape, to a third
party vendor selected by Customer for the
production of certain items for Cardholders of
Customer including but not limited to convenience
checks and check re-orders based upon an on-line
request made by an employee of Customer or
automatically generated by the FDR System on
behalf of Customer.
CIMS FDR's Customer Inquiry Management System (CIMS)
is an online system which provides the means to
log, assign and track Customer Inquiries. Under
CIMS, a Customer Inquiry shall mean a request for
information received from a customer of Customer
either by mail, phone, walk-in or some other
medium. A Workcase is the basic work unit within
CIMS; it represents a Customer Inquiry. Workcase
Option with Variables ("WOV") Services shall also
be available under CIMS at Customer's option.
CIMS Log-Only Workcase Each Workcase that is entered into CIMS by
Customer for internal reporting purposes only; no
follow-up is required by Customer's personnel.
CIMS Regular Workcase Each Workcase that, for whatever reason, requires
review, task completion and/or follow-up by
Customer's personnel in order to resolve a
Customer Inquiry.
CIMS Regular Workcase
Action Each (i) task which is performed in the
resolution of a Regular Workcase or (ii) brief
communication that contains directive, advisory
or informative matter stored within an Action
Workcase that is entered by Customer's personnel.
CIMS WOV Workcase Each optional Workcase that sends variable
information to a file for downloading to
Customer. Actions may be used to establish the
specific grouping of variables that will be
downloaded to Customer.
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CIS FDR's Customer Inquiry System (CIS) is an on-line
system for storing and accessing Statement,
Detail or Memo information regarding a Cardholder
Account.
CIS Detail Each item of information regarding transactions
that have posted or will post to a Cardholder
Statement such as charges, payments, credits and
authorizations not aged off the Cardholder's
FILE, Cardholder payment history, and real-time
authorizations.
CIS Memo Each summary item, not individually exceeding 65
positions, that is stored with the Customer's
Cardholder Account information and is accessible
by Customer via Customer's CRT terminals.
CIS Statement Each set of statement and detail information
regarding Customer's Cardholder Accounts that is
stored on the FDR system and accessible by
Customer via Customer's CRT terminals. CIS
Statement information includes the information
set forth on a Cardholder Statement such as, but
not limited to, the name, address, account
number, statement date, payment date, cycle days,
annual percentage rates, and monthly periodic
rates.
Company Card Report
Mail Preparation Each set of reports prepared by FDR for mailing
to a company designated by Customer in connection
with company card services. For purposes of this
Agreement, a set of reports shall mean all
reports of a single company which are placed in a
single envelope for mailing.
*Credit Performance
Services The delinquent/overlimit account billing,
skiptracing and related services performed by FDR
on behalf of Customer.
Custom Forms Purchased Any paper materials (including but not limited to
inserts, forms and agreements) ordered and
purchased by FDR on behalf of Customer in
connection with the Cardholder Statement and
Insert services set forth in this Agreement.
CVV/CVC Verification
Generation Each value calculated and generated in connection
with a Transaction Card pursuant to VISA's Card
Verification Value (CVV) or MasterCard's Card
Validation Code (CVC) directives.
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DES PIN Generation Each Data Encryption System (DES) Personal
Identification Number (PIN) created by the FDR
System in connection with a plastic card produced
by FDR on behalf of Customer.
Embossing Set-Up Each change of the type of card, card carrier,
insert and/or envelope during an input processing
run.
Emergency Card or Cash
Replacement Services The capture and processing of information by
FDR's Fraud Management Voice Operations in the
performance of emergency cash authorization
services or for coordinating the creation and
delivery of a replacement card(s) for Customer's
Cardholder.
Enterprise Presentation
Cardholder Statement Each Cardholder Statement produced by FDR on
behalf of Customer utilizing the Enterprise
Presentation feature. Enterprise Presentation is
the system which allows Customer the flexibility
to electronically arrange the statement form
(including payment coupon placement), create and
place logos and graphics and select from numerous
font types and sizes on the Cardholder Statement.
Customer understands and agrees that Enterprise
Presentation Cardholder Statement data may only
be stored for archival use on CD-ROM and
Microfiche.
FDR LinkUp Services The set-up and monthly service charges associated
with the mailboxes utilized by Customer to
receive and send electronic mail from and to FDR.
Fraud Management/Fraud
Detection Services -
Actioned Credit Card
Account Any credit card account routed to the FDR Fraud
Detection WorkCenter queue group that results in
any one or more of the following activities in a
single 48-hour period: outgoing/incoming
Cardholder phone calls with a maximum of 4
attempts within any single 48-hour period, CIS
Memos, Letter generation or account statusing.
Fraud Management/Fraud
Detection Services -
Monthly Gross Active
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Credit Card Account Each credit card Cardholder Account that had a
balance or any monetary posting for the month
billed, as determined by FDR for Customer, as
reduced by any 'Z'-Charge Off accounts.
High Coercivity Each plastic Transaction Card which is encoded
using a high coercivity magnetic stripe.
Hot Stamp Plates/
Logos Purchased Each magnesium plate or logo ordered by FDR on
Customer's behalf.
InfoSight Services The set-up, on-line access, file load and other
management information services performed by FDR
on behalf of Customer.
Interface Services -
Magnetic Tape Handling Each receipt of data by FDR from Customer or a
third party designated by Customer or each
forwarding of data to Customer or a third party
designated by Customer from FDR via mailed or
courier delivered magnetic media including, but
not limited to, diskettes and magnetic tapes.
Interface Services -
RJE/NDM Each receipt of data by FDR from Customer or a
third party designated by Customer or each
forwarding of data to Customer or a third party
designated by Customer from FDR via a central
processing unit to central processing unit
transmission using Remote Job Entry or Network
Data Mover (RJE or NDM).
Interface Services - Tape
to Tape Each receipt of data by FDR from Customer or a
third party designated by Customer or each
forwarding of data to Customer or a third party
designated by Customer from FDR via a central
processing unit to central processing unit
transmission using a tape to tape interface.
IRS Home Equity Form
1098 Each Internal Revenue Service (IRS) Form 1098
prepared by FDR's computer, in accordance with
the Customer's Product Control File settings or
terminal entry made by Customer, printed and
mailed to Customer's Cardholder. Service includes
creation of a tape for Customer's reporting of
Cardholder information to the IRS.
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Issuer Chargeback Each return of a Ticket and receipt of the amount
thereof from an Issuer to an Acquirer as provided
for in the then- current MasterCard and VISA
international rules and regulations, or
applicable domestic regulations. Issuer
Chargebacks subsequently reversed by the Acquirer
will be forwarded by FDR to Customer for
resolution via the On-Line Direct Sell Chargeback
System.
*Letter Each letter prepared by FDR's computer, in
accordance with Customer's Product Control File
settings or CRT entry requests made by employees
of Customer. Each such Letter shall have online
composition and editorial features and options
including signatures, logos, multiple type faces
and additional page letter generation. Service
includes any preparation required for delivery.
*Letter - Additional Page Each printed output on the reverse side of a
Letter (duplex printing) or each side of each
sheet of 8 1/2" by 11" 24 lb. bond stock
accompanying a Letter.
*Letter - Certified Mail
Handling Each Letter, with or without Letter Insert, which
is handled separately from Customer's first class
mailings to provide certified delivery of said
item. This does not include postage.
*Letter - Group Samples Each individual or set of Letters prepared by
FDR's computer, in accordance with Customer's
Product Control File settings or CRT entry
requests made by employees of Customer, which is
printed and mailed to Customer in a draft format
for Customer's review and approval.
*Letter - Insert Each inserting of advertising or other item of
information not contained on a Letter, including
but not limited to generic reply envelopes, into
a windowed envelope containing a Letter.
*Letter - Priority Mailing Each Letter, with or without Letter Insert, which
is handled separately from Customer's first class
mailings to provide next day delivery of said
item.
*Letter - Set-up, Revision
or Deletion Each addition, deletion or change, performed by
FDR on behalf of Customer, of a Customer's Letter
format or inputs including but not limited to
digitized signatures and logos of Customer.
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Lost/Stolen Account
Management and
investigation Investigative services relating to Customer's
Cardholder lost or stolen accounts including but
not limited to lost/stolen account research;
fraudulent activity investigation; Cardholder
interviews; manual adjustments, chargebacks, and
retrievals; and fraud and counterfeit reporting.
Lost/Stolen Account
Processing Automatic actions, relating to the processing of
a Cardholder's Account statused as lost or
stolen, required to prompt Customer
fraud/security representatives, record the
representatives directive(s) and request that a
Cardholder Account number be listed in the
appropriate Combined Warning Bulletin;
automatically report the cardholder's Account
number to Visa and MasterCard's Authorization
Exception System, if applicable; systematically,
based upon Customer's pre-defined parameters,
initiate the set-up of a new Cardholder Account;
reconcile transactions posted but not yet
statemented at the time of the Cardholder's
reporting, including but limited to the transfer
of valid transactions to the Cardholder's
replacement account and identification and
recording of non-valid transactions as
fraudulent; automatically request approved
reissue of account plastic(s) and suspend reissue
of account(s) not approved for review by
Customer; and automatically update the
Cardholder's phone number in the Cardholder
masterfile from the lost/stolen report.
Lost/Stolen Account
Transaction Management
System Each transaction posting to a Cardholder Account
of Customer statused as lost or stolen which is
automatically identified and reported to an
on-line work queue from which Customer may
initiate on-line transactions to produce a
transaction adjustment, a chargeback, or a ticket
retrieval request; issue an affidavit of fraud or
forgery to Customer's Cardholder; and/or report a
fraudulent transaction to Visa or MasterCard.
Lost/Stolen Report - FDR
Entered Each report of a lost or stolen Transaction Card
from the Cardholder of Customer which is
processed by FDR's Fraud Management Voice
Operations. Reports entered on-line immediately
change the external status and block
authorization
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requests on the Cardholder Account. Service
includes lost/stolen reports received via collect
call, telegram and telex.
Merchant Account on File Each account of a Merchant of Customer that
remains on Customer's masterfile at FDR on the
last processing day of the calendar month as
defined on the MM-101 Merchant Profitability
report or an equivalent.
Merchant Ticket -
Remote/Tape Entered Each Ticket from Customer's Merchant that is
transacted by a Cardholder from any Bank
Identification Number (BIN), Interbank Card
Association (ICA) or other Transaction Card
system identification number, and entered
remotely from Customer's terminal(s) or via
magnetic tape or tape transmission to FDR by
Customer or a third party acting on Customer's
behalf.
Microfiche Each page of microfiche provided to Customer by
FDR. Service includes any preparation required
for delivery.
Non-Standard Job Run Each scheduled daily, weekly or monthly
production of a data set on behalf of Customer
that is in addition to the standard data outputs
produced by the FDR System.
On-Line Access and
Retrieval System
(OARS) Services Each page of Reports Management System (RMS)
reports which is stored by FDR for on-line
viewing and printing by Customer's personnel.
Storage of data by FDR shall be for a period of
sixty (60) days. Customer, at its option, may
elect to utilize any or all of the OARS Services,
CD-ROM Services and/or Microfiche Services for
the same RMS reports. Notwithstanding anything in
this Agreement to the contrary, Customer is
responsible for determining the acceptance of the
OARS Services and the technology to be used under
this Agreement to provide the OARS Services under
state and Federal regulations, including but not
limited to signature verification and the
admissibility of documents into evidence. It is
Customer's responsibility to keep written or
microform records, if such are required under
state and Federal regulations because of the
limited acceptance or admissibility of the OARS
Services or the technology to be used under this
Agreement to provide the OARS Services.
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On-Line Credit Bureau
Report Request The transmission or receipt of credit application
or existing account information via video display
terminals at Customer's location to any of the
principal credit bureaus presently interfaced to
FDR with which Customer has established a written
relationship that is in effect at all times
during the term of this Agreement in order to
determine the credit worthiness of an
applicant/account. Anything in this Agreement to
the contrary notwithstanding, in the event that
Customer's relationship(s) with all of the
principal credit bureaus supported pursuant to
this Agreement should be terminated at any time
during the term of this Agreement, then FDR's
obligation to provide Credit Bureau Report
Requests shall automatically be terminated,
without penalty or financial obligation of any
type or kind to FDR, on the effective date of the
termination of Customer's relationship(s) with
such principal credit bureaus.
PCS Remote Access Service Product by which Customer and Customer's
Transaction Card Affiliates may access the FDR
System via a personal computer at Customer's or
the Affiliate's office in order to allow
employees of Customer or the Affiliate to perform
certain terminal functions, including but not
limited to the accessing of Cardholder or
Merchant Account data, the entry of information
concerning Customer's Accounts and the
uploading/downloading of data regarding
Customer's Accounts.
Plasticard Photocard Services (1" x 1" and 2" x 2")
Photo Transfer The affixation of a digitized photographic image
to a plastic Transaction Card.
Photo/Signature
Scanning and
Digitization The process by which FDR (i) scans a photograph
or signature, (ii) cleans/crops the photograph or
signature and (iii) stores such photograph or
signature as a digitized image on a data base for
up to five (5) years.
Photo Image
Handling and
Merge The handling and merging of images with
corresponding data to create an output file.
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Customer and FDR hereby agree that all
photographs sent to FDR by Customer for use by
FDR in the performance of the Plasticard
Photocard Services set forth in this Agreement
shall, prior to delivery to FDR, be reviewed by
Customer for content. Customer acknowledges and
agrees that, with respect to the issuance of
Photocards; to its Cardholders, FDR has no
responsibility and assumes no responsibility
whatsoever for the content of any such
photographs, and that Customer is solely
responsible for interpreting applicable state and
federal laws (including but not limited to laws
governing obscenity, privacy, proprietary
information ownership rights and
copyright/trademark infringement), monitoring
applicable legal developments, determining the
requirements for compliance with all applicable
state and federal laws, and maintaining an
ongoing compliance program in connection with
such services.
PIN/Post Mailer Processing Each Personal Identification Number (PIN), and
associated PIN notice form, or mail verification
form (POST Mailer), related to Customer's
Cardholder. Service includes any preparation
required for delivery including generic PIN form.
PIN/Post Mailer
Production Edits The edit functions performed on a PIN/Post
Mailer before printing. The service includes
Mailer method changes, Mailer address changes,
Mailer mail date changes and Mailer deletions.
PINpoint Inquiry Each transaction selection (more than one
selection may be made during a call) made by a
Cardholder of Customer which accesses the
Cardholder's account records for selected
information by the use of a touch-tone telephone.
Plastic to Carrier
Match/Merge The electronic scanning of the account number on
Customer's card carrier and the account number on
the magnetic stripe (OCR line optional) of
Customer's plastics. Upon verification of match,
insert from 1-4 matched plastic cards into
carrier as per control line specifications and
then burst, trim and fold carrier.
Plasticard Agent/Strategy
Inserting Set-Up Each set-up due to a change in Customer's
Plasticard Insert at the agent/strategy level.
Plasticard Bulk Packaging -
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Basic Sort The separation from the production run of
accounts from individual systems, principals,
agents or grouping of zip codes through the use
of designated mail codes.
Plasticard Expedited
Turnaround Accelerated mailing of all of Customer's daily
issue plastics.
Plasticard Forms Purchased Each item of paper material ordered by FDR on
behalf of Customer including but not limited to
card carriers, inserts and envelopes.
Plasticard Hot Stamping Each plastic card of Customer's Cardholders whose
image is heatpressed from a magnesium plate made
by FDR with camera-ready art furnished by
Customer.
Plasticard Indent Printing Each plastic card of Customer's Cardholders that
FDR has used impact printing on its back.
Plasticard Inserting The inserting of each accompanying
piece of materials into a #10 windowed envelope
along with a pre-folded card carrier containing a
merged Cardholder plastic. Excludes inserts
required by state or Federal law. Customer
supplies inserts.
Plasticard Job Processing Each scheduled daily receipt of a Customer's
off-line Cardholder Account information,
including logging onto the system and setting up
control reports for each input.
Plasticard Mail Assembly The matching of like carriers into one or more
packages.
Plasticard Mail Handling Mail preparation and handling fees associated
with non-first class mailings of Customer's
Cardholder and Merchant plastics.
Plasticard Mail Integration The mixture by FDR of a mail item containing an
embossed plastic with several other types of
mailing items prior to their delivery to the
United States Postal Service for mailing.
Anything in this Agreement to the contrary
notwithstanding, Customer understands and agrees
that, with respect to any embossed plastics for
which FDR provides Plasticard Mail Integration
Services, the normal turnaround for the mailing
of such embossed plastics shall, for purposes of
this Agreement, be delayed by one (1) business
day.
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Plasticard Manual Rush
Emboss - 2 Day Rush servicing (between 24 and 96 hours) of
Customer request for an embossed Cardholder
plastic and/or PIN/POST Mailer received from
hardcopy, fax or mail, reports or requests.
Includes manual embossing, carrier printing, hand
inserting and other services required to prepare
the plastic for delivery, and applies to any
piece handled separately from Customer's Standard
Embossing services.
Plasticard Manual Rush
Emboss - Same Day Rush servicing of Customer request for an
embossed Cardholder plastic received from
hardcopy, fax or mail, reports or requests where
FDR mails or delivers the plastic to a courier
during the same day of the Customer's request.
Includes manual embossing, carrier printing, hand
inserting and other services required to prepare
the plastic for delivery, and applies to any
plastic piece handled separately from Customer's
Standard Embossing services.
Plasticard On-Line Same
Day Rush Each embossed Cardholder plastic where FDR mails
or delivers the plastic to a courier during the
same day of Customer's request via an on-line
screen (requests must be received by 2:00 p.m.
Central Time). This service includes standard
embossing, carrier printing, inserting and other
services required to prepare the plastic for
delivery.
Plasticard Purging Each removal of a card package and/or printed
PIN/POST Mailer from the delivery/mail stream
prior to delivery to Customer or Customer's
Cardholder.
Plastics Purchased Each item of plastic stock ordered by FDR on
behalf of Customer.
Postal Credit Processing Fee The charge associated with providing any postage
discount generating services for Customer's first
class mailings each month.
Potential Chargeback
Queue Each recording and display in an on-line work
queue of transactions posting to a Cardholder
Account of Customer that exceed a Merchant's
floor-limit and cannot be matched to an
authorization record.
A-36
<PAGE> 76
Promotional Letter Services The services performed by FDR in connection with
letters prepared by FDR at the request of
Customer for mailing to Cardholders (or
Merchants) of Customer for promotional purposes.
Recovery 1 Services An on-line system which provides Customer with
the means to perform Transaction Card recovery
services on Customer's charged-off Cardholder
Accounts. Customer shall have on-line access to
certain software and services on the FDR System
which will allow Customer to perform various
collection related functions with respect to such
Accounts.
Referral Queue Each recording and display in an on-line work
queue of a Cardholder Authorization Referral to
which a Merchant has failed to respond.
Return Account Processing
Service The processing of mailed plastics returned by the
United States Postal Service due to undeliverable
address. Each such plastic shall be destroyed by
FDR and reported to Customer.
Returned Account Plastics
Immediately Delivered
(RAPID) For each undeliverable Transaction Card, FDR will
research and attempt to reroute to the
Cardholder's new address. FDR will also enter the
address change on the Cardholder masterfile.
Returned Transaction Cards of Cardholders for
which no new address is available, and those
which Customer elects not to reroute, shall be
destroyed.
RMS Report - Hardcopy Each FDR Reports Management System (RMS) report
provided to Customer by FDR via hardcopy. Service
includes any preparation required for delivery.
RMS Reports - On-Line
View Each FDR Reports Management System (RMS) report
provided to Customer by FDR via the FDR on-line
system.
RMS Reports - RJE/NDM Each FDR Reports Management System (RMS) report
provided to Customer by FDR via remote job entry
(RJE) or Network Data Mover (NDM).
A-37
<PAGE> 77
Standard Embossing
Services Each plastic card for which FDR has mechanically
raised personalized characters prepared at the
request of Customer based upon Customer's Product
Control File or a CRT entry request made by an
employee of Customer, or in response to a receipt
of a magnetic tape or transmission from Customer
of embossing files in a format defined by FDR.
Includes up to three lines of alphanumeric font
and one line of OCR font on a ".030" plastic, the
recording and verifying of data on the
Transaction Card's magnetic stripe, and tipping
the plastic through the placement of a
contrasting color plastic film on the raised
embossed characters
Transaction Level Processing
(TLP) Promotional
Balance on File The monthly charge for each promotional purchase
balance, associated with a Cardholder Account of
Customer (several promotional purchase balances
may exist at the same time for the same
Cardholder Account), which remains on the FDR
System on the last processing day of the calendar
month, as defined on the CD-121 Ledger Activity
Report or the equivalent report (e.g. - the
CD-621 Report).
Transaction Level Rewards
(TLR) Only Transaction Each Cardholder initiated transaction (as
indicated on the CD-864 Report or its
equivalent), specifically targeted by transaction
and Cardholder decision tables, and passed to the
FDR rewards system for processing (transactions
which have already been posted to a TLP
Promotional Balance on File are excluded).
Multiple targeted transactions may post to a
single Cardholder Account in any one month.
Ultragraphics - Front Side Each logo placed on the front of Customer's
Transaction Cards through the use of a thermal
image process.
Ultragraphics - Back Side Each logo placed on the back of Customer's
Transaction Cards through the use of a thermal
image process.
Vault Storage The inventory and storage of plastics procured
through a source other than FDR.
A-38
<PAGE> 78
EXHIBIT "B"
PAYMENT AND TERM
I. PAYMENT
a. PRICE INCREASES. FDR may increase the fees and charges set forth in
this Exhibit "B" by notice to Customer, as follows:
Processing Fees. For each Processing Year during the Term of this
Agreement after Processing Year 1, FDR may increase the Processing
Fees which were in effect for the immediately preceding Processing
Year (the "Old Year") by an amount not to exceed a percentage of the
Processing Fees which were in effect for the Old Year. The percentage
to be used for the applicable Processing Year shall be equal to sixty
percent (60%) of the percentage change in the Consumer Price Index
("CPI") during a period described below; provided, however, that in no
event shall such increase be less than 0%. For purposes of this
paragraph, the CPI shall be the index compiled by the United States
Department of Labor's Bureau of Labor Statistics, Consumer Price Index
for All Urban Consumers (CPI-U) having a base of 100 in 1982-84, using
that portion of the index which appears under the caption "Other Goods
and Services." The percentage change in the CPI shall be calculated,
and notification given to Customer ninety (90) days in advance of the
effective date of said increase, by comparing the CPI using a twelve
(12) month period ending three (3) months prior to notification to
Customer and expressing the increase in said CPI through the twelve
(12) month period as a percentage.
Special Fees. If, at any time while this Agreement is in effect, the
charges are increased or decreased to FDR for items which are included
in the Special Fees including tariff line rates, WATS lines rates,
data circuit charges or other rates charged to FDR by any
communications common carrier, The United States Postal Service, any
courier or other provider of similar services, or if FDR obtains
communication or other services included in the Special Fees by
another method resulting in an increase or decrease in the charges to
FDR for the items or if additional services are added which are to be
included in the Special Fees, FDR shall increase or decrease, as
appropriate and by an equal amount the amount of the Special Fees
Customer is then paying FDR for the items under this Agreement
effective on the effective date of the increase or decrease to FDR or
add the amount for the additional services effective on the beginning
date of the additional service.
Forms Costs. If, at any time while this Agreement is in effect, the
prices charged to FDR for forms associated with first class mailing
should be increased by FDR's then current forms vendor(s), then FDR
shall have the right to increase, by an equal amount, the prices
charged to Customer in this Exhibit "B" which are impacted by such
increase in forms costs, including but not limited to Cardholder and
Merchant Statements, Letters and Notices. Any such increase shall be
effective on the effective date of the increase to FDR.
<PAGE> 79
b. METHOD OF PAYMENT.
(i) To facilitate the payment of Processing Fees, Special Fees,
Liquidated Damages and any other fee, tax, interest payment, charge or
amount due or payable to FDR under this Agreement, FDR will provide
Customer with an invoice setting forth, with reasonable detail, the
number of items processed, the appropriate unit prices, the total fees
associated with such items and any other supporting detail reasonably
required by Customer. Customer shall pay FDR the undisputed portion of
the invoice within ten (10) days of receipt via wire transfer or ACH
transmission from Customer.
c. INTEREST. If FDR is unable to obtain payment of Processing Fees,
Special Fees Liquidated Damages or any other fee, tax, interest
payment, charge or amount due or payable to FDR under this Agreement
at the time provided for payment under this Agreement, the unpaid
amount of any Processing Fees, Special Fees, Liquidated Damages or
other fee, tax, interest payment, charge or amount shall bear interest
at the rate equal to ten percent (10%) per annum, from the date on
which payment should have been available until the date on which FDR
receives the payment.
d. MINIMUM FEES.
(i) In Processing Year 1, Customer will require and Customer shall pay
to FDR for processing services sufficient to generate aggregate
Processing Fees at least equal to [*] ("Year 1 Minimum Processing
Fee"). In each Processing Year after Processing Year 1, Customer will
require and shall pay to FDR for processing services sufficient to
generate aggregate Processing Fees at least equal to the following
amounts for the following Processing Years (the "Minimum Processing
Fees"):
<TABLE>
<CAPTION>
Processing Year Minimum Processing Fees
--------------- -----------------------
<S> <C>
2 [*]
3 [*]
4 [*]
5 and each
subsequent Processing Year [*]
</TABLE>
FDR shall calculate the total Processing Fees paid by Customer in
respect of services performed during each Processing Year (the "Total
Annual Processing Fees") within ninety (90) days after the end of each
Processing Year and will, after ten (10) days written notice to
Customer, draw upon Customer's account pursuant to paragraph b above
for the amount, if any, by which the Year 1 Minimum Processing Fees or
the Minimum Processing Fees, as applicable, for the Processing Year
exceed the Total Annual Processing Fees for the Processing Year.
(ii) In addition to the provisions of paragraph (i) above, in each
calendar month during which FDR provides Customer with the
Cardholder/Bank Customer Support Services as set forth in Exhibit "A",
Section III-G, Customer will, solely with respect to fees paid in
connection with such
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
B-2
<PAGE> 80
Cardholder/Bank Customer Support Services, require and pay to FDR for
Cardholder/Bank Customer Support Services sufficient to generate
aggregate Processing Fees at least equal to the following:
<TABLE>
<CAPTION>
December, 1997 No Minimum
<S> <C>
January, 1998 [*]
February, 1998 [*]
March 1998 and each [*]
month thereafter
</TABLE>
e. BILLING DISPUTE RESOLUTION. In the event that Customer should,
following any payment to FDR pursuant to paragraph (b) above, dispute
the accuracy of the volumes, transaction types or prices associated
with all or any portion of an amount (as indicated on the appropriate
invoice) drawn from Customer's account in accordance with the
provisions of paragraph (b) above (hereinafter referred to as the
"Disputed Amount"), then Customer shall promptly, but in any case not
later than sixty (60) days following the date of such invoice, notify
FDR's Accounts Receivable Department of the nature of such dispute
(hereinafter referred to as an "Inquiry"). FDR will make a reasonable
effort to resolve such dispute and to reimburse such amount to
Customer promptly. However, if the dispute is not resolved within five
(5) business days following FDR's receipt of Customer's Inquiry, then
FDR shall temporarily refund to Customer, by the method set forth in
paragraph (b) above, the Disputed Amount until such time as a complete
resolution of such dispute is effected. Within sixty (60) days
following the date on which FDR receives Customer's Inquiry, FDR shall
completely resolve such dispute. FDR agrees to review and consider any
bona fide dispute of an invoiced amount the notice of which is
submitted by Customer more than sixty (60) days following the date of
the applicable invoice; provided, however, that in no event shall FDR
be required to reimburse Customer for the Disputed Amount in
connection with such a dispute prior to the complete resolution of
such dispute.
f. DECONVERSION. Upon the expiration or termination of this Agreement for
any reason other than those set forth in Section 9.2, Customer shall
pay FDR, at FDR's then current rates, for each activity completed by
FDR in order to accomplish the Deconversion and for all costs,
including postage or shipping, of complying with Section 10.1. FDR
shall pay costs of Deconversion if Customer terminates this Agreement
pursuant to Section 9.2.
g. SIGNING BONUS. As soon as practical following the latter to occur of
(i) the execution of this Agreement by Customer and FDR or (ii) the
date on which Customer first issues Transaction Cards to be serviced
by FDR hereunder, FDR agrees to pay to Customer a signing bonus of
[*] (the "Signing Bonus").
h. GROWTH CREDIT. Upon the conclusion of each Processing Year during the
Term of this Agreement, FDR shall calculate the Total Annual
Processing Fees paid to FDR by Customer during the Processing Year.
If, during a Processing Year, the Total Annual Processing Fees paid to
FDR by Customer exceeds the Year 1 Minimum Processing Fee or Minimum
Processing Fees (whichever is applicable) for the Processing Year by
an amount equal to or greater than twenty percent (20%) of
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
B-3
<PAGE> 81
the Year 1 Minimum Processing Fee or Minimum Processing Fees
(whichever is applicable) for the Processing Year, then Customer shall
be entitled to a "Growth Credit" for such Processing Year. The amount
of the Growth Credit to be paid to Customer by FDR hereunder for a
qualifying Processing Year shall be equal to (i) the Total Annual
Processing Fees paid to FDR by Customer during the qualifying
Processing Year, multiplied by (ii) the applicable percentage from the
schedule below (the "Percentage of Credit") based upon the percentage
by which the Total Annual Processing Fees for the qualifying
Processing Year exceeds the Year 1 Minimum Processing Fee or the
Minimum Processing Fees (whichever is applicable) for the qualifying
Processing Year (the "Percentage In Excess Of Minimum").
<TABLE>
<CAPTION>
Percentage In
Excess Of Minimum Percentage of Credit
----------------- --------------------
<S> <C>
0% - 19.99% 0
20.00% - 39.99% 1%
40.00% - 59.99% 2%
60.00% - 79.99% 3%
80.00% - 99.99% 4%
100.00% - over 5%
</TABLE>
Any Growth Credit for which Customer qualifies pursuant to this
Exhibit "B", Section I-h shall be paid to Customer by FDR within
ninety (90) days following the conclusion of the qualifying Processing
Year in the form of a credit against Processing Fees due FDR by
Customer pursuant to this Agreement (or, in the event of the
termination or expiration of this Agreement, any applicable Growth
Credit shall be paid via wire transfer from the account of FDR to the
account of Customer.
i. PRICE RENEGOTIATION. If, in any Processing Year during the Term of
this Agreement, the volume of Customer's Cardholder Accounts on File
for any month exceeds [*] then Customer may, following such month,
request that Customer and FDR renegotiate the prices set forth in this
Agreement based upon such volume of Cardholder Accounts on File. In
such event, FDR agrees to negotiate in good faith with Customer based
upon such request of Customer, provided, however, that if the parties
are unable to mutually agree upon new pricing hereunder, the prices
set forth in this Agreement shall continue in effect.
II. TAXES
a. PAYMENT OF TAXES. Customer shall, in addition to the other amounts
payable under this Agreement, pay all taxes, federal, state or
otherwise, or duties, imposts, fees or charges, however designated,
which are levied or imposed by any governmental authority by reason of
the sale or license of any services, communication equipment, software
or other goods and products covered by this Agreement except for
income taxes payable by FDR on amounts earned by FDR. Without limiting
the foregoing, Customer shall promptly pay to FDR an amount equal to
any items actually paid or required to be collected or paid by FDR.
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
B-4
<PAGE> 82
b. CALCULATION OF TAXES. Customer hereby authorizes FDR to calculate the
total amount of sales taxes due by Customer or Customer's Transaction
Card Affiliates from the monies due FDR and remit the amount of sales
taxes to the appropriate taxing authority on behalf of Customer and
Customer's Transaction Card Affiliates. FDR's remittance of the sales
taxes on behalf of Customer and Customer's Transaction Card Affiliates
shall be computed by FDR on the information available to FDR. In the
event of the under or over calculation of any sales taxes, Customer
shall be responsible for any additional monies due including any
penalties or interest and for collecting any refunds due to Customer
and Customer's Transaction Card Affiliates from the appropriate taxing
authority.
c. TAX INFORMATION. Prior to FDR making the sales tax remittance on
behalf of Customer and Customer's Transaction Card Affiliates provided
in paragraph a above, Customer agrees to supply FDR with any and all
current information necessary for FDR to compute and remit the taxes,
including any tax exempt certificate, any tax exempt claim letter, or
evidence satisfactory to FDR authenticating the exemption.
III. TERM
a. TERM. This Agreement is effective from the date hereof and shall
extend for five (5) Processing Years (the "Original Term"). The first
Processing Year ("Processing Year 1") shall commence on the first day
of the month following the Scheduled Start-Up Date and continue
through the last day of twelve (12) calendar months thereafter. Each
subsequent Processing Year shall mean a twelve (12) month period
commencing on the expiration of the preceding Processing Year.
b. RENEWAL. After the Original Term, this Agreement shall automatically
be renewed for consecutive periods of two (2) Processing Years each (a
"Renewal Term") unless either party gives the other party written
notice at least nine (9) months prior to the termination date of the
Original Term or then current Renewal Term that the Agreement will not
be renewed.
IV. REIMBURSEMENTS AND ASSESSMENTS
a. The communications data circuit, including the reoccurring service
charge, service termination fees and required modem(s) (data sets) at
Customer's location(s) and FDR, terminal(s) and any other directly
associated expenses, shall be at Customer's expense. The data circuit
cost will be no greater than that associated with a point-to-point
digital data circuit(s) based on the tariffs of FDR's primary carrier.
One time costs related to the installation of the circuit, as
specified by such tariffs, will also be paid by Customer. The actual
circuit speed and ensuing cost will be determined by Customer's
communications requirements.
b. Customer shall be responsible for and billed directly for any
MasterCard, VISA or other Transaction Card dues, fees and assessments.
Customer shall reimburse FDR for Base Access Fees incurred by FDR on
behalf of Customer. (IN - 3513)
B-5
<PAGE> 83
c. Customer shall pay all courier expenses associated with the
transportation of reports and documents from Customer to FDR and from
FDR to Customer.
d. FDR agrees to act as an agent on behalf of Customer and Customer shall
reimburse FDR for the purchase on Customer's behalf of the postage
required to mail Cardholder Statements, Merchant Statements,
collection notices, letters and other materials mailed by FDR on
behalf of Customer and Customer's Transaction Card Affiliates. The
amount reimbursed by Customer to FDR for postage while this Agreement
is in effect will be: (i) the then current first class postage rate
for mailings not qualifying for the pre-sorted rebate or (ii) based
upon the monthly rate of mailings of the particular location of FDR
from which the mailings were sent that qualify for the discount
pre-sorted rate and the number of mailings sent on behalf of Customer
from that location during the month, the then current discount
pre-sorted postage rate (currently $___). (IN - 7401, 7671)
e. For any standard services performed by FDR on behalf of Customer in
connection with the Start-Up of present computer Cardholder records
for Customer on the FDR System, there shall be no charge to Customer;
provided, that Customer shall pay FDR at FDR's then current standard
rates for any customized computer programming and related services
performed by FDR on behalf of Customer in connection with such
Start-Up.
f. For each Reward processed by FDR, Customer shall reimburse FDR for the
amount of the Reward payment to the Merchant, plus any additional fees
or charges to which FDR is entitled under applicable MasterCard and
VISA rules and regulations in connection with the processing of such
Reward. A Reward shall mean each monetary payment made to a Merchant
for the recovery of a statused Transaction Card of Customer, which
payment is processed by FDR in accordance with the reward schedule
established by MasterCard and VISA for card pick-up. At the time of
the execution of this Agreement, the amount of such reimbursement is
$15.00 per card. (IN - 7915)
g. Customer shall reimburse FDR for special service set-up/certification
fees and charges, training fees and programming fees including but not
limited to the set up/training charges associated with FDR's Customer
Inquiry Management System (CIMS) Services, PIN Management System
Services, Extended CIS Services, Application Processing Services, PC
Remote Access Services, Account-Level Processing (ALP) Services,
Online Access and Retrieval System (OARS) Services, Acquiring Debit
Services, Transaction Level Processing (TLP)/Transaction Level Rewards
(TLR) Services, ANI Card Activation Services, Commercial Card
Services, Promotional Letter Services, Fraud Management/Fraud
Detection Services (Scoring and Strategy Start-Up and Call
Processing), Auto PIN Change Services, KnowledgeSight Services and
other services requiring special programming or training. Prices for
such services shall be provided by FDR upon Customer's request. At the
time of the execution of this Agreement, FDR's current price for
computer programming is $150.00 per programmer hour.
h. Customer shall reimburse FDR for destroyed forms, product service
selects, network control requests, equipment sales, supplies and
documentation manuals.
B-6
<PAGE> 84
V. SERVICE FEES
a. CARDHOLDER FEES
<TABLE>
<CAPTION>
IN ITEM Per Item Charge
---- ---- ---------------
<S> <C> <C>
7204 Cardholder Account on File $ .0193 /month/account
7260 Account-Level Processing (ALP) - Cardholder
Pricing Account on File .0075 /month/account
on ALP
2836 Transaction Level Processing (TLP) Promotional
Balance on File (monthly) .0720 /promotional balance
7330 Transaction Level Rewards (TLR) Only Transaction .0225 /transaction
7205 Cardholder Statement .1124 /statement
7240 Cardholder Statement Mail Preparation .0850 /statement
7206 Cardholder Statement Insert .0075 /insert
Enterprise Presentation Cardholder Statement (in addition
to the current Cardholder Statement fees)
-Option 1 (Simplex)
7196 For the first printed page .0100
7198 For each subsequent page .0180 /page
-Option 2 (Simplex)
7196 For the first printed page .0100
7198 For each subsequent page .0180 /page
-Option 3 (Duplex)
7196 For the first physical page (front and back) .0100
7198 For each subsequent physical page (front and back) .0180 /page
7207 Letter .1077 /letter
Letter Optional Services:
7208 -Letter Insert .0075 /insert
7209 -Letter Additional Pages .0796 /item
7210 -Letter Priority Mailing .1294 /item
7211 -Letter Certified Mail Handling 1.4925 /item
7212 -Letter Group Samples .0796 /item
7213 -Letter Set-Up, Revision or Deletion
(1/2 hour minimum) 31.2500 /half hour
7214 Cardholder Notice .0600 /item
7242 Promotional Letter .1200 /letter
7215 Cardholder Monetary Transaction .0174 /item
7216 Cardholder Non-Monetary/Online Transaction .0089 /transaction
7311 CIS Statement .0100 /statement stored
</TABLE>
B-7
<PAGE> 85
<TABLE>
<S> <C> <C>
7312 CIS Detail Included per month
7219 CIS Memo Included
7232 CIMS Regular Workcase .0500 /workcase
7233 CIMS WOV Workcase .1100 /workcase
7234 CIMS Log-Only Workcase .0398 /workcase
7255 CIMS Regular Workcase Action .0118 /item
7220 Application Processing Services (APS) .5277 /application entered
7221 APS Relationship Account Storage .0030 /depository account
7222 On-Line Credit Bureau Report Request .2292 /request
3510 Cardholder Authorization Inquiry .0089 /inquiry
7217 Issuer Chargeback .9452 /chargeback
7226 PINpoint Inquiry .2985 /inquiry
7227 Cardholder Annual Activity Summary .2400 /summary
7228 Cardholder Annual Activity Summary Detail Storage .0050 /account
7230 Company Card Report Mail Preparation .3300 /set of reports
7231 IRS Home Equity Form (1098) .9452 /form
7236 ACCD Downloaded Account .0073 /account
7237 Check Order Service .0600 /account
Balance Consolidation Services:
- Creation of check data file and tape
transmission to vendor Quote /check
7258 Auto PIN Change .7900 /call
7262 Cardholder Selected PIN (SMR/SMC) Transaction .1500 /transaction
7600 Embossing Set Up 2.9850 /series of like plastics
7601 Standard Embossing Services .2583 /plastic embossed
7602 Card Carrier Printing Included /carrier
7603 Plastic to Carrier Match/Merge Included /plastic
7604 Carrier Insert/Meter/Mail Included /carrier
7605 Vault Storage .0149 /plastic levied upon
receipt of shipment
7606 Plasticard Mail Handling 1.3444 account plus postage
7608 PIN/Post Mailer Processing .0643 /account
7670 PIN/Post Mailer Production Edits .2500 /edit
7663 DES PIN Generation .0200 /DES PIN generated
7609 Plasticard Manual Rush Emboss - Same Day 10.000 /account
7610 Plasticard Manual Rush Emboss - Two Day 6.6500 /account
7611 Automatic Rush Embossing 9.9500 /account
7640 Plasticard Expedited Turnaround .3900 /plastic
7678 Plasticard On-Line Same Day Rush 9.9500 /plastic
7612 Hot Stamp Plates/Logos Purchased Quote
7613 Plasticard Hot Stamping included
</TABLE>
B-8
<PAGE> 86
<TABLE>
<S> <C> <C>
7614 Ultragraphics -Front Side .0697 /plastic
7639 Ultragraphics -Back Side .0697 /plastic
7615 Plasticard Purging 2.4875 /account
7616 Plasticard Inserting .0200 /insert
7617 Plasticard Mail Integration .0465 /item
7618 Plasticard Job Processing 24.8750 /tape
7619 Plasticard Agent/Strategy Inserting Set-Up 4.4775 /set up
7620 Plasticard Indent Printing .0100 /plastic
7621 Braille Embossing 4.0000 /plastic
7622 Card Activation Labeling-General Use .0457 /plastic
7623 Card Activation Labeling-Selective Use .0550 /plastic
7624 CVV/CVC Generation Verification /calculated value
7625 Plasticard Bulk Packaging - Basic Sort .1616 /account
7686 High Coercivity included
Plasticard. Photocard Services (1" x 1 and 2" x 2"):
7664 -Photo Transfer (1" x 1") 1.2000 /plastic
7667 -Photo Transfer (2" x 2") .6000 /plastic
7665 -Photo/Signature Scanning and Digitization (1" x 1") 2.1500 /plastic
7668 -Photo Scanning and Digitization (2" x 2") 2.1500 /plastic
7666 -Photo Image Handling and Merge (1 " x 1 ") .4300 /plastic
7666 -Photo Image Handling and Merge (2" x 2") .8500 /plastic
7626 Plasticard Mail Assembly .3896 /item
7627 Plasticard Purchased Quote
7628 Plastics Purchased Quote
7900 Lost/Stolen Account Processing .4516 /account processed
7901 Lost/Stolen Report - FDR Entered 4.8250 /report
7902 Cardholder Hot Call Referral 4.4775 /referral
7904 Cardholder Hot Call Fraud Referral 7.8454 /referral
7905 Emergency Card or Cash Replacement Services .0025 /account on file
7906 Returned Account Plastics Immediately
Delivered (RAPID) 2.3880 /plastic
Return Account Processing Service 1.4000 /account
7907 Automatic Chargeback 1.7500 /chargeback initiated
7908 Lost/Stolen Account Management and Investigation 20.0000 /accounts reported
lost or stolen
7909 Lost/Stolen Account Transaction Management System .3000 /transaction
7910 Potential Chargeback Queue .0258 /account in queue
per day
7911 Referral Queue .0597 /account in queue
per day
7912 Card Activation-Voice Call-FDR .2440 /transaction
7913 Card Activation-ARU Call-FDR .5075 /transaction
7923 Card Activation-ANI Call-FDR .3800 /transaction
</TABLE>
B-9
<PAGE> 87
<TABLE>
<S> <C> <C>
7914 Card Activation Customer Processed .0600 /transaction
7285 Recovery 1 Monthly Residence Fee (per
charged off account on file upon the
conclusion of a calendar month)
First 5,000 accounts .4000 /account
Next 20,000 accounts (5,001-25,000) .1800 /account
Next 25,000 accounts (25,001-50,000) .0900 /account
Next 50,000 accounts (50,001-100,000) .0700 /account
Next 100,000 accounts (100,001-200,000) .0500 /account
Over 200,000 accounts .0400 /account
7286 Recovery 1 Financial Transaction Fee .0900 /transaction
7287 Recovery 1 Note on File .0010 /note
7288 Recovery 1 Save Executed Quote /run
Fraud Management/Fraud Detection Service Fee (monthly)
Number of Monthly Gross Active
Credit Card Accounts for the Month
0 - 599,999 .0514
600,000 - 999,999 .0479
1,000,000 - 1,999,999 .0459
2,000,000 - 2,999,999 .0439
3,000,000 - 4,999,999 .0419
5,000,000 - above .0409 /monthly gross active
credit card account
Fraud Management/Fraud Detection Call Processing Services 2.8258 /actioned credit card
account
Credit Performance Service Fees:
7295 -Monthly Service Fee per Account in
1 - 59 Day Queue 4.5000 /account
7296 -Monthly Service Fee per Account in
60+ Day Queue 13.5000 /account
7297 -Inbound Delinquent Billing Call 3.0000 /call accepted
7298 -Skiptracing per Account 11.2500 /account
Cardholder Support Service Fees:
-Cardholder/Bank Customer Service (subject
to the Call Volume factors set forth below)
</TABLE>
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<TABLE>
<CAPTION>
Number of Customer's Credit Price Per Credit Card
Card Related Active Cardholder Related Active Cardholder
Accounts on File Upon the Account on File Upon the
Conclusion of a Calendar Month Conclusion of the Calendar Month
------------------------------ --------------------------------
<S> <C>
0 - 50,000 1.05
50,001 - 100,000 .80
100,001 - 150,000 0.70
150,001 - 200,000 0.60
200,001 - 300,000 0.57
300,001 - 450,000 0.55
450,001 - 500,000 0.53
500,001 - Over 0.50
</TABLE>
For purposes of the pricing above, Active Accounts on File shall mean
those of Customer's Cardholder Accounts on File which are defined as
"Gross Active Accounts" on the CD-121 Ledger Activity Report or its
equivalent.
The prices above for Cardholder/Bank Customer Services are based upon
a Monthly Call Volume (as determined herein) of between 0% and 10%.
For each whole Monthly Call Volume percentage in excess of 10% during
a month, the price per Active Cardholder Account on File from the grid
above shall be increased by $.03. For purposes of this paragraph, the
Monthly Call Volume shall be equal to (i) the total number of
representative calls answered by FDR on behalf of Customer during the
calendar month, divided by (ii) the number of Active Cardholder
Accounts on File upon the conclusion of the calendar month, with the
resulting quotient expressed as a percentage.
<TABLE>
<S> <C>
-Dispute/Chargeback Correspondence Services 30.0000 /new dispute
-Credit Services
General Credit Written Inquiries 5.4000 /item
Inbound General Credit Telephonic Inquiries 1.1000 /talk minute
*Outbound Applicant Verification Calls 28.0000 /staffed hour
-Credit Enhanced Services
Approved Application .6500 /application
Declined Application .1500 /application
-Technical Systems Support Services
One-Time Set-up Fee (including but not limited
to programming, scripting, VRU setup,
report setup and mail tape setup) 150.0000 /hour
</TABLE>
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<PAGE> 89
<TABLE>
<S> <C>
Non-Decision Transaction Routing .0750 /transaction
Decision Transaction Routing .3000 /transaction
Reports .1000 /page
Facsimile 1.0000 /page
Balance Transfer .4500 /request plus
third party fee
File Creation
- Transmission 50.0000 /file
- Tape 75.0000 /file
Miscellaneous Programming 150.0000 /hour
Data Lines/Modems (Buyer requested) At Cost
** Quality Call Monitoring 6 hours per calendar month/
no charge
Record Filming .0500 /frame
</TABLE>
After the effective date of this Agreement, Customer shall be
responsible for any other fees and costs incurred by FDR in connection
with the performance of the Cardholder Support Services, including but
not limited to preparation of training and documentation manuals used
by FDR to provide the Cardholder Support Services on behalf of
Customer, voice and data circuit charges, voice usage charges, voice
feature charges, data voice and voice feature charges, data voice and
vocal feature installation/deinstallation charges, materials,
supplies, postage, courier fees, and travel requested by Customer. The
Cardholder Support Service Fees payable hereunder are based on the
specific services FDR has agreed to provide under Exhibit "A", Section
G of this Agreement. Any services required by Customer in addition to,
or different from, those specified in Exhibit "A", Section G will be
provided at FDR's then current rates for such services.
Fees incurred by FDR for initial training of newly hired customer
service representatives ("CSRs") who will provide Cardholder Support
Services will be passed-through to Customer at cost. Additional
training fees incurred by FDR due to required additions to staff due
to anticipated higher call volume will be passed-through to Customer
at the rate of $15.00 per training hour per CSR. Training fees
incurred by FDR for newly hired FDR employees required due to staff
attrition will be absorbed by FDR and will not be passed-through to
Customer.
* Minimum of one full time employee. FDR and Customer shall review
and adjust pricing, if appropriate, after three (3) months.
** Upon the availability of call recording, FDR and Customer shall
mutually agree on alternative pricing for call recorded
monitoring.
b. NON-SPECIFIC FEES
B-12
<PAGE> 90
<TABLE>
<CAPTION>
IN ITEM Per Item Charge
---- ---- ---------------
<S> <C> <C>
7402 Non-Standard Job Run (including Master Files) 50.0000 /data set
7403 RMS Reports-Hardcopy .0400 /page
7404 RMS Reports-RJE/NDM .0183 /page
7405 RMS Reports-On-Line View .0156 /page
Microfiche:
0246 -First Copy .8507 /page
0248 -Each Additional Copy .1483 /page
7413 Online Access and Retrieval System (OARS) Services .0119 /page
4352 CD-ROM Service Pages .0126 /page
7411 Interface Services-RJE/NDM 3.3800 /transmission
7412 Interface Services-Tape to Tape 3.3800 /transmission
7408 Interface Services-Magnetic Tape Handling 25.0000 /tape
7407 PC Remote Access Service (500 minute
per month minimum per user i.d. number)
</TABLE>
<TABLE>
<CAPTION>
Total Minutes of Usage
During a Calendar Month
-----------------------
<S> <C>
500 - 750 .2400
751 - 1,250 .2100
1,251 - 1,500 .1900
1,501 - over .1800 /minute
7637 Custom Forms Purchased Quote
InfoSight Services Quoted Upon Request
4320 FDR Link-Up One-Time Start-Up Fee 100.0000 /mailbox
4321 FDR Link-Up Monthly Service Fee 15.0000 /mailbox
4435 Postal Credit Processing Fee .0249 /item
KnowledgeSight Service Fees:
N/A -Data Warehouse Fee .0060 /100 data elements
stored in the data
warehouse per month
N/A -Data Warehouse Load Fee .0050 /100 data elements
loaded to the data
warehouse per month
</TABLE>
B-13
<PAGE> 91
<TABLE>
<CAPTION>
<S> <C> <C>
N/A -Historical Retention Fee Warehouse
per month
.0010 /1,000 data elements
retained per month
</TABLE>
d. For purposes of the billing of RMS Reports: (i) if Customer's standard
(or default) setting for a particular report is "0", then all pages of
RMS On-Line View, RMS Hardcopy and RMS RJE of such report provided by
FDR to Customer shall be billed to Customer at the prices above, or
(ii) if Customer's standard (or default) setting for a particular
report is a value other than "0", then each page of the RMS On-Line
View of such report provided by FDR to Customer shall be at no charge
and each page of RMS Hardcopy and RMS RJE of such report shall be
billed to Customer at the prices above.
e. FDR will generate embossing information based upon Customer's Product
Control File (or, at Customer's option, receive embossing information
via tape from Customer), use such information to prepare the embossed
plastic and mail the embossed plastic on behalf of Customer to its
Cardholder at the Cardholder's then current address.
f In the event that Customer elects to utilize the Recovery 1 Services
set forth in paragraph a above, then Customer hereby agrees to
continue to utilize such services for a period of not less than twelve
(12) months following the commencement date of such services.
g. For the uploading or downloading of information to or from the FDR
System via the PC Remote Access Services, Customer shall, in addition
to charges set forth above, pay FDR $6.50 for each instance in which
information is made available by FDR for downloading to Customer upon
cycle completion and each upload made by Customer to the FDR System.
h. Customer shall, by initialing the appropriate blank below, indicate
which of the Enterprise Presentation Cardholder Statement service
pricing options (as set forth in paragraph a above) Customer elects to
utilize commencing on the commencement date of such services:
Option 1______________
Option 2______________
Option 3______________
Customer may, at its election during the remaining Term of this
Agreement, switch from the pricing option then currently being
utilized by Customer for Enterprise Presentation
B-14
<PAGE> 92
Cardholder Statement services to another pricing option from the
selections above (subject to any applicable price escalators set forth
in this Agreement). Any such switch in pricing options shall be for a
period of one (1) calendar year effective on January 1, and Customer
agrees to give FDR written notice, on or before September 1 of the
preceding calendar year, of its intention to effect such a switch.
There shall be no charge to Customer for the first such switch in
pricing options. For each such switch in pricing options requested by
Customer in excess of one (1), Customer shall pay FDR, upon receipt of
FDR's written invoice, the amount of $15,000.00.
i. If, during any calendar month, Customer requests that FDR provide
Summary CD-ROM Bundles, then Customer shall pay FDR $475.00 for each
such Summary CD-ROM Bundle. For each duplicate copy of a CD-ROM
Bundle, Customer shall pay FDR $75.00. For any computer programming or
any other technical services performed by FDR on behalf of Customer in
connection with the CD-ROM Services performed by FDR on behalf of
Customer, Customer shall pay FDR at FDR's then current standard rates
for such services. Such rates shall be provided to Customer by FDR
upon request. A CD-ROM Bundle, for purposes of the statements on
CD-ROM Services, consists of three (3) copies, one for Customer, one
for archive and one for Customer's customer service representative. A
CD-ROM Bundle, for purposes of the reports on CD-ROM Services,
consists of two (2) copies, one for Customer, and one for archive. A
Summary CD-ROM Bundle summarizes previously produced CD-ROM Bundles.
Customer shall provide at its expense the minimum personal computer
configuration set forth below:
386/486 Processor with Hard Drive (486 preferred)
8 MB RAM (12 MB preferred)
3.1 Windows
Mouse
14" VGA Color Monitor (SVGA preferred)
CD-ROM Drive (double speed)
Laser Printer
VI. Certain services performed by FDR on behalf of Customer shall be included
in the overall pricing set forth in this Exhibit "B" and shall be provided
to Customer at no additional charge. Such items are set identified by the
word "Included" in this Exhibit "B".
VII. Commencing on the effective date of this Agreement, Customer shall pay FDR
for each annual volume-sensitive service ("Service") at the rate indicated
by "**". Upon the expiration of each Processing Year, FDR shall calculate
the actual volume of each item of Service during such Processing Year and
then determine the appropriate price per item of each Service. Based upon
such calculation, FDR shall then calculate the total amount of processing
fees owed by Customer to FDR during such Processing Year. If, during any
Processing Year, Customer shall have paid FDR more or less than the amount
owed to FDR based upon the above calculations, then FDR shall issue a
credit to Customer for any amounts due Customer under this Section or
invoice Customer
B-15
<PAGE> 93
for any amounts due FDR, as appropriate. The fees charged for each
item of Service during each subsequent Processing Year shall be based
upon the previous Processing Year's volumes.
VIII. For purposes of this Exhibit "B": (i) "IN" means the item number for such
service or product and (ii) "Quote" means this Agreement does not
contemplate the use of this service or product, but FDR shall, on the
request of the Customer, provide a price for such service or product.
IX. For any services performed by FDR at Customer's direction which are
neither set forth in this Exhibit nor covered by a separate agreement,
Customer shall pay FDR for such services at FDR!s then current standard
rates.
B-16
<PAGE> 94
EXHIBIT "C"
CUSTOMER TRANSACTION CARD AFFILIATE AGREEMENT
This Customer Transaction Card Affiliate Agreement (the "Agreement") is
entered into this ____ day of ________, 1997, (the "Effective Date") among First
Data Resources Inc., 7302 Pacific Street, Omaha, Nebraska ("FDR") Internet
Access Financial Corporation, 595 Market Street, Suite 2250, San Francisco,
California ("Customer") and Customer's Transaction Card Affiliate, Heritage
Bank, of Commerce, 150 Almaden Boulevard, San Jose, California ("Affiliate").
WHEREAS, FDR and Customer have entered into a Service Agreement (the
"Service Agreement") setting forth certain ongoing rights, duties and
obligations relating to the origination and servicing of Transaction Card
accounts; and
WHEREAS, Customer and Affiliate have entered into a Customer Credit
Card Program Agreement (the "Heritage Agreement") whereby Customer has agreed to
originate and service Transaction Card accounts for the benefit of Affiliate,
with account processing to be provided by FDR; and
WHEREAS, in order to extend to Affiliate certain of the benefits of the
Service Agreement, it is necessary that Affiliate become bound by certain of
the obligations of the Service Agreement, including but not limited to the
payment obligations with respect to transaction settlements and account
processing.
NOW, THEREFORE, the parties agree as follows:
1. Affiliate acknowledges receipt of a copy of the Service Agreement
including but not limited to all Exhibits and attachments thereto. With respect
to Customer Accounts of Affiliate, arising out of the "Heritage Agreement"
Affiliate agrees to be bound by all of the terms and conditions of the Service
Agreement, including the payment obligations arising under Exhibit B. Affiliate
shall not be responsible for any obligations set forth in the Service Agreement
which expressly belong to Customer, and not of Affiliate, including, without
limitation, the payment obligations relating to Minimum Processing Fees and
Liquidated Damages. This Agreement shall remain in effect until the earlier of:
(a) expiration or termination of the Service Agreement, or (b) Affiliate no
longer being associated with Customer.
2. Affiliate specifically agrees to comply with the rules, procedures,
manuals and instructions of MasterCard, VISA, FDR and Customer as applicable to
Affiliate and as in effect from time to time.
3. Customer shall act as the agent of Affiliate and have full authority
to represent Affiliate and to act fully on Affiliate's behalf in connection with
the Service Agreement and/or this
C-1
<PAGE> 95
Customer Transaction Card Affiliate Agreement, including the negotiating with
FDR of any amendments, extensions of the term or revisions of the Service
Agreement and/or this Customer Transaction Card Affiliate Agreement, the
asserting, negotiating and resolving of any controversy, dispute or claim under
the Service Agreement and/or this Customer Transaction Card Affiliate Agreement
and the execution or delivery of any documents; provided, however, that Customer
shall give prompt notice to Affiliate of any amendment to the Service Agreement
or this Customer Transaction Card Affiliate Agreement pursuant to Section 11,
below.
4. Affiliate agrees that, with respect to Customer Accounts of
Affiliate and except as otherwise set forth in this Customer Transaction Card
Affiliate Agreement, Affiliate and Customer shall be severally liable to FDR for
all other obligations of Affiliate which are to be paid by Customer pursuant to
the Service Agreement. If Customer shall fail to pay any amounts due under the
Service Agreement, including but not limited to any Processing Fees, the Daily
Amount (if applicable), or other fees, taxes, interest payments, charges or
amounts due or payable by Customer with respect to accounts owned by Affiliate,
Affiliate shall pay FDR on demand the portion of the amounts due from Customer
to FDR for services performed by FDR for or on behalf of Affiliate, as
reasonably determined by FDR, which equals the percentage that the Processing
Fees for the period relating to processing for Affiliate are of the total
Processing Fees due under the Service Agreement for such period.
5. This Customer Transaction Card Affiliate Agreement is being executed
for the benefit of FDR and that FDR has relied upon the existence of this
Customer Transaction Card Affiliate Agreement and the terms and conditions
contained in it in electing to enter into the Service Agreement and FDR would
not have elected to execute the Service Agreement in the absence of the
existence of this Customer Transaction Card Affiliate Agreement.
6. In all circumstances in which Affiliate shares responsibility of any
of Customer's obligations under the Service Agreement, Affiliate:
(a) agrees that separate action or actions may be brought against
Affiliate, whether action is brought against Customer or
whether Customer is joined in any such action or actions;
(b) authorizes FDR, without notice or demand and without
affecting Affiliate's liability hereunder, from time to time,
to (a) take and hold security for the performance of
Customer's obligations and exchange, enforce, waive and
release any such security, (b) apply any such security and
direct the order or manner of sale thereof (whether by
judicial or nonjudicial sale or otherwise as FDR in its
discretion may determine), and (c) release or substitute any
one or more of any endorsers or guarantors of such
obligations;
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<PAGE> 96
(c) waives any right to require FDR to (a) proceed against
Customer, (b) proceed against or exhaust any security held
from Customer, or (c) pursue any other remedy in FDR's power
whatsoever; and
(d) waives any defense arising by reason of any disability or
other defense of Customer or by reason of the cessation from
any cause whatsoever or the liability of Customer.
7. Upon any termination of this Customer Transaction Card Affiliate
Agreement, Affiliate agrees to open or to leave open for 6 months following such
termination an account through which Customer and/or FDR can draw drafts or ACH
for reimbursement of lingering charges incurred on behalf of Affiliate.
8. This Customer Transaction Card Affiliate Agreement, and all rights
and obligations of the parties with respect to matters in connection herewith,
arising hereunder or related hereto, shall be governed by and construed in
accordance with the laws of the State of New York, and any claim, suit or
proceeding shall be subject to the provisions of Section 13.4 of the Service
Agreement.
9. Affiliate acknowledges and agrees that it may not transfer or assign
its rights under this Customer Transaction Card Affiliate Agreement without the
prior written consent of FDR as provided in Section 13.1 of the Service
Agreement.
10. Each capitalized term used in this Customer Transaction Card
Affiliate Agreement and not defined herein shall have the definition provided
for such term in the Service Agreement.
11. Any notice to Affiliate shall be given by Customer and shall be
given as provided for in Section 13.5 of the Service Agreement, and shall be
given to the following address:
Affiliate:______________________________________________
Address:________________________________________________
________________________________________________
Attention:______________________________________________
Telecopy Number:________________________________________
Any notice to FDR shall be given as provided in Section 13.5 of the Service
Agreement. A party may change its address or addresses set forth above by giving
the other party notice of the change in accordance with the provision of this
section. In the event FDR provides notice hereunder to Customer of any default
by Customer in the performance of the provisions of the Customer Transaction
Card Affiliate Agreement, which default could result in the termination of this
Customer Transaction Card Affiliate Agreement, FDR will deliver a copy of the
notice to Affiliate receiving services under this Customer Transaction Card
Affiliate Agreement.
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<PAGE> 97
12. This Customer Transaction Card Affiliate Agreement, along with the
Service Agreement, as such may be amended from time to time, sets forth the
entire understanding of the parties with respect to the subject matter hereof
and supersedes all prior agreements or understandings among the parties with
respect to the subject matter hereof. This Customer Transaction Card Affiliate
Agreement may not be amended except in a writing signed by an authorized officer
or representative of each of the parties hereto. This Customer Transaction Card
Affiliate Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
13. Despite anything to the contrary in the Service Agreement, or this
Customer Transaction Card Affiliate Agreement, FDR, at its option, may terminate
this Customer Transaction Card Affiliate Agreement under the following
circumstances:
(a) Immediately, without notice, upon the termination of
Affiliate's membership in VISA and MasterCard or both of their
successors in interest, if after such termination, Affiliate does not
maintain a status that permits FDR to continue to perform its services
on behalf of Affiliate;
(b) If Affiliate fails to pay any Daily Amount when required
under Section 14 of this Customer Transaction Card Affiliate Agreement
(if applicable) and does not cure the failure within four (4) hours
after written notice to Customer of the failure or immediately without
notice if FDR has the right more than three times in any twelve month
period to give notice under this Section 13 whether or not the notice
is given; and
(c) Upon twenty-four (24) hours notice by FDR if FDR has
terminated Interchange Settlement of transactions on behalf of
Affiliate pursuant to Section 14 (if applicable) for more than ten (10)
consecutive days or for more than twenty (20) days in any Processing
Year.
14. Interchange Settlement
(a) In order for FDR to provide its settlement services to
Affiliate pursuant to this Agreement, it is necessary for FDR
to handle and settle Interchange Settlement for Affiliate
through the international Interchange networks of MasterCard
and VISA. It shall be the responsibility of Affiliate to
provide ICA and BIN numbers from MasterCard and VISA,
respectively, for use by FDR in the settlement of
transactions for Affiliate. Affiliate understands that FDR
handles the Interchange Settlement with MasterCard and VISA
for its clients including Affiliate on a net settlement basis
(the "Settlement System"). To facilitate the Settlement
System, FDR has established, will establish or will direct
Affiliate to establish and may in the future establish or
direct Affiliate to establish one or more interchange
settlement Central
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<PAGE> 98
Clearing Accounts (collectively the "Settlement Account") at
one or more banks.
(b) FDR shall calculate and FDR or Customer shall inform
Affiliate on each business day of the amount of funds to be
transferred (the "Daily Amount") as the result of (i) current
transaction processing, and (ii) funding required for
incoming transactions of Affiliate. If the Daily Amount is
negative, Affiliate must transfer to the Settlement Account
immediately available funds in an amount equal to the Daily
Amount or have available in the Settlement Account, prior to
noon, Central Time Zone, on the business day, funds in an
amount equal to the Daily Amount. If the Daily Amount is
positive, FDR will transfer to Affiliate, or will cause
MasterCard or VISA to transfer to Affiliate, immediately
available funds equal to the Daily Amount prior to the close
of business of the Federal Reserve System in New York on such
date.
(c) The Daily Amount shall equal:
(i) The Net Settlement Amount for Affiliate, plus
(ii) The amount necessary to fund incoming Interchange
transactions not yet processed, determined in accordance with
the FDR Settlement Rules, minus
(iii) The amount previously advanced by Affiliate with
respect to prior incoming Interchange transactions for which
processing is complete.
(d) In the event of the failure of Affiliate on any business day
when required by the terms of this Agreement or the FDR
Settlement Rules, to transfer the Daily Amount to the
Settlement Account, or to make available the Daily Amount in
the Settlement Account for FDR to draw upon, as applicable,
FDR may refuse, without incurring any liability to Affiliate,
to act as Affiliate's agent in discharging any VISA or
MasterCard Interchange obligations of Affiliate and shall
have the right to immediately notify MasterCard and VISA that
it will no longer cause the MasterCard or VISA Interchange
obligations of Affiliate to be discharged. In addition to the
foregoing, FDR may take such actions with respect to
Affiliate's obligations under the Settlement System as FDR
deems reasonable to protect FDR or its customers from any
loss arising from Affiliate's non-payment of the Daily
Amount. If Affiliate, within two (2) business days after
written notice from FDR pays FDR the Daily Amount which
Affiliate had failed to transfer to the Settlement Account
together with late payment fees as set forth in Section 14(e)
of this Affiliate Agreement, then FDR shall continue to act
as
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<PAGE> 99
Affiliate's agent in discharging Affiliate's VISA or
MasterCard Interchange Settlement obligations.
(e) In addition to any other provisions in this Agreement, in the
event of Affiliate's failure to transfer or make available
the Daily Amount for any business day, Affiliate shall pay to
FDR a late payment fee (the "Settlement Late Payment Fee")
which shall be equal to the amount Affiliate would have been
required to pay as a late payment fee under MasterCard and
VISA rules. The amount shall be calculated in accordance with
the rules and shall continue to accrue until FDR shall have
received the Daily Amount from Affiliate. Settlement Late
Payment Fees shall be paid to FDR based upon the rules even
though FDR may have elected to make settlement with
MasterCard or VISA in a timely manner on behalf of Affiliate.
If FDR has received funds from VISA and/or MasterCard as a
result of Interchange Settlement on behalf of Affiliate and
fails to make available the Daily Amount to Affiliate, FDR
shall pay to Affiliate a late payment fee based on the Daily
Amount calculated in the same manner as the Settlement Late
Payment Fee.
(f) The obligation of FDR to discharge any VISA or MasterCard
Interchange obligations of Affiliate shall be solely as an
agent of Affiliate in accordance with the terms and
provisions of this Agreement and the FDR Settlement Rules.
FDR shall have no independent obligation with respect to the
discharge of the Interchange obligations of Affiliate.
(g) In the event that MasterCard or VISA shall notify FDR of any
violation of the rules and regulations of MasterCard or VISA,
relating to Affiliate or transactions processed for
Affiliate, FDR shall have the right, without liability to
Affiliate, to terminate Interchange Settlement of
transactions on behalf of Affiliate under this Agreement
until the time as FDR shall have been notified by MasterCard
or VISA that the violation has been corrected.
(h) Affiliate acknowledges that performance of Interchange
Settlement involves the settlement of certain of Affiliate's
transactions jointly and on a combined net basis with the
settlement of transactions of other customers of FDR.
Accordingly, the payment or receipt by FDR of settlement
monies on behalf of Affiliate may be dependent on equivalent
payments or receipts being received or made by or for other
customers of FDR and in respect of transactions involving
Transaction Cards issued by such other customers. FDR and
Affiliate will cooperate and use all reasonable resources to
identify the reason for any settlement failure and shall
attempt to work to its resolution.
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<PAGE> 100
(i) FDR shall be entitled without further inquiry to execute or
otherwise act upon (i) instructions or information or
purported instructions or information received through the
MasterCard and VISA payment systems and instructions or
information, or (ii) purported instructions or information
received in accordance with the MasterCard and VISA rules or
settlement manuals otherwise than through the payment systems
or in accordance with the FDR Settlement Rules
notwithstanding that it may afterwards be discovered that the
instructions or information were not genuine or were not
initiated by Affiliate. Such execution or action shall
constitute a good discharge to FDR, and FDR shall not be
liable for any liability, damage, expense, claim or loss
(including loss of business, loss of profit or exemplary,
punitive, special, indirect or consequential damages of any
kind) whatsoever arising in whatever manner, directly or
indirectly, from or as a result of the execution or action.
(j) Affiliate agrees to discharge their Interchange Settlement
obligations to FDR under this Section 14 in full and on first
written demand waiving any defense, setoff or right of
counterclaim (without prejudice to the ability of Affiliate
to pursue these independently) and notwithstanding any act or
omission or alleged act or omission or any insufficiency or
deficiency that there is or has been or that may be alleged
in the performance by FDR of its obligations under this
Agreement or otherwise. FDR agrees, however, that it shall
not setoff against any payment to be made by it to Affiliate
or on their behalf pursuant to this Section 14 any amount due
and payable by Affiliate to FDR (without prejudice to the
ability of FDR to pursue these independently) other than
amounts due and payable by Affiliate or on their behalf to
FDR pursuant to this Section 14.
(k) If Affiliate terminates this Agreement or if Affiliate ceases
to obtain processing services from FDR under this Agreement
in a manner which results in fees or charges relating to
Affiliate's Accounts continuing to be included as a part of
FDR's net settlement with MasterCard or VISA, FDR may obtain
daily payment from the Settlement Account established under
Section 14(a) or Affiliate will provide FDR immediately upon
notice with access to an account of Affiliate's funds, not
requiring signature, which FDR may draw upon in order to
receive payment for such fees and charges. FDR will provide
Affiliate with documentation for all fees and charges paid on
behalf of Affiliate.
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<PAGE> 101
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be
executed by their duly authorized signature as of the day and year first written
above.
HERITAGE BANK OF COMMERCE
- --------------------------------------
Name of Affiliate:
By: /s/ KEN SILVEIRA
-----------------------------------
Name: Ken Silveira
---------------------------------
Title: E.V.P
---------------------------------
Date: 12/22/97
---------------------------------
INTERNET ACCESS FINANCIAL CORPORATION
By: /s/ JEREMY LENT
-----------------------------------
Name: Jeremy Lent
---------------------------------
Title: CHIEF EXECUTIVE OFFICER
---------------------------------
Date: 12/22/97
---------------------------------
ACCEPTED AND AGREED TO:
FIRST DATA RESOURCES INC.
By: /s/ JOHN THIELEN
-----------------------------------
Name: JOHN THIELEN
---------------------------------
Title: SENIOR VICE PRESIDENT
---------------------------------
Date: 12/22/97
---------------------------------
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<PAGE> 102
EXHIBIT "D"
PERFORMANCE GUIDELINES
1. AUTHORIZATION SYSTEM AVAILABILITY - ISSUER
The issuer authorization on-line will be available via primary or
backup to respond to cardholder authorization inquiries 24 hours per
day, 7 days per week for 99% of the total minutes in the month.
2. EMBOSSING ORDERS -- NEW ACCOUNTS PLASTICS
Cardholder embossing orders entered electronically will be mailed
within three business days following cycle for 95% of each month's
volume and within five business days following cycle for 100% of each
month's volume. Plastic holds and plastic destruction requests by
Customer are excluded from this standard.
3. EMBOSSING ORDERS -- REISSUED ACCOUNTS
Cardholder reissued account plastics produced as a result of FDR's
monthly reissue programs will be mailed ten days prior to the last day
of the month for 100% of each month's volume. Plastic holds and
plastic destruction requests by Customer are excluded from this
standard.
4. LETTERS -- CARDHOLDER
Cardholder letters will be mailed by the end of the third business day
following input for 100% of each month's volume.
5. ON-LINE AVAILABILITY
The production on-line system will be available for inquiry 98.5% of
the time during the hours of 7 a.m. Central Time Zone (CTZ) to 11 p.m.
CTZ, seven days per week. This excludes CIS files on Sunday unless
Customer signs up for 24-hour CIS.
6. ON-LINE SYSTEM UPDATED
The production on-line system will be updated and current for monetary
and non-monetary entry by 7 a.m. CTZ each processing day for 90% of
that month's processing days. This includes the "common" on-line
files.
D-1
<PAGE> 103
7. POSTINGS, MONETARY/NON-MONETARY
Monetary and/or non-monetary files received in the Omaha Data Center
by 5 p.m. CTZ will be processed in that night's production processing
cycle for 90% of the production cycles for the month and by the next
night's production processing cycle for 100% of the production cycles
for the month.
8. REPORTS -- DAILY ON-LINE
On-line reports are made available by the end of the fifth business
day following cycle.
9. REPORTS -- MONTHLY ON-LINE
On-line reports are made available by the end of the fifth business
day following cycle.
10. SETTLEMENT SCREENS
The final settlement wire transfer figure will be available to the
client by 12 p.m. CTZ 90% of the time and by 12:30 p.m. CTZ 100% of
the time.
11. STATEMENTS -- CARDHOLDER
Cardholder statements will be mailed by the end of the third business
day following cycle for 80% of each month's volume and by the end of
the fifth business day following cycle for 100% of each month's
volume.
D-2
<PAGE> 1
EXHIBIT 10.13
LICENSE AGREEMENT
This License Agreement (this Agreement) dated as of MAY 1st 1998 is by and
between Binary Compass Enterprises, Inc., a California corporation (BCE), having
an office at 9520 Jefferson Blvd., Culver City, CA 90232 and INTERNET ACCESS
FINANCIAL CORPORATION (Licensee) a California Corporation, having offices at 595
Manuel St., San Francisco, CA 94105
RECITALS
WHEREAS, Binary Compass Enterprises has developed a Web service that provides
merchant ratings and information, more fully described in Exhibit A, which is
accessible through the URL www.bizrate.com (the BizRate Service);
WHEREAS, Licensee is the operator of a certain Web service called NEXTCARD (THE
"LICENSEE'S SERVICE"), which is accessible through the URL WWW.NEXTCARD.COM as
described in Exhibit B;
WHEREAS, Licensee desires to provide a link from the NEXTCARD Service to the
BizRate Service so that users of the LICENSEE'S Service will have access to the
BizRate Service.
NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby
acknowledged, Binary Compass Enterprises and INTERNET ACCESS FINANCIAL
CORPORATION, hereby agree as follows:
1. Certain Definitions.
As used herein, the following terms shall have the meaning herein
ascribed:
a) Web means the World Wide Web, a system for accessing and viewing
text, graphics, sound and other media via the collection of computer
networks known as the Internet.
b) Licensed Service means a Licensee-branded version of the BizRate
Service, fully described in Exhibit A.
a) Net Ad Revenues means Gross Ad Revenues received by Licensee, minus
advertising sales expenses payable to Licensee or Licensee's
designated sales agent. In no event will advertising sales expenses
exceed 35% of the Gross Ad Revenues.
2. License Grant by Binary Compass Enterprises; Link to the Licensed Service.
a) Binary Compass Enterprises will develop for Licensee the Licensed
Service utilizing the BizRate Service modified by the addition of
special icons, images, text, banners or other mutually agreed-upon
content incorporating the logo and branding of Licensee. The
Licensed Service will provide a "look and feel" acceptable to
Licensee similar to that provided by the pages of the Licensee
Service by utilizing a Licensee-provided template. The Binary
Compass Enterprises logo and copyright information will be included
at the bottom of each page.
b) Subject to the terms and conditions of this Agreement, Binary
Compass Enterprises hereby grants to Licensee the right to link to
the Licensed Service so as to provide users of Licensee's Service
access to the Licensed Service. To the extent such access is deemed
to be a reproduction, transmission or distribution, Licensee is
further granted a worldwide, royalty-free license to use,
reproduce, transmit, distribute and publicly display the Licensed
Service so as to make the Licensed Service available to users of the
Licensee Service via the Web. This license expires immediately upon
termination or expiration of this Agreement.
<PAGE> 2
c) Subject to the terms and conditions of this Agreement, Binary
Compass Enterprises hereby grants Licensee the right to reproduce
and display all logos, trademarks, trade names and similar
identifying material relating to the BizRate Service (the Binary
Compass Enterprises Marks) in connection with the promotion,
marketing and distribution of the Licensed Service.
d) Binary Compass Enterprises will be responsible for serving the
Licensed Service, system operation software, operating the system,
hardware costs, network costs. Licensee will be solely responsible
for serving the "frame" within which the BizRate Service will be
displayed.
e) With written consent of Binary Compass Enterprises on a case-by-case
basis, not to be unreasonably withheld, Licensee shall be permitted
to sub-license its rights under Sections 2(a) and 2(b) above to its
licensees, provided that the service provided by the licensee will
be branded by the licensee displaying the appropriate Binary Compass
Enterprises Marks and Binary Compass Enterprises copyrights. The
allocation between Binary Compass Enterprises and Licensee of
revenues derived by Licensee from advertisements within the Licensed
Service that are accessed from user's of the licensee's service will
be agreed upon by Licensee and Binary Compass Enterprises, and shall
be set forth in the written consent form for each sub-licensee.
f) Binary Compass Enterprises will use commercially reasonable efforts
to provide acceptable uptime and response times for the Licensed
Service. Binary Compass Enterprises will use commercially reasonable
efforts to ensure information available through the Licensed Service
is accurate.
g) With the exception of any copyrights, service names, service marks,
trademarks, trade names, or the like of Licensee incorporated into
the Licensed Service, Binary Compass Enterprises shall own all
right, title and interest in and to the Licensed Service and all
Intellectual Property Rights thereto. As used herein, the term
"Intellectual Property Rights" shall mean and include all intangible
intellectual, proprietary and industrial property rights, and all
tangible embodiments thereof wherever located, including but not
limited to the following: (i) all trademarks, trade names, service
marks, services names or logos, including all registrations and
applications therefor; (ii) all copyrights, moral rights, and other
rights in works or authorship, including all registrations and
applications therefor; (iii) all patents and patent applications,
patentable ideas, inventions and innovations; (iv) all know-how and
trade secrets; (v) all design and code documentation, methodologies,
processes, design information, formulae, engineering specifications,
technical data, testing procedures, drawings and techniques and
other proprietary information and material of any kind; (vi) all
software programs in source code, object code and executable format,
including testing software and software tools; (vii) all
documentation, records, databases (including current and historical
databases), designs, codes, algorithms, research records, test
information, market surveys, and marketing know-how; and (viii) any
and all translations of any of the foregoing.
3. Set-up Fees and Advertising Revenue Split
a) Binary Compass Enterprises will receive two thousand five-hundred
($2,500) for setting up the Licensed Service and two thousand
five-hundred ($2,500) per year maintenance fee for every year this
agreement is in place. The payments for the first year are due in
full before the commencement of service. For each subsequent year,
the maintenance fee is due in full prior to renewal of the contract.
b) Binary Compass Enterprises will split all Net Advertising Revenues
from Licensed Service pages 50% to Licensee and 50% to Binary
Compass Enterprises.
<PAGE> 3
c) Binary Compass Enterprises' designated sales agent shall be
responsible for coordinating the sale of available advertising space
within the Licensed Service. Binary Compass Enterprises or its
designated sales agent shall provide Licensee with the average
monthly CPM paid for advertising within the Licensed Service.
d) Licensee's share of the advertising revenue described in Section a)
shall be calculated by multiplying the average monthly CPM by the
number of impressions served on the Licensed Service, dividing by
1000 and multiplying by Licensee's share as described in Section b).
This amount will be reported in writing each month, and shall be
payable within thirty (30) days after the end of the month in which
the advertisements were served.
e) BCE shall permit Licensee to audit its records with respect to such
revenue (at Licensee's expense, upon at least ten business days
written notice, during normal business hours and no more than once
annually) upon Licensee's reasonable request in order to ensure BCE
compliance with Section 3. BCE will pay all costs of such audit in
the event that there is a discrepancy of 10% or more.
4. Marketing
a) If Licensee, in its discretion, elects to create and use marketing
materials which mention the Licensed Service and/or the Binary
Compass Enterprises Marks (other than any marketing materials in
which the Binary Compass Enterprises Marks appear in whole or in
part in a list of content providers in connection with a Licensee
Service), Licensee shall provide Binary Compass Enterprises with
such materials for Binary Compass Enterprises' review and approval
prior to their initial publication or distribution. Once such
materials have been approved by Binary Compass Enterprises for
review, Licensee shall have the right to create, publish and
distribute, without additional consultation, marketing materials
which mention Binary Compass Enterprises, the Licensed Service
land/or the Binary Compass Enterprises Marks in a substantially
similar manner. Materials shall be reviewed by Binary Compass
Enterprises within five (5) business days and if not rejected in
such period shall be deemed approved.
5. Delivery of Licensed Service; Technical Assistance and Support
a) Binary Compass Enterprises will make the Licensed Service available
to Licensee within a mutually agreed upon period of time after the
date of this agreement.
b) Binary Compass Enterprises will keep the Licensed Service content
and technology as current as the BizRate Service. However, at BCE's
sole discretion, certain future enhancements to the BizRate Services
may not be deemed appropriate for inclusion in the Licensed Service
and will not be included.
c) Throughout the term of this Agreement, Binary Compass Enterprises
will provide ongoing reasonable assistance to Licensee with regard
to technical and service-oriented issues relating to the utilization
and/or maintenance of the Licensed Service.
6. Term of Agreement
The term of this Agreement shall commence on the date the Licensed Service
is available to Licensee and will continue for one (1) year with
successive automatic one year renewals, unless terminated earlier as
provided in Section 11 herein. Either party may cancel this agreement
with written notice 60 days prior to the start of any new term.
7. Representations and Warranties of Binary Compass Enterprises
<PAGE> 4
In order to induce Licensee to enter into this Agreement, Binary Compass
Enterprises hereby warrants and represents as follows:
a) Status. Binary Compass Enterprises is a corporation in good standing
under the laws of the state of California, and has the full right,
power and authority to enter into this Agreement and to grant the
rights herein granted.
b) No Conflicting Obligations. The performance by Binary Compass
Enterprises pursuant to this Agreement and/or the rights herein
granted to Licensee will not conflict with or result in a breach or
violation of any of the terms or provisions, or constitute a default
under any organizational instruments of Binary Compass Enterprises
or any agreement to which Binary Compass Enterprises is a party or
to which it is bound.
c) Right to License. Binary Compass Enterprises possesses the full
right and authority to license the Binary Compass Enterprises
Service and the Binary Compass Enterprises Marks. Binary Compass
Enterprises is the sole owner and/or has the right to license, and
shall continue to own and/or have the right to license, throughout
the term of the Agreement, all right, title and interest, including
without limitation all rights under copyright in and to the BizRate
Service and all materials created by employees of Binary Compass
Enterprises and /or third parties, for or in connection with, the
BizRate Service and each element thereof.
d) Compliance with Laws and Regulations. Binary Compass Enterprises
shall comply with all applicable laws, statutes, ordinances, rules
and regulations of each country, state, city or other political
entity.
e) Clearances. Binary Compass Enterprises shall clear all rights in the
Licensed Service and all elements thereof for use as provided
herein. All fees of any nature, including, without limitation,
residuals, royalties, reuse, health and welfare payments, and
similar or dissimilar fees due to third parties for rights necessary
to exploit the BizRate Service, as provided herein, shall be the
sole responsibility of Binary Compass Enterprises.
f) No Infringement. Binary Compass Enterprises has the right to enter
into this Agreement and to grant to Licensee the license provided
herein and neither the BizRate Service nor the Binary Compass
Enterprises Marks nor any other materials or any elements or parts
thereof or other material delivered or to be delivered to Licensee
hereunder, nor the use of the BizRate Service pursuant to the
provisions hereof by Licensee of any of its rights hereunder, shall
violate or infringe upon the copyright, literary, privacy,
publicity, trademark, service mark or any other personal, moral or
property right of any person, nor shall same constitute a libel or
defamation of any person whatsoever.
g) General. EXCEPT FOR THE FOREGOING REPRESENTATIONS AND WARRANTIES,
BINARY COMPASS ENTERPRISES MAKES NO REPRESENTATIONS OR WARRANTIES OF
ANY KIND, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER INCLUDING, BUT
NOT LIMITED TO, IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR
PURPOSE, MERCHANTABILITY OR OTHERWISE WHICH WOULD EXTEND BEYOND THE
REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN. IN ADDITION, BINARY
COMPASS ENTERPRISES MAKES NO WARRANTIES WITH RESPECT TO ANY
INFORMATION, DATA, OR CONTENT PROVIDED THROUGH THE LICENSED SERVICE.
UNDER NO CIRCUMSTANCES WILL BINARY COMPASS ENTERPRISES BE LIABLE FOR
DIRECT, INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, OR CONSEQUENTIAL
DAMAGES, LOSS OF PROFITS, LOSS OF GOODWILL, DEFAMATION OR LOSS OF
DATA TO LICENSEE OR ANY THIRD
<PAGE> 5
PARTY ARISING FROM THE USE OF THE LICENSED SERVICE, AND LICENSEE
HEREBY WAIVES ALL RIGHTS AND CLAIMS TO SUCH DAMAGES. THIS LIMITATION
SHALL APPLY EVEN IF BINARY COMPASS ENTERPRISES IS APPRISED OF SUCH
DAMAGES. BINARY COMPASS ENTERPRISES DOES NOT ENDORSE AND IS NOT
RESPONSIBLE FOR THE ACCURACY OR RELIABILITY OF ANY OPINION, ADVICE
OR STATEMENT MADE BY ANY PERSON WHO USES THE LICENSED SERVICE, AND
EXPRESSLY MAKES NO WARRANTY THAT THE LICENSED SERVICE WILL BE
UNINTERRUPTED OR WITHOUT ERRORS.
8. Representations and Warranties of the Licensee
In order to induce Binary Compass Enterprises to enter into this
Agreement, Licensee represents and warrants that:
a) Corporate Status. Licensee is a corporation in good standing under
the laws of the State of California, and has the full right, power
and authority to enter into this Agreement and to grant the rights
herein granted.
b) No Conflicting Obligations. The performance by Licensee pursuant to
this Agreement and/or the rights herein granted to Binary Compass
Enterprises will not result In a breach or violation of any of the
terms or provisions, or constitute a default under any
organizational instruments of Licensee or any agreement to which
Licensee is a party or to which it is bound.
c) Compliance with Laws and Regulations. Licensee shall comply with all
applicable laws, statutes, ordinances, rules and regulations of each
country, state, city or other political entity.
d) Clearances. Licensee shall clear all rights in the Licensee Service
and all elements thereof for use as provided herein. All fees of any
nature, including, without limitation, residuals, royalties, reuse,
health and welfare payments, and similar or dissimilar fees due to
third parties for rights necessary to exploit the Licensee Service,
as provided herein, shall be the sole responsibility of Licensee.
e) No Infringement. Licensee has the right to enter into this
Agreement. Neither the Licensee Service nor any other materials or
any elements or parts thereof shall violate or infringe upon the
copyright, literary, privacy, publicity, trademark, service mark or
any other personal, moral or property right of any person, nor shall
same constitute a libel or defamation of any person whatsoever.
General. EXCEPT FOR THE FOREGOING REPRESENTATIONS AND WARRANTIES, LICENSEE
MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, AS TO ANY MATTER INCLUDING, BUT NOT LIMITED TO, IMPLIED
WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR
OTHERWISE WHICH WOULD EXTEND BEYOND THE REPRESENTATIONS AND WARRANTIES
CONTAINED HEREIN. IN ADDITION, LICENSEE MAKES NO WARRANTIES WITH RESPECT
TO ANY INFORMATION, DATA, OR CONTENT PROVIDED THROUGH THE LICENSEE
SERVICE. UNDER NO CIRCUMSTANCES WILL LICENSEE BE LIABLE FOR DIRECT,
INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, LOSS OF
PROFITS, LOSS OF GOODWILL, DEFAMATION OR LOSS OF DATA TO BINARY COMPASS
ENTERPRISES OR ANY THIRD PARTY ARISING FROM THE USE OF THE LICENSEE
SERVICE, AND BINARY COMPASS ENTERPRISES HEREBY WAIVES ALL RIGHTS AND
CLAIMS TO SUCH DAMAGES. THIS LIMITATION SHALL APPLY EVEN IF LICENSEE IS
APPRISED OF SUCH DAMAGES. LICENSEE DOES NOT ENDORSE AND IS NOT RESPONSIBLE
FOR THE ACCURACY OR RELIABILITY
<PAGE> 6
OF ANY OPINION, ADVICE OR STATEMENT MADE BY ANY PERSON WHO USES THE
LICENSEE SERVICE, AND EXPRESSLY MAKES NO WARRANTY THAT THE LICENSEE
SERVICE WILL BE UNINTERRUPTED OR WITHOUT ERRORS.
9. Indemnification; Insurance
a) Binary Compass Enterprises Indemnity. Binary Compass Enterprises
will at all times indemnify and hold harmless Licensee and its
officers, directors, shareholders, successors and assigns from and
against any and all third party claims, damages, liabilities, costs
and expenses, including reasonable legal fees and expenses, arising
out of or relating to any breach of any warranty, representation,
covenant or agreement made by Binary Compass Enterprises in this
Agreement or any violation or infringement of any copyright,
literary, privacy, publicity, trademark, service mark or any other
personal or property right of any person. Licensee shall give Binary
Compass Enterprises prompt written notice of any claim, action or
demand for which indemnity is claimed. Binary Compass Enterprises
shall have the right, but not the obligation, to control the defense
and/or settlement of any claim in which it is named as a party.
Licensee shall have the right to participate in any defense of a
claim by Binary Compass Enterprises with counsel of Licensee choice
at its own expense. The foregoing indemnity is conditioned upon:
prompt written notice by Licensee to Binary Compass Enterprises of
any claim, action or demand for which indemnity is claimed; complete
control of the defense and settlement thereof by Binary Compass
Enterprises; and such reasonable cooperation by Licensee in the
defense as Binary Compass Enterprises may request.
b) Licensee Indemnity. Licensee will at all times defend, indemnify and
hold harmless Binary Compass Enterprises and its officers,
directors, shareholders, successors and assigns from and against any
and all third party claims, damages, liabilities, costs and
expenses, including reasonable legal fees and expenses, arising out
of or relating to any breach of any warranty, representation,
covenant or agreement made by Licensee in this Agreement or any
violation or infringement of any copyright, literary, privacy,
publicity, trademark, service mark or any other personal or property
right of any person. Binary Compass Enterprises shall give Licensee
prompt written notice of any claim, action or demand for which
indemnity is claimed. Licensee shall have the right, but not the
obligation, to control the defense and/or settlement of any claim in
which it is named as a party. Binary Compass Enterprises shall have
the right to participate in any defense of a claim by Licensee with
counsel of Binary Compass Enterprises' choice at its own expense.
The foregoing indemnity is conditioned upon: prompt written notice
by Binary Compass Enterprises to Licensee of any claim, action or
demand for which indemnity is claimed; complete control of the
defense and settlement thereof by Licensee; and such reasonable
cooperation by Binary Compass Enterprises in the defense as Licensee
may request.
10. Confidentiality; Press Releases
a) Non-Disclosure Agreement. The parties agree and acknowledge that, as
a result of negotiating, entering into and performing this
Agreement, each party has and will have access to certain of the
other party's Confidential Information (as defined below). Each
party also understands and agrees that misuse and/or disclosure of
that information could adversely affect the other party's business.
Accordingly, the parties agree that, during the term of this
Agreement and thereafter, each party shall use and reproduce the
other party's Confidential Information only for purposes of this
Agreement and only to the extent necessary for such purpose and
shall restrict disclosure of the other party's Confidential
Information to its employees, consultants or independent contractors
with a need to know and shall not disclose the other party's
Confidential information to any third party without the prior
written approval of the other party. Notwithstanding the foregoing,
it shall not be a breach of this
<PAGE> 7
Agreement for either party to disclose Confidential Information of
the other party if required to do so under law or in a judicial or
other governmental investigation or proceeding, provided the other
party has been given prior notice and the disclosing party has
sought all available safeguards against widespread dissemination
prior to such disclosure.
b) Confidential Information Defined. As used in this Agreement, the
term Confidential Information refers to information identified as
confidential at the time of disclosure, including: (i) the terms
and conditions of this Agreement; (ii) each party's trade secrets,
business plans, strategies, methods and/or practices; and (iii)
other information relating to either party that is not generally
known to the public, including information about either party's
personnel, products, customers, marketing strategies, services or
future business plans. Notwithstanding the foregoing, the term
Confidential Information specifically excludes (1) information that
is now in the public domain or subsequently enters the public domain
by publication or otherwise through no action or fault of the
receiving party; (ii) information that is known to the receiving
party without restriction, prior to receipt from the disclosing
party under this Agreement, from its own independent sources as
evidenced by the receiving party's written records, and which was
not acquired, directly or indirectly, from the disclosing party;
(iii) information that the receiving party receives from any third
party having a legal right to transmit such information, and not
under any obligation to keep such information confidential; and (iv)
information independently developed by the receiving party's
employees or agents provided that the receiving party can show that
those same employees or agents had no access to the Confidential
Information received hereunder.
c) Press Releases. Licensee and Binary Compass Enterprises shall
jointly prepare press releases concerning the existence of this
Agreement and the terms hereof. Otherwise, no public statements
concerning the existence or terms of this Agreement shall be made or
released to any medium except with the prior approval of Licensee
and Binary Compass Enterprises or as required by law.
11. Termination
a) This Agreement may be terminated as follows immediately by either
party if the other party shall (i) admit in writing an inability to
pay its debts as they come due or fail to pay its debts as they
become due, or (ii) commence a case under any chapter of Title 11
of the United States Code (Bankruptcy Code); or (iii) have
commenced against it an involuntary case under the Bankruptcy Code,
which case is not dismissed within thirty (30) days from the date of
commencement; or (iv) consent to or suffer the appointment of a
custodian, receiver, or trustee for all or a major part of its
property; or (v) make an assignment for the benefit of its creditors
or consent to the entry of a court order under any law ordering the
winding up or liquidation of its affairs, or suffer the entry of
such an order (such termination shall not relieve the party in
proceedings from liability for the performance of its obligations
arising prior to such termination and shall be in addition to all
other rights and remedies the terminating party may have available
to it under this Agreement or at law or in equity);
b) by either party upon five (5) days written notice in the event of
material breach of this Agreement by the other party unless such
breach shall have been cured within such five (5) days; or
c) by either party, for any reason or no reason, upon thirty (30) days
written notice.
d) If this contract is terminated for any reason, then Licensee shall
be entitled to a pro rata refund of any payment made pursuant to
Section 3(a). In the event of any
<PAGE> 8
termination prior to the first anniversary of this agreement,
Licensee shall be entitled to a pro rata refund of both the set-up
fee and the annual maintenance fee.
12. Relationship of Parties
Binary Compass Enterprises and Licensee are independent contractors
under this Agreement, and nothing herein shall be construed to
create a partnership, joint venture or agency relationship between
Binary Compass Enterprises and Licensee. Neither party has authority
to enter into agreements of any kind on behalf of the other.
13. Assignment, Binding Effect
Neither Licensee nor Binary Compass Enterprises may assign this
Agreement or any of its rights or delegate any of its duties under
this Agreement without the prior written consent of the other;
provided that Licensee shall have the right to assign its rights and
obligations hereunder to any subsidiary or affiliate or to any
entity acquiring Licensee business other than to an Binary Compass
Enterprises competitor upon notice to Binary Compass Enterprises.
Any purported assignment or delegation without such required consent
shall be null and void.
14. Choice of Law
This Agreement, its interpretation, performance or any breach
thereof, shall be construed in accordance with, and all questions
with respect thereto shall be determined by, the laws of the State
of California applicable to contracts entered into and wholly to be
performed within said state.
15. Counterparts
This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original, but all of which together
shall constitute one and the same instrument.
16. Section Headings
Section headings are for convenience only and are not a part of this
Agreement.
17. Entire Agreement
This Agreement contains the entire understanding of the parties
hereto with respect to the transactions and matters contemplated
hereby, supersedes all previous agreements between Licensee and
Binary Compass Enterprises concerning the subject matter, and cannot
be amended except by a writing signed by both parties. No party
hereto has relied on any statement, representation or promise of any
other party or with any other officer, agent, employee or attorney
for the other party in executing this Agreement except as expressly
stated herein.
18. Limitations of Liability
UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY
DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES), ARISING FROM ANY PROVISION OF THIS AGREEMENT
(INCLUDING SUCH DAMAGES INCURRED BY THIRD PARTIES), SUCH AS, BUT NOT
LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS.
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR DAMAGES IN EXCESS OF
<PAGE> 9
THE AMOUNT RECEIVED BY THAT PARTY UNDER THIS AGREEMENT, PROVIDED
THAT THIS SECTION DOES NOT LIMIT EITHER PARTY'S LIABILITY TO THE
OTHER FOR (A) WILLFUL AND MALICIOUS MISCONDUCT; (B) DIRECT DAMAGES
TO REAL OR TANGIBLE PERSONAL PROPERTY; (C) BODILY INJURY OR DEATH
CAUSED BY NEGLIGENCE; OR (D) INDEMNIFICATION OBLIGATIONS HEREUNDER.
IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement
as of the date set forth above.
BINARY COMPASS ENTERPRISES, INC. INTERNET ACCESS FINANCIAL CORP.
By: /s/ [SIG] By: /s/ DANIEL SPRINGER
--------------------------- ---------------------------------
Name: ????? Name: Daniel Springer
Title: President & CEO Title: Chief Marketing Officer
Date: 8/3/98 Date: 7/30/98
<PAGE> 10
EXHIBIT A
Binary Compass Enterprises has developed a Web-based interface to help on-line
shoppers find independent ratings and information about Web-based retailers,
based on a proprietary point-of-purchase surveying technology. The Service also
includes "BizRate rated" sites, which are independently rated by Binary Compass
Enterprises. Called the BizRate Guide, this service is accessible through the
URL www.bizrate.com. If the BizRate Guide is extended to include non-web-based
retailers or services, the Licensed Service will be extended to incorporate
those entries as well. Access to this service is provided free of charge to
users.
<PAGE> 11
EXHIBIT B
Licensee is the owner or licensee of certain Web services, including, without
limitation, a catalog on the Internet listing shopping sites. The Licensee
Service is accessible through the URL www.NextCard.com.
<PAGE> 1
EXHIBIT 10.14
PREFERRED STOCK PURCHASE AGREEMENT
(SERIES C1 AND C2)
THIS PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of
the day of May, 1998, by and among INTERNET ACCESS FINANCIAL CORPORATION, a
California corporation (the "Company"), with its principal office at 595 Market
Street, Suite 950, San Francisco, California 94105 and the Investors whose names
and addresses are set forth on the Investor Schedule attached as Exhibit A
hereto (each of whom is an "Investor" and, collectively, the "Investors"). For
the purposes hereof, "C Preferred" will refer to the Company's Series Cl
Preferred Stock (the "Series C1 Preferred") and Series C2 Preferred Stock (the
"Series C2 Preferred") as defined pursuant to the Restated Articles (as defined
below).
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of C Preferred.
(a) The Company shall adopt and file with the Secretary of
State of California on or before the Closing (as defined below) the Second
Amended and Restated Articles of Incorporation in the form attached hereto as
Exhibit B (the "Restated Articles").
(b) Subject to the terms and conditions of this Agreement,
each Investor severally agrees to purchase at the Closing, and the Company
agrees to sell and issue to each Investor at the Closing, that number of shares
and series of the Company's C Preferred set forth opposite such Investor's name
on Exhibit A hereto for the purchase price set forth thereon. The shares of C
Preferred are referred to herein as the "Shares."
1.2 Closing. The initial purchase and sale of the Shares shall
take place at the offices of counsel for the Company at 1:00 p.m., on May _,
1998, or at such other time and place as the Company and the Investors initially
purchasing a majority of the C Preferred hereunder mutually agree upon orally or
in writing (which time and place are designated as the "Closing"). At the
Closing, the Company shall deliver to each Investor a certificate, registered in
such Investor's name as set forth on Exhibit A, representing the number of
shares designated on Exhibit A to be purchased by such Investor against payment
of the purchase price therefor by check or wire transfer (such wire transfers to
be sent to the trust account of Company's counsel unless otherwise agreed).
1.3 Additional Closings. The Company may sell up to the balance
of the authorized shares of C Preferred not sold at the Closing to such
individuals or entities as may be selected by the Company, at a price not less
than $5.80 per share and on the terms contained herein and in the exhibits
hereto, provided the closing for the sale of such additional shares of C
Preferred is completed not later than sixty (60) days after the date of this
Agreement. Upon execution of a signature page counterpart and without need for
an amendment hereto or thereto except to add such purchaser's name to Exhibit A
hereto, any such purchaser shall become a party to this Agreement, and shall be
deemed an "Investor" for purposes of this Agreement, and shall become a party to
that certain Second Amended and Restated Investors' Rights Agreement dated of
even date herewith, by and among the Company and the Investors hereto (the
"Investors' Rights Agreement") and shall have the rights and obligations
hereunder and thereunder.
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1.4 OTS Assistance. The Company will request that its
regulatory counsel assist, at the expense of the Company, the counsel of any
Investor in rebutting, as to such Investor, the presumption of control under the
regulations of the Office of Thrift Supervision.
2. Representations and Warranties of the Company. Except as set forth in
the Schedule of Exceptions attached hereto as Exhibit C, the Company hereby
represents and warrants as follows:
2.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to own and operate its properties and assets, and to carry on its
business as currently conducted and as proposed to be conducted. The Company is
duly qualified to transact business and is in good standing in each jurisdiction
in which the failure to so qualify would have a material adverse effect on its
business or properties. True and accurate copies of the Restated Articles and
Bylaws, each as amended and in effect at the Closing, have been delivered to the
Investors.
2.2 Capitalization. The authorized capital stock of the Company,
immediately prior to the Closing, will consist of 20,000,000 shares of Common
Stock, of which 1,087,750 are issued and outstanding, and 909,262 are subject to
outstanding options or warrants (the "Options"), and 10,000,000 shares of
Preferred Stock, of which (a) 612,500 shares have been designated Series A
Preferred Stock, all of which are issued and outstanding, (b) 1,412,000 shares
have been designated Series B Preferred Stock, all of which are issued and
outstanding, (c) 3,500,000 shares have been designated Series CI Preferred
Stock, none of which are issued and outstanding, and (d) 500,000 shares have
been designated Series C2 Preferred Stock, none of which are issued and
outstanding. All such issued and outstanding shares have been duly authorized
and validly issued and are fully paid and nonassessable. The Company has
reserved 612,500 shares of Common Stock for issuance upon conversion of the
Series A Preferred, 1,412,000 shares of Common Stock for issuance upon
conversion of the Series B Preferred, 3,500,000 shares of Common Stock for
issuance upon conversion of the Series C1 Preferred, 500,000 shares of Common
Stock for issuance upon conversion of the Series C2 Preferred, 1,500,000 shares
of Common Stock for issuance under restricted stock purchase agreements and the
Company's 1997 Stock Option Plan (the "Option Plan") for employees, officers,
directors and consultants of the Company as may be determined and approved by
the Company's Board of Directors from time to time, and 75,537 shares of Common
Stock for issuance upon exercise of outstanding warrants. Except as provided
above, there are no outstanding rights, options, warrants, preemptive rights,
rights of first refusal or similar rights for the purchase or acquisition from
the Company of any securities of the Company. All outstanding securities have
been issued in compliance with state and federal securities laws, and in
compliance with all contractual pre-emptive rights and rights of first refusal.
2.3 Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement other than the Consumer Credit Card Program
Agreement between the Company and Heritage Bank of Commerce.
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Investors' Rights
Agreement attached hereto as Exhibit D, the performance of all obligations of
the Company hereunder and thereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Shares being sold hereunder
and the Common Stock issuable upon conversion of the C Preferred has been taken
or will be taken prior to the Closing, and this Agreement and the Investors'
Rights Agreement constitute valid and legally
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<PAGE> 3
binding obligations of the Company, enforceable in accordance with their
respective terms, subject to: (i) judicial principles limiting the availability
of specific performance, injunctive relief, and other equitable remedies; (ii)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors' rights; and
(iii) limitations on the enforceability of the indemnification provisions of the
Investors' Rights Agreement.
2.5 Valid Issuance of Preferred and Common Stock. The Shares that
are being purchased by the Investors hereunder, when issued, sold and delivered
in accordance with the terms of this Agreement for the consideration expressed
herein will be duly and validly issued, fully paid, and nonassessable, will have
the rights, preferences, privileges and restrictions described in the Restated
Articles, and will be free of restrictions on transfer other than restrictions
on transfer under this Agreement and the Investors' Rights Agreement and under
applicable state and federal securities laws. The Common Stock issuable upon
conversion of the C Preferred purchased under this Agreement has been duly and
validly reserved for issuance and, upon issuance in accordance with the terms of
the Restated Articles, will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investors' Rights
Agreement and under applicable state and federal securities laws. Subject to
applicable restrictions on transfer under this Agreement and the Investors'
Rights Agreement and under applicable state and federal securities laws, the
issuance and delivery of the Shares and the Common Stock issuable upon
conversion thereof, as applicable, are not subject to any preemptive or other
similar rights or any liens or encumbrances.
2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the offer, sale or issuance of the
Shares (and the Common Stock issuable upon conversion of the C Preferred), or
the consummation of any other transaction contemplated hereby, except for the
following: (i) the filing of the Restated Articles in the Office of the
Secretary of State of the State of California, which shall be filed by the
Company on or prior to the Closing; (ii) the filing of such notices as may be
required under the Securities Act of 1933, as amended (the "Securities Act");
(iii) the filing of a notice of exemption pursuant to Section 25102(f) of the
California Corporate Securities Law of 1968, as amended (the "California
Securities Law"), which shall be filed by the Company promptly following the
Closing; and (iv) the compliance with other applicable state securities laws,
which compliance will have occurred within the appropriate time periods
therefor. Based in part on the representations of the Investors set forth in
Section 3 below, the offer, sale and issuance of the Shares in conformity with
the terms of this Agreement are exempt from the registration requirements of
Section 5 of the Securities Act, from the qualification requirements of Section
25110 of the California Securities Law and from the qualification requirements
of other applicable state securities laws.
2.7 Litigation. There is no action, suit, proceeding or
investigation pending or, to the best of the Company's knowledge, currently
threatened before any court, administrative agency or other governmental body
against the Company which questions the validity of this Agreement or the
Investors' Rights Agreement or the right of the Company to enter into either of
them, or to consummate the transactions contemplated hereby or thereby, or which
could result, either individually or in the aggregate, in any adverse change in
the condition (financial or otherwise), business, property, assets or
liabilities of the Company. The foregoing includes, without limitation, actions,
suits, proceedings or investigations pending or threatened (or any basis
therefor known to the Company) involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
intellectual property, information or techniques
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allegedly proprietary to any of their former employers, or their obligations
under any agreements with their former employers. The Company is not a party or
subject to, and none of its assets is bound by, the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality.
2.8 Employees. To the best knowledge of the Company, no officer
or key employee is in violation of any confidentiality agreement or any
contract, proprietary information agreement or obligation, whether written or
oral, with his former employers and, to the best knowledge of the Company, it is
not a violation of any of the foregoing for such person to assist the Company in
pursuing its business. The Company is not a party to or bound by any currently
effective employment contract, deferred compensation agreement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation agreement or arrangement with any collective bargaining agent. No
employees of the Company are represented by any labor union or covered by any
collective bargaining agreement. There is no pending or, to the best of the
Company's knowledge, threatened labor dispute involving the Company and any of
its employees.
2.9 Patents and Trademarks. The Company has sufficient title and
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted and as proposed to be conducted. There are no
outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights and processes of any other person or entity. The Company has not
received, and to the best knowledge of the Company none of its employees has
received, any communications alleging that the Company (or any employee in
connection with employment by the Company) has violated or, by conducting the
business of the Company as now conducted or as proposed to be conducted, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity. To
the best knowledge of the Company, none of the Company's employees are obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company or that would conflict in any
manner with the Company's business as conducted. Neither the execution nor
delivery of this Agreement or the Investors' Rights Agreement, nor the carrying
on of the Company's business by the employees of the Company, nor the conduct of
the Company's business, will, to the best of the Company's knowledge, conflict
with or result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
of such employees is now obligated. The Company does not and will not need to
utilize any inventions of any of its employees (or people it currently intends
to hire) made prior to their employment by the Company that have not previously
been fully and exclusively assigned to the Company without restrictions.
2.10 Compliance with Other Instruments.
(a) The Company is not in violation or default of any
provision of its Articles of Incorporation or Bylaws, each as amended and in
effect on and as of the Closing. The Company is not in violation or default of
any material provision of any instrument, mortgage, deed of trust, loan,
contract, commitment, judgment, decree, order or obligation to which it is a
party or by which it or any of its properties or assets are bound which
violation or default would materially adversely affect the condition (financial
or otherwise), prospects, business, property, assets or liabilities of the
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<PAGE> 5
Company or of any provision of any federal, state or local statute, rule or
governmental regulation which violation or default would materially adversely
affect the condition (financial or otherwise), business, property, assets or
liabilities of the Company. The execution, delivery and performance of and
compliance with this Agreement and the Investors' Rights Agreement, and the
issuance and sale of the Shares and the issuance of Common Stock upon the
conversion thereof, will not result in any such violation, be in conflict with
or constitute, with or without the passage of time or giving of notice, a
default under any such provision, require any consent or waiver under any such
provision (other than any consents or waivers that have been obtained), or
result in the creation of any mortgage, pledge, lien, encumbrance or charge upon
any of the properties or assets of the Company pursuant to any such provision.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any right granted under any assignment, license, distribution or other
agreement, the loss of which would materially adversely affect the condition
(financial or otherwise), business, property, assets or liabilities of the
Company.
2.11 Permits. The Company has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default under any of such franchises, permits, licenses, or
other similar authority and neither the execution, delivery nor performance of
this Agreement and the Investors' Rights Agreement and the consummation of the
transactions contemplated hereby and thereby will result in any suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
2.12 Registration Rights. Except as provided in the Investors'
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.13 Title to Property and Assets. The Company has good and
marketable title to all of its properties and assets free and clear of all
mortgages, liens and encumbrances, except liens for current taxes and
assessments not yet due and possible minor liens and encumbrances which do not,
in any case, in the aggregate, materially detract from the value of the property
subject thereto or materially impair the operations of the Company. With respect
to the properties and assets it leases, the Company is in compliance with such
leases and holds a valid leasehold interest free of all liens, claims or
encumbrances, and to the best knowledge of the Company, all other parties to the
leases are in compliance with all material terms of such leases. The Company's
properties and assets are in good condition and repair in all material respects.
2.14 Brokers or Finders. The Company has not agreed to incur,
directly or indirectly, any liability for brokerage or finders' fees, agents'
commissions or other similar charges in connection with this Agreement or any of
the transactions contemplated hereby,
2.15 Corporate Documents. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein, the
Restated Articles and Bylaws of the Company are in the form previously provided
to the Investors' special counsel.
2.16 Financial Statements. The Company has delivered its
financial statements to the Investors, consisting of: (i) audited financial
statements as of and for the period ended
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December 31, 1997; (ii) an unaudited balance sheet as of February 28, 1998, and
(iii) an unaudited income statement for the period ended February 28, 1998
(collectively the "Financial Statements"). The Financial Statements are complete
and correct in all material respects, present fairly the financial position and
results of operations of the Company at the dates and for the periods to which
they relate, have been prepared in accordance with generally accepted accounting
principles consistently followed throughout the periods involved, and show all
material liabilities, absolute or contingent, of the Company required to be
recorded therein in accordance with generally accepted accounting principles
consistently applied, except that the February 28, 1998 Financial Statements
have been prepared by the Company, have not been audited, are subject to normal
year-end audit adjustments, and do not contain footnotes normally associated
with year-end financial statements. Except as set forth in the Financial
Statements, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
February 28, 1998, which, individually or in the aggregate, are not materially
adverse to the financial condition or operating results of the Company (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Financial Statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company
and (iii) obligations under contracts or arrangements described in this
Agreement or in the Schedule of Exceptions.
2.17 Changes. Since February 28, 1998, there has not been:
(a) Any material adverse change in the business, property,
assets, liabilities, financial condition, prospects or results of operations of
the Company or its subsidiary;
(b) Any material adverse change (individually or in the
aggregate), except in the ordinary course of business, in the contingent
obligations of the Company or its subsidiary by way of guarantee, endorsement,
indemnity, warranty or otherwise;
(c) Any material damage, destruction, or loss, whether or
not covered by insurance, materially and adversely affecting the condition of
the business, property, assets or liabilities of the Company;
(d) Any waiver or compromise by the Company or its
subsidiary of a valuable right or of a material debt owed to it;
(e) Any loans made by the Company or its subsidiary to its
employees, officers, or directors other than travel advances and other advances
made in the ordinary course of business;
(f) Any extraordinary increase in the compensation or
benefits payable to any of the Company's employees, officers or directors;
(g) Any declaration or payment of any dividend by the
Company on its capital stock, any redemption, purchase or other acquisition of
shares of its capital stock or any other distribution of assets of the Company,
other than the repurchase of shares at cost from terminated employees or
consultants pursuant to the terms of written stock purchase agreements calling
for such repurchase;
(h) Any receipt of notice by the Company that there has
been a cancellation of any material contract, the cancellation or loss of which
would materially adversely affect the condition, business, property, assets or
liabilities of the Company;
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(i) Any resignation or termination of employment of any
key officer to employee of the Company and any impending resignation or
termination of employment known by the Company of any key officer or employee
of the Company in either case which, if consummated, would materially adversely
affect the condition (financial or otherwise), business, property, assets or
liabilities of the Company;
(j) Any labor dispute involving the Company or any of its
employees;
(k) Any other event or condition of any character known to
the Company that has materially and adversely affected the Company's business or
prospects;
(l) Any amendment or other change to the Articles of
Incorporation or Bylaws of the Company (except as contemplated by this
Agreement);
(m) Any sale or other disposition of any right, title or
interest in or to any assets or properties of the Company or any revenues
derived therefrom other than in the ordinary course of business and consistent
with past practice;
(n) Any creation, incurring or assumption of any
indebtedness for money borrowed by the Company exceeding $50,000;
(o) Any material capital expenditures by the Company not
in the ordinary course of business; or
(p) Any material agreement or commitment by the Company
to do any of the things described in this Section 2.17.
2.18 Disclosures. The Company has provided the Investors with
all the information which the Investors have requested for deciding whether to
purchase the Shares. No representation or warranty of the Company contained in
this Agreement, the Exhibits attached hereto or in any certificate furnished or
to be furnished to the Investors at the Closing contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made.
2.19 No Conflict of Interest. The Company is not indebted,
directly or indirectly, to any of its officers or directors or to their
respective spouses or children, in any amount whatsoever other than in
connection with expenses or advances of expenses incurred in the ordinary course
of business or relocation expenses of employees. None of said officers or
directors, or any members of their immediate families are indebted to the
Company (other than in connection with purchases of the Company's stock) or, to
the Company's knowledge, have any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation which competes
with the Company except that officers, directors and/or shareholders of the
Company may own stock in publicly traded companies which may compete with the
Company. No officer or director or any member of their immediate families, is,
directly or, to the Company's knowledge, indirectly, interested in any material
contract with the Company. The Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
2.20 Company's Contracts. All of the contracts and agreements
with expected receipts or expenditures in excess of $50,000 or involving a
license or grant of rights to or from the
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Company involving patents, trademarks, service marks, trade names, copyrights,
trade secrets or other proprietary information applicable to the business of the
Company other than non-disclosure agreements signed in the ordinary course with
prospective investors, suppliers, customers and licensees concerning prospective
relationships, to which the Company is a party as of the date of the Closing are
listed on the Schedule of Exceptions. All such contracts and agreements are
legally binding, valid and in full force and effect in all material respects,
and the Company is not aware of reduced activity relating to any such contract
or agreement (other than in the ordinary course of business) by any of the
parties to any such contract or agreement. The Company has fully complied with
all material obligations under such contracts, to the extent such compliance is
now due.
2.21 ERISA. The Company has no employee benefit plan subject to
the Employee Retirement Income Security Act of 1974.
2.22 Environmental Regulations. Except for failures which will
not materially adversely affect the business of the Company, the Company has
met, and continues to meet, all applicable local, state, federal and national
environmental regulations and has disposed of its waste products and effluents
and/or has caused others to dispose of such waste products and effluents, in
accordance with all applicable state, local, federal and national environmental
regulations and in such a manner that no harm has resulted or will result to any
of its respective employees or properties or to any other person or entities or
their properties.
2.23 Confidentiality and Inventions Agreements. Each employee
with access to confidential information regarding the Company's operations
("Designated Employee") and each founder and officer of the Company has executed
a Confidentiality and Inventions Agreement. Each consultant of the Company has
executed a Consulting Agreement. Typical forms of such Confidentiality and
Inventions Agreements and Consulting Agreements have been made available for
inspection by counsel for the Investors and the Company represents that all of
such Agreements adequately protect the Company with respect to its proprietary
information. The Company, after reasonable investigation, is not aware that any
of its Designated Employees, officers or consultants are in violation of such
agreements.
2.24 Insurance. The Company maintains the insurance policies set
forth in the Schedule of Exceptions.
2.25 Agreements; Action. The Company has not engaged in the past
three months in any discussion (i) with any representative of any corporation or
corporations regarding the merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
merger, consolidation or other transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the Company would be
disposed of (other than with respect to the financing that is the subject of
this Agreement), or (iii) regarding any other form of liquidation, dissolution
or winding up of the Company.
2.26 Certain Tax Representations. The Company is not a real
property holding corporation within the meaning of Section 897(c)(2) of the
Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder. The Company is a "qualified small business" within the meaning of
Section 1202(d) of the Internal Revenue Code of 1986, as amended. The Company
has filed on a timely basis all income tax returns required to be filed by it
pursuant to all applicable laws or regulations.
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3. Representations and Warranties of the Investors. Each Investor
hereby severally represents and warrants to the Company with the respect to the
transactions contemplated hereby that:
3.1 Experience. Such Investor is experienced in evaluating early
stage companies such as the Company, is able to fend for itself in transactions
such as the one contemplated by this Agreement, has such knowledge and
experience in financial and business matters that Investor is capable of
evaluating the merits and risks of Investor's prospective investment in the
Company, has the ability to bear the economic risks of the investment and is an
"accredited investor" within the meaning of Regulation D as promulgated by the
Securities and Exchange Commission.
3.2 Investment. Such Investor is acquiring the Shares (and the
Common Stock issuable upon conversion of the Shares) for investment for such
Investor's own account and not with the view to, or for resale in connection
with, any distribution thereof. Such Investor understands that the Shares (and
the Common Stock issuable upon conversion of the Shares) have not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent as expressed herein. Such
Investor further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to any third person with respect to any of the Shares (or any
Common Stock acquired upon conversion of the Shares). Such Investor understands
and acknowledges that the offering of the Shares pursuant to this Agreement and
any issuance of Common Stock on conversion of the Shares will not be registered
under the Securities Act on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from the
registration requirements of the Securities Act.
3.3 Rule 144. Such Investor acknowledges that the Shares (and the
Common Stock issuable upon conversion of the Shares) must be held indefinitely
unless subsequently registered under the Securities Act or an exemption from
such registration is available. Such Investor is aware of the provisions of Rule
144 promulgated under the Securities Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions. Such Investor covenants that, in the absence of an effective
registration statement covering the stock in question, such Investor will sell,
transfer, or otherwise dispose of the Shares (and any Common Stock issued on
conversion of the C Preferred) only in a manner consistent with such Investor's
representations and covenants set forth in this Section 3. In connection
therewith, such Investor acknowledges that the Company will make a notation on
its stock books regarding the restrictions on transfers set forth in this
Section 3 and will transfer securities on the books of the Company only to the
extent not inconsistent therewith.
3.4 No Public Market. Such Investor understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for any of
the Company's securities.
3.5 Access to Data. Such Investor has received and reviewed
information about the Company and has had an opportunity to discuss the
Company's business, management and financial affairs with its management and to
review the Company's facilities.
3.6 Authorization. This Agreement when executed and delivered by
such Investor will constitute a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, subject to: (i) judicial
principles respecting election of remedies or
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limiting the availability of specific performance, injunctive relief, and other
equitable remedies; (ii) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect generally relating to or affecting
creditors' rights; and (iii) limitations on the enforceability of the
indemnification provisions of the Investors' Rights Agreement.
3.7 Brokers or Finders. Such Investor has agreed not to incur,
directly or indirectly, any liability for brokerage or finder's fees, agents'
commissions or other similar charges in connection with this Agreement or any of
the transactions contemplated hereby.
4. Conditions of Investors' Obligations at Closing. The obligations of the
Investors under subsection 1.1 (b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective unless Investors purchasing a majority of
the C Preferred hereunder and each Investor purchasing more than 500,000 Shares
consent in writing thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. The Chairman and Chief Executive
Officer of the Company shall deliver to each Investor at the Closing a
certificate stating that the conditions specified in Sections 4.1 and 4.2 have
been fulfilled.
4.4 Board Election. Tod Francis shall have been elected or
appointed to the Board, effective immediately after consummation of the Closing.
4.5 Opinion of Company Counsel. The Investors shall have
received from Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional
Corporation, counsel for the Company, an opinion, dated as of the Closing, in
the form attached hereto as Exhibit E.
4.6 Investors' Rights Agreement. The Company and the Investors
shall have entered into the Investors' Rights Agreement.
4.7 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country for the offer and sale of the Shares.
4.8 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, and all documents and instruments incident to these transactions, shall
be reasonably satisfactory in substance to the Investors and their counsel.
4.9 Restated Articles. The Restated Articles shall have been
filed with and approved by the Secretary of State of California.
4.10 Second Amendment to Stock Restriction Agreement. Mr. Jeremy
Lent shall have executed and delivered the Second Amendment to Stock Restriction
Agreement set forth in Exhibit F.
13
<PAGE> 11
4.11 Contemporaneous Investment. At least 1,550,000 Shares shall
have been purchased at the initial Closing and the Company shall have received
the purchase price therefor.
4.12 Certain Regulatory Matters. The Investors or their counsel
will be satisfied as to regulatory matters.
5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to the Investors under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by each
Investor:
5.1 Representations and Warranties. The representations and
warranties of each Investor contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 Payment of Purchase Price. Each Investor shall have delivered
the purchase price specified on Exhibit A hereto against delivery of the Shares
by the Company to such Investor.
5.3 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country for the offer and sale of the Shares.
5.4 Investors' Rights Agreement. Each Investor shall have
executed the Investors' Rights Agreement on or prior to the date of the Closing.
5.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, and all documents and instruments incident to these transactions, shall
be reasonably satisfactory in substance to the Company and its counsel.
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California.
6.2 Successors and Assigns. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
6.3 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
6.4 Notices, Etc. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, return receipt requested, or otherwise
delivered by hand or by messenger, addressed (a) if to an Investor, at such
Investor's address set forth on Exhibit A, or at such other address as such
Investor shall have furnished to the Company in writing, or (b) if to any other
holder of any Shares, at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Shares
14
<PAGE> 12
who has so furnished an address to the Company, or (c) if to the Company, at its
address set forth on the first page of this Agreement addressed to the attention
of the Chairman and Chief Executive Officer, or at such other address as the
Company shall have furnished to the Investors. If notice is provided by mail,
notice shall be deemed to be given upon proper deposit with the United States
mail.
6.5 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Shares upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing or as provided in this
Agreement. All remedies, either under this Agreement or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
6.6 California Corporate Securities Law. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE, OR OTHER APPLICABLE LAW. THE RIGHTS OF ALL PARTIES
TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, UNLESS THE SALE IS SO EXEMPT.
6.7 Expenses. Each party hereto shall bear its own expenses;
provided, however, that conditioned upon the Closing occurring, the Company will
reimburse the Investors for the reasonable fees (not to exceed $15,000) and
expenses of a single counsel for the Investors who have not previously purchased
securities in the Company.
6.8 Finder's Fees. The Company and each Investor shall each
indemnify and hold the other harmless from any liability for any commission or
compensation in the nature of a finder's fee (including the costs, expenses and
legal fees of defending against such liability) for which the Company or such
Investor, or any of their respective partners, employees, or representatives, as
the case may be, is responsible.
6.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which may be executed by less than all parties hereto,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
6.10 Severability of this Agreement. In the event that any
provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement will continue
in full force and effect without said provision and the parties agree to replace
such provision with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such provisions;
provided that no
15
<PAGE> 13
such severability will be effective against a party if it materially and
adversely changes the economic benefits of this Agreement to such party.
6.11 Attorneys' Fees in a Dispute. In the event of any action to
enforce the terms hereof, the prevailing party will be entitled to receive its
reasonable attorneys' fees and costs in connection therewith.
(This space intentionally left blank.)
16
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INTERNET ACCESS FINANCIAL CORPORATION
By:
----------------------------------------
Jeremy Lent, Chairman and
Chief Executive Officer
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
17
<PAGE> 15
INVESTORS:
----------------------------------------
By:
-------------------------------------
Name:
Title:
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
18
<PAGE> 16
EXHIBIT A
INVESTOR SCHEDULE
NAME NO. OF SHARES OF C PREFERRED SERIES AGGREGATE CONSIDERATION PAID
19
<PAGE> 17
EXHIBIT B
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
20
<PAGE> 18
EXHIBIT C
SCHEDULE OF EXCEPTIONS
This disclosure of exceptions is made and given pursuant to Section 2 of
the Preferred Stock Purchase Agreement dated as of May _, 1998 (the
"Agreement"), by and between INTERNET ACCESS FINANCIAL CORPORATION (the
"Company") and the Investors named therein. Unless the context otherwise
requires, all capitalized terms are used herein as defined in the Agreement. The
numbers below correspond to the section numbers of representations and
warranties in the Agreement that are most directly modified by the disclosures,
but all disclosures are intended to modify all of the Company's representations
and warranties.
21
<PAGE> 19
EXHIBIT D
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
22
<PAGE> 20
EXHIBIT E
OPINION OF COMPANY COUNSEL
23
<PAGE> 21
EXHIBIT F
SECOND AMENDMENT TO STOCK RESTRICTION AGREEMENT
24
<PAGE> 1
EXHIBIT 10.15
SUBLEASE
THIS AGREEMENT OF SUBLEASE is made as of the 15th of May, 1998 by and
between KAO Infosystems Company (hereinafter referred to as KIC or Sublessor)
and Internet Access Financial Corporation (hereinafter referred to as IAFC or
Sublessee).
WITNESSTH
WHEREAS, Sublessor is the Lessee of the Premises as hereinafter
described under that certain agreement of Lease dated November 15, 1995, as
amended, by and between Annabel Investment Company as Landlord (hereinafter
referred to as the "Master Lessor") and KIC as Tenant (which Lease as amended is
hereinafter referred to as the "Master Lease") which Lease concerns 7,227 square
feet of space in a Building known as Bishop Ranch 6, 2440 Camino Ramon, Suite
305, San Ramon, California, 94583 ("Premises"), and is incorporated herein by
reference as if fully set forth herein; and
WHEREAS, Sublessee desires to sublease a portion of the Premises from
Sublessor, and Sublessor desires to sublease a portion of the Premises to
Sublessee.
NOW THEREFORE, in consideration of the rents and convenants hereinafter
set forth to be paid and performed by Sublessee, Sublessor does hereby demise,
lease and let unto Sublessee, and the Sublessee does hereby lease and take from
Sublessor upon the terms and conditions hereinafter set forth:
7,227 contiguous square feet located on the third (3rd) floor of the
Premises as shown on the space plan attached hereto as Exhibit A hereinafter
described as the "Subleased Premises".
1. RELATIONSHIP TO MASTER LEASE. The Sublease and all its terms,
covenants and provisions are and each of them is subordinate to: (i) the Master
Lease (a copy of which is attached as Exhibit B and made a part hereof by
reference) under which Sublessor is granted a leasehold interest in the
subleased Premises; (ii) the rights as contained in the Master Lease of the
owner or owners of the Premises and/or the land and Building of which the
Subleased Premises are a part; (iii) the rights of Master Lessor as contained in
the Master Lease; and (iv) to any and all mortgages or encumbrances now or
hereafter affecting the Subleased Premises or to which the Master Lease would be
subordinated. Sublessee expressly agrees that if Sublessor's tenancy or right to
possession of the Premises (including the Subleased Premises) shall terminate by
expiration of the Master Lease or any other cause not due to the fault of
Sublessor, this Sublease shall thereupon immediately cease and terminate and
Sublessee shall give immediate possession to Sublessor.
2. PERFORMANCE OF MASTER LEASE TERMS. With respect to the Subleased
Premises, except to the extent that this Sublease expressly provides otherwise:
(a) Sublessee shall be subject to the terms and conditions of, and perform all
obligations of Sublessor to Master Lessor under, the Master Lease and shall be
entitled to receive all benefits which accrue to Sublessor under the Master
Lease; and (b) Sublessor shall be subject to and shall be entitled to enforce
against the Sublessee the terms of the Master Lease, as if reference therein to
"Tenant" were to "Sublessee" and references therein to "Landlord" were to
"Master Lessor" and "Sublessor". Without limiting the generality of the
foregoing, in
Please Initial
Sublessor ( )
Sublessee ( )
<PAGE> 2
the case of any breach of this Sublease by Sublessee, Sublessor shall have all
the rights against Sublessee as would be available to the Master Lessor against
the Lessee under the Master Lease if such breach were committed by such
Sublessor. Not withstanding anything herein to the contrary, Sublessor shall
have no liability to Sublessee for breaches of this Sublease or of the Master
Lease that are caused by the Master Lessor. However, Sublessor agrees, at
Sublessee's request and expense, to seek to enforce Sublessor's rights under the
Master Lease if Master Lessor breaches, or fails to perform its duties under the
Master Lease, with respect to the Subleased Premises. Sublessor hereby agrees to
indemnify and hold harmless Sublessee from and against any loss, claim, damage,
expense or injury (including reasonable attorneys' fees) which Sublessee may
incur as a result of Sublessor's failure to perform such obligations in the
preceding sentence on behalf of Sublessee. Sublessor covenants and agrees that
(i) if and so long as the Sublessee pays the base rent and additional rent
specified in the Sublease and fully, faithfully and punctually observes the
covenants and conditions hereof, Sublessee shall during the term of this
Sublease quietly enjoy the Subleased Premises as against any persons or entities
lawfully claiming by, through or under Sublessor, subject however, to the terms
of this Sublease and of any encumbrances and, subject, however, to the earlier
termination of the Master Lease, and (ii) Sublessor shall not do anything not
permitted by the Master Lease or which would cause the Master Lease to be
canceled, terminated or forfeited.
3. TERM. The term of this Sublease shall commence on completion of the
work outlined in the work letter attached as Exhibit C ("Commencement Date") and
expire on June 15, 2001, the "Termination Date". The Commencement Date shall be
a firm date.
4. RENT. During the term of this Sublease, Sublessee covenants to pay
monthly base rent ("Base Rent") for the Subleased Premises at the rate of $22.20
per square foot, payable in monthly payments of Thirteen Thousand Three Hundred
Sixty-Nine and 95/100 Dollars ($13,369.95). This rent obligation is in lieu of
any rent obligation arising under the Master Lease.
Sublessee shall pay to Sublessor the sum of Thirteen Thousand Three
Hundred sixty-Nine and 95/100 Dollars ($13,369.95) for the first month of this
Sublease on the Commencement Date.
Base Rent is due and payable on the first day of each month in
advance to Sublessor at 2440 Camino Ramon, San Ramon, California, 94583. If the
Commencement Date or the Termination Date is a day other than the first of the
month, Base Rent shall be prorated for such month.
5. USE. Sublessee shall use the Subleased Premises for general office
purposes which shall include operation center activities.
6. WORK OF IMPROVEMENT. The Sublessor is responsible to have the Tenant
Improvements constructed as shown on Exhibit A and the Pricing Plan dated March
21, 1998. The Sublessee shall pay the Sublessor $6,241.50 as Sublessee's
contribution to help offset Sublessor's cost of Tenant Improvements. In the
event that the Tenant Improvements cost is reduced, then Sublessee's
contribution shall be reduced by the amount of reduction up to $6,241.50.
7. INSURANCE AND INDEMNIFICATION. At all times during the term of this
sublease, Sublessee shall keep in effect: (i) a policy of Comprehensive General
Liability insurance with a reputable company in amounts not less than $1,000,000
combined single limit and $500,000 property damage, which policy shall name
Sublessor and Master Lessor as additional insureds; (ii) a policy of Worker's
Compensation insurance in at least the statutory amounts covering Sublessee's
employees using the
Please Initial
Sublessor ( )
Sublessee ( )
<PAGE> 3
Subleased Premises; and (iii) insurance covering loss to Sublessee's personal
property located on the Subleased Premises by fire or other casualty. All
policies of insurance shall be issued by a company licensed to do business in
the State of California and reasonably approved by Sublessor. Within thirty (30)
days or upon commencement after full execution hereof, Sublessee shall provide
Sublessor and Master Lessor with a certificate evidencing such insurance
coverage. Sublessee shall indemnify and hold harmless Sublessor and Master
Lessor to the same extent and in the same manner which Sublessor is obligated to
indemnify Master Lessor under the Master Lease except that references to
"Tenant" shall read "Sublessee" and references to "Landlord" shall read "Master
Lessor and Sublessor.
8. DEFAULT. If Sublessee shall default in the payment of Base Rent or
additional rent hereunder and such default shall continue for fifteen (15)
business days after written notice from Sublessor, Sublessor may exercise any of
the rights reserved to the Master Lessor pursuant to the Master Lease.
9. ACCESS. Sublessor shall be permitted access to the Subleased
Premises at all reasonable times upon reasonable advance notice, or at any time
in case of emergency, to inspect the Subleased Premises, subject to Sublessee's
reasonable security requirements. Master Lessor shall be permitted to the
Subleased Premises upon reasonable notice and at reasonable times.
10. NOTICE. Any notice required or permitted to be sent pursuant to
this Agreement shall be in writing sent by certified mail, return receipt
requested, effective upon receipt, postage prepaid to the parties at the
following addresses or to such other addresses as they shall from time to time
indicate by written notice pursuant to this section:
Sublessor:
Mike Puccinelli David B. Brown
KAO Infosystems Potter Anderson & Corroou
2440 Camino Ramon Hercules Plaza
Suite 200 1313 N. Market Street, 6th Floor
San Ramon, CA 94583 Wilmington, DE 19801
Sublessee:
John Hashman Tim Coltrell
Internet Access Financial Internet Access Financial
Corporation Corporation
595 Market Street 2440 Camino Ramon
Suite 950 Suite 300
San Francisco, CA 94105 San Ramon, CA 94583
11. SUBLESSOR RELEASED FROM LIABILITY IN CERTAIN EVENTS. Except to the
extent caused by the negligent or otherwise wrongful acts or omissions of
Sublessor, its agents or employees, Sublessor shall not be responsible, at any
time or in any event, for any latent defects, deterioration or change in the
condition of the Subleased Premises except for circumstances existing prior to
the date hereof caused, or attributable to the use of the Subleased Premises, by
Sublessor and/or any other party using the Subleased Premises of which the
Sublessor had knowledge prior to the date hereof. Except to the extent caused by
the negligent or otherwise wrongful acts or omissions of Sublessor, its agents
or employees, Sublessor shall also not be responsible for any fire or earthquake
damage, or
Please Initial
Sublessor ( )
Sublessee ( )
<PAGE> 4
overflow or leakage upon or into the Subleased Premises of water, steam, gas or
electricity, or by any breakage in pipes or plumbing, or breakage, leakage or
obstruction of sewer pipes or other damage occasioned by water being upon or
coming through the roof skylight, trapdoors, walls, basement or otherwise, nor
for failure of the heating (steam) plant, nor for loss of property by theft or
otherwise, nor for any damage arising from any act or neglect of any co-tenant
or other occupant of the Premises, or for that of any owner or occupants of
adjoining or contiguous property. Notwithstanding the above, at Sublessee's
written request, Sublessor shall, at Sublessor's expense, take whatever action
as is reasonable and necessary to enforce the rights and benefits accruing to
the Sublessee by virtue of the Master Lease and this Sublease.
12. CONSENT OF MASTER LESSOR. This Sublease and any extension of the
term hereof is expressly conditioned subject to the prior consent of the Master
Lessor, which consent has been obtained by Sublessor. This Sublease is presented
for examination only and is valid only if signed by both parties. Unsigned it
represents neither a reservation of a sublease or an agreement to sublease by
either party.
13. CONSENT TO SUBLESSOR. For all matters which require Sublessor's
approval or consent, such approval or consent shall not be unreasonably withheld
or delayed. For all matters which require Master Lessor's approval or consent,
Sublessor shall promptly forward to Master Lessor such requests as Sublessee may
submit for approval and/or consent from Master Lessor.
14. ENTIRE AGREEMENT. This Sublease (including the provision of the
Master Lease incorporated herein by reference) contains the entire agreement
between the parties concerning the Subleased Premises and any agreement
hereafter made shall be ineffective to change, modify or discharge this Sublease
in whole or in part unless such agreement is in writing and signed by the
parties hereto.
15. SUBLESSOR'S REPRESENTATIONS AND WARRANTIES. Sublessor represents
and warrants that to the best of its knowledge, (i) the Master Lease is in full
force and effect and not modified or amended except as set forth in the copies
attached hereto; and (ii) Sublessor is not in default of any of its obligations
under the Master Lease and has received no notice asserting that it is in
default of any of its obligations under the Master Lease.
16. MISCELLANEOUS.
a. If any term, covenant or condition of this Sublease or the
application thereof to any circumstance or to any person, corporation or other
entity shall be invalid or unenforceable to any extent, the remaining terms,
covenants and conditions of this Sublease shall not be affected thereby and
shall be valid and enforceable to the fullest extent permitted by law.
b. The paragraph headings contained in this Sublease have been
included for convenience only and shall not be used in the construction or
interpretation of the Sublease.
c. This Sublease shall be governed by and construed in accordance
with the laws of the State of California.
17. SUCCESSORS AND ASSIGNS. This Sublease shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
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Sublessor ( )
Sublessee ( )
<PAGE> 5
18. HAZARDOUS MATERIALS. Sublessee shall not (either with or without
negligence) cause or permit the escape, disposal or release of any biologically
or chemically active or other hazardous substances or materials. Sublessee shall
not allow the storage or use of such substances or materials in any manner not
sanctioned by law or by the highest standards prevailing in the industry for the
storage and use of such substances or materials, nor allow to be brought into
the Project any such materials or substances except to use in the ordinary
course of the Sublessee's business, and then only after written notice is given
to Master Lessor and Sublessor of the identify of such substances or materials.
Without limitation, hazardous substances and materials shall include those
described in the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., any applicable state or
local laws and the regulations adopted under these acts. If any lender or
governmental agency shall ever require testing to ascertain whether or not there
has been any release of hazardous materials, then the reasonable costs thereof
shall be reimbursed by Sublessee, to Master Lessor upon demand as additional
charges if such requirements apply to the Sublessee's use of the Premises. In
addition, Sublessee shall execute affidavits, representations and the like from
time to time at Master Lessor's request concerning Sublessee's best knowledge
and belief regarding the presence of hazardous substances or materials on the
Premises. In all events, Sublessee shall indemnify Master Lessor and Sublessor
in the manner elsewhere provided in this Sublease or the Master Lease against
any release of hazardous materials on the Premises occurring while Sublessee is
in possession, or elsewhere if caused by Sublessee or persons acting under
Sublessee. The within covenants shall survive the expiration or earlier
termination of the lease term.
19. BROKER FEE. Upon execution of the Sublease, Sublessor shall pay
Cornish & Carey Commercial, a licensed real estate broker, fees set forth in a
separate agreement between Sublessor and Broker. Cornish & Carey Commercial
shall pay CB Commercial, agent of Sublessee, fees set forth in a separate
agreement between Cornish & Carey Commercial and CB Commercial.
20. OPERATING EXPENSES. Sublessee is responsible to pay for its
pro-rata share of increases in operating expenses over a 1998 Base Year.
IN WITNESS WHEREOF, Sublessor and Sublessee have duly executed this
agreement of Sublease on the day and year first-above written.
SUBLESSOR: SUBLESSEE:
KAO INFOSYSTEMS COMPANY INTERNET ACCESS FINANCIAL CORP.
- ------------------------------------
By: /s/ JACK KAPLAN MIKE PUCCINELLI BY: /s/ JEREMY LENT
--------------------------------- ---------------------------
Name: Jack Kaplan Mike Puccinelli Name: Jeremy Lent
Title: General Manager Sr. Manager Ops Title: C.E.O.
------------------------
Date: 5/15/98 Date:
------------------------- -------------------------
Please Initial
Sublessor ( )
Sublessee ( )
<PAGE> 6
Annabel Investment Company
(herein "Master Lessor") consents
to and agrees with
the terms of
this Sublease.
Annabel Investment Company,
a California partnership
By:
---------------------------
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Sublessor ( )
Sublessee ( )
<PAGE> 7
EXHIBIT C
<TABLE>
<CAPTION>
- --------------------------------------------------------------
ITEM TOTAL PRICE
- --------------------------------------------------------------
<S> <C>
ELECTRICAL 29,128,40
-----------
HVAC ZONES 30,420.00
- --------------------------------------------------------------
FIRE ????????? 4,982.00
-----------
PARTITION MATERIALS 1,501.20
- --------------------------------------------------------------
CEILING MATERIAL 900.00
-----------
DOOR MATERIAL --
- --------------------------------------------------------------
DOOR FRAME MATERIAL 540.00
-----------
HARDWARE 608.80
- --------------------------------------------------------------
LABOR 7,048.80
-----------
DRYWALL AND INSULATION 9,002.40
- --------------------------------------------------------------
LITE ??????? MATERIAL --
-----------
PAINTING 2,736.00
- --------------------------------------------------------------
CARPET 12,379.20
-----------
VCT 556.00
- --------------------------------------------------------------
BASE 1,142.40
-----------
WINDOW COVERING 468.00
- --------------------------------------------------------------
CLEANING 1,501.20
-----------
SIGNAGE--ALLOWANCE --
- --------------------------------------------------------------
FIRE EXTINGUISHER MATERIAL 120.00
-----------
PLAN AND PERMIT FEE 11,760.00
- --------------------------------------------------------------
DUMP FEES 2,160.00
-----------
BLUE PRINTS AND POSTAGE 240.00
- --------------------------------------------------------------
SUBTOTAL--STANDARD IMPROVEMENT $116,605.20
===========
- --------------------------------------------------------------
PLASTIC LAMINATE CABINETRY 1,440.00
-----------
ROOF PATCH 420.00
- --------------------------------------------------------------
CONCRETE CORING --
-----------
PLUMBING 5,750.40
- --------------------------------------------------------------
5 TON LIEBERT UNIT --
-----------
GLASS DOOR --
- --------------------------------------------------------------
SIDE LIGHT FRAME MATERIAL --
-----------
SIDE LIGHT GLASS MATERIAL --
- --------------------------------------------------------------
WALLCOVERING --
-----------
APPLIANCES --
- --------------------------------------------------------------
STRUCTURAL REVIEW --
-----------
24-HOUR AIR CONDITIONING --
- --------------------------------------------------------------
SUBTOTAL--STANDARD EXTRAS 7,610.40
TOTAL--STANDARDS 116,605.20
----------------------
TOTAL $124,215.60
----------------------
</TABLE>
Sublessor (AP)
Sublease
<PAGE> 8
[MAP]
<PAGE> 9
BISHOP RANCH
- --------------------------------------------------------------------------------
BUSINESS PARK
EXECUTION COPY
BISHOP RANCH BUSINESS PARK
BUILDING LEASE
<PAGE> 10
BISHOP RANCH
- --------------------------------------------------------------------------------
BUSINESS PARK
KAO INFOSYSTEMS COMPANY
BISHOP RANCH BUSINESS PARK - BUILDING LEASE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. PREMISES..................................................................... 1
1.1 Measurement of Premises ............................................ 2
2. TERM ........................................................................ 2
2.1 Term .............................................................. 2
2.2 Delay In Commencement ............................................. 2
2.3 Acknowledgment Of Commencement Date ............................... 3
3. RENT ........................................................................ 3
3.1 Base Rent ......................................................... 3
3.2 Adjustments To Base Rent .......................................... 3
3.3 Amounts Constituting Rent ......................................... 4
4. SECURITY DEPOSIT ............................................................ 4
5. TAX AND BUILDING OPERATING COST INCREASES ................................... 4
5.1 Definitions ........................................................ 4
5.2 Tenant's Share ..................................................... 7
5.3 Notice and Payment ................................................. 7
5.4 Tenant's Right to Audit ............................................ 9
5.5 Additional Taxes ................................................... 9
5.6 Tenant's Taxes ..................................................... 9
6. USE ........................................................................ 10
6.1 Use ................................................................ 10
6.2 Suitability ....................................................... 10
6.3 Uses Prohibited ................................................... 10
7. SERVICE AND UTILITIES ...................................................... 11
7.1 Landlord's Obligations ............................................ 11
7.2 Tenant's Obligation ............................................... 11
7.3 Tenant's Additional Requirements .................................. 12
7.4 Nonliability ...................................................... 13
7.5 Interruption of Services .......................................... 13
8. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS ......................... 14
8.1 Maintenance And Repairs ........................................... 14
8.2 Alterations And Additions ......................................... 16
9. ENTRY BY LANDLORD .......................................................... 17
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C>
10. LIENS ...................................................................... 18
11. INDEMNITY .................................................................. 18
11.1 Cross-Indemnification ............................................. 18
11.2 Exemption of Landlord From Liability .............................. 19
12. INSURANCE .................................................................. 20
12.1 Coverage .......................................................... 20
12.2 Insurance Policies ................................................ 20
12.3 Landlord's Insurance . ............................................ 20
12.4 Waiver of Subrogation ............................................. 21
13. DAMAGE OR DESTRUCTION ...................................................... 21
13.1 Landlord's Duty to Repair . ....................................... 21
13.2 Landlord's Right to Terminate ..................................... 22
13.3 Tenant's Right to Terminate ....................................... 22
13.4 Exclusive Rights .................................................. 23
14. CONDEMNATION ............................................................... 23
15. ASSIGNMENT AND SUBLETTING .................................................. 24
15.1 Landlord's Consent Required ....................................... 24
15.2 Reasonable Consent ................................................ 24
15.3 Excess Consideration .............................................. 25
15.4 No Release Of Tenant .............................................. 25
15.5 Attorneys' Fees ................................................... 25
15.6 Transfer Of Ownership Interest .................................... 25
15.7 Effectiveness of Transfer ......................................... 26
15.8 Landlord's Right to Space ......................................... 26
15.9 No Net Profits Leases ............................................. 26
15.10 Permitted Assignment or Sublease .................................. 26
16. SUBORDINATION .............................................................. 27
16.1 Subordination ..................................................... 27
16.2 Junior Liens ...................................................... 27
16.3 Subordination Agreements .......................................... 27
16.4 Attornment ........................................................ 27
17. QUIET ENJOYMENT ............................................................ 28
18. DEFAULT; REME DIES ......................................................... 28
18.1 Default ........................................................... 28
18.2 Remedies .......................................................... 29
18.3 Late Charges ...................................................... 32
18.4 Interest .......................................................... 32
18.5 Default By Landlord ............................................... 32
19. PARKING .................................................................... 33
20. RELOCATION OF PREMISES ..................................................... 33
20.1 Conditions ........................................................ 33
20.2 Notice ............................................................ 33
</TABLE>
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<TABLE>
<S> <C> <C>
21. MORTGAGEE PROTECTION ....................................................... 34
22. ESTOPPEL CERTIFICATES ...................................................... 34
23. SURRENDER, HOLDING OVER .................................................... 35
23.1 Surrender ......................................................... 35
23.2 Holding Over ...................................................... 36
24. HAZARDOUS MATERIALS ........................................................ 36
25. MISCELLANEOUS .............................................................. 37
25.1 Attornment ........................................................ 37
25.2 Captions; Attachments; Defined Terms .............................. 37
25.3 Entire Agreement .................................................. 38
25.4 Severability ...................................................... 38
25.5 Costs Of Suit ..................................................... 38
25.6 Time; Joint And Several Liability ................................. 39
25.7 Binding Effect; Choice Of Law ..................................... 39
25.8 Waiver, ........................................................... 39
25.9 Force Majeure ..................................................... 40
25.10 Landlord's Liability .............................................. 40
25.11 Consents and Approvals ............................................ 40
25.12 Signs ............................................................. 41
25.13 Rules And Regulations ............................................. 41
25.14 Notices ........................................................... 42
25.15 Authority ......................................................... 42
25.16 Lease Guaranty .................................................... 43
25.17 Brokers ........................................................... 43
25.18 Reserved Rights ................................................... 43
25.19 Right of First Refusal ............................................ 43
25.20 Options to Extend ................................................. 44
25.21 Compliance with Laws, Rules and Regulations -- Landlord ........... 45
25.22 Arbitration ....................................................... 45
</TABLE>
EXHIBIT A - SITE AND FLOOR PLANS
EXHIBIT B - WORK LETTER
EXHIBIT C - SPACE PLAN
EXHIBIT D - RULES AND REGULATIONS
EXHIBIT E - JANITORIAL SPECIFICATIONS
EXHIBIT F - DOOR SIGN, DIRECTORY STRIP AND MAIL BOX REQUEST
EXHIBIT G - COMMENCEMENT OF LEASE
EXHIBIT H - LEASE GUARANTY
EXHIBIT I - ADJUSTMENTS TO AREA CALCULATIONS
<PAGE> 13
BISHOP RANCH BUSINESS PARK
BUILDING LEASE
This Lease is made and entered into this 15th day of November, 1995, by
and between ANNABEL INVESTMENT COMPANY, A CALIFORNIA PARTNERSHIP, (hereinafter
"Landlord") and KAO INFOSYSTEMS COMPANY (hereinafter "Tenant"). For and in
consideration of the rental and of the covenants and agreements hereinafter set
forth to be kept and performed by Tenant, Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord the premises herein described for the term,
at the rental and subject to and upon all of the terms, covenants and agreements
hereinafter set forth.
1. PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
the premises (the "Premises") crosshatched on Exhibit A, containing an estimated
55,535 rentable square feet, of which the "PHASE I PREMISES" contains 14,622
RENTABLE square feet, the "PHASE II PREMISES" contains 22,913 RENTABLE square
feet, and the "PHASE III PREMISES" contains an estimated 14,000 TO 18,000
RENTABLE square feet, hereinafter referred to as the PHASE I PREMISES, PHASE II
PREMISES, AND THE PHASE III PREMISES respectively. The PHASE I PREMISES, known
as SUITE 200, is located on the Second floor, the PHASE II PREMISES, known as
SUITE 210, is located on the Second floor, and the PHASE III PREMISES, known as
SUITE 325, is located on the Third floor of 2440 CAMINO RAMON, BUILDING N,
(including all tenant improvements thereto, the "Building"), located at San
Ramon, California 94583. The Building is part of a Complex containing the
Building and FOUR (4) other buildings (the "Complex"). The Complex, which
contains 535,150 rentable square feet, the land on which the Complex is situated
(the "Land"), the common areas of the Complex, any other improvements in the
Complex and the personal property used by Landlord in the operation of the
Complex (the "Personal Property") are herein collectively called the "Project."
Landlord shall pay the cost of "Suite Improvements" (as such term is defined in
the work letter attached hereto as Exhibit B, (the "Work Letter") to the
Premises up to a maximum amount equal to $20.00 per USABLE square foot of the
PHASE I, PHASE II AND PHASE III PREMISES, or $1,009,740.00 based upon 13,293
USABLE square feet for the PHASE I PREMISES, 20,830 USABLE square feet for the
PHASE II PREMISES, and 16,364 USABLE square feet for the PHASE III PREMISES
("LANDLORD'S ALLOWANCE"). Any costs in excess of this amount are to be paid by
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Tenant promptly as incurred. In the event the cost of Tenant's Suite
Improvements is less than Landlord's Allowance, 50% of the unused portion of
Landlord's Allowance shall be credited to Tenant in the form of free rent which
free rent shall be immediately credited in full to Tenant.
1.1 Measurement of Premises. Within five (5) days from Landlord's
receipt of Tenant's Pricing Plans as defined in Exhibit B attached hereto for
each PHASED PREMISES, Landlord will provide Tenant with its measurement of the
respective PHASE I, PHASE II AND PHASE III PREMISES, and Landlord and Tenant
hereby agree that the square footage and Suite Improvement Allowance as stated
in this Section 1, Base Rent as stated in Section 3, Adjustments to Base Rent in
Section 3.2, and Tenant's Share as stated in Paragraph 5.2, and any other
percentages referred to in this Lease will be proportionately adjusted to
reflect the final agreed upon square footage for each PHASE as evidenced by
Landlord and Tenant's execution of "EXHIBIT I-1, EXHIBIT I-2, AND EXHIBIT I-3"
attached hereto. In no event will the total PHASE I, II AND III PREMISES consist
of less than 50,000 RENTABLE square feet.
2. TERM
2.1 Term. The term of this Lease shall commence on the date (the
"Commencement Date") that Landlord delivers the PHASE I Premises to Tenant or is
deemed to have delivered the Premises to Tenant under the terms of the Work
Letter, and shall end FIVE (5) YEARS AND SIX (6) MONTHS thereafter (the
"Expiration Date"), unless sooner terminated pursuant to this Lease.
2.2 Delay In Commencement. The completion date ("Completion
Date") for the PHASE I PREMISES is scheduled to occur on DECEMBER 15, 1995 (the
"Scheduled Commencement Date"), the Completion Date for the PHASE II PREMISES
is scheduled to occur on MARCH 1, 1996, and the Completion Date for the PHASE
III PREMISES is scheduled to occur on JUNE 1, 1996. (With respect to any single
Phase, the scheduled Completion Date set forth above shall hereinafter be
referred to as the "Scheduled Completion Date.") If for any reason a Completion
Date does not occur by the Scheduled Completion Date, Landlord shall not be
liable for any damage thereby nor shall such inability affect the validity of
this Lease or the obligations of Tenant hereunder. If any Completion Date has
not occurred within ninety (90) days after any respective Scheduled Completion
Date, Tenant at its option, to be exercised by giving Landlord written notice
within thirty (30) days after the end of such ninety (90) day period, may
terminate this Lease and, upon Landlord's return of any monies previously
deposited by Tenant, the
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parties shall have no further rights or liabilities toward each other.
2.3 Acknowledgment Of Commencement Date. Upon determination of
the Commencement Date, Landlord and Tenant shall execute a written
acknowledgment of the Commencement Date and Expiration Date in the form attached
hereto as Exhibit G.
3. RENT
3.1 Base Rent. Tenant shall pay to Landlord monthly as base rent
("Base Rent") for the Premises in advance on the Commencement Date for the PHASE
I PREMISES and on the first day of each calendar month thereafter during the
term of this Lease without deduction, offset, prior notice or demand, in lawful
money of the United States of America, the sum of TWENTY-SIX THOUSAND EIGHT
HUNDRED SEVEN AND NO/100 DOLLARS ($26,807.00). If the Commencement Date is
not the first day of a month or if the Lease terminates on other than the last
day of a month, the Base Rent payable for such partial month shall be equal to
the number of days that the term was in effect during such partial month times
the "daily Base Rent," which shall be calculated by dividing the Base Rent then
in effect by thirty (30).
Concurrently with Tenant's execution of this Lease, Tenant shall
pay to Landlord the sum of TWENTY-SIX THOUSAND EIGHT HUNDRED SEVEN AND NO/100
DOLLARS ($26,807.00) to be applied against Base Rent when it becomes due.
3.2 Adjustments To Base Rent.
(a) Effective on the Completion Date for the PHASE II
PREMISES, as evidenced by the execution of Exhibit G II, but in no event, unless
caused by a Landlord Delay, later than APRIL 1, 1996, the Base Rent shall be
adjusted so that the Base Rent for the PHASE II PREMISES equals FORTY-TWO
THOUSAND SEVEN AND 17/100 DOLLARS ($42,007.17) per month and the total adjusted
monthly Base Rent Equals SIXTY-EIGHT THOUSAND EIGHT HUNDRED FOURTEEN AND 17/100
DOLLARS ($68,814.17).
(b) Effective on the Completion Date for the PHASE III
PREMISES, as evidenced by the execution of Exhibit G III, but in no event,
unless caused by a Landlord Delay, later than JULY 1, 1996, the Base Rent shall
be adjusted so that the Base Rent for the PHASE III PREMISES equals THIRTY-THREE
THOUSAND AND NO/100 DOLLARS ($33,000.00) per month and the total adjusted Base
Rent equals ONE HUNDRED ONE THOUSAND EIGHT HUNDRED FOURTEEN AND 17/100 DOLLARS
($101,814.17).
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3.3 Amounts Constituting Rent. All amounts payable or
reimbursable by Tenant under this Lease, including late charges and interest,
"Operating Cost Payments" (as defined in Paragraph 5), and amounts payable or
reimbursable under the Work Letter and the other Exhibits hereto, shall
constitute "Rent" and be payable and recoverable as such. Base Rent is due and
payable as provided in Paragraph 3.1 - "Base Rent", Operating Cost Payments are
due and payable as provided in Paragraph 5.3 - "Notice and Payment", and all
other Rent payable to Landlord on demand under the terms of this Lease, unless
otherwise set forth herein, shall be payable within thirty (30) days after
written notice from Landlord of the amounts due. All Rent shall be paid to
Landlord without deduction or offset in lawful money of the United States of
America at the address for notices or at such other place as Landlord may from
time to time designate in writing.
4. SECURITY DEPOSIT
(Intentionally Deleted)
5. TAX AND BUILDING OPERATING COST INCREASES
5.1 Definitions. For purposes of this paragraph, the following
terms are herein defined:
(a) Base Year: 1996.
(b) Operating Costs: Operating Costs shall include all
costs and expenses of ownership, operation, repair and maintenance of the
Project (excluding depreciation of the improvements in the Project, all amounts
paid on loans of Landlord and taxes on the income, gross receipts or revenue of
Landlord) computed in accordance with accounting principles adopted by Landlord
consistently applied, including by way of illustration but not limited to: real
property taxes, taxes assessed on the Personal Property, any other governmental
impositions imposed on or by reason of the ownership, operation or use of the
Project, and any tax in addition to or in lieu thereof, other than taxes covered
by Paragraph 5.4, whether assessed against Landlord or Tenant or collected by
Landlord or both; parts; equipment; supplies; insurance premiums; license,
permit and inspection fees; cost of services and materials (including property
management fees and costs); cost of compensation (including employment taxes
and fringe benefits) of all persons for duties directly connected with the
operation, maintenance and repair of the Project; costs of providing utilities
and services, including water, gas, electricity, sewage disposal, rubbish
removal, janitorial, gardening, security, parking, window washing, supplies and
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materials, and signing (but excluding services not uniformly available to
substantially all of the Project tenants); amortized costs of capital
improvements (i) required to cause the Project to comply with all laws,
statutes, ordinances, regulations, rules and requirements of any governmental or
public authority, including, without limitation, the Americans with Disabilities
Act of 1990 (the "ADA") (collectively, "Legal Requirements"), except for costs,
if any, of correcting any failure of the Project to comply, as of any respective
Completion Date, with any Legal Requirement AS enacted as of the respective
Completion Date, or (ii) which reduce Operating Costs by more than the increase
in costs caused by the capital improvement or expenditure, such costs, together
with interest on the unamortized balance at the rate of twelve percent (12%) per
annum, to be amortized over such reasonable periods as Landlord shall determine;
costs of maintenance and replacement of landscaping; legal, accounting and other
professional services (other than legal services) incurred solely and
necessarily in connection with the operation of the Project and the calculation
of Operating Costs; and rental expense or a reasonable allowance for
depreciation of personal property used in the maintenance, operation and repair
of the Project. If the Project is not fully occupied for any calendar year
during the term of this Lease, Operating Costs shall be adjusted to the amount
which would have been incurred if the Project had been fully occupied for the
year.
(c) Notwithstanding any other provision herein,
Operating Costs shall not include the following:
(1) Any ground lease or underlying lease rental;
(2) Capital improvements or capital expenditures
(except amortization of capital improvements required to comply with law or
which are intended to reduce Operating Costs by more than the increase in costs
caused by the capital improvement over such useful life as Landlord may
determine), equipment, replacements, alterations and repairs, except as
Landlord reasonably determines are attributable to services performed for the
Project;
(3) Repair of damage to the Project, to the
extent Landlord is reimbursed by insurance proceeds (net of any deductible
amounts or other exclusions), warranties or guaranties;
(4) Construction and installation of tenant
improvements, renovations, or decorating made for tenants or other occupants in
the Project or for vacant tenant suites within the Building, including, without
limitation, fees and costs for
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space planning, architectural drawings, construction, permits, licenses and
inspections;
(5) Negotiations and transactions with present
or prospective tenants or other occupants of the Project for leases, subleases,
assignments and other related transactions, including, without limitation,
attorneys' fees for such negotiations and transactions;
(6) Sums paid to Landlord or to subsidiaries or
affiliates of Landlord for goods and/or services in the Project to the extent
the same exceeds the costs of such goods and/or services which would be rendered
by unaffiliated third parties on a competitive basis;
(7) Interest, principal, points and fees on
debts or amortization on any mortgage or any other debt instrument encumbering
the Building;
(8) Landlord's general corporate overhead and
general and administrative expenses other than the management fee and reasonable
general and administrative expenses related to the Project;
(9) Rental payments incurred under leases for
capital equipment where such leases are for equipment which if purchased by
Landlord would not be chargeable to Tenant hereunder;
(10) All items and services for which Tenant or
any other tenant in the Project directly reimburses Landlord (other than through
tenant's share of Operating Expenses), or which Landlord provides selectively
to one or more tenants (other than Tenant) without reimbursement;
(11) Marketing costs, including leasing
commissions, advertising and promotional expenditures, and costs of signs in or
on the Project identifying the owner of the Project or other tenants' signs;
(12) Electric power costs for which any tenant
directly contracts with the local public service company;
(13) Services provided, taxes attributable to,
wages and other compensation paid, and other costs incurred in connection with
the operation of the retail, restaurant, and shuttle service operations in or
servicing the Project;
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(14) Upgrading the Project to comply with
handicap, life safety, fire and safety codes to the extent the same were in
effect and enforced prior to the respective Completion Dates;
(15) The cost to remove the presence of
hazardous materials or substances in or about the Project including, without
limitation, hazardous substances in the ground water or soil other than those
which Tenant is responsible to remove under Section 24;
(16) Landlord's charitable or political
contributions;
(17) Latent defects in the Base, Shell or Core
of the Project or improvements installed by Landlord;
(18) Sculpture, paintings or other objects of
art; and
(19) Legal fees and expenses incurred in
connection with the enforcement of any leases or defense of Landlord's title to
or interest in the Project;
(20) Costs associated with the financing of the
Project.
5.2 Tenant's Share. If Operating Costs during any calendar year
following the Base Year exceed the rentable square footage of the Building
multiplied by $7.11 (the "Expense Stop"), Tenant shall pay to Landlord "Tenant's
Share" multiplied by such excess ("Operating Cost Payments"). "Tenant's Share"
means 10.38% (assuming all Three Phases are completed in 1996), which is
calculated by dividing the rentable square footage of the Premises by the
rentable square footage of the COMPLEX, as such rentable square footages are set
forth in Paragraph 1, and multiplying such number by 100.
5.3 Notice and Payment. As soon as reasonably practical after the
end of each calendar year following the Base Year, Landlord shall furnish Tenant
a written statement showing in reasonable detail the Operating Costs for the
preceding calendar year, and the amount of any payment due from Tenant to
Landlord or from Landlord to Tenant, taking into account prior Operating Cost
Payments made by Tenant for such preceding calendar year. Tenant shall have one
hundred eighty (180) days after receipt of Landlord's statement to notify
Landlord of any objections it has to such statement, or of its intention to
review supporting
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documentation for such statement. If Tenant does not so notify Landlord, such
statement shall conclusively be deemed correct and Tenant shall have no right
thereafter to dispute or review support for such statement, any item therein, or
the computation of Operating Costs. If Tenant does so notify the Landlord within
the one hundred eighty (180) day period, Tenant shall have one (1) year from the
date of receipt of Landlord's statement to complete its review of the supporting
documentation and notify Landlord of all objections, if any, to such statement.
After this one (1) year period, it will be assumed that Landlord has been
notified of all objections by Tenant to Landlord's statement and that no further
review of supporting documentation is necessary. If there are no objections,
Tenant shall have no further rights thereafter to dispute such statement, any
item therein, or the computation of Operating Costs. Any notifications to
Landlord will be done in accordance with Paragraph 25.14.
Coincidentally with the monthly Base Rent next due following
Tenant's receipt of such statement, Tenant shall pay to Landlord (in the case of
an underpayment) or Landlord shall credit against the next Base Rent due from
Tenant (in the case of an overpayment) the difference between (i) Tenant's Share
of any excess of Operating Costs for the preceding calendar year over the
Expense Stop (the "Prior Year's Increase"), and (ii) the Operating Cost
Payments made by Tenant for such preceding calendar year. In addition, Tenant
shall pay to Landlord coincidentally with such next due Base Rent an amount
equal to (A) one-twelfth (1/12) of the Prior Year's Increase, if any, multiplied
by (B) the number of months or partial months (including the then current month)
then elapsed in the current calendar year, less (C) the aggregate of any
Operating Cost Payments made by Tenant for such current calendar year. Monthly
thereafter until adjustment is made the following year pursuant to this
paragraph, Tenant shall pay together with the monthly Base Rent one-twelfth
(1/12) of any such Prior Year's Increase. In no event will Tenant be entitled to
receive the benefit of a reduction in Operating Costs below the Expense Stop.
For any partial calendar year at the termination of this Lease,
Tenant's Share of any increases in Operating Costs for such year over the
Expense Stop shall be prorated on the basis of a 365-day year by computing
Tenant's Share of the increases in Operating Costs for the entire year and then
prorating such amount for the number of days this Lease was in effect during
such year. Notwithstanding the termination of this Lease, and within ten (10)
days after Tenant's receipt of Landlord's statement regarding the determination
of increases in Operating Costs for the calendar year in which this Lease
terminates, Tenant shall pay to Landlord or Landlord shall pay to Tenant, as the
case may be, an amount equal
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to the difference between Tenant's Share of the increases in operating Costs for
such year (as prorated) and the amount previously paid by Tenant toward such
increases.
5.4 Tenant's Right to Audit. In the event of any dispute or
uncertainty as to the amount of Operating Costs and Tenant's Share thereof,
Tenant may require clarification as to any disputed amount, including without
limitation, receiving and reviewing legible copies of all of Landlord's invoices
and paid receipts, with respect to the disputed items, and pursuing an audit as
hereinafter specified, provided Tenant notifies Landlord in writing within one
hundred eighty (180) days of its receipt of Landlord's statement that Tenant
elects to inspect and/or audit such records pursuant to this Paragraph. If
Landlord and Tenant are unable to agree as to any disputed item, Tenant may, at
its sole cost and expense, audit on its own Landlord's records related to the
disputed items, which audit shall be conducted by an independent Big 6
accounting firm selected by Tenant and approved by Landlord, whose approval
shall not be unreasonably withheld, and scheduled promptly at the reasonable
convenience of both Landlord and Tenant with such audit to take place in
Landlord's offices and be completed no later than twelve (12) months from
Tenant's receipt of Landlord's statement. If the results of such audit indicate
that the aggregate cost of the disputed items is incorrect, then the Landlord
shall refund the discrepancy. If the amount of the discrepancy is more than five
percent (5%) of the Total Operating Costs Landlord shall pay the costs of the
audit not to exceed $7,500.00.
5.5 Additional Taxes. Tenant shall reimburse to Landlord, within
thirty (30) days after receipt of a demand therefor, Tenant's Share of any and
all taxes payable by Landlord (other than net income taxes or any taxes included
within Operating Costs), whether or not now customary or within the
contemplation of the parties hereto (i) upon, allocable to or measured by the
area of the Building, (ii) upon all or any portion of the Rent payable hereunder
and under other leases of space in the Building, including any gross receipts
tax or excise tax levied with respect to the receipt of such Rent, or (iii) upon
or with respect to the possession, leasing, operation, management, maintenance,
alteration, repair, use or occupancy of the Building or any portion thereof.
Tenant shall not be required to reimburse Landlord for taxes under this
Paragraph 5.4 to the extent Tenant has paid Tenant's Share of such taxes through
Operating Cost Payments under Paragraph 5.2.
5.6 Tenant's Taxes. Tenant shall pay before delinquency (whether
levied on Landlord or Tenant), any and all
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taxes assessed upon or measured by (i) Tenant's equipment, furniture, fixtures
and other personal property located in the Premises, (ii) any improvements or
alterations made to the Premises prior to or during the term of this Lease paid
for by Tenant ("Above-Standard Improvements"), or (iii) this transaction or any
document to which Tenant is a party creating or transferring an interest or an
estate in the Premises. For the purpose of determining said amounts, figures
supplied by the County Assessor as to the amount so assessed shall be
conclusive. Tenant shall comply with the provisions of any law, ordinance or
rule of the taxing authorities which require Tenant to file a report of Tenant's
property located in the Premises.
6. USE
6.1 Use. The Premises shall be used and occupied by Tenant for
general office purposes and for no other purpose without the prior written
consent of Landlord.
6.2 Suitability. Tenant acknowledges that neither Landlord nor
any agent of Landlord has made any representation or warranty with respect to
the Premises or the Building or with respect to the suitability of either for
the conduct of Tenant's business, nor has Landlord agreed to undertake any
modification, alteration or improvement to the Premises except as provided in
the Work Letter. The taking of possession of the Premises by Tenant shall
conclusively establish that the Premises and the Building were at such time in
satisfactory condition except for latent defects unless within thirty (30) days
after such date Tenant shall give Landlord written notice specifying in
reasonable detail the respects in which the Premises or the Building were not in
satisfactory condition.
6.3 Uses Prohibited.
(a) Tenant shall not do nor permit anything to be done
in or about the Premises nor bring or keep anything therein which will in any
way increase the existing rate or affect any fire or other insurance upon the
Building or any of its contents, or cause a cancellation of any insurance policy
covering said Building or any part thereof or any of its contents, nor shall
Tenant sell or permit to be kept, used or sold in or about said Premises any
articles which may be prohibited by a standard form policy of fire insurance. In
the event Tenant is in violation of this Section 6.3(a), Landlord agrees to
notify Tenant.
(b) Tenant shall not do or permit anything to be done in
or about the Premises which will in any way obstruct or
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interfere with the rights of other tenants or occupants of the Building, or
injure them, or use or allow the Premises to be used for any unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in or about the Premises. Tenant shall not commit or suffer to be committed any
waste in or upon the Premises. Tenant shall not bring onto the Premises any
apparatus, equipment or supplies that may overload the Premises or the Building
or any utility or elevator systems or jeopardize the structural integrity of the
Building or any part thereof.
(c) Tenant shall not use the Premises or permit anything
to be done in or about the Premises which will in any way conflict with, and at
its sole cost and expense shall promptly comply with, any Legal Requirement now
in force or which may hereafter be enacted or promulgated relating to the
condition, use or occupancy of the Premises, excluding structural changes not
relating to or affecting the condition, use or occupancy of the Premises or
Tenant's improvements or acts. The judgment of any court of competent
jurisdiction or the admission of Tenant in any action against Tenant, whether
Landlord be a party thereto or not, that Tenant has violated any Legal
Requirement, shall be conclusive of the fact as between Landlord and Tenant.
7. SERVICE AND UTILITIES
7.1 Landlord's Obligations. Provided Tenant is not in default
hereunder, Landlord shall furnish to the Premises during reasonable hours of
generally recognized business days, to be determined by Landlord, and subject to
the rules and regulations of the Building, water, gas and electricity suitable
for the intended use of the Premises, heat and air conditioning required in
Landlord's judgment for the comfortable use and occupancy of the Premises,
scavenger, janitorial services as described in Exhibit E attached hereto,
window washing service and elevator service customary in similar buildings in
the competing geographical areas. Landlord shall also maintain and keep lighted
the common lobbies, hallways, stairs and toilet rooms in the Building.
Landlord's current hours of operation in Bishop Ranch (hereinafter "Hours of
Operation") are 7 a.m. to 7 p.m., Monday through Friday, excepting holidays (New
Year's Day, President's Day, Memorial Day, July 4th, Labor Day, Thanksgiving,
and Christmas Day). The building is available to the Tenant 24 hours a day,
seven (7) days a week, 365 days a year.
7.2 Tenant's Obligation. Tenant shall pay for, prior to
delinquency, all telephone and all other materials and services, not expressly
required to be paid by Landlord, which may
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be furnished to or used in, on or about the Premises during the term of this
Lease.
7.3 Tenant's Additional Requirements
(a) Landlord shall provide heat and air conditioning to
the Premises with temperatures in a comfort range consistent with first class
office space. Tenant shall pay for heat and air-conditioning furnished at
Tenant's request during nonbusiness hours and/or on non-business days on an
hourly basis at a reasonable rate established by Landlord which shall not exceed
Landlord's approximate costs thereof. Tenant shall not use in excess of the
amounts contemplated by the Pricing Plans of electricity, water or any other
utility without Landlord's prior written consent, which consent Landlord shall
not unreasonably withhold or delay. Landlord may cause a water meter or electric
current meter to be installed in the Premises so as to measure the amount of
water and electric current consumed for any such excess use if Tenant uses more
than the standard amount used (on a per square foot basis) for office space in
the Project. The cost of such meters and of installation, maintenance and repair
thereof shall be paid by Tenant and Tenant agrees to pay Landlord promptly upon
demand by Landlord for all water and electric current consumed in excess of the
standard amounts used for office space in the Project (on a square foot basis)
as shown by said meters, at the rates charged for such services by the city in
which the Building is located or by the local public utility furnishing the
same, plus any additional expense in reasonable amounts incurred in keeping
account of the water and electric current so consumed. If a separate electrical
meter is prohibited by law to measure any such excess use, Landlord shall have
the right to estimate the amount of such electrical use through a qualified
electrical engineer approved by Tenant which approval shall not be unreasonably
withheld. In addition, Landlord may impose a reasonable charge for the use of
any additional or unusual janitorial services required by Tenant because of any
Above Standard Suite Improvements as defined in Exhibit B hereto, carelessness
of Tenant or the nature of Tenant's business or hours of operations in excess of
the Hours of Operation.
(b) If any lights other than Building Standard Materials
or equipment are used in the Premises which materially and adversely affect the
temperature otherwise maintained by the air conditioning system, Landlord, after
giving Tenant advance written notice and twenty (20) days to cure such
condition, may install supplementary air conditioning units in the Premises and
the cost thereof, including the cost of installation, operation and
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maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord.
(c) In no event shall Tenant (i) connect any apparatus,
machine or device through electrical outlets except in the manner for which such
outlets are designed and without the use of any device intended to increase the
plug capacity of any electrical outlet or (ii) maintain at any time an
electrical demand load in excess of four (4) watts per square foot of usable
area of the Premises unless Tenant pays for such excess.
7.4 Nonliability. (Intentionally Deleted)
7.5 Interruption of Services. In the event of an interruption in
or failure or inability to provide any services or utilities including, without
limitation, water, electricity, heating, ventilating, air-conditioning and
elevator service, to the Premises or the Building for any reason (a "Service
Failure"), such Service Failure shall not, regardless of its duration,
constitute an eviction of Tenant, constructive or otherwise, or impose upon
Landlord any liability whatsoever, including, but not limited to, liability for
consequential damages or loss of business by Tenant or, except as provided
below, entitle Tenant to an abatement of Rent or to terminate this Lease.
(a) If any Service Failure not caused by Tenant or its
Representatives or Visitors prevents Tenant from reasonably using a material
portion of the Premises and Tenant in fact ceases to use such portion of the
Premises, Tenant shall be entitled to an abatement of Base Rent and Operating
Cost payments with respect to the portion of the Premises that Tenant is
prevented from using by reason of such Service Failure in the following
circumstances: (i) if Landlord fails to commence reasonable efforts to remedy
the Service Failure within five (5) Business Days following the occurrence to
the Service Failure or fails thereafter to pursue diligently reasonable action
to remedy the Service Failure, the abatement of Rent shall commence on the tenth
(10th) Business Day following the Service Failure and continue for the balance
of the period during which Tenant is so prevented from using such portion of the
Premises; and (ii) if the Service Failure in all events is not remedied within
fifteen (15) business days following the occurrence of the Service Failure and
Tenant in fact does not use such portion of the Premises for an uninterrupted
period of fifteen (15) days or more by reason of such Service Failure, the
abatement of Rent shall commence no later than the sixteenth (16th) day
following the occurrence of the Service Failure and continue for the balance of
the period during which Tenant is so prevented from using such portion of the
Premises.
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(b) If a Service Failure is caused by Tenant or Tenant's
employees, agents, contractors, visitors or customers ("Tenant's
Representatives") Landlord shall nonetheless remedy the Service Failure, at the
expense of Tenant, pursuant to Landlord's maintenance and repair obligations
under Paragraph 8.1-Landlord's Maintenance and Repair Obligations, as the case
may be, but Tenant shall not be entitled to an abatement of Rent or to terminate
this Lease as a result of any such Service Failure.
(c) Any claim by Tenant for Rent abatement under this
Paragraph 7.5 shall be subject to and resolved in accordance with Subparagraph
8.1(c).
(d) Where the cause of a Service Failure is within the
control of a public utility or other public or quasi-public entity outside
Landlord's control, notification to such utility or entity of the Service
Failure and request to remedy the failure, shall constitute "reasonable efforts"
by Landlord to remedy the Service Failure. Nothing contained herein shall
prevent Tenant from contacting any such public utility or other public or
quasipublic entity to request that such entity remedy a Service Failure.
8. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS
8.1 Maintenance And Repairs
(a) Landlord's Obligations. Landlord shall maintain in
good order, condition and repair the structural and common areas of the
Building, and the basic heating, ventilating, air conditioning, electrical,
plumbing, fire protection, life safety, security and mechanical systems of the
Building (the "Building Systems"), and, to the extent required by law the
telephone cabling and wiring in and to the Premises, and shall cause the common
areas of the Building to comply with all Legal Requirements (including, without
limitation, the ADA), provided that any maintenance and repair caused by the
acts or omissions of Tenant or Tenant's agents, employees, invitees, visitors
(collectively "Tenant's Representatives") shall be paid for by Tenant.
Notwithstanding any law to the contrary that may now or hereafter exist, Tenant
shall not have the right to make repairs at Landlord's expense or to terminate
this Lease because of Landlord's failure to keep the foregoing in good order,
condition and repair, nor shall Landlord be liable under any circumstances for
any consequential damages or loss of business, however occurring, through or in
connection with any such failure. Notwithstanding the provisions of this
Section, in the event Landlord fails or neglects to commence and make the
repairs to the Building which
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Landlord is required to make in accordance with the terms of this Lease within
thirty (30) days after receipt of written notice from Tenant of a necessity
thereof, or within 48 hours in the event of any emergency or a safety hazard to
Tenant's employees or invitees, and appropriate notice from Tenant, then Tenant
may, but shall not be obligated to make such repairs and Landlord shall
reimburse Tenant for such reasonable amounts that Tenant has paid for said
repairs. Notwithstanding Tenant's entitlement to said reimbursement, if Landlord
and Tenant cannot agree on the amount of reimbursement within ten (10) days from
the date Tenant submits its billing to Landlord, then the dispute shall be
resolved in accordance with Subparagraph 8.1(c).
(b) Tenant's Obligations
(1) Tenant, at Tenant's sole cost and expense,
except for services furnished by Landlord pursuant to Section 7 hereof, shall
maintain the Premises in good order, condition and repair, ordinary wear and
tear excepted, including the interior surfaces of the ceilings, walls and
floors, all doors, interior windows, and all plumbing pipes, electrical wiring,
switches, fixtures, nonbuilding standard lights, and equipment installed for the
use of the Premises, and shall cause the Premises to comply with all Legal
Requirements (including, without limitation, the ADA).
(2) In the event Tenant fails to maintain the
Premises in good order, condition and repair, Landlord shall give Tenant notice
to do such acts as are reasonably required to so maintain the Premises. In the
event Tenant fails to promptly commence such work and diligently prosecute it to
completion within thirty (30) days after such notice, Landlord shall have the
right to do such acts and expend such funds at the expense of Tenant as are
reasonably required to perform such work. Any amount so expended by Landlord
shall be paid by Tenant promptly after demand with interest from the date
expended by Landlord until paid by Tenant at the "Default Rate," as defined
below. Except for Landlord's willful misconduct or negligence, landlord shall
have no liability to Tenant for any damage, inconvenience or interference with
the use of the Premises by Tenant as a result of performing any such work. As
used in this Lease, "Default Rate" shall mean the Prime Rate charged by the Bank
of America or its successor plus two percent (2%).
(c) Tenant Remedies. In the event Tenant claims it is
entitled to an abatement of Rent under Paragraph 7.5 or 8.1(a) of this Lease or
any payment by Landlord as a result of Landlord's failure to perform its
obligations under Paragraph 7.5,
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8.1(a), or any other provision of this Lease, Tenant shall so notify Landlord
and Mortgagee when Tenant is required to give notice under Section 21 in writing
and if such claim for abatement or payment is based upon a claim that Landlord
has failed to perform its obligations, then Landlord shall have thirty (30) days
after receipt of such notice from Tenant to cure such failure and the Mortgagee
shall have an additional twenty (20) days to cure such failure. If Landlord or
the Mortgagee does not cure such failure within such thirty (30) day period, or
if Tenant's claim for abatement or payment is not based upon a breach by
Landlord, either Landlord or Tenant may submit Tenant's claim to arbitration
under the provisions of Paragraph 25.22. The arbitrator in such arbitration
shall determine whether Tenant is entitled to any abatement of Rent or payment
from Landlord under the above-referenced provisions of this Lease, and, if so,
the amount of such abatement or payment, which in the case of a Rent abatement
shall be based upon the extent to which the event that subjects Rent to
abatement materially impairs Tenant's ability to carry on its business at the
Premises. During the pendency of any such dispute and prior to the rendering of
an award by the arbitrator, Tenant shall continue to pay the full Rent and all
other sums specified in this Lease, and Tenant shall have no right to withhold
or offset Rent until the parties have reached agreement or such arbitration is
resolved. If the arbitration results in an award against the Landlord, and
Landlord fails to pay the arbitration award within ten (10) Business Days
thereafter, then Tenant may offset the sums owed by Landlord against the Rent
payable under this Lease. If by agreement of the parties or by arbitration it is
determined that Landlord owes any sums to Tenant, such amount shall be paid by
Landlord to Tenant within ten (10) Business Days following such determination.
(d) Compliance With Law. Landlord and Tenant shall each
do all acts required to comply with all applicable Legal Requirements relating
to their respective maintenance and repair obligations as set forth herein.
8.2 Alterations And Additions
(a) Tenant shall make no alterations, additions or
improvements to the Premises or any part thereof without obtaining the prior
written consent of Landlord.
(b) Landlord may impose as a condition to the aforesaid
consent such requirements as Landlord may deem necessary in its sole discretion,
including without limitation thereto, performing the work itself, (provided that
Landlord charges the market rate for such work), specifying the manner in which
the work
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is done, and selecting the contractor by whom the work is to be performed and
the times during which it is to be accomplished, provided such contractor
charges the market rate for such work. Tenant shall pay to Landlord upon demand
an amount equal to the reasonable costs and expenses actually and reasonably
incurred for time spent by Landlord's employees or contractors in supervising,
approving and administering such alterations.
(c) All such alterations, additions or improvements, all
other Above-Standard Improvements, and all work performed under the Work Letter
shall be the property of Landlord and shall remain upon and be surrendered with
the Premises, unless pursuant to an agreement between the parties at the time
such Above-Standard Improvements are installed Landlord requests in writing that
Tenant remove all or any part of same.
(d) All articles of personal property and all business
and trade fixtures, machinery and equipment, cabinetwork, furniture and movable
partitions owned by Tenant or installed by Tenant at its expense in the Premises
shall be and remain the property of Tenant and may be removed by Tenant at any
time during the Lease term when Tenant is not in default hereunder.
9. ENTRY BY LANDLORD
Landlord and Landlord's agents shall upon reasonable notice and
consistent with Tenant's security requirements (except in the case of emergency)
have the right to enter the Premises to inspect the same, to supply janitorial
service and any other service to be provided by Landlord to Tenant hereunder, to
show the Premises to prospective purchasers or during the last twelve (12)
months of the Lease Term or extended Term to prospective tenants, to post
notices of non-responsibility, and to alter, improve or repair the Premises and
any portion of the Building, and may for that purpose erect scaffolding and
other necessary structures where reasonably required by the character of the
work to be performed, always providing the entrance to the Premises shall not be
blocked thereby. Landlord shall conduct its activities under this Section 9 in a
manner that will minimize inconvenience to Tenant and without incurring
additional Tenant expense to Landlord. For each of the aforesaid purposes,
Landlord shall at all times have and retain a key with which to unlock all of
the doors in, upon and about the Premises, excluding Tenant's vaults and safes,
and Landlord and Landlords' agents shall have the right to use any and all means
which Landlord may deem proper to open said doors in an emergency, in order to
obtain entry to the Premises, and any entry to the Premises obtained by Landlord
or Landlords' agents by any of said means, or otherwise, shall not under any
circumstances be
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construed or deemed to be a forcible or unlawful entry into, or a detainer of,
the Premises, or an eviction of Tenant from the Premises or any portion thereof.
Tenant shall not be released from its obligations under this Lease nor be
entitled to any abatement of Rent on account of Landlord's entry under this
Section, and except for Landlord's negligence or willful misconduct Tenant
hereby waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises.
10. LIENS
Tenant shall keep the Premises and the Building free from any
liens arising out of work performed, materials furnished, or obligations
incurred by Tenant and shall indemnify, hold harmless and defend Landlord from
any liens and encumbrances arising out of any work performed, materials
furnished or obligations incurred by or at the direction of Tenant. In the event
that Tenant shall not, within twenty (20) days following the imposition of any
such lien, cause such lien to be released of record by payment or posting of a
proper bond, Landlord shall have, in addition to all other remedies provided
herein and by law, the right, but no obligation, to cause the same to be
released by such means as it shall deem proper, including payment of the claim
giving rise to such lien. All such sums paid by Landlord and all expenses
incurred by it in connection therewith, including attorneys, fees and costs,
shall be payable to Landlord by Tenant on demand with interest at the Default
Rate until paid. Landlord shall have the right at all times to post and keep
posted on the Premises any notices permitted or required by law, or which
Landlord shall deem proper, for the protection of Landlord and the Premises, and
any other party having an interest therein, from mechanics' and materialmen's
liens, and Tenant shall give to Landlord at least three (3) business days prior
written notice of the expected date of commencement of any work relating to
alterations or additions to the Premises.
11. INDEMNITY
11.1 Cross-Indemnification.
(a) Except to the extent caused by the negligence or
willful misconduct of the party to be indemnified and held harmless, Tenant
agrees to indemnify and defend Landlord and each of its constituent partners or
members and the officers, directors, shareholders, employees, agents and
representatives thereof, or any of them, and the successors and assigns of such
parties, against and hold them harmless from any and all claims,
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actions, losses, costs, liabilities, damages and expenses, including, without
limitation, reasonable attorneys' fees, to the extent resulting from (i) any
default by Tenant in the observance or performance of any of the terms,
covenants and conditions of this Lease on Tenant's part to be observed or
performed, (ii) any act, omission, liability or negligence of Tenant or of the
contractors, agents, employees, visitors or invitees of Tenant on the Premises,
or (iii) any other occurrence or happening on the Premises.
(b) Subject to Paragraph 11.2, except to the extent
caused by the negligence or willful misconduct of Tenant or the contractors,
agents, servants or employees, or visitors of Tenant, Landlord agrees to
indemnify and defend Tenant and hold harmless Tenant, its parents, subsidiaries
and sister companies and the officers, directors, employees, agents and
representatives of each of them from any and all claims, actions, losses, costs,
liabilities, damages and expenses, including, without limitation, reasonable
attorneys' fees, to the extent resulting from (i) any act, omission, liability
or negligence of Landlord or of the contractors, agents, servants or employees
of Landlord, (ii) any other occurrence or happening in any portion of the
Building, other than the Premises, or (iii) any breech by Landlord of any
representation, warranty or covenant contained in the Lease.
11.2 Exemption of Landlord From Liability. Landlord shall not be
liable for injury or damage which may be sustained by the person or property of
Tenant, its employees, invitees or customers, or any other person in or about
the Premises caused by or resulting from fire, steam, electricity, gas, water or
rain, which may leak or flow from or into any part of the Premises, or from the
breakage, leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, telephone cabling or wiring, or lighting
fixtures of the same, whether the damage or injury results from conditions
arising upon the Premises or upon other portions of the Building of which the
Premises are a part, or from other sources. Except to the extent caused by
Landlord's negligence or willful misconduct, Landlord shall not be liable for
any damages arising from any act or neglect of any other tenant of the Building.
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12. INSURANCE
12.1 Coverage. Tenant shall, at all times during the term of this
Lease, and at its own cost and expense, procure and continue in force the
following insurance coverage:
(a) Commercial General Liability Insurance with a
combined single limit for personal or bodily injury and property damage of not
less than $3,000,000 or such other level of coverage that Landlord may require
in its reasonable judgment.
(b) Fire and Extended Coverage Insurance, including
vandalism and malicious mischief coverage, covering and in an amount equal to
the full replacement value of all fixtures, furniture and improvements installed
in the Premises by or at the expense of Tenant.
12.2 Insurance Policies. The aforementioned minimum limits of
policies shall in no event limit the liability of Tenant hereunder. The
aforesaid insurance shall name Landlord and its partners, property manager, and
mortgagees as an additional insured. said insurance shall be with companies
having a rating of not less than A+, XI in "Best's Insurance Guide". Tenant
shall furnish from the insurance companies or cause the insurance companies to
furnish certificates of coverage. No such policy shall be cancelable or subject
to reduction of coverage or other modification or cancellation except after ten
(10) days prior written notice to Landlord by the insurer. All such policies
shall be written as primary policies, not contributing with and not in excess of
the coverage which Landlord may carry. Tenant shall, at least twenty (20) days
prior to the expiration of such policies, furnish Landlord with evidence of
renewals or binders. Tenant agrees that if Tenant does not take out and maintain
such insurance, Landlord may (but shall not be required to) procure said
insurance on Tenant's behalf and charge Tenant the premiums together with a
reasonable handling charge and Default Interest from the date paid by Landlord,
payable upon demand. Tenant shall have the right to provide such insurance
coverage pursuant to blanket policies obtained by Tenant, provided such blanket
policies expressly afford coverage to the Premises and to Tenant as required by
this Lease.
12.3 Landlord's Insurance. During the term of this Lease Landlord
shall maintain in effect insurance on the Building against fire, extended
coverage perils and vandalism and malicious mischief (to the extent such
coverages are available), with responsible insurers licensed to do business in
California, insuring the Building in an amount equal to at least ninety-five
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percent (95%) of the replacement cost thereof, excluding foundations, footings
and underground installations. Upon Tenant's written request Landlord shall
provide Tenant with certificates of insurance evidencing such coverage. Landlord
may, but shall not be obligated to, carry insurance against additional perils
and/or in greater amounts. Said insurance shall be with companies having a
rating of not less than A+, XI in "Best's Insurance Guide".
12.4 Waiver of Subrogation. To the extent permitted by their
respective policies of insurance, Landlord and Tenant each hereby waive any
right of recovery against the other and the authorized representatives of the
other for any loss or damage that is covered by any policy of insurance
maintained by either party with respect to the Premises or the Project or any
operation therein. If any policy of insurance relating to this Lease, the
Premises or the Project does not permit the foregoing waiver or if the coverage
under any such policy would be invalidated as a result of such waiver, the party
maintaining such policy shall, use reasonable efforts to obtain from the insurer
under such policy a waiver of all right of recovery by way of subrogation
against either party in connection with any claim, loss or damage covered by
such policy.
13. DAMAGE OR DESTRUCTION.
13.1 Landlord's Duty to Repair. If all or a substantial part of
the Premises are rendered untenantable or inaccessible by damage to all or any
part of the Project from fire or other casualty then, unless either party elects
to terminate this Lease pursuant to Paragraphs 13.2 or 13.3, Landlord shall, at
its expense, use its best efforts to repair and restore the Premises and/or
access thereto, as the case may be, to substantially their former condition to
the extent permitted by the then applicable codes, laws and regulations;
provided, however, that Tenant rather than Landlord shall be obligated at
Tenant's expense to repair or replace Tenant's personal property, trade fixtures
and any items or improvements that are required to be covered by Tenant's
insurance under Paragraph 12.1(b).
If Landlord is required or elects to repair damage to the
Premises and/or access thereto, this Lease shall continue in effect but Tenant's
Base Rent and Operating Cost Payments from the date of the casualty through the
date of substantial completion of the repair shall be abated by a proportionate
amount based on the portion of the Premises that Tenant is prevented from using
by reason of such damage or its repair; provided, however, that if the casualty
is the result of the willful misconduct or negligence of Tenant or Tenant's
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Representatives, there will be no such rental abatement. In no event shall
Landlord be liable to Tenant by reason of any injury to or interference with
Tenant's business or property arising from fire or other casualty or by reason
of any repairs to any part of the Project made necessary by such casualty.
13.2 Landlord's Right to Terminate. Landlord may elect to terminate
this Lease, effective as of the last day of the calendar month in which such
election is made, under the following circumstances:
(a) Where, in the reasonable judgment of Landlord, the damage
cannot be substantially repaired and restored under applicable laws and
governmental regulations within nine (9) months after the date of the casualty;
(b) Where, in the reasonable judgment of Landlord, adequate
proceeds are not, for any reason, made available to Landlord from Landlord's
insurance policies to make the required repairs;
(c) Where the Project is damaged or destroyed to the extent
that the cost to repair and restore the Project exceeds twenty-five percent
(25%) of the full replacement cost of the Project, whether or not the Premises
are damaged or destroyed; or
(d) Where the damage occurs within the last twelve (12)
months of the term of the Lease.
If any of the circumstances described in this
Paragraph 13.2 arise, Landlord must notify Tenant in writing of that fact within
sixty (60) days after such circumstances arise and in such notice Landlord must
also advise Tenant whether Landlord has elected to terminate the Lease.
13.3 Tenant's Right to Terminate. Tenant shall have the right to
terminate this Lease if all or any material part of the Premises are rendered
untenantable or inaccessible by damage to all or any part of the Project from
fire or other casualty, provided that such casualty is not the result of the
willful misconduct or negligence of Tenant or Tenant's representatives, but
only under the following circumstances:
(a) Tenant may elect to terminate this Lease if Landlord had the
right under Paragraph 13.2 to terminate this Lease but did not elect to so
terminate and Landlord failed to commence the required repair within sixty (60)
days after the date
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it received proceeds to commence such repair. In such event, Tenant may
terminate this Lease as of the date of the casualty by notice to Landlord given
before the earlier of the date on which Landlord commences such repair or ten
(10) days after the expiration of such sixty (60)-day period; or
(b) Tenant may elect to terminate this Lease in the
circumstance described in Subparagraph 13.2 (a). In such event, Tenant may
terminate this Lease as of the date of the casualty by notice to Landlord given
within thirty (30) days after Landlord's notice to Tenant pursuant to Paragraph
13.2; or
(c) Tenant may elect to terminate this Lease if the Premises
remain untenantable or inaccessible nine (9) months after the date any material
part of the Premises are rendered untenantable or inaccessible.
13.4 Exclusive Rights. Landlord and Tenant each hereby agree that,
notwithstanding any law to the contrary that may now or hereafter exist, neither
party shall have any right to terminate this Lease in the event of any damage or
destruction under any circumstances other than as provided in Paragraphs 13.2
and 13.3.
14. CONDEMNATION
If all or a material portion of the Premises shall be taken or
appropriated for public or quasi-public use by right of eminent domain with or
without litigation or transferred by agreement in connection with such public or
quasi-public use, either party hereto shall have the right at its option,
exercisable within thirty (30) days of receipt of notice of such taking, to
terminate this Lease as of the date possession is taken by the condemning
authority, provided, however, that before Tenant may terminate this Lease by
reason of taking or appropriation as provided hereinabove, such taking or
appropriation shall be of such an extent and nature as to materially handicap,
impede or impair Tenant's use of the Premises. If any part of the Building other
than the Premises shall be so taken or appropriated, Landlord shall have the
right at its option to terminate this Lease. No award for any partial or entire
taking shall be apportioned, and Tenant hereby assigns to Landlord any award
which may be made in such taking or condemnation, together with any and all
rights of Tenant now or hereafter arising in or to the same or any part thereof;
provided, however, that nothing contained herein shall be deemed to give
Landlord any interest in or to require Tenant to assign to Landlord any award
made to Tenant for the taking of personal property and fixtures belonging to
Tenant and/or for Tenant's
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unamortized cost of leasehold improvements, so long as such award to Tenant does
not decrease the value of the award that would otherwise be made to Landlord in
such taking or condemnation. In the event of a partial taking which does not
result in a termination of this Lease, rent shall be abated in the proportion
which the part of Premises so made unusable bears to the rented area of the
Premises immediately prior to the taking, and Landlord, at Landlord's cost,
shall restore the Premises remaining to an architectural whole with the Base
Rent reduced in proportion to what the area taken bears to the Premises prior to
the taking. No temporary taking of the Premises and/or of Tenant's rights
therein or under this Lease shall give Tenant the right to terminate this Lease
or to any abatement of Rent thereunder. Any award made to Tenant by reason of
any such temporary taking where Landlord does not terminate this Lease shall
belong entirely to Tenant so long as said award does not diminish Landlord's
award.
15. ASSIGNMENT AND SUBLETTING
15.1 Landlord's Consent Required. Tenant shall not assign,
transfer, mortgage, pledge, hypothecate or encumber this Lease or any interest
therein (each a "Transfer") , and shall not sublet the Premises or any part
thereof, without the prior written consent which shall not be unreasonably
withheld of Landlord and any attempt to do so without such consent being first
had and obtained shall be wholly void and shall constitute a breach of this
Lease.
15.2 Reasonable Consent.
(a) If Tenant complies with the following conditions,
Landlord shall not unreasonably withhold its consent to the subletting of the
Premises or any portion thereof or the assignment of this Lease. Tenant shall
submit in writing to Landlord (i) the name and legal composition of the proposed
subtenant or assignee; (ii) the nature of the business proposed to be carried on
in the Premises; (iii) the terms and provisions of the proposed sublease; (iv)
such reasonable financial information as Landlord may request concerning the
proposed subtenant or assignee; and (v) the form of the proposed sublease or
assignment. Within ten (10) business days after Landlord receives all such
information it shall notify Tenant whether it approves such assignment or
subletting or if it elects to proceed under Paragraph 15.8 below.
(b) The parties hereto agree and acknowledge that, among
other circumstances for which Landlord could reasonably withhold its consent to
a sublease or assignment, it shall be
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reasonable for Landlord to withhold its consent where (i) Landlord reasonably
disapproves of the assignee or subtenant (each a "Transferee") Transferee's
reputation or creditworthiness or the character of the business to be conducted
by the Transferee at the Premises, (ii) the assignment or subletting would
increase the burden on the Building services or the number of people occupying
the Premises, or (iii) Landlord otherwise reasonably determines that the
assignment or sublease would have the effect of materially decreasing the value
of the Project or increasing the expenses associated with operating the Project.
In no event may Tenant publicly advertise all or any portion of the Premises for
assignment or sublease at a rental less than that then sought by Landlord for
comparable space in the Project.
15.3 Excess Consideration. If Landlord consents to the assignment
or sublease, Landlord shall be entitled to receive as additional Rent hereunder
50% of any consideration paid by the Transferee for the assignment or sublease
and, in the case of a sublease, 50% of the excess of the rent and other
consideration payable by the subtenant over the amount of Base Rent and
Operating Cost Payments payable hereunder applicable to the subleased space.
15.4 No Release Of Tenant. No consent by Landlord to any assignment
or subletting by Tenant shall relieve Tenant of any obligation to be performed
by Tenant under this Lease, whether occurring before or after such consent,
assignment or subletting, and the Transferee shall be jointly and severally
liable with Tenant for the payment of Rent (or that portion applicable to the
subleased space in the case of a sublease) and for the performance of all other
terms and provisions of the Lease. The consent by Landlord to any assignment or
subletting shall not relieve Tenant and any such Transferee from the obligation
to obtain Landlord's express written consent to any subsequent assignment or
subletting. The acceptance of rent by Landlord from any other person shall not
be deemed to be a waiver by Landlord of any provision of this Lease or to be a
consent to any assignment, subletting or other transfer. Consent to one
assignment, subletting or other transfer shall not be deemed to constitute
consent to any subsequent assignment, subletting or other transfer.
15.5 Attorneys' Fees. Tenant shall pay Landlord's reasonable
attorneys' fees (up to a maximum of $500.00) incurred in connection with
reviewing any proposed assignment or sublease.
15.6 Transfer Of Ownership Interest. Subject to the provisions of
Section 15.10, if Tenant is a business entity, any direct or indirect transfer
of 50 percent or more of the ownership
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interest of the entity (whether all at one time or over the term of the Lease)
shall be deemed a Transfer.
15.7 Effectiveness of Transfer. No permitted assignment by Tenant
shall be effective until Landlord has received a counterpart of the assignment
and an instrument in which the assignee assumes all of Tenant's obligations
under this Lease arising on or after the date of assignment. The voluntary,
involuntary or other surrender of this Lease by Tenant, or a mutual cancellation
by Landlord and Tenant, shall not work a merger, and any such surrender or
cancellation shall, at the option of Landlord, either terminate all or any
existing subleases or operate as an assignment to Landlord of any or all of such
subleases.
15.8 Landlord's Right to Space. (Intentionally Deleted)
15.9 No Net Profits Leases. Anything contained in the foregoing
provisions of this Paragraph 15 to the contrary notwithstanding, neither Tenant,
nor any other person having an interest in the possession, use, occupancy or
utilization of the Premises, shall enter into any lease, sublease, license,
concession or other agreement for the use, occupancy or utilization of space in
the Premises which provides for rental or other payment for such use, occupancy
or utilization based in whole or in part on the net income or profits derived by
any person from the premises leased, used, occupied or utilized (other than an
amount based on a fixed percentage or percentages of receipts or sales) , and
any such purported lease, sublease, license, concession or other agreement shall
be void and ineffective as a conveyance of any right or interest in the
possession, use, occupancy or utilization of any part of the Premises.
15.10 Permitted Assignment or Sublease. Notwithstanding any
provision to the contrary in Section 15, Tenant shall not be required to obtain
Landlord's consent to an assignment or sublease of the Premises to an entity
which controls, is controlled by or is under common control with Tenant or which
succeeds to substantially all of Tenant's assets and business by merger,
reorganization or purchase. All other such subsections of Section 15 shall apply
to this Paragraph 15.10 and shall remain in effect.
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16. SUBORDINATION
16.1 Subordination. Except as provided in the next sentence, or as
the Tenant and the mortgagee or trustee of any "First Mortgage" (as defined
below) may otherwise agree, this Lease, at Landlord's option, shall be subject
and subordinate to all ground or underlying leases which now exist or may
hereafter be executed affecting all or any part of the Project, and to the lien
of any first mortgages or first deeds of trust (each a "First Mortgage") in
any amount or amounts whatsoever now or hereafter placed on or against the Land
or Building, Landlord's interest or estate therein, or any ground or underlying
lease, without the necessity of the execution and delivery of any further
instruments on the part of Tenant to effectuate such subordination. If any
mortgagee or trustee of a First Mortgage or ground lessor shall elect to have
this Lease prior to the lien of its First Mortgage or ground lease, and shall
give written notice thereof to Tenant, this Lease shall be deemed prior to such
First Mortgage or ground lease, whether this Lease is dated prior to or
subsequent to the date of said First Mortgage or ground lease or the date of the
recording thereof.
16.2 Junior Liens. Tenant hereby agrees that this Lease shall be
superior to the lien of any present or future mortgages or deeds of trust that
are junior to any First Mortgage.
16.3 Subordination Agreements. Tenant will execute and deliver upon
demand without charge therefor, such further instruments evidencing the
subordination of this Lease to any First Mortgage or ground lease, or the
subordination of any First Mortgage or ground lease to such Lease, pursuant to
Section 16.1, as the case may be, as may be required by Landlord. Tenant's
failure to comply with its obligations under this Paragraph 16.3 within fifteen
(15) business days of demand shall constitute an Event of Default and Landlord
shall have the right, in such event, to impose upon Tenant a monetary penalty of
$1,000.00 for such noncompliance, in addition to all other remedies available
to Landlord under this Lease and by law. Tenant hereby appoints Landlord as
Tenant's attorney-in-fact, irrevocably, to execute and deliver any such
agreements, instruments, releases or other documents.
16.4 Attornment. If this Project is transferred to any purchaser or
mortgagee pursuant to or in lieu of proceedings to enforce any mortgage, deed of
trust or ground lease (collectively, "Encumbrance") , this Lease will not be
barred, terminated, cut off or foreclosed nor will the rights and possession of
Tenant thereunder be disturbed if Tenant is not in default under the terms of
the Lease. Tenant shall attorn to such purchaser or mortgagee
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as the Landlord under the Lease so long as the rights of Tenant hereunder shall
not be disturbed, diminished, or interfered with, but shall continue in full
force and effect so long as Tenant shall not be in default hereunder and the
purchaser or mortgagee shall honor the Terms of this Lease and perform Lessor's
obligations.
17. QUIET ENJOYMENT
Landlord covenants and agrees with Tenant that upon Tenant paying
the Rent and performing its other covenants and conditions under this Lease,
Tenant shall have the quiet possession of the Premises for the term of this
Lease as against any persons or entities lawfully claiming by, through or under
Landlord, subject, however, to the terms of this Lease and of any encumbrance.
18. DEFAULT; REMEDIES
18.1 Default. The occurrence of any of the following shall
constitute an "Event of Default" by Tenant:
(a) Tenant fails to pay Rent when due and such failure
continues for ten (10) days after written notice thereof to Tenant;
(b) Tenant fails to deliver any subordination agreement
requested by Landlord within the period described in Paragraph 16;
(c) Tenant fails to deliver any estoppel certificate
requested by Landlord within the period described in Paragraph 22;
(d) Tenant Transfers this Lease without complying with the
provisions of Paragraph 15;
(e) Tenant fails to observe and perform any other provision
of this Lease to be observed or performed by Tenant, where such failure
continues for thirty (30) days after written notice thereof by Landlord to
Tenant; provided, however, that if the nature of the default is such that the
same cannot reasonably be cured within said thirty (30) day period, Tenant shall
not be deemed to be in default if Tenant shall within such period commence such
cure and thereafter diligently prosecute the same to completion; or
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(f) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; the filing by or against Tenant of a
petition seeking relief under any law relating to bankruptcy (unless, in the
case of a petition filed against Tenant, the same is dismissed within sixty (60)
days); the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; or the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days.
18.2 Remedies. Upon the occurrence of an Event of Default, Landlord
may, at any time thereafter exercise the following remedies, which shall be in
addition to any other rights or remedies now or hereafter available to Landlord
at law or in equity:
(a) Maintain this Lease in full force and effect and recover
Rent as it becomes due, without terminating Tenant's right to possession
irrespective of whether Tenant shall have abandoned the Premises. In the event
Landlord elects not to terminate the Lease, Landlord shall have the right to
attempt to relet the Premises at such rent and upon such conditions and for such
a term, and to do all acts necessary to maintain or preserve the Premises as
Landlord deems reasonable and necessary without being deemed to have elected to
terminate the Lease, including removal of all persons and property from the
Premises; such property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant. In the event any such
reletting occurs, rents received by Landlord from such subletting shall be
applied (i) first, to the payment of the costs of maintaining, preserving,
altering and preparing the Premises for subletting and other costs of
subletting, including but not limited to brokers, commissions, attorneys' fees
and expenses of removal of Tenant's personal property, trade fixtures,
alterations and leasehold improvements; (ii) second, to the payment of Rent then
due and payable; (iii) third, to the payment of future Rent as the same may
become due and payable hereunder; and (iv) fourth, the balance, if any, shall be
paid to Tenant upon (but not before) expiration of the term of this Lease. If
the rents received by Landlord from such subletting, after application as
provided above, are insufficient in any month to pay the Rent due and payable
hereunder for such month, Tenant shall pay such deficiency to Landlord monthly
upon demand. Notwithstanding any such subletting for Tenant's account without
termination, Landlord may at any time thereafter, by written notice to Tenant,
elect to
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terminate this Lease by virtue of a previous Event of Default. During the
continuance of an Event of Default, for so long as Landlord does not terminate
Tenant's right to possession of the Premises, Landlord shall not unreasonably
withhold its consent to an assignment of this Lease or a sublease of the
Premises as set forth in Paragraph 15.2 - "Reasonable Consent".
(b) Terminate Tenant's right to possession of the Premises at
any time by written notice to Tenant, in which case Tenant shall immediately
surrender possession of the Premises to Landlord. Tenant expressly acknowledges
that in the absence of such written notice from Landlord, no other act of
Landlord, including, but not limited to, its re-entry into the Premises, its
efforts to relet the Premises, its reletting of the Premises for Tenant's
account, its storage of Tenant's personal property and trade fixtures, its
acceptance of keys to the Premises from Tenant or its exercise of any other
rights and remedies under this Paragraph 18.2, shall constitute an acceptance of
Tenant's surrender of the Premises or constitute a termination of this Lease or
of Tenant's right to possession of the Premises. If Landlord terminates Tenant's
right to possession in writing, Landlord shall be entitled to recover from
Tenant all damages as provided in California Civil Code Section 1951.2 or any
other applicable existing or future law, ordinance or regulation providing for
recovery of damages for such breach, including but not limited to the following:
(1) The reasonable cost of recovering the Premises; plus
(2) The reasonable cost of removing Tenant's alterations,
trade fixtures and Above-Standard Improvements; plus
(3) All unpaid Rent due or earned hereunder prior to the
date of termination, less the proceeds of any reletting or any rental received
from subtenants prior to the date of termination applied as provided in
subsection (a) above, together with interest at the Default Rate, on such sums
from the date such Rent is due and payable until the date of the award of
damages; plus
(4) The amount by which the Rent which would be payable
by Tenant hereunder, including Operating Cost Payments as reasonably estimated
by Landlord, from the date of termination until the date of the award of damages
exceeds the amount of such rental loss Tenant proves could have been reasonably
avoided, together with interest at the Default Rate on such sums
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from the date such Rent is due and payable until the date of the award of
damages; plus
(5) The amount by which the Rent which would be payable
by Tenant hereunder, including operating Cost Payments, as reasonably estimated
by Landlord, for the remainder of the then term, after the date of the award of
damages exceeds the amount of such rental loss as Tenant proves could have been
reasonably avoided, discounted at the discount rate published by the Federal
Reserve Bank of San Francisco for member banks at the time of the award plus one
percent (1%); plus
(6) Such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law.
(c) During the continuance of an Event of Default, Landlord
may enter the Premises without terminating this Lease and remove all Tenant's
personal property, and trade fixtures from the Premises. If Landlord removes
such property from the Premises and stores it at Tenant's risk and expense, and
if Tenant fails to pay the cost of such removal and storage after written demand
therefor and/or to pay any Rent then due, after the property has been stored for
a period of thirty (30) days or more Landlord may sell such property at public
or private sale, in the manner and at such times and places as Landlord in its
sole discretion deems commercially reasonable following reasonable notice to
Tenant of the time and place of such sale. The proceeds of any such sale shall
be applied first to the payment of the expenses for removal and storage of the
property, preparation for and conducting such sale, and attorneys' fees and
other legal expenses incurred by Landlord in connection therewith, and the
balance shall be applied as provided in subsection (a) above.
Tenant hereby waives all claims for damages that may be
caused by Landlord's reentering and taking possession of the Premises or
removing and storing Tenant's personal property pursuant to this Paragraph, and
Tenant shall hold Landlord harmless from and against any loss, cost or damage
resulting from any such act. No reentry by Landlord shall constitute or be
construed as a forcible entry by Landlord.
(d) Landlord may cure the Event of Default at Tenant's
expense. If Landlord pays any sum or incurs any expense in curing the Event of
Default, Tenant shall reimburse Landlord upon demand for the amount of such
payment or expense with interest at the Default Rate from the date the sum is
paid or the expense is incurred until Landlord is reimbursed by Tenant.
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18.3 Late Charges. Tenant hereby acknowledges that late payment by
Tenant to Landlord of Rent will cause Landlord to incur costs not contemplated
by this Lease, the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to, processing and
accounting charges. Accordingly, if any installment of Base Rent or Operating
Costs Payments is not received by Landlord or Landlord's designee within five
(5) days of the date such amount shall be due, or if any installment of other
Rent is not received by Landlord or Landlord's designee on or before the date
such amount shall be due, Tenant shall pay to Landlord a late charge equal to
five percent (5%) of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's default with respect
to such overdue amount nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder. Notwithstanding the foregoing, Tenant is
hereby granted two (2) grace periods which shall not exceed fifteen (15) days
each during each calendar year of this Lease.
18.4 Interest. In addition to the late charges referred to above
which are intended to defray Landlord's costs resulting from late payments, any
late payment of Rent shall, at Landlord's option, bear interest from the due
date of any such payment to the date the same is paid at the Default Rate,
provided, however, that if Landlord imposes a late charge on any overdue
payment, such overdue payment shall not begin to bear interest under this
Paragraph 18.4 until thirty (30) days after the due date thereof.
18.5 Default By Landlord. Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord within a reasonable
time, but in no event later than fifteen (15) days after written notice by
Tenant to Landlord and to any mortgagee, trustee or ground lessor of the Project
(each a "Holder") whose name and address shall have theretofore been furnished
to Tenant in writing, specifying that Landlord has failed to perform such
obligations; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance, then Landlord
shall not be in default if Landlord commences performance within such thirty
(30) day period and thereafter diligently prosecutes the same to completion.
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19. PARKING
Tenant and Tenant's employees, invitees and customers shall have
the right to use the parking areas of the Building subject to such regulations
as Landlord shall adopt from time to time, and subject to the right of Landlord
to restrict the use by Tenant and Tenant's Representatives when in the sole
judgment of Landlord such use is excessive for the parking area in relationship
to the reasonable use required by other Tenants. If Landlord becomes obligated
under applicable laws or regulations or any other directive of any governmental
or quasi-governmental authority to pay or assess fees or charges for parking in
the Building's parking area, Tenant shall pay such amounts to Landlord as
additional Rent.
20. RELOCATION OF PREMISES
20.1 Conditions. For the purpose of maintaining an economical and
proper distribution of Tenants throughout Bishop Ranch acceptable to Landlord,
Landlord shall at any time after the third (3rd) full year of the Lease Term
have the right from time to time during the term of this Lease to relocate the
Premises within Bishop Ranch to either Bishop Ranch 8, Bishop Ranch 15, or
Bishop Ranch 6, subject to the following terms and conditions:
(a) The rented and usable areas of the new Premises must be
contiguous and of equal size to the existing Premises (subject to a variation of
up to ten percent (10%) provided the amount of Base Rent payable under this
Lease is not increased);
(b) Landlord shall pay the cost of providing tenant
improvements in the new Premises comparable to the tenant improvements in the
existing Premises;
(c) Landlord shall pay the expenses reasonably incurred by
Tenant in connection with such substitution of Premises, including but not
limited to costs of moving, door lettering, telephone relocation and reasonable
quantities of new stationery;
20.2 Notice. Landlord shall deliver to Tenant written notice of
Landlord's election to relocate the Premises, specifying the new location and
the amount of rent payable therefore at least one hundred twenty (120) days
prior to the date the relocation is to be effective. If the relocation of the
Premises is not acceptable to Tenant, Tenant for a period of thirty (30) days
after receipt of Landlord's notice to relocate shall have the right (by
delivering written notice to Landlord) to terminate
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this Lease. If Tenant so notifies Landlord, Landlord at its option may withdraw
its relocation notice, in which event this Lease shall continue and Tenant shall
not be relocated, or accept Tenant's termination notice, in which event this
Lease shall terminate effective as of the date the relocation was to be
effective.
21. MORTGAGEE PROTECTION.
Tenant agrees to give any holder of any encumbrance ("Mortgagee"),
by registered mail, a copy of any notice of default served upon the Landlord,
provided that prior to such notice Tenant has been notified in writing (by way
of notice of assignment of rents and leases, or otherwise) of the address of
such Mortgagee. If Landlord shall have failed to cure such default within the
time period set forth in Paragraph 18.5 the Mortgagee shall have an additional
fifteen (15) days within which to cure such default or if such default cannot be
cured within that time, then such additional time as may be necessary to cure
such default (including the time necessary to foreclose or otherwise terminate
its Encumbrance, if necessary to effect such cure), and this Lease shall not be
terminated so long as such remedies are being diligently pursued.
22. ESTOPPEL CERTIFICATES.
(a) Upon fifteen (15) days' notice from Landlord, Tenant shall
execute and deliver to Landlord, in form provided by or satisfactory to
Landlord, a certificate stating if true that this Lease is in full force and
effect, describing any amendments or modifications hereto, acknowledging that
this Lease is subordinate or prior, as the case may be, to any Encumbrance and
stating any other information Landlord may reasonably request, including the
term of this Lease, the monthly Base Rent, the estimated Operating Cost
Payments, the date to which Rent has been paid, the amount of any security
deposit or prepaid Rent, whether to Tenant's actual knowledge either party
hereto is in default under the terms of the Lease, whether Landlord has
completed its construction obligations hereunder. Any person or entity
purchasing, acquiring an interest in or extending financing with respect to the
Project shall be entitled to rely upon any such certificate.
(b) Tenant's failure to deliver such statement within such time
shall be conclusive upon Tenant:
(1) That this Lease is in full force and effect, without
modification except as may be represented by Landlord;
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(2) That there are no uncured defaults in Landlord's
performance; and
(3) That not more than one month's Rent has been paid in
advance; and
(4) That Landlord has completed its construction obligations.
(c) If Landlord desires to finance or refinance the Building, or
any part thereof, Tenant hereby agrees to deliver to any lender designated by
Landlord, the same financial information (updated for the then current year)
provided to Landlord prior to the execution of this Lease. Such statements shall
include the past three years financial statements of Tenant. All such financial
statements shall be received by Landlord in confidence and shall be used only
for the purposes herein set forth. As a condition of compliance to this Section
22(c), Tenant may require the party receiving such financial information to
execute a Confidentiality Agreement satisfactory to Tenant.
23. SURRENDER, HOLDING OVER.
23.1 Surrender. Upon the expiration or termination of this Lease,
Tenant shall surrender the Premises to Landlord in its original condition,
except for reasonable wear and tear and damage from casualty or condemnation;
provided, however, that prior to the expiration or termination of this Lease
Tenant shall remove from the Premises all Tenant's personal property, trade
fixtures, alterations and other Above-Standard Improvements that Tenant has the
right or is required by Landlord to remove under the provisions of this Lease.
Tenant shall also be responsible for removal of all telephone cables and wires,
CRT, data and telephone equipment, and any other form of cabling that exists in
Tenant's space and was installed after the Completion Date. If any of such
removal is not completed at the expiration or termination of this Lease,
Landlord may remove the same at Tenant's expense. Any damage to the Premises or
the Building caused by such removal shall be repaired promptly by Tenant or, if
Tenant fails to do so, Landlord may do so at Tenant's expense, in which event
Tenant shall immediately reimburse Landlord for such expenses together with
interest at the Default rate until so paid. Tenant's obligations under this
Paragraph shall survive the expiration or termination of this Lease. Upon
expiration or termination of this Lease or of Tenant's possession, Tenant shall
surrender all keys to the Premises or any other part of the Building and shall
make known to Landlord the combination of locks on all safes, cabinets and
vaults that may be located in the Premises.
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23.2 Holding Over. If Tenant remains in possession of the Premises
after the expiration or termination of this Lease, Tenant's continued
possession shall be on the basis of a tenancy at the sufferance of Landlord, and
Tenant shall continue to comply with or perform all the terms and obligations of
the Tenant under this Lease, except that the Base Rent during Tenant's holding
over shall be one hundred fifty percent (150%) of the monthly Base Rent payable
in the last month prior to the termination or expiration hereof. Tenant shall
indemnify and hold Landlord harmless from and against all claims, liability,
damages, costs or expenses, including reasonable attorneys fees and costs of
defending the same, incurred by Landlord and arising directly or indirectly from
Tenant's failure to timely surrender the Premises, including (i) any loss, cost,
penalties, or damages, including lost profits, claimed by any prospective tenant
of the Premises, and (ii) Landlord's damages as a result of such prospective
tenant rescinding or refusing to enter into the prospective lease of the
Premises by reason of such failure to timely surrender the Premises.
24. HAZARDOUS MATERIALS
24.1 Tenant shall not (either with or without negligence) cause or
permit the escape, disposal or release of any hazardous substances or materials
as defined herein. Tenant shall not allow the storage or use of hazardous
materials in any manner not sanctioned by law or by the highest standards
prevailing in the industry for the storage and use of hazardous substances or
materials, nor allow to be brought into the Project any such hazardous materials
or substances except to use in the ordinary course of Tenant's business, and
then only after written notice is given to Landlord of the identity of such
hazardous substances or materials. Without limitation, hazardous substances and
materials shall include those described in the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9601 et seq., any applicable state or local laws and the regulations adopted
under these acts. If to Tenant's actual knowledge any lender or governmental
agency shall ever require testing to ascertain whether or not there has been any
release of hazardous materials on the Premises or within the Project, then
Tenant shall promptly notify Landlord of the same, and the reasonable costs
thereof shall be reimbursed by Tenant to Landlord upon demand as additional
charges if such requirement applies to the Premises and Tenant has caused such
release of hazardous materials. Landlord shall have the right, but not the
obligation, to enter the Premises at any reasonable time to perform any required
testing, to confirm Tenant's compliance with the provisions of this Paragraph,
and to perform Tenant's obligations
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under this Paragraph if Tenant has failed to do so. In addition, Tenant shall
execute affidavits, representations and the like from time to time at Landlord's
request concerning Tenant's best knowledge and belief regarding the presence of
hazardous substances or materials on the Premises. In all events, Tenant shall
indemnify Landlord in the manner elsewhere provided in this Lease from any
release of hazardous materials on the Premises occurring while Tenant is in
possession, or elsewhere if caused by Tenant or persons acting under Tenant. The
within covenants shall survive the expiration or earlier termination of the
lease term.
24.2 Landlord agrees to indemnify, defend, and hold harmless
Tenant, it parents, subsidiaries and sister companies and the officers,
directors, employees and agents of each of them from and against any and all
claims, actions, losses, costs, liabilities, damages and expense, including,
without limitation, reasonable attorneys' fees, to the extent caused by the
existence of any Hazardous Materials on the Project or the release thereof by
Landlord (or by any third party prior to the Commencement Date) or by reason of
the failure of the Project as of the Commencement Date to comply with the
above-mentioned statutes, laws and regulations related to the regulation of
Hazardous Materials in effect and as interpreted at the date of this Lease.
25. MISCELLANEOUS
25.1 Attornment. Upon any transfer by Landlord of Landlord's
interest in the Premises or the Building (other than a transfer for security
purposes only), Tenant agrees to attorn to any transferee or assignee of
Landlord subject to the limitations set forth in Section 16.4 hereof.
25.2 Captions; Attachments; Defined Terms
(a) The captions of the paragraphs of this Lease are for
convenience only and shall not be deemed to be relevant in resolving any
question of interpretation or construction of any paragraph of this Lease. The
provisions of this Lease shall be construed in accordance with the fair meaning
of the language used and shall not be strictly construed against either party.
When required by the contents of this Lease, the singular includes the plural.
Wherever the term "including" is used in this Lease, it shall be interpreted as
meaning "including, but not limited to," the matter or matters thereafter
enumerated.
(b) Exhibits attached hereto, and addenda and schedules
initialed by the parties, are deemed to constitute part of this Lease and are
incorporated herein.
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(c) The words "Landlord" and "Tenant" as used herein, shall include
the plural as well as the singular. Words used in neuter gender include the
masculine and feminine and words in the masculine or feminine gender include the
neuter. The obligations of this Lease as to a Tenant which consists of husband
and wife shall extend individually to their sole and separate property as well
as community property.
25.3 Entire Agreement. This Lease along with any exhibits and
attachments hereto constitutes the entire agreement between Landlord and Tenant
relative to the Premises, and this Lease and the exhibits and attachments may be
altered, amended or revoked only by instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant agree hereby that all prior or
contemporaneous oral agreements between and among themselves and their agents or
representatives relative to the leasing of the Premises are merged in or revoked
by this Lease.
25.4 Severability. If any term or provision of this Lease shall, to any
extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and provision of this Lease shall be valid and be enforceable to the
fullest extent permitted by law.
25.5 Costs Of Suit
(a) If Tenant or Landlord brings any action for the enforcement or
interpretation of this Lease, including any suit by Landlord for the recovery of
Rent or possession of the Premises, the losing party shall pay to the prevailing
party reasonable attorneys' fees. The "prevailing party" will be determined by
the court before whom the action was brought based upon an assessment of which
party's major arguments or positions taken in the suit or proceeding could
fairly be said to have prevailed over the other party's major arguments or
positions on major disputed issues in the court's decision.
(b) Should Landlord, without fault on Landlord's part, be made a
party to any litigation instituted by Tenant or by any third party against
Tenant, or by or against any person holding under or using the Premises by
license of Tenant, or for the foreclosure of any lien for labor or material
furnished to or for Tenant or any such other person or otherwise arising out of
or resulting from any act or transaction of Tenant or of any such other person,
Tenant covenants to save and hold Landlord harmless from any judgment rendered
against Landlord or the Premises or any part thereof, and all costs and
expenses, including reasonable
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attorneys' fees, incurred by Landlord in or in connection with such litigation.
(c) Should Tenant, without fault on Tenant's part, be made a party
to any litigation instituted by Landlord or by any third party against Landlord,
or by or against any person holding under or using the Premises by license of
Landlord (other than Tenant, its officers, direct employees, agents, and
representatives) or for the foreclosure of any lien for labor or material
furnished to or for Landlord or any such other person or otherwise arising out
of or resulting from any act or transaction of Landlord or of any such other
person, Landlord covenants to save and hold Tenant harmless from any judgment
rendered against Tenant or the Premises or any part thereof, and all costs and
expenses, including reasonable attorneys' fees, incurred by Tenant in or in
connection with such litigation.
25.6 Time; Joint And Several Liability. Time is of the essence of this
Lease and each and every provision hereof. All the terms, covenants and
conditions contained in this Lease to be performed by either party, if such
party shall consist of more than one person or organization, shall be deemed to
be joint and several, and all rights and remedies of the parties shall be
cumulative and nonexclusive of any other remedy at law or in equity.
25.7 Binding Effect; Choice Of Law. The parties hereto agree that all
provisions hereof are to be construed as both covenants and conditions as though
the words imparting such covenants and conditions were used in each separate
paragraph hereof. Subject to any provisions hereof restricting assignment or
subletting by Tenant, all of the provisions hereof shall bind and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
successors and assigns. This Lease shall be governed by the laws of the State of
California.
25.8 Waiver. No covenant, term or condition or the breach thereof shall
be deemed waived, except by written consent of the party against whom the waiver
is claimed, and any waiver or breach of any covenant, term or condition shall
not be deemed to be a waiver of any preceding or succeeding breach of the same
or any other covenant, term or condition. Acceptance by Landlord of any
performance by Tenant after the time the same shall have become due shall not
constitute a waiver by Landlord of the breach or default of any covenant, term
or condition unless otherwise expressly agreed to by Landlord in writing.
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25. 9 Force Majeure. In the event Landlord or Tenant is delayed,
interrupted or prevented from performing any of its obligations under this
Lease, including its obligations under the Work Letter, and such delay,
interruption or prevention is due to fire, act of God, governmental act, strike,
labor dispute, unavailability of materials or any other cause outside the
reasonable control of such party, then the time for performance of the affected
obligations of such party shall be extended for a period equivalent to the
period of such delay, interruption or prevention, and in the case of work to be
performed by Landlord under the Work Letter, each day of such delay,
interruption or prevention will result in one (1) Scheduled Completion and/or
Commencement Day Adjustment.
25.10 Landlord's Liability. The term "Landlord", as used in this Lease,
shall mean only the owner or owners of the Project at the time in question.
Notwithstanding any other term or provision of this Lease, the liability of
Landlord for its obligations under this Lease is limited solely to Landlord's
interest in the Project as the same may from time to time be encumbered, and no
personal liability shall at any time be asserted or enforceable against any
other assets of Landlord or against Landlord's stockholders, directors,
officers or partners on account of any of Landlord's obligations or actions
under this Lease. In addition, in the event of any conveyance of title to the
Building or the Project, then from and after the date of such conveyance,
Landlord shall be relieved of all liability with respect to Landlord's
obligations to be performed under this Lease after the date of such conveyance.
Upon any conveyance of title to the Building or the Project, the grantee or
transferee, by accepting such conveyance, shall be deemed to have assumed and
shall explicitly assume Landlord's obligations to be performed under this Lease
from and after the date of transfer, subject to the limitations on liability set
forth above in this Paragraph 25.10. In no event will Landlord be liable under
this Lease for consequential or indirect damages or loss of profits.
25.11 Consents and Approvals. Wherever the consent, approval, judgment
or determination of Landlord is required or permitted under this Lease, Landlord
may exercise its good faith business judgment in granting or withholding such
consent or approval or in making such judgment or determination without
reference to any extrinsic standard of reasonableness, unless the provision
providing for such consent, approval, judgment or determination specifies that
Landlord's consent or approval is not to be unreasonably withheld, or that such
judgment or determination is to be reasonable, or otherwise specifies the
standards under which Landlord may withhold its consent. If it is determined
that
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Landlord failed to give its consent where it was required to do so under this
Lease, Tenant shall be entitled to specific performance but not to monetary
damages for such failure, unless Landlord withheld its consent maliciously and
in bad faith.
Except with respect to the review required by the Work
Letter, the review and/or approval by Landlord of any item to be reviewed or
approved by Landlord under the terms of this Lease or any Exhibits hereto shall
not impose upon Landlord any liability for accuracy or sufficiency of any such
item or the quality or suitability of such item for its intended use. Any such
review or approval is for the sole purpose of protecting Landlord's interest in
the Project under this Lease, and no third parties, including Tenant or Tenant's
Representatives or any person or entity claiming by, through or under Tenant,
shall have any rights hereunder.
25.12 Signs. Tenant shall not place or permit to be placed in or upon
the Premises where visible from outside the Premises or any part of the
Building, any signs, notices, drapes, shutters, blinds or displays of any type
without the prior consent of Landlord which shall not be unreasonably withheld.
Landlord shall include Tenant in the Building directories located in the
Building. Landlord reserves the right in Landlord's sole discretion to place and
locate on the roof, exterior of the Building, and in any area of the Building
not leased to Tenant such signs, notices, displays and similar items as Landlord
deems appropriate in the proper operation of the Building.
25.13 Rules And Regulations. Tenant and Tenant's Representatives shall
observe and comply fully and faithfully with all reasonable and
nondiscriminatory rules and regulations adopted by Landlord for the care,
protection, cleanliness and operation of the Building and its tenants including
those annexed to this Lease as Exhibit D and any reasonable modification or
addition thereto adopted by Landlord, provided Landlord shall give written
notice thereof to Tenant. Landlord shall not be responsible to Tenant for the
nonperformance by any other tenant or occupant of the Building of any of said
rules and regulations. If such rules and regulations conflict with the Terms of
this Lease, the Terms of this Lease shall control.
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25. 14 Notices. All notices or demands of any kind required or desired
to be given by Landlord or Tenant hereunder shall be in writing and shall be
personally delivered, sent in the United States mail, certified or registered,
postage prepaid, or sent by private messenger, addressed to the Landlord or
Tenant respectively at the addresses set forth below:
LANDLORD: TENANT:
ANNABEL INVESTMENT COMPANY KAO INFOSYSTEMS COMPANY
ONE ANNABEL LANE, SUITE 201 800 CORPORATE WAY
P.0. BOX 640 FREMONT, CA 94539
SAN RAMON, CA 94583 ATTENTION: MR. MIKE PUCCINELLI
AND A COPY TO:
POTTER ANDERSON & CORROON
350 DELAWARE TRUST BUILDING
902 MARKET STREET
WILMINGTON, DE 19801
ATTENTION: MR. DAVID BROWN
or such other address as shall be established by notice to the other pursuant to
this paragraph. Notices personally delivered or delivered by private messenger
shall be deemed delivered when received at the address for such party designated
pursuant to this paragraph. Notices sent by mail shall be deemed delivered on
the earlier of the third business day following deposit thereof with the United
States Postal Service or the delivery date shown on the return receipt prepared
in connection therewith. Notwithstanding the foregoing, Landlord shall have the
right, upon notice to Tenant thereof, to eliminate personal delivery as an
effective means of notice hereunder.
25.15 Authority. If Tenant is a corporation or a partnership, each
individual executing this Lease on behalf of Tenant represents and warrants that
Tenant is a duly organized and validly existing entity, the persons signing on
behalf of Tenant, are duly authorized to execute and deliver this Lease on
behalf of Tenant and this Lease is binding upon Tenant in accordance with its
terms. If Tenant is a corporation, Tenant shall, within thirty (30) days after
execution of this Lease, deliver to Landlord a
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certified copy of a resolution of the board of directors of said corporation
authorizing or ratifying the execution of this Lease.
25.16 Lease Guaranty. Concurrently with the execution of this Lease by
Tenant, and as a condition of and a material inducement to Landlord executing
this Lease, KAO CORPORATION OF AMERICA, who is THE PARENT of Tenant
("Guarantor") , shall execute and shall deliver to Landlord a Guaranty in the
form attached hereto as Exhibit H, guaranteeing the full performance of Tenant's
obligations under this Lease.
25.17 Brokers. Tenant warrants and represents to Landlord that in the
negotiating or making of this Lease neither Tenant nor anyone acting on its
behalf has dealt with any real estate broker or finder who might be entitled to
a fee or commission for this Lease other than COOPER/BRADY CORPORATE SERVICES,
whose commission is to be paid by Landlord. Tenant agrees to indemnify and hold
Landlord harmless from any claim or claims, including costs, expenses and
attorney's fees incurred by Landlord asserted by any other broker or finder for
a fee or commission based upon any dealings with or statements made by Tenant or
its agents, employees or representatives.
25.18 Reserved Rights. Landlord retains and shall have the rights set
forth below, exercisable without notice and without liability to Tenant for
damage or injury to property, person or business and without effecting an
eviction, constructive or actual, or disturbance of Tenant's use or possession
of the Premises or giving rise to any claim for set-off or abatement of Rent, to
reduce, increase, enclose or otherwise change at any time and from time to time
the size, number, location, lay-out and nature of the common areas and
facilities and other tenancies and premises in the Project and to create
additional rentable areas through use or enclosure of common areas.
25.19 Right of First Refusal. Landlord hereby grants Tenant a right of
first refusal ("Right of First Refusal") to Lease any available space on the
Third floor and up to 16,000 rentable square feet on the First Floor of the
Building (2440 CAMINO RAMON) as shown on Exhibits A-4 and A-5. Tenant hereby
agrees that in order for Tenant to exercise its Right of First Refusal, Tenant
will, within five (5) business days from Landlord's notification to Tenant of
its intent to lease said Right of First Refusal space to a third party, notify
Landlord in writing whether it will or will not exercise its Right of First
Refusal. If Tenant does not so notify Landlord in writing, Tenant shall be
deemed to have waived its Right of First Refusal. If Tenant exercises its Right
of First Refusal, Tenant shall so exercise said Right of First Refusal under
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the same terms and conditions as set forth in Landlord's notice to Tenant.
25.20 Options to Extend. Subject to the provisions of this Paragraph
25.20, Landlord hereby grants Tenant with one (1), option to extend the term of
this Lease for five (5) years ("Option to Extend"). Tenant's notice of its
election to exercise the option to Extend must be given to Landlord in writing
at least twelve (12) months prior to the expiration date of the initial Term.
Tenant must exercise its Option to Extend for a minimum of seventy-five percent
(75%) of its leased Premises. In the event Tenant exercises an Option to Extend
for less than the entire Premises, Tenant hereby agrees that all option space
extended shall be contiguous and Tenant shall first extend on full floors with
its remaining extension Premises to be contiguous on a partial floor.
(a) Rent. Base rent for each Option shall be set at Fair Market
Value at the commencement of the extended Term. Fair Market Value is described
in (b) below.
(b) Fair Market Value. As the Term "Fair Market Value" is defined
in this Lease, the term shall mean the annual rental rate being charged in the
general area of the Building in San Ramon and Walnut Creek for space comparable
to the space for which Fair Market Value is to be determined, taking into
consideration use, location and floor level within the applicable building, the
location, size of tenancy, quality and age of the building, the definition of
rentable area or net rentable area, as the case may be, with respect to which
such rental rates are computed for renewal tenants (but not less than $22.00 per
rentable square foot per year), leasehold improvements provided for renewal
tenants, rental concessions for renewal tenants, the date the particular rate
under consideration became effective, the term of the lease under consideration,
the extent of services provided thereunder, applicable distinctions between
"gross" leases and "net" leases, expense stop figures for escalation purposes,
and other adjustments (including by way of indexes) to base rental, and any
other relevant term or condition in making such evaluation, including bona fide
written offers made to Landlord by third parties at arms length to lease the
same or comparable space for which the Fair Market Value is being determined.
(c) Notice. In the event Tenant does not provide Landlord with
written notice of its intent to exercise this Option to Extend within the
aforementioned time frame, Tenant shall be deemed to have waived its Option to
Extend.
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(d) Improvements. In the event Tenant exercises an Option to
Extend, Tenant shall accept, subject to Landlord's duties expressly stated
herein, the Premises in their "as-is" condition.
(e) Options are Personal. Except as permitted in Paragraph 15.10,
the Options to Extend are Personal to the Tenant executing this Lease and are
otherwise not assignable or transferrable to the benefit of any transferee.
25.21 Compliance with Laws, Rules and Regulations --Landlord. Landlord,
at Landlord's sole cost and expense, shall comply with all applicable laws,
ordinances, orders, rules and regulations of state, federal, municipal or other
agencies or governmental bodies having jurisdiction over the use, condition or
occupancy of the Project ("Laws") . Landlord represents to the best of its
knowledge that the Project is currently in compliance with all applicable Laws,
and that all applicable zoning laws permit the use specified in Section 6.1
hereof. In the event any Laws, are initiated subsequent to the date of this
Lease, Landlord may, if allowable under Section 5 hereof, pass through as
Operating Expenses said costs required to cause such compliance.
25.22 Arbitration. This Paragraph shall apply to any dispute,
controversy or claim which is expressly made subject to arbitration under the
provisions of this Lease. Either Landlord or Tenant may initiate arbitration
with respect to any such dispute, controversy or claim by so notifying the other
party in writing. The arbitration shall be conducted in the City and County of
San Francisco, California, before a single arbitrator in accordance with the
then prevailing rules for arbitration of commercial disputes of the American
Arbitration Association or its successor, and the provisions of California Code
of Civil Procedure Section 1283.05, or any successor or amended statute or law
containing similar provisions. The arbitrator shall be a person who would
qualify over objections as an expert witness to give opinion testimony addressed
to the issue in a court of competent jurisdiction and shall have no relationship
to or affiliation with either party. If the parties are unable to agree upon an
arbitrator within ten (10) days after service of a notice of arbitration, the
arbitrator shall be selected by the San Francisco Office of the American
Arbitration Association in accordance with its procedures.
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The arbitrator shall, if requested by either party, hold a hearing
within thirty (30) days after his appointment at which parties may present
evidence and cross-examine each other's witnesses. The arbitrator shall render
his decision in writing within thirty (30) days after such hearing, and judgment
on the award rendered in any such arbitration may be entered in any court having
jurisdiction and shall be final and binding upon the parties. The arbitrator
shall have no power to modify the provisions of this Lease.
Each party shall pay its own costs and expenses of arbitration and
the fees of the arbitrator shall be paid by the party who is not the prevailing
party in the arbitration.
Landlord and Tenant have executed this Lease on the date and year set
forth at the beginning of this Lease.
LANDLORD: TENANT:
ANNABEL INVESTMENT COMPANY, KAO INFOSYSTEMS COMPANY
A CALIFORNIA PARTNERSHIP
BY: [SIG] BY: [SIG]
--------------------------- ------------------------------
Authorized Agent
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[EXHIBIT A-1 MAP]
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[EXHIBIT A-2 MAP]
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[EXHIBIT A-3 MAP]
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[EXHIBIT A-4 MAP]
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[EXHIBIT A-5 MAP]
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EXHIBIT B
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF NOVEMBER 15, 1995
BETWEEN
ANNABEL INVESTMENT COMPANY, AS LANDLORD,
AND
KAO INFOSYSTEMS COMPANY, AS TENANT ("LEASE")
WORK LETTER
1. Suite Improvements. Landlord shall with reasonable diligence
construct and install in the Premises the improvements and fixtures provided for
in this Construction Rider ("Suite Improvements"). Improvements consisting of
the type and materials described on Schedule 1 attached to this Construction
Rider are referred to herein as "Building Standard Materials". All Suite
Improvements above "Building Shell" (as described in Schedule 1) that utilize
materials in addition to, substitution for or modification of the Building
Standard Materials are called herein "Above-Standard Suite Improvements".
1.1. Plans.
(a) On or before OCTOBER 27, 1995, Tenant shall have
submitted to Landlord a space plan showing details and specifications sufficient
to permit Landlord and Landlord's subcontractors to price the Suite Improvements
for the PHASE I PREMISES (as shown on Exhibit A attached hereto) . Such plans
shall hereinafter be referred to as "Pricing Plans." Tenant shall have three (3)
business days from receipt of Landlord pricing of such plans in which to approve
said pricing. Tenant's failure to approve said pricing shall be deemed a "Tenant
Delay."
(b) Upon Tenant's approval of Landlord's pricing, Landlord
shall have its subcontractors produce engineering drawings, and said Pricing
Plans and engineering drawings shall become the Construction Documents,
hereinafter referred to as the "PHASE I Construction Documents" and shall be
used by Landlord to complete the construction of Tenant's Suite Improvements. In
all events, said PHASE I Construction Documents must be approved by Tenant and
submitted to Landlord no later than NOVEMBER 8, 1995. In the event Landlord has
not received Tenant's approved PHASE I
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Construction Documents by NOVEMBER 8, 1995, such delay will be considered a
Tenant Delay.
(c) On or before NOVEMBER 15, 1995, Tenant will submit its Pricing
Plans to Landlord for the PHASE II PREMISES (as shown on Exhibit A attached
hereto). Tenant shall have three (3) business days from receipt of Landlord
pricing of such plans in which to approve said pricing. Tenant's failure to
approve said pricing shall be deemed a "Tenant Delay."
(d) Upon Tenant's approval of Landlord's pricing, Landlord shall
have its subcontractors produce engineering drawings, and said Pricing Plans and
engineering drawings shall become the Construction Documents, hereinafter
referred to as the "PHASE II Construction Documents" and shall be used by
Landlord to complete the construction of Tenant's Suite Improvements. In all
events, said PHASE II Construction Documents must be approved by Tenant no later
than JANUARY 5, 1996. In the event Landlord has not received Tenant's approved
PHASE II Construction Documents by JANUARY 5, 1996, such delay will be
considered a Tenant Delay.
(e) On or before FEBRUARY 1, 1996, Tenant will submit its Pricing
Plans to Landlord for the PHASE III PREMISES (as shown on Exhibit A attached
hereto). Tenant shall have three (3) business days from receipt of Landlord
pricing of such plans in which to approve said pricing. Tenant's failure to
approve said pricing shall be deemed a "Tenant Delay."
(f) Upon Tenant's approval of Landlord's pricing, Landlord shall
have its subcontractors produce engineering drawings, and said Pricing Plans and
engineering drawings shall become the Construction Documents, hereinafter
referred to as the "PHASE III Construction Documents" and shall be used by
Landlord to complete the construction of Tenant's Suite Improvements. In all
events, said PHASE III Construction Documents must be approved by Tenant no
later than FEBRUARY 15, 1996. In the event Landlord has not received Tenant's
approved PHASE III Construction Documents by FEBRUARY 15, 1996, such delay will
be considered a Tenant Delay.
1.2. Construction. Upon Landlord's receipt of the Final PHASE I, PHASE
II AND PHASE III Construction Documents approved by Tenant, Landlord shall
proceed with reasonable diligence to cause the Suite Improvements to be
Substantially Completed on or prior to the respective Scheduled Completion Date.
The Suite Improvements shall be deemed to be "Substantially Completed" when they
have been completed in accordance with the Final Construction Documents except
for finishing details, minor omissions, decorations and mechanical adjustments
of the type
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normally found on an architectural "punch list". (The definition of
Substantially Completed shall also define the terms "Substantial Completion" and
"Substantially Complete.")
1.3. Cost of Suite Improvements. See Section 1 of Building Lease
entitled PREMISES.
1.4. Tenant Delays.
For any PHASE PREMISES (where a PHASE PREMISES is either
PHASE I, PHASE II AND PHASE III, each being separate and distinct). The
following shall be deemed "Tenant Delays": (i) Tenant's failure to deliver the
Pricing Plans described above within the time periods required above, (ii) the
failure of Landlord to receive Final PHASE I, PHASE II AND PHASE III
Construction Documents BEFORE THE TIME PERIODS REQUIRED ABOVE, (iii)
Above-Standard Suite Improvements requested by Tenant, (iv) any changes or
modifications in the work requested by Tenant following approval of the Final
Construction Documents, (v) Tenant's early entry onto the Premises as described
in Paragraph 3 hereof, or (vi) any other delay requested or caused by Tenant
(collectively, "Tenant Delays"). Notwithstanding the foregoing, no Tenant Delay
shall be deemed to have occurred unless and until Landlord gives written notice
to Tenant specifying the action, inaction or occurrence constituting the Tenant
Delay and the number of days of such Tenant Delay ("Tenant Delay Notice").
Notwithstanding anything to the contrary, Landlord's obligation to deliver the
Premises on the Scheduled Completion Date for the PHASE I Premises, the
Scheduled Completion Date for the PHASE II Premises, and the Scheduled
Completion Date for the PHASE III Premises, may at Landlord's election be
extended by one (1) day for every one (1) day of Tenant Delay. If any Completion
Date is delayed because of Tenant Delays, Tenant shall not be liable for any
damage thereby including costs and expenses incurred by Landlord in connection
with such delay.
2. Commencement of Term. Upon Substantial Completion of the Suite
Improvements, Landlord shall deliver possession of the respective PHASE PREMISES
to Tenant. With respect to the PHASE I PREMISES, if any delays in Substantial
Completion of the Suite Improvements are attributable to Tenant Delays, Landlord
will be deemed to have delivered the PHASE PREMISES and the Commencement Date
shall occur on the date on which Landlord would have Substantially Completed the
PHASE PREMISES and tendered the PHASE PREMISES to Tenant if Substantial
Completion had not been delayed by the number of days specified in any and all
Tenant Delay Notices given by Landlord, as described in Paragraph 1.4.
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3. Access to Premises/Prior Occupancy. Landlord, at its reasonable
discretion, may allow Tenant or Tenant's Representatives to enter the PHASE
PREMISES prior to the Substantial Completion of the PHASE I PREMISES, THE PHASE
II PREMISES, OR THE PHASE III PREMISES to permit Tenant to make the PHASE
PREMISES ready for its use and occupancy; provided, however, that prior to such
entry of the PHASE PREMISES, Tenant shall provide evidence reasonably
satisfactory to Landlord that Tenant's insurance, as described in Paragraph 12
of the Lease, shall be in effect as of the time of such entry. Such permission
may be revoked at any time upon twenty-four (24) hours notice, and Tenant or its
Representatives shall not interfere with Landlord or Landlord's contractor in
completing the Building or the Suite Improvements. Tenant agrees that Landlord
shall not be liable in any way for any injury, loss or damage which may occur to
any of Tenant's property placed upon or installed in the PHASE PREMISES prior to
the Commencement Date, the same being at Tenant's sole risk, and Tenant shall be
liable for all injury, loss or damage to persons or property arising as a result
of such entry of the PHASE PREMISES by Tenant or its representatives.
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4. Ownership of Suite Improvements. All Suite Improvements, whether or
not Above-Standard, and whether installed by Landlord or Tenant, shall become a
part of the Premises, shall be the Property of Landlord and, unless Landlord
elects otherwise as provided in the Lease, shall be surrendered by Tenant with
the Premises, without any compensation to Tenant, at the expiration or
termination of the Lease.
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SCHEDULE 1 TO EXHIBIT B
BUILDING SHELL
* All core areas, elevator lobbies and restrooms complete.
* Main HVAC loop in place ready to receive mixing boxes for zoning.
* Main fire sprinkler risers and grid in place ready for drop down.
* All perimeter walls sheetrocked and ready for finish.
* Upper floors covered with 3-1/2 inch concrete.
* Electrical service to closets on floor. Telephone outlet/conduit to
closets on floor.
* Telephone outlet/conduit to closets on floor.
BUILDING STANDARD MATERIALS
Electrical
* Day Bright 244 light fixtures with energy conserving ballasts and
lamps; per Title 24 requirements.
* Double switching in individual offices.
* One duplex 110 receptacle at each work station.
* One telephone outlet at each work station.
HVAC
* One zone per 800 usable square feet.
* Individual pneumatic thermostats per 800 usable square feet.
Fire Sprinklers
* One 160 degree rate, semi-recessed sprinkler head per 144 usable square
feet.
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Partitions and Doors
* 5/8-inch drywall on 2-1/2 inch steel studs with smooth finish.
* Solid core oak doors 36" x 96".
* Aluminum door jambs.
* Schlage door latches or equal.
Paint
* Kelly Moore or equal.
Rated Ceiling Assembly
* USG: Aurora Reveal Tile.
Carpet, Tile and Base
* Carpet: 34 oz. Monterey.
* Armstrong Imperial Modern Excelon Tile or equal.
* 3/8 inch nylon composition pad.
* 4 inch rubber top set base or equal.
Window Covering
* Mini Blinds.
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EXHIBIT C - SPACE PLAN
TO BE PROVIDED BY TENANT
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EXHIBIT D
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed, affixed or otherwise displayed by Tenant on or to
any part of the outside or inside of the Building or the Premises without the
prior written consent of Landlord and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant. All approved signs or lettering on doors shall be
printed, painted, affixed or inscribed at the expense of Tenant by a person
approved by Landlord. Tenant shall not place anything or allow anything to be
placed near the glass of any window, door, partition or wall which may appear
unsightly from outside the Premises; provided, however that Tenant may request
Landlord to furnish and install a building standard window covering at all
exterior windows at Tenant's cost. Tenant shall not install any radio or
television antenna, loud speaker, or other device on or about the roof area or
exterior walls of the Building.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by it for any purpose other
than for ingress to and egress from the Premises. The halls, passages, exits,
entrances, elevators, stairways, balconies and roof are not for the use of the
general public and Landlord shall in all cases retain the right to control and
prevent access thereto by all persons whose presence in the judgment of the
Landlord shall be prejudicial to the safety, character, reputation and interests
of the Building and its tenants, provided that nothing herein contained shall be
construed to prevent such access to the common areas by persons with whom Tenant
normally deals in the ordinary course of its business unless such persons are
engaged in illegal activities. In no event may Tenant go upon the roof of the
Building.
3. Landlord will furnish Tenant with keys to the Premises, free of
charge. Additional keys shall be obtained only from Landlord and Landlord may
make a reasonable charge for such additional keys. No additional locking devices
shall be installed in the Premises by Tenant, nor shall any locking devices be
changed or altered in any respect without the prior written consent of Landlord.
All locks installed in the Premises excluding Tenant's vaults and safes, or
special security areas (which shall be designated by Tenant in a written notice
to Landlord), shall be keyed to the Building master key system. Landlord may
make
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reasonable charge for any additional lock or any bolt (including labor)
installed on any door of the Premises. Tenant, upon the termination of its
tenancy, shall deliver to Landlord all keys to doors in the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be deposited therein and Tenant
shall bear the expense of any breakage, stoppage or damage resulting from its
violation of this rule.
5. Tenant shall not overload the floor of the Premises or mark, drive
nails, screw or drill into the partitions, woodwork or plaster or in any way
deface the Premises or any part thereof. No boring, cutting or stringing of
wires or laying of linoleum or other similar floor coverings or installation of
wallpaper or paint shall be permitted except with the prior written consent of
the Landlord and as the Landlord may direct.
6. Tenant may use the freight elevators in accordance with such
reasonable scheduling as Landlord shall deem appropriate. Tenant shall schedule
with Landlord, by written notice given no less than forty-eight (48) hours in
advance, its move into or out of the Building which moving shall occur after
5:00 p.m. or on weekend days if required by Landlord; and Tenant shall reimburse
Landlord upon demand for any additional security or other charges incurred by
Landlord as a consequence of such moving. The persons employed by Tenant to move
equipment or other items in or out of the Building must be acceptable to
Landlord. The floors, corners and walls of elevators and corridors used for
moving of equipment or other items in or out of the Project must be adequately
covered, padded and protected and, Landlord may provide such padding and
protection at Tenant's expense if Landlord determines that such measures
undertaken by Tenant or Tenant's movers are inadequate. Landlord shall have the
right to prescribe the weight, size and position of all safes and other heavy
equipment or furnishings brought into the Building and also the times and manner
of moving the same in or out of the Building. Safes or other heavy objects
shall, if considered necessary by Landlord, stand on wood strips of such
thickness as is necessary to properly distribute the weight. Landlord will not
be responsible for loss of or damage to any such safe or property from any cause
and all damage done to the Building by moving or maintaining any such safe or
other property shall be repaired at the expense of Tenant. There shall not be
used in any space, or in the public halls of the Building, either by any Tenant
or others, any hand trucks except those equipped with rubber tires and side
guards.
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7. Tenant shall not employ any person or persons other than the janitor
of Landlord for the purpose of cleaning the Premises unless otherwise agreed to
by Landlord in writing. Except with the written consent of Landlord, no person
or persons other than those approved by Landlord shall be permitted to enter the
Building for the purpose of cleaning the same. Tenant shall not cause any
unnecessary labor by reason of Tenant's carelessness or indifference in the
preservation of good order and cleanliness. Landlord shall in no way be
responsible to any Tenant for any loss of property on the Premises, however
occurring, or for any damage done to the effects of Tenant by the janitor or any
other employee or any other person. Janitor service will not be furnished on
nights when rooms are occupied after 9:30 p.m. Window cleaning shall be done
only by Landlord.
8. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or flammable, combustible or noxious fluid or material, or
use any method of heating or air conditioning other than that supplied by
Landlord. Tenant shall not use, keep or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building. Tenant shall not make or permit to be made any unseemly or disturbing
noises or disturb or interfere with occupants of this or neighboring Buildings
or premises or those having business with them whether by the use of any musical
instrument, radio, phonograph, unusual noise, or in any other way.
9. The Premises shall not be used for the storage of merchandise except
as such storage may be incidental to the use of the Premises for general office
purposes. Tenant shall not occupy or permit any portion of the Premises to be
occupied for the manufacture or sale of liquor, narcotics, or tobacco in any
form. The Premises shall not be used for lodging or sleeping or for any illegal
purposes. No cooking shall be done or permitted by Tenant on the Premises,
except that use by Tenant of Underwriters' Laboratory approved portable
equipment for brewing coffee, tea and similar beverages and of microwave ovens
approved by Landlord shall be permitted provided that such use is in accordance
with all applicable federal, state and local laws, codes, ordinances, rules and
regulations.
10. Landlord will direct electricians as to where and how telephone
wires and any other cables or wires are to be installed. No boring or cutting
for cables or wires will be allowed without
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the consent of Landlord. The location of telephones, call boxes and other office
equipment affixed to the Premises shall be subject to the approval of Landlord.
11. Tenant shall not lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by the Landlord. Tenant shall bear the expense of
repairing any damage resulting from a violation of this rule or removal of any
floor covering.
12. No furniture, packages, supplies, equipment or merchandise will be
received in the Building or carried up or down in the elevators, except between
such hours and in such elevators as shall be designated by Landlord. In its use
of such, Tenant shall not obstruct or permit the obstruction of walkways,
ingress and egress to the Building and tenant spaces and at no time shall Tenant
park vehicles which will create traffic and safety hazards or create other
obstructions.
13. On Saturdays, Sundays and legal holidays all day, and on other days
between the hours of 7:00 p.m. and 7:00 a.m. the following day, access to the
Building or to the halls, corridors, elevators, or stairways in the Building, or
to the Premises may be refused unless the person seeking access is known to the
person or employee of the Building in charge and has a pass or is properly
identified. Landlord shall in no case be liable for damages for any error with
regard to the admission to or exclusion from the Building of any person. Tenant
assumes all responsibility for protecting its Premises from theft, robbery and
pilferage. In case of invasion, mob, riot, public excitement, or other
commotion, the Landlord reserves the right to prevent access to the Building
during the continuance of the same by closing the doors or otherwise, for the
safety of the Tenants and protection of property in the Building and the
Building. Landlord reserves the right to close and keep locked all entrance and
exit doors of the Building on Saturdays, Sundays and legal holidays all day, and
on other days between the hours of 7:00 p.m. and 7:00 a.m. and during such
further hours as Landlord may deem advisable for the adequate protection of said
Building and the property of its tenants, and to implement such additional
security measures as Landlord deems appropriate for such purposes. The cost of
such additional security measures, as reasonably allocated by Landlord to
Tenant, shall be reimbursed by Tenant within thirty (30) days after receipt of
Landlord's demand therefor.
14. Tenant shall see that the doors of the Premises are closed and
securely locked before leaving the Building and must
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observe strict care and caution that all water faucets, water apparatus and
utilities are entirely shut off before Tenant or Tenant's employees leave the
Building, and that all electricity shall likewise be carefully shut off, so as
to prevent waste or damage and for any default or carelessness Tenant shall make
good all injuries sustained by other tenants or occupants of the Building or
Landlord. On multiple-tenancy floors, all tenants shall keep the doors to the
Building corridors closed at all times except for ingress and egress, and all
tenants shall at all times comply with any rules and orders of the fire
department with respect to ingress and egress.
15. Landlord reserves the right to exclude or expel from the Building
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of the rules and regulations of the Building.
16. Landlord shall attend to the requests of Tenant after notice
thereof from Tenant by telephone, in writing or in person at the office of the
Landlord. Employees of Landlord shall not perform any work or do anything
outside of their regular duties unless under special instructions from the
Landlord.
17. No vending machine or machines of any description shall be
installed, maintained or operated upon the Premises without the written consent
of the Landlord.
18. Tenant agrees that it shall comply with all fire and security
regulations that may be issued from time-to-time by Landlord and Tenant also
shall provide Landlord with the name of a designated responsible employee to
represent Tenant in all matters pertaining to such fire or security regulations.
19. Landlord may waive any one or more of these Rules and Regulations
for the benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of those Rules and Regulations in favor
of any other tenant or tenants, nor prevent Landlord from thereafter enforcing
any such Rules and Regulations against any or all of the tenants of the Project.
20. Canvassing, soliciting, peddling or distribution of handbills or
other written material in the Building and Project is prohibited and Tenant
shall cooperate to prevent same.
21. Landlord reserves the right to (i) select the name of the Project
and Building and to make such change or changes of
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name, street address or suite numbers as it may deem appropriate from time to
time, (ii) grant to anyone the exclusive right to conduct any business or render
any service in or to the Building and its tenants, provided such exclusive right
shall not operate to require Tenant to use or patronize such business or service
or to exclude Tenant from its use of the Premises expressly permitted in the
Lease, and (iii) reduce, increase, enclose or otherwise change at any time and
from time to time the size, number, location, layout and nature of the common
areas and facilities and other tenancies and premises in the Project and to
create additional rentable areas through use or enclosure of common areas.
Tenant shall not refer to the Project by any name other than the name as
selected by Landlord (as same may be changed from time to time) , or the postal
address, approved by the United States Post Office. Without the written consent
of Landlord, Tenant shall not use the name of the Building or Bishop Ranch
Business Park in connection with or in promoting or advertising the business of
Tenant or in any respect except as Tenant's address.
22. Tenant shall store all its trash and garbage within the Premises
until removal of same to such location in the Project as may be designated from
time to time by Landlord. No material shall be placed in the Project trash boxes
or receptacle if such material is of such nature that it may not be disposed of
in the ordinary and customary manner of removing and disposing of trash and
garbage in the City of San Ramon without being in violation of any law or
ordinance governing such disposal.
23. Landlord shall furnish heating and air conditioning during the
hours of 7:00 a.m. and 7:00 p.m. , Monday through Friday, except for holidays.
In the event Tenant requires heating and air conditioning during off hours,
Saturdays, Sundays or holidays, Landlord shall on notice provide such services
at the rate established by Landlord from time-to-time. Landlord shall have the
right to control and operate the public portions of the Building and the public
facilities, and heating and air conditioning, as well as facilities furnished
for the common use of the Tenants, in such manner as it deems best for the
benefit of the Tenants generally.
24. The directory of the Building will be provided for the display of
the name and location of tenants and Landlord reserves the right to exclude any
other names therefrom. Any additional name that Tenant shall desire to place
upon the directory must first be approved by Landlord and, if so approved, a
charge will be made for each such name.
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25. Except with the prior written consent of Landlord, Tenant shall not
sell, or permit the sale from the Premises of, or use or permit the use of any
sidewalk or common area adjacent to the Premises for the sale of newspapers,
magazines, periodicals, theater tickets or any other goods, merchandise or
service, nor shall Tenant carry on, or permit or allow any employee or other
person to carry on, business in or from the Premises for the service or
accommodation of occupants of any other portion of the Building, nor shall the
Premises be used for manufacturing of any kind, or for any business or activity
other than that specifically provided for in Tenant's lease.
26. The word "Tenant" occurring in these Rules and Regulations shall
mean Tenant and Tenant's Representatives. The word "Landlord" occurring in these
Rules and Regulations shall mean Landlord's assigns, agents, clerks, employees
and visitors.
ACKNOWLEDGED AND ACCEPTED:
Landlord: Tenant
By: By:
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Date: Date:
------------------------- --------------------------
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EXHIBIT E
JANITORIAL SPECIFICATIONS
The following specific janitorial services will be provided in accordance with
provisions of Paragraph 7.1, Landlord's obligations:
OFFICE AREAS (DAILY)
1. Empty all waste baskets and disposal cans, if liners used, replace as
necessary.
2. Spot dust desks, chairs, file cabinets, counters and furniture.
3. Spot vacuum all carpets and walk-off mats; spot as necessary.
4. Sweep all hard surface floors with treated dust mop.
OFFICE AREAS (WEEKLY)
1. Vacuum carpets completely, including around base boards, etc.
2. Perform low dusting of furniture.
3. Dust window sills and ledges.
OFFICE AREAS (QUARTERLY)
1. Perform all high dusting of doors, sashes, moldings, etc.
2. Dust venetian blinds as needed.
OFFICE AREA CORRIDORS AND LOBBIES (DAILY SERVICE)
1. Vacuum carpets and dust mop any hard floors.
2. Spot clean carpets of all spillage.
3. Clean all thresholds.
OFFICE AREA CORRIDORS AND LOBBIES (WEEKLY)
1. Perform all high dusting of doors, sashes, moldings, etc.
2. Vacuum and clean all ceiling vents.
3. Polish any metal railings, placards, etc.
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STAIRWAYS (DAILY)
1. Sweep all hard surface steps.
2. Dust banisters.
STAIRWAYS (WEEKLY)
1. Sweep all hard surfaces.
2. Spot mop all spills as needed.
RESTROOMS COMMON AREA (DAILY SERVICE)
1. Empty all waste containers and replace liners as needed.
2. Clean all metal, mirrors, and fixtures.
3. Sinks, toilet bowls and urinals are to be kept free of scale.
4. Clean all lavatory fixtures using disinfectant cleaners.
5. Wash and disinfect underside and tops of toilet seats.
6. Wipe down walls around urinals.
7. Refill soap, towel, and tissue dispensers.
8. Wet mop tile floors with disinfectant solution.
9. Refill sanitary napkin machines as necessary.
RESTROOMS COMMON AREA (WEEKLY)
1. Perform high dusting and vacuum vents.
2. Use germicidal solution in urinal traps, lavatory traps, and floor
drains.
RESTROOMS COMMON AREA (MONTHLY)
1. Scrub floors with power machine.
2. Wash down all ceramic tile and toilet compartments.
ELEVATORS (DAILY)
1. Vacuum floors.
2. Clean thresholds.
3. Spot walls and polish surfaces.
GENERAL
All glass entry doors to offices, corridors, or lunch rooms are to be cleaned as
necessary.
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EXHIBIT F
DOOR SIGN, DIRECTORY STRIP AND MAIL BOX REQUEST
1. I, the undersigned, hereby authorize Landlord to order one door sign of
( ) wood, ( ) vinyl, ( ) chrome. The business name on it shall be:
-----------------------------------------------------------------------
2. The directory strip shall read:
-----------------------------------------------------------------------
3. The mail box strip shall read:
-----------------------------------------------------------------------
/s/ [SIG] 11-8-99
--------------------------------------- ----------------------------
Signature Date
Street Address: 2440 Camino Ramon
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Suite Number: 200, 210, 325
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Complex: Bishop Ranch 6, Building N
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[ANNABEL INVESTMENT COMPANY LETTERHEAD]
EXHIBIT G I
COMMENCEMENT OF LEASE -- PHASE I PREMISES
It is hereby agreed to that (a) the "Commencement Date" under that certain Lease
dated _________________________________by and between ANNABEL INVESTMENT COMPANY
as Landlord and KAO INFOSYSTEMS COMPANY as Tenant, covering PHASE I PREMISES
located at 2440 CAMINO RAMON, SUITE 200, is _________________________, 199
________, (b) the "Expiration Date" thereof is 5:00 P.M. on
_________________________, 19 ________, and (c) Landlord has completed all of
its construction obligations under the Work Letter.
ACKNOWLEDGED AND ACCEPTED:
Landlord: Tenant:
By: By:
--------------------------- -----------------------------
Date: Date:
------------------------- ---------------------------
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[ANNABEL INVESTMENT COMPANY LETTERHEAD]
EXHIBIT G II
COMPLETION OF PHASE II PREMISES
It is hereby agreed to that effective this ________ day of ____________,
Landlord has completed all of its construction obligations under the Work Letter
for the PHASE II PREMISES.
ACKNOWLEDGED AND ACCEPTED:
Landlord: Tenant:
By: By:
--------------------------- -----------------------------
Date: Date:
------------------------- ---------------------------
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[ANNABEL INVESTMENT COMPANY LETTERHEAD]
EXHIBIT G III
COMPLETION OF PHASE III PREMISES
It is hereby agreed to that effective this _________ day of _______________,
Landlord has completed all of its construction obligations under the Work Letter
for the PHASE III PREMISES.
ACKNOWLEDGED AND ACCEPTED:
Landlord: Tenant:
By: By:
--------------------------- -----------------------------
Date: Date:
------------------------- ---------------------------
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EXHIBIT H
GUARANTY
Reference made to the Lease Agreement dated as of November 15, 1995
(the "Lease"), by and between ANNABEL INVESTMENT COMPANY ("Landlord") and KAO
INFOSYSTEMS COMPANY ("Tenant"), covering and describing premises ("Leased
Premises") located at 2440 CAMINO RAMON, SAN RAMON, CA.
The undersigned ("Guarantor") is a THE PARENT of Tenant. Guarantor has
agreed to guarantee the obligations of Tenant under the Lease, and the execution
of this Guaranty is a condition of, and a material inducement to, Landlord
entering into the Lease. Therefore, Guarantor hereby unconditionally guarantees
the prompt, full and complete performance of all of the obligations of Tenant
under the Lease. If Tenant at any time fails to make any payment under the Lease
when due or fails to perform or comply with any covenant, condition, agreement
or term of the Lease, Guarantor will, upon notice from Landlord and without
further demand, pay, perform or comply with the same in the same manner and to
the same extent as is required of Tenant. Guarantor understands and acknowledges
that the Lease may, and likely will, be amended or modified from time to time by
agreement of Landlord and Tenant that this may be done without notice to or
approval of Guarantor, it being understood that Guarantor is relying solely on
Tenant to protect its interests in connection with such matters. Guarantor
hereby waives any suretyship rights or defenses that may be available to
Guarantor by reason of Sections 2787 to 2855, inclusive, of the California Civil
Code and agrees that:
(a) The Lease may be assigned, modified or amended in whole or
in part or the Leased Premises may be sublet in whole or in part
without notice to Guarantor and without releasing Guarantor or
affecting Guarantor's obligations under this Guaranty in any way.
(b) Landlord may, from time to time, and without notice to
Guarantor, release any security that Landlord may have for the
obligations of Tenant under the Lease or accept security therefor; add,
substitute or release guarantors; or compromise or settle any amount
due or owing, or claimed to be owing under the Lease; and no such
action by Landlord or any other action which Landlord may take or omit
to take in connection with the Lease shall affect this Guaranty or
Guarantor's obligations in any way.
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(c) Guarantor expressly waives notice of acceptance of this
Guaranty and diligence of collecting any sums due under the Lease or
the taking of any action with reference to any default under the Lease
or to any liability under this Guaranty.
(d) Landlord has no duty to disclose to Guarantor any
information it receives regarding the financial status of Tenant,
whether or not such information indicates that the risk of Guarantor
under this Guaranty has been or may be increased. Guarantor assumes
full responsibility for being and keeping informed of Tenant's
financial condition, Tenant's performance under the Lease, and
Tenant's use and operation of the Leased Premises.
(e) Guarantor hereby subordinates all its claims for payment
or liens securing indebtedness of Tenant to Guarantor, if any, to
Landlord's right to receive payment from Tenant of all sums due under
the Lease and waives any rights it may have to participate in any
security for the Lease or to enforce any remedy which Landlord may have
against Tenant or any other person or entity that may now or hereafter
be liable on the Lease.
(f) The obligations of Guarantor under this Guaranty are
independent of the obligations of Tenant, and Landlord may directly
enforce its rights under this Guaranty without proceeding against or
joining Tenant or any other guarantor of the Lease, without applying or
enforcing any security for the Lease, and without first proceeding
against Tenant or any other guarantor of the Lease.
(g) In the event any payment by Tenant to Landlord is held to
constitute a preference, fraudulent conveyance or similar voidable
payment under any law now or hereafter in effect, and is rescinded or
otherwise required to be returned by Landlord, such payment by Tenant
to Landlord shall not constitute a release of Guarantor from any
liability hereunder and this Guaranty shall continue to be effective or
shall be reinstated, as the case may be, to the extent of any such
payment or payments.
(h) Guarantor agrees to indemnify Landlord for all costs and
expenses, including reasonable court costs and attorneys fees, incurred
or paid by Landlord in enforcing this Guaranty and the Lease.
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(i) This Guaranty shall inure to the benefit of any person or
persons, entity or entities who at any time may be entitled to the
benefits and obligated to perform the duties of Landlord under the
Lease and shall be binding upon the heirs, administrators, successors
and assigns of Guarantor.
(j) This Guaranty may not be changed orally, and no obligation
of Guarantor can be released or waived except by a writing signed by
Landlord.
(k) If any term or provision of this Guaranty is ever
determined to be illegal or unenforceable, all other terms and
provisions of this Guaranty shall remain effective and enforceable to
the fullest extent permitted by law.
(l) This Guaranty and the rights and obligations of Guarantor
and Landlord under this Guaranty shall be governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, this Guaranty has been executed by Guarantor, effective as
of November 15, 1995.
GUARANTOR:
BY: KAO CORPORATION OF AMERICA
/s/ KENNETH B. WATTMAN
----------------------------------------
Kenneth B. Wattman
President
Address of Guarantor:
Little Falls Centre I, Suite 205
2711 Centerville Road
Wilmington, DE 19808
3
<PAGE> 88
EXHIBIT I-1 -- PHASE I PREMISES
ADJUSTMENTS TO AREA CALCULATION AND RELATED SECTIONS
It is hereby agreed to that pursuant to terms and conditions of that certain
Lease dated ________, by and between ANNABEL INVESTMENT COMPANY as Landlord and
KAO INFOSYSTEMS COMPANY as Tenant, that in accordance with Section 1 of said
Lease, Landlord and Tenant hereby agree to the following:
1) Section 1. Premises
(a) The final agreed upon rentable square feet in the PHASE I
PREMISES is ___________________ rentable square feet.
(b) The improvement allowance for the PHASE I PREMISES, calculated
at $ __________ per usable square foot, is $ ________________.
2) Section 3. Rent
Base Rent in Subsection 3.1, calculated at $ ________ per rentable
square, is ____________________________ per month.
3) Section 5. Tax and Building Operating Cost Increase
Tenant's Share in Subsection 5.2 is ______________ %.
ACKNOWLEDGED AND ACCEPTED:
Landlord: Tenant:
By: By:
--------------------------- -----------------------------
Date: Date:
------------------------- ---------------------------
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EXHIBIT I-2 -- PHASE II PREMISES
ADJUSTMENTS TO AREA CALCULATION AND RELATED SECTIONS
It is hereby agreed to that pursuant to terms and conditions of that certain
Lease dated ________, by and between ANNABEL INVESTMENT COMPANY as Landlord and
KAO INFOSYSTEMS COMPANY as Tenant, that in accordance with Section 1 of said
Lease, Landlord and Tenant hereby agree to the following:
1) Section 1. Premises
(a) The final agreed upon rentable square feet in the PHASE II
PREMISES is ___________________ rentable square feet.
(b) The improvement allowance for the PHASE II PREMISES,
calculated at $ __________ per usable square foot, is
$ ______________.
2) Section 3. Rent
Base Rent in Subsection 3.1, calculated at $ ________ per rentable
square, is ____________________________ per month.
3) Section 5. Tax and Building Operating Cost Increase
Tenant's Share in Subsection 5.2 is ______________ %.
ACKNOWLEDGED AND ACCEPTED:
Landlord: Tenant:
By: By:
--------------------------- -----------------------------
Date: Date:
------------------------- ---------------------------
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EXHIBIT I-3 -- PHASE III PREMISES
ADJUSTMENTS TO AREA CALCULATION AND RELATED SECTIONS
It is hereby agreed to that pursuant to terms and conditions of that certain
Lease dated ________, by and between ANNABEL INVESTMENT COMPANY as Landlord and
KAO INFOSYSTEMS COMPANY as Tenant, that in accordance with Section 1 of said
Lease, Landlord and Tenant hereby agree to the following:
1) Section 1. Premises
(a) The final agreed upon rentable square feet in the PHASE III
PREMISES is ___________________ rentable square feet.
(b) The improvement allowance for the PHASE III PREMISES,
calculated at $ __________ per usable square foot, is
$ ________________.
2) Section 3. Rent
Base Rent in Subsection 3.1, calculated at $ ________ per rentable
square, is ____________________________ per month.
3) Section 5. Tax and Building Operating Cost Increase
Tenant's Share in Subsection 5.2 is ______________ %.
ACKNOWLEDGED AND ACCEPTED:
Landlord: Tenant:
By: By:
--------------------------- -----------------------------
Date: Date:
------------------------- ---------------------------
<PAGE> 1
EXHIBIT 10.16
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT (the "Master Lease") dated May 22, 1998 by and between
COMDISCO, INC. ("Lessor") and INTERNET ACCESS FINANCIAL CORPORATION ("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Summary
Equipment Schedule. In the event of a conflict, the terms of the applicable
Schedule prevail over this Master Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will
be bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance on the first day of each Rent Interval at
the address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the willful
misconduct or negligent acts of Lessor. In no event is Lessor responsible for
special, incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the rights of
the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes
Lessor, as Lessee's agent, and at Lessor's expense, to prepare, execute and
file in Lessee's name precautionary Uniform Commercial Code financing
statements showing the interest of the Owner, Lessor, and any Assignee or
Secured Party in the Equipment and to insert serial numbers in Summary
Equipment Schedules as appropriate. Lessee will, at its expense, keep the
Equipment free and clear from any liens or encumbrances of any kind (except any
caused by Lessor) and will indemnify and hold the Owner, Lessor, any Assignee
and Secured Party harmless from and against any loss caused by Lessee's failure
to do so, except where such is caused by Lessor.
5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and
(ii) all additional costs (including any administrative fees, additional taxes
and insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease will be granted if: (i) Lessee
meets the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
?? ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its
interest or grant a security interest in each Schedule and/or the Equipment to
a Secured Party or Assignee. In that event, the term Lessor will mean the
Assignee and any Secured Party. However, any assignment, sale, or other
transfer by Lessor will not relieve Lessor of its obligations to Lessee and
will not materially change Lessee's duties or materially increase the burdens
or risks imposed on Lessee. The Lessee consents to and will acknowledge such
assignments in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights, but
will not be obligated to perform any of the obligations of Lessor. The Secured
Party will not disturb Lessee's quiet and peaceful possession and unrestricted
use of the Equipment so long as Lessee is not in default and the Secured Party
continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor. Lessee
reserves its right to have recourse directly against Lessor for any defense or
claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of
the Secured Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Summary Equipment Schedule constitutes a net lease.
Lessee's obligation to pay Rent and all other amounts due hereunder is absolute
and unconditional and is not subject to any abatement, reduction, set-off,
defense, counterclaim, interruption, deferment or recoupment for any reason
whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all taxes,
fees or any other charges (together with any related interest or penalties not
arising from the negligence of Lessor) accrued for or arising during the term
of each Summary Equipment Schedule against Lessor, Lessee or the Equipment by
any governmental authority (except only Federal, state, local and franchise
taxes on the capital or the net income of Lessor). Lessor will file all
personal property tax returns for the Equipment and pay all such property taxes
due. Lessee will reimburse Lessor for property taxes within thirty (30) days of
receipt of an invoice.
7. CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment,
or another party acceptable to Lessor, and will provide Lessor with a complete
copy of that contract. If Lessee has the Equipment maintained by a party other
than the manufacturer or self maintains, Lessee agrees to pay any costs
necessary for the manufacturer to bring the Equipment to then current release,
revision and engineering change levels, and to re-certify the Equipment as
eligible for manufacturer's maintenance at the expiration of the lease term,
provided re-certification is available and is required by Lessor. The lease
term will continue upon the same terms and conditions until recertification has
been obtained.
7.2 INSPECTION BY LESSOR. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents, warrants
and covenants that with respect to the Master Lease and each Schedule executed
hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be, located) where its ownership or lease of
property or the conduct of its business requires such qualification, except for
where such lack of qualification would not have a material adverse effect on
the Company's business; and has full corporate power and authority to hold
property under the Master Lease and each Schedule and to enter into and perform
its obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary
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<PAGE> 2
corporate action on the part of the Lessee, and the Master Lease and each
Schedule are non inconsistent with the Lessee's Articles of Incorporation or
Bylaws, do not contravene any law or governmental rule, regulation or order
applicable to it, do not and will not contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
instrument to which it is a party or by which it is bound, and the Master Lease
and each Schedule constitute legal, valid and binding agreements of the Lessee,
enforceable in accordance with their terms, subject to the effect of applicable
bankruptcy and other similar laws affecting the rights of creditors generally
and rules of law concerning equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or,
to the knowledge of the Lessee, threatened against or affecting the Lessee in
any court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of the
Lessee to perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate, materially
adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits, computer software and copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of others.
(g) All material contracts, agreements and instruments to which the Lessee
is a party are in full force and effect in all material respects, and are
valid, binding and enforceable by the Lessee in accordance with their
respective terms, subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear
and tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the Equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will
supply any of its personnel as may reasonably be required to assist in the
demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. INDEMNITY.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, arising out of the ownership (for strict liability
in tort only), selection, possession, leasing, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment during the
term of this Master Lease or until Lessee's obligations under the Master Lease
terminate. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on
equipment owned by it. Any amounts received by Lessor under that insurance will
be credited against Lessee's obligations under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any
representation, warranty or condition contained in such policies and will be
primary without right of contribution from any insurance effected by Lessor.
Upon the execution of any Schedule, the Lessee will furnish appropriate
evidence of such insurance acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when
due if that failure continues for five (5) business days after written notice;
or
(b) Lessee's failure to perform any other term or condition of the Schedule
or the material inaccuracy of any representation or warranty made by the Lessee
in the Schedule or in any document or certificate furnished to the Lessor
hereunder if that failure or inaccuracy continues for ten (10) business days
after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure
by Lessee to pay its debts when due, the insolvency of Lessee, the filing by
Lessee or the filing against Lessee of any petition under any bankruptcy or
insolvency law or for the appointment of a trustee or other officer with
similar powers, the adjudication of Lessee as insolvent, the liquidation of
Lessee, or the taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary
Equipment Schedule or other agreement between Lessee and Lessor or its Assignee
or Secured Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and recover
the present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess the
Equipment without being liable to Lessee for damages due to the repossession,
except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of Section
13.2, Lessor will use its best efforts in accordance with its normal business
procedures (and without obligation to give any priority to such Equipment) to
mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS
SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE
OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF
LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise
dispose of all or any part of the Equipment at a public or private sale for cash
or credit with the privilege of purchasing the Equipment. The proceeds from any
sale, lease or other disposition of the Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair
Market Value of the Equipment at the expiration of the Initial Term less the
Default Costs; or
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<PAGE> 3
(b) if leased, the present value (discounted at three percent (3%) over
the U.S. Treasury Notes of comparable maturity to the term of the re-lease) of
the rentals for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. Upon invitation of Lessee, one representative of Lessor
will have the right to attend Lessee's corporate Board of Directors meetings
and Lessee will give Lessor reasonable notice in advance of any special Board
of Directors meeting, which notice will provide an agenda of the subject matter
to be discussed at such board meeting. Lessee will provide Lessor with a
certified copy of the minutes of each Board of Directors meeting within thirty
(30) days following the date of such meeting held during the term of this
Master Lease.
14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each month (and
in any event within thirty (30) days), Lessee will provide to Lessor the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement
of cash flows prepared in accordance with generally accepted accounting
principles, consistently applied (the "Financial Statements"). As soon as
practicable at the end of each fiscal year, Lessee will provide to Lessor
audited Financial Statements setting forth in comparative form the
corresponding figures for the fiscal year (and in any event within ninety (90)
days), and accompanied by an audit report and opinion of the independent
certified public accountants selected by Lessee. Lessee will promptly furnish
to Lessor any additional information (including, but not limited to, tax
returns, income statements, balance sheets and names of principal creditors) as
Lessor reasonably believes necessary to evaluate Lessee's continuing ability to
meet financial obligations. After the effective date of the initial
registration statement covering a public offering of Lessee's securities, the
term "Financial Statements" will be deemed to refer to only those statements
required by the Securities and Exchange Commission.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
any material indebtedness; (iii) there is a material adverse change in Lessee's
credit standing; or (iv) Lessor determines (in reasonable good faith) that
Lessee will be unable to perform its obligations under this Master Lease or any
Schedule.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Master Lease
and all relevant Schedules. If Lessor elects to consent to the assignment,
Lessee and its successor will sign the assignment documentation provided by
Lessor. If Lessor elects to terminate the Master Lease and all relevant
Schedules, then Lessee will pay Lessor all amounts then due and owing and a
termination fee equal to the present value (discounted at 6%) of the remaining
Rent for the balance of the Initial Term(s) of all Schedules, and will return
the Equipment in accordance with Section 9. Lessor hereby consents to any
Merger in which the acquiring entity has a Moody's Bond Rating of BA3 or
better or a commercially acceptable equivalent measure of creditworthiness as
reasonably determined by Lessor.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTIES AGAINST WHOM THE
AMENDMENT IS SOUGHT TO BE ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to constitute
a waiver of compliance with any representation, warranty or covenant contained
in this Master Lease or a Schedule. The waiver by Lessor or Lessee of a breach
of any provision of this Master Lease or a Schedule will not operate or be
construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit
of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or Secured Party and survive the execution,
delivery, expiration or termination of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either party by the
other will be given in writing and deemed received upon the earlier of (1)
actual receipt or (3) three days after mailing if mailed postage prepaid by
regular or airmail to Lessor (to the attention of the "Comdisco Venture Group")
or Lessee, at the address set out in the Schedule, (3) one day after it is sent
by courier or (4) on the same day as sent via facsimile transmission, provided
that the original is sent by personal delivery or mail by the sending party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE
GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO
RIGHTS OR REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE
WILL BE CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A
SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease
or any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants
a security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be
marked "Duplicate."
14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products which
will at all times remain the property of the owner of the Licensed Products. A
license from the owner may be required and it is Lessee's responsibility to
obtain any required license before the use of the Licensed Products. Lessee
agrees to treat the Licensed Products as confidential information of the owner,
to observe all copyright restrictions, and not to reproduce or sell the
Licensed Products.
14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master
Lease, provide Lessor with a secretary's certificate of incumbency and
authority. Upon the execution of each Schedule with a purchase price in excess
of $1,000,000, Lessee will provide Lessor with an opinion from Lessee's counsel
in a form acceptable to Lessor regarding the representations and warranties in
Section 8.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be
in a form satisfactory to Lessor.
14.17 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees
that Lessor shall not, by virtue of its entering into this Master Lease, be
required to remit any payments to any manufacturer or other third party until
Lessee accepts the Equipment subject to this Master Lease.
14.18 DEFINITIONS.
ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
ASSIGNEE - means any entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of Equipment.
CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term of the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
COMMENCEMENT DATE - is defined in each Schedule.
DEFAULT COSTS - means reasonable attorney's fees and remarketing costs
resulting from a Lessee default or Lessor's enforcement of its remedies.
DELIVERY DATE - means date of delivery of Inventory Equipment to Lessee's
address.
EQUIPMENT - means the property described on a Summary Equipment Schedule and
any replacement for that property required or permitted by this Master Lease or
a Schedule.
EVENT OF DEFAULT - means the events described in Subsection 13.1.
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FAIR MARKET VALUE - means the aggregate amount which would be obtainable in an
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
INTERIM RENT - means the pro-rate portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full
Rent Interval included in the Initial Term.
LATE CHARGE - means the lesser of five percent (5%) of the payment due or the
maximum amount permitted by the law of the state where the Equipment is located.
LICENSED PRODUCTS - means any software or other licensed products attached to
the Equipment.
LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
MERGER - means any consolidation or merger of the Lessee with or into any other
corporation or entity, any sale or conveyance of all or substantially all of
the assets or stock of the Lessee by or to any other person or entity in which
Lessee is not the surviving entity.
NOTICE PERIOD - means not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
OWNER - means the owner of Equipment.
RENT - means the rent Lessee will pay for each item of Equipment expressed in a
Summary Equipment Schedule either as a specific amount or an amount equal to
the amount which Lessor pays for an item of Equipment multiplied by a lease
rate factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
RENT INTERVAL - means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE - means either an Equipment Schedule or a Licensed Products Schedule
which incorporates all of the terms and conditions of this Master Lease.
SECURED PARTY - means an entity to whom Lessor has granted a security interest
for the purpose of securing a loan.
SUMMARY EQUIPMENT SCHEDULE - means a certificate provided by Lessor summarizing
all of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or
as of the day and year first above written.
INTERNET ACCESS FINANCIAL CORPORATION COMDISCO, INC.,
as Lessee as Lessor
By: /s/ JOHN HASHMAN By: /s/ JAMES P. LABE
----------------------------------- -------------------------------
James P. Labe
Title: CFO Title: President
-------------------------------- ----------------------------
COMDISCO VENTURES DIVISION
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<PAGE> 5
ADDENDUM TO THE
MASTER LEASE AGREEMENT DATED AS OF MAY 22, 1998
BETWEEN INTERNET ACCESS FINANCIAL CORPORATION., AS LESSEE
AND COMDISCO, INC., AS LESSOR
The undersigned hereby agree that the terms and conditions of the
above-referenced Master Lease are hereby modified and amended as follows:
1) Section 14.1., "BOARD ATTENDANCE"
Delete this section in its entirety.
2) Section 14.2., 'FINANCIAL STATEMENTS"
In the third line, delete "Board of Directors" and replace with
"Secured Creditors".
3) Section 14.4., "MERGER AND SALE PROVISIONS"
In the second line, delete "sixty (60)" and replace with "twenty (20)".
4) Section 14.10., "APPLICABLE LAW"
In line 4, replace the word "Illinois" with "California".
Second sentence, delete "Article 2A of the Uniform Commercial Code" and
insert "California Commercial Code Sections 10508-10522".
5) Section 14.16 "LANDLORD/MORTGAGEE WAIVER"
Delete this section in its entirety.
6) Section 14.18., "DEFINITIONS"
Subsection 14.18, definition "INTERIM RENT", delete "the pro-rata
portion" and replace with "0.0208%".
INTERNET ACCESS FINANCIAL CORPORATION COMDISCO
AS LESSEE, AS LESSOR
By: /s/ JOHN HASHMAN By: /s/ JAMES P. LABE
--------------------------- -------------------------------
JAMES P. LABE
PRESIDENT
Title: CFO Title: COMDISCO VENTURES DIVISION
------------------------- ----------------------------
Date: Date: JUN 17 1998
------------------------- ----------------------------
<PAGE> 6
EQUIPMENT SCHEDULE VL-1
DATED AS OF MAY 22,1998
TO MASTER LEASE AGREEMENT
DATED AS OF MAY 22,1998 THE ("MASTER LEASE")
LESSEE: INTERNET ACCESS FINANCIAL LESSOR: COMDISCO, INC.
CORPORATION
ADMIN. CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
John Hashman 6111 North River Road
(415) 836-9710 Rosemont, Illinois 60018
(415) 836-9701 Attn.: Venture Group
Address for Notices:
595 Market Street, Ste 950
San Francisco, CA 94105
Central Billing Location: Rent Interval: Monthly
same as above
Attn.:
Lessee Reference No.:_________________
(24 digits maximum)
Location of Equipment: Initial Term: 42 months
same as above (Number of Rent Intervals)
Lease Rate Factor: 2.698%
Attn.:
EQUIPMENT (as defined below): Advance: $20,235.00 (To be paid at
the close of each Summary
Equipment Schedule)
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period May 22,1998 ("Equipment Delivery Period"),
for which Lessor receives vendor invoices approved for payment, up to an
aggregate purchase price of ("Commitment Amount"); excluding custom use
equipment, leasehold improvements, installation costs and delivery costs,
rolling stock, special tooling, "stand-alone" software, application software
bundled into computer hardware, hand held items, molds and fungible items.
-1-
<PAGE> 7
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease
to Lessee, either by one of the first three categories listed below or
by providing Lessee with Equipment from the fourth category, in an
aggregate value up to the Commitment Amount referred to on the face of
this Schedule. If the Equipment acquired is of category (i), (ii) ,
(ii) below, the effectiveness of this Schedule as it relates to those
items of Equipment is contingent upon Lessee's acknowledgment at the
time Lessor acquires the Equipment that Lessee has either received or
approved the relevant purchase documentation between vendor and Lessor
for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment
which is obtained from a vendor by Lessee for its use subject
to Lessors prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and
ownership may be considered by Lessor for inclusion under this
Lease (the "Sale-Leaseback Transaction"). Any request for a
Sale-Leaseback Transaction must be submitted to Lessor in
writing (along with accompanying evidence of Lessee's
Equipment ownership satisfactory to Lessor for all Equipment
submitted) no later than June 22, 1998 *. Lessor will not
perform a Sale-Leaseback Transaction for any request or
accompanying Equipment ownership documents which arrive after
the date marked above by an asterisk (*). Further, any
sale-leaseback Equipment will be placed on lease subject to:
(1) Lessor prior approval of the Equipment; and (2) if
approved, at Lessor's actual net appraised Equipment value
pursuant to the schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
-------------------------- ----------------------------------
<S> <C>
Between 03/24/98-06/22/98(3 mos) 100%
</TABLE>
Lessee represents that it has paid all California sales tax due on the cost of
that portion of Equipment to be installed in California and agrees to provide
evidence of such payment to Lessor, if specifically requested. As a result of
the election, Lessor agrees that it will not invoice Lessee for use tax on the
monthly rental rate. Lessee understands that this is an irrevocable election to
measure the tax by the Equipment cost and cannot be changed except prior to
installation of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment
which is obtained from a third party by Lessee for its use
subject to Lessor's prior approval of the Equipment and at
Lessor's appraised value for such used Equipment.
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800
Direct Service, Lessor will purchase new or used Equipment
from a third party or Lessor will supply new or used Equipment
from its inventory for use by Lessee at rates provided by
Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order Equipment
will be the install date as confirmed in writing by Lessee as set forth on the
vendor invoice of which a facsimile transmission will constitute an original
document. The Commencement Date for sale-leaseback Equipment shall be the date
Lessor tenders the purchase price. The Commencement Date for 800 Number
Equipment shall be fifteen (15) days from the ship date, such ship date to be
set forth on the vendor invoice or if unavailable on the vendor invoice the ship
date will be determined by Lessor upon other supporting shipping documentation.
Lessor will summarize all approved invoices, purchase documentation and evidence
of delivery, as applicable, received in the same calendar month into a Summary
Equipment Schedule in the form attached to this Schedule as Exhibit 1, and the
Initial Term will begin the first day of the calendar month thereafter. Each
Summary Equipment Schedule will contain the Equipment location, description,
serial number(s) and cost and will incorporate the terms and conditions of the
Master Lease and this Schedule and will constitute a separate lease.
-2-
<PAGE> 8
3. OPTION TO EXTEND
So long as no Event of Default has occurred and is continuing
hereunder, and upon written notice no earlier than twelve (12) months and no
later than ninety (90) days prior to the expiration of the Initial Term of a
Summary Equipment Schedule, Lessee will have the right to extend the Initial
Term of such Summary Equipment Schedule for a period of one (1) year. In such
event, the rent to be paid during said extended period shall be mutually agreed
upon and if the parties cannot mutually agree, then the Summary Equipment
Schedule shall continue in full force and effect pursuant to the existing terms
and conditions until terminated in accordance with its terms. The Summary
Equipment Schedule will continue in effect following said extended period until
terminated by either party upon not less than ninety (90) days prior written
notice, which notice shall be effective as of the date of receipt.
4. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing
hereunder, and upon written notice no earlier than twelve (12) months and no
later than ninety (90) days prior to the expiration of the Initial Term or the
extended term of the applicable Summary Equipment Schedule, Lessee will have the
option at the expiration of the Initial Term of the Summary Equipment Schedule
to purchase all, but not less than all, of the Equipment listed therein for a
purchase price not to exceed 15% of Lessor's cost hereunder and upon terms and
conditions to be mutually agreed upon by the parties following Lessee's written
notice, plus any taxes applicable at time of purchase. Said purchase price shall
be paid to Lessor at least thirty (30) days before the expiration date of the
Initial Term or extended term. Title to the Equipment shall automatically pass
to Lessee upon payment in full of the purchase price but, in no event, earlier
than the expiration of the fixed Initial Term or extended term, if applicable.
If the parties are unable to agree on the purchase price or the terms and
conditions with respect to said purchase, then the Summary Equipment Schedule
with respect to this Equipment shall remain in full force and effect.
Notwithstanding the exercise by Lessee of this option and payment of the
purchase price, until all obligations under the applicable Summary Equipment
Schedule have been fulfilled, it is agreed and understood that Lessor shall
retain a purchase money security interest in the Equipment listed therein and
the Summary Equipment Schedule shall constitute a Security Agreement under the
Uniform Commercial Code of the state in which the Equipment is located.
5. TECHNOLOGY EXCHANGE OPTION
IF Lessee is not in default, and there is no material adverse change in
Lessee's credit, on or after the expiration of the 12th month of any Summary
Equipment Schedule, Lessee shall have the option to replace any of the Equipment
subject to such summary Equipment Schedule with new technology equipment ("New
Technology Equipment") utilizing the following guidelines:
A. Equipment being replaced with New Technology Equipment shall have an
aggregate original cost equal to or greater than $20,000 and be comprised of
full configurations of equipment.
B. This technology Exchange Option shall be limited to a maximum in the
aggregate of fifty percent (50%) of the original equipment cost and shall not
apply to software.
C. The cost of the New Technology Equipment must be equal to or greater than the
original equipment cost of the replaced equipment, but in no event shall exceed
150% of the original equipment cost.
D. The remaining lease payments applicable to the equipment being replaced by
the New Technology Equipment will be discounted to present value at 6%.
The wholesale market value of the equipment being replaced will be established
by Comdisco based upon then current market conditions. Upon the return of the
replaced equipment, the wholesale price will be deducted from the present value
of the remaining rentals and the differential will be added to the cost of the
New Technology Equipment in calculating the new rental. The lease for the New
Technology Equipment will contain terms and conditions substantially similar to
those for the replaced equipment and will have an Initial Term not less than the
balance of the remaining Initial Term for the replaced equipment.
-3-
<PAGE> 9
6. EQUITY INVESTMENT
In consideration of Lessor financing hereunder, Lessee will invest $100,000 in
the Series C Preferred Stock equity financing at a purchase price equal to the
purchase price established at the final closing of the Series C Preferred Stock
financing.
7. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
Master Lease: This Schedule is issued pursuant to the Lease identified on page 1
of this Schedule. All of the terms and conditions of the Lease are incorporated
in and made a part of this Schedule as if they were expressly set forth in this
Schedule. The parties hereby reaffirm all of the terms and conditions of the
Lease (including, without limitation, the representations and warranties set
forth in Section 8) except as modified herein by this Schedule. This Schedule
may not be amended or rescinded except by a writing signed by both parties.
INTERNET ACCESS FINANCIAL CORPORATION COMDISCO, INC.
AS LESSEE AS LESSOR
By: /s/ JOHN HASHMAN By: /s/ JAMES P LABE
------------------------------- -----------------------------
JAMES P LABE
Title: CFO TITLE: PRESIDENT
---------------------------- ---------------------------
COMDISCO VENTURES DIVISION
Date: 6-15-98 Date: JUN 17 1998
----------------------------- -----------------------------
-4-
<PAGE> 10
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor) and XXXX ("Lessee"). All of the terms,
conditions, representations and warranties of the Master Lease Agreement
and Equipment Schedule No. X are incorporated herein and made a part
hereof, and this Summary Equipment Schedule constitutes a Schedule for the
Equipment on the attached invoices.
1. For Period Beginning: And Ending:
2. Initial Term Starts on: Initial Term:
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
4. Lease Rate Factor:
5. Rent:
6. Acceptance Doc Type:
-5-
<PAGE> 11
EQUIPMENT SCHEDULE VL-2
DATED AS OF MAY 22,1998
TO MASTER LEASE AGREEMENT
DATED AS OF MAY 22,1998 (THE "MASTER LEASE")
LESSEE: INTERNET ACCESS FINANCIAL LESSOR: COMDISCO, INC.
CORPORATION
ADMIN. CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
John Hashman 6111 North River Road
(415) 836-9710 Rosemont, Illinois 60018
(415) 836-9701 Attn.: Venture Group
Address for Notices:
595 Market Street
suite 950
San Francisco, CA 94105
Central Billing Location: Rent Interval: Monthly
same as above
Attn.:
Lessee Reference No.:
------------
(24 digits maximum)
Location of Equipment: Initial Term: 42 months
(Number of Rent Intervals)
Lease Rate Factor: 2.698%
Attn.:
EQUIPMENT (as defined below): o Advance: $6,745.00 (To be
paid at the close of
each Summary Equipment
Schedule)
Software and tenant improvements specifically approved by Lessor, which shall be
delivered to and accepted by Lessee during the period May 22, 1998 through May
22, 2000 ("Equipment Delivery Period") for which Lessor receives vendor invoices
approved for payment, up to an aggregate purchase price ("Commitment Amount");
excluding custom use equipment, installation costs and delivery costs, rolling
stock, special tooling, hand held items, molds and fungible items.
-1-
<PAGE> 12
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in an aggregate value up to the
Commitment Amount referred to on the face of this Schedule. If the Equipment
acquired is of category (i), (ii) , (iii) below, the effectiveness of this
Schedule as it relates to those items of Equipment is contingent upon Lessee's
acknowledgment at the time Lessor acquires the Equipment that Lessee has either
received or approved the relevant purchase documentation between vendor and
Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment
which is obtained from a vendor by Lessee for its use subject
to Lessor's prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and
ownership may be considered by Lessor for inclusion under this
Lease (the "Sale-Leaseback Transaction"). Any request for a
Sale-Leaseback Transaction must be submitted to Lessor in
writing (along with accompanying evidence of Lessee's
Equipment ownership satisfactory to Lessor for all Equipment
submitted) no later than June 22, 1998 *. Lessor will not
perform a Sale-Leaseback Transaction for any request or
accompanying Equipment ownership documents which arrive after
the date marked above by an asterisk (*). Further, any
sale-leaseback Equipment will be placed on lease subject to:
(1) Lessor prior approval of the Equipment; and (2) if
approved, at Lessor's actual net appraised Equipment value
pursuant to the schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
-------------------------- ----------------------------------
<S> <C>
Between 03/24/98-06/22/98(3 mos) 100%
</TABLE>
Lessee represents that it has paid all California sales tax due on the cost of
that portion of Equipment to be installed in California and agrees to provide
evidence of such payment to Lessor, if specifically requested. As a result of
the election, Lessor agrees that it will not invoice lessee for use tax on the
monthly rental rate. Lessee understands that this is an irrevocable election to
measure the tax by the Equipment cost and cannot be changed except prior to
installation of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment
which is obtained from a third party by Lessee for its use
subject to Lessor's prior approval of the Equipment and at
Lessor's appraised value for such used Equipment.
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800
Direct Service, Lessor will purchase new or used Equipment
from a third party or Lessor will supply new or used Equipment
from its inventory for use by Lessee at rates provided by
Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the install date as confirmed in writing by Lessee as set
forth on the vendor invoice of which a facsimile transmission will constitute an
original document. The Commencement Date for sale-leaseback Equipment shall be
the date Lessor tenders the purchase price. The Commencement Date for 800 Number
Equipment shall be fifteen (15) days from the ship date, such ship date to be
set forth on the vendor invoice or if unavailable on the vendor invoice the ship
date will be determined by Lessor upon other supporting shipping documentation.
Lessor will summarize all approved invoices, purchase documentation and evidence
of delivery, as applicable, received in the same calendar month into a Summary
Equipment Schedule in the form attached to this Schedule as Exhibit 1, and the
Initial Term will begin the first day of the calendar month thereafter. Each
Summary Equipment Schedule will contain the Equipment location, description,
serial number(s) and cost and will incorporate the terms and conditions of the
Master Lease and this Schedule and will constitute a separate lease.
3. MISCELLANEOUS
In consideration of Lessor financing software and tenant improvements
hereunder, Lessee agrees in addition to its last Monthly Rent Payment to remit
to Lessor an amount equal to 11% of Lessor's aggregate cost of software and
tenant improvements provided hereunder.
-2-
<PAGE> 13
SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule
are hereby modified and amended as follows:
(a) Section 9, Delivery and Return of Equipment
Delete second, third and fourth sentences in their entirety.
Master Lease: This Schedule is issued pursuant to the Lease identified on page 1
of this Schedule. All of the terms and conditions of the Lease are incorporated
in and made a part of this Schedule as if they were expressly set forth in this
Schedule. The parties hereby reaffirm all of the terms and conditions of the
Lease (including, without limitation, the representations and warranties set
forth in Section 8) except as modified herein by this Schedule. This Schedule
may not be amended or rescinded except by a writing signed by both parties.
INTERNET ACCESS FINANCIAL CORPORATION COMDISCO, INC.
AS LESSEE AS LESSOR
By: /s/ JOHN HASHMAN By: /s/ JAMES P. LABE
------------------------------- -----------------------------
JAMES P LABE
Title: CFO TITLE: PRESIDENT
---------------------------- ---------------------------
PRESIDENT COMDISCO VENTURES DIVISION
Date: 6-15-98 Date: JUN 17 1998
----------------------------- -----------------------------
-3-
<PAGE> 14
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
2. Initial Term Starts on: Initial Term:
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
4. Lease Rate Factor:
5. Rent:
6. Acceptance Doc type:
-4-
<PAGE> 1
EXHIBIT 10.17
LOAN AND SECURITY AGREEMENT
Agreement No. 20601 Dated as of June 17, 1998
by and between
LIGHTHOUSE CAPITAL PARTNERS II, L.P.,
as lender
and
INTERNET ACCESS FINANCIAL CORPORATION
a California corporation
595 Market Street, Suite 950
San Francisco, California 94105
as borrower
TOTAL COMMITMENT: $1,250,000
Repayment Period: 42 months
Final Payment Percentage: 15%
Initial Loan Factor: 2.70%
Warrant:
Number of shares: 8,621
Class of stock: Series C-1 Preferred Stock.
The terms and information set forth on this cover page are a part of the
attached Loan and Security Agreement, dated as of the date first written above
(this "Agreement"), entered into by and between Lighthouse Capital Partners II,
L.P. ("Lender") and the borrower ("Borrower") set forth above. The terms and
conditions of the Loan Agreement agreed to between Lender and Borrower are as
follows:
<PAGE> 2
"Default Rate" means the per annum rate of interest equal to the
Basic Rate plus 10%, but such rate shall in no event be more than the highest
rate permitted by applicable law to be charged on commercial loans.
"Event of Default" has the meaning given to such term in Section
8.
"Event of Loss " has the meaning given to that term in Section 6.
10.
"Final Payment" means, with respect to each Loan, a payment (in
addition to and not in substitution for the regular monthly payments of
principal and accrued interest) due on the Maturity Date, equal to the Loan
Amount for such Loan at such time multiplied by the Final Payment Percentage.
"Final Payment Percentage" means the percentage set forth
following such term on the cover page of this Agreement.
"Funding Date" means any date on which a Loan is made to or on
account of Borrower under this Agreement.
"Governmental Authority" means (a) any federal, state, county,
municipal or foreign government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau, commission,
department, instrumentality or public body, (c) any court or administrative
tribunal or (d) with respect to any Person, any arbitration tribunal or other
non-governmental authority to whose jurisdiction that Person has consented.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of Property or services, including reimbursement and
other obligations with respect to surety bonds and letters of credit, (b) all
obligations evidenced by notes, bonds, debentures or similar instruments, (c)
all capital lease obligations, and (d) all Contingent Obligations.
"Landlord Consent" means a consent in the form of Exhibit C or
such other form as Lender may agree to accept.
"Lender's Expenses" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Lender's reasonable attorneys' fees and expenses incurred in
amending, modifying, enforcing or defending the Loan Documents, including in the
exercise of any rights or remedies afforded hereunder or under applicable law,
whether or not suit is brought.
"Lien" means any pledge, bailment, lease, mortgage,
hypothecation, conditional sales and title retention agreement, charge, claim,
encumbrance or other lien in favor of any Person.
"Loan" means each advance of credit by Lender to Borrower under
this Agreement.
"Loan Agreement Supplement" means a supplement to this Agreement
in substantially the form of Exhibit D.
"Loan Amount" means, with respect to each Loan, as of any date,
the original principal amount of such Loan less the aggregate of all Prepayment
Amounts relating to prepayments of such Loan paid prior to such date.
"Loan Commencement Date" means, with respect to each Loan, the
first Business Day of the calendar month following the Funding Date of such
Loan.
2
<PAGE> 3
"Loan Documents" means, collectively, this Agreement, the
Warrant, the Additional Warrant, the Landlord Consent(s) and all other
documents, instruments and agreements entered into between Borrower and Lender
in connection with this Agreement, all as amended or extended from time to time.
"Loan Factor" means, with respect to each Loan, the amount set
forth as a percentage in the Loan Terms Schedule with respect to such Loan,
calculated using the Basic Rate applicable to such Loan.
"Loan Terms Schedule" means, with respect to each Loan, the "Loan
Terms Schedule" attached to the Loan Agreement Supplement prepared by Lender in
connection with such Loan.
"Maturity Date" means, with respect to each Loan, the last day of
the Repayment Period for such Loan, or if earlier, the date of acceleration of
such Loan by Lender following an Event of Default.
"Obligations" means all debt, principal, interest, fees, charges,
expenses and attorneys' fees and costs and other amounts, obligations,
covenants, and duties owing by Borrower to Lender of any kind and description
(whether pursuant to or evidenced by the Loan Documents, or by any other
agreement between Lender and Borrower, and whether or not for the payment of
money), whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, including the principal, interest and
Final Payment due with respect to the Loans, and including any debt, liability,
or obligation owing from Borrower to others that Lender may have obtained by
assignment or otherwise, and further including all interest not paid when due
and all Lender's Expenses that Borrower is required to pay or reimburse by the
Loan Documents, by law, or otherwise.
"Payment Date" has the meaning given to that term in SECTION
2.4(a).
"Permitted Liens" means the following:
(a) The Lien created by this Agreement;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings, provided the same have no superior priority
over Lender's Lien in the Collateral; and
(c) Liens (i) upon or in any equipment (that is not
Collateral) acquired or held by Borrower to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon;
(d) Liens to secure payment of worker's compensation,
employment insurance, old age pensions or other social security obligations of
Borrower in the ordinary course of business of Borrower;
(e) Liens to secure a $750,000.00 line of credit with
Silicon Valley Bank pursuant to that certain Loan and Security Agreement dated
October 29, 1997.
"Person" means and includes any individual, any partnership, any
corporation, any business trust, any joint stock company, any limited liability
company, any unincorporated association or any other entity and any domestic or
foreign national, state or local government, any political subdivision thereof,
and any department, agency, authority or bureau of any of the foregoing.
"Prepayment Amount" means in the case of a mandatory prepayment
pursuant to SECTIONS 2.5(a) and 6. 10, the original Stated Cost of the item of
Collateral with respect to which such prepayment relates.
3
<PAGE> 4
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, whether tangible or intangible.
"Repayment Period" means the period beginning on the first
Payment Date and continuing for the number of calendar months set forth
following such term on the cover page of this Agreement.
"Responsible Officer" means each of the President and the Chief
Financial Officer of Borrower.
"Scheduled Payments" has the meaning given to such term in
SECTION 2.4(a).
"Stated Cost" means with respect to an item of Collateral, the
original cost to Borrower of the item of Collateral net of any and all freight,
installation, tax and other soft costs.
"Stipulated Loan Value" means, with respect to each Loan, the
percentage set forth with respect to such Loan in the Loan Terms Schedule for
such Loan, determined as of the Payment Date on which payment of such amount is
to be made, or if such date is not a Payment Date, on the Payment Date
immediately succeeding such date.
"Subsidiary" means any corporation of which a majority of the
outstanding capital stock entitled to vote for the election of directors
(otherwise than as the result of a default) is owned by Borrower directly or
indirectly through Subsidiaries.
"Term" means the period from and after the date hereof until the
payment in full of all amounts and liabilities payable under this Agreement and
the other Loan Documents, including principal and interest on the Loans and the
Final Payment with respect to each Loan.
"Warrant" means the mutually agreed upon warrant in favor of
Lender to purchase securities of Borrower substantially in the form of EXHIBIT
B.
1.2 OTHER INTERPRETIVE PROVISIONS. References in this Agreement to
"Articles," "Sections," "Exhibits," "Schedules" and "Annexes" are to recitals,
articles, sections, exhibits, schedules and annexes herein and hereto unless
otherwise indicated. References in this Agreement and each of the other Loan
Documents to any document, instrument or agreement shall include (a) all
exhibits, schedules, annexes and other attachments thereto, (b) all documents,
instruments or agreements issued or executed in replacement thereof, and (c)
such document, instrument or agreement, or replacement or predecessor thereto,
as amended, modified and supplemented from time to time and in effect at any
given time. The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement or any other Loan Document shall refer to
this Agreement or such other Loan Document, as the case may be, as a whole and
not to any particular provision of this Agreement or such other Loan Document,
as the case may be. The words "include" and "including" and words of similar
import when used in this Agreement or any other Loan Document shall not be
construed to be limiting or exclusive. Unless otherwise indicated in this
Agreement or any other Loan Document, all accounting terms used in this
Agreement or any other Loan Document shall be construed, and all accounting and
financial computations hereunder or thereunder shall be computed, in accordance
with generally accepted accounting principles as in effect in the United States
of America from time to time.
2. LOAN AND TERMS OF PAYMENT
2.1 COMMITMENT. Subject to the terms and conditions of this Agreement
and relying upon the representations and warranties herein set forth as and when
made or deemed to be made, Lender agrees to lend to Borrower, from time to time
prior to the Commitment Termination Date, the Loans; provided that the aggregate
principal amount of the Loans shall not exceed the Commitment at such time;
provided further, that the aggregate
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principal amount of any Loan shall not exceed (i) in the case of new equipment
(i.e. equipment delivered to Borrower not more than 90 days prior to the Funding
Date of such Loan), the aggregate cost to Borrower of the equipment financed
with such Loan net of any and all freight, installation, tax and other soft
costs or (ii) in the case of used equipment, the lower of the net book value or
the fair market value assigned to such item of used equipment by Lender, after
consultation with Borrower, at the time of making the Loan financing such item
of used Equipment. Lender agrees, with respect to the first Loan under the
Agreement, to . If prepaid, the principal of the Loans may not
be re-borrowed.
2.2 USE OF PROCEEDS; THE LOAN.
(a) USE OF PROCEEDS. The proceeds of the Loan shall be used
solely for the acquisition of new and used computers, peripherals, analytical
and test equipment, laboratory equipment and furniture, network equipment,
telephone equipment, office furniture and equipment and other equipment as
mutually agreed upon by Lender and Borrower. Up to Three Hundred Twelve Thousand
Five Hundred Dollars ($312,500) may be used to finance Leasehold Improvements
and other soft costs.
(b) THE LOANS. The Loans shall be repayable in consecutive
monthly installments in accordance with the terms of SECTION 2.4. Lender may,
and is hereby authorized by Borrower to, endorse in its books and records
appropriate notations regarding Lender's interest in the Loans; provided,
however, that the failure to make, or an error in making, any such notation
shall not limit or otherwise affect the Obligations of Borrower hereunder.
2.3 PROCEDURE FOR MAKING LOAN.
(a) NOTICE. Whenever Borrower desires that Lender make a Loan,
Borrower shall so notify Lender in writing (or by telephone with prompt
confirmation in writing) at least seven Business Days in advance of the desired
Funding Date, which notice shall be irrevocable. Lender's obligation to make
Loans shall be expressly subject to the satisfaction of the conditions set forth
in SECTIONS 3.1 and 3.2. Lender shall have the right, exercisable at any time,
to request that Borrower furnish Lender with such additional information with
respect to the Loans as Lender shall reasonably request.
(b) LOAN INTEREST RATE. Borrower shall pay interest on the unpaid
principal amount of each Loan from the Loan Commencement Date until such Loan
has been paid in full, at a per annum rate of interest equal to the Basic Rate,
determined as of the date that is ten (10) days prior to the Loan Commencement
Date. The Basic Rate applicable to each Loan shall be fixed for the Repayment
Period and shall not be subject to change in the absence of a manifest error.
All computations of interest on each Loan shall be based on a year of 360 days
for actual days elapsed. Notwithstanding any other provision hereof, the amount
of interest payable hereunder shall not in any event exceed the maximum amount
permitted by the law applicable to interest charged on commercial loans.
(c) LOAN FACTOR AND STIPULATED LOAN VALUE CALCULATION. On each
Loan Commencement Date, Lender shall establish the Loan Factor and a schedule of
Stipulated Loan Values with respect to the applicable Loan. The Loan Factor
shall be calculated in a manner to fully amortize the Loan over the Repayment
Period applicable to such Loan in equal periodic installments of principal and
interest. The Loan Factor and schedule of Stipulated Loan Values applicable to
such Loan shall be set forth in the Loan Agreement Supplement prepared by Lender
with respect to such Loan and shall be conclusive in the absence of a manifest
error.
(d) DISBURSEMENT. Subject to the satisfaction of the conditions
set forth in SECTIONS 3.1 and 3.2 with respect to the initial Loan and the
satisfaction of the conditions set forth in SECTIONS 3.2 with respect to each
subsequent Loan, Lender shall disburse the Loans.
(e) TERMINATION OF COMMITMENT TO LEND. Notwithstanding anything
in the Loan Documents, Lender's obligation to lend the undisbursed portion of
the Commitment to Borrower hereunder shall
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terminate on the earlier of (i) at the Lender's sole election, upon the
occurrence and continuance of any Default or Event of Default hereunder, and
(ii) the Commitment Termination Date. Notwithstanding the foregoing, Lender's
obligation to lend the undisbursed portion of the Commitment to Borrower shall
terminate if, in Lender's sole reasonable judgment, there has been a material
adverse change in the general affairs, management, results of operations,
condition (financial or otherwise) or prospects of Borrower, whether or not
arising from transactions in the ordinary course of business, or there has been
any material adverse deviation by Borrower from the business plan of Borrower
presented to and not disapproved by Lender, since the date of this Agreement.
2.4 AMORTIZATION OF PRINCIPAL AND INTEREST; INTERIM PAYMENT; FINAL
PAYMENT.
(a) PRINCIPAL AND INTEREST PAYMENTS On PAYMENT DATES. Borrower
shall make payments of principal and accrued interest for each Loan
(collectively, "Scheduled Payments"), commencing on the Loan Commencement Date
(or commencing on the Funding Date if the Funding Date is the first Business Day
of the calendar month) with respect to such Loan and continuing thereafter
during the Repayment Period on the (each a "Payment Date"), in an amount
equal to the Loan Factor multiplied by the Loan Amount for such Loan as of such
Payment Date. In any event, all unpaid principal and accrued interest shall be
due and payable in full on the last Payment Date with respect to such Loan.
(b) INTERIM PAYMENT. In addition to the Scheduled Payments, on
the Loan Commencement Date for the Loan (unless the Funding Date is the first
Business Day of the calendar month) Borrower shall pay to Lender an amount (the
"Interim Payment") equal to the initial Loan Amount multiplied by the product of
(i) the quotient derived from dividing the Loan Factor by thirty (30), and (ii)
the number of days from the Funding Date of the Loan until the first Payment
Date with respect to the Loan.
(c) FINAL PAYMENT. Unless a Loan is prepaid in full, on the
Maturity Date with respect to such Loan, Borrower shall pay, in addition to the
unpaid principal and accrued interest and all other amounts due on such date
with respect to such Loan, an amount equal to the Final Payment with respect to
such Loan.
2.5 PREPAYMENTS.
(a) PREPAYMENT UPON AN EVENT OF LOSS. If any Collateral is
subject to an Event of Loss and Borrower is required to or elects to prepay the
Loans with respect to such Collateral pursuant to SECTION 6.10, then the Loans
shall be prepaid to the extent and in the manner provided in such section.
(b) MANDATORY PREPAYMENT UPON AN ACCELERATION. If the Loans are
accelerated following the occurrence of an Event of Default or otherwise (other
than following an Event of Loss), then Borrower shall immediately pay to Lender
(i) all unpaid Scheduled Payments with respect to the Loans due prior to the
date of prepayment, (ii) the Stipulated Loan Value with respect to each Loan
multiplied by the Loan Amount of such Loan, and (iii) all other sums, if any,
that shall have become due and payable hereunder with respect to such Loan.
(c) NO OTHER PREPAYMENT. Borrower may not prepay any Loan except
upon the occurrence of an event described in SECTION 2.5(a) or (b) above in
which event the prepayment shall be made as described in such sections.
2.6 OTHER PAYMENT TERMS.
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(a) PLACE AND MANNER. Borrower shall make all payments due to
Lender at the address specified in SECTION 11,in lawful money of the United
States and in same day or immediately available funds.
(b) DATE. Whenever any payment due hereunder shall fall due on a
day other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
interest or fees, as the case may be.
(c) DEFAULT RATE. If either (i) any amounts required to be paid
by Borrower under this Agreement or the other Loan Documents (including
principal, interest, the Final Payment payable with respect to any Loan, and any
fees or other amounts) remain unpaid after such amounts are due, or (ii) an
Event of Default has occurred and is continuing, Borrower shall pay interest on
the aggregate, outstanding balance hereunder from the date due or from the date
of the Event of Default, as applicable, until such past due amounts are paid in
full or until all Events of Defaults are cured, as applicable, at a per annum
rate equal to the Default Rate. All computations of such interest shall be based
on a year of 360 days for actual days elapsed.
2.7 MINIMUM FUNDING AMOUNT. Except with the prior consent of Lender, in
Lender's sole discretion, the amount of the requested Loan shall not be less
than the Minimum Funding Amount.
2.8 CREDITING PAYMENTS. The receipt by Lender of any wire transfer of
funds, check, or other item of payment shall be immediately applied
conditionally to reduce Obligations, but shall not be considered a payment on
account unless such wire transfer is of immediately available federal funds and
is made to the appropriate deposit account of Lender or unless and until such
check or other item of payment is honored when presented for payment.
Notwithstanding anything to the contrary contained herein, any wire transfer or
payment received by Lender after 11:00 a.m. California time shall be deemed to
have been received by Lender as of the opening of business on the immediately
following Business Day.
2.9 TERM. This Agreement shall become effective upon acceptance by
Lender and shall continue in full force and effect for a term ending on the
Maturity Date for the last Loan made hereunder. Notwithstanding the foregoing,
Lender shall have the right to terminate this Agreement if an Event of Default
has occurred and remains uncured for a period of more than two (2) days after
written notice from Lender.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL LOAN. The obligation of Lender to
make the initial Loan is subject to the condition precedent that Lender shall
have received, in form and substance satisfactory to Lender, all of the
following:
(a) This Agreement duly executed by Borrower.
(b) The Warrant to be issued to Lender duly executed by Borrower.
(c) Use its best efforts to obtain a Landlord Consent from the
owner of the building(s) in which Collateral is to be located.
(d) A certificate of the secretary or assistant secretary of
Borrower with copies of the following documents attached: (i) the certificate of
incorporation and bylaws of Borrower certified by Borrower as being in full
force and effect on the Funding Date, (ii) incumbency and representative
signatures, and (iii) resolutions authorizing the execution and delivery of this
Agreement and each of the other Loan Documents.
(e) Evidence of the insurance coverage required by SECTION 6.9 of
this Agreement.
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(f) All necessary consents of shareholders and other third
parties with respect to the execution, delivery and performance of this
Agreement, the Warrant and the other Loan Documents.
(g) Payment of any unreimbursed Lender's Expenses, limited to
$1,500.
(h) Such other documents, and completion of such other matters,
as Lender may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of Lender to make
each Loan, including the initial Loan, is further subject to the following
conditions:
(a) Evidence that no Default or Event of Default shall have
occurred and be continuing.
(b) Borrower shall have provided to Lender with respect to the
Collateral, such original invoices, bills of sale, receipts, agreements,
canceled checks, and other documents as Lender shall reasonably request to
evidence the ownership by Borrower of, the payment in full of the purchase price
of, and the fair market value of, such Collateral, each in form and substance
reasonably satisfactory to Lender.
(c) Borrower and Lender shall have executed a Loan Agreement
Supplement with respect to the proposed Loan.
(d) Lender shall have received such documents, instruments and
agreements, including UCC financing statements or amendments to UCC financing
statements, as Lender shall reasonably request to evidence the perfection and
priority of the security interests granted to Lender pursuant to SECTION 4.
(e) Borrower shall have delivered to Lender a subordination
agreement, release, or estoppel letter, as appropriate, from any Person having
an existing Lien superior to the Lien of Lender on any item of Collateral.
(f) Such other documents, and completion of such other matters,
as Lender may deem necessary or appropriate.
3.3 COVENANT TO DELIVER. Borrower agrees (not as a condition but as a
covenant) to deliver to Lender each item required to be delivered to Lender as a
condition to the Loan, if such Loan is advanced. Borrower expressly agrees that
the extension of such Loan prior to the receipt by Lender of any such item shall
not constitute a waiver by Lender of Borrower's obligation to deliver such item.
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants to Lender a valid, first
priority, continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt, full and complete
payment of any and all Obligations and in order to secure prompt, full and
complete performance by Borrower of each of its covenants and duties under each
of the Loan Documents.
4.2 DURATION OF SECURITY INTEREST. Lender's security interest in the
Collateral shall continue until the payment in full and the satisfaction of all
Obligations, whereupon such security interest shall terminate; provided,
however, if any item of Collateral is subject to an Event of Loss, then
following the prepayment of the Loan with respect to such item pursuant to
SECTION 2.5, Lender shall release its security interest in such item of
Collateral. Lender shall execute such further documents and take such further
actions as may be necessary to effect the release contemplated by this SECTION
4.2, including duly executing and delivering termination statements for filing
in all relevant jurisdictions under the Code.
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4.3 POSSESSION OF COLLATERAL. So long as no Event of Default has
occurred and is continuing, Borrower shall remain in full possession, enjoyment
and control of the Collateral (except only as may be otherwise required by
Lender for perfection of their security interest therein) and shall be entitled
to manage, operate and use the same and each part thereof with the rights and
franchises appertaining thereto; provided, however, that the possession,
enjoyment, control and use of the Collateral shall at all times be subject to
the observance and performance of the terms of this Agreement.
4.4 MARKINGS ON THE COLLATERAL. At Lender's request at any time during
the Term of the Loan (including any extension thereof), Borrower shall place in
a conspicuous location on each item of Collateral a plaque or other marking to
be supplied by Lender which reads substantially as follows:
Lighthouse Capital Partners II, L.P. has a first priority security
interest in this item of equipment
Such plaque or other marking shall not be removed (or if removed or damaged such
plaque or other marking shall be replaced) until the security interest in favor
of Lender in such item of Collateral is terminated pursuant to this Agreement.
4.5 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall from
time to time execute and deliver to Lender, all financing statements and other
documents such Lender may reasonably request, in form satisfactory to Lender, to
perfect and continue Lender's perfected security interests in the Collateral and
in order to consummate fully all of the transactions contemplated under the Loan
Documents.
4.6 RIGHT TO INSPECT. Lender (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents, warrants and covenants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower is a corporation duly
existing and in good standing under the laws of its state of incorporation and
qualified and licensed to do business in, and is in good standing in, any state
in which the conduct of its business or its ownership of Property requires that
it be so qualified or in which the Collateral is located, except for such states
as to which any failure so to qualify would not have a material adverse effect
on Borrower.
5.2 AUTHORITY. Borrower has all necessary power and authority to
execute, deliver, and perform in accordance with the terms thereof, the Loan
Documents to which it is a party. Borrower has all requisite power and authority
to own and operate its properties and to carry on its businesses as now
conducted.
5.3 SUBSIDIARIES. Borrower has no Subsidiaries, except those listed in
SCHEDULE 1 hereto.
5.4 CONFLICT WITH OTHER INSTRUMENTS, ETC. Neither the execution and
delivery of any Loan Document to which Borrower is a party nor the consummation
of the transactions therein contemplated nor compliance with the terms,
conditions and provisions thereof will conflict with or result in a breach of
any of the terms, conditions or provisions of the certificate of incorporation
and the by-laws, or other organizational documents of Borrower or any law or any
regulation, order, writ, injunction or decree of any court or governmental
instrumentality or any material agreement or instrument to which Borrower is a
party or by which it or any of its properties is bound or to which it or any of
its properties is subject, or constitute a default thereunder or result in the
creation or imposition of any Lien, other than Permitted Liens.
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5.5 AUTHORIZATION; ENFORCEABILITY. The execution and delivery of this
Agreement, the granting of the security interest in the Collateral, the
incurring of the Loans, the execution and delivery of the other Loan Documents
to which Borrower is a party and the consummation of the transactions herein and
therein contemplated have each been duly authorized by all necessary action on
the part of Borrower. The Loan Documents have been duly executed and delivered
and constitute legal, valid and binding obligations of Borrower, enforceable in
accordance with their respective terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency or other similar laws of general
application relating to or affecting the enforcement of creditors' rights or by
general principles of equity.
5.6 No PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to
the Collateral, free and clear of liens, claims, security interests, or
encumbrances, except for the first priority lien held by the Lender and except
for other Permitted Liens. Borrower has not acquired any part of the Collateral
from an assignor outside the ordinary course of such assignor's business.
5.7 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE, PRINCIPAL PLACE OF
BUSINESS AND COLLATERAL. Borrower has not done business under any name other
than that specified on the signature page hereof. The chief executive office,
principal place of business, and the place where Borrower maintains its records
concerning the Collateral are presently located at the address set forth on the
cover page. The Collateral is presently located at the addresses set forth on
the cover page.
5.8 LITIGATION. There are no actions or proceedings pending by or
against Borrower before any court or administrative agency in which an adverse
decision could have a material adverse effect on Borrower or the aggregate value
of the Collateral. Borrower does not have knowledge of any such pending or
threatened actions or proceedings. Borrower will promptly notify Lender in
writing if any action, proceeding or governmental investigation involving
Borrower is commenced that may result in damages or costs to Borrower of Fifty
Thousand Dollars ($50,000) or more.
5.9 FINANCIAL STATEMENTS. All financial statements relating to Borrower
or any Affiliate that have been or may hereafter be delivered by Borrower to
Lender present fairly in all material respects Borrower's financial condition as
of the date thereof and Borrower's results of operations for the period then
ended.
5.10 SOLVENCY. Borrower is solvent and able to pay its debts (including
trade debts) as they mature.
5.11 TAXES. Borrower has filed or caused to be filed all tax returns
required to be filed, and has paid, or has made adequate provision for the
payment of, all taxes that are due and payable.
5.12 CONSENTS AND APPROVALS. No approval, authorization or consent of
any trustee or holder of any indebtedness or obligation of Borrower or of any
other Person under any such material agreement, contract, lease or license or
similar document or instrument to which Borrower is a party or by which Borrower
is bound, is required to be obtained by Borrower in order to make or consummate
the transactions contemplated under the Loan Documents. All consents and
approvals of, filings and registrations with, and other actions in respect of,
all Governmental Authorities required to be obtained by Borrower in order to
make or consummate the transactions contemplated under the Loan Documents have
been, or prior to the time when required will have been, obtained, given, filed
or taken and are or will be in full force and effect.
5.13 TRADEMARKS, PATENTS, COPYRIGHTS, FRANCHISES AND LICENSES. Borrower
possesses and owns all necessary trademarks, trade names, copyrights, patents,
patent rights, franchises and licenses which are material to the conduct of its
business as now operated.
5.14 MATERIAL Contracts. Borrower has disclosed to Lender in writing all
currently effective contracts and agreements (whether written or oral) to which
Borrower is a party. There are no material defaults under any such contract or
agreement by Borrower. Borrower has delivered to Lender true and correct copies
of all
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such contracts or agreements (or, with respect to oral contracts or agreements,
written descriptions of the material terms thereof).
5.15 FULL DISCLOSURE. No representation, warranty or other
statement made by Borrower in any Loan Document, certificate or written
statement furnished to Lender contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained in such certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until the full and complete
payment of the Obligations and the termination of the Commitments, Borrower
shall do all of the following:
6.1 GOOD STANDING. Borrower shall maintain its corporate
existence and its good standing in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to so qualify
could have a material adverse effect on the financial condition, operations or
business of Borrower. Borrower shall maintain in force all licenses, approvals
and agreements, the loss of which could have a material adverse effect on its
financial condition, operations or business.
6.2 GOVERNMENT COMPLIANCE. Borrower shall comply with all
statutes, laws, ordinances and government rules and regulations to which it is
subject, noncompliance with which could materially adversely affect the
financial condition, operations or business of Borrower.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall
deliver to Lender: (a) as soon as available, but in any event within thirty (30)
days after the end of each month, a company prepared balance sheet, income
statement and cash flow statement covering Borrower's operations during such
period, certified by a responsible officer; (b) as soon as available, but in any
event within ninety (90) days after the end of Borrowers, fiscal year, audited
financial statements of Borrower prepared in accordance with generally accepted
accounting principles, consistently applied, together with an unqualified
opinion on such financial statements of A nationally recognized or other
independent public accounting firm reasonably acceptable to lender; (c) promptly
upon becoming available, copies of all statements, reports and notices sent or
made available generally by borrower to its security holders; (d) immediately
upon receipt of notice thereof, a report of any material legal actions pending
or threatened against Borrower; and (e) such other financial information as
Lender may reasonably request from time to time.
6.4 CERTIFICATES OF COMPLIANCE. Each time financial statements
are furnished pursuant to SECTION 6.3 above, there shall be delivered to Lender
a certificate signed by a Responsible Officer (each an "Officer's Certificate")
with respect to such financial reports to the effect that: (i) no Event of
Default or Default has occurred and is continuing hereunder since the date of
this Agreement or, if later, since the date of the prior Officer's Certificate
or, if such an event or condition has occurred and is continuing, the nature and
extent thereof and the action Borrower proposes to take with respect thereto,
and (ii) Borrower is in compliance with the provisions of SECTIONS 6 AND 7.
6.5 NOTICE OF EVENT OF LOSS. As soon as possible, and in any
event within ten (10) days thereafter, Borrower shall notify Lender in writing
in reasonable detail of any Event of Loss.
6.6 NOTICE OF DEFAULTS. As soon as possible, and in any event
within five (5) days after the discovery of a Default or an Event of Default
provide lender with an Officer's Certificate of Borrower setting forth the facts
relating to or giving rise to such Default or Event of Default and the action
which Borrower proposes to take with respect thereto.
6.7 TAXES. Borrower shall make due and timely payment or deposit
of all federal, state, and local taxes, assessments, or contributions required
of it by law or imposed upon any properties belonging to it, and
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will execute and deliver to Lender, on demand, appropriate certificates
attesting to the payment or deposit thereof; and Borrower will make timely
payment or deposit of all tax payments and withholding taxes required of it by
applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon request,
furnish Lender with proof satisfactory to Lender indicating that Borrower has
made such payments or deposits; provided that Borrower need not make any payment
if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is adequately reserved against by Borrower.
6.8 USE; MAINTENANCE.
(a) Borrower, at its expense, shall make all necessary
site preparations and cause the Collateral to be operated in accordance with any
applicable manufacturer's manuals or instructions. So long as no Default or
Event of Default has occurred and is continuing, Borrower shall have the right
to quietly possess and use the Collateral as provided herein without
interference by Lender.
(b) Borrower, at its expense, shall maintain the
Collateral in good condition, reasonable wear and tear excepted, and will comply
in all material respects with all laws, rules and regulations to which the use
and operation of the Collateral may be or become subject. Such obligation shall
extend to repair and replacement of any partial loss or damage to the
Collateral, regardless of the cause. If maintenance is mandated by manufacturer,
Borrower shall obtain and keep in effect, at all times during the Term
maintenance service contracts with suppliers approved by Lender, such approval
not to be unreasonably withheld. All parts furnished in connection with such
maintenance or repair shall immediately become part of the Collateral. All such
maintenance, repair and replacement services shall be immediately paid for and
discharged by Borrower with the result that no Lien will attach to the
Collateral.
6.9 INSURANCE.
Borrower shall obtain and maintain for the Term, at its own
expense, (a) "all risk" insurance against loss or damage to the Collateral, and
(b) commercial general public liability insurance (including contractual
liability, products liability and completed operations coverage's), reasonably
satisfactory to Lender and such other insurance against such other risks of loss
and with such terms, as shall in each case be reasonably satisfactory to or
reasonably required by Lender (as to carriers, amounts, deductibles and
otherwise). The amount of the "all risk" insurance shall be the greater of (i)
the replacement value of the Collateral (as new) or (ii) the Stipulated Loan
Value of the Loan Amount applicable to the Loans and all other then outstanding
amounts payable under the Loan Documents. Such amounts shall be determined to
Lender's reasonable satisfaction as of each anniversary date of this Agreement
and the appropriate amount of coverage shall be put in effect on the next
succeeding renewal or inception date of such insurance.
The amount of such commercial general public liability insurance
(other than products liability coverage and completed operations insurance)
shall be at least $2,000,000 per occurrence. The amount of such products
liability and completed operations insurance shall be at least $2,000,000 per
occurrence. The deductible with respect to the "all-risk" and product liability
insurance shall not exceed $25,000; otherwise there shall be no deductible with
respect to any insurance required to be maintained hereunder without the prior
written approval of Lender. Such "all risk" insurance shall: (a) name Lender as
sole loss payee with respect to the Collateral, (b) provide each insurer's
waiver of its right of subrogation against Lender and Borrower, and (c) provide
that such insurance (i) shall not be invalidated by any action of, or breach of
warranty by, Borrower of a provision of any of its insurance policies, and (ii)
shall waive set-off, counterclaim or offset against Lender. Each liability
policy shall (A) name Lender as an additional insured and (B) provide that such
insurance shall have cross-liability and severability of interest endorsements
(which shall not increase the aggregate policy limits of Borrower's insurance).
All insurance policies (C) shall provide that Borrower's insurance shall be
primary without a right of contribution of Lender's insurance, if any, or any
obligation on the part of Lender to pay premiums of Borrower, and (D) shall
contain a clause requiring the insurer to give Lender at least thirty (30) days
prior written notice of its cancellation (other than cancellation for
non-payment for which ten (10) days notice shall be sufficient). Borrower shall,
on or prior to the date of and prior to each policy renewal, furnish to Lender
certificates of insurance or other evidence satisfactory to Lender that such
insurance coverage is in effect.
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6.10 LOSS; DAMAGE; DESTRUCTION AND SEIZURE.
(a) Borrower shall bear the risk of the Collateral being
lost, stolen, destroyed, damaged beyond repair, rendered permanently unfit for
use, or seized by a governmental authority for any reason whatsoever at any time
until the expiration or termination of the Term.
(b) If during the Term any item of Collateral becomes
obsolete or is lost, stolen, destroyed, damaged beyond repair, rendered
permanently unfit for use, or seized by a governmental authority for any reason
whatsoever for a period equal to at least the remainder of the Term (an "Event
of Loss"), then in each case Lender shall receive from the proceeds of insurance
maintained pursuant to SECTION 6.9, from any award paid by the seizing
governmental authority or, to the extent not received from the proceeds of
insurance or award or both, from Borrower, on or before the Payment Date next
succeeding such Event of Loss, an amount equal to the sum of: (i) all accrued
and unpaid Scheduled Payments with respect to such Loan due prior to the next
such Payment Date, (ii) a prepayment in an amount equal to the Stipulated Loan
Value with respect to such Loan multiplied by the Prepayment Amount of each
affected item of Collateral and (iii) all other sums, if any, that shall have
become due and payable hereunder with respect to such Loan, including interest
at the Default Rate with respect to any past due amounts. On the date of receipt
by Lender of the amount specified above with respect to each such item of
Collateral subject to an Event of Loss, this Agreement shall terminate as to
such Collateral. Except as provided in SECTION 6.10(c), any proceeds of
insurance maintained by Borrower pursuant to SECTION 6.9 and received by
Borrower shall be paid to Lender promptly upon their receipt by Borrower. If any
proceeds of insurance or awards received from governmental authorities are in
excess of the amount owed under this SECTION 6.10, Lender shall promptly remit
to Borrower the amount in excess of the amount owed to Lender.
(c) So long as no Event of Default has occurred and is
continuing, any proceeds of insurance maintained pursuant to SECTION 6.9
received by Lender or Borrower with respect to an item of Collateral, the repair
of which is practicable, shall, at the election of Borrower, be applied either
to the repair or replacement of such Collateral or, upon Lender's receipt of
evidence of the repair or replacement of the Collateral reasonably satisfactory
to Lender, to the reimbursement of Borrower for the cost of such repair or
replacement. All replacement parts and equipment acquired by Borrower in
replacement of Collateral pursuant to this SECTION 6.10(c) shall immediately
become part of the Collateral upon acquisition by Borrower. Borrower shall take
such actions and provide such documentation as may be reasonably requested by
Lender to protect and preserve their first priority security interest and
otherwise to avoid any impairment of Lender's rights under the Loan Documents in
connection with such repair or replacement.
6.11 FURTHER ASSURANCES. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Lender to effect the purposes
of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that until the full and complete
payment of the Obligations and termination of the Commitments, Borrower will not
do any of the following:
7.1 CHIEF EXECUTIVE OFFICE; LOCATION OF COLLATERAL. During the
continuance of this Agreement, change the chief executive office or principal
place of business or remove or cause to be removed, except in the ordinary
course of Borrower's business, the Collateral or the records concerning the
Collateral from the premises listed on EXHIBIT E without thirty (30) days prior
written notice to Lender.
7.2 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter into
any transaction not in the ordinary and usual course of Borrower's business,
including the sale, lease, license or other disposition of, moving, relocation,
or transfer, whether by sale or otherwise, of Borrower's assets, other than (i)
sales of inventory in the ordinary and usual course of Borrower's business as
presently conducted and (ii) sales or other dispositions in
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the ordinary course of business of assets, other than Collateral, that have
become worn out or obsolete or that are promptly being replaced.
7.3 RESTRUCTURE. Change Borrower's name without at least twenty
(20) days prior written notice; make any material change in Borrower's financial
structure or business operations; cause, permit, or suffer any material change
in Borrower's ownership; or suspend operation of Borrower's business.
7.4 LIENS. Create, incur, assume or suffer to exist any Lien or
any other encumbrance of any kind with respect to any of its Property, whether
now owned or hereafter acquired, except for Permitted Liens on Property other
than the Collateral.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event
of Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay when due and
payable or when declared due and payable in accordance with the Loan Documents,
and such failure continues for a period of five (5) days after written notice
from Lender, any portion of the Obligations.
8.2 CERTAIN COVENANT DEFAULTS. If Borrower fails to perform any
obligation under SECTIONS 6.9, 6.10 or 6.11, or violates any of the covenants
contained in SECTION 7 of this Agreement.
8.3 OTHER COVENANT DEFAULTS. If Borrower fails or neglects to
perform, keep, or observe any other material term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the other Loan
Documents, or in any other present or future agreement between Borrower and
Lender and as to any default under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure such default within
thirty (30) days after the occurrence of such default.
8.4 MATERIAL ADVERSE CHANGE. If there occurs a material adverse
change in Borrower's business, or if there is a material impairment of the
prospect of repayment of any portion of the Obligations owing to Lender or a
material impairment of the value or priority of Lender's security interests in
the Collateral.
8.5 ATTACHMENT. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or Person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within fifteen (15) days, or if Borrower
is enjoined, restrained, or in any way prevented by court order from continuing
to conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within fifteen (15)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contesting by Borrower.
8.6 OTHER AGREEMENTS. If there is a default in any agreement to
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness.
8.7 JUDGMENTS. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days, provided that the
foregoing shall not constitute
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an Event of Default where such action or event is stayed or an adequate bond has
been posted pending a good faith contesting by Borrower.
8.8 MISREPRESENTATIONS. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty, representation,
statement, or report made to Lender by Borrower or any officer, employee, agent,
or director of Borrower.
8.9 BREACH OF WARRANT. If Borrower shall breach the terms of the
Warrant.
8.10 ENFORCEABILITY. If any Loan Document shall in any material
respect cease to be, or Borrower shall assert that any Loan Document is not, a
legal, valid and binding obligation of Borrower enforceable in accordance with
its terms.
8.11 INVOLUNTARY BANKRUPTCY OR INSOLVENCY. If a proceeding shall
have been instituted in a court having jurisdiction in the premises seeking a
decree or order for relief in respect of Borrower in an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or for the appointment of a receiver, liquidator, assignee, custodian,
trustee (or similar official) of Borrower or for any substantial part of its
property, or for the winding-up or liquidation of its affairs, and such
proceeding shall remain undismissed or unstayed and in effect for a period of
forty-five (45) consecutive days or such court shall enter a decree or order
granting the relief sought in such proceeding.
8.12 VOLUNTARY BANKRUPTCY OR INSOLVENCY. If Borrower shall
commence a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, shall consent to the entry of an order
for relief in an involuntary case under any such law, or shall consent to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian (or other similar official) of Borrower or for any
substantial part of its property, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate action in furtherance of any of the foregoing.
9. LENDER'S RIGHT'S AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and continuance of
any Default or Event of Default, Lender shall have no further obligation to
advance money or extend credit to or for the benefit of Borrower. In addition,
upon the occurrence and during the continuance of an Event Of Default, Lender
shall have the rights, options, duties and remedies of a secured party as
permitted by law and, in addition to and without limitation of the foregoing,
Lender may, at their election, without notice of election and without demand, do
any one or more of the following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, including the
Stipulated Loan Value of the Loan Amount of each Loan, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
SECTION 8.12 or 8.13 all Obligations shall become immediately due and payable
without any action by Lender);
(b) Without notice to or demand upon Borrower, make such
payments and do such acts as Lender consider necessary or reasonable to protect
their security interest in the Collateral. Borrower agrees to assemble the
Collateral if Lender so require, and to make the Collateral available to Lender
as Lender may designate. Borrower authorizes Lender to enter the premises where
the Collateral is located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Lender's determination appears to be prior or superior
to their security interest and to pay all expenses incurred in connection
therewith. With respect to any of Borrower's owned premises, Borrower hereby
grants Lender a license to enter into possession of such premises and to occupy
the same, without charge, for up to one hundred twenty (120) days in order to
exercise any of Lender's rights or remedies provided herein, at law, in equity,
or otherwise;
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(c) Without notice to Borrower, set off and apply to the
Obligations any and all indebtedness at any time owing to or for the credit or
the account of Borrower;
(d) Require Borrower (i) to assemble the Collateral and
make it available to Lender at a place reasonably designated by Lender; and (ii)
prior to the disposition of the Collateral, to ship, reclaim, recover, store,
finish, maintain, process, advertise for sale, repair or recondition it or
otherwise prepare it for disposition in any manner the Lender reasonably deems
appropriate. In connection therewith, Borrower hereby grants to Lender an
irrevocable, non-exclusive license (exercisable without royalty or other payment
by Lender, but only in connection with the proper exercise by Lender of its
remedies hereunder) to use, license, or sublicense any patent, trademark,
service mark, trade name, rights of use of any name, trade secret, trade dress,
copyright, patent or technical process, or any Property of similar nature
(collectively, "Intellectual Property") related to the Collateral in which
Debtor now or hereafter has any right, title or interest, to the extent (but
only to the extent) such use, license, or sublicense by Lender is reasonably
required for Lender to realize upon the inherent value of the Collateral. Lender
acknowledges that it has no right, title or interest in any of Borrower's
Intellectual Property, except as provided in the foregoing sentence, and that,
notwithstanding the foregoing sentence, no license for Lender's use, license or
sublicense of any Intellectual Property is granted by this Agreement, to the
extent such license or the use thereof (i) is prohibited by law or by any
license, contract, or agreement binding upon Borrower or (ii) would otherwise
violate, infringe upon, disparage, terminate or permanently diminish the
Debtor's right, title or interest in, such Intellectual Property or any license,
contract or agreement relating thereto.
(e) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
Lender determine are commercially reasonable;
(f) Lender may credit bid and purchase at any public sale;
and
(g) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 WAIVER BY BORROWER. Upon the occurrence of an Event of
Default, to the extent permitted by law, Borrower covenants that it will not at
any time insist upon or plead, or in any manner whatever claim or take any
benefit or advantage of, any stay or extension law now or at any time hereafter
in force, nor claim, take nor insist upon any benefit or advantage of or from
any law now or hereafter in force providing for the valuation or appraisement of
the Collateral or any part thereof prior to any sale or sales thereof to be made
pursuant to any provision herein contained, or to the decree, judgment or order
of any court of competent jurisdiction; nor, after such sale or sales, claim or
exercise any right under any statute now or hereafter made or enacted by any
state or otherwise to redeem the Property so sold or any part thereof, and, to
the full extent legally permitted, except as to rights expressly provided
herein, hereby expressly waives for itself and on behalf of each and every
Person, except decree or judgment creditors of Borrower acquiring any interest
in or title to the Collateral or any part thereof subsequent to the date of this
Agreement, all benefit and advantage of any such law or laws, and covenants that
it will not invoke or utilize any such law or laws or otherwise hinder, delay or
impede the execution of any power herein granted and delegated to Lender, but
will suffer and permit the execution of every such power as though no such
power, law or laws had been made or enacted.
9.3 EFFECT OF SALE. Any sale, whether under any power of sale
hereby given or by virtue of judicial proceedings, shall operate to divest all
right, title, interest, claim and demand whatsoever, either at law or in equity,
of Borrower in and to the Property sold, and shall be a perpetual bar, both at
law and in equity, against Borrower, its successors and assigns, and against any
and all Persons claiming the Property sold or any part thereof under, by or
through Borrower, its successors or assigns.
9.4 POWER OF ATTORNEY IN RESPECT OF THE COLLATERAL. Borrower does
hereby irrevocably appoint Lender (which appointment is coupled with an
interest) on the occurrence and continuance of a Default or
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an Event of Default, the true and lawful attorney in fact of Borrower with full
power of substitution, for it and in its name: (a) to ask, demand, collect,
receive, receipt for, sue for, compound and give acquaintance for any and all
rents, issues, profits, avails, distributions, income, payment draws and other
sums in which a security interest is granted under SECTION 4 with full power to
settle, adjust or compromise any claim thereunder as fully as if Lender were
Borrowers themselves, (b) to receive payment of and to endorse the name of
Borrower to any items of Collateral (including checks, drafts and other orders
for the payment of money) that come into such Lender's possession or under such
Lender's control, (c) to make all demands, consents and waivers, or take any
other action with respect to, the Collateral, (d) in Lender's discretion to file
any claim or take any other action or proceedings, either in its own name or in
the name of Borrower or otherwise, which Lender may reasonably deem necessary or
appropriate to protect and preserve the right, title and interest of Lender in
and to the Collateral, or (e) to otherwise act with respect thereto as though
Lender were the outright owner of the Collateral.
9.5 LENDER'S EXPENSES. If Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Lender may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves in Borrower's loan account as Lender deem necessary to protect Lender
from the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in SECTION 6.9 of this Agreement, and take any
action with respect to such policies as Lender deem prudent. Any amounts paid or
deposited by Lender shall constitute Lender's Expenses, shall be immediately due
and payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Lender
shall not constitute an agreement by Lender to make similar payments in the
future or a waiver by Lender of any Event of Default under this Agreement.
9.6 REMEDIES CUMULATIVE. Lender's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Lender shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Lender of one
right or remedy shall be deemed an election, and no waiver by Lender of any
Event of Default on Borrower's part shall be deemed a continuing waiver. No
delay by Lender shall constitute a waiver, election, or acquiescence by it.
9.7 APPLICATION OF COLLATERAL PROCEEDS. The proceeds and/or
avails of the Collateral, or any part thereof, and the proceeds and the avails
of any remedy hereunder (as well as any other amounts of any kind held by Lender
at the time of or received by Lender after, the occurrence of an Event of
Default hereunder) shall be paid to and applied as follows:
First, to the payment of out-of-pocket costs and expenses,
including all amounts expended to preserve the value of the Collateral, of
foreclosure or suit, if any, and of such sale and the exercise of any other
rights or remedies, and of all proper fees, expenses, liability and advances,
including reasonable legal expenses and attorneys' fees, incurred or made
hereunder by Lender;
Second, to the payment to Lender of the amount then owing or
unpaid on the Loans for Scheduled Payments, the Stipulated Loan Value of the
Loan Amount, and all other Obligations with respect to all Loans, and in case
such proceeds shall be insufficient to pay in full the whole amount so due,
owing or unpaid upon the Loans, then to the unpaid interest thereon, then to
unpaid principal thereof, then to the Stipulated Loan Value of the Loan Amount
with respect to the Loan, and then to the payment of other amounts then payable
to Lender under any of the Loan Documents; and
Third, to the payment of the surplus, if any, to Borrower, its
successors and assigns, or to whomsoever may be lawfully entitled to receive the
same.
9.8 REINSTATEMENT OF RIGHTS. If Lender shall have proceeded to
enforce any right under this Agreement or any other Loan Document by
foreclosure, sale, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason or shall have been determined
adversely, then and in every such case (unless otherwise ordered by a court of
competent jurisdiction), Lender shall be restored to their former
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position and rights hereunder with respect to the Property subject to the
security interest created under this Agreement.
10. WAIVERS; INDEMNIFICATION
10.1 DEMAND; PROTEST. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Lender on which Borrower may in any way be
liable.
10.2 LENDER'S LIABILITY FOR COLLATERAL. So long as Lender
complies with its obligations, if any, under Section 9207 of the Code, Lender
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person whomsoever. All risk of loss, damage or destruction of the
Collateral shall be borne by Borrower.
10.3 INDEMNIFICATION. Whether or not the transactions
contemplated hereby shall be consummated:
(a) GENERAL INDEMNITY. Borrower shall pay, indemnify, and
hold Lender and each of its officers, directors, employees, counsel, partners,
agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, charges, expenses or disbursements (including
Lender's Expenses and reasonable attorney's fees and the allocated cost of
in-house counsel) of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement and any other Loan Documents, or the transactions contemplated hereby
and thereby, and with respect to any investigation, litigation or proceeding
(including any case, action or proceeding before any court or other Governmental
Authority relating to bankruptcy, reorganization, insolvency, liquidation,
dissolution or relief of debtors or any appellate proceeding) related to this
Agreement or the Loans or the use of the proceeds thereof, whether or not any
Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, that Borrower shall have no obligation
hereunder to any Indemnified Person with respect to Indemnified Liabilities
arising from the gross negligence or willful misconduct of such Indemnified
Person.
(b) SURVIVAL; DEFENSE. The obligations in this SECTION
10.3 shall survive payment of all other Obligations. At the election of any
Indemnified Person, Borrower shall defend such Indemnified Person using legal
counsel satisfactory to such Indemnified Person in such Person's sole
discretion, at the sole cost and expense of Borrower. All amounts owing under
this SECTION 10.3 shall be paid within thirty (30) days after written demand.
11. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by certified mail,
postage prepaid, return receipt requested, or by prepaid facsimile to Borrower
or to Lender, as the case may be, at their respective addresses set forth below:
If to Borrower: Internet Access Financial Corporation
595 Market Street, Suite 950
San Francisco, CA 94105
FAX: (415) 836-9701
Attn: John Hashman, CFO
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Internet Access Financial Corporation
595 Market Street, Suite 950
San Francisco, CA 94105
FAX: (415) 836-9701
Attn: Robert Linderman, Secretary
If to Lender: Lighthouse Capital Partners II, L.P.
100 Drake's Landing Road, Suite 260
Greenbrae, California 94904-3121
Attention: Contract Administrator
FAX: (415) 925-3387
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Lender's prior written consent, which
consent may be granted or withheld in Lender's sole discretion. Lender shall
have the right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participation's in all or any part of, or any interest in
such Lender's rights and benefits hereunder.
12.2 TIME OF ESSENCE. Time is of the essence for the performance
of all obligations set forth in this Agreement.
12.3 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.4 ENTIRE AGREEMENT; CONSTRUCTION; AMENDMENTS AND WAIVERS.
(a) This Agreement and each of the other Loan Documents
dated as of the date hereof, taken together, constitute and contain the entire
agreement between Borrower and Lender and supersede any and all prior
agreements, negotiations, correspondence, understandings and communications
between the parties, whether written or oral, respecting the subject matter
hereof.
(b) This Agreement is the result of negotiations between
and has been reviewed by each of Borrower and Lender executing this Agreement as
of the date hereof and their respective counsel; accordingly, this Agreement
shall be deemed to be the product of the parties hereto, and no ambiguity shall
be construed in favor of or against Borrower or Lender. Borrower and Lender
agree that they intend the literal words of this Agreement and the other Loan
Documents and that no parol evidence shall be necessary or appropriate to
establish Borrower's or Lender's actual intentions.
(c) Any and all amendments, modifications, discharges or
waivers of, or consents to any departures from any provision of this Agreement
or of any of the other Loan Documents shall not be effective without the written
consent of Lender. Any waiver or consent with respect to any provision of the
Loan Documents shall be effective only in the specific instance and for the
specific purpose for which it was given. No notice to or demand on Borrower in
any case shall entitle Borrower to any other or further notice or demand in
similar or other circumstances. Any amendment, modification, waiver or consent
effected in accordance with this SECTION 12.4 shall be binding upon Lender and
on Borrower.
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12.5 RELIANCE BY LENDER. All covenants, agreements,
representations and warranties made herein by Borrower shall, notwithstanding
any investigation by Lender, be deemed to be material to and to have been relied
upon by Lender.
12.6 NO SET-OFFS BY BORROWER. All sums payable by Borrower
pursuant to this Agreement or any of the other Loan Documents shall be payable
without notice or demand and shall be payable in United States Dollars without
set-off or reduction of any manner whatsoever.
12.7 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, shall be deemed to be an original, and all
of which, when taken together, shall constitute but one and the same Agreement.
12.8 SURVIVAL. All covenants, representations and warranties made
in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Lender
with respect to the expenses, damages, losses, costs and liabilities described
in SECTION 10.3 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Lender have run.
12.9 CONFIDENTIALITY. In handling any confidential information,
Lender shall exercise the same degree of care that it exercises with respect to
its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Lender in connection with their
present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they have
entered into a comparable confidentiality agreement in favor of Borrower and
have delivered a copy to Borrower, (iii) as required by law, regulations, rule
or order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Lender, and
(v) as Lender may deem appropriate in connection with the exercise of any
remedies hereunder. Confidential information hereunder shall not include
information that either: (a) is in the public domain or in the knowledge or
possession of Lender when disclosed to Lender, or becomes part of the public
domain after disclosure to Lender through no fault of Lender; or (b) is
disclosed to Lender by a third party, provided Lender does not have actual
knowledge that such third party is prohibited from disclosing such information.
13. RELATIONSHIP OF PARTIES. Borrower and Lender acknowledge, understand
and agree that the relationship between the Borrower, on the one hand, and
Lender, on the other, is, and at all time shall remain solely that of a borrower
and lender. Lender shall not under any circumstances be construed to be a
partner or joint venturer of Borrower or any of its Affiliates; nor shall the
Lender under any circumstances be deemed to be in a relationship of confidence
or trust or a fiduciary relationship with Borrower or any of its Affiliates, or
to owe any fiduciary duty to Borrower or any of its Affiliates. Lender do not
undertake or assume any responsibility or duty to Borrower or any of its
Affiliates to select, review, inspect, supervise, pass judgment upon or
otherwise inform the Borrower or any of its Affiliates of any matter in
connection with its or their Property, any Collateral held by Lender or the
operations of Borrower or any of its Affiliates. Borrower and each of its
Affiliates, shall rely entirely on their own judgment with respect to such
matters, and any review, inspection, supervision, exercise of judgment or supply
of information undertaken or assumed by Lender in connection with such matters
is solely for the protection of Lender and neither Borrower nor any Affiliate is
entitled to rely thereon.
14. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF BORROWER
AND LENDER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL
COURTS LOCATED IN THE COUNTY OF SANTA CLARA, STATE OF CALIFORNIA. BORROWER AND
LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF
THE
20
<PAGE> 21
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BORROWER: LENDER:
INTERNET ACCESS FINANCIAL CORPORATION LIGHTHOUSE CAPITAL PARTNERS II, L.P.
By: /s/ JEREMY LENT By: LIGHTHOUSE MANAGEMENT
---------------------------------- PARTNERS II, L.P.,
its general partner
Name: Jeremy Lent
---------------------------------
By: LIGHTHOUSE CAPITAL PARTNERS, INC.,
Title: Chairman and CEO its general partner
-------------------------------
By: /s/ RICHARD D. STUBBLEFIELD
---------------------------------
Name: Richard D. Stubblefield
-------------------------------
Title: Managing Director
------------------------------
Exhibit A - Collateral
Exhibit B - Form of Warrant
Exhibit C - Form of Landlord Consent
Exhibit D - Form of Loan Agreement Supplement
Exhibit E - List of Collateral Locations
Schedule 1 - Existing Liens
Schedule 2 - Subsidiaries
21
<PAGE> 22
EXHIBIT A
DEBTOR/BORROWER: INTERNET ACCESS FINANCIAL CORPORATION
SECURED PARTY/LENDER: LIGHTHOUSE CAPITAL PARTNERS II, L.P.
COLLATERAL
The Collateral shall consist of all right, title and interest of Debtor
in and to all the following:
All right, title, interest, claims and demands of Debtor in and to each
and every item of equipment, fixtures or personal property which is financed
with a "Loan" pursuant to that certain Loan and Security Agreement No. 20601,
dated as of June 17, 1998 (the "Loan Agreement"), by and among Debtor and
Secured Party, including, without limitation, the equipment, fixtures and
personal property described in ANNEX A hereto (which such equipment, fixtures
and personal property shall remain subject to the lien of the Loan Agreement
until specifically released pursuant to SECTION 4.2 of the Loan Agreement),
whether now owned or hereafter acquired, together with all substitutions,
renewals or replacements of and additions, improvements, accessions and
accumulations to any and all of such equipment, fixtures or personal property
(all such equipment, fixtures, personal property, accessories, parts,
appurtenances, substitutions, renewals, replacements, additions, improvements,
accessions and accumulations are herein called, collectively, the "Financed
Equipment"), together with all the rents, issues, income, profits and avails
therefrom and the proceeds thereof, including, without limitation, insurance,
condemnation, requisition or similar payments, and all proceeds from sales,
renewals, releases or other dispositions thereof.
<PAGE> 23
ANNEX A
TO
EXHIBIT A
The following represent further specific descriptions of the Financed
Equipment:
FINANCED EQUIPMENT
<PAGE> 24
EXHIBIT B
THIS WARRANT AND THE SECURITIES WHICH MAY BE PURCHASED UPON THE EXERCISE OF THIS
WARRANT HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH SALE OR OFFER IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND OF ANY APPLICABLE STATE
SECURITIES LAWS UNLESS SOLD PURSUANT TO RULE 144 OF THE ACT.
VOID AFTER MAY 28,2003
INTERNET ACCESS FINANCIAL CORPORATION
WARRANT TO PURCHASE 8,621 SHARES OF SERIES C-1 PREFERRED STOCK
THIS CERTIFIES THAT, for value received, Lighthouse capital Partners IL
L.P. (the "Holder") is entitled to subscribe for and purchase eight thousand six
hundred twenty one (8,621) shares (as adjusted pursuant to Section 4 hereof) of
the fully paid and nonassessable Series C-1 Preferred Stock (the "Series C-1
Preferred Stock") of Internet Access Financial Corporation, A California
corporation (the "Company"), at the price (the "Exercise Price") of five dollars
eighty cents ($5.80) per share (as adjusted pursuant to Section 4 hereof).
1. Conversion of Series C-1 Preferred Stock. Reference is hereby made to
Article FOURTH, Section 4(b) of the Company's Second Amended and Restated
Articles of Incorporation, describing the circumstances under which the Series
C-1 Preferred Stock will be converted automatically into shares of the Company's
Common Stock ("Common Stock") (a "Conversion Event"). Upon the occurrence of any
Conversion Event, (i) this Warrant will no longer entitle the Holder to
subscribe for or purchase any shares of Series C-1 Preferred Stock, but shall
only entitle the Holder to subscribe for and purchase that number of shares of
Common Stock equal to the number of shares of Common Stock into which the shares
of Series C-1 Preferred Stock that may be acquired pursuant to the terms of
this Warrant are then convertible, and (ii) the provisions hereof (including,
without limitation, the provisions for the adjustment of the Exercise Price and
the number of shares purchasable upon exercise of this Warrant, and the
provisions relating to the net issue exercise) shall thereafter be applicable to
any shares of Common Stock deliverable upon the exercise hereof. For purposes
of this Warrant, the term "Shares" as used herein shall mean either (i) the
shares of Series C-1 Preferred Stock for which this Warrant may be exercised
prior to any
1
<PAGE> 25
Conversion Event, or (ii) the shares of Common Stock for which this Warrant may
be exercised following any Conversion Event.
2. Method of Exercise; Payment.
(a) Cash Exercise. The purchase rights represented by this Warrant may
be exercised by the Holder, in whole or in part, by the surrender of this
Warrant (with the notice of exercise form attached hereto as Exhibit D-1 duly
executed) at the principal office of the Company, and by the payment to the
Company, by certified, cashier's or other check acceptable to the Company, of an
amount equal to the aggregate Exercise Price of the Shares being purchased.
(b) Net Issue Exercise.
(i) In lieu of exercising this Warrant, the Holder may elect to
receive shares of Series C-1 Preferred Stock (or, following any Conversion
Event, shares of Common Stock) equal to the value of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with notice of such election, in which event the
Company shall issue to the Holder a number of shares of Series C-1 Preferred
Stock or Common Stock, as the case may be, computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares to be issued to the Holder.
Y = the number of shares purchasable under this Warrant.
A = the Fair Market Value of one share of the Series C-1 Preferred Stock.
B = the Exercise Price (as adjusted to the date of such calculation).
(c) Fair Market Value. For purposes of this Section 2, the Fair Market
Value of the Series C-1 Preferred Stock shall mean the value per share as
determined in good faith by the Board of Directors of the Company. Following the
occurrence of any Conversion Event, for purposes of the above calculation the
Fair Market Value of one share of the Series C-1 Preferred Stock shall mean (i)
if the Common Stock is not traded over-the-counter or on an exchange, then the
value per share as determined in good faith by the Board of Directors of the
Company, or (ii) the average of the closing bid and ask prices of the Common
Stock quoted in the Over-the-Counter Market Summary or the closing price quoted
on any exchange on which the Common Stock is listed, whichever is applicable, as
published in the Western Edition of The Wall Street Journal for the ten trading
days prior to the date of determination of fair market value, in either case
multiplied by (iii) the number of shares of Common Stock into which each share
of Series C-1 Preferred Stock would otherwise be convertible.
2
<PAGE> 26
(d) Stock Certificates. In the event of any exercise of the rights
represented by this Warrant, certificates for the Shares so purchased shall be
delivered to the Holder within a reasonable time and, unless this Warrant has
been fully exercised or has expired, a new Warrant representing the Shares with
respect to which this Warrant shall not have been exercised shall also be issued
to the Holder within such time.
(e) Fractional Shares. No fractional Shares will be issued in connection
with any exercise hereunder. In lieu of such fractional Shares the Company shall
make a cash payment therefor based upon the Exercise Price then in effect.
3. Representations of the Company.
(a) Stock Fully Paid; Reservation of Shares. All of the Shares issuable
upon the exercise of the rights represented by this Warrant will, upon issuance
and receipt of the Exercise Price therefor, be fully paid and nonassessable, and
free from all taxes, liens and charges with respect to the issue thereof. During
the period within which the rights represented by this Warrant may be exercised,
the Company shall at all times have authorized and reserved for issuance
sufficient shares of its Series C-1 Preferred Stock and its Common Stock to
provide for the exercise of the rights represented by this Warrant.
(b) Corporate Action. The Company represents that all corporate actions
on the part of the Company, its officers, directors and shareholders necessary
for the sale and issuance of the Shares pursuant hereto and the performance of
the Company's obligations hereunder were taken prior to and are effective as of
the effective date of this Warrant.
4. Adjustment of Exercise Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price therefor shall be subject to adjustment from time to time upon
the occurrence of certain events, as follows:
(a) Reclassification, Consolidation or Merger. In case of any
reclassification or change of the Common Stock (other than a change in par
value, or as a result of a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is a continuing
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant, other than a
Conversion Event), or in case of any sale of all or substantially all of the
assets of the Company, the Company, or such successor or purchasing corporation
as the case may be, shall execute a new Warrant, providing that Holder shall
have the right to exercise such new Warrant, and procure upon such exercise and
payment of the same aggregate Exercise Price, in lieu of the shares of Series
C-1 Preferred Stock or Common Stock heretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, change, consolidation, sale of
all or substantially all of the Company's assets or merger by a bolder of an
equivalent number of
3
<PAGE> 27
shares of Series C-1 Preferred Stock or Common Stock, as the case may be. Such
new Warrant shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 4.
(b) Stock Splits, Dividends and Combinations. In the event that the
Company shall at any time subdivide or issue a stock dividend on the outstanding
shares of Series C-1 Preferred Stock, the number of shares issuable upon
exercise of this Warrant immediately prior to such subdivision or stock dividend
shall be proportionately increased, and the Exercise Price shall be
proportionately decreased. In the event that the Company shall at any time
combine the outstanding shares of Series C-1 Preferred Stock, the number of
shares issuable upon exercise of this Warrant immediately prior to such
combination shall be proportionately decreased, and the Exercise Price shall be
proportionately increased, effective at the close of business on the date of
such subdivision, stock dividend or combination, as the case may be.
(c) Notice of Adjustments. Whenever the number of Shares purchasable
hereunder or the Exercise Price thereof shall be adjusted pursuant to Section
4(b) hereof, the Company shall provide notice by first class mail to the holder
of this Warrant setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the number of Shares which may be purchased and the Exercise
Price therefor after giving effect to such adjustment
5. Investment Representations. In connection with any purchase of Shares
hereunder, Holder represents to the Company the following:
(a) Holder is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Shares. Holder is purchasing
the Shares for investment for Holder's own account only and not with a view to,
or for resale in connection with, any "distribution" thereof within the meaning
of the Securities Act of 1933, as amended (the "Securities Act").
(b) Holder understands that the Shares have not been registered under
the Securities Act by reason of a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of holder's investment
intent as expressed herein. In this connection, Holder understands that, in view
of the Securities And Exchange Commission (the "Commission"), the statutory
basis for such exemption may not be present if Holder's present intention is to
hold the Shares for a minimum capital gains period under applicable tax
statutes, for a deferred sale, for a market rise, for a sale if the market does
not rise, or for a year or any other fixed period in the future.
(c) Holder further acknowledges and understands that the Shares must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Holder further
acknowledges and understands that the Company is under no obligation to register
the Shares, except as provided in the Second Amended and Restated Investors'
Rights Agreement. Holder understands that the certificate evidencing the Shares
will be
4
<PAGE> 28
imprinted with a legend which prohibits the transfer of the Shares unless they
are registered or such registration is not required in the opinion of counsel
satisfactory to the Company, or unless sold pursuant to Rule 144 of the Act.
6. Stock Certificate Legends. The share certificate evidencing the
Shares issued hereunder shall be endorsed with any legend required by any
applicable state securities laws, as well as with the following legends:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN
BY THE ISSUEE FOR INVESTMENT PURPOSES. SAID SHARES MAY NOT BE SOLD OR
TRANSFERRED UNLESS (A) THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B)
THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS ITS OWN TRANSFER
AGENT) IS PRESENTED WITH EITHER A WRITTEN OPINION OF COUNSEL
SATISFACTORY TO COUNSEL FOR THE COMPANY OR A "NO-ACTION" LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE CIRCUMSTANCES OF SUCH SALE OR TRANSFER, OR UNLESS
TRANSFERRED PURSUANT TO RULE 144 OF THE ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
ISSUEE, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
7. Restrictions Upon Transfer.
(a) The Company need not register a transfer of Shares bearing the
restrictive legend set forth in Section 6 hereof, unless the conditions
specified in such legend are satisfied. The Company may also instruct its
transfer agent not to register the transfer of the Shares, unless one of the
conditions specified in the legend referred to in Section 6 hereof is satisfied.
(b) Notwithstanding the provisions of paragraph (a) above, no opinion of
counsel or "no-action" letter shall be necessary for a transfer without
consideration by any Holder (i) to an affiliate of the Holder, (ii) if such
Holder is a partnership, to a partner or retired partner of such partnership who
retires after the date hereof or to the estate of any such partner or retired
partner, (iii) if such Holder is a corporation, to a shareholder of such
corporation, or to any other corporation under common control, direct or
indirect, with such Holder, or (iv) by gift, will or intestate succession of any
individual holder to his spouse or siblings, or to the lineal descendants or
ancestors of such Holder or his spouse, if the transferee agrees in writing to
be subject to the terms hereof to the same extent as if such transferee were the
original holder hereunder.
5
<PAGE> 29
8. Rights of Shareholders. No holder of this Warrant shall be entitled,
as a Warrant holder, to vote or receive dividends or be deemed the holder of
either Series C-1 Preferred Stock or Common Stock or any other securities of
the Company which may at any time be issuable on the exercise hereof for any
purpose, nor shall anything contained herein be construed to confer upon the
holder of this Warrant, as such, any of the rights of a shareholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, or to give or withhold consent
to any corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have been
exercised and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein.
9. Term of Warrant. This Warrant is exercisable, in whole or in part, at
any time on or before May 28, 2003. Not less than thirty (30) days prior to the
expiration of this Warrant, the Company will give written notice to the Holder
of the upcoming expiration of this Warrant.
10. Notices. All notices and other communications from the Company to
the Holder shall be mailed by overnight courier or by first-class, registered or
certified mail, postage prepaid, to the address furnished to the Company in
writing by the last Holder who has furnished an address to the Company in
writing. Notice shall be deemed given one (1) day after deposit with an
overnight courier service, three (3) days after deposit in the mails as
aforesaid or upon delivery if personally delivered.
11. Change; Waiver. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
6
<PAGE> 30
12. Governing Law. This Warrant is being delivered in the State of
California and shall be construed and enforced in accordance with and governed
by the laws of such State.
Issued as of this 29th day of May, 1998.
Internet Access Financial Corporation
By:
--------------------------------------
Jeremy Lent
Title:
------------------------------------
Chairman & Chief Executive Officer
HOLDER
Lighthouse Capital Partners II, L.P.
By: Lighthouse Management Partners II, L.P.,
Its General Partner
By: Lighthouse Capital Partners, Inc.
Its General Partner
By:
---------------------------------------
Richard D. Stubblefield
Managing Director
7
<PAGE> 31
Exhibit D-1
NOTICE OF EXERCISE
TO: Internet Access Financial Corporation
595 Market Street, Suite 950
San Francisco, CA 94105
Attention: Secretary
1. The undersigned hereby elects to purchase ________ shares of the
Series C-1 Preferred Stock or, following the occurrence of any Conversion Event,
the Common Stock (the "Shares") of Internet Access Financial Corporation
pursuant to the terms of the attached Warrant.
2. Method of Exercise (Please initial the applicable blank):
[ ] The undersigned elects to exercise the attached Warrant by
means of a cash payment, and tenders herewith payment in full
for the purchase price of the shares being purchased, together
with all applicable transfer taxes, if any.
[ ] The undersigned elects to exercise the attached Warrant by means
of the net exercise provisions of Section 2(b) of the Warrant.
3. Please issue a certificate or certificates representing said Shares
in the name of the undersigned or in such other name as is specified below:
-------------------------------
(Name)
-------------------------------
-------------------------------
(Address)
4. The undersigned hereby represents and warrants that the aforesaid
Shares are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof,
and that the undersigned has no present intention of distributing or reselling
such shares and all representations and warranties of the undersigned set forth
in Section 5 of the attached Warrant are true and correct as of the date hereof.
In support thereof, the undersigned hereby delivers an Investment Representation
Statement in a form substantially similar to the form attached to the Warrant as
Exhibit D-2.
-----------------------------------
(Signature)
Title:
-----------------------------
Date:
------------------------------
<PAGE> 32
Exhibit D-2
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: LIGHTHOUSE CAPITAL PARTNERS II, L.P.
SECURITY: SERIES C-1 PREFERRED STOCK OR (SUBJECT TO THE OCCURRENCE OF A
CONVERSION EVENT, AS DESCRIBED IN THE WARRANT) COMMON STOCK
ISSUED UPON EXERCISE OF THE STOCK PURCHASE WARRANT ISSUED ON
MAY 29,1998
AMOUNT: _______ SHARES
DATE: _______
In connection with the purchase of the above-listed Securities, the Purchaser
represents to the Company the following:
(b) Purchaser is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Purchaser is
purchasing these Securities for its own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act").
(c) Purchaser understands that the Securities have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of its
investment intent as expressed herein. In this connection, Purchaser understands
that, in the view of the Securities and Exchange Commission (the "SEC"), the
statutory basis for such exemption may be unavailable if its representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future.
(d) Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, Purchaser
understands that the Company is under no obligation to register the Securities.
In addition, Purchaser understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel for the Company, or unless transferred under Rule 144
under the Securities Act.
(e) Purchaser is familiar with the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof, in a non-public offering subject to the satisfaction of certain
conditions.
<PAGE> 33
The Securities may be resold in certain limited circumstances subject to
the provisions of Rule 144, which requires among other things: (1) the
availability of certain public information about the Company, (2) the resale
occurring not less than one year after the party has purchased, and made full
payment for, within the meaning of Rule 144, the securities to be sold; and, in
the case of an affiliate, or of a non-affiliate who has held the securities less
than two years, (3) the sale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934) and the amount of
securities being sold during any three month period not exceeding the specified
limitations stated therein, if applicable.
(f) Purchaser further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 are
not exclusive, the Staff of the SEC has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 will have a substantial burden
of proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
Lighthouse Capital Partners II, L.P.
By: Lighthouse Management Partners II, L.P.,
Its General Partner
By: Lighthouse Capital Partners, Inc.
Its General Partner
By:
-------------------------------
Richard D. Stubblefield
Managing Director
2
<PAGE> 34
Exhibit D-3
FORM OF TRANSFER
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _________________________ the right represented by the attached Warrant to
purchase _______ * shares of the Series C-1 Preferred Stock or (subject to the
occurrence of a conversion event, as described in the warrant) the Common Stock
of Internet Access Financial Corporation, to which the attached Warrant relates,
and appoints ________ Attorney to transfer such right on the books of Internet
Access Financial Corporation, with full power of substitution in the premises.
Dated:______________________
-----------------------------------------------
(Signature must conform in all respects to name
of Holder as specified on the face of the
Warrant)
-----------------------------------------------
(Address)
Signed in the presence of-
- -------------------------------
* Insert here the number of shares without making any adjustment for
additional shares of Series C-1 Preferred Stock or (subject to the occurrence of
a conversion event, as described in the warrant) the Common Stock or any other
stock or other securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
<PAGE> 1
EXHIBIT 10.18
CARDHOLDER REWARDS PROGRAM AGREEMENT
This Cardholder Rewards Program Agreement, including the attachments and
exhibits hereto, each of which is specifically incorporated herein by reference
(collectively the "Agreement") is made as of June 22, 1998 (the "Effective
Date") by and between Internet Access Financial Corporation ("IAFC") and
Intellipost(TM) Corporation ("Intellipost").
WHEREAS, IAFC, in conjunction with Heritage Bank of Commerce ("Heritage
Bank"), markets and issues VISA(R) credit cards under the brand name
"NextCard(SM)"; and
WHEREAS, Intellipost owns and operates a direct electronic advertising
and rewards program under the name "BonusMail(TM)" whereby participants may earn
and accumulate credits ("Rew@rds Credits"), redeemable for online and/or retail
services and merchandise; and
WHEREAS, as part of the NextCard Rewards Program (the "NextCard
Program"), IAFC wishes to make Rew@rds Credits available to NextCard
accountholders (individually an "Accountholder" and collectively the
"Accountholders") on the terms and conditions more fully set forth in this
Agreement,
NOW, THEREFORE, IAFC and Intellipost hereby agree as follows:
1. Purpose. The purposes of this Agreement are to enable (A)
Accountholders to accumulate Rew@rds Credits for NextCard purchase activity, (B)
IAFC to offer this additional NextCard feature to potential Accountholders and
(C) Intellipost to expand its member base by encouraging Accountholders who join
the NextCard Program to become members of BonusMail, through which such
BonusMail Members will be rewarded for receiving, reading and responding to
direct response offers.
2. Program Management.
2.1 Enrollment. At the time an applicant is approved for a
NextCard, IAFC will extend to that Accountholder the opportunity to enroll in
the NextCard Program by supplying a hyperlink to the Intellipost system.
Intellipost will serve a unique web page linked to the IAFC system, which page
will contain an online registration form. Intellipost will accept every
Accountholder submitting a properly completed registration form, and will assign
to such Accountholders the unique alphanumeric identifier (the "Accountholder
Number") contained in the referring universal resource locator string passed
from IAFC to Intellipost. Not more than five (5) business days after the end of
each calendar month, Intellipost will provide to IAFC the name and Accountholder
Number and the date of enrollment in BonusMail of each Accountholder so
registered (the "BonusMail Enrollment Date").
(C) NEXTCARD, 1998 1
<PAGE> 2
2.1.1 BonusMail Membership. Acceptance of each registration form
described in the preceding paragraph will constitute such Accountholders as
members of BonusMail. IAFC acknowledges that, notwithstanding such
Accountholders' membership in the NextCard Program, membership in the BonusMail
program is subject to the terms and conditions of the BonusMail Member
Agreement, a copy of which is attached hereto as Exhibit 2.1.1.
2.1.2 Intellipost Restrictions. Intellipost agrees that, with
respect to each Accountholder who joins the NextCard program and registers with
Intellipost pursuant to the provisions of Paragraph 2.1 and (A) who is not
already a member of BonusMail or (B) who does not agree to receive additional
BonusMail e-mail advertisements, Intellipost will not solicit such
Accountholders for the purpose of receiving additional BonusMail e-mail
advertisements more than twice in the first ninety (90) days of any
Accountholder's membership and, thereafter, not more than once in any
consecutive three-month period. Intellipost may send BonusMail Bulletins,
Newsletters, and administrative notices to Accountholders up to two times per
month, or more frequently with the advance written consent of IAFC. Intellipost
will not send to any Accountholder any e-mail advertisement associated with any
VISA or MasterCard program other than NextCard; such exclusionary provision
shall not include any other credit card program, including American Express.
2.2 Account Management and Payment.
2.2.1 Portfolio Activity Report. As soon as possible following the
end of each month (but no more than ninety (90) days from the end of such
month), IAFC will furnish to Intellipost a portfolio activity report (the
"Portfolio Activity Report"), which report will contain, with respect to each
NextCard accountholder who has joined the NextCard Program, (A) each
Accountholder's name, (B) the Accountholder Number associated with each
Accountholder's account, (C) the points multiplier associated with each
Accountholder Number, (D) the net purchase activity processed for the benefit of
each Accountholder for the preceding month (or, in the case of the first month,
from the BonusMail Enrolment Date through the last calendar date of such month),
(E) the number of Rew@rds Credits to be credited to each Accountholder's account
and (F) a detail of the amount due to Intellipost. IAFC will include with each
Portfolio Activity Report a check, payable to Intellipost, for the amount due to
Intellipost.
2.2.1.1 Points Multiplier. The points multiplier associated with
each Accountholder Number shall be "0," "5" or "10," depending upon whether that
Accountholder is entitled to "0" Rew@rds Credits for that month (i.e., for
Balance Transfer accounts which are in "non-revolver" status), "5" Rew@rds
Credits for each dollar of net purchase activity (for non-Balance Transfer
accounts paying IAFC an enrollment fee or for minimum initial Balance Transfer
accounts) or "10" Rew@rds Credits for each dollar of net purchase activity (for
maximum initial Balance Transfer accounts). From time to time, IAFC and
Intellipost may mutually determine to offer certain promotions for which a
different points multiplier may be used. In that event, this Agreement may be
amended by the mutual consent of the parties with reference to this
(C) NEXTCARD, 1998 2
<PAGE> 3
Paragraph 2.2.1.1. Six (6) months from the Effective Date, should the "10"
points multiplier comprise more than sixty-five percent (65%) of the total of
all Rew@rds Credits credited pursuant to this Agreement, the parties will
negotiate in good faith an adjustment, pursuant to the provisions set forth in
Paragraph 8.2.
2.2.1.2 Net Purchase Activity. The "net purchase activity
associated with the Accountholder's account" shall mean the difference between
(A) all credits to that account for which IAFC has received an interchange fee
(i.e., charges for merchandise or services, excluding, without limitation,
balance transfers, finance charges, account fees and such other charges as IAFC
may reasonably determine should be excluded), and (B) the sum of all debits to
that account (i) for which IAFC is required to remit an interchange fee or (ii)
which arise out of delinquency, fraud or other activity which IAFC may
reasonably determine should be included herein.
2.2.1.3 Amount Due To Intellipost. The "amount due to
Intellipost" shall mean the sum of all net purchase activity for all accounts
listed in the Portfolio Activity Report multiplied by 0.013; provided,
however, that, should the interchange amounts set forth in the rules and
regulations of the VISA system change, IAFC agrees to provide Intellipost with
ninety (90) days written notice of such change. The parties will negotiate in
good faith an adjustment, pursuant to the provisions set forth in Paragraph 8.2.
IAFC shall adjust the amount due to Intellipost by any adjustment required by
any Customer Service Report (as defined in Paragraph 3.1.2), and shall reduce or
increase, as the case may be, the amount due to Intellipost by any adjustment
required by any dispute resolution, as described in Paragraph 10, and shall not
include any compensation or fee for any adjustment to any Accountholder's
BonusMail account made pursuant to Paragraph 3.1.1.
2.2.2 Confirmation Report. Within ten (10) business days
following Intellipost's receipt of each Portfolio Activity Report, Intellipost
will issue a confirmation report (the "Confirmation Report"), which report will
confirm (A) the number of Rew@rds Credits attributable to the NextCard Program
that have been credited by Intellipost to each BonusMail account associated with
each Accountholder Number on the Portfolio Activity Report, and the date such
Rew@rds Credits were credited to each such BonusMail account, (B) the number of
Rew@rds Credits that have been redeemed by each Accountholder for the preceding
month and a detail of the reward(s) issued and (C) the number of Rew@rds Credits
remaining in each such account.
3. Customer Service Matters. The parties agree that continuing
satisfaction of Accountholders with the BonusMail program shall be the primary
objective of this Agreement, and that the interests of the Accountholders shall
be taken into consideration whenever appropriate.
3.1 Complaints. Intellipost will be responsible for all
complaints received in connection with BonusMail. However, IAFC maintains a
customer service facility to resolve customer service issues in connection with
its NextCard product and,
(C)NEXTCARD, 1998 3
<PAGE> 4
from time to time, IAFC may be expected to receive customer service-related
requests in connection with an Accountholder's BonusMail account. While IAFC
will use its best efforts to promptly forward all such requests to Intellipost
for resolution, the parties acknowledge and agree that there may be certain
instances in which it is more appropriate that IAFC intercede and/or resolve the
matter on behalf of an Accountholder. Intellipost will refer all customer
service inquiries relating to NextCard (including NextCard account activity) to
IAFC.
3.1.1 Account Adjustment. In the event of Accountholder
dissatisfaction with the BonusMail program, IAFC shall be permitted to increase
such Accountholder's BonusMail account up to 500 Rew@rds Credits, provided that
no Accountholder's BonusMail account may be adjusted by IAFC more than once in
any twelve (12) month period. In the event of such an adjustment, IAFC shall
make an appropriate notation on the Portfolio Activity Report, and the amount
due to Intellipost shall not include any fee for such adjustment.
3.1.2 Customer Service Report. Not later than ten (10) business
days after the end of each calendar month, each party shall provide the other
with a customer service report (the "IAFC Customer Service Report" or the
"Intellipost Customer Service Report," as the case may be), which report shall
include,
3.1.2.1 In the case of the IAFC Customer Service Report,
a summary of (A) customer service requests received in connection with the
BonusMail program in the preceding month for which IAFC has taken any action
other than referral to Intellipost, (B) actions taken and, if an Accountholder's
BonusMail account has been adjusted, (i) the number of Rew@rds Credits to be
credited by Intellipost to each Accountholder's account, (ii) the date of such
adjustment by IAFC, and (iii) the reasons for such adjustments, and (C) a list
by Accountholder Number of NextCard accounts that have been closed in the
preceding month.
3.1.2.2 In the case of the Intellipost Customer Service
Report, a summary of (A) customer service requests received in the preceding
month, by Accountholder Number and (B) actions taken (whether referral or
adjustment). With respect to the voluntary or involuntary termination of the
BonusMail account of any Accountholder, the Intellipost Customer Service Report
shall also contain (C) a list by Accountholder Number of Accountholders who have
closed their BonusMail accounts in the preceding month, (D) the date of such
termination, (E) the number of Rew@rds Credits remaining in such terminated
account and (F) the reason for such termination, if known. The parties agree
that IAFC shall not be required to pay for any Rew@rds Credits credited to
any BonusMail account from and after the date of any voluntary or involuntary
termination of any BonusMail account of any Accountholder (the "BonusMail
Termination Date").
3.1.3 BonusMail Termination Matters. It is agreed to by the
parties that, with respect to any Accountholder who closes his or her BonusMail
account within the first three (3) calendar months of registration and who has
not redeemed any
(C)NEXTCARD, 1998 4
<PAGE> 5
Rew@rds Credits, IAFC will be entitled to a tiered credit against future amounts
due to Intellipost of the net purchase activity associated with that
Accountholder's account from the BonusMail Enrollment Date through the BonusMail
Termination Date. The credit shall be calculated as follows: (A) 100% of the net
purchase activity for the first thirty (30) days; (B) 50% of the net purchase
activity for the second thirty (30) days; and (C) 25% of the net purchase
activity for the third thirty (30) days.
3.1.4 NextCard Termination Matters. It is understood
that an Accountholder who closes his or her NextCard account will remain a
BonusMail member and will retain all Rew@rds Credits earned up to and including
the BonusMail Termination Date, and IAFC will be responsible for payment to
Intellipost for such Rew@rds Credits.
3.2 Excessive Customer Service Requirements. In the event that
IAFC reasonably determines that the amount of resources IAFC is required to
devote to resolution of customer service problems associated with the BonusMail
program is excessive, the parties will negotiate in good faith an adjustment,
which may include a cost-sharing arrangement, pursuant to the provisions set
forth in Paragraph 8.2.
3.3 Website Performance. While this Agreement is in effect,
Intellipost shall at all times maintain the necessary telephone and data
processing lines, staffing and computer capacity to ensure satisfactory
operation of the BonusMail website, including but not limited to prompt customer
service response. The parties agree to negotiate in good faith not later than
July 15, 1998, a comprehensive set of performance guidelines, including but not
limited to security standards governing access to Accountholder data, which
guidelines shall be attached hereto as Exhibit 3.3.
4. Confidentiality. The parties have entered into a mutual
confidentiality agreement, a copy of which is attached hereto as Exhibit 4.
Notwithstanding anything to the contrary contained herein, the restrictions and
obligations of both parties, as expressed in Exhibit 4, shall remain in effect,
except as otherwise specifically modified by the following subparagraphs. The
provisions of this Paragraph 4 shall survive termination of this Agreement.
4.1 Use of Data. All data contained in any report delivered by
one party to the other pursuant to the terms of this Agreement shall be
considered the proprietary information of the disclosing party. Neither party
shall obtain any right in or to any such proprietary information other than for
the purposes of performing services in accordance with this Agreement and for
internal research purposes. Neither party shall disclose to any third party any
such proprietary information, except as required by law or as requested by VISA
or any supervisory authority to which IAFC or Heritage Bank may be subject.
4.2 Specific Undertakings. Without limiting the generality of the
foregoing, Intellipost and IAFC undertakes specifically to hold confidential (A)
any and all transaction-specific information relating to any Accountholder and
BonusMail
(C)NEXTCARD, 1998 5
<PAGE> 6
Member, (B) the specific identity of each Accountholder and BonusMail Member and
(C) the method of calculation and amount of any payments received by Intellipost
from IAFC, provided that this provision shall not restrict Intellipost from
identifying an aggregate payment amount from IAFC in its audited financial
statements if, in the opinion of Intellipost's auditors, such identification is
necessary or appropriate under Generally Accepted Accounting Principles.
4.3 Remedy. In the event of any actual or impending breach of
this Paragraph 4, including but not limited to Exhibit 4, the parties agree that
the non-breaching party will suffer irreparable harm and any award of monetary
damages to the non-breaching party will be impossible to calculate and therefore
be an inadequate remedy. Accordingly, the parties agree that the non-breaching
party shall be entitled to temporary and permanent injunctive relief against the
breaching party, its employees, officers, directors, agents, representatives or
independent contractors, and the other rights and remedies to which the
non-breaching party may be entitled to at law, in equity and under this
Agreement.
5. Promotion Matters. IAFC and Intellipost agree to cooperate in the
promotion of the NextCard Program and BonusMail, subject to the specific terms
of this Agreement and BonusMail Privacy Pledge, a copy of which is attached
hereto as Exhibit 5.
5.1 Limited Licenses. Intellipost hereby grants to IAFC a
non-exclusive right to establish a hypertext link to the BonusMail web site,
and use, in connection with establishing that link, all Intellipost copyrighted,
trade or service marked or other protected intellectual property contained
therein or accessible thereby for the purposes described in this Agreement,
subject to (i) Intellipost's prior approval of IAFC's specific intended use and
(ii) the prior approval of Rewards Providers to use their tradenames, trademarks
and logos, which approval Intellipost will use reasonable efforts to obtain for
IAFC. IAFC hereby grants to Intellipost a non-exclusive right to maintain the
hypertext link referred to in the preceding sentence. Neither party shall add,
subtract or in any way alter, edit or make any use whatsoever of any protected
intellectual property contained in any hypertext link or accessible thereby
other than for the purposes of, and as contemplated by, this Agreement.
5.2 Promotional Materials. No promotional material produced by
one party and mentioning the other may be used without the specific written
consent of both parties. The content of the web page described in Paragraph 2.1
shall be mutually agreed to by the parties, including but not limited to all
metatags that may be embedded in the web page programming and all logos that may
appear, from time to time, on that web page. The initial graphical
representation of that web page is attached hereto as Exhibit 5.2.
6. Intellipost Representations and Warranties. In further consideration
of IAFC entering into this Agreement, Intellipost represents and warrants as
follows:
(C)NEXTCARD, 1998 6
<PAGE> 7
6.1 Corporate Matters. Intellipost (A) is a corporation validly
organized and existing under the laws of the State of California, (B) has the
full power and authority to execute and deliver this Agreement and to perform
its obligations hereunder, (C) has by proper action authorized the execution and
delivery of this Agreement, and this Agreement, constitutes a valid and binding
Agreement between the parties, enforceable according to its terms, except as
limited by applicable bankruptcy laws and other laws of general application
relating to insolvency or the protection of creditors' rights, and (D) warrants
that (i) the execution, delivery and performance of this Agreement does not
conflict in any material respect with or constitute a material breach or default
of any organizational document, agreement or other writing to which it is a
party, and (ii) it has all licenses, permissions and agreements necessary or
appropriate to offer BonusMail, as contemplated in this Agreement and in the
BonusMail promotional materials (including but not limited to the web page
described in Paragraph 2.1), without the payment of any royalty, commission or
license fee to any third party.
6.2 Financial Matters. During the term of this Agreement,
Intellipost will provide to IAFC (A) monthly unaudited balance sheets and (B)
annual audited financial statements (collectively the "Financial Statements").
Each Financial Statement is, and at the time of delivery to IAFC will be, true
and complete, and will not contain any material misstatement or omit to state
any fact or circumstance otherwise required to be contained therein. Within
seven (7) days of the Effective Date, Intellipost will deliver to IAFC its most
recent Financial Statements.
6.2.1 Financial Concerns. Not later than July 15, 1998,
IAFC and Intellipost will mutually agree on an appropriate Financial Statement
for purposes of determining the "Financial Ratio" (which shall be defined as
Intellipost's available cash plus cash equivalents plus accounts receivable
divided by Intellipost's contingent liability for all Rew@rds Credits to all
BonusMail members) and materiality standard. Intellipost will provide not later
than thirty (30) days after the end of each month a compliance certificate
confirming that there has been no material adverse change to the Financial
Ratio. If IAFC reasonably determines that there has been a material adverse
change to the Financial Ratio, the parties will negotiate in good faith an
adjustment, which may include an increase in reserve funding or an escrow of
future sums due to Intellipost, pursuant to the provisions set forth in
Paragraph 8.2.
6.3 Tax Matters. The crediting of Rew@rds Credits to
Accountholders in consideration of the payments to be made to Intellipost by
IAFC will not result in any state or federal tax liability to IAFC.
6.4 "Year 2000" Matters. Each data processing system upon which
the BonusMail program relies is "Year 2000 Compliant," meaning that (A) date
data from 1900 through at least 2049 will process without error or interruption
due solely to the change in century, in any level of computer hardware, software
or services Intellipost provides, including but not limited to microcode,
firmware, system and application programs, files, databases and computer
services, (B) there will be no loss of any functionality for the services
provided and to be provided by Intellipost pursuant to this
(C)NEXTCARD, 1998 7
<PAGE> 8
Agreement due solely to the change in century with respect to the introduction,
processing or output of records containing dates failing on or after January 1,
2000, and (C) on and after January 1, 2000, all services now provided by
Intellipost will continue to be operable in the same manner as they are prior to
such date.
6.5 BonusMail Configuration. Intellipost will not make any material
adverse change to any material term or condition of BonusMail, without providing
not less than thirty (30) days' written notice to IAFC, provided however that
this restriction shall not apply to the addition of any benefit to BonusMail
Members. Without limiting the generality of the foregoing, the following
specific requirements shall apply:
6.5.1 Rewards Providers. Intellipost shall notify IAFC
within ten (10) days following notice to Intellipost of the intention to
withdraw from the BonusMail program of those participating Rewards Providers
identified in Exhibit 6.5.1. The parties agree to negotiate in good faith the
list of participating Rewards Providers to be included in such Exhibit 6.5.1 and
to attach it hereto not later than July 15, 1998.
6.5.2 Changes to Redemption Policies and Point Values.
Other than with respect to changes for which Intellipost receives IAFC's advance
written consent (which consent shall not be unreasonably withheld), Intellipost
shall give IAFC not less than thirty (30) days advance notice of any changes to
its redemption policies and levels of Rew@rds Credits, as set forth in Exhibit
2.1.1.
6.5.3 Airline Mileage Program Availability. Not less
than one major airline's frequent flyer program will be available at all times
for Rew@rds Credits redemption. For purposes of this subparagraph, "major"
airline shall mean any one of United Airlines, American Airlines, Delta
Airlines, Continental Airlines, TWA, Northwest Airlines, or Alaska Airlines (but
only to the extent that Alaska Airlines frequent flyer program continues to
partner with at least one other "major" airline).
7. IAFC Representation. IAFC (A) is a corporation validly organized and
existing under the laws of the State of California, (B) has the full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder, (C) has by proper action authorized the execution and delivery of
this Agreement, and this Agreement, constitutes a valid and binding Agreement
between the parties, enforceable according to its terms, except as limited by
applicable bankruptcy laws and other laws of, general application relating to
insolvency or the protection of creditors' rights, and (D) warrants that (i) the
execution, delivery and performance of this Agreement does not conflict in any
material respect with or constitute a material breach or default of any
organizational document, agreement or other writing to which it is a party, and
(ii) it has all the licenses, permissions and agreements necessary or
appropriate to offer NextCard and the NextCard Program, as contemplated in this
Agreement, without the payment of any royalty, commission or license fee to any
third party, other than with respect to its revenue sharing obligations with
Heritage Bank.
(C)NEXTCARD, 1998 8
<PAGE> 9
8. Term and Termination.
8.1 Term. This Agreement shall commence on the Effective Date and
shall continue for a period of one (1) year; provided, however, that, on the
three-month anniversary of this Agreement, the parties shall undertake, in good
faith, to review the performance to date and, within thirty (30) days
thereafter, may negotiate modifications to this Agreement.
8.2 Termination. This Agreement may be terminated by the mutual
written consent of the parties or, in the event of a material breach of any term
or condition contained herein, by either party with ninety (90) days' written
notice to the other party; provided, however, that the non-terminating party
shall have thirty (30) days from the date of receipt of such notice of
termination to cure such breach. In the event of termination, Accountholders
shall retain all Rew@rds Credits earned from each BonusMail Enrollment Date
through the termination of this Agreement (subject to the payment by IAFC of
amounts owed to Intellipost). If, pursuant to any paragraph hereto, the parties
are unsuccessful for a period of thirty (3O) days in negotiating a resolution to
any dispute, either party may terminate this Agreement with ninety (90) days'
advance written notice. This Agreement shall terminate in the event of a
corporate reorganization, merger, or acquisition of all or substantially all of
either party's assets unless assigned pursuant to Paragraph 11.5.
9. Indemnification. Each party will defend, indemnify, and hold the
other and its directors, officers, shareholders, employees, agents, and
affiliates harmless from and against any claims by third parties (including
governmental authorities) and any losses, damages, settlements, fines,
penalties, liabilities or expenses resulting therefrom (collectively, "Claims"),
to the extent such Claims relate to BonusMail and arise out of or are based upon
(A) a breach of any representation or warranty made herein, (B) an assertion of
infringement on the intellectual property rights of a third party, or (C)
negligent or intentionally improper acts or omissions. The indemnifying party
will reimburse the indemnified party for attorney's fees and other reasonable
expenses as incurred by it in connection with investigating or defending any
Claim as to which the indemnifying party has an obligation to indemnify. The
provisions of this Paragraph 9 shall survive termination of this Agreement.
10. Dispute Resolution. Any dispute or claim arising out of this
Agreement will be resolved through a binding arbitration procedure conducted
before a single arbitrator selected according to the Rules of the American
Arbitration Association. The party wishing to resolve such a dispute or claim
may commence such arbitration procedure by delivering a written notice (the
"Arbitration Notice") to the other party. Arbitration will be held in San
Francisco, California, in accordance with the commercial arbitration rules and
regulations of the American Arbitration Association, The parties will instruct
the arbitrator to take all reasonable measures to ensure that the arbitration
proceeding is completed and a decision is rendered as expeditiously as possible,
and in any event within 90 days of the date of the Arbitration Notice. During
the 15-day period following delivery of the Arbitration Notice, the parties
will consult with a view to defining and limiting the issues. The arbitrator may
in
(C)NextCard, 1998 9
<PAGE> 10
his or her discretion order the parties to provide discovery, including document
discovery, designation of experts and other witnesses, and depositions, and will
be directed to render a decision in a written opinion stating the rationale for
such decision. The arbitrator's decision will be conclusive and binding upon the
parties, and any resulting award may be filed with the clerk of a court of
competent jurisdiction as a final adjudication of the claim involved, or
application may be made to such court for judicial acceptance of the award and
an order of enforcement, as the case may be. The expenses of each party,
including legal and accounting fees, if any, with respect to the arbitration
shall be borne by each such party. The provisions of this Paragraph 10 shall
survive termination of this Agreement.
11. General
11.1 Limitation on Damages. In no event will either party be
entitled to recover special, punitive, incidental or consequential damages,
including damages based on lost profits or lost business opportunities, arising
out of a breach of the other party's obligations hereunder, even if the party in
breach has been advised of the possibility of such damages. Notwithstanding the
foregoing Paragraph 10, in no event shall Intellipost's aggregate liability to
IAFC arising out of or related to this Agreement, or the use or inability to use
BonusMail and/or its Rewards Program (even if Intellipost has been advised of
the possibility of such damages), however caused and arising under any theory of
liability, whether based in contract, tort (including negligence) or otherwise,
exceed the amounts paid to Intellipost hereunder. The provisions of this
Paragraph 11.1 shall survive termination of this Agreement.
11.2 Costs. Each party will bear its own costs incurred in the
performance of this Agreement and all development activities hereunder, except
as otherwise provided.
11.3 Notices. Unless the parties mutually consent to electronic
delivery of reports, communications and notices to each other (collectively
"Notices") such Notices must be in writing and signed by a duly authorized
representative of the party giving such notice, or such other persons as either
party shall specify in a written notice to the other. All such notices shall be
deemed given and received (A) if by hand delivery, upon receipt thereof; (B) if
mailed, three days after deposit in the U.S. mails, postage prepaid, certified
mail, return receipt requested, or (C) as of the day received by Express mail,
Federal Express, or other similar services, or (D) upon facsimile transmission
by the sender and issuance by the transmitting machine of a confirmation slip
confirming the number of pages constituting the notice have been transmitted
without error. In the case of notices sent by facsimile transmission, the sender
shall contemporaneously send a copy of the notice to the addresses at the
addresses provided for below, by an overnight courier service; however such
mailing shall not alter the time at which the facsimile notice is deemed
received. The parties' notice addresses are:
(C)NextCard, 1998 10
<PAGE> 11
If to Intellipost: Intellipost Corporation
565 Commercial Street - 2nd Floor
San Francisco, CA 94111-3031
ATTN: Layton Han
Chief Financial Officer
If to IAFC: Internet Access Financial Corporation
595 Market Street - Suite 950
San Francisco, CA 94105
ATTN: Daniel D. Springer
Chief Marketing Officer
The provisions of this Paragraph 11.3 shall survive termination of this
Agreement.
11.4 Compliance with Laws. Each party shall comply with all laws,
rules and regulations, whether local, state, or federal, applicable to its
activities hereunder, but only to the extent such laws, rules and regulations
are applicable to such party.
11.5 Assignment. Neither party may assign or subcontract its
rights, duties, or obligations under this Agreement to any person or entity, in
whole or in part, without the other party's prior written consent. The foregoing
notwithstanding, upon 30 days written notice a party may assign this Agreement
without first obtaining consent to (i) a company controlling, controlled by, or
under common control with the assigning party, provided that the assigning party
will guarantee the performance of the assignee's performance hereunder; or (ii)
the assigning party's successor in interest in the event of a corporate
reorganization, merger, or acquisition of all or substantially all of a party's
assets, provided that such successor gives reasonable assurances to the
non-assigning party that the successor will perform its obligations hereunder.
The foregoing notwithstanding, in no event will a party assign its rights and
obligations to an entity which, at the time of such assignment, is in
substantial and direct competition with the other party, or under common control
with an entity in substantial and direct competition with the other party. Any
attempt by either party to assign or subcontract its rights or obligations under
this Agreement will be deemed both void and a material breach of this Agreement.
11.6 Modification, Amendment, and Waiver. No modification,
amendment, supplement to, or waiver of this Agreement shall be binding upon the
respective parties unless such modification, etc., specifically refers to this
section and is consented to in a writing signed by an authorized representative
of the party against whom such modification, etc., is asserted. A party's
failure or delay to enforce at any time any of the provisions of this Agreement,
or to exercise any option herein provided, or to require strict performance of
any term hereof, shall not be deemed a continuing waiver of rights under this
Agreement. Nor shall any single or partial exercise of any such right preclude
any other or further exercise thereof or of any other right.
11.7 Relationship of the Parties. Nothing contained in this
Agreement will be construed to create a joint venture, partnership, or agency
relationship. Rather, the
(C)NextCard, 1998 11
<PAGE> 12
relationship between the parties will be one of independent contractors. Neither
party will have any right, power or authority to act on behalf of or bind the
other party. The provisions of this Paragraph 11.7 shall survive termination of
this Agreement.
11.8 Severability. If any one or more provisions of this
Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired; provided, however, that in
such case the parties will in good faith use their best efforts to achieve the
purpose of the invalid provision by agreeing on a substitute provision that is
legally enforceable.
11.9 Headings. The section headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect any of the
terms hereof.
11.10 Choice of Law. This Agreement will be construed under the
laws of the State of California, as applied to contracts entered into and
performed completely within California; provided, however, that the arbitration
provisions of paragraph will be governed by the Federal Arbitration Act. The
provisions of this Paragraph 11.10 shall survive termination of this Agreement.
11.11 Entire Agreement. Unless expressly stated herein, this
Agreement states the entire agreement between the parties with respect to the
subject matter hereof, and all prior or contemporaneous written or oral
agreements and understandings are merged herein and superseded hereby.
11.12 Force Majeure. Neither party will be liable for
nonperformance hereunder to the extent such performance is prevented by fire,
earthquake, tornado, flood, explosion, embargo, war, riot, governmental
regulation or act, act of God, act of public enemy, or by reason of any other
cause beyond such party's reasonable control. A party's obligations to perform
timely will be excused to the extent, but only to the extent, that such
performance is prevented by a force majeure event.
11.13 Continuing Cooperation. The parties agree to cooperate with
each other in any investigation of any actual or suspected fraud, subject to
such restrictions that may be imposed by any law (including case law), rule or
regulation governing the financial privacy of customers of financial
institutions.
11.14 Insurance Matters. At all times while this Agreement is in
effect each party shall maintain, at its own expense, commercial general public
liability insurance (including contractual liability coverage) against such
risks as are reasonable and common in each of their respective businesses. The
amount of such commercial general public liability insurance will be not less
than $1 million per occurrence and not less than $2 million in the aggregate.
(C)NEXTCARD, 1998 12
<PAGE> 13
11.15 No Third Party Beneficiaries. This Agreement is for the
exclusive benefit of the parties hereto, and shall not be deemed to confer any
benefit, right or obligation in or to any third party, except as expressly
stated herein.
11.16 Counterparts. This Agreement may be signed in one or more
counterparts, each of which, when taken together, shall be deemed to be an
original.
IN WITNESS WHEREOF, the parties have duly executed this Agreement effective the
date first stated above.
INTELLIPOST CORPORATI0N INTERNET ACCESS FINANCIAL CORPORATION
By: /s/ LAYTON HAN By: /s/ DANIEL D. SPRINGER
---------------------------- --------------------------------
Layton Han Daniel D. Springer
Chief Financial Officer Chief Marketing Officer
(C)NEXTCARD, 1998 13
<PAGE> 14
EXHIBIT 2.1.1
new_agreement
Acknowledgment & Acceptance of BonusMail Terms of Service:
The BonusMail service ("BonusMail"), owned and operated by Intellipost
Corporation ("Intellipost"), is provided to you ("Member") under the terms and
conditions of this BonusMail Terms of Service ("BTS"). By clicking on the
Submit button, you agree that your membership in BonusMail shall conform to the
terms and conditions of this BTS.
Members may earn Rew@rds credits for receiving, viewing and responding to
personalized information and offers from advertisers via electronic mail
("BonusMail messages") and for complying with the terms of other offers from
Intellipost or other companies which may be redeemed for rewards, subject to
the terms and conditions of such rewards. Intellipost reserves the right to send
Member, from time to time, messages for which Member will not be rewarded. Such
messages may include BonusMail system updates, flash bulletins, order
confirmations, administrative announcements, special requests, etc. Intellipost
is under no obligation to send BonusMail messages to Member. Potential members
do not have an implied right to enroll in BonusMail. Intellipost reserves the
right to limit BonusMail enrollment at any time.
BonusMail Privacy Pledge:
Intellipost promises to maintain the privacy of Members' personal information.
The full extent of our commitment can be found in the BonusMail Privacy Pledge,
located on the BonusMail Web site at www.bonusmail.com/privacy/.
BonusMail Terms of Participation:
Only individuals may enroll in BonusMail and become BonusMail Members.
Corporations or other business entities are not eligible to become BonusMail
Members. Member's right to use BonusMail is personal to Member. BonusMail
membership is limited to one enrollee per email address. Intellipost limits an
individual to one BonusMail membership, allowing an Individual to enroll up to
one personal and one work email, or alternative, address.
Rew@rds credits have no cash value. Neither Rew@rds credits nor rewards may be
bartered or sold. Neither BonusMail accounts nor Rew@rds credits are
transferable upon death, as part of a domestic relations matter or otherwise by
operation of Rew@rds credits may be redeemed only for rewards as offered through
BonusMail at the time of redemption. Member violates
Page 1
<PAGE> 15
new_agreement
any of the terms of this BTS, Member risks immediate forfeiture of Member's
Rew@rds credits and termination of membership.
Members must achieve 5,000 Rew@rds credits (deemed "Available") before they may
redeem Rew@rds credits for rewards; PLEASE REFER TO INTELLIPOST'S STANDARD
REWARDS CHART, AS SUCH CHART MAY BE MODIFIED BY INTELLIPOST IN ITS SOLE
DISCRETION FROM TIME TO TIME. For redemption OF Rew@rds credits for rewards,
Member agrees to update all information in Member's personal profile. Member
agrees to promptly notify Intellipost of any change in Member's mail or email
address by emailing such notification to [email protected]. Member's
discontinued use of BonusMail or failure of Member to notify Intellipost of any
address changes may result in the termination of Member's membership and loss of
Member's unredeemed credits. Member agrees to promptly notify Intellipost of any
changes, in Member's profile by mailing such notification to
[email protected].
Rew@rds credits which have not been used to claim rewards by two (2) years from
the month in which they are deemed "Available" will expire. For example, Rew@rds
credits earned in May of 1997 will expire at the end of May 1999, and credits
earned in June of 1997 will expire at the end of June 1999 if they have not been
redeemed.
Intellipost reserves the right to limit the redemption of specific rewards and
limit the number of rewards available at any particular redemption level.
Members will be allowed to redeem two (2) rewards from the Rewards Chart per
year, once in the period January 1 through June 30 of a given year, and once in
the period July 1 through December 31. Rew@rds credits will be subtracted from
Member's account upon redemption of a reward. Once used to claim a reward,
Rew@rds credits may not be reinstated to Member's account.
Intellipost reserves the right to cancel Member's membership if Member has not
responded, by viewing and replying to BonusMail messages with an email
containing the appropriate MagicWord in the subject field, to any BonusMail
messages in a year. (A MagicWord will be found at the end of each BonusMail
message.) Intellipost reserves the right to limit the volume of BonusMail
messages received by Member if Member does not respond to any BonusMail
messages.
Disclaimer of Warranties:
Member expressly agrees that use of BonusMail is at Member's
Page 2
<PAGE> 16
new_agreement
sole risk. BonusMail, and all services offered therein, is provided on a
strictly "as is" and "as available" basis. INTELLIPOST MAKES NO WARRANTY THAT
BONUSMAIL WILL MEET YOUR REQUIREMENTS, OR THAT BONUSMAIL WILL BE UNINTERRUPTED,
TIMELY, SECURE OR ERROR FREE; NOR DOES INTELLIPOST MAKE ANY WARRANTY AS TO THE
RESULTS THAT MAY BE OBTAINED FROM THE USE OF BONUSMAIL OR AS TO THE ACCURACY OR
RELIABILITY OF ANY INFORMATION OBTAINED THROUGH BONUSMAIL. Intellipost expressly
disclaims any and all express and implied warranties, including, but not limited
to the implied warranties of merchantability, fitness for a particular purpose
and non-infringement.
No advice or information, whether oral or written, obtained by Member from
Intellipost or through BonusMail shall create any warranty not expressly made
herein.
Limitation of Liability:
INTELLIPOST SHALL NOT BE LIABLE FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL, RELATING TO THE USE OR INABILITY TO USE
BONUSMAIL. SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION OR EXCLUSI0N MAY
NOT APPLY TO YOU. Intellipost is not responsible for damages or losses that
result from use of or inabililty to use BonusMail, or reliance on or use of
information, services or merchandise provided on or through BonusMail. Member
acknowledges and agrees Intellipost neither endorses the contents of BonusMail
messages nor assumes responsibility or liability for the accuracy of material
contained therein, or any infringement of third party intellectual property
rights arising therefrom, or any fraud or other crime facilitated thereby.
Intellipost is not responsible, and assumes no liability, for changes or
discontinuances or service from Providers which may affect offered or the
accrual of credits.
Participation in Promotions of Advertisers:
Member's correspondence with or participation in promotions of BonusMail
Advertisers are solely between corresponding Member and the Advertiser.
Intellipost assumes no liability, obligation or responsibility for any part of
any such correspondence or promotion.
Third Party Services:
To enhance the value of the BonusMail service to its members, Intellipost may on
occasion share selected personal information
Page 3
<PAGE> 17
new agreement
with third parties for the limited purposes of data verification and
supplementation. Such parties shall be STRICTLY bound by the terms set forth in
the BonusMail Privacy Pledge. Therefore, such parties will agree to maintain the
confidentiality and protection of your personal information, at all times during
and after providing services.
Termination:
EITHER MEMBER OR INTELLIPOST MAY TERMINATE MEMBER'S BONUSMAIL MEMBERSHIP WITH OR
WITHOUT CAUSE AT ANY TIME. MEMBER'S RIGHT TO USE MEMBER'S BONUSMAIL MEMBERSHIP
IMMEDIATELY CEASES UPON PROPER TERMINATION AND MEMBER AGREES TO FORFEIT ANY
UNREDEEMED CREDITS TO INTELLIPOST.
Member's termination of BonusMail membership is effective upon (1) Member
emailing a request to terminate membership to [email protected]; and (2)
Member receiving a return confirmation from Intellipost indicating Member's
membership has been effectively terminated. Intellipost's termination of
Member's BonusMail membership is effective upon Member's receipt of notice of
termination from BonusMail.
Should Member object to any terms and conditions of the BTS or any subsequent
modifications thereto or become dissatisfied with BonusMail, Member's only
recourse is to immediately: (1) discontinue use of BonusMail; and (2) properly
terminate BonusMail membership--see above paragraph.
Intellipost reserves the right to discontinue BonusMail membership for any
Member who appears to be using BonusMail in a manner inconsistent with the BTS
or intent of BonusMail or any portion of BonusMail or who acts inconsistent with
local or federal laws, statutes or ordinances. Discontinued membership may
result in the loss of all accumulated points.
Non-Transferability:
Member's right to use BonusMail is nontransferable; Member's right to use
BonusMail shall terminate immediately upon transfer. Rew@rds credits are
non-transferable and are void if transferred. Member's membership will terminate
immediately upon Member's death.
Proprietary Rights to Content:
Member acknowledges that content, including but not limited to text, sound,
photographs, graphics or other material contained
Page 4
<PAGE> 18
new_agreement
in either sponsor advertisements or BonusMail messages, by Intellipost or
Intellipost's Advertisers, service and software is protected by copyrights,
trademarks, service marks, patents and/or other proprietary rights and laws;
therefore, Member is only permitted to use content, service or software as
expressly authorized by Intellipost or the Advertiser.
Modifications:
Intellipost reserves the right to change this Agreement and/or any part thereof
at any time by providing notice to Member. Member's non-termination or continued
use of BonusMail after notice is given constitutes an affirmative acknowledgment
by Member of the BTS and its modifications and agreement by Member to abide and
be bound by its modifications. Intellipost reserves the right to modify or
discontinue BonusMail with or without notice to Member. Intellipost shall not be
liable to Member or any third party should Intellipost exercise its right to
modify or discontinue BonusMail.
Notices:
All notices given by Intellipost to you will be given by email or by general
posting on BonusMail.
Indemnification:
Member agrees to indemnify and hold Intellipost, affiliates, officers and
employees, harmless from any claim, demand, expense or damage, including
reasonable attorneys' fees relating to use of BonusMail or violation of this BTS
Agreement.
Laws:
The BTS shall be governed by and construed in accordance with the laws of the
state of California, excluding its conflict of law provisions. This BTS
Agreement constitutes the complete and exclusive understanding between
Intellipost and Member relating to the subject matter hereof and supersedes all
prior or contemporaneous understandings, agreement, communications, and/or
advertising with respect to such subject matter. Member and Intellipost agree to
submit to the exclusive jurisdiction of the courts of the state of California.
If any provision(s) of the BTS is held by a court of competent jurisdiction to
be contrary to law, then such provision(s) shall be construed, as nearly as
possible, to reflect the intentions of the parties with the other provisions
remaining in full force and effect. Intellipost's failure to exercise or enforce
any right or
Page 5
<PAGE> 19
new_agreement
provision of the BTS shall not constitute a waiver of such right or provision
unless acknowledged and agreed to by Intellipost in writing.
Addendum for NextCard Cardholders:
As a NextCard BonusMail Member, you will not automatically receive BonusMail
email offers ("BonusMail messages"). You may elect to receive BonusMail email
offers for which you will be rewarded by completing a BonusMail Member Profile
at:
http://members-bonusmail.com
As a NextCard BonusMail Member, you will receive BonusMail communications,
including, BonusMail Bulletins, Newsletters and administrative notices, up to
twice a month or as determined by NextCard and BonusMail.
NextCard Cardholder Redemption Rules:
NextCard BonusMail Members will be allowed to redeem BonusMail
Rew@rds credits from the Rew@rds Chart once every sixty (60) days. Once a
redemption is made, the Member must allow sixty (60) days to pass before any
additional redemption is made. Rew@rds credits will be subtracted from Member's
BonusMail account upon redemption of a reward. Once used to claim a reward,
Rew@rds credits may not be reinstated to Member's accounts.
Cancellation of Membership Due to
Non-Participation for NextCard Cardholders:
Intellipost reserves the right to cancel a NextCard BonusMail Member's
membership if Member has not charged on his or her NextCard credit card in a
period of one (1) year or has not responded, by viewing and replying to
BonusMail messages with an email containing the appropriate MagicWord in the
subject field, to any BonusMail messages in a year (A MagicWord will be found
at the end of each BonusMail message). Intellipost reserves the right to limit
the volume of BonusMail messages received by Member if Member does not respond
to any BonusMail messages.
Page 6
<PAGE> 1
EXHIBIT 10.19
[BOTTOMDOLLAR.COM BANNER]
BOTTOM DOLLAR NETWORK MEMBERSHIP
Introduction Description Examples Revenue Sharing Plan
Terms & Conditions Sign Up Help
BOTTOM DOLLAR NETWORK - INTRODUCTION
WANT TO ADD COMPARISON SHOPPING AGENT TECHNOLOGY TO YOUR SITE AND EARN
REVENUE FOR ITS USAGE?
Add the ability to launch our price comparison searches to your site and
we'll pay you for its usage. Here's the deal:
- Add the Bottom Dollar comparison shopping agent technology on the
web to your site for free (try it here).
- Earn revenue based on its usage! (see details here).
Sign me up...
(C) 1998 WebCentric, Inc.
Web Design by:
[ENTASIS LOGO]
Entasis Design + Development
<PAGE> 2
[BOTTOMDOLLAR.COM BANNER]
BOTTOM DOLLAR NETWORK MEMBERSHIP
Introduction Description Examples Revenue Sharing Plan
Terms & Conditions Sign Up Help
BOTTOM DOLLAR NETWORK - TERMS AND CONDITIONS
LAST REVISION DATE: 2/21/99
EFFECTIVE DATE OF REVISIONS FOR EXISTING BDN MEMBERS: 3/1/99
1. DEFINITIONS
For the purposes of these terms and conditions the following
definitions shall apply:
- "WebCentric" refers to WebCentric, Inc., the owners and
operators of the Bottom Dollar Shopping Agent.
- "BDN Member" refers to the Company or individual which has been
approved by WebCentric to add the Bottom Dollar Shopping Agent
technology to their site(s).
2. ELIGIBILITY
BDN Member must meet the following eligibility requirements:
- The responsible party for BDN Member's site(s) must be 18 years
of age or older.
- BDN Member's site(s) may not contain any adult content or links
to adult content sites.
- BDN Member's site(s) may not contain or link to any content
which violates any federal or state laws and/or regulations.
Failure to meet these requirements will result in a rejection of the
application to become a BDN member site and/or immediate termination
of existing BDN member account.
3. REVENUE SHARING PLAN
Payment Per Click-thru:
<PAGE> 3
WebCentric shall pay BDN Member per valid click-thru from the search results
of BDN Member's Bottom Dollar Shopping Agent based upon the schedule defined
below:
<TABLE>
<CAPTION>
CATEGORY $ PER CLICK-THRU
-------------------------- ----------------
<S> <C>
Software $0.125
Hardware $0.125
Video/PC Games $0.125
Hardware Components $0.075
Movies $0.075
Books $0.050
Electronics $0.050
Music $0.050
Fragrances $0.020
Magazines $0.020
Sporting Goods $0.020
Toys $0.020
Other $0.020
</TABLE>
Payment Per Page Impression:
Unless agreed upon otherwise, WebCentric shall have exclusive right to the
advertising space on the search results pages generated by the Bottom Dollar
Shopping Agent and shall pay BDN Member $5 per 1,000 page impressions ($5
CPM) generated on those search results pages.
Accounting Periods & Minimum Qualifying Revenue For Payment
Accounting periods for revenue sharing are based upon a calendar month. The
total account balance by BDN Member must be greater than $20 to qualify for
revenue sharing payment. BDN Member account balances less than $20 will be
forwarded to the next accounting period. WebCentric shall pay qualifying
BDN Members within 30 days of the last day of the accounting period.
4. IMPLEMENTATION & TRACKING
BDN Member's site(s) must include the "Powered by Bottom Dollar" graphic on
the search input and search results pages using the HTML below:
<A
HREF="http://engine.bottomdollar.com/imageserver?WebSite=MySite&URL=http://
www.bottomdollar.com/bdn.html"
<IMG SRC="http://engine.bottomdollar.com/imageserver?WebSite=MySite&Image=
poweredby.gif" WIDTH="88"
<PAGE> 4
HEIGHT = "31" BORDER: = "1"></A>
NOTE: Both instances of "MySite" should be changed to the Account ID
assigned to the BDN site by WebCentric, Inc.
The Bottom Dollar shopping agent proprietary technology creates and
maintains log files which track search requests, query responses, and
click-thrus. These log files are imported into a relational database for
reporting purposes. BDN Member shall have forty-five (45) days from receipt
of summary report to inspect and audit, at a mutually agreed upon time and
at its own cost, such log files to verify the accuracy of traffic
exchanged.
WebCentric will make its best effort to track all click-thrus. If
click-thrus cannot be tracked for a period of time, WebCentric shall inform
BDN Member and reserves the right to estimate the click-thrus for the
period of time when click-thrus could not be tracked.
WebCentric reserves the right to adjust the total click-thrus of BDN Member
in the event of suspected invalid click-thrus. Invalid click-thrus shall be
defined as those click-thrus which do not represent a legitimate shopper
with intent to purchase, in the process of gathering information related to
a purchase decision.
WebCentric will make a best effort to reliably and accurately present price
information from retailers; however, WebCentric may not be held liable for
any direct or indirect damages resulting from the information provided to
BDN Member.
5. OWNERSHIP
Each party owns and shall retain all right, title and interest in its
names, logos, trademarks, service marks, trade dress, copyrights and
proprietary technology including without limitation, those names, logos,
trademarks, service marks, trade dress, copyrights and proprietary
technology currently used or which may be developed and/or used by it in
the future.
6. TERM & TERMINATION
These terms and conditions will remain in effect until BDN membership is
terminated by either party. Either party may terminate BDN membership for
any reason whatsoever with seven (7) days notice from one party to the
other.
Either party may terminate BDN membership immediately, without liability,
if in its reasonable opinion BDN membership violates any law or regulation
or would subject them to laws or regulations which would cause them to
incur additional expense, or forego opportunities, if they were to comply
with those laws or regulations.
In cases of BDN membership termination, BDN members whose account balances
are greater than $20 shall receive payment within 30 days of the last day
of the accounting period in which termination became effective.
7. INDEMNIFICATION
BDN Member shall indemnify, defend and hold harmless WebCentric and its
affiliates, directors, officers, employees and agents, from and against any
and all liability, claim, loss, damage, injury or expense (including
reasonable attorneys' fees)
<PAGE> 5
brought by a third party, arising out of a breach, or alleged breach, of any
of BDN Member's representations, warranties or obligations herein.
WebCentric shall indemnify, defend and hold harmless BDN Member and its
affiliates, directors, officers, employees and agents, from and against any
and all liability, claim, loss, damage, injury or expense (including
reasonable attorneys' fees) brought by a third party, arising out of a
breach, or alleged breach, of any of WebCentric's representations,
warranties or obligations herein.
8. DISCLAIMER OF WARRANTY
BOTTOM DOLLAR AND BDN MEMBER'S WEB SITE ARE PROVIDED ON AN "AS IS" BASIS
WITHOUT WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, WARRANTIES OF TITLE OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHERS FOR ANY DIRECT, INDIRECT, SPECIAL,
EXEMPLARY, CONSEQUENTIAL OR INCIDENTAL DAMAGES, WHETHER SUCH DAMAGES ARE
ALLEGED IN TORT, CONTRACT OR INDEMNITY ARISING OUT OF THE USE OR INABILITY
TO USE BOTTOM DOLLAR OR BDN MEMBER'S SITE.
9. GENERAL
WebCentric reserves the right to make changes to these terms and conditions
at will with seven (7) days notice to BDN Member. Notices of change and
effective dates shall be posted at http://www.bottomdollar.com/bdntc.html
Each party shall act as an independent contractor and shall have no
authority to obligate or bind the other in any respect.
Updates of the online terms and conditions supercede any and all previous
terms and conditions. Usage of the Bottom Dollar Shopping Agent technology
signifies BDN Member's acceptance of these terms and conditions.
Sign me up...
(C) 1998 WebCentric, Inc.
Web Design by:
[ENTASIS LOGO]
ENTASIS DESIGN + DEVELOPMENT
<PAGE> 6
[BOTTOMDOLLAR.COM BANNER]
BOTTOM DOLLAR NETWORK MEMBERSHIP
| Home | Introduction | Description | Examples | Revenue Sharing Plan | Terms &
Conditions | Sign Up | Help |
BOTTOM DOLLAR NETWORK - SIGN-UP
IS MY SITE ELIGIBLE TO BECOME A BOTTOM DOLLAR NETWORK SITE?
Your site is eligible to become a Bottom Dollar Network site if it meets
the following requirements:
1. Your site may not contain any adult content or links to adult content
sites.
2. Your site may not contain or link to any content which violates any
laws or regulations.
HOW DOES THE SIGN-UP PROCESS WORK?
The following steps outline the Bottom Dollar Network sign-up process:
1. If your site is eligible, complete the form below and press the
"Submit" button.
2. After we receive your submittal, review your site, and approve your
site, we will send you an e-mail with Bottom Dollar Network
information and set-up instructions.
3. Follow the instructions in the email to complete the setup of your
shopping agent.
4. Go Online!
BOTTOM DOLLAR NETWORK SIGN-UP FORM ( * DENOTES A REQUIRED FIELD)
Name of Web Site:
--------------------------------
* URL OF WEB SITE: http://
--------------------------------
* MAKE CHECK PAYABLE TO:
--------------------------------
Tax ID or Social Security
Number:
--------------------------------
Contact Person:
--------------------------------
Company:
--------------------------------
* E-MAIL ADDRESS:
--------------------------------
Address:
--------------------------------
City:
--------------------------------
<PAGE> 7
Phone:
--------------------------------
State / Province:
--------------------------------
Postal Code:
--------------------------------
Country:
--------------------------------
Expected Page Views per Month:
--------------------------------
(search input page only)
Expected Implementation Date:
--------------------------------
Submit
================================================================================
(C) 1998 WebCentric, Inc.
Web Design by:
[ENTASIS LOGO]
Entasis Design + Development
<PAGE> 1
EXHIBIT 10.20
PREFERRED STOCK PURCHASE AGREEMENT
(SERIES D-1 AND D-2)
THIS PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of
the ___ day of November, 1998, by and among NextCard, Inc. (formerly known as
INTERNET ACCESS FINANCIAL CORPORATION), a California corporation (the
"Company"), with its principal office at 595 Market Street, Suite 950, San
Francisco, California 94105 and the Investors whose names and addresses are set
forth on the Investor Schedule attached as Exhibit A hereto (each of whom is an
"Investor" and, collectively, the "Investors"). For the purposes hereof, "D
Preferred" will refer collectively to the Company's Series D-1 Preferred Stock
(the "Series D-1 Preferred") and Series D-2 Preferred Stock (the "Series D-2
Preferred") as defined pursuant to the Restated Articles (as defined below).
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of D Preferred.
(a) The Company shall adopt and file with the Secretary of
State of California on or before the First Closing (as defined below) the Fourth
Amended and Restated Articles of Incorporation in the form attached hereto as
Exhibit B (the "Restated Articles"). As used in this Agreement, the term
"Closing" shall refer to either or both of the First Closing or the Second
Closing, as the context shall require.
(b) Subject to the terms and conditions of this Agreement,
each Investor severally agrees to purchase at the Closing, and the Company
agrees to sell and issue to each Investor at the Closing, that number of shares
and series of the Company's D Preferred set forth opposite such Investor's name
on Exhibit A hereto for the purchase price set forth thereon. The shares of D
Preferred to be issued and sold by the Company are referred to herein as the
"Shares."
1.2 First Closing. The initial purchase and sale of the Shares
shall take place at the offices of the Company at 1:00 p.m., Pacific Standard
Time, on November __, 1998, or at such other time and place as the Company and
the Investors initially purchasing a majority of the D Preferred hereunder
mutually agree upon orally or in writing (which time and place are designated as
the "First Closing"). At the First Closing, the Company shall deliver to counsel
for the Investors a certificate of the Secretary of the Company attesting to the
registration on the stock transfer records of the Company that number of shares
designated on Exhibit A to be purchased by each Investor against payment of the
purchase price therefor by check or wire transfer (such wire transfers to be
sent to the trust account of Company's counsel unless otherwise agreed). As soon
thereafter as practicable, the Company will issue to each Investor a
certificate, registered in such Investor's name as set forth on Exhibit A,
representing such shares. At the First Closing, each Investor shall become a
party to that certain Third Amended and Restated Investors' Rights Agreement
1
<PAGE> 2
dated of even date herewith, by and among the Company and the Investors hereto
(the "Investors' Rights Agreement") and shall have the rights and obligations
hereunder and thereunder.
1.3 Second Closing. As soon as practicable following the First
Closing, the Company shall fix a second closing date (the "Second Closing") for
those existing investors that have notified the Company of their intention to
exercise their preemptive rights granted pursuant to the Third Amended and
Restated Investors' Rights Agreement (the "Investors' Rights Agreement") to
purchase up to their permitted number of shares of Series D-1 Preferred Stock,
at a price not less than $12.00 per share on the same terms and conditions
contained herein, provided that the Second Closing shall be completed not later
than sixty (60) days after the date of this Agreement. Upon execution of a
signature page counterpart, any such purchaser shall become a party to this
Agreement without need for any amendment hereto, and shall be deemed an
"Investor" for purposes of this Agreement
1.4 Regulatory Assistance. The Company will request that its
regulatory counsel assist, at the expense of the Company, the counsel for any
Investor in rebutting, as to such Investor, any presumption of control that may
arise as a result of such Investor's ownership of equity securities of the
Company under current law or the current rules and regulations of either of the
Office of the Comptroller of the Currency ("OCC") or the Board of Governors of
the Federal Reserve System ("FRB").
2. Representations, Warranties and Covenants of the Company. Except as
set forth in the Schedule of Exceptions attached hereto as Exhibit C, the
Company hereby represents and warrants, or covenants as the case may be, as of
the date of the Closing, as follows:
2.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to own and operate its properties and assets, and to carry on its
business as currently conducted and as proposed to be conducted. The Company is
duly qualified to transact business and is in good standing in each jurisdiction
in which the failure to so qualify would have a material adverse effect on its
business or properties. True and accurate copies of the Restated Articles and
Bylaws, each as amended and in effect at the First Closing have been delivered
to the Investors or their counsel.
2.2 Capitalization. The authorized capital stock of the
Company, immediately prior to the First Closing, will be as set forth on Exhibit
D hereto. All shares of stock reflected on Exhibit D as being issued and
outstanding have been duly authorized and validly issued and are fully paid and
nonassessable. The Company has reserved that amount of Common Stock for issuance
upon conversion of the Series A Preferred, the Series B-1 Preferred, the Series
B-2 Preferred, the Series C-1 Preferred, the Series C-2 Preferred, the Series
D-1 Preferred and the Series D-2 Preferred as are reflected on Exhibit D. In
addition, the Company has reserved 2,000,000 shares of Common Stock for issuance
under the Company's 1997 Stock Plan (the "Option Plan") for employees, officers,
directors and
2
<PAGE> 3
consultants of the Company as may be determined and approved by the Company's
Board of Directors from time to time, and 128,202 shares of Common Stock
(including (A) 8,621 shares of Series C-1 Preferred Stock, which Series C-1
Preferred Stock is convertible at will into Common Stock and (B) 5,000 shares of
Series D-1 Preferred Stock, which Series D-1 Preferred Stock is convertible at
will into Common Stock) for issuance upon the exercise of outstanding warrants,
as reflected on Exhibit D. Except as provided above, there are no outstanding
rights, options, warrants, preemptive rights, rights of first refusal or similar
rights for the purchase or acquisition from the Company of any securities of the
Company. All outstanding securities have been issued in compliance with state
and federal securities laws, and in compliance with all contractual pre-emptive
rights and rights of first refusal. To the best knowledge of the Company, there
are no voting trusts, irrevocable proxies or other instruments or agreements
between or among any shareholders of the Company and pertaining to the Company's
voting securities.
2.3 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
material joint venture, partnership, or similar arrangement other than the
Consumer Credit Card Program Agreement between the Company and Heritage Bank of
Commerce.
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Investors' Rights
Agreement attached hereto as Exhibit E, the performance of all obligations of
the Company hereunder and thereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Shares being sold hereunder
and the Common Stock issuable upon conversion of the D Preferred has been taken
or will be taken prior to the First Closing, and this Agreement and the
Investors' Rights Agreement constitute valid and legally binding obligations of
the Company, enforceable in accordance with their respective terms, subject to:
(i) judicial principles limiting the availability of specific performance,
injunctive relief, and other equitable remedies; (ii) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
generally relating to or affecting creditors' rights; and (iii) public policy
limitations of federal or state securities laws on the enforceability of the
indemnification provisions of the Investors' Rights Agreement.
2.5 Valid Issuance of Preferred and Common Stock. The Shares
that are being purchased by the Investors hereunder when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein will be duly and validly issued, fully paid, and nonassessable,
will have the rights, preferences, privileges and restrictions described in the
Restated Articles, and will be free of restrictions on transfer other than
restrictions on transfer set forth in this Agreement, in the Investors' Rights
Agreement and under applicable state and federal securities laws. The Common
Stock issuable upon conversion of the D Preferred has been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Restated Articles, will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer set forth in this Agreement, in the Investors' Rights
Agreement
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and under applicable state and federal securities laws. Subject to any
applicable restrictions on transfer set forth in this Agreement, in the
Investors' Rights Agreement and under applicable state and federal securities
laws, the issuance and delivery of the Shares and the Common Stock issuable upon
conversion thereof, as applicable, are not subject to any antidilution
provisions or preemptive or other similar rights or any liens or encumbrances.
2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the execution and delivery of this
Agreement, the Investors' Rights Agreement and the offer, sale or issuance of
the Shares (and the Common Stock issuable upon conversion of the D Preferred),
or the consummation of any other transaction contemplated hereby, except for the
following: (i) the filing of the Restated Articles in the Office of the
Secretary of State of the State of California, which shall be filed by the
Company on or prior to the Closing; (ii) the filing of such notices as may be
required under the Securities Act of 1933, as amended (the "Securities Act");
(iii) the filing of a notice of exemption pursuant to Section 25102(f) of the
California Corporate Securities Law of 1968, as amended (the "California
Securities Law"), which shall be filed by the Company promptly following the
Closing; and (iv) compliance with other applicable state securities laws, which
compliance will have occurred within the appropriate time periods therefor.
Based in part on the representations of the Investors set forth in Section 3
below, the offer, sale and issuance of the Shares in conformity with the terms
of this Agreement are exempt from the registration requirements of Section 5 of
the Securities Act, from the qualification requirements of Section 25110 of the
California Securities Law and from the qualification requirements of other
applicable state securities laws. The Company has not taken and will not take
any action that would subject the offer, sale and issuance of the Shares to
either Section 5 of the Securities Act, Section 25110 of the California
Securities Law or the qualification requirements of other applicable state
securities laws.
2.7 Litigation. There is no action, suit, proceeding or
investigation pending or, to the best of the Company's knowledge, currently
threatened before any court, administrative agency or other governmental body
against the Company which questions the validity of this Agreement or the
Investors' Rights Agreement or the right of the Company to enter into either of
them, or to consummate the transactions contemplated hereby or thereby, or which
could result, either individually or in the aggregate, in any adverse change in
the condition (financial or otherwise), business, prospects, property, assets or
liabilities of the Company. The foregoing includes, without limitation, actions,
suits, proceedings or investigations pending or threatened (or any basis
therefor known to the Company) involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
intellectual property, information or techniques allegedly proprietary to any of
their former employers, or their obligations under any agreements with their
former employers. The Company is not a party or subject to, and none of its
assets is bound by, the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality.
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2.8 Employees. To the best knowledge of the Company, no officer or key
employee is in violation of any confidentiality agreement or any contract,
proprietary information agreement or obligation, whether written or oral, with
his or her former employers and, to the best knowledge of the Company, it is not
a violation of any of the foregoing for such person to assist the Company in
pursuing its business. The Company is not a party to or bound by any currently
effective collective employment contract, deferred compensation agreement, bonus
plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation agreement or arrangement with any collective bargaining
agent. No employees of the Company are represented by any labor union or covered
by any collective bargaining agreement. There is no pending or, to the best of
the Company's knowledge, threatened labor dispute involving the Company and any
of its employees. Other than as disclosed in Exhibit C, the Company is not a
party to or bound by the terms of any employee benefit or welfare plan or
arrangement. Offers of employment are extended by the Company pursuant to a
standard form, a copy of which has been provided to Investors' counsel, which is
customized for each offer.
2.9 Patents and Trademarks. The Company has sufficient title
and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted.
Other than with respect to "off the shelf" licensed software programs used by
the Company in the ordinary course of the Company's business, there are no
outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights and processes of any other person or entity. The Company has not
received, and to the best knowledge of the Company none of its employees has
received, any communication alleging that the Company (or any employee in
connection with employment by the Company) has violated or, by conducting the
business of the Company as now conducted or as proposed to be conducted, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity and
knows of no basis therefore. To the best knowledge of the Company, no person has
violated, or by conducting its business would violate, any of the Company's
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights. To the best knowledge of the Company, none of the
Company's employees are obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict in any manner with the Company's business as
conducted. Neither the execution nor delivery of this Agreement or the
Investors' Rights Agreement, nor the carrying on of the Company's business by
the employees of the Company, nor the conduct of the Company's business, will,
to the best of the Company's knowledge, conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. The Company does not and will not need to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company that
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have not previously been fully and exclusively assigned to the Company without
restrictions.
2.10 Compliance with Other Instruments.
(a) The Company is not in violation or default of any
provision of the Restated Articles or its Bylaws, each as amended and in effect
on and as of the date of this Agreement. The Company is not in violation or
default of any material provision of any instrument, mortgage, deed of trust,
loan, contract, commitment, judgment, decree, order or obligation to which it is
a party or by which it or any of its properties or assets are bound which
violation or default would materially adversely affect the condition (financial
or otherwise), prospects, business, property, assets or liabilities of the
Company or of any provision of any federal, state or local statute, rule or
governmental regulation which violation or default would materially adversely
affect the condition (financial or otherwise), business, prospects, property,
assets or liabilities of the Company. The execution, delivery and performance of
and compliance with this Agreement and the Investors' Rights Agreement, and the
issuance and sale of the Shares and the issuance of Common Stock upon the
conversion thereof, will not result in any such violation, be in conflict with
or constitute, with or without the passage of time or giving of notice, a
default under any such provision, require any consent or waiver under any such
provision (other than any consents or waivers that have been obtained), or
result in the creation of any mortgage, pledge, lien, encumbrance or charge upon
any of the properties or assets of the Company pursuant to any such provision.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any right granted under any assignment, license, distribution or other
agreement, the loss of which would materially adversely affect the condition
(financial or otherwise), business, property, assets or liabilities of the
Company.
2.11 Permits. The Company has all franchises, permits,
licenses and similar authorities necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects, or financial condition of the
Company, and the Company believes it can obtain, without undue burden or
expense, any similar authorities for the conduct of its business as planned to
be conducted. The Company is not in default under any franchises, permits,
licenses or other similar authorities and neither the execution, delivery nor
performance of this Agreement and the Investors' Rights Agreement and the
consummation of the transactions contemplated hereby and thereby will result in
any suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
2.12 Registration Rights. Except as provided in the Investors'
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
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2.13 Title to Property and Assets. The Company has good and marketable
title to all of its properties and assets free and clear of all mortgages, liens
and encumbrances, except liens for current taxes and assessments not yet due and
possible minor liens and encumbrances which do not, in any case, in the
aggregate, materially detract from the value of the property subject thereto or
materially impair the operations of the Company. With respect to the properties
and assets it leases, the Company is in compliance with such leases and holds a
valid leasehold interest free of all liens, claims or encumbrances, and to the
best knowledge of the Company, all other parties to the leases are in compliance
with all material terms of such leases. The Company's properties and assets are
in good condition and repair in all material respects, reasonable wear and tear
excepted.
2.14 Brokers or Finders. The Company has not agreed to incur,
directly or indirectly, any liability for brokerage or finders' fees, agents'
commissions or other similar charges in connection with this Agreement or any of
the transactions contemplated hereby.
2.15 Corporate Documents. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein, the
Restated Articles and Bylaws of the Company are in the form previously provided
to the Investors' counsel.
2.16 Financial Statements. The Company has delivered its
financial statements to the Investors, consisting of: (i) audited financial
statements as of and for the period ended December 31, 1997; (ii) an unaudited
balance sheet as of September 30, 1998, and (iii) an unaudited income statement
for the period ended September 30, 1998 (collectively the "Financial
Statements"). The Financial Statements are complete and correct in all material
respects, present fairly the financial position and results of operations of the
Company at the dates and for the periods to which they relate, have been
prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods involved, and show all material
liabilities, absolute or contingent, of the Company required to be recorded
therein in accordance with generally accepted accounting principles consistently
applied, except that the September 30, 1998 Financial Statements have been
prepared by the Company, have not been audited, are subject to normal year-end
audit adjustments and do not contain footnotes normally associated with year-end
financial statements. Except as set forth in the Financial Statements, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to September 30, 1998,
which, individually or in the aggregate, are not materially adverse to the
financial condition or operating results of the Company, (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in the
Financial Statements which, individually or in the aggregate, are not material
to the financial condition or operating results of the Company, and (iii)
obligations under contracts or arrangements described in this Agreement or in
the Schedule of Exceptions.
2.17 Changes. Since September 30, 1998, there has not been:
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(a) Any material adverse change in the business, property,
assets, liabilities, financial condition, prospects or results of operations of
the Company;
(b) Any material adverse change (individually or in the
aggregate), except in the ordinary course of business, in the contingent
obligations of the Company by way of guarantee, endorsement, indemnity, warranty
or otherwise;
(c) Any material damage, destruction, or loss, whether or
not covered by insurance, materially and adversely affecting the condition of
the business, property, assets or liabilities of the Company;
(d) Any waiver or compromise by the Company of a valuable
right or of a material debt owed to it;
(e) Any loans made by the Company to its employees,
officers, or directors other than travel advances and other advances made in the
ordinary course of business;
(f) Any extraordinary increase in the compensation or
benefits payable to any of the Company's employees, officers or directors;
(g) Any declaration or payment of any dividend by the
Company on its capital stock, any redemption, purchase or other acquisition of
shares of its capital stock or any other distribution of assets of the Company,
other then the repurchase of shares at cost from terminated employees or
consultants pursuant to the terms of written stock purchase agreements calling
for such repurchase;
(h) Any receipt of notice by the Company that there has
been a cancellation of any material contract, the cancellation or loss of which
would materially adversely affect the condition, business, prospects, property,
assets or liabilities of the Company;
(i) Any resignation or termination of employment of any
key officer to employee of the Company and any impending resignation or
termination of employment known by the Company of any key officer or employee of
the Company in either case which, if consummated, would materially adversely
affect the condition (financial or otherwise), business, prospects, property,
assets or liabilities of the Company;
(j) Any labor dispute involving the Company or any of its
employees;
(k) Any other event or condition of any character known to
the Company that has materially and adversely affected the Company's business or
prospects;
(l) Any amendment or other change to the Restated Articles
or Bylaws of the Company (except as contemplated by this Agreement);
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(m) Any sale or other disposition of any right, title or
interest in or to any assets or properties of the Company or any revenues
derived therefrom other than in the ordinary course of business and consistent
with past practice;
(n) Any creation, incurring or assumption of any
indebtedness for money borrowed by the Company exceeding $50,000 individually or
$500,000 in the aggregate, other than in the ordinary course of business;
(o) Any material capital expenditures by the Company not
in the ordinary course of business; or
(p) Any material agreement or commitment by the Company to
do any of the things described in this Section 2.17.
2.18 Disclosures. The Company has provided the Investors with
all the information that the Investors have requested for deciding whether to
purchase the Shares. No representation or warranty of the Company contained in
this Agreement, the Exhibits attached hereto or in any certificate furnished or
to be furnished to the Investors at the Closing contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made.
2.19 No Conflict of Interest. The Company is not indebted,
directly or indirectly, to any of its officers or directors or to their
respective spouses or children, in any amount whatsoever other than in
connection with expenses or advances of expenses incurred in the ordinary course
of business or relocation expenses of employees. None of said officers or
directors, or any members of their immediate families are indebted to the
Company or, to the Company's knowledge, have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation which
competes with the Company except that officers, directors and/or shareholders of
the Company may own stock in publicly traded companies which may compete with
the Company. No officer or director or any member of their immediate families,
is, directly or, to the Company's knowledge, indirectly, interested in any
material contract with the Company. The Company is not a guarantor or indemnitor
of any indebtedness of any other person, firm or corporation.
2.20 Company's Contracts. All of the contracts and agreements
with expected receipts or expenditures in excess of $50,000 (other than
marketing agreements made in the ordinary course of business) or involving a
license or grant of rights to or from the Company involving patents, trademarks,
service marks, trade names, copyrights, trade secrets or other proprietary
information applicable to the business of the Company other than non-disclosure
agreements signed in the ordinary course with prospective investors, suppliers,
customers and licensees concerning prospective relationships, to which the
Company is a party as of the date of the Closing are listed on the Schedule of
Exceptions. All such contracts and agreements are legally binding, valid and in
full force and effect in all
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material respects, and the Company is not aware of reduced activity or threat of
anticipated termination relating to any such contract or agreement (other than
in the ordinary course of business) by any of the parties to any such contract
or agreement. The Company has fully complied with all material obligations under
such contracts, to the extent such compliance is now due. The Company has no
knowledge of any counterparty to any such contract or agreement being in breach
of any material term or condition of such contract or agreement.
2.21 ERISA. The Company has no employee benefit plan subject
to the Employee Retirement Income Security Act of 1974.
2.22 Environmental Regulations. Except for failures which will
not materially adversely affect the business of the Company, the Company has
met, and continues to meet, all applicable local, state, federal and national
environmental regulations and has disposed of its waste products and effluents
and/or has caused others to dispose of such waste products and effluents, in
accordance with all applicable state, local, federal and national environmental
regulations and in such a manner that no harm has resulted or will result to any
of its respective employees or properties or to any other person or entities or
their properties.
2.23 Confidentiality and Inventions Agreements. Each employee
with access to confidential information regarding the Company's operations
("Designated Employee") and each founder and officer of the Company has executed
a Confidentiality and Inventions Agreement. Each consultant of the Company has
executed a Consulting Agreement. Typical forms of such Confidentiality and
Inventions Agreements and Consulting Agreements have been made available for
inspection by counsel for the Investors and the Company represents that all of
such Confidentiality and Inventions Agreements adequately protect the Company
with respect to its proprietary information. The Company, after reasonable
investigation, is not aware that any of its Designated Employees, officers or
consultants are in violation of such agreements.
2.24 Insurance. The Company maintains the insurance policies
set forth in the Schedule of Exceptions. The Company will maintain Directors'
and Officers' Liability Insurance at a prudent level, as determined from time to
time by the Company's Board of Directors.
2.25 Agreements; Action. The Company has not engaged in the
past three months in any discussion (i) with any representative of any
corporation or corporations regarding the merger of the Company with or into any
such corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a merger, consolidation or other transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company would be disposed of or (iii) regarding any other form of liquidation,
dissolution or winding up of the Company.
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2.26 Certain Tax Representations. The Company is not a real property
holding corporation within the meaning of Section 897(c)(2) of the Internal
Revenue Code of 1986, as amended, and any regulations promulgated thereunder.
The Company is a "qualified small business" within the meaning of Section
1202(d) of the Internal Revenue Code of 1986, as amended. The Company has filed
on a timely basis all income tax returns required to be filed by it pursuant to
all applicable laws or regulations.
2.27 Offering of D Preferred. Other than with respect to (i)
the sale of Series D-1 Preferred Stock to existing investors at the Second
Closing pursuant to the terms of the Investors' Rights Agreement, (ii) any
exchange of shares of (A) Series B-1 Preferred Stock for an equal number of
shares of Series B-2 Preferred Stock, (B) Series C-1 Preferred Stock for an
equal number of shares of Series C-2 Preferred Stock and (C) Series D-1
Preferred Stock for an equal number of shares of Series D-2 Preferred Stock, and
(iii) any options, warrants or other similar securities issued in connection
with any transaction described in Section 2.1(b) of the Investors' Rights
Agreement, the Company will not offer, sell or originally issue any shares of B
Preferred, C Preferred or D Preferred following the Second Closing.
2.28 Regulatory Considerations in the Event of a Conversion of
Preferred Stock. The Company will use its best efforts to calculate the effect
of any change in the percentage of ownership or voting power held by any
Investor with respect to any "class of voting shares" (as that term is currently
defined in 12 C.F.R. 225.2(q)(3) and reasonably interpreted by regulatory
counsel to the Company) of the Company as a result of any actual or potential
conversion or redemption of all or any portion of any series of Preferred Stock,
as described in the Restated Articles. The Company will discuss with the
Investors such reasonable actions as regulatory counsel to the Company may
suggest, including but not limited to proposing to the Board of Directors and
the shareholders of the Company the creation of a series of non-voting common
stock and the exchange of voting shares of any class or series for a like number
of non-voting shares of the same class or series, if such actions are necessary
or appropriate to avoid (i) any Investor becoming either a "bank holding
company" or a "control person of a bank holding company," as those terms are,
from time to time, interpreted by the OCC and/or the FRB, or (ii) any Investor
who is not a "principal shareholder" (as that term is defined by the OCC's
regulations and reasonably interpreted by regulatory counsel to the Company)
following the First Closing or the Second Closing, as the case may be, from
becoming a "principal shareholder."
2.29 Mechanics of Exchange. At any time upon the written
request of any holder who owns, controls or has power to vote five percent (5%)
or more of the outstanding shares of any "class" (as that term is reasonably
interpreted by regulatory counsel to the Company) of the Company's voting
securities, the Company will, upon the surrender of the appropriate stock
certificate(s), exchange a number of voting shares of any class or series for a
like number of non-voting shares of the same class or series and reissue an
appropriate certificate or certificates therefore, subject to the authorization
by the shareholders of the Company of sufficient non-voting shares of such class
or series.
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3. Representations and Warranties of the Investors. Each Investor hereby
severally represents and warrants to the Company with the respect to the
transactions contemplated hereby that:
3.1 Experience. Such Investor is experienced in evaluating
early stage companies such as the Company, is able to fend for itself in
transactions such as the one contemplated by this Agreement, has such knowledge
and experience in financial and business matters that Investor is capable of
evaluating the merits and risks of Investor's prospective investment in the
Company, has the ability to bear the economic risks of the investment and is an
"accredited investor" within the meaning of Regulation D, as promulgated by the
Securities and Exchange Commission.
3.2 Investment. Such Investor is acquiring the Shares (and the
Common Stock issuable upon conversion of the Shares) for investment for such
Investor's own account and not with the view to, or for resale in connection
with, any distribution thereof. Such Investor understands that the Shares (and
the Common Stock issuable upon conversion of the Shares) have not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent as expressed herein. Such
Investor further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to any third person with respect to any of the Shares (or any
Common Stock acquired upon conversion of the Shares). Such Investor understands
and acknowledges that the offering of the Shares pursuant to this Agreement and,
except as provided in the Investors' Rights Agreement, any issuance of Common
Stock on conversion of the Shares will not be registered under the Securities
Act on the ground that the sale provided for in this Agreement and the issuance
of securities hereunder is exempt from the registration requirements of the
Securities Act.
3.3 Rule 144. Such Investor acknowledges that the Shares (and
the Common Stock issuable upon conversion of the Shares) must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. Such Investor is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permit
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions. Such Investor covenants that, in the absence
of an effective registration statement covering the stock in question, such
Investor will sell, transfer, or otherwise dispose of the Shares (and any Common
Stock issued on conversion of the D Preferred) only in a manner consistent with
such Investor's representations and covenants set forth in this Section 3. In
connection therewith, such Investor acknowledges that the Company will make a
notation on its stock books regarding the restrictions on transfers set forth in
this Section 3 and will transfer securities on the books of the Company only to
the extent not inconsistent therewith.
3.4 No Public Market. Such Investor understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for any of
the Company's securities.
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3.5 Access to Data. Such Investor has received and reviewed
information about the Company and has had an opportunity to discuss the
Company's business, management and financial affairs with its management and to
review the Company's facilities.
3.6 Authorization. This Agreement when executed and delivered
by an Investor will constitute a valid and legally binding obligation of such
Investor, enforceable in accordance with its terms, subject to: (i) judicial
principles respecting election of remedies or limiting the availability of
specific performance, injunctive relief, and other equitable remedies; (ii)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors' rights; and
(iii) limitations on the enforceability of the indemnification provisions of the
Investors' Rights Agreement.
3.7 Brokers or Finders. Such Investor has agreed not to incur,
directly or indirectly, any liability for brokerage or finder's fees, agents'
commissions or other similar charges in connection with this Agreement or any of
the transactions contemplated hereby.
4. Conditions of Investors' Obligations at Closing. The obligations of
the Investors under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective unless Investors purchasing a majority of
the D Preferred hereunder consent in writing thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. The Chairman and Chief Executive
Officer of the Company shall deliver to each Investor at the Closing a
certificate stating that the conditions specified in Sections 4.1 and 4.2 have
been fulfilled.
4.4 Opinions of Company Counsel. The Investors shall have
received from Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional
Corporation, counsel for the Company, an opinion, dated as of the Closing, in
the form attached hereto as Exhibit F. In addition, the Investors shall have
received from Robert Linderman, Esq., General Counsel to the Company, an
opinion, dated as of the Closing, in the form attached hereto as Exhibit G.
4.5 Investors' Rights Agreement. The Company and the Investors
shall have entered into the Investors' Rights Agreement.
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4.6 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country for the offer and sale of the Shares.
4.7 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, and all documents and instruments incident to these transactions, shall
be reasonably satisfactory in substance to the Investors and their counsel.
4.8 Restated Articles. The Restated Articles shall have been
filed with and approved by the Secretary of State of California.
4.9 Contemporaneous Investment. At least two million seven
hundred fifty thousand (2,750,000) Shares shall have been purchased at the First
Closing and the Company shall have received the purchase price therefor.
4.10 Certain Regulatory Matters. The Investors or their
counsel will be satisfied as to regulatory matters.
4.11 No Violation. The execution, delivery and performance of
this Agreement will not violate any law or regulation to which the Company or
the Investors are subject.
4.12 Election of Board Member. The By-laws of the Company
shall have been amended such that the size of the Board of Directors of the
Company shall be seven (7) members, and Alan Colner shall have been elected a
Director of the Company.
4.13 Waiver of Certain Preemptive Rights. To the extent that
any of Brentwood Venture Capital, Trinity Ventures, St. Paul Venture Capital or
Mesquite Partners (the "Existing Institutional Investors") have not exercised
their right to purchase their full pro rata allocation of D Preferred, such
Existing Institutional Investors shall have waived their right(s) to do so.
5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to the Investors under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by each
Investor:
5.1 Representations and Warranties. The representations and
warranties of each Investor contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 Payment of Purchase Price. Each Investor shall have
delivered the purchase price specified on Exhibit A hereto against delivery of
the Shares by the Company to such Investor.
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<PAGE> 15
5.3 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country for the offer and sale of the Shares.
5.4 Investors' Rights Agreement. Each Investor shall have
executed the Investors' Rights Agreement on or prior to the date of the Closing.
5.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, and all documents and instruments incident to these transactions, shall
be reasonably satisfactory in substance to the Company and its counsel.
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California.
6.2 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
6.3 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
6.4 Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, return receipt requested, or
otherwise delivered by hand or by messenger, addressed (a) if to an Investor, at
such Investor's address set forth on Exhibit A, or at such other address as such
Investor shall have furnished to the Company in writing, or (b) if to any other
holder of any Shares, at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Shares who has so
furnished an address to the Company, or (c) if to the Company, at its address
set forth on the first page of this Agreement addressed to the attention of the
Chairman and Chief Executive Officer, or at such other address as the Company
shall have furnished to the Investors. If notice is provided by mail, notice
shall be deemed to have been given on the business day following proper deposit
of such notice with the United States mail.
6.5 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Shares upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an
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acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
holder of any breach or default under this Agreement, or any waiver on the part
of any holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing or as provided in this Agreement. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative and
not alternative.
6.6 California Corporate Securities Law. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE, OR OTHER APPLICABLE LAW. THE RIGHTS OF ALL PARTIES
TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, UNLESS THE SALE IS SO EXEMPT.
6.7 Expenses. The Company will be responsible for the
reasonable costs and expenses of the offer, sale and issuance of the D Preferred
(including expenses associated with the Investors' reasonable due diligence
investigations), and including the reasonable legal expenses of one counsel to
the Investors, provided that the Company's reimbursement obligations shall be
limited to a total of $30,000.
6.8 Finder's Fees. The Company and each Investor shall each
indemnify and hold the other harmless from any liability for any commission or
compensation in the nature of a finder's fee (including the costs, expenses and
legal fees of defending against such liability) for which the Company or such
Investor, or any of their respective partners, employees, or representatives, as
the case may be, is responsible.
6.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which may be executed by less than all parties hereto,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
6.10 Severability of this Agreement. In the event that any
provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement will continue
in full force and effect without said provision and the parties agree to replace
such provision with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such provisions;
provided that no such severability will be effective against a party if it
materially and adversely changes the economic benefits of this Agreement to such
party.
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6.11 Attorneys' Fees in a Dispute. In the event of any action
to enforce the terms hereof, the prevailing party will be entitled to receive
its reasonable attorneys' fees and costs in connection therewith.
6.12 Survival. The warranties, representations and covenants
of the Company and the Investors contained in or made pursuant to this Agreement
shall speak only as of the date of the First Closing (or, with respect to the
Second Closing, only to the extent that no instrument amending or modifying such
warranties, representations and covenants of either the Company or any Investor
has been delivered), and shall survive the execution and delivery of this
Agreement and the Closing.
(This space intentionally left blank.)
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
NEXTCARD, INC.
By:
---------------------------------------------------
Jeremy Lent, Chairman & Chief Executive Officer
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
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<PAGE> 18
INVESTORS:
---------------------------------------------
By:
------------------------------------------
Name:
Title:
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
18
<PAGE> 1
EXHIBIT 10.21
EXECUTION COPY
================================================================================
LOAN AGREEMENT
dated as of December 29, 1998
among
NEXTCARD FUNDING CORP.,
as Borrower,
THE LENDERS PARTY HERETO,
and
CREDIT SUISSE FIRST BOSTON,
NEW YORK BRANCH,
as Administrative Agent and as Arranger
================================================================================
<PAGE> 2
Table of Contents
<TABLE>
<S> <C> <C>
ARTICLE 1 Definitions; General Provisions
Section 1.1 Defined Terms.........................................................1
Section 1.2 GAAP.................................................................22
Section 1.3 References to Statutes and Transaction Documents.....................23
Section 1.4 Singular and Plural..................................................23
ARTICLE 2 Amounts and Terms of Commitments and Loans
Section 2.1 Commitments; Loans...................................................23
Section 2.2 Interest on the Loans................................................26
Section 2.3 Fees.................................................................29
Section 2.4 Repayments, Prepayments and Reductions in Commitments; General
Provisions Regarding Payments........................................30
Section 2.5 Use of Proceeds......................................................32
Section 2.6 Special Provisions Governing LIBOR Loans.............................33
Section 2.7 Increased Costs; Taxes; Capital Adequacy.............................35
Section 2.8 Obligation of Lenders to Mitigate....................................39
Section 2.9 Establishment of Cash Management Account; Investment of Funds........41
Section 2.10 Payments from the Cash Management Account............................42
ARTICLE 3 Conditions Precedent
Section 3.1 Conditions Precedent to the Loans....................................45
Section 3.2 Conditions to All Loans..............................................47
ARTICLE 4 Representations and Warranties
Section 4.1 Representations and Warranties of the Borrower.......................48
ARTICLE 5 General Covenants of the Borrower
Section 5.1 Preservation of Existence and Similar Matters........................55
Section 5.2 Compliance with Applicable Law.......................................55
Section 5.3 Maintenance of Collateral............................................55
Section 5.4 Accounting Methods and Financial Records.............................55
Section 5.5 Insurance............................................................55
Section 5.6 Payment of Taxes and Claims..........................................56
</TABLE>
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<TABLE>
<S> <C> <C>
Section 5.7 Visits and Inspections ..............................................56
Section 5.8 Diligence............................................................56
Section 5.9 Use of Proceeds......................................................58
Section 5.10 Special Purpose Entity...............................................58
Section 5.11 Maintenance of Liens of Collateral Documents.........................58
Section 5.12 Reserved.............................................................58
Section 5.13 Offices..............................................................58
Section 5.14 Financial Covenants..................................................58
ARTICLE 6 Information Covenants of the Borrower
Section 6.1 Monthly Financial Information........................................59
Section 6.2 Quarterly Financial Statements and Information.......................60
Section 6.3 Annual Financial Statements and Information; Auditor's Certificate
of No Default........................................................60
Section 6.4 Performance Certificates.............................................60
Section 6.5 Information Concerning Receivables...................................61
Section 6.6 Electronic Transmission..............................................61
Section 6.7 Copies of Other Reports..............................................61
Section 6.8 Notice of Litigation and Other Matters...............................61
ARTICLE 7 Negative Covenants of the Borrower
Section 7.1 Indebtedness.........................................................62
Section 7.2 Liens................................................................62
Section 7.3 Investments..........................................................63
Section 7.4 Liquidation and Disposition of Assets; Restriction on Fundamental
Changes..............................................................63
Section 7.5 Nature of Business...................................................63
Section 7.6 Resticted Payments...................................................63
Section 7.7 Merger or Consolidation..............................................63
Section 7.8 Benefit Plans........................................................63
Section 7.9 Transactions With Affiliates.........................................64
Section 7.10 Contracts............................................................65
Section 7.11 Transferor Certificate...............................................65
Section 7.12 Approved Credit Card Guidelines......................................65
Section 7.13 Demand Note..........................................................65
ARTICLE 8 Default
Section 8.1 Events of Default....................................................65
Section 8.2 Suspension of Accounts...............................................68
Section 8.3 Remedies.............................................................68
</TABLE>
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<TABLE>
<S> <C> <C>
Section 8.4 Other Remedies ......................................................69
ARTICLE 9 Agents
Section 9.1 Appointment..........................................................69
Section 9.2 Powers; General Immunity.............................................70
Section 9.3 Representations and Warranties; No Responsibility For Appraisal of
Creditworthiness.....................................................71
Section 9.4 Right to Indemnity...................................................72
Section 9.5 Successor Administrative Agent.......................................72
Section 9.6 Collateral Documents.................................................72
ARTICLE 10 Miscellaneous
Section 10.1 Assignments and Participations in Loans..............................73
Section 10.2 Expenses.............................................................75
Section 10.3 Indemnity............................................................76
Section 10.4 Set-Off; Security Interest in Deposit Accounts.......................76
Section 10.5 Ratable Sharing......................................................77
Section 10.6 Amendments and Waivers...............................................78
Section 10.7 Notices..............................................................78
Section 10.8 Survival of Representations, Warranties and Agreements...............78
Section 10.9 Failure or Indulgence Not Waiver; Remedies Cumulative................79
Section 10.10 Marshalling; Payments Set Aside......................................79
Section 10.11 Severability.........................................................79
Section 10.12 Obligations Several; Independent Nature of the Lenders' Rights.......79
Section 10.13 Maximum Amount.......................................................81
Section 10.14 Headings.............................................................81
Section 10.15 Applicable Law.......................................................81
Section 10.16 Successors and Assigns...............................................82
Section 10.17 Consent to Jurisdiction and Service of Process.......................82
Section 10.18 Waiver of Jury Trial.................................................83
Section 10.19 Confidentiality......................................................83
Section 10.20 Counterparts; Effectiveness..........................................84
</TABLE>
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<TABLE>
<S> <C>
Schedule 2.1 Schedule of Lenders, Commitments and Pro Rata Shares
Schedule 10.7 Addresses for Notices
Exhibit I Form of Parent Security Agreement
Exhibit II Form of Assignment Agreement
Exhibit III Certificate of Non-Bank Status
Exhibit IV Form of No Default Certificate
Exhibit V Form of Demand Note
Exhibit VI Form of Note
Exhibit VII Notice and Certificate of Borrowing
Exhibit VIII Notice of Conversion/Continuation
Exhibit IX Form of Security Agreement
Exhibit X Form of Opinion of Counsel to Borrower
Exhibit XI Form of Origination Agreement
Exhibit XII Form of Servicing Agreement
Exhibit XIII Form of Supplement to the Servicing Agreement
Exhibit XIV Approved Credit Card Guidelines
</TABLE>
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LOAN AGREEMENT, dated as of December 29, 1998, among, NextCard Funding
Corp., a Delaware corporation (the "Borrower"), the Lenders and Credit Suisse
First Boston, New York Branch ("CSFB"), as administrative agent for the Lenders
(in such capacity, the "Administrative Agent"), and as arranger (in such
capacity, the "Arranger").
RECITALS
The revolving credit facility made available to the Borrower pursuant to
this Agreement shall be used to fund the purchase and warehousing of Receivables
from the Account Originator which will be conveyed by the Borrower to the Master
Trust. The Borrower owns the Transferor Certificate in the Master Trust. The
Borrower and the Lenders hereby agree, in consideration of the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, as follows:
ARTICLE 1
Definitions; General Provisions
Section 1.1 Defined Terms.
For the purposes of this Agreement:
"Account Custody and Control Agreement" means the Account Custody and
Control Agreement dated the Effective Date among the Borrower, The Bank of New
York, as custodian, and the Administrative Agent, on behalf of the Lenders.
"Account Originator" shall mean (i) Heritage Bank of Commerce and (ii)
any other account originator or any other successors or assigns under the
Origination Agreement which shall be acceptable to the Lenders.
"Account Property" means the Cash Management Account, all amounts and
investments held from time to time in the Cash Management Account (whether in
the form of deposit accounts, physical property, book-entry securities,
uncertificated securities or otherwise) and all proceeds of the foregoing.
"Additional Structuring Fee" shall mean the fee payable to the Arranger
for its services, payable as provided in the Fee Letter Agreement.
"Administrative Agent" has the meaning assigned to that term in the
Preamble to this Agreement and shall include any successor Administrative Agent
appointed pursuant to Section 9.5.
<PAGE> 7
"Advance Rate" shall mean 85% of the Borrowing Base or, at the Borrower's
election following payment of the Optional Advance Fee, the Optional Advance
Rate.
"Affected Lender" has the meaning assigned to that term in Section
2.6(c).
"Affected Loans" has the meaning assigned to that term in Section
2.6(c).
"Affiliate" means, as applied to any Person, any other person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling", "controlled by" and "under common control
with"), as applied to any Person means either (a) the power, directly or
indirectly, to vote 51% or more of the securities having ordinary voting power
for the election of directors (or persons performing similar functions) of such
Person, or (b) the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities or by contract or otherwise.
"Agents" means, collectively, the Administrative Agent and the Arranger.
"Aggregate Amounts Due" shall have the meaning ascribed to such term in
Section 10.5.
"Agreement" means this Loan Agreement dated as of December 29, 1998, as
it may be amended, restated, supplemented or otherwise modified from time to
time.
"Agreement Date" means December 29, 1998.
"Alternative Financing" shall mean the completion of any credit card
receivables-based financing or sale of credit card receivables, including any
financing or sale of the Receivables, by the Parent, the Borrower, the Master
Trust or any Affiliate thereof. An "Alternative Financing" shall include, but
not be limited to, a secured borrowing facility secured by credit card
receivables, a repurchase facility relating to credit card receivables, the
issuance of any investor certificate from the Master Trust, any securitization
of credit card receivables or any sale of credit card receivables to an
asset-backed commercial paper conduit by the Parent, the Borrower, the Master
Trust or any Affiliate thereof. An "Alternative Financing" shall not include the
Securitization Transaction.
"Applicable Law" means, in respect of any Person, all provisions of
constitutions, statutes, rules, regulations and orders of Governmental
Authorities applicable to such Person, and all orders and decrees of all courts
and arbitrators in proceedings or actions to which the Person in question is a
party.
"Applicable Margin" means, with respect to Loans which are Base Rate
Loans, 0.00%, and with respect to Loans which are LIBOR Loans, 2.50%.
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<PAGE> 8
"Approved Credit Card Guidelines" means the policies and procedures set
forth as Exhibit XIV annexed hereto, as amended from time to time, with the
prior consent of the Administrative Agent.
"Arranger" has the meaning assigned to that term in the Preamble.
"Assignment Agreement" means an assignment in substantially the form of
Exhibit II annexed hereto or in such other form as may be approved by the
Administrative Agent and the Borrower.
"Authorized Signatory" means, as it relates to the Borrower, any one of
the Chairman, the Chief Executive Officer, the Chief Financial Officer, the Vice
President and Chief Accounting Officer and the Secretary.
"Bankruptcy Code" means Title 11, United States Code, as amended from
time to time, and any successor statute thereto.
"Base Rate" means, at any time, the Prime Rate.
"Base Rate Loans" means Loans bearing interest at rates determined by
reference to the Base Rate as provided in Section 2.2.
"Borrower" means NextCard Funding Corp., a Delaware corporation.
"Borrowing" means or refers to any borrowing hereunder consisting of
Loans made to the Borrower by the Lenders.
"Borrowing Base" means, as of any date, the Advance Rate then in effect
multiplied by the lower of:
(A) the principal balance of Eligible Accounts Receivable for
the Master Trust, or
(B) the market value of the Transferor Certificate as
determined by the Administrative Agent in its sole
discretion.
For purposes of calculating the Borrowing Base, the following
Receivables shall be assigned a value of "zero": (a) Defaulted Receivables (as
defined under the Servicing Agreement); (b) Ineligible Receivables (as defined
under the Servicing Agreement); (c) Receivables which have been written off by
the Borrower or with respect to which the Borrower believes the related obligor
is bankrupt or as to which Receivables have been identified by the obligor as
having been incurred as a result of fraudulent use of any credit cards, or as to
which any credit cards have been reported to the account owner or the Servicer
as lost or stolen, in each case, as of the date of transfer to the Master Trust;
(d) Receivables that are more than two payments past due from the original due
date without regard to any re-aging of Receivables; and
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<PAGE> 9
(e) all Receivables from accounts originated in a calendar month (all such
accounts, a "Vintage" with respect to a specific month), the average FICO score
of which, at the time of booking of such accounts, was below [ * ].
"Borrowing Date" means the date of the funding of a Loan.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in New York City or San Francisco are authorized or
required by law, executive order or governmental decree to be closed; provided
that, with respect to matters relating to LIBOR Loans, the term "Business Day"
shall mean a day other than a Saturday, Sunday or other day on which commercial
banks in New York City, San Francisco or London, England, are authorized or
required by law, executive order or governmental decree to be closed.
"Capitalized Lease" means a lease which gives rise to a Capitalized
Lease Obligation.
"Capitalized Lease Obligation" means that portion of any obligation as
lessee which at the time would be required to be capitalized on the balance
sheet of such lessee in accordance with Financial Accounting Standards Board
Statement No. 13 dated November 1976, as amended from time to time.
"Capital Stock" means capital stock, membership interests, partnership
interests or interests in a trust having the right to participate in the equity
or excess cash flow of a Person or any participations or other equivalents in or
measured by the profits of such Person.
"Cash" means money, currency or a credit balance in a Deposit Account.
"Cash Management Account" means the account established by the Borrower,
for the benefit of the Lenders, pursuant to Section 2.9.
"Certificate of Non-Bank Status" means a certificate substantially in
the form of Exhibit III annexed hereto delivered by a Lender to the
Administrative Agent pursuant to Section 2.7.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by the
way of merger or consolidation and excluding sales, leases, transfers,
conveyances or other dispositions pursuant to securitizations), in one or a
series of related transactions, of all or substantially all of the assets of the
Borrower to any "person" (as such term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) other than a
Person or Persons who control the Borrower as of the date hereof, (ii) the
adoption of a plan relating to the liquidation or dissolution of the Borrower,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above) other than a Person or Persons who control the Borrower as of the date
hereof becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and
Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of
the voting stock of the Borrower (measured by general voting power rather
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
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<PAGE> 10
than number of shares), or (iv) the Borrower consolidates with, or merges with
or into, any Person, or any Person consolidates with, or merges with or into,
the Borrower, in any such event pursuant to a transaction in which any of the
outstanding voting stock of the Borrower is converted into or exchanged for
cash, securities or other property, other than any such transaction where the
voting stock of the Borrower outstanding immediately prior to such transaction
is converted into or exchanged for voting stock of the surviving or transferee
Person constituting a majority of the outstanding shares of such voting stock of
such surviving or transferee Person (immediately after giving effect to such
issuance). For purposes of this definition, any transfer of an equity interest
of an entity that was formed for the purpose of acquiring voting stock of the
Borrower will be deemed to be a transfer of such portion of such voting stock as
corresponds to the portion of the equity of such entity that has been so
transferred.
"Closing Date" means the Business Day on which the conditions precedent
set forth in Article 3 have been satisfied and the initial Borrowing has been
made.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means all of the properties and assets of the Borrower in
which Liens are purported to be granted by the Collateral Documents.
"Collateral Documents" means the Security Agreement, the Parent Security
Agreement, the Trademark Collateral Assignment, the Patent Collateral
Assignment, the Copyright Collateral Agreement and any other documents,
instruments or agreements delivered by the Borrower pursuant to this Agreement
or any of the other Loan Documents in order to grant or perfect liens on any
assets of the Borrower or as security for all or any of the Obligations.
"Collection Account" shall have the meaning given to that term in the
Servicing Agreement.
"Collections" means all cash, funds, checks (to the extent collected),
notes, wire transfers, electronic transfers, ATM transfers, instruments and any
other form of remittance tendered by account debtors in payment of the
Receivables.
"Commitments" means the commitments of the Lenders to make Loans as set
forth in Section 2.1(a) of this Agreement.
"Consolidated" means, when used with reference to any amount, such
amount determined on a consolidated basis in accordance with GAAP, after the
elimination of intercompany items.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Indebtedness, lease, dividend or other obligation of another if the primary
purpose or interest thereof by the Person incurring the Contingent Obligation is
to provide assurance to the obligee of such obligation of another that such
obligation of another will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such obligation
will be protected (in whole or in part)
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against loss in respect thereof, (ii) with respect to any letter of credit
issued for the account of that Person or as to which that Person is otherwise
liable for reimbursement of drawings, or (iii) under Interest Rate Agreements or
other hedge agreements. Contingent Obligations shall include, without
limitation, (a) the direct or indirect guaranty, endorsement (otherwise than for
collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of the obligation
of another, (b) the obligation to make take-or-pay or similar payments if
required regardless of non-performance by any other party or parties to an
agreement, and (c) any liability of such Person for the obligation of another
through any agreement (contingent or otherwise) (X) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in form of loans,
advances, stock purchases, capital contributions or otherwise) or (Y) to
maintain the solvency or any balance sheet item, level of income or financial
condition of another if, in the case of any agreement described under subclauses
(X) or (Y) of this sentence, the primary purpose or intent thereof is as
described in the preceding sentence. The amount of any Contingent Obligation
shall be equal to the amount of the obligation so guaranteed or otherwise
supported or, if less, the amount to which such Contingent Obligation is
specifically limited.
"Contract" means any indenture, agreement, other contractual
restriction, lease, instrument, certificate of incorporation or charter, by-law,
all amendments, extensions or modifications thereof and all terminated Contracts
with respect to which there are executory continuing obligations of any Persons
signatory thereto.
"Copyright Collateral Agreement" means the Copyright Collateral
Agreement, in form and substance satisfactory to the Administrative Agent, to be
delivered pursuant to the terms of the Security Agreement.
"Default" means any of the events specified in Section 8.1, regardless
of whether there shall have occurred any passage of time or giving of notice or
both that would be necessary in order to constitute such event an Event of
Default.
"Defaulting Lender" means any Lender with respect to which a Lender
Default is in effect.
"Delivery" when used with respect to Account Property means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
instruments and are susceptible to physical delivery ("Physical
Property"):
(i) transfer of possession thereof to the Lenders,
endorsed to, or registered in the name of, the Lenders or its
nominee or endorsed in blank;
(b) with respect to a certificated security:
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(i) delivery thereof in bearer form to the Lenders; or
(ii) delivery thereof in registered form to the Lenders
and
(A) the certificate is endorsed to the Lenders or in
blank by effective endorsement; or
(B) the certificate is registered in the name of the
Lenders, upon original issue or registration of transfer by the
issuer;
(c) with respect to an uncertificated security:
(i) the delivery of the uncertificated security to the
Lenders; or
(ii) the issuer has agreed that it will comply with
instructions originated by the Lenders without further consent by
the registered owner;
(d) with respect to any security issued by the United States
Treasury that is a book-entry security held through the Federal Reserve
System pursuant to Federal book-entry regulations:
(i) a Federal Reserve Bank by book-entry credits the
book-entry security to the securities account (as defined in 31
CFR Part 357) of a participant (as defined in 31 CFR Part 357)
which is also a securities intermediary; and
(ii) the participant indicates by book entry that the
book-entry security has been credited to the Lenders' securities
account;
(e) with respect to a security entitlement:
(i) the Lenders become the entitlement holders; or
(ii) the securities intermediary has agreed that it will
comply with entitlement orders originated by the Lenders without
further consent by the entitlement holder;
(f) for the purpose of clauses (b) and (c) hereof "delivery"
means:
(i) with respect to a certificated security:
(A) the Lenders acquire possession thereof;
(B) another Person (other than a securities intermediary)
either acquires possession thereof on behalf of the Lenders or,
having previously acquired possession thereof, acknowledges that
it holds such for the Lenders; or
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(C) a securities intermediary acting on behalf of the
Lenders acquires possession thereof, only if the certificate is
in registered form and has been specially endorsed to the Lenders
by an effective endorsement;
(ii) with respect to an uncertificated security:
(A) the issuer registers the Lenders as the registered
owners, upon original issue or registration of transfer; or
(B) another Person (other than a securities intermediary)
either becomes the registered owner thereof on behalf of the
Lenders or, having previously become the registered owner,
acknowledges that it holds such for the Lender;
(g) for purposes of this definition, except as otherwise
indicated, the following terms shall have the meaning assigned to each
such term in the UCC:
(i) "certificated security"
(ii) "effective endorsement"
(iii) "entitlement holder"
(iv) "instrument"
(v) "securities account"
(vi) "securities entitlement"
(vii) "securities intermediary"
(viii) "uncertificated security"
(h) in each case of Delivery contemplated herein, the Lenders
shall make appropriate notations on its records, and shall cause the
same to be made on the records of its nominees, indicating that
securities are held in trust pursuant to and as provided in this
Agreement.
"Demand Note" shall mean the Demand Note of the Parent in a face amount
equal to $8,000,000, substantially in the form of Exhibit V, as the Demand Note
may heretofore have been or hereafter may be amended, restated, supplemented or
otherwise modified from time to time, which Demand Note shall contain various
financial convenants relating to Parent. The Demand Note shall have been issued
to Borrower prior to or on the Agreement Date.
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<PAGE> 14
"Deposit Account" means a demand, time, savings, passbook or like account
with a bank, savings and loan association, credit union or like organization,
other than an account evidenced by a negotiable certificate of deposit.
"Effective Date" shall have the meaning given to such term in Section
3.1 hereof.
"Eligible Accounts Receivable" shall refer to Receivables which have the
following characteristics:
(a) Eligible Receivables (as defined under the Servicing
Agreement);
(b) Receivables originated in accordance with the Approved
Credit Card Guidelines; and
(c) Receivables originated under Eligible Deposit Accounts.
The Administrative Agent, in the exercise of its Permitted Discretion,
may, upon notice to the Borrower impose additional restrictions (or eliminate
the same) to the standards of eligibility set forth in this definition.
"Eligible Assignee" means (A)(i) a commercial bank organized under the
laws of the United States or any state thereof; (ii) a commercial bank organized
under the laws of any other country or a political subdivision thereof; provided
that (x) such bank is acting through a branch or agency located in the United
States or (y) such bank is organized under the laws of a country that is a
member of the Organization for Economic Cooperation and Development or a
political subdivision of such country; and (iii) any other financial institution
or entity that is an "accredited investor" (as defined in Regulation D under the
Securities Act) which extends or buys loans as one of its businesses including,
but not limited to, insurance companies, mutual funds and lease financing
companies, in each case (under clauses (i) through (iii)) above) that is
reasonably acceptable to the Administrative Agent; and (B) any Lender and any
Affiliate of any Lender; provided that no Affiliate of the Borrower shall be an
Eligible Assignee. No entity that has a substantial credit card lending business
based principally in the United States shall be an Eligible Assignee.
"Eligible Deposit Account" means either (i) a segregated trust account
with an Eligible Institution or (ii) a segregated trust account with the trust
department of a depository institution organized under the laws of the United
States of America or any state thereof or the District of Columbia having trust
powers and acting as trustee for funds deposited in such account, so long as the
long term unsecured debt rating of such depository institution shall have a
credit rating from one of the Rating Agencies in one of its generic rating
categories which signifies investment grade.
"Eligible Institution" means any depository institution or trust company
organized under the laws of the United States or any state thereof or the
District of Columbia, having combined capital and surplus of at least
$50,000,000, the deposits of which are insured to the full extent
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<PAGE> 15
permitted by law by the Federal Deposit Insurance Corporation, which is subject
to supervision and examination by Federal or state banking authorities and which
has (i) a rating of at least P-1 from Moody's Investors Service, Inc. with
respect to short-term deposit obligations, or (ii) if such institution has
issued long-term unsecured debt obligations, a rating of A2 or higher from
Moody's Investors Service, Inc. with respect to long-term unsecured debt
obligations. If such depository institution or trust company publishes reports
of condition at least annually, pursuant to law or the requirements of the
aforesaid supervising or examining authority, then the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
"Eligible Investments" mean book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence:
(a) direct obligations of, and obligations fully guaranteed as to
timely payment by, the United States of America;
(b) demand deposits, time deposits or certificates of deposit of
any depository institution or trust company incorporated under the laws
of the United States of America or any state thereof or the District of
Columbia (or any domestic branch of a foreign bank) and subject to
supervision and examination by Federal or state banking or depository
institution authorities (including depository receipts issued by any
such institution or trust company as custodian with respect to any
obligation referred to in clause (a) above or portion of such obligation
for the benefit of the holders of such depository receipts); provided,
however, that at the time of the investment or contractual commitment to
invest therein, the commercial paper or other short-term senior
unsecured debt obligations (other than such obligations the rating of
which is based on the credit of a Person other than such depository
institution or trust company) of such depository institution or trust
company shall have a credit rating from Moody's Investors Service, Inc.
of P-1;
(c) commercial paper having, at the time of the investment or
contractual commitment to invest therein, a rating from Moody's
Investors Service, Inc. of P-1;
(d) bankers' acceptances issued by any depository institution or
trust company referred to in clause (b) above; and
(e) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of
America or any agency or instrumentality thereof the obligations of
which are backed by the full faith and credit of the United States of
America, in either case entered into with a depository institution or
trust company (acting as principal) referred to in clause (b) above.
"Environmental Claims" means, any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings relating in any way to
any Environmental Law.
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<PAGE> 16
"Environmental Law" means, any United States (or other applicable
jurisdiction's) federal, state, local or municipal statute, law, rule,
regulation, ordinance, code, policy or rule of common law and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or any chemical, material or substance, exposure to which is prohibited, limited
or regulated by any governmental authority.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any Person which is a member of the same
controlled group (within the meaning of Section 414(b) of the Code) of Persons
as the Borrower, or which is under common control (within the meaning of Section
414(c) of the Code) with the Borrower, or any Person which is a member of an
affiliated service group (within the meaning of Section 414(m) of the Code) with
the Borrower, or any Person which is required to be aggregated with the Borrower
pursuant to Section 414(o) of the Code or the regulations promulgated
thereunder.
"Event of Default" means any of the events specified in Section 8.1,
provided that any requirement for notice or lapse of time or both has been
satisfied.
"Expenses" shall have the meaning ascribed to such term in Section 10.2.
"Fee Letter Agreement" shall mean the letter agreement between the
Borrower and CSFB as Arranger relating to the payment by the Borrower to the
Arranger of the Structuring Fee and the Optional Advance Fee.
"Fiscal Year" means the fiscal year of the Borrower ending on December
31 of each calendar year.
"Funding and Payment Office" means the office of the Administrative
Agent located at __________________________________ or such office of the
Administrative Agent or any successor Administrative Agent specified by the
Administrative Agent or such successor Administrative Agent in a written notice
to the Borrower and the Lenders.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"Governmental Authority" means any governmental, regulatory or
self-regulatory entity, department, body, official, authority, commission,
board, agency or instrumentality, whether federal, state or local, and whether
domestic or foreign.
"Guaranty", "Guarantee" or "Guaranteed", as applied to an obligation,
includes (i) a guaranty (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), direct or indirect, in any
manner, of any part or all of such obligation and (ii) an agreement, direct or
indirect, contingent or otherwise, the practical effect of which is to assure
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<PAGE> 17
in any way the payment or performance (or payment of damages in the event of
non-performance) of any part or all of such obligation, including, without
limiting the foregoing, the payment of amounts drawn down by beneficiaries of
letters of credit.
"Hazardous Materials" shall mean all substances defined as Hazardous
Substances, Oils, Pollutants or Contaminants in the National Oil and Hazardous
Substances Pollution Contingency Plan, 40 C.F.R. Section300.5, or defined as
such by, or regulated as such under any Environmental Law.
"Indebtedness" means, with respect to any Person, (i) all items, except
items of equity or of Capital Stock or of surplus or of general contingency or
deferred tax reserves, which, in accordance with GAAP, would be included in
determining total liabilities as shown on the liability side of a balance sheet
of such Person, (ii) to the extent not otherwise included, all obligations
secured by any Lien to which any property or asset owned or held by such Person
is subject, whether or not the obligation secured thereby shall have been
assumed, (iii) to the extent not otherwise included, all Capitalized Lease
Obligations of such Person and (iv) to the extent not otherwise included, all
obligations of any third party which such Person has Guaranteed.
"Indemnified Liability" shall have the meaning ascribed to such term in
Section 10.3.
"Indemnitee" shall have the meaning ascribed to such term in Section
10.3.
"Independent Director" means a duly appointed director of a corporation
who shall not have been, at the time of such appointment or at any time in the
preceding five years, (i) a direct or indirect legal or beneficial owner (beyond
a nominal amount) of such corporation or more than 5% of the outstanding voting
stock of any of its Affiliates, (ii) a creditor, supplier, employee, officer,
director, family member, manager or contractor of such corporation or any of its
Affiliates, or (iii) a person who controls (whether directly, indirectly or
otherwise) such corporation or any of its Affiliates or any creditor, supplier,
employee, officer, director, manager or contractor of such corporation or any of
its Affiliates.
"Initial Equity Contribution" means the equity contribution to the
Borrower on or prior to the Closing Date by the Parent of (a) $5,000,000 in
cash; (b) warrants to purchase shares of Series D-1 Preferred Stock of the
Parent in such number and having such terms and conditions as described in the
Fee Letter Agreement; and (c) the Demand Note.
"Initial Structuring Fee" shall mean the fee payable to the Arranger for
its services, payable as provided in the Fee Letter Agreement.
"Insolvency Event" means with respect to any Person, the occurrence of
any of the following: (i) a voluntary or involuntary petition for bankruptcy or
other relief under the Bankruptcy Code or any similar statute, (ii) an
assignment for the benefit of creditors, (iii) failure, suspension of business
operations, or insolvency, (iv) appointment of a receiver or trustee, or (v)
failure to pay debts generally as they become due.
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<PAGE> 18
"Intellectual Property" has the meaning ascribed to such term in Section
4.1(x).
"Interest Payment Date" means (i) with respect to any Base Rate Loan,
the last Business Day in each month, commencing on January 31, 1999, and (ii)
with respect to any LIBOR Loan, the last day of each Interest Period applicable
to such Loan; provided that in the case of each Interest Period of longer than
three months, "Interest Payment Date" shall also include the date that is three
months after the commencement of such Interest Period.
"Interest Period" has the meaning assigned to that term in Section 2.2.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to hedge the Borrower against fluctuations in
interest rates.
"Interest Rate Determination Date" means each date for calculating the
Reserve Adjusted LIBOR Rate, for purposes of determining the interest rate in
respect of an Interest Period. The Interest Rate Determination Date for purposes
of calculating the Reserve Adjusted LIBOR Rate shall be the second Business Day
prior to the first day of the related Interest Period.
"Investment" of a Person means any loan, advance (other than commission,
travel and similar advances to officers and employees made in the ordinary
course of business), extension of credit (other than accounts receivable arising
in the ordinary course of business on terms customary in the trade) or
contribution of capital by such Person; stock, bonds, mutual funds, partnership
interests, notes, debentures or other securities owned by such Person; any
deposit accounts and certificates of deposit owned by such Person; and
structured notes, derivative financial instruments and other similar instruments
or contracts owned by such Person.
"Lender" and "Lenders" means the Persons identified as "Lenders" and
listed on the signature pages of this Agreement, together with their successors
and permitted assigns pursuant to Section 10.1; provided that the term
"Lenders," when used in the context of a particular commitment, shall mean the
Lenders having that commitment.
"Lender Default" means (i) the refusal (which has not been retracted) of
a Lender to make available its portion of any Loans in accordance with Section
2.1(a) or (ii) a Lender having notified the Borrower and/or the Administrative
Agent in writing that it does not intend to comply with its obligations under
Section 2.1(a) as a result of any takeover of such Lender by any regulatory
authority or agency.
"LIBOR" shall mean the London interbank offered rate determined as
described herein.
"LIBOR Base Rate" means the rate per annum determined by the
Administrative Agent at approximately 11:00 a.m. (London time) on the date which
is two (2) Business Days prior to the beginning of the relevant Interest Period
(as specified in the applicable Notice and Certificate of Borrowing) by
reference to the British Bankers' Association Interest Settlement Rates for
deposits in Dollars (as set forth by any service selected by the Administrative
Agent which has
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<PAGE> 19
been nominated by the British Bankers' Association as an authorized information
vendor for the purpose of displaying such rates) for a period equal to such
Interest Period; provided, that, to the extent that an interest rate is not
ascertainable pursuant to the foregoing provisions of this definition, the
"LIBOR Base Rate" shall be the interest rate per annum determined by the
Administrative Agent to be the average of the rates per annum at which deposits
in Dollars are offered for such Interest Period to major banks in the London
interbank market in London, England by the Reference Lenders at approximately
11:00 a.m. (London time) on the date which is two (2) Business Days prior to the
beginning of such Interest Period. If any of the Reference Lenders shall be
unable or shall otherwise fail to supply such rates to the Administrative Agent
upon its request, the rate of interest shall be determined on the basis of
quotations of the remaining Reference Lender.
"LIBOR Loans" means Loans bearing interest at rates determined by
reference to the Reserve Adjusted LIBOR Rate as provided in Section 2.2.
"LIBOR Reserve Requirements" means, for each Interest Period for each
LIBOR Loan, the highest reserve percentage applicable to any Lender during such
Interest Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System or any successor for determining the
maximum reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement), with respect to liabilities
or assets consisting of or including LIBOR liabilities having a term equal to
the Interest Period.
"Lien" means, with respect to any property, any mortgage, lien, pledge,
assignment, charge, security interest, title retention agreement, levy,
execution, seizure, attachment, garnishment or other encumbrance of any kind in
respect of such property in favor of any Person.
"Loan" means one of the Loans made by the Lenders pursuant to Section
2.1.
"Loan Documents" means (a) this Agreement, the Notes, the Account
Custody and Control Agreement, the Fee Letter Agreement, the Servicing
Agreement, the Supplement to the Servicing Agreement, the Origination Agreement,
the Collateral Documents and (b) all other agreements, documents and instruments
relating to, arising out of, or in any way connected with (i) any agreement,
document or instrument referred to in clause (a), or (ii) any of the
transactions contemplated by any agreement, document or instrument referred to
in clause (a) or in this clause (b).
"Loan Exposure" means, with respect to any Lender, as of any date of
determination (i) prior to the funding of the Loans, that Lender's Loan
Commitment and (ii) after the funding of the Loans, the outstanding principal
amount of the Loans of that Lender.
"Margin Stock" shall have the meaning ascribed to such term in the
Regulations of the Board of Governors of the Federal Reserve System in effort
from time to time.
"Master Trust" shall mean NextCard Master Trust I, a newly formed
special purpose trust.
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"Master Trust Account" means each open-end, revolving Visa account opened
by the Account Originator which generate the Receivables transferred to the
Master Trust.
"Material Adverse Effect" means (i) a material adverse effect upon the
business, operations, properties, assets, conditions (financial or otherwise) or
prospects of the Borrower, (ii) the material impairment of the ability of the
Borrower to perform the Obligations, (iii) a material adverse effect upon the
legality, validity, binding effect or enforceability against the Borrower of any
Transaction Document to which it is a party or (iv) a material adverse effect
upon the rights, remedies and benefits available to, or confined upon, the
Agents and the Lenders under any Transaction Document.
"Maximum Amount" shall have the meaning ascribed to such term in Section
10.13.
"Net Principal Collections" shall equal, on any Business Day, the
portion of cash on deposit in the Cash Management Account required to be
applied, on such Business Day, after all allocations and payments required by
Section 2.10 have been made, by the Borrower to purchase Receivables under the
Origination Agreement after giving effect to the application of the Settlement
Amount (as defined in the Origination Agreement) under the Origination
Agreement.
"No Default Certificate" means a certificate substantially in the form
of Exhibit IV annexed hereto delivered to the Administrative Agent by the
Borrower pursuant to Section 6.4(a).
"Non-Defaulting Lender" means and includes each Lender other than a
Defaulting Lender.
"Non-U.S. Lender" has the meaning assigned to that term in Section 2.7.
"Notes" means (i) promissory notes of the Borrower issued pursuant to
Section 2.1 on the Closing Date and (ii) any promissory notes issued by the
Borrower, pursuant to the last sentence of Section 10.1 in connection with
assignments of the Loans of any Lender, in each case substantially in the form
of Exhibit VI annexed hereto, as they may be amended, restated or otherwise
modified from time to time.
"Notice and Certificate of Borrowing" means a notice in the form of
Exhibit VII annexed hereto delivered by the Borrower to the Administrative Agent
pursuant to Sections 2.1(b), 3.2 and 6.4 with respect to a proposed borrowing.
"Notice of Conversion/Continuation" means a notice substantially in the
form of Exhibit VIII annexed hereto delivered by the Borrower to the
Administrative Agent pursuant to Section 2.2(d) with respect to a proposed
conversion or continuation of the applicable basis for determining the interest
rate with respect to the Loans specified herein.
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"Obligations" means all indebtedness, liabilities, obligations,
covenants and duties of and all terms and conditions to be observed by the
Borrower (including, in its capacity as a "debtor in possession" under the
Bankruptcy Code) due or owing to or in favor or for the benefit of, the Lenders
under the Loan Documents, of every kind, nature and description, direct or
indirect, absolute or contingent, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, now
existing or hereafter arising, and whether or not (i) for the payment of money
or the performance or non-performance of any act, (ii) due or owing to, or in
favor or for the benefit of any Lender, (iii) arising or accruing before or
after the filing by or against the Borrower of a petition under the Bankruptcy
Code or (iv) allowable under Section 502(b)(2) of the Bankruptcy Code.
"Optional Advance Fee" means the fee agreed to between the Borrower and
the Administrative Agent in the Fee Letter Agreement upon payment of which the
Borrower may elect the Optional Advance Rate.
"Optional Advance Rate" shall mean, at the Borrower's election,
following payment of the Optional Advance Fee, 90% of the Borrowing Base.
"Origination Agreement" means the agreement dated as of December 29,
1998, substantially in the form of Exhibit XI annexed hereto, which shall be
reasonably satisfactory to the Administrative Agent, pursuant to which the
Borrower will purchase Receivables from the Account Originator for conveyance to
the Master Trust.
"Parent" means NextCard, Inc., a California corporation.
"Parent Security Agreement" means the Parent Security Agreement of the
Parent, entered into pursuant to the Demand Note, through which the Parent has
agreed to grant to Borrower a security interest in the assets of the Parent
described therein to secure Parent's obligations under the Demand Note,
substantially in the form of Exhibit I annexed hereto, as the agreement may
heretofore have been or hereafter may be amended, restated, supplemented or
otherwise modified from time to time.
"Patent Collateral Assignment" means the Patent Collateral Assignment,
in form and substance satisfactory to the Administrative Agent, to be delivered
pursuant to the terms of the Security Agreement.
"Pension Benefit Guaranty Corporation" has the meaning assigned to that
term in Section 4.1.
"Permitted Discretion" means the Administrative Agent's reasonable
judgment concerning the risks of lending to the Borrower, taking into account
(i) the liquidation value of the Collateral, the priority of the Administrative
Agent's Liens therein, and the time and cost of enforcement of such Liens, (ii)
the likelihood of an Insolvency Event affecting the Borrower or the Collateral,
(iii) any factor which suggests the existence or likelihood of Defaults or
Events of Default, and (iv) any other factors (including industry and
macroeconomic conditions and the
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<PAGE> 22
perceived accuracy of the Borrower's financial and Collateral reporting) that
affect the actual or perceived credit risk to the Lenders.
"Person" means an individual, corporation, limited liability company,
partnership, joint stock company, trust, unincorporated organization, joint
venture, Governmental Authority or other entity of whatever nature.
"Physical Property" is defined within the definition of "Delivery."
"Plan" means an employee benefit plan or other plan maintained for
employees of any Person and subject to Section 412 of the Code and/or Title IV
of ERISA.
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by CSFB as its prime commercial lending rate in effect at its
principal office in New York City. The Prime Rate is a reference rate and does
not necessarily represent the lowest or best rate actually charged to any
customer. CSFB or any Lender may make commercial loans or other loans at rates
of interest at above or below the Prime Rate.
"Pro Rata Share" means with respect to all payments, computations and
other matters relating to the Loan Commitment or the Loans of any Lender, the
percentage obtained by dividing (i) the Loan Exposure of that Lender by (ii) the
aggregate Loan Exposure of all the Lenders. The initial Pro Rata Share of each
Lender for purposes of each of clauses (i) and (ii) of the preceding sentence is
set forth opposite the name of that Lender in Schedule 2.1 annexed hereto.
"Rating Agencies" means one or more of Standard & Poor's Ratings
Service, a division of The McGraw-Hill Companies, Fitch IBCA, Inc., Moody's
Investors Service, Inc. and Duff & Phelps Credit Rating Co. that, at the time of
determination, intend to issue, or maintain, a rating on the securities issued
pursuant to the Securitization Transaction.
"Receivables" means the receivables conveyed or to be conveyed to the
Master Trust by the Borrower pursuant to the Servicing Agreement generated from
transactions made by holders of credit card accounts, including premium and
standard accounts, from the portfolio of credit card accounts owned by any
Account Originator.
"Reference Lenders" means (i) CSFB and (ii) another Lender determined by
the Administrative Agent with the consent of the Borrower.
"Register" has the meaning assigned to that term in Section 2.1(d)(i).
"Regulation D" means Regulation D promulgated under the Securities Act.
"Regulation T" means Regulation T of the Board of Governors of the
Federal Reserve System, as it may be amended from time to time.
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<PAGE> 23
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as it may be amended from time to time.
"Regulation X" means Regulation X of the Board of Governors of the
Federal Reserve System, as it may be amended from time to time.
"Release" means any release, spill, emission, leaking, pumping, pouring,
injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching
or migration of Hazardous Materials into the indoor or outdoor environment
(including, without limitation, the abandonment or disposal of any barrels,
containers or other closed receptacles containing any Hazardous Materials), or
into or out of any property, including the movement of any Hazardous Materials
through the air, soil, surface water, groundwater or property.
"Reportable Event" shall have the meaning set forth in Title IV of
ERISA.
"Reserve Adjusted LIBOR Rate" means, with respect to each day during
each Interest Period pertaining to a LIBOR Loan, a rate per annum determined for
such day in accordance with the following formula: LIBOR Base Rate divided by
the difference between 1.00 and the LIBOR Reserve Requirements, rounded to the
nearest one-hundredth of one percent.
"Restricted Payment" means (i) the declaration or payment of any
dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets on or in respect of Borrower's
Capital Stock and (ii) any payment on account of the purchase, redemption,
defeasance or other retirement of Borrower's Capital Stock or any other payment
or distribution made in respect of any thereof, either direct or indirectly.
"Securities Act" means the Securities Act of 1933, as amended.
"Securitization Agreements" means the agreement or agreements entered
into by the Borrower, the Master Trust, the Parent, the Account Originator and
various other parties in connection with the Securitization Transaction which
may include, but not be limited to, the Servicing Agreement, the Supplement to
the Servicing Agreement and the Origination Agreement.
"Securitization Transaction" means the issuance of the Transferor
Certificate by the Master Trust pursuant to the Servicing Agreement and
Supplement to the Servicing Agreement.
"Security Agreement" means the Borrower Pledge and Security Agreement,
substantially in the form attached hereto as Exhibit IX, as such security
agreement may heretofore have been or hereafter may be amended, restated,
supplemented or otherwise modified from time to time.
"Servicer" shall mean the Parent in its role as servicer of the pool of
Receivables pursuant to the terms and conditions of the Servicing Agreement and
any successor or assign thereunder.
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"Servicing Agreement" means the Pooling and Servicing Agreement in the
form of Exhibit XII annexed hereto, which shall be satisfactory to the
Administrative Agent, by and among the Parent, the Master Trust and the Trustee
relating to the pooling and servicing of Receivables transferred to the Master
Trust, as such agreement may be amended or modified from time to time with the
consent of the Administrative Agent.
"Solvent" means, when used with respect to any Person, that as of the
date of determination both (A) (i) the fair saleable value of the property of
such Person is (x) greater than the total amount of liabilities (including,
without limitation, contingent liabilities) of such Person and (y) is not less
than the amount that will be required to pay the probable liabilities of such
Person on its debts as they become absolute and matured, (ii) such Person does
not intend to, and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay as such debts and liabilities mature, and
(iii) such Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's assets would
constitute unreasonably small capital, and (B) such Person is "solvent" within
the meaning given that term and similar terms under applicable laws relating to
fraudulent transfers and conveyances. For purposes of this definition, any
contingent liability (including, without limitation, pending litigation,
Guarantees, pension plan liabilities and claims for Taxes, if any) is valued at
the amount that, in light of all the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to become an actual
or matured liability.
"Special Purpose Entity" means, in the case of corporations, a
corporation which meets the following criteria:
(a) Not engaging in any business or activity other than as the borrowing
entity under specified documents.
(b) At all times having at least two Independent Directors.
(c) Requiring the unanimous consent of all its directors, including the
Independent Directors, to: (i) file, consent to the filing of, or join in any
filing of, a bankruptcy or insolvency petition or otherwise institute insolvency
proceedings; (ii) dissolve, liquidate, consolidate, merge or sell all or
substantially all of its assets; (iii) engage in any business activity other
than as set forth in its organizational documents; and (iv) amend the Borrower's
organizational documents.
(d) Qualified to do business to the extent required by law in any state
in which any assets are located.
(e) Directors shall be required to consider only the interests of the
corporation, including the interests of its creditors, when making decisions.
(f) Complying with the following separateness covenants:
(i) maintaining books and records separate and apart from those
of any other Person;
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(ii) maintaining its accounts separate from those of any other
Person;
(iii) not commingling its assets with those of any other Person,
except in connection with the Securitization Transaction as contemplated
by the Transaction Documents;
(iv) conducting its own business in its own name;
(v) maintaining separate financial statements;
(vi) paying its own liabilities out of its own funds;
(vii) observing all corporate formalities and other formalities
required by the Borrower's organizational documents;
(viii) maintaining an arm's-length relationship with its
Affiliates;
(ix) paying the salaries of its own employees and maintaining a
sufficient number of employees in light of its contemplated business
operations;
(x) refraining from guaranteeing or becoming obligated for the
debts of any other Person or holding its credit out as being available
to satisfy the obligations of others;
(xi) refraining from acquiring obligations or securities of its
stockholders;
(xii) allocating fairly and reasonably any overhead for shared
office space;
(xiii) using separate stationery, invoices and checks;
(xiv) refraining from pledging its assets for the benefit of any
other Person or making any loans or advances to any Person except in
connection with a Securitization Transaction as contemplated by the
Transaction Documents;
(xv) holding itself out as a separate entity; and
(xvi) correcting any known misunderstanding regarding its
separate identity.
"Structuring Fee" shall mean, collectively, the Initial Structuring Fee
and the Additional Structuring Fee.
"Subsidiary" means, as applied to any Person, (i) any corporation of
which fifty percent (50%) or more of the outstanding stock (other than
directors' qualifying shares) having ordinary voting power to elect a majority
of its board of directors, regardless of the existence at the time
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of a right of the holders of any class or classes of securities of such
corporation to exercise such voting power by reason of the happening of any
contingency, or any partnership of which such Person is the general partner or
of which fifty percent (50%) or more of the outstanding partnership interests,
or any limited liability company of which fifty percent (50%) or more of the
outstanding membership interests is at the time owned by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person, and (ii) any other entity which is controlled by
such Person, or by one or more Subsidiaries of such Person, or by such Person
and one or more Subsidiaries of such Person (within the meaning attributed to
the word "control" in the definition of Affiliate).
"Supplement to the Servicing Agreement" shall mean Supplement No. 1
dated as of December 1, 1998 to the Servicing Agreement by and among the
Borrower, the Servicer and the Trustee, substantially in the form of Exhibit
XIII annexed hereto, as amended or modified from time to time.
"Suspension Event" means an event described in Section 8.2 upon the
occurrence of which the Administrative Agent may require the suspension of any
purchases by the Borrower of Receivables under the Origination Agreement.
"Systems" shall have the meaning ascribed to such term in Section 1.1 in
the Year 2000 Problems definition.
"Tax" means any present or future tax, levy, impost, duty, charge, fee,
deduction or withholding of any nature and whatever called, by whomsoever, on
whomsoever and wherever imposed, levied, collected, withheld or assessed.
"Termination Date" means the date which is the earlier of (a) one year
from the Effective Date, (b) upon the occurrence of an Event of Default which
shall remain unremedied, or (c) upon the completion of an Alternative Financing.
"Trademark Collateral Assignment" means the Trademark Collateral
Assignment, in form and substance satisfactory to the Administrative Agent, to
be delivered pursuant to the terms of the Security Agreement.
"Transaction Costs" means the fees, costs and expenses (other than
amounts payable to the Agents and the Lenders) payable by the Borrower in
connection with the Transactions.
"Transaction Documents" means (i) the Loan Documents, (ii) any agreement
entered into in connection with the Securitization Transaction and (iii) all
other agreements, documents and instruments relating to, arising out of, or in
any way connected with (a) any agreement, document or instrument referred to in
clauses (i) and (ii) or (b) any of the transactions contemplated by any
agreement, document or instrument referred to in clauses (i) and (ii) or in this
clause (iii).
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"Transactions" means, collectively, (i) the Initial Equity Contribution,
(ii) the making of the Loans, (iii) the formation of the Master Trust, and (iv)
any other transactions contemplated by or entered into in connection with the
Transaction Documents.
"Transferor" shall mean the Borrower, in its capacity as Transferor
under the Servicing Agreement.
"Transferor Certificate" means the certificate issued pursuant to the
Servicing Agreement and executed by the Borrower, as transferor, and
authenticated by the Trustee, representing the Transferor Interest.
"Transferor Interest" represents the interest in the assets of the
Master Trust held by the Borrower and, on any date, is equal to the aggregate
amount of Receivables in the Master Trust.
"Trustee" shall mean The Bank of New York, in its capacity as trustee on
behalf of the Master Trust, or its successor in interest.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the relevant jurisdiction or jurisdictions.
"US Dollars", "Dollars" or "$" means lawful money of the United States
of America and, where applicable, in immediately available freely transferable
funds.
"U.S. Government Obligations" means direct obligations of the United
States of America, or any agency or instrumentality thereof for the payment of
which the full faith and credit of the United States of America is pledged.
"Weekly Balance Originations" means, for any calendar week, the
aggregate amount of Receivables booked on the system of the processor thereof
for such calendar week.
"Year 2000 Problems" means limitations in the capacity or readiness to
handle date information (including, without limitation, calculations based on
date information) for the Year 1999 or years beginning January 1, 2000 of any of
the hardware, firmware or software systems (the "Systems") associated with
information processing and delivery, operations or services (e.g., security and
alarms, elevators, communications and HVAC), including, without limitation,
equipment containing embedded microchips, operated by, provided to or otherwise
reasonably necessary to the business or operations of the Borrower.
Section 1.2 GAAP.
All accounting terms not otherwise defined herein shall have the
meanings assigned to them in accordance with GAAP. Where the character or amount
of any asset or liability or item of income or expense is required to be
determined, or any consolidation or other accounting computation is required to
be made for the purpose of this Agreement or any instrument
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contemplated hereby, such determination or calculation shall to the extent
applicable and except as otherwise specified herein or therein, be made in
accordance with GAAP.
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Section 1.3 References to Statutes and Transaction Documents.
(a) Any reference in this Agreement to any act or statute or section
thereof or any regulation shall be deemed to be a reference to such act, statute
or section or regulation as amended or re-enacted from time to time or any
substitution therefor or supplement thereto.
(b) Except as otherwise specified herein, all references in any
Transaction Document to any Transaction Document shall be deemed references to
such Transaction Document as the same has been and may be amended or
supplemented from time to time, or as the terms thereof may be waived or
modified, but only, in the case of each such waiver or modification, to the
extent permitted by, and effected in accordance with, the terms thereof.
Section 1.4 Singular and Plural.
Words importing the singular number shall include the plural and vice
versa.
ARTICLE 2
Amounts and Terms of Commitments and Loans
Section 2.1 Commitments; Loans.
(a) Commitments. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of the Borrower set
forth herein and in the other Loan Documents, each Lender hereby severally
agrees to make the Loans described in this Section. Each Lender severally
agrees, subject to the limitations set forth below with respect to the maximum
amount of Loans permitted to be outstanding from time to time, to lend the
Borrower during the period from the Closing Date to, but excluding, the
Termination Date an aggregate amount not exceeding its Pro Rata Share of the
aggregate amount of the Loan Commitments, to be used for the purposes identified
herein. The original amount of each Lender's Loan Commitment is set forth
opposite its name on Schedule 2.1 annexed hereto and the aggregate original
amount of the Loan Commitments is $100,000,000; provided that the Loan
Commitments of the Lenders shall be adjusted to give effect to any assignments
of the Loan Commitments pursuant to Section 10.1; provided, further, that the
amount of the Loan Commitments shall be reduced from time to time by the amount
of any reductions thereto pursuant to Section 2.4. Each Lender's Loan Commitment
shall expire on the Termination Date and all Loans and all other amounts owed
hereunder with respect to the Loans and the Loan Commitments shall be paid in
full no later than that date. Amounts borrowed under this Section may be repaid
and reborrowed, subject to the limitations and conditions set forth herein.
(b) Borrowing Mechanics. Loans made on any Borrowing Date shall (x) be
in an aggregate minimum amount of $250,000 and integral multiples of $50,000 in
excess of that amount and (y) not in excess of the Borrowing Base then in effect
as certified by the Borrower in the Notice and Certificate of Borrowing
delivered in connection with any requested Loan.
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Whenever the Borrower desires that the Lenders make Loans it shall deliver to
the Administrative Agent a Notice and Certificate of Borrowing no later than
12:00 Noon (New York time), at least four (4) Business Days in advance of the
proposed Borrowing Date in the case of a LIBOR Loan, or at least one (1)
Business Day in advance of the proposed Borrowing Date in the case of a Base
Rate Loan. The Notice and Certificate of Borrowing shall specify (i) the
proposed Borrowing Date (which shall be a Business Day), (ii) the amount of
Loans requested, (iii) whether such Loans shall be Base Rate Loans or LIBOR
Loans, and (iv) in the case of any Loans requested to be made as LIBOR Loans,
the initial Interest Period requested therefor. Loans may be continued as or
converted into Base Rate Loans and LIBOR Loans in the manner provided in Section
2.2(d). In lieu of delivering the above-described Notice and Certificate of
Borrowing, the Borrower may give the Administrative Agent telephonic notice by
the required time of any proposed borrowing under this Section; provided that
such notice shall be promptly confirmed in writing by delivery of a Notice and
Certificate of Borrowing to the Administrative Agent on or before the applicable
Borrowing Date.
Neither the Administrative Agent nor any Lender shall incur any
liability to the Borrower in acting upon any telephonic notice referred to above
that the Administrative Agent believes in good faith to have been given by a
duly authorized officer or other person authorized to borrow on behalf of the
Borrower or for otherwise acting in good faith under this Section, and upon
funding of Loans by the Lenders in accordance with this Agreement pursuant to
any such telephonic notice the Borrower shall have effected Loans hereunder.
The Borrower shall notify the Administrative Agent prior to the funding
of any Loans in the event that any matters as to which the Borrower is required
to certify in the applicable Notice and Certificate of Borrowing are no longer
true and correct as of the applicable Borrowing Date, and the acceptance by the
Borrower of the proceeds of any Loan shall constitute a re-certification by the
Borrower, as of the applicable Borrowing Date, as to the matters as to which the
Borrower is required to certify in the applicable Notice and Certificate of
Borrowing, except as so specified by the Borrower by notice to the
Administrative Agent.
Except as otherwise provided in Section 2.6, a Notice and Certificate of
Borrowing for a LIBOR Loan (or telephonic notice in lieu thereof) shall be
irrevocable on and after the related Interest Rate Determination Date, and the
Borrower shall be bound to make a Borrowing in accordance therewith.
(c) Disbursement of Funds. All Loans under this Agreement shall be made
by the Lenders simultaneously and proportionately to their respective Pro Rata
Shares, it being understood that no Lender shall be responsible for any default
by any other Lender in that other Lender's obligation to make a Loan requested
hereunder nor shall the Commitment of any Lender to make the particular type of
Loan requested be increased or decreased as a result of a default by any other
Lender in that other Lender's obligation to make a Loan requested hereunder.
Promptly after receipt by the Administrative Agent of a Notice and Certificate
of Borrowing pursuant to Section 2.1 (or telephonic notice in lieu thereof), the
Administrative Agent shall notify each Lender of the proposed borrowing and of
the amount of such Lender's Pro Rata Share of the applicable Loans.
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Each Lender shall make the amount of its Loans available to the
Administrative Agent not later than 12:00 Noon (New York time) on the applicable
Borrowing Date in same day funds, at the Funding and Payment Office. Upon
satisfaction or waiver of the conditions precedent specified in Sections 3.1 and
3.2, the Administrative Agent shall make the proceeds of such Loans available to
the Borrower on the applicable Borrowing Date by causing an amount of same day
funds equal to the proceeds of all such Loans received by the Administrative
Agent from the Lenders, as the case may be, to be credited to the Cash
Management Account.
Unless the Administrative Agent shall have been notified by any Lender
prior to the Borrowing Date for any Loans that such Lender does not intend to
make available to the Administrative Agent the amount of such Lender's Loan
requested on such Borrowing Date, the Administrative Agent may assume that such
Lender has made such amount available to the Administrative Agent on such
Borrowing Date and the Administrative Agent may, in its sole discretion, but
shall not be obligated to, make available to the Borrower a corresponding amount
on such Borrowing Date. If such corresponding amount is not in fact made
available to the Administrative Agent by such Lender, the Administrative Agent
shall be entitled to recover such corresponding amount on demand from such
Lender together with interest thereon, for each day from such Borrowing Date
until the date such amount is paid to the Administrative Agent, at the customary
rate set by the Administrative Agent for the correction of errors among banks
for three Business Days and thereafter at the Base Rate. If such Lender does not
pay such corresponding amount forthwith upon the Administrative Agent's demand
therefor, the Administrative Agent shall promptly notify the Borrower and the
Borrower shall immediately pay such corresponding amount to the Administrative
Agent, together with interest thereon for each day from such Borrowing Date
until the date such amount is paid to the Administrative Agent at the rate
applicable to such Loan. Nothing in this Section shall be deemed to relieve any
Lender from its obligation to fulfill its Commitments hereunder or to prejudice
any rights that the Borrower may have against any Lender as a result of any
default by such Lender hereunder.
(d) The Register.
(i) The Administrative Agent shall maintain, at its address referred to
in Section 10.7, a register for the recordation of the names and addresses of
the Lenders and the Commitments and Loans of each Lender from time to time (the
"Register"). The Register shall be available for inspection by the Borrower or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(ii) The Administrative Agent shall record in the Register the
Commitments and the outstanding Loans from time to time of each Lender and each
repayment or prepayment in respect of the principal amount of the outstanding
Loans of each Lender. Any such recordation shall be conclusive and binding upon
the Borrower and each Lender, absent manifest error; provided that failure to
make any such recordation, or any error in such recordation, shall not affect
the Borrower's Obligations in respect of the applicable Loans.
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(iii) Each Lender shall record on its internal records (including,
without limitation, the Notes held by such Lender) the amount of each Loan made
by it and each payment in respect thereof. Any such recordation shall be
conclusive and binding on the Borrower, absent manifest error; provided that
failure to make any such recordation, or any error in such recordation, shall
not affect the Borrower's Obligations in respect of the applicable Loans; and
provided further that in the event of any inconsistency between the Register and
any of the Lender's records, the Register shall govern.
(iv) The Borrower, the Administrative Agent and the Lenders shall deem
and treat the Persons listed as the Lenders in the Register as the holders and
owners of the corresponding Commitments and Loans listed therein for all
purposes hereof, and no assignment or transfer of any Commitment or Loan shall
be effective, in each case unless and until an Assignment Agreement effecting
the assignment or transfer thereof shall have been accepted by the
Administrative Agent and recorded in the Register as provided in Section 10.1.
Prior to such recordation, all amounts owed with respect to the applicable
Commitment or Loan shall be owed to the Lender listed in the Register as the
owner thereof, and any request, authority or consent of any Person who, at the
time of making such request or giving such authority or consent is listed in the
Register as a Lender shall be conclusive and binding on any subsequent holder,
assignee or transferee of the corresponding Commitments or Loans. Coincident
with the delivery of such an Assignment Agreement to the Administrative Agent
for acceptance and registration of assignment or transfer of all or part of a
Loan, or as soon thereafter as practicable the assigning or transferor Lender
shall surrender the Note evidencing such Loan, and thereupon one or more new
Notes in the same aggregate principal amount shall be issued to the assigning or
transferor Lender and/or the new Lender.
(v) The Borrower hereby designates CSFB and any financial institution
serving as a successor Administrative Agent to serve as the Borrower's agent
solely for purposes of maintaining the Register as provided in this Section, and
the Borrower hereby agrees that, to the extent CSFB serves in such capacity,
CSFB and its officers, directors, employees, agents and affiliates shall
constitute Indemnitees for all purposes under Section 10.3.
(e) Notes. The Borrower shall execute and deliver on the Effective Date
to each Lender (or to the Administrative Agent for such Lender) a Note,
substantially in the form of Exhibit VI annexed hereto, to evidence that
Lender's Loans in the principal amount of that Lender's Loans, and with other
appropriate insertions, and each Lender's Notes shall evidence such Lender's Pro
Rata Share of such amounts. The Notes and Obligations evidenced thereby shall be
governed by, subject to and benefit from all of the terms and conditions of this
Agreement and the other Loan Documents and shall be secured by the Collateral.
Section 2.2 Interest on the Loans.
(a) Rate of Interest. Subject to the provisions of Sections 2.6 and 2.7,
each Loan shall bear interest on the unpaid principal amount thereof from the
date made to maturity (whether by acceleration or otherwise) at a rate
determined by reference to the Base Rate or the Reserve Adjusted LIBOR Rate, as
the case may be. The applicable basis for determining the rate of
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interest with respect to any Loan shall be selected by the Borrower initially at
the time a Notice and Certificate of Borrowing is given with respect to such
Loan pursuant to Section 2.1. The basis for determining the interest rate with
respect to any Loan may be changed from time to time pursuant to Section 2.2. If
on any day any Loan is outstanding with respect to which notice has not been
delivered to the Administrative Agent in accordance with the terms of this
Agreement specifying the applicable basis for determining the rate of interest,
then for that day that Loan shall bear interest determined by reference to the
Base Rate. Subject to the provisions of Sections 2.6 and 2.7, the Loans shall
bear interest through maturity as follows:
(i) if a Base Rate Loan, then at the sum of the Base Rate plus the
Applicable Margin for Base Rate Loans; or
(ii) if a LIBOR Loan, then at the sum of the Reserve Adjusted LIBOR Rate
plus the Applicable Margin for LIBOR Loans.
(b) Interest Periods. In connection with each LIBOR Loan, the Borrower
may, pursuant to the applicable Notice and Certificate of Borrowing or Notice of
Conversion/Continuation, as the case may be, select an interest period (each, an
Interest Period) to be applicable to such Loan, which Interest Period shall be,
at the Borrower's option, either a one, two, three or six month period; provided
that:
(i) the initial Interest Period for any LIBOR Loan shall commence on the
Borrowing Date in respect of such Loan, in the case of a Loan initially made as
a LIBOR Loan, or on the date specified in the applicable Notice of
Conversion/Continuation, in the case of a Loan converted to a LIBOR Loan;
(ii) if an Interest Period would otherwise expire on a day that is not a
Business Day, such Interest Period shall expire on the next succeeding Business
Day; provided that, if any Interest Period would otherwise expire on a day that
is not a Business Day but is a day of the month after which no further Business
Day occurs in such month, such Interest Period shall expire on the next
preceding Business Day;
(iii) in the case of immediately successive Interest Periods applicable
to a LIBOR Loan continued as such pursuant to a Notice of
Conversion/Continuation, each successive Interest Period shall commence on the
day on which the next preceding Interest Period expires;
(iv) any interest period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such interest period) shall, subject to
clause (v) of this Section, end on the last Business Day of a calendar month;
(v) no Interest Period with respect to any portion of the Loans shall
extend beyond the Termination Date;
(vi) there shall be no more than 7 Interest Periods outstanding at any
time; and
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(vii) in the event the Borrower fails to specify an Interest Period for
any LIBOR Loan in the applicable Notice and Certificate of Borrowing or Notice
of Conversion/Continuation, the Borrower shall be deemed to have selected an
Interest Period of one month.
(c) Interest Payments. Subject to the provisions of Section 2.2,
interest on each Loan shall be payable in arrears on and to each Interest
Payment Date applicable to that Loan, upon any prepayment of that Loan (to the
extent accrued on the amount being prepaid) and at maturity (including final
maturity, by acceleration or otherwise); provided, that in the event that any
Loans that are Base Rate Loans are prepaid pursuant to Section 2.4, interest
accrued on such Loans through the date of such prepayment shall be payable on
the next succeeding Interest Payment Date applicable to Base Rate Loans (or, if
earlier, at final maturity).
(d) Conversion or Continuation. Subject to the provisions of Section
2.6, the Borrower shall have the option (i) to convert at any time all or any
part of its outstanding Loans equal to $250,000 and integral multiples of
$50,000 in excess of that amount from Loans bearing interest at a rate
determined by reference to one basis to Loans bearing interest at a rate
determined by reference to an alternative basis (provided that any Loan being
converted to a LIBOR Loan shall be in a minimum amount of $250,000 and integral
multiples of $50,000 in excess of such amounts) or (ii) upon the expiration of
any Interest Period applicable to a LIBOR Loan, to continue all or any portion
of such Loan equal to $250,000 and integral multiples of $50,000 in excess of
that amount as a LIBOR Loan; provided, however, that a LIBOR Loan may only be
converted into a Base Rate Loan on the expiration of an Interest Period
applicable thereto.
The Borrower shall deliver a Notice of Conversion/Continuation to the
Administrative Agent no later than 12:00 Noon (New York time) at least one (1)
Business Day in advance of the proposed conversion date (in the case of a
conversion to a Base Rate Loan), and at least four (4) Business Days in advance
of a proposed conversion/continuation date (in the case of a conversion to or a
continuation of, a LIBOR Loan). A Notice of Conversion/Continuation shall
specify: (i) the proposed conversion/continuation date (which shall be a
Business Day), (ii) the amount and type of the Loan to be converted/continued,
(iii) the nature of the proposed conversion/continuation, (iv) in the case of a
conversion to, or a continuation of, a LIBOR Loan, the requested Interest
Period, and (v) in the case of a conversion to, or a continuation of, a LIBOR
Loan, that no Default or Event of Default has occurred and is continuing. In
lieu of delivering the above-described Notice of Conversion/Continuation, the
Borrower may give the Administrative Agent telephonic notice by the required
time of any proposed conversion/continuation under this Section; provided, that
such notice shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to the Administrative Agent on or before the proposed
conversion/continuation date.
Neither the Administrative Agent nor any Lender shall incur any
liability to the Borrower in acting upon any telephonic notice referred to above
that the Administrative Agent believes in good faith to have been given by a
duly authorized officer or other person authorized to act on behalf of the
Borrower or for otherwise acting in good faith under this Section. Upon
conversion
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or continuation of the applicable basis for determining the interest rate with
respect to any Loans in accordance with this Agreement pursuant to any such
telephonic notice, the Borrower shall have effected a conversion or
continuation, as the case may be, hereunder.
Except as otherwise provided, a Notice of Conversion/Continuation for
conversion to, or continuation of, a LIBOR Loan (or telephonic notice in lieu
thereof) shall be irrevocable on and after the related Interest Rate
Determination Date, and the Borrower shall be bound to effect a conversion or a
continuation in accordance therewith.
(e) Post-Default Interest. Upon the occurrence and during the
continuation of any Event of Default, the outstanding principal amount of all
Loans, to the extent permitted by Applicable Law, any interest payments thereon
not paid when due and any fees and other amounts then due and payable hereunder,
shall thereafter bear interest (including post-petition interest in any
proceeding under the Bankruptcy Code, or other applicable bankruptcy or
insolvency laws) payable upon demand at a rate that is 2% per annum in excess of
the interest rate otherwise payable under this Agreement with respect to the
applicable Loans (or, in the case of any such fees and other amounts, at a rate
which is 2% per annum in excess of the interest rate otherwise payable under
this Agreement for Loans bearing interest at a rate determined by reference to
the Base Rate); provided that, in the case of LIBOR Loans, upon the expiration
of the Interest Period in effect at the time any such increase in interest rate
is effective such LIBOR Loans shall thereupon become Base Rate Loans and shall
thereafter bear interest payable upon demand at a rate equal to 2% per annum in
excess of the interest rates otherwise payable under this Agreement for Base
Rate Loans. Payment or acceptance of the increased rates of interest provided
for in this Section is not a permitted alternative to timely payment and shall
not constitute a waiver of any Event of Default or otherwise prejudice or limit
any rights or remedies of the Administrative Agent or any Lender.
(f) Computation of Interest. Interest on Loans shall be computed on the
basis of a 360-day year (or a 365- or 366-day year, as applicable, in the case
of Base Rate Loans based on the Prime Rate) and for the actual number of days
elapsed in the period during which it accrues. In computing interest on any
Loan, the date of the making of such Loan or the first day of an Interest Period
applicable to such Loan or, with respect to a Base Rate Loan being converted
from a LIBOR Loan, the date of conversion of such LIBOR Loan to such Base Rate
Loan, as the case may be, shall be included, and the date of payment of such
Loan or the expiration date of an Interest Period applicable to such Loan or,
with respect to a Base Rate Loan being converted to a LIBOR Loan, the date of
conversion of such Base Rate Loan to such LIBOR Loan, as the case may be, shall
be excluded; provided, that if a Loan is repaid on the same day on which it is
made, one day's interest shall be paid on such Loan.
Section 2.3 Fees.
(a) Commitments. The Borrower agrees to pay to the Administrative Agent,
for distribution to each Lender in proportion to that Lender's Pro Rata Share of
the Commitments, commitment fees for the period from and including the date
hereof to and excluding with respect
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to Loans, the Termination Date, equal to the undrawn portion
of the total Commitments available under this Agreement multiplied by 0.25% per
annum, payable monthly.
(b) Other Fees. The Borrower agrees to pay to the Arranger the
Structuring Fee, the Optional Advance Fee and such other fees as may have been
or hereafter may be agreed in writing with the Arranger from time to time.
Section 2.4 Repayments, Prepayments and Reductions in Commitments; General
Provisions Regarding Payments.
(a) Scheduled Payments of Loans. The Borrower shall repay all
outstanding Loans on the Termination Date.
(b) Prepayments and Reductions in Commitments.
(i) Voluntary Prepayments. The Borrower may, upon not less than three
(3) Business Days' prior written or telephonic notice, promptly confirmed in
writing to the Administrative Agent (which notice the Administrative Agent will
promptly transmit by facsimile or telephone to each Lender), at any time and
from time to time prepay, without premium or penalty, the Loans on any Business
Day in whole or in part in an aggregate minimum amount of $1,000,000 and
integral multiples of $250,000 in excess thereof; provided, however, that in the
event the Borrower shall prepay any LIBOR Loan other than on the expiration of
an Interest Period applicable thereto, the Borrower shall, at the time of such
prepayment, also pay any amounts payable under Section 2.6 hereof. Notice of
prepayment having been given, the Loans shall become due and payable on the
prepayment date specified in such notice and in the aggregate principal amount
specified therein. Any voluntary prepayments pursuant to this Section shall be
applied as specified in Section 2.4(c).
(ii) Voluntary Reductions of Commitments. The Borrower may, upon not
less than three (3) Business Days' prior written or telephonic notice, promptly
confirmed in writing to the Administrative Agent (which notice the
Administrative Agent will promptly transmit by facsimile or telephone to each
Lender), at any time and from time to time terminate in whole or permanently
reduce in part, without premium or penalty, the Commitments in an amount up to
the amount by which the Commitments exceed the aggregate principal amount of all
Loans outstanding at the time of such proposed termination or reduction;
provided that any such partial reduction of the Commitments shall be in an
aggregate minimum amount of $250,000 and integral multiples of $50,000 in excess
of that amount. The Borrower's notice to the Administrative Agent shall
designate the date (which shall be a Business Day) of such termination or
reduction and the amount of any partial reduction, and such termination or
reduction of the Commitments shall be effective on the date specified in the
notice and shall reduce the Commitment of each Lender proportionately to its Pro
Rata Share.
(iii) Mandatory Prepayments. The Loans shall be prepaid in the manner
provided in Section 2.4(c) from time to time to the extent necessary so that the
aggregate principal amount of all Loans outstanding shall not at any time exceed
(x) the Commitments or (y) the Borrowing
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Base (as determined pursuant to the most recent Notice and Certificate of
Borrowing) then in effect. The Loans shall be prepaid in full and the
Commitments shall be reduced to zero immediately upon the completion of an
Alternative Financing. The Commitments shall immediately terminate upon the
occurrence of an Event of Default.
(c) Application of Prepayments. Prepayment of Loans shall be made within
one Business Day of the occurrence of the events specified in Section
2.4(b)(iii). Prepayment of Loans shall be applied to Base Rate Loans to the full
extent thereof before application to LIBOR Loans, in each case in a manner which
minimizes the amount of any payments required to be made by the Borrower
pursuant to Section 2.6(d).
(d) Application of Proceeds of Collateral. All proceeds received by the
Administrative Agent, in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral under any Collateral Document
may, in the discretion of the Administrative Agent, be held by the
Administrative Agent, and/or (then or at any time thereafter) applied in full or
in part by the Administrative Agent against, the applicable Obligations (as
defined in such Collateral Document) in the following order of priority:
(i) to the payment of all costs and expenses of such sale, collection or
other realization, including without limitation reasonable compensation to the
Agents and their agents and counsel, and all other reasonable expenses,
liabilities and advances made or incurred by the Administrative Agent in
connection therewith, and all amounts for which the Administrative Agent is
entitled to indemnification under such Collateral Document and all advances made
by the Administrative Agent thereunder for the account of the Borrower, and to
the payment of all reasonable costs and expenses paid or incurred by the
Administrative Agent in connection with the exercise of any right or remedy
under such Collateral Document, all in accordance with the terms of this
Agreement and such Collateral Document;
(ii) thereafter, to the extent of any excess proceeds, to the payment of
all other such Obligations for the ratable benefit of the holders thereof; and
(iii) thereafter, to the extent of any excess proceeds, to the payment
to or upon the order of the Borrower or to whosoever may be lawfully entitled to
receive the same or as a court of competent jurisdiction may direct.
(e) General Provisions Regarding Payments.
(i) Manner and Time of Payment. All payments by the Borrower of
principal, interest, fees and other Obligations hereunder and under the Notes
shall be made in same day funds and without defense, setoff or counterclaim,
free of any restriction of condition, and delivered to the Administrative Agent
not later than 12:00 Noon (New York time) on the date due at the Funding and
Payment Office for the account of the Lenders; funds received by the
Administrative Agent after that time on such due date shall be deemed to have
been paid by the Borrower on the next succeeding Business Day. The Borrower
hereby authorizes the Administrative Agent to charge its accounts with the
Administrative Agent in order to cause
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timely payment to be made to the Administrative Agent of all principal,
interest, fees and expenses due hereunder (subject to sufficient funds being
available in its accounts for that purpose).
(ii) Application of Payments to Principal and Interest. Except as
provided in Section 2.2(c), all payments in respect of the principal amount of
any Loan shall include payment of accrued interest on the principal amount being
repaid or prepaid, and all such payments (and in any event any payments made in
respect of any Loan on a date when interest is due and payable with respect to
such Loan) shall be applied to the payment of interest before application to
principal.
(iii) Apportionment of Payments. Aggregate principal and interest
payments shall be apportioned among all outstanding Loans to which such payments
relate, in each case proportionately to the Lenders' respective Pro Rata Shares.
The Administrative Agent shall promptly distribute to each Lender, at its
applicable Lending Office specified on Schedule 2.1 or at such other address as
such Lender may request, its Pro Rata Share of all such payments received by the
Administrative Agent and the commitment fees of such Lender when received by the
Administrative Agent pursuant to Section 2.3. Notwithstanding the foregoing
provisions of this Section 2.4(e)(iii) if, pursuant to the provisions of Section
2.6(c), any Notice of Conversion/Continuation is withdrawn as to any Affected
Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata
Share of any LIBOR Loans, the Administrative Agent shall give effect thereto in
apportioning payments received thereafter.
(iv) Payments on Business Days. Except if expressly provided otherwise,
whenever any payment to be made hereunder shall be stated to be due on a day
that is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest hereunder or of the commitment fees hereunder, as the
case may be.
(v) Notation of Payment. Each Lender agrees that before disposing of any
Note held by it, any part hereof (other than by granting participations
therein), that Lender will make a notation thereon of all Loans evidenced by
that Note and all principal payments previously made thereon and of the date to
which interest thereon has been paid; provided that the failure to made (or any
error in the making of) a notation of any Loan made under such Note shall not
limit or otherwise affect such disposition or the obligations of the Borrower
hereunder or under such Note with respect to any Loan or any payments of
principal or interest on such Note.
Section 2.5 Use of Proceeds.
(a) Loans. The proceeds of all Loans shall be applied by the Borrower to
purchase Receivables for conveyance to the Master Trust pursuant to the terms of
the Origination Agreement.
(b) Margin Regulations. No portion of the proceeds of any borrowing under
this Agreement shall be used by the Borrower in any manner that might cause the
borrowing or the
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application of such proceeds to violate Regulation T, Regulation U or Regulation
X of the Board of Governors of the Federal Reserve System or any other
regulation of such Board or to violate the Securities Exchange Act of 1934, as
amended, in each case as in effect on the date or dates of such borrowing and
such use of proceeds.
Section 2.6 Special Provisions Governing LIBOR Loans.
Notwithstanding any other provision of this Agreement to the contrary,
the following provisions shall govern with respect to LIBOR Loans as to the
matters covered:
(a) Determination of Applicable Interest Rate. As soon as practicable
after 11:00 a.m. (New York time) on each Interest Rate Determination Date, the
Administrative Agent shall determine (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties) the interest rate that
shall apply to the LIBOR Loans for which an interest rate is then being
determined for the applicable Interest Period and shall promptly give notice
thereof (in writing or by telephone confirmed in writing) to the Borrower and
each Lender.
(b) Inability to Determine Applicable Interest Rate. If the
Administrative Agent shall have reasonably determined (which determination shall
be final and conclusive and binding upon all parties hereto), on any Interest
Rate Determination Date with respect to any LIBOR Loans, that by reason of
circumstances arising after the date of this Agreement affecting the London
interbank market, adequate and fair means do not exist for ascertaining the
interest rate applicable to such Loans on the basis provided for in the
definition of Reserve Adjusted LIBOR Rate the Administrative Agent shall on such
date give notice (by telecopy or by telephone confirmed in writing) to the
Borrower and each Lender of such determination, whereupon (i) no Loans may be
made or continued as, or converted to, LIBOR Loans, until such time as the
Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist (such notification not
to be unreasonably withheld or delayed) and (ii) any Notice and Certificate of
Borrowing or Notice of Conversion/Continuation given by the Borrower with
respect to the Loans in respect of which such determination was made shall be
deemed to be rescinded by the Borrower.
(c) Illegality or Impracticability of LIBOR Loans. If on any date any
Lender shall have reasonably determined (which determination shall be final and
conclusive and binding upon all parties hereto but shall be made only after
consultation with the Borrower and the Administrative Agent) that the making,
maintaining or continuation of its LIBOR Loans (i) has become unlawful as a
result of compliance by such Lender in good faith with any law, treaty,
governmental rule, regulation, guideline or order (or would conflict with any
such treaty, governmental rule, regulation, guideline or order not having the
force of law even though the failure to comply therewith would not be unlawful)
or (ii) has become impracticable, or would cause such Lender material hardship,
as a result of the interbank market, then, and in any such event, such Lender
shall be an "Affected Lender" and it shall on that day give notice (by telecopy
or by telephone confirmed in writing) to the Borrower and the Administrative
Agent of such determination (which notice the Administrative Agent shall
promptly transmit to each Lender). Thereafter (a) the obligation of the Affected
Lender to make Loans as, or to convert Loans to,
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LIBOR Loans, shall be suspended until such notice shall be withdrawn by the
Affected Lender, (b) to the extent such determination by the Affected Lender
relates to a LIBOR Loan then being requested by the Borrower pursuant to a
Notice and Certificate of Borrowing or a Notice of Conversion/Continuation, the
Affected Lender shall make such Loan as (or convert such Loan to, as the case
may be) a Base Rate Loan, (c) the Affected Lender's obligation to maintain its
outstanding LIBOR Loans, as the case may be (the "Affected Loans"), shall be
terminated at the earlier to occur of the expiration of the Interest Period then
in effect with respect to the Affected Loans or when required by law, and (d)
the Affected Loans shall automatically convert into Base Rate Loans on the date
of such termination. Notwithstanding the foregoing, to the extent a
determination by an Affected Lender as described above relates to a LIBOR Loan
then being requested by the Borrower pursuant to a Notice and Certificate of
Borrowing or a Notice of Conversion/Continuation, the Borrower shall have the
option, subject to the provisions of Section 2.6(d), to rescind such Notice and
Certificate of Borrowing or Notice of Conversion/Continuation as to all Lenders
by giving notice (by telecopy or by telephone confirmed in writing) to the
Administrative Agent of such rescission on the date on which the Affected Lender
gives notice of its determination as described above (which notice of rescission
the Administrative Agent shall promptly transmit to each other Lender). Except
as provided in the immediately preceding sentence, nothing in this Section
2.6(c) shall affect the obligation of any Lender other than an Affected Lender
to make or maintain Loans as, or to convert Loans to, LIBOR Loans in accordance
with the terms of this Agreement.
(d) Compensation For Breakage or Non-Commencement of Interest Periods.
The Borrower shall compensate each Lender, upon written request by that Lender
(which request shall set forth the basis for requesting such amounts), for all
reasonable losses, expenses and liabilities (including, without limitation, any
interest paid by that Lender to the lenders of funds borrowed by it to make or
carry its LIBOR Loans and any actual loss, expense or liability sustained by
that Lender in connection with the liquidation or re-employment of such funds)
which that Lender may sustain: (i) if for any reason (other than a default by
that Lender) a borrowing of any LIBOR Loan does not occur on a date specified
therefor in a Notice and Certificate of Borrowing or a telephonic request for
borrowing, or a conversion to or continuation of any LIBOR Loan does not occur
on a date specified therefor in a Notice of Conversion/Continuation or a
telephonic request for conversion or continuation, (ii) if any prepayment
(including any prepayment pursuant to Section 2.4(b)) or conversion of any of
its LIBOR Loans occurs on a date that is not the last day of an Interest Period
applicable to that Loan, (iii) if any prepayment of any of its LIBOR Loans is
not made on any date specified in a notice of prepayment given by the Borrower,
or (iv) as a consequence of any other default by the Borrower in the repayment
of its LIBOR Loans when required by the terms of this Agreement.
(e) Booking of LIBOR Loans. Any Lender may make, carry or transfer LIBOR
Loans at, to, or for the account of any of its branch offices or the office of
an Affiliate of that Lender.
(f) Assumptions Concerning Funding of LIBOR Loans. Calculation of all
amounts payable to a Lender under this Section 2.6 and under Section 2.7(a)
shall be made as though that Lender had actually funded each of its relevant
LIBOR Loans through the purchase of a LIBOR deposit bearing interest at the rate
obtained pursuant to clause (i) of the definition of Reserve
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Adjusted LIBOR Rate in an amount equal to the amount of such LIBOR Loan and
having a maturity comparable to the relevant Interest Period and, through the
transfer of such LIBOR deposit from an offshore office of that Lender to a
domestic office of that Lender in the United States of America; provided,
however, that each Lender may fund each of its LIBOR Loans in any manner it sees
fit and the foregoing assumptions shall be utilized only for the purposes of
calculating amounts payable under this Section 2.6 and under Section 2.7(a).
(g) LIBOR Loans After Default. After the occurrence of and during the
continuation of a Default or Event of Default, (i) the Borrower may not elect to
have a Loan be made or maintained as, or converted to, a LIBOR Loan after the
expiration of any Interest Period then in effect for that Loan and (ii) subject
to the provisions of Section 2.6(d), any Notice and Certificate of Borrowing or
Notice of Conversion/Continuation given by the Borrower with respect to a
requested borrowing or conversion/continuation that has not yet occurred shall
be deemed to be rescinded by the Borrower.
Section 2.7 Increased Costs; Taxes; Capital Adequacy.
(a) Compensation for Increased Costs and Taxes. Subject to the
provisions of Section 2.7(b), in the event that any Lender shall determine
(which determination shall, absent manifest error, be final and conclusive and
binding upon all parties hereto) that any law, treaty or governmental rule,
regulation or order, or any change therein or in the interpretation,
administration or application thereof (including the introduction of any new
law, treaty or governmental rule, regulation or order), or any determination of
a court or governmental authority, in each case that becomes effective after the
Closing Date, or compliance by such Lender with any guideline, request or
directive issued or made after the date hereof by any central bank or other
governmental or quasi-governmental authority (whether or not having the force of
law):
(i) results in a change in the basis of taxation of such Lender (or its
applicable lending office) (other than a change with respect to any Tax on the
overall net income of such Lender) with respect to this Agreement or any of its
obligations hereunder or any payments to such Lender (or its applicable lending
office) of principal, interest, fees or any other amount payable hereunder;
(ii) imposes, modifies or holds applicable any reserve (including
without limitation any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, Federal Deposit Insurance
Corporation insurance or similar requirement against assets held by, or deposits
or other liabilities in or for the account of, or advances or loans by, or other
credit extended by, or any other acquisition of funds by, any office of such
Lender (other than any such reserve or other requirements with respect to LIBOR
Loans that are reflected in the definition of Reserve Adjusted LIBOR Rate); or
(iii) imposes any other condition (other than with respect to a tax
matter) on or affecting such Lender (or its applicable lending office) or its
obligations hereunder, or the London interbank market;
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and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining LIBOR Loans hereunder or to reduce any
amount received or receivable by such Lender (or its applicable lending office)
with respect thereto; then, in any such case, the Lender shall promptly notify
the Borrower and the Administrative Agent thereof and the Borrower shall
promptly pay to such Lender, upon receipt of the statement referred to in the
next sentence, such additional amount or amounts (in form of an increased rate
of, or a different method of calculating, interest or otherwise as such Lender
shall reasonably determine) as may be necessary to compensate such Lender for
any such increased cost or reduction in amounts received or receivable
hereunder. Such Lender shall deliver to the Borrower (with a copy to the
Administrative Agent) a written statement, setting forth in reasonable detail
the basis for calculating the additional amounts owed to such Lender under this
Section 2.7(a), which statement shall be conclusive and binding upon all parties
hereto absent manifest error.
(b) Withholding of Taxes.
(i) Payments to Be Free and Clear. All sums payable by the Borrower
under this Agreement and the other Loan Documents shall (except to the extent
required by law) be paid free and clear of, and without any deduction or
withholding on account or, any Tax (other than a Tax on the overall net income
of any Lender) imposed, levied, collected, withheld or assessed by or within the
United States of America or any political subdivision in or of the United States
of America or any other jurisdiction from which a payment is made by or on
behalf of the Borrower.
(ii) Withholding of Taxes. If the Borrower or any other Person is
required by law to make any deduction or withholding on account of any such Tax
from any sum paid or payable by the Borrower to the Administrative Agent or any
Lender under any of the Loan Documents:
(a) the Borrower shall notify the Administrative Agent of any
such requirement or any change in any such requirement as soon as the
Borrower becomes aware of it;
(b) the Borrower shall pay any such Tax before the date on which
penalties attach thereto, such payment to be made (if the liability to
pay is imposed on the Borrower) for its own account or (if that
liability is imposed on the Administrative Agent or such Lender, as the
case may be) on behalf of and in the name of the Administrative Agent or
such Lender;
(c) the sum payable by the Borrower in respect of which the
relevant deduction, withholding or payment is required shall be
increased to the extent necessary to ensure that, after the making of
that deduction, withholding or payment, the Administrative Agent or such
Lender, as the case may be, receives on the due date a net sum equal to
what it would have received had no such deduction, withholding or
payment been required or made; and
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(d) within 30 days after paying any sum from which it is required
by law to make any deduction or withholding, and within 30 days after
the due date of payment of any Tax which it is required by clause (b)
above to pay, the Borrower shall deliver to the Administrative Agent
evidence satisfactory to the other affected parties of such deduction,
withholding or payment and of the remittance thereof to the relevant
taxing or other authority;
provided that no such additional amount shall be required to be paid to any
Lender under clause (c) above except to the extent that any change after the
Closing Date or after the date of the Assignment Agreement pursuant to which
such Lender became a Lender (in the case of each other Lender) in any such
requirement for a deduction, withholding or payment as is mentioned therein
shall result in an increase in the rate of such deduction, withholding or
payment from that in effect at the date of this Agreement or at the date of such
Assignment Agreement, as the case may be, in respect of payments to such Lender.
(iii) Evidence of Exemption from U.S. Withholding Tax.
(a) Each Lender that is not a United States person (as such term
is defined in Section 7701(a)(30) of the Code) for United States Federal
Income Tax purposes (for purposes of this Section 2.7(b)(iii), a
"Non-U.S. Lender") shall deliver to each of the Administrative Agent and
the Borrower, on or prior to the Closing Date or on or prior to the date
of the Assignment Agreement pursuant to which it becomes a Lender (in
the case of each other Lender), and at such other times as may be
necessary in the determination of the Borrower or the Administrative
Agent (each in the reasonable exercise of its discretion), (1) two
original copies of Internal Revenue Service Form 1001 or 4224 (or any
successor forms), accurately completed and duly executed by such Lender,
together with any other certificate or statement of exemption required
under the Code or the regulations issued thereunder to establish that
such Lender is not subject to deduction or withholding of United States
federal income tax with respect to any payments to such Lender of
principal, interest, fees or other amounts payable under any of the Loan
Documents or (2) if such Lender is not a "bank" or other Person
described in Section 881(c)(3)(A) of the Code and cannot deliver either
Internal Revenue Service Form 1001 or 4224 pursuant to clause (1) above,
a Certificate of Non-Bank Status together with two original copies of
Internal Revenue Service Form W-8 (or any successor form), properly
completed and duly executed by such Lender, together with any other
certificate or statement of exemption required under the Code or the
regulations issued thereunder to establish that such Lender is not
subject to deduction or withholding of United States federal income tax
with respect to any payments to such Lender of interest payable under
any of the Loan Documents.
(b) Each Lender required to deliver any forms, certificates or
other evidence with respect to United States federal income tax
withholding matters pursuant to Section 2.7b(iii)(a) hereby agrees, from
time to time after the initial delivery by such Lender of such forms,
certificates or other evidence, whenever a lapse in time or change in
circumstances renders such forms, certificates or other evidence
obsolete or inaccurate in
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any material respect, that such Lender shall (1) deliver to each of the
Administrative Agent and the Borrower two new original copies of
Internal Revenue Service Form 1001 or 4224, or a Certificate of Non-Bank
Status and an original copy of Internal Revenue Service Form W-8, as the
case may be, accurately completed and duly executed by such Lender,
together with any other certificate or statement of exemption required
in order to confirm or establish that such Lender is not subject to
deduction or withholding or is entitled to a reduced rate of United
States federal income tax with respect to payments to such Lender under
the Loan Documents or (2) immediately notify the Administrative Agent
and the Borrower of its inability to deliver any such forms,
certificates or other evidence.
(c) The Borrower shall not be required to pay any additional
amount to any Non-U.S. Lender under clause (c) of Section 2.7(b)(ii) in
respect of deductions or withholdings of United States federal income
taxes if such Lender (I) shall have failed to satisfy the requirements
of Section 2.7(b)(iii)(a) or 2.7(b)(iii)(b); or (II) in the case of a
payment, other than interest, to a Non-U.S. Lender, to the extent the
forms described in Sections 2.7(b)(iii)(a) or 2.7(b)(iii)(b) do not
establish a complete exemption from withholding of such taxes; provided
that if such Lender shall have satisfied such requirements on the
Closing Date or on the date of the Assignment Agreement pursuant to
which it became a Lender (in the case of each other Lender), nothing in
this Section 2.7(b)(iii)(c) shall relieve the Borrower of its obligation
to pay any additional amounts pursuant to clause (c) of Section
2.7(b)(ii) in the event that, as a result of any change after the
Closing Date in any applicable law, treaty or governmental rule,
regulation or order, or any change in the interpretation, administration
or application thereof, such Lender is no longer properly entitled to
deliver forms, certificates or other evidence at a subsequent date
establishing the fact that such Lender is not subject to withholding as
described in Section 2.7(b)(iii)(a) or 2.7(b)(iii)(b).
(c) Capital Adequacy Adjustment. If any Lender shall have determined
that the adoption, effectiveness, phase-in or applicability after the Closing
Date of any law, rule or regulation (or any provision thereof) regarding capital
adequacy, or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
(or its applicable lending office) with any guideline, request or directive
regarding capital adequacy (whether or not having the force of law) of any such
governmental authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the capital of such Lender or any
corporation controlling such Lender as a consequence of, or with reference to,
such Lender's Loans or Commitments or participations therein or other
obligations hereunder with respect to the Loans to a level below that which such
Lender reasonably determines such Lender or such controlling corporation could
have achieved but for such adoption, effectiveness, phase-in,
applicability, change or compliance (taking into consideration the policies of
such Lender or such controlling corporation with regard to capital adequacy),
then from time to time, within fifteen Business Days after receipt by the
Borrower from such Lender of the statement referred to in the next sentence, the
Borrower shall pay to such Lender such additional amount or amounts as will
compensate such Lender or such controlling corporation on an after-tax basis for
such reduction.
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Such Lender shall deliver to the Borrower (with a copy to the Administrative
Agent) a written statement, setting forth in reasonable detail the basis of the
calculation of such additional amounts, which statement shall be conclusive and
binding upon all parties hereto absent manifest error.
(d) Substitute Lenders. In the event the Borrower is required under the
provisions of this Section 2.7 to make payments in a material amount to any
Lender or in the event any Lender fails to lend to the Borrower in accordance
with this Agreement, the Borrower may, so long as no Default or Event of Default
shall have occurred and be continuing, elect to terminate such Lender as a party
to this Agreement; provided that, concurrently with such termination, (i) the
Borrower shall pay that Lender all principal, interest and fees and other
amounts (including without limitation amounts, if any, owed under this Section
2.7) due to be paid to such Lender with respect to all periods through such date
of termination, (ii) another financial institution satisfactory to the Borrower
and the Administrative Agent (or, in the event the Administrative Agent is also
the Lender to be terminated, the successor Administrative Agent) shall agree, as
of such date, to become a Lender for all purposes under this Agreement (whether
by assignment or amendment) and to assume all obligations of the Lender to be
terminated as of such date, and (iii) all documents and supporting materials
necessary, in the judgment of the Administrative Agent (or, in the event the
Administrative Agent is also the Lender to be terminated, the successor
Administrative Agent) to evidence the substitution of such Lender shall have
been received and approved by the Administrative Agent as of such date.
Section 2.8 Obligation of Lenders to Mitigate.
Each Lender agrees that, as promptly as practicable after the officer of
such Lender responsible for administering the Loans of such Lender becomes aware
of the occurrence of an event or the existence of a condition that would cause
such Lender to become an Affected Lender or that would entitle such Lender to
receive payments under Section 2.7, it will, to the extent not inconsistent with
the internal policies of such Lender and any applicable legal or regulatory
restrictions, use reasonable efforts (i) to make, issue, fund or maintain the
Commitments of such Lender or the Affected Loans of such Lender through another
lending office of such Lender, or (ii) take such other measures as such Lender
may deem reasonable, if as a result thereof the circumstances which would cause
such Lender to be an Affected Lender would cease to exist or the additional
amount which would otherwise be required to be paid to such Lender pursuant to
Section 2.7 would be materially reduced and if, as determined by such Lender in
its sole discretion, the making, issuing, funding or maintaining of such
Commitments or Loans through such other lending office or in accordance with
such other measures, as the case may be, would not otherwise materially
adversely affect such Commitments or Loans or the interests of such Lender;
provided that such Lender will not be obligated to utilize such other lending
office pursuant to this Section 2.8 unless the Borrower agrees to pay all
incremental expenses incurred by such Lender as a result of utilizing such other
lending office. A certificate as to the amount of any such expenses payable by
the Borrower pursuant to this Section 2.8 (setting forth in reasonable detail
the basis for requesting such amount) submitted by such Lender to the Borrower
(with a copy to the Administrative Agent) shall be conclusive absent manifest
error.
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Section 2.9 Establishment of Cash Management Account; Investment of Funds.
(a) The Borrower, for the benefit of the Lenders, shall establish and
maintain a segregated trust account with an Eligible Institution entitled the
"Cash Management Account", bearing a designation clearly indicating that the
funds deposited therein are held under the control and dominion of the
Administrative Agent, on behalf of the Lenders.
(b) Funds on deposit in the Cash Management Account shall be invested at
the written direction of the Borrower by the Administrative Agent, on behalf of
the Lenders, in Eligible Investments. The Administrative Agent, on behalf of the
Lenders, shall collect and receive all interest earned on the Eligible
Investments purchased pursuant to this Section 2.9(b), and shall deposit the
same into the Cash Management Account. Funds on deposit in the Cash Management
Account shall be invested at the direction of the Borrower in Eligible
Investments that will mature no later than the close of business on the Business
Day preceding the next Interest Payment Date or the Termination Date, as the
case may be. Funds deposited in the Cash Management Account on the Business Day
which immediately precedes an Interest Payment Date upon the maturity of any
Eligible Investments are not required to be (but may be) invested overnight at
the written direction of the Borrower by the Administrative Agent, on behalf of
the Lenders, in Eligible Investments.
(c) The Cash Management Account shall be under the sole dominion and
control of the Administrative Agent, on behalf of the Lenders. If, at any time,
the Cash Management Account ceases to be an Eligible Deposit Account, the
Borrower, for the benefit of the Lenders, shall within twenty Business Days
establish a new Cash Management Account as an Eligible Deposit Account and shall
transfer any cash and/or any investments that are in the existing Cash
Management Account which is no longer an Eligible Deposit Account to such new
Cash Management Account.
(d) With respect to the Account Property, the Borrower agrees, that:
(i) any Account Property that is held in deposit accounts shall
be held solely at said Eligible Institution for the benefit of the
Lenders; and each such deposit account shall be subject to the exclusive
dominion and control of the Administrative Agent; and the Administrative
Agent shall have sole signature authority with respect thereto;
(ii) any Account Property that is Physical Property shall be
delivered to the Administrative Agent, on behalf of the Lenders, in
accordance with paragraph (a) of the definition of "Delivery" and shall
be held, pending maturity or disposition, solely by the Administrative
Agent, on behalf of the Lenders, or a securities intermediary;
(iii) any Account Property that is a "certificated security"
under Article 8 of the UCC shall be delivered to the Administrative
Agent, on behalf of the Lenders, in accordance with paragraph (b) of the
definition of "Delivery" and shall be held, pending maturity or
disposition, solely by the Administrative Agent, on behalf of the
Lenders, or a securities intermediary;
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(iv) any Account Property that is an "uncertificated security"
under Article 8 of the UCC shall be delivered to the Administrative
Agent, on behalf of the Lenders, in accordance with paragraph (c) of the
definition of "Delivery" and shall be maintained by the Administrative
Agent, on behalf of the Lenders, pending maturity or disposition,
through continued registration on the books and records of the issuer
thereof of the ownership of such security by the Administrative Agent,
on behalf of the Lenders (or its nominee) or a securities intermediary;
(v) any Account Property that is a book-entry security held
through the Federal Reserve System pursuant to Federal book-entry
regulations shall be delivered to the Administrative Agent, on behalf of
the Lenders, in accordance with paragraph (d) of the definition of
"Delivery" and shall be maintained by the Administrative Agent, on
behalf of the Lenders, pending maturity or disposition, through
continued book-entry registration of such Account Property in the name
of the Administrative Agent, on behalf of the Lenders, or a securities
intermediary; and
(vi) any Account Property held through a securities intermediary
shall be held in a securities account that is established by such
securities intermediary in the name of the Administrative Agent, on
behalf of the Lenders, for which the Administrative Agent, on behalf of
the Lenders, is the sole entitlement holder.
(e) Funds in the Cash Management Account remain the property of the
Borrower, subject to the Loan Documents. The Cash Management Account, and all
amounts and items on deposit therein or credited thereto from time to time,
shall at all times be subject to the security interest created under the
Security Agreement.
Section 2.10 Payments from the Cash Management Account.
(a) On each Business Day that is not an Interest Payment Date, the
Administrative Agent shall apply the funds in the Cash Management Account in the
following order of priority:
(i) first, to the reimbursement of expenses of the Lenders incurred in
connection with the Loans and the Transaction Documents;
(ii) second, to the payment of any late charges and any other amounts
payable upon demand of the Administrative Agent to the Borrower;
(iii) third, to the payment of any amounts due pursuant to Section 2.4;
(iv) fourth, to retain in the Cash Management Account in an interest
payment sub-account until the next Interest Payment Date, the product of (x) the
weighted average daily balance of the Loan since the most recent Interest
Payment Date, (y) a fraction, the numerator of which is the number of calendar
days since the last Interest Payment Date and the denominator of which is 360
(assuming the prior interest payment was made in full and if such payment was
not made in
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full, then such amount shall include the total amount of any deficiency) and
(z) the applicable interest rate on the Loan;
(v) fifth, to retain in the Cash Management Account in a commitment fee
sub-account until the next monthly payment date, the daily portion of the
commitment fees due under Section 2.3;
(vi) sixth, to retain in the Cash Management Account in a third-party
fee payment sub-account for release on the applicable payment date, the product
of (x) the sum of the total fees for the year required to be paid to the Trustee
under the Servicing Agreement, to the Custodian under the Account Custody and
Control Agreement and to the Servicer under the Servicing Agreement on the
following due date and (y) a fraction, the numerator of which is the number of
calendar days since the last applicable payment date for such fees and the
denominator of which is 30 or 360, as applicable (assuming the prior payments
were made in full and if such payments were not made in full, then such amount
shall include the total amount of any deficiency);
(vii) seventh, to retain in the Cash Management Account in the third
party fee sub-account, beginning on September 1, 1999, for release on the
applicable payment date, the product of the monthly fees payable to the Account
Originator under the Origination Agreement and a fraction, the numerator of
which is the number of calendar days since the last applicable payment date and
the denominator of which is 30; and
(viii) eighth, provided that the requirement set forth in Section
5.14(a) is met and will continue to be met after giving effect to the payment
being made pursuant to this clause, to the payment of the Net Principal
Collections to the Account Originator.
(b) On each Interest Payment Date (other than the Termination Date) or
any other date when the amounts specified below are payable, the Administrative
Agent shall apply the funds in the Cash Management Account in the following
order of priority:
(i) first, to the reimbursement of expenses of the Lenders incurred in
connection with the Loans and the Loan Documents;
(ii) second, to the payment of any late charges and any other amounts
payable upon demand of the Administrative Agent to the Borrower;
(iii) third, to the payment of any amounts due pursuant to Section 2.4;
(iv) fourth, from the interest sub-account, to the payment of any
interest then due on the Loans;
(v) fifth, from the commitment fee sub-account, to the payment of the
commitment fees payable under Section 2.3;
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(vi) sixth, from the third-party payment sub-account, to the payment of
all fees then due to the Trustee, the Custodian and the Servicer;
(vii) seventh, from the third-party payment sub-account, to the payment
of the fees payable to the Account Originator under the Origination Agreement;
(viii) eighth, provided that the requirement set forth in Section
5.14(a) is met and will continue to be met after such payment is made, to the
Borrower for the payment of all monthly expenses reasonably documented to the
Administrative Agent; and
(ix) ninth, provided that the requirement set forth in Section 5.14(a)
is met and will continue to be met after such payment is made, to the Borrower.
(c) On the Termination Date, the Lenders shall apply all funds in the
Cash Management Account in the following order of priority:
(i) first, to the reimbursement of expenses of the Lender incurred in
connection with the Loans and the Loan Documents;
(ii) second, to the payment of any late charges and any other amounts
payable upon demand of the Administrative Agent to the Borrower;
(iii) third, to the payment of any amounts due under Section 2.4;
(iv) fourth, to the payment of any commitment fees owed under Section
2.3;
(v) fifth, to the payment of any accrued interest on the Loans;
(vi) sixth, to the payment of principal on the Loans; and
(vii) seventh, to the Borrower.
(d) Notwithstanding the foregoing, if a Default , Event of Default or
Suspension Event shall have occurred and be continuing, the Administrative Agent
may, but shall not be obligated to, apply any amount on deposit in the Cash
Management Account to any of the Obligations when and in any order that the
Administrative Agent may elect in its sole discretion.
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ARTICLE 3
Conditions Precedent
Section 3.1 Conditions Precedent to the Loans
(a) Conditions to Effective Date. The Agreement shall not be effective
until a date (the "Effective Date") on which the Lenders and the Administrative
Agent (or the Administrative Agent for the Lenders, for each Lender and Agent
and their counsel) shall have received sufficient originally executed copies,
where appropriate, each of the following, in scope, form and substance
satisfactory to the Lenders:
(i) executed originals of the Transaction Documents in form and
substance satisfactory to the Administrative Agent;
(ii) payment of the Initial Structuring Fee and all other fees (other
than the Optional Advance Fee) to the Arranger, payment of all other fees to be
paid to the Lenders and payment of all expenses for which invoices have been
presented to the Borrower;
(iii) certified copies of all necessary action taken by the Borrower to
authorize the execution, delivery and performance by it, in accordance with
their respective terms, of the Transaction Documents and any other documents
required or contemplated hereunder and thereunder to which it is a party and the
consummation of the transactions contemplated hereby and thereby;
(iv) certified copies of all government filings and third party
approvals, if any, necessary to be obtained by the Borrower in order to
authorize the Borrowings and to authorize the execution, delivery and
performance by the Borrower, in accordance with their respective terms, of the
Transaction Documents and any other documents to which the Borrower is a party
required or contemplated hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby;
(v) certified copies of the certificate of incorporation and by-laws of
the Borrower, satisfactory in form and substance to the Lenders together with a
good standing certificate from the Secretary of State of the State of Delaware
and, except where the failure to qualify is not reasonably likely to have a
Material Adverse Effect, each other state in which it is qualified as a foreign
corporation to do business, each dated as of a recent date;
(vi) a certificate of incumbency with respect to the signature of each
Person authorized by the Borrower to sign the Transaction Documents or any other
document required or contemplated hereunder or thereunder;
(vii) the favorable written opinions of Orrick, Herrington & Sutcliffe
LLP, counsel for the Borrower, or Robert Linderman, Esq., each in form and
substance reasonably satisfactory to the
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Administrative Agent and its counsel, dated as of the Closing Date and setting
forth substantially the matters set out in Exhibit X;
(viii) the favorable written opinion of Orrick, Herrington & Sutcliffe
LLP, counsel for the Borrower, in form and substance satisfactory to the
Administrative Agent and its counsel, dated as of the Closing Date as to, among
other matters, the non-consolidation under the Bankruptcy Code of the Parent and
the Borrower and the transfer, by the Account Originator to the Borrower, and by
the Borrower to the Trust, of the Receivables by the Borrower to the Master
Trust.
(ix) each legal opinion delivered pursuant to the Transaction Documents,
if any, together with a letter from counsel rendering each such opinion
authorizing the Agents and the Lenders to rely upon the applicable opinion to
the same extent as though it were addressed to the Agents and the Lenders;
(x) satisfactory completion of a due diligence review by the Lenders;
(xi) the favorable written opinion of counsel to the Account Originator,
in form and substance satisfactory to the Administrative Agent and its counsel,
as to certain matters relating to the Account Originator and the Origination
Agreement;
(xii) the favorable written opinion of counsel to the Trustee, in form
and substance satisfactory to the Administrative Agent and its counsel, as to
certain matters relating to the Trustee and the Servicing Agreement;
(xiii) the Borrower has delivered to the Administrative Agent a balance
sheet as of the Closing Date in form and substance satisfactory to the
Administrative Agent; and
(xiv) an officer's certificate, in form and substance satisfactory to
the Administrative Agent, from each of the Parent, the Account Originator and
the Trustee, (a) to the effect that the representations and warranties of each
made in the Transaction Documents to which each is a party are true and correct
in all material respects on and as of the Closing Date, (b) certifying that each
shall have performed in all material respects all agreements and satisfied all
conditions set forth in the Transaction Documents to which each is a party to be
performed or satisfied by it on or before the Closing Date, and (c) certifying
as to certain organizational matters and the incumbency of certain officers.
(b) Conditions to Making of Initial Loan. The obligations of the Lenders
to make an initial Loan hereunder are subject to the fulfillment of each of the
following conditions immediately prior to or contemporaneously with the
Borrowing Date related to the funding of such initial Loan hereunder (such date,
the "Closing Date"), which conditions are inserted for the sole benefit of the
Lenders and may be waived by the Lenders in writing:
(i) the satisfaction of each of the conditions in clause (a) above;
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(ii) payment of the Additional Structuring Fee and all other fees, to be
paid to the Arranger and to the Lenders and payment of all expenses for which
invoices have been presented to the Borrower;
(iii) the Borrower shall have taken or caused to be taken such actions
in such a manner so that the Administrative Agent has a valid and perfected
first priority security interest in the Collateral as further set forth in the
Collateral Documents. Such actions shall include, without limitation, the
delivery to the Administrative Agent of (a) the Collateral Documents, (b) the
results of a recent search, by a Person satisfactory to the Administrative
Agent, of all effective UCC financing statements and all judgment and tax lien
filings which may have been made with respect to any personal property of the
Borrower, together with copies of all such filings disclosed by such search, (c)
UCC financing statements executed by the Borrower as to all such Collateral
granted by the Borrower, as applicable, for all jurisdictions as may be
necessary or desirable to perfect the Administrative Agent's security interest
in such Collateral, and (d) evidence reasonably satisfactory to the
Administrative Agent that all other filings, recordings and other actions the
Administrative Agent deems necessary or advisable to establish, preserve and
perfect the Liens granted to the Administrative Agent in personal property shall
have been made; and
(iv) evidence satisfactory to the Lenders that the Parent has made the
Initial Equity Contribution.
Section 3.2 Conditions to All Loans.
The obligations of the Lenders to make Loans on each Borrowing Date are
subject to the following further conditions precedent:
(a) satisfaction of the conditions set forth in Section 3.1;
(b) as of each Borrowing Date, the Borrower shall comply with the
provisions of Section 5.14;
(c) the Borrower shall have performed in all material respects all
agreements and satisfied all conditions which this Agreement and other Loan
Documents provide shall be performed or satisfied by it on or before that
Borrowing Date;
(d) no order, judgment or decree of any court, arbitrator or
Governmental Authority shall purport to enjoin or restrain any Lender from
making the Loans to be made by it on that Borrowing Date;
(e) there shall be no litigation or administrative proceedings or other
legal or regulatory developments, actual or threatened, that, singly or in the
aggregate, is reasonably likely to have a Material Adverse Effect or that has a
reasonable likelihood of restraining, preventing or imposing burdensome
conditions on any of the Transactions;
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(f) receipt on or before the Borrowing Date, in accordance with the
provisions of Sections 2.1(b) and 6.4(b), of an originally executed Notice and
Certificate of Borrowing, signed by an Authorized Signatory on behalf of the
Borrower in a writing delivered to the Administrative Agent, which certificate
shall, in addition to addressing those matters set forth in Sections 2.1(b) and
6.4(b), contain a certification that: (1) the representations and warranties
contained herein and in the other Transaction Documents shall be true and
correct in all material respects on and as of that Borrowing Date to the same
extent as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case such representations and warranties shall have been true and correct in all
material respects on and as of such earlier date; (2) at the date of the
Borrowing both before and after giving effect to the application of the proceeds
of the Borrowing there does not exist any Default or Event of Default; (3) the
Persons authorized to sign documents on behalf of the Borrower identified in the
certificate delivered pursuant to Section 3.1(a)(vii) remain so authorized; (4)
the proposed use of proceeds of the Borrowing comply with Section 5.9; (5) as
certified by an Authorized Signatory, after giving effect to the Borrowing and
the consummation of the transactions contemplated by the Loan Agreement, the
Borrower is and will be Solvent; and (6) no event development, adverse condition
of change exists or could reasonably be expected to exist that is likely to have
a Material Adverse Effect; and
(g) the Administrative Agent shall have received all such other
documents, certificates, reports, statements, opinions of counsel or other
documents as the Administrative Agent may reasonably request.
ARTICLE 4
Representations and Warranties
Section 4.1 Representations and Warranties of the Borrower.
In order to induce the Lenders to enter into this Agreement and to make
the Loans and to induce the other Lenders to purchase participations therein,
the Borrower represents and warrants to each Lender, on the date of this
Agreement, on the Closing Date and on each Borrowing Date, that the following
statements are true and correct:
(a) Organization; Power; Qualification. The Borrower is a corporation,
duly organized, validly existing and in good standing under the laws of the
State of Delaware, has the power, legal right and authority, corporate and
otherwise, to own its properties and to carry on its business as now being and
hereafter proposed to be conducted and is duly qualified and is in good standing
and authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification or
authorization and the failure to be so qualified or authorized is likely to have
a Material Adverse Effect.
(b) Authorization and Binding Effect. The Borrower has the power and has
taken all necessary action to authorize it to borrow hereunder, to create the
Liens under the Collateral
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Documents, to execute, deliver and perform this Agreement and each of the other
Transaction Documents to which it is a party in accordance with their respective
terms and to consummate the transactions contemplated hereby and thereby. This
Agreement has been duly executed and delivered by the Borrower and is, and each
of the other Transaction Documents to which it is a party is, a legal, valid and
binding obligation of the Borrower, enforceable in accordance with its
respective terms, subject, to any applicable bankruptcy, insolvency or other
similar law affecting the enforcement of creditors' rights and secured parties
generally, and subject to general principles of equity.
(c) Compliance with Laws, Agreement, Other Transaction Documents and
Contemplated Transactions. The execution, delivery and performance of this
Agreement and each of the other Transaction Documents to which the Borrower is a
party in accordance with their respective terms and the consummation of the
transactions contemplated hereby and thereby by the Borrower do not and will not
(i) require any consent or approval of any Person, except for consents and
approvals that have already been obtained, (ii) violate any Applicable Law,
(iii) conflict with, result in a breach of, or constitute a default under the
certificate of incorporation, as the same may have been amended or restated, or
by-laws (or comparable constitutive documents) of the Borrower or conflict with,
result in a breach of or constitute a default under any indenture, agreement or
other instrument, to which the Borrower is a party or by which it or any of its
properties may be bound, which conflict, breach or default would have a Material
Adverse Effect under this Agreement or any other Transaction Document to which
it is a party, or (iv) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter acquired by the
Borrower other than as provided in the Transaction Documents. The Borrower is in
compliance with all Applicable Laws, the non-compliance with which could,
individually or in the aggregate, have a Material Adverse Effect.
(d) Capitalization, Ownership and Subsidiaries. The Capital Stock of the
Borrower consists of 100 shares of common stock, par value $0.0001 per share,
all of which are owned by the Parent. The Borrower has no Subsidiaries.
(e) Taxes. The Borrower has filed all United States federal tax returns
and all other tax returns which are required to be filed and has paid all taxes
due pursuant to said returns or pursuant to any assessment received by the
Borrower, except such taxes, if any, as are being contested in good faith by
appropriate proceedings and as to which adequate reserves have been provided in
accordance with GAAP and as to which no Lien exists and except where the failure
to so file or pay is not reasonably expected to have a Material Adverse Effect.
(f) Title to Properties. The Borrower has good and marketable title to
all its properties and assets. There is no Person other than the Borrower and
the Administrative Agent for the benefit of the Lenders that holds, owns or
otherwise has any rights in or to any of the Collateral. None of such properties
or assets is subject to any Liens. No financing statement under the applicable
UCC and no other filing which names the Borrower as debtor or which covers or
purports to cover any of the Collateral is on file in any state or other
jurisdiction.
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(g) Litigation. There is no action, suit or proceeding pending against
(nor, to the knowledge of the Borrower, any action, suit or proceeding
threatened against) the Borrower or any of its properties in any court or before
any arbitrator of any kind or before or by any Governmental Authority, other
than actions, suits or proceedings of the character normally incident to the
kind of business conducted by it, which, if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect; and no default
by it has occurred and is continuing with respect to any order of any court or
arbitrator, or with respect to any order of a Governmental Authority which could
result in a Material Adverse Effect.
(h) Interim Operations. Since the date of its organization, the Borrower
has not engaged in any business activities except as contemplated by this
Agreement and the other Transaction Documents.
(i) Location of Records; Chief Executive Office. The offices at which
the Borrower keeps its records concerning the Collateral are located at 595
Market Street, Suite 2250, San Francisco, California 94105. The chief executive
office of the Borrower is located at 595 Market Street, Suite 2250, San
Francisco, California 94105 and is the place where the Borrower is "located" for
the purposes of Section 9-103(3)(d) of the UCC as in effect in the States of New
York and California. The state and county where the chief executive office of
the Borrower is "located" for the purposes of Section 9-103(3)(d) of the UCC as
in effect in the States of New York and California has not changed in the past
four months.
(j) ERISA. No Reportable Event for which the notice requirements have
not been waived by the Pension Benefit Guaranty Corporation has occurred and is
continuing with respect to any Plan of the Borrower or any ERISA Affiliate, no
other event has occurred nor does any condition exist which might constitute
grounds under Section 4042 of ERISA for the termination of (or the appointment
of a trustee to administer) any such Plan, and the actuarial present value of
all benefit liabilities (as defined in Section 4001(a)(16) of ERISA) under each
such Plan (other than a multiemployer Plan as defined in Section 4001(a)(3) of
ERISA) does not exceed, by more than an immaterial amount, the fair market value
of the assets allocable to such liabilities, determined as if such Plan were
terminated and using such Plan's actuarial assumptions as set forth in the most
recent actuarial report pertaining to such Plan. Neither the Borrower nor any
ERISA Affiliate has incurred any material accumulated funding deficiency
(whether or not waived) within the meaning of ERISA or Section 412 of the Code
or failed to pay an installment required under Section 412(m) of the Code, nor
has the Borrower or any ERISA Affiliate incurred any material liability to the
Pension Benefit Guaranty Corporation (or any successor thereto under ERISA) in
connection with any Plan. No material liability has been incurred and is
outstanding with respect to any multiemployer Plan (as defined in Section
4001(a)(3) of ERISA) as a result of the complete or partial withdrawal by the
Borrower or any ERISA Affiliate from such multiemployer Plan under Title IV of
ERISA, nor has the Borrower or any ERISA Affiliate been notified by any such
multiemployer Plan that such multiemployer Plan is in reorganization or
insolvency under and within the meaning of Section 4241 or 4245 of ERISA or that
such multiemployer Plan intends to terminate or has been terminated under
Section 4041A of ERISA.
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(k) Compliance with Regulations T, U and X. The Borrower does not hold
any Margin Stock and has not been engaged in the business of extending credit
for the purpose of purchasing or carrying any Margin Stock within the meaning of
Regulations T, U and X of the Board of Governors of the Federal Reserve System.
No part of the proceeds of the Loan is intended to be used to purchase or carry
any Margin Stock or to extend credit to others for the purpose of purchasing or
carrying any Margin Stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of Regulation U, and no part
of the proceeds of the Loan has been or will be used in any manner that will
cause this Agreement or any of the parties hereto to violate Regulations T, U or
X, each as in effect on the Closing Date.
(l) Governmental Regulation. The Borrower is not required to obtain any
consent, approval, authorization, permit or license from, or effect any filing
or registration with, any federal, state, municipal or local regulatory
authority in connection with the execution, delivery and performance, in
accordance with their respective terms, of, as applicable, this Agreement or any
other Transaction Document to which it is a party, the Borrowing hereunder and
the granting of the Liens under the Collateral Documents, except the filing of
financing statements with regard to such Liens, as appropriate, and in such
offices as may be specified in the appropriate opinion of counsel delivered
substantially in the form attached hereto as Exhibit XI or the opinions referred
to therein or appended thereto.
(m) Contracts.
(i) The Borrower is not a party to, or bound by, any Contract other than
the Transaction Documents and the Tax Sharing Agreement and Administrative
Services Agreement with the Parent;
(ii) the Borrower is not in breach in the performance, observance or
fulfillment of its obligations, covenants or conditions contained therein and no
event has occurred which (with or without the giving of notice or lapse of time
or both) would constitute a breach by the Borrower;
(iii) to the knowledge of the Borrower, no other party is in breach,
default or non-compliance with the terms thereof and no event has occurred which
with notice or lapse of time would constitute a breach, a default or permit
termination, modification or acceleration thereof.
(n) Third Party Consents. The Collateral is transferable and assignable
to the Lenders as contemplated by this Agreement without the waiver of any right
of first refusal or the consent of any other person being obtained or if such
consent is required, it has been obtained and there exists no right of purchase
in favor of any Person with respect to any of the Collateral.
(o) Absence of Default. The Borrower is in compliance with all of the
provisions of its certificate of incorporation and by-laws (or comparable
constitutive documents), as the same have been amended from time to time, and no
event has occurred, or failed to occur, which has not been remedied or waived,
the occurrence or non-occurrence of which constitutes, or which with the passage
of time or giving of notice or both would constitute, (i) a Default or an Event
of
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Default or (ii) a default by the Borrower under any indenture, agreement, trust
agreement or other instrument, or any judgment, decree or order to which the
Borrower is a party or by which the Borrower or any of its properties may be
bound, which default could have a Material Adverse Effect.
(p) Permits. The Borrower has obtained all licenses, franchises,
permits, registrations and similar authorizations which are necessary for the
conduct by it of its business as conducted as of each time this representation
and warranty is made and which, if not obtained and maintained, could have a
Material Adverse Effect.
(q) Environmental Matters. Except as would not have a Material Adverse
Effect (i) the Borrower is in compliance with all applicable Environmental Laws,
(ii) the Borrower has all permits, authorization, and approvals required under
any applicable Environmental Laws and is in compliance with these requirements,
(iii) there are no pending or, to the knowledge of the Borrower, threatened
Environmental Claims against the Borrower and (iv) there are no encumbrances
with respect to any property or operations of the Borrower that could reasonably
be anticipated to form the basis for an Environmental Claim against the
Borrower.
(r) Status under Certain Laws. The Borrower is not an "investment
company" or a "person directly or indirectly controlled by or acting on behalf
of an investment company" within the meaning of the Investment Company Act of
1940, as amended, or a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company," or of a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended. The Borrower is not subject to
regulation as a "common carrier" or "contract carrier" or any similar
classification by or under the laws of any state.
(s) Solvency. The Borrower shall be Solvent on each Borrowing Date both
before and after giving effect to the Borrowing and the payment of all fees,
costs and expenses payable by the Borrower in connection therewith and the
application of the net proceeds of the Borrowing.
(t) Additional Adverse Facts. No fact or circumstance is known to the
Borrower that, either alone or in conjunction with all other such facts and
circumstances, has had or would reasonably be expected in the future to have a
Material Adverse Effect.
(u) Special Purpose Entity. The Borrower is a Special Purpose Entity.
(v) Transferor. The Borrower is, and will remain, the only transferor
under the Servicing Agreement.
(w) Intellectual Property. The Borrower owns or has the valid right to
use all trademarks and service marks, tradenames, patents, copyrights, trade
secrets and technology used in or necessary to conduct its business
(collectively, the "Intellectual Property"). All registrations by the Borrower
therefor are in full force and effect and are valid and enforceable. The conduct
of the Borrower's business as currently conducted does not infringe upon,
violate, misappropriate or dilute
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any intellectual property of a third party which infringement, violation,
misappropriation or dilution is reasonably likely to have a Material Adverse
Effect. There is no pending or to the Borrower's knowledge, threatened claim or
litigation contesting the Borrower's right to own or use any material
Intellectual Property or the validity or enforceability thereof, in each case
which is reasonably likely to have a Material Adverse Effect.
(x) Security Interests. The security interests created in favor of the
Administrative Agent under the Collateral Documents will at all times from and
after the Closing Date constitute, as security for the obligations purported to
be secured thereby, a legal, valid and enforceable security interest in and
perfected first priority Lien on all of the Collateral referred to therein in
favor of the Administrative Agent for the benefit of the Lenders. The Collateral
Documents together with the filing of UCC financing statements delivered to the
Administrative Agent are effective to create a perfected first priority lien on
the Collateral in favor of the Administrative Agent for the benefit of the
Lenders. The Borrower has good title to its Collateral. No consents, filings or
recordings are required in order to perfect (or maintain the perfection or
priority of) the security interest purported to be created by any of the
Collateral Documents, other than such as have been obtained and which remain in
full force and effect and other than the filing of UCC financing statements
delivered to the Administrative Agent for filing but not yet filed, and the
periodic filing of UCC continuation statements in respect of UCC financing
statements filed on behalf of the Administrative Agent.
(y) Other Transaction Documents. Except to the extent otherwise set
forth herein or in the schedules hereto each of the representations and
warranties of the Borrower made in any other Transaction Document was true and
correct in all material respects as of the Closing Date (or as of any earlier
date to which such representations and warranties specifically relate).
(z) Year 2000 Problems. The Borrower (i) has engaged in a process of
assessment of the existence of the Year 2000 Problems reasonably appropriate to
the scope and complexity of its Systems; (ii) is in the process of creating a
plan of correction which the Borrower reasonably believes will result in a
substantial elimination of Year 2000 Problems which might have a Material
Adverse Effect and, in the case of all Systems critical to the business or
operations of the Borrower, elimination of Year 2000 Problems prior to any
processing failure of a System due to Year 2000 Problems; (iii) is in the
process of creating validation procedures calculated to test on an ongoing basis
the sufficiency of the plan of correction, its implementation and the correction
of Year 2000 Problems in substantially all Systems critical to the business or
operations of the Borrower; and (iv) has adopted and is implementing policies
and procedures requiring regular reports to, and monitoring by, senior
management of the Borrower concerning the foregoing matters.
The Borrower reasonably believes that (y) the assessment and correction
of Year 2000 Problems and the testing of all Systems will be completed on or
prior to December 31, 1999, and (z) the aggregate costs and expenses incurred
and reasonably expected to be incurred in connection with the assessment and
correction of Year 2000 Problems, including, without limitation, the plan of
correction, and the testing and monitoring of all Systems and the
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correction of Year 2000 Problems, could not reasonably be expected to have a
Material Adverse Effect. This paragraph (z) constitutes Year 2000 readiness
disclosure.
(aa) Historical Information. The Borrower hereby represents and warrants
that all information, reports and other papers and data furnished to the Lenders
by or on behalf of the Borrower prior to the Agreement Date in connection with
or pursuant to the Transaction Documents and the relationships established
thereunder, at the time the same was so furnished, but in the case of
information dated as of a prior date, as of such date, (i) in the case of any
such information, reports and other papers and data prepared in the ordinary
course of business, was complete and correct in the light of the purpose for
which it was prepared, and, in the case of any such information, reports and
other papers and data the preparation of which was requested by the Lender, was
complete and correct in all material respects to the extent necessary to give
the Lender true and accurate knowledge of the subject matter thereof, (ii) did
not contain any untrue statement of a material fact, and (iii) did not omit to
state a material fact necessary in order to make the statements contained
therein not misleading in the light of the circumstances under which they were
made.
(bb) Future Information. Information, reports and other papers and data
furnished to the Lender by or on behalf of the Borrower on or after the
Agreement Date in connection with or pursuant to the Transaction Documents or in
connection with or pursuant to any amendment or modification of, or waiver of
rights under, the Transaction Documents, shall, at the time the same is so
furnished, but in the case of information, reports and other papers and data
dated as of a prior date, as of such date, (i) in the case of any information,
reports and other papers and data prepared in the ordinary course of business,
be complete and correct in the light of the purpose for which it was prepared,
and, in the case of any information, reports and other papers and data required
by the terms of the Transaction Documents or the preparation of which was
requested by the Lender, be complete and correct to the extent necessary to give
the Lender true and accurate knowledge of the subject matter thereof, (ii) not
contain any untrue statement of a material fact, and (iii) not omit to state a
material fact necessary in order to make the statements contained therein not
misleading in the light of the circumstances under which they were made, and the
furnishing of the same to the Lender shall constitute a representation and
warranty by the Borrower made on the date the same are so furnished to the
effect specified in clauses (i), (ii) and (iii).
(cc) Adequate Capital. The Borrower has adequate capital in light of the
contemplated business operations.
ARTICLE 5
General Covenants of the Borrower
The Borrower covenants and agrees that, so long as any of the
Commitments hereunder shall remain in effect and until payment in full of all
Loans and other Obligations, unless the
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Lenders shall otherwise give prior written consent, the Borrower shall perform
all covenants in this Article 5.
Section 5.1 Preservation of Existence and Similar Matters.
The Borrower shall preserve and maintain its existence and its rights,
franchises, licenses and privileges, which, in the case of such rights,
franchises, licenses and privileges, individually or in the aggregate, are
material to its business, assets, liabilities, condition (financial or
otherwise), results of operations or prospects, and qualify and remain qualified
and authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification or
authorization and where the failure so to qualify would, individually or in the
aggregate, have a Material Adverse Effect.
Section 5.2 Compliance with Applicable Law.
The Borrower shall comply with the requirements of all Applicable Laws,
noncompliance with which would, individually or in the aggregate, have a
Material Adverse Effect.
Section 5.3 Maintenance of Collateral.
The Borrower shall not impair the economic value of the Collateral.
Borrower agrees to file or cause to be filed all necessary financing statements,
assignments or other instruments, and any amendments or continuation statements
relating thereto, necessary to be kept and filed in such manner and in such
places as may be required by law to preserve and protect fully the lien on, and
first priority security interest in, the Collateral.
Section 5.4 Accounting Methods and Financial Records.
The Borrower shall maintain a system of accounting established and
administered in accordance with GAAP consistently applied, keep adequate records
and books of account in which complete entries will be made in accordance with
GAAP and reflecting all transactions required to be reflected by GAAP and keep
accurate and complete records of any Collateral. The Borrower shall maintain and
implement administrative and operating procedures and shall keep and maintain,
or cause to be kept and maintained, all documents, books, records or other
information which, in the reasonable determination of Borrower, are necessary or
advisable in accordance with prudent industry practice and customary for
transactions of this type.
Section 5.5 Insurance.
(a) The Borrower shall maintain insurance from responsible companies in
such amounts and against such risks as is usually carried by owners of similar
businesses and properties in the same general areas in which it operates, except
that it shall not be required to maintain insurance in such amounts and against
such risks if coverage is not available on commercially reasonable terms.
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(b) The Borrower shall keep the property and assets owned by it that are
insurable insured by insurers reasonably acceptable to the Lender against loss
or damage by fire, theft, burglary, pilferage, loss in transit, explosion and
hazards insured against by extended coverage, in amounts sufficient to prevent
it from becoming a co-insurer (other than maintaining reasonable deductibles)
and not in any event less than 80% of the full insurable value of the property
insured (replacement value if available), all premiums thereon to be paid by it.
Section 5.6 Payment of Taxes and Claims.
The Borrower shall pay and discharge all Taxes imposed upon it or upon
its income or profits or upon any properties belonging to it prior to the date
on which penalties attach thereto, and all lawful claims for labor, materials
and supplies which, if unpaid, might become a Lien upon any of its properties;
except that no such Tax need be paid which is being contested in good faith by
appropriate proceedings and for which adequate reserves shall have been set
aside on the appropriate books, but only so long as such Tax does not become a
Lien and no foreclosure, sale or similar proceedings shall have been commenced.
Section 5.7 Visits and Inspections.
The Borrower shall, upon reasonable advance notice, permit
representatives or authorized agents of the Lender to:
(a) visit and inspect its properties during normal business hours,
(b) inspect and make extracts from and copies of its books and records,
and
(c) discuss with its principal officers its business, assets,
liabilities, conditions (financial or otherwise), results of operations
and prospects.
Section 5.8 Diligence.
At such times as the Administrative Agent shall request, but in no event
more frequently than every three months unless an Event of Default shall have
occurred and be continuing, the Borrower will contract for account file due
diligence to verify conformity with the underwriting guidelines set forth in the
Servicing Agreement, the adequacy of the records maintained relating to Accounts
and similar matters, and, if requested by the Administrative Agent, underwriting
and servicing operation due diligence. Following an Event of Default, the
Borrower will contract (or reimburse the Administrative Agent, as applicable)
for the due diligence the Administrative Agent requests. The results of such due
diligence will be addressed to both the Borrower and the Administrative Agent.
The expenses of such due diligence will be the sole responsibility of the
Borrower.
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Section 5.9 Use of Proceeds.
The Borrower shall use the proceeds of the Loan solely to (i) acquire
the Receivables pursuant to the Origination Agreement and (ii) pay expenses
incurred in connection with the Loan and with the Securitization Transaction.
Section 5.10 Special Purpose Entity.
The Borrower shall remain a Special Purpose Entity.
Section 5.11 Maintenance of Liens of Collateral Documents.
Promptly upon the reasonable request of the Lenders and at the
Borrower's expense, execute, acknowledge and deliver or cause the execution,
acknowledgment and delivery of, and thereafter register, file or record in an
appropriate governmental office, any document or instrument supplemental to or
confirmatory of the Collateral Documents or otherwise necessary or desirable for
the creation, preservation or perfection of the Liens created thereby,
including, without limitation the filing of any financial statements under the
UCC in any jurisdiction with respect to the Liens granted in the after acquired
Collateral.
Section 5.12 Reserved.
Section 5.13 Offices.
The Borrower shall not move outside the state where its chief executive
office is now located or change the location of its chief executive office or of
any of the offices where it keeps its records with respect to the Collateral
without (i) giving 30 days' prior written notice to the Lenders and (ii) taking
all actions reasonably requested by the Lenders (including but not limited to
all filings and other acts necessary or advisable under the UCC or similar
statute of each relevant jurisdiction) in order to continue the Lenders' first
priority perfected security interest in all the Collateral.
Section 5.14 Financial Covenants. Borrower shall at all times on and after the
Agreement Date comply with the following conditions:
(a) Maintain an amount of cash in the Cash Management Account which
shall not be less than (A) the product of [*] and the sum of
(i) [*] times the highest Weekly Balance Originations during
the prior five weeks, and (ii) 10% of the unutilized credit
limit on all Master Trust Accounts, but in no event less than
[*]; plus (B) the product of (x) the weighted average
daily balance of the Loan since the most recent Interest Payment
Date (y) the applicable interest rate on each Loan and (z) a
fraction, the numerator of which is the number of calendar days
since the last Interest Payment Date and the denominator of
which is 360 (assuming the prior
An Asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
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interest payment was made in full and, if such payment was not
made in full, then such amount shall include the total amount of
any deficiency), plus (C) the product of (x) the sum of all
Trustee, Servicer and Custodian fees due for the year and (y) a
fraction, the numerator which is the number of calendar days
since the last applicable payment date for such fees and the
denominator of which is 365 (assuming the prior payments due
were made in full and, if such payments were not made in full,
then such amount shall include the total amount of any
deficiency), plus (D) on or after September 1, 1999, the product
of (x) the monthly fees due to the Account Originator under the
Origination Agreement and (y) a fraction, the numerator of which
is the number of calendar days since the last payment date for
such fee and the denominator of which is 30 (assuming the prior
payment due was made in full and, if such payment was not made
in full, then such amount shall include the total amount of any
deficiency).
(b) The stockholder's equity (which for the purpose of complying
with this Section 5.14(b) shall exclude the Demand Note) of the
Borrower shall not be less than the sum of (i) the difference
between the principal balance of the Transferor Certificate and
the Borrowing Base; and (ii) the sum of clauses (A), (B), (C)
and (D) of Section 5.14(a) as of any date of determination;
provided that in no event shall the sum of the amounts
calculated in clauses (i) and (ii) be less than [*].
ARTICLE 6
Information Covenants of the Borrower.
The Borrower covenants and agrees that, so long as any of the
Commitments hereunder shall remain in effect and until payment in full of all
Loans and other Obligations is made, unless the Administrative Agent shall
otherwise give its prior written consent the Borrower shall perform all
covenants in this Article 6.
Section 6.1 Monthly Financial Information.
As soon as available and in any event within thirty (30) days after each
calendar month-end commencing with the calendar month ending January 31, 1999,
the Borrower shall furnish or cause to be furnished to the Lenders balance
sheets of the Borrower as at each fiscal month and the related statements of
income and cash flows of the Borrower for such month and for the period from the
beginning of the then current fiscal year to the end of each month, all prepared
in accordance with GAAP and in reasonable detail and certified by an Authorized
Signatory of the Borrower to be complete and correct in all material respects.
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
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Section 6.2 Quarterly Financial Statements and Information.
As soon as available but in no event later than forty-five (45) days
after the last day of each fiscal quarter in each fiscal year, the Borrower
shall furnish or cause to be furnished to the Lenders the balance sheets of the
Borrower as at the end of such fiscal quarter and the related statements of
income, retained earnings and changes in financial condition, all of which
statements shall be certified by an Authorized Signatory of the Borrower to be,
in his or her opinion, complete and correct in all material respects.
Section 6.3 Annual Financial Statements and Information; Auditor's
Certificate of No Default.
(a) As soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Borrower, the Borrower shall furnish or
cause to be furnished to the Lenders the balance sheets of the Borrower as at
the end of such fiscal year and the related statements of income, retained
earnings and changes in financial condition of the Borrower for such fiscal
year; and all of which financial statements shall set forth in comparative form
the figures as at the end of and for the previous fiscal year and shall be
certified by certified public accountants of recognized standing reasonably
satisfactory to the Lenders, who shall have authorized the Borrower to deliver
such financial statements and opinion thereon to the Lenders pursuant to this
Agreement.
(b) Together with the copies of the financial statements and opinions
delivered pursuant to Section 6.3(a) with respect to the Borrower, the Borrower
shall deliver a certificate of such accountants stating that in the course of
their audit of the Borrower they have obtained no knowledge of any Default or
Event of Default or, if such is not the case, disclosing each such Default or
Event of Default, its nature and whether it is continuing.
Section 6.4 Performance Certificates.
(a) No Default Certificate. At the time of the deliveries pursuant to
Sections 6.2 and 6.3, a certificate in the form of Exhibit IV (a "No Default
Certificate") of an Authorized Signatory of the Borrower stating that, to the
best of his or her knowledge after due inquiry, no Default or Event of Default
has occurred as at the end of such quarterly or annual period or during such
quarterly or annual period or, if a Default or Event of Default has occurred,
disclosing each such Default or Event of Default and its nature, when it
occurred, whether it is continuing and the steps being taken with respect to
such Default or Event of Default with an attachment demonstrating in reasonable
detail compliance during and at the end of the applicable accounting periods
with the restrictions contained in Section 8.1.
(b) Notice and Certificate of Borrowing. On each Borrowing Date and in
any event, weekly before 12:00 Noon (New York time) on the second Business Day
of each week (except the last week of each month); monthly, within two (2)
Business Days after the last Business Day of each month; and at any other time
requested by the Administrative Agent, a certificate (the "Notice and
Certificate of Borrowing"), which shall be: (i) substantially in the form of
Exhibit VII, detailing the Borrower's Eligible Accounts Receivable as of each
Friday of the
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immediately preceding week and as of the last day of each month, as applicable
(or as of such other date as the Administrative Agent may request); (ii)
prepared by or under the supervision of an Authorized Signatory of the Borrower
and certified by such Authorized Signatory subject only to adjustment upon
completion of the normal year end audit; and (iii) attached to such other
additional schedules and other information as the Administrative Agent may
reasonably request, including, but not limited to, any additional information
required pursuant to Section 3.2.
Section 6.5 Information Concerning Receivables.
Borrower shall furnish, or cause to be furnished, monthly reports in
form and substance satisfactory to the Lenders, setting forth data regarding the
performance of the Receivables purchased under the Origination Agreement,
including, without limitation, information on charge-offs, static pool reports
with respect to such matters as reasonably requested by the Lenders and
Receivable stratification reports with respect to such matters as reasonably
requested by the Lenders.
Section 6.6 Electronic Transmission.
Borrower shall furnish or shall cause to be furnished a diskette (or any
other electronic transmission acceptable to the Administrative Agent) in a
format acceptable to the Administrative Agent containing such information with
respect to the Receivables and the servicing of the Receivables required to be
provided pursuant to Sections 3.04(b) and 3.05 of the Servicing Agreement and
such additional information as the Lenders may reasonably request.
Section 6.7 Copies of Other Reports.
From time to time and promptly upon each request, the Borrower shall
furnish or shall cause to be furnished such data, certificates, reports,
statements, opinions of counsel, documents or further information regarding its
business, assets, liabilities, condition (financial or otherwise), results of
operations or prospects as the Lenders reasonably may request in order to effect
fully the purposes of the Loan Documents.
Section 6.8 Notice of Litigation and Other Matters.
The Borrower shall give the Lenders prompt notice of the following
events after the Borrower has knowledge, or has received notice, thereof:
(i) the commencement of all proceedings and investigations by or
before any Governmental Authority and all actions and proceedings in any
court or before any arbitrator (A) against, or (B) (to the extent known
to the Borrower) in any other way relating adversely to, the Borrower or
any of its properties, assets or businesses or the Collateral;
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(ii) the commencement of any proceeding or investigation relating
to the status of any of Borrower's licenses that if adversely determined
would have a Material Adverse Effect;
(iii) any amendment of the certificate of incorporation, by-laws
or other organizational documents of the Borrower;
(iv) any Default or Event of Default or the occurrence or
non-occurrence of any event which constitutes, or which with the passage
of time or giving of notice or both would constitute, a default by the
Borrower under any material agreement (other than this Agreement) to
which the Borrower is a party or by which the Borrower or any of its
properties may be bound, giving in each case the details thereof and
specifying the action proposed to be taken with respect thereto;
(v) any Suspension Event;
(vi) any material disruption or delay in the creation of a plan
of correction and any determination by the Borrower that there is or
will be a failure to achieve any of the objectives specifically
identified in the plan of correction once created; and
(vii) any other event, circumstance or condition that has
resulted, or is reasonably likely to result, in a Material Adverse
Effect.
ARTICLE 7
Negative Covenants of the Borrower
The Borrower covenants and agrees that, so long as any of the
Commitments hereunder shall remain in effect and until payment in full of all
Loans and other Obligations is made, unless the Lenders shall otherwise give
prior written consent, the Borrower agrees to comply with all covenants in this
Article 7.
Section 7.1 Indebtedness.
The Borrower shall not create, assume, incur or otherwise suffer to
exist any Indebtedness except the Loan and its obligations contemplated by the
Transaction Documents.
Section 7.2 Liens.
The Borrower shall not create, assume, incur or otherwise suffer to exist
any Lien on any of its properties or assets, whether now owned or hereafter
acquired except the Liens created by the Collateral Documents.
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Section 7.3 Investments.
The Borrower shall not make any loan, advance, extension of credit or
capital contribution to, or purchase or otherwise acquire for consideration
evidences of Indebtedness, Capital Stock or other securities of, or any assets
constituting a business asset of, or make any investment in, any Person other
than the Transferor Certificate, the Demand Note and Eligible Investments.
Section 7.4 Liquidation and Disposition of Assets; Restriction on Fundamental
Changes.
The Borrower shall not sell, lease, license, assign, transfer or
otherwise dispose of any property or assets, including, without limitation, any
of the Collateral other than in the Securitization Transaction or as
contemplated by the Transaction Documents. The Borrower shall not alter the
corporate or legal structure of the Borrower, alter the Borrower's
organizational documents, or enter into any transaction of merger or
consolidation, or liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution).
Section 7.5 Nature of Business.
The Borrower shall not engage in any business or activity other than as
the borrowing entity under the Transaction Documents, as the Transferor under
the Servicing Agreement and the Supplement to the Servicing Agreement and as the
purchaser under the Origination Agreement.
Section 7.6 Restricted Payments.
The Borrower shall not make or declare or otherwise become obligated to
make any Restricted Payment so long as a Default or Event of Default has
occurred and is continuing.
Section 7.7 Merger or Consolidation.
The Borrower shall not merge or consolidate with any Person, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution).
Section 7.8 Benefit Plans.
The Borrower shall not establish or become obligated to contribute to
any Plan.
Section 7.9 Transactions With Affiliates.
The Borrower shall not effect any transaction with any Affiliate on a
basis less favorable than would at the time be obtainable for a comparable
transaction in arm's-length dealing with an unrelated third party.
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Section 7.10 Contracts.
The Borrower shall not (i) become a party to, or permit any of its
assets or properties to be bound by, any Contract, except for this Agreement,
the other Transaction Documents to which it is a party and agreements and
documents necessary to perform its obligations under the Transaction Documents
(ii) issue any power of attorney (except to the Lender, or except for the
purpose of permitting any Person to perform any ministerial functions on behalf
of the Borrower that are not prohibited by or inconsistent with the terms of the
Transaction Documents) or (iii) amend or modify or waive any terms of any
Transaction Document.
Section 7.11 Transferor Certificate.
The Borrower shall not effect any transfer of the Transferor
Certificate.
Section 7.12 Approved Credit Card Guidelines.
The Borrower shall not amend, revise or otherwise modify the Approved
Credit Card Guidelines without giving 30 days' prior written notice to the
Administrative Agent describing the proposed amendment, revision or
modification.
Section 7.13 Demand Note.
The Borrower shall not amend, revise or modify any term of the Demand
Note; provided, however, that the definition of "Permitted Liens" under the
Demand Note and Section 5.1 of the Demand Note may be amended to include as a
"Permitted Lien" the granting by Parent to Comdisco, Inc. of a second lien on
the assets of the Parent if, and to the extent that, Comdisco, Inc. has entered
into an intercreditor and subordination agreement with the Lenders, in form and
substance satisfactory to the Administrative Agent.
ARTICLE 8
Default
Section 8.1 Events of Default.
Each of the following shall constitute an Event of Default, whatever the
reason for such event and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment or order of any court
or any order, rule or regulation of any Governmental Authority or
non-governmental body or otherwise:
(a) The Borrower shall default in any payment of principal of, or
interest on, any Loan or in the payment of any fees due under this Agreement
when and as due (whether at maturity, upon acceleration, by notice of prepayment
or otherwise) and, in the case of interest, a fee or other payment, such default
shall continue for a period of three (3) Business Days;
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(b) Any representation or warranty made or expressly deemed to be made
by the Borrower under this Agreement, in any Transaction Document or in any
other document or instrument executed in connection with this Agreement or any
other Transaction Document, including any statement or certificate given by the
Borrower, shall prove incorrect or misleading in any material respect when made
or deemed made or as of the date as of which the facts therein set forth were
stated or certified;
(c) The Borrower shall default in the performance or observance of any
agreement or covenant contained in Article 7 of this Agreement;
(d) The Borrower shall default in the performance or observance of any
agreement or covenant contained in this Agreement (other than a covenant or
agreement a default in the performance of which is dealt with specifically
elsewhere in this Section 8) and such default shall continue, after written
notice thereof has been given to the Borrower by the Lenders requiring that the
same be cured, for a period of ten (10) days, or for a period of fifteen (15)
days if the default can be cured and the Borrower is diligently attempting to
cure such default;
(e) There shall occur any Default by the Borrower under any of the
Transaction Documents (other than this Agreement), and the Default shall
continue unremedied after the applicable grace period; provided, however, that
any such default directly caused by a failure to lend by a Lender hereunder
shall not be deemed an Event of Default;
(f) There shall be entered a decree or order by a court of competent
authority having jurisdiction in the premises constituting an order for relief
in respect of the Borrower under the Bankruptcy Code or any other applicable
national, federal or state bankruptcy law or other similar law, as now
constituted, re-enacted or hereafter amended, or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or similar official of
the Borrower or of any substantial part of its properties, or ordering the
winding-up or liquidation of its affairs; or a case or other proceeding shall be
commenced against the Borrower in any court of competent jurisdiction seeking a
decree or order of the type referred to in this clause (f) and such case or
proceeding shall continue undismissed or unstayed for a period of forty-five
(45) days;
(g) The Borrower shall file a petition, answer, consent or other process
seeking relief under the Bankruptcy Code or any other applicable national,
federal or state bankruptcy law or other similar law, as now constituted,
re-enacted or hereafter amended, or it shall consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment or taking of possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of it or of any
substantial part of its properties, or it shall fail generally to pay its debts
as such debts become due, or it shall take any action in furtherance of any such
action;
(h) A final judgment shall be entered by any court against the Borrower
for the payment of money which, together with all other outstanding final
judgments against the Borrower exceeds five hundred thousand dollars ($500,000)
in the aggregate, or a warrant of attachment or execution or similar process
shall be issued or levied against any of its property which exceeds in value
five hundred thousand dollars ($500,000) in the aggregate, and if, within
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thirty (30) days after the entry, issue or levy thereof, such judgment, warrant
or process shall not have been stayed, paid or discharged;
(i) With respect to any Plan maintained by the Borrower or an ERISA
Affiliate: (i) a Reportable Event for which the notice requirements have not
been waived shall have occurred, (ii) the Borrower, an ERISA Affiliate or an
administrator of any such Plan shall file a notice of intent to terminate such
Plan in a "distress termination" under the provisions of Section 4041 of ERISA,
(iii) the Pension Benefit Guaranty Corporation shall institute proceedings to
terminate (or appoint a trustee to administer), or shall order a partition of,
such a Plan, (iv) any other event or condition exists which might, in the
opinion of the Lender, constitute grounds under the provisions of Section 4042
of ERISA for the termination of (or the appointment of a trustee to administer)
any such Plan by the Pension Benefit Guaranty Corporation, (v) any such Plan
shall fail to maintain the minimum funding standard required by Section 412(d)
of the Code for any plan year or a waiver of such standard is sought or granted
under Section 412(d) of the Code, (vi) the Borrower or an ERISA Affiliate has
incurred, or is likely to incur, a liability under the provisions of Section
4062, 4063, 4064 or 4201 of ERISA, (vii) the Borrower or an ERISA Affiliate
fails to pay the full amount of an installment required under Section 412(m) of
the Code, or (viii) the Borrower or an ERISA Affiliate is notified that any such
Plan which is a multiemployer Plan (as defined in Section 4001(a)(3) of ERISA)
is in reorganization or insolvency under and within the meaning of Section 4241
or 4245 of ERISA or that such multiemployer Plan intends to terminate or has
been terminated under Section 4041A of ERISA, and in each case in clauses (i)
through (viii) of this Section (h), such event or condition, together with all
other such events or conditions, if any, could subject the Borrower or an ERISA
Affiliate to any taxes, penalties or other liabilities which, in the opinion of
the Lender, could have a material adverse effect on the assets or financial
condition of the Borrower or on its ability to perform any of its obligations
under this Agreement or any other Transaction Document;
(j) (A) Failure of the Borrower to pay when due (i) any principal of or
interest on any Indebtedness in an individual principal amount of $500,000 or
more or any items of Indebtedness with an aggregate principal amount of
$1,000,000 or more, or (ii) any Contingent Obligation in an individual principal
amount of $500,000 or more or any Contingent Obligations with an aggregate
principal amount of $1,000,000 or more, in each case beyond the end of any grace
period provided therefor, or (B) breach or default by the Borrower with respect
to any other terms of (i) any evidence of any Indebtedness in an individual
principal amount of $500,000 or more or any items of Indebtedness with an
aggregate principal amount of $1,000,000 or more or any Contingent Obligation in
an individual principal amount of $500,000 or more or any Contingent Obligations
with an aggregate principal amount of $1,000,000 or more or (ii) any loan
agreement, mortgage, indenture or other agreement relating to such Indebtedness
or Contingent Obligation(s), or the occurrence of any other event, condition or
circumstance in respect of any such Indebtedness or Contingent Obligations if in
any case under this clause (ii) the effect of such breach or default or event,
condition or circumstance is to cause, or to permit the holder or holders of
that Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such
holder or holders) to cause, that Indebtedness or Contingent Obligation(s) to
become or to be declared due and payable (or redeemable) prior to its stated
maturity or the stated maturity of any underlying
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obligation, as the case may be (upon the giving or receiving of notice, lapse of
time, both or otherwise);
(k) Any order, judgment or decree shall be entered against the Borrower
decreeing the dissolution of the Borrower and such order shall remain
undischarged or unstayed for a period in excess of thirty (30) days;
(l) Any Collateral Document shall, at any time, cease to be in full
force and effect (other than by reason of a release of Collateral thereunder in
accordance with the terms hereof or thereof, the satisfaction in full of the
Obligations or any other termination of such Collateral Document in accordance
with the terms hereof or thereof) or shall be declared null and void, or the
validity or enforceability thereof shall be contested in writing by the Borrower
or the Administrative Agent shall not have or shall cease to have a valid
security interest in any Collateral purported to be covered thereby, perfected
and with the priority required by the relevant Collateral Document, for any
reason other than the failure of the Administrative Agent, the Administrative
Agent or any Lender to take any action within its control, subject only to Liens
permitted under the applicable Collateral Documents;
(m) A Change of Control; or
(n) A Default under the Demand Note.
Section 8.2 Suspension of Accounts.
Each of the following shall constitute a Suspension Event, whatever the
reason for such event and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment or order of any court
or any order, rule or regulation of any Governmental Authority or
non-governmental body or otherwise:
(a) Any termination or suspension of the ability of the Borrower
to purchase the Receivables under the Origination Agreement for transfer
to the Master Trust; or
(b) The occurrence of a Servicer Default (as defined under the
Servicing Agreement).
If a Suspension Event shall have occurred and be continuing, the
Administrative Agent may require the Borrower to suspend any purchases by it of
receivables generated from transactions made by holders of credit card accounts
from the portfolio of credit card accounts owned by any Account Originator and
may require that, notwithstanding any provisions of Section 2.10 to the
contrary, all amounts in the Cash Management Account be applied immediately to
prepay outstanding Loans.
Section 8.3 Remedies.
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If an Event of Default shall have occurred and be continuing after giving
effect to any applicable cure period, in every such event:
(a) With the exception of an Event of Default specified in Section
8.1(f) or Section 8.1(g), the Administrative Agent shall declare by giving
written notice thereof to the Borrower the principal of and interest on the Loan
and all other amounts owed under this Agreement to be forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived, anything in this Agreement to the contrary
notwithstanding.
(b) Upon the occurrence and continuance of an Event of Default specified
in Section 8.1(f) or Section 8.1(g), such principal, interest and other amounts
shall thereupon and concurrently therewith become automatically due and payable
all without any action by the Administrative Agent and without presentment,
demand, protest or other notice of any kind, all of which are expressly waived,
anything in this Agreement to the contrary notwithstanding.
(c) The Lenders may exercise any or all of the post-default rights
granted to them hereunder or under the Collateral Documents.
(d) The Administrative Agent may require the suspension of any purchases
by it of receivables generated from transactions made by holders of credit card
accounts from the portfolio of credit card accounts owned by any Account
Originator.
(e) The Administrative Agent may require the suspension of any new
advances of credit on any of the Master Trust Accounts.
Section 8.4 Other Remedies.
If any Default or Event of Default has occurred and is continuing, and
irrespective of whether the Loans have become or have been declared due and
payable under Section 8.3, the Lenders may proceed and enforce the rights of the
Lenders by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
other Transaction Document, or for an injunction against a violation of any of
the terms hereof or thereof, or in aid of the exercise of any power granted
hereby or thereby or by law or otherwise.
ARTICLE 9
Agents
Section 9.1 Appointment.
CSFB is hereby appointed the Administrative Agent and the Arranger
hereunder and under the other Loan Documents. Each Lender hereby authorizes each
Agent to act as its agent
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in accordance with the terms of this Agreement and the other Loan Documents.
Each Agent agrees to act upon the express conditions contained in this Agreement
and the other Loan Documents, as applicable. The provisions of this Section are
solely for the benefit of the Agents and the Lenders and the Borrower shall have
no rights as a third party beneficiary of any of the provisions thereof. In
performing its functions and duties under this Agreement, each Agent shall act
solely as an agent of the Lenders and does not assume and shall not be deemed to
have assumed any obligation towards or relationship of agency or trust with or
for the Borrower. Upon the successful syndication of the Loans, all obligations
of Arranger hereunder shall terminate and thereafter, the Arranger shall have no
obligations or liabilities under any of the Loan Documents.
Section 9.2 Powers; General Immunity.
(a) Duties Specified. Each Lender irrevocably authorizes each Agent to
take such action on such Lender's behalf and to exercise such powers hereunder
and under the other Loan Documents as are specifically delegated to such Agent
by the terms hereof and thereof, together with such powers as are reasonably
incidental thereto. Each Agent shall have only those duties and responsibilities
that are expressly specified in this Agreement and the other Loan Documents and
it may perform such duties by or through its agents or employees. No Agent shall
have, by reason of this Agreement or any of the other Loan Documents, a
fiduciary relationship in respect of any Lender; and nothing in this Agreement
or any of the other Loan Documents, expressed or implied, is intended to or
shall be so construed as to impose upon any Agent any obligations in respect of
this Agreement or any of the other Loan Documents except as expressly set forth
herein or therein.
(b) No Responsibility for Certain Matters. No Agent shall be responsible
to any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any other
Loan Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral statement or in any
financial or other statements, instruments, reports or certificates or any other
documents furnished by any Agent to the Lenders or by or on behalf of the
Borrower to any Agent or any Lender in connection with the Loan Documents and
the transactions contemplated thereby or for the financial condition or business
affairs of the Borrower or any other Person liable for the payment of any
Obligations, nor shall any Agent be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions, covenants
or agreements contained in any of the Loan Documents or as to the use of the
proceeds of the Loans or as to the existence or possible existence of any
Default or Event of Default. Anything contained in this Agreement to the
contrary notwithstanding, the Administrative Agent shall not have any liability
arising from confirmations of the amount of outstanding Loans or the component
amounts thereof.
(c) Exculpatory Provisions. Neither any Agent nor any of such Agent's
respective officers, directors, employees or agents shall be liable to the
Lenders for any action taken or omitted by such Agent under or in connection
with any of the Loan Documents except to the extent caused by such Agent's gross
negligence or willful misconduct. If any Agent shall request
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instructions from the Lenders with respect to any act or action (including the
failure to take an action) in connection with this Agreement or any of the other
Loan Documents, such Agent shall be entitled to refrain from such act or taking
such action unless and until such Agent shall have received instructions from
the Lenders (or such other Lenders as may be required to give such instructions
under Section 10.6). Without prejudice to the generality of the foregoing, (i)
such Agent shall be entitled to rely, and shall be fully protected in relying,
upon any communication, instrument or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons, and
shall be entitled to rely and shall be protected in relying on opinions and
judgments of attorneys (who may be attorneys for the Borrower), accountants,
experts and other professional advisors selected by it; and (ii) no Lender shall
have any right of action whatsoever against such Agent as a result of such Agent
acting or (where so instructed) refraining from acting under this Agreement or
any of the other Loan Documents in accordance with the instructions of the
Lenders (or such other Lenders as may be required to give such instructions
under Section 10.6). Such Agent shall be entitled to refrain from exercising any
power, discretion or authority vested in it under this Agreement or any of the
other Loan Documents unless and until it has obtained the instructions of the
Lenders (or such other Lenders as may be required to give such instructions
under Section 10.6).
(d) Agents Entitled to Act as the Lender. The agency hereby created
shall in no way impair or affect any of the rights and powers of, or impose any
duties or obligations upon, any Agent in its individual capacity as a Lender
hereunder. With respect to its participation in the Loans, each Agent shall have
the same rights and powers hereunder as any other Lender and may exercise the
same as though it were not performing the duties and functions delegated to it
hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless
the context clearly otherwise indicates, include such Agent in its individual
capacity. Each Agent and its Affiliates may accept deposits from, lend money to
and generally engage in any kind of banking, trust, financial advisory or other
business with the Borrower or any of its Affiliates as if it were not performing
the duties specified herein, and may accept fees and other consideration from
the Borrower for services in connection with this Agreement and otherwise
without having to account for the same to the Lenders.
Section 9.3 Representations and Warranties; No Responsibility For Appraisal
of Creditworthiness.
Each Lender represents and warrants that it has made its own independent
investigation of the financial condition and affairs of the Borrower in
connection with the making of the Loans and that it has made and shall continue
to make its own appraisal of the creditworthiness of the Borrower. No Agent
shall have any duty or responsibility, either initially or on a continuing
basis, to make any such investigation or any such appraisal on behalf of the
Lenders or, except as expressly provided elsewhere in this Agreement, to provide
any Lender with any credit or other information with respect thereto, whether
coming into its possession before the making of the Loans or at any time or
times thereafter, and no Agent shall have any responsibility with respect to the
accuracy of or the completeness of any information provided to the Lenders.
Section 9.4 Right to Indemnity.
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Each Lender, in proportion to its Pro Rata Share, severally agrees to
indemnify each Agent, to the extent that such Agent shall not have been
reimbursed by the Borrower, for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including, without limitation, counsel fees and disbursements) or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against such Agent in performing its duties hereunder or under
the other Loan Documents or otherwise in its capacity as such Agent in any way
relating to or arising out of this Agreement or the other Loan Documents;
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct. If any indemnity furnished to any Agent for any purpose
shall, in the opinion of such Agent, be insufficient or become impaired, such
Agent may call for additional indemnity and cease, or not commence, to do the
acts indemnified against until such additional indemnity is furnished.
Section 9.5 Successor Administrative Agent.
The Administrative Agent may resign at any time by giving thirty (30)
days' prior written notice thereof to the Lenders and the Borrower. Upon any
such notice of resignation, the Lenders shall have the right, upon five (5)
Business Days' notice to the Borrower, to appoint a successor Administrative
Agent. Upon the acceptance of any appointment as the Administrative Agent
hereunder by a successor Administrative Agent, that successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring the Administrative Agent and the retiring
the Administrative Agent shall be discharged from its duties and obligations
under this Agreement. After any retiring Administrative Agent's resignation
hereunder as the Administrative Agent, the provisions of this Section shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was the Administrative Agent under this Agreement.
Section 9.6 Collateral Documents.
Each Lender hereby further authorizes the Administrative Agent to enter
into each Collateral Document as secured party on behalf of and for the benefit
of the Lenders and agrees to be bound by the terms of each Collateral Document;
provided that the Administrative Agent shall not enter into or consent to any
amendment, modification, termination or waiver of any provision contained in any
Collateral Document without the prior consent of the Lenders (or, if required
pursuant to Section 10.6, all the Lenders); provided further, however, that,
without further written consent or authorization from any Lender, the
Administrative Agent may execute any documents or instruments necessary to
effect the release of any asset constituting Collateral from the Lien of the
applicable Collateral Document to the extent otherwise required by any
Collateral Document. Anything contained in any of the Loan Documents to the
contrary notwithstanding, each Lender agrees that no Lender shall have any right
individually to realize upon any of the Collateral under any Collateral Document
(including without limitation through the exercise of a right of set-off against
call deposits of such Lender in which any funds on deposit in the Collateral
Account may from time to time be invested), it being understood and
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agreed that all rights and remedies under the Collateral Documents may be
exercised solely by the Administrative Agent for the benefit of the Lenders in
accordance with the terms thereof.
ARTICLE 10
Miscellaneous
Section 10.1 Assignments and Participations in Loans.
(a) General. Subject to Section 10.1(b) or 10.1(c), as applicable, each
Lender shall have the right at any time to (i) sell, assign, transfer or
negotiate to any Eligible Assignee, or (ii) sell participations to any Eligible
Assignee in, all or any part of its Commitments or any Loan or Loans made by it
or any other interest herein or in any other Obligations owed to it; provided
that no such sale, assignment, transfer or participation shall, without the
consent of the Borrower, require the Borrower to file a registration statement
with the Securities and Exchange Commission or apply to qualify such sale,
assignment, transfer or participation under the securities laws of any state;
provided further that no such sale, assignment or transfer described in clause
(i) above shall be effective unless and until an Assignment Agreement effecting
such sale, assignment or transfer shall have been accepted by the Administrative
Agent and recorded in the Register as provided in Section 10.1(b). Except as
otherwise provided in this Section 10.1, no Lender shall, as between the
Borrower and such Lender, be relieved of any of its obligations hereunder as a
result of any sale, assignment, transfer or negotiation of, or any granting of
participations in, all or any part of its Commitments or the Loans or
participations therein or the other Obligations owed to such Lender. Any sale,
assignment, transfer or participation shall be for a commitment or participation
of at least $10,000,000.
(b) Assignments.
(i) Amounts and Terms of Assignments. Each Commitment, Loan or
participation therein or other Obligation may (a) be assigned in any amount to
another Lender who is a Non-Defaulting Lender, or to an Affiliate of the
assigning Lender or another Lender who, in either such case, is a Non-Defaulting
Lender, with the giving of notice to the Borrower and the Administrative Agent
or (b) be assigned in an aggregate: amount of not less than $5,000,000 (or such
lesser amount as shall constitute the aggregate amount of the Commitments, Loans
and participations therein and other Obligations of the assigning Lender) to any
other Eligible Assignee with the consent of the Administrative Agent and, so
long as no Default or Event of Default shall have occurred and be continuing,
following consultation with the Borrower. To the extent of any such assignment
in accordance with either clause (a) or (b) above, the assigning Lender shall be
relieved of its obligations with respect to its Commitments, Loans or
participations therein or other Obligations or the portion thereof so assigned.
The parties to each such assignment shall execute and deliver to the
Administrative Agent, for its acceptance and recording in the Register, an
Assignment Agreement, together with a processing fee of $3,500 payable by the
assigning Lender, such certificates, documents or other evidence, if any, with
respect to United States federal income tax withholding matters as the assignee
under such
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Assignment Agreement may be required to deliver to the Administrative Agent
pursuant to Section 2.7(b) and, if requested by the Administrative Agent, a
completed administrative questionnaire in the Administrative Agent's customary
form with respect to the assignee under such Assignment Agreement. Upon such
execution, delivery, acceptance and recordation, from and after the effective
date specified in such Assignment Agreement, (y) the assignee thereunder shall
be a party hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment Agreement, shall have the rights
and obligations of a Lender hereunder and (z) the assigning Lender thereunder
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment Agreement, relinquish its rights and be released
from its obligations under this Agreement (and, in the case of an Assignment
Agreement covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto). The Commitments hereunder shall be modified to reflect the Commitments
of such assignee and any remaining Commitments of such assigning Lender and, if
any such assignment occurs after the issuance of the Notes hereunder, the
assigning Lender shall surrender its applicable Notes and, upon such surrender,
new Notes shall be issued to the assignee and, if applicable, to the assigning
Lender, substantially in the form of Exhibit VI annexed hereto, as the case may
be, with appropriate insertions, to reflect the new Commitments and/or
outstanding Loans of the assignee and the assigning Lender.
(ii) Acceptance by the Administrative Agent: Recordation in Register.
Upon its receipt of an Assignment Agreement executed by an assigning Lender and
an assignee representing that it is an Eligible Assignee, together with the
processing fee referred to in Section 10.1(b)(i) and any certificates, documents
or other evidence with respect to United States federal income tax withholding
matters that such assignee may be required to deliver to the Administrative
Agent pursuant to Section 2.7(b), (a) the Administrative Agent shall, if such
Assignment Agreement has been completed and is in substantially the form of
Exhibit II hereto and if the Administrative Agent has consented to the
assignment evidenced thereby (to the extent such consent is required pursuant to
Section 10.1(b)(i)), (b) accept such Assignment Agreement by executing a
counterpart thereof as provided therein (which acceptance shall evidence any
required consent of the Administrative Agent to such assignment), (c) record the
information contained therein in the Register, and (d) give prompt notice
thereof to the Borrower. The Administrative Agent shall maintain a copy of each
Assignment Agreement delivered to and accepted by it as provided in this
Section.
(c) Participations. The holder of any participation, other than an
Affiliate of the Lender granting such participation, shall not be entitled to
require such Lender to take or omit to take any action hereunder except action
(i) effecting the extension of the final maturity of the Loan allocated to such
participation, (ii) effecting a reduction of the principal amount of or
affecting the rate of interest payable on any Loan allocated to such
participation, or (iii) releasing all or substantially all of the Collateral.
The Borrower and each Lender hereby acknowledge and agree that, solely for
purposes of Sections 2.6(d), 2.7, 10.2, 10.3, 10.4 and 10.5, (a) any
participation will give rise to a direct obligation of the Borrower to the
participant and (b) the participant shall be considered to be a "Lender"
provided that the aggregate amount payable to a Lender and its participants
pursuant to Sections 2.6(d), 2.7, 10.2, 10.3, 10.4 and 10.5 shall not
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exceed the amount that would have been payable to such Lender as if such Lender
had not sold such participation.
(d) Assignments to Federal Reserve Banks. In addition to the assignments
and participations permitted under the foregoing provisions of this Section
10.1, any Lender may assign and pledge all or any portion of its Loans, the
other Obligations owed to such Lender and its Notes to any Federal Reserve Bank
as collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any operating circular issued by such Federal Reserve
Bank; provided that (i) no Lender shall, as between the Borrower and such
Lender, be relieved of any of its obligations hereunder as a result of any such
assignment and pledge and (ii) in no event shall such Federal Reserve Bank be
considered to be a "Lender" or be entitled to require the assigning Lender to
take or omit to take any action hereunder.
(e) Information. Each Lender may furnish any information concerning the
Borrower in the possession of that Lender from time to time to any Eligible
Assignee (including prospective assignees and participants that are Eligible
Assignees), subject to Section 10.19.
(f) Limitation. No assignee, participant or other transferee or any
Lender's rights shall be entitled to receive any greater payment under Section
2.7 than such Lender would have been entitled to receive with respect to the
rights transferred, unless such transfer is made with the Borrower's prior
written consent or at a time when the circumstances giving rise to such greater
payment did not exist.
Section 10.2 Expenses.
Whether or not the transactions contemplated hereby shall be
consummated, the Borrower agrees to pay promptly (i) all the actual and
reasonable costs and out-of-pocket expenses of the Agents in connection with the
preparation of the Loan Documents; (ii) all the actual and reasonable costs of
furnishing all opinions by counsel for the Borrower (including without
limitation any opinions requested by the Lenders or Agents as to any legal
matters arising hereunder) and of the Borrower's performance of and compliance
with all agreements and conditions on its part to be performed or complied with
under this Agreement and the other Loan Documents including, without limitation,
with respect to confirming compliance with environmental and insurance
requirements; (iii) the reasonable fees, expenses and disbursements of counsel
to the Agents (including allocated costs of internal counsel) in connection with
the negotiation, preparation, execution and administration of the Loan Documents
and the Loans and any consents, amendments, waivers or other modifications
hereto or thereto and any other documents or matters requested by the Borrower;
(iv) all other actual and reasonable costs and expenses incurred by the Agents
in connection with the negotiation, preparation and execution of the Loan
Documents and the transactions contemplated hereby and thereby; and (v) after
the occurrence of a Default or Event of Default, all the respective costs and
expenses, including reasonable attorneys' fees (including allocated costs of
internal counsel) and costs of settlement, incurred by the Agents and the
Lenders in enforcing any Obligations of or in collecting any payments due from
the Borrower hereunder or under the other Loan Documents by reason of such
Default or Event of Default or in connection with any refinancing or
restructuring of the
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credit arrangements provided under this Agreement in the nature of a "work-out"
or pursuant to any insolvency or bankruptcy proceedings.
Section 10.3 Indemnity
In addition to the payment of expenses pursuant to Section 10.2, whether
or not the transactions contemplated hereby shall be consummated, the Borrower
agrees to defend, indemnify, pay and hold harmless the Agents and the Lenders,
and the officers, directors, employees, agents, attorneys and affiliates of the
Agents and the Lenders (collectively called the "Indemnitees") from and against
any and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including without limitation the reasonable fees and
disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened by
any Person, whether or not any such Indemnitee shall be designated as a party or
a potential party thereto), whether direct, indirect or consequential and
whether based on any federal, state or foreign laws, statutes, rules or
regulations (including without limitation securities and commercial laws,
statutes, rules or regulations and Environmental Laws), or common law or
equitable cause or on contract or otherwise, that may be imposed on, incurred
by, or asserted against any such Indemnitee, in any manner relating to or
arising out of this Agreement or the other Loan Documents or the transactions
contemplated hereby or thereby (including without limitation the Lenders'
agreement to make the Loans hereunder or the use or intended use of the proceeds
of any of the Loans) or any Environmental Liabilities that arise from or relate
to the management, use, control, ownership, occupancy or operation of any
facility or assets of the Borrower (including without limitation, all on-site
and off-site activities involving Hazardous Materials), or the Release or
threatened Release of any Hazardous Materials (or allegations of the same) on or
from any of the facilities or on or from any other property of the Borrower
where Hazardous Materials are or were (or are or were alleged to be) Released or
threatened to be Released in connection with any of the Facilities or the
business of any of the Borrower, or any predecessor in interest to the Borrower
(collectively called the "Indemnified Liabilities"); provided that the Borrower
shall not have any obligation to any Indemnitee hereunder with respect to any
Indemnified Liabilities to the extent, and only to the extent, of any particular
liability, obligation, loss, damage, penalty, claim, cost, expense or
disbursement that arose from the gross negligence or willful misconduct of that
Indemnitee as determined by a final judgment of a court of competent
jurisdiction. To the extent that the undertaking to defend, indemnify, pay and
hold harmless set forth in the preceding sentence may be unenforceable because
it is violative of any law or public policy, the Borrower shall contribute the
maximum portion that it is permitted to pay and satisfy under applicable law to
the payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnitees or any of them.
Section 10.4 Set-Off; Security Interest in Deposit Accounts.
In addition to any rights now or hereafter granted under applicable law
and not by way of limitation of any such rights, upon the occurrence and during
the continuance of any Event of Default, each Lender is hereby authorized by the
Borrower at any time or from time to time, without notice to the Borrower or to
any other Person, any such notice being hereby expressly
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waived, to set off and to appropriate and to apply any and all deposits (general
or special, including, but not limited to, Indebtedness evidenced by
certificates of deposit, whether matured or unmatured, but not including trust
accounts) and any other Indebtedness at any time held or owing by that Lender
(at any office of that Lender wherever located) to or for the credit or the
account of the Borrower against and on account of the obligations and
liabilities of the Borrower to that Lender under this Agreement, the Notes and
participations therein, including, but not limited to, all claims of any nature
or description arising out of or connected with this Agreement, the Notes and
participations therein or any other Loan Document, irrespective of whether or
not (i) that Lender shall have made any demand hereunder or (ii) the principal
of or the interest on the Loans or any other amounts due hereunder shall have
become due and payable pursuant to Article 8 and although said obligations and
liabilities, or any of them, may be contingent or unmatured. The Borrower hereby
further grants to the Administrative Agent and each Lender a security interest
in all deposits and accounts maintained with the Administrative Agent or such
Lender as security for the Obligations.
Section 10.5 Ratable Sharing.
The Lenders hereby agree among themselves that if any of them shall,
whether by voluntary payment (other than a voluntary prepayment of Loans made
and applied in accordance with the terms of this Agreement), by realization upon
security, through the exercise of any right of set-off or banker's lien, by
counterclaim or cross-action or by the enforcement of any right under the Loan
Documents or otherwise, or as adequate protection of a deposit treated as cash
collateral under the Bankruptcy Code, receive payment or reduction of a
proportion of the aggregate amount of principal, interest, fees and other
amounts then due and owing to that Lender hereunder or under the other Loan
Documents (collectively, the "Aggregate Amounts Due" to such Lender) which is
greater than the proportion received by any other Lender in respect of the
Aggregate Amounts Due to such other Lender, then the Lender receiving such
proportionately greater payment shall (i) notify the Administrative Agent and
each other Lender of the receipt of such payment and (ii) apply a portion of
such payment to purchase participations (which it shall be deemed to have
purchased from each seller of a participation simultaneously upon the receipt by
such seller of its portion of such payment) in the Aggregate Amounts Due to the
other Lenders so that all such recoveries of Aggregate Amounts Due shall be
shared by all the Lenders in proportion to the Aggregate Amounts Due to them;
provided that if all or part of such proportionately greater payment received by
such purchasing the Lender is thereafter recovered from such Lender upon the
bankruptcy, reorganization or insolvency proceeding of the Borrower or
otherwise, those purchases shall be rescinded and the purchase prices paid for
such participations shall be returned to such purchasing Lender ratably to the
extent of such recovery, but without interest. The Borrower expressly consents
to the foregoing arrangement and agrees that any holder of a participation so
purchased may exercise any and all rights of banker's lien, set-off or
counterclaim with respect to any and all monies owing by the Borrower to that
holder with respect thereto as fully as if that holder were owed the amount of
the participation held by that holder.
Section 10.6 Amendments and Waivers.
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No amendment, modification, termination or waiver of any provision of
this Agreement or of the Notes, or consent to any departure by the Borrower
therefrom, shall be effective without the written concurrence of the Lenders. In
addition, (i) any amendment, modification, termination or waiver of any of the
provisions contained in Section 3.2 shall be effective only if evidenced by a
writing signed by or on behalf of the Administrative Agent and the Lenders, (ii)
no amendment, modification, termination or waiver of any provision of any Note
shall be effective without the written concurrence of the Lender which is the
holder of that Note, (iii) no increase in the Commitments of any Lender over the
amount thereof then in effect shall be effective without the written concurrence
of that Lender, it being understood and agreed that in no event shall waivers or
modifications of conditions precedent, covenants, Defaults, Events of Default or
of a mandatory prepayment or a reduction of any or all of the Commitments be
deemed to constitute an increase of the Commitment of any Lender and that an
increase in the available portion of any Commitment of any Lender shall not be
deemed to constitute an increase in the Commitment of such Lender and (iv) no
amendment, modification, termination or waiver of any provision of Article 9 or
of any other provision of this Agreement which, by its terms, expressly requires
the approval or concurrence of the Administrative Agent shall be effective
without the written concurrence of the Administrative Agent. The Administrative
Agent may, but shall have no obligation to, with the concurrence of any Lender,
execute amendments, modifications, waivers or consents on behalf of that Lender.
Any waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this Section shall be
binding upon each Lender at the time outstanding, each future Lender and, if
signed by the Borrower, on the Borrower.
Section 10.7 Notices.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, telecopied or sent by United States mail or courier
service and shall be deemed to have been given when delivered in person or by
courier service, upon receipt of telecopy, or four Business Days after
depositing it in the United States mail, registered or certified, with postage
prepaid and properly addressed provided that notices to the Administrative Agent
shall not be effective until received. For the purposes hereof, the address of
each party hereto shall be as set forth on Schedule 10.7 attached hereto, or
such other address as shall be designated by such party in a written notice
delivered to the Administrative Agent and the Borrower.
Section 10.8 Survival of Representations, Warranties and Agreements.
(a) All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the making of the Loans
hereunder.
(b) Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of the Borrower set forth in Sections 2.6(d), 2.7,
10.2, 10.3 and 10.4 and the
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agreements of the Lenders set forth in Sections 9.2(c), 9.4, 10.5 and 10.19
shall survive the payment of the Loans and the termination of this Agreement.
Section 10.9 Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of any Agent or any Lender in the
exercise of any power, right or privilege hereunder or under any other Loan
Document shall impair such power, right or privilege or be construed to be a
waiver of any default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other power, right or privilege. All rights and
remedies existing under this Agreement and the other Loan Documents are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
Section 10.10 Marshalling; Payments Set Aside.
Neither any Agent nor any Lender shall be under any obligation to
marshal any assets in favor of the Borrower or any other party or against or in
payment of any or all of the Obligations. To the extent that the Borrower makes
a payment or payments to the Administrative Agent or the Lenders (or to the
Administrative Agent for the benefit of the Lenders), or any Agent or the
Lenders enforce any security interests or exercise their rights of setoff, and
such payment or payments or the proceeds of such enforcement or setoff or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, any other state or federal law, common
law or any equitable cause, then, to the extent of such recovery, the obligation
or part thereof originally intended to be satisfied, and all Liens, rights and
remedies therefor or related thereto, shall be revived and continued in full
force and effect as if such payment or payments had not been made or such
enforcement or setoff had not occurred.
Section 10.11 Severability.
In case any provision in or obligation under this Agreement or the Notes
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
Section 10.12 Obligations Several; Independent Nature of the Lenders' Rights.
The obligations of the Lenders hereunder are several and no Lender shall
be responsible for the obligations or Commitments of any other Lender hereunder.
Nothing contained herein or in any other Loan Document, and no action taken by
the Lenders pursuant hereto or thereto, shall be deemed to constitute the
Lenders as a partnership, an association, a joint venture or any other kind of
entity. The amounts payable at any time hereunder to each Lender shall be a
separate and independent debt, and each Lender shall be entitled to protect and
enforce its rights arising out of this Agreement and it shall not be necessary
for any other Lender to be joined as an additional party in any proceeding for
such purpose.
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Section 10.13 Maximum Amount.
(a) It is the intention of the Borrower and the Lenders to conform
strictly to the usury and similar laws relating to interest from time to time in
force, and all agreements between the Borrower and the Lenders, whether now
existing or hereafter arising and whether oral or written, are hereby expressly
limited so that in no contingency or event whatsoever, whether by acceleration
of maturity hereof or otherwise, shall the amount paid or agreed to be paid in
the aggregate to the Lenders as interest (whether or not designated as interest,
and including any amount otherwise designated but deemed to constitute interest
by a court of competent jurisdiction) hereunder or under the other Loan
Documents or in any other agreement given to secure the indebtedness or
obligations of the Borrower to the Lenders, or in any other document evidencing,
securing or pertaining to the indebtedness evidenced hereby, exceed the maximum
amount permissible under applicable usury or such other laws (the "Maximum
Amount"). If under any circumstances whatsoever fulfillment of any provision
hereof, or any of the other Loan Documents, at the time performance of such
provision shall be due, shall involve exceeding the Maximum Amount, then, ipso
facto, the obligation to be fulfilled shall be reduced to the Maximum Amount.
For the purposes of calculating the actual amount of interest paid and/or
payable hereunder in respect of laws pertaining to usury or such other laws, all
sums paid or agreed to be paid to the holder hereof for the use, forbearance or
detention of the indebtedness of the Borrower evidenced hereby outstanding from
time to time shall, to the extent permitted by Applicable Law, be amortized,
pro-rated, allocated and spread from the date of disbursement of the proceeds of
the Notes until payment in full of all of such indebtedness, so that the actual
rate of interest on account of such indebtedness is uniform through the term
hereof. The terms and provisions of this Section shall control and supersede
every other provision of all agreements between the Borrower and the Lenders.
(b) If under any circumstances any Lender shall ever receive an amount
which would exceed the Maximum Amount, such amount shall be deemed a payment in
reduction of the principal amount of the Loans and shall be treated as a
voluntary prepayment under Section 2.4(b)(i) and shall be so applied in
accordance with Section 2.4 hereof or if such excessive interest exceeds the
unpaid balance of the Loans and any other indebtedness of the Borrower in favor
of such Lender, the excess shall be deemed to have been a payment made by
mistake and shall be refunded to the Borrower.
Section 10.14 Headings.
Article, Section and Subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
Section 10.15 Applicable Law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
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Section 10.16 Successors and Assigns.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of the Lenders (it being understood that
the Lenders' rights of assignment are subject to Section 10.1). The Borrower's
rights or obligations hereunder or any interest therein may not be assigned or
delegated by the Borrower without the prior written consent of all Lenders.
Section 10.17 Consent to Jurisdiction and Service of Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE BORROWER ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS
THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND
DELIVERING THIS AGREEMENT, THE BORROWER, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, IRREVOCABLY
(i) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION
AND VENUE OF SUCH COURTS;
(ii) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(iii) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY
SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO THE BORROWER, AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION
10.7;
(iv) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (iii) ABOVE IS SUFFICIENT
TO CONFER PERSONAL JURISDICTION OVER THE BORROWER IN ANY SUCH PROCEEDING IN ANY
SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT;
(v) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE
COURTS OF ANY OTHER JURISDICTION; AND
(vi) AGREES THAT THE PROVISIONS OF THIS SECTION 10.18 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT
PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE.
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Section 10.18 Waiver of Jury Trial.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP OR OTHER RELATIONSHIP THAT IS BEING ESTABLISHED.
The scope of this waiver is intended to be all encompassing of any and all
disputes that may be filed in any court and that relate to the subject matter of
this transaction, including, without limitation, contract claims, tort claims,
breach of duty claims and all other common law and statutory claims. Each party
hereto acknowledges that this waiver is a material inducement to enter into a
business relationship, that each has already relied on this waiver in entering
into this Agreement, and that each will continue to rely on this waiver in their
related future dealings. Each party hereto further warrants and represents that
it has reviewed this waiver with its legal counsel and that it knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SECTION AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event
of litigation, this Agreement may be filed as a written consent to a trial by
the court.
Section 10.19 Confidentiality.
Each Lender shall hold all non-public information obtained pursuant to
the requirements of this Agreement which has been identified as confidential by
the Borrower in accordance with such Lender's customary procedures for handling
confidential information of this nature and in accordance with safe and sound
banking practices, it being understood and agreed by the Borrower that in any
event a Lender may make disclosures reasonably required by any bona fide
assignee, transferee or participant that is an Eligible Assignee that agrees to
be bound by the provisions of this Section 10.19 in connection with the
contemplated assignment or transfer by such Lender of any Loans or any
participation therein or as required or requested by any governmental agency or
representative thereof or pursuant to legal process; provided that nothing
herein shall prevent any Agent or any Lender from disclosing any such
information (i) to the Administrative Agent or any other Lender, (ii) any of its
employees, directors and officers who need to know such information in
accordance with customary banking practices and affiliates of Lenders,
employees, directors and officers of such affiliates, and agents, accountants,
attorneys and other professional advisors of Lenders who receive such
information having been made aware of the confidential nature thereof, (iii)
upon the request or demand of any Governmental Authority having jurisdiction
over it, (iv) in response to any order of any court or other Governmental
Authority or as may otherwise be required pursuant to any Applicable Laws, (v)
if required to do so in connection with any litigation or similar proceeding,
(vi) which has been
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publicly disclosed other than in breach of this Section 10.19, (vii) to the
National Association of Insurance Commissioners or any securities exchange or
any similar organization, or any nationally recognized rating agency that
requires access to information about a Lender's investment portfolio in
connection with ratings issued with respect to such Lender or (viii) in
connection with the exercise of any remedy hereunder or under any other
Transaction Document. In the event that any Lender discloses any information
pursuant to clauses (iii), (iv) or (v) of the preceding sentence, such Lender
will give notice thereof to the Borrower if such Lender is lawfully permitted to
do so.
Section 10.20 Counterparts; Effectiveness.
This Agreement and any amendments, waivers, consents or supplements
hereto or in connection herewith may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
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<PAGE> 87
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
THE BORROWER: NEXTCARD FUNDING CORP.
By:_____________________________________
Name:
Title:
AGENTS AND LENDERS: CREDIT SUISSE FIRST BOSTON, NEW
YORK BRANCH, individually as Lender
and as the Administrative Agent and the
Arranger
By:_____________________________________
Name:
Title:
By:_____________________________________
Name:
Title:
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<PAGE> 88
SCHEDULE 2.1
TO
LOAN AGREEMENT
Lenders' Commitment and
Pro Rata Shares
<TABLE>
<CAPTION>
Lender Commitment % of Total Commitment
- ------ ---------- ---------------------
<S> <C> <C>
Credit Suisse First Boston, $100,000,000 100%
New York Branch
</TABLE>
<PAGE> 89
SCHEDULE 10.7
TO
LOAN AGREEMENT
Addresses for Notices
If to the Administrative Agent or Arranger:
Credit Suisse First Boston, New York Branch
Eleven Madison Avenue
New York, New York 10010-3629
Attn.: David Shrenzel
Fax: 212-325-6677
with a copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attn.: Reed D. Auerbach, Esq.
Fax: 212-806-6006
If to the Borrower:
NextCard Funding Corp.
595 Market Street
Suite 2250
San Francisco, California 94105
Attn.: Secretary
with a copy to:
Heritage Bank of Commerce
150 Almaden Street
San Jose, California 95113
Attn.: Kenneth B. Silveira
Fax: 408-947-6910
<PAGE> 1
EXHIBIT 10.22
EXECUTION COPY
ACCOUNT ORIGINATION AGREEMENT
This ACCOUNT ORIGINATION AGREEMENT ("Agreement") is made as of this 29th
day of December, 1998, by and between NEXTCARD, INC., a California corporation
("NextCard"), NEXTCARD FUNDING CORP., a Delaware corporation ("Funding"), and
HERITAGE BANK OF COMMERCE, a California state-chartered bank (the "Bank").
W I T N E S S E T H:
WHEREAS, the Bank is a licensed member of Visa, U.S.A., Inc. ("Visa")
and authorized to issue credit cards; and
WHEREAS, NextCard desires to originate credit cards to be issued by the
Bank; and
WHEREAS, Funding desires to purchase the receivables generated under
such credit cards;
NOW, THEREFORE, in consideration of the premises and mutual covenants
included in this Agreement and for other goods and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, NextCard, Funding and
the Bank agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Capitalized terms have the meanings indicated below.
"ACCOUNT" means an open-end, revolving Visa account opened by the Bank
pursuant to the Program on and after November 16, 1998, pursuant to which one or
more Credit Cards are issued to a Cardholder, including any and all rights,
remedies, benefits, interests and entitlements with respect thereto.
<PAGE> 2
"ADMINISTRATIVE AGENT" means Credit Suisse First Boston and any
successor Administrative Agent under the Loan Agreement.
"BANK MARKS" has the meaning specified in Section 3.1(c).
"CARDHOLDER" means an individual in whose name an Account is
established.
"CARDHOLDER AGREEMENT" means an agreement between the Bank and a
Cardholder for the extension of credit in connection with an Account.
"CARDHOLDER-SPECIFIC INFORMATION" means Cardholder names, postal and
electronic mail addresses, telephone numbers and Cardholder-specific transaction
information.
"CONFIDENTIAL INFORMATION" has the meaning specified in Section 3.4.
"CREDIT CARD" or "CARD" means each Visa card issued by the Bank pursuant
to this Agreement.
"CREDIT CARD GUIDELINES" means the Credit Card Guidelines attached
hereto as Exhibit A, as amended from time to time with the prior approval of
NextCard, the Administrative Agent and the Bank.
"EVENT OF DEFAULT" has the meaning specified in Section 6.2(a).
"FEDERAL FUNDS RATE" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") for such day, and if none is set forth for such
day, the rate set forth for the preceding Business Day, in each case opposite
the caption "Federal Funds (Effective)".
"EXTENSION FEE" has the meaning specified in Section 6.1(a).
"INDEMNIFIED PARTY" has the meaning specified in Section 7.4.
"INDEMNIFYING PARTY" has the meaning specified in Section 7.4.
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<PAGE> 3
"INITIAL AGREEMENT" means that certain Consumer Credit Card Program
Agreement dated November 25, 1997 between NextCard and the Bank.
"INITIAL TERM" has the meaning specified in Section 6.1.
"LOAN AGREEMENT" means that certain Loan Agreement dated as of December
29, 1998 by and among Funding, the lenders party thereto from time to time (the
"Lenders") and the Administrative Agent, as arranger and administrative agent.
"LOSSES" has the meaning specified in Section 7.3.
"NEXTCARD MARKS" has the meaning specified in Section 3.1(a).
"POOLING AND SERVICING AGREEMENT" means the Pooling and Servicing
Agreement dated as of December 1, 1998 by and among NextCard, Inc., as servicer,
NextCard Funding Corp., as transferor, and The Bank of New York, as trustee, as
amended by the Supplement No. 1 thereto dated as of December 1, 1998.
"PROGRAM" means the credit card program conducted pursuant to the terms
of this Agreement and specifically excludes the program conducted pursuant to
the Initial Agreement.
"PROGRAM INFORMATION" means all information, other than
Cardholder-Specific Information, acquired through the operation of this
Agreement or concerning the Accounts. Program Information includes
Cardholder-Specific Information to the extent that the Cardholder-Specific
Information is redacted to mask any correlation between the Cardholder-Specific
Information and the identity of any specific Cardholder.
"PROGRAM MATERIALS" means any applications, marketing materials,
advertising, Web sites and content, disclosures, Account agreements, Account
statements, billing and collection notices used in connection with the Program,
as developed by NextCard from time to time.
3
<PAGE> 4
"PURCHASE PRICE" means, as of any day with respect to any Receivables,
(a) the sum of [ * ], if any, minus (b) any credits and payments to the related
Accounts.
"RECEIVABLES" means all amounts owing to the Bank on the Accounts
including, without limitation, principal balances from outstanding purchases,
balance transfers and cash advances, accrued finance charges, late charges,
returned check charges, interchange income and any other charges and fees,
whether or not billed, as of the close of business on a given day.
"SETTLEMENT AMOUNT" means, as of any day with respect to any
Receivables, (a) the Purchase Price of such Receivables minus (b) the amount of
any fees, charges or other income, including amounts payable to Funding pursuant
to Section 2.11, paid by other parties with respect to the Receivables, all of
which are payable to Funding hereunder, to the extent not previously netted out
of a Settlement Amount.
"SETTLEMENT DATE" shall have the meaning specified in Section 4.1(a).
"THIRD PARTY PROCESSOR" means any third party providing any data
processing services with respect to the Accounts or the Receivables.
1.2 Construction. Unless the context otherwise clearly indicates, words
used in the singular include the plural and words used in the plural include the
singular.
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
4
<PAGE> 5
ARTICLE II
ESTABLISHMENT OF ACCOUNTS
2.1 Solicitation of Accounts.
(a) NextCard shall have the sole and exclusive right to solicit
applications for Credit Cards on behalf of the Bank.
(b) NextCard will use the Internet to solicit potential
applicants to submit applications to open Accounts. NextCard's Internet
marketing activities may include, in NextCard's discretion, targeted e-mail
solicitations, banner advertising, hyperlinks and agreements with other sites
and companies on the Internet. The Accounts and Cards will include
Internet-enhanced features, including online approval, online balance transfers
and online customer service. NextCard may from time to time implement additional
Internet-enhanced features.
(c) All advertising and marketing materials will indicate that
the Bank is the issuer of Cards and the party with whom the Accounts are
maintained.
(d) NextCard does not warrant or guarantee that it will generate
any particular number of Accounts or amount of Receivables.
2.2 Applications.
(a) NextCard shall ensure that the form of the application for a
Credit Card and all other Program Materials, including without limitation
solicitation materials, are in compliance with all material applicable laws and
regulations.
(b) In the event that an applicant for a Card does not satisfy
the requirements of the Credit Card Guidelines, NextCard shall notify the
applicant in accordance with applicable laws and regulations.
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<PAGE> 6
2.3 Issuance of Credit Cards. So long as no Event of Default shall have
occurred, the Bank shall issue Credit Cards to each applicant for a Card who
qualifies for such type of Card under the Credit Card Guidelines subject to
Section 6.4 hereof, the Bank shall extend credit with respect to such Credit
Cards in accordance with the Credit Card Guidelines. NextCard shall design and
provide the Credit Cards in forms consistent with Visa guidelines. NextCard, on
behalf of the Bank, shall automatically issue a renewal card to each qualified
Cardholder at each scheduled Credit Card renewal date.
2.4 Establishment of Accounts.
(a) Upon approval of an application, the Bank shall establish an
Account for the applicant.
(b) NextCard shall prepare and provide, or cause to be provided
to each Cardholder a Cardholder Agreement and disclosure statement and such
other notices or documents related to such Cardholder's Account as are required
from time to time under applicable laws and regulations.
2.5 Account Terms. Certain terms and conditions for the Credit Cards
applicable to the Accounts are set out in the Credit Card Guidelines. NextCard
shall ensure that the Credit Card Guidelines and the other terms and conditions
for the Credit Cards (including, without limitation, the interest rates, fees,
charges and disclosures) are in compliance with all material applicable laws and
regulations.
2.6 Servicing. NextCard or any successor servicer under the Pooling and
Servicing Agreement shall be responsible for servicing and maintaining the
Accounts, processing payments thereon and collections efforts with respect
thereto, either by itself or through Third Party Processors. Such servicing
shall include maintaining a customer service website, maintaining all
6
<PAGE> 7
communications with Cardholders and modifying the terms and conditions of any
Account. All costs relating to servicing the Accounts shall be paid by NextCard.
2.7 Other Bank Obligations
(a) Visa Membership. The Bank shall maintain its membership in
Visa. The Bank shall be responsible for making all reports to Visa which may be
required by its membership therein and shall comply with the operating rules and
regulations of Visa in connection with the Program. Any termination of the
Bank's membership in Visa shall be grounds for termination of this Agreement
pursuant to Section 6.2(b).
(b) Board Approval. This Agreement and all sales of Receivables
and Accounts pursuant to this Agreement shall be approved by the Board of
Directors of the Bank and such approval is or will be reflected in the minutes
of the Board of Directors. The Bank shall provide copies of such resolutions of
the Board of Directors, certified by the Secretary or other officer of the Bank,
as may be reasonably requested by NextCard. The Bank shall maintain such
resolutions in its permanent official records continuously from the time of
their adoption.
(c) Other Requirements. The Bank shall comply with all regulatory
and administrative requirements applicable to it, and shall be solely
responsible for its Community Reinvestment Act compliance requirements as they
relate to the Program.
(d) Opinion. Prior to the effectiveness of this Agreement, the
Bank shall deliver to Funding, NextCard and the Administrative Agent an opinion
of counsel substantially in the form set forth on Exhibit B.
(e) Recordkeeping. The Bank shall maintain adequate and
sufficient records so that at all times it is possible to distinguish the
Accounts from any other credit card accounts owned or serviced by the Bank.
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(f) UCC-1 Financing Statement. The Bank shall execute and deliver
to Funding for filing with the California Secretary of State a UCC-1 financing
statement evidencing the sale of Receivables to Funding pursuant to this
Agreement.
2.8 Reports, Information and Materials.
(a) NextCard shall provide to the Bank periodic reports (through
Third Party Processors or otherwise) as the Bank may reasonably request from
time to time.
(b) NextCard shall furnish to the Bank all information concerning
the Accounts as may be required by law or necessary to enable to the Bank to
satisfy its obligations under this Agreement. NextCard will cooperate with the
Bank in connection with any regulatory examination or audit of the Program.
(c) NextCard shall not change the Credit Card Guidelines or the
Program Materials without the prior written consent of the Administrative Agent
and the Bank.
2.9 Expenses. NextCard agrees to reimburse the Bank for (a)
out-of-pocket expenses incurred in the start-up and maintenance of the Program,
including, if the Bank is not already a member of Visa, the costs associated
with the Bank becoming and maintaining a membership in Visa, (b) any taxes
payable by the Bank resulting from the sale of Receivables other than income
taxes, (c) the funding costs relating to the Receivables prior to their purchase
pursuant to this Agreement at the Federal Funds Rate or such other rate as may
be agreed to by NextCard and the Bank and (d) reasonable legal fees not to
exceed $12,500.
2.10 Origination Fees. NextCard shall pay to the Bank on a monthly basis
a one-time fee of [ * ] for each Account that is (a) booked on the system of
the Third Party Processor that books Accounts and (b) sold on NextCard's system
on or after January 1, 1999. Such payments shall be made no later than the
fifteenth day of each calendar month for all Accounts opened
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
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during the preceding calendar month. If by September 30, 1999 NextCard has not
paid the Bank at least [ * ] pursuant to this Section 2.10, NextCard shall
pay to the Bank the difference between [ * ] and the actual amount paid by
NextCard to the Bank pursuant to this Section 2.10. This obligation will survive
any earlier termination of this Agreement pursuant to Section 6.2(d).
2.11 Visa Revenues. Any rebates, marketing fees, revenues or other fees
or discounts that are paid or granted by Visa to the Bank with respect to the
Accounts shall be paid over to Funding upon receipt by the Bank on a daily basis
as additional consideration under this Agreement.
2.12 Nature of Arrangement. During the term of this Agreement NextCard
shall be the exclusive fee-for-origination credit card originator for the Bank.
NextCard may enter into other fee-for-origination agreements with other
financial institutions.
2.13 Minimum Account Allocation. If between the period from February 1,
1999 and September 30, 1999 NextCard enters into other fee-for-origination
agreements with other financial institutions, NextCard shall nonetheless ensure
that at least [ * ] of the Accounts originated on a monthly basis through a
NextCard program during such period are established by the Bank; provided,
however, that this Section 2.13 shall not be applicable to any Accounts
established by a wholly-owned subsidiary of NextCard. Furthermore, the Bank will
be the exclusive originator of NextCard accounts during the period from January
1, 1999 to and including January 31, 1999.
2.14 Clearing Accounts. The Bank shall maintain cash clearing accounts
necessary to settle amounts paid and received on the Accounts prior to their
posting on the system of the
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
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Third Party Processor. NextCard shall reimburse the Bank for its reasonable
costs relating to such cash clearing accounts.
2.15 Loan Agreement Notices. Funding shall provide to the Bank such
notices as it is required to deliver to, and any notices relating to defaults
that it receives from, the Administrative Agent pursuant to the Loan Agreement
as the Bank shall reasonably request.
2.16 Marketing to Cardholders. NextCard may from time to time solicit
Cardholders for goods and services and place solicitation or promotional
materials in communications to Cardholders, and any income and fees resulting
from the foregoing solicitations and promotions shall be paid directly to
NextCard. The Bank shall not solicit Cardholders, other than any Cardholder that
was a customer of the Bank prior to the date of this Agreement or a Cardholder
that has a relationship with the Bank that develops or was developed
independently of the Program, for any purpose.
ARTICLE III
INTELLECTUAL PROPERTY
3.1 Trademarks.
(a) The Bank acknowledges that, as between NextCard and the Bank,
NextCard owns and will own the service marks "NextBank," "NextCard," "Credit
Choice," and derivatives of the foregoing, and any other presently existing or
future trademarks, service marks, trade names, rights in packaging, rights of
publicity, merchandising rights, advertising rights, and similar rights by which
the Program is or becomes known or with which the Program is or becomes
associated, other than the mark "Heritage" and derivatives thereof
(collectively, the "NextCard Marks").
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(b) The Bank acknowledges that, as between NextCard and the Bank,
NextCard owns all rights in the URL addresses used in conjunction with the
Program, including without limitation "nextcard.com," "NextBank.com," and
"creditchoice.com."
(c) NextCard acknowledges that, as between NextCard and the Bank,
the Bank owns the service mark "Heritage" and derivatives thereof (collectively,
the "Bank Marks").
(d) All goodwill that is or becomes associated with the
above-referenced marks as a result of the use of such marks in association with
the Program will accrue solely to the benefit of the respective owner of such
marks. After termination of this Agreement, any party may use its marks free of
any claim whatsoever of ownership or interest by the other party.
(e) The Bank hereby licenses to NextCard during the term of this
Agreement the use of the "Heritage" mark solely in connection with the
performance of its marketing and other obligations hereunder. Specifically for
purposes of identifying the Visa card issuer, NextCard may use the "Heritage"
mark in any marketing or advertising materials relating to the Program. NextCard
will follow the Bank's instructions regarding the appearance, use and display of
such mark, subject to any requirements of Visa and any regulatory requirements.
(f) NextCard hereby licenses to the Bank during the term of this
Agreement the use of the Program Materials and the mark "NextCard" to identify
the Card and the Program. The Bank will follow NextCard's instructions regarding
the appearance, use, and display of such mark, subject to any requirements of
Visa and any regulatory requirements.
3.2 Copyright. NextCard will own all copyrights in all Program Materials
and derivative works thereof.
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3.3 Ownership and Use of Information.
(a) Cardholder-Specific Information will be owned by Heritage.
Heritage hereby grants to NextCard a perpetual unrestricted license (i) during
the term of this Agreement, to use the Cardholder-Specific Information for
Program purposes, including but not limited to the servicing of the Accounts,
and (ii) following the termination of this Agreement, unless NextCard purchases
the Cardholder-Specific Information pursuant to Section 4.2(b) hereof, to use
the Cardholder-Specific Information only for statistical and analytic purposes.
(b) NextCard and Heritage will own jointly the Program
Information, and each party may use the Program Information for its own
purposes; provided, that each party will treat any Program Information in its
possession at any time as Confidential Information.
(c) Heritage and NextCard (i) acknowledge that the Program
Information will be used by each of them to create certain analyses and
statistical models that may have predictive value beyond the Program, and (ii)
agree that such analyses and statistical models will be the sole and exclusive
property of the party creating such analyses and statistical models and will be
treated as Confidential Information. NextCard represents and warrants to
Heritage that no such analyses or statistical models will include information
that is identified with any specifically identifiable Cardholder.
3.4 Confidential Information. All material and information supplied by
one party to the other party in the course of the negotiation of this Agreement
and its performance hereunder, including, but not limited to, information
concerning any party's marketing plans, technological developments, objectives
and results and financial results are confidential and proprietary to the
disclosing party ("Confidential Information"). Confidential Information does not
include any information that was (a) known to the receiving party at the time of
disclosure or developed
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independently by such party without violating the terms herein; (b) in the
public domain at the time of disclosure or enters the public domain following
disclosure through no fault of the receiving party; or (c) disclosed to the
receiving party by a third party that is not prohibited by law or agreement from
disclosing the same. In particular, the Cardholder-Specific Information and the
Program Information shall be deemed Confidential Information owned by NextCard.
3.5 Protection of Confidential Information. Confidential Information
shall be used by each party solely in the performance of its obligations
pursuant to this Agreement. Each party shall receive Confidential Information in
confidence and not disclose Confidential Information to any third party, except
as may be necessary to perform its obligations pursuant to this Agreement, the
Pooling and Servicing Agreement and the Loan Agreement and except as may be
required by law or agreed upon in writing by the other party; provided, however,
that no party may disclose Confidential Information in violation of any
confidentiality or privacy guidelines or regulations imposed by federal or state
authorities. Each party shall take all reasonable steps to safeguard
Confidential Information disclosed to it so as to ensure that no unauthorized
person shall have access to any Confidential Information. Each party shall,
among other safeguards which it may consider necessary, require its employees,
agents, and subcontractors having access to Confidential Information to enter
into appropriate confidentiality agreements containing such terms as are
necessary to satisfy its obligation herein. Each party shall promptly report to
the other party any unauthorized disclosure or use of any Confidential
Information of that party of which it becomes aware. Upon request or upon
termination of this Agreement, each party shall return to the other party all
Confidential Information in its possession or control. No disclosure by a party
hereto of Confidential Information of such party shall constitute a grant to the
other party of any interest or right whatsoever in such Confidential
Information, which shall remain the
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property solely of the disclosing party. Nothing contained herein shall limit a
party's rights to use its Confidential Information in any manner whatsoever.
3.6 Survival. The terms of this Article 3 shall survive the termination
of this Agreement; provided, however, that upon the termination of this
Agreement each party will discontinue immediately the use of any trade or
service marks licensed from the other except to the extent necessary to satisfy
their respective obligations under Section 6.4 hereof following the termination
of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF RECEIVABLES AND ACCOUNTS
4.1 Purchase and Sale of Receivables.
(a) Funding hereby purchases from the Bank, and the Bank hereby
sells to Funding, all of the Receivables, whether now in existence or hereafter
arising, for the Purchase Price. The Receivables shall be transferred to Funding
on a daily basis or such other frequency as may be agreed to by the Bank and
Funding. On each day when Receivables are transferred to Funding pursuant to
this Agreement (the "Settlement Date"), Funding shall notify the Bank of the
Settlement Amount for such day and shall pay to the Bank such Settlement Amount.
After the Settlement Date for any Receivables, the Bank shall have no further
economic interest in such Receivables. NextCard shall provide Funding and the
Bank with a report setting forth the calculation of the Settlement Amount on
each Settlement Date.
(b) No later than 10:00 a.m., California time, on each Settlement
Date, NextCard shall notify Funding and the Bank of the Settlement Amount due to
or owed by Funding or the Bank for such day. Payments due for any day shall be
made by the appropriate
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party by wire transfer no later than 1:00 p.m., California time, unless NextCard
is late in providing notice of the Settlement Amount due for any day, in which
case the appropriate party shall use all reasonable efforts to send the wire
transfer as soon thereafter as possible.
(c) In the event that the Bank has reason to dispute the accuracy
of the Settlement Amount reported by NextCard, the Bank shall promptly so notify
NextCard. In the event it is determined that either party shall not have
remitted to the other party the proper Settlement Amount, such party shall
promptly remit to the other party any additional amount due the other party,
together with interest at the Federal Funds Rate.
(d) Subject to Section 6.4 hereof, the Bank shall remain the
owner of all Accounts, notwithstanding any sale of any Receivables to Funding
under this Section 4.1. Funding shall not be deemed to have assumed any
obligations of the Bank with respect to the Accounts by virtue of any purchase
of Receivables hereunder.
(e) Subject to Section 6.4(b) hereof, the Bank shall not sell any
Receivables or any interest therein to any third party without the prior written
consent of Funding and the Administrative Agent.
(f) The sale of Receivables contemplated herein shall occur upon
settlement therefor by or on behalf of Funding and no additional documents shall
be required by the parties to effect any such sale. Notwithstanding the
foregoing, if, in the reasonable judgment of either party, in connection with
any such purchase and sale, any additional instrument, document, or certificate
is required to further evidence such purchase and sale, the other party shall
execute and deliver any such document.
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4.2 Sale of Accounts.
(a) Subject to Section 6.4, the Bank shall not sell or transfer
any Account created under the Program, or any interest therein, to any third
party without the prior written consent of Funding and the Administrative Agent.
(b) At any time or from time to time, Funding or its assignee
shall have the right, exercisable by providing written notice to the Bank at
least thirty (30) business days prior to the settlement date for such purchase,
to purchase all of the Accounts and the Cardholder-Specific Information relating
thereto then owned by the Bank or to arrange for said purchase by another party.
The purchase price for the Accounts shall be ten cents per Account and the
purchase price for the Cardholder-Specific Information shall be a total of $50.
4.3 Covenants of the Bank. Except as contemplated by this Agreement, the
Bank (a) shall not create or suffer to exist any lien, pledge, security interest
or other encumbrance on any of the Receivables or Accounts, (b) shall not take
any action, or fail to take any action, that could result in the Bank no longer
being the exclusive owner of the Accounts and Receivables and (c) shall not take
any action, or fail to take any action, that could prevent the Bank from having
the absolute right and authority to sell the Accounts and Receivables.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Bank. The Bank hereby
represents and warrants to NextCard and Funding as follows:
(a) Organization. The Bank is a bank duly organized, validly
existing and in good standing under the laws of the State of California.
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(b) Capacity; Authority; Validity. The Bank has all necessary
corporate power and authority to enter into this Agreement and to perform all of
the obligations to be performed by it under this Agreement. This Agreement and
the consummation by the Bank of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Bank, and
this Agreement has been duly executed and delivered by the Bank and constitutes
the valid and binding obligation of the Bank and is enforceable in accordance
with its terms (except as such enforceability may be limited by equitable
limitations on the availability of equitable remedies and by bankruptcy and
other laws affecting the rights of creditors generally).
(c) Conflicts; No Defaults. Neither the execution and delivery of
this Agreement by the Bank nor the consummation of the transactions contemplated
herein by the Bank will (i) conflict with, result in the breach of, constitute a
default under, or accelerate the terms of any contract, instrument or commitment
to which the Bank is a party or by which the Bank is bound, (ii) violate the
articles of incorporation or bylaws, or any other equivalent organizational
document, of the Bank, (iii) result in the creation of any lien, charge or
encumbrance upon any of the Accounts or the Receivables (except pursuant to the
terms hereof), or (iv) require the consent or approval of any other party to any
contract, instrument or commitment to which the Bank is a party or by which it
is bound. The Bank is not subject to any agreement with any regulatory authority
that would prevent the consummation by the Bank of the transactions contemplated
by this Agreement.
(d) Litigation. There is no claim, litigation, proceeding,
arbitration, investigation or material controversy pending before any
governmental agency to which the Bank is a party that adversely affects the
ability of the Bank to consummate the transactions
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contemplated hereby, and, to the best of the Bank's knowledge, no such claim,
litigation, proceeding, arbitration, investigation or controversy has been
threatened or is contemplated.
(e) No Consent, Etc. No consent of any person (including without
limitation, any stockholder or creditor of the Bank) and no consent, license,
permit or approval or authorization or exemption by notice or report to, or
registration, filing or declaration with, any governmental authority is required
(other than those previously obtained and delivered to NextCard) in connection
with the execution or delivery of this Agreement by the Bank, the validity of
this Agreement with respect to the Bank, the enforceability of this Agreement
against the Bank, the consummation by the Bank of the transactions contemplated
hereby, or the performance by the Bank of its obligations hereunder; provided,
however, that the Bank makes no representation as to whether any consent from
Visa is required.
(f) Memberships. The Bank is, and at all times during the term
hereof will remain, a member of the Federal Deposit Insurance Corporation and
the Visa system.
(g) Commercial Matters. (i) This Agreement was undertaken in the
ordinary course of business, not in contemplation of insolvency of the Bank, and
with no intent to hinder, delay, or defraud the Bank or its creditors; (ii) this
Agreement represents a bona fide and arm's length transaction; (iii) Funding is
not an insider or affiliate of the Bank; (iv) this Agreement was entered into in
return for adequate consideration; and (v) this Agreement was entered into
before the first transfer of Receivables will be effected pursuant to this
Agreement.
5.2 Representations and Warranties of NextCard. NextCard hereby
represents and warrants to the Bank and Funding as follows:
(a) Organization. NextCard is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
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(b) Capacity; Authority; Validity. NextCard has all necessary
corporate power and authority to enter into this Agreement and to perform all of
the obligations to be performed by it under this Agreement. This Agreement and
the consummation by NextCard of the transactions contemplated hereby have been
duly and validly authorized by all necessary action on the part of NextCard, and
this Agreement has been duly executed and delivered by NextCard and constitutes
the valid and binding obligation of NextCard and is enforceable in accordance
with its terms (except as such enforceability may be limited by equitable
limitations on the availability of equitable remedies and by bankruptcy and
other laws affecting the rights of creditors generally).
(c) Conflicts; No Defaults. Neither the execution and delivery of
this Agreement by NextCard nor the consummation of the transactions contemplated
herein by NextCard will (i) conflict with, result in the breach of, constitute a
default under, or accelerate the performance of the terms of any contract,
instrument or commitment to which NextCard is a party or by which it is bound,
(ii) violate the articles of incorporation or bylaws of NextCard or (iii)
require the consent or approval of any other party to any contract, instrument
or commitment to which NextCard is a party or by which it is bound. NextCard is
not subject to any agreement with any regulatory authority that would prevent
the consummation by NextCard of the transactions contemplated by this Agreement.
(d) Litigation. There is no claim, litigation, proceeding,
arbitration, investigation or material controversy pending before any
governmental authority to which NextCard is a party that adversely affects
NextCard's ability to consummate the transactions contemplated hereby and, to
the best of NextCard's knowledge, no such claim, litigation, proceeding,
arbitration, investigation or controversy has been threatened or is
contemplated.
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(e) No Consent, Etc. No consent of any person or entity
(including without limitation, Visa and any stockholder or creditor of NextCard)
and no consent, license, permit or approval or authorization or exemption by
notice or report to, or registration, filing or declaration with, any
governmental authority is required in connection with the execution or delivery
of this Agreement by NextCard, the validity or enforceability of this Agreement
against NextCard, the consummation of the transactions contemplated thereby, or
the performance by NextCard of its obligations hereunder.
(f) Compliance. All terms of the Accounts and the Cardholder
Agreements and all Program Materials comply in all material respects with
applicable law and regulations.
(g) Commercial Matters. (i) This Agreement was undertaken in the
ordinary course of business, not in contemplation of insolvency of the Bank, and
with no intent to hinder, delay, or defraud the Bank or its creditors; (ii) this
Agreement represents a bona fide and arm's length transaction; (iii) this
Agreement was entered into in return for adequate consideration; and (iv) this
Agreement was entered into before the first transfer of Receivables will be
effected pursuant to this Agreement.
5.3 Representations and Warranties of Funding. Funding hereby represents
and warrants to the Bank and NextCard as follows:
(a) Organization. Funding is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
(b) Capacity; Authority; Validity. Funding has all necessary
corporate power and authority to enter into this Agreement and to perform all of
the obligations to be performed by it under this Agreement. This Agreement and
the consummation by Funding of the transactions contemplated hereby have been
duly and validly authorized by all necessary action
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on the part of Funding, and this Agreement has been duly executed and delivered
by Funding and constitutes the valid and binding obligation of Funding and is
enforceable in accordance with its terms (except as such enforceability may be
limited by equitable limitations on the availability of equitable remedies and
by bankruptcy and other laws affecting the rights of creditors generally).
(c) Conflicts; No Defaults. Neither the execution and delivery of
this Agreement by Funding nor the consummation of the transactions contemplated
herein by Funding will (i) conflict with, result in the breach of, constitute a
default under, or accelerate the performance of the terms of any contract,
instrument or commitment to which Funding is a party or by which it is bound,
(ii) violate the articles of incorporation or bylaws of Funding or (iii) require
the consent or approval of any other party to any contract, instrument or
commitment to which Funding is a party or by which it is bound. Funding is not
subject to any agreement with any regulatory authority that would prevent the
consummation by Funding of the transactions contemplated by this Agreement.
(d) Litigation. There is no claim, litigation, proceeding,
arbitration, investigation or controversy pending before any governmental
authority to which Funding is a party that adversely affects Funding's ability
to consummate the transactions contemplated hereby and, to the best of Funding's
knowledge, no such claim, litigation, proceeding, arbitration, investigation or
controversy has been threatened or is contemplated.
(e) No Consent, Etc. No consent of any person (including without
limitation, any stockholder or creditor of Funding) and no consent, license,
permit or approval or authorization or exemption by notice or report to, or
registration, filing or declaration with, any governmental authority is required
in connection with the execution or delivery of this Agreement by Funding, the
validity or enforceability of this Agreement against Funding, the
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consummation of the transactions contemplated thereby, or the performance by
Funding of its obligations hereunder.
(f) Ability to Finance Purchases. Funding shall at all times
maintain a credit facility sufficient to finance its obligation to purchase
Receivables hereunder.
(g) Commercial Matters. (i) This Agreement was undertaken in the
ordinary course of business, not in contemplation of insolvency of the Bank, and
with no intent to hinder, delay, or defraud the Bank or its creditors; (ii) this
Agreement represents a bona fide and arm's length transaction; (iii) Funding is
not an insider or affiliate of the Bank; (iv) this Agreement was entered into in
return for adequate consideration; and (v) this Agreement was entered into
before the first transfer of Receivables will be effected pursuant to this
Agreement.
(h) Manner of Foreclosure. Funding will not attempt to foreclose
on the Receivables or the proceeds thereof after the appointment of the Federal
Deposit Insurance Corporation (the "FDIC") as conservator or receiver for the
Bank (i) in a manner that is not commercially reasonable, (ii) in a manner that
requires the involvement of the FDIC, (iii) in a manner that requires judicial
action, (iv) without the existence of an event of default other than the
appointment of a conservator or receiver for the Bank or the insolvency of the
Bank, or (v) in a manner that does not comply with any applicable law (not
including the receivership and conservatorship provisions of the Federal Deposit
Insurance Act, as amended).
ARTICLE VI
TERM AND TERMINATION
6.1 Term. This Agreement shall commence on the date first above written
and, unless otherwise terminated as provided in Section 6.2 herein, shall
continue in full force and effect
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until December 31, 1999 (the "Initial Term"), provided, however, that the Bank's
obligation to establish new Accounts and the related obligation of NextCard to
solicit new Accounts shall terminate on September 30, 1999. After the Initial
Term, subject to Section 6.4, this Agreement may be extended at the written
request of Funding for one month periods until December 31, 2001 upon the
payment by Funding of an extension fee equal to [*] per month (the "Extension
Fee"). The Extension Fee for each month shall be payable upon the first day of
such month. In addition, Funding shall pay the Bank a fee of [*] per month for
each calendar month this Agreement is in effect during the period from October
1, 1999 through and including December 31, 1999. The termination of this
Agreement shall not terminate, affect or impair any rights, obligations or
liabilities of any party hereto that may accrue prior to such termination or
that, under the terms of this Agreement, continue after the termination or
otherwise affect the rights and obligations of the parties hereunder except as
provided in this Article VI.
6.2 Termination. Subject to Section 6.4, any party to this Agreement may
terminate this Agreement, reserving all other remedies and rights hereunder in
whole or in part, under the following conditions:
(a) Event of Default. Subject to Section 6.4, upon the occurrence
of an Event of Default, a nondefaulting party may terminate this Agreement by
giving fifteen (15) days' written notice to the defaulting party of its intent
to terminate this Agreement. For purposes of this Agreement, an "Event of
Default" hereunder shall occur (i) upon the occurrence of an Event of Default
under the Loan Agreement or the Demand Note (as defined in the Loan Agreement)
or (ii) in the event any party defaults in the performance of any of its
material duties or obligations under this Agreement and fails to correct the
default, to the reasonable satisfaction of the other party, within a thirty (30)
day cure period commencing upon receipt of notice from the other
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
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party; provided, however, that no Event of Default shall be deemed to occur as a
result of any failure by a lender to fund a loan pursuant to the Loan Agreement.
(b) Bankruptcy. Subject to Section 6.4, any party may terminate
this Agreement, at any time upon notice to the other parties, after the filing
by any other party of any petition in bankruptcy or for reorganization or debt
consolidation under the federal bankruptcy laws or under any comparable law, or
upon any other party's making of an assignment of its assets for the benefit of
creditors, or upon the application of any other party for the appointment of a
receiver or trustee of its assets.
(c) Changes in Laws or Regulations. This Agreement may be
terminated by any party on or after the ninetieth (90th) day following the
giving of notice by such party that such party's performance is rendered
(through no act or omission of such party) illegal or impermissible for that
party due to changes in laws or regulations applicable to the terminating party
or a determination by a governmental authority having jurisdiction over such
party.
(d) Accounts Purchased. This Agreement may be terminated
immediately upon the purchase by NextCard, Funding or any assignee of all the
Accounts pursuant to Article IV.
6.3 Duties After Termination. Upon termination of this Agreement, in
order to preserve the goodwill of Cardholders, both parties shall cooperate in
order to ensure a smooth and orderly termination of their relationship and a
transition of Accounts. The Bank shall transfer to NextCard or any successor or
assignee all books and records relating to the Accounts and Receivables in its
possession, subject to any regulatory obligations relating to retaining
duplicate books and records, and each party shall return all property belonging
to the other party that is in its possession or control at the time of
termination and shall discontinue the use of and
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return to the other party, or at the request of the other party destroy, all
written and printed materials bearing the other party's name and logo. In
connection with any termination of this Agreement, the Bank agrees to make
reasonable efforts to assist Funding in the orderly transition of the Accounts
and Receivables acquired by Funding, including sending to Funding any payments
on Accounts that may be received by the Bank after the purchase date.
6.4 Right to Purchase Accounts and Receivables Continues; Duties Upon
Termination.
(a) NextCard, Funding and their assignees shall have the
exclusive right to purchase all Accounts, Cardholder-Specific Information and
Receivables pursuant to Article IV hereof for a period of one year from the
termination of this Agreement, but not later than December 31, 2001 (the
"Exercise Period").
(b) During the Exercise Period, subject to the next sentence, the
Bank will fund, and Funding or its assignees will purchase, additional
Receivables generated under Accounts originated prior to the Exercise Period in
compliance with the terms of this Agreement. If the Extension Fee is not paid
when due or if Funding or its assigness fail to purchase Receivables on any day,
after five days' prior written notice by the Bank to the Administrative Agent,
the Bank may, subject to compliance with applicable law, (1) cease originating
additional Receivables under existing Accounts; (2) reduce outstanding credit
limits under the Accounts to the then current balance of the Receivables; (3)
close Accounts with zero balances; and/or (4) sell the Accounts, together with
the related Receivables for a purchase price of not less than all outstanding
amounts due and owing under the Loan Agreement . In addition, if (i) the cash on
hand available to Funding is less than [ * ] million, (ii) the Bank reasonably
believes that Funding will not have the ability to purchase the Receivables and
(iii) the Administrative Agent
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
25
<PAGE> 26
does not, within fifteen business days after the Bank has notified the
Administrative Agent that the Bank reasonably believes that Funding will not
have the ability to purchase the Receivables, provide assurances satisfactory to
the Bank that it will purchase, or cause to be purchased, the Receivables, the
Bank may take any or all of the following actions, subject to compliance with
applicable law; (w) close Accounts with zero balances; (x) cease originating
additional Receivables under existing Accounts; (y) reduce outstanding credit
limits under the Accounts to the then current balance of the Receivables; and/or
(z) sell the Accounts, together with the related Receivables, for a purchase
price of not less than all outstanding amounts due and owing under the Loan
Agreement. In the event the Bank exercises its rights under clause (z) above,
NextCard and Funding shall cooperate in effecting all such sale. Except as
otherwise provided in this Section 6.4(b), the obligations of NextCard, Funding
and the Bank, as the case may be, under Article IV, Section 6.3, this Section
6.4, Article VIII and any other provisions of this Agreement that by its terms
extends beyond the termination of this Agreement shall remain in full force and
effect following the termination of this Agreement. Nothing contained in this
paragraph (b) shall terminate the rights of the Administrative Agent from
exercising its rights under Section 8.9 hereof (including the sale of the
Accounts) prior to the exercise by the Bank of its rights under clause (z) of
the preceding sentence.
ARTICLE VII
INDEMNIFICATION
7.1 NextCard Indemnification. Except to the extent of any Losses that
arise from the willful misconduct or gross negligence of the Bank or its
directors, officers, employees, agents or affiliates, NextCard shall indemnify
and hold harmless the Bank and its respective directors, officers, employees and
agents from and against any and all Losses resulting from (a) any failure
26
<PAGE> 27
of NextCard to comply with any of the terms and conditions of this Agreement,
(b) any inaccuracy of a representation or warranty made by NextCard herein, (c)
any infringement or alleged infringement of any of the NextCard Marks, or the
use thereof hereunder, on the rights of any third party, (d) any failure of
NextCard to comply, in respect of its obligations in connection with the Program
hereunder, with any applicable laws or regulations, including without limitation
any consumer lending law or regulation, or (e) any failure of any Program
Materials to comply with any applicable laws, including without limitation any
consumer lending law or regulation.
7.2 Bank Indemnification. Except to the extent of any Losses that arise
from the acts or omissions of NextCard, Funding or their directors, officers,
employees, agents or affiliates, the Bank shall indemnify and hold harmless
NextCard, Funding and their respective directors, officers, employees, agents
and assigns from and against any and all Losses resulting from (a) any failure
of the Bank to comply with any of the terms and conditions of this Agreement,
(b) the inaccuracy of any representation or warranty made by the Bank herein,
(c) any infringement or alleged infringement of any of the Bank Credit Card
Marks, or the use thereof hereunder, on the rights of any third party, or (d)
any failure of the Bank to comply, in respect of its obligations in connection
with the Program hereunder, with any applicable laws or regulations.
7.3 Definition of Losses. For the purposes of this Agreement, the term
"Losses" shall mean all out-of-pocket costs, damages, losses, fines, penalties,
judgments, settlements, and expenses whatsoever, including, without limitation,
outside attorneys' fees and disbursements and court costs reasonably incurred by
the Indemnified Party.
27
<PAGE> 28
7.4 Procedures for Indemnification.
(a) Notice of Claims. In the event any claim is made or any suit
or action is commenced as to which a party (the "Indemnified Party") intends to
seek indemnification, the Indemnified Party shall give notice to the party from
whom indemnification is sought (the "Indemnifying Party") as promptly as
practicable, but, in the case of lawsuit, in no event later than the time
necessary to enable the Indemnifying Party to file a timely answer to the
complaint. The Indemnified Party shall make available to the Indemnifying Party
and its counsel and accountants at reasonable times and for reasonable periods,
during normal business hours, all books and records of the Indemnified Party
relating to any such possible claim for indemnification, and each party
hereunder will render to the other such assistance as it may reasonably require
of the other in order to insure prompt and adequate defense of any suit, claim
or proceeding based upon a state of facts which may give rise to a right of
indemnification hereunder.
(b) Defense and Counsel. Subject to the terms hereof, the
Indemnifying Party shall have the right to defend any suit, claim or proceeding.
The Indemnifying Party shall notify the Indemnified Party via facsimile
transmission, within ten (10) days of having been notified pursuant to Section
7.4(a) if the Indemnifying Party elects to employ counsel and assume the defense
of any such claim, suit or action. The Indemnifying Party shall institute and
maintain any such defense diligently and reasonably and shall keep the
Indemnified Party fully advised of the status thereof. The Indemnified Party
shall have the right to employ its own counsel if the Indemnified Party so
elects to assume such defense, but the fees and expense of such counsel shall be
at the Indemnified Party's expense.
28
<PAGE> 29
(c) Settlement of Claims. The Indemnifying Party shall have the
right to compromise and settle any suit, claim or proceeding in the name of the
Indemnified Party. The Indemnifying Party shall be subrogated to any claims or
rights of the Indemnified Party as against any other Persons with respect to any
amount paid by the Indemnifying Party under this Section 7.4.
(d) Indemnification Payments. Amounts owing under Section 7.4
shall be paid promptly upon written demand for indemnification containing in
reasonable detail the facts giving rise to such liability, provided, however,
that if the Indemnifying Party notifies the Indemnified Party within thirty (30)
days of receipt of such demand that it disputes its obligation to indemnify and
the parties are not otherwise able to reach agreement, the controversy shall be
settled by final judgment entered by a court of competent jurisdiction.
7.5 Survival. The terms of this Article VII shall survive the
termination of this Agreement for a period of five years.
ARTICLE VIII
MISCELLANEOUS
8.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without regard to its
conflict of laws rules.
8.2 Press Releases. No party hereto shall issue a press release or make
a public announcement or any disclosure to any third party related to the terms
of this Agreement without the prior consent of the other parties hereto unless
any such release, announcement or disclosure is required by any applicable law
or regulatory authority.
8.3 Relationship of the Parties. The Bank, Funding and NextCard agree
that in performing their responsibilities pursuant to this Agreement they are in
the position of
29
<PAGE> 30
independent contractors. This Agreement is not intended to create, nor does it
create and shall not be construed to create, a relationship of partners or joint
ventures or any association for profit among the Bank, Funding and NextCard.
8.4 Force Majeure. In the event that any party fails to perform its
obligations under this Agreement in whole or in part as a consequence of events
beyond its reasonable control (including, without limitation, acts of God, fire,
explosion, public utility failure, accident, floods, embargoes, epidemics, war,
nuclear disaster or riot), such failure to perform shall not be considered a
breach of this Agreement during the period of such disability. In the event of
any force majeure occurrence as set forth in this Section, the disabled party
shall use its best effort to meet its obligations as set forth in this
Agreement. The disabled party shall promptly and in writing advise the other
party if it is unable to perform due to a force majeure event, the expected
duration of such inability to perform and of any developments (or changes
therein) that appear likely to affect the ability of that party to perform any
of its obligations hereunder a whole or in part.
8.5 Books and Records. Each party shall maintain books of account and
records, in accordance with standard accounting practices and procedures, of all
financial transactions arising in connection with its obligations pursuant to
this Agreement for a period of not less than five years from the date last
recorded or created, and after such time the other party will be offered a
reasonable opportunity to take possession of such records at its expense prior
to their destruction. In addition to and notwithstanding the foregoing, to the
extent any party has sole possession of any records required to be maintained by
the other party pursuant to applicable state or federal laws or regulations, the
party with possession shall maintain such records in such form and for such time
periods as are provided for in such laws and regulations.
30
<PAGE> 31
8.6 Notices. All notices, requests and approvals required by this
Agreement shall be in writing and shall be deemed to have been given upon
delivery thereof at the addresses of the parties as follows, or such other
address as any party may specify in writing:
To Bank: 150 Almaden Blvd.
San Jose, CA 95113
Attn: Kenneth B. Silveira, Executive Vice President
To NextCard: 595 Market Street, Suite 950
San Francisco, CA 94105
Attn: John Hashman, Chief Financial Officer
With a copy to Robert Linderman, Esq., General Counsel
To Funding: 595 Market Street, Suite 2250
San Francisco, CA 94105
Attn: John Hashman, Chief Financial Officer
With a copy to Robert Linderman, Esq., General Counsel
8.7 Modification and Changes. This Agreement constitutes the entire
agreement among the parties relating to the subject matter herein. This
Agreement may only be amended by a written document signed by all parties.
8.8 Assignment. This Agreement and the rights and obligations created
under it shall be binding upon and inure solely to the benefit of the parties
hereto and their respective successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. Except as
otherwise provided herein, this Agreement shall not be assigned by any party
except with the written consent of each other party hereto.
8.9 Security Interest; Exercise of Rights by Administrative Agent. The
Bank hereby acknowledges that (a) NextCard will grant to Funding a security
interest in all of its rights and obligations under this Agreement to secure
NextCard's obligations under the Demand Note
31
<PAGE> 32
issued to Funding and (b) Funding will grant to the Administrative Agent a
security interest in all of its rights and obligations under this Agreement to
secure Funding's obligations under the Loan Agreement. The Bank agrees that if
the Administrative Agent exercises its rights under the Borrower Pledge and
Security Agreement (as defined in the Loan Agreement), the Administrative Agent
on behalf of the Lenders and their successors and assigns shall succeed to all
of the rights and obligations of Funding under this Agreement as if it were a
party hereto, and the Administrative Agent may assign such rights and
obligations without the consent of the Bank. The Bank further agrees that if the
Administrative Agent exercises its rights and forecloses under the Borrower
Pledge and Security Agreement and the Parent Security Agreement (as defined in
the Loan Agreement) the Administrative Agent on behalf of the Lenders and their
successors and assigns shall succeed to all of the rights and obligations of
NextCard under this Agreement as if it were a party hereto, and the
Administrative Agent may assign such rights and obligations without the consent
of the Bank.
8.10 Third Party Beneficiary. The Administrative Agent is an intended
third party beneficiary of this Agreement, and this Agreement shall be binding
upon and inure to the benefit of the Administrative Agent and its successors and
assigns for so long as any obligations are outstanding under the Loan Agreement.
8.11 Waivers. None of the parties shall be deemed to have waived any of
its rights, powers or remedies hereunder unless such waiver is approved in
writing by the waiving party.
8.12 Severability. If any provision of this Agreement or portion thereof
is held invalid, illegal, void or unenforceable by reason of any rule of law,
administrative or judicial provision or public policy, all other provisions of
this Agreement shall nevertheless remain in full force and effect.
32
<PAGE> 33
8.13 Headings. The headings contained herein are for convenience of
reference only and are not intended to define, limit, expand or describe the
scope or intent of any provision of this Agreement.
8.14 Non-petition Agreement by Bank. The Bank hereby agrees not to
institute against, or join with any other person in instituting against, Funding
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding under any federal or state bankruptcy or similar law until at least
one year after any indebtedness of Funding under the Loan Agreement has been
paid in full.
8.15 Integration. This Agreement states the entire agreement between the
parties with respect to the subject matter hereof, and all prior or
contemporaneous written or oral agreements and understandings other than the
Initial Agreement are merged herein and superseded hereby. The parties
acknowledge that the Initial Agreement remains in full force and effect.
8.16 No Set-Off. The Bank agrees not to set off the obligations of
NextCard under the Initial Agreement against any payments required to be made to
NextCard or Funding under this Agreement.
33
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
HERITAGE BANK OF COMMERCE NEXTCARD INC.
By: ____________________________ By: ____________________________________
Title: _________________________ Title: _________________________________
NEXTCARD FUNDING CORP.
By: ____________________________
Title: _________________________
[Signature Page to Account Origination Agreement]
<PAGE> 35
EXHIBIT A - CREDIT CARD GUIDELINES
I. UNDERWRITING APPROVALS FOR ELIGIBLE RECEIVABLES
A. CURRENT PROCESS
1. Application Information Decline Criteria
a. The following information must be completed to
form a valid application:
o First name and last name;
o Valid home address including number,
street, city, state and zip code [ * ];
o Valid social security number;
o Date of birth;
o [ * ]; and
o Valid home phone number and a second
phone number (either a work number or a
phone number where the customer can be
reached separate from the home number).
b. Once NextCard receives a valid application
(pre-bureau application stage), we will review
the data for the following declines:
o Applicants [ * ]; and
o [ * ].
2. Duplicate Applications or Accounts per Customer and/or
Household Policy
a. Book only [ * ] per customer;
b. Decline any customer who has [ * ]; and
c. Decline any customer who has [ * ].
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
A-1
<PAGE> 36
3. Credit Bureau Authentication Review
a. Suffixes Review
A generation suffix (Jr., Sr., III, etc.)
provided by either the applicant on the
application or by any credit bureau, will be
[ * ].
b. Authentication Declines
Applicant will be declined if NextCard is unable
to receive at [ * ].
If NextCard receives any alert messages
regarding the validity of the bureau match,
based on the different types of the messages
received, NextCard will either approve the
applicant, route the applicant to a review queue
or decline the application.
4. Credit Bureau Underwriting Criteria
If the applicant passes application information,
duplicate application, and bureau authentication review,
NextCard will then underwrite the applicant against the
following credit bureau scoring and discrete criteria
provided below in TABLE 1.
TABLE 1. CREDIT BUREAU UNDERWRITING CRITERIA
<TABLE>
<CAPTION>
CRITERIA DECLINE IF VALUE...
- -------------------------------------------- -------------------
<S> <C>
[ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ]
[ * ] [ * ]
[ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ]
[ * ]
[ * ] [ * ]
</TABLE>
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
A-2
<PAGE> 37
<TABLE>
<CAPTION>
CRITERIA DECLINE IF VALUE...
- -------------------------------------------- -------------------
<S> <C>
[ * ]
- -------------------------------------------- -------------------
[ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ]
[ * ] [ * ]
[ * ]
[ * ] [ * ]
</TABLE>
Attachment 1 provides the line of credit assignment table for approvals on the
system.
B. CHANGES IN UNDERWRITING APPROVAL FOR ELIGIBLE RECEIVABLES
1. Underwriting Criteria
Changes to the underwriting criteria in Table 1 above
may be made only [ * ].
2. Credit Line Assignment
a. For Accounts that have [ * ], credit line
assignments may be changed only [ * ] without
the consent of the Bank or the Administrative
Agent if in NextCard's reasonable business
judgment such changes [ * ]. NextCard shall
provide to the Bank and the Administrative Agent
an analysis that supports such a judgment.
b. For Accounts that have [ * ], the credit line
assignments may not be changed without the
consent of the Bank and the Administrative
Agent.
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
A-3
<PAGE> 38
II. PRICING OF ELIGIBLE RECEIVABLES
A. CURRENT PRICING STRUCTURE FOR ELIGIBLE RECEIVABLES
<TABLE>
<S> <C>
Teaser rate: [ * ]
Teaser period: [ * ]
Ongoing rate: [ * ]
</TABLE>
B. CHANGES IN PRICING STRUCTURE FOR ELIGIBLE RECEIVABLES
1. No consent of the Bank or the Administrative Agent will be
required for NextCard to test an alternate pricing
structure involving [ * ] of the outstanding principal
balance of the Loans outstanding under the Loan Agreement.
2. Any other changes must receive the prior written approval
of the Administrative Agent and the Bank.
An asterisk (*) indicates that certain information has been omitted from this
agreement pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission.
A-4
<PAGE> 39
EXHIBIT B - Form of Opinion of Counsel to Heritage Bank
OPINION OF COUNSEL TO HERITAGE BANK
1. Heritage Bank is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has corporate power and authority to enter into and perform
its obligations under the Account Origination Agreement. Heritage Bank is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the character of the business transacted by it
requires such qualification and in which the failure so to qualify would have a
material adverse effect on the business, properties, assets or condition
(financial or other) of Heritage Bank or on the ability of Heritage Bank to
perform its obligations under the Account Origination Agreement.
2. The Account Origination Agreement has been duly authorized,
executed and delivered by Heritage Bank, and constitutes a valid and legally
binding obligation of Heritage Bank enforceable against Heritage Bank in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights generally and to general equity principles.
3. No consent, approval, authorization or order of any state or
federal court or government agency or body is required to be obtained by
Heritage Bank for the consummation of the transactions contemplated by the
Account Origination Agreement or the performance of its obligations thereunder.
4. The consummation of any of the transactions contemplated by
the Account Origination Agreement will not conflict with, result in a breach of,
or constitute a default under the articles of incorporation or bylaws (or other
comparable constitutive documents) of Heritage Bank or the terms of any
indenture or other agreement or instrument as to which Heritage Bank is party or
bound, or any order applicable to Heritage Bank or any regulation applicable to
Heritage Bank, of any state or federal court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over Heritage Bank.
5. There is no pending or threatened action, suit or proceeding
before any court or governmental agency, authority or body or any arbitrator
involving Heritage Bank or relating to the transactions contemplated by the
Account Origination Agreement which, if adversely determined, may have a
material adverse effect on the business, properties, assets or condition
(financial or other) of Heritage Bank or on the ability of Heritage Bank to
perform its obligations under the Account Origination Agreement.
B-1
<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of January
1, 1999, by and between Jeremy R. Lent ("Employee") and NextCard, Inc., a
California corporation (the "Company").
THE PARTIES HERETO AGREE AS FOLLOWS:
1. EMPLOYMENT AND DUTIES. The Company agrees to employ Employee as its
President, CEO and Chairman of the Board, and Chairman of the Executive
Committee of the Board, and Employee agrees to serve the Company in such
capacities, with the authority and responsibilities customarily accorded an
executive officer with those titles, including without limitation those set
forth on the Company's Bylaws. Employee shall loyally conscientiously perform
such services and duties as are customarily incident to such employment.
Employee agrees to devote substantially all of his normal business time and
efforts during normal business hours to the performance of his duties under this
Agreement, provided that the devotion of time to personal investments or other
personal matters will not be deemed a breach of this Agreement if it does not
substantially interfere with the performance of Employee's duties hereunder.
Employee shall duly and faithfully perform and observe any and all rules and
regulations which the Company has established governing the conduct of its
business or its employees. Employee shall report to the Company's Board of
Directors. Employee shall be permitted to work at appropriate locations outside
of the Company's headquarters in his reasonable discretion.
2. COMPENSATION.
(a) BASE SALARY; WITHHOLDING. The Company shall pay Employee a base
salary of $250,000 per year, subject to increase from time to time (but no less
frequently than annually) in the good faith discretion of the Board of Directors
of the Company, payable in arrears in equal semi-monthly installments. Such
increases shall be based on a review of the prevailing compensation rates of
comparable executives in comparable companies, as well as the performance of
Employee and the Company. The parties shall comply with all applicable
withholding requirements in connection with all compensation payable to Employee
hereunder. Employee acknowledges that the Board of Directors may decrease his
salary as part of a good faith general reduction of salaries of Company
executives (an "Approved Salary Reduction").
(b) BONUS.
i) 1998 Bonus. In addition to the base salary set forth above,
with respect to fiscal year 1998, the Company shall pay Employee, by
no later than January 15, 1999, a bonus of not less than $175,000.
ii) Subsequent Bonuses. For each year after fiscal year 1998,
Employee shall be eligible for cash bonus awards in the discretion of
the Company's Board of Directors; however, the parties anticipate that
such
<PAGE> 2
annual bonuses shall be a minimum of 100% of Employee's than annual
base salary if Employee and the Company have achieved the performance
goals set by the Board of Directors.
(c) INCENTIVE PLANS. In addition to all other benefits and
compensation provided by this Agreement, Employee shall be eligible to
participate (to the extent determined by the Board in its discretion) in such
of the Company's equity, compensation and incentive plans (including without
limitation stock and stock option plans) as are generally available to any of
the management executives of the Company.
(d) VACATION; SABBATICAL. Employee shall be entitled to such annual
vacation time with full pay as the Company may provide in its standard policies
and practices for any other management executives; provided, however, that in
any event Employee shall be entitled to a minimum of four (4) weeks annual paid
vacation time. Employee shall also be entitled to two paid sabbaticals of up to
three (3) months to be taken at any time between the fourth and sixth years of
his initial employment by the Company, but no sooner than January 1, 2000, and
between the eighth and tenth years of his initial employment by the Company;
provided, however, that Employee shall not take a sabbatical in the twelve
month period following the initial public offering of the Company's common
stock.
(e) OTHER BENEFITS. Employee shall participate in and have the
benefits of all present and future vacation, holiday, paid leave, unpaid leave,
life, accident, disability, dental, vision and health insurance plans, pension,
profit-sharing and savings plans and all other plans and benefits which the
company now or in the future from time to time makes available to any of its
management executives.
3. BUSINESS EXPENSES. The Company shall promptly reimburse Employee for
all appropriately documented, reasonable business expenses incurred by Employee
in accordance with Company policies for management executives including for
reasonable home office equipment.
4. TERM. This Agreement shall commence as of the date hereof and, shall
continue indefinitely until terminated as set forth herein.
5. TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may, by
delivering thirty (30) days' prior written notice to Employee, terminate
Employee's employment at any time and for any reason without cause by
(a) paying to Employee, no later than the date of termination, a
lump sum equal to
i) Employee's base salary accrued and unpaid through the date
of termination,
ii) all accrued vacation pay, and any bonus which would have
been paid but for the termination, prorated through the date of
termination, based upon the Company's performance and in accordance
with the
<PAGE> 3
terms, provisions and conditions of any Company incentive bonus plan
in which Employee may be designated a participant; and
iii) an amount equal to twenty-four (24) months of Employee's
base salary (at the higher of (x) the rate in effect on the date of
notice of termination and (y) the rate in effect six months prior to
the date of notice of termination):
(b) providing, at the Company's expense, coverage to Employee under
the Company's life insurance and disability insurance policies and to Employee
and his dependents under the Company's health plan, or in the event any of the
Company's health plan, life insurance, or disability insurance are not
continued or Employee is not eligible for coverage thereunder due to his
termination of employment, the Company shall pay for the premiums for
equivalent coverage, in any event, for a period of twenty-four (24) months after
the date of termination; and
(c) providing to Employee reasonable outplacement services.
In addition, notwithstanding anything to the contrary contained herein or in any
agreement with respect hereto, upon termination of Employee's employment
pursuant to this Section 5, all equity options, restricted equity grants and
similar rights held by Employee with respect to securities of the Company,
shall automatically become fully vested and shall become immediately exercisable
and Employee shall have twelve (12) months to exercise any unexercised options.
6. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate this
Agreement at any time if such termination is for "Cause", as defined below, by
delivering to Employee prior written notice of termination supported by a
reasonably detailed statement of the relevant facts and reason for termination.
In the event of such termination, the Company shall pay Employee, no later than
the ten (10) days following the date of termination, a lump sum equal to
Employee's accrued base salary through the date of termination, and all accrued
vacation pay and bonuses. For purposes of this Agreement, "Cause" means (i)
Employee has intentionally engaged in unfair competition with the Company,
committed an act of embezzlement, fraud or theft with respect to the property of
the Company, or deliberately disregarded the rules of the Company, in any such
event in such a manner as to cause material lose, damage or injury to or
otherwise materially to endanger the property, reputation or employees of the
Company, (ii) Employee has repeatedly abused alcohol or drugs on the job or in a
manner affecting his job performance, (iii) Employee has been found guilty of or
has plead nolo contendere to the commission of a felony offense; or (iv)
Employee remains in material willful breach of a material provision of this
Agreement (or any of the other agreements mentioned in Section 14(a) hereof) for
fourteen (14) days after receiving notice of such breach from the Company (with
respect to which the Company shall have the burden of proof that such breach has
occurred and not been timely cured).
7. VOLUNTARY TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement at any time for any reason or no reason upon delivering thirty (30)
days'
<PAGE> 4
prior written notice to the Company. No later than the date of termination, the
Company shall pay Employee a lump sum equal to his accrued base salary through
the date of termination, and all accrued vacation pay and bonuses.
8. NO TERMINATION BY MERGER, TRANSFER OF ASSETS OR DISSOLUTION.
This Agreement shall not be terminated by any voluntary or involuntary
dissolution of the Company or the transfer of all or substantially all the
assets of the Company or the merger or other business combination of the Company
with or into another entity.
9. TERMINATION BY DEATH OR DISABILITY.
(A) DEATH. In the event of the death of Employee during the
term hereof, the Company, within ten (10) days of receiving notice of such
death, shall pay Employee's estate all salary due or accrued as of the date of
his death, and all accrued vacation pay and bonuses, and the company shall
continue to pay Employee's salary for twelve (12) months following the date of
death. In addition, notwithstanding anything to the contrary contained herein
or in any agreement with respect thereto, upon termination of Employee's
employment pursuant to this Section 9(a), all Restricted Stock (as defined in
the Stock Restriction Agreement dated November 7, 1996, as amended), held by
Employee shall immediately and automatically become fully vested, and fifty
percent (50%) of the then remaining balance of unvested equity options,
restricted equity grants and similar rights held by Employee with respect to
securities of the Company shall automatically become fully vested and shall
become immediately exercisable.
(B) DISABILITY. In the event of mental or physical Disability
(as defined below) of Employee during the term hereof, the Company, within ten
(10) days following the determination of Disability, shall pay Employee all
salary due or accrued as of the date of such determination, and all accrued
vacation pay and bonuses, and the Company shall continue to pay Employee's
salary for twelve (12) months following the date of such determination in
either case net of all proceeds of Company-paid disability insurance received
by Employee during such period. In addition, notwithstanding anything to the
contrary contained herein or in any agreement with respect hereto, upon
termination of Employee's employment pursuant to this Section 9(b), all
Restricted Stock (as defined in the Stock Restriction Agreement dated November
7, 1996, as amended), held by Employee shall immediately and automatically
become fully vested, and fifty percent (50%) of the then remaining balance of
unvested equity options, restricted equity grants and similar rights held by
Employee with respect to securities of the Company shall automatically become
fully vested and shall become immediately exercisable. For purposes of this
Agreement, "Disability" shall mean a physical or mental condition, verified by
a physician mutually designated by the Company and Employee, which prevents
Employee from carrying out one or more of the material aspects of his assigned
duties for at least one hundred eighty (180) consecutive days.
(C) The provisions of this Section 9 supercede and prevail over
any contrary or inconsistent provision of the Stock Restriction Agreement dated
November 7, 1996, as amended.
<PAGE> 5
10. PAYMENTS UPON TERMINATION FOR GOOD REASON.
(A) DEFINITION OF "GOOD REASON". "Good Reason" shall mean:
i) The assignment of Employee to any duties
inconsistent with, or any adverse change in, Employee's
positions, duties, responsibilities or status with the Company,
or the removal of Employee from, or failure to reelect Employee
to, any of such positions; or
ii) A reduction by the Company in Employee's base
salary (other than as part of an Approved Salary Reduction);
or
iii) The Company's requiring Employee to be based in
excess of 25 miles from the Company's present executive offices
located at San Francisco, California except for travel on
Company business to an extent substantially consistent with
Employee's present business travel obligations; or
iv) Failure of the Company to provide support,
information, assistance and staffing reasonably appropriate for
Employee to carry out Employee's duties or to achieve the
performance goals set by the Company (other than an
across-the-board reduction approved by the Board of Directors in
good faith which generally affects executives substantially the
same); or
v) The failure by the Company to continue in effect
for Employee any material benefit available generally to the
management executives of the Company, including but not limited
to any retirement, pension or incentive plan, life, accident,
disability or health insurance plans, equity or cash bonus plans
or savings and profit sharing plans; or any action by the
Company which would adversely affect Employee's participation in
or reduce Employee's benefits under any of such plans or deprive
Employee of any fringe benefit enjoyed by Employee; or
vi) Any other material breach by the Company of this
Agreement which is not cured within fourteen (14) days of notice
thereof by Employee to Company, or the material breach by the
Company of this Agreement three or more times (whether or not
the breaches are the same and whether or not the breaches are
subsequently cured) in any twelve month period.
(B) Employee may terminate his employment for Good Reason at
any time upon providing written notice of termination to the Company. In the
event of termination of Employee's employment by Employee for Good Reason, the
Company shall pay Employee as follows:
i) Employee's accrued and unpaid base salary
through the date of termination, at the higher of (x) the rate
then in effect at the time
<PAGE> 6
the notice of termination is given and (y) the rate in effect six
months prior to the time such notice is given; and
ii) Any bonus which would have been paid but for the
termination, prorated through the date of termination, based upon the
Company's performance and in accordance with the terms, provisions
and conditions of any Company incentive bonus plan in which Employee
may be designated a participant; and
iii) A lump sum severance payment equal to Employee's highest
monthly base salary in effect during the twelve-month period
immediately preceding the date of termination, multiplied by
twenty-four (24); and
iv) Provide, at the Company's expense, coverage to Employee
under the Company's life insurance and disability insurance policies
and to Employee and his dependents under the Company's health plan,
or in the event any of the Company's health plan, life insurance, or
disability insurance are not continued or Employee is not eligible
for coverage thereunder due to his termination of employment, the
Company shall pay for the premiums for equivalent coverage, in any
event, for a period of twenty-four (24) months after the date of
termination; and
v) In addition, notwithstanding anything to the contrary
contained herein or in any agreement with respect hereto, all equity
options, restricted equity grants and similar rights held by Employee
with respect to the securities of the Company shall automatically
become fully vested and shall become immediately exercisable and
Employee shall have twelve (12) months to exercise any unexercised
options.
11. INDEMNIFICATION. As a employee, officer and agent of the Company,
Employee shall be fully indemnified by the Company to the fullest extent
permitted by California law. To implement this provision, Company shall execute
and deliver to Employee its standard form of indemnification agreement for
officers and directors, and Employee shall thereafter be entitled to the
benefits of any subsequent amendments thereto made for any management
executives.
12. ASSIGNMENT. The rights and obligations of the parties under this
Agreement shall be binding upon and inure to the benefit of their respective
successors, assigns, executors, administrators and heirs, provided, however,
that Employee may not delegate any of Employee's duties under this Agreement.
13. ADDITIONAL BENEFITS. Company agrees promptly to reimburse Employee
for legal fees and expenses incurred by him in relation to Employee's
relationship with the Company, including without limitation this Agreement. In
addition, Company agrees to obtain and maintain during the term of Employee's
employment, a customary directors and officers insurance policy with reasonable
policy limits, in which Employee
<PAGE> 7
is named as an insured, as long as it is maintained for any other officer or
director of the Company.
14. MISCELLANEOUS.
(A) COMPLETE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and cancels and supersedes all other prior or
contemporaneous agreements between the parties which relate to the subject
matter contained in this Agreement, including without limitation the Employment
Agreement between the parties dated August 16, 1996, but excluding (i) the
Employee Confidential Information and Invention Agreement, and (ii) except to
the extent modified herein, the Stock Restriction Agreement dated November 7,
1996, as amended.
(B) MODIFICATION, AMENDMENT, WAIVER. No modification or amendment of
any provisions of this Agreement shall be effective unless approved in writing
by both parties. The failure at any time to enforce any of the provisions of
this Agreement shall in no way be construed as a waiver of such provisions and
shall not affect the right of either party thereafter to enforce each and every
provision hereof in accordance with its terms.
(C) GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of California.
(D) SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be held to
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
(E) ATTORNEYS' FEES. In the event of litigation under this Agreement
(including enforcing judgments and appeals), the prevailing party shall be
entitled to reimbursement of its reasonable attorneys' fees and costs of suit
in addition to such other relief as may be granted.
(F) NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given in person or by telegraph,
telefax or first class mail, certified or registered with return receipt
requested, and shall be deemed to have been duly given when delivered
personally or three days after mailing or one day after transmission of a
telegram or telefax, as the case may be, to the respective persons named below.
If to the Company: NextCard, Inc.
595 Market Street, Suite 950
San Francisco, California 94105
Attention: General Counsel
With a copy to: Ronald Star, Esq.
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<PAGE> 8
Howard, Rice, Nemerovski, et al.
Three Embarcadero Center, Suite 700
San Francisco, California 94111
If to the Employee: Jeremy Lent
102 Edison Avenue
Corte Madera, CA 94925
With a copy to: Andrew L. Dudnick, Esq.
Dudnick Detwiler Rivin & Stikker LLP
351 California Street, Fifteenth Floor
San Francisco, CA 94104
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the day and year first above written.
COMPANY: NextCard, Inc. a California corporation
By: /s/ ROBERT LINDERMAN
-----------------------------------
Robert Linderman, General Counsel
EMPLOYEE: /s/ JEREMY R. LENT
---------------------------------------
Jeremy R. Lent
8
<PAGE> 1
EXHIBIT 10.24
SUBORDINATED LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of February 9, 1999, is entered
into by and between NextCard, Inc., a California corporation, with its chief
executive office, and principal place of business located at 595 Market Street,
Suite 1800, San Francisco, California 94105 (the "Borrower") and Comdisco, Inc.,
a Delaware corporation, with its principal place of business located at 6111
North River Road, Rosemont, Illinois 60018 (the "Lender" or sometimes,
"Comdisco"). In consideration of the mutual agreements contained herein, the
parties hereto agree as follows:
RECITALS
WHEREAS, Borrower has requested Lender to make available to Borrower a loan
in the aggregate principal amount of up to FIVE MILLION and 00/100 DOLLARS
($5,000,000.00) in minimum installments of FIVE HUNDRED THOUSAND DOLLARS
($500,000.00) each (as the same may from time to time be amended, modified,
supplemented or revised, the "Loan"), which would be evidenced by Subordinated
Promissory Note(s) executed by Borrower substantially in the form of Exhibit A
hereto (as the same may from time to time be amended, modified, supplemented or
restated the "Note(s)").
WHEREAS, Lender is willing to make the Loan on the terms and conditions set
forth in this Agreement, and
WHEREAS, Lender and Borrower agree any Loan hereunder shall be subordinate
to Senior Debt (as defined herein) to the extent set forth in the Subordination
Agreement (as defined herein).
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, Borrower and Lender hereby agree as follows:
SECTION 1. DEFINITIONS
Unless otherwise defined herein, the following capitalized terms shall have
the following meanings (such meanings being equally applicable to both the
singular and plural form of the terms defined);
1.1 "ACCOUNT" means any "account," as such term is defined in Section 9106
of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest and, in any event, shall include,
without limitation, all accounts receivable, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to Borrower (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services
rendered by Borrower or from any other transaction, whether or not the same
involves the sale of goods or services by Borrower (including, without
limitation, any such obligation which may be characterized as an account or
contract right under the UCC) and all of Borrower's rights in, to and under all
purchase orders or receipts now owned or hereafter acquired by it for goods or
services, and all of Borrower's rights to any goods represented by any of the
foregoing (including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and
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<PAGE> 2
rights to returned, reclaimed or repossessed goods), and all monies due or to
become due to Borrower under all purchase orders and contracts for the sale of
goods or the performance of services or both by Borrower (whether or not yet
earned by performance on the part of Borrower or in connection with any other
transaction), now in existence or hereafter occurring, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.
1.2 "ACCOUNT DEBTOR" means any "account debtor," as such term is defined
in Section 9105(l)(a) of the UCC.
1.3 "ADVANCE" means each installment made by the Lender to Borrower
pursuant to the Loan to be evidenced by the Note(s) secured by the Collateral.
1.4 "ADVANCE DATE" means the funding date of any Advance of the Loan.
1.5 "ADVANCE REQUEST" means the request by Borrower for an Advance under
the Loan, each to be substantially in the form of Exhibit C attached hereto, as
submitted by Borrower to Lender from time to time.
1.6 "CHATTEL PAPER" means any "chattel paper," as such term is defined in
Section 9105(l)(b) of the UCC, now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest.
1.7 "CLOSING DATE" means the date hereof.
1.8 "COLLATERAL" shall have the meaning assigned to such term in Section 3
of this Agreement.
1.9 "CONTRACTS" means all contracts, undertakings, franchise agreements or
other agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
1.10 "COPYRIGHTS" means all of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (i) all copyrights, whether registered or unregistered, held pursuant
to the laws of the United States, any State thereof or of any other country;
(ii) registrations, applications and recordings in the United States Copyright
Office or in any similar office or agency of the United States, any state
thereof or any other country; (iii) any continuations, renewals or extensions
thereof; and (iv) any registrations to be issued in any pending applications.
1.11 "COPYRIGHT LICENSE" means any written agreement granting any right to
use any Copyright or Copyright registration now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest.
1.12 "DOCUMENTS" means any "documents," as such term is defined in Section
9105(l)(f) of the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest.
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<PAGE> 3
1.13 "EQUIPMENT" means any "equipment," as such term is defined In Section
9109(2) of the UCC, now or hereafter owned or acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest and any and all additions,
substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto.
1.14 "EXCLUDED AGREEMENTS" means (i) any Warrant Agreement(s) executed
hereunder, and any other warrants to acquire, or agreements governing the rights
of the holders of, any equity security of Borrower, (ii) any stock of the
Borrower issued or purchased pursuant to the Warrant Agreement, and (iii) the
Master Lease Agreement dated as of May 22, 1998 between Borrower, as lessee, and
Lender, as lessor, including, without limitation, any Equipment Schedules and
Summary Equipment Schedules to the Master Lease Agreement executed or delivered
by Borrower pursuant thereto and any other modifications or amendments thereof,
whereby Borrower (as lessee) leases equipment, software, or goods from Lender
(as lessor) to Borrower (as lessee).
1.15 "FACILITY FEE" means one percent (1.0%) of the principal amount of the
Loan due at the Closing Date.
1.16 "FIXTURES" means any "fixtures," as such term is defined in Section
9313(l)(a) of the UCC, now or hereafter owned or acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest and, now or
hereafter attached or affixed to or constituting a part of, or located in or
upon, real property wherever located, together with all right, title and
interest of Borrower in and to all extensions, improvements, betterments,
renewals, substitutes, and replacements of, and all additions and appurtenances
to any of the foregoing property, and all conversions of the security
constituted thereby, immediately upon any acquisition or release thereof or any
such conversion, as the case may be.
1.17 "GENERAL INTANGIBLES" means any "general intangibles," as such term is
defined in Section 9106 of the UCC, now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest and, in any
event, shall include, without limitation, all right, title and interest which
Borrower may now or hereafter have in or under any contract, all customer lists,
Copyrights, Trademarks, Patents, rights to Intellectual Property, interests in
partnerships, joint ventures and other business associations, Licenses, permits,
trade secrets, proprietary or confidential information, inventions (whether or
not patented or patentable), technical information, procedures, designs,
knowledge, know-how, software, data bases, data, skill, expertise, recipes,
experience, processes, models, drawings, materials and records, goodwill
(including, without limitation, the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License),
claims in or under insurance policies, including unearned premiums,
uncertificated securities, cash and other forms of money or currency, deposit
accounts (including as defined in Section 9105(e) of the UCC), rights to sue for
past, present and future infringement of Copyrights, Trademarks and Patents,
rights to receive tax refunds and other payments and rights of indemnification.
1.18 "INSTRUMENTS" means any "instrument," as such term is defined in
Section 9105(l)(i) of the UCC, now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest.
1.19 "INTELLECTUAL PROPERTY" means all Copyrights, Trademarks, Patents,
trade secrets, source codes, customer lists, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how,
3
<PAGE> 4
software, data bases, skill, expertise, experience, processes, models, drawings,
materials and records.
1.20 "INVENTORY" means any "inventory," as such term is defined in Section
9109(4) of the UCC, wherever located, now or hereafter owned or acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest, and,
in any event, shall include, without limitation, all inventory, goods and other
personal property which are held by or on behalf of Borrower for sale or lease
or are furnished or are to be furnished under a contract of service or which
constitute raw materials, work in process or materials used or consumed or to be
used or consumed in Borrower's business, or the processing, packaging,
promotion, delivery or shipping of the same, and all furnished goods whether or
not such inventory is listed on any schedules, assignments or reports furnished
to Lender from time to time and whether or not the same is in transit or in the
constructive, actual or exclusive occupancy or possession of Borrower or is held
by Borrower or by others for Borrower's account, including, without limitation,
all goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers and all inventory which may be located on premises
of Borrower or of any carriers, forwarding agents, truckers, warehousemen,
vendors, selling agents or other persons.
1.21 "LICENSE" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest
and any renewals or extensions thereof.
1.22 "LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, levy, lien or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, against any property, any conditional sale or other title retention
agreement, any lease in the nature of a security interest, and the filing of any
financing statement (other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.
1.23 "LOAN DOCUMENTS" shall mean and include this Agreement, the Note(s),
and any other documents executed in connection with the Secured Obligations or
the transactions contemplated hereby, as the same may from time to time be
amended, modified, supplemented or restated, provided, that the Loan Documents
shall not include any of the Excluded Agreements.
1.24 "MATERIAL ADVERSE EFFECT" means a material adverse effect upon: (i)
the business, operations, properties, assets or conditions (financial or
otherwise) of Borrower; or (ii) the ability of Borrower to perform, or of Lender
to enforce, the Secured Obligations.
1.25 "MATURITY DATE" means thirty-six (36) months from the Advance Date of
each installment of the Loan.
1.26 "PATENT LICENSE" means any written agreement granting any right with
respect to any invention on which a Patent is in existence now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.
1.27 "PATENTS" means all of the following now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest:
(a) letters patent of, or rights corresponding thereto in, the United States or
any other county, all registrations and recordings
4
<PAGE> 5
thereof, and all applications for letters patent of, or rights corresponding
thereto in the United States or any other country, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country; (b) all reissues, continuations,
continuations-in-part or extensions thereof; (c) all petty patents, divisionals,
and patents of addition; and (d) all patents to issue in any such applications.
1.28 "PERMITTED LEINS" means any and all of the following: (i) liens in
favor of Lender, (ii) liens related to, or arising in connection with, Senior
Debt.
1.29 "PROCEEDS" means "Proceeds," as such term is defined in Section
9306(l) of the UCC and, in any event, shall include, without limitation, (a) any
and all Accounts, Chattel Paper, Instruments, cash or other forms of money or
currency or other proceeds payable to Borrower from time to time in respect of
the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty
or guaranty payable to Borrower from time to time with respect to any of the
Collateral, (c) any and all payments (in any form whatsoever) made or due and
payable to Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority), (d) any claim of Borrower against third parties (i) for
past, present or future infringement of any Copyright, Patent or Patent License
or (ii) for past, present or future infringement or dilution of any Trademark or
Trademark License or for injury to the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License and (e)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
1.30 "RECEIVABLES" shall mean and include all of the Borrowers accounts,
instruments, documents, chattel paper and general intangibles whether secured or
unsecured, whether now existing or hereafter created or arising, and whether or
not specifically sold or assigned to Lender hereunder.
1.31 "SECURED OBLIGATIONS" shall mean and include all principal, interest,
fees, costs, or other liabilities or obligations for monetary amounts owed by
Borrower to Lender, whether due or to become due, matured or unmatured,
liquidated or unliquidated, contingent or non-contingent, and all covenants and
duties regarding such amounts, of any kind of nature, present or future, arising
under this Agreement, the Note(s), or any of the other Loan Documents, whether
or not evidenced by any Note(s), Agreement or other instrument, as the same may
from time to time be amended, modified, supplemented or restated, provided, that
the Secured Obligations shall not include any indebtedness or obligations of
Borrower arising under or in connection with the Excluded Agreements.
1.32 "SENIOR CREDITOR" means a bank, insurance company, pension fund, or
other institutional lender to be determined, or a syndication of such
institutional lenders that provides Senior Debt financing to Borrower; provided,
that Senior Creditor shall not include any officer, director, shareholder,
venture capital investor, or insider of Borrower, or any affiliate of the
foregoing persons, except upon the express written consent of Lender.
1.33 "SENIOR DEBT" means any and all indebtedness and obligations for
borrowed money (including, without limitation, principal, premium (if any),
interest, fees charges, expenses, costs, professional fees and expenses, and
reimbursement obligations) at any time owing by Borrower to Senior Creditor
under the Senior Loan Documents, including, but not
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limited to such amounts as may accrue or be incurred before or after default or
workout or the commencement of any liquidation, dissolution, bankruptcy,
receivership or reorganization by or against Borrower provided, that Senior Debt
shall not include the following indebtedness or obligations:
(a) obligations incurred after default or workout or the commencement of
any liquidation, dissolution, bankruptcy, receivership, or reorganization case
by or against Borrower, and
1.34 "SENIOR LOAN DOCUMENTS" means the loan agreement between Borrower and
Senior Creditor and any other agreement, security agreement, document,
promissory note, UCC financing statement, or instrument executed by Borrower in
favor of Senior Creditor pursuant to or in connection with the Senior Debt or
the loan agreement, as the same may from time to time be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.35 "SUBORDINATION AGREEMENT" means the Subordination Agreement of even
date herewith, entered into between Borrower and Lender for the benefit of
Senior Creditor.
1.36 "TRADEMARK LICENSE" means any written agreement granting any right to
use any Trademark or Trademark registration now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest.
1.37 "TRADEMARKS" means any of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (a) any and all trademarks, tradenames, corporate names, business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or appear, designs
and general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and any applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof and (b) any reissues, extensions or
renewals thereof.
1.38 "UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Illinois. Unless otherwise defined
herein, terms that are defined in the UCC and used herein shall have the
meanings given to them in the UCC.
1.39 "WARRANT AGREEMENT(S)" shall mean those agreements entered into in
connection with the Loan, substantially in the form attached hereto as Exhibit
B-1 and B-2 pursuant to which Borrower granted Lender the right to purchase that
number of shares of Series D-1 Preferred Stock of Borrower as more particularly
set forth therein.
SECTION 2. THE LOAN
2.1 The outstanding principal amount of the Loan, together with interest
thereon precomputed at the rate of twelve and one-quarter (12.25%) percent per
annum, shall be due and payable in six (6) equal monthly installments of
interest only, payable on the first day of each month, followed by thirty (30)
equal monthly installments of principal and interest, payable on the first day
of each month, to and including the Maturity Date (each, a "Payment Date"). If
any payment under the Note(s) shall be payable on a day other than a business
day, then such payment shall be due and payable on the next succeeding business
day.
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Upon the first Advance hereunder, Borrower shall issue Lender a Warrant
Agreement to purchase 29,167 shares of Series D-1 Preferred Stock substantially
in the form attached hereto as Exhibit B-2.
2.2 Borrower shall have the option to prepay the Loan, in whole or in part,
as of any Payment Date after the Closing Date by paying to Lender such principal
amount being prepaid together with all accrued and unpaid interest with respect
to such principal amount, as of the date of such prepayment.
2.3 (a) Notwithstanding any provision in this Agreement, the Note(s), or
any other Loan Document, it is not the parties' intent to contract for, charge
or receive interest at a rate that is greater than the maximum rate permissible
by law which a court of competent jurisdiction shall deem applicable hereto
(which under the laws of the State of Illinois shall be deemed to be the laws
relating to permissible rates of interest on commercial loans) (the "Maximum
Rate"). If the Borrower actually pays Lender an amount of interest, chargeable
on the total aggregate principal Secured Obligations of Borrower under this
Agreement and the Note(s) (as said rate is calculated over a period of time from
the date of this Agreement through the end of time that any principal is
outstanding on the Note(s)), which amount of interest exceeds interest
calculated at the Maximum Rate on said principal chargeable over said period of
time, then such excess interest actually paid by Borrower shall be applied
first, to the payment of principal outstanding on the Note(s); second, after all
principal is repaid, to the payment of Lender's out of pocket costs, expenses,
and professional fees which are owed by Borrower to Lender under this Agreement
or the Loan Documents; and third, after all principal, costs, expenses, and
professional fees owed by Borrower to Lender are repaid, the excess (if any)
shall be refunded to Borrower, and the effective rate of interest will be
automatically reduced to the Maximum Rate.
(b) In the event any interest is not paid when due hereunder,
delinquent interest shall be added to principal and shall bear interest on
interest, compounded at the rate set forth in Section 2.1.
(c) Upon and during the continuation of an Event of Default hereunder,
all Secured Obligations, including principal, interest, compounded interest, and
professional fees, shall bear interest at a rate per annum equal to the rate set
forth in Section 2.1. plus five percent (5%) per annum ("Default Rate").
2.4 If the Borrower has not repaid the outstanding principal amount under
the Loan in its entirety by the Maturity Date (as defined in the applicable
Note(s)), then for each additional month, or portion thereof, thereafter that
the outstanding principal is not paid, Lender shall have the right to purchase
from the Borrower, at the Exercise Price (adjusted, as set forth and defined in
the Warrant Agreement), an additional number of shares of Preferred Stock which
number shall be determined by (i) multiplying the outstanding principal amount
which is due but unpaid by 1% and (ii) dividing the product thereof by the
Exercise Price.
SECTION 3. SECURITY INTEREST
As security for the prompt, complete and indefeasible payment when due
(whether at stated payment dates or otherwise) of all the Secured Obligations
and in order to induce Lender to make the Loan upon the terms and subject to the
conditions of the Note(s), Borrower hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to Lender for security purposes only, and hereby
grants to Lender a secondary security interest in, all of Borrower's
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right, title and interest in, to and under each of the following (all of which
being hereinafter collectively called the "Collateral"):
(a) All Receivables;
(b) All Equipment;
(c) All Fixtures;
(d) All General Intangibles;
(e) All Inventory;
(f) All other goods and personal property of Borrower whether tangible or
intangible and whether now or hereafter owned or existing, leased,
consigned by or to, or acquired by, Borrower and wherever located; and
(g) To the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements for,
and rents, profits and products of each of the foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower represents, warrants and agrees that:
4.1 Other than with respect to the security and other interests created
pursuant to the loan agreement dated December 29, 1998 between NextCard Funding
Corp. and Credit Suisse First Boston, as Arranger and Agent for each of the
lenders named therein, and each of the other documents and instruments issued in
connection therewith Borrower owns all right title and interest in and to the
Collateral, free of all liens, security interests, encumbrances and claims
whatsoever, except for Permitted Liens.
4.2 Other than with respect to the security and other interests created
pursuant to the loan agreement dated December 29, 1998 between NextCard Funding
Corp. and Credit Suisse First Boston, as Arranger and Agent for each of the
lenders named therein, and each of the other documents and instruments issued in
connection therewith Borrower has the full power and authority to, and does
hereby grant and convey to the Lender, a perfected security interest in the
Collateral as security for the Secured Obligations, free of all liens, security
interests, encumbrances and claims, other than Permitted Liens and shall execute
such Uniform Commercial Code financing statements in connection herewith as the
Lender may reasonably request. Except as set forth herein, no other lien,
security interest, adverse claim or encumbrance has been created by Borrower or
is known by Borrower to exist with respect to any Collateral.
4.3 Borrower is a corporation duly organized, legally existing and in good
standing under the laws of the State of California, and is duly qualified as a
foreign corporation in all jurisdictions in which the nature of its business or
location of its properties require such qualifications and where the failure to
be qualified would have a material adverse effect.
4.4 Borrower's execution, delivery and performance of the Note(s), this
Agreement, all financing statements, all other Loan Documents required to be
delivered or executed in
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connection herewith, and the Warrant Agreement(s) have been duly authorized by
all necessary corporate action of Borrower, the individual or individuals
executing the Loan Documents and the Warrant Agreement(s) were duly authorized
to do so; and the Loan Documents and the Warrant Agreement(s) constitute legal,
valid and binding obligations of the Borrower, enforceable in accordance with
their respective terms, subject to applicable bankruptcy, Insolvency,
reorganization or other similar laws generally affecting the enforcement of the
rights of creditors.
4.5 This Agreement, the other Loan Documents and the Warrant Agreement(s)
do not and will not violate any provisions of Borrower's Fourth Amended and
Restated Articles of Incorporation, bylaws or any contract, agreement, law,
regulation, order, injunction, judgment, decree or writ to which the Borrower is
subject, or result in the creation or imposition of any lien, security interest
or other encumbrance upon the Collateral, other than those created by this
Agreement.
4.6 The execution, delivery and performance of this Agreement, the other
Loan Documents and the Warrant Agreement(s) do not require the consent or
approval of any other person or entity including, without limitation, any
regulatory authority or governmental body of the United States or any state
thereof or any political subdivision of the United States or any state thereof.
4.7 No event which has had or could reasonably be expected to have a
Material Adverse Effect has occurred and is continuing.
4.8 No fact or condition exists that would (or would, with the passage of
time, the giving of notice, or both) constitute a default under the Senior Loan
Documents between Borrower and Senior Creditor.
4.9 Borrower has filed and will file all tax returns, federal, state and
local, which it is required to file and has duly paid or fully reserved for all
taxes or installments thereof (including any interest or penalties) as and when
due, which have or may become due pursuant to such returns or pursuant to any
assessment received by Borrower for the three (3) years preceding the Closing
Date, if any (including any taxes being contested in good faith and by
appropriate proceedings).
SECTION 5. INSURANCE
5.1 So long as there are any Secured Obligations outstanding, Borrower
shall cause to be carried and maintained comprehensive general liability
insurance against risks customarily insured against in Borrower's line of
business. Such risks shall include, without limitation, the risks of death,
bodily injury and property damage. So long as there are any Secured Obligations
outstanding, Borrower shall also cause to be carried and maintained insurance
upon the Collateral and Borrower's business, covering casualty, hazard and such
other property risks customarily insured against in Borrower's line of business.
Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU
438 or equivalent) naming Lender as loss payee or additional insured, as
appropriate. Borrower shall use commercially reasonable efforts to cause all
policies evidencing such insurance to provide for at least thirty (30) days
prior written notice by the underwriter or insurance company to Lender in the
event of cancellation or expiration. Such policies shall be issued by such
insurers and in such amounts as are reasonably acceptable to Lender.
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5.2 Borrower shall and does hereby Indemnify and hold Lender, its agents
and shareholders harmless from and against any and all claims, costs, expenses,
damages and liabilities (including, without limitation, such claims, costs,
expenses, damages and liabilities based on liability in tort, including without
limitation, strict liability in tort), including reasonable attorneys' fees,
arising out of the disposition or utilization of the Collateral, other than
claims arising at or caused by Lender's gross negligence or willful misconduct.
SECTION 6. COVENANTS OF BORROWER
Borrower covenants and agrees as follows at all times while any of the
Secured Obligations remain outstanding:
6.1 Borrower shall furnish to Lender the financial statements listed
hereinafter, each prepared in accordance with generally accepted accounting
principles consistently applied (the "Financial Statements"):
(a) as soon as practicable (and in any event within thirty (30) days)
after the end of each quarter, unaudited interim financial statements as of
the end of such quarter (prepared on a consolidated and consolidating
basis, if applicable), including balance sheet and related statements of
income and cash flows accompanied by a report detailing any material
contingencies (including the commencement of any material litigation by or
against Borrower) or any other occurrence that could reasonably be expected
to have a Material Adverse Effect, all certified by Borrower's Chief
Executive Officer, Chief Financial Officer or Controller to be true and
correct;
(b) as soon as practicable (and in any event within ninety (90) days)
after the end of each fiscal year, unqualified audited financial statements
as of the end of such year (prepared on a consolidated and consolidating
basis, if applicable), including balance sheet and related statements of
income and cash flows, and setting forth in comparative form the
corresponding figures for the preceding fiscal year, certified by a firm of
independent certified public accountants selected by Borrower and
reasonably acceptable to Lender, accompanied by any management report from
such accountants;
(c) promptly after the sending or filing thereof, as the case may be,
copies of any proxy statements, financial statements or reports which
Borrower has made available to its shareholders and copies of any regular,
periodic and special reports or registration statements which Borrower
files with the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or any national securities
exchange; and
(d) promptly, any additional information, financial or otherwise
(including, but not limited, to tax returns and names of principal
creditors) as Lender reasonably believes necessary to evaluate Borrower's
continuing ability to meet its financial obligations.
6.2 Borrower shall permit any authorized representative of Lender and its
attorneys and accountants on reasonable notice to inspect, examine and make
copies and abstracts of the books of account and records of Borrower at
reasonable times during normal business hours. In addition, such representative
of Lender and its attorneys and accountants shall have the right to meet with
management and officers of the Company to discuss such books of account and
records.
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6.3 Borrower will from time to time execute, deliver and file, alone or
with Lender, any financing statements, security agreements or other documents;
procure any instruments or documents as may be requested by Lender; and take all
further action that may be necessary or desirable, or that Lender may request,
to confirm, perfect, preserve and protect the security interests intended to be
granted hereby, and in addition, and for such purposes only, Borrower hereby
authorizes Lender to execute and deliver on behalf of Borrower and to file such
financing statements, security agreement and other documents without the
signature of Borrower either in Lender's name or in the name of Borrower as
agent and attorney-in-fact for Borrower. The parties agree that a carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement and may be flied in any appropriate office in lieu thereof.
6.4 Borrower shall protect and defend Borrower's title as well as the
interest of the Lender against all persons claiming any interest adverse to
Borrower or Lender and shall at all times keep the Collateral free and clear
from any legal process, liens or encumbrances whatsoever (except any placed
thereon by Lender) and shall give Lender immediate written notice thereof.
6.5 Without Lender's prior written consent, Borrower shall not (a) grant
any material extension of the time of payment of any of the Receivables, (b) to
any material extent, compromise, compound or settle the same for less than the
full amount thereof, (c) release, wholly or partly, any Person liable for the
payment thereof, or allow any credit or discount whatsoever thereon other than
trade discounts granted in the ordinary course of business of Borrower.
6.6 Borrower shall maintain and protect its properties, assets and
facilities, including without limitation, its Equipment and Fixtures, in good
order and working repair and condition (taking into consideration ordinary wear
and tear) and from time to time make or cause to be made all necessary and
proper repairs, renewals and replacements thereto and shall competently manage
and care for its property in accordance with prudent industry practices.
6.7 Borrower shall not merge with and into any other entity; or sell or
convey all or substantially all of its assets or stock to any other person or
entity without notifying Lender a minimum of thirty (30) days prior to the
closing date and requesting Lender's consent to the assignment of all of
Borrower's Secured Obligations hereunder to the successor entity in form and
substance satisfactory to Lender. In the event Lender does not consent to such
assignment the parties agree Borrower shall prepay the Loan in accordance with
Section 2.2 hereof.
6.8 Borrower shall not, without the prior written consent of Lender, such
consent not to be unreasonably withheld, declare or pay any cash dividend or
make a distribution on any class of stock, other than pursuant to employee
repurchase plans upon an employee's death or termination of employment or
transfer, sell, lease, lend or in any other manner convey any equitable,
beneficial or legal interest in any material portion of the assets of Borrower
(except inventory sold in the normal course of business).
6.9 Upon the request of Lender, Borrower shall, during business hours, make
the Inventory and Equipment available to Lender for inspection at the place
where it is normally located and shall make Borrower's log and maintenance
records pertaining to the Inventory and
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Equipment available to Lender for inspection. Borrower shall take all action
necessary to maintain such logs and maintenance records in a correct and
complete fashion.
6.10 Borrower covenants and agrees to pay when due, all taxes, fees or
other charges of any nature whatsoever (together with any related interest or
penalties) now or hereafter imposed or assessed against Borrower, Lender or the
Collateral or upon Borrower's ownership, possession, use, operation or
disposition thereof or upon Borrower's rents, receipts or earnings arising
therefrom. Borrower shall file on or before the due date therefor all personal
property tax returns in respect of the Collateral. Notwithstanding the
foregoing, Borrower may contest, in good faith and by appropriate proceedings,
taxes for which Borrower maintains adequate reserves therefor.
6.11 Borrower shall not relocate any item of the Collateral (other than
sale of inventory in the ordinary course of business) except: (i) with the prior
written consent of the Lender not to be unreasonably withheld; and (ii) if such
relocation shall be within the continental United States. If permitted to
relocate Collateral pursuant to the foregoing sentence, unless otherwise agreed
in writing by Lender, Borrower shall first (a) cause to be filed and/or
delivered to the Lender all Uniform Commercial Code financing statements,
certificates or other documents or instruments necessary to continue in effect
the perfected security Interest of the Lender in the Collateral, and (b) have
given the Lender no less than thirty (30) days prior written notice of such
relocation.
6.12 Borrower shall not sell, transfer, assign, hypothecate or otherwise
encumber its Intellectual Property without Lenders prior written consent.
SECTION 7. CONDITIONS PRECEDENT TO LOAN
The obligation of Lender to fund the Loan on each Advance Date shall be
subject to satisfaction by Borrower or waiver by Lender, in Lender's sole
discretion, of the following conditions:
7.1 (a) The Advance Date for any installment shall occur on or before nine
(9) months from the date hereof.
7.2 DOCUMENT DELIVERY. Borrower, on or prior to the Closing Date, shall
have delivered to Lender the following:
(a) executed originals of the Agreement, the Warrant Agreement
attached hereto as Exhibit B-1, and any documents reasonably required by
Lender to effectuate the liens of Lender, with respect to all Collateral;
(b) certified copy of resolutions of Borrower's board of directors
evidencing approval of the borrowing and other transactions evidenced by
the Loan Documents and the Warrant Agreement(s);
(c) certified copies of the Articles of Incorporation and the Bylaws,
as amended through the Closing Date, of Borrower;
(d) certificate of good standing for Borrower from its state of
incorporation and similar certificates from all other jurisdictions In
which it does business and where the failure to be qualified would have a
Material Adverse Effect;
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(e) payment of the Facility Fee;
(f) such other documents as Lender may reasonably request.
7.3 ADVANCE REQUEST. Borrower shall:
(a) deliver to Lender, at least five (5) business day prior to the
Advance Date, written notice in the form of an Advance Request, or as
otherwise specified by Lender from time to time, specifying the date and
amount of such Advance.
(b) deliver executed original Note(s) and Warrant Agreement attached
hereto as Exhibit B-2 (for the first Advance only) as set forth in Section
2, as applicable.
(c) At the time of the request, Borrower shall have achieved at least
seventy-five (75%) or more of its cumulative net income/loss projections as
set forth in its business Plan dated February 1998 for the prior six (6)
month period, attached hereto as Exhibit D.
(d) such other documents as Lender may reasonably request.
7.4 PERFECTION OF SECURITY INTERESTS. Borrower shall have taken or caused
to be taken such actions requested by Lender to grant Lender a first priority
perfected security interest in the Collateral, subject only to Permitted Liens.
Such actions shall include, without limitation, the delivery to Lender of all
appropriate financing statements, executed by Borrower, as to the Collateral
granted by Borrower for all jurisdictions as may be necessary or desirable to
perfect the security interest of Lender in such Collateral.
7.5 ABSENCE OF EVENTS OF DEFAULTS. As of the Closing Date or the Advance
Date, no fact or condition exists that would (or would, with the passage of
time, the giving of notice, or both) constitute an Event of Default under this
Agreement or any of the Loan Documents and no fact or condition exists that
would (or would, with the passage of time, the giving of notice, or both)
constitute a default under the Senior Loan Documents between Borrower and Senior
Creditor.
7.6 MATERIAL ADVERSE EFFECT. As of the Closing Date or the Advance Date, no
event which has had or could reasonably be expected to have a Material Adverse
Effect has occurred and is continuing.
SECTION 8. DEFAULT
The occurrence of any one or more of the following events (herein called
"Events of Default") shall constitute a default hereunder and under the Note(s)
and other Loan Documents:
8.1 Borrower defaults in the payment of any principal, interest or other
Secured Obligation involving the payment of money under this Agreement, the
Note(s) or any of the other Loan Documents, and such default continues for more
than five (5) days after the due date thereof; or
8.2 Borrower defaults in the performance of any other covenant or Secured
Obligation of Borrower hereunder or under the Note(s) or any of the other Loan
Documents,
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and such default continues for more than twenty (20) days after Lender has given
notice of such default to Borrower.
8.3 Any representation or warranty made herein by Borrower shall prove to
have been false or misleading in any material respect; or
8.4 Borrower shall make an assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts as they become due, or
shall file a voluntary petition in bankruptcy, or shall file any petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation pertinent to such circumstances, or shall seek
or consent to or acquiesce in the appointment of any trustee, receiver, or
liquidator of Borrower or of all or any substantial part (33-1/3% or more) of
the properties of Borrower, or Borrower or its directors or majority
shareholders shall take any action initiating the dissolution or liquidation of
Borrower; or
8.5 Sixty (60) days shall have expired after the commencement of an action
by or against Borrower seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, without such action being dismissed or all
orders or proceedings thereunder affecting the operations or the business of
Borrower being stayed; or a stay of any such order or proceedings shall
thereafter be set aside and the action setting it aside shall not be timely
appealed; or Borrower shall file any answer admitting or not contesting the
material allegations of a petition filed against Borrower in any such
proceedings; or the court in which such proceedings are pending shall enter a
decree or order granting the relief sought in any such proceedings; or
8.6 Sixty (60) days shall have expired after the appointment, without the
consent or acquiescence of Borrower, of any trustee, receiver or liquidator of
Borrower or of all or any substantial part of the properties of Borrower without
such appointment being vacated; or
8.7 The default by Borrower under any Excluded Agreement(s), any other
promissory note or agreement for borrowed money, or any other agreement between
Borrower and Lender; or
8.8 The occurrence of any default under any lease or other agreement or
obligation of Borrower involving an amount in excess of $100,000.00 or having a
Material Adverse Effect; or the entry of any judgment against Borrower involving
an award in excess of $100,000.00 that would have a Material Adverse Effect,
that has not been bonded or stayed on appeal within thirty (30) days; or
8.9 The occurrence of any material default under the Senior Loan Documents.
SECTION 9. REMEDIES
Upon the occurrence of any one or more Events of Default, Lender, at its
option, may declare the Note and all of the other Secured Obligations to be
accelerated and immediately due and payable (provided, that upon the occurrence
of an Event of Default of the type described in Sections 8.4 or 8.5, the Note(s)
and all of the other Secured Obligations shall automatically be accelerated and
made due and payable without any further act), whereupon the unpaid principal of
and accrued interest on such Note(s) and all other outstanding Secured
Obligations shall become immediately due and payable, and shall thereafter bear
interest at the
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Default Rate set forth in, and calculated according to, Section 2.3 (c) of this
Agreement. Lender may exercise all rights and remedies with respect to the
Collateral under the Loan Documents or otherwise available to it under
applicable law, including the right to release, hold or otherwise dispose of all
or any part of the Collateral and the right to occupy, utilize, process and
commingle the Collateral.
Upon the happening and during the continuance of any Event of Default,
Lender may then, or at any time thereafter and from time to time, apply,
collect, sell in one or more sales, lease or otherwise dispose of, any or all of
the Collateral, in its then condition or following any commercially reasonable
preparation or processing, in such order as Lender may elect, and any such sale
may be made either at public or private sale at its place of business or
elsewhere. Borrower agrees that any such public or private sale may occur upon
five (5) calendar days' prior written notice to Borrower. Lender may require
Borrower to assemble the Collateral and make it available to Lender at a place
designated by Lender which is reasonably convenient to Lender and Borrower. The
proceeds of any sale, disposition or other realization upon all or any part of
the Collateral shall be distributed by Lender in the following order of
priorities:
First, to Lender in an amount sufficient to pay in full Lender's costs and
professionals' and advisors' fees and expenses;
Second, to Lender in an amount equal to the then unpaid amount of the
Secured Obligations in such order and priority as Lender may choose in its
sole discretion; and
Finally, upon payment in full of all of the Secured Obligations, to
Borrower or its representatives or as a court of competent jurisdiction may
direct.
Lender shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if it complies with the
obligations of a secured party under Section 9207 of the UCC.
Lender's rights and remedies hereunder are subject to the terms of the
Subordination Agreement.
SECTION 10. MISCELLANEOUS
10.1 CONTINUATION OF SECURITY INTEREST. This is a continuing Agreement and
the grant of a security interest hereunder shall remain in full force and effect
and all the rights, powers and remedies of Lender hereunder shall continue to
exist until the Secured Obligations are paid in full as the same become due and
payable and until Lender has executed a written termination statement (which
Lender shall execute within a reasonable time after full payment of the Secured
Obligations hereunder), reassigning to Borrower, without recourse, the
Collateral and all rights conveyed hereby and returning possession of the
Collateral to Borrower. The rights, powers and remedies of Lender hereunder
shall be in addition to all rights, powers and remedies given by statute or rule
of law and are cumulative. The exercise of any one or more of the rights, powers
and remedies provided herein shall not be construed as a waiver of or election
of remedies with respect to any other rights, powers and remedies of Lender.
10.2 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision
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of this Agreement shall be prohibited by of invalid under such law, such
provision shall be ineffective only to the extent and duration of such
prohibition of invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
10.3 NOTICE. Except as otherwise provided herein, all notices and service
of process required, contemplated, or permitted hereunder or with respect to the
subject matter hereof shall be in writing, and shall be deemed to have been
validly served, given or delivered upon the earlier of: (i) the first business
day after transmission by facsimile or hand delivery or deposit with an
overnight express service or overnight mail delivery service; or (ii) the third
calendar day after deposit in the United States mails, with proper first class
postage prepaid, and shall be addressed to the party to be notified as follows:
(a) IF TO LENDER:
COMDISCO, INC.
Legal Department
Attention: General Counsel
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5088
WITH A COPY TO:
COMDISCO, INC./COMDISCO VENTURES
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5465
(b) IF TO BORROWER:
NEXTCARD, INC.
Attention: John Hashman, CFO and
Robert Linderman, Esq., General Counsel and Secretary
595 Market Street, Suite 1800
San Francisco, CA 94105
Facsimile: (415) 836-9701
Phone: (415) 836-9700
or to such other address as each party may designate for itself by like notice.
10.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Note(s), and the
other Loan Documents, and the Warrant Agreement(s) constitute the entire
agreement and understanding of the parties hereto in respect of the subject
matter hereof and thereof, and supersede and replace in their entirety any prior
proposals, term sheets, letters, negotiations or other documents or agreements,
whether written or oral, with respect to the subject matter hereof or thereof
(including, without limitation, Lender's proposal letter dated December 2, 1998,
all of which are merged herein and therein. None of the terms of this Agreement,
the Note(s), any of the other Loan Documents or Warrant Agreement(s) may be
amended except by an instrument executed by each of the parties hereto.
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10.5 HEADINGS. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof.
10.6 NO WAIVER. The powers conferred upon Lender by this Agreement are
solely to protect its interest in the Collateral and shall not impose any duty
upon Lender to exercise any such powers. No omission, or delay, by Lender at any
time to enforce any right or remedy reserved to it, or to require performance of
any of the terms, covenants or provisions hereof by Borrower at any time
designated, shall be a waiver of any such right or remedy to which Lender is
entitled, nor shall it in any way affect the right of Lender to enforce such
provisions thereafter.
10.7 SURVIVAL. All agreements, representations and warranties contained in
this Agreement, the Note(s), the other Loan Documents and the Warrant
Agreement(s) or in any document delivered pursuant hereto or thereto shall be
for the benefit of Lender and shall survive the execution and delivery of this
Agreement and the expiration or other termination of this Agreement.
10.8 SUCCESSOR AND ASSIGNS. The provisions of this Agreement, the other
Loan Documents and the Warrant Agreement(s) shall inure to the benefit of and be
binding on Borrower and its permitted assigns (if any). Borrower shall not
assign its obligations under this Agreement, the Note(s), any of the other Loan
Documents or the Warrant Agreement(s), without Lender's express written consent,
and any such attempted assignment shall be void and of no effect. Lender may
assign, transfer, or endorse its rights hereunder and under the other Loan
Documents or Warrant Agreement(s) without prior notice to Borrower, and all of
such rights shall inure to the benefit of Lender's successors and assigns.
10.9 FURTHER INDEMNIFICATION. Borrower agrees to pay, and to save Lender
harmless from, any and all liabilities with respect to, or resulting from any
delay in paying, any and all excise, sales or other similar taxes which may be
payable or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Agreement.
10.10 GOVERNING LAW. This Agreement, the Note(s), the other Loan Documents
and the Warrant Agreement(s) have been negotiated and delivered to Lender in the
State of Illinois, and shall not become effective until accepted by Lender in
the State of Illinois. Payment to Lender by Borrower of the Secured Obligations
is due in the State of Illinois. This Agreement, the Note(s), the other Loan
Documents and the Warrant Agreement(s) shall be governed by, and construed and
enforced in accordance with, the laws of the State of Illinois, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
10.11 CONSENT TO JURISDICTION AND VENUE. All judicial proceedings arising
in or under or related to this Agreement, the Note(s), any of the other Loan
Documents or Warrant Agreement(s) may be brought in any state or federal court
of competent jurisdiction located in the State of Illinois. By execution and
delivery of this Agreement, each party hereto generally and unconditionally: (a)
consents to personal jurisdiction in Cook County, State of Illinois; (b) waives
any objection as to jurisdiction or venue in Cook County, State of Illinois; (c)
agrees not to assert any defense based on lack of jurisdiction or venue in the
aforesaid courts; and (d) irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement, the Note(s), the other Loan
Documents or Warrant Agreement(s). Service of process on any party hereto in any
action arising out of or relating to this agreement shall be effective if given
in accordance with the requirements for notice set forth in Section 10.3, above
17
<PAGE> 18
and shall be deemed effective and received as set forth in Section 10.3, above.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of either party to bring proceedings
in the courts of any other jurisdiction.
10.12 MUTUAL WAIVER OF JURY TRIAL. Because disputes arising in connection
with complex financial transactions are most quickly and economically resolved
by an experienced and expert person and the parties wish applicable state and
federal laws to apply (rather than arbitration rules), the parties desire that
their disputes be resolved by a judge applying such applicable laws. EACH OF
BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY
OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR
ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST LENDER OR
ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This waiver
extends to all such Claims, including, without limitation, Claims which involve
persons or entities other than Borrower and Lender; Claims which arise out of or
are in any way connected to the relationship between Borrower and Lender; and
any Claims for damages, breach of contract arising out of this Agreement, any
other Loan Document or any of the Excluded Agreements, specific performance, or
any equitable or legal relief of any kind.
10.13 CONFIDENTIALITY. Lender acknowledges that certain items of
Collateral, including, but not limited to trade secrets, source codes, customer
lists and certain other items of Intellectual Property, and any Financial
Statements provided pursuant to Section 6 hereof, constitute proprietary and
confidential information of the Borrower (the "Confidential Information").
Accordingly, Lender agrees that any Confidential Information it may obtain in
the course of acquiring, perfecting or foreclosing on the Collateral or
otherwise provided under this Agreement, provided such Confidential Information
is marked as confidential by Borrower at the time of disclosure, shall be
received in the strictest confidence and will not be disclosed to any other
person or entity in any manner whatsoever, in whole or in part, without the
prior written consent of the Borrower, unless and until Lender has acquired
indefeasible title thereto.
10.14 COUNTERPARTS. This Agreement and any amendments, waivers, consents or
supplements hereto may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
delivered shall be deemed an original, but all of which counterparts shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and delivered
this Agreement as of the day and year first above written.
BORROWER: NEXTCARD, INC.
Signature: [SIG]
--------------------------
Print Name:
-------------------------
Title: CFO
------------------------------
18
<PAGE> 19
ACCEPTED IN ROSEMONT, ILLINOIS:
LENDER: COMDISCO, INC.
Signature: /s/ JAMES P. LABE
-------------------------
Print Name: JAMES P. LABE
-------------------------
PRESIDENT
Title: COMDISCO VENTURES DIVISION
------------------------------
19
<PAGE> 20
Exhibit C
ADVANCE REQUEST
Name: NextCard, Inc. ("Borrower") Date:
Address: 595 Market Street, Suite 1800
San Francisco, CA 94015
Borrower hereby requests from Comdisco, Inc. ("Lender") an Advance in
the amount of $___ on ______________, 199__ (the "Advance Date") under that
Subordinated Loan and Security Agreement between Borrower and Lender dated
February 9, 1999 (the "Agreement").
Please:
(a) Issue a check payable to Borrower ______________
or
(b) Wire Funds to Borrower's account ______________
Bank:_______________________________
Address:____________________________
ABA Number:_________________________
Account Number:_____________________
Account Name:_______________________
Borrower hereby affirms that all Representations and Warranties of
Borrower set forth in Section 4 and all Conditions Precedent to Loan set forth
in Section 7 of the Agreement remain true and correct as of the date hereof.
Executed this _____ day of _____, 199__ by:
BORROWER: NEXTCARD, INC.
BY: ____________________________
TITLE: ____________________________
PRINT: ____________________________
20
<PAGE> 21
EXHIBIT A
SUBORDINATED PROMISSORY NOTE
$_____________ DATE:___________
DUE:____________
FOR VALUE RECEIVED, NextCard, Inc., a California corporation (the "Borrower")
hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation
(the "Lender") at P.O. Box 91744, Chicago, IL 60693 or such other place of
payment as the holder of this Secured Promissory Note (this "Note") may specify
from time to time in writing, in lawful money of the United States of America,
the principal amount of _________ and 00/100 Dollars ($_________) together with
interest at twelve and one-quarter percent (12.25%) per annum from the date of
this Note to maturity of each installment on the principal hereof remaining from
time to time unpaid, such principal and interest to be paid in six (6) equal
monthly installments of interest only, commencing _________ and on the same day
of each month thereafter to and including _________, followed by thirty
(30)equal monthly payments of principal and interest in the amount of $_________
each, commencing _________ and on the same day of each month thereafter to and
including _________, such installments to be applied first to accrued and unpaid
interest and the balance to unpaid principal. Interest shall be computed on the
basis of a year consisting of twelve months of thirty days each.
This Note is the Note referred to in, and is executed and delivered in
connection with, that certain Subordinated Loan and Security Agreement dated
February 9, 1999 by and between Borrower and Lender (as the same may from time
to time be amended, modified or supplemented in accordance with its terms, the
"Loan Agreement"), and is entitled to the benefit and security of the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement), to
which reference is made for a statement of all of the terms and conditions
thereof. All terms defined in the Loan Agreement shall have the same definitions
when used herein, unless otherwise defined herein.
THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION
AGREEMENT BY AND BETWEEN LENDER AND BORROWER FOR THE BENEFIT OF SENIOR CREDITOR.
IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE
SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL.
The Borrower waives presentment and demand for payment, notice of dishonor,
protest and notice of protest and any other notice as permitted under the UCC or
any applicable law.
1
<PAGE> 22
This Note has been negotiated and delivered to Lender and is payable in the
State of Illinois, and shall not become effective until accepted by Lender in
the State of Illinois. This Note shall be governed by and construed and enforced
in accordance with, the laws of the State of Illinois, excluding any conflicts
of law rules or principles that would cause the application of the laws of any
other jurisdiction.
BORROWER: NEXTCARD, INC.
595 Market Street, Suite 1800
San Francisco, CA 94105
Signature: ____________________________
Print Name: ____________________________
Title: ____________________________
2
<PAGE> 1
EXHIBIT 10.25
INDEPENDENT CONTRACTOR AGREEMENT
NextCard, Inc., a California corporation (the "Company"), and Bruce
Rigione(1) ("Contractor"), agree as follows:
1. Engagement; Scope of Work. The Company hereby engages Contractor to
provide certain services commencing on ________ __, 1999. The services to be
performed by Contractor will consist of a series of discrete mutually agreed
upon projects associated with securitization, international opportunities and
other areas related to the Company's business. Deliverables associated with each
project will be as mutually determined by the parties. Contractor will provide
such services in a first class and professional manner. Contractor agrees to
make his services available to the Company during the period of engagement on a
full-time and exclusive basis, and will not take on any other assignments or
provide employment services during such period.
2. Compensation. As compensation in full for the services to be
performed on behalf of the Company under this Agreement, and for the other
obligations of Contractor arising hereunder, the Company will pay Contractor
$15,000 per month. Contractor will perform the services at his own offices
(subject to required meetings at the Company), using his own resources, and will
bear all of his expenses in accomplishing the services, including any applicable
sales or use taxes, except that the Company will reimburse Contractor for
reasonable out-of-pocket costs associated with travel requested by the
Company.(2)
3. Independent Contractor Status. It is expressly agreed and understood
that Contractor is performing services under this Agreement as an independent
contractor for the Company and Contractor is neither an employee nor an agent of
the Company. Contractor will have sole control over the detailed method of
performance of the services, the manner and method of performing same being
under the sole control and discretion of Contractor, and the Company's only
interest being in the results of such services. The Company's liability
hereunder will be limited to payment of the compensation provided in this
Agreement. Contractor agrees to pay all applicable taxes (including unemployment
insurance and old age benefits) which may arise as a result of this Agreement.
Contractor will have no authority to act, to make any representation, to enter
into any contract or commitment or to incur any liability on behalf of the
Company.
4. Proprietary Information and Inventions. As a material inducement for
the Company to enter into this Agreement, and as part of the compensation to be
paid to Contractor hereunder, Contractor will enter into the Company's
Proprietary Information and Inventions Agreement for Independent Contractors in
the form attached as EXHIBIT A (the "Proprietary Rights Agreement") before
performing any of the services and before payment of any compensation under this
Agreement. The Proprietary Rights Agreement will govern information supplied to
Contractor by the Company in connection with Contractor's engagement by the
Company, along with the ownership of inventions resulting from Contractor's
services. All deliverables hereunder, and all work papers associated therewith,
will be owned exclusively by the Company.
5. Assignment. The services provided by Contractor hereunder are in
the nature of personal services. Accordingly, without the Company's prior
written consent, Contractor may not
- -------------
1 Does Bruce provide services personally or through an entity?
2 Are any other costs to be reimbursed? Any need to specify class of travel,
etc.?
<PAGE> 2
assign to or subcontract with any person or entity, this Agreement or any right
or obligation hereunder.
6. Termination. Either party hereto may terminate this agreement at any
time upon thirty days prior written notice. Either party will have the right to
terminate this Agreement immediately in the event of a material breach by the
other party. All accrued payment obligations, indemnities and obligations under
Exhibit A will survive any termination.
7. Indemnification. Contractor will defend, indemnify and hold harmless
the Company, its officers, directors and employees against all liability, loss,
cost or expense associated with any claims, suits, actions, or demands of any
nature and description by reason of damage or injury (including death) to any
person or property caused by Contractor's negligence, breach of this Agreement
or performance of services hereunder.
8. General. This Agreement represents the entire understanding of the
parties hereto and supersedes all prior written or oral agreements with respect
to the subject matter hereof. This Agreement may be amended only in a writing
signed by both parties. This Agreement will be governed by and interpreted in
accordance with the laws of the State of California governing a contract made
and wholly performed within California. Each party hereto consents to the
jurisdiction of the San Francisco Superior Court and to the federal courts
sitting in San Francisco, California. This Agreement may be executed in
counterparts.
The parties have executed this Agreement as of __________ __, 1999.
NextCard, Inc.: Contractor:
- -------------------------------- ----------------------------------------
By:
Title: SSN#
-----------------------------------
2
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 5, 1999, except as to Note 4, as to which the
date is February 26, 1999, in the Registration Statement (Form S-1 No.
333-00000) and related Prospectus of NextCard, Inc. and subsidiary for the
registration of shares of its common stock.
/s/ ERNST & YOUNG LLP
San Francisco, California
March 17, 1999
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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0
54,727
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