<PAGE>
As filed with the Securities and Exchange Commission on December 23, 1999.
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
iOwn Holdings, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 6162 94-3333914
(State or other (Primary Standard (I.R.S.
jurisdiction of Industrial EmployerIdentification
incorporation or Classification Code Number)
organization) Number)
333 Bryant Street, Lower Level
San Francisco, California 94107
(415) 618-3600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
Edward P. Hoyt
Chief Executive Officer
and Chairman of the Board
iOwn Holdings, Inc.
333 Bryant Street, Lower Level
San Francisco, California 94107
(415) 618-3600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
Ralph L. Arnheim III, Esq. Laird H. Simons III, Esq.
Edward J. Wes, Esq. Horace L. Nash, Esq.
David M. Hornik, Esq. R. Bryan Woodard, Esq.
Walter W. O'Haire, Esq. Kimberly A. Chance, Esq.
Perkins Coie LLP Fenwick & West LLP
135 Commonwealth Drive, Suite 250 Two Palo Alto Square
Menlo Park, California 94025 Palo Alto, California 94306
(650) 752-6000 (650) 494-0600
---------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
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 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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<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Amount of
Securities to be Registered Offering Amount(2) Registration Fee
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<S> <C> <C>
Common Stock, $0.001 par value.......... $63,250,000 $16,698.00
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</TABLE>
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(1) Includes shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
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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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities in any state where the offer for sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 1999
[IOWN.COM LOGO]
Shares
Common Stock
iOwn Holdings, Inc. is offering shares of its common stock. This is our
initial public offering and no public market currently exists for our shares.
We have requested that the underwriters reserve up to shares to be offered
to our directors, officers, employees and business associates, including real
estate agents, home builders, mortgage brokers and our registered users. We
have applied for approval for quotation of our common stock on the Nasdaq
National Market under the symbol "IOWN." We anticipate that the initial public
offering price will be between $ and $ per share.
---------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 9.
---------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to iOwn Holdings, Inc.................................. $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
iOwn Holdings, Inc. has granted the underwriters a 30-day option to
purchase up to an additional shares of common stock to cover any over-
allotments.
---------------
Robertson Stephens_______________________________________________Lehman Brothers
U.S. Bancorp Piper Jaffray______________________________Friedman Billings Ramsey
The date of this prospectus is , 2000
<PAGE>
[Front Cover]
Artwork
[Graphic illustrating our multi-channel distribution strategy. Shows a map of
the United States with figures on it and lines connecting the words "customers"
with "iOwn."]
Caption:
A multi-channel, nationwide strategy
Text:
HomeBuilders Financial Network. We offer home builders a turnkey mortgage
solution to help them sell homes, keep a share of the profits on the mortgage
services and retain greater control over their operations.
Text: Genesis 2000. We make mortgage brokers more profitable and efficient with
a suite of desktop and online services. These include online access to
wholesale lenders and settlement services, a high quality web presence and new
customers who want to shop online, but work with a local broker.
Text:
iOwn is a leading Internet destination for homeowners and home buyers.
We offer consumers a fundamentally better way to buy, manage and sell their most
significant asset, their homes. Further, we tailor and deliver our offerings
through a range of third-party channels, allowing us to reach, and ultimately
Internet-enable the majority of the mortgage market currently transacted through
brokers and other business to business channels.
[Inside Front Cover]
Caption:
Welcome to iOwn.com - Your Home on the Internet.
Text:
We started iOwn to make the process of buying and owning a home easier. We
offer our customers a range of online information to help them make the best
decisions for themselves, complemented by full-service loan professionals
providing personal support, by phone, by fax, or email. We focus on building
relationships. We help you get a great loan, and a lot more.
Text:
Significantly Lower Prices. We partner with 30 lenders to offer a broad
range of loan options. Our shopping model provides side-by-side comparisons
enabling customers to find the lowest price loan, while our discounted
origination fees save them over 50% relative to traditional originators.
Text:
Superior Customer Service. Our customers use our website to apply for loans
online, 24 hours a day, 7 days a week. We offer personalized service from
dedicated loan consultants using the customer's choice of phone, fax or email,
or they can check on their loan with our online LoanStatus tool.
Confidence-Building Content. We provide a comprehensive overview of the home
buying process, including home listings, neighborhood information and
educational guides. We explain each step and term in plain English, and we
offer the most accurate cost estimates online. We don't want anyone to be
surprised at closing by "hidden fees."
Artwork:
[Graphic of a lowercase I]
[Graphic of iOwn.com home page screenshot.]
[Graphic of iOwn.com RateShopper screenshot.]
[Graphic of iOwn.com HomeScout screenshot.]
[Graphic of iOwn.com LoanStatus screenshot.]
[Graphic of iOwn.com logo.]
<PAGE>
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with information different from that contained in this prospectus. We are
not, and the underwriters are not, making an offer to sell these shares of
common stock in any jurisdiction in which the offer or sale is not 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 of
any sale of our common stock. In this prospectus, references to "iOwn," "we,"
"us" and "our" refer to iOwn Holdings, Inc. and its wholly owned subsidiaries,
and references to "iOwn.com" refer to our website.
Until , 2000, which is the 25th day after the commencement of this
offering, 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
requirement is in addition to the dealers' obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 27
Dividend Policy.......................................................... 27
Capitalization........................................................... 28
Dilution................................................................. 29
Selected Consolidated Financial Data..................................... 30
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 31
Business................................................................. 42
Management............................................................... 63
Related Party Transactions............................................... 74
Principal Stockholders................................................... 76
Description of Capital Stock............................................. 78
Shares Eligible for Future Sale.......................................... 81
Underwriting............................................................. 83
Legal Matters............................................................ 85
Experts.................................................................. 85
Where You Can Find Additional Information................................ 85
Index to Financial Statements............................................ F-1
</TABLE>
---------------------
HomeScout(R) and HomeShark(R) are registered service marks, and Genesis
2000(R) is a registered trade mark, of iOwn. iOwn.com and the iOwn logo are
service marks of iOwn. Preferred Correspondent Lender Program is a service mark
of HomeBuilders Financial Network. Realtor(R) is a registered service mark of
the National Association of Realtors. Other service marks, trademarks and trade
names referred to in this prospectus are the property of their respective
owners.
3
<PAGE>
SUMMARY
You should read the following summary together with the more detailed
information, financial statements and notes to financial statements appearing
elsewhere in this prospectus.
Our Business
iOwn.com is a leading Internet destination site for homeowners and home
buyers. We provide our customers with a fundamentally better way to identify,
purchase, finance, manage and sell their most significant asset, their home. We
create empowered homeowners by providing convenient online access to a wide
selection of mortgages from leading lenders, home listings and neighborhood
information, informative tools and content, and referrals to a range of highly
qualified real estate professionals. We provide a broad range of services
around the homeownership experience, as opposed to focusing solely on the
mortgage transaction or the home listing process. We deliver these services to
consumers through a variety of direct and third-party channels to enable the
broadest possible group of homeowners and prospective homeowners to transact
their business online. We have established distribution arrangements with
online leaders such as AOL's Netscape/Netcenter and Digital City, Inc.,
Earthlink and NBCi/Snap!, as well as with numerous third-party partners. During
the nine months ended September 30, 1999, we originated over $400 million in
mortgages over the Internet, a 396% increase over the comparable period last
year, and generated more than $3.5 million in revenues, a 459% increase over
the same period in 1998. As of December 15, 1999, we aggregated approximately
700,000 listings of homes for sale on our website.
We reach consumers through multiple channels, including our website,
www.iown.com, and our relationships with Realtors, mortgage brokers, financial
institutions, home builders, employers and relocation specialists. For example,
through our Genesis 2000 software, we offer traditional mortgage brokers
Internet-enabled point-of-sale tools for loan prequalification, origination and
tracking. Users of our Genesis 2000 software were responsible for originating
over $100 billion of mortgages in 1998. Through our HomeBuilders Financial
Network, we offer home builders a turnkey solution for establishing captive
Internet-enabled mortgage operations. We originated approximately $1.0 billion
in mortgage loans for home builders in 1999. We believe that our comprehensive
service offerings and our multi-channel, business-to-business strategy allow us
to reach the broadest audience and distinguish us in the market.
The home buying process is complex and difficult, involving interactions
with many parties. This often results in a confusing and frustrating home
buying experience. Through our services, we offer customers a more satisfying
and cost-efficient process by providing them with rich, easy-to-use content at
every step. We provide tools to help our customers determine whether to rent or
buy, the price of a home they can afford, which neighborhood they want to live
in and which Realtor they want to work with. We also simplify shopping for a
mortgage by making it easier to compare loans from dozens of lenders, including
a comprehensive comparison of fees charged at the closing of the loan. We offer
origination fees to the consumer that are 50% lower than the origination fees
charged by many mortgage brokers and lenders. We are continually streamlining
the mortgage process by combining direct access to the capital markets with the
efficient communication capabilities of the Internet and our automated mortgage
processing. We believe these efforts will allow us to continue to deliver a
superior customer experience at a significantly lower cost to the customer than
traditional services.
Our Market Opportunity
Mortgage originations in the United States averaged more than $960
billion annually from 1993 to 1998, and are expected to total $1.2 trillion in
1999. Forrester Research estimates that the online mortgage market will grow
from approximately $18.7 billion in 1999, or approximately 1.5% of the total
U.S. mortgage
4
<PAGE>
market, to over $91.2 billion in 2003, or approximately 10% of the total U.S.
mortgage market. According to the Mortgage Bankers Association of America
(MBA), the purchase mortgage market has grown at an average annual rate of 15%
from 1993 to 1998. Approximately 66.3% of households in the United States own
homes, and as a result there is a substantial market for ancillary services,
such as title insurance, appraisals and home insurance.
Our Strategy
Our objective is to be the leading provider of online content and e-
commerce services for homeowners and prospective homeowners. We intend to
achieve this objective by growing our customer base aggressively and
capitalizing on the full range of market opportunities through the following
strategic initiatives:
. Developing a leading brand as a provider of online content and e-
commerce services for homeowners and home buyers through advertising,
co-branding partnerships and promotions using both the Internet and
traditional offline media.
. Expanding third-party channels to grow our revenues and purchase (as
opposed to refinance) mortgage originations by extending our technology
infrastructure to all parties who traditionally participate in the home
purchase process, including real estate agents, home builders,
relocation companies and mortgage brokers.
. Enhancing our core mortgage service and expanding our mortgage
offerings by more efficiently accessing and interfacing with the
capital markets and adding product lines such as sub-prime mortgages,
home equity credit lines and construction loans.
. Maintaining our commitment to customer service by offering value-added
self-service tools such as online loan status updates that empower our
customers to make informed decisions and by continually improving our
customer service both online and offline through our state-of-the-art
contact management center.
. Maintaining our technology leadership by continuing to invest in our
proprietary systems and processes which were specifically designed for
the Internet rather than built around a legacy infrastructure.
. Delivering a more integrated homeownership experience by extending and
monetizing our customer relationships by providing related products and
services, such as title insurance, appraisal, home insurance, moving
and home improvement services.
Recent Developments
In November 1999, we agreed to acquire Genesis 2000, Inc., a leading
provider of loan origination software for mortgage brokers. We closed the
acquisition on December 22, 1999. The purchase price was $26.1 million which
consisted of:
. 833,333 shares of common stock;
. 833,333 shares of Series EEE preferred stock; and
. promissory notes in the aggregate amount of $9.8 million, of which $7.8
million will be repaid at the close of this offering.
In addition, we may be required to pay up to $6.0 million upon achievement of
performance targets by Genesis 2000 over the next two years. This acquisition
has been accounted for using the purchase method of accounting.
5
<PAGE>
On December 22, 1999, we agreed to acquire HomeBuilders Financial
Network, Inc., or HFN, a company which provides home builders with a turnkey
mortgage origination service. The purchase price will be $45.3 million which
will consist of:
. 1,333,333 shares of common stock;
. 1,333,333 shares of Series EEEE preferred stock;
. $2.7 million in cash; and
. a promissory note in the principal amount of $13.3 million.
In addition, we may be required to pay up to $17.0 million over the next two
years based on the growth of HFN's revenues and pre-tax earnings. The
acquisition will be accounted for using the purchase method of accounting.
Our Corporate Information
We were incorporated in California in July 1996, and reincorporated in
Delaware in September 1999. Our executive office is located at 333 Bryant
Street, Lower Level, San Francisco, California 94107. Our telephone number at
that location is (415) 618-3600 and our Internet address is www.iown.com.
Information contained on our website does not constitute part of this
prospectus.
The Offering
<TABLE>
<S> <C>
Common stock offered by iOwn Holdings,
Inc. ...................................... shares
Common stock to be outstanding after the
offering................................... shares
Use of proceeds.............................. We intend to use the net proceeds for
investment in marketing and promotion,
technology development, strategic acquisitions,
debt repayment up to $15.0 million, and
general corporate purposes.
Proposed Nasdaq National Market symbol....... IOWN
</TABLE>
The shares of common stock to be outstanding after this offering is based
on shares outstanding as of December 22, 1999. It does not include:
. 2,878,274 shares issuable upon exercise of outstanding options;
. 1,241,747 shares available for future grant under our 1997 Stock Option
Plan;
. 1,533,333 shares available for future grant or issuance under our 2000
Stock Option Plan and 500,000 shares available for purchase under our
2000 Employee Stock Purchase Plan; and
. 819,719 shares issuable upon exercise of outstanding warrants.
6
<PAGE>
Summary Consolidated Financial and Other Data
The following table presents our consolidated statement of operations
data. The pro forma net loss per share data below gives effect to (1) the
conversion of each outstanding share of preferred stock into one share of
common stock upon the closing of the offering and (2) the pro forma basis of
presentation described in "Selected Consolidated Financial Data" on page 30.
You should refer to our Unaudited Pro Forma Combined Financial Information
contained elsewhere in this prospectus.
The following unaudited pro forma consolidated information reflects
statement of operations data for the year ended 1998 and for the nine months
ended September 30, 1999 as if the acquisitions of Genesis 2000 and
HomeBuilders Financial Network had occurred on January 1, 1998, after giving
effect to purchase accounting adjustments.
<TABLE>
<CAPTION>
Years Ended Nine Months Ended Pro Forma
December 31, September 30, (unaudited)
----------------- ------------------ --------------------------
Inception (July 11, Nine Months
1996) through Year Ended Ended
December 31, December 31, September 30,
1996 1997 1998 1998 1999 1998 1999
------------------- ------- -------- -------- -------- ------------ -------------
(in thousands, except per share data and number of loans)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated
Statement of Operations
Data:
Revenues:
Transactions............ $ -- $ 51 $ 1,224 $ 577 $ 3,150 $ 5,506 $ 6,896
Other Internet and
e-commerce............ 25 18 89 65 439 89 439
Software licenses and
maintenance........... -- -- -- -- -- 6,167 4,422
------ ------- -------- -------- -------- -------- ----------
Total revenues......... $ 25 $ 69 $ 1,313 $ 642 $ 3,589 $ 11,762 $ 11,757
Operating expenses....... (74) (2,414) (17,417) (9,983) (35,535) (48,023) (58,667)
Loss from operations..... (49) (2,345) (16,104) (9,341) (31,946) (36,261) (46,910)
Net loss................. (48) (2,363) (16,015) (9,392) (32,115) (38,826) (48,271)
Net loss attributable to
common stockholders.... (48) (2,433) (17,341) (10,028) (35,216) (40,152) (51,372)
Net loss per share
attributable to common
stockholders, basic and
diluted................ $(0.09) $ (1.74) $ (11.66) $ (6.86) $ (18.61) $ (10.99) $ (12.66)
Shares used in computing
net loss attributable
to common stockholders,
basic and diluted...... 547 1,402 1,487 1,461 1,892 3,653 4,058
Pro forma net loss per
share, basic and
diluted (unaudited).... $ (2.33) $ (2.50) $ (3.41) $ (2.79)
Shares used in computing
pro forma net loss
attributable to common
stockholders, basic and
diluted (unaudited).... 7,457 14,110 11,789 18,442
Other Data (unaudited):
Loans closed (dollar
volume)................ $ -- $ 8,606 $192,389 $103,636 $411,112 $955,063 $1,130,337
Loans closed (loan
volume)................ -- 38 1,028 536 2,469 6,415 7,283
</TABLE>
7
<PAGE>
The following table presents our consolidated balance sheet data as of
September 30, 1999. The pro forma information gives effect to (1) the
conversion of all outstanding shares of preferred stock into common stock, (2)
the issuance of 833,333 shares of Series EEE preferred stock and the issuance
of 833,333 shares of common stock in connection with the acquisition of Genesis
2000, (3) the issuance of 1,333,333 shares of Series EEEE preferred stock and
the issuance of 1,333,333 shares of common stock in connection with the
acquisition of HFN, (4) the issuance of 3,390,377 shares of Series E preferred
stock in October 1999 and November 1999 at a per share price of $9.00. The pro
forma as adjusted data gives effect to the sale of shares of common stock
that we are offering under this prospectus at an assumed per share offering
price of $ , after deducting the underwriting discounts and commissions
and estimated offering expenses, and application of the net proceeds. The
September 30, 1999 pro forma balance sheet is unaudited.
<TABLE>
<CAPTION>
September 30, 1999
------------------------------
Pro Pro Forma
Actual Forma as Adjusted
-------- -------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents...................... $ 2,907 $ 33,379 $
Other current assets........................... 2,033 3,641
Property and equipment, net.................... 5,947 6,195
Total assets................................... 12,637 113,269
Current liabilities............................ 6,797 23,241
Long-term obligations, less current portion.... 4,058 12,149
Mandatorily redeemable convertible preferred
stock and warrants .......................... 54,562 --
Total stockholders' equity (deficit)........... (52,780) 77,879
</TABLE>
Except as otherwise noted, all information in this prospectus:
. reflects a 1-for-3 reverse stock split that will be effected prior to
the completion of this offering;
. assumes that the holders of the convertible debt issued in connection
with the Genesis 2000 acquisition will require that the debt be repaid
solely in cash;
. assumes the closing of the acquisition of HomeBuilders Financial
Network;
. reflects the conversion of all outstanding shares of preferred stock
into shares of common stock upon completion of this offering;
. does not reflect the issuance of shares of our common stock to ABN AMRO
N.V. and other institutions in a private placement transaction on or
before the closing of this offering; and
. assumes no exercise of the underwriters' over-allotment option.
8
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occur, our
business, financial condition or results of operations could be harmed, the
value of our stock could decline and you may lose part or all of your
investment. The risks described below are not the only risks we face.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also harm our business.
Risks Related To Our Business
Our limited operating history makes it difficult to evaluate our future
prospects.
We incorporated in July 1996 and initiated our online mortgage brokerage
operations in June 1997. We recently began operating as a mortgage banker in
October 1999. Therefore, we have only a limited history of recognizing and
addressing risks in our business. In addition, we recently acquired Genesis
2000, a leading provider of loan origination software to mortgage brokers, and
agreed to acquire HomeBuilders Financial Network, a provider of loan services
to home builders. Until we have a longer period of integrated operations with
these acquisitions, we are unlikely to be able to identify and analyze all the
risks inherent in these businesses.
All of our operations have occurred during a period in which the overall
home mortgage market has grown and the online mortgage market has emerged. We
depend upon the continued growth of the overall home mortgage market and,
particularly, on the continued growth of the online mortgage market. The online
mortgage market is still in an emerging stage and competition is accelerating.
Before investing, you should evaluate the risks, expenses and problems
frequently encountered by early-stage companies that are entering new and
rapidly changing markets, including the risks described throughout this
section.
We have a history of losses and expect losses for the foreseeable future.
We have never operated at a profit and, given the level of planned
operating and capital expenditures, we expect to continue to incur operating
losses for the foreseeable future. We also expect to incur net losses for the
foreseeable future. We incurred net losses of $16.0 million for the year ended
December 31, 1998 and $32.1 million in the nine months ended September 30,
1999. As of September 30, 1999, we had an accumulated deficit of $55.0 million.
The size of our future losses will depend, in part, on the rate of growth in
our revenues. It is critical to our success that we continue to devote
financial resources, including some of the proceeds of this offering, to
developing brand awareness for our website and expanding our relationships with
third-party partners, including real estate agents and brokers, who help to
drive traffic to our website. As a result, we expect that our operating
expenses will increase significantly during the next several years, especially
in sales and marketing. As we increase spending, our losses may continue to
increase for the foreseeable future. As a result, we may never achieve or
sustain profitability, and if we do achieve profitability in any period, we may
not be able to sustain or increase profitability on a quarterly or annual
basis. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
While our Genesis 2000 and HomeBuilders Financial Network subsidiaries
have traditionally operated at a profit, we expect to adjust their business
models as part of their integration, which will likely involve significant
additional expenditures and investments. Accordingly, it is possible that both
of these businesses will also operate at a loss for the foreseeable future.
Further, the investments and business model changes that we make to these
subsidiaries may be unsuccessful, and neither of these subsidiaries may ever
return to profitability.
9
<PAGE>
We will need to increase the volume of our business and control costs if we are
to achieve and sustain profitability.
We are currently not profitable. To achieve profitability we believe that
we need to address at least three areas. First, we will need to increase the
volume of our business substantially to allow us to amortize our fixed costs
and technology investments over a significantly higher volume of business. We
currently price our loan products substantially below the prices charged by
many traditional mortgage lenders, but we will be unable to maintain this
pricing level unless the volume of our business increases to cover our fixed
costs and technology investments. Second, we will need to reduce the costs of
acquiring and servicing new customers. We currently spend a significant amount
of money per loan on marketing and distribution and our existing customer
service operations have been structured to support a volume of loans greater
than we currently service. Third, we will need to control the capital
expenditures and other fixed costs of our business while scaling to a level of
transactions at which we are profitable. There is no assurance that we will be
successful in achieving any of these goals or that there are not other factors
that may also affect our ability to achieve profitability.
Our stock price may be adversely affected by significant fluctuations in
quarterly financial operating results.
Our results of operations have varied significantly from quarter to
quarter in the past and we anticipate that they will continue to fluctuate in
the future as a result of a number of factors. Our revenues primarily consist
of fees relating to purchase and refinancing mortgages. We also expect to incur
significant sales and marketing expenses to promote our brand, products and
services. Therefore, our quarterly revenues and operating results are likely to
be particularly affected by the number of purchase and refinancing loans that
we close, as well as sales and marketing expenses. If revenues fall below our
expectations, we generally will not be able to reduce our fixed or other
expenses in sufficient time to respond to the shortfall. Additionally, we may
choose to keep our marketing expenditures at a consistently high level to build
our brand name. Our quarterly operating results could be affected by a variety
of other factors, including:
. interest rate fluctuations;
. the volume of mortgage loan originations;
. the number of loans closed through our mortgage brokerage operations
compared with through our mortgage banking operations;
. the mix of refinancing and purchase mortgage loans;
. seasonality and cyclicality of home buying;
. the level of traffic on our website;
. the possibility that loan closings will be delayed;
. the amount of advertising on our website and the timing of payments
for this advertising;
. the amount and timing of our operating expenses and capital
expenditures;
. our ability to upgrade and develop our systems and infrastructure in a
timely and effective manner;
. our ability to attract new qualified personnel in a timely and
effective manner;
. costs or amortization of goodwill associated with acquisitions of
complementary businesses, technologies, services or products, if any;
. the integration of newly acquired businesses, technologies, services
or products, if any;
. changes in our business strategy;
. sales of homes by our home builder partners;
. growth of our software sales to the mortgage brokerage community; and
. general economic conditions, including economic conditions specific to
the real estate industry.
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Our quarterly results vary according to seasonal patterns in home buying.
We believe home sales typically decline in the winter. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
detailed information on our quarterly operating results.
We have experienced significant growth in recent periods, and if we are unable
to manage our growth effectively our business may suffer.
We have expanded our operations recently and expect to continue to expand
our operations for the foreseeable future. This growth has placed, and will
continue to place, a significant strain on our managerial, operational,
financial and other resources. We have recently hired a number of executive
officers and other key employees. We have grown to 201 employees as of December
15, 1999 from 49 employees on December 31, 1997. We expect to hire additional
employees to support technology, marketing, finance and administration, and
loan processing. We have limited experience training large numbers of new staff
members, and we could experience a significant amount of employee turnover. If
we fail to manage the growth of our operations and staff effectively, the
quality of our services will be impaired and our financial performance will
suffer.
We may experience difficulty identifying, acquiring and integrating
acquisitions.
We expect to supplement our internal growth by acquiring complementary
businesses, technologies, product lines or service offerings. We may be unable
to identify and acquire suitable acquisition candidates on reasonable terms, if
at all. We compete for acquisition candidates with companies that have
substantially greater financial and management resources than us. If we do
complete an acquisition, integrating newly acquired organizations and products
and services is likely to be expensive, time consuming and a strain on our
managerial resources. Acquisitions, particularly multiple acquisitions over a
short period of time as is the case with our acquisition of Genesis 2000 and
our proposed acquisition of HFN, involve a number of risks that may result in
our failure to achieve the desired benefits of the transaction. These risks
include, among others:
. difficulties in assimilating the operations of the acquired
businesses;
. potential disruption of our existing businesses;
. inability to integrate, train, retain and motivate key personnel of
the acquired businesses;
. diversion of our management and employees from our day-to-day
operations;
. inability to achieve market acceptance or enhance brand loyalty;
. inability to incorporate acquired technologies, products or services
successfully;
. operating companies in different geographical locations; and
. potential impairment of relationships with our employees, customers
and strategic partners.
We may finance potential acquisitions by issuing shares of our common
stock which could dilute our existing stockholders. We may also use cash or
incur additional debt to pay for these acquisitions. In addition, we may be
required to expend substantial funds and to amortize significant amounts of
goodwill and other intangible assets in connection with future acquisitions,
which could materially affect our operating results.
Our business strategy depends on promoting our brand and upon achieving brand
recognition.
There are a growing number of websites that offer services that are
similar to and competitive with our services. Therefore, we believe that brand
recognition will become an increasingly important competitive advantage in our
industry. Establishing and maintaining our brand is critical to expanding our
customer base, solidifying our business relationships and successfully
implementing our business strategy. We cannot assure you that our brand will be
viewed positively and be accepted by the market, or that we will have a strong
and
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positive reputation. Additionally, expenses incurred toward building brand
awareness do not have an immediate payback, and it may be a long time before
the general public recognizes and makes positive connections with our brand. In
order to attract and retain customers and business partners and to promote and
maintain our brand in response to competitive pressures, we intend to increase
our financial commitment to creating and maintaining prominent brand awareness.
If we fail to promote our brand successfully in local and national
markets, or if these efforts are excessively expensive, our business may be
harmed. The value of our brand could be diluted if visitors to our website do
not perceive our existing services to be of high quality or if we alter or
modify our brand image, introduce new services or enter into new business
ventures that are not favorably received. Moreover, promoting and enhancing our
brand will also depend, in part, on our ability to provide a high-quality
customer experience. We cannot assure you that we will be successful in
achieving this goal.
If online mortgages or our service offerings do not achieve widespread consumer
acceptance, our business will be adversely affected.
The development of an online market for mortgage loans is embryonic,
evolving rapidly and characterized by an increasing number of market entrants.
Therefore, there is significant uncertainty with respect to the viability and
growth potential of this market. Our success will depend in large part on
widespread use of the Internet as a commerce medium and as a marketplace for
financial transactions. Our success will also depend on a number of other
factors, including our ability to market our services to a sufficiently large
number of customers cost-effectively and our ability to overcome the perception
among many real estate market participants that obtaining mortgages online is
risky for consumers.
A number of factors may inhibit Internet usage by consumers, including
inadequate network infrastructure, security concerns, inconsistent quality of
service and the unavailability of cost-effective, high-speed service. We do not
know whether consumers will significantly increase their use of the Internet
for obtaining mortgage loans or whether our services will be accepted by
consumers. If the online market for mortgage loans fails to develop, or
develops more slowly than expected, or if our services do not achieve
widespread market acceptance, our business will suffer.
Our market is intensely competitive and we expect competition will increase.
The market for web-based services is highly competitive and there are no
substantial barriers to entry, making it possible for new competitors to
proliferate rapidly. In addition, many of our existing and potential
competitors have longer operating histories in the traditional mortgage and
Internet markets, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
We believe competition takes place on many levels, including pricing,
convenience in obtaining mortgage loans, breadth of product offerings and
lending sources, customer service, marketing and brand awareness. Our principal
competitors include:
. traditional lenders and mortgage brokers with no online presence;
. traditional lenders and brokers that offer access to their mortgage
products over the Internet, such as BankAmerica, Countrywide and
General Motors Acceptance Corporation; and
. new competitors in the financial services sector including E-Loan,
FiNet, mortgage.com and Intuit's QuickenMortgage.
In addition, we compete with a variety of websites for customer awareness
and Internet traffic, some of which are also our partners and all of which
compete with us for awareness, including:
. websites that provide access to real estate-related content and
services, including mortgage calculators and information on the home
buying process and which generate leads for mortgage providers,
including GetSmart, Lending Tree and Microsoft's HomeAdvisor;
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. websites that offer real estate listings and related services, such as
CyberHomes, Homes.com, HomeSeekers, Homestore.com and Microsoft's
HomeAdvisor;
. general purpose consumer websites such as Alta Vista, Excite,
Infoseek, Lycos and Yahoo! that offer real estate-related content;
. newspapers and magazines that advertise real estate listings; and
. other financial institutions that are partnering with mortgage
companies to offer related services, such as DLJdirect and Fidelity.
Further, in establishing relationships with third-party partners we
compete with several companies that specialize in providing services to
companies in each channel, including, for example:
. companies specializing in captive mortgage operations for home
builders, including CTX and Norwest; and
. companies providing loan origination software for mortgage brokers,
including Calyx, Contour and Byte.
Many of these competitors have greater financial and other resources than
us and are therefore able to respond more quickly to take advantage of new or
changing opportunities, technologies and customer requirements, undertake more
extensive marketing campaigns for their products and services, adopt more
aggressive pricing policies and make more attractive offers to potential
employees, distribution partners, commerce companies and third-party service
providers. Accordingly, our competitors may experience greater growth than we
do and our strategic partners may terminate their agreements with us to enter
into arrangements with these competitors. We may not be able to compete
successfully against our current or future competitors. To compete
successfully, we must respond promptly and effectively to technological
changes, evolving industry standards and our competitors' innovations and
competitive marketing efforts. Our response must include, among other things,
continuing to enhance and expand our products and services and our sales and
marketing channels. Increased competition, particularly online competition,
could result in price reductions, reduced margins and loss of market share, any
or all of which could harm our business.
We depend heavily on partnership arrangements with web portal companies and
online real estate websites to generate traffic to our website, and the loss of
one or more of these relationships could harm our business.
A significant portion of our consumer traffic comes from web portals as
well as real estate-related and financial services websites with whom we have
distribution agreements, including AOL's Netscape/Netcenter and Digital City,
Inc., Earthlink, GetSmart, Harmon Homes, Home Fair, Homes.com and NBCi/Snap!.
We intend to pursue additional distribution relationships in the future. Many
of these agreements contain exclusivity features. For example, on some of these
websites, we are featured as the exclusive provider of mortgage services. To
secure our relationships, we often pay significant fees to these partners. We
cannot assure you that we will experience an increase in user traffic as a
result of new affiliations or that we will maintain or increase our current
levels with existing partners.
There is intense competition for placement on portals and other websites,
as well as increasing competition for placement on real estate-related
websites. Our distribution agreements have terms of up to three years, with the
majority of them lasting one to two years with automatic one-year renewals.
When these agreements expire, we may be unable to renew them or enter into
replacement agreements. If we fail to renew any of these agreements or enter
into substantially similar agreements with other partners, we could experience
a decline in the number of loan originations and our competitive position would
be significantly weakened. In addition, our operating results would likely be
adversely affected. Even if we renew our existing agreements or enter into
substantially similar agreements with other partners, we may be required to pay
significantly higher fees to do so and may be unable to retain the benefit of
any exclusivity privilege we currently enjoy.
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We depend heavily on a range of traditional third-party referral sources for
lead generation and the loss of one or more of these relationships could
adversely affect our business.
We depend heavily on a range of traditional third party sources for lead
generation. For example, we serve as the mortgage service provider to
MarketPlace Bank, the United States banking initiative for Canadian Imperial
Bank of Commerce, or CIBC. We also serve as the online mortgage partner for
Pinnacle Relocation. In our home builder channel, we serve as the mortgage
partner for Beazer Homes. In addition to each of these situations, all of our
non-consumer direct channels depend significantly on a range of partners who
promote our services to their customers. The loss of one or more of these
relationships could adversely affect our business.
Although we intend to continue to serve these partners in a manner and
fashion that encourages them to remain in partnership with us, we cannot
predict whether and to what extent the needs of these partners may change over
time. Further we cannot be assured that the terms of these partnerships will
continue to be acceptable to us over time.
It is important for us to have a critical mass of real estate listings
available on our website in order to reach home buying customers early in the
home buying process, and the loss of one or more of our listing partners could
harm our business.
We depend upon aggregate real estate listings information from several
hundred partners which include such varied sources as real estate agents, real
estate brokers, real estate print publication aggregators, online third-party
property listing aggregators and multiple listing services. We have agreements
with these third parties that are not exclusive and are generally terminable at
will. These third parties may choose not to provide listing information to us
on an on-going basis. Currently, we do not pay for property listings and in the
future it is possible that we may be required to make such payments, which
could significantly increase our expenses. We believe that our future success
will depend in part on our ability to demonstrate value to these third parties.
If we are unable to do so we may incur substantial additional operating
expenses and may not be able to provide a superior service offering.
We need to continually develop our content, products and service offerings to
remain competitive and increase our brand awareness.
Our business strategy requires us to enhance and improve the ease of use,
responsiveness, functionality and content of our website, and to develop new
product and service offerings. These efforts may require us to develop
internally or to license increasingly complex technologies. We intend to expand
our product offerings to include sub-prime mortgages, home equity credit lines
and construction loans. Additionally, we will continue to develop our website
by deepening our content offerings to provide more breadth and depth of
information on home buying and home financing and by expanding our real estate
listings. Developing and integrating new products and services into our website
could be expensive and time consuming. In addition, we will need to modify our
Genesis 2000 software to enhance its Internet connectivity. We can make no
assurances that any new features, functions or services will achieve market
acceptance or enhance our brand loyalty. If we fail to add additional content
or to develop and introduce or acquire new functions or services effectively
and on a timely basis, we may not be able to attract new users or retain our
existing users and our business will suffer.
Volatility in interest rates could adversely impact our operational
performance.
Our ability to profitably resell loans that we fund may be impaired by
volatility in interest rates. We typically establish the interest rates on the
mortgage loans that we originate at the same time we obtain best-efforts
commitments from the anticipated purchasers of such loans. The mortgage loan
purchase commitments we obtain are contingent upon our delivery of the closed
loans to the purchasers within specified periods. To the extent that we are
unable to deliver closed loans within the specified periods and interest rates
increase, we may experience no gain or even a loss on the sale of these loans.
In addition, any increase in interest rates will increase the cost of
maintaining our warehouse line of credit, which we will depend on to fund a
preponderance of the loans we originate in the future.
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In addition, a sharp decrease in interest rates over a short period may
cause customers who have interest rates on mortgages committed through iOwn to
either delay closing their loans or refinance with another lender. If this
occurs in significant numbers, it may have an adverse effect on our business or
quarterly results of operations. In addition, if the percentage of committed
loans that convert into closed loans declines substantially, the purchasers of
these loans may raise the rates they charge us or decide not to buy loans from
us.
If we are unable to maintain adequate financing sources, our ability to
originate and fund mortgage loans will be impaired and our revenues will
suffer.
The lenders to whom we deliver loans, either as a mortgage broker or as a
mortgage banker, are under no obligation to continue their relationships with
us. Although we maintain relationships with 30 lenders, most of the loans we
originate are funded by a much smaller subset of these lenders. This small
group of lenders tends to provide more favorable rates and terms to our
customers. We believe that if and when other lenders offer comparable terms,
the sources of loans will shift accordingly. If lenders with the most
competitive terms do not continue to accept the loans we originate, our
business could suffer.
We are generally required to repurchase mortgage loans funded by lenders
in the event of fraud or the discovery of misrepresentations or inaccuracies in
the borrowers' loan applications. Although we have errors and omissions
liability insurance to protect ourselves from this risk, there can be no
assurance that we will not be compelled to repurchase loans in the future, or
that our future repurchase of loans will not harm our business.
Our ability to fund mortgage loans internally depends to a large extent
upon our ability to secure financing on acceptable terms. We currently fund a
portion of the loans we originate through a line of credit known as a warehouse
line of credit. Currently we have only one source of warehouse funding. Our
current $10 million warehouse line of credit expires on April 8, 2000. We are
currently in discussions with Bank United of Texas and a number of other
potential providers of warehouse loan facilities for an expanded line of credit
for additional warehouse facilities. If we are unable to negotiate such
facilities, we may have to curtail the growth of our origination and funding
activities.
Our warehouse line of credit subjects us, and future financing
arrangements will likely subject us, to financial covenants and other
restrictions. Because we are an early stage company that is actively investing
in growth, in the future we may be in default under those covenants and
restrictions. In those cases, we must rely on waivers from the lender. If we
are unable to operate within the covenants or obtain waivers, all amounts that
we owe under our financing arrangements could become immediately payable. The
termination of a financing arrangement by a lender, or the acceleration of our
debt, would have a significant negative effect on our business.
If we were to increase our sub-prime mortgage business in the future, our
business would be subject to significantly greater risks.
We currently broker sub-prime mortgages to lenders. These loans are
submitted for preapproval to lenders and the lender funds the loans. In the
future, we also may decide to originate and fund loans to borrowers who have
impaired or limited credit histories or higher debt-to-income ratios than prime
mortgage lenders typically would allow. The sub-prime mortgage banking industry
is riskier than the conforming mortgage business primarily because there is a
greater risk of default and product offerings for sub-prime mortgages
frequently change, which may make selling a sub-prime loan to our institutional
investors more difficult. Our failure to adequately address the related risks
could have a material adverse effect on our business and results of operations.
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We may incur significant losses as a result of loan defaults that occur prior
to the sale of the loan to investors or as a result of repurchases required if
we breach certain representations and warranties.
As a mortgage banker, we face risks associated with loan defaults, which
typically increase during economic downturns. From the time that we fund a loan
to the time we sell the loans we will be generally at risk for any loan
defaults. Once we sell the loans we originate, the risk of loss from loan
defaults and foreclosure generally passes to the purchaser of the loans. During
the loan sale process, however, we would typically be required to make certain
representations and warranties to the purchasers of loans relating to the
conformance of those loans with state and federal laws and applicable investor
guidelines. If a loan defaults and there has been a breach of these
representations and warranties, we may be required to repurchase the loan and
bear any subsequent loss or indemnify the purchaser for any damages caused by
the breach. If we must repurchase a loan, we would have to hold it until it is
paid off or foreclosed or we may have to sell the loan at less than the
outstanding principal balance. Any of the above events would seriously harm our
business and operating results.
Our ability to operate our mortgage banking operations depends on the continued
existence of federal programs, mortgage-related programs and our continued
qualification for those programs.
Our ability to sell mortgage loans to institutional investors in the
secondary market is largely dependent upon the continuation of programs
administered by Fannie Mae, Freddie Mac, Ginnie Mae and private mortgage
investors. These entities facilitate the sale of mortgage loans and mortgage-
backed securities through the secondary market. Any discontinuation of or
reduction in the operation of those programs or any significant impairment of
our eligibility to participate in those programs would hurt our financial
performance. Also, any significant adverse change in the secondary market level
of activity or the underwriting criteria of Fannie Mae, Freddie Mac, Ginnie Mae
or other private mortgage investors would reduce our revenues.
Our failure to manage the timely delivery of services provided by third parties
in the loan process could harm our business.
We rely on other companies to provide services which assist us in
performing the loan underwriting process, including property appraisals, credit
reports, flood certifications and title searches. Any interruptions, delays or
mistakes in providing these ancillary services may cause delays in our
processing and closing of loans for our customers. The value of the service we
offer and the ultimate success of our business depends on our ability to manage
the timely delivery of these ancillary services by the third parties with whom
we have business relationships. If we are unsuccessful in managing the timely
delivery of these ancillary services, we will likely experience decreased
customer satisfaction and our business will likely suffer.
We depend on automated underwriting, and the loss of our relationship with
significant providers of automated underwriting would harm our business.
We depend on automated underwriting and other services offered by
government sponsored enterprises to help reduce loan repurchase risk and to
ensure that our mortgage services can be offered on a timely and efficient
basis. The use of automated underwriting permits us to streamline mortgage
originations by moving conditional underwriting to the initial stages of the
loan process. We are an approved seller by Freddie Mac and Fannie Mae and have
contracts with each that allow us to utilize their respective automated
underwriting systems. Additionally, several of our lenders and investors
sponsor our use of these automated underwriting systems. Other lenders, such as
GE Capital Mortgage Services and GMAC/Residential Funding Corporation,
also offer proprietary underwriting systems. We cannot assure that we will
remain in good standing with Freddie Mac or Fannie Mae or those lenders
currently sponsoring our use of these systems, or that these entities will not
prohibit our use of their automated underwriting systems for other reasons. We
expect to process a significant portion of our conforming loans using the
automated underwriting services of Freddie Mac and Fannie Mae, or other
providers of automated underwriting services. The termination of our agreements
with Fannie Mae or Freddie Mac or any of these other lenders, could adversely
impact our business by reducing our
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ability to streamline the mortgage origination process. Furthermore, we may not
be able to implement an alternative automated underwriting services in a manner
that will lead to substantial processing efficiencies.
Loans closings may be delayed, which can lead to unpredictable quarterly
fluctuations in revenues and profitability.
The time between the date when an application is received from a customer
and the date on which the loan closes has typically been lengthy and
unpredictable. The loan application and approval process is often subject to
delays over which we have little or no control, including the timing of the
customer's decision to commit to an available interest rate, the timeliness of
completed appraisals and the adequacy of the customer's own disclosure
documentation. This uncertain timetable can have a direct impact on our revenue
and profitability for any given period and may cause us to expend substantial
funds and management resources supporting the loan completion process without
ever generating revenue from closed loans. Furthermore, in situations where we
have committed to extend the closing of loans beyond the associated interest
rate commitment periods, we may incur additional costs.
Our success depends on retaining our key senior management team and attracting
and retaining qualified individuals in the online real estate, mortgage and
related industries.
Our future success depends to a significant extent on the continued
services of our senior management, particularly Edward P. Hoyt, our Chief
Executive Officer and Chairman of the Board. The loss of the services of any
person on our senior management team would likely have a significantly
detrimental effect on our business. Although we have obtained key person life
insurance for Mr. Hoyt, we believe this coverage would not be sufficient to
compensate us for the loss of his services.
We may also 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 experienced, and we expect in the future to continue to
experience, difficulty in hiring and retaining highly skilled employees with
appropriate qualifications. Attracting and retaining qualified personnel with
experience in the real estate industry, a complex industry that requires a
unique knowledge base, is an additional challenge for us. In addition, there is
significant competition for qualified employees in the Internet industry and,
in particular, in northern California where we are located. If we do not
succeed in attracting new personnel or retaining and motivating our current
personnel, our business will suffer.
We depend on continued improvements in our systems and the Internet
infrastructure to provide our services as the volume of traffic to our website
and on the Internet increases.
We host and maintain our own website and services and maintain our own
network infrastructure. Our revenues depend in part on the number of consumers
who visit our website and the volume of transactions processed through the
website. Accordingly, the satisfactory performance, reliability and
availability of our website, transaction-processing systems and network
infrastructure are critical to our ability to attract and retain customers and
maintain adequate customer service levels. Any system or network failure that
results in the unavailability of our website or that causes interruption or
slower response time of our services could result in less traffic to our
website and, if sustained or repeated, could reduce the attractiveness of our
services to consumers, real estate professionals, providers of real estate-
related products and services and advertisers. In addition, any significant
increase in the volume of our website traffic could strain the capacity of our
existing technical infrastructure, which could lead to slower response times or
system failures. This would cause the number of real property search inquiries,
loan applications, advertising impressions and other revenue-producing
inquiries to decline, any of which could hurt our revenue growth, reputation
and our brand equity. We will need to incur additional costs to upgrade our
infrastructure if our server and networking systems cannot adequately service
increased volumes of traffic. There can be no assurance that we will be able to
accurately expand and upgrade our systems to accommodate these increases in a
timely manner.
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The recent growth in Internet traffic has caused frequent periods of
decreased performance, requiring Internet service providers and users of the
Internet to upgrade their infrastructures. Our ability to increase the speed
with which we provide services to consumers and to increase the scope of these
services is limited by and dependent upon the speed and reliability of the
Internet. Consequently, the emergence and growth of the market for our services
is dependent on the performance of and future improvements to the Internet.
We may be unable to protect our intellectual property and proprietary rights
adequately and we may be subject to claims by third parties for infringement.
We regard substantial elements of our website and underlying technology
as proprietary. We seek to protect our proprietary rights through a combination
of trademarks, copyrights and confidentiality agreements. In the future, we may
also seek to protect our proprietary technology through the use of patents. No
assurance can be made that these future patents will not be invalidated or that
any claims allowed from those patents will have sufficient scope or strength.
Despite our precautionary measures, third parties may copy or otherwise obtain
and use our proprietary information without authorization, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States, or develop similar
technology independently. Any legal action that we may bring to protect our
proprietary information could be expensive and distract management from day-to-
day operations.
We also hold domain names that are important to our business. The
regulation of domain names is subject to change. Some proposed changes include
the creation of additional top-level domains in addition to the current top-
level domains, such as ".com," ".net" and ".org." It is also possible that the
requirements for obtaining and holding a domain name could change. Therefore,
we may not be able to obtain or maintain relevant domain names for all areas of
our business. It may also be difficult for us to prevent third parties from
acquiring domain names that are similar to ours, that infringe our trademarks
or that otherwise decrease the value of our intellectual property.
We also receive or license content for our website from third parties and
it is possible that we could become subject to infringement actions based upon
the content received or licensed from these third parties. Any claims brought
against us, regardless of their merit, could result in costly litigation and
the diversion of our financial resources and technical and management
personnel. Further, if such claims are successful, through litigation or
otherwise, we may be required to change our trademarks, alter our content and
pay financial damages, which could adversely affect our business. We also
expect that we may be subject to legal proceedings and claims from time to time
in the ordinary course of our business, including claims of alleged
infringement of the trademarks and other intellectual property rights of third
parties by us and our licensees.
Mortgage-related Internet technologies are being developed rapidly. As a
result, we believe that disputes regarding the ownership of these technologies
are likely to arise in the future. Third parties may assert infringement claims
against us in the future and we may incur substantial costs in defending
against these third-party infringement claims, regardless of the merit of those
claims. We cannot guarantee that we would be able to license comparable
technology on reasonable terms, or at all, if our use was found to infringe on
someone else's rights. If we were unable to license comparable technology on
reasonable terms, our business could suffer.
In November 1999, CheckFree Corporation introduced a financial software
product under the brand name "Genesis 2000," which we consider an unauthorized
usage of the Genesis 2000, Inc. registered trademark of "Genesis 2000" under
U.S. Registration No. 1,794,755. Our legal counsel has notified CheckFree
Corporation regarding their unauthorized usage of the "Genesis 2000" mark.
CheckFree has refused to withdraw their use of the mark. We may take legal
action to enforce the registered trademark of Genesis 2000. Any legal action we
may take would require the attention of certain key employees and cause us to
incur legal and related costs and expenses. The significant expenditure of time
by any of our key employees could detract from our other initiatives and could
harm our business.
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Our business and reputation may suffer if we are unable to process our
customers' loan applications in a timely and efficient manner.
We have occasionally received complaints from customers stating that they
have suffered adverse financial effects from our products and services. This is
a common problem in our industry, and typically arises when a borrower fails to
lock in an interest rate and, at the time of the closing of the transaction,
the available rate has increased from the rate available at the time of initial
application. Although assessment of these claims is highly subjective, it is
possible that the borrower could argue that he or she had not been made
sufficiently aware of the possibility of rate increases and the protection
afforded by a rate lock. In these instances it may be necessary to make certain
concessions to satisfy such disgruntled customers. If, despite our efforts,
these complaints continue, our business may suffer.
Our business will be adversely affected if we are unable to safeguard the
security and privacy of our customers' financial data.
The secure transmission of confidential information over public networks
is critical to the acceptance of electronic commerce, particularly in the
mortgage banking and brokerage markets. A significant barrier to electronic
commerce and online communications has been the ability to securely transmit
confidential information over the Internet. Internet usage could decline if any
well-publicized compromise of security occurred. The concerns over the security
of transactions conducted on the Internet and the privacy of users may also
inhibit the growth of the Internet generally, and electronic commerce in
particular. We rely on certain encryption and authentication technology
licensed from third parties to provide secure transmission of confidential
information, such as a home buyer's financial statements. There can be no
assurance that advances in computer capabilities, new discoveries in the field
of cryptography, or other events or developments will not result in a
compromise or breach of the algorithms we use to protect customer transaction
data. A party who is able to circumvent our security measures could
misappropriate proprietary information or cause disruptions in our operations.
We may be required to expend significant capital and other resources to protect
against such security breaches or to alleviate problems caused by such
breaches.
We also retain on our premises personal financial documents that we
receive from prospective borrowers in connection with their loan applications.
These documents are highly sensitive and if a third party were to
misappropriate our prospective borrowers' personal information, prospective
borrowers could possibly bring legal claims against us.
We cannot assure that our privacy policies will be deemed sufficient by
our prospective customers or any federal or state laws governing privacy which
may be adopted in the future. In addition, repeated security breaches could
damage our reputation and expose us to a risk of loss or litigation and
possible liability.
We would lose significant revenues and incur substantial costs if our critical
computer systems, or those of our customers and third party lenders, do not
properly handle date information after December 31, 1999.
Many currently installed computer systems and software products only
accept two digits rather than four to identify the year in any date. Thus, the
Year 2000 will appear as "00", which the system might consider to be the year
1900 rather than the Year 2000. This could result in system failures, delays or
miscalculations. Those computer systems and software that have not been
developed or enhanced recently may need to be upgraded or replaced to comply
with Year 2000 requirements.
Any significant Year 2000 failure could prevent us from operating our
business, prevent users from accessing our website or change the behavior of
advertisers, consumers or persons accessing our website. In addition, certain
of our content providers may not accurately provide date data. For example,
during the Year 2000, a home constructed in 1900 might inadvertently be listed
on our website as a newly built home. A significant number of such failures
could cause consumers to doubt the reliability of information contained in our
listings, which could result in a reduction in traffic to our website.
19
<PAGE>
We believe that each of our software systems on a stand-alone basis is
currently Year 2000 compliant. However, we rely on software components acquired
from third parties which may not be Year 2000 compliant. Furthermore, the
Internet operations of many of our customers and lenders may be affected by
Year 2000 complications. The failure of these parties to ensure that their
systems are Year 2000 compliant could result in decreased Internet usage or an
inability to obtain necessary data communication and telecommunication
capacity, which in turn could have an adverse effect on our business. The
potential worst case scenario includes:
. an inability to receive online applications due to a general failure
of the Internet;
. an inability to process loan applications, process searches, post
listings, track advertising or engage in similar normal business
activities;
. corruption of data in our internal information systems;
. significant delays or interruptions in our processing capabilities
that depend on third-party systems;
. substantial financial losses associated with delays in closing loans;
and
. failure of infrastructure services provided by third parties,
including public utilities and Internet service providers.
We have not incurred significant costs to date complying with Year 2000
requirements, and we do not believe that we will incur significant costs for
such purposes in the foreseeable future. If we discover any Year 2000 errors or
defects in our internal systems, we could incur substantial costs in making
repairs. The resulting disruption of our operations could seriously damage our
business. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Readiness Disclosure."
We expect to derive revenues from selling advertisements on our website and
sponsorship activities, and if there is no market demand for these
advertisements and sponsor activities, these revenue opportunities would be
limited.
We anticipate increased revenue in the future from advertising and
sponsorship activities. Our business would be adversely affected if the market
for web advertising fails to develop or develops more slowly than expected. Our
ability to generate advertising revenues will depend on, among other factors,
the development of demand for the Internet as an advertising medium, the amount
of traffic on our website and our ability to achieve and demonstrate user and
member demographic characteristics that are attractive to advertisers. Most
potential advertisers and their advertising agencies have only limited
experience with the Internet as an advertising medium and have not devoted a
significant portion of their advertising expenditures to Internet-based
advertising. The widespread adoption of technologies that permit Internet users
selectively to block out unwanted graphics, including advertisements, attached
to web pages could also harm the growth of the Internet as an advertising
medium and therefore our revenue.
If we securitize our loans in the future, we will be subject to additional
risks.
We currently do not securitize the loans we originate, but rather sell or
swap them to institutional investors. Although we do not currently intend to
securitize our loans, we may decide to do so in the future if market conditions
or other considerations justify doing so. Securitizing our loans would subject
us to numerous additional risks, including delayed operating cash flow,
economic conditions in the general securities and securitization markets, the
need to obtain satisfactory credit enhancements, retention of credit enhancing
residual interests and increased potential for earnings fluctuations.
If we were to securitize our loans, we would have to address these and
other related risks. Our failure to do so could have a material adverse effect
on our business.
20
<PAGE>
If we retain the servicing rights to our loans in the future, we would be
subject to additional risks.
Generally, we sell the servicing rights to our loans at the same time
that we sell those loans. Although we currently do not intend to retain the
servicing rights to our loans, we may decide to do so in the future if market
conditions or other considerations justify doing so. If we were to service our
loans ourselves, we would be subject to additional risks, including decreased
operating cash flow and the potential of having to write down the value of the
servicing rights through a charge to earnings, particularly as a result of
changing interest rates and the use of alternative financing options that lead
to increased prepayments. If we were to retain the servicing rights to our
loans, we would have to adequately address these and other related risks. Our
failure to do so could harm our operating results.
Risks Related To Our Industry
The real estate industry is both seasonal and cyclical, which could affect our
quarterly results.
Our business is seasonal. We anticipate that as the online mortgage
origination industry matures, our business will be increasingly susceptible to
the same seasonal factors that affect the mortgage industry as a whole. The
real estate industry experiences a decrease in activity during the winter.
However, because of our limited operating history, we do not know if or when
any seasonal pattern will develop or the size or nature of any seasonal pattern
in our business.
In addition, the residential real estate and mortgage business in which
we operate is cyclical. Shifts in the economy and interest rates, as well as in
residential real estate values, generally affect the number of home sales and
refinancing activities. Since our incorporation, sales of residential homes in
the United States have been at historically high levels. The economic swings in
the real estate industry may be caused by various factors. When interest rates
are high or national and global economic conditions are perceived to be or are
weak, there is typically less sales activity in real estate. A decrease in the
current level of sales of real estate and those products and services related
to the real estate industry could adversely affect demand for our mortgage
products and services.
We may be particularly affected by general economic conditions.
Purchases of real property and related products and services are
particularly affected by negative trends in the general economy. Our success
depends to a significant extent upon a number of factors relating to
discretionary consumer and business spending, and the overall economy, as well
as regional and local economic conditions in markets in which we operate,
including:
. interest rates;
. employment levels;
. wage and salary levels;
. availability of credit; and
. taxation policies.
An increase in interest rates may reduce mortgage transactions.
A high percentage of mortgage loan transactions involve the refinancing
of existing mortgages. Homeowners are motivated to refinance primarily when
interest rates fall below the rates of their existing mortgages. In the event
interest rates increase significantly, homeowners' incentive to refinance will
be greatly reduced and the number of loans that the industry originates could
decline significantly. Similarly, if there were a sustained increase in
interest rates, there would eventually be some impact on the market for
purchase mortgages as higher monthly payments would make housing less
affordable.
21
<PAGE>
If we are unable to comply with mortgage banking and mortgage brokerage rules
and regulations, our ability to originate or fund loans may be restricted.
The mortgage banking and lending businesses are heavily regulated under
federal and state laws. These laws and related regulations impose numerous
obligations and restrictions on our activities. In particular, these rules
limit the broker fees, interest rates, finance charges and other fees we may
assess, require extensive disclosure to our customers, regulate advertising
practices, prohibit discrimination and impose on us multiple qualification and
licensing obligations. We may not always have been and may not always be in
compliance with these requirements.
Our failure to comply with these standards could lead to revocation of
required licenses or registrations, loss of approved status, voiding of loan
contracts, demands for loan repurchases from mortgage loan purchasers, class
action lawsuits and administrative enforcement actions. These regulatory
requirements are subject to change and may in the future become more
restrictive, making compliance more difficult or expensive or otherwise
restricting our ability to conduct our business.
At the state level, we are subject to licensing and regulation in most of
the states where we act as a mortgage broker or lender. Some states also
require prior approval before a change of control occurs. In addition, any
person who acquires control of 10% or more of our voting stock may be subject
to certain state licensing regulations, which require the periodic filing of
certain financial information and other personal and business information. If
any person controlling 10% or more of stock refuses or fails to comply with
such filing requirements, our existing licensing arrangements could be
jeopardized. We also must comply with state usury laws. If we fail to comply
with these laws, the states can impose civil and criminal liability and
restrict our ability to operate in those states.
At the federal level, our mortgage brokering and funding activities are
regulated under a variety of laws, including the Truth in Lending Act and
Regulation Z, the Equal Credit Opportunity Act and Regulation B, the Fair
Housing Act, the Fair Credit Reporting Act, the Real Estate Settlement
Procedures Act and Regulation X, and the Home Mortgage Disclosure Act of 1975
and Regulation C. As the mortgage lending and brokerage businesses evolve in
the online environment, legislators, regulators and industry participants may
advocate additional legislative or regulatory initiatives. Should existing laws
or regulations be amended or new laws or regulations be adopted, we may need to
comply with additional legal requirements and incur additional expenses, be
subject to regulation of the listings we provide and be precluded from certain
activities.
The Real Estate Settlement Procedures Act (RESPA) was designed to prevent
abuses in the referral of business among vendors in the real estate industry.
It prevents certain types of payments between and by certain providers of
services deemed to be "settlement services" and it requires a range of
disclosures when certain types of referrals are made. We believe the online
promotion and advertising and integrated or co-branded online service offerings
were never envisioned by RESPA, nor were the types of services that we provide
through Genesis 2000 or HomeBuilders Financial Network. As a result, it is
difficult for us to be sure that we are, and will continue to be, in compliance
with RESPA.
Further, given our goals of creating a more integrated consumer
experience around the home buying process, we will increasingly find ourselves
in a position where we market settlement services provided by vendors with whom
we have business relationships or provide additional services ourselves in a
way that may cause us to unintentionally be in violation of this act.
Many federal laws and regulations that limit brokers' fees are unclear.
In the last three years there has been significant litigation concerning limits
on mortgage broker fees. The lack of clarity in this area of law is compounded
when applied to mortgage brokers and lenders operating in an Internet
environment and it is possible that plaintiffs' attorneys may attempt to assert
similar allegations against Internet lenders.
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<PAGE>
Changes in the law governing tax treatment of home mortgage interest may harm
our business.
Members of Congress, government officials and political candidates have
from time to time suggested the elimination of the mortgage interest deduction
for federal income tax purposes, either entirely or in part, based on borrower
income, type of loan or principal amount. Because many of our loans are made to
borrowers for the purpose of purchasing a home, the competitive advantage of
tax deductible interest, when compared with alternative sources of financing,
could be eliminated or seriously impaired by this type of governmental action.
Accordingly, the reduction or elimination of these tax benefits could have a
material adverse effect on the demand for the kind of mortgage loans we offer.
Risks Related To The Internet
The regulation of the Internet is unsettled and future regulations could harm
our business.
Laws and regulations directly applicable to electronic commerce or
relating to online content, user privacy, access charges, liability for third-
party activities, jurisdiction and taxation may become more prevalent in the
future. It is uncertain as to how existing laws will be applied toward the
Internet. Such legislation could dampen the growth in Internet usage generally
and decrease the acceptance of the Internet as a commercial medium. Although
our business is based in California, the governments of other states or foreign
countries might attempt to regulate our activities or levy sales or other taxes
on us.
The tax treatment of the Internet and electronic commerce is currently
unsettled. A number of proposals have been made at the federal, state and local
level and by various foreign governments to impose taxes on the sale of goods
and services and other Internet activities. In the future, laws may impose
taxes or other regulations on Internet commerce, which could substantially
impair the growth of electronic commerce.
Some local telephone carriers have asserted that the increasing
popularity and use of the Internet have burdened the existing
telecommunications infrastructure, and that many areas with high Internet use
have begun to experience interruptions in telephone service. These carriers
have petitioned the Federal Communications Commission to impose access fees on
Internet service providers and online service providers. If access fees are
imposed, the costs of communicating on the Internet could increase
substantially, potentially slowing the increasing use of the Internet. This
slowing could in turn decrease demand for our services or increase our cost of
doing business.
The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws such as those governing intellectual property,
telecommunications, privacy and taxation apply to the Internet. In addition,
the growth and development of the market for electronic commerce may prompt
calls for more stringent consumer protection laws, both in the United States
and abroad, that may impose additional burdens on companies conducting business
over the Internet. In the event the Federal Trade Commission, Federal
Communications Commission, local authorities or other governmental authorities
adopt or modify laws or regulations relating to the Internet, our business
could suffer.
Our internal network infrastructure could be disrupted by a number of different
occurrences.
Our operations depend upon our ability to maintain and protect our
computer systems, which are located at our corporate headquarters in San
Francisco, California, our contact management center in Martinez, California.
In addition we have contracted with third parties to host back-up websites in
California and Virginia. Nevertheless, our systems are vulnerable to damage for
break-ins, unauthorized access, vandalism, fire, floods, earthquakes, power
loss, telecommunications failures and similar events. Although we maintain
insurance against these occurrences and general business interruptions, the
amount of coverage may not be adequate in any particular case.
23
<PAGE>
We expect that hackers may attempt to penetrate our network security from
time to time. Because a hacker who penetrates our network security could
misappropriate proprietary or private consumer information or cause
interruptions in our services, we might be required to expend significant
capital and resources to protect against, or to alleviate, problems caused by
these security breaches.
The Internet industry is characterized by rapid technological change, and if we
fail to effectively adapt to these changing technological developments we will
be unable to successfully compete.
The market for Internet products and services is characterized by rapid
technological developments, evolving industry standards and consumer demands,
and frequent new product and service introductions and enhancements. Our future
success will depend significantly on our ability to adapt to increasing usage
of the Internet and to rapidly changing technology, which may involve:
. increasing the performance and reliability of our website;
. integrating third party software into our website in a fully
functional manner; and
. adding new and useful services and content to our website.
Furthermore, the widespread adoption of developing multimedia-enabling
technologies could require fundamental and costly changes in our technology. If
we fail to effectively adapt to increased usage of the Internet or new
technological developments, we will be unable to successfully compete online.
We could face liability for information retrieved from or transmitted over the
Internet and liability for products and services sold over the Internet.
We provide third-party content on our website, particularly real estate
listings. We could be exposed to liability with respect to this third-party
information. Our customers might assert, among other things, that, by directly
or indirectly providing links to websites operated by third parties, we should
be liable for copyright or trademark infringement or other wrongful actions by
third parties on these websites. Our customers could also assert that our
third-party information contains errors or omissions, and they could seek
damages for losses incurred if they rely upon that information. Even if these
claims do not result in liability to us, we could incur significant costs in
investigating and defending against these claims. Our general liability
insurance may not cover all potential claims to which we are exposed and may
not be adequate to indemnify us for all liability that may be imposed.
Risks Related To This Offering
There has been no prior market for our common stock and an active trading
market may not develop following this offering.
Before this offering, there has been no public market for our common
stock and the trading market price for our common stock may decline below the
initial public offering price. We cannot predict the extent to which a market
will develop or how liquid that market might become. The initial public
offering price for the shares of our common stock will be determined by
negotiations between us and the representatives of the underwriters and may not
be indicative of prices that will prevail in the trading market.
Our stock price could be volatile and could decline following this offering.
The stock markets, particularly the Nasdaq National Market on which we
have applied to have our common stock listed, have experienced significant
price and volume fluctuations, and the market prices of technology companies,
particularly Internet-related companies, have been highly volatile. The trading
prices of many technology companies' stocks are at or near historical highs.
These high trading prices may not be sustained. Investors may not be able to
resell their shares at or above the initial public offering price. In the
24
<PAGE>
past, securities class action litigation has often been instituted against
companies following periods of volatility in the market price of their
securities. Such litigation could result in substantial costs and a diversion
of management's attention and resources.
Certain existing stockholders own a large percentage of our voting stock, and
thus individual investors will have minimal influence on stockholder decisions.
Upon completion of this offering, we anticipate that our executive
officers, directors and greater than five percent stockholders, along with
their affiliates, will, in the aggregate, own approximately % of our
outstanding common stock. As a result, such persons, acting together, will have
the ability to substantially influence all matters submitted to the
stockholders for approval, including the election and removal of directors and
any merger, consolidation or sale of all or substantially all of our assets.
These persons will also have the ability to control our management and affairs.
Accordingly, such concentration of ownership may have the effect of delaying,
deferring or preventing a change in control, impeding a merger, consolidation,
takeover or other business combination involving us or discouraging a potential
acquirer from making a tender offer or otherwise attempting to obtain control
of our business, even if such a transaction would be beneficial to other
stockholders. See "Principal Stockholders."
Future sales of our common stock may cause our stock price to decline.
Sales of significant amounts of our common stock in the public market
after this offering or the perception that such sales will occur could
adversely affect the market price of our common stock or our future ability to
raise capital through an offering of our equity securities. After the closing
of this offering, we will have shares of common stock outstanding. Of the
outstanding shares, the shares sold in this offering will be freely tradeable,
except for any shares purchased by our "affiliates" as defined in Rule 144 of
the Securities Act of 1933. These shares will be restricted securities and will
become eligible for sale subject to the limitations of Rule 144. The sale of a
large number of shares held by affiliates could have an adverse effect on the
market price for our common stock. Those shares of common stock that constitute
restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144, 144(k) or 701
under the Securities Act of 1933. All of the holders of these restricted
securities, including our officers and directors, have entered into lock-up
agreements providing that, subject to certain limited exceptions, they will not
sell, directly or indirectly, any shares of our common stock without the prior
consent of FleetBoston Roberston Stephens Inc. for a period of 180 days from
the date of this prospectus. Upon expiration of this 180-day period and subject
to the provisions of Rules 144, 144(k) and 701, shares of common stock
will be available for sale in the public market, subject to compliance with
certain volume restrictions in the case of shares held by affiliates.
In addition, as of December 22, 1999, there were outstanding options to
purchase 2,878,274 shares of common stock that will be eligible for sale in the
public market from time to time, subject to vesting and the expiration of lock-
up agreements. After the completion of this offering, certain stockholders
representing approximately shares of common stock, including shares
issuable upon the exercise of certain warrants to purchase common stock, are
entitled to certain demand and piggy-back registration rights. See
"Management--Stock Plans," "Description of Capital Stock--Registration Rights"
and "Shares Available for Future Sale."
We are uncertain of our ability to obtain additional financing for our future
capital needs.
We may need to raise additional funds in order to fund more rapid
expansion, to expand marketing activities, to develop new or enhance existing
services or products, to respond to competitive pressures or to acquire
complementary services, businesses or technologies. Additional financing may
not be available on terms favorable to us. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
25
<PAGE>
New investors will experience immediate substantial dilution from this
offering.
Because our common stock has been sold previously at prices substantially
below the initial public offering price that you will pay, investors in this
offering will experience an immediate dilution of $ per share, based on the
number of outstanding shares as of September 30, 1999. The exercise of
outstanding options and warrants may result in further dilution. See "Dilution"
and "Principal Stockholders."
This prospectus contains forward-looking statements.
We have made statements under the captions "Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and in other sections of this prospectus
that are forward-looking statements. You can identify these statements by the
use of the future tense forward-looking words such as "may," "will," "expect,"
"intend," "anticipate," "believe," "estimate" and "continue" or similar words.
These forward-looking statements may also use different phrases. We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements, which are subject to
risks, uncertainties, and assumptions about us, may include, among other
things, projections of our future results of operations or of our financial
condition, our anticipated growth strategies, and anticipated trends in our
business.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or which we do not fully control that could cause actual
results to differ materially from those expressed or implied in our forward-
looking statements. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements, including those factors discussed above.
26
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of
common stock offered by us at an assumed initial public offering price of $
per share will be approximately $ million, after deducting the underwriting
discounts and estimated offering expenses. If the underwriters exercise in full
their option to purchase an additional shares of common stock, we
estimate that such net proceeds will be approximately $ million.
We intend to use $7.8 million of the net proceeds of this offering to
repay promissory notes payable to the prior shareholders of Genesis 2000. These
promissory notes bear interest at the rate of 6% per annum and are payable
immediately upon the closing of this offering. In addition, we intend to use
$2.7 million of the net proceeds to pay the cash portion of the purchase price
for HomeBuilders Financial Network, and $4.5 million to pay the prior
stockholder of HomeBuilders Financial Network at the end of the first calendar
quarter following the closing of this offering as partial payment of a $13.3
million promissory note. This promissory note bears interest at prime plus one
percent and the remaining portion is payable in seven equal quarterly
installments.
We expect to use the remainder of the net proceeds for general corporate
purposes, including marketing and promotional expenditures, technology,
research and development and other working capital, as well as possible
acquisitions of businesses. We have no current plans, agreements or commitments
with respect to any such acquisition. The amounts actually expended for working
capital purposes may vary significantly and will depend on a number of factors,
including the amount of our future revenues and the other factors described
under "Risk Factors." Accordingly, we will retain broad discretion in the
allocation of the net proceeds of this offering. Pending such uses, we will
invest the net proceeds of this offering in short-term, interest-bearing,
investment grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently intend to retain all of our earnings to finance our operations and do
not anticipate paying any cash dividends on our capital stock in the
foreseeable future. We have incurred debt that prohibits or effectively
restricts the payment of dividends. Our ability to pay dividends in the future
will depend on our ability to repay or refinance this debt or to renegotiate
the loan agreement with the lender to permit the payment of dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth the following information:
. our actual capitalization as of September 30, 1999;
. our pro forma capitalization after giving effect to: (1) the
issuance of 3,390,377 shares of Series E Preferred Stock in October
and November 1999; (2) the issuance of 833,333 shares of Series EEE
preferred stock and 833,333 shares of common stock in connection
with the acquisition of Genesis 2000; (3) the issuance of 1,333,333
shares of Series EEEE preferred stock and 1,333,333 shares of common
stock in connection with the acquisition of HomeBuilders Financial
Network; and (4) the conversion of all outstanding shares of
mandatorily redeemable convertible preferred stock.
. our pro forma as adjusted capitalization after giving effect to the
sale of shares of common stock in this offering at an assumed
initial public offering price of $ per share, less underwriting
discounts and commissions and estimated offering expenses payable by
us and the application of the net proceeds.
<TABLE>
<CAPTION>
September 30, 1999
----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------- ----------- -------------
(in thousands, except share data)
<S> <C> <C> <C>
Cash and cash equivalents................ $ 2,907 $ 33,379 $
=========== =========== =========
Long-term obligations, less current
portion................................ $ 4,058 $ 12,149 $
----------- ----------- ---------
Mandatorily redeemable convertible
preferred stock and warrants:
Series A, B, C, D, $0.001 par value,
28,935,883 shares authorized;
13,335,102 issued and outstanding
actual (aggregate liquidation
preference $53,121); no shares
issued and outstanding pro forma and
pro forma as adjusted................ 54,562 --
----------- ----------- ---------
Total mandatorily redeemable
convertible preferred stock and
warrants.......................... 54,562 --
Shareholders' equity (deficit):
Common stock, $0.001 par value,
41,666,667 shares authorized;
2,470,245 shares issued and
outstanding actual; 23,529,056
shares issued and outstanding pro
forma; shares issued and
outstanding pro forma as adjusted.... 3 24
Additional paid-in capital............. 4,707 134,795
Common stock warrants.................. 85 635
Unearned compensation.................. (2,537) (2,537)
Accumulated deficit.................... (55,038) (55,038)
----------- ----------- ---------
Total stockholders' equity
(deficit)......................... (52,780) 77,879
Total mandatorily redeemable
convertible preferred stock and
warrants and stockholders'
equity............................ 1,782 77,879
----------- ----------- ---------
Total capitalization.............. $ 5,840 $ 90,028 $
=========== =========== =========
</TABLE>
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<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $1.04 million, or $0.07 per share of common stock. Our pro forma
net tangible book value per share represents the amount of total tangible
assets less total liabilities, divided by the shares of common stock
outstanding as of September 30, 1999, assuming the conversion of all
outstanding shares of preferred stock. Our pro forma net tangible book value as
of September 30, 1999, after giving effect to the issuance and sale of the
shares of common stock offered hereby after deducting underwriting
discounts and commissions and estimated offering expenses would have been $
million, or $ per share.
This represents an immediate increase in pro forma net tangible book
value per share of $ to existing stockholders and an immediate dilution per
share of $ to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share..........................
Pro forma net tangible book value per share at September 30, 1999........
---
Increase in pro forma net tangible book value per share attributable to
new investors..........................................................
Pro forma net tangible book value per share after offering...............
Dilution per share to new investors......................................
</TABLE>
The following table summarizes, on a pro forma basis, as of , 1999,
the number of shares of common stock purchased in this offering, the aggregate
cash consideration paid and the average price per share paid by existing
stockholders for common stock and by new investors purchasing shares of common
stock in this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- ---------------------- Average Price
Number Percent Amount Percent Per Share
-------- -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders... % $ % $
New investors...........
-------- -------- ----------- -------- ------
Total................. % $ % $
======== ======== =========== ======== ======
</TABLE>
The foregoing discussion and tables assume no exercise of any stock
options. As of November 30, 1999, there were outstanding options to purchase a
total of 2,527,812 shares of common stock with a weighted average exercise
price of $4.80 per share. To the extent that any of these options are
exercised, there may be further dilution to new investors. The foregoing
discussion and tables also assume no exercise of any warrants. As of November
30, 1999, there were outstanding warrants to purchase a total of 582,222 shares
of common stock with a weighted average exercise price of $9.21 per share,
outstanding warrants to purchase a total of 73,053 Series B Preferred Stock
convertible into 73,053 shares of common stock with an exercise price per share
of $1.98 per share, outstanding warrants to purchase a total of 53,333 Series D
Preferred Stock convertible into 53,333 shares of common stock with an exercise
price of $7.50 per share and outstanding warrants to purchase a total of 44,444
Series E preferred stock convertible into 44,444 shares of common stock with an
exercise price of $9.00 per share. To the extent that any of these warrants are
exercised, there may be further dilution to new investors.
29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following selected consolidated financial data are qualified by
reference to, and should be read in conjunction with, our financial statements,
the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and is qualified by reference to the
financial statements and notes thereto appearing elsewhere in this prospectus.
The consolidated balance sheet data set forth below as of December 31, 1996,
1997, 1998 and September 30, 1999 and the consolidated statement of operations
data for the period from July 11, 1996 (inception) to December 31, 1996, the
years ending December 31, 1997 and 1998 and for the nine months ended September
30, 1998 and 1999 are derived from, and are qualified by reference to our
audited financial statements included elsewhere in this prospectus. The
historical results are not necessarily indicative of results to be expected for
any future period.
The following unaudited pro forma consolidated information reflects
statement of operations data for the year ended 1998, and for the nine months
ended September 30, 1999 as if the acquisitions of Genesis 2000 and
HomeBuilders Financial Network had occurred on January 1, 1998 after giving
effect to purchase accounting adjustments. In addition, the September 30, 1999
pro forma balance sheet is unaudited.
<TABLE>
<CAPTION>
Actual Pro Forma
----------------------------------------------------- --------------------------
Inception
(July 11, 1996) Years Ended Nine Months Nine Months
through December 31, Ended Sept. 30, Year Ended Ended
December 31, ----------------- ------------------ December 31, September 30,
1996 1997 1998 1998 1999 1998 1999
--------------- ------- -------- -------- -------- ------------ -------------
Consolidated Statement of
Operations Data: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Transactions.......... $ -- $ 51 $ 1,224 $ 577 $ 3,150 $ 5,506 $ 6,896
Other Internet and
e-commerce.......... 25 18 89 65 439 89 439
Software licenses and
maintenance......... -- -- -- -- -- 6,167 4,422
------ ------- -------- -------- -------- -------- --------
Total revenues....... $ 25 $ 69 $ 1,313 $ 642 $ 3,589 $ 11,762 $ 11,757
Operating expenses:
Operations and cost of
revenues............ (35) (310) (4,367) (2,200) (9,293) (6,674) (11,645)
Sales and marketing... (1) (571) (6,112) (3,202) (14,827) (7,236) (15,736)
Technology, research
and development..... -- (970) (4,793) (3,137) (6,906) (5,490) (7,440)
General and
administrative...... (38) (563) (1,172) (831) (2,318) (3,598) (4,183)
Amortization of
intangible assets... -- -- (673) (471) (606) (24,725) (18,078)
Amortization of stock-
based compensation.. -- -- (300) (142) (1,585) (300) (1,585)
------ ------- -------- -------- -------- -------- --------
Total operating
expenses........... (74) (2,414) (17,417) (9,983) (35,535) (48,023) (58,667)
------ ------- -------- -------- -------- -------- --------
Loss from operations.. (49) (2,345) (16,104) (9,341) (31,946) (36,261) (46,910)
Other income
(expense), net...... 1 (18) 89 (51) (169) (893) (278)
------ ------- -------- -------- -------- -------- --------
Net loss before
provision for
income taxes....... (48) (2,363) (16,015) (9,392) (32,115) (37,154) (47,188)
Pro forma provision for
income taxes......... -- -- -- -- -- (1,672) (1,083)
------ ------- -------- -------- -------- -------- --------
Net Loss............. (48) (2,363) (16,015) (9,392) (32,115) (38,826) (48,271)
Dividend accretion on
preferred stock...... -- (70) (1,326) (636) (3,101) (1,326) (3,101)
------ ------- -------- -------- -------- -------- --------
Net loss attributable
to common
stockholders......... $ (48) $(2,433) $(17,341) $(10,028) $(35,216) $(40,152) $(51,372)
====== ======= ======== ======== ======== ======== ========
Net loss per share
attributable to
common stockholders,
basic and diluted.... $(0.09) $ (1.74) $ (11.66) $ (6.86) $ (18.61) $ (10.99) $ (12.66)
====== ======= ======== ======== ======== ======== ========
Shares used in
computing net loss
attributable to
common stockholders,
basic and diluted.... 547 1,402 1,487 1,461 1,892 3,653 4,058
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
December 31, September 30, 1999
----------------------- ---------------------
Pro Forma
1996 1997 1998 Actual as Adjusted
----- ------- -------- -------- -----------
Balance Sheet Data: (in thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents...... $ -- $ 713 $ 10,157 $ 2,907 $
Other current assets........... 30 970 813 2,033
Property and equipment, net.... 5 193 1,864 5,947
Total assets................... 38 1,906 14,275 12,637
Current liabilities............ 32 382 2,679 6,797
Long-term obligations, less
current portion.............. -- 70 334 4,058
Mandatorily redeemable
convertible preferred stock
and warrants................. -- 3,878 31,665 54,562
Total stockholders' equity
(deficit).................... 6 (2,424) (20,403) (52,780)
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our consolidated financial statements and related notes
included elsewhere in this prospectus. In addition to historical information,
the discussion in this prospectus contains certain forward-looking statements
that involve risks and uncertainties. Our actual results could differ
materially from those anticipated by these forward-looking statements due to
factors, including, but not limited to, those set forth under "Risk Factors"
and elsewhere in this prospectus.
Overview
We are a leading Internet destination site for homeowners and home
buyers, providing a fundamentally better way to identify, purchase, finance,
manage and sell a home. We are engaged in the brokerage, origination and sale
of mortgage loans secured by residential real estate.
We were incorporated in California in July 1996 and reincorporated in
Delaware in September 1999. We began offering online services in July 1997 and
first derived revenues as an online mortgage broker in August 1997. In March
1998, we acquired HomeScout, a leading provider of home listings, and
subsequently incorporated it into our website as an additional free service to
consumers. In April 1999, we changed our name from HomeShark to iOwn,
reflecting our broadened strategy to incorporate products and services to cover
all aspects of the home buying process. In November 1999, we entered into an
agreement to acquire Genesis 2000, a provider of loan origination software to
mortgage brokers. In December 1999, we entered into an agreement to acquire
HomeBuilders Financial Network, which provides loan services to home builders.
We derive our transactions revenues primarily from the brokering of home
loans. We charge a fixed processing fee, a credit report fee and a markup on
the lender's loan price. We recognize revenues when the loan is closed, at
which time we are paid by the lender. We derive additional transaction revenues
by directing customers to third parties and from transaction fees generated by
ePASS, electronic pricing and submission system, our web-enabling solution for
our Genesis 2000 software.
To date, we have generated transactions revenues primarily through our
consumer-direct channel. We reach customers online through relationships with
Internet partners and offline through television, radio and print media. We
have also begun to aggressively expand into other market channels, including
Realtors, home builders, financial institutions, mortgage brokers and
relocation specialists. We expect to derive mortgage fees and other revenues
from these channels in the future.
We have recently commenced mortgage banking operations. Our revenues from
these operations consist of proceeds in excess of the carrying value of the
loan, origination fees less certain direct origination costs, other processing
fees and interest paid by borrowers on loans that we hold for sale. These
revenues are recognized at the time the loan is sold. We expect to earn higher
revenues per loan from our mortgage banking operations as compared to our
existing brokerage loan operations.
Our other Internet and e-commerce revenues are primarily derived from the
sale of advertising and sponsorship space on our website, HomeScout licensing
and promotional fees, and fees from from WebBuilder, our website building
service for traditional mortgage brokers.
Our software licenses and maintenance revenues are primarily derived from
the sale of Genesis 2000 loan origination software and annual maintenance
contracts in support of this software. We recognize revenue from the sale of
loan origination software at the time of shipment and amortize revenue from
annual maintenance contracts monthly on a straight-line basis over the 12-month
terms of the agreements. In July 1999, we reduced our license fees for Genesis
2000 software from an average of $2,500 to a fixed price of $895 in order to
maintain our market share. This price reduction resulted in an immediate
decrease in software licensing revenues. We expect to cross-sell a wide
selection of Internet and e-commerce services to our installed base of mortgage
brokers.
32
<PAGE>
Since inception, we have invested in attracting senior management, in
developing products and in expanding our sales and marketing efforts. We have a
limited operating history upon which investors may evaluate our business and
prospects. We have incurred significant losses to date, and as of September 30,
1999, we had an accumulated deficit of $55.0 million. We intend to expend
significant financial and management resources on developing additional
products and services, increasing sales and marketing activities, improving our
technologies and expanding our operations. As a result, we expect to incur
additional losses and negative cash flow for the foreseeable future. Our
revenues may not increase or even continue at their current levels, and we may
not achieve or maintain profitability or generate cash from operations in
future periods. Our prospects should be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stages of development.
Acquisitions. In November 1999, we entered into an agreement to acquire
Genesis 2000, a provider of point-of-sale software for loan prequalification,
origination, processing and tracking for mortgage brokers. The software uses
web connectivity to access pricing, application documents and loan status for
loan approvals. Genesis 2000 was established in 1990 and is headquartered in
Calabasas, California.
We completed the acquisition of Genesis 2000 in December 1999. The total
purchase price of approximately $26.1 million included (1) 833,333 shares of
common stock with an estimated fair value of approximately $6.8 million, (2)
833,333 shares of Series EEE preferred stock with an estimated fair value of
approximately $7.5 million, (3) $1.0 million in secured promissory notes and
(4) $8.8 million in secured convertible promissory notes. We have set aside
550,000 shares in an escrow account to cover contingent indemnification
obligations, if any. The acquisition agreement provides for an earn-out up to
$6.0 million over the next two fiscal years upon achievement of Genesis 2000
performance targets. We will treat these earn-out payments, if any, as
additional purchase consideration, which will increase our goodwill charges in
the future.
The total purchase price includes $750,000 in tangible assets, $12.5
million in intangible assets and $12.8 million in goodwill. We will amortize
intangible assets using a straight-line method over periods ranging from 18 to
48 months and goodwill using a straight-line method over 36 months. An
independent, third-party valuation was performed and used to determine the
above allocations.
In December 1999, we entered into an agreement to acquire HomeBuilders
Financial Network, which assists home builders in establishing captive mortgage
operations. HomeBuilders Financial Network establishes and manages these
operations on behalf of home builders, and in return, receives either a fee for
services or a distribution based on a joint venture interest. Additionally, HFN
provides a range of centralized services to these captive operations, including
loan underwriting, closing and secondary market functions, for which it
receives fee income directly from the captive operations. HomeBuilders
Financial Network was established in 1995 and is headquartered in Miami Lakes,
Florida.
The total purchase price of approximately $45.3 million includes (1)
1,333,333 shares of common stock with an estimated fair value of approximately
$14.0 million, (2) 1,333,333 shares of Series EEEE preferred stock with an
estimated fair value of approximately $14.0 million, (3) $2.7 million of cash
and (4) a $13.3 million promissory note. The acquisition agreement provides for
an earn-out of up to $17.0 million over the next two years based on the growth
of HomeBuilders Financial Network's revenues and pre-tax earnings. We will
treat these earn-out payments, if any, as additional purchase consideration,
which will increase our goodwill charges in the future.
The total purchase price includes $1.1 million in tangible assets, $12.8
million in intangible assets and $31.4 million in goodwill. We will amortize
intangible assets using a straight line method over periods ranging from 24 to
60 months and goodwill using a straight-line method over 36 months. An
independent, third-party valuation was performed and used to determine the
above purchase price allocations.
Amortization of Stock-Based Compensation. Under Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock-Based Compensation," we
recognize compensation expense based on the
33
<PAGE>
difference, if any, between the fair value of our stock on the date of each
option grant and the exercise price of the option. We granted stock options
during the year ended December 31, 1998 and the nine months ended September 30,
1999 which are considered to be compensatory for financial accounting purposes.
We amortized and expensed compensation associated with these stock options on
an accelerated basis over the applicable vesting period of the stock options.
We expect to record amortization of stock-based compensation of approximately
$400,000, $1.2 million and $600,000 for the quarter ended December 31, 1999 and
the years ended December 31, 2000 and December 31, 2001, respectively. The
actual amount will depend on the number of options granted and their exercise
price.
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
Revenues. Total revenues increased by $3.0 million to $3.6 million for
the nine months ended September 30, 1999 from $600,000 for the nine months
ended September 30, 1998. The increase in total revenues primarily resulted
from increased transactions revenues due to a higher number of closed loans.
Revenues from the sale of advertising and sponsorships also increased during
this period.
Pro forma revenues were $11.8 million for the nine months ended September
30, 1999. Pro forma revenues consisted of $6.9 million of transactions
revenues, $439,000 of other Internet and e-commerce revenues and $4.4 million
of software licenses and maintenance revenues. A single client of HomeBuilders
Financial Network accounted for approximately 11% of our pro forma revenues for
the nine months ended September 30, 1999. The loss of this client would likely
harm our business.
Operations. Our operations expenses primarily consist of compensation and
benefits for loan processing personnel, credit report expenses, document
shipping and handling, rent and other overhead related to our contact
management center. Operations expenses increased $7.1 million to $9.3 million
for the nine months ended September 30, 1999 from $2.2 million for the nine
months ended September 30, 1998. This increase was primarily attributable to
growth in loan processing headcount required to manage current and future
closed loan volume. During 1999, we also added key management personnel and
established our new contact management center in Martinez, California.
Pro forma operations expenses were $11.6 million for the nine months
ended September 30, 1999. Genesis 2000 operations expenses totaled $850,000 for
this period and consisted primarily of compensation and benefits for call
center technical personnel, telecommunications expenses, printing of
instruction manuals and product packaging and shipping. HomeBuilders Financial
Network operating expenses totaled approximately $2.0 million for this period
and consisted primarily of compensation and benefits, document preparation,
data processing and telephone costs. We expect that operations expenses will
increase in the future as we hire additional personnel, expand our facilities
and incur associated expenses to support our anticipated growth.
Sales and Marketing. Our sales and marketing expenses consist primarily
of compensation and benefits, advertising, trade shows and promotional
activities, as well as an allocated portion of rent and other overhead. Sales
and marketing expenses increased $11.6 million to $14.8 million for the nine
months ended September 30, 1999 from $3.2 million for the nine months ended
September 30, 1998. This increase was the result of a combination of factors,
including:
. an increase in the number of strategic relationships with online
distribution partners;
. the launch of our offline advertising campaign in support of our name
change during the second quarter of 1999;
. additional staffing in sales, marketing and business development; and
. higher expenditures for trade shows and other marketing and
promotional activities, including public relations.
34
<PAGE>
Pro forma sales and marketing expenses were $15.7 million for the nine
months ended September 30, 1999. Sales and marketing expenses for Genesis 2000
were $909,000 for the nine months ended September 30, 1999. These expenses
consisted of compensation and benefits for sales personnel and costs associated
with industry trade shows. We anticipate that selling and marketing expenses
will increase as we hire additional marketing personnel and increase
expenditures for promotion and marketing.
Technology, Research and Development. Our technology, research and
development expenses primarily consist of compensation and benefits for
engineering, product development and information services personnel, data
telecommunications, outside professional advisors and an allocation of rent and
other overhead. Product development costs are expensed as incurred. Technology,
research and development expenses increased $3.8 million to $6.9 million for
the nine months ended September 30, 1999 from $3.1 million for the nine months
ended September 30, 1998. The increase was primarily attributable to an
increase in headcount, higher compensation costs for technology personnel,
expansion of our website infrastructure and engagement of professional advisory
services. We believe a significant investment in technology is required to
remain competitive in the Internet mortgage market, and we expect to invest in
technology for the foreseeable future.
Pro forma technology, research and development expense was $7.4 million
for the nine months ended September 30, 1999. Genesis 2000 research and
development expense totaled $534,000 for the nine months ended September 30,
1999, and consisted of compensation and benefits for engineering, product
development and information services personnel. Research and development costs
were expensed as incurred.
General and Administrative. Our general and administrative expenses
primarily consist of compensation and benefits for finance, administrative and
human resources personnel, fees for professional advisors and rent and other
overhead. General and administrative expenses increased $1.5 million to
$2.3 million for the nine months ended September 30, 1999 from $831,000 for the
nine months ended September 30, 1998. The increase was primarily attributable
to adding finance, administrative and human resources personnel and higher
occupancy costs related to an increase in the square footage leased at our
corporate headquarters in San Francisco, California.
Pro forma general and administrative expenses totaled $4.2 million for
the nine months ended September 30, 1999. General and administrative expenses
include $1.3 million and $421,000 of expenses incurred by Genesis 2000 and
HomeBuilders Financial Network, respectively, for the nine months ended
September 30, 1999. General and administrative expenses included compensation
and benefits for finance, administrative, accounting and human resources
personnel, rent and other overhead. We expect that general and administrative
expenses will increase in the future as we hire additional personnel, expand
our facilities and incur associated expenses to support our anticipated growth.
Amortization of Intangible Assets. In March 1998, we acquired assets,
including intellectual property, relating to the HomeScout service. These
assets are being amortized over a 30-month period. The increase in amortization
of intangible assets to $606,000 was the result of recording a full nine months
of amortization for the nine months ended September 30, 1999 as compared to
seven months of amortization for the nine months ended September 30, 1998.
Pro forma amortization of intangible assets totaled $18.1 million for the
nine months ended September 30, 1999. Amortization of intangible assets
included $606,000 for HomeScout, $6.5 million for Genesis 2000 and $11.0
million for HomeBuilders Financial Network.
Amortization of Stock-Based Compensation. Amortization of stock-based
compensation increased by $1.5 million to $1.6 million for the nine months
ended September 30, 1999 from $142,000 for the nine months ended September 30,
1998. This increase was directly attributable to the increase in the number of
option grants and deemed value of our capital stock.
35
<PAGE>
Other Income (Expense), Net. Other income (expense), net primarily
consists of interest expense on borrowings under our equipment lease lines,
interest income earned on our cash and cash equivalent balances and terminated
acquisition deals. Other income (expense), net increased by $118,000 to
$169,000 for the nine months ended September 30, 1999 from $51,000 for the nine
months ended September 30, 1998. The increase was primarily the result of
interest income earned on our cash and cash balances, offset in part by
increased borrowings under capital leases.
Pro forma other income (expense), net was an expense of $278,000 for the
nine months ended September 30, 1999. Interest expense included $55,000 and
$1,000 for Genesis 2000 and HomeBuilders Financial Network, respectively, as
well as $324,000 relating to interest on promissory notes issued in these
acquisitions. Interest income included amounts of $138,000 and $50,000 for
Genesis 2000 and HomeBuilders Financial Network, respectively.
Income Taxes. At September 30, 1999, we had net operating loss
carryforwards of approximately $48.0 million for both federal and state income
tax purposes. The federal and state carryforwards expire through 2019 and 2006,
respectively. We have provided a full valuation allowance on the deferred tax
asset, consisting primarily of net operating loss carryforwards, because of
uncertainty regarding its realizability. Certain changes in the ownership of
our common stock, as defined in the Internal Revenue Code of 1986, may limit
the utilization of these carryforwards.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. Total revenues increased by $1.2 million to $1.3 million in
1998 from $69,000 in 1997. The increase in total revenues was primarily the
result of increased transactions revenues due to a higher number of closed
loans.
Operations. Operations expenses increased $4.1 million to $4.4 million in
1998 from $300,000 in 1997. This increase was primarily attributable to
substantial growth in our loan processing headcount required by a higher number
of closed loans.
Sales and Marketing. Sales and marketing expenses increased $5.5 million
to $6.1 million in 1998 from $571,000 in 1997. This increase was attributable
to a combination of factors, including:
. the initiation of new strategic relationships with a number of our
online distribution partners;
. an increase in personnel, including the addition of several management
level positions, and associated recruiting costs; and
. higher expenditures for trade shows and other marketing activities,
including public relations and customer research.
Technology, Research and Development. Technology, research and
development expenses increased $3.8 million to $4.8 million in 1998 from $1.0
million in 1997. This increase was attributable to an increase in personnel and
the expansion of our website infrastructure.
General and Administrative. General and administrative expenses increased
$600,000 to $1.2 million in 1998 from $563,000 in 1997. This increase was
largely attributable to an increase in finance, administrative and human
resources personnel and significantly higher occupancy costs related to an
increase in the square footage leased at our corporate headquarters in San
Francisco, California over the same period.
Amortization of Intangible Assets. We amortized $673,000 in connection
with the March 1998 acquisition of assets, including intellectual property
assets, relating to the HomeScout service. We had no amortization expense in
1997.
Amortization of Stock-Based Compensation. We amortized $300,000 of stock-
based compensation in 1998. We had no amortization expense in 1997.
36
<PAGE>
Other Income (Expense), Net. Our other income (expense), net increased by
$107,000 to $89,000 of income in 1998 from an expense of $18,000 in 1997. This
increase was primarily the result of interest income earned on our cash and
cash equivalent balances, offset in part by increased borrowings under capital
leases.
Income Taxes. The provision for income taxes in 1998 and 1997 represents
minimum state income and franchise taxes. At December 31, 1998, we had $15.4
million of net operating loss carryforwards for federal and state income tax
purposes, which begin to expire in 2018 and 2005, respectively.
Quarterly Results of Operations
The following table sets forth our unaudited statements of operations for
the seven sequential quarters ended September 30, 1999. These financial
statements have been prepared on substantially the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of
the results of operations for each quarter. The quarterly data should be read
in conjunction with the financial statements and the notes to those statements
that appear elsewhere in this prospectus. The operating results for any quarter
are not necessarily indicative of the operating results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1998 1998 1998 1998 1999 1999 1999
-------- -------- --------- -------- -------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
Transactions ......... $ 88 $ 231 $ 258 $ 647 $ 1,233 $ 1,014 $ 903
Other Internet and e-
commerce............ 8 25 32 24 30 107 302
Software licenses and
maintenance......... -- -- -- -- -- -- --
------- ------- ------- ------- ------- -------- --------
Total revenues....... $ 96 $ 256 $ 290 $ 671 $ 1,263 $ 1,121 $ 1,205
Operating expenses:
Operations............ (424) (730) (1,046) (2,167) (2,754) (3,382) (3,157)
Sales and marketing... (455) (769) (1,978) (2,910) (2,895) (7,267) (4,665)
Technology, research
and development..... (783) (911) (1,443) (1,656) (1,710) (2,491) (2,705)
General and
administrative...... (202) (308) (321) (341) (513) (982) (823)
Amortization of
intangible assets... (67) (202) (202) (202) (202) (202) (202)
Amortization of stock-
based compensation.. (7) (22) (113) (158) (503) (634) (448)
------- ------- ------- ------- ------- -------- --------
Total operating
expenses........... (1,938) (2,942) (5,103) (7,434) (8,577) (14,958) (12,000)
------- ------- ------- ------- ------- -------- --------
Loss from operations.. (1,842) (2,686) (4,813) (6,763) (7,314) (13,837) (10,795)
Other income
(expense), net...... 6 (14) (43) 140 38 (112) (95)
------- ------- ------- ------- ------- -------- --------
Net loss............. $(1,836) $(2,700) $(4,856) $(6,623) $(7,276) $(13,949) $(10,890)
======= ======= ======= ======= ======= ======== ========
</TABLE>
Revenues. Transactions revenues increased each quarter through the
quarter ended March 31, 1999. Transactions revenues decreased during the second
and third quarters of 1999, as an increase in interest rates precipitated an
overall decline in the market for refinance mortgages. Other Internet and
e-commerce revenues increased in total dollar amount and as a percentage of
total revenues in the second and third quarters of 1999.
Operating Expenses. Operating expenses increased each quarter through the
second quarter of 1999 primarily in support of a higher number of closed loans.
We expanded our loan processing capabilities and significantly increased sales
and marketing expenses to promote our website and name change from HomeShark to
iOwn. We also increased finance and accounting expenses in each quarter to
accommodate current and future support requirements. Our operating expenses
decreased in the third quarter of 1999 as we reduced marketing expenses. Our
technology, research and development expenses have increased in each of the
seven quarters reflecting our strategy of investing in highly scalable,
Internet-based technologies.
37
<PAGE>
Pro Forma Quarterly Results. On a pro forma basis, quarterly revenues for
the first three quarters of 1999 were $4.1 million, $3.8 million and $3.8
million, respectively. The decrease in revenues from the first to second
quarter of 1999 was primarily attributable to a decline in software licenses
and maintenance revenues resulting from the strategic decision to reduce the
amount we charge for our Genesis 2000 software licenses. Our revenues remained
unchanged from the second to third quarter of 1999. During that period, the
increase in transactions and other Internet and e-commerce revenues were offset
by a decline in software licenses and maintenance revenues.
On a pro forma basis, quarterly net loss for the first three quarters of
1999 was $13.0 million, $20.3 million and $18.0 million, respectively. The
increase in net loss from the first to second quarter of 1999 was primarily
attributable to the increase in marketing expenses in the second quarter of
1999 related to the iOwn rebranding. The net loss in the third quarter of 1999
decreased as we reduced marketing expenses.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through the
private placement of our preferred stock and, to a lesser extent, through
equipment financing. Through September 30, 1999, we have raised approximately
$49.9 million through equity financings. As of September 30, 1999, we had $2.9
million in cash and cash equivalents. In October 1999 and November 1999, we
raised $30.5 million from a private placement of Series E preferred stock. As
of November 30, 1999, we had $29.5 million in cash and cash equivalents.
We have had negative cash flows from operating activities since
inception. Net cash used in operating activities was $2.1 million, $13.4
million and $27.9 million in 1997, 1998 and the nine months ended September 30,
1999, respectively. Cash used in operating activities in each of these periods
primarily resulted from net operating losses and increases in prepaid expenses,
partially offset by increases in accounts payable and accrued liabilities.
Net cash used in investing activities was $59,000, $3.3 million and $1.3
million in 1997, 1998 and the nine months ended September 30, 1999,
respectively. Net cash used in investing activities in each of these periods
primarily related to purchases of property and equipment, with the exception of
1998, during which we paid $2.0 million for the purchase of HomeScout.
Net cash provided by financing activities was $2.9 million, $26.2 million
and $21.9 million in 1997, 1998 and the nine months ended September 30, 1999,
respectively. Net cash provided by financing activities in each of these
periods primarily related to the sale of preferred stock and, to a lesser
extent, equipment financing, partially offset by repayments of capital lease
obligations on the financed equipment.
As of September 30, 1999, our principal commitments consisted of
obligations outstanding under operating leases and marketing service agreements
with our strategic online distribution partners. Under these marketing
agreements, our partners display the iOwn logo and certain of our products and
services on their websites with direct links to our website. We pay for these
services in minimum required monthly and quarterly installments in addition to,
in some cases, a per-click charge for each time a customer clicks on one of the
iOwn links and/or a per gross lead charge for each loan application that is
submitted by a customer using the co-branded website. As of September 30, 1999,
future minimum payments under these obligations were approximately $2.5 million
in 1999, $9.0 million in 2000, $4.4 million in 2001 and $4.2 million in the
aggregate thereafter.
During 1997, 1998 and 1999, we obtained equipment lines of credit with
various financial institutions totaling, in aggregate, approximately $4.9
million. These lines of credit are secured by our fixed assets and generally
have three-year terms that expire at various times between December 1999 and
October 2002. As of September 30, 1999, the aggregate amount outstanding under
these lines of credit was $3.9 million. These borrowings are due in monthly
installments through October 2002. As of September 30, 1999 future minimum
38
<PAGE>
payments under capital lease agreements are approximately $479,000 in 1999,
$1.8 million in 2000, $1.6 million in 2001 and $1.0 million in 2002. Although
we have no material commitments for capital expenditures, we anticipate a
substantial increase in our capital expenditures and lease commitments
consistent with our anticipated growth in operations, infrastructure and
personnel.
In 1999, we entered into a line of credit agreement with Comdisco Inc. to
draw up to $5.0 million in operating loans. We borrowed $2.5 million in
September 1999 and the remaining $2.5 million in November 1999. These
borrowings are paid down in equal monthly installments through September 2002
and December 2002, respectively. As of September 30, 1999, future minimum
principal payments under this line of credit are approximately $177,000 in
1999, $755,000 in 2000, $854,000 in 2001 and $714,000 in 2002.
During 1999, we entered into an agreement with Bank United of Texas for a
$10.0 million warehouse line. We plan to use the warehouse line to fund
mortgage loans and to capture potential incremental revenues by acting as a
mortgage banker for such loans. The funds borrowed under this commitment are
secured by the related mortgage loans. This agreement includes various
financial and non-financial covenants. We are in discussions with several other
lenders to obtain additional warehouse lines of credit.
Since September 30, 1999, we have acquired Genesis 2000, a provider of
loan origination software to mortgage brokers, and entered into a definitive
agreement to acquire HomeBuilders Financial Network, a provider of loan
services to home builders. These acquisitions involve principal commitments as
follows:
. $8.8 million in convertible promissory notes, of which $1.0 million in
principal and related interest will become due as a cash payment in
January 2000, the remainder of which will become due upon the
completion of this offering, and all of which bear interest at 6.0%
per annum;
. a $13.3 million promissory note, which bears interest at the prime
rate plus 1% per annum, with $4.6 million of principal and related
interest due at the end of the quarter in which this offering is
completed, and $1.3 million of principal and related interest due at
the end of each of the following seven quarters;
. $2.7 million of cash payable at the closing of this offering; and
. $1.0 million in promissory notes payable monthly over 24 months
beginning December 1999, bearing interest at 6.0% per annum.
In addition to the above promissory notes, the acquisition agreements
provide for earn-outs. Our earn-out arrangements for the Genesis 2000
acquisition provide for a maximum of $5.0 million at the end of 2000 and $1.0
million at the end of 2001. The year 2000 earn-out is payable in cash after the
release of year 2000 results. The year 2001 earn-out is payable $625,000 in
cash and $375,000 in common stock, based on the fair value of the common stock
during specified periods prior to payment, after the release of year 2001
results. These earn-outs are contingent upon the achievement of Genesis 2000
financial targets.
Our earn-out arrangements with HomeBuilders Financial Network provide for
a maximum of $17.0 million in payments based upon achievement of revenue and
earnings growth over eight quarters commencing upon completion of the
acquisition. This earn-out is payable 50% in cash and 50% in common stock,
based on the fair value of the common stock during specified periods prior to
payment. Payments, if any, will be made at the end of each quarter upon the
achievement of predetermined targets.
We currently believe that our available cash and cash equivalents
combined with the net proceeds from this offering will be sufficient to meet
our anticipated needs for working capital and capital expenditures for at least
the next 12 months. In the event that we elect to develop additional new
services or products or acquire or invest in complementary businesses, we may
need to raise additional funds. If we require additional capital resources, we
may seek to sell additional equity or debt securities or obtain a bank line of
credit. The sale of additional equity or convertible debt securities could
result in additional dilution to our shareholders. Furthermore, there can be no
assurance that any financing arrangements will be available in necessary
amounts or on acceptable terms, if at all.
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Disclosures About Market Risk
The residential real estate and mortgage industry is sensitive to swings
in the national economy in general and interest rate movements in particular.
In a high interest rate environment, consumer demand for mortgage loans
declines, particularly with respect to refinancing of existing mortgages. A
significant rise in interest rates could therefore have a negative impact on
our volume of closed loans. As such, interest rate movements represent the
primary component of our market risk.
We originate mortgage loans and manage the market risk related to these
loans by pre-selling them on a best efforts basis to the anticipated secondary
market investors at the same time that we establish the borrowers' interest
rates. If we can deliver mortgage loans within the time frames established by
the secondary market investors, we have no interest rate risk exposure on those
loans. However, if we cannot process the loan within this timeframe and
interest rates increase, we may honor our original rate commitment in order to
maintain customer satisfaction, which may result in a loss on the sale of the
loan. With the exception of pre-selling loans through best-efforts commitments,
we currently do not engage in any hedging activities. All loans that we fund
are held for sale. Draw-downs on our warehouse lines are repaid when the loans
are sold in the secondary market. Because the loans are held in the warehouse
lines for a short period of time, we do not expect to incur significant losses
from an increase in interest rates on the warehouse lines.
Recent Accounting Pronouncements
In December 1986, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 91, "Accounting
for Non-Refundable Fees and Costs Associated with Originating or Acquiring
Loans and Initial Direct Costs of Leases." SFAS No. 91 establishes the
accounting for nonrefundable fees and costs associated with lending, committing
to lend, or purchasing a loan or a group of loans. Under SFAS No. 91, direct
loan origination costs, net of loan origination fees, are recognized as a
reduction of the loan's yield over the earlier of the life of the related loan
or the sale of the loan. In effect, SFAS No. 91 requires that origination fees
be offset by their related direct loan costs and that net deferred fees be
recognized over the earlier of the life of the loan or the sale of the loan,
whether the loan is sold through securitization or on a whole basis. As we
initiate mortgage banking activities this statement will begin to affect us.
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use,"
which provides guidance on accounting for the costs of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The adoption of
SOP No. 98-1 did not have a material impact on our financial statements.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities. Those standards are based
on consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities
it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. SFAS No. 125
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings.
SFAS No. 125 requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer of financial assets be initially
measured at fair value, if practicable. It also requires that servicing assets
and other retained interest in the transferred assets be measured by allocating
the previous carrying amount between the assets sold, if any, and retained
interests, if any, based on their relative fair values at the date of the
transfer. SFAS No. 125 provides implementation guidance for assessing isolation
of transferred assets and for accounting for transfers of partial interests,
servicing of financial assets, securitizations, transfers of sales-type
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and direct financing lease receivables, securities lending transactions,
repurchase agreements including "dollar rolls," "wash sales," loan syndications
and participations, risk participations in banker's acceptances, factoring
arrangements, transfers of receivables with recourse, and extinguishment of
liabilities. SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996 and
is to be applied prospectively.
We do not anticipate this statement having any material effect on
financial statements until the business decision to retain servicing and or
aggregate loans for securitization purposes has been made. Neither of these
activities have been contemplated at this time.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. To date, we have not
engaged in derivative and hedging activities. We will adopt SFAS No. 133 as
required on January 1, 2001.
Year 2000 Readiness Disclosure
Many currently installed computer systems are not capable of
distinguishing 21st century dates from 20th century dates or have been
programmed with default dates ending in 99, the common two-digit reference for
1999. As a result, as we transition from the 20th century to the 21st century,
computer systems and software used by many companies and organizations in a
wide variety of industries will produce erroneous results or fail unless they
have been modified or upgraded to process date information correctly.
Significant uncertainty exists in the software industry and other industries
concerning the scope and magnitude of problems associated with the year 2000
issue.
State of Readiness. We have completed our initial assessment of the
potential overall impact of the impending century change on our business. Based
on our current assessment, we believe the current versions of our systems,
website and software products are year 2000 compliant, although prior versions
of software may not be year 2000 compliant. By year 2000 compliant, we mean
that our systems, website and software products, when used with accurate date
data and in accordance with their associated documentation, are capable of
properly processing date data from, into and between the 20th and 21st
centuries, including the years 1999, 2000 and leap years, provided that all
other products, e.g., hardware, software and firmware, used with our products
properly exchange date data with them. We may face claims based on year 2000
problems in other companies' products, or issues arising from the integration
of multiple products within an overall system even if our products are
otherwise year 2000 compliant. Although we have not been a party to any
litigation or arbitration proceeding involving our products or services related
to year 2000 compliance issues, we may in the future be required to defend our
products or services in these proceedings, or to negotiate resolutions of
claims based on year 2000 issues. The costs of defending and resolving year
2000-related disputes, regardless of the merits of these disputes, and any
liability we have for year 2000-related damages, including consequential
damages, could adversely affect our business.
We have reviewed our internal management information and other computer
systems to identify any year 2000 problems, and have communicated with the
external vendors that supply us with material software and information systems
and with our significant suppliers to determine their year 2000 readiness, and
we have not identified any year 2000 readiness problems.
Costs. To date, we have not incurred any material costs directly
associated with our year 2000 compliance efforts, except for compensation
expenses associated with our salaried employees who have devoted some of their
time to our year 2000 assessment and remediation efforts. We do not expect the
total cost of year 2000 problems to be material to our business. However, we
will continue to evaluate new versions of our products, new software and
information systems provided to us by third parties and any new infrastructure
systems that we acquire to determine whether they are year 2000 compliant.
Despite our current assessment, we
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may not identify and correct all significant year 2000 problems on a timely
basis. Year 2000 compliance efforts may involve significant time and expense
and unremediated problems could adversely affect our business. We currently
have no contingency plans to address the risks associated with unremediated
year 2000 problems.
Risks. We are not currently aware of any year 2000 readiness problems
relating to our internally-developed proprietary systems that would adversely
affect our business. We may discover year 2000 readiness problems in these
systems that will require substantial revision. In addition, third-party
software, hardware or services incorporated into our material systems may need
to be revised or replaced, all of which could be time-consuming and expensive.
Our failure to fix or replace our internally developed proprietary software or
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of customers and other
business interruptions, any of which could adversely affect our business.
Moreover, our failure to adequately address year 2000 readiness issues in our
internally developed proprietary software could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend.
In addition, governmental agencies, utility companies, Internet access
companies, third-party service providers and other entities outside of our
control may not be year 2000 ready. The failure by these entities to be year
2000 ready could result in a systemic failure beyond our control, such as a
prolonged Internet, telecommunications or electrical failure, which could also
prevent us from delivering our services to our customers, decrease the use of
the Internet or prevent users from accessing our websites.
Contingency Plan. As discussed above, we have been engaged in an ongoing
year 2000 assessment and have not yet developed any contingency plans.
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BUSINESS
Overview
iOwn.com is a leading Internet destination site for homeowners and home
buyers. We provide our customers with a fundamentally better way to identify,
purchase, finance, manage and sell their most significant asset, their home. We
create empowered homeowners by providing convenient online access to a wide
selection of mortgages from leading lenders, home listings and neighborhood
information, informative tools and content, and referrals to a range of highly
qualified real estate professionals. We provide a broad range of services
around the homeownership experience, as opposed to focusing solely on the
mortgage transaction or the home listing process. We deliver these services to
consumers through a variety of direct and third-party channels to enable the
broadest possible group of homeowners and prospective homeowners to transact
their business online. We have established distribution arrangements with
online leaders such as AOL's Netscape/Netcenter and Digital City, Inc.,
Earthlink and NBCi/Snap!, as well as with numerous third-party partners. During
the nine months ended September 30, 1999, we originated over $400 million in
mortgages over the Internet, a 396% increase over the comparable period last
year, and generated more than $3.5 million in revenues, a 459% increase over
the same period in 1998. As of December 15, 1999, we aggregated approximately
700,000 listings of homes for sale on our website.
Industry Background
The Internet
The Internet has emerged as a significant global medium for
communications and commerce. According to International Data Corporation, or
IDC, the number of home Internet users in the United States was 30.5 million in
1997 and will increase to 101.2 million in 2002. Forrester Research reports
that the increase in Internet users will result in worldwide Internet commerce
increasing significantly from $80 billion of goods and services in 1998 to $3.2
trillion in 2003.
We expect that the online mortgage market will benefit from the growth in
Internet users and commerce. According to Forrester Research, the online
mortgage market in the United States is expected to grow from $18.7 billion in
1999, or approximately 1.5% of the total U.S. mortgage originations market, to
over $91.2 billion in 2003, representing approximately 10% of the total U.S.
originations market. This trend is similar to the growing acceptance of other
online financial services such as stock brokerages, where 25% of retail stock
trades in 1998 were executed online, up from 10% the previous year.
The Real Estate Industry
The real estate industry accounts for approximately 15% of the gross
domestic product of the United States. Home ownership in the United States is
at record levels, with approximately 66.3% of households owning homes in 1998
according to Fannie Mae. Fannie Mae also forecasts that sales of new and
existing homes will reach 5.65 million in 2000. Home sales consist of two major
types of transactions: the construction and sale of new homes by homebuilders,
and the resale of existing residential properties by their owners.
Sales of new single-family homes reached a record high in 1998 of 885,000
homes according to Fannie Mae. The homebuilding industry is highly fragmented,
and while the market share of the nation's largest builders has been
increasing, the majority of homes are built by smaller regional builders. Many
of the largest builders provide a range of ancillary services, such as
mortgage, title insurance, and escrow services to their home buyers.
Sales of existing homes have averaged 4.5 million homes per year over the
last 3 years. Most buyers and sellers of existing homes use the services of a
licensed real estate professional, or Realtor. There are over 700,000 active
Realtors in the United States, most of whom work as independent contractors for
real estate brokerage firms. Many of these firms are independent firms and
brands, but there has been growing trend
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towards franchising, including national brands such as RE/MAX and Century21.
Many brokers have responded to increased competitive pressures by providing
ancillary services, such as mortgage, title insurance and escrow services to
improve their margins. Realtors also share home listing information through
approximately 800 regional multiple listing services, which are increasingly
available through the web. In addition, many households relocate with the
assistance of a corporate relocation program. These programs are either managed
in-house by the corporation or by an outside specialist. Often these
specialists select and manage the real estate professionals and other service
providers involved in the relocation.
Homeowners typically need a comprehensive set of after-market and
ancillary services, including products such as title insurance and appraisal
services, additional related services such as home warranty products and fire
insurance, and other products including home improvement and home equity loans.
There is a significant number of ancillary service providers in this highly-
fragmented market.
The Mortgage Industry
There was approximately $5 trillion in residential mortgage debt
outstanding in 1998. The overall market for new mortgage originations in the
United States averaged more than $960 billion annually from 1993 to 1998. This
market has two distinct segments that can be broadly categorized into (1) a
growing market for purchase originations that has grown at an average annual
rate of 15% from 1993 to 1998, according to the Mortgage Bankers Association
Purchase Mortgage Index, and (2) a more cyclical and interest-rate sensitive
market for refinance products. Because of favorable interest rates and an
economic environment favoring refinances in 1998, the overall market for
mortgage originations was approximately $1.5 trillion. This market, however, is
anticipated to decline to approximately $1.2 trillion in 1999, as a result of
increased interest rates.
Historically, most mortgages were originated by local banks. As the
capital markets have increasingly been willing to securitize mortgage assets
and as interstate banking has allowed the largest banks to grow nationally, the
traditional mortgage origination market has split into two types of
originators: large, national mortgage banks and smaller local mortgage
originators. Many large mortgage banks have continued to grow their direct
origination capabilities, but have also developed wholesale or correspondent
channels to aggregate loans originated by local mortgage originators. The
increasing demand for mortgage loans by large mortgage banks and secondary
markets has enabled the dramatic growth of mortgage brokers. These mortgage
brokers accounted for an estimated 70% market share of mortgage originations in
1998 according to the Wholesale Access Report. We believe there is no
traditional multi-lender mortgage broker that operates nationally and enjoys a
highly recognized consumer brand. In addition, no mortgage originator had more
than a 4% share of total U.S. retail mortgage originations in 1998.
Some of these traditional mortgage originators have created Internet
offerings to promote and sell their loans directly online as an alternative to
the traditional process. These offerings tend to be limited in that they
generally do not provide a choice of lenders or comparison of products to the
consumer. Further, such offerings often fail to provide the consumer with a
range of self-service tools that allow them to conveniently shop for and apply
for a mortgage online, but tend to simply provide contact and other information
about the traditional mortgage originator. Additionally, launching an Internet
offering may involve significant channel conflict issues for traditional
mortgage industry participants, as they may be unable or unwilling to compete
with prices available online or to promote online loan processing services that
might undermine their existing business. Further, they may be unable or
unwilling to make the significant investments required to successfully build an
online offering.
A number of companies have created websites that offer a selection of
multiple lenders. However, many of these websites simply refer customers to
their chosen lender for processing. Accordingly, these companies have
difficulty ensuring consistent and superior service delivery. Since
commissioned loan agents are typically involved in these transactions, these
companies are often unable to substantially reduce the costs to the consumer of
securing a mortgage. Moreover, companies that do offer transaction fulfillment
typically focus narrowly on the mortgage transaction.
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Limitations of the Conventional Home Buying Process
The information flow in the traditional home buying process is
decentralized, causing each buyer to make decisions and monitor the status of
the process by personally consolidating information from other sources. This
presents significant challenges for consumers and the industry as a whole.
Issues for Consumers. Buying a home has traditionally been a confusing
and time-intensive process, characterized by high transaction costs. Home
buyers often find it difficult to identify a home that meets their needs. Once
a home buyer finds a suitable home, he or she is faced with the complex process
of obtaining a mortgage and satisfying closing conditions. This process is
paper-intensive and frustrating, particularly for first-time home buyers. The
complexity of this process often compels prospective home buyers to seek
assistance from real estate agents and mortgage brokers, who may have
inconsistent levels of expertise. We believe this process leaves many consumers
feeling:
. uncertain that they are receiving unbiased advice;
. skeptical that rates initially quoted will ultimately be available;
. intimidated by the number and variety of mortgage products available;
. frustrated with the amount and types of fees they are required to pay;
and
. overwhelmed by the substantial time and effort and the vast amount of
information that must be processed in order to get a mortgage loan.
Issues for Realtors. Many quality realtors focus on creating a personal
brand to generate referrals within their local market. They do this by
acquiring new customers, providing them with superior service and maintaining
that relationship to generate follow-on business. As a result of being
dependent on a variety of service providers, many Realtors have difficulty
ensuring that their customers have a superior experience. Further, because
homeowners buy or sell infrequently, most Realtors spend a significant portion
of their revenues on generating new customer leads. Many Realtors do not have
access to technologies, such as Internet-based loan status applications, that
can make their customer interaction more efficient.
Issues for Home Builders. We believe that the most difficult part of
selling a new home is the financing and that inefficiencies in the mortgage
financing process have resulted in costly delays and lost sales. It is critical
to builders to have access to financing outlets with multiple loan products in
order to meet the financing needs of disparate new home buyers. As a result,
builders seek outsourced mortgage solutions that will provide them with greater
operational control, enhanced customer service and additional profit
opportunities.
Issues for Relocation Companies. Relocation companies look to third
parties to supply an array of real estate-related products and services.
Traditionally, such third-party service providers have operated principally on
a local or regional level. Accordingly, relocation companies have faced
variability in the scope, reliability and stability of these outsourced
services and have not been able to achieve the scale and efficiencies of
national service providers.
Issues for Mortgage Brokers. A typical mortgage broker has relationships
with a limited number of lenders and transacts a substantial portion of his or
her business by phone and facsimile. The mortgage broker must compare rates
from multiple sources, collate the data, differentiate the various offerings
and then provide that information to consumers, and often lacks software
productivity tools that would enable them to do this more efficiently. Not
surprisingly, most mortgage brokers do not have a website that aggregates
information and makes that information available in a convenient and efficient
manner to the consumer.
Issues for the Mortgage Industry. Traditional mortgage companies
generally rely on branch offices and legacy systems. Therefore, we believe they
have not experienced cost reductions to the same extent as companies in the
banking and stock brokerage industries. Prior to the introduction of Internet
mortgage
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offerings featuring reduced brokerage fees, there had been less pressure on the
industry to cut costs and operate more efficiently. Some industry participants
may not have the financial or other resources necessary to respond to these
challenges.
The iOwn Solution
We provide our customers with a fundamentally better way to identify,
purchase, finance, sell and manage their most significant asset, their home. We
create empowered homeowners by providing them with convenient, direct access
to:
. a wide selection of mortgages from leading lenders;
. online home listings and neighborhood information;
. informative tools and content; and
. referrals to a range of highly qualified real estate professionals.
Further, we have tailored our solution, delivery and technology to
provide numerous benefits to our key business partners in the home buying
process. These partners include Realtors, home builders, relocation services,
financial institutions and traditional mortgage brokers. We believe that our
multi-channel, business-to-business solution distinguishes our service offering
in the marketplace.
Benefits to Consumers. Relative to traditional service offerings, we
offer consumers a significantly better service offering that combines a
cheaper, faster and easier transaction experience with content, tools and
personalization features to create a comprehensive and compelling approach to
homeownership.
Product Selection and Cost Savings. Consumers can apply for a mortgage
from a selection of competitively-priced national and regional lenders, 24
hours per day, seven days a week. Each customer can enter individualized
criteria and receive a choice of mortgage options ranked by cost. We typically
offer the consumer cost savings on origination of over 50% compared to
obtaining a mortgage through traditional channels. We are streamlining the
mortgage process by leveraging the electronic communication capabilities of the
Internet and by automating our back-end mortgage processing and access to the
capital markets. We believe this will allow us to deliver mortgages at a
significantly lower cost to the customer than traditional services and, as a
result, to maintain and potentially increase the consumer's cost savings.
Traditional mortgage originators typically require the home buyer to pay an
origination fee of 1.00% to 1.50% of the loan amount in part to cover the
expenses of a commissioned loan agent. iOwn's origination fee is currently
0.50% of the loan amount.
Compelling Content and Guidance. We empower the consumer with a range of
informative and compelling content that enables them to make informed decisions
regarding their home purchase and mortgage financing. For example, our
HomeScout service aggregates one of the largest selections of real estate
property listings on the Internet. Our relationships with real estate
professionals and aggregators of real estate listings have resulted in
approximately 700,000 properties being listed for sale on our website. We also
provide home buyers with access to important neighborhood information, such as
neighborhood and school district comparisons and detailed demographic data for
over 1000 counties covering over 90% of the U.S. population.
Value-Added Self-Service Tools. Using our online tools, consumers are
able to access guidance on many of the decisions they encounter in the home
buying process. Consumers can determine whether to rent or buy, the price of a
home they can afford, and the optimal mortgage for their needs. Each of these
analytical tools provides recommendations based on buyer-provided information,
without the potential bias of commissioned sales agents. Our self-service tools
enable home buyers to efficiently identify, purchase and finance a home in
complete privacy, on their own time and without the pressures of the
traditional home and mortgage sales process. Our proprietary tools, including
AgentFinder, RateShopper and LoanStatus, provide our customers with powerful
solutions that distinguish us from both content-only websites and mortgage
transaction-only focused websites.
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Superior Customer Service. Our goal throughout the mortgage experience is
to effectively combine exceptional customer service with leading edge
technology to provide a superior customer experience. In contrast to many
websites that refer customers to third-party lenders, we believe that providing
complete transaction processing and controlling the entire customer service
experience is the best way to provide a consistently high level of service
quality. Our customer service experience involves:
. assigning dedicated personnel with specific regional expertise;
. providing a selection of methods by which customers may submit their
loan application;
. allowing customers to determine the level and means of communication,
including website, email, facsimile, telephone or overnight delivery;
and
. ensuring continuous service improvement by surveying each customer's
experience and by tying compensation of loan processing personnel
directly to consumer feedback.
Benefits to Real Estate Professionals. We provide real estate
professionals with an additional channel to acquire customers cost effectively
and enable them to provide those customers with a higher level of service. Our
home listing service, HomeScout, acts as a search engine that refers users
directly to a real estate agent's or broker's website, allowing the agent or
broker to maintain and build his or her own online brand identity. In addition,
our free online agent directory, AgentFinder, enables real estate professionals
to market themselves to online home seekers. Our prequalified and preapproved
customers also represent thousands of prospective home buyers that we direct to
our real estate agent partners.
Through our solutions, we also enable real estate professionals to
enhance the quality of service they offer their customers. HomeScout, for
example, helps agents to sell homes faster by exposing their listings to a
greater number of qualified home buyers. By referring clients to us, agents can
provide a loan service with greater choice, more informative online tools and
customer service that is superior to traditional mortgage originators. We plan
to develop additional compelling tools and services for the agent, such as the
ability to track the timing and status of any particular loan online.
Benefits to Home Builders. We offer home builders a range of services
designed to help them be more productive and profitable. Through our
HomeBuilders Financial Network subsidiary, we are able to offer builders a
turnkey solution, called the Preferred Correspondent Lender Program. Through
this program, we establish a captive in-house mortgage financing capability for
the home builder that enables them to provide dedicated services to their home
buyers while sharing in any profits generated by these mortgage origination
services. We enable builders to sell more homes by giving them access to more
mortgage finance options and thereby increasing the pool of qualified buyers.
We also enhance their operational control through dedicated service teams,
which integrate the mortgage origination process with the sale of the home.
This integration enables the home builder to potentially sell larger homes with
more profitable features by better understanding the maximum mortgage loan for
which the customer can qualify.
By supporting these captive, in-house mortgage operations with our
consumer web offerings and our online loan processing capabilities, we intend
to enable the home builder to deliver a superior experience to the home buyer.
We can readily qualify and approve a prospective new home buyer through a
website which we provide for the home builder. In addition, through HomeScout,
we intend to offer our builder partners a more robust opportunity to showcase
their new homes online.
Benefits to Relocation Companies. We offer relocation companies a range
of services designed to help them deliver better customer service at a lower
cost. We believe that we deliver a superior mortgage service that helps the
relocating household have a smoother transition, while helping sponsoring
corporations to save money through our discounted pricing. Relocation
counselors can also use our online tools and services to offer additional
advice and provide better service to relocating employees.
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Benefits to Traditional Mortgage Brokers. We offer traditional mortgage
brokers a range of services designed to help them be more productive and
profitable. By providing mortgage brokers with online tools, we allow them to
more efficiently provide a compelling customer service experience. For example,
through our Genesis 2000 software, a leading desktop suite of point-of-sale
loan origination software tools, we allow mortgage brokers to originate and
track mortgages. Furthermore, through our ePASS service, we also provide
mortgage brokers with easy online access to a wide range of wholesale mortgage
offerings and settlement services.
In addition, we provide mortgage brokers with a range of marketing tools
to enable them to grow their customer base by leveraging the capabilities of
the Internet. For example, our WebBuilder service enables mortgage brokers to
maintain a high quality Internet presence to market themselves to consumers,
providing both online content and mortgage tools. Through our Mortgage411.com
service and through the iOwn.com website itself, we provide a range of
compelling tools for mortgage brokers to capture additional leads, including
helping consumers who want to shop online but receive local service to reach a
qualified mortgage professional.
Benefits to Financial Institutions. Most financial institutions need an
efficient vehicle for acquiring loan assets. We offer a new, low-cost
distribution channel that makes it easier for lenders to broaden their
geographic reach, disperse their risk and reduce transaction costs by
streamlining the loan closing process. Additionally, we provide lenders with
dynamic pricing flexibility and online brand exposure.
In addition, for those financial institutions that wish to provide their
customers with a full suite of consumer financial services, but who do not
have, or do not wish to invest in, the development of mortgage capabilities, we
provide an efficient way to provide a high-quality Internet-based service to
their customers. We partner with financial institutions to provide both online
mortgage processing capabilities and co-branded or private label websites for
those institutions seeking to develop online offerings. For example, we are
currently the exclusive online mortgage provider for the Canadian Imperial Bank
of Commerce's MarketPlace Bank subsidiary in the United States.
Strategy
Our objective is to be the leading provider of online content and
electronic commerce services for homeowners and prospective homeowners. We
intend to offer a comprehensive and compelling approach to homeownership that
combines a cheaper, faster and easier transaction experience with content,
tools and personalized features. Our strategy to achieve this objective
includes the following initiatives:
Develop a Leading Online Brand. We intend to develop a leading online
brand targeting homeowners and home buyers through aggressive advertising, co-
branding partnerships and promotions using both the Internet and traditional
off-line media. We are building the iOwn brand around the complete home
ownership experience, rather than around the specific mortgage financing event.
Over time, we believe this branding strategy will enable us to reach the
broadest range of consumers with the broadest set of products and services. To
develop our brand, we use a mix of off-line media including print media, radio
spots and television advertisements, as well as aggressive public relations
efforts. We also have strategic distribution relationships with more than
twenty online partners including AOL's Netscape/Netcenter and Digital City,
Inc., Earthlink and NBCi/Snap!. In addition, we have an affiliate program which
allows smaller websites to receive advertising and marketing fees for directing
potential customers to our website. We plan to expand our distribution
partnerships, including additional relationships with real estate professionals
and with websites targeting homeowners. For example, we recently entered into a
broad promotional relationship with Homes.com.
Expand Third-Party Channels. We plan to continue to grow our customer
base and purchase (as opposed to refinance) mortgage originations by extending
our technology infrastructure to all parties who traditionally participate in
the home purchase process, including real estate agents, home builders,
relocation companies and mortgage brokers. These third-party channels enable us
to reach and, ultimately, Internet-enable
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the vast majority of the mortgage market which is currently transacted through
brokers and other business-to-business channels. For example, through our
Genesis 2000 software, we intend to provide tools and services that enable
local mortgage brokers to offer a high-quality Internet mortgage capability to
their customers. Through HomeBuilders Financial Network, home builders are able
to offer their customers a superior home buying experience and also potentially
improving their overall profitability.
Increase Purchase Mortgage Originations. We believe that the combination
of compelling content for early-stage home buyers, lead-generating offline
relationships and quality services for real estate professionals will result in
ongoing increases in our purchase mortgage originations, and we intend to
continue to invest in these areas. Over the past five years, purchase mortgage
originations have shown positive growth each year, whereas refinancing
originations have experienced wide swings in volume due to interest rate
fluctuations and economic downturns. In the three month period ending September
30, 1999, our purchase loan volume was greater than 60% of our closed loan
volume. We believe this percentage is higher than other leading online mortgage
companies. We plan to continue working closely with our third-party channels to
generate purchase mortgage originations. For example, purchase mortgages
constitute substantially all of the business of HomeBuilders Financial Network.
We intend to expand our nationwide networks of homes listed for sale and of
quality real estate agents to draw consumers to our website early in the home
buying process. We believe that our investment in personalization and email
targeting tools will allow us to serve an increasing number of these early home
buyers.
Enhance Our Mortgage Services. We intend to enhance our access to the
capital markets to further improve our competitive advantage on price,
selection and service. For example, we recently began underwriting, funding and
selling our own mortgage loans, which we believe will enable us to increase our
operating margins and improve our customer service. We currently offer mortgage
products from 30 lenders nationwide, and we intend to selectively extend the
geographic reach and the number of lenders we offer as part of our service
offering. We believe that proactively managing our lender relationships ensures
that we will be able to offer our customers not only the highest possible
levels of service but also the ability to achieve the best possible pricing
through volume discounts, internal economies of scale and tighter technical
integration with the lender. We do not believe that simply adding more lenders
achieves the same benefit. In addition, we are pursuing opportunities to
increase the range of customers with whom we do business by expanding or adding
product lines such as sub-prime mortgages, home equity credit lines and
construction loans.
Maintain Our Customer Service Leadership. We believe that providing
superior customer service is crucial to our success in the homeownership
market. We will continue to invest in customer service by committing to
consumer choice in the service process, providing exceptional service delivery
and continuously improving our service through established channels of customer
feedback. We use our technology platform to offer online tools that empower our
customers to make informed decisions throughout the home buying and mortgage
process. These tools, including our proprietary HomeScout and RateShopper
features, provide our customers with powerful and easy-to-use self-service
solutions that distinguish us from most other real estate and mortgage
websites. For example, we recently introduced online loan statusing through our
LoanStatus service and continue to simplify our online application. We also
offer a state-of-the-art contact management center staffed with trained
professionals to personally respond to customer needs and facilitate the
mortgage origination process. As a result of our continued investment in our
proprietary technology platform and workflow planning, we believe that we will
be able to deliver a superior customer service experience, while maintaining an
efficient and scalable customer service environment relative to both
traditional mortgage originators and to other online mortgage companies.
Maintain Our Technology Leadership. We have built a technology
infrastructure that uses the unique capabilities of the Internet to streamline
the shopping, application, processing and tracking of home finance- related
transactions. We have invested heavily in our technology platform to ensure
that our systems are scalable to meet the current and future needs of both
online customers and real estate professionals. Unlike many mortgage websites,
our systems and workflow processes are proprietary, and not built around a
legacy infrastructure. We believe that our technology enables us to provide
excellent service and to deliver greater
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customer satisfaction, both to consumers directly and to our third-party
channel partners. Because applications are submitted online, we are able to
streamline or automate a substantial number of the tasks in the traditionally
labor-intensive process of mortgage lending. By incorporating automated
underwriting with our proprietary software and linking directly with many
settlement services providers, we increase our ability to expedite the loan
approval process and reduce borrower documentation requirements. As we
integrate the Genesis 2000 loan origination system (our LOS) with our web-based
loan application systems, we expect to strengthen our technology leadership
position relative to other online mortgage providers.
Extend and Monetize Our Customer Relationships. We believe that we have
the ability to transform what have traditionally been isolated transactions
into long-term, mutually beneficial relationships. We intend to solidify our
ongoing relationships with our customers, by enhancing our content and tools to
create an increasingly integrated homeownership experience. We also believe
that there are large revenue opportunities in these relationships, and we
anticipate generating revenues from three types of services: (1) settlement
services, such as title insurance and appraisal, related to the closing of a
transaction; (2) home-related services, such as home warranty products and fire
insurance, which we can offer to our customers at the time of a mortgage
transaction; and (3) other products and services that extend well into the
homeownership lifecycle, such as home improvement services and home equity
loans. We intend to create targeted advertising, sponsorship and e-commerce
offerings to derive greater revenues from our targeted user base.
The iOwn Service
The iOwn service consists of a range of consumer products and services
offered primarily through our website. To reach the broadest possible range of
customers, we tailor and deliver these offerings through a range of third-party
channels, enabling our partners in these channels to be more successful. We
have two subsidiaries focused on our most established third-party channels,
Genesis 2000 for mortgage brokers and HomeBuilders Financial Network for home
builders.
The iOwn.com Customer Experience
Customers enter the www.iown.com website and have two primary ways of
accessing our services. First, we provide tailored site paths for customers
that are purchasing or refinancing their home. Each of these paths contains
customized content, tools and transaction capabilities applicable to each
specific situation. The customer's experience is simplified by the use of a
path checklist which guides the customer through the various requirements of
buying or refinancing a home. The second major way to navigate our website is
to use our various self-serve tools directly. These key tools and features are
directly available from our home page and are prominently featured through a
range of quick links throughout the rest of our website.
Our consumer website provides a range of personalization and subscription
features that tailor our customer's experience, both initially and over time.
These features include dynamic page serving that adjusts the website to the
customer's prior actions, saved settings, password-protected data access, the
ability to reuse loan application data for new loans, and the delivery of
customized content through a range of opt-in and outbound email messaging
capabilities.
Buying a Home. We provide customers with a one-stop shopping destination
where they can access information and tools to assist them in deciding to buy,
shopping for or financing a home. Consumers can begin by using the Buying
Checklist, which breaks down the complicated homebuying process into discrete
stages and allows consumers to directly access the tools of their choice.
Decide to Buy. We offer buyers a range of tools to assist in the
difficult decisions involved in determining:
. whether it makes sense for them to buy a home or continue to rent;
. how much they can afford to spend on a home and how much they need to
save for a down payment;
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. whether there are errors on their credit reports;
. what loan interest rates are currently available; and
. whether they prequalify for a loan.
Shop for a Home. We offer potential buyers a range of tools to use in
identifying a neighborhood, a real estate professional and a home. Using our
HomeScout service, consumers can search approximately 700,000 home listings
using customized criteria and subscribe to an email service that provides
weekly updates of new listings. We also provide neighborhood and school
information, tools for checking the value of a property, online guides for
finding and selecting a real estate agent and online mortgage tools for getting
preapproved.
Finance a Home. Consumers can compare mortgages from several lenders
using our RateShopper feature, which displays a customized selection of current
mortgage quotes with comprehensive up-front fee disclosures. Our loan
origination fees are generally less than half of those charged by traditional
originators. We offer a broad selection of home loans through our website,
including 30-year and 15-year fixed rate loans, a variety of adjustable rate
mortgages and loans with balloon payments. We principally offer first mortgages
for borrowers with good credit histories. However, we also offer second
mortgages in certain states, as well as loan products for customers who
otherwise do not have a perfect or good credit history.
We also offer an easy-to-use online home loan application, which is
routed through our proprietary workflow automation system. Once a consumer
submits a loan application, he or she is contacted within 24 hours by a loan
specialist, who will be their primary point of contact for the remainder of the
home buying process. Also within 24 hours, this specialist will send the
consumer all necessary forms and guide them through the remaining stages of the
closing process, such as obtaining appraisals and title insurance and
completing the escrow period. After submitting their application, customers can
track their loan status online at anytime. Borrowers can also interact with our
customer service representatives either by email or telephone to check the
status of their loans or lock in interest rates.
Refinancing a Home. Consumers who already own a home can use our services
to refinance their existing mortgage. While the refinance loan application is
very similar to the purchase loan application, we also offer the homeowner
specific tools designed to guide them through the refinancing process.
Decide to Refinance. We offer comprehensive analytical tools for helping
a consumer decide whether they will benefit from refinancing. We believe our
content on the goals, advantages and costs of refinancing addresses all aspects
of the financing decision, from reducing monthly payments to converting home
equity into cash for uses such as home improvements or college tuition. Our
Refinance Check service will also compare a customer's current loan with the
loans available through us. Customers can use additional tools for examining
recent home sales to estimate the value and equity of their property or for
checking their credit report.
Monitor Mortgage Rates. Consumers can also sign up for our RateWatch
service, which sends automatic email updates of loan rates, allowing them to
conveniently monitor movements in interest rates to decide whether or not it
makes sense to consider beginning the refinancing process.
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Consumer Products and Services
We provide current and prospective homeowners with a broad selection of
content and features to facilitate the home buying process and to enrich
homeownership:
<TABLE>
<CAPTION>
Feature Description Benefit
- --------------------------------------------------------------------------------
<S> <C> <C>
HomeScout . Enables search of approximately . Leverages investments others
700,000 up-to-date, national have made in hosting home
home listings listings
. Offers weekly email updates on . Encourages significant repeat
new listings for homes matching usage and provides an
customized search criteria opportunity to cross-sell early
in the buying process
- --------------------------------------------------------------------------------
Neighborhood . Facilitates school district . Provides valuable information
Information comparisons and provides and builds relationships with
detailed demographic profiles potential customers
for cities and towns
- --------------------------------------------------------------------------------
Home Sales . Provides searchable content on . Enables consumers to easily
recent home sales track recent home sales
. Sends automatic email updates . Provides continuous customer
information and interaction
- --------------------------------------------------------------------------------
Analytical Tools . Provides interactive tools, . Encourages repeat use of our
and Advice such as calculators covering website and empowers the
topics ranging from home consumer with information
affordability to selecting the
appropriate mortgage
- --------------------------------------------------------------------------------
Agent Center . Enables real estate agents to . Helps consumers find and
prequalify clients, add new evaluate real estate
home listings, include professionals
themselves in the agent
directory and read agent-
targeted news
. Creates free marketing
opportunities for agents
- --------------------------------------------------------------------------------
Resource Center . Provides co-branded information . Helps meet broader home-related
from leading service partners information needs of home buyer
such as insurance companies and or homeowner
home improvement centers
. Provides a single source for
ancillary services needed by
the home buyer or refinancing
customer
- --------------------------------------------------------------------------------
RateShopper . Provides customized rate quotes . Allows for clear comparisons of
and estimated closing costs for mortgage quotes between several
specific loans lenders
. Provides customized email . Provides full up-front
updates and alerts on loan disclosure of closing costs
rates
- --------------------------------------------------------------------------------
Prequalification . Helps customers determine how . Explains in detail how the
expensive a home they can customer may improve the
afford likelihood of getting a loan
. Automatically carries over data
from RateShopper to the
prequalification database
</TABLE>
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<TABLE>
<CAPTION>
Feature Description Benefit
- --------------------------------------------------------------------------------
<S> <C> <C>
Preapproval . Enables consumers to receive a . Gives the consumer confidence
loan commitment without and a competitive edge when
limitation to a specific shopping for a home
property
- --------------------------------------------------------------------------------
Online Loan . Enables the consumer to provide . Allows consumers to apply for
Application virtually all the information mortgages 24 hours a day
required for a federally-
compliant loan application
. Enables consumers to save their . Enables consumers to quickly
password-protected data within and efficiently submit
a loan application applications
. Allows for copying or deleting . Allows consumer maximum
of loan applications convenience and control of
their application
- --------------------------------------------------------------------------------
LoanStatus . Permits 24 hour access to loan . Offers reassurance and reduces
status customer service inquiries
</TABLE>
Third-Party Partner Relationships
In addition to our iOwn.com website, we reach customers through a range
of third-party channels, including real estate agents, home builders,
relocation companies, financial institutions and mortgage brokers. We typically
deliver these services in one of three ways:
. by providing a complete Internet-based outsourcing solution as our
partner's primary mortgage partner, such as we provide for CIBC's
MarketPlace Bank;
. by providing a range of Internet-enabling technologies and capital
markets solutions to a partner with an existing mortgage operation,
such as we provide to mortgage brokers through our Genesis 2000
subsidiary; or
. by setting up and managing a captive mortgage operation for a partner
that leverages our Internet technologies and capital markets access,
such as we provide for leading home builders like Beazer Homes through
HomeBuilders Financial Network.
For each of these models we have the ability to offer a range of
customized service offerings, including some or all of the following:
Co-Branded Websites. We have created over 50 co-branded websites for
various partners, each designed to create an integrated online home buying
experience. We also assign dedicated customer service teams to our partners to
extend the tailored experience from the initial online point of contact through
to loan closure.
Partner Promotion. We promote our partners' services and help them to
succeed by integrating their services into our consumer offerings. For example,
our HomeScout and AgentFinder services promote our Realtor partners and their
home listings, helping them to both cost-effectively market themselves and sell
homes more quickly. Our Mortgage411.com service helps mortgage brokers capture
those consumers who prefer to shop online, but wish to work with a local
provider for loan fulfillment. We believe that these types of programs enable
us to establish effective long-term relationships with real estate
professionals.
Specialized Service Capabilities. We can tailor our service delivery to
meet the specific customer service needs of individual partners or specific
channels. For example, in serving some relocation companies, we bill the
sponsoring corporation directly, rather than charging the relocating employee
upon the closing of their loan transaction.
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Capital Markets Access. We can offer some of our partners, and their
customers, access to superior loan pricing and delivery mechanisms. By
aggregating the volume of our smaller financial institution, mortgage broker
and home builder partners, we can access the capital markets with greater scale
and with greater technical integration than any of them would otherwise be able
to achieve on their own.
Loan Origination Technologies. We provide our partners with a range of
leading technologies for loan origination through a combination of centralized
online loan-processing capabilities and a suite of leading loan origination
tools such as our Genesis 2000 LOS.
Our Mortgage Broker Channel--Genesis 2000
We are an industry leader in providing mortgage brokers with point-of-
sale loan origination and tracking software and Internet-based mortgage
services. Approximately 7,000 mortgage brokers across America have licensed our
Genesis 2000 software to help them sell, process, track and close mortgages.
Our Genesis 2000 software automates key steps in the mortgage process, from
loan prequalification to printing documents and delivering files to lenders.
Brokers can also create customized forms and templates and calculate fees.
The latest version of our Genesis 2000 software increases mortgage broker
efficiency by connecting to a range of mortgage services through the Internet.
Using our ePASS service, mortgage brokers can submit loans to Freddie Mac for
instant automated underwriting, order title and other settlement services and
interact with lenders for electronic pricing, rate locks and document delivery.
Furthermore, Genesis 2000 facilitates communication between mortgage brokers
and their customers through an embedded email system called MortgageMail.
Finally, Genesis 2000 helps mortgage brokers generate leads and service
customers through the Internet via a website development and hosting service
called WebBuilder, which integrates with the Genesis 2000 desktop system.
We believe we can significantly enhance the Internet-based services
offered by Genesis 2000 to its brokers by leveraging our investment in
technology, rich online content and access to a wide range of competitive
lenders. We expect to offer mortgage brokers using Genesis 2000 the following
additional benefits: (1) expanded electronic lender pricing and loan
fulfillment through our wholesale division; (2) a wide range of mortgage and
home buying content for the websites built through WebBuilder; and (3) access
to iOwn customers who may prefer to shop online for mortgage rates, but have
their mortgage through an offline mortgage broker. This latter service is known
as Mortgage411.com.
With the ongoing integration of our iOwn and Genesis 2000 services, we
believe we have a significant advantage over competitors whose success is
solely dependant upon the growth of the consumer-direct online mortgage
business. Instead, we expect to leverage our substantial online assets to serve
both the consumer-direct and business-to-business segments of the mortgage
industry and expand our revenue and mortgage volume more rapidly than if we had
only one distribution channel.
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The following chart describes certain key features and benefits of our
Genesis 2000 services:
<TABLE>
<CAPTION>
Feature Description Benefit
- --------------------------------------------------------------------------------
<S> <C> <C>
Genesis LOS . Provides point-of-sale loan . Eases mortgage process for
Software origination services, including mortgage brokers by automating
prequalification, form key steps in origination and
preparation and generation, fee processing, increasing
calculators and loan tracking efficiency and service quality
and helping manage customers
and loans more effectively
- --------------------------------------------------------------------------------
ePASS . Provides Internet-based . Speeds delivery of information
connectivity to wide-range of and loan decisions to the
mortgage providers, settlement mortgage broker and increases
service providers and Freddie efficiency and convenience over
Mac traditional processes
. Allows mortgage brokers to . Improves service response time
transfer loan files while lowering cost to serve
electronically to facilitate customers
detailed loan pricing and rate
locks, automated underwriting
and ordering
- --------------------------------------------------------------------------------
WebBuilder . Provides customized websites . Assists mortgage brokers in
for mortgage brokers, including lead generation by providing a
loan calculators, mortgage rate high-quality, credible Internet
information and loan presence
application
. Allows customer leads to be . Simplifies and facilitates
imported directly into Genesis conversion of customer from
2000 software lead to applicant
- --------------------------------------------------------------------------------
Mortgage411.com . Aggregates online directory of . Provides lead generation to
local mortgage brokers with mortgage brokers and access to
WebBuilder sites otherwise unavailable marketing
leverage
. Provides Genesis 2000 users . Provides the convenience of
with access to a "supermarket" accessing multiple lenders
of lenders with wholesale through one provider
pricing and electronic delivery
for mortgage brokers
- --------------------------------------------------------------------------------
eWholesale . Provides electronic rate . Provides better wholesale
quotes, loan locks, loan pricing through our aggregation
delivery and loan status of volume
. Increases efficiency and
service levels through
electronic interaction
</TABLE>
Our Home Builder Channel--HomeBuilders Financial Network
We work with home builders across the country to establish and manage
captive mortgage loan origination operations. The management team of
HomeBuilders Financial Network pioneered the concept of setting up and managing
turnkey mortgage operations for local and regional home builders. These captive
operations are designed to enable home builders to realize the potential
benefits of an in-house mortgage operation, such as
. increased customer satisfaction by providing customers of the home
builder with a one-stop shopping environment for both purchasing a
home and obtaining a loan;
. increased sales by giving home buyers access to competitive pricing
through a broad range of lenders and products, thereby increasing the
pool of qualified buyers;
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. increased operational control during the sales process, enabling the
home builder to potentially sell larger homes with more profitable
features by better understanding the maximum mortgage loan for which
the customer can qualify; and
. increased profits as a result of the home builders' share of potential
mortgage origination profits.
Our current client base, which includes several of the top 100 builders
in the country, sold approximately $2.0 billion of new homes in 1999, and we
originated approximately $1.0 billion in mortgage loans.
We have developed a proprietary model for these captive mortgage
operations that we believe is significantly more profitable than a traditional
mortgage operation for several reasons. First, we provide the captive operation
with a mechanism for integrating the mortgage origination process into the home
sales effort. This frequently results in a capture rate (the percentage of home
sales for which the mortgage is also sold) approaching 75-80%, which
significantly increases volume and reduces sales costs. Second, we have
replaced the role of the traditional loan originator, who was typically paid a
large commission on each loan, with a lower cost customer service environment.
Finally, we deliver a range of centralized services, including access to the
capital markets, that provides these operations with the benefits of scale that
most traditional mortgage operations are unable to match. Accordingly, we
believe our captive mortgage operations are more profitable than traditional
mortgage operations, even after accounting for HomeBuilders Financial Network's
management fees and/or share of profits.
We believe that the combination of our leading Internet-based services
with HomeBuilders Financial Network's tested model for captive mortgage
operations further differentiates us as an alternative to traditional mortgage
originators for most home builders. This will also enable us to expand our
offerings to currently underserved segments of the home building industry,
particularly the smaller, local builders.
Our proprietary model, often called the Preferred Correspondent Lender
Program, provides an extensive menu of support services to home builders:
<TABLE>
<CAPTION>
Feature Description Benefit
- --------------------------------------------------------------------------------
<S> <C> <C>
Set-up Services . Establishes a new captive . Speeds implementation through
mortgage operation for the replication of a standard model
builder
. Coordinates legal and
regulatory requirements
. Hires and trains all staff
- --------------------------------------------------------------------------------
Management . Manages all aspects of the . Permits home builders to track
Services captive mortgage operation and measure efficiency,
customer satisfaction and
profitability from financing
activities
. Provides timely and meaningful . Permits home builders to focus
management reports on their core business of
building and selling homes
while participating in mortgage
origination profits
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Feature Description Benefit
- --------------------------------------------------------------------------------
<S> <C> <C>
Multi-lender Solution . Enables home builder to access . Facilitates greater home sales
a wide range of loan programs by having a full menu of loan
programs to meet varied buyer
needs
. Secures attractive loan terms . Improves home builder's
from competing wholesale operational
investors results, e.g. faster starts,
lower
fall-out
. Provides easy prequalification
and preapproval to potential
home buyers
- --------------------------------------------------------------------------------
Centralized Support . Provides underwriting, closing . Provides a dedicated account
Services and post-closing functions on a resource team for support
centralized basis
. Manages lender relations, . Permits access to economies of
capital markets access and risk scale that might not otherwise
management functions be available
</TABLE>
Marketing and Distribution
Our marketing strategy is to aggressively increase our customer base by
building the iOwn brand into a widely recognized and accepted consumer name. We
intend to build brand awareness and drive user traffic to our website by
expanding our marketing efforts through continued promotion on the Internet and
through offline media such as television, radio and printed publications
nationwide. In addition, through our strategic Internet distribution
partnerships, we provide content to our partners' websites from which a user
can click directly to our website. We have established relationships with over
thirty leading online distribution partners including AOL's Netscape/Netcenter
and Digital City, Inc., Earthlink and NBCi/Snap!.
As part of our strategy to increase online purchase mortgages, we have
focused a large portion of our marketing budget on home buying consumers. We
promote our website directly to real estate agents and brokers through direct
mail, print advertisements, trade shows and other real estate industry events.
In addition, we have established a number of distribution relationships with
online real estate companies including Homes.com and Cyberhomes. We have also
established an affiliate program which allows smaller websites to receive
advertising and marketing fees for directing potential customers to our
website.
We also bid for leads through a variety of online lead generation
websites, including GetSmart, Lending Tree and MortgageAuction. In these types
of models, we compete against other lenders, brokers and bankers for consumer
leads. We believe that our low pricing, automated responses and high-quality
service make us more likely to be chosen by customers using these online
services. Consequently, we view these partners as cost-effective sources of
mortgage customers to supplement our brand-building efforts.
In addition, we have a strategic focus on marketing through third-party
channels to reach customers who might not otherwise use an online service.
These third-party channels tend to be traditional, brick-and- mortar players in
the real estate arena to whom we can provide a tailored online mortgage
experience in return for their direction of customer leads to iOwn. We maintain
distinct business development and sales functions for each of our major types
of channel partners.
Customer Service
Our goal throughout the mortgage process is to effectively combine
exceptional customer service with leading-edge technology to provide a superior
customer experience. Each customer is assigned to dedicated personnel, with
specific regional expertise, to support his or her transaction and ensure a
positive home buying
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experience. Our customers have access to their representatives through the
phone, email, fax or mail. Through our LoanStatus service, which is a password-
protected feature, customers can monitor the status of their loan online.
We are committed to continuous improvement through customer feedback.
Every customer receives a survey asking for feedback, including a rating of his
or her customer service experience. We continually use our customers'
evaluations in order to improve our processes and provide an exceptional
service experience.
We operate a contact management center in Martinez, California. We have
staff available on extended hours, 6 days per week, and we intend to increase
our coverage until we have staff available 24 hours a day, 7 days a week, in
response to increasing customer demand. We monitor and analyze our call
performance. This allows our managers to provide coaching and instruction to
our contact center employees, and to adjust and modify our ongoing training
programs. This monitoring, in conjunction with our customer satisfaction
research, allows us to identify areas for improvement and automation.
As a result of our continued investment in our proprietary technology
platform and workflow planning, we believe that we will be able to deliver a
superior customer service experience. We maintain an efficient and scalable
customer service environment relative to both traditional mortgage originators
and other online mortgage companies.
Mortgage Banking and Capital Markets
We intend to enhance our access to the capital markets to further improve
our competitive advantage on price, selection and service. For example, we
recently began underwriting, funding and selling our own mortgage loans, which
we believe will enable us to offer better customer service and increase our
operating margins. We currently offer mortgage products from 30 lenders
nationwide, and we intend to selectively extend the geographic reach and the
number of lenders we offer as part of our service offering. We believe that
offering a greater quantity of lenders does not necessarily lead to greater
quality for our customers. By proactively managing our lender relationships we
believe that we will be able to offer our customers not only the highest
possible levels of service, but also the ability to achieve the best possible
pricing through volume discounts, internal scale economies and tighter
technical integration. In addition, we are pursuing opportunities to increase
the range of customers with whom we do business by expanding or adding product
lines such as sub-prime mortgages, home equity credit lines and construction
loans.
Mortgage Banking
The mortgage banking industry involves primarily two businesses:
origination and servicing. The origination business involves taking a loan
application, gathering and evaluating the relevant credit, down payment and
property information to make a loan decision, then providing funds to close,
and delivering the loan to the end investor in the secondary market. Servicing
a loan occurs after the loan has been made and involves collecting principal
and interest payments, assuring that adequate insurance is maintained on the
property, handling prepayment collections and handling foreclosures.
We are currently licensed or otherwise eligible to engage in mortgage
finance activities as a mortgage broker in 49 states and the District of
Columbia. We have filed an application for a mortgage broker license in the
remaining state, New Jersey. We are licensed as a mortgage banker in 42 states
and have applications pending or in process in all other states. When we act as
a mortgage broker, we originate and process our customers' loan applications.
When we act as a mortgage banker we also underwrite, fund and sell mortgages to
our customers' chosen lenders. Whether acting as a mortgage banker or broker,
we offer the customer a choice of lender, product, and terms. We initiated
mortgage banking operations in October 1999, and now operate as a mortgage
banker in 17 states. We expect to act as a mortgage banker for a majority of
the loans we originate. We believe that as a mortgage banker we will eventually
have the ability to offer more timely customer service and increase our
operating margins.
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We fund loans from our warehouse credit line provided by Bank United of
Texas. This line may be used to fund loans for a short period of time while we
package the loans for sale to our customers' chosen lenders. We are in
negotiation with Bank United of Texas, and several additional providers of
warehouse lines, to increase both the number and size of our warehouse line
facilities.
Sale of Loans and Servicing Rights
We intend to sell the loans we fund, typically within 30 days of
origination, rather than hold them for investment. We currently sell our loans
to our customers' chosen lenders. From time to time, we may elect to work with
one or more of our correspondent lenders, where volume permits, to co-issue
mortgage-backed securities or assignment of trades with Freddie Mac and Fannie
Mae. We do not currently securitize our loans, although we may decide to do so
in the future if market conditions or other considerations justify doing so.
We do not currently retain the rights to service the mortgages we
originate and sell. We transfer the servicing to the customer's chosen lender
when we sell the loan. In the future, we may elect to sell a loan directly to
an end investor, usually Freddie Mac or Fannie Mae, and concurrently transfer
the servicing to the lender chosen by the customer. In the future, we may
choose to retain the servicing on some loans, or to sub-service the loan on
behalf of the chosen lender or investor. Such a strategy would provide us with
new opportunities for additional, stable revenue streams, but would also
subject us to additional risks.
We attempt to limit our exposure to certain risks related to lending by
delivering, selling or swapping loans to others. The lenders to whom we sell
our customers' mortgages subject us to general representations and warranties
contained in our selling agreements with these lenders. These representations
and warranties may require us to repurchase loans if an early payment default
occurs, an underwriting defect exists or other material defects exist. We
reduce our repurchase risk through our extensive use of automated underwriting
systems available through Fannie Mae and Freddie Mac and our loan quality
control process. To further reduce the risks related to loans to customers with
less-than-perfect credit, we fund these loans only with a firm approval from
the end lender or investor.
Approach to Risk Management
Our current approach to risk management is to limit the level of risk to
which we are exposed as a mortgage broker or banker. When we fund loans, we
potentially subject ourselves to interest rate risk on mortgages that we
originate and close prior to delivery of these loans to the customers' chosen
lenders. Interest rate risk results from price changes in market interest rates
which impact the value of loans that we are obligated to fund. If interest
rates rise, the value of loans we are obligated to fund declines. If interest
rates decline, the borrower may decide not to accept our commitment to fund
their loan. We currently reduce our interest rate exposure by selling loans to
the customers' chosen lenders in a "best efforts" delivery. In a "best efforts"
delivery, a customer's rate on a mortgage is locked with their chosen lender at
the same time the borrower requests a rate lock. We are committed to the lender
to deliver that loan for purchase if we actually fund the loan. If we do not
fund the loan, we have no obligation to deliver a loan to the lender and have
no exposure to interest rate risk.
In the future, we may elect to increase our revenue opportunities, and
correspondingly increase our risk, by switching to an approach of mandatory
delivery of loans to investors. Under mandatory delivery, we can elect to lock
the interest rate on a customer's mortgage with an investor of our choice and
pay a penalty fee if we fail to deliver the loan by the commitment expiration
date.
Quality Control
We have developed loan quality control policies and procedures to monitor
and report on the quality and accuracy of our loan origination efforts. While
this policy has not been tested thoroughly with closed loan results, it has
been reviewed by Fannie Mae and Freddie Mac as part of their lender approval
process. We
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employ experienced staff to monitor loan quality and have developed a sampling
process that we believe meets Fannie Mae's and Freddie Mac's requirements for
quality control plans. Our senior management reviews quality control reports
monthly to identify areas that need corrective action or otherwise need
improvement.
Government Regulation
The residential mortgage financing business is highly regulated. Our
business is subject to extensive and complex rules and regulations of, and
examinations by, various federal, state and local government authorities and
government sponsored enterprises, including the Department of Housing and Urban
Development (HUD), the Federal Housing Administration, the Veteran's
Administration, Fannie Mae, Freddie Mac, Ginnie Mae and various state
regulatory authorities. These rules and regulations impose obligations and
restrictions on our loan origination and credit activities, including the
processing, underwriting, making, selling, securitizing and servicing of
mortgage loans.
Our lending activities also are subject to various federal laws,
including the Federal Truth-in-Lending Act and Regulation Z thereunder (TILA),
the Homeownership and Equity Protection Act of 1994, the Federal Equal Credit
Opportunity Act and Regulation B thereunder (ECOA), the Fair Credit Reporting
Act of 1970 (FCRA), the Real Estate Settlement Procedures Act of 1974 and
Regulation X thereunder (RESPA), the Fair Housing Act, the Home Mortgage
Disclosure Act and Regulation C thereunder (HMDA) and the Federal Debt
Collection Practices Act, as well as other federal statutes and regulations
affecting our activities. Our loan origination activities also are subject to
the laws and regulations of each of the states in which we conduct our
activities.
Under TILA, lenders are required to provide consumers with uniform,
understandable information concerning certain terms and conditions of their
loan and credit transactions. These disclosures include providing the annual
percentage rate, monthly payment amount and total amount financed, plus certain
disclosures concerning alternative mortgage transactions. In addition, TILA
gives borrowers, among other things, the right to rescind loan transactions in
certain circumstances if the lender fails to provide the requisite disclosure.
Under the Fair Housing Act and ECOA, creditors are prohibited from
discriminating against applicants on the basis of race, color, sex, age,
religion, national origin or marital status. The regulations under ECOA also
restrict creditors from requesting certain types of information from loan
applicants. FCRA requires lenders to supply applicants with certain
information, often referred to as an "adverse action notice," when the lender
denies the applicants' request for credit.
RESPA requires certain disclosures, including a good faith estimate of
closing costs and fees, as well as mortgage servicing transfer practices. RESPA
also prohibits the payment or receipt of kickbacks or referral fees, fee shares
or splits, or unearned fees in connection with the provision of real estate
settlement services. It is a common practice for online mortgage companies to
enter into advertising, marketing and distribution arrangements with other
Internet companies and websites whereby the mortgage companies pay the Internet
companies fees for such advertising, marketing and distribution services and
other goods and facilities based on the number of click-throughs, completed
loan applications or closed loans derived from such arrangements. The
applicability of RESPA's referral fee prohibitions to the compensation
provisions of these arrangements is unclear and the Department of Housing and
Urban Development has provided no guidance to date on the subject. Although we
believe that we have structured our relationships with Internet advertisers to
ensure compliance with RESPA, some level of risk is inherent absent amendments
to the law or regulations, or clarification from regulators.
Technology
We have built a technology infrastructure that uses the unique
capabilities of the Internet to streamline the shopping, application-taking,
processing and tracking of home finance-related transactions, while providing
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a unique platform for extended online customer relationships. We have invested
heavily in our technology platform to ensure that our systems are scalable to
meet the current and future needs of both online customers and real estate
professionals.
Website. Our website is constructed to maximize performance and maintain
service 24 hours per day, seven days per week through network optimization,
load balancing and website monitoring tools. We have two mirrored websites. One
is in San Francisco, California and one is at Frontier Global Center in
Sunnyvale, California. The Frontier Global Center location provides a state-of-
the-art secure building with redundant power, air conditioning and high
bandwidth telecommunications capacity. Our engineering group has developed a
data replication system that allows us to take traffic at both locations. We
have utilized the data replication capabilities of Microsoft SQL 7.0 and the
networking redundant traffic and switching functionality of F5 Networks 3DNS
geographic load balancer to enable mirroring. The existence of two mirrored
sites simultaneously taking traffic significantly improves our download time
and system uptime. The engineering staff monitors both sites with a combination
of external third-party and internally-developed tools. We use Keynote and Red
Alert on a continuous basis to assess the consumer experience and to compare
our performance with other websites. We also use a number of internally
developed tools that are customized for our site and our applications. In the
near future, we intend to move the San Francisco-hosted site to an East Coast
hosting facility in Virginia, which will provide a better download time for our
East Coast customers. It also provides us with disaster recovery in the event
the San Francisco, California area experiences a catastrophic event that
disables local telecommunication infrastructure.
Customer Management Intranet Solution. We have invested resources to
create a customer management intranet. This system is a combination of
application software, systems software and hardware designed to support our
customers after they have submitted a loan application. Our system consolidates
loan applications from a variety of sources, including our website, third-party
sources and applications through our toll-free number. It provides status on
loans for both internal loan processing personnel and consumers through our
website. The system can be accessed by our partners through the Internet and
acts as a central depository that allows us to produce reports tracking the
progress of all loans in our pipeline, regardless of application origin.
Back Office Loan Processing Systems. We have made a significant
investment in integrating our website's front-end commerce engine with our
back-end loan processing systems. After a loan application has been submitted
on our website, it is automatically categorized and electronically sent to our
loan processing system and database. Details about the loan are also sent to a
proprietary reporting system to ensure that the loan is tracked properly from
inception to completion. We combine data from both the back-end loan processing
tracking mechanisms and our website activity tracking tools to internally
report on a variety of statistics, including new users, unique users, repeat
users, loan status and other loan-closing metrics. We are in the process of
integrating the Genesis 2000 LOS with our proprietary back office loan
processing systems.
Back Office Real Estate Systems. We partner with over 300 real estate
listing providers. To support these providers, we have created a system that
captures and updates real estate listings. These listings are filtered and then
posted on a daily basis to our main real estate database. We run reports
regularly from this database to determine listing count, origin breakdown,
click through to Realtors and application utilization.
Applications. We host a wide variety of home-related applications,
including advice about the home buying process, the ability to search for home
listings, home loan rate searches and the ability to submit an online loan
application. Several of these applications support a subscription customer base
that includes daily interest rate alerts, alerts for new home listings and
refinance recommendation alerts. Our web applications are all server-side
applications requiring little or no special consumer hardware or software.
Security. We use internally-developed systems for transaction processing
to maximize security. We believe that we provide a secure solution and intend
to continue to lead the industry in the safekeeping of customer data. All
financial transactions are secured though the use of Verisign server website
certificates and
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Secured Socket Layering 128-bit encryption. We provide additional security
through a proprietary password mechanism, as well as through firewalls to
ensure that our website serves only legitimate requests. We follow a daily
routine of tape backup. Our tape backups are stored off-site.
Competition
The market for web-based services is highly competitive and there are no
substantial barriers to entry, making it possible for new competitors to
proliferate rapidly. In addition, many of our existing and potential
competitors have longer operating histories in the traditional mortgage and
Internet markets, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
We believe competition takes place on many levels, including pricing,
convenience in obtaining mortgage loans, breadth of product offerings and
lending sources, customer service, marketing and brand awareness. Our principal
competitors include:
. traditional lenders and mortgage brokers with no online presence;
. traditional lenders and brokers that offer access to their mortgage
products over the Internet, such as BankAmerica, Countrywide and
General Motors Acceptance Corporation; and
. new competitors in the financial services sector including E-Loan,
FiNet, mortgage.com and Intuit's QuickenMortgage.
In addition, we compete with a variety of websites for customer awareness
and Internet traffic, some of which are also our partners and all of which
compete with us for awareness, including:
. websites that provide access to real estate-related content and
services, including mortgage calculators and information on the home
buying process and which generate leads for mortgage providers,
including Get Smart, Lending Tree and Microsoft's HomeAdvisor;
. websites that offer real estate listings and related services, such as
CyberHomes, HomeSeekers, Homes.com, Homestore.com and Microsoft's
HomeAdvisor;
. general purpose consumer websites such as Alta Vista, Excite, Lycos,
Infoseek and Yahoo! that offer real estate-related content;
. newspapers and magazines that advertise real estate listings; and
. other financial institutions that are partnering with mortgage brokers
to offer related services, such as DLJ Direct and Fidelity.
Further, in establishing relationships with third-party partners we
compete with several companies that specialize in providing services to
companies in each channel, including, for example:
. companies specializing in captive mortgage operations for home
builders, including CTX and Norwest; and
. companies providing loan origination software for mortgage brokers,
including Calyx, Contour and Byte.
Intellectual Property
Trademarks and other proprietary rights are important to our success and
our competitive position. We currently have a number of trademarks and
copyrights. Although we seek to protect our trademarks and other proprietary
rights through a variety of means, we may not have taken adequate steps to
protect these rights. We may also license content from third parties in the
future, and it is possible that we could be subjected to infringement actions
based upon the content licensed from these third parties.
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We typically enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
our rights.
In November 1999, CheckFree Corporation introduced a financial software
product under the brand name "Genesis 2000," which we consider an unauthorized
usage of the Genesis 2000, Inc. registered trademark of "Genesis 2000" under
U.S. Registration No. 1,794,755. Our legal counsel has notified CheckFree
Corporation regarding their unauthorized usage of the "Genesis 2000" mark.
CheckFree has refused to withdraw their use of the mark. We may take legal
action to enforce the registered trademark of Genesis 2000.
Employees
Combined with our subsidiaries, we employ 288 employees. As of December
15, 1999, we employed 201 full-time employees, of whom 109 were in operations,
57 were in technology, 16 were in sales, marketing and business development,
and 19 were in finance and administration. As we continue to grow our loan
volumes and product offerings, we expect to hire a significantly larger number
of personnel, particularly in the areas of operations and engineering. None of
our employees are covered by collective bargaining agreements. We believe that
we maintain good relations with our employees.
As of December 15, 1999, Genesis 2000 employed 44 full time employees, of
whom 12 were in operations, 14 in technology, 8 in sales and 10 in general
administration. As of December 15, 1999, HomeBuilders Financial Network
employed 43 full time employees, of whom 33 were in operations and 10 were in
general administration.
Facilities
Our headquarters are currently located in a leased facility in San
Francisco, California consisting of approximately 25,000 square feet of office
space in a single building. In addition, we lease approximately 40,000 square
feet of office space in Martinez, California for our loan processing operations
and 3,000 square feet of office space in Santa Clara, California for
engineering functions.
Genesis 2000 has headquarters in Calabasas, California. HomeBuilders
Financial Network has headquarters in Miami Lakes, Florida.
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MANAGEMENT
Executive Officers and Directors
The names, ages and positions of our executive officers and directors as
of December 22, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Edward P. Hoyt.............. 31 Chief Executive Officer and Chairman of the
Board
Paul Holmes................. 50 President, Chief Operating Officer and
Director
Harvey J. Auger............. 52 Vice President, Real Estate and Relocation
Marcia J. Donner............ 50 Vice President, Customer Service and
Operations
Kevin E. Flood.............. 48 Vice President, Engineering
Lee T. Kirkpatrick.......... 38 Vice President, Finance and Administration;
Chief Financial Officer; Secretary
Jennifer A. M. Marshall..... 33 Vice President, Marketing
Charles E. Reed............. 55 Vice President, Capital Markets
Baron J. Wilhelm............ 46 Vice President, Affinity and Wholesale
Lending
Michael L. Zimmerman........ 32 Vice President, Consumer Channel
Thomas H. Meyer............. 49 Chief Executive Officer and President,
HomeBuilders Financial Network; Director
nominee
Kamyar Tafreshi............. 42 Chief Executive Officer and President,
Genesis 2000
K. David Chao............... 33 Director
Han J. Kim.................. 34 Director
Fred P. Phillips IV......... 35 Director
Scott A. Shay............... 42 Director
</TABLE>
Edward P. Hoyt was a co-founder of iOwn, and has served as our Chief
Executive Officer and as a member of our Board of Directors since our
inception. Mr. Hoyt currently serves as Chairman of our Board. From 1994 to
July 1996, Mr. Hoyt served as an Engagement Manager at McKinsey & Company, a
global business consulting firm. From 1990 to 1994, Mr. Hoyt served as a First
Lieutenant in the U. S. Army as an Infantry Platoon Leader and was trained as
an Airborne Ranger. Mr. Hoyt holds a B.A. in Politics and Economics from
Queen's College, Oxford University, where he was a Marshall Scholar, and a B.S.
in Economics from the U. S. Military Academy at West Point, where he graduated
first in his class.
Paul Holmes has served as our President, Chief Operating Officer and as a
member of our Board of Directors since October 1999. From March 1997 through
September 1999 he was President and Chief Executive Officer of Mellon Mortgage
Company, a mortgage lending company. From 1991 to March 1997, Mr. Holmes was
the Executive Vice President and Chief Operating Officer for EurekaBank, a
consumer banking and mortgage lending company. Mr. Holmes has also held senior
management positions at BancBoston Mortgage Corp., KPMG Peat Marwick and Bank
of America. Mr. Holmes has a B.A. in Mathematics and Computer Science from the
University of California at Berkeley and an M.B.A. from San Jose State
University.
Harvey J. Auger has served as our Vice President, Real Estate and
Relocation since April 1999. From January 1998 to April 1999, he served as
President and Chief Executive Officer of Nexx Financial Services, Inc., a
financial services relocation company. From August 1997 to December 1997, Mr.
Auger served as President and Chief Executive Officer of Amerus Home Services,
a real estate holding company. From February 1995 to August 1997, Mr. Auger
served as a real estate relocation consultant. From 1989 to January 1995,
Mr. Auger served as President of PHH Homequity, a relocation management
Company. Mr. Auger holds a B.A. in Sociology from Sacred Heart University.
Marcia J. Donner has served as our Vice President, Customer Service and
Operations since April 1999. Prior to joining us, Ms. Donner served over 25
years with Wells Fargo Bank, most recently as Senior
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Vice President and Division Manager of the Technology Services Group from
September 1998 to April 1999, and as Senior Vice President and Division Manager
of Express Electronic Banking from 1994 to September 1998. Ms. Donner holds a
B.A. in Sociology from California State University, Fullerton.
Kevin E. Flood has served as our Vice President, Engineering since
September 1997. From March 1995 to July 1997, he served as Vice President,
Engineering at Puma Technology, a software company. From 1987 to February 1995,
Mr. Flood served as the President of AI Squared, Inc., a software company. From
1980 to 1987, Mr. Flood served as Engineering Manager at Wang Laboratories, a
computer company. Mr. Flood holds a B.A. in History from the University of
Colorado.
Lee T. Kirkpatrick has served as our Vice President, Finance and
Administration, Chief Financial Officer and Secretary since April 1998. From
March 1997 to March 1998, he was Chief Financial Officer and Vice President,
Finance and Administration at HyperParallel, Inc., a software company. From
1988 to February 1997, Mr. Kirkpatrick served in various capacities with
Reuters America, Inc., a news and financial information services company,
including, from 1994 to February 1997, Chief Financial Officer of its
subsidiary Quotron Systems, Inc, a market data services company.
Mr. Kirkpatrick holds an M.B.A. in Finance from Columbia University and B.S. in
Business Administration from the University of Southern California.
Jennifer A. M. Marshall was a co-founder of iOwn, and has served us in
various executive capacities since our inception, including as our Vice
President, Marketing and Vice President, Product Development. From 1994 to
September 1996, Ms. Marshall was the Producer at Elliott Portwood Productions,
an educational software startup. From 1989 to 1993, Ms. Marshall worked in
marketing and communications at Microsoft Corporation. She holds an M.B.A. from
the University of California at Berkeley and a B.A. in English from the
University of Maryland.
Charles E. Reed has served as our Vice President, Capital Markets since
January 1998. From January 1995 to January 1998, Mr. Reed served as Chief
Operating Officer and Partner at Tuttle & Co., a risk management and technology
company. From 1992 to January 1995, Mr. Reed served as Senior Vice President,
Director of Mortgage Banking at Bay View Federal Bank. From 1987 to 1992, Mr.
Reed served in various capacities, including, most recently as Executive Vice
President of Residential Loan Division at First Nationwide Bank. Mr. Reed holds
a B.S. in Business Administration from the University of Colorado.
Baron J. Wilhelm has served as Vice President, Affinity and Wholesale
Lending since October 1999. From November 1996 to October 1999, Mr. Wilhelm
served as Director of Residential Production for Mellon Mortgage, a national
mortgage company. From 1989 to November 1996, Mr. Wilhelm served with PNC
Mortgage Company, formerly known as Sears Mortgage, most recently as Vice
President, Wholesale and Correspondent Lending. Prior to his service at PNC
Mortgage Company, Mr. Wilhelm served as the Senior Vice President of Allied
Bancshares Mortgage, a mortgage banking company. Mr. Wilhelm holds a B.S. in
Business Administration from Roosevelt University.
Michael L. Zimmerman has served as our Vice President, Consumer Channel
since March 1997. From 1994 to February 1997, Mr. Zimmerman served as a
consultant at Bain & Company, an international strategy consulting firm. From
1992 to present, Mr. Zimmerman has been a director of Start-Up, Inc., a non-
profit organization that trains and funds low-income entrepreneurs. From 1991
to 1992, Mr. Zimmerman was the Regional Director for The One to One
Partnership, a national mentoring and youth entrepreneurship foundation. From
1989 to 1991, Mr. Zimmerman was a Financial Analyst, Investment Banking
Division at Goldman, Sachs & Co. Mr. Zimmerman holds an M.B.A. from the
Stanford University Graduate School of Business and a B.A. in American Studies
from Amherst College.
Thomas H. Meyer founded HomeBuilders Financial Network in January 1995
and has served as its President and Chief Executive Officer since that time.
Upon the closing of this offering, HomeBuilders Financial Network will become a
wholly-owned subsidiary of iOwn, and Mr. Meyer will remain the President and
Chief Executive Officer of that subsidiary. Additionally, Mr. Meyer will become
a member of our Board of
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Directors upon the effectiveness of this offering. From 1992 to 1994, Mr. Meyer
was Chief Executive Officer of Builders Funding Corporation, a mortgage finance
company. Prior to 1992, Mr. Meyer served as Senior Vice President at J.I.
Kislak Mortgage Corporation, a national wholesale mortgage banking firm. Mr.
Meyer has also held senior management positions at DNA Plant Technology, an
agricultural biotechnology firm, and at Sears World Trade, the global trading
subsidiary of the Sears Roebuck organization. Mr. Meyer holds an M.B.A. in
Marketing from the Wharton School of Business of the University of
Pennsylvania, an M.A. in International Management from the University of
Pennsylvania, and a B.A. in Philosophy from Syracuse University.
Kamyar Tafreshi was a co-founder of Genesis 2000, Inc., a mortgage
software company and a wholly-owned subsidiary of iOwn, and has served as its
Chief Executive Officer, President and Director of Software Development since
1990. Prior to 1990, Mr. Tafreshi worked as a software engineer for Cadam a
subsidiary of Lockheed Corporation, an aeronautics company. Mr. Tafreshi has
also served as an engineer for several large engineering firms in California,
including Bechtel International. Mr. Tafreshi is a registered professional
Engineer in the State of California and holds a B.S. and two M.S. degrees in
Engineering from the University of California, Los Angeles.
K. David Chao has served as a member of our Board of Directors since
November 1997. Since July 1997, Mr. Chao has served as General Partner of Doll
Capital Management, Inc., a venture capital investment firm. From January 1997
to July 1997, Mr. Chao served as a founding executive team member of Japan
Communication Inc., an advertising company. From 1993 to January 1997, Mr. Chao
served as an Associate and Engagement Manager for McKinsey & Company, a
management consulting firm. From 1988 to 1991, Mr. Chao held a variety of
marketing and product development positions with Apple Computer, Inc. Mr. Chao
holds a B.A. in Economics and East Asian Studies from Brown University and an
M.B.A. from the Stanford University Graduate School of Business.
Han J. Kim has served as a member of our Board of Directors since April
1999. Since January 1996, Mr. Kim has been a general partner of Altos Ventures
I, L.P., a venture capital investment company. From June 1994 to January 1996,
Mr. Kim was an associate at Booz Allen & Hamilton, a management and technology
consulting firm. In 1993, Mr. Kim was a planning analyst at Proctor & Gamble, a
manufacturer of household products. From 1987 to 1992, Mr. Kim served in the
U.S. Army, retiring as a captain. Mr. Kim holds an M.B.A. from the Stanford
Graduate School of Business and a B.S. in Political Science from the U.S.
Military Academy at West Point.
Fred P. Phillips IV has served as a member of our Board of Directors
since September 1999. Since November 1997, Mr. Phillips has invested in
technology companies on behalf of ABN AMRO NV, a company organized in the
Netherlands. From September 1996 to September 1997, he was an officer of
Tescorp, Inc., a telecommunications company, and from 1994 to April 1996 he was
an attorney at Vinson & Elkins, an international law firm. Prior to 1994, Mr.
Phillips was a Fulbright Scholar in the Philippines and a lawyer at the U.S.
Department of Justice. Mr. Phillips holds a B.S. in Economics from Cornell
University, a B.Phil. in Philosophy from Oxford University, and a J.D. from
Yale University Law School.
Scott A. Shay has served as a member of our Board of Directors since
September 1998. Mr. Shay has been a Managing Director of Ranieri & Co., Inc., a
registered broker-dealer, since its formation in March 1998. Since January
1996, Mr. Shay has been a Director of a general partner of Cardworks, L.P., a
credit card issuer and servicer, and a Director of a general partner of Capital
Lease Funding, L.P., a specialized commercial mortgage bank since September
1995. Additionally, he has been a Director of Bank Hapoalim B.M. in Tel Aviv,
Israel since November 1997, Bank United Corp since December 1998 and Transworld
Healthcare, Inc. since January 1996. Mr. Shay was an Associate from August 1980
to December 1983, Vice President from January 1984 to December 1987 and a
Director from January to February 1988 at Salomon Brothers, Inc. Mr. Shay holds
a Master of Management Degree from the J.L. Kellogg Graduate School of
Management and a B.A. in Economics from Northwestern University.
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Board Composition
Our certificate of incorporation and by-laws fix the number of members of
the Board of Directors at seven. Mr. Meyer has agreed to serve as a member of
our Board of Directors upon the effectiveness of this offering. There are no
family relationships among any of our directors and executive officers.
Board Committees
The Audit Committee of the Board of Directors reviews our internal
accounting procedures and consults with and reviews the services provided by
our independent accountants. The Audit Committee currently consists of Fred P.
Phillips IV and Scott A. Shay.
The Compensation Committee of the Board of Directors reviews and
recommends to the Board of Directors the compensation and benefits of all of
our executive officers, administers our stock option plans and establishes and
reviews general policies relating to compensation and benefits of our
employees. The Compensation Committee currently consists of K. David Chao and
Han J. Kim.
Director Compensation
Our directors receive no cash compensation for their service as members
of the Board of Directors but are reimbursed for expenses in connection with
attending meetings of the Board of Directors or any committee thereof. We
provide no additional compensation for committee participation or special
assignments. Beginning with our annual meeting of stockholders in 2000, our
non-employee directors will receive options to purchase 2,222 shares of our
common stock pursuant to our 2000 Stock Incentive Compensation Plan for each
year of service as a director. Such options will be exercisable at a price
equal to the fair market value of our common stock as of the date of grant
which shall be our annual meeting and shall vest in full on the subsequent
annual meeting if such director is still serving in such capacity at that time.
See "--Stock Plans" and "--Certain Transactions."
Executive Compensation
The following table sets forth the total compensation received for
services rendered to us during the fiscal year ended December 31, 1998 by our
Chief Executive Officer and other executive officers who received salary and
bonus in 1998 of more than $100,000. The executive officers listed in the table
below are referred to as the Named Executive Officers.
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Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation Awards
Name and ------------------ -------------------
Securities
Underlying
Principal Position Salary($) Bonus($) Options(#)
------------------ --------- -------- -------------------
<S> <C> <C> <C>
Edward P. Hoyt (1)....................... $120,580 $ -- 166,666
Chief Executive Officer and Chairman of
the Board
Lee T. Kirkpatrick (2)................... 74,848 -- 66,666
Vice President, Finance and
Administration;
Chief Financial Officer and Secretary
Kevin E. Flood (3)....................... 106,667 -- 30,000
Vice President, Engineering
Charles E. Reed (4)...................... 110,632 -- 66,666
Vice President, Lending Services
Michael L. Zimmerman (5)................. 93,793 5,000 19,666
Vice President, Corporate Development
</TABLE>
- --------
(1) For the nine months ended September 30, 1999, Mr. Hoyt's compensation
totaled $105,000. In addition, during the nine months ended September 30,
1999, Mr. Hoyt was awarded 120,833 stock options.
(2) For the nine months ended September 30, 1999, Mr. Kirkpatrick's
compensation totaled $105,208. In addition, during the nine months ended
September 30, 1999, Mr. Kirkpatrick was awarded 73,333 stock options.
(3) For the nine months ended September 30, 1999, Mr. Flood's compensation
totaled $100,625. In addition, during the nine months ended September 30,
1999, Mr. Flood was awarded 46,666 stock options.
(4) For the nine months ended September 30, 1999, Mr. Reed's compensation
totaled $105,208. In addition, during the nine months ended September 30,
1999, Mr. Reed was awarded 56,597 stock options.
(5) For the nine months ended September 30, 1999, Mr. Zimmerman's compensation
totaled $97,708. In addition, during the nine months ended September 30,
1999, Mr. Zimmerman was awarded 47,083 stock options.
In April 1999, Ms. Donner joined us as our Vice President, Customer
Service and Operations and will be compensated at an annual base salary of
$150,000 plus cash bonuses of up to $125,000 during the fiscal year ended
December 31, 1999. Ms. Donner has been awarded options of purchase 116,666
shares of our common stock.
In October 1999, Mr. Holmes joined us as our President and Chief
Operating Officer and will be compensated at an annual base salary of $240,000
during the fiscal year ended December 31, 1999 plus an annual performance bonus
to be determined by us. Mr. Holmes has been awarded options to purchase 400,000
shares of our common stock.
During 1998, Mr. Tafreshi's salary totaled $161,501. In addition, during
1998 Mr. Tafreshi received $415,000 in profits distribution and $27,000 in the
form of a car allowance. During 1999, Mr. Tafreshi will be compensated at an
annual base salary of $130,000, in addition to a $27,000 car allowance during
the fiscal year ended December 31, 1999. For the nine months ended September
30, 1999, Mr. Tafreshi received $465,000 in profits distribution.
During 1998, Mr. Meyer's compensation totaled $74,616. In addition,
during 1998 Mr. Meyer received $135,000 in profits distribution. During 1999,
Mr. Meyer will be compensated at an annual base salary of $40,000 during the
fiscal year ended September 30, 1999.
68
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain summary information concerning
grants of stock options to each of the Named Executive Officers for the year
ended December 31, 1998. We have never granted any stock appreciation rights.
<TABLE>
<CAPTION>
Potential
Realizable
Value at Assumed
Annual Rates of
Stock
Price Appreciation
Individual Grant for Option Term
-------------------------------------------------- ------------------
Number of
Securities
Underlying % of Total Exercise
Options Options Granted Price Expiration
Name Granted (#) to Employees ($/Sh) Date 0%($) 5%($) 10%($)
---- ----------- --------------- -------- ------------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Edward P. Hoyt.......... 166,666 14% $0.18 July 30, 2008
Lee T. Kirkpatrick...... 45,000 4% $0.18 May 12, 2008
13,333 1% $0.18 July 21, 2008
8,333 1% $0.75 Dec. 10, 2008
Kevin E. Flood.......... 5,000 --% $0.18 May 12, 2008
13,333 1% $0.18 July 21, 2008
11,666 1% $0.75 Dec. 10, 2008
Charles E. Reed......... 50,000 4% $0.18 Feb. 23, 2008
6,666 1% $0.18 July 21, 2008
10,000 1% $0.75 Dec. 10, 2008
Michael L. Zimmerman.... 13,333 1% $0.18 July 21, 2008
6,333 1% $0.75 Dec. 10, 2008
</TABLE>
During the nine months ended September 30, 1999, we granted to the Named
Executive Officers a total of 344,514 options, with exercise prices ranging
from $0.75 to $7.50 per share. In 1998, we granted options to purchase an
aggregate of 1,171,251 shares of common stock, of which 1,117,918 were granted
to employees and 53,333 were granted to members of the Board of Directors. The
5% and 10% assumed annual rates of stock price appreciation are mandated by the
rules of the Securities and Exchange Commission and do not represent our
estimate or projection of future common stock prices. The potential realizable
value is calculated by assuming that the assumed initial public offering price
of $ per share appreciates at the indicated rate for the entire term of the
options and that the option is exercised at the exercise price and sold on the
last day at the appreciated price. The potential realizable value is net of the
applicable exercise price, but does not take into account applicable federal or
state income tax consequences and other expenses of option exercises or sales
of appreciated stock.
Fiscal Year-End Option Values
The following table provides certain summary information concerning stock
options held as of December 31, 1998 by each of the Named Executive Officers.
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Shares Unexercised Options at in-the-Money
Acquired FY-End(#) Options At FY-End($)
on Value ------------------------- -------------------------
Name Exercise Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward P. Hoyt.......... 83,333 -- 83,333 -- --
Lee T. Kirkpatrick...... 41,666 23,750 25,000 -- --
Kevin E. Flood.......... 33,333 1,000 41,666 -- --
Charles E. Reed......... 56,666 -- 10,000 -- --
Michael L. Zimmerman.... 25,500 1,913 66,166 -- --
</TABLE>
There was no public trading market for our common stock as of December
31, 1998. Accordingly, the value of unexercised in-the-money options as of that
date was calculated on the basis of an assumed initial public offering price of
$ per share.
69
<PAGE>
Stock Plans
2000 Stock Incentive Compensation Plan. Our 2000 Stock Incentive
Compensation plan was adopted by our Board and approved by our shareholders in
December 1999. The purpose of our 2000 incentive plan is to enhance long-term
shareholder value by offering to our and our subsidiaries' officers, directors,
employees, consultants, agents and independent contractors the opportunity to
participate in our growth and success, and to encourage them to remain in our
service and to own our stock. Our 2000 incentive plan provides for awards of
stock options and stock. Our Board has reserved a total of 1,533,333 shares of
common stock, plus an annual increase to be added on the first day of our
fiscal year beginning in 2001, equal to the lesser of 5% of the adjusted
average common shares outstanding used to calculate fully diluted earnings per
share as reported in our financial statements for the preceding year, or a
lesser amount determined by the Board. Any shares from increases in previous
years that are not actually issued shall be added to the aggregate number of
shares available for issuance under the plan. There are no options or
restricted stock outstanding under our 2000 incentive plan.
Our 2000 incentive plan provides for the granting to employees, including
officers and directors, of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code and for the granting to employees and
consultants, agents and independent contractors, including nonemployee
directors, of nonqualified stock options. To the extent an optionee would have
the right in any calendar year to exercise for the first time one or more
incentive stock options for shares having an aggregate fair market value
(determined for each share as of the date the option to purchase the shares was
granted) in excess of $100,000, any such excess options shall be treated as
nonqualified stock options. Unless terminated earlier by the Board, our 2000
incentive plan will terminate ten years after the earlier of the plan's
adoption by the Board and its approval by the stockholders.
Our 2000 incentive plan shall be administered by the Board or a committee
or committees of the Board. Currently, our 2000 incentive plan is administered
by the compensation committee of our Board. The plan administrator has
exclusive authority to determine the terms of options granted under the 2000
option plan, including the number of shares subject to an option, as well as
the term, exercisability, vesting, and exercise price of the option. For
incentive stock options the exercise price must be at least equal to the fair
market value of the common stock on the date of grant and for an individual
owing more than 10% of the total voting power of all classes of our stock the
exercise price must be 110% of fair market value on the date of grant.
The plan administrator determines the term of options, which may not
exceed ten years, or five years in the case of an incentive stock option
granted to a 10% shareholder. Optionees may not transfer options other than by
will or the laws of descent or distribution, with the provision that the plan
administrator may grant limited transferability rights in certain circumstances
to the extent permitted by Section 422 of the Internal Revenue Code. We expect
that options granted under the 2000 incentive plan generally will vest at the
rate of 1/4th of the total number of shares subject to the options twelve
months after the date of grant, and 1/48th of the total number of shares
subject to the options each month thereafter.
The plan administrator is authorized under our 2000 incentive plan to
issue shares of common stock to eligible participants with terms, conditions
and restrictions established by the plan administrator in its sole discretion.
Restrictions may be based on continuous service with us or our subsidiaries or
the achievement of performance goals. Holders of restricted stock have, subject
to certain restrictions, all the rights of stockholders with respect to such
shares.
The plan administrator will make proportional adjustments to the
aggregate number of shares subject to and issuable under our 2000 incentive
plan and to outstanding awards in the event of stock splits or other capital
adjustments.
In the event of the sale of all or substantially all of our outstanding
securities or assets, or a merger or consolidation of iOwn with or into another
corporation, all options outstanding under the 2000 incentive plan
70
<PAGE>
will be assumed, continued or equivalent options substituted by the successor
corporation, unless such successor corporation does not agree to such
assumption or substitution, in which case each outstanding option and
restricted stock award will automatically accelerate and become 100% vested and
exercisable for a specified time period, in each case conditioned upon
consummation of the transaction.
1997 Stock Option Plan. Our 1997 option plan was adopted by our Board and
approved by our shareholders in February 1997. A total of 5,123,537 shares of
common stock have been reserved for issuance under the 1997 option plan. As of
September 30, 1999, options to purchase 2,240,676 shares of common stock at a
weighted average exercise price of $3.63 per share were outstanding and 126,416
shares remained available for future option grants. Upon the effectiveness of
this offering, no further grants will be made pursuant to our 1997 option plan.
As of the effectiveness of this offering, shares remaining for future option
grants and any future cancellations of options from our 1997 option plan will
become available for future grant under our 2000 incentive plan.
The purpose of the 1997 option plan is to attract and retain the best
available personnel, to provide additional incentives to our officers,
employees, directors and persons rendering consulting or advisory services to
us, and to promote the success of our business. The 1997 option plan provides
for the granting of incentive and nonqualified options and stock purchase
rights.
The terms and conditions for options granted under the 1997 option plan
are substantially similar to those for options granted under the 2000 incentive
plan, except as follows: Generally options may not be exercised until the
purchaser's options are vested. In certain instances, the plan administrator
may accelerate vesting or waive forfeiture or other restrictions regarding any
option or stock purchase right. We also retain the right to repurchase shares
at the time of the optionee's termination of employment by paying an amount
equal to the original price paid by the purchaser. No option may be transferred
by the optionee other than by will or the laws of descent or distribution.
Nonstatutory stock options granted under the 1997 option plan must be granted
with an exercise price equal to at least 85% of the fair market value of the
common stock on the date of grant, unless granted to a 10% shareholder, in
which case the exercise price must be at least 110% of the fair market value on
the date of grant.
2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan
was adopted by our Board in December 1999 and submitted to our stockholders for
approval in December, 1999. We will implement the purchase plan upon the
effectiveness of this offering. A total of 500,000 shares of common stock have
been reserved for issuance under the purchase plan. The number of shares
reserved will be increased automatically each year on the first day of our
fiscal year beginning in 2001 by an amount equal to the lesser of 500,000
shares, 2% of the average common shares outstanding as used to calculate fully
diluted earnings per share as reported in our annual financial statements for
the preceding year, or a lesser amount determined by our Board. Any shares from
increases in previous years that are not actually issued shall be added to the
aggregate number of shares available for issuance under the purchase plan.
We intend the purchase plan to qualify under Section 423 of the Internal
Revenue Code. We will implement the purchase plan by a series of offerings of
24 months duration, the first of which shall commence upon the effectiveness of
this offering and end on January 31, 2000. Each subsequent offering period will
have a duration of twenty-four months. Each offering period after the first
offering period will commence on February 1st and August 1st of each year. Each
offering period will consist of four consecutive purchase periods of six months
duration, with the last day of each period being designated a purchase date. A
purchase period shall commence February 1 and August 1 of each year and end on
the next July 31 and January 31 respectively. The purchase plan will be
administered by the compensation committee of our Board. iOwn employees
(including officers and employee directors), or of any of our majority-owned
subsidiaries, are eligible to participate in the purchase plan if they are
employed by iOwn or any such subsidiary for at least 20 hours per week and more
than five months per year.
71
<PAGE>
The purchase plan permits eligible employees to purchase common stock
through payroll deductions, which may not exceed 15% of an employee's
compensation. Under the purchase plan, no employee may purchase common stock
worth more than $25,000 in any calendar year, valued as of the first day of
each offering period. In addition, owners of 5% or more of iOwn's or a
subsidiary's common stock may not participate in the purchase plan. The price
of the common stock purchased under the purchase plan will be the lesser of 85%
of the fair market value of iOwn's common stock at the beginning of the
offering period or the last day of each purchase period, except that the
purchase price for the first offering period will be equal to the lesser of
100% of the initial public offering price of the common stock and 85% of the
fair market value on the last day of such purchase period. Employees may end
their participation in an offering at any time prior to the end of the purchase
period for which such withdrawal is to be effective. The participants may
resume participation in subsequent offerings. Participation ends automatically
on termination of employment with iOwn or a participating subsidiary. If not
terminated earlier, the purchase plan will have a term of ten years from the
date of its adoption by the Board.
The purchase plan provides that in the event of a merger of iOwn with or
into another corporation or a sale of all or substantially all of iOwn's
assets, each right to purchase stock under the purchase plan will be assumed or
an equivalent right substituted by the successor corporation. If the successor
corporation refuses to assume or substitute for the purchase right, the
offering period during which a participant may purchase stock will be shortened
to a specified date before the proposed merger or sale. Our Board has the power
to amend or terminate the purchase plan as long as such action does not
adversely affect any outstanding rights to purchase stock under the plan.
401(k) Plan
We maintain the iOwn Holdings, Inc. 401(k) Plan (the "401(k) Plan"), a
defined contribution 401(k) salary reduction plan intended to qualify under
Section 401 of the Code. Our employees are eligible to participate in the
401(k) Plan on the first day of each month coinciding with or immediately
following the date of their employment. A participating employee, by electing
to defer a portion of his or her compensation, may make pre-tax contributions
to the 401(k) Plan, subject to limitations under the Code, of a percentage (not
to exceed 20%) of his or her total compensation. Employee contributions and the
investment earnings thereon will be fully vested at all times. We are not
required to contribute to the 401(k) Plan and have made no contributions since
the inception of the 401(k) Plan.
Genesis 2000 maintains a 401(k) Plan under which Genesis 2000 matches up
to 25% of employees contributions not to exceed 6% of the employee's pre-tax
salary. HomeBuilders Financial Network has no 401(k) plan for its employees.
Employment Contracts and Change of Control Arrangements
Under the terms of our offer of employment to Edward P. Hoyt, dated
October 25, 1999 we agreed to pay Mr. Hoyt an annual salary of $140,000 plus an
annual performance bonus to be determined by the Compensation Committee of our
Board of Directors. Upon termination in connection with a change of control we
will pay Mr. Hoyt an amount equal to two months of salary and have agreed to
the acceleration of vesting equal to 50% of the then-unvested shares of any
options granted after October 25, 1999.
Under the terms of our offer of employment to Paul Holmes, dated October
11, 1999, we agreed to pay Mr. Holmes an annual salary of $240,000, plus an
annual performance bonus to be determined by us. For 1999, Mr. Holmes'
aggregate bonus is targeted at $50,000 prorated to the end of the year.
Mr. Holmes was also granted options to purchase up to 400,000 shares of our
common stock, subject to vesting requirements. Upon termination in connection
with a change of control the Company will pay Mr. Holmes an amount equal to two
months of salary and has agreed to the acceleration of vesting equal to 50% of
the then-unvested shares granted pursuant to his agreement.
72
<PAGE>
Under the terms of our employment agreement with Marcia J. Donner dated
April 1, 1999, we agreed to pay Ms. Donner an annual salary of $150,000, plus
an annual cash bonus of up to $40,000 in 1999 and up to $50,000 in each
subsequent year of employment with us. Additionally, we agreed to pay Ms.
Donner a cash bonus of $42,500 ninety days after the first date of her
employment and a cash bonus of $42,500 one hundred eighty days after the first
date of her employment. We also granted Ms. Donner options to purchase
83,333 shares of common stock and a bonus option of 33,333 shares of common
stock, with each purchase price subject to adjustment. Upon a sale of all or
substantially all of our assets or any merger, consolidation or stock sale that
results in the holders of our capital stock owning less than 50% of the voting
power of our capital stock after the transaction, the stock options shall be
deemed vested an additional six months as of the date of such change of
control.
Under the terms of our employment agreement with Thomas H. Meyer that
will take effect upon the close of this offering, we are agreeing to pay Mr.
Meyer an annual salary of $150,000 plus an annual performance bonus to be
determined by our Board of Directors.
Under the terms of our employment agreement with Kami Tafreshi dated
December 23, 1999, we agreed to pay Mr. Tafreshi an annual salary of $166,667.
We also are granting Mr. Tafreshi options to purchase 83,333 shares of common
stock, subject to vesting requirements. Upon a sale of all or substantially all
of our assets or any merger, consolidation or stock sale that results in the
holders of our capital stock owning less than 50% of the voting power of our
capital stock after the transaction, the stock options shall be deemed vested
an additional six months as of the date of such change of control.
Limitation of Liability and Indemnification Matters
Our Amended and Restated Certificate of Incorporation, which will be
effective upon the closing of this offering, limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors except liability for breach
of their duty of loyalty to the corporation or its stockholders, acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, unlawful payments of dividends or unlawful stock
repurchases or redemptions, or any transaction from which the director derived
an improper personal benefit. Such limitation of liability does not apply to
liabilities arising under the federal or state securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
Our Bylaws provide that we shall indemnify our directors to the fullest
extent permitted by law, and grant to the Board the power on our behalf to
indemnify any person other than a director. We believe that indemnification
under our Bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our obligation to provide indemnification shall be offset
to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by us or any other
person.
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our Bylaws. These
agreements, among other things, indemnify our directors and executive officers
for certain expenses (including attorneys' fees), judgments, fines and
settlement amounts incurred by any such person in any action or proceeding,
services as a director, officer, employee, agent or fiduciary of iOwn, any
subsidiary of iOwn or any other company or enterprise to which the person
provides services at our request. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
At present, there is no pending litigation or proceeding involving a
director or officer of iOwn in which indemnification is required or permitted,
and we are not aware of any threatened litigation or proceeding that may result
in a claim for such indemnification.
73
<PAGE>
RELATED PARTY TRANSACTIONS
There has not been, nor is there currently proposed, any transaction or
series of similar transactions to which we were or are to be a party in which
the amount involved exceeds $60,000 and in which any director, executive
officer or holder of more than 5% of any class of our voting securities or
members of such person's immediate family had or will have a direct or indirect
material interest other than the transactions described below.
Series A Preferred Stock
In February and April 1997, in private placement transactions, we issued
a total of 830,966 shares of Series A preferred stock to certain investors at a
purchase price of $0.72 per share, which will automatically convert into
830,966 shares of common stock upon the completion of this offering. The
holders of such Series A preferred stock are entitled to registration rights
regarding the shares of common stock issued or issuable upon conversion.
Series B Preferred Stock
In November 1997, December 1997, January 1998 and March 1998, in private
placement transactions, we issued a total of 3,983,921 shares of Series B
preferred stock to certain investors at a purchase price of $1.8948 per share,
which will automatically convert into 3,983,921 shares of common stock upon the
completion of this offering. The holders of such Series B preferred stock are
entitled to registration rights regarding the shares of common stock issued or
issuable upon conversion.
Series C Preferred Stock
In September and November 1998, in private placement transactions, we
issued a total of 5,913,333 shares of Series C preferred stock to certain
investors at a purchase price of $3.75 per share, which will automatically
convert into 5,913,333 shares of common stock upon the completion of this
offering. The holders of such Series C preferred stock are entitled to
registration rights regarding the shares of common stock issued or issuable
upon conversion.
Series D Preferred Stock
In April 1999, in a private placement transaction, we issued 2,606,881
shares of Series D preferred stock to certain investors at a purchase price of
$7.50 per share, which will automatically convert into 2,606,881 shares of
common stock upon the completion of this offering. The holders of such Series D
preferred stock are entitled to registration rights regarding the shares of
common stock issued or issuable upon conversion.
Series E Preferred Stock
In October and November 1999, in private placement transactions, we
issued a total of 3,390,377 shares of Series E preferred stock to certain
investors at a purchase price of $9.00 per share, which will automatically
convert into 3,390,377 shares of common stock upon the completion of this
offering. The holders of such Series E preferred stock are entitled to
registration rights regarding the shares of common stock issued or issuable
upon conversion. See "Description of Capital Stock."
Genesis 2000
In December 1999, we issued 833,333 shares of common stock and 833,333
shares of Series EEE preferred stock, which Series EEE will automatically
convert into 833,333 shares of common stock upon the completion of this
offering in connection with the acquisition of Genesis 2000, Inc. The holders
of such Series EEE preferred stock are entitled to registration rights
regarding the shares of common stock issued or issuable upon conversion. See
"Description of Capital Stock."
74
<PAGE>
In December 1999, we agreed to issue simultaneously with this offering
1,333,333 shares of common stock and 1,333,333 shares of Series EEEE preferred
stock, which Series EEEE will automatically convert into 1,333,333 shares of
common stock upon the completion of this offering in connection with the
completion of the acquisition of HFN. The holders of such Series EEEE preferred
stock are entitled to registration rights regarding the shares of common stock
issued or issuable upon conversion. See "Description of Capital Stock."
The investors in the preferred stock include executive officers,
directors, director nominees, and security holders known to us to own more than
5% of our common stock:
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E/EEE
Investor Preferred Preferred Preferred Preferred Preferred
-------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
ABN AMRO Capital
Investments (Belgie)
NV..................... 555,554
Altos Ventures I, L.P.... 555,555 798,394 325,978 149,926 250,388
CIBC WMV, Inc............ 1,733,333 237,181
Discovery Ventures....... 266,666 23,798 22,222
Doll Technology
Affiliates Fund, L.P... 40,816 14,966 4,978 8,314
Doll Technology
Investment Fund, L.P... 693,745 254,399 84,615 141,317
Doll Technology Side
Fund, L.P.............. 26,573 9,744 3,241 5,413
Marcia Donner............ 8,000
Kevin E. Flood........... 5,277
Edward P. Hoyt........... 133,333 33,333
Hyperion Partners II
L.P.................... 1,333,333 66,666 111,111
Brendan S. Kim........... 2,638
Han J. Kim............... 5,277
Lee T. Kirkpatrick....... 2,000
Lehman Brothers.......... 800,000 71,395 119,237
Thomas H. Meyer.......... 1,333,333
Hodong Nam............... 5,277
Charles E. Reed.......... 3,333 2,000
Charles E. Reed and Ruth
S. Reed, Trustees of
the Reed 1991 Trust.... 8,000
Kamyar Tafreshi.......... 263,530
TMCT Ventures, LLP....... 1,066,666 95,193 158,983
Tribune Company.......... 1,187,460 294,091 132,219 220,821
Weiss Peck & Greer
Venture Associates IV
Cayman L.P............. 75,930 6,776 3,439
Weiss Peck & Greer
Venture Associates IV,
L.P.................... 601,434 53,674 27,238
WPG Enterprise Fund III,
L.P.................... 525,994 46,942 23,822
WPG Information Sciences
Entrepreneur Fund,
L.P.................... 23,306 2,080 1,055
Michael L. Zimmerman..... 7,333 7,375 3,466
</TABLE>
Other Transactions
We have issued to Altos Ventures I, L.P. three separate warrants to
purchase Series B preferred stock, exercisable for an aggregate of 39,582
shares at $1.8948 per share. These warrants were issued in connection with a
bridge financing prior to the closing of the Series B financing, and expire
through October 2004.
We have issued to ABN AMRO Capital Investments (Belgie) NV one warrant to
purchase common stock, exercisable for an aggregate of 555,555 shares at $9.00
per share, which expires in October 2006. If unexercised, this warrant will
expire upon the close of this offering.
We have entered into indemnification agreements with our officers and
directors containing provisions that require us, among other things, to
indemnify our officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors, other than
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.
We believe that the terms of the transactions described above were no
less favorable to us than would have been obtained from an unaffiliated third
party. Any future transactions between us and any of our officers, directors or
principal shareholders will be on terms no less favorable to us than could be
obtained from unaffiliated third parties.
75
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of common stock as of November 30, 1999 by each person or entity
known by us to own beneficially more than 5% of our common stock, each of our
directors, each of our Named Executive Officers and all of our executive
officers and directors as a group.
<TABLE>
<CAPTION>
Percentage of
Shares
Outstanding (2)
Shares Beneficially -----------------
Owned Prior to Before After
Name of Beneficial Owner (1) the Offering (2) Offering Offering
- ---------------------------- ------------------- -------- --------
<S> <C> <C> <C>
Altos Ventures I, L.P.
2882 Sand Hill Road, Suite 100
Menlo Park, CA 94025.................... 2,119,824 10.13%
CIBC WMV, Inc.
425 Lexington Avenue, 9th Floor
New York, NY 10017...................... 1,970,514 9.43%
Edward P. Hoyt (3)....................... 1,854,166 8.83%
Tribune Company
435 N. Michigan Avenue
Chicago, IL 60611....................... 1,834,592 8.78%
Hyperion Partners II L.P.
50 Charles Lindbergh Blvd., Suite 500
Uniondale, NY 11553..................... 1,511,111 7.23%
Entities Affiliated with Weiss, Peck &
Greer Investments (4)
555 California Street, Suite 3130
San Francisco, CA 94104................. 1,391,694 6.66%
TMCT Ventures
Los Angeles Times
13 South Broadway
Los Angeles, CA 90012................... 1,320,843 6.32%
Entities Affiliated with Doll Capital
Management (5)
3000 Sand Hill Road
Building 3, Suite 225
Menlo Park, CA 94025.................... 1,288,125 6.17%
ABN AMRO Capital Investments (Belgie) NV
International Venture Capital (AA3240)
Foppingadreef 22
P.O. Box 283, 1000 EA Amsterdam
The Netherlands........................ 1,111,110 5.18%
K. David Chao (6)........................ 1,314,791 6.29%
Han J. Kim (7)........................... 2,133,991 10.20%
Scott Shay (8)........................... 1,511,111 7.23%
Fred P. Phillips IV (9).................. 1,111,109 5.18%
Paul Holmes (10)......................... 400,000 1.88%
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares
Outstanding (2)
Shares Beneficially -----------------
Owned Prior to Before After
Name of Beneficial Owner (1) the Offering (2) Offering Offering
- ---------------------------- ------------------- -------- --------
<S> <C> <C> <C>
Lee T. Kirkpatrick (11).................. 142,000 *
Kevin E. Flood (12)...................... 126,944 *
Charles E. Reed (13)..................... 136,597 *
Michael L. Zimmerman (14)................ 156,925 *
All directors and executive officers as a
group
(16 persons) (15)....................... 9,954,715
</TABLE>
- --------
*Less than 1% of the outstanding shares of common stock.
(1) Unless otherwise indicated, the address for this person is c/o iOwn, Inc.
Holdings, 333 Bryant Street, Lower Level, San Francisco, California 94107.
(2) Applicable percentage ownership is based on shares of capital stock
outstanding as of November 30, 1999 and shares outstanding immediately
following completion of this offering. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock underlying options or warrants held by that person
that are currently exercisable or exercisable within 60 days are deemed
outstanding. These shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person. Except
as indicated in the footnotes to this table and pursuant to applicable
community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares set forth opposite
such stockholder's name.
(3) Includes options to purchase 120,833 shares of our common stock exercisable
within 60 days, and includes 114,583 shares of common stock subject to our
right of repurchase. Includes 1,000,000 shares of our common stock held by
the Edward Hoyt 1999 Irrevocable Trust, dated January 13, 1999, Kathy
Carrett Hoyt and R. Walter Hale III, co-trustees. Mr. Hoyt disclaims
beneficial ownership of all such shares, except to the extent he has a
pecuniary interest therein.
(4) Includes 682,347 shares held of record by Weiss, Peck & Greer Venture
Associates IV, L.P., 596,759 shares held of record by WPG Enterprise Fund
III, L.P., 86,146 shares held of record by Weiss, Peck & Greer Venture
Associates IV Cayman, L.P., and 26,442 shares held of record by WPG
Information Sciences Entrepreneur Fund, L.P.
(5) Includes 1,174,077 shares held of record by Doll Technology Investment
Fund, L.P., 69,075 shares held of record by Doll Technology Affiliates
Fund, L.P. and 44,972 shares held of record by Doll Technology Side Fund,
L.P.
(6) Includes 1,174,077 shares held of record by Doll Technology Investment
Fund, L.P., 69,075 shares held of record by Doll Technology Affiliates
Fund, L.P. and 44,972 shares held of record by Doll Technology Side Fund,
L.P. Mr. Chao is a Managing Partner of Doll Capital Management LLC which is
the general partner of Doll Technology Investment Fund, L.P. and Doll
Technology Side Fund, L.P. Mr. Chao disclaims beneficial ownership of all
such shares except to the extent of his pecuniary interest therein. Also
includes 26,666 shares of common stock, of which 13,333 shares are subject
to our right of repurchase.
(7) Includes 2,080,242 shares and warrants to purchase 63,248 Shares of series
B preferred stock held of record by Altos Ventures I, L.P., of which Mr.
Han Kim is a Managing Partner. Mr. Han Kim disclaims beneficial ownership
of all such shares except to the extent of his pecuniary interest therein.
Also includes 14,166 shares which Mr. Han Kim received as a distribution
from shares held by Altos Ventures I, L.P. pursuant to the exercise of
stock options by Altos Ventures I, L.P., of which 5,000 shares are subject
to our right of repurchase.
(8) Represents shares held of record by Hyperion Partners II L.P., of which Mr.
Shay is an executive vice president of the general partners. Mr. Shay
disclaims beneficial ownership of all such shares except to the extent of
his pecuniary interest therein.
(9) Includes 555,554 shares and warrants to purchase 555,555 shares of our
common stock held of record by ABN AMRO Capital Investments (Belgie) NV.
Mr. Phillips disclaims beneficial ownership of all such shares except to
the extent of his pecuniary interest therein.
(10) Includes options to purchase 400,000 shares of our common stock
exercisable within 60 days.
(11) Includes options to purchase 73,333 shares of our common stock exercisable
within 60 days, and includes 44,410 shares of common stock subject to our
right of repurchase.
(12) Includes options to purchase 58,333 shares of our common stock exercisable
within 60 days, and includes 32,639 shares of common stock subject to our
right of repurchase.
(13) Includes options to purchase 66,597 shares of our common stock exercisable
within 60 days, and includes 31,528 shares of common stock subject to our
right of repurchase. Also includes 70,000 shares held by the Reed 1991
Trust, dated March 1991, Charles E. and Ruth S. Reed, co-trustees.
(14) Includes options to purchase 47,083 shares of our common stock underlying
options exercisable under outstanding stock options within 60 days, and
includes 39,222 shares of common stock subject to our right of repurchase.
(15) Includes options to purchase 1,204,847 shares of our common stock
exercisable within 60 days, warrants to purchase 674,301 shares of our
common stock issuable within 60 days, and includes 873,676 shares of
common stock subject to our right of repurchase.
77
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our certificate of incorporation authorizes the issuance of up to
100,000,000 shares of common stock, par value $0.001 per share, and 10,000,000
shares of preferred stock, par value $0.001 per share, the rights and
preferences of which may be established from time to time by our Board of
Directors. As of September 30, 1999, 2,470,245 shares of common stock were
issued and outstanding and 13,335,102 shares of preferred stock convertible
into 13,335,102 shares of common stock upon the completion of this offering
were issued and outstanding. As of September 30, 1999, we had 170 stockholders.
Common Stock
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders and there are no cumulative voting
rights. Subject to preferences to which holders of preferred stock may be
entitled, holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefore. In the event of a
liquidation, dissolution or winding up of the Company, holders of common stock
would be entitled to share in our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights or other subscription rights and there
are no redemption or sinking fund provisions applicable to the common stock.
All outstanding shares of common stock are, and the shares of common stock
offered by us in this offering, when issued and paid for, will be, fully paid
and nonassessable. The rights, preferences and privileges of the holders of
common stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any Series of preferred stock, which we may designate
in the future.
Preferred Stock
Upon the closing of this offering, the Board of Directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue up to an aggregate of 10,000,000 shares of
preferred stock, in one or more Series, each of such Series to have such rights
and preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences as shall be determined by the
Board of Directors. The rights of the holders of common stock will be subject
to, and may be adversely affected by, the rights of holders of any preferred
stock that may be issued in the future. Issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of the outstanding voting stock of the Company. We have no
present plans to issue any shares of preferred stock.
Warrants
In August 1997, we issued to Altos Ventures I, L.P. a warrant to purchase
19,791 shares of Series B preferred stock at an exercise price of $1.8948 per
share, which is exercisable at any time prior to August 25, 2004. In September
1997, we issued to Altos Ventures I, L.P. a warrant to purchase 13,194 shares
of Series B preferred stock at an exercise price of $1.8948 per share, which is
exercisable at any time prior to September 25, 2004. In October 1997, we issued
to Altos Ventures I, L.P. a warrant to purchase 6,597 shares of Series B
preferred stock at an exercise price of $1.8948 per share, which is exercisable
at any time prior to October 25, 2004. In November 1997, we issued to Joanna
Rees Gallanter a warrant to purchase 5,000 shares of common stock at an
exercise price of $0.135 per share, which is exercisable at any time prior to
February 28, 2004. In April 1998, we issued to Imperial Bank a warrant to
purchase 10,000 shares of Series B preferred stock at an exercise price of
$2.274 per share, which is exercisable at any time prior to April 2, 2005. In
July 1998, we issued to LINC Capital, Inc. a warrant to purchase 18,471 shares
of Series B preferred stock at an exercise price of $1.8948 per share, which is
exercisable at any time prior to July 20, 2008. In July 1999, we
78
<PAGE>
issued to America Online, Inc. a warrant to purchase 8,333 shares of common
stock at an exercise price of $30.00 per share, which is exercisable at any
time prior to June 30, 2006. In August 1999, we issued to Comdisco, Inc. a
warrant to purchase 53,333 shares of Series D preferred stock at an exercise
price of $7.50 per share, which is exercisable at any time prior to August 12,
2009. In September 1999, we issued to American Mortgage Services a warrant to
purchase 6,666 shares of common stock at an exercise price of $8.25 per share
which is exercisable at any time prior to September 16, 2002. In September
1999, we issued to Cashin Realty Group, Inc. a warrant to purchase 3,333 shares
of common stock at an exercise price of $8.25 per share which is exercisable at
any time prior to September 16, 2002. In September 1999, we issued to Roger
Thrun a warrant to purchase 1,666 shares of common stock at an exercise price
of $8.25 per share which is exercisable at any time prior to September 16,
2002. In September 1999, we issued to Arthur Nadolske a warrant to purchase
1,666 shares of common stock at an exercise price of $8.25 per share which is
exercisable at any time prior to September 16, 2002. In October 1999, we issued
to ABN AMRO Capital Investments (Belgie) NV a warrant to purchase 555,555
shares of common stock at an exercise price of $9.00 per share which is
exercisable at any time prior to October 29, 2006. In November 1999, we issued
to Comdisco, Inc. a warrant to purchase 44,444 shares of Series E preferred
stock at an exercise price of $9.00 per share, which is exercisable at any time
prior to November 15, 2009. In December 1999, we issued to Ranieri & Co., Inc.
a warrant to purchase 66,666 shares of common stock at an exercise price of
$15.00 per share, which is exercisable at any time prior to December 8, 2009.
Registration Rights
Pursuant to the terms of an Investor Rights Agreement among us and
certain holders of our securities, after the closing of this offering, the
holders of a majority of the shares of our outstanding common stock issued upon
conversion of our currently outstanding shares of preferred stock, are entitled
to certain rights with respect to the registration of such shares under the
Securities Act. The holders of at least a majority of the outstanding shares of
common stock issued upon conversion of our currently outstanding shares of
preferred stock are entitled to two demand registrations that require us to
file a registration statement covering their shares of common stock so long as
the aggregate proceeds to such stockholders exceed at least $30 million. We are
not required to effect: (1) a registration within 60 days prior to the
Company's estimated date of filing any registration statement; (2) a
registration during the period in which any other registration statement has
been filed or has been declared effective within the prior 180 days; or (3) a
registration for a period not to exceed 90 days, if our Board of Directors has
made a good faith determination that such registration would be seriously
detrimental to us or to its stockholders. Furthermore, pursuant to the terms of
the Investor Rights Agreement, the holders of the shares entitled to
registration rights are entitled to certain piggyback registration rights in
connection with any registration by us of our securities for our own account or
the account of other security holders. In the event that we propose to register
any shares of common stock under the Securities Act, the holders of such
piggyback registration rights are entitled to receive notice of such
registration and are entitled to include their shares therein, subject to
certain limitations.
At any time after we become eligible to file a registration statement on
Form S-3, any holders of the registrable securities, as defined in the Investor
Rights Agreement, under our Investor Rights Agreement may require us to file up
to three registration statements on Form S-3 under the Securities Act for a
public offering of shares of the registrable securities the reasonably
anticipated aggregate price to the public of which would exceed $750,000, with
respect to their shares of common stock.
Each of the foregoing registration rights is subject to the right of the
underwriters in any underwritten offering to limit the number of shares to be
included in that registration statement by the holders. The registration
rights, with respect to any holder thereof, terminate upon the later of (1)
five years from the effective date of this offering or (2) such date when the
shares held by that holder may be sold under Rule 144 during any three-month
period. We are generally required to bear all of the expenses of all such
registrations, except underwriting discounts and commissions applicable to the
securities registered by the holder. The registration of any of the shares
entitled to registration rights would result in such shares becoming freely
79
<PAGE>
tradable without restriction under the Securities Act immediately upon
effectiveness of such registration. The Investor Rights Agreement also contains
a commitment by us to indemnify the holders of registration rights, subject to
certain limitations.
Effect of Certain Provisions of Our Certificate of Incorporation and Bylaws,
and the Delaware Anti-Takeover Law
Our certificate of incorporation and bylaws contain provisions that could
have the effect of discouraging potential acquisition proposals and tender
offers or could delay or prevent a change in control of iOwn. Such provisions
could limit the price that certain investors might be willing to pay in the
future for shares of our common stock. In particular, our certificate of
incorporation and bylaws, as applicable, among other things:
. provide that special meetings of the stockholders may be called by the
Chairman of the Board, Chief Executive Officer or at the direction of
the majority of the authorized directors. If a special meeting is
called by anyone other than the Board of Directors, advance written
notice is required, which must be received by the Secretary not less
than 35 days nor more than 120 days prior to the meeting. Any
amendment of our bylaws requires a vote of at least 66.66% of our
capital stock;
. do not include a provision for cumulative voting in the election of
directors. Under cumulative voting, a minority stockholder holding a
sufficient number of shares may be able to ensure the election of one
or more directors. The absence of cumulative voting may have the
effect of limiting the ability of minority stockholders to effect
changes in our board and, as a result, may have the effect of
deterring a hostile takeover or delaying or preventing changes in
control or management of iOwn;
. provide that vacancies on our board may be filled by a majority of
directors in office, although less than a quorum, and not by the
stockholders; and
. allow us to issue up to 10,000,000 shares of undesignated preferred
stock with rights senior to those of the common stock and that
otherwise could adversely affect the rights and powers, including
voting rights, of the holders of common stock. In certain
circumstances, this issuance could have the effect of decreasing the
market price of the common stock, as well as having the anti-takeover
effect discussed above.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of our board and in the policies formulated by
them, and to discourage certain types of transactions that may involve an
actual or threatened change in our 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, these
provisions could have the effect of discouraging others from making tender
offers for our shares that could result from actual or rumored takeover
attempts. These provisions also may have the effect of preventing changes in
our management.
In addition, we are subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder, unless:
. prior to such date, the Board of Directors of the corporation approved
either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the number of shares outstanding (a) shares owned by persons who are
directors and also officers, and
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<PAGE>
(b) shares owned by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
. 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 66.66% of the outstanding voting stock which is not owned by
the interested stockholder.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Company's common stock is
ChaseMellon Investor Services.
Listing
The common stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "IOWN."
81
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock,
and we cannot assure you that a significant public market for the common stock
will develop or be sustained after this offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants, in the public market following this offering could
adversely affect market prices prevailing from time to time and could impair
our ability to raise capital through the sale of our equity securities. As
described below, substantially all of our outstanding shares of capital stock
will be unavailable for sale immediately after this offering because of certain
contractual restrictions on resale.
Upon completion of this offering, we will have outstanding [ ] shares
of common stock, based upon shares outstanding as of September 30, 1999,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants that do not expire prior to completion of
this offering. Of these shares, the shares sold in this offering will be freely
tradable without restriction under the Securities Act, except for any shares
purchased by our "affiliates" as defined in Rule 144 under the Securities Act.
The remaining [ ] shares of common stock held by existing stockholders are
"restricted shares" as defined in Rule 144. Substantially all of these
restricted shares are subject to lock-up agreements providing that the
stockholder will not offer to sell, contract to sell or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock
owned as of the date of this prospectus or acquired directly from us by the
stockholder or with respect to which they have or may acquire the power of
disposition for a period of 180 days after the date of this prospectus without
the prior written consent of FleetBoston Roberston Stephens Inc. As a result of
these lock-up agreements, notwithstanding possible earlier eligibility for sale
under the provisions of Rules 144, 144(k) and 701, almost all of these shares
will be resellable until 181 days after the date of this prospectus.
FleetBoston Robertson Stephens Inc. may, in its sole discretion, and at any
time without notice, release all or any portion of the restricted shares
subject to lock-up agreements.
Beginning 181 days after the date of this prospectus, approximately [ ]
restricted shares will be eligible for sale in the public market. All of these
shares are subject to volume limitations under Rule 144, except [ ] shares
eligible for sale under Rule 144(k) and [ ] shares eligible for sale under
Rule 701, subject in some cases to repurchase rights of iOwn.
In addition, as of September 30, 1999, there were outstanding warrants to
purchase 121,386 shares of preferred stock convertible into a like number of
shares of common stock, some of which may be exercised prior to this offering.
Substantially all of the shares issuable pursuant to these warrants are subject
to lock-up agreements.
Rule 144
In general, under Rule 144, as currently in effect, beginning 90 days
after the date of this prospectus, a person who has beneficially owned
restricted shares for at least one year, including the holding period of any
prior owner except an affiliate, would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:
. 1.0% of the number of shares of common stock then outstanding, which
will equal approximately [ ] shares immediately after this offering;
or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about us. Under Rule 144(k), a person who is not deemed to have
been our affiliate at any time during the three months preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, including the holding period of any prior owner except an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
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<PAGE>
Rule 701
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee, officer or director of
or consultant to iOwn who purchased shares pursuant to a written compensatory
plan or contact may be entitled to rely on the resale provisions of Rule 701.
Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144
without complying with the holding period requirements of Rule 144. Rule 701
further provides that non-affiliates may sell their Rule 701 shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling their Rule 701 shares. However, certain Rule 701
shares are subject to lock-up agreements and will only become eligible for sale
at the earlier of the expiration of the 180-day lock-up agreements or the
receipt of the written consent of FleetBostonRobertson Stephens more than 90
days after the date of this prospectus.
After this offering, we intend to file a registration statement on Form
S-8 registering shares of common stock subject to outstanding options or
reserved for future issuance under our stock plans. As of September 30, 1999,
options to purchase a total of 2,240,676 shares were outstanding and 126,416
shares were reserved for future issuance under our stock plans. any shares of
common stock issued upon exercise of outstanding vested options or issued
pursuant to our employee stock purchase plan, other than common stock issued to
our affiliates or subject to lock-up agreements, will be available for
immediate resale in the open market following the effectiveness of such
registration statement.
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<PAGE>
UNDERWRITING
The underwriters named below, acting through their Representatives,
FleetBoston Roberston Stephens Inc., Lehman Brothers Inc., U.S. Bancorp Piper
Jaffray Inc. and Friedman, Billings, Ramsey & Co., Inc. (the
"Representatives"), have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
shares of common stock indicated opposite their names below. The underwriters
are committed to purchase and pay for all of the shares if any are purchased.
FleetBoston Roberston Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 2000.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
- ------------ ---------
<S> <C>
FleetBoston Robertson Stephens Inc....................................
Lehman Brothers Inc...................................................
U.S. Bancorp Piper Jaffray Inc........................................
Friedman, Billings, Ramsey & Co., Inc.................................
----
Total............................................................
====
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the initial public offering price located on the
cover page of this prospectus and to certain dealers at that price less a
concession of not in excess of $ per share, of which $ may be reallocated
to other dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the Representatives. No
reduction in this price will change the amount of proceeds to be received by us
as indicated on the cover page of this prospectus.
The underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
Internet Distribution. The underwriters, at the request of iOwn, have
reserved for sale at the initial public offering price up to 3% of the shares
of common stock to members of and visitors to fbr.com, an affiliate of
Friedman, Billings, Ramsey & Co., Inc. who express an interest in purchasing
these shares. Of these shares, we anticipate that up to half of these shares
will be reserved for sale to iOwn registered users who express an interest in
purchasing shares in this offering. The sale of these shares will be made by
fbr.com. Purchases of the reserved shares will be made through an account at
fbr.com in accordance with fbr.com's procedures for opening an account and
transacting in securities. Any of these reserved shares not purchased by
visitors to and users of fbr.com services or website or iOwn registered users
will be offered by the underwriters to the public on the same terms as the
other shares. A prospectus in electronic format is being made available on a
website maintained by fbr.com.
Directed Shares. In addition to those shares being offered to iOwn
registered users through fbr.com, we have requested that the underwriters
reserve up to 10% of the shares of common stock for sale, at the initial public
offering price, to directors, officers, employees and other individuals
designated by iOwn, including real estate agents, home builders, mortgage
brokers, consultants and business associates. As a result, the number of shares
of common stock available for sale to the general public in the offering will
be reduced to the extent these individuals and entities purchase the directed
shares. Any directed shares not so purchased will be offered by the
underwriters to the general public on the same terms as the other shares.
Over-Allotment Option. We have granted the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as we will receive for the shares offered by this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters
will have a firm commitment to purchase approximately the same percentage of
these additional shares that the number of shares of common stock to be
purchased by it shown in the above table represents as a percentage of the
shares offered by this prospectus. If purchased, the additional shares will be
sold by the underwriters on the same terms as those on which the
84
<PAGE>
shares offered by this prospectus are being sold. We will be obligated, under
this option, to sell shares to the extent the option is exercised. The
underwriters may exercise the option only to cover over-allotments made in
connection with the sale of the shares offered by this prospectus. If the
option is exercised in full, the total public offering price will be $ , the
total underwriting discounts and commission will be $ and the total proceeds
to us will be $ .
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act of 1933 and liabilities arising from
breaches of representations and warranties contained in the underwriting
agreement.
Lock-Up Agreements. All of our executive officers and directors, and
stockholders holding, in the aggregate, in excess of 98% of the outstanding
shares of common stock have agreed with the Representatives, for a period of
180 days after the date of this prospectus, not to offer to sell, contract to
sell or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any shares of common stock, any options or warrants to purchase any
shares of common stock, or any securities convertible into or exchangeable for
shares of common stock owned as of the date of this prospectus or acquired
directly from us by these holders or with respect to which they have or may
acquire the power of disposition, without the prior written consent of
FleetBoston Roberston Stephens Inc. However, FleetBoston Roberston Stephens
Inc. may, in its sole discretion and at any time without notice, release all or
any portion of the securities subject to lock-up agreements. There are no
agreements between the Representatives and any of our stockholders of record
providing consent by the Representatives to the sale of shares prior to the
expiration of the 180-day lock-up period.
Future Sales By Us. In addition, we have generally agreed that, during
the 180-day lock-up period, we will not, without the prior written consent of
FleetBoston Roberston Stephens Inc.: (a) consent to the disposition of any
shares held by stockholders prior to the expiration of the 180-day lock-up
period or (b) issue, sell, contract to sell or otherwise dispose of, any shares
of common stock, any options or warrants to purchase any shares of common
stock, or any securities convertible into, exercisable for or exchangeable for
shares of common stock, other than our sale of shares in the offering, our
issuance of common stock upon the exercise of currently outstanding options and
warrants, and our issuance of incentive awards under our stock incentive plans.
See "Shares Eligible for Future Sale."
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for our common stock offered by this prospectus has been determined through
negotiations between us and the Representatives. Among the factors considered
in these negotiations were prevailing market conditions, our financial
information, market valuations of other companies that we and the
Representatives believe to be comparable to us, estimates of our business
potential and the present state of our development.
Stabilization. The Representatives have advised us that, under Regulation
M under the Securities Exchange Act, some participants in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the common stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of the common stock on behalf of the
underwriters for the purpose of fixing or maintaining the price of the common
stock. A "syndicate covering transaction" is the bid for or purchase of the
common stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with the offering. A "penalty bid" is an
arrangement permitting the Representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with the
offering if the common stock originally sold by the underwriter or syndicate
member is purchased by the Representatives in a syndicate covering transaction
and has therefore not been effectively placed by the underwriter or syndicate
member. The Representatives have advised us that these transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
85
<PAGE>
NASD Compliance. FleetBoston Robertson Stephens Inc. acted as the
placement agent for the second close of the private placement of our Series E
preferred stock in December 1999. In connection with its services as placement
agent, FleetBoston Robertson Stephens Inc. received 4,555 shares of our Series
E preferred stock at a price of $9.00 per share. Pursuant to requirements of
the National Association of Securities, Inc., FleetBoston Robertson Stephens
Inc. has agreed not to sell, transfer or assign these securities for one year
after the effective date of this offering.
Expenses of the Offering. The expenses of the offering are estimated at
$1.8 million and are payable entirely by us.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Perkins Coie LLP. Certain legal matters in connection with this
offering will be passed upon for the underwriters by Fenwick & West LLP.
EXPERTS
The financial statements of iOwn Holdings, Inc. as of December 31, 1997
and 1998 and as of September 30, 1999 and for the period from July 11, 1996
(date of incorporation) to December 31, 1996, the years ended December 31, 1997
and 1998 and for the nine-month periods ended September 30, 1998 and 1999,
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
The financial statements of Genesis 2000, Inc. as of December 31, 1998
and September 30, 1999 and for the year ended December 31, 1998 and the nine-
month period ended September 30, 1999, included in this prospectus, have been
so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The financial statements of HomeBuilders Financial Network, Inc. and
subsidiaries as of December 31, 1998 and September 30, 1999 and for the year
ended December 31, 1998 and for the nine-month period ended September 30, 1999,
have been included herein and in the registration statement in reliance upon
the report of KPMG LLP, independent certified public accountants appearing
elsewhere herein, upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
For more information with respect to iOwn and the common stock offered by
this prospectus, see the registration statement and the exhibits and schedule
filed by us with the Securities and Exchange Commission on Form S-1 under the
Securities Act. This prospectus does not contain all of the information set
forth in the registration statement and the related exhibits and schedules.
Statements contained in this prospectus regarding the contents of any contract
or any other document to which reference is made are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the registration statement. A copy of the
registration statement and its exhibits and schedule may be inspected without
charge at the public facilities maintained by the Securities and Exchange
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Securities and Exchange Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of all or any part of the registration statement may be obtained
from these offices upon the payment of the fees prescribed by the Securities
and Exchange Commission. The Securities and Exchange Commission maintains a
website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. The address of the website is http://www.sec.gov.
86
<PAGE>
iOwn Holdings, Inc.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
iOwn Holdings, Inc.
Report of Independent Accountants...................................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit).............. F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements............................. F-7
Unaudited Pro Forma Combined Financial Information
Unaudited Pro Forma Combined Financial Information--Overview........... F-21
Unaudited Pro Forma Combined Balance Sheets............................ F-22
Unaudited Pro Forma Combined Statements of Operations.................. F-23
Notes to Unaudited Pro Forma Combined Balance Sheets and Statements of
Operations........................................................... F-24
Genesis 2000, Inc.
Report of Independent Accountants...................................... F-25
Balance Sheets......................................................... F-26
Statements of Operations............................................... F-27
Statements of Shareholders' Equity..................................... F-28
Statements of Cash Flows............................................... F-29
Notes to Financial Statements.......................................... F-30
HomeBuilders Financial Network, Inc. and Subsidiaries
Independent Auditors' Report........................................... F-33
Consolidated Statements of Financial Condition......................... F-34
Consolidated Statements of Operations.................................. F-35
Consolidated Statements of Stockholder's Equity........................ F-36
Consolidated Statements of Cash Flows.................................. F-37
Notes to Consolidated Financial Statements............................. F-38
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
iOwn Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
iOwn Holdings, Inc. as of December 31, 1997 and 1998 and September 30, 1999,
and the results of its operations and its cash flows for the period from July
11, 1996 (date of incorporation) to December 31, 1996, the years ended December
31, 1997 and 1998 and for the nine-month periods ended September 30, 1998 and
1999, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
November 19, 1999
F-2
<PAGE>
iOwn Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity as of
----------------- September 30, September 30,
1997 1998 1999 1999
------- -------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.... $ 713 $ 10,157 $ 2,907
Restricted cash.............. -- -- 521
Trade receivables, less
allowance of $0 in 1997,
$9 in 1998 and $79 in
1999....................... 3 142 138
Stock subscription
receivable................. 913 -- --
Prepaids and other current
assets..................... 54 671 1,374
------- -------- --------
Total current assets...... 1,683 10,970 4,940
Property and equipment, net.... 193 1,864 5,947
Other assets................... 30 1,441 1,750
------- -------- --------
Total assets.............. $ 1,906 $ 14,275 $ 12,637
======= ======== ========
Liabilities, Mandatorily
Redeemable Preferred Stock,
and Stockholders' Equity
(Deficit)
Current liabilities:
Trade accounts payable....... $ 137 $ 973 $ 1,183
Accrued liabilities.......... 187 1,403 3,570
Line of credit, current
portion.................... -- -- 733
Capital lease obligations,
current portion............ 58 303 1,311
------- -------- --------
Total current
liabilities............. 382 2,679 6,797
Line of credit, noncurrent
portion...................... -- -- 1,457
Capital lease obligations, non-
current portion.............. 70 334 2,601
------- -------- --------
Total liabilities......... 452 3,013 10,855
Mandatorily redeemable
convertible preferred stock
28,935,883 shares authorized;
2,553,962, 10,728,221, and
13,335,102, shares issued and
outstanding (aggregate
liquidation preference of
$53,121) and none outstanding
in pro forma (unaudited)..... 3,878 31,665 54,562 $ --
------- -------- -------- --------
Commitments (Note 8 and 9)
Stockholders' equity (deficit):
Common stock $0.001 par
value, 41,666,667 shares
authorized; 1,413,333,
1,955,471 and 2,470,245
shares issued and
outstanding actual;
15,805,347 shares issued
and outstanding pro forma
(unaudited)................ 1 2 3 16
Additional paid-in capital... 55 1,393 4,707 59,256
Common stock warrants........ 1 1 85 85
Notes receivable from
stockholders............... -- (1,024) -- --
Unearned stock-based
compensation............... -- (953) (2,537) (2,537)
Accumulated deficit.......... (2,481) (19,822) (55,038) (55,038)
------- -------- -------- --------
Total stockholders' equity
(deficit)............... (2,424) (20,403) (52,780) $ 1,782
------- -------- -------- ========
Total liabilities,
mandatorily redeemable
convertible preferred
stock and
stockholders' equity
(deficit)............. $ 1,906 $ 14,275 $ 12,637
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
iOwn Holdings, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
July 11,
1996
(date of
incorporation) Years Ended Nine Months Ended
to December 31, September 30,
December 31, ----------------- ------------------
1996 1997 1998 1998 1999
-------------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Transaction revenue.... $ -- $ 51 $ 1,224 $ 577 $ 3,150
Other Internet and e-
commerce revenue..... 25 18 89 65 439
------ ------- -------- -------- --------
Total revenues...... 25 69 1,313 642 3,589
------ ------- -------- -------- --------
Operating expenses:
Operations............. (35) (310) (4,367) (2,200) (9,293)
Sales and marketing.... (1) (571) (6,112) (3,202) (14,827)
Technology............. -- (970) (4,793) (3,137) (6,906)
General and
administrative....... (38) (563) (1,172) (831) (2,318)
Amortization of
intangible assets.... -- -- (673) (471) (606)
Amortization of stock-
based compensation... -- -- (300) (142) (1,585)
------ ------- -------- -------- --------
Total operating
expenses.......... (74) (2,414) (17,417) (9,983) (35,535)
------ ------- -------- -------- --------
Loss from
operations........ (49) (2,345) (16,104) (9,341) (31,946)
Interest income.......... -- 7 201 34 290
Interest expense......... -- (22) (112) (85) (285)
Other income (expense)... 1 (3) -- -- (174)
------ ------- -------- -------- --------
Net loss............ (48) (2,363) (16,015) (9,392) (32,115)
Dividend accretion on
preferred stock........ -- (70) (1,326) (636) (3,101)
------ ------- -------- -------- --------
Net loss attributable to
common stockholders.... $ (48) $(2,433) $(17,341) $(10,028) $(35,216)
====== ======= ======== ======== ========
Net loss per share
attributable to common
stockholders, basic and
diluted................ $(0.09) $ (1.74) $ (11.66) $ (6.86) $ (18.61)
====== ======= ======== ======== ========
Shares used in computing
net loss attributable
to common stockholders,
basic and diluted...... 547 1,402 1,487 1,461 1,892
====== ======= ======== ======== ========
Pro forma net loss per
share, attributable to
common stockholders,
basic and diluted
(unaudited)............ $ (2.33) $ (2.50)
======== ========
Shares used in computing
pro forma net loss
attributable to common
stockholders, basic and
diluted (unaudited).... 7,457 14,110
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
iOwn Holdings, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
For the period from July 11, 1996 (date of incorporation) throughDecember 31,
1996, for the years ended December 31, 1997 and 1998,and for the nine months
ended September 30, 1999
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Notes
Common Stock Additional Common Receivable
----------------- Paid-In Stock from Unearned Accumulated
Shares Amount Capital Warrants Stockholders Compensation Deficit Total
--------- ------ ---------- -------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at inception
(July 11, 1996)........ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Common stock issued for
cash in July 1996 at
$0.015 per share....... 333,333 -- 5 5
Common stock issued for
services rendered in
November 1996 at
$0.0468 per share...... 513,733 -- 24 24
Common stock issued upon
conversion of advances
payable to stockholders
in December 1996....... 552,934 1 24 25
Net loss................ (48) (48)
--------- ----- ------ ----- ------- -------- --------- ---------
Balance at December 31,
1996................... 1,400,000 1 53 -- -- -- (48) 6
Common stock issued in
connection with pur-
chased technology at
$0.15 per share........ 13,333 2 2
Accretion of dividends
relating to mandatorily
redeemable preferred
stock.................. (70) (70)
Warrants to purchase
10,000 shares of common
stock issued for serv-
ices rendered.......... 1 1
Net loss................ (2,363) (2,363)
--------- ----- ------ ----- ------- -------- --------- ---------
Balance at December 31,
1997................... 1,413,333 1 55 1 -- -- (2,481) (2,424)
Common stock issued in
connection with exer-
cise
of stock options....... 542,138 1 85 86
Notes receivable from
stockholders........... (1,024) (1,024)
Accretion of dividends
relating to mandatorily
redeemable preferred
stock.................. (1,326) (1,326)
Unearned compensation
related to stock op-
tions.................. 1,253 (953) 300
Net loss................ (16,015) (16,015)
--------- ----- ------ ----- ------- -------- --------- ---------
Balance at December 31,
1998................... 1,955,471 2 1,393 1 (1,024) (953) (19,822) (20,403)
Common stock issued in
connection with exer-
cise
of stock options....... 528,281 1 151 152
Repayment of notes re-
ceivable from stock-
holders................ 1,024 1,024
Accretion of dividends
relating to mandatorily
redeemable preferred
stock.................. (3,101) (3,101)
Unearned compensation
related to stock op-
tions.................. 3,169 (1,584) 1,585
Exercise of common stock
warrants............... 5,000 1 (1) --
Warrants to purchase
18,333 shares of common
stock issued for serv-
ices rendered.......... 85 85
Repurchase of common
stock.................. (18,507) (7) (7)
Net loss................ (32,115) (32,115)
--------- ----- ------ ----- ------- -------- --------- ---------
Balance at September 30,
1999................... 2,470,245 $ 3 $4,707 $ 85 $ -- $ (2,537) $ (55,038) $ (52,780)
========= ===== ====== ===== ======= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
iOwn Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
July 11, 1996
(date of
incorporation) Years Ended Nine Months Ended
to December 31, September 30,
December 31, ----------------- -------------------
1996 1997 1998 1998 1999
-------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating
activities:
Net loss............. $ (48) $(2,363) $(16,015) $ (9,392) $ (32,115)
Adjustments to
reconcile net loss
to net cash used in
operating
activities:
Depreciation and
amortization...... -- 25 352 159 1,207
Amortization of
intangible
assets............ -- -- 673 471 606
Amortization of
stock-based
compensation...... -- -- 300 142 1,585
Common stock and
warrants issued
for services
rendered.......... 24 3 51 28 85
Changes in operating
assets and
liabilities:......
(Increase) decrease
in trade
receivables...... (16) 13 (138) (18) 4
Increase in
prepaids and
other............ (21) (63) (676) (376) (1,543)
Increase in trade
accounts
payable.......... 8 129 836 793 210
Increase in accrued
liabilities...... 25 161 1,216 288 2,103
------ ------- -------- -------- ---------
Net cash used in
operating
activities..... (28) (2,095) (13,401) (7,905) (27,858)
------ ------- -------- -------- ---------
Cash flows from
investing
activities:
Acquisition of
HomeScout.......... -- -- (2,000) (2,000) --
Purchase of property
and equipment...... (7) (59) (1,331) (652) (1,321)
------ ------- -------- -------- ---------
Net cash used in
investing
activities..... (7) (59) (3,331) (2,652) (1,321)
------ ------- -------- -------- ---------
Cash flows from
financing
activities:
Increase in
restricted cash.... -- -- -- -- (521)
Common stock issued
for cash........... 5 -- 86 70 152
Repurchase of common
stock.............. -- -- -- -- (7)
Advances from
officer............ 25 -- -- -- --
Proceeds from line of
credit............. 5 -- -- -- 2,500
Repayment of line of
credit............. -- (5) -- -- --
Repayment of capital
lease obligations.. -- (24) (182) (130) (693)
Proceeds from stock
subscription
receivable......... -- -- 913 913 --
Proceeds from
issuance of
preferred stock,
net................ -- 2,896 25,359 18,473 19,474
Proceeds from notes
receivable from
stockholders....... -- -- -- -- 1,024
------ ------- -------- -------- ---------
Net cash provided
by financing
activities..... 35 2,867 26,176 19,326 21,929
------ ------- -------- -------- ---------
Increase (decrease)
in cash and cash
equivalents........ -- 713 9,444 8,769 (7,250)
Cash and cash
equivalents at
beginning of
period............. -- -- 713 713 10,157
------ ------- -------- -------- ---------
Cash and cash
equivalents at end
of period.......... $ -- $ 713 $ 10,157 $ 9,482 $ 2,907
====== ======= ======== ======== =========
Supplemental cash flow
information:
Interest paid........ $ -- $ 9 $ 27 $ 62 $ 250
====== ======= ======== ======== =========
Income taxes paid.... $ 1 $ 1 $ 1 $ 1 $ 10
====== ======= ======== ======== =========
Noncash investing and
financing
activities:
Purchase of equipment
under capital
leases............. $ -- $ 152 $ 691 $ 728 $ 3,969
====== ======= ======== ======== =========
Preferred stock
purchased with
notes.............. $ -- $ -- $ 1,024 $ -- $ --
====== ======= ======== ======== =========
Accretion of
dividends.......... $ -- $ 70 $ 1,326 $ 636 $ 3,101
====== ======= ======== ======== =========
Common stock issued
upon conversion of
advances payable to
stockholders....... $ 25 $ -- $ -- $ -- $ --
====== ======= ======== ======== =========
Preferred and common
stock warrants..... $ -- $ 1 $ 55 $ 54 $ 461
====== ======= ======== ======== =========
Preferred stock
issued for
services........... $ -- $ -- $ 24 $ -- $ --
====== ======= ======== ======== =========
Stock subscription
receivable......... $ -- $ 913 $ -- $ -- $ --
====== ======= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated finaicial
statements.
F-6
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements
1. Organization
iOwn Holdings, Inc. (the "Company") is the parent company of iOwn, Inc.
("iOwn"); the Company was established through a corporate reorganization as the
parent of iOwn. This reorganization has been accounted for as a transaction
between entities under common control. Accordingly, the Company's financial
statements include the historical financial position, results of operations,
and cash flows of iOwn, and its predecessor companies at historical basis.
The Company operates an Internet destination site for homeowners and home
buyers providing customers with the means to identify, purchase, finance, and
sell residential real estate. The Company provides customers with Internet
access to a wide selection of mortgages from leading lenders, home listings and
neighborhood information, informative tools and content, and referrals to a
range of real estate professionals.
2. Basis of Presentation
The Company has sustained net losses and negative cash flows from
operations since its inception. The Company's ability to meet its obligations
in the ordinary course of business is dependent upon its ability to establish
profitable operations or raise additional financing through public or private
equity financings, collaborative or other arrangements with corporate sources,
or other sources of financing to fund operations. However, there can be no
assurance that the Company will be able to achieve profitable operations or
raise additional capital.
3. Summary of Significant Accounting Policies
Principles of consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiary, iOwn. All significant intercompany balances and
transactions have been eliminated in the consolidation.
Risks and uncertainties
The Company offers its services over the Internet, and competes in the
market for Internet services and products which is characterized by intense
competition and rapid technological changes. The Company has a limited
operating history, has never generated profits, and its prospects are subject
to the risks, expenses, and uncertainties frequently encountered by
organizations in new and rapidly evolving markets for Internet products and
services. These risks include the failure to generate brand awareness, the
rejection of the services by customers, vendors or advertisers, or the
inability of the Company to maintain and increase the level of demand for its
online products and services.
The Company's brokerage business may be adversely affected by several
risks, including an increase in market interest rates which generally result in
reduced refinancing activity, and therefore lower transaction revenues.
The Company is expanding its operations to include mortgage banking
activities. Its ability to engage in profitable secondary sales of loans may be
adversely affected by increases in interest rates. To the extent that the
Company is unable to deliver closed loans to financial investors within
contractually specified periods and interest rates increase, the Company may
experience no gain or even a loss on the sale of these loans. In addition, any
increase in interest rates will increase the cost of maintaining the Company's
warehouse line of credit, on which it depends to fund the loans it originates.
F-7
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such estimates include valuation allowances for doubtful
accounts and deferred taxes, and the value of the Company's stock. Actual
results could differ from those estimates.
Revenue recognition
The Company's revenues through September 30, 1999 were primarily derived
from mortgage brokerage fees. In connection with these mortgage transactions,
the Company recognizes revenues as loans are closed. The Company does not take
title to the loans and funding for the customer is provided by third party
lenders. Other Internet and e-commerce revenues are primarily derived from the
sale of advertising space on the Company's website and the subscription fees
relating to the use of the HomeScout database.
Advertising costs
The Company incurs advertising costs related to various media content
advertising such as television, radio, and print. These costs include the cost
of production as well as the cost of any airtime. Production costs are charged
to operations upon commencement of the related advertising campaign, while
airtime costs are charged as incurred.
Software costs
Effective January 1, 1999, the Company adopted the provisions of
Statement of Position No.98-1, Software for Internal Use, which provides
guidance on accounting for the cost of computer software developed or obtained
for internal use. The adoption of this standard did not have a material effect
on the financial position or results of operations of the Company as of
September 30, 1999 and for the nine months then ended.
Income taxes
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be realized. The provision for income tax expense represents taxes
payable for the current period, plus the net change in deferred tax amounts.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements
in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and complies with the
disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation.
Under APB No. 25, compensation expense is calculated as the excess of the
estimated fair value of the Company's stock over the exercise price, if any, on
the date of the grant.
F-8
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
Cash and cash equivalents
The Company considers all highly liquid monetary instruments with an
original maturity of three months or less to be cash equivalents. All cash
deposits are held by one financial institution and exceed federal deposit
insurance coverage limits.
Property and equipment
Property and equipment, including furniture and equipment under capital
leases and software, are recorded at cost and depreciated using the straight-
line method over their estimated useful lives, which is generally three years.
Maintenance and repairs are charged to expense as incurred, and improvements
are capitalized. When assets are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain
or loss is reflected in operations in the period realized.
Fair value of financial instruments
The carrying amount of cash, accounts receivable and payable and accrued
liabilities approximate their fair values based on the short-term nature of
these instruments. The carrying amount of borrowings under line of credit and
capital lease arrangements approximate fair value due to the market interest
rates which these borrowings bear.
Stock splits
On August 20, 1997 the Company's stockholders approved a two-for-one
stock split, and on December 16, 1999 the stockholders approved a one-for-three
reverse stock split. All preferred and common share amounts for all periods
presented have been restated to reflect these changes.
Historical and pro forma net loss per share
Historical basic and diluted net loss per share are computed using the
weighted average number of common shares outstanding. Stock options, warrants
and preferred stock were not included in the computation of diluted net loss
per share because their effect would be antidilutive.
Unaudited pro forma net loss per share has been computed assuming the
conversion of all outstanding shares of redeemable convertible preferred stock
into shares of common stock which will occur upon closing of the offering
discussed in Note 14. The pro forma effects of these transactions are unaudited
and have been reflected in the accompanying pro forma balance sheet at
September 30, 1999.
F-9
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
The following table sets forth the computation of historical and
unaudited pro forma basic and diluted net loss per share (in thousands, except
per share data):
<TABLE>
<CAPTION>
July 11, 1996
(date of Years Ended Nine Months Ended
incorporation) December 31, September 30,
to December 31, ----------------- ------------------
1996 1997 1998 1998 1999
--------------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Historical:
Numerator:
Net loss............... $ (48) $(2,363) $(16,015) $ (9,392) $(32,115)
Accretion of
mandatorily
redeemable
convertible preferred
stock to redemption
value................ -- (70) (1,326) (636) (3,101)
------ ------- -------- -------- --------
Net loss attributable
to common
stockholders......... $ (48) $(2,433) $(17,341) $(10,028) $(35,216)
====== ======= ======== ======== ========
Denominator:
Weighted average common
shares, basic and
diluted.............. 547 1,402 1,616 1,519 2,373
Common stock subject to
repurchase........... -- -- (129) (58) (481)
------ ------- -------- -------- --------
Total weighted average
shares outstanding.. 547 1,402 1,487 1,461 1,892
====== ======= ======== ======== ========
Historical net loss per
share attributable to
common stockholders,
basic and diluted..... $(0.09) $ (1.74) $ (11.66) $ (6.86) $ (18.61)
====== ======= ======== ======== ========
Anti-dilutive securities
excluded from
computation........... -- 1,775 6,185 4,705 13,168
====== ======= ======== ======== ========
Pro forma:
Denominator:
Weighted average common
shares, basic and
diluted.............. 1,487 1,892
Conversion of
redeemable
convertible preferred
stock................ 5,970 12,218
-------- --------
Total weighted average
shares (unaudited).. 7,457 14,110
======== ========
Pro forma net loss per
share attributable to
common stockholders,
basic and diluted
(unaudited)........... $ (2.33) $ (2.50)
======== ========
</TABLE>
Comprehensive income
The Company adopted SFAS No. 130, Reporting Comprehensive Income, during
1998. The Company classifies items of "other comprehensive income" by their
nature in a financial statement and displays the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. To date the Company has not
had any transactions that are required to be reported in comprehensive income.
Segment reporting
The FASB issued SFAS No. 131, Disclosure about Segments of an Enterprise
and Related Information. SFAS No. 131 establishes standards for the way public
business enterprises are to report information about operating segments in
annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports. The Company
has determined that it does not have any separately reportable business
segments.
F-10
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
Pro forma stockholder's equity (unaudited)
Effective upon the closing of the Company's initial public offering, the
outstanding shares of preferred stock will automatically convert into shares of
common stock on a one-for-one basis. The pro forma effects of this conversion
are unaudited and have been reflected in the accompanying pro forma
consolidated balance sheet as of September 30, 1999.
Recently issued accounting standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133") which establishes accounting
and reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
To date, the Company has not engaged in derivative and hedging activities. The
Company will adopt SFAS No. 133 as required on January 1, 2001.
4. Acquisition
In March 1998, the Company acquired certain assets and intellectual
property relating to the HomeScout services in exchange for $2.0 million. The
full purchase price, including transaction costs, of $2,020,000 was allocated
to intangible assets such as traffic on the HomeScout website, business
partnerships and the HomeScout trademark. These assets are being amortized over
a 30 month period. The amortization for the nine months ended September 30,
1999, the nine months ended September 30, 1998, and the year ended December 31,
1998 was $606,000, $471,000, and $673,000, respectively.
The following unaudited pro forma financial information reflects the
results of operations for the years ended December 31, 1997 and 1998, as if the
acquisition had occurred on January 1, 1997 and 1998 including the effect of
purchase accounting adjustments arising from the acquisition. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of what operating results would have been had the acquisition
actually taken place on January 1, 1997 or 1998 and may not be indicative of
future operating results (in thousands, except per share data).
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------
1997 1998
------- --------
(unaudited)
<S> <C> <C>
Revenues.............................................. $ 69 $ 1,313
Net loss.............................................. $(3,171) $(16,150)
Net loss attributable to common stockholders.......... $(3,241) $(17,476)
Net loss per share attributable to common
stockholders, (basic and diluted)................... $ (2.31) $ (11.75)
Weighted average shares (basic and diluted)........... 1,402 1,487
</TABLE>
F-11
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
5. Property and Equipment
Property and equipment at December 31, 1997 and 1998 and September 30,
1999 are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1997 1998 1999
------ ------- -------------
<S> <C> <C> <C>
Leasehold improvements..................... $ -- $ 94 $ 410
Computer equipment and software............ 64 986 1,987
Office equipment........................... 2 317 279
Equipment under capital leases............. 152 844 4,855
----- ------- -------
218 2,241 7,531
Less: accumulated depreciation and
amortization............................. (25) (377) (1,584)
----- ------- -------
$ 193 $ 1,864 $ 5,947
===== ======= =======
</TABLE>
Accumulated amortization for assets under capital leases amounts to
$18,000 and $243,000 for the years ended December 31, 1997 and 1998,
respectively, and $1,298,000 for the nine months ended September 30, 1999. All
equipment under capital leases serves as collateral for the related lease
obligations.
6. Income Taxes
The provision for income taxes for the periods ended December 31, 1996,
1997, and 1998 and the nine months ended September 30, 1998 and 1999 represents
minimum state franchise taxes. The effective income tax rate differs from the
statutory federal income tax rate due to management's determination that it is
more likely that the Company will be unable to utilize the benefit of net
operating losses and the resulting recognition of a valuation allowance. The
increase in the valuation allowance was $0, $940,000, $6,290,000, and
$12,120,000 for the periods ended December 31, 1996, 1997, 1998 and the nine-
month period ended September 30, 1999, respectively.
The primary components of temporary differences which give rise to
deferred taxes at December 31, 1997, 1998 and September 30, 1999 are (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1997 1998 1999
----- ------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards and
other................................... $ 940 $ 7,230 $ 19,350
----- ------- --------
Total deferred tax assets.............. 940 7,230 19,350
Valuation allowance......................... (940) (7,230) (19,350)
----- ------- --------
$ -- $ -- $ --
===== ======= ========
</TABLE>
At September 30, 1999, the Company had net operating loss carryforwards
of approximately $48.0 million for both federal and state income tax purposes.
The federal and state carryforwards expire through 2019 and 2006, respectively.
Pursuant to the provisions of the Tax Reform Act of 1986, utilization of
the net operating loss carryforwards may be subject to an annual limitation in
the event of a greater than 50% change in the ownership of the Company.
F-12
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
7. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- September 30,
1997 1998 1999
------------- -------------
<S> <C> <C> <C>
Advertising production....................... $ -- $ 208 $ 652
Customer acquisition......................... -- 790 844
Compensation................................. 35 200 676
Accrued offering costs....................... -- -- 395
Other........................................ 152 205 1,003
----- ------- ------
$ 187 $ 1,403 $3,570
===== ======= ======
</TABLE>
8. Line of Credit
On August 12, 1999, the Company entered into a $5.0 million line of
credit with a financial institution. As of September 30, 1999, $2.5 million was
drawn against this line by the Company while the remaining $2.5 million was
drawn subsequent to September 30, 1999. Borrowings against this line bear
interest of 12.5% per annum, payable in 36 equal monthly installments and are
collateralized by all of the Company's assets. In connection with this
agreement, the Company issued a warrant to purchase 53,333 shares of the
Company's Series D preferred stock at an exercise price of $7.50 per share
which was considered to be the fair value of Series D preferred stock. This
warrant expires in August 2009. The warrant's value was estimated to be
approximately $344,000 using the Black-Scholes model with expected volatility
of 65%, risk-free interest of 5.23% and expected life of ten years. The
proceeds have been allocated to the line of credit and the warrant based upon
the relative fair values at the date of issuance. This resulted in additional
paid-in capital attributable to warrants and additional debt discount totaling
$320,000. Interest expense relating to the amortization of the debt discount
amounted to $10,000 during the nine-month period ended September 30, 1999.
The future minimum principal payments under the line of credit, as of
September 30, 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1999.............................................................. $ 177
2000.............................................................. 755
2001.............................................................. 854
2002.............................................................. 714
------
Total.......................................................... $2,500
======
</TABLE>
9. Commitments
Leases
During 1997 and 1998, the Company entered into capital lease agreements
for equipment. In addition, the Company leases office space under three
operating leases, one of which is noncancellable. Rent expense under operating
leases amounted to $0, $48,000, and $350,000 for the years ended December 31,
1996, 1997, and 1998, respectively, and $221,000 and $1,012,000 for the nine
months ended September 30, 1998 and 1999, respectively.
F-13
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
The Company's obligations under capital and operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Year ending December 31, ------- ---------
<S> <C> <C>
1999................................................. $ 479 $ 406
2000................................................. 1,784 1,595
2001................................................. 1,637 2,226
2002................................................. 993 2,069
2003................................................. -- 1,413
Thereafter........................................... -- 741
------ ------
Total minimum lease payments........................... 4,893 $8,450
======
Less: amount representing interest..................... 981
------
Present value of minimum lease payments................ 3,912
Less: current portion of capital lease obligations..... 1,311
------
Long-term portion of capital lease obligations......... $2,601
======
</TABLE>
Advertising and customer acquisition arrangements
During 1998 and 1999, the Company entered into online advertising and
customer acquisition arrangements with various Internet companies. Subject to
certain vendor performance requirements, the Company is committed to make
aggregate payments of up to $11.6 million under such arrangements as follows
(in thousands):
<TABLE>
<CAPTION>
Year ending December 31, 1999
<S> <C>
1999............................................................ $ 2,097
2000............................................................ 7,381
2001............................................................ 2,138
-------
$11,616
=======
</TABLE>
Advertising expense amounted to $1,000, $149,000, and $4,879,000 for the
years ended December 31, 1996, 1997, and 1998, respectively, and $2,488,000 and
$12,513,000 for the nine months ended September 30, 1998 and 1999,
respectively.
Legal
In the normal course of business, the Company is at times subject to
pending and threatened legal actions and proceedings. After reviewing pending
and threatened actions and proceedings with counsel, management believes that
the outcome of such actions or proceedings is not expected to have a material
adverse effect on the financial position or results of operation of the
Company.
F-14
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
10. Mandatorily Redeemable Securities
Convertible preferred stock
Mandatorily redeemable convertible preferred stock consists of the
following (in thousands, except share data):
<TABLE>
<CAPTION>
Shares
Outstanding Amount
----------- -------
<S> <C> <C>
Issuance of Series A preferred stock.................. 830,967 $ 553
Issuance of Series B preferred stock.................. 1,722,995 3,255
Preferred stock dividend accretion.................... -- 70
---------- -------
Balances at December 31, 1997......................... 2,553,962 3,878
Issuance of Series B preferred stock.................. 2,260,926 4,289
Issuance of Series C preferred stock.................. 5,913,333 22,118
Issuance of Series B preferred stock warrants......... -- 54
Preferred stock dividend accretion.................... -- 1,326
---------- -------
Balances at December 31, 1998......................... 10,728,221 31,665
Issuance of Series D preferred stock.................. 2,606,881 19,474
Issuance of Series D preferred stock warrants......... -- 322
Preferred stock dividend accretion.................... -- 3,101
---------- -------
Balances at September 30, 1999........................ 13,335,102 $54,562
========== =======
</TABLE>
Redemption
Series A and B preferred stock are redeemable at the option of two-thirds
of the preferred stockholders. Series C and D preferred stock are redeemable at
the option of the majority of the preferred stockholders. The redemption may
not occur earlier than February 28, 2003 for Series A preferred stock, November
30, 2003 for Series B preferred stock, September 4, 2004 for Series C preferred
stock and April 28, 2004 or upon redemption of prior series for Series D
preferred stock. The redemption price with respect to Series A preferred stock
is an amount equal to $0.72 per share plus $0.072 per share per annum along
with any dividends declared but unpaid. The redemption price with respect to
Series B preferred stock is an amount equal to $1.895 per share plus $0.1895
per share per annum along with any dividends declared but unpaid. The
redemption price with respect to Series C preferred stock is an amount equal to
$3.75 per share plus $0.375 per share per annum along with any dividends
declared but unpaid. The redemption price with respect to Series D preferred
stock is an amount equal to $7.50 per share plus $0.75 per share per annum
along with any dividends declared but unpaid. For the years ended December 31,
1997 and 1998, the Company recorded $50,000 and $60,000 in accreted dividends
relating to Series A preferred stock, $20,000 and $676,000 in accreted
dividends relating to Series B preferred stock, and $0 and $590,000 in accreted
dividends relating to Series C preferred stock, respectively. For the nine
months ended September 30, 1999, the Company recorded $45,000, $566,000,
$1,663,000, and $827,000 in accreted dividends relating to Series A, B, C, and
D preferred stock, respectively.
Liquidation preference
In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the holders of Series B preferred
stock retain liquidation preference over common stockholders
F-15
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
equal to $3.789 per share in the event that such liquidation occurs after
December 1, 1998, but before November 30, 1999, and $5.685 per share in the
event such liquidation occurs after December 1, 1999, adjusted for any
combinations, consolidations, subdivisions, or stock splits and any declared
but unpaid dividends. Following the distribution of the full preference to
holders of Series B preferred stock, the remaining assets and funds of the
Company shall be distributed to the holders of Series A preferred stock for an
amount equal to $0.72 per share and to the holders of Series C preferred stock
for an amount equal to $3.75 per share, adjusted for any combinations,
consolidations or stock splits and any declared but unpaid dividends. In the
event of liquidation, Series D preferred shares retain a liquidation preference
over common stockholders equal to $2.50 per share but subsequent to
distribution of the full preferences to Series A, B, and C preferred stock.
The remaining assets and funds of the Company available for distribution
shall be distributed ratably among all holders of preferred stock and the
holders of common stock based on the number of shares of common stock held by
each holder (assuming conversion of all preferred stock) until all amounts
received by the holders of Series A preferred stock equals $2.16 per share,
after which all remaining assets shall be distributed among the holders of
Series B, C, and D preferred stock and common stock on a pro rata basis.
Voting rights
Holders of Series A, B, C, and D preferred stock are entitled to vote
together with holders of common stock. The number of votes granted to preferred
stockholders is equal the number of full shares of common stock into which each
share of preferred stock could be converted.
Conversion
At the option of the holder, preferred shares are convertible at any time
into shares of common stock at the initial conversion price of $0.72 per share
for Series A preferred stock, $1.8948 per share of Series B preferred stock,
$3.75 per share of Series C preferred stock and $7.50 per share of Series D
preferred stock. The conversion price of each series of preferred stock is
subject to adjustment as described in the Company's articles of incorporation.
All preferred shares will automatically be converted into shares of common
stock upon (i) the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933 at an offering price of not less than $11.3688 per share (adjusted to
reflect any stock combination, stock split, stock dividend, or
recapitalization), and $15.0 million in the aggregate; or (ii) upon the
stockholder consent of the majority of the then outstanding shares of preferred
stock.
Dividends
Each fiscal year, holders of preferred stock are entitled to receive,
when and if declared by the Board of Directors, out of any funds legally
available, a preferential non-cumulative dividend of $0.057 per share for
Series A preferred stock, $0.1895 per share of Series B preferred stock, $0.375
per share for Series C preferred stock and $0.75 per share for Series D
preferred stock, as adjusted for stock splits, recapitalizations, and
combinations. In addition, preferred stockholders are entitled to participate
in cash dividends paid to common stockholders in an amount per share as would
be payable on the number of shares of common stock into which each share of
preferred stock could be converted.
Equity instruments issued
In February 1997, the Company issued warrants to purchase up to 10,000
shares of common stock at an exercise price of $0.135 per share to a third
party for consulting services performed. The warrants are exercisable through
February 28, 2004. 5,000 of the 10,000 warrants issued in February 1997 were
exercised in April 1999. The fair value of such warrants under the Black-
Scholes model was immaterial.
In April 1998, the Company issued warrants to purchase 10,000 shares of
the Company's Series B preferred stock at an exercise price of $2.274 per share
to a financial institution in connection with the
F-16
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
ratification of a line of credit agreement. These warrants are exercisable at
any time from February 1998 to April 2005. The fair value of such warrants
under the Black-Scholes model was immaterial.
In March 1998, the Company issued 12,666 shares of the Company's Series B
preferred stock at a price of $1.89 per share to a vendor for services
rendered. The fair value of such warrants under the Black-Scholes model was
immaterial.
In July 1998, the Company issued warrants to purchase 18,471 shares of
the Company's Series B preferred stock at an exercise price of $1.89 per share
to a financial institution in connection with the leasing of computer
equipment. These warrants are exercisable at any time from July 1998 to July
2008. The fair value of such warrants under the Black-Scholes model was
immaterial.
As part of a marketing services agreement with a third party, the Company
issued a warrant to purchase 8,333 shares of common stock at an exercise price
of $30 per share in July 1999. The fair value of such warrants was $29,000
using the following Black-Scholes assumptions: volatility of 65%, fair value of
common stock of $2.75, expected life of 7 years, and risk-free interest rate of
5.2%. An additional warrant to purchase 8,333 shares of common stock may be
issued in connection with the agreement, contingent upon the service provider
meeting certain specified performance criteria. These warrants are exercisable
at any time from July 1999 to July 2006.
As described in Note 8, on August 12, 1999, the Company issued warrants
to purchase 53,333 shares of the Company's Series D preferred stock at a price
of $7.50 per share to a financial institution in connection with a line of
credit agreement. These warrants are exercisable at any time through August
2009 or five years from the effective date of the Company's initial public
offering, whichever is longer. The fair value and accounting of such warrants
is disclosed in Note 8. An additional warrant to purchase Series E preferred
stock equal to $400,000 divided by the price per share may be issued in
connection with the Agreement, contingent upon the Company meeting specified
performance criteria.
In September 1999, the Company issued warrants to purchase 10,000 shares
of common stock at an exercise price of $8.25 per share to vendors for services
rendered. The fair value of such warrants was $56,000 using the following
Black-Scholes assumptions: volatility of 65%, fair value of common stock of
$2.75, expected life of 7 years, and risk-free interest rate of 5.2%. These
warrants are exercisable at any time from September 1999 to September 2006.
11. Common Stock
In August 1999, the Company amended its articles of incorporation to
increase the number of authorized shares of common stock to 41,666,667 shares
and preferred stock to 28,935,883 shares.
The stock subscription receivable balance of $913,000 as of December 31,
1997 was paid to the Company in early January 1998. A stock subscription
receivable balance of $1.0 million as of December 31, 1998 was paid to the
Company in late February 1999.
12. 1997 Stock Option Plan
The Company has reserved up to 3,419,004 shares of common stock issuable
upon exercise of options issued to certain employees, directors, and
consultants pursuant to the Company's 1997 Stock Option Plan ("The 1997 Plan"),
as amended. Substantially all options are exercisable at prices equal to the
estimated fair value of the Company's common stock at the date of grant, and
have a term of ten years. Substantially all optionees have a vested interest in
25% of the option shares upon the optionee's completion of one year of service
measured from the grant date. The balance will vest in equal successive monthly
installments of 1/48 upon the optionee's completion of each of the next 36
months of service. If an option holder ceases to be employed by the Company,
vested options held at the date of termination may be exercised within three
months.
F-17
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
The 1997 Plan allows certain option holders to exercise their options
prior to vesting. However, such exercises are subject to repurchase by the
Company if not vested. The Company's repurchase right lapses over a four year
period. As of September 30, 1999, 539,593 shares of common stock acquired by
option holders are subject to repurchase by the Company.
A summary of the status of the Company's 1997 Plan for the years ended
December 31, 1997 and 1998, and the nine months ended September 30, 1999, is as
follows:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------------------
Weighted
Exercise Average
Number Price per Aggregate Exercise
of Shares Share Price Price
--------- ------------ -------------- --------
(in thousands)
<S> <C> <C> <C> <C>
Balance at December 31, 1996... -- $ -- $ -- $ --
Granted...................... 632,333 $ 0.075-0.18 68 $ 0.12
Exercised.................... -- -- -- $ --
Forfeited.................... (21,666) -- (2) $ 0.09
--------- ------------ ------ ------
Balance at December 31, 1997... 610,667 $ 0.075-0.18 66 $ 0.12
Granted...................... 1,171,251 $ 0.18-0.75 344 $ 0.30
Exercised.................... (542,138) $ 0.075-0.75 (86) $ 0.15
Forfeited.................... (153,500) $ 0.075-0.54 (24) $ 0.15
--------- ------------ ------ ------
Balance at December 31, 1998... 1,086,280 $ 0.075-0.75 300 $ 0.27
Granted...................... 1,925,568 $ 0.75-$8.25 8,437 $ 4.38
Exercised.................... (528,281) $0.075-$1.89 (152) $(2.88)
Forfeited.................... (242,891) $0.105-$8.25 (445) $(1.83)
--------- ------------ ------ ------
Balance at September 30, 1999.. 2,240,676 $0.075-$8.25 $8,140 $ 3.63
========= ======
</TABLE>
The following table summarizes information with respect to stock options
outstanding at September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.075 - $0.18 283,483 8.52 $0.168 135,530 $0.165
$0.54 - $0.96 621,206 9.21 0.711 493,781 0.723
$1.50 - $2.08 415,370 9.49 1.878 322,203 1.896
$3.75 - $7.50 231,333 9.56 5.100 164,333 5.652
$8.25 689,284 9.69 8.250 171,561 8.250
--------- ---- ------ --------- ------
$0.075 - $8.25 2,240,676 9.36 $3.630 1,287,408 $2.589
========= =========
</TABLE>
The following information concerning the Company's stock option plan is
provided in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation. As permitted by SFAS No. 123, the Company accounts for its plan
in accordance with APB No. 25 and related interpretations. The fair value of
each stock
F-18
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
option is estimated on the date of grant using the minimum value option-pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Expected life (in years)................................. 5 4.5 4.5
Risk-free interest rate.................................. 5.21% 5.11% 5.37%
Expected dividend rate................................... -- -- --
</TABLE>
As a result of the above assumptions, the weighted average fair value of
options granted for the years ended December 31, 1997, 1998, and the nine month
period ended September 30, 1999 was $0.039, $0.144, and $0.582, respectively.
Had compensation expense for the stock plans been determined based on the
fair value at the grant date for options granted in 1997, 1998, and 1999
consistent with the provisions of SFAS 123, the pro forma net loss would have
been reported as follows:
<TABLE>
<CAPTION>
Years Ended Nine Months
December 31, Ended
------------------ September 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Net loss attributable to common
stockholders--as reported................. $ (2,433) $(17,341) $ (35,216)
Net loss attributable to common
stockholders--pro forma................... $ (2,435) $(17,349) $ (35,399)
Net loss per share attributable to common
stockholders--as reported................... $ (1.74) $ (11.66) $ (18.61)
Net loss per share attributable to common
stockholders--pro forma................... $ (1.74) $ (11.67) $ (18.71)
</TABLE>
Subsequent to September 30, 1999, the Company granted to its employees
options to purchase 1,178,871 shares of the Company's common stock at an
exercise price of $8.25 per share.
Under APB No. 25, when the exercise price of the Company's employee stock
options equals or exceeds the fair value price of the underlying stock on the
date of grant, no compensation expense is recognized in the Company's financial
statements. The Company granted options at exercise prices based upon the fair
value of the underlying stock as determined by its Board of Directors.
Subsequently, it was determined that the Company had granted options in 1998
and the nine months ended September 30, 1999 at exercise prices that were below
the fair value price of the underlying stock. Accordingly, the Company has
recorded deferred stock-based compensation of 1,253,000 and 3,169,000 in the
year ended December 31, 1998 and the nine months ended September 30, 1999,
respectively, based upon the intrinsic value of the options at the grant date.
The deferred stock-based compensation is being amortized to expense on an
accelerated basis over the vesting periods of the underlying options which is
generally four years.
13. 401(k) Plan
In 1997, the Company adopted a 401(k) plan. Participation in the 401(k)
plan is available to all employees. Employees are eligible to participate in
the 401(k) plan at any time beginning with their first day of employment. Each
participant may elect to contribute an amount up to 20% of his or her annual
base salary plus commission and bonus, but not to exceed the statutory limit as
prescribed by the Internal Revenue Code. The Company may make discretionary
contributions to the 401(k) plan. To date, no contributions have been made by
the Company.
F-19
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
14. Subsequent Events
Warehouse line of credit
On October 8, 1999, the Company entered into a $10.0 million warehouse
line of credit with a financial institution to be used to fund mortgage loans.
Interest charged on borrowings against the line of credit is variable based on
the LIBOR rate plus a prescribed margin. Additionally, this line is
collateralized by mortgage loans made by the Company. This agreement requires
the Company to maintain several financial and non-financial covenants and does
not permit the payment of dividends.
Warrants
In October 1999, the Company issued warrants to purchase 555,555 shares
of common stock at a price of $9.00 per share to a financial institution. These
warrants are exercisable at any time through October 2006. In October 1999, the
Company issued warrants to purchase 3,333 shares of common stock at a price of
$8.25 per share to a real estate company in conjunction with a one-year
marketing agreement. These warrants are exercisable at any time through October
2006.
In November 1999, the Company issued warrants to purchase 44,444 shares
of the Company's Series E preferred stock at a price of $9.00 per share to a
financial institution in connection with loan agreements. These warrants are
exercisable at any time through November 2009 or 5 years from the effective
date of the Company's initial public offering, whichever is longer.
Series E Preferred Stock
Subsequent to September 30, 1999, the Company sold 3,385,822 shares of
its Series E preferred stock at a price of $9.00 per share for gross proceeds
of $30,472,000. Stock issuance costs aggregated approximately $435,000. In
connection with this financing, the Company amended its Certificate of
Incorporation to eliminate the per share automatic conversion threshold of
$11.36 and to increase the automatic conversion threshold based on gross
offering size from $15.0 to $30.0 million.
Genesis Acquisition
On November 15, 1999, the Company agreed to acquire all the outstanding
shares of Genesis 2000, Inc. for a purchase price of $26.1 million consisting
of 833,333 shares of the Company's common stock, 833,333 of the Company's
Series E preferred stock, two convertible promissory notes aggregating $9.8
million, $1.6 million of assumed liabilities and $400,000 in incurred
transaction costs.
Initial public offering (unaudited)
In December 1999, the Company's Board of Directors authorized the Company
to file a registration statement with the Securities and Exchange Commission
for the purpose of an initial public offering of the Company's common stock.
Upon completion of this offering, the Company's preferred stock will be
automatically converted into shares of common stock, and all outstanding shares
of preferred stock will be cancelled and retired. The pro forma effect of the
conversion has been presented as a separate column in the Company's balance
sheet, assuming the conversion had occurred as of September 30, 1999.
Employee benefit plans (unaudited)
In December 1999, the Company adopted the 2000 Employee Stock Purchase
Plan effective on the date of the prospectus for the Company's initial public
offering. A total of 500,000 shares of common stock is reserved for issuance
under the Plan.
F-20
<PAGE>
iOwn Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
In December 1999, the Company adopted the 2000 Stock Incentive
Compensation Plan. The Company has reserved a total of 1,533,363 shares of
common stock plus (i) any shares reserved but not granted, or canceled and
returned, under the 1997 Plan, and (ii) an automatic annual increase equal to
the lesser of 5% of the average number of common stock outstanding during the
preceding year or a lesser amount determined by the Board of Directors.
HFN Acquisition (unaudited)
On December 22, 1999, the Company agreed to acquire all the outstanding
shares of HomeBuilders Financial Network, Inc. for a purchase price of $45.3
million consisting of 1,333,333 shares of common stock, 1,333,333 shares of
Series E preferred stock, $2.7 million in cash and a promissory note in the
amount of $13.3 million.
F-21
<PAGE>
iOwn Holdings, Inc.
Unaudited Pro Forma Combined Financial Information
Overview
Effective November 15, 1999, the Company agreed to acquire all the
outstanding shares of Genesis 2000, Inc. ("Genesis") and effective December 22,
1999, the Company agreed to acquire all the outstanding shares of HomeBuilders
Financial Network, Inc. ("HFN"). The acquisitions will be accounted for using
the purchase method of accounting and, accordingly, the purchase prices have
been allocated to the tangible and intangible assets acquired and liabilities
assumed on the basis of their respective fair values on the acquisition date.
The fair value of intangible assets was determined using the income approach
and the cost approach.
The total purchase price of Genesis of approximately $26.1 million
consisted of 833,333 shares of the Company's common stock with an estimated
fair value of approximately $6.8 million, 833,333 shares of the Company's
Series E preferred stock with an estimated fair value of approximately $7.5
million, two convertible promissory notes aggregating $9.8 million, $1.6
million of assumed liabilities and $400,000 in incurred transaction costs. Of
the total purchase price, $750,000 was allocated to tangible assets and $25.3
million to intangible assets, including the purchase of goodwill in the amount
of $12.8 million, non-compete agreements of $3.4 million, existing technology
of $2.5 million, workforce of $2.5 million, in-process research and development
of $1.9 million, customer base of $1.6 million and purchased trademark and
trade name of $600,000. The intangible assets will be amortized over their
estimated useful lives of 18 to 48 months.
The total purchase price of HFN of approximately $45.3 million consisted
of 1,333,333 shares of the Company's common stock with an estimated fair value
of approximately $14.0 million, 1,333,333 shares of the Company's Series E
preferred stock with an estimated fair value of $14.0 million, $2.7 million in
cash payments, a $13.3 million promissory note, warrants and vested options to
purchase 66,000 and 166,667 shares of the Company's common stock, respectively,
valued at approximately $1.0 million and approximately $250,000 in transaction
fees. Of the total purchase price, $1.1 million was allocated to tangible
assets and $44.2 million to intangible assets, including the purchase of
goodwill in the amount of $31.4 million, non-compete agreements of $5.4
million, assembled work force of $400,000, investments in joint ventures of
$2.1 million and management contracts of $4.9 million. The intangible assets
will be amortized over their estimated useful lives of 24 to 60 months.
The Genesis and HFN acquisition agreements provide for additional
contingent consideration payments up to a maximum of $23 million through 2001.
The acquisitions of Genesis and HFN have been structured as tax-free
exchanges of stock; therefore, the differences between the recognized fair
values of the acquired assets, including tangible assets, and their historical
tax bases are not deductible for tax purposes.
The following unaudited pro forma consolidated financial information
reflects the financial position as of September 30, 1999 and the results of
operations for the year ended December 31, 1998 and for the nine months ended
September 30, 1999, as if the acquisitions had occurred on January 1, 1998,
after giving effect to purchase accounting adjustments. These pro forma results
have been prepared for comparative purposes only, do not purport to be
indicative of what operating results would have been had the acquisition
actually taken place on January 1, 1998, and may not be indicative of future
operating results.
F-22
<PAGE>
iOwn Holdings, Inc.
Pro Forma Combined Balance Sheets
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------------------------
Pro
Company Genesis HFN Adjustments Forma
------------------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents............. $ 2,907 $ 748 $1,395 $ 28,329(b) $ 33,379
Restricted cash and
trading securities...... 521 -- 335 -- 856
Trade receivables......... 138 684 546 -- 1,368
Prepaids and other
current assets.......... 1,374 -- 43 -- 1,417
-------- ------ ------ -------- --------
Total current assets... 4,940 1,432 2,319 28,329 37,020
Property and equipment,
net....................... 5,947 206 42 -- 6,195
Intangible assets........... -- -- -- 68,082(c) 68,082
Other assets................ 1,750 -- 222 -- 1,972
-------- ------ ------ -------- --------
Total assets........... $ 12,637 $1,638 $2,583 $ 96,411 $113,269
======== ====== ====== ======== ========
Liabilities, Mandatorily Redeemable
Preferred Stock and Warrants, and
Stockholders' Equity (Deficit)
Current liabilities:
Trade accounts payable.... $ 1,183 $ 62 $ 164 -- $ 1,409
Accrued liabilities and
deferred revenue........ 3,570 1,244 10 -- 4,824
Notes payable, current
portion................. 733 -- 5 $ 14,959(a) 15,697
Capital lease
obligations, current
portion................. 1,311 -- -- -- 1,311
-------- ------ ------ -------- --------
Total current
liabilities.......... 6,797 1,306 179 14,959 23,241
Notes payable, noncurrent
portion................... 1,457 -- -- 8,091(a) 9,548
Capital lease obligations,
noncurrent portion........ 2,601 -- -- -- 2,601
-------- ------ ------ -------- --------
Total liabilities...... 10,855 1,306 179 23,050 35,390
Mandatorily redeemable
convertible preferred
stock..................... 54,562 -- -- (54,562)(d) --
-------- ------ ------ -------- --------
Stockholders' equity
(deficit):
Common stock and common
stock warrants.......... 4,795 1 556 130,102(b,d) 135,454
Unearned stock-based
compensation............ (2,537) -- -- -- (2,537)
(Accumulated deficit)
Retained earnings....... (55,038) 331 1,848 (2,179) (55,038)
-------- ------ ------ -------- --------
Total stockholders'
equity (deficit)..... (52,780) 332 2,404 127,923 77,879
-------- ------ ------ -------- --------
Total liabilities,
mandatorily
redeemable preferred
stock and
stockholders' equity
(deficit)........... $ 12,637 $1,638 $2,583 $ 96,411 $113,269
======== ====== ====== ======== ========
</TABLE>
F-23
<PAGE>
iOwn Holdings, Inc.
Pro Forma Combined Statements of Operations
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, 1998 Ended
---------------------------------------------------- September 30,
Pro Forma 1999
Company Genesis HFN Adjustments Pro Forma Pro Forma
-------- ------- ------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Transaction revenue............... $ 1,224 $ -- $ 4,282 $ -- $ 5,506 $ 6,896
Other Internet and e-commerce .... 89 -- -- -- 89 439
Software licenses and
maintenance...................... -- 6,167 -- -- 6,167 4,422
-------- ------- ------- -------- -------- --------
Total revenues................. 1,313 6,167 4,282 -- 11,762 11,757
-------- ------- ------- -------- -------- --------
Operating expenses:
Operations........................ (4,367) -- (1,479) -- (5,846) (10,795)
Cost of revenues.................. -- (828) -- -- (828) (850)
Sales and marketing............... (6,112) (1,124) -- -- (7,236) (15,736)
Technology, research and
development..................... (4,793) (697) -- -- (5,490) (7,440)
General and administrative........ (1,172) (1,739) (626) (60)(f) (3,597) (4,183)
Amortization of intangible
assets.......................... (673) -- -- (24,052)(e) (24,725) (18,078)
Amortization of stock-based
compensation.................... (300) -- -- -- (300) (1,585)
-------- ------- ------- -------- -------- --------
Total operating expenses....... (17,417) (4,388) (2,105) (24,112) (48,022) (58,667)
-------- ------- ------- -------- -------- --------
Income (loss) from operations.. (16,104) 1,779 2,177 (24,112) (36,260) (46,910)
Interest income..................... 201 143 34 -- 378 480
Interest expense.................... (112) -- (8) (1,340)(g) (1,460) (610)
Other income (expense).............. -- 26 162 -- 188 (148)
-------- ------- ------- -------- -------- --------
Net income (loss) before income
taxes........................ (16,015) 1,948 2,365 (25,452) (37,154) (47,188)
Pro forma provision for income
taxes............................. -- (779) (893) -- (1,672) (1,083)
-------- ------- ------- -------- -------- --------
Net income (loss).............. (16,015) 1,169 1,472 (25,452) (38,826) (48,271)
Dividend accretion on preferred
stock............................. (1,326) -- -- -- (1,326) (3,101)
-------- ------- ------- -------- -------- --------
Net income (loss) attributable to
common stockholders............... $(17,341) $ 1,169 $ 1,472 $(25,452) $(40,152) $(51,372)
======== ======= ======= ======== ======== ========
Net income (loss) per share
attributable to common
stockholders, basic and diluted... $ (11.66) $ 11.69 $14,720 $ (10.99) $ (12.66)
======== ======= ======= ======== ========
Shares used in computing net income
(loss) attributable to common
stockholders, basic and diluted... 1,487 100 0.1 3,653 4,058
======== ======= ======= ======== ========
Pro forma net loss per share
attributable to common
stockholders...................... $ (3.41) $ (2.79)
======== ========
Shares used in computing pro forma
net loss per share attributable to
common stockholders............... 11,789 18,442
======== ========
</TABLE>
F-24
<PAGE>
iOwn Holdings, Inc.
Pro Forma Combined Financial Information
Notes to Pro Forma Combined Statement of Operations
1. Basis of Presentation
The unaudited pro forma combined balance sheet and statement of
operations have been prepared to reflect the acquisition of Genesis 2000 Inc.
("Genesis") and HomeBuilders Financial Network, Inc. ("HFN") by the Company.
2. Pro Forma Adjustments
The following adjustments were applied to the historical balance sheets
and statements of operations to arrive at the pro forma combined balance sheet
and statement of operations:
(a) Reflects the issuance of $23.1 million in notes payable
necessary to complete the purchase acquisition.
(b) Reflects the issuance of 3,385,822 shares of Series E
preferred stock for gross proceeds of $30,472,000 and excludes cash held
by the acquired companies at the time of acquisition pursuant to the
agreements.
(c) Reflects the fair value of the identifiable intangible assets
acquired and goodwill.
(d) Reflects the conversion of the mandatorily redeemable
preferred stock into common stock.
(e) Reflects the additional amortization expense of $24,052,000
related to intangible assets resulting from the acquisition of Genesis
and HFN over their estimated useful lives.
(f) To record the additional twelve months of depreciation expense
relating to acquired fixed assets.
(g) To record interest expense incurred in connection with the
assumption of the promissory notes issued upon the acquisition of
Genesis and HFN.
3. Net Loss Per Share
Historical net loss per share for the pro forma year ended December 31,
1998 and the nine month period ended September 30, 1999 is computed using the
historical weighted average number of shares of common stock outstanding during
such periods and the number of shares of common stock issued in conjunction
with the acquisitions as if such shares were outstanding from January 1, 1998.
Pro forma net loss per share also reflects the conversion of preferred
stock and the number of shares of preferred stock issued in conjunction with
the acquisitions as if such shares were outstanding from January 1, 1998.
F-25
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors of
Genesis 2000, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Genesis 2000, Inc. (the Company)
at December 31, 1998 and September 30, 1999, and the results of its operations
and its cash flows for the year ended December 31, 1998 and for the nine month
period ended September 30, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Woodland Hills, California
November 29, 1999
F-26
<PAGE>
Genesis 2000, Inc.
Balance Sheets
as of December 31, 1998 and September 30, 1999
(in thousands, except share amounts)
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents...................................... $ 709 $ 748
Accounts receivable, net of allowance for doubtful accounts of
$173
and $134 at December 31, 1998 and September 30, 1999,
respectively................................................. 1,038 684
Other assets................................................... 31 --
------ ------
Total current assets........................................ 1,778 1,432
Property and equipment, net.................................... 201 206
------ ------
Total assets.............................................. $1,979 $1,638
====== ======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable............................................... $ 27 $ 62
Accrued liabilities............................................ 220 254
Deferred revenue............................................... 852 990
------ ------
Total current liabilities................................... 1,099 1,306
------ ------
Commitments and Contingencies (Note 5)
Shareholders' equity:
Common stock, par value of $0.01; 100,000 shares authorized;
99,999 shares
issued and outstanding at December 31, 1998 and September
30, 1999..................................................... 1 1
Retained earnings.............................................. 879 331
------ ------
Total shareholders' equity.................................. 880 332
------ ------
Total liabilities and shareholders' equity................ $1,979 $1,638
====== ======
</TABLE>
F-27
<PAGE>
Genesis 2000, Inc.
Statements of Operations
for the year ended December 31, 1998 and
the nine months ended September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Revenues:
Software licenses.............................................. $5,205 $3,161
Services and maintenance....................................... 962 1,261
------ ------
Total revenues.............................................. 6,167 4,422
------ ------
Costs and operating expenses:
Cost of revenues............................................... 828 850
Sales and marketing............................................ 1,124 909
Research and development....................................... 697 534
General and administrative..................................... 1,739 1,316
------ ------
Total costs and operating expenses.......................... 4,388 3,609
------ ------
Income from operations...................................... 1,779 813
Interest income.................................................. 143 138
Other income, net................................................ 26 4
------ ------
Income before provision for income taxes.................... 1,948 955
Provision for income taxes....................................... 20 18
------ ------
Net income.................................................. $1,928 $ 937
====== ======
Unaudited pro forma information (Note 2):
Income before provision for income taxes....................... $1,948 $ 955
Pro forma provision for income taxes........................... 779 382
------ ------
Pro forma net income............................................. $1,169 $ 573
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
Genesis 2000, Inc.
Statements of Shareholders' Equity
for the year ended December 31, 1998 and
the nine months ended September 30, 1999
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock
------------- Retained
Shares Amount Earnings Total
------ ------ -------- -------
<S> <C> <C> <C> <C>
Balances at January 1, 1998.................... 99,999 $ 1 $ 196 $ 197
Net income..................................... 1,928 1,928
Distributions to shareholders.................. (1,245) (1,245)
------ --- ------- -------
Balances at December 31, 1998.................. 99,999 1 879 880
Net income..................................... 937 937
Distributions to shareholders.................. (1,485) (1,485)
------ --- ------- -------
Balances at September 30, 1999................. 99,999 $ 1 $ 331 $ 332
====== === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
Genesis 2000, Inc.
Statements of Cash Flows
for the year ended December 31, 1998 and
the nine months ended September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 1,928 $ 937
Adjustments to reconcile net income to net cash provided by
operating activities:.....................................
Depreciation............................................... 84 56
Changes in operating assets and liabilities:
Accounts receivable, net.................................. (370) 354
Other assets.............................................. 43 31
Accounts payable.......................................... (13) 35
Accrued liabilities....................................... 83 34
Deferred revenue.......................................... 253 138
------- -------
Net cash provided by operating activities............... 2,008 1,585
------- -------
Cash flows from investing activities:
Purchase of property and equipment......................... (169) (61)
------- -------
Net cash used in investing activities................... (169) (61)
------- -------
Cash flows from financing activities:
Distributions to shareholders............................... (1,245) (1,485)
------- -------
Net cash used in financing activities................... (1,245) (1,485)
------- -------
Increase in cash and cash equivalents.................. 594 39
Cash and cash equivalents at beginning of period............. 115 709
------- -------
Cash and cash equivalents at end of period................... $ 709 $ 748
======= =======
Supplemental cash flow information
Income taxes paid........................................... $ 1 $ 20
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
Genesis 2000, Inc.
Notes to Financial Statements
1. The Company
Genesis 2000, Inc. (the "Company"), was founded in 1986 and later
incorporated on March 16, 1992 as an S Corporation. The Company offers mortgage
professionals a variety of desktop and Internet-based loan processing and
tracking products to enhance workflow performance and automate the mortgage
origination process. The Company's products are being used by mortgage brokers,
mortgage bankers, banks, credit unions, and savings institutions throughout the
United States. The Company is organized into a single reporting segment which
is evaluated by management for making operating decisions and assessing
performance.
2. Summary of Significant Accounting Policies
Cash and cash equivalents
The Company considers all highly-liquid monetary instruments with an
original maturity of three months or less to be cash equivalents. All cash
deposits are held by one financial institution and exceed federal deposit
insurance coverage limits.
Revenue recognition
The Company recognizes revenue in accordance with the provisions of
Statement of Position 97-2, Software Revenue Recognition, as amended. The
Company recognizes software licensing revenue upon shipment of the software
product to the customer. Services revenues generally relate to postcontract
customer support (maintenance). Amounts billed for maintenance are deferred and
recognized ratably over the term of the service period which is typically one
year.
Cost of revenues
Cost of revenues includes the cost of the Company's software products,
packaging and personnel costs related to maintenance and services revenues.
Research and development costs
Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, requires
that software development costs be capitalized once the technological
feasibility of the software product has been established. To date, such amounts
have been insignificant and have been charged to research and development
expense in the period incurred.
Property and equipment
Property and equipment is stated at cost. Depreciation is calculated
using the double-declining balance method over the estimated useful lives of
five years for computer hardware and purchased computer software and,
generally, seven years for furniture and fixtures.
When assets are sold or retired, the cost and related accumulated
depreciation is removed from the accounts and any resulting gain or loss is
included in operations. Maintenance and repairs are charged to operations as
incurred.
Advertising
The Company reports the costs of all advertising as expenses in the
periods in which those costs are incurred. Advertising expense, primarily
direct mailings and placements in business publications was $216,000 and
$201,000 for the year ended December 31, 1998 and the nine-month period ended
September 30, 1999, respectively.
F-31
<PAGE>
Genesis 2000, Inc.
Notes to Financial Statements--(Continued)
Income taxes
The Company has elected to be treated as an S Corporation for federal
and state income tax purposes, and, accordingly, any liabilities for federal
income taxes are the direct responsibility of the shareholders. The Company is
only subject to California state income taxes at a rate of 1.5 percent on
taxable income. Deferred tax assets and liabilities are immaterial since the
Company is subject only to minimal California income taxes.
The unaudited pro forma income tax information included in the
Statements of Operations is presented in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," as if
the Company had been subject to federal and state income taxes for all periods
presented.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair value of financial instruments
The carrying amount of cash, accounts receivable and payable and accrued
liabilities approximate their fair values based on the short-term nature of
these instruments.
3. Concentrations of Business and Credit Risk
The Company's customers operate in the financial services industry.
Accordingly, the Company is subject to the effects of economic changes. Credit
is extended to customers based on an evaluation of their financial condition,
and collateral is generally not required. The Company performs ongoing credit
evaluations of its customers and provides an allowance for doubtful accounts
as appropriate. Additionally, the Company maintains its cash deposits with one
financial institution, which at times exceed federally insured limits.
4. Composition of Certain Balance Sheet Amounts
Balances at December 31, 1998 and September 30, 1999, consist of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Property and equipment:
Computer equipment and software.............................. $248 $329
Furniture and fixtures....................................... 170 150
---- ----
418 479
Less: accumulated depreciation................................. (217) (273)
---- ----
Total property and equipment, net......................... $201 $206
==== ====
Accrued liabilities:
Wages and benefits........................................... $141 $171
Other........................................................ 79 83
---- ----
$220 $254
==== ====
</TABLE>
F-32
<PAGE>
Genesis 2000, Inc.
Notes to Financial Statements--(Continued)
5. Commitments and Contingencies
The Company maintains a 401(k) profit sharing plan covering substantially
all employees. Employees who work for the Company are eligible for
participation after six months of service. Company contributions to the plan
are made at the discretion of the Company's Board of Directors and aggregated
$106,000 and $0 for the year ended December 31, 1998 and the nine month period
ended September 30, 1999, respectively.
The Company leases its office space under a non-cancelable operating
lease expiring October 31, 2000, with an option to renew. Total remaining,
minimum rental commitments at September 30, 1999 aggregate $138,000. Rent
expense for the year ended December 31, 1998 and the nine month period ended
September 30, 1999 aggregated $111,000 and $93,000, respectively.
The Company is periodically subject to various claims arising in the
ordinary course of business. Company management believes that the ultimate
resolution of outstanding matters will not have a material adverse effect on
the Company's financial position, results of operations or cash flows.
6. Subsequent Event
On November 15, 1999, the stockholders of the Company reached an
agreement to sell the Company to iOwn Holdings, Inc.
F-33
<PAGE>
Independent Auditors' Report
The Board of Directors
HomeBuilders Financial Network, Inc. and Subsidiaries:
We have audited accompanying consolidated statements of financial
condition of HomeBuilders Financial Network, Inc. and subsidiaries (the
"Company") as of December 31, 1998 and September 30, 1999, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
the year ended December 31, 1998 and for the nine months ended September 30,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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
HomeBuilders Financial Network, Inc. and subsidiaries as of December 31, 1998
and September 30, 1999, and the results of their operations and their cash
flows for the year ended December 31, 1998 and for the nine months ended
September 30, 1999 in conformity with generally accepted accounting principles.
KPMG LLP
/s/ KPMG LLP
December 10, 1999
Miami, Florida
F-34
<PAGE>
HomeBuilders Financial Network, Inc.
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $1,705,555 $1,394,611
Trading securities................................ 329,173 335,072
Accounts receivable (net of allowance for
doubtful accounts of $0 and $4,152 as of
December 31, 1998 and September 30, 1999,
respectively)................................... 411,955 546,017
Other assets...................................... 19,242 43,263
---------- ----------
Total current assets........................... 2,465,925 2,318,963
---------- ----------
Property and equipment, net......................... 31,861 41,510
Investments in joint ventures....................... 227,109 218,851
Notes receivable.................................... -- 3,166
---------- ----------
Total assets................................... $2,724,895 $2,582,490
========== ==========
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable and accrued expenses............. $ 202,729 $ 164,481
Deferred management fees.......................... 36,395 9,496
Borrowings under line of credit................... 29,820 5,000
---------- ----------
Total current liabilities...................... 268,944 178,977
---------- ----------
Stockholder's equity:
Common stock, $.05 par value, 1,000 shares
authorized, 100 shares issued and outstanding... 5 5
Additional paid-in capital........................ 555,578 555,578
Retained earnings................................. 1,900,368 1,847,930
---------- ----------
Total stockholder's equity 2,455,951 2,403,513
---------- ----------
Total liabilities and stockholder's equity $2,724,895 $2,582,490
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
HomeBuilders Financial Network, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Revenues:
Service revenue.................................. $3,753,240 $3,569,417
Equity in earnings of joint ventures............. 528,321 176,526
Unrealized (loss) gain on trading securities..... 61,872 (18,387)
Realized losses on sales on trading securities... -- (3,841)
Other income..................................... 100,071 46,371
---------- ----------
Total operating revenue....................... 4,443,504 3,770,086
---------- ----------
Operating expenses:
Employee compensation............................ 1,479,107 1,501,810
General and administrative....................... 555,764 421,182
Rent............................................. 53,596 69,275
---------- ----------
Total operating expenses...................... 2,088,467 1,992,267
---------- ----------
Net operating income.......................... 2,355,037 1,777,819
---------- ----------
Other:
Interest income.................................. 33,776 49,608
Depreciation and amortization.................... (15,459) (13,011)
Interest expense................................. (8,044) (954)
---------- ----------
10,273 35,643
---------- ----------
Net income.................................... $2,365,310 $1,813,462
========== ==========
Pro forma data (unaudited):
Net income before taxes.......................... $2,365,310 $1,813,462
Pro forma provision for income taxes............. 893,000 701,000
---------- ----------
Pro forma net income.......................... $1,472,310 $1,112,462
========== ==========
Pro forma net income per common share:
Basic............................................ $ 14,723 $ 11,125
========== ==========
Pro forma weighted average number of common shares
outstanding:
Basic............................................ 100 100
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
HomeBuilders Financial Network, Inc.
Consolidated Statements of Stockholder's Equity
For the year ended December 31, 1998 and the nine months ended September 30,
1999
<TABLE>
<CAPTION>
Common stock Additional Accumulated
------------- paid-in earnings
Shares Amount capital (deficit) Total
------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1997.................... 100 $ 5 $555,578 $ (329,942) $ 225,641
Dividends paid.......... -- -- -- (135,000) (135,000)
Net income.............. -- -- -- 2,365,310 2,365,310
--- --- -------- ----------- -----------
Balance, December 31, 1998 100 5 555,578 1,900,368 2,455,951
Dividends paid.......... -- -- -- (1,865,900) (1,865,900)
Net income.............. -- -- -- 1,813,462 1,813,462
--- --- -------- ----------- -----------
Balance, September 30,
1999.................... 100 $ 5 $555,578 $ 1,847,930 $ 2,403,513
=== === ======== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
HomeBuilders Financial Network, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Cash flows provided by operating activities:
Net income......................................... $2,365,310 $ 1,813,462
---------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 15,459 13,011
Provision for bad debt............................ -- 4,152
Unrealized loss (gain) on trading securities...... (61,872) 18,388
Realized losses on sale of trading securities..... -- 3,841
Equity in earnings of joint ventures.............. (528,321) (176,526)
Changes in operating assets:
Notes receivable.................................. 45,000 (3,166)
Accounts receivable............................... (248,315) (138,214)
Other assets...................................... 12,413 (24,021)
Changes in operating liabilities:
Accounts payable and accrued expenses............. 103,010 (38,248)
Deferred management fees.......................... 36,395 (26,899)
---------- -----------
(626,231) (367,682)
---------- -----------
Net cash provided by operating activities......... 1,739,079 1,445,780
---------- -----------
Cash flows from investing activities:
Distributions from joint ventures.................. 465,292 259,784
Purchases of trading securities.................... (267,397) (79,080)
Investments in joint ventures...................... (50,000) (75,000)
Sales of trading securities........................ -- 50,952
Purchases of property and equipment................ (21,569) (22,660)
---------- -----------
Net cash provided by investing activities......... 126,326 133,996
---------- -----------
Cash flows from financing activities:
Dividends paid..................................... (135,000) (1,865,900)
Repayment of line of credit........................ -- (24,820)
Borrowing under line of credit..................... 29,820 --
Repayment of notes payable......................... (100,000) --
---------- -----------
Net cash used in financing activities............. (205,180) (1,890,720)
---------- -----------
Net (decrease) increase in cash and cash
equivalents...................................... 1,660,225 (310,944)
Cash and cash equivalents at beginning of period.... 45,330 1,705,555
---------- -----------
Cash and cash equivalents at end of period.......... $1,705,555 $ 1,394,611
========== ===========
Supplemental disclosure of cash flow information:
Interest paid...................................... $ 8,044 $ 954
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
HomeBuilders Financial Network, Inc. & Subsidiaries
Notes to Consolidated Financial Statements
1. Organization and Summary of Significant Accounting Policies
HomeBuilders Financial Network, Inc. and subsidiaries (the "Company")
assists new home builders in establishing a captive mortgage origination
business, in order to capitalize on the flow of mortgage business which is a
byproduct of their core business. The Company either establishes a joint
venture with each builder or enters into a service fee agreement with the
builder or an entity wholly owned by the builder. For joint ventures, the
Company acts as a managing/general partner, and provides management services
for builder owned entities. Management services may consist of loan pricing,
loan underwriting, loan closing and post closing services, and management
support and bookkeeping/accounting services.
The Company is not a lender, but rather offers builders a complete
turnkey program. It obtains the necessary licenses, locates office space,
recruits staff, provides on-site training and installs the hardware and
software. And after the operation is up and running, the network provides daily
loan level support services, including loan processing support, loan rate lock
support, loan underwriting services, regulatory compliance and ongoing quality
control.
The consolidated financial statements of the Company includes the
accounts of HomeBuilders Financial Network, Inc. and its wholly owned
subsidiaries, HomeBuilders Financial Management Co., HomeBuilders Investment
Inc., and National Underwriting Services, Inc.
The following is a summary of the significant accounting and reporting
policies followed by the Company:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Revenue Recognition
Service fees are recognized using the accrual basis. Service fees
primarily consist of management fees and fees for processing of loans (loan
fees). Based on its service fee agreement with each builder the Company charges
a management fee, which is based on either specific charges for the various
services offered and/or a share of profits and/or loan fees charged based upon
the nature of services performed.
Investments in Joint Ventures
The Company has joint venture agreements with South Florida Residential
Lending Corporation; RHMC, LP; HFS Mortgage, LLC; IHG Mortgage Services; M. H.
Mortgage Company, LLC; and Builders Choice Mortgage, LLC. The Company has non-
controlling ownership interest (fifty percent) in the joint ventures. The joint
venture agreements provide for the termination of the agreements within 60 days
notice by either partner. Accordingly, the joint ventures are accounted for
under the equity method.
Accounts Receivable, Net
Accounts receivable, net primarily consist of management and loan fees to
be collected. The Company provides an allowance for doubtful accounts which is
determined based on a number of factors, including the risk characteristics of
the portfolio, historical charge-off, delinquency patterns and management's
judgment.
F-39
<PAGE>
HomeBuilders Financial Network, Inc. & Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
Property and Equipment, Net
Property and equipment are carried at cost, less accumulated
depreciation. Depreciation is computed over a useful life of three, five and
seven years for software, hardware, and property and equipment, respectively.
The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of. The Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
Income Taxes
The Company has elected to be a "small business corporation" pursuant to
Subchapter S of the Internal Revenue Code. Under Subchapter S, the corporation
does not pay federal income tax. Instead, the corporation's income and
deductions are passed through to its sole shareholder who must report the
income and expense on his own income tax return.
If the Company were subject to income tax, the Company would have
recorded approximately $893,000 and $701,000 of federal and state income tax
expense for the year ended December 31, 1998 and the nine months ended
September 30, 1999, respectively.
Trading Securities
Trading securities at December 31, 1998 and September 30, 1999 consist of
equity securities. Trading securities are bought and held principally for the
purpose of selling them in the near term.
Trading securities are recorded at fair value. Unrealized holding gains
and losses on trading securities are included in earnings.
Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows, the Company has
defined cash equivalents as highly liquid investments with original maturities
of less than ninety days.
Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimated.
Income Per Common Share
Basic income per share is based on the weighted average number of common
shares outstanding during the period presented.
F-40
<PAGE>
HomeBuilders Financial Network, Inc. & Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
2. Property and Equipment, Net
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Furniture, fixtures, and equipment.............. $72,540 $95,198
Software........................................ 2,416 2,416
------- -------
74,956 97,614
Less: Accumulated depreciation.................. 43,095 56,104
------- -------
$31,861 $41,510
======= =======
</TABLE>
3. Borrowings Under Line of Credit
The Company has a $500,000 revolving line of credit with a floating
interest rate, secured by HFN's stock, and an expiration date of December 31,
1999. The interest rate for the year ended December 31, 1998 and for the nine
months ended September 30, 1999 was 7.64% and 6.50%, respectively.
4. Leases
Rental expense amounts to $95,631 and $117,913 for the year ended
December 31, 1998 and for the nine months ended September 30, 1999,
respectively. The Company also has subleases with third parties on a month-to-
month basis. Rental income on the subleases amounts to $42,035 and $48,638 for
the year ended December 31, 1998 and for the nine months ended September 30,
1999, respectively. These amounts are netted against rental expense in the
statements of operations.
As of September 30, 1999, future minimum annual lease payments under
operating lease agreements are as follows:
<TABLE>
<S> <C>
2000.............................................................. $166,798
2001.............................................................. 63,455
2002.............................................................. 8,510
2003.............................................................. 1,495
--------
$240,258
========
</TABLE>
F-41
<PAGE>
HomeBuilders Financial Network, Inc. & Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
5. Investments in Joint Ventures
Investments in joint ventures consist of 50% ownership in mortgage
origination companies at home builders' sites. The following summarizes the
combined financial information of the investments in joint ventures accounted
for using the equity method.
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Assets:
Current assets:................................. $ 558,193 $ 513,449
Non current assets:............................. 41,745 55,452
---------- ----------
Total assets:................................... $ 599,938 $ 568,901
========== ==========
Liabilities and equity:
Current liabilities............................. $ 137,094 $ 128,613
Non current liabilities......................... -- 50,000
Equity.......................................... 462,844 390,288
---------- ----------
Total liability and equity...................... $ 599,938 $ 568,901
========== ==========
Gross revenue................................... $2,508,520 $1,065,030
Expenses........................................ 1,451,878 711,979
---------- ----------
Net income...................................... $1,056,642 $ 353,051
========== ==========
</TABLE>
On September 30, 1998, the Company dissolved its interest in a joint
venture with Blue Chip Mortgage (now known as Zaring Financial).
Included in expenses of the joint ventures are fees paid to the Company
of $49,336 and $22,924 for the year ended December 31, 1998 and for the nine
months ended September 30, 1999, respectively.
6. Commitments and Contingencies
Certain joint venture agreements require the Company, as general or
managing partner, to fund operating deficits up to $50,000.
7. Employment Agreements
The Company has employment agreements with certain officers which require
the payment of bonuses based on different criteria of revenue earned. Included
in expenses are bonuses paid in connection with such agreements of $284,639 and
$167,631 for the year ended December 31, 1998 and for the nine months ended
September 30, 1999, respectively.
F-42
<PAGE>
HomeBuilders Financial Network, Inc. & Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
8. Business Segments
The Company operates in two business segments: mortgage management
services and trading in equity securities. The following table represents
operating revenues and expenses for each business segment. Identifiable assets
are those assets used exclusively in the operations of each business segment or
which are allocated when used jointly.
<TABLE>
<CAPTION>
Operating Operating Identifiable
Business Segment Revenues Expenses Assets
---------------- ---------- ---------- ------------
<S> <C> <C> <C>
1999:
Mortgage management services.......... $3,792,314 $1,992,267 $2,239,600
Trading securities.................... (22,228) -- 342,890
---------- ---------- ----------
Total............................. $3,770,086 $1,992,267 $2,582,490
========== ========== ==========
1998:
Mortgage management services.......... $4,381,632 $2,088,467 $2,362,263
Trading securities.................... 61,872 -- 362,632
---------- ---------- ----------
Total $4,443,504 $2,088,467 $2,724,895
========== ========== ==========
</TABLE>
All revenues from customers, interest revenue, interest expense,
depreciation and equity in the net income of investees accounted for by the
equity method are included in the operating revenues, operating expenses and
identifiable assets mentioned above.
9. Concentration of Risk
For the year ended December 31, 1998 and the nine months ended September
30, 1999, one customer represented 38% and 35%, respectively, of the Company's
total operating revenue.
10. Year 2000 (unaudited)
In 1999, the Company initiated a plan ("Plan") to identify, assess, and
remediate "Year 2000" issues within each of its significant computer programs
and certain equipment which contain micro-processors. The Plan is addressing
the issue of computer programs and embedded computer chips being unable to
distinguish between the year 1900 and the year 2000, if a program or chip uses
only two digits rather than four to define the applicable year. Systems which
have been determined not to be Year 2000 compliant have been replaced or
reprogrammed, and thereafter tested for Year 2000 compliance. The total
estimated cost of remediation (including replacement software and hardware) and
testing is $65,000.
The Company is in the process of identifying and contacting critical
suppliers and customers whose computerized systems interface with the Company's
systems, regarding their plans and progress in addressing their Year 2000
issues. The Company has received varying information from such third parties on
the state of compliance or expected compliance. Contingency plans are being
developed in the event that any critical supplier or customer is not compliant.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of
the Year 2000 readiness of third-party suppliers and customers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's operations, liquidity or financial
condition.
F-43
<PAGE>
HomeBuilders Financial Network, Inc. & Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
1I. Fair Value of Financial Instruments
The following table represents the carrying amounts and estimated fair
value of the Company's financial instruments at December 31, 1998 and September
30, 1999. The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1999
-------------------------- --------------------------
Fair Value Fair Value
Financial Assets Carrying Amount Carrying Amount
---------------- --------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Cash and cash
equivalents........... $1,705,555 $1,705,555 $1,475,785 $1,475,785
Trading securities...... 329,173 329,173 335,072 335,072
Accounts receivable,
net................... 411,955 411,955 546,017 546,017
<CAPTION>
Financial Liabilities
---------------------
<S> <C> <C> <C> <C>
Accounts payable and
accrued expenses...... $ 189,241 $ 189,241 $ 179,659 $ 179,659
Borrowings under line of
credit................ 29,820 29,820 5,000 5,000
Deferred management
fees.................. 36,395 36,395 9,496 9,496
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash, accounts receivable, net, accounts payable, and accrued expenses,
borrowings under line of credit and deferred management fees: The carrying
amounts approximate fair value because of the short maturity of these
instruments.
Trading Securities: The fair value is based on quoted market prices at
the reporting dates.
I2. Prospective Sale of Company
The Company is negotiating the sale of all the issued and outstanding
common stock to a prospective buyer.
F-44
<PAGE>
[Inside Back Cover]
Caption:
Getting people through the front door
Text:
Select Partners. We maintain strategic relationships with partners in both
online and offline markets to provide their customers with our quality
products and service. We are proud to partner with over 30 companies including:
Artwork:
Graphics of logos for Earthlink, digital city, Sprint, NBCi/Snap!, CalPERS, AT&T
Worldnet Service, Pinnacle, Homes.com, Beazer, CIBC MarketPlace
Text:
Select lenders. We work with well-established local, regional and national
lenders who are committed to customer service and provide the most competitive
rates. Some of our lenders include: Bank of America Mortgage, Chase Manhattan
Mortgage, Citigroup Mortgage, Countywide Home Loans, Crestar Mortgage Corp,
First Franklin, First Nationwide Mortgage, Flagstar Bank, Fremont Investment and
Loan, GE Capital Mortgage Corp, InterFirst, Sunbelt Mortgage, Union Federal
Savings, Merrill Lynch Credit Corporation, Option One, Prism Mortgage, WMC
Mortgage.
Graphic of iOwn logo.
<PAGE>
[IOWN.COM LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by the Registrant in connection with this
offering areas follows. All amounts are estimates other than the SEC
registration fee and the NASD filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.................. $
National Association of Securities Dealers filing fee................
Nasdaq National Market listing fee...................................
Printing fees........................................................
Legal fees and expenses..............................................
Accounting fees and expenses.........................................
Blue sky fees and expenses...........................................
Transfer agent and registrar fees....................................
Miscellaneous fees...................................................
----
Total.............................................................. $
====
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities including reimbursement for expenses
incurred arising under the Securities Act of 1933. Article of our Amended
and Restated Certificate of Incorporation, which will be effective upon the
closing of this offering, and Article of our Bylaws provide for
indemnification of our directors, officers, employees and other agents to the
maximum extent permitted by Delaware law. In addition, we have entered into
Indemnification Agreements with our officers and directors. The Underwriting
Agreement (Exhibit 1.01) also provides for cross-indemnification among iOwn
Holdings and the Underwriters with respect to certain matters, including
matters arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
In the three years preceding the filing of this registration statement,
we have sold and issued the following securities:
1. On February 28, 1997 and April 29, 1997, we issued a total of
830,960 shares of Series A preferred stock to 13 investors for an
aggregate consideration of $598,296.
2. On November 28, 1997, December 31, 1997, January 12, 1998 and
March 19, 1998, we issued a total of 3,983,921 shares of Series B
preferred stock to 55 investors for an aggregate consideration of
$7,548,734.
3. On September 4, 1998 and November 4, 1998, we issued a total of
5,913,333 shares of Series C preferred stock to 26 investors for an
aggregate consideration of $22,175,000.
4. On April 28, 1999, we issued 2,606,881 shares of Series D
preferred stock to 41 investors for an aggregate consideration of
$19,551,608.
5. On October 29, 1999 and November 30, 1999, we issued a total of
3,390,377 shares of Series E preferred stock to 38 investors for an
aggregate consideration of $30,472,398.
6. On August 25, 1997, September 25, 1997 and October 25, 1997, we
issued three separate warrants to Altos Ventures I, L.P. for an
aggregate of 39,582 shares of Series B preferred stock. Such warrants
have an exercise price of $1.8948 per share.
II-1
<PAGE>
7. On November 24, 1997, we issued a warrant to VS Holdings, Inc.
for 10,000 shares of common stock, 5,000 shares of which warrant were
subsequently transferred to Steven D. Abbott and 5,000 shares of which
warrant were subsequently transferred to Joanna Rees Gallanter. Such
warrants have an exercise price of $.135 per share.
8. On April 2, 1998, we issued a warrant to Imperial Bank for up
to 15,000 shares of Series B preferred stock. Such warrant has an
exercise price of $2.274 per share.
9. On July 20, 1998, we issued a warrant to LINC Capital for up to
18,471 shares of Series B preferred stock. Such warrant has an exercise
price of $1.8948 per share.
10. On July 7, 1999, we issued a warrant to America Online, Inc.
for up to 8,333 shares of common stock. Such warrant has an exercise
price of $30.00 per share.
11. On August 12, 1999, we issued a warrant to Comdisco, Inc. for
53,333 shares of Series D preferred stock. Such warrant has an exercise
price of $7.50 per share.
12. On September 16, 1999, we issued a warrant to Roger Thurn for
up to 1,666 shares of common stock. Such warrant has an exercise price
of $8.25 per share.
13. On September 16, 1999, we issued a warrant to Arthur Nadolske
for up to 1,666 shares of common stock. Such warrant has an exercise
price of $8.25 per share.
14. On September 24, 1999, we issued a warrant to American
Mortgage Services for up to 6,666 shares of common stock. Such warrant
has an exercise price of $8.25 per share.
15. On September 24, 1999, we issued a warrant to Cashin Realty
Group for up to 3,333 shares of common stock. Such warrant has an
exercise price of $8.25 per share.
16. On October 29, 1999, we issued a warrant to ABN AMRO Capital
Investment (Belgie) NV for up to 555,555 shares of common stock. Such
warrant has an exercise price of $9.00 per share.
17. On November 15, 1999, we issued a warrant to Comdisco, Inc.
for 44,444 shares of Series E preferred stock. Such warrant has an
exercise price of $9.00 per share.
18. On December 8, 1999, we issued a warrant to Ranieri & Co.,
Inc. for 66,666 shares of common stock. Such warrant has an exercise
price of $15.00 per share.
19. From our incorporation through November 30, 1999, we have
issued an aggregate of 4,502,680 options to purchase our common stock to
employees, directors and consultants with exercise prices ranging from
$0.075 to $8.25.
[No underwriters were involved in the foregoing sales of securities.] 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, or, in the case of
options to purchase common stock, Rule 701 of 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.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
No. Name of Exhibit
------- ------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of iOwn as currently in effect.
3.2 Form of Restated Certificate of Incorporation of iOwn to be filed
immediately following the closing of the offering made under this
Registration Statement.
3.3 Bylaws of iOwn as currently in effect.
3.4 Form of Bylaws of iOwn to be adopted immediately following the
closing of the offering made under this Registration Statement.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Perkins Coie LLP.
10.1 Form of Indemnification Agreement between the Registrant and each
of its directors and officers.
10.2* 2000 Stock Incentive Compensation Plan.
10.3* 2000 Employee Stock Purchase Plan.
10.4 Fifth Amended and Restated Investor Rights Agreement dated
November 30, 1999 among iOwn and certain investors.
10.5 1997 Stock Option Plan.
10.6 Series D Preferred Stock Purchase Agreement with certain investors
dated April 28, 1999.
10.7+ Interactive Services Agreement with America Online, Inc. dated
June 30, 1999.
10.8+ Promotion Agreement with NBC/Snap! LLC dated October 19, 1998.
10.9+ Agreements with Homes.com, LLC dated November 1, 1999;
(a)HomeScout Promotion Agreement
(b)Preferred Provider Agreement
(c)Co-Branding and Promotion Agreement
(d)Amendment to HomeScout Data Agreement
10.10+ Platinum Premier Partner Package Agreement with Earthlink Network,
Inc. dated October 1, 1999.
10.11+ Warehousing Credit and Security Agreement with Bank United of
Texas, a federal savings bank, dated October 8, 1999.
10.12* Agreement and Plan of Merger with HomeBuilders Financial Network,
Inc. dated December 22, 1999.
10.13+ Subordinated Loan and Security Agreement with Comdisco, Inc. dated
August 12, 1999.
10.14 Standard Industrial/Commercial Multi-Tenant Lease-Gross with
Rincon Associates dated April 16, 1999 and agreements related
thereto.
10.15 Office Lease with Mt. Diablo Tech, LLC dated December 31, 1998.
10.16+ Master Lease Agreement with LINC Capital Inc. dated July 20, 1998.
10.17+ Senior Loan and Security Agreement with Phoenix Leasing
Incorporated dated November 20, 1998 and amendments thereto.
10.18+ Agreement and Plan of Merger with Genesis 2000, Inc. dated
November 15, 1999.
10.19 Lease with Walcott Business Center dated June 17, 1999.
10.20+ Agreement with First Franklin Financial Corporation dated December
1, 1997.
10.21 Agreement with Federal Home Loan Mortgage Corporation dated
September 20, 1999.
10.22+ Master Agreement with Fannie Mae dated October 6, 1999.
10.23 Employment Agreement with Edward P. Hoyt dated October 25, 1999.
10.24 Series E Preferred Stock Purchase Agreement with certain investors
dated November 13, 1999.
10.25 Form of warrant to purchase common stock of the company dated
September 16 1999.
10.26 Warrant to Purchase Common Stock dated October 29, 1999 issued to
ABN AMRO Capital Investments (Belgie) NV.
10.27* Employment Agreement with Paul Holmes dated October 11, 1999.
10.28* Employment Agreement with Marcia Donner dated April 1, 1999.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Name of Exhibit
------- ------------------------------------------------------------------
<C> <S>
10.29* Form of Employment Agreement with Thomas Meyer.
10.30* Employment Agreement with Kamyar Tafreshi dated November 23, 1999.
11.1 Statement regarding computation of per share earnings.
12.1 Statement regarding computation of ratios.
21.1 Subsidiaries of iOwn Holdings, Inc.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.3 Consent of KPMG LLP, Independent Certified Public Accountants.
23.4* Consent of Counsel (Included in Exhibit 5.1).
23.5 Consent of Thomas H. Meyer.
24.1 Power of Attorney (See II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Confidential treatment requested.
* To be filed by amendment.
(b) Financial Statement Schedules
No financial statement schedules are provided, because the information
called for is not required or is shown either in the financial statements or
the notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, or
otherwise, the Registrant has 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
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The 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; and
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on this 23rd day of December, 1999.
iOWN Holdings, Inc.
/s/ Edward P. Hoyt
By: _________________________________
Edward P. Hoyt
Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Edward P. Hoyt and Lee T. Kirkpatrick,
and each of them, his true and lawful attorneys-in-fact and agents with full
power of substitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Edward P. Hoyt Chief Executive Officer December 23, 1999
______________________________________ and Chairman of the Board
Edward P. Hoyt (Principal Executive
Officer)
/s/ Paul Holmes President, Chief Operating December 23, 1999
______________________________________ Officer and Director
Paul Holmes
/s/ Lee T. Kirkpatrick Vice President, Finance December 23, 1999
______________________________________ and Administration, Chief
Lee T. Kirkpatrick Financial Officer and
Secretary (Principal
Financial and Accounting
Officer)
/s/ David K. Chao Director December 23, 1999
______________________________________
David K. Chao
/s/ Han J. Kim Director December 23, 1999
______________________________________
Han J. Kim
/s/ Scott A. Shay Director December 23, 1999
______________________________________
Scott A. Shay
/s/ Fred P. Phillips IV Director December 23, 1999
______________________________________
Fred P. Phillips IV
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Name of Exhibit
------- ------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of iOwn as currently in effect.
3.2 Form of Restated Certificate of Incorporation of iOwn to be filed
immediately following the closing of the offering made under this
Registration Statement.
3.3 Bylaws of iOwn as currently in effect.
3.4 Form of Bylaws of iOwn to be adopted immediately following the
closing of the offering made under this Registration Statement.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Perkins Coie LLP.
10.1 Form of Indemnification Agreement between the Registrant and each
of its directors and officers.
10.2* 2000 Stock Incentive Compensation Plan.
10.3* 2000 Employee Stock Purchase Plan.
10.4 Fifth Amended and Restated Investor Rights Agreement dated
November 30, 1999 among iOwn and certain investors.
10.5 1997 Stock Option Plan.
10.6 Series D Preferred Stock Purchase Agreement with certain investors
dated April 28, 1999.
10.7+ Interactive Services Agreement with America Online, Inc. dated
June 30, 1999.
10.8+ Promotion Agreement with NBC/Snap! LLC dated October 19, 1998.
10.9+ Agreements with Homes.com, LLC dated November 1, 1999;
(a)HomeScout Promotion Agreement
(b)Preferred Provider Agreement
(c)Co-Branding and Promotion Agreement
(d)Amendment to HomeScout Data Agreement
10.10+ Platinum Premier Partner Package Agreement with Earthlink Network,
Inc. dated October 1, 1999.
10.11+ Warehousing Credit and Security Agreement with Bank United of
Texas, a federal savings bank, dated October 8, 1999.
10.12* Agreement and Plan of Merger with HomeBuilders Financial Network,
Inc. dated December 22, 1999.
10.13+ Subordinated Loan and Security Agreement with Comdisco, Inc. dated
August 12, 1999.
10.14 Standard Industrial/Commercial Multi-Tenant Lease-Gross with
Rincon Associates dated April 16, 1999 and agreements related
thereto.
10.15 Office Lease with Mt. Diablo Tech, LLC dated December 31, 1998.
10.16+ Master Lease Agreement with LINC Capital Inc. dated July 20, 1998.
10.17+ Senior Loan and Security Agreement with Phoenix Leasing
Incorporated dated November 20, 1998 and amendments thereto.
10.18+ Agreement and Plan of Merger with Genesis 2000, Inc. dated
November 15, 1999.
10.19 Lease with Walcott Business Center dated June 17, 1999.
10.20+ Agreement with First Franklin Financial Corporation dated December
1, 1997.
10.21 Agreement with Federal Home Loan Mortgage Corporation dated
September 20, 1999.
10.22+ Master Agreement with Fannie Mae dated October 6, 1999.
10.23 Employment Agreement with Edward P. Hoyt dated October 25, 1999.
10.24 Series E Preferred Stock Purchase Agreement with certain investors
dated November 13, 1999.
10.25 Form of warrant to purchase common stock of the company dated
September 16 1999.
10.26 Warrant to Purchase Common Stock dated October 29, 1999 issued to
ABN AMRO Capital Investments (Belgie) NV.
10.27* Employment Agreement with Paul Holmes dated October 11, 1999.
10.28* Employment Agreement with Marcia Donner dated April 1, 1999.
10.29* Form of Employment Agreement with Thomas Meyer.
10.30* Employment Agreement with Kamyar Tafreshi dated November 23, 1999.
11.1 Statement regarding computation of per share earnings.
12.1 Statement regarding computation of ratios.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Name of Exhibit
------- ---------------------------------------------------------------
<C> <S>
21.1 Subsidiaries of iOwn Holdings, Inc.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.3 Consent of KPMG LLP, Independent Certified Public Accountants.
23.4* Consent of Counsel (Included in Exhibit 5.1).
23.5 Consent of Thomas H. Meyer.
24.1 Power of Attorney (See II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Confidential treatment requested.
* To be filed by amendment.
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
iOWN HOLDINGS, INC.
The undersigned, Edward P. Hoyt and Lee T. Kirkpatrick, certify that:
1. They are the duly elected Chief Executive Officer and Secretary,
respectively, of iOwn Holdings, Inc., a Delaware corporation.
2. The corporation was originally incorporated in Delaware, and the
original certificate of incorporation (the "Original Certificate") was filed
with the Secretary of State of Delaware on May 26, 1999.
3. Pursuant to Sections 228, 242 and 245 of the Delaware General
Corporation Law, this Amended and Restated Certificate of Incorporation restates
and amends the provisions of the Original Certificate.
4. The Certificate of Incorporation of this corporation is hereby amended
and restated to read in full as follows:
ARTICLE I
The name of this corporation is "iOwn Holdings, Inc."
ARTICLE II
The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, County of New Castle, 19901. The name of its
registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the Delaware General Corporation
Law.
<PAGE>
ARTICLE III
A. CLASSES OF STOCK
The Corporation is authorized to issue two classes of stock, to be
designated as "Preferred Stock," $0.001 par value, and "Common Stock," $0.001
par value, respectively. The total number of shares that the corporation is
authorized to issue is 110,000,000 shares. The number of shares of Preferred
Stock authorized is 10,000,000 shares, and the number of shares of Common Stock
authorized is 100,000,000 shares.
B. RIGHTS AND RESTRICTIONS OF COMMON STOCK
(a) The Common Stock is not redeemable.
(b) The holder of each share of Common Stock shall have the right to one
vote and shall be entitled to notice of any stockholders' meeting in accordance
with the Amended and Restated Bylaws of the corporation, and shall be entitled
to vote upon such matters and in such manner as provided by law.
C. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the Board of Directors (authority to do so being hereby expressly vested in the
Board of Directors). The Board of Directors is further authorized to determine
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and the designation
of any such series of Preferred Stock. The Board of Directors, within the
limits and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series, may
increase or decrease (but not below the number of shares in any such series then
outstanding) the number of shares of any series subsequent to the issue of
shares of that series.
D. AUTHORITY OF BOARD OF DIRECTORS WITH RESPECT TO STOCK MATTERS
The authority of the Board of Directors with respect to each class or
series of stock shall include, without limitation of the foregoing, the right to
determine and fix:
(a) the distinctive designation of such class or series and the number of
shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class or series shall
be declared and paid, or set aside for payment, whether dividends at the rate so
determined shall be cumulative or accruing, and whether the shares of such class
or series shall be entitled to any participating or other dividends in addition
to dividends at the rate so determined, and if so, on what terms;
2
<PAGE>
(c) the right or obligation, if any, of the corporation to redeem shares
of the particular class or series of Preferred Stock and, if redeemable, the
price, terms and manner of such redemption;
(d) the special and relative rights and preferences, if any, and the amount
or amounts per share, which the shares of any such class or series of Preferred
Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the corporation;
(e) the terms and conditions, if any, upon which shares of such class or
series shall be convertible or not, or exchangeable for, shares of capital stock
of any other class or series, including the price or prices or the rate or rates
of conversion or exchange and the terms of adjustment, if any;
(f) the obligation, if any, of the corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
(g) voting rights, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
(h) limitations, if any, on the issuance of additional shares of such class
or series or any shares of any other class or series of Preferred Stock; and
(i) such other preferences, powers, qualifications, special or relative
rights and privileges thereof as the Board of Directors of the corporation,
acting in accordance with this Amended and Restated Certificate of
Incorporation, may deem advisable and are not inconsistent with law and the
provisions of this Restated Certificate of Incorporation.
ARTICLE IV
In addition to any other class vote that may be required by law so long as
any shares of Preferred Stock are outstanding, this corporation shall not
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of at least a majority of the then outstanding shares of
Preferred Stock voting together as a single class:
(a) adversely alter or change the powers, preferences or special rights of
the Preferred Stock; or
(b) increase or decrease (other than by redemption or conversion) the
aggregate number of authorized shares of Preferred Stock; or
(c) create, authorize or issue any new class or series of shares having any
powers, preferences or special rights superior to or on a parity with the
Preferred Stock as to dividends, liquidation, conversion rights or voting
rights; or
3
<PAGE>
(d) redeem, purchase or otherwise acquire (or pay into or set aside for a
sinking fund for such purpose) any share or shares of Preferred Stock or Common
Stock; provided, however, that this restriction shall not apply to (i) the
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for this corporation or any
subsidiary pursuant to agreements under which this corporation has the option to
repurchase such shares at cost or at cost upon the occurrence of certain events,
such as the termination of employment or (ii) the redemption of any share or
shares of Preferred Stock; or
(e) sell, convey or otherwise dispose of all or substantially all of its
property or business or merge into or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation) or effect any transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of this corporation is disposed of; or
(f) change the authorized number of directors of this corporation.
ARTICLE V
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon the stockholders herein are granted subject to this right.
ARTICLE VI
The corporation is to have perpertual existence.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the corporation.
ARTICLE VIII
1. Limitation on Directors' Liability. To the fullest extent permitted by
----------------------------------
the Delaware General Corporation Law as the same exists or as may hereafter be
amended, a director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director.
2. Indemnification. The corporation may indemnify to the fullest extent
---------------
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that such person or his or her testator or intestate is or
was a director, officer or employee of the corporation, or any predecessor of
the corporation, or serves or served at any other enterprise as a director,
officer or employee at the request of the corporation or any predecessor to the
corporation.
4
<PAGE>
3. Amendments. Neither any amendment nor repeal of this Article VIII, nor
----------
the adoption of any provision of the corporation's Amended and Restated
Certificate of Incorporation inconsistent with this Article VIII, shall
eliminate or reduce the effect of this Article VIII in respect of any matter
occurring, or any action or proceeding accruing or arising or that, but for this
Article VIII, would accrue or arise, prior to such amendment, repeal, or
adoption of an inconsistent position.
ARTICLE IX
In the event any shares of Preferred Stock shall be redeemed or converted,
the shares so converted or redeemed shall not revert to the status of authorized
but unissued shares, but instead shall be canceled and shall not be re-issuable
by the corporation.
ARTICLE X
Holders of stock of any class or series of the corporation shall not be
entitled to cumulate their votes for the election of directors or any other
matter submitted to a vote of the stockholders, unless such cumulative voting is
required pursuant to the Delaware General Corporation Law, in which event each
such holder shall be entitled to as many votes as shall equal the number of
votes which (except for this provision as to cumulative voting) such holder
would be entitled to cast for the election of directors with respect to his
shares of stock multiplied by the number of directors to be elected by him, and
the holder may cast all of such votes for a single director or may distribute
them among the number of directors to be voted for, or for any two or more of
them as such holder may see fit, so long as the name of the candidate for
director shall have been placed in nomination prior to the voting and the
stockholder, or any other holder of the same class or series of stock, has given
notice at the meeting prior to the voting of the intention to cumulate votes.
1. Number of Directors. The number of directors which constitutes the
whole Board of Directors of the corporation shall be designated in the Amended
and Restated Bylaws of the corporation. Each director shall serve until the
next annual meeting of the stockholders or until his successor is duly elected.
2. Election of Directors. Elections of directors need not be written
ballot unless the Amended and Restated Bylaws of the corporation shall so
provide.
ARTICLE XI
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of the stockholders called in accordance with the
Amended and Restated Bylaws and no action shall be taken by the stockholders by
written consent. The affirmative vote of sixty-six and two-thirds percent (66
2/3%) of the then outstanding voting securities of the corporation, voting
together as a single class, shall be required for the amendment, repeal or
modification of the provisions of Article X, Article XI or Article XIII of this
Amended and Restated Certificate of Incorporation or Section 6 (Special
Meeting), 5(b) (Notice of
5
<PAGE>
Stockholders' Meeting), 15 (Advance Notice of Stockholder Nominees and
Stockholder Business), 10 (Voting), 13 (Stockholder Action by Written Consent
Without a Meeting) or 15 (Number of Directors) of the corporation's Amended and
Restated Bylaws.
ARTICLE XII
Any meeting of stockholders may be held within or without the State of
Delaware, as the Amended and Restated Bylaws may provide. The books of the
corporation may be kept (subject to any provision contained in the statutes)
outside of the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Amended and Restated
Bylaws of the corporation.
6
<PAGE>
We further declare under penalty of perjury under the laws of the State of
Delaware that the matters set forth in this certificate are true and correct of
our own knowledge.
Executed at San Francisco, California this day of , 1999.
------ ----------
-------------------------------
Edward P. Hoyt
Chief Executive Officer
-------------------------------
Lee T. Kirkpatrick
Secretary
7
<PAGE>
EXHIBIT 3.3
BYLAWS OF
IOWN HOLDINGS, INC.
(A DELAWARE CORPORATION)
Adopted: As of September 17, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. OFFICES.................................................1
ARTICLE II. MEETINGS OF STOCKHOLDERS................................1
ARTICLE III. DIRECTORS...............................................3
ARTICLE IV. NOTICES.................................................5
ARTICLE V. OFFICERS................................................6
ARTICLE VI. CERTIFICATE OF STOCK....................................8
ARTICLE VII. GENERAL PROVISIONS.....................................10
ARTICLE VIII. AMENDMENTS.............................................12
ARTICLE IX. LOANS TO OFFICERS......................................12
</TABLE>
<PAGE>
BYLAWS
OF
IOWN HOLDINGS, INC.
ARTICLE I
OFFICES
1.1 The registered office shall be in the City of Wilmington, County of New
Castle, State of Delaware.
1.2 The corporation may also have offices at such other places both
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 All meetings of the stockholders for the election of directors shall be
held at the principal executive officers of the corporation or at such other
place either within or without the State of Delaware as shall be designated from
time to time by the Board of Directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
2.2 Annual meetings of stockholders, shall be held at such date and
time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a Board of Directors, and transact such other business as may properly be
brought before the meeting.
2.3 Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at such
meeting not fewer than ten (10) nor more than sixty (60) days before the date of
the meeting.
2.4 The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
<PAGE>
2.5 Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least ten
percent (10%) in amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
2.6 Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
2.7 Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
2.8 The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted that might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
2.9 When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
certificate of incorporation, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
2.10 Unless otherwise provided in the certificate of incorporation,
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
2.11 Unless otherwise provided in the certificate of incorporation,
any action required to be taken at any annual or special meeting of stockholders
of the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting
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at which all shares entitled to vote thereon were present and voted. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
DIRECTORS
3.1 The number of directors that shall constitute the whole Board of Directors
shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 3.2 of this Article, and each director elected shall hold office until
his successor is elected and qualified. Directors need not be stockholders.
3.2 Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board of Directors (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten
percent (10%) of the total number of the shares at the time outstanding having
the right to vote for such directors, summarily order an election to be held to
fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office.
3.3 The business of the corporation shall be managed by or under the
direction of its Board of Directors, which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these bylaws directed or required to be
exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
3.4 The Board of Directors of the corporation may hold meetings, both
regular and special, either within or without the State of Delaware.
3.5 The first meeting of each newly elected Board of Directors shall
be held at such time and place as shall be fixed by the vote of the stockholders
at the annual meeting and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected Board of Directors,
or in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
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3.6 Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board of Directors.
3.7 Special meetings of the Board of Directors may be called by the
president on two (2) days' notice to each director by mail or forty-eight (48)
hours notice to each director either personally or by telegram; special meetings
shall be called by the president or secretary in like manner and on like notice
on the written request of two (2) directors unless the Board of Directors
consists of only one director, in which case special meetings shall be called by
the president or secretary in like manner and on like notice on the written
request of the sole director.
3.8 At all meetings of the Board of Directors a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
3.9 Unless otherwise restricted by the certificate of incorporation
or these bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee.
3.10 Unless otherwise restricted by the certificate of incorporation
or these bylaws, members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
-----------------------
3.11 The Board of Directors may designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the
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corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to the following
matters: (i) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by the General Corporation Law of Delaware
to be submitted to stockholders for approval or (ii) adopting, amending or
repealing any provision of these bylaws.
3.12 Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
-------------------------
3.13 Unless otherwise restricted by the certificate of incorporation
or these bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
--------------------
3.14 Unless otherwise restricted by the certificate of incorporation
or these bylaws, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of shares entitled to vote
at an election of directors.
ARTICLE IV
NOTICES
4.1 Whenever, under the provisions of the statutes or of the certificate of
incorporation or of these bylaws, notice is required to be given to any director
or stockholder, it shall not be construed to mean personal notice, but such
notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telegram.
4.2 Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation or of these bylaws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
5.1 The officers of the corporation shall be chosen by the Board of Directors
and shall be a president, treasurer and a secretary. The Board of Directors may
elect from among its members a Chairman of the Board and a Vice Chairman of the
Board. The Board of Directors may also choose one or more vice-presidents,
assistant secretaries and assistant treasurers. Any number of
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offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
5.2 The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a president, a treasurer, and a secretary
and may choose vice-presidents.
5.3 The Board of Directors may appoint such other officers and agents
as it shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors.
5.4 The salaries of all officers and agents of the corporation shall
be fixed by the Board of Directors.
5.5 The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
-------------------------
5.6 The Chairman of the Board, if any, shall preside at all meetings
of the Board of Directors and of the stockholders at which he shall be present.
He shall have and may exercise such powers as are, from time to time, assigned
to him by the Board of Directors and as may be provided by law.
5.7 In the absence of the Chairman of the Board, the Vice Chairman of
the Board, if any, shall preside at all meetings of the Board of Directors and
of the stockholders at which he shall be present. He shall have and may
exercise such powers as are, from time to time, assigned to him by the Board of
Directors and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
---------------------------------
5.8 The president shall be the chief executive officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he shall preside at all meetings of the stockholders and the Board of Directors;
he shall have general and active management of the business of the corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect.
5.9 He shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the corporation.
5.10 In the absence of the president or in the event of his inability
or refusal to act, the vice-president, if any, (or in the event there be more
than one vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then
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in the order of their election) shall perform the duties of the president, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. The vice-presidents shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
-------------------------------------
5.11 The secretary shall attend all meetings of the Board of Directors
and all meetings of the stockholders and record all the proceedings of the
meetings of the corporation and of the Board of Directors in a book to be kept
for that purpose and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or president,
under whose supervision he shall be. He shall have custody of the corporate
seal of the corporation and he, or an assistant secretary, shall have authority
to affix the same to any instrument requiring it and when so affixed, it may be
attested by his signature or by the signature of such assistant secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
5.12 The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
--------------------------------------
5.13 The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
5.14 He shall disburse the funds of the corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the president and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as treasurer and of the financial condition of the corporation.
5.15 If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
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5.16 The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the treasurer and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
6.1 Every holder of stock in the corporation shall be entitled to have a
certificate, signed by, or in the name of the corporation by, the Chairman or
Vice Chairman of the Board of Directors, or the president or a vice-president
and the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of the corporation, certifying the number of shares owned by him in
the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
6.2 Any of or all the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
-----------------
6.3 The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition
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precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
TRANSFER OF STOCK
-----------------
6.4 Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
------------------
6.5 In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholder or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
-----------------------
6.6 The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
---------
7.1 Dividends upon the capital stock of the corporation, subject to the
provisions of the certificate of incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the certificate of incorporation.
7.2 Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in
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their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purposes as the directors shall
think conducive to the interest of the corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created.
CHECKS
------
7.3 All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
-----------
7.4 The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors.
SEAL
----
7.5 The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
---------------
7.6 The corporation shall, to the fullest extent authorized under the
laws of the State of Delaware, as those laws may be amended and supplemented
from time to time, indemnify any director made, or threatened to be made, a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of being a director of the corporation or a predecessor
corporation or, at the corporation's request, a director or officer of another
corporation; provided, however, that the corporation shall indemnify any such
agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Board of Directors of the corporation. The
indemnification provided for in this Section 7.6 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) continue as to a person who has
ceased to be a director, and (iii) inure to the benefit of the heirs, executors
and administrators of such a person. The corporation's obligation to provide
indemnification under this Section 7.6 shall be offset to the extent of any
other source of indemnification or any otherwise applicable insurance coverage
under a policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall
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ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized by relevant sections of the General Corporation Law of
Delaware. Notwithstanding the foregoing, the corporation shall not be required
to advance such expenses to an agent who is a party to an action, suit or
proceeding brought by the corporation and approved by a majority of the Board of
Directors of the corporation that alleges willful misappropriation of corporate
assets by such agent, disclosure of confidential information in violation of
such agent's fiduciary or contractual obligations to the corporation or any
other willful and deliberate breach in bad faith of such agent's duty to the
corporation or its stockholders.
The foregoing provisions of this Section 7.6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 7.6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
that may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 7.6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation that is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
8.1 These bylaws may be altered, amended or repealed or new bylaws may be
adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the certificate of incorporation at any
regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new bylaws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal bylaws is
conferred upon the Board of Directors by the certificate or incorporation it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws.
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ARTICLE IX
LOANS TO OFFICERS
9.1 The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiaries, including any officer or employee who is a Director of the
corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in these bylaws shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the corporation at common law
or under any statute.
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CERTIFICATE OF SECRETARY OF
IOWN HOLDINGS, INC.
The undersigned, Lee T. Kirkpatrick, hereby certifies that he is the
duly elected and acting Secretary of iOwn Holdings, Inc., a Delaware corporation
(the "Corporation"), and that the Bylaws attached hereto constitute the Bylaws
of said Corporation as duly adopted by Action by Written Consent of the
Directors as of September 17, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this 17/th/ day of September, 1999.
/s/ Lee T. Kirkpatrick
______________________________________
________________, Secretary
<PAGE>
EXHIBIT 3.4
=======================================
DRAFT
=======================================
BYLAWS
OF
iOWN HOLDINGS, INC.
(A DELAWARE CORPORATION)
<PAGE>
BYLAWS
OF
iOWN HOLDINGS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle.
Section 2. Other Offices. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
Section 4. Place of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
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Section 5. Annual Meeting.
(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier am the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in
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accordance with the provisions of this paragraph (b), and, if he should so
determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for, election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 5. Such stock-holder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the corporation
which are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (b) of this Section 5. At the request of the Board of Directors, any
person nominated by a stockholder for election as a director shall furnish to
the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine he shall so declare at the meeting,
and the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
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Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) and shall be held at such place, on such date, and at
such time as the Board of Directors, shall fix.
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within sixty
(60) days after the receipt of the request, the person or persons requesting the
meeting may set the time and place of the meeting and give the notice. Nothing
contained in this paragraph (b) shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
Section 7. Notice of Meetings. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding shares of
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stock entitled to vote shall constitute a quorum for the transaction of
business. In the absence of a quorum, any meeting of stockholders may be
adjourned, from time to time, either by the chairman of the meeting or by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. The stockholders present at a duly
called or convened meeting, at which a quorum is present, may continue to
transact business until adjournment, notwithstanding 'the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws, all action taken by the
holders of a majority of the vote cast, excluding abstentions, at any meeting at
which a quorum is present shall be valid and binding upon the corporation;
provided, however, that directors shall be elected by a plurality of the votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. Where a separate vote by a class
or classes or series is required, except where otherwise provided by the statute
or by the Certificate of Incorporation or these Bylaws, a majority of the
outstanding shares of such class or classes or series, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and, except where otherwise provided by the
statute or by the Certificate of Incorporation or these Bylaws, the affirmative
vote of the majority (plurality, in the case of the election of directors) of
the votes cast, including abstentions, by the holders of shares of such class or
classes or series shall be the act of such class or classes or series.
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of
stockholders, whether annual or special, may be adjourned from time, to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days or if after the adjournment a new record (late is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
Section 11. Joint Owners of Stock. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if
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two (2) or more persons have the same fiduciary relationship respecting the same
shares, unless the Secretary is given written notice to the contrary and is
furnished with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the following effect: (a) if only one (1) votes, his act binds all; (b) if
more than one (1) votes, the act of the majority so voting binds all; (c) if
more than one (1) votes, but the vote is evenly split on any particular matter,
each faction may vote the securities in question proportionally, or may apply to
the Delaware Court of Chancery for relief as provided in the General Corporation
Law of Delaware, Section 217(b). If the instrument filed with the Secretary
shows that any such tenancy is held in unequal interests, a majority or even-
split for the purpose of subsection (c) shall be a majority or even-split in
interest.
Section 12. List Of Stockholders. The Secretary shall prepare and make, at
least ten (19) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present.
Section 13. Action Without Meeting.
(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
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(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General Corporation Law of the State of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
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ARTICLE IV
DIRECTORS
Section 15. Number and Term of Office. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
Section 16. Powers. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
Section 17. Classes of Directors. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, at each annual meeting of stockholders, directors shall be
elected for a full term of one year and succeed such directors whose terms
expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
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Section 18. Vacancies. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
Section 19. Resignation. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office for the unexpired portion of the term
of the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
Section 20. Removal. Subject to the rights of the holders of any series of
Preferred Stock, no director shall be removed without cause. Subject to any
limitations imposed by law, the Board of Directors or any individual director
may be removed from office at any time with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock").
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Section 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) Regular Meetings. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) Special Meetings. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) Telephone Meetings. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) Notice of Meetings. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) Waiver of Notice. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
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Section 22. Quorum and Voting.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
Section 23. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 24. Fees and Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
Section 25. Committees.
(a) Executive Committee. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, including without limitation the power or authority
to declare a dividend, to authorize the issuance of stock and to adopt a
certificate of ownership and merger, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or
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authority in reference to amending the Certificate of Incorporation (except that
a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
fix the designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation.
(b) Other Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall such committee have the powers denied to the Executive Committee
in these Bylaws.
(c) Term. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of subsections (a)
or (b) of this Bylaw may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) Meetings. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined
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from time to time by such committee, and may be called by any director who is a
member of such committee, upon written notice to the members of such committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of Directors of the time
and place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time before or after
the meeting and will be waived by any director by attendance thereat, except
when the director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
Section 26. Organization. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 27. Officers Designated. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
Section 28. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any
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time by the Board of Directors. If the office of any officer becomes vacant for
any reason, the vacancy may be filled by the Board of Directors.
(b) Duties of Chairman of the Board of Directors. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) Duties of President. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief E executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(d) Duties of Vice Presidents. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) Duties of Secretary. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) Duties of Chief Financial Officer. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper
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manner and shall render statements of the financial affairs of the corporation
in such form and as often as required by the Board of Directors or the
President. The Chief Financial Officer, subject to the order of the Board of
Directors, shall have the custody of all funds and securities of the
corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
Section 29. Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
Section 31. Removal. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION
Section 32. Execution of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
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Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
Section 33. Voting of Securities Owned by the Corporation. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
Section 34. Form and Execution of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except
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as otherwise required by law, set forth on the face or back a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Within a reasonable time after the issuance or transfer of uncertificated stock,
the corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to this section or otherwise required by law or with respect to this
section a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same class
and series shall be identical.
Section 35. Lost Certificates. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
Section 36. Transfers.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
Section 37. Fixing Record Dates.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date
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of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any stockholder of record
seeking to have the stockholders authorize or take corporate action by written
consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within 10 days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed by
the Board of Directors within 10 days of the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
[(c)] In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
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Section 38. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 39. Execution Of Other Securities. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.
ARTICLE IX
DIVIDENDS
Section 40. Declaration Of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
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Section 41. Dividend Reserve. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
Section 43. Indemnification of Directors, Executive Officers, Other
Officers, Employees and Other Agents.
(a) Directors and Executive Officers. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, executive officers shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) and officers to the fullest extent not prohibited by the
Delaware General Corporation Law; provided, however, that the corporation may
modify the extent of such indemnification by individual contracts with its
directors and executive officers and officers; and, provided, further, that the
corporation shall not be required to indemnify any director or executive officer
or officer in connection with any proceeding (or part thereof) initiated by such
person unless (i) such indemnification is expressly required to be made by law,
(ii) the proceeding was authorized by the Board of Directors of the corporation,
(iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the Delaware
General Corporation Law or (iv) such indemnification is required to be made
under subsection (d).
(b) Other Officers. Employees and Other Agents. The corporation
shall have power to indemnify its [other officers employees and other agents as
set forth in the Delaware General Corporation Law.
(c) Expenses. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action,
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suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or executive officer or officer,
of the corporation, or is or was serving at the request of the corporation as a
director or executive officer of another corporation, partnership, joint
venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director or executive officer or officer in connection with such proceeding upon
receipt of an undertaking by or on behalf of such person to repay said amounts
if it should be determined ultimately that such person is not entitled to be
indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph
(e) of this Bylaw, no advance shall be made by the corporation to an executive
officer of the corporation (except by reason of the fact that such executive
officer is or was a director of the corporation in which event this paragraph
shall not apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
(d) Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers and officers under this Bylaw shall be deemed to be contractual rights
and be effective to the same extent and as if provided for in a contract between
the corporation and the director or executive officer or officer. Any right to
indemnification or advances granted by this Bylaw to a director or executive
officer or officer shall be enforceable by or on behalf of the person holding
such right in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the corporation shall be entitled
to raise as a defense to any such action that the claimant has not met the
standards of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. [In connection with any claim by an executive officer of the
corporation (except in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such executive
officer is or was a director of the corporation) for advances, the corporation
shall be entitled to raise a defense as to any such action clear and convincing
evidence that such person acted in bad faith or in a manner that such person did
not believe to be in or not opposed to the best interests of the corporation, or
with respect to any criminal action or proceeding that such person acted without
reasonable cause to believe that his conduct was lawful.] Neither the failure of
the
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corporation (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct. In any suit brought by a director or
executive officer to enforce a right to indemnification or to an advancement of
expenses hereunder, the burden of proving that the director or executive officer
is not entitled to be indemnified, or to such advancement of expenses, under
this Article M or otherwise shall be on the corporation.
(e) Non-exclusivity of Rights. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) Survival of Rights. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) Amendments. Any repeal or modification of this Bylaw shall only
be prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
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(i) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(ii) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(iii) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(iv) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
(v) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
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ARTICLE XII
NOTICES
Section 44. Notices.
(a) Notice to Stockholders. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) Notice to Directors. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c) Affidavit of Mailing. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) Time Notices Deemed Given. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e) Methods of Notice. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) Failure to Receive Notice. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
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(g) Notice to Person with Whom Communication is Unlawful. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(h) Notice to Person with Undeliverable Address. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENT
Section 45. Amendments. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.
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ARTICLE XIV
LOANS TO OFFICERS
Section 46. Loans to Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE XV
MISCELLANEOUS
Section 47. Annual Report.
(a) Subject to the provisions of paragraph (b) of this Bylaw, the
Board of Directors shall cause an annual report to be sent to each stockholder
of the corporation not later than one hundred twenty (120) days after the close
of the corporation's fiscal year. Such report shall include a balance sheet as
of the end of such fiscal year and an income statement and statement of changes
in financial position for such fiscal year, accompanied by any report thereon of
independent accounts or, if there is no such report, the certificate of an
authorized officer of the corporation that such statements were prepared without
audit from the books and records of the corporation. When there are more than
100 stockholders of record of the corporation's shares, as determined by Section
605 of the California Corporations Code, additional information as required by
Section 1501(b) of the California Corporations Code shall also be contained in
such report, provided that if the corporation has a class of securities
registered under Section 12 of the 1934 Act, that Act shall take precedence.
Such report shall be sent to stockholders at least fifteen (15) days prior to
the next annual meeting of stockholders after the end of the fiscal year to
which it relates.
(b) If and so long as there are fewer than 100 holders of record
of the corporation's shares, the requirement of sending of an annual report to
the stockholders of the corporation is hereby expressly waived.
-26-
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of ((Date)) by
---------
and between iOwn Holdings, Inc., a Delaware corporation (the "Company"), and
-------
((Indemnitee)) (the "Indemnitee").
----------
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Third Party Proceedings. The Company shall indemnify Indemnitee if
-----------------------
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suitor proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which 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, that Indemnitee had reasonable cause to believe
that Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason
<PAGE>
of any action or inaction on the part of Indemnitee while an officer or director
or by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) and, to the fullest extent permitted by law, amounts
paid in settlement (if such settlement is approved in advance by the Company,
which approval shall not be unreasonably withheld), in each case to the extent
actually and reasonably incurred by Indemnitee in connection with the defense or
settlement of such action or suit if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders, except that no indemnification
shall be made in respect of any claim, issue or matter as to which Indemnitee
shall have been finally adjudicated by court order or judgment to be liable to
the Company in the performance of Indemnitee's duty to the Company and its
stockholders unless and only to the extent that the court in which such action
or proceeding is or was pending shall determine upon application that, in view
of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section I (a) or Section I (b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. No Employment Rights. Nothing contained in this Agreement is intended
--------------------
to create in Indemnitee any right to continued employment.
3. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section 1(a) or Section I (b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby undertakes
to repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as authorized hereby.
(b) Notice/cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company and shall be given in accordance with the provisions of
Section 12(d) below. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in
---------
Section I and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Articles of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also
be entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any
-2-
<PAGE>
action, suit or proceeding in advance of its final disposition) that Indemnitee
has not met the standards of conduct which make it permissible under applicable
law for the Company to indemnify Indemnitee for the amount claimed, but the
burden of proving such defense shall be on the Company and Indemnitee shall be
entitled to receive interim payments of expenses pursuant to Section 3(a) unless
and until such defense may be finally adjudicated by court order or judgment
from which no further right of appeal exists. It is the parties' intention that
if the Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
------------------
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ counsel in any such proceeding at Indemnitee's expense; and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
-3-
<PAGE>
4. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Article of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the Delaware General Corporation Law, or otherwise, both as to action
in Indemnitee's official capacity and as to action in another capacity while
holding such office. The indemnification provided under this Agreement shall
continue as to Indemnitee for any action taken or not taken while serving in an
indemnified capacity even though he or she may have ceased to serve in any such
capacity at the time of any action, suit or other covered proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise.
For example, the Company and Indemnitee acknowledge that the Securities and
Exchange Commission (the "SEC") has taken the position that indemnification is
---
not permissible for liabilities arising under certain federal securities laws,
and federal legislation prohibits indemnification for certain ERISA violations.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to under-take with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Officer and Director Liability Insurance. The Company shall, from time
----------------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the
-4-
<PAGE>
most favorably insured of the Company's directors, if Indemnitee is a director;
or of the Company's officers, if Indemnitee is not a director of the Company but
is an officer; or of the Company's key employees, if Indemnitee is not an
officer or director but is a key employee. Notwithstanding the foregoing, the
Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit, or if Indemnitee
is covered by similar insurance maintained by a parent or subsidiary of the
Company.
8. Severability. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, 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, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Construction of Certain Phrases.
--------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
-------
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was
-5-
<PAGE>
serving at the request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, Indemnitee shall stand in the same position under the
provisions of this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
-----------------
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
-------------------------------------
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
---
opposed to the best interests of the Company" as referred to in this Agreement.
- --------------------------------------------
11. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
12. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflict of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) Notices. Any notice, demand or request required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail,
-6-
<PAGE>
with postage prepaid, and addressed to the party to be notified at such party's
address as set forth below or as subsequently modified by written notice.
(e) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) Successors And Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
(g) Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
to effectively bring suit to enforce such rights.
[Signature Page Follows]
-7-
<PAGE>
The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
Iown Holdings, Inc.
By:_________________________________________
Title:______________________________________
Address: 333 Bryant Street, Lower Level
San Francisco CA 94107
AGREED TO AND ACCEPTED:
((Indemnitee))
______________________________
(Signature)
Address:
______________________________
______________________________
______________________________
-8-
<PAGE>
EXHIBIT 10.4
iOWN HOLDINGS, INC.
FIFTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This Fifth Amended and Restated Investor Rights Agreement (this
"Agreement") is made effective as of November 30, 1999 (the "Effective Date"),
by and among iOwn Holdings, Inc., a Delaware corporation (the "Company"), and
the persons listed on the Schedule of Investors attached hereto as Exhibit A
---------
(collectively the "Investors" and individually an "Investor").
RECITALS
A. Certain of the Investors (the "Existing Investors") hold shares
of the Company's Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and/or Series D Preferred Stock and possess registration rights,
information rights and other rights pursuant to a Fourth Amended and Restated
Investor Rights Agreement dated as of April 28, 1999, by the Company and such
Existing Investors (the "Prior Agreement"). The Prior Agreement was entered into
between the Existing Investors and iOwn, Inc., a California corporation which
subsequently became a wholly-owned subsidiary of the Company pursuant to a
reorganization and merger dated as of September 10, 1999. In connection with
that reorganization and merger, all agreements of iOwn, Inc. were assumed by the
Company.
B. The Existing Investors are holders of more than 50% of the
"Registrable Securities" of the Company (as defined in the Prior Agreement) and
desire to terminate the Prior Agreement and to accept the rights created
pursuant hereto in lieu of the rights granted to them under the Prior Agreement.
C. Certain of the Investors are parties to the Series E Preferred
Stock Purchase Agreement of even date herewith by and between the Company and
such Investors (the "Purchase Agreement"), pursuant to which certain of the
Company's and such Investors' obligations are conditioned upon the execution and
delivery of this Agreement.
In consideration of the mutual promises and covenants set forth
herein, the Existing Investors hereby agree that the Prior Agreement shall be
terminated and superseded and replaced in its entirety by this Agreement, and
the parties hereto further agree as follows:
SECTION 1
Definitions
-----------
As used in this Agreement, the following terms shall have the following
respective meanings:
1.1 "Affiliate" shall mean, with respect to any specified Person (as
---------
defined below), any other Person which, directly or indirectly, controls, is
under common control with, or is owned or controlled by, such specified Person.
For purposes of this Agreement, (i) "control" shall mean, with respect to any
specified Person, either (x) the beneficial ownership of 10% or
<PAGE>
more of any class of equity securities or (y) the power to direct the management
or policies of the specified Person through the ownership of voting securities,
by contract, voting agreement or otherwise, (ii) the terms "controlling",
"control with" and "controlled by", etc. shall have meanings correlative to the
foregoing and (iii) the officers, directors and 10% shareholders of the Company
shall be deemed to be Affiliates of the Company.
1.2 "Ancillary Agreements" shall mean this Agreement, the Fifth Amended
--------------------
and Restated Voting Agreement of even date herewith by and among the Company,
Edward P. Hoyt and the holders of the Preferred, and the Fifth Amended and
Restated Right of First Refusal and Co-Sale Agreement of even date herewith, by
and among the Company, Edward P. Hoyt, and the holders of the Preferred.
1.3 "Certificate Of Incorporation" shall mean the Company's Second Amended
----------------------------
and Restated Certificate of Incorporation.
1.4 "Commission" shall mean the Securities and Exchange Commission of the
----------
United States or any other U.S. federal agency at the time administering the
Securities Act.
1.5 "Common Stock" shall mean shares of the Company's Common Stock.
------------
1.6 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
1.7 "Holder" shall mean each of the Investors (and their transferees as
------
permitted by Section 4.10) holding Registrable Securities or securities
convertible into Registrable Securities.
1.8 "Initial Public Offering" shall mean the initial offering to the
-----------------------
public of the Company's securities pursuant to a firm underwriting commitment
pursuant to the Securities Act.
1.9 "Initiating Holders" shall mean Holders who in the aggregate hold
------------------
greater than fifty percent (50%) of the Preferred.
1.10 "Other Holders" shall mean holders of Company securities, other than
-------------
the Holders, proposing to distribute their securities pursuant to a registration
under Section 4 of this Agreement.
1.11 "Person" shall mean any individual, corporation, general or limited
------
partnership, joint venture, association, limited liability company, joint stock
company, trust, business trust, bank, trust company, estate (including any
beneficiaries thereof), unincorporated organization, cooperative, association or
government or branch, agency or political subdivision thereof.
1.12 "Qualified IPO" shall mean the Initial Public Offering of the
-------------
Company's stock which results in aggregate proceeds to the Company of not less
than $30,000,000.
1.13 "Preferred" shall mean shares of the Company's Series A, Series A-1,
---------
Series B, Series B-1, Series C, Series C-1, Series D, Series D-1, Series DD,
Series DD-1, Series E, Series E-1, Series EE and Series EE-1 Preferred Stock
respectfully.
-2-
<PAGE>
1.14 "Registrable Securities" shall mean Common Stock issued or issuable
----------------------
on conversion of the Preferred and any shares of Common Stock issued or issuable
in respect of such Common Stock upon any stock split, stock dividend,
recapitalization or similar event. Shares of Common Stock or other securities
shall only be treated as Registrable Securities if they have not been sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction.
1.15 The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
1.16 "Registration Expenses" shall mean all expenses, except as otherwise
---------------------
stated below, incurred by the Company in complying with Sections 4.1, 4.2, and
4.3 hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, reasonable fees and disbursements not to exceed twenty thousand
dollars ($20,000) of a single special counsel for the Holders, blue sky fees and
expenses and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company), but will not include
Selling Expenses.
1.17 "SBIC" shall mean a Small Business Investment Company regulated
----
pursuant to Section 121.301(c)(1) of Title 13 of the Code of Federal
Regulations.
1.18 "SBIC Holder" shall mean any Investor who is an SBIC.
-----------
1.19 "Securities" shall mean Common Stock or Preferred.
----------
1.20 "Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
or any similar United States federal statute and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
1.21 "Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
SECTION 2
Information Rights
------------------
2.1 Financial Information.
---------------------
(a) The Company will provide each Investor the following reports for
so long as such Investor is a holder of a minimum of One Million Five Hundred
Thousand (1,500,000) shares of Registrable Securities, or a minimum of Five
Hundred Thousand (500,000) shares in the case of holders of Series E Preferred
Stock, including for purposes of this Section 2 any such shares which have been
transferred to a constituent partner or Affiliate of an Investor:
-3-
<PAGE>
(i) As soon as practicable after the end of each fiscal year,
and in any event within ninety (90) days thereafter, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of such fiscal year,
and consolidated statements of income, shareholders' equity and cash flows of
the Company and its subsidiaries, if any, for such year, prepared in accordance
with generally accepted accounting principles and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail and audited (without qualification as to scope) by independent auditors
selected by the Company.
(ii) As soon as practicable after the end of each fiscal
quarter, and in any event within forty-five (45) days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of each
such period, consolidated statements of income, consolidated statements of
changes in financial condition, a consolidated statement of cash flow of the
Company and its subsidiaries and a statement of shareholders' equity for such
period and for the current fiscal year to date, and setting forth in each case
in comparative form the figures for corresponding periods in the previous fiscal
year, and setting forth in comparative form the budgeted figures, prepared in
accordance with generally accepted accounting principles (other than for
accompanying notes), subject to changes resulting from year-end audit
adjustments, all in reasonable detail and signed by the principal financial or
accounting officer of the Company.
(iii) As soon as practicable after the end of each month and in
any event within thirty (30) days thereafter, a consolidated balance sheet of
the Company and its subsidiaries, if any as of the end of each such period,
consolidated statements of income, consolidated statements of changes in
financial condition, a consolidated statement of cash flow of the Company and
its subsidiaries and a statement of shareholders' equity for such period and for
the current fiscal year to date, and setting forth in each case in comparative
form the figures for corresponding periods in the previous fiscal year, and
setting forth in comparative form the budgeted figures, prepared in accordance
with generally accepted accounting principles (other than for accompanying
notes), subject to changes resulting from year-end audit adjustments, all in
reasonable detail and signed by the principal financial or accounting officer of
the Company.
(iv) As soon as practicable after its adoption by the Board of
Directors and in any event within thirty (30) days prior to the commencement of
a new fiscal year, a copy of the annual operating plan and budget of the Company
for the next fiscal year.
2.2 Inspection. The Company shall permit each Investor, at its expense,
----------
to visit and inspect the Company's properties, to examine its books of account
and records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by the Investor upon
reasonable notice; provided, however, that the Company shall not be obligated
pursuant to this Section 2.2 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
2.3 Assignment of Rights. The rights granted pursuant to Section 2.1 may
--------------------
be assigned or otherwise conveyed by an Investor to a constituent partner or
Affiliate of an Investor or to a transferee who acquires (i) at least One
Million Five Hundred Thousand (1,500,000) shares of Preferred, or (ii) all
shares of Preferred held by such transferor. Notwithstanding the foregoing, the
rights granted pursuant to Section 2.1 may not be assigned or otherwise conveyed
<PAGE>
to a competitor of the Company, as reasonably determined by the Board of
Directors of the Company excluding any director with an interest in such
transferee. The Investor shall provide the Company with written notice of any
assignment or conveyance of the rights granted pursuant to Section 2.1.
2.4 Termination. The provisions of Sections 2, 3 and 5, including
-----------
information rights, rights of first refusal and miscellaneous covenants, shall
terminate upon the closing of a Qualified IPO of the Company in which, prior to
or in connection therewith, all shares of outstanding Preferred are converted
into Common Stock and the provisions of Section 3 shall not be applicable to
such transaction.
SECTION 3
Rights of First Refusal
-----------------------
3.1 Rights of First Refusal on New Securities. The Company hereby grants
-----------------------------------------
to each Investor, for so long as the Investor is a holder of a minimum of One
Hundred Thousand (100,000) shares of Registrable Securities, the right of first
refusal to purchase such Investor's pro rata portion of New Securities (as
defined in Section 3.1(a)) that the Company may, from time to time, propose to
sell and issue. Such Investor's pro rata portion, for purposes of this right of
first refusal, is the ratio of the number of shares of Common Stock of such
Investor issued or issuable upon conversion of Preferred held by such Investor
over the total number of shares of Common Stock outstanding at the time of
issuance of such New Securities (including Common Stock issuable upon conversion
of all outstanding securities convertible into Common Stock, including the
Preferred); provided, however, that with respect to any Investor that is an SBIC
-------- -------
Holder or a Regulated Entity (as defined below), the pro rata portion of New
Securities shall be the smaller of (i) the pro rata portion set forth above in
this Section 3.1 and (ii) the number of shares of New Securities such SBIC
Holder or Regulated Entity determines in its sole discretion that it may
purchase without triggering a Regulatory Violation (as defined in the Purchase
Agreement) or a violation of the Bank Holding Company Act of 1956, as amended
(the "BHC Act"). "Regulated Entity" shall mean (i) any entity that is a "bank
holding company" as defined in Section 2(a) of the BHC Act or any non-bank
subsidiary of such an entity and (ii) any entity, that pursuant to Section 8(a)
of the International Banking Act of 1978, as amended, is subject to the
provisions of the BHC Act or any non-bank subsidiary of such an entity. This
right of first refusal on New Securities shall be subject to the following
provisions:
(a) "New Securities" shall mean any Common Stock of the Company,
whether now authorized or not, and any rights, options, or warrants to purchase
said Common Stock, and securities of any type whatsoever that are, or may
become, convertible into Common Stock; provided, however, that New Securities
does not include (i) shares of Common Stock or Preferred Stock issued upon
conversion of the Preferred Stock; (ii) securities issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets, or other reorganization; (iii) shares of the
Company's Common Stock (or related options) issued to employees, officers,
directors, consultants, or other persons performing services for the Company
(including, but not by way of limitation, distributors and sales
representatives) pursuant to any stock offering, plan, or arrangement approved
by the Board of
-5-
<PAGE>
Directors; (iv) securities issued to financial institutions in connection with
the extension of credit to the Company or in connection with the lease of
equipment and in both cases for other than equity financing purposes; (v)
securities issued in connection with participation in a strategic alliance or
other corporate partner transaction with the Company for purposes which are not
primarily equity financing, as determined in good faith by the Company's Board
of Directors; (vi) shares of the Company's Common Stock issued in connection
with any stock split, stock dividend, or recapitalization by the Company; or
(vii) up to Eleven Million Six Hundred and Sixty Six Thousand Six Hundred and
Sixty Seven (11,666,667) shares of Series E Preferred Stock issued after the
Effective Date as contemplated by Section 2.3 of the Purchase Agreement.
(b) In the event that the Company proposes to issue New Securities,
it shall give each Investor at least thirty (30) days prior written notice of
its intention, describing the type of New Securities, the price, and the general
terms upon which the Company proposes to issue the same. Each Investor shall
have twenty (20) days from the date of mailing of any such notice to agree to
purchase its pro rata share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.
(c) In the event that an Investor fails to exercise in full the right
of first refusal within said twenty (20) day period, the Company shall have
seventy-five (75) days thereafter to sell (or enter into an agreement pursuant
to which the sale of New Securities covered thereby shall be closed, if at all,
within thirty (30) days from the date of said agreement) the New Securities
respecting which the Investor's rights were not exercised, at a price and upon
general terms no more favorable to the purchasers thereof than specified in the
Company's notice. In the event the Company has not sold the New Securities
within said seventy-five (75) day period (or sold and issued New Securities in
accordance with the foregoing within thirty (30) days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities,
without first offering such securities to the Investors in the manner provided
above.
(d) Any Investor's failure to exercise this right of first refusal on
any issuance of New Securities shall not adversely affect such Investor's right,
or any other Investor's right, of first refusal to purchase subsequent issuances
of New Securities, but may trigger the special mandatory conversion as described
in Article IV, Section 7 of the Company's Certificate of Incorporation.
(e) The right of first refusal set forth in this Section 3.1 is
nonassignable except to a constituent partner or Affiliate of an Investor or to
a transferee who acquires at least One Million Five Hundred Thousand (1,500,000)
shares of Preferred. Notwithstanding the foregoing, the rights granted pursuant
to this Section 3.1 may not be assigned or otherwise conveyed to a competitor of
the Company, as reasonably determined by the Board of Directors of the Company
excluding any director with an interest in such transferee. The Investor shall
provide the Company with written notice of any assignment or conveyance of the
rights granted pursuant to Section 3.1.
3.2 Waiver. Pursuant to Section 7.2 below, the Existing Investors,
------
constituting greater than 50% of the "Investors" as defined in the Prior
Agreement, hereby waive the right of
-6-
<PAGE>
first refusal for all Existing Investors with respect to the Series E Preferred
Stock issued or to be issued pursuant to the Purchase Agreement (or a similar
stock purchase agreement entered into as contemplated by Section 2.3 of the
Purchase Agreement), including the right to receive at least thirty (30) days'
prior written notice thereof, as set forth in Section 3.1 of the Prior
Agreement.
3.3 Rights of First Refusal on Series E Preferred Stock. The holders of
---------------------------------------------------
Series E Preferred Stock (each a "Series E Holder") hereby grants to each other
holder of Series E Preferred Stock, for so long as such Series E Holder is a
holder of a minimum of One Hundred Thousand (100,000) shares of Series E
Preferred Stock, the right of first refusal to purchase such Series E Holder's
pro rata portion of Series E Preferred Stock that any Series E Holder (the
"Selling Series E Holder") may, from time to time, propose to sell. Such Series
E Holder's pro rata portion, for purposes of this right of first refusal, is the
ratio of (a) the number of shares of Series E Preferred Stock held by such
Investor over (b) the total number of shares of Series E Preferred Stock
outstanding at the time of issuance of such proposed sale of Series E Preferred
Stock less the number of Series E Preferred Stock such Selling Series E Holder
proposes to sell. This right of first refusal on Series E Preferred Stock shall
be subject to the following provisions:
(a) In the event that a Series E Holder proposes to sell Series E
Preferred Stock, it shall give each other Series E Holder at least thirty (30)
days prior written notice of its intention, describing the price, and the
general terms upon which the Series E Holder proposes to sell the same. Each
other Series E Holder shall have twenty (20) days from the date of mailing of
any such notice to agree to purchase its pro rata share of such Series E
Preferred Stock for the price and upon the general terms specified in the notice
by giving written notice to the Selling Series E Holder and stating therein the
quantity of Series E Preferred Stock to be purchased.
(c) In the event that a Series E Holder fails to exercise in full the
right of first refusal within said twenty (20) day period, the Selling Series E
Holder shall have seventy-five (75) days thereafter to sell (or enter into an
agreement pursuant to which the sale of Series E Preferred Stock covered thereby
shall be closed, if at all, within thirty (30) days from the date of said
agreement) the Series E Preferred Stock respecting which the Series E Holders'
rights were not exercised, at a price and upon general terms no more favorable
to the purchasers thereof than specified in the notice. In the event the Selling
Series E Holder has not sold the Series E Preferred Stock within said seventy-
five (75) day period (or sold the Series E Preferred Stock in accordance with
the foregoing within thirty (30) days from the date of said agreement), the
Company shall not thereafter sell any Series E Preferred Stock, without first
offering such securities to the Series E Holders in the manner provided above.
(d) Any Series E Holder's failure to exercise this right of first
refusal on any sale of Series E Preferred Stock shall not adversely affect such
Series E Holder's right, or any other Series E Holder's right, of first refusal
to purchase in connection with subsequent sales of Series E Preferred Stock.
(e) The right of first refusal set forth in this Section 3.3 is
nonassignable except to a constituent partner or Affiliate of a Series E Holder
or to a transferee who acquires all such holder's Series E Preferred Stock.
-7-
<PAGE>
3.4 Termination. The provisions of this Section 3 shall terminate in
-----------
accordance with the provisions of Section 2.4.
SECTION 4
Registration Rights
-------------------
4.1 Requested Registration.
----------------------
(a) Request for Registration. In case the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any registration,
qualification, or compliance with respect to not less than fifty percent (50%)
of the Registrable Securities (or such lesser percentage of the Registrable
Securities if the reasonably anticipated aggregate price to the public thereof
would constitute a Qualified IPO) the Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after receipt of such written notice from
the Company;
provided, however, that the Company shall not be obligated to
take any action to effect any such registration, qualification or compliance
pursuant to this Section 4.1:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) Prior to one hundred eighty (180) days after the
effective date of the Company's Initial Public Offering of its stock or, if
within thirty (30) days of receipt of a request for registration, the Company
delivers written notice to the holders of Registrable Securities of its
intention to file a registration statement for an Initial Public Offering within
ninety (90) days;
(C) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
six (6) months immediately following the effective date of, any registration
statement pertaining to securities of the Company sold by the Company (other
than a registration of securities in a Rule 145 transaction or with respect to
an employee benefit plan), provided that the Company is actively
-8-
<PAGE>
employing in good faith all reasonable efforts to cause such registration
statement to become effective;
(D) After the Company has effected two (2) registrations
pursuant to this Section 4.1 and such registrations have been declared or
ordered effective, provided that all Registrable Securities requested to be
included in such registrations were in fact included in the registration;
(E) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 4 shall be deferred for a period not to
exceed ninety (90) days from the date of receipt of written request from the
Initiating Holders, provided, however, that the Company shall not utilize this
right more than once in any twelve (12) month period; or
Subject to the foregoing clauses (A) through (E), the
Company shall file a registration statement covering the Registrable Securities
so requested by the Initiating Holders to be registered as soon as practicable,
after receipt of the request or requests of the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
------------
Section 4.1 is for a registered public offering involving an underwriting, the
Initiating Holders will so advise the Company as part of the written request
given by such Initiating Holders pursuant to Section 4.1(a), and the Company
shall in turn advise the Holders as part of the notice given pursuant to Section
4.l(a)(i). In such event, the right of any Holder to registration pursuant to
Section 4.1 shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 4.1, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting and the Other Holders) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company, but subject to the reasonable approval of
a majority in interest of the Initiating Holders. Notwithstanding any other
provision of this Section 4.1, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
Holders and Other Holders, and the number of shares that may be included in the
registration and underwriting shall be allocated first among all Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration statement
and, following such allocation, second, among the Other Holders in proportion to
the number of shares proposed to be included in such registration by such Other
Holders. No Registrable Securities or other securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. To facilitate the allocation of shares
-9-
<PAGE>
in accordance with the above provisions, the Company or the underwriters may
round the number of shares allocated to any holder to the nearest one hundred
(100) shares.
If any Holder of Registrable Securities or Other Holder disapproves of
the terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and the Initiating
Holders. The Registrable Securities and/or other securities so withdrawn shall
also be withdrawn from registration.
4.2 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time the
----------------------
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans or (ii) a registration
relating solely to a Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance) and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests made, within twenty (20) days after receipt of such written notice
from the Company, by any Holder. A Holder may register Registrable Securities
under this Section 4.2 each and every time the Company shall determine to
register any of its securities.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 4.2(a)(i). In such event the right of any Holder to
registration pursuant to Section 4.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall, together with the
Company and the Other Holders, enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 4.2, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
number of shares of Registrable Securities to be included in such registration
without requiring any limitation in the number of shares to be registered on
behalf of the Company. The Company shall so advise all Holders and Other Holders
and the number of shares that may be included in the registration and
underwriting by all Holders and Other Holders shall be allocated among them, as
nearly as practicable, first, to the Company (or, if applicable, to the holders
-----
for whose account the Company is registering the securities), second, among the
------
Holders of Registrable Securities in proportion to the respective amounts of
Registrable Securities held by such Holders at the time of filing of the
registration statement and, third, among the Other Holders in proportion to the
-----
number of shares proposed to be included in such registration by such
OtherHolders. No such reduction shall reduce the amount of securities of the
Holders included in the registration below twenty-five percent (25%) of the
total amount of securities included in such registration, unless such offering
is the
-10-
<PAGE>
Company's initial public offering and such registration does not include shares
of any other selling shareholders, in which event any or all of the Registrable
Securities of the Holders may be excluded in accordance with the immediately
preceding sentence. To facilitate the allocation of shares in accordance with
the above provisions, the Company may round the number of shares allocated to
any Holder or Other Holder to the nearest one hundred (100) shares. If any
Holder or Other Holder disapproves of the terms of any such underwriting, such
holder may elect to withdraw therefrom by written notice to the Company and the
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
(c) Right to Terminate Registration. The Company shall have the
-------------------------------
right to terminate or withdraw any registration initiated by it under this
Section 4.2 prior to the effectiveness of such registration whether or not any
Holder has elected to include Registrable Securities in such registration.
4.3 Registration on Form S-3.
------------------------
(a) Request for Registration. After consummation of its Initial
------------------------
Public Offering, the Company shall use its best efforts to qualify for
registration on Form S-3 if any Holder or Holders request that the Company file
a registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities the reasonably
anticipated aggregate price to the public of which would exceed $750,000, and
the Company is a registrant entitled to use Form S-3 to register the Registrable
Securities for such an offering. The Company shall use its best efforts to cause
such Registrable Securities to be registered for the offering on such form and
to cause such Registrable Securities to be qualified in such jurisdictions as
the Holder or Holders may reasonably request. The substantive provisions of
Section 4.1(b) shall be applicable to each registration initiated under this
Section 4.3.
(b) Limitations. Notwithstanding the foregoing, the Company shall
-----------
not be obligated to take any action pursuant to this Section 4.3: (i) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act; (ii) for
a period of one-hundred-twenty (120) days after receipt of the request of the
initiating Holders, if the Company, within ten (10) days after such receipt
gives notice of its bona fide intention to effect the filing of a registration
statement with the Commission within ninety (90) days of receipt of such request
(other than with respect to a registration statement relating to a Rule 145
transaction, an offering solely to employees or any other registration which is
not appropriate for the registration of Registrable Securities) and the Company
shall promptly notify the initiating Holders in the event it abandons its
intention to effect such registration statement; (iii) during the period
starting with the date sixty (60) days prior to the Company's estimated date of
filing of; and ending on the date six (6) months immediately following, the
effective date of any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
-11-
<PAGE>
statement to become effective; (iv) after the Company has effected three (3)
registrations pursuant to this paragraph 4.3, and such registrations have been
declared or ordered effective, provided that all Registrable Securities
requested to be included in each such registration were in fact included in the
registration; or (v) if the Company shall furnish to such Holder a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors it would be seriously detrimental to the Company or
the Investors as a whole for registration statements to be filed in the near
future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed ninety (90)
days from the receipt of the request to file such registration by such Holder,
provided, however, that the Company shall not utilize this right more than once
in any twelve (12) month period.
4.4 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date hereof, the Company will not, without the prior written consent of holders
of a majority of the voting power of the then outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which allows such holder or prospective holder of
any securities of the Company to include such securities in any registration
filed under Sections 4.1, 4.2 or 4.3 hereof, unless, under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of his securities will
not diminish the amount of Registrable Securities which are included.
4.5 Expenses of Registration.
------------------------
(a) Registration Expenses. The Company shall bear all Registration
---------------------
Expenses incurred in connection with all registrations pursuant to Section 4.1,
Section 4.2 and Section 4.3.
(b) Selling Expenses. Unless otherwise stated in Section 4.5(a), all
----------------
Selling Expenses and Registration Expenses relating to securities registered on
behalf of the Holders shall be borne by the Holders pro rata on the basis of the
number of shares so registered.
4.6 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will:
(a) keep each Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof;
(b) as soon as practicable, prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective until the
earlier of (i) one hundred twenty (120) days or (ii) the distribution described
in the Registration Statement has been completed; provided, however, that (i)
such 120-day period shall be extended for a period of time equal to the period
the Holder refrains from selling any securities included in such registration at
the request of an underwriter of Common Stock (or other securities) of the
Company; and (ii) in the case of any registration of Registrable Securities on
Form S-3 which are intended to be offered on a continuous or delayed basis, such
120-day period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold, provided
that
-12-
<PAGE>
Rule 415, or any successor rule under the Securities Act, permits an offering on
a continuous or delayed basis, and, provided further, that applicable rules
under the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment which (I)
includes any prospectus required by Section l0(a)(3) of the Securities Act or
(II) reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the incorporation by
reference of information required to be included in (I) and (II) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of the
Exchange Act in the registration statement;
(c) furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
(d) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(e) in the event of an underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement;
(f) notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements made therein not misleading in the light of the circumstances then
existing; and
(g) provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
4.7 Indemnification.
---------------
(a) By Company. The Company will indemnify each Holder, each of its
----------
officers and directors, partners and affiliates, and each person controlling
such Holder within the meaning of Section 15 of the Securities Act, with respect
to which registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act and each
Investor and its officers, directors, partners and affiliates and each person
controlling such Investor within the meaning of Section 15 of the Securities
Act, against all expenses, claims, losses, damages or liabilities, joint or
several, (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or
-13-
<PAGE>
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of the
Securities Act, the Exchange Act or any state or federal securities law, or any
rule or regulation promulgated under such Acts or law applicable to the Company
in connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, each of its officers, directors,
partners and affiliates, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, each Investor,
each of its officers, directors, partners and affiliates and each person
controlling such Investor, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder, controlling person, underwriter or Investor and
stated to be specifically for use therein. If the Holders and Investors are
represented by counsel other than counsel for the Company, the Company will not
be obligated under this Section 4.7(a) to reimburse legal fees and expenses of
more than one separate counsel for all Holders and Investors.
(b) By Holders. Each Holder will, if Registrable Securities held by
----------
such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors, each of its officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein. Notwithstanding the foregoing, the
liability of each Holder under this subsection (b) shall be limited in an amount
equal to the public offering price of the shares sold by such Holder, unless
such liability arises out of or is based on willful misconduct by such Holder.
-14-
<PAGE>
(c) Procedures. Each party entitled to indemnification under this
----------
Section 4.7 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action and provided further, that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest or
separate and different defenses. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
(d) Contribution. If the indemnification provided for in this
------------
Section 4.7 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Controlling Agreement. Notwithstanding the foregoing, to the
---------------------
extent that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions of this Section 4.7, the
provisions in the underwriting agreement shall control.
4.8 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by them as the Company may request in writing
and only as shall be necessary to enable the Company to comply with the
provisions hereof in connection with any registration, qualification or
compliance referred to in this Agreement.
-15-
<PAGE>
4.9 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act.
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements);
(c) Furnish to any Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of Rule 144
(at any time after 90 days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as such Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing such Holder to sell
any such securities without registration.
4.10 Transfer of Registration Rights.
-------------------------------
(i) The rights to cause the Company to register securities granted Holders
under Sections 4.1, 4.2 and 4.3 may be assigned in connection with any transfer
or assignment by a Holder of Registrable Securities to (a) any partner or
retired partner of any Holder which is a partnership, (b) any Affiliate of any
Holder, (c) any family member or trust for the benefit of any individual Holder,
or (d) any transferee who acquired more than One Million Five Hundred Thousand
(1,500,000) shares of Registrable Securities, provided that: (i) such transfer
may otherwise be effected in accordance with applicable securities laws, (ii)
such transfer is effected in compliance with the restrictions on transfer
contained in this Agreement and in any other agreement between the Company and
the Holder and (iii) the Company receives written notice of such transfer or
assignment. No transfer or assignment will divest a Holder or any subsequent
owner of such rights and powers unless all Registrable Shares are transferred or
assigned.
(ii) Notwithstanding anything to the contrary in this Agreement, The Times
Mirror Company ("Times Mirror"), any affiliates of Times Mirror, any operating
unit of Times Mirror, Eagle New Media Investments, LLC, Liberty Bell I and TMCT
Ventures, L.P. (each, a "Times Mirror Entity") may transfer or otherwise convey
to any other Times Mirror Entity any capital stock or securities of the Company
held by such Times Mirror Entity and any such party's rights under this
Agreement and the related agreements without obtaining the signature, consent or
permission of the Company or any Investor, so long as such Time Mirror Entity
receiving such capital stock or securities of the Company is or becomes a
signatory to the this Agreement and
-16-
<PAGE>
the Ancillary Agreements. Upon a transfer or assignment meeting the above
conditions, the Company and the Investors will be automatically deemed to have
approved such transfers and waive all rights of first refusal, co-sale or
participation, if any, and all rights to notice, if any, in connection with such
assignment or transfer.
4.11 Termination. The rights granted pursuant to this Section 4 shall
-----------
terminate as to any Holder at the later of (i) five (5) years after a Qualified
IPO or (ii) after the effective date of the Company's first registered public
offering of its stock, at such time as such Holder may sell under Rule 144, or a
successor rule, in a three (3) month period all Registrable Securities then held
by such Holder.
4.12 Lockup Agreement. Each Holder agrees that, if, in connection with
----------------
the Initial Public Offering of the Company's securities, the Company or the
underwriters managing the offering so request, the Holder shall not sell, make
any short sale of, loan, grant any option for the purchase of or otherwise
dispose of any Registrable Securities (other than those included in the
registration) without the prior written consent of the Company or such
underwriters as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the effective date of such registration as may
be requested by the Company or the underwriters; provided that each officer and
director of the Company who owns stock of the Company and other holders of at
least 5% of the Company's voting securities also agrees to such restrictions.
This Section 4.12 shall be binding on all transferees or assignees of
Registrable Securities, whether or not such persons are entitled to registration
rights pursuant to Section 4.10.
SECTION 5
Miscellaneous Covenants
-----------------------
5.1 Proprietary Information Agreement. Unless otherwise determined by
---------------------------------
Board of Directors, the Company shall require all future officers, directors and
employees of, and consultants to, the Company and its subsidiaries, if any, to
execute a proprietary information agreement providing for the protection of the
Company's proprietary or confidential information and the assignment of
intellectual property rights to the Company.
5.2 Stock Vesting. The Company shall cause all future recipients of the
-------------
Company's Common Stock or options to purchase the Company's Common Stock
receiving such securities in connection with the performance of services for the
Company to execute and deliver agreements providing that such Common Stock shall
be subject to a right of the Company to repurchase such Common Stock at the
original purchase price in the event that the relationship of such person with
the Company is terminated, which right shall lapse over a four-year period, or
providing that such options shall become exercisable over a four-year period
based upon continuing employment, or providing such other vesting arrangements
as determined appropriate by the Company's Board of Directors.
5.3 Arbitration Agreements. The Company shall use commercially reasonable
----------------------
efforts to cause each present and future Company shareholder to execute, within
thirty (30) days
-17-
<PAGE>
following the later of (a) the Effective Date and (b) the date upon which such
shareholder first acquires shares of the Company's capital stock, a "shareholder
dispute agreement" for the purpose of prohibiting such shareholder from filing a
claim with a federal or state court for any dispute it may have against the
Company that arises in such shareholder's capacity as a Company shareholder,
providing, instead, that the shareholder shall submit such claim to legally
binding arbitration.
5.4 Key Person Life Insurance. The Company shall maintain Key Person Life
-------------------------
Insurance for Edward P. Hoyt in such amounts and on such terms and conditions as
the Company's Board of Directors may agree. The Company agrees that it shall not
assign any such insurance benefit to any third party.
5.5 Use of Proceeds. The Company shall use the proceeds of the sale of
---------------
its Series E Preferred Stock in the ordinary course of business as determined by
the Company's officers or the Board of Directors and within one year from the
initial close of the sale of its Series D Preferred Stock shall not become a
"relender" or "reinvestor" as defined in Section 107.720 of Title 13 of the Code
of Federal Regulations without giving notice to each SBIC Holder as soon as
practicable after the Company contemplates taking any action which would cause
it to be a "relender" or "reinvestor".
5.6 SBIC Regulatory Provisions.
---------------------------
(a) At any time the Company has fifty (50) or more record holders of
the Company's voting stock, the Company shall notify each SBIC Holder as soon as
practicable (and, in any event, not later than fifteen (15) days) prior to
taking any action, which action would have the effect of rendering any SBIC
Holder (collectively with its Affiliates) the record holder of twenty percent
(20%) of more of the Company's voting stock. Further, the Company shall notify
each SBIC Holder of any other action or occurrence after which any SBIC Holder
(collectively with its Affiliates) would own of record twenty percent (20%) or
more of the Company's voting stock), as soon as practicable after the Company
becomes aware that such other action or occurrence has occurred or is proposed
to occur. Upon the occurrence of any such event or transaction wherein any SBIC
Holder (collectively with its Affiliates) would own of record twenty percent
(20%) or more of the Company's voting stock, the Company shall as soon as is
practicable facilitate a plan of divestiture with each SBIC Holder set forth in
subsection (c) below.
(b) Within seventy-five (75) days after the Closing Date, the Company
shall deliver to each SBIC Holder a written statement certified by the Company's
president or chief financial officer describing in reasonable detail the use of
the proceeds of the sale of Shares hereunder by the Company. In addition to any
other rights granted hereunder, the Company shall grant each SBIC Holder and the
United States Small Business Administration (the "SBA") reasonable access to the
Company's records for the purpose of verifying the use of such proceeds, so long
as any SBIC Holder and the SBA give the Company at least thirty (30) days prior
written notice of seeking such access to the Company's records.
-18-
<PAGE>
(c) Upon the occurrence of a Regulatory Violation (as defined below)
or in the event that any SBIC Holder determines in its reasonable good faith
judgment that a Regulatory Violation has occurred, in addition to any other
rights and remedies to which it may be entitled as a holder of Preferred Stock
(whether under this Agreement, the Certificate of Incorporation or otherwise),
such SBIC Holder shall have, at its option, the following rights: (i) if such
Regulatory Violation occurs prior to the Initial Public Offering held by the
Company, then that number of shares of Series D Preferred Stock held by the SBIC
Holder which such SBIC Holder must divest itself of in order to cure a
Regulatory Violation (as reasonably determined by such SBIC Holder) shall be
converted to non-voting stock pursuant to the Company's Certificate of
Incorporation then in effect; and (ii) if such Regulatory Violation occurs after
the Initial Public Offering by the Company, the Company will use best efforts to
assist the SBIC Holder in divesting itself of sufficient stock as to bring such
SBIC Holder into compliance with the SBIC Regulations.
(d) Promptly after the end of each fiscal year (but in any event
prior to February 28 of each year), the Company shall deliver to each SBIC
Holder a written assessment of the economic impact of each SBIC Holder's
investment in the Company, specifying the full-time equivalent jobs created or
retained in connection with the investment, the impact of the investment on the
businesses of the Company in terms of expanded revenue and taxes and other
economic benefits resulting from the investment (including, but not limited to,
technology development or commercialization, minority business development,
urban or rural business development and expansion of exports).
(e) For purposes of this paragraph, "Regulatory Violation" shall
mean, with respect to any SBIC Holder providing Financing under this Agreement,
(i) a diversion of the proceeds of such financing from the permitted use thereof
set forth in Section 5.5 above, if such diversion was effected without obtaining
the prior written consent of the SBIC Holders or (ii) a change in the primary
business activity of the Company and its subsidiaries, if any, to an ineligible
business activity (within the meaning of the SBIC Regulations) if such change
occurs within one year after the initial sale of the Company's Series D
Preferred Stock. "SBIC Regulations" shall mean the Small Business Investment Act
of 1958 and the regulations issued thereunder as set forth in 13 CFR 107 and
121, as amended. "Financing" shall have the meaning set forth in the SBIC
Regulations, as set forth in 13 CFR 107 and 121.
5.7 Regulatory Compliance Cooperation.
---------------------------------
(a) In the event that any SBIC Holder determines that it has a
Regulatory Problem (as defined below), such SBIC Holder shall have the right to
transfer its Series D Preferred Stock (and any Common Stock issued upon
conversion thereof) to any other Person other than a competitor of the Company ,
provided that such Person agrees in writing to become a party to the Ancillary
Agreements, without regard to any restrictions on transfer set forth in the
Purchase Agreement and the Ancillary Agreements other than federal and state
securities law restrictions, and the Company shall take all such actions as are
reasonably requested by such SBIC Holder in order to effectuate and facilitate
any transfer by such SBIC Holder of any securities of the Company then held by
such SBIC Holder to any Person so designated by such SBIC Holder.
-19-
<PAGE>
(b) For purposes of this Agreement, a "Regulatory Problem" shall mean
any set of facts or circumstances wherein it has been asserted by any
governmental regulatory agency (or any SBIC Holder reasonably believes that
there is a substantial risk of such assertion) that such SBIC Holder and its
Affiliates are not entitled to hold, or exercise any significant right with
respect to, the Preferred Stock and includes a Regulatory Violation.
5.8 Termination. The provisions of Sections 5.1, 5.2, 5.3 and 5.4 shall
-----------
terminate in accordance with the provisions of Section 2.4. The provisions of
Sections 5.5, 5.6 and 5.7 shall terminate at such time as the Company has no
SBIC Holders.
5.9 Limitation on Subsequent Registration Rights. From and after the date
--------------------------------------------
of this Agreement, the Company shall not, without the prior written consent of
the Holders of a majority of the outstanding Registrable Securities, enter into
any agreement with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder to include such
securities in any registration filed pursuant to Section 4 of this Agreement,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of its securities will not reduce the amount of the Registrable
Securities of the Holders which is included.
SECTION 6
Legends
-------
6.1 Legends. Each Investor understands that the share certificates
-------
evidencing any Registrable Securities shall be endorsed with the following
legends (in addition to any legends required under applicable state securities
laws):
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR, IF REASONABLY REQUESTED BY
THE CORPORATION, AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933."
(b) "THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY
AND THE REGISTERED HOLDER OR HIS PREDECESSOR IN INTEREST. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY."
(c) Any legend required to be placed thereon by the California
Commissioner of Corporations or any other applicable state securities laws.
-20-
<PAGE>
SECTION 7
Miscellaneous
-------------
7.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of Delaware as applied to contracts made and to be fully
performed entirely within that state between residents of that state.
7.2 Entire Agreement; Amendment. This Agreement constitutes the full and
---------------------------
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. This Agreement or any term hereof may be amended,
waived, discharged or terminated by a written instrument signed by the Company
and the Investors and transferees of such Investors holding more than fifty
percent (50%) of the Registrable Securities. Notwithstanding this Section 7.2,
the Company may, without the written consent of the Investors, add the
Additional Investors (as defined in the Purchase Agreement) as parties to this
Agreement, which Additional Investors shall become bound by and entitled to the
terms and conditions herein by the execution of a signature page hereto.
7.3 Aggregation. For the purposes of determining the number of shares of
-----------
Registrable Securities held by an Investor, transferee or assignee, the holdings
of transferees and assignees of a partnership who are partners or retired
partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or members, or spouses who acquire
Registrable Securities by gift, will or intestate succession), the holdings of
all affiliates of an Investor, and the holdings of all Investors who are members
of the same immediate family (including spouses, ancestors, lineal descendants
and siblings of such Investors), shall be aggregated together and with the
partnership or Investor, as appropriate; provided, that all assignees and
transferees who would not qualify individually for assignment of registration
rights shall have a single attorney-in-fact for the purpose of exercising any
rights, receiving notices or taking any action under Sections 2 and 4.
7.4 Adjustments for Stock Splits, Etc. Whenever in this Agreement there
---------------------------------
is a reference to a specific number of shares of Common Stock or Preferred, then
upon the occurrence of any subdivision, combination or stock dividend, the
specific number of shares so referenced shall automatically be proportionately
adjusted to reflect the effect on the outstanding shares of stock.
7.5 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, or otherwise delivered by hand or by messenger,
addressed (a) if to an Investor, at the address set forth on Exhibit A, hereto,
---------
or at such other address as shall have been furnished to the Company upon not
less than 10 days notice in writing, (b) if to any other holder of the Shares,
at such address as such holder will have furnished to the Company upon not less
than 10 days notice in writing, or (c) if to the Company, at the address set
forth below and addressed to the attention of the President and with a copy to
Perkins Coie LLP, 135 Commonwealth Drive, Suite 250, Menlo Park, California
94025-1105, Attention: Ralph L. Arnheim, III, Esq. or at such other address as
the Company shall have furnished to the Investors upon not less than 10 days
notice in writing.
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<PAGE>
7.6 Severability. 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 shall continue in full force and effect
without said provision.
7.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Fifth Amended and
Restated Investor Rights Agreement as of the date set forth above.
"COMPANY"
iOWN HOLDINGS, INC., a Delaware corporation
By:__________________________________________
Edward P. Hoyt, Chief Executive Officer
<PAGE>
EXHIBIT 10.5
IOWN HOLDINGS, INC.
1997 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
--------------
be administering the Plan in accordance with Section 4 hereof
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 hereof
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means iOwn Holdings, Inc. a Delaware corporation.
-------
(h) "Consultant" means any person who is engaged by the Company or
----------
any Parent or Subsidiary to render consulting or advisory services to such
entity.
(i) "Director" means a member of the Board of Directors of the
--------
Company.
(j) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not. cease to be an Employee in the case of (i) any leave of
absence
1
<PAGE>
approved by the Company or (ii) transfers between locations of the Company or
between [the Company, its Parent, any Subsidiary, or any successor. For purposes
of Incentive Stock Options, no such leave may exceed ninety days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(1) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(n) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(o) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
2
<PAGE>
(p) "Option" means a stock option granted pursuant to the Plan.
------
(q) "Option Agreement" means a written or electronic agreement
----------------
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
(r) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are exchanged for Options with a lower exercise price.
(s) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(t) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(u) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(v) "Plan" means this 1997 Stock Option Plan.
----
(w) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section II below.
(x) "Section 16(b)" means Section 16(b) of the Securities Exchange
-------------
Act of 1934, as amended.
(y) "Service Provider" means an Employee, Director or Consultant.
----------------
(z) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 below.
(aa) "Stock Purchase Right" means a right to purchase Common Stock
--------------------
pursuant to Section II below.
(bb) "Subsidiary" means a "subsidiary corporation," whether now or
-----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold
3
<PAGE>
under the Plan is 10,057,012 Shares. The Shares may be authorized but unissued,
or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan, upon
exercise of either an Option or Stock Purchase Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) The Plan shall be administered by the Board or a Committee
appointed by the Board, which Committee shall be constituted to comply with
Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each
such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions of any Option or
Stock Purchase Right granted hereunder. Such terms and conditions include, but
are not limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance criteria.),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or Stock Purchase Right or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
4
<PAGE>
(vi) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date. that the
amount of tax to be withheld is to be determined. All elections by Optionees to
have Shares withheld for this purpose shall be made in such form and. under such
conditions as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees.
Eligibility
-----------
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
(b) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $ 100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
5
<PAGE>
(c) Neither the Plan nor any Option or Stock Purchase Rights shall
confer upon any Optionee any night with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her light or the Company's night to terminate such
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by the
------------
Board. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement, provided, however, that the ten-n shall be no more than ten (10)
years from the date of grant thereof In the case of an Incentive Stock Option
granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement,
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
exercise price shall be no less than I 10% of the Fair Market Value per Share on
the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a Service Provider who, at the time of
grant of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.
6
<PAGE>
(B) granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement, but in no case at a rate of less than 20% per year over
five (5) years from the date the Option is granted. Unless the Administrator
provides otherwise, vesting of Options granted hereunder shall be tolled during
any unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse,
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as s shareholder shall exist
with
7
<PAGE>
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided
in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, such Optionee may exercise his or her Option
within such period of time as is specified the Option Agreement (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If such disability is not a "disability" as such term is defined in
Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such
Incentive Stock option shall automatically cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option on the day three months and one day following such termination. If, on
the date of termination, the Optionee is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the ten-n of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to, exercise the Option by bequest or inheritance,
but only to the extent that the
8
<PAGE>
Option is vested on the date of death. In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, at the time of death, the Optionee is
not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall immediately revert to the Plan. The Option may be
exercised by the executor or administrator of the Optionee's estate or, if none,
by the person(s) entitled to exercise the Option under the Optionee's will or
the laws of descent or distribution. If the Option is not so exercised within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be
entitled to purchase, the price to be paid, and the time within which such
person must accept such offer. The term of the offer shall comply in all
respects with Section 260.140.42 of Title 10 of the California Code of
Regulations. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but in no case at a rate of less than 20% per year
over five years from the date of purchase.
9
<PAGE>
(c) Other Provisions. the Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
----------------------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until fifteen (15) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse
10
<PAGE>
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time, and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the
assets of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to, which it would not otherwise be vested or exercisable.
If an Option or Stock Purchase Right becomes fully vested and exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Administrator shall notify the Optionee in writing or electronically that
the Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of Optioned Stock subject to he
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
or Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per Share consideration by holders of Common Stock the merger or
sale of assets.
13. Time of Granting Options and Stock Purchase Rights. The date of
--------------------------------------------------
grant of an Option or Stock Purchase Right shall, for all purposes, be
the date on which the Administrator makes the determination granting
such Option or Stock Purchase Right, or such other date as is
determined by the Administrator. Notice of the determination shall be
given to each Employee or Consultant to whom an Option or Stock
Purchase Right is so granted within a reasonable time after the date
of such grant.
11
<PAGE>
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Board shall obtain stockholder approval
--------------------
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the tights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not effect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted Linder the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having Jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. Reservation of Shares. The Company, during the ten-n of this Plan,
---------------------
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Stockholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted.
12
<PAGE>
Such shareholder approval shall be obtained in the degree and manner required
under Applicable Laws.
19. Information to Optionees and Purchasers. The Company shall provide to
---------------------------------------
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquired Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements. The
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.
13
<PAGE>
EXHIBIT 10.6
iOWN, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This agreement (this "Agreement") is made effective as of April 28,
1999, between iOwn, Inc., a California corporation (the "Company"), and the
entities listed on Exhibit A hereto (each an "Investor," and collectively, the
"Investors").
SECTION I
Authorization and Sale of Series D Preferred Stock
--------------------------------------------------
1.1 Authorization of Series D Preferred Stock. The Company has
-----------------------------------------
authorized the sale and issuance in the Initial Closing (as defined below)
hereunder of up to 8,000,000 shares of its Series D Preferred Stock (the "Series
D Preferred"), having the rights, preferences, privileges and restrictions set
forth in the Company's Amended and Restated Articles of Incorporation in the
form attached hereto as Exhibit B (the "Restated Articles") and up to 2,400,000
additional shares of Series D Preferred to be sold at a Subsequent Closing (as
defined below). The shares of Series D Preferred to be sold hereunder are
collectively referred to as the "Shares."
1.2 Sale of Series D Preferred. Subject to the terms and conditions
---------------------------
hereof, on the Closing Date (as defined below) the Company will issue and sell
to each Investor, and each Investor will purchase severally, and not jointly, at
a purchase price of $2.50 per Share from the Company, the number of Shares
specified opposite the name of each such Investor on Exhibit A.
----------
SECTION 2
Closing Date; Delivery
----------------------
2.1 Closing Date. The closing of the purchase and sale of the Shares
-------------
hereunder (the "Initial Closing") shall be held at the offices of Perkins Coie
LLP, 135 Commonwealth Drive, Suite 250, Menlo Park, California 94025-1105 on
April 28, 1999, or at such other time and place upon which the Company and the
Investors shall agree (the date of the Initial Closing is hereinafter referred
to as the "Closing Date").
2.2 Delivery. At the Initial Closing, the Company will deliver to
---------
each Investor a certificate or certificates representing the number of Shares
set forth opposite such Investor's name on Exhibit A hereto, as appropriate,
against payment of the purchase price therefor, by check or wire transfer
payable to the Company.
2.3 Subsequent Closing. The Company shall have the night, at any time
-------------------
on or prior to 45 days from the Closing Date, to sell up to additional shares of
Series D Preferred up to the fully authorized 11,000,000 of Series D Preferred
to one or more additional investors (the "Additional Investors") as determined
by the Company at the price and on the terms set forth herein; provided,
---------
however, that any Additional Investor shall be reasonably agreeable to CIBC Wood
Gundy Ventures, Inc. ("CHIC Wood Gundy") and required to execute a signature
page to, and become a party to, this Agreement. Thereafter, any such Additional
Investor shall be considered an "Investor" for purposes of this Agreement and
shall be added to Exhibit A hereof, and any shares of Series D Preferred so
acquired by such Additional Investor shall be considered "Shares" for purposes
of this Agreement and all other agreements contemplated hereby. The conditions
to the subsequent closing shall be the same as the conditions to the Closing and
shall not be waived unless consented to by a majority in interest of the Series
D Prefer-red, provided that there shall be no Opinion of Counsel or Compliance
Certificate pursuant to Sections 5.5 and 5.12, respectively, in any subsequent
closing.
1
<PAGE>
SECTION 3
Representations and Warranties of the Comp
------------------------------------------
Except as set forth on Exhibit C attached hereto (the "Disclosure
---------
Schedule"), the Company hereby represents and warrants to each of the Investors
as of the date hereof as follows:
3.1 Organization and Standing; Certificate and Bylaw. The Company is
------------------------------------------------
a corporation duly organized and validly existing under, and by virtue of, the
laws of the State of California and is in good standing under such laws. The
Company has all requisite corporate power to own and operate its properties and
assets, and to carry on its business as presently conducted. The Company is
qualified to do business as a foreign corporation in any jurisdiction in which
failure to qualify would have a material adverse effect on the Company's
business. Attached hereto as Exhibit D are true and complete copies of its
Bylaws in effect as of the date hereof
3.2 Corporate Power. The Company has all requisite legal and
---------------
corporate power to execute and deliver this Agreement and the Fourth Amended and
Restated Investor Rights Agreement of even date herewith, by and among the
Company, the holders of the Company's Series A Preferred Stock, the holders of
the Company's Series B Preferred Stock, the holders of the Company's Series C
Preferred Stock and the Investors, the form of which is attached hereto as
Exhibit E (the "Rights Agreement"), the Fourth Amended and Restated Voting
Agreement of even date herewith, by and among the Company, Edward P. Hoyt, the
holders of the Company's Series A Preferred Stock, the holders of the Company's
Series B Preferred Stock, the holders of the Company's Series C Preferred Stock
and the Investors, the form of which is attached hereto as Exhibit F (the
"Voting Agreement"), and the Fourth Amended and Restated Right of First Refusal
and Co-Sale Agreement of even date herewith, by and among the Company, Edward P.
Hoyt, the holders of the Company's Series A Preferred Stock, the holders of the
Company's Series B Preferred Stock, the holders of the Company's Series C
Preferred Stock and the Investors, the form of which is attached hereto as
--
Exhibit G (the "Co-Sale Agreement"), to sell and issue the Shares hereunder, to
- ---------
issue the Common Stock issuable upon conversion of the Shares and to carry out
and perform its obligations under the terms of this Agreement and the
transactions contemplated hereby. The Rights Agreement, the Voting Agreement and
the CoSale Agreement shall be referred to, collectively, as the "Ancillary
Agreements."
3.3 Subsidiaries. The Company has no subsidiaries or affiliated
------------
companies and does not otherwise own or control any other corporation,
association or business entity.
3.4 Capitalization. The authorized capital stock of the Company will,
--------------
upon the Closing Date, consist of (a) 125,000,000 shares of Common Stock,
7,320,036 of which are issued and outstanding prior to the Initial Closing, and
(b) 86,807,648 shares of Preferred Stock of which (i) 2,492,900 are designated
as Series A Preferred Stock, all of which are issued and outstanding as of the
Closing Date, (ii) 2,492,900 are designated as Series A- I Preferred Stock, none
of which are issued and outstanding as of the Closing Date, (iii) 12,170,924 are
designated as Series B Preferred Stock, 11,951,764 of which are issued and
outstanding as of the Closing Date,(iv) 12,170,924 are designated as Series B- 1
Preferred Stock, none of which are issued and outstanding as of the Closing
Date, (v) 17,740,000 are designated as Series C Preferred Stock, 17,740,000 of
which are issued and outstanding as of the Closing Date, (vi) 17,740,000 are
designated as Series C-1 Preferred Stock, none of which are issued and
outstanding as of the Closing Date, (vii) 11,000,000 are designated as Series D
Preferred Stock, none of which are issued and outstanding prior to the Closing
Date and (viii) 11,000,000 are designated as Series D-1 Preferred Stock, none of
which are issued and outstanding as of the Closing Date. All such issued and
outstanding shares have been duly authorized and validly issued, and are fully
paid and nonassessable and were issued in compliance with applicable federal and
state securities laws. The Company has reserved an aggregate of 86,807,648
shares of Common Stock for issuance upon conversion of the Preferred Stock and
2
<PAGE>
10,057,012 shares of its Common Stock (which includes an increase of 1,829,912
shares concurrently with the Initial Closing) for issuance to officers,
directors, employees, sales representatives and consultants of the Company
pursuant to the Company's 1997 Stock Option Plan. As of the Closing Date, the
Company has reserved authorized but unissued shares of Common Stock in an amount
that would be sufficient to effect the conversion of all outstanding shares of
Preferred Stock as of such date. The Series D Preferred Stock and Series D-1
Preferred Stock shall have the rights, preferences, privileges and restrictions
set forth in the Restated Articles. Except as referenced herein, in the Rights
Agreement or in the Disclosure Schedule, there are no options, warrants,
conversion privileges or other rights presently outstanding to purchase or
otherwise acquire any authorized but unissued shares of the capital stock or
other securities of the Company, nor any agreements or understandings with
respect thereto. Except for the Voting Agreement, the Company is not a party or
subject to any agreement or understanding and, to the Company's knowledge, there
is no agreement or understanding between any persons and/or entities, which
affects or relates to the voting or giving of consents with respect to any
security of the Company.
3.5 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and shareholders necessary for the authorization,
execution, delivery and performance of this Agreement and the Ancillary
Agreements by the Company; and the authorization, sale, issuance and delivery of
the Shares (and the Common Stock issuable upon conversion of the Shares) and the
performance of the Company's obligations hereunder and thereunder has been taken
prior to the Initial Closing. This Agreement and the Ancillary Agreements, have
been duly executed and delivered by the Company, and constitute the* valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing equitable remedies.
3.6 Validity of Shares. The Shares have been duly authorized and,
------------------
when issued, sold and delivered in compliance with the provisions of this
Agreement, will be duly and validly issued and will be fully paid and
nonassessable and free and clear of all liens and encumbrances, the Series D-1
Preferred Stock issuable upon special mandatory conversion of the Shares has
been duly authorized and validly reserved and, when issued and delivered in
compliance with the provisions of the Restated Articles, will be duly and
validly issued and will be fully paid and nonassessable and free and clear of
all liens and encumbrances, and the Common Stock issuable upon conversion of the
Shares or the Series D- I Preferred Stock has been duly authorized and validly
reserved and, when issued and delivered in compliance with the provisions of the
Restated Articles, will be duly and validly issued and will be fully paid and
nonassessable and free and clear of all liens and encumbrances and restrictions
on transfer other than as set forth in this Agreement and the Ancillary
Agreements; provided, however, that the Shares and the Series D-1 Preferred
Stock issuable upon special mandatory conversion of the Shares (and the Common
Stock issuable upon conversion of the Shares or the Series D-1 Preferred Stock)
may be subject to restrictions on transfer under state and/or federal securities
laws. Except as set forth herein or in the Rights Agreement, there are no
outstanding rights of first refusal or preemptive rights applicable to the
Shares or the Series D-1 Preferred Stock.
3.7 Title to Properties and Assets; Liens, etc. The Company has good
------------------------------------------
and marketable title to all its properties and assets, and is in compliance with
the lease of all material properties leased by it, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than the lien of
current taxes not yet due and payable. The Company is not in default under or in
breach of any provision of its leases, and the Company holds valid leasehold
interests in the properties which it leases. The Company's material properties
and assets are in good condition and repair, ordinary wear and tear excepted, in
all material respects.
3.8 Material Contracts and Commitments. The Disclosure Schedule sets
----------------------------------
forth a list of all agreements, contracts, indebtedness, liabilities and other
obligations to which the Company is a party or by which it or its assets are
bound that (a) involve in excess of $50,000 aggregating similar agreements or
3
<PAGE>
obligations to the same party; (b) involve any Affiliate (as defined below) of
the Company, any consultants or employees of the Company or, to the Company's
knowledge, any members of the immediate family of the foregoing; or (c) obligate
the Company to share, license or develop any product. Copies of such agreements
and contracts and documentation evidencing such liabilities and other
obligations have been made available by the Company to the Investors or their
counsel. Except as expressly contemplated by this Agreement or as set forth on
the Disclosure Schedule, the Company is not a party to any written or oral: (i)
pension, profit sharing, stock option, employee stock purchase or other plan or
arrangement providing for deferred or other compensation to employees or any
other employee benefit plan or arrangement, or any contract with any labor
union, or any severance agreements; (ii) contract for the employment of any
officer, individual employee or other Person on a full-time, part-time,
consulting or other basis providing annual compensation in excess of $ 100,000
or contract relating to loans to officers, directors or affiliates; (iii)
contract under which it has advanced or loaned any other Person amounts in the
aggregate exceeding $15,000; or (iv) contract or agreement prohibiting it from
freely engaging in any business or competing anywhere in the world. Solely for
purposes of this Section 3.8: (i) "Affiliate" means, with respect to any
specified Person (as defined below), any other Person which, directly or
indirectly, controls, is under common control with, or is owned or controlled
by, such specified Person, (ii) "control" means, with respect to any specified
Person, either (x) the beneficial ownership of 10 percent or more of any class
of equity securities or (y) the power to direct the management or policies of
the specified Person through the ownership of voting securities, by contract,
voting agreement or otherwise, (iii) the terms "controlling", "control with" and
"controlled by", etc. shall have meanings correlative to the foregoing and (iv)
the officers, directors and 10% shareholders of any specified Person shall be
deemed to be Affiliates of the Company. "Person" means any individual,
corporation, general or limited partnership, joint venture, association, limited
liability company, joint stock company, trust, business trust, bank, trust
company, estate (including any beneficiaries thereof), unincorporated
organization, cooperative, association or government or branch, agency or
political subdivision thereof
3.9 Patents, Trademarks, etc. To the knowledge of the Company, the
----------------
Company has sufficient title and ownership of all patents, trademarks, service
marks, trade names, copyrights, trade secrets, proprietary rights and processes
necessary for its business as now conducted, without conflict with or
infringement of the rights of others. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business, would violate, the proprietary or intellectual property rights of any
other person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants, or commitments of
any nature) or other agreement, or subject to any judgment, decree, or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company or that would
conflict with the Company's business. Neither the execution nor delivery of this
Agreement or the Ancillary Agreements, nor, to the Company's knowledge, the
carrying on of the Company's business by the employees of the Company, 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 is not aware of any
violation or infringement by a third party of any of the Company's patents,
licenses, trademarks, service marks, trade names, copyrights, trade secrets or
other proprietary rights.
3.10 Compliance with Other Instruments. The Company is not in
---------------------------------
violation of any term of the Restated Articles or Bylaws, or in any material
respect of any term or provision of any mortgage, indenture, contract,
agreement, instrument, judgment or decree, and to its knowledge is not in
violation of any order, statute, rule or regulation applicable to the Company.
The execution, delivery and performance of and compliance with this Agreement
and the Ancillary Agreements and the issuance of the Shares (and the Common
Stock issuable upon conversion of the Shares), have not (i) resulted and will
not result in any violation of, or conflict with, or constitute a default under
any of the foregoing, (ii) resulted and will not result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the
4
<PAGE>
Company, (iii) resulted and will not result in the breach of or constitute a
default under any material contact, agreement or instrument to which the Company
is a party or by which it is bound that is listed on the Disclosure Schedule
("Material Contracts") (iv) given or gives any person rights to terminate any
Material Contracts or agreements of the Company or, to its knowledge, otherwise
to exercise rights against the Company or (v) violated and will not violate any
order, writ, judgment, injunction, decree, statute, rule or regulation of any
court, tribunal or governmental entity applicable to or the Company or any of
its assets or businesses.
3.11 Litigation, etc. There are no actions, suits, proceedings or
---------------
investigations pending or, to the Company's knowledge, threatened against the
Company or its properties before any court or governmental agency, which, either
in any case or in the aggregate, might result in any material adverse change in
the business, prospects, financial condition, affairs, operations or equity
ownership of the Company or any of its properties or assets, or in any material
impairment of the right or ability of the Company to carry on its business as
now conducted, or in any material liability on the part of the Company, and none
which questions the validity of this Agreement or the Ancillary Agreements or
any action taken or to be taken in connection herewith. There is no action,
suit, proceeding, or investigation by the Company currently pending or that the
Company intends to initiate.
3.12 Employees. To the Company's knowledge, no employee of the
---------
Company is or will be in violation of any judgment, decree or order of any court
or administrative agency, or any term of any employment contract or any other
contract (including without limitation any covenant not to compete) or agreement
relating to the relationship of any such employee with the Company or any other
party because of the nature of the business conducted by the Company or to the
utilization by the employee of such employee's reasonable efforts with respect
to such business. Except as set forth in the Disclosure Schedule, 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 written employee compensation agreement. The
Company does not have any collective bargaining agreements covering any of its
employees. To the Company's knowledge, the Company is not using any inventions
of any of its employees, consultants or officers made before their employment by
the Company. To the Company's knowledge, no employee, consultant or officer has
taken, removed, or made use of any proprietary documentation, manuals, products,
materials, or any other tangible items from the employee's previous employers
relating to the Company's business. To the Company's knowledge, no officer or
key employee of the Company currently intends to terminate his or her employment
with the Company. The Company is not a party to any Plan, as defined in the
Employee Retirement Income Security Act of 1974.
3.13 Insurance. The Company has in full force and effect fire,
casualty and comprehensive general liability insurance policies with recognized
insurers with such coverages as are sufficient in amount to allow replacement of
the tangible properties of the Company that might be damaged or destroyed and
the Company has not received any notice of cancellation with respect to, and
does not have any pending claims under, such policies.
3.14 Registration Rights. Except as contemplated by the Rights
-------------------
Agreement, the Company is not under any obligation to register any of its
presently outstanding securities or any of its securities that may hereafter be
issued.
3.15 Governmental Consents, etc. No consent, approval, order or
--------------------------
authorization of or designation, declaration or filing with any state or federal
governmental authority of the United States on the part of the Company is
required in connection with the valid execution and delivery of this Agreement,
or the offer, sale or issuance of the Shares (and the Preferred Stock or Common
Stock issuable upon conversion of the Shares), or the consummation of any other
transaction contemplated hereby, except (a) filing of the Restated Articles in
the office of the Secretary of State of the State of California, and (b)
qualification (or taking such
5
<PAGE>
action as may be necessary to secure an exemption from qualification, if
available) under the California Corporate Securities Law and other applicable
Blue Sky laws, of the offer and sale of the Shares (and the Common Stock
issuable upon conversion of the Shares), which filing and qualification, if
required, will be accomplished in a timely manner prior to or promptly following
completion of the Initial Closing.
3.16 Offering. Assuming the accuracy of the Investor representations
in Section 4 hereof, the offer, sale and issuance of the Shares to be issued in
conformity with the terms of this Agreement (and the issuance of the Preferred
Stock or Common Stock to be issued upon conversion of the Shares) constitute
transactions exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended (the "Securities Act"), and will have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws. Neither the Company nor any agent on its behalf has
solicited or will solicit any offers to sell or has offered to sell or will
offer to sell all or any part of the Shares to any person or persons so as to
bring the sale of such Shares by the Company within the registration provisions
of the Securities Act.
3.17 Disclosure. No statement by the Company contained in this
Agreement, any Ancillary Agreement, or any exhibit, attachment or schedule, or
in any certificate furnished or to be furnished to the Investors pursuant hereto
or written information otherwise provided to the Investors, contains or will
contain any untrue statement of a material fact or omits or will omit 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.
3.18 Brokers or Finders. The Company has not incurred, and will not
------------------
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.19 Environmental Laws. To the Company's knowledge, the Company is
------------------
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
3.20 Liabilities. Except as set forth in the Disclosure Schedule,
-----------
the Company has not entered into any agreements involving, individually or in
the aggregate, in excess of $50,000 (written or verbal) with any third parties,
including employees and consultants.
3.21 Financial Statements; Undisclosed Liabilities The Company has
---------------------------------------------
delivered to each Investor an audited Balance Sheet, Income Statement and
Statement of Cash Flows (collectively, the "Financial Statements") dated
December 31, 1998 (the "Statement Date"). The Company has also delivered an
unaudited Balance Sheet, Statement of Income and Statement of Cash Flows for the
two months ending February 28, 1999 (the "Interim Financial Statements"). The
Financial Statements are complete and correct in all material respects, have
been prepared in accordance with generally accepted accounting principles, and
present fairly the financial condition of the Company as of the Statement Date
and the results of operations and cash flows of the Company for the period then
ended; provided, however, that such statements are subject to normal recurring
year-end audit adjustments and do not contain footnotes required under generally
accepted accounting principles.
3.22 Changes. Since the Statement Date, there has not been:
-------
(i) any damage, destruction or loss, whether or not covered by
insurance, materially adversely affecting the properties or tangible assets of
the Company;
6
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(ii) any waiver or compromise by the Company of a valuable
right or of a material debt owed to it;
(iii) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of the Company (as such business is presently
conducted);
(iv) any sale, assignment or transfer by the Company of any
patents, trademarks, copyrights, trade secrets or other intangible assets;
(v) any resignation or termination of employment of any key
officer of the Company or any change in officer compensation except in the
ordinary course of business and consistent with past practice;
(vi) any mortgage, pledge, or transfer of a security interest
in or lien created by the Company with respect to any of its material properties
or assets, except liens for taxes not yet due or payable;
(vii) any loans or guarantees made by the Company to or for
the benefit of its employees, shareholders, officers, or directors, or any
members of their immediate families, other than in amounts immaterial to the
Company's operating results or financial condition and other than travel
advances and other advances made in the ordinary course of its business;
(viii) any declaration, setting aside, or payment of any
dividend or other distribution of the Company's assets in respect of any of the
Company's capital stock, or any direct or indirect redemption, purchase, or
other acquisition of any of such stock by the Company;
(ix) any incurrence of any material indebtedness;
(x) any changes in the assets, liabilities, financial
condition or operating results of the Company other than that reflected in the
Financial Statements or Interim Financial Statements that, either individually
or in the aggregate, would have a material, adverse effect on the Company's
business, prospects, properties, financial condition or results of operations;
or
(xi) any commitment, obligation, understanding or other arrangement,
contingent or otherwise, to effect, directly or indirectly, any of the
foregoing.
3.23 Proprietary Information Agreement. All officers, employees of
---------------------------------
and consultants to the Company with access to proprietary information of the
Company have executed and delivered to the Company a Proprietary Information
Agreement in substantially the form attached as Exhibit H hereto, and the
Company is not aware of any material breach thereof by any such persons.
3.24 Taxes. The Company has never had any tax deficiency proposed or
-----
assessed against it and has not executed any waiver of any statute of
limitations on the assessment or collection of any tax or governmental charge.
The Company has timely filed all tax returns, submitting true and complete
information; has paid all taxes when due (other than those that are being
contested in good faith); and has received no notice of audit. Except as set
forth on the Disclosure Schedule, no federal or state income tax returns of the
Company has ever been audited. Proper and accurate amounts have been withheld by
the Company from its employees for all periods in compliance with the tax,
social security and any employment withholding provisions of applicable federal
and state laws. The Company has complied in all material respects with all
employee income tax withholding, social security and unemployment taxes.
7
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3.25 Other Relationships. Except as set forth on the Disclosure
-------------------
Schedule, to the best knowledge of the Company (a) no officer of the Company,
nor any of its affiliates, has any interest (other than as non-controlling
holders of securities of a publicly-traded company), either directly or
indirectly, in any Person (whether as an employee, officer, director,
shareholder, agent, independent contractor, security holder, creditor,
consultant or otherwise) that presently (1) provides any services or designs,
produces or sells any products or product lines, or engages in any activity
which is the same, or competitive with any activity or business in which the
Company is now engaged, (ii) is a supplier of, customer of, creditor of, or has
an existing contractual relationship with, the Company, or (iii) has any direct,
or indirect interest in any asset or property used by the Company or any
property, real or personal, tangible or intangible, that is necessary or
desirable for the conduct of the business of the Company; and (b) no current or
former stockholder, director, officer or employee of the Company, nor any of its
affiliates, is at present, or since the inception of the Company has been,
directly or indirectly through his affiliation with any other Person, a party to
any transaction (other than as an employee) with the Company providing for the
furnishing of services by, or rental of real or personal property from, or
otherwise requiring cash payments to any such Person.
3.26 Small Business Investment Company Applicant. The Company's
--------------------------------------
tangible net worth (including its Affiliates) is not in excess of $18 million,
and the Company's average net income after Federal income taxes (excluding any
carry-over losses) for the preceding 2 completed fiscal years is not in excess
of $6 million. The Company has heretofore furnished to each Investor that is an
SBIC Holder (as defined below) the following completed forms, which are true and
correct in all material respects: Size Status Declaration on SBA Form 480,
Assurance of Compliance on SBA Form 652D and Portfolio Financing Report on SBA
Form 1031 (the "SBA Forms"). As of the Closing Date, the Company is not a
"relender" or "reinvestor" as defined in Section 107.720 of Title 13 of the Code
of Federal Regulations." "SBIC Holder" means that the Investor is a Small
Business Investment Company regulated pursuant to Section 121.301(c)(1) of Title
13 of the Code of Federal Regulations (an "SBIC").
3.27 Investment Company Act. The Company is not, and immediately
----------------------
after the Closing Date will not be, an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act.
SECTION 4
Representations, Warranties and Covenants of the Investor
---------------------------------------------------------
Each of the Investors hereby represents,, warrants and covenants,
severally and not jointly, to the Company with respect to its individual
purchase of the Shares as follows:
4.1 Accredited Investor. The Investor is an accredited investor as
--------------------
defined in Rule 501 (a) of Regulation D promulgated under the Securities Act.
4.2 Foreign Investor. If the Investor is not a United States person
----------------
(as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended), such Investor hereby represents that it has satisfied itself as to the
full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Shares or any use of this Agreement, including
(i) the legal requirements within its jurisdiction for the purchase of the
Shares, (ii) any foreign exchange restrictions applicable to such purchase,
(iii) any governmental or other consents that may need to be obtained, and (iv)
the income tax and other tax consequences, if any, that may be relevant to the
purchase, holding, redemption, sale, or transfer of the Shares. Such Investor's
subscription and payment for and continued beneficial ownership of the Shares,
will not violate any applicable securities or other laws of the Investor's
jurisdiction.
8
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4.3 Experience; Risk. The Investor has such knowledge and experience
----------------
in financial and business matters that such Investor is capable of evaluating
the merits and risks of the purchase of the Shares pursuant to this Agreement
and of protecting the Investor's interests in connection therewith. The
Investor's financial condition is such that it has the ability to bear the
economic risk of the investment, including complete loss of the investment. The
Investor is experienced in evaluating and investing in new companies such as the
Company.
4.4 Investment. The Investor is acquiring the Shares for investment
for its own account, not as a nominee or agent, and not with a view to, or for
resale in connection with, any distribution thereof; and the Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. The Investor understands that the Shares to be purchased
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 and the
accuracy of such Investor's representations as expressed herein.
4.5 Restricted Securities; Rule 144. The Investor understands that
-------------------------------
the Shares and the shares of Common Stock issuable upon conversion of the
Shares, 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
the Shares may be resold without registration under the Securities Act only in
certain limited circumstances. The Investor acknowledges that the Shares must be
held indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. The 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, including, among other things, the existence of a public
market for the shares, the availability of certain current public information
about the Company, the resale occurring not less than one year after a party has
purchased and paid for the security to be sold, the sale being effected through
a "broker's transaction" or in transactions directly with a "market maker" (as
provided by Rule 144(f)) and the number of shares being sold during any three-
month period not exceeding specified limitations.
4.6 No Public Market. The Investor understands that no public market
----------------
now exists for any of the securities issued by the Company and that there is no
assurance that a public market will ever exist for the Shares.
4.7 Access to Data. The Investor has had an opportunity to discuss
--------------
the Company's business, management and financial affairs with the Company's
management and the opportunity to review the Company's facilities and has
received all information requested from the Company regarding the investment in
the Company.
4.8 Authorization. The Investor represents that it has all requisite
-------------
corporate power and authority to enter into and perform the Investor's
obligations under this Agreement and the Ancillary Agreements, and this
Agreement, the Rights Agreement, the Voting Agreement and the Co-Sale Agreement
when executed and delivered by the Investor will constitute valid and binding
obligations of the Investor, enforceable in accordance with their respective
terms, subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors, rules of law governing specific
performance, injunctive relief or other equitable remedies.
4.9 Government Consents. No consent, approval or authorization of or
-------------------
designation, declaration or filing (other than the SBA Forms) with any state,
federal or foreign governmental authority on the part of the Investor is
required in connection with the valid execution and delivery of this Agreement
by the Investor, and the consummation by the Investor of the transactions
contemplated hereby.
9
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4.10 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the presentations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Shares unless and until:
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
(b) The Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
proposed disposition, and if reasonably requested by the Company, such Investor
shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
under the Securities Act.
4.11 Legends. It is understood that each certificate representing the
-------
Shares (and the shares of Common Stock issuable upon conversion of the Shares)
and any securities issued in respect thereof under applicable state securities
laws shall bear the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR, IF REASONABLY REQUESTED BY
THE CORPORATION, AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933."
(b) "THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF AN AGREEMENT BETWEEN
THE COMPANY AND THE REGISTERED HOLDER OR HIS PREDECESSOR IN INTEREST. COPIES OF
SUCH AGREEMENT MAY BE OBTAINED BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD
OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY."
(c) Any legend required to be placed thereon by the California
Commissioner of Corporations or any other applicable state securities laws.
4.12 SBIC Holder. CIBC Wood Gundy represents and warrants that it is
-----------
an SBIC Holder, that it is a wholly owned subsidiary of a bank listed in
Schedule I to the Canadian Bank Act, that all of CIBC Wood Gundy's voting shares
are owned by such bank listed in Schedule I to the Canadian Bank Act, and that
CIBC Wood Gundy is purchasing the Shares as a principal.
SECTION 5
Conditions to Initial Closing of Investor
-----------------------------------------
Each Investor's obligation to purchase the Shares at the Initial
Closing is, at the option of the each of the Investors individually, subject to
the fulfillment on or prior to the Closing Date of the following conditions:
5.1 Execution of Documents. The Company and the Investors shall have
----------------------
duly authorized and executed copies of this Agreement, each Ancillary Agreement
and each other agreement, document or instrument related hereto or thereto
required in connection with the consummation of the transactions contemplated
hereby, including the Side Letter between the Company and Canadian Imperial Bank
of Commerce with respect to Canadian operations. This Agreement, each Ancillary
Agreement and each other related agreement, document or instrument shall be in
full force and effect on the Closing Date.
10
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5.2 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects when made, and shall be true and correct on the Closing
Date in all material respects with the same force and effect as if they had been
made on and as of said date.
5.3 Covenants. All covenants, agreements and conditions contained in
---------
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all material respects.
5.4 Good Standing. The Company shall have obtained a good standing
-------------
certificate from the State of California and from each other state where it is
qualified to do business and shall have provided copies to special counsel to
the Investors on or prior to the Closing Date.
5.5 Opinion of Company's Counsel. The Investors shall have received
----------------------------
from Perkins Coie LLP, counsel to the Company, an opinion addressed to the
Investors, dated the Closing Date, substantially in the form of Exhibit I
hereto.
5.6 Blue Sky. The Company shall have obtained all necessary Blue Sky
--------
law permits and qualifications, or secured an exemption therefrom, required by
any state for the offer and sale of the Shares and the Common Stock issuable
upon conversion of the Shares.
5.7 Restated Articles of Incorporation. The Restated Articles shall
----------------------------------
have been filed with, and approved by, the Secretary of State of the State of
California.
5.8 Reservation of Common Stock. The shares of the Common Stock
---------------------------
issuable upon conversion of the Shares shall have been duly authorized and
reserved for issuance upon such conversion.
5.9 Board of Directors. The Bylaws of the Company shall reflect that
------------------
the size of the Board of Directors shall be variable from four (4) to seven (7)
members. Immediately prior to the Initial Closing, the Board of Directors shall
be comprised of Edward Hoyt, Brendon Kim, David Chao, David Kniffin, Peter Nieh,
Scott Shay and a director appointed by the holders of the Series D Preferred in
accordance with the Voting Agreement.
5.10 SBA Forms. The Company shall have completed and filed the SBA
---------
Forms.
5.11 Aggregate Purchase. The Investors shall purchase an aggregate of
------------------
at least $19,500,000 worth of Series D Preferred on the Closing Date.
5.12 Compliance Certificate. The Company shall have delivered to the
----------------------
Investors a certificate executed by the President of the Company, dated the
Closing Date and certifying to the fulfillment of the conditions specified in
Sections 5.2, 5.4, 5.6, 5.7, 5.8, 5.9 and 5. 10 of this Agreement.
SECTION 6
Conditions to Initial Closing of the Company
--------------------------------------------
The Company's obligation to sell and issue the Shares at the Initial
Closing is, at the option of the Company, subject to the fulfillment of the
following conditions:
11
<PAGE>
6.1 Representations. The representations made by the Investors in
---------------
Section 4 hereof shall be true and correct in all material respects when made,
and shall be true and correct on the Closing Date in all material respects with
the same force and effect as if they had been made on and as of said date.
6.2 Ancillary Agreements. The Investors shall have executed and
--------------------
delivered to the Company the Ancillary Agreements.
6.3 Restated Articles of Incorporation. The Restated Articles shall
----------------------------------
have been filed with, and approved by, the Secretary of State of the State of
California.
SECTION 7
Miscellaneous
-------------
7.1 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of California as applied to contracts made and to be
fully performed entirely within that state between residents of that state.
7.2 Survival. The representations, warranties, covenants and
--------
agreements made herein shall survive any investigation made by any Investor and
the closing of the transactions contemplated hereby.
7.3 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;
provided, however, that the rights of the Investors to purchase the Shares shall
not be assignable without the consent of the Company.
7.4 Entire Agreement; Amendment. This Agreement and the other
---------------------------
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof. This Agreement or any term hereof may be amended, waived, discharged or
terminated solely by a written instrument signed by the Company and the holders
of a majority of the Common Stock issued or issuable upon conversion of the
Shares.
7.5 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, or otherwise delivered by hand or by messenger,
addressed (a) if to an Investor, at the address set forth on Exhibit A, hereto,
or at such other address as shall have been furnished to the Company upon not
less than 10 days notice in writing, with a copy to Mayer, Brown & Platt, 1675
Broadway, New York, New York 10019, Attention: Mark S. Wojciechowski, Esq. and
to Canadian Imperial Bank of Commerce, 425 Lexington Avenue, 9th Floor, New
York, New York 10017, Attention: Christopher Greene, Esq., (b) if to any other
holder of the Shares, at such address as such holder will have furnished to the
Company upon not less than 10 days notice in writing, with a copy to Mayer,
Brown & Platt, 1675 Broadway, New York, New York 100 19, Attention: Mark S.
Wojciechowski, Esq. and to Canadian Imperial Bank of Commerce, 425 Lexington
Avenue, 9th Floor, New York, New York 100 17, Attention: Christopher Greene,
Esq., or (c) if to the Company, at the address set forth below and addressed to
the attention of the President and with a copy to Perkins Coie LLP, 135
Commonwealth Drive, Suite 250, Menlo Park, California 94025-1105, Attention:
Ralph L. Arnheim, 111, Esq. or at such other address as the Company shall have
furnished to the Investors upon not less than 10 days notice in writing.
7.6 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
12
<PAGE>
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. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
7.7 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.
7.8 Expenses. Upon receipt of documentation therefor at the Closing,
--------
the Company shall pay the reasonable fees and expenses of Mayor, Brown & Platt
special counsel for the Investors, incurred with respect to this Agreement, the
documents referred to herein and the transactions contemplated hereby and
thereby, in an amount not to exceed $10,000.
7.9 Severability. 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 shall continue in full force and effect
without said provision.
7.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
7.11 Waiver of Potential Conflict of Interest. Each party to this
----------------------------------------
Agreement acknowledges that Perkins Coie LLP, counsel for the Company, may in
the past have performed and may continue to perform legal services for certain
of the Investors in matters unrelated to the transactions described in this
Agreement, including the representation of such Investors in venture capital
financings and other matters. Accordingly, each party to this Agreement hereby
(1) acknowledges that they have had an opportunity to ask for information
relevant to this disclosure; and (2) gives its informed consent to Perkins Coie
LLP's representation of certain of the Investors in such unrelated matters and
to Perkins Coie LLP's representation of the Company in connection with this
Agreement and the transactions contemplated hereby.
[SIGNATURE PAGE FOLLOWS]
13
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
set forth above.
"COMPANY"
iOwn, Inc., a California corporation
By:____________________________________
Edward P. Hoyt, President
<PAGE>
EXHIBIT 10.7
INTERACTIVE SERVICES AGREEMENT
COVER SHEET
This Interactive Services Agreement ("Agreement"), of which this page is a cover
sheet "Cover Sheet"), is entered into between America Online, Inc., a Delaware
corporation ("AOL"), with offices at 22000 AOL Way, Dulles, VA 20166, acting
through its subsidiaries Netscape Communications Corporation ("Netscape") and
Digital City, Inc. ("DCI"), (collectively, "ND" and respectively, "N/D"), and
iOwn, Inc., a California corporation "Participant"), with offices at 118 King
Street, Suite 225, San Francisco, CA 94107, effective as of the date of AOL's
signature below ("Effective Date").
Brief Description of Service: Participant will develop and manage, subject to
- ----------------------------
the terms of this Agreement, (i) a co-branded mortgage center for Netscape
Netcenter ("Netscape Mortgage Center"); and (ii) a co-branded mortgage area for
DCI ("DCI Mortgage Area", collectively with the Netscape Mortgage Center,
"Mortgage Areas") which will contain consumer oriented home financing content,
community programming, access to a variety of home financing providers,
functionality that enables Netscape Members and DCI Members, respectively, to
search for competitive home financing rates and the ability to complete online
applications for mortgages, equity lines and home refinancing. A detailed
description of the Service is set forth in Exhibit A.
Territory: United States
Local Language: U.S. English
Service Period: [*], except as
otherwise extended by the terms of this
Agreement.
Addresses for Notice:
iOwn, Inc. America Online, Inc.
118 King Street, Suite 225 22000 AOL Way
San Francisco, California 94107 Dulles, VA 20166
Attn: Chief Financial Officer USA
Fax: 415-908-6430
Attn: Deputy General Counsel
Fax: 703-265-1105
Attn: Sr. Vice President for Business Affairs
Fax: 703-265-1206
Copy to:
Perkins Coie, LLP
2420 Sand Hill Road, Suite 203
Menlo Park, CA 92045
Attn: Buddy Arnheim
[*] Confidential Treatment Requested
<PAGE>
The parties hereto have executed this Agreement as of the Effective Date.
PARTICIPANT AMERICA ONLINE, INC.
By: /s/ Edward Plater Hoyt By: /s/ Kent Wakeford
------------------------------- -------------------------------
Name: Edward Plater Hoyt Name: Kent Wakeford
----------------------------- -----------------------------
Title: President Title: Director - Business Affairs
---------------------------- ----------------------------
Date: June 30, 1999 Effective Date: June 30, 1999
----------------------------- -------------------
Tax ID/EIN#:________________
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This Agreement includes the following Exhibits:
Exhibit A: The Service
Exhibit B: Priority Response Times
Exhibit C: Payment
Exhibit D: User Registration and Privacy
Exhibit E: Usage Reporting Requirements
Exhibit F: Definitions
Exhibit G: General Terms and Conditions
Exhibit H: Named Entities
Exhibit I: Participant Content for Index Page
Exhibit J: Detailed Netscape Carriage Plan
Exhibit K: Participant Standard Report
Exhibit L: Press Release
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INTERACTIVE SERVICES AGREEMENT
In consideration of the mutual covenants contained herein, the parties agree as
follows:
1. LICENSE GRANT
-------------
1.1 Participant License. Participant hereby grants to N/D, a non-exclusive,
-------------------
worldwide and royalty-free right to store, display, perform, frame, reproduce,
distribute, re-distribute, transmit, re-transmit and otherwise use the: (i)
Service and (ii) Licensed Content, including any data, information, content and
other intellectual property included in the Licensed Content within the Netscape
Network and DCI Network.
2. THE SERVICE
-----------
2.1 Description of Service. Participant will provide N/D, with the Licensed
----------------------
Content and other technology and services as may be required under this Section
2 and Exhibit A (the "Service") for inclusion in the Netscape Network and DCI
Network and as otherwise set forth in Exhibit A. Participant grants N/D the
option, in their respective discretion, to add any new content developed by
Participant and made available to its partners to the Service. Participant also
grants N/D the option, in their respective discretion, to add links for the
Licensed Content to supplement third party content, on the Service Index Page.
The Service does not include the Index Pages, however, it does include Service
Index Pages. Traffic on all Service Pages and Index Pages shall be considered to
be N/D traffic, as appropriate. The specifications for the Service are set forth
within the mock-ups and site maps, if any, provided as part of Exhibit A.
2.2 Index Pages. The Index Pages will be produced, hosted, served and
-----------
maintained on N/D servers, as appropriate. Each such page will include areas for
co-branding, advertising, content and sponsorships. Participant will provide to
N/D, without limitation, the content listed on Exhibit I for use on the Index
Pages. N/D may add additional sections and services to the Service Index Page
from time to time.
2.3 Service Pages. N/D shall provide the specifications and production
-------------
schedule (if any) for the navigation, templates (including headers and footers),
architecture, and look and feel of the Service Pages in accordance with the
mock-ups and site maps, if any, provided as part of Exhibit A. N/D may amend the
content required on the Service Pages and/or the mock-ups or site maps provided
as part of Exhibit A from time to time upon reasonable notice to Participant
and, if Participant is unable to provide any such amended content, then N/D may
supplement the Service accordingly. Notwithstanding the foregoing, Participant
shall maintain substantially the same prominence, positioning and exclusivity as
set forth in Exhibit A. The Service Pages shall not include any link outside of
Netcenter or the DCI Service, respectively, other than Participant's Application
Page. Where appropriate, Participant will modify links within the Service to re-
circulate users to other N/D services. The Service Pages shall: (i) be served,
produced and managed by Participant, including but not limited to hiring and
managing creative, technical, customer support, and general staff as
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needed; (ii) be hosted and maintained solely on Participant's servers; (iii)
include a field providing search functionality to Netscape's Net Search link;
and (v) be co-branded in accordance with Section 2.4. Participant acknowledges
that all web site traffic on the Services is to be allocated to N/D and not
Participant. Within twenty (20) days from the Effective Date, Participant will
send a letter on Participant's letterhead, executed by an officer of Participant
to Mr. Douglas McFarland of Media Metrix (35 East 21st Street Third Floor, New
York, NY 10010), requesting that the site traffic for the Services be reassigned
from Participant to N/D. The letter addressed to Media Metrix must include the
URL for each of the Services. Such URL must be specific to N/D, such as
netscape.iown.com and can not be an extension of a URL such as
iown.com/netcenter. The procedure for reassigning web site traffic outlined in
this Section 2.3, is subject to change without prior notice by Media Metrix. In
the event that the procedure to reassign web site traffic is changed or Media
Metrix is no longer the primary provider of web site audience measurements,
Participant shall take whatever actions are necessary to insure that the
allocation of all web site activity on each of the Services is allocated to N/D
and not Participant, including, if necessary, hosting the Services on a
netscape.com digitalcity.com domain respectively.
2.4 Co-Branding. The Service Pages will be co-branded by N/D, as appropriate,
-----------
and Participant in accordance with the site maps provided as part of Exhibit A
(if any). The co-branding will be subject to N/D's Guidelines, as appropriate,
and will include Participant's company name and logo. There may be certain
Service Pages that are Participant branded only as mutually agreed in writing by
the parties.
2.5 Service Implementation. Participant shall provide updated content for the
----------------------
Service Pages and the Index Pages in a manner consistent with the descriptions,
if any, set forth in Exhibit A or as N/D may reasonably require. Participant may
not make any modifications, additions, or subtractions to the Service Pages as
such Service Pages are described in Exhibit A without N/D's written permission.
All content supplied by Participant for the Service will meet N/D's, as
appropriate, performance requirements and specifications with regard to page
size, loading speed and speed of access to database driven content as set forth
in Exhibit A. Any Participant content used on the Mortgage Areas or the
Netcenter Personal Finance Index Page or the Netscape Real Estate Index Page
will include Participant attribution by using Participant's name and logo.
Participant hereby grants N/D a nonexclusive, nontransferable, worldwide,
royalty free license to use Participant's name and logo for such purpose subject
to any Participant usage guidelines provided to N/D. Participant shall be
responsible for the production, technology deployment, content programming, and
creation of graphic user interfaces of the Service, all in accordance with
Netscape's written Guidelines, as appropriate. N/D shall use reasonable efforts
to consult with Participant in regard to Service Page design, however, N/D shall
have final design approval right over all Service Pages. N/D shall be
responsible for producing the specific design and user interface elements (e.g.
graphics, html, etc.) of each template utilized in publishing the Mortgage
Areas. The Service shall use substantially the same technology and advantages
that Participant uses in its own proprietary service(s), if any, unless
otherwise mutually agreed by the parties. The Service shall not be substantially
disadvantaged or suffer from inferior production, programming or performance
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relative to Participant's similar Internet services, or any similar Internet
service that Participant might make available to, or operate on behalf of, third
parties. The Service shall perform substantially in accordance with the
performance standards of its own proprietary services, including, but not
limited to, load time, timeliness of content, and quality of programming.
Participant's obligation to produce the Service, including production services,
technology deployment and content programming that meets or exceeds standards
established by Participant on Participant's Web Site or services (or any web
site or services Participant manages for any third party) and general industry
standards is a material obligation of Participant under this Agreement.
2.6 Commerce. Except as otherwise set forth in this Agreement, Participant
--------
shall not conduct any merchandising through the Service Pages through auctions,
clubs or any other method, other than home financing, without N/D's prior
written consent.
2.7 Advertising. Participant shall ensure that Netscape Members and DCI
-----------
Members accessing the Service Pages and linking to the Participant Web Site from
the Service Pages do not receive advertisements, promotions or links for any
entity reasonably construed to be in competition with the Netscape Network or
DCI Network, as appropriate, with Netscape Network software or Products or
otherwise in violation of the applicable Netscape Network or DCI Network then-
standard advertising policies or exclusivity commitments or other contractual
preferences to third parties.
2.8 Service Name. The Service name will be as mutually agreed upon by N/D, and
------------
Participant. If the Service name includes a co-branding component that is not
generic or descriptive, Participant shall not independently use the Service name
without N/D's prior written consent nor shall Participant use the Service name
with N/D's name, as appropriate, expunged.
2.9 Technical Support. Participant will provide technical support to N/D to
-----------------
ensure that content is correctly received and displayed by N/D in accordance
with the priority response times set forth as Exhibit B. Participant shall
appoint a technical contact to whom N/D, may address all technical questions
relating to the Service, and use its best efforts to promptly remedy any
material malfunctioning of the Service. Participant shall be solely responsible
for the purchase, implementation, maintenance and support of all software and
hardware required to fulfill its obligations under this Agreement. N/D shall
provide Participant with reasonable amounts of technical support and shall
provide consolidated account management. In the event Participant requires
extraordinary levels of N/D technical support, N/D will provide technical
support to Participant upon N/D standard terms, conditions and rates.
2.10 Quality Assurance. Participant shall provide N/D with a quality assurance
-----------------
("QA") test plan and results satisfactory to N/D or a test plan and results from
a N/D approved QA testing laboratory (at the cost of the Participant). The tests
will cover the below browsers on both Mac and Windows operating systems:
Navigator/Communicator 4.0x; Navigator 3.04;
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Navigator 2.02/1.12/1.22 (32 bit only); Internet Explorer 4.x (Windows only);
and Internet Explorer 3.x (Windows only).
3. PAYMENT
-------
For the mutual benefits provided under this Agreement, payments shall be made in
the amount and subject to the terms set forth in Exhibit C.
4. NETSCAPE PROGRAM REQUIREMENTS
-----------------------------
(This Section Applies to the Netscape Mortgage Center Only)
4.1 User Registration. If end users are required to register to access certain
-----------------
features within the Service, the Service's user registration processes will be
integrated with Netscape's "Universal Registration" system and be consistent
with Netscape's then-current privacy policy, each as set forth on Exhibit D.
The parties will use best efforts to integrate the Participant and Netscape user
registration processes using the Netcenter universal registration SDK, unless
such integration meaningfully reduces the ratio of users completing registration
versus users viewing the registration page or is prohibited by the privacy
policy of either party.
4.2. Core Services. Participant will integrate Netscape's then-current
-------------
Core Services into the Service. Netscape may modify the Core Services from time
to time and notify Participant of any such changes for the Service.
5. NETSCAPE PRODUCTS AND TECHNOLOGY
--------------------------------
(This Section Applies to the Netscape Mortgage Center Only)
5.1 Use and Promotion of Netscape Technology. Participant will: (i) within the
----------------------------------------
Service, ensure compatibility with the client software used by Netcenter
members, especially the latest version of Netscape Communicator client software;
(ii) consider the use of at least one current version of Netscape core Web
server software product to maintain Participant's Web Sites, to be obtained by
Participant pursuant to Netscape's standard licensing terms; (iii) display the
"Netscape Now" button (or successor Netscape marketing button) prominently on
the Participant's Web Site on the Service Pages, on any page to which the
Service links (except links to third party advertisers), and on any page on
Participants Web Site which contains an unpaid virtual button or other text or
graphic for any third party Internet client or server software, software
provider or online service; and (iv) promote only Netscape client and server
software and online services within the Service.
5.2. Course of Dealing. In consideration of the treatment of the Service as a
-----------------
fundamental part of the Netcenter service, until such time as Microsoft fully
publicly documents and makes available its operating systems' programming
interfaces sufficiently to enable
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Netscape to make use of all of the facilities and resources of those operating
systems on a basis equal to that of Microsoft Participant agrees to the
following:
5.2.1 No Disadvantage. Participant shall not make any content available solely
---------------
to users of client software or services other than Netscape's, or disfavor or
disadvantage users of Netscape client software or services in any way relative
to users of other Internet client software or services.
5.3. No Disabling. Participant shall not provide or implement any means or
------------
functionality that would (i) alter, modify or enable end users to alter or
modify, any Netscape client software, standard user interface or configuration
(collectively, the "Software"), (ii) disable any functionality of the Software
or any other Internet browser software, or (iii) modify the functioning of pages
served from Netscape's Web Site.
5.4. E-Mail Link. Participant shall make commercially reasonable efforts to
-----------
include on the Service Pages an email link that users of Participant's
proprietary service can use to direct questions or help requests to Participant.
Participant will use reasonable efforts to reply promptly, but in any event
within 1 business day, to any such question or help request.
6. PRESS PLANS
-----------
Participant and N/D agree to participate in a joint press announcement regarding
the Service that will take no later than ten (10) business days from the
Effective Date of this Agreement, unless the parties mutually agree otherwise.
The parties shall agree to the form and content of the joint press release which
shall be in substantial form as outlined in Exhibit L.
7. TERM & TERMINATION
------------------
7.1. Term. Unless earlier terminated as set forth herein, the initial term of
----
this Agreement shall commence on the Effective Date and expire [*] from the
Effective Date, except as otherwise extended by the terms of this Agreement.
This Agreement may be extended by mutual written agreement of the parties. The
parties agree that the term can be extended for a maximum of [*] successive
periods (each, an "Extension Term"). Each Extension Term shall be for [*], at
AOL's option for each Extension Term. AOL shall notify Participant if it desires
to extend and the period selected for the Extensions Term by providing
Participant with written notice of such election (which notice shall specify
whether AOL elects for such Extension Term to be for [*] no later than sixty
(60) days prior to the expiration of the initial term or the then-current
Extension Term, as the case may be. An Extension Term will not require placement
fees in addition to those described in Exhibit C, however, all other fees shall
continue to accrue during such Extension Term.
7.2 Termination for Convenience. [*]
---------------------------
Upon such termination, N/D shall have delivered [*]
[*] Confidential Treatment Requested
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[*] as set forth in Exhibit A and Participant shall have paid N/D [*] as a
placement fee plus any accrued but unpaid revenue share set forth in Exhibit C.
In the event that N/D has not delivered [*] as set forth in the foregoing
sentence, N/D shall deliver [*] the difference [*] as set forth in Exhibit A. In
the event that Participant has not paid N/D all accrued but unpaid revenue share
set forth in Exhibit C plus at least [*] in placement fees, Participant shall
pay any, accrued but unpaid revenue plus the difference between [*] and the
amount actually paid to N/D for placement fees. In the event that Participant
has paid more than [*] in placement fees, N/D will refund the overpaid revenue.
In the event of a termination for convenience, the foregoing obligations set
forth in this Section 7.2 shall survive the termination of the Agreement.
7.3 Termination for Breach. Either party may terminate this Agreement at any
----------------------
time in the event of a material breach by the other party which remains uncured
after thirty (30) days written notice thereof During the Term of this Agreement,
if AOL (i) ceases to promote, market and develop the standard Netscape browser
or (ii) if the default page of the standard Netscape browser ceases to be the
Netcenter home page, then AOL is in material breach of this Agreement, subject
to the terms of this Agreement.
7.4. Termination for Bankruptcy/Insolvency. Either party may terminate this
-------------------------------------
Agreement, immediately following written notice to the other party if the other
party (i) ceases to do business in the normal course, (ii) becomes or is
declared insolvent or bankrupt, (iii) is the subject of any proceeding related
to its liquidation or insolvency (whether voluntary or involuntary) which is not
dismissed within ninety (90) calendar days or (iv) makes an assignment for the
benefit of creditors.
7.5. Performance-Based Termination. AOL may terminate this Agreement upon
-----------------------------
thirty (30) days written notice to Participant if AOL determines, in its
reasonable discretion, that the Service is underdelivering a significant
majority of traffic after [*] or if any regulation or law makes provision of the
Service commercially unreasonable.
7.6. Site and Content Preparation. Except as otherwise set forth in Exhibit
----------------------------
A, Participant shall achieve Site and Content preparation within sixty (60) days
from the Effective Date of this Agreement. "Site and Content Preparation" shall
mean that Participant shall have completed production of the Service and the
Licensed Content in accordance with this Agreement and completed all other
necessary work to prepare the Service and the Licensed Content and any other
related areas or screens to launch on the Netscape Network and DCI Network, as
contemplated hereunder. In the event Participant has not achieved Site and
Content Preparation within ninety (90) days from the Effective Date of this
Agreement, then in addition to any other remedies available, AOL shall have the
right to terminate this Agreement by giving Participant written notice thereof.
If Participant is delayed in achieving Site and Content Preparation due to a
failure by AOL to perform its obligations under this Agreement and Participant
notifies AOL in writing of such failure and the resulting delay,
[*] Confidential Treatment Requested
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then the sixty (60) day and ninety (90) day periods referenced in this Section
shall each be extended by the amount of time of Participant's delay solely
attributable to such failure by AOL
7.7. Rights Upon Termination or Expiration.
-------------------------------------
7.7.1. AOL Rights. Upon termination or expiration of this Agreement, AOL shall
----------
have the right, without any additional payment, charge or royalty to
Participant, to produce versions of the Service that do not include Participants
proprietary technology, logo or name or all other intellectual property but that
might employ a graphic user interface or underlying technology that is
substantially similar to the graphic user interface or underlying technology of
the Service. AOL shall not be liable to Participant in the event of termination,
expiration or failure to agree upon an extension of the term of this Agreement
for compensation, reimbursement or damages on account of the loss of prospective
profits, or anticipated sales, or on account of expenditures, investments,
leases or commitments in connection with the business or goodwill of
Participant.
7.7.2. Participant Rights. In the event of termination based upon (i) material
------------------
breach by AOL or (ii) performance-based termination as described in Section 7.5
above, Participant will receive from AOL either (i) a prorated refund of
placement fees; or (ii) an advertising package of equivalent value, at
Participant's option. All other fees due AOL prior to the termination date shall
be due and payable as provided for in this Agreement.
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EXHIBIT A: THE SERVICE
Exhibit A-1: Description of the Service
A. Participant Responsibilities.
----------------------------
1. The Service. Participant will develop and manage, subject to the terms of
-----------
this Agreement, (i) a co-branded Netscape Mortgage Center; and (ii) a co-branded
DC1 Mortgage Area which will contain consumer oriented home financing content,
community programming, access to a variety of home financing providers,
functionality and other content as mutually agreed in writing, that enables
Netscape Members and DCI Members, respectively, to search for competitive home
financing rates and the ability to complete online applications for mortgages,
equity lines and home refinancing.
2. Programming Plan and Features. Participant will create a programming plan
-----------------------------
for the features to appear on the Mortgage Areas, which will be subject to N/D's
acceptance. The following list of features will be included in such programming
plan:
. Consumer-oriented educational information focused on mortgage/home equity
products;
. Integrated financial calculators used to make decisions around
purchasing/refinancing a home;
. Single online mortgage application to a variety of lenders;
. Pre-qualification capability;
. Unbiased, customizable search capability to deliver best product to suit
individual needs;
. Lender coverage in substantially all major U.S. markets including NY, CA,
PA, TX, MA, D.C.; and
. Current mortgage rate information (provided in Netscape's RDF-based feed
format or other format as Netscape may reasonably specify);
. Minimum of ten national mortgage lenders.
3. Quality of Service. Participant will provide N/D a most favored nation
------------------
status in regard to quality, price and terms and conditions for any online
product offered on its Web Site relative to any online product within the
Service, including rate quoting and mortgage application services. Additionally,
Participant agrees that the Service will at all times be reasonably competitive
with the functionality, content and overall quality of all Mortgage Aggregators
competing with the Service.
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4. Ad Inventory. During the Term of the Agreement, Participant will deliver at
------------
no cost to N/D up to [*] of its ad inventory through banners, including ROS,
dependent upon remnant availability
5. AOL Products. Participant will incorporate any AOL created or co-branded
------------
mortgage products within the Service (the mortgage products will not include any
aggregation products).
B. N/D Responsibilities.
--------------------
1. Look and Feel. N/D will be responsible for maintaining and controlling the
-------------
Netscape Look and Feel and DCI Look and Feel, respectively, for the Mortgage
Areas. N/D will also be responsible for the organization of the site template
screen inventory and the editorial discretion of the Service for content
substantially unrelated to home financing and for links and transactive services
that are not related to home financing. Participant shall be responsible for the
organization of the substantive content on the site and the editorial discretion
of the Service other than as provided for above. In no case will N/D request
changes to Participant's logo.
2. Advertising. N/D will be responsible for serving and selling advertising,
-----------
revenue generating and promotional positions (including sponsorships) within the
Service. All promotional, advertising, sponsorship or otherwise commercial
elements within Participant's own proprietary service is excluded from the
Service. N/D reserve certain promotional/revenue positions within the Service
for their respective existing advertisers pursuant to preexisting obligations
and will not share revenue arising out of such existing obligations. Revenue
share shall be as set forth in Exhibit C. Notwithstanding the foregoing,
Participant may integrate third party content without revenue sharing, to
improve the Service provided that such content is integrated in a similar manner
on both the Service and Participant Web Site.
3. Promotional Commitments. In accordance with the Carriage Plan incorporated
-----------------------
herein as Exhibit A-2, Netscape and DCI will provide Participant with the
following: (a) permanent positioning within the Netscape Mortgage Center and DCI
Mortgage Area; (b) promotional and navigational links to the Netscape Mortgage
Center and DO Mortgage Area throughout Netcenter and DCI Real Estate main page,
as applicable; (c) promotion of the Mortgage Areas and Service within Netcenter
and DO Service through a banner advertising program; and (d) Netscape will
promote the Mortgage Center and Service through a Netcenter search program.
Further, Netscape and Participant will work together to make mortgage related
information and links available through Netcenter's Site Central service for its
Real Estate related pages and templates. All banners promoting the Service will
be created by Participant and will be subject to approval by N/D. In the
editorial features within the Mortgage Center and Mortgage Areas, N/D will make
reasonable efforts to promote content and functionality provided by Participant
over any similar content and functionality provided by other N/D content
partners.
[*] Confidential Treatment Requested
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4. Restrictive Provisions.
----------------------
(a) Mortgage Aggregators. N/D will not offer paid content, banners or
--------------------
links to Mortgage Aggregators within the Mortgage Areas, Mortgage Center, the
Service and the Netscape and DCI Real Estate Channels and in no event will N/D
offer any content, banner ads or links from Participant's list of Named Entities
within such areas. DCI will have a period of 45 days from the Effective Date in
order to complete or terminate preexisting obligations with Mortgage
Aggregators. In addition, Netscape will not offer paid content or links to
Mortgage Aggregators within the Netscape Personal Finance Channel. "Mortgage
Aggregators" means third party mortgage aggregators that provide access to rate
quotes from multiple mortgage providers or online applications to multiple
mortgage providers.
(b) Mortgage Originators. Netscape will not offer paid content, banners or
--------------------
links to third party mortgage originators within the Mortgage Areas, Mortgage
Center, or the Service, except for content, banners and links provided to
----------
Citibank or for two mortgage originators above the fold in the space Citibank
currently holds in the Mortgage Center, as set forth in the mock up, or any
equivalent position pursuant to Netscape's preexisting contractual obligations.
In no event will any Netscape existing obligation exceed 25% of total banner
inventory.
(c) Mortgage Content. Notwithstanding the restrictions listed in sections
----------------
(a) and (b) above, in any editorial features that link to an external site from
the Mortgage Areas or from the Mortgage Center, N/D will make commercially
reasonable efforts to promote content and functionality provided by Participant
over any similar content and functionality provided by other N/D content
partners; provided that, no such content and functionality shall be provided by
any mortgage aggregator listed in Participant's list of Named Entities set forth
on Exhibit H, without the mutual consent of the parties.
5. Impression Guarantee. For the Term of this Agreement, N/D agrees to
--------------------
[*]
[*] Confidential Treatment Requested
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[*]
[*] Confidential Treatment Requested
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[*]
[*] Confidential Treatment Requested
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DCI will make commercially reasonable efforts to place ROS banners on pages
which do not have permanent placements.
III. Determination of Tiers
----------------------
The following table provides a general framework for determining Performance
Tiers.
Description of Tiers
--------------------
[*]
[*] Confidential Treatment Requested
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EXHIBIT A-3 MOCK UPS: "MORTGAGE CENTER"
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EXHIBIT B: PRIORITY RESPONSE TIMES
Participant shall provide to N/D support services for the Service consistent
with the following support obligations:
1. OBLIGATIONS
-----------
1.1. Error Reporting. Errors may be reported on a 24 hours per day, 365 day per
---------------
year basis. During normal business hours, Participant's technical staff shall be
available to receive Error reports directly from end users or N/D by telephone.
Outside of normal business hours, Errors may be reported by pager, electronic
mail, voice mail, fax or telephonic recording capability. Participant shall
provide N/D with a pager number for both a primary and secondary pager which
will be carried by appropriate support personnel at all times and to which
Errors may be reported at any time.
1.2. Support Requests. Participant will Respond and use best efforts to correct
----------------
or provide a Workaround to Priority 1 and Priority 2 Errors that N/D or end
users identify, classify and report; and will use reasonable commercial efforts
to Respond to other Errors within the time frames set forth below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Priority Error Title and Explanation Notification Status Reports (in Target Repair Time
Mechanism & Required Response to Errors)
Time to Respond
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Fatal Error - Voice or Pager: Twice Daily 2 days
No useful work can be done. 15/30 minutes (7x24) (7x24)
7x24 coverage
- ----------------------------------------------------------------------------------------------------------------------
2 Severe Impact - Voice or Pager Twice Daily 5 days
Functionality disabled. Errors which 1 hour
result in a lack of application 7x24 coverage
functionality or cause intermittent
system failure.
- ----------------------------------------------------------------------------------------------------------------------
3 Degraded Operations - Voice or Pager Daily 10 business days
Errors causing malfunction of 1 hour (business days)
non-critical functions. E-mail 8 hours
business day coverage
- --------------------------------------------------------------------------------------------------------------------
4 Minimal Impact - Voice or Pager Weekly Next Release
Attributes and/or options to 2 hours (business days)
ancillary features do not E-mail 8 hours
operate as stated. business day coverage
- --------------------------------------------------------------------------------------------------------------------
5 Enhancement Request. Voice or Pager Weekly No Requirement
8 hours (business days)
business day coverage
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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EXHIBIT C: PAYMENT
1. Placement Fee. Participant will pay AOL a total placement fee of [*]
-------------
for guaranteed placement on Netcenter and the DCI Service. Payments shall be due
as follows:
[*]
2. Revenue Share.
-------------
(a) Participant shall also pay AOL [*] for every Netscape Sourced Member or
DCI Sourced Member clicking to the first mortgage application data entry page
(currently requires obtaining a password) starting with the [*] Member, (as
aggregated among the various N/D Members), establishing a password on the Full
Application or Pre-Approval sections of the Service (e.g., enters email and
password and clicks "New User" button on the loan application index page
http://loanforms.iown.com/secure/pw.dll/checkpwcurrent) (a "Registrant").
- ------------------------------------------------------
(b) N/D shall pay Participant [*] of the banner Net Revenue from
advertisers on the Service. "Net Revenue" shall mean gross revenues minus [*].
Parties will discuss AOL's right to sell advertisements or Participant's Web
Site.
3. Taxes. All payment amounts in this Agreement are in U.S. dollars and are
-----
exclusive of any applicable taxes and shall be made free and clear of without
reduction for, (and Participant shall be responsible for and shall indemnify
Netscape against) any applicable U.S. and foreign, state and local taxes, value
added or sales taxes, withholding taxes, duties or levies and assessments,
howsoever designated or computed, pertaining to the payments under this
Agreement (excluding taxes based upon the net income of AOL). Participant shall
promptly furnish AOL with tax receipts evidencing the payment of any taxes
referred to in the preceding sentence. AOL and Participant shall cooperate with
each other in minimizing any applicable tax and in obtaining any exemption from
or reduced rate of tax available under any applicable law or tax treaty.
4. Payment Schedule. Unless otherwise stated above, any payments due AOL under
----------------
this Agreement during the Term shall be payable 30 days from the end of each
calendar quarter in which such payments are accrued. Unless otherwise stated
above, any payment due Participant under this Agreement during the Term shall be
payable 30 days from the end of each calendar quarter in which AOL has received
payment for such shared revenue.
5. Warrants. Participant will grant to AOL the following warrants to purchase 1
--------
share of Participant's common stock at a strike price of $10 per share pursuant
to a separate written warrant agreement:
[*] Confidential Treatment Requested
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. Warrants for 25,000 shares of common stock on the Launch Date.
. Additional warrants for 25,000 shares of common stock, if, after 12
months from the Launch Date, Netscape has delivered at least [*] of the
total [*] Impressions and DCI delivers at least [*] of the [*].
[*] Confidential Treatment Requested
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EXHIBIT D: USER REGISTRATION AND PRIVACY
I. REGISTRATION PROCESS
To the extent that Participant desires to offer a registration process,
Participant will be responsible for the implementation of the Service
Registration. The functionality, design, and integration of the Service
Registration process will be subject to Netscape's approval, terms and
conditions as defined in this Agreement. Such specifications, terms and
conditions may be revised by Netscape from time to time upon 30 days prior
notice to Participant. Participant will implement changes within a 30 day period
unless the parties mutually agree otherwise.
II. DATA COLLECTED BY PARTICIPANT DURING SERVICE REGISTRATION PROCESS
Participant will determine the data to be collected in the Service Registration
process considering Netscape's recommendations and technical restrictions.
Participant shall use commercially reasonable efforts to transfer top level user
registration information collected during the Service Registration process and
data collected by any other means, to Netscape in real time data transfer,
unless otherwise agreed to by the parties. Netscape reserves the right to
request that the information collected during the Service Registration as
identified above be supplied in a Netscape specified format and timeframe.
III. USE OF PERSONAL DATA
Netscape and Participant shall jointly own and use all top level user
registration information and Participant shall own all other end user
application data and information obtained in connection with the Service and:
(i) shall have the right to aggregate such end user data and information and use
such aggregated data only for such party's internal use and provision to
Participant's strategic partners, except as required for legal, audit or tax
purposes; and (ii) shall not disclose to any third party such end user data and
information without the end user's prior approval; and (iii) may use information
collected about the users during registration or from any other means ("End User
Information") only for the purpose of marketing Netcenter programs or mortgage
or home financing products to the users. It is a material obligation of this
Agreement that Participant shall adhere to Netscape's then-current privacy
policy, set forth at http://home.netscape.com/legal_notices/privacy.html or at
such other URL as Netscape may designate from time to time. The parties will
cooperate to create guidelines for Participant's disclosure of aggregate
statistical information concerning Service's demographics and use to
advertisers. If Netscape determines that Participant or third party in contract
with Participant is not complying with the terms of use of personal data
published on Netscape's Web Site at
http:/home.netscape.com/netcenter/index.html, or such other URL as Netscape may
determine from time to time, Netscape may provide notice to Participant under
Section 6.2 of the Agreement for material breach.
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IV. SOLICITATION OF NETSCAPE MEMBERS
Notwithstanding any other conditions of this Agreement, during the Term, neither
Participant nor its agents will (i) solicit or participate in the solicitation
of Netscape Sourced Members when that solicitation is for the benefit of any
entity (including Participant) which could reasonably be construed to be or
become in competition with Netscape or (ii) promote any services which could
reasonable construed to be in competition with services available through
Netscape. Participant may not send any Netscape Sourced Member unsolicited e-
mail communications without a "Prior Business Relationship." For purposes of
this Agreement, a "Prior Business Relationship" shall mean that the Netscape
Sourced Member has either (i) applied for or purchased Products from Participant
or (ii) voluntarily provided information to Participant through a contest,
registration, or other communication, which included clear and conspicuous
notice to the Netscape Sourced Member that the information provided by the
Netscape Sourced Member could result in an e-mail being sent to that Netscape
Sourced Member by Participant or its agents. A Prior Business Relationship does
not exist solely by virtue of a Netscape Sourced Member's visit to the Service
(absent the additional elements described above). In any commercial e- mail
communications to Netscape Sourced Members which are otherwise permitted
hereunder, Participant will provide the recipient with a prominent and easy
means to "opt-out" of receiving any future commercial e-mail communications from
Participant.
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EXHIBIT E: USAGE REPORTING REQUIREMENTS
---------------------------------------
Upon mutual agreement of the parties, not to be unreasonably withheld, N/D may,
from time to time, modify (e.g., replace, add or delete): (a) the format of the
reports required, (b) the frequency of the reports, or (c) the data required
therein, upon reasonable advance notice to Participant.
All of the foregoing usage reports shall be delivered separately for each
Territory.
1. Report Frequency.
The weekly report period is Friday to Thursday, with weekly reports due the
following day, Friday by noon PST.
2. Report Delivery
The report shall be emailed to [*] for Netscape and [*] for DCI in the Weekly
Report Format.
3. Page View Weekly Report Specifications: The report must cover the following
information:
3. 1. Breakdown of Total Page
Views by day for the entire co-branded site.
4. Participant Information
Participant provides to Netcenter and DCI Report Teams the following information
upon execution/signature of contract:
- Participant Name
- Participant Contact Name
- Participant phone number and e-mail
- Participant technical contact phone, pager and e-mail
5. Page View Weekly Report Format
The following example is received weekly by NOON Thursdays via e-mail to: [*]
for Netscape and [*] for DCI Subject: Partner Traffic Report for
<Participantname> from <mm-dd-yyyy> through <mm-dd-yyyy>
[*] Confidential Treatment Requested
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date,mm-dd-yyyy,mm-dd-yyyy,mm-dd-yyyy,mm-dd-yyyy,mm-dd-yyyy,mm-dd-yyyy,mm-dd-
yyyy Total Page Views, xl,x2,x3,x4,x5,x6,x7
Definitions
date = mm-dd-yyyy
channelname = an alphanumeric string excluding colons (:), or commas (,).
Spaces are allowed. subchannelname = an alphanumeric string excluding embedded
colons (:), or commas (,), separated from a channel by a colon. Spaces are
allowed.
xl,x2,x3... = the actual number of Page Views for each date.
Example
[*]
6. Participant Standard Report
Participant will provide to Netscape and DCI Report Teams the report as more
fully described in Exhibit K on a weekly basis.
7. Access Logs
Access logs will be subject to review or audit by I/Pro, or another reputable
third party auditor, at N/D's request in addition to the audit requirements set
forth in the Agreement
8. Registrant Reports
Participant to furnish to N/D a monthly report of the total number of
Registrants establishing a password during that monthly period.
9. N/D Reports
N/D will provide Page View data for the Impressions in the carriage plan on a
quarterly basis, or more frequently, if generally available. The parties will
work together to generate or track click-through data per creative element, if
generally and technically available, on a quarterly basis or more frequently, if
generally available and shall share such data. N/D will also provide ASIS
reports, when implemented, for banners on a daily basis.
[*] Confidential Treatment Requested
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EXHIBIT F: DEFINITIONS
DEFINITIONS. The following definitions shall apply to this Agreement:
- -----------
"Affiliates" means any corporation, partnership, joint venture or other entity
or person controlled, controlling or under common control with Netscape or DCl,
as applicable. For purposes of this definition, the term "control" shall mean
the direct or indirect beneficial ownership of more than nineteen percent (19%)
of the voting interests (representing the right to vote for the election of
directors or other managing authority) in an entity.
"Channel(s)" or "sub-Channel(s)" means one or more of the topic-specific areas
providing content and links on Netcenter or the DCI Service, all as determined
by N/D from time to time, Core Services, e-commerce opportunities or links, and
other tools, resources, and applications pertaining to the specific topic.
"Confidential Information" means any information relating to or disclosed in the
course of negotiating and implementing the Agreement, which is, or should be
reasonably understood to be, confidential or proprietary to the disclosing
party, including, but not limited to, the content of negotiations between the
parties, the material terms of this Agreement, information about Members,
technical processes and formulas, source codes, product designs, sales, cost and
other unpublished financial information, product and business plans, projections
and marketing data and the number of users establishing a password on the Full
Application or Pre-Approval sections of the Service. "Confidential Information"
shall not include information (a) already lawfully known to or independently
developed at any time by the receiving party, (b) disclosed in published
materials, (c) generally known to the public, or (d) lawfully obtained from any
third party and not required to be kept confidential.
"Content" means text, images, video, audio (including, without limitation, music
used in time relation with text, images, or video), and other data, products,
services, advertisements, promotions, links, pointers, technology and software.
"Core Servicee" means services and applications that generally apply to all N/D
links or channels, as N/D may amend from time to time. As of the Effective Date,
"Core Services" consist of discussion group, chat, personalization, personal
home page, member directory, email, instant messaging, white and yellow pages
and search features and functions.
"DC1 Subscribers" means users of the DCI Service.
"DCI Network" means (i) the DCI Service and (ii) any other service owned,
operated, distributed, licensed, or authorized to be distributed by or through
DCI or its Affiliates worldwide through which such party elects to offer the
Licensed Content (which may include, without limitation, DCI-related Internet
sites, and international versions of the DCI Service.
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"DCI Service" means the standard, narrow-band U.S. version of the DCI brand
service on the World Wide Web and on the AOL Service, whether accessed through
the broad-band or narrow-band, specifically excluding (a) Any other DCI
Interactive Site, (b) any international versions of the DCI brand service, (c)
any independent product or service offered by or through the U.S. version of the
DC1 brand service, (d) any programming or Content area offered by or through the
U.S. version of the DCI brand service over which DCl does not exercise complete
operational control (including, without limitation, content areas controlled by
other parties and member-created content areas), (e) any programming or Content
area offered by or through the U.S. version of the DCI brand service which is a
branded subservice of such service, (f) any yellow pages, white pages,
classifieds or other search, directory or review services or content offered by
or through the U.S. version of the DCI brand service, (g) any property, feature,
product or service which DCI or its affiliates may acquire subsequent to the
Effective Date and (h) any other version of a DCl service which is materially
different from the narrow-band U.S. version of the DCI brand service, by virtue
of its branding, distribution, functionality, Content and services, including,
without limitation, any co-branded versions and any version distributed through
any broadband -distribution platform or through any platform or device other
than a desktop personal computer.
"DCI Sourced Member" means a DCI Member who immediately accesses the Service
from the DCl Service or has done so within 90 days.
"Error" means any instance where Participant-controlled portions of the Service
do not substantially conform to agreed-upon features and specifications.
"Guidelines" means Netscape's then-current commercial design, operational, and
usage guidelines which N/D may issue from time to time for the Services and the
Netscape Network and DCI Network.
"Impression" means the appearance of a Participant banner, Participant button,
Participant sponsorship or Participant integrated content served up on any page
within Netcenter and DCI Service, or link directing a user of the Service to the
Service Index Page, Service Pages or Participant's Web Site.
"Index Page" or "Index Pages" means that certain page or pages on Netcenter or
the DCI Service that serves as a gateway from Netcenter to a specific Netcenter
service or from a DCI Service to a specific DCI service, which gateway contains
a listing, or "index" of all services that are related to a certain topical
link, or "Channel." The Index Pages may consist only of the Service Index Page,
or any index page that may link from Netcenter or the DC1 Service to the N/D
Channel or N/D sub-Channel.
"Interactive Service" means an entity offering one or more of the following: (i)
online or Internet connectivity services (e.g., an Internet service provider);
(ii) an interactive site or service featuring a broad selection of aggregated
third party interactive content (or navigation thereto) (e.g., a navigational
service or search and directory service) and/or marketing a broad
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selection of products and/or services across numerous interactive commerce
categories (e.g., an online mall or other leading online commerce site); (iii) a
persistent desktop client; or (iv) communications software capable of serving as
the principal means through which a user creates, sends or receives electronic
mail or real time or "instant" online messages (whether by telephone, computer
or other means), including without limitation greeting cards.
"Launch Date" means the date the Netscape Mortgage Center Service is in place
and functioning on Netcenter.
"Licensed Content" means all Content provided by Participant or its agents to
N/D or their Affiliates for distribution through the Netscape Network or DC1
Network in connection with die subject matter of this Agreement.
"Members" means Netscape Members and/or DCI Members.
"Mortgage Center" means the co-branded area within Netscape as described in
Exhibit A and Exhibit J and which is represented as a general mock-up in Exhibit
A-3.
"Netcenter" means the standard, narrow-band U.S. version of the Netscape
Netcenter internet based interactive site marketed under the "Netcenter" brand,
whether accessed through the broad-band or narrow-band, without exclusivity
specifically excluding (a) any other Netscape or Netscape Affiliate owned or
operated internet based interactive sites, (b) the international versions of
Netcenter or any similar Netscape or Affiliate service or interactive site; (c)
"Netscape AOL Instant MessengerTm," "Netscape Custom Netcenter," Netscape
WebMail, or any similar independent product, service or property which may be
offered by, through or by Netscape; (d) any programming or content area offered
by or through the U.S. version of the Netcenter brand service over which
Netscape does not exercise complete operational control (including, without
limitation, Content areas controlled by other parties), (e) any yellow pages,
white pages, classifieds or other search, directory or review services or
Content offered by or through the U.S. version of the Netcenter brand service,
(f) any property, feature, product or service which Netscape or its Affiliates
may acquire subsequent to the Effective Date and (h) any other version of a
Netscape service which is materially different from Netcenter by virtue of its
branding, distribution, functionality, Content or services, including, without
limitation, any co-branded version of the service or any version distributed
through any other distribution platform or through any platform or device other
than a desktop personal computer.
"Netcenter Registration" means the portion of the registration that is
maintained, hosted, and controlled by Netscape and applies to multiple services
across Netcenter. Netcenter Registration includes the assignment of a user name,
password, and the collection of core Netcenter user profile data including but
not limited to: First name, Last name, Address, City, State, Country, Zip Code,
Email Address and Age. Netscape Registration means any registration that is
maintained, hosted, and controlled by Netscape and applies to Netscape's Web
Site.
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"Netscape Member" means authorized users of the Netscape Network, including
without limitation both registered members and Visitors to Netscape's Web Site.
"Netscape Network" means (i) Netcenter and (ii) any other product or service
owned, operated, distributed, licensed, or authorized to be distributed by or
through Netscape or its Affiliates worldwide through which such party elects to
offer the Licensed Content (which may include, without limitation, Netscape-
related Internet sites, "offline" information browsing products, and
international versions of the Netscape products or Netscape Web sites.
"Netscape Sourced Member" means a Netscape Member who immediately accesses the
Service from Netcenter or has done so within 90 days.
"Netscape's Web Site" means the collection of Local Language HTML documents
targeted at end users in the Territory and currently accessible by the public
via the Internet at the URL http://home.netscape.com and/or at such other URL or
locations as Netscape may designate. Netscape's Web Site does not include any
future technologies or future uses of existing technologies which might embody a
collection of documents (other than HTML documents) on the Internet.
"Page Views" means the units of measurement that represent the number of
requests for a page of content. A page of content is, but is not limited to, a
static page such as an HTML document or a dynamically generated page such as
from a CGI script. Pages containing framesets shall not be counted as Page Views
and only the pages within the frameset containing principle content shall be
counted as Page Views.
"Participant's Web Site" means Participant's primary Local Language Web site,
which is currently accessible by the public via the Internet at the URL
http://www.iown.com.
"Products" means any product, good or service which Participant offers, sells or
licenses to Members through (i) the Service and (ii) any web site linked to
Participant' s Web Site.
"Respond" means and includes: taking and logging the Error call; in the case of
Priority 1 Errors, providing to the reporting party an action/resolution plan
within four (4) hours of initial call receipt and acknowledgment; and, in cases
of Priority 1 and 2 Errors, making best efforts on a continuing basis to cure
the Error until the Error is cured.
"Service" means the specific area within the Netscape Network and DCI Network,
as described in Exhibit A and Section 2.1 of this Agreement, which shall be
developed, managed or marketed by Participant pursuant to this Agreement,
including but not limited to the Licensed Content, any functionality or
services, message boards, chat and other Member supplied content areas contained
therein (but excluding any site or area outside of Netcenter or the DCI Service
that is linked to the Service (through a "pointer" or similar link) in
accordance with the terms and conditions of this Agreement.).
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"Service Index Page" means the page, linked to or accessible from Netcenter or
the DCI Service, that serves as the first available point of entry for an end
user accessing the Service from Netcenter or the Channel or sub-Channel or DCI
Service.
"Service Pages" means all pages of the Service excluding the Index Pages.
"Term" means the period beginning on the Effective Date and ending upon the
expiration or earlier termination of the Agreement. "Total Page Views" means the
sum of all Page Views for all co-branded content hosted by the Participant.
"Unique Visitors" means the number of different Visitors who access a site
within a specific time period as determined by N/D. To identify Unique Users,
web sites need a unique identifier, which may be obtained through some form of
user registration or identification system. The definition of "Unique Visitors"
may be changed by N/D from time to time upon notice to Participant.
"Visitor" means an individual who interacts with a web site.
"Visits" means a series of page requests by a Visitor without a specified period
of inactivity (usually 30 consecutive minutes). If a Visitor leaves the site and
comes back within that specified period of inactivity, it is counted as part of
the same Visit.
"Workaround" means a method by which a user of a product can, by making a
limited number of procedural or programming changes in a product, prevent the
occurrence or re-occurrence of an Error. Programming changes include adjustments
to set-up and configurations files or other settings that do not require
recompilation.
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EXHIBIT G: GENERAL TERMS AND CONDITIONS
I. SERVICE PAGES
Contests. Participant shall take all steps necessary to ensure that any
- --------
contest, sweepstakes or similar promotion conducted or promoted through the
Service (a "Contest') complies with all applicable laws and regulations.
Participant shall provide N/D with (i) at least thirty (30) days prior written
notice of any Contest and (ii) upon N/D's request, an opinion from Participant's
counsel confining that the Contest complies with all applicable laws and
regulations.
DCI Look and Feel. Participant acknowledges and agrees that DCI shall own all
- -----------------
right, title and interest in and to the Look and Feel of the Index Pages and the
Service Pages (the "DCI Look and Feel"), excluding any Participant owned
intellectual property. The distinctive and particular elements of graphics,
design, organization, presentation, layout, user interface, navigation, trade
dress and stylistic convention (including the digital implementations thereof)
within the DCI Network and the total appearance and impression substantially
formed by the combination, coordination and interaction of these elements.
Netscape Look and Feel. Participant acknowledges and agrees that Netscape shall
- ----------------------
own all right, title and interest in and to the Look and Feel of the Index Pages
and the Service Pages (the "Netscape Look and Feel"), excluding any Participant
owned intellectual property. In addition, Netscape shall retain editorial
control over the portions of the Service and Index Pages which frame the
Licensed Content including without limitation the Index Page and Service Pages
(the "Netscape Frames"). Netscape may, at its discretion, incorporate
navigational icons, links and pointers or other Content into such Netscape
Frames.
Management. Participant shall review, delete, edit, create, update and
- ----------
otherwise manage all Content available on or through the Service, including but
not limited to the Licensed Content and message boards, in a timely and
professional manner and in accordance with the terms of this Agreement, the
Guidelines, and any generally applicable service standards for interactive
content providers published by N/D. In managing the Service, Participant agrees
to refrain from editing or altering any opinion expressed by an end user within
the Service, except in cases when Participant (i) has a good faith belief that
the Content in question violates an applicable law, regulation, third party -
right or portion of N/D's Terms of Service or (ii) obtains N/D's prior approval,
as applicable. Participant shall ensure that the Service is reasonably current
and well-organized, and shall employ all necessary procedures to insure the
accuracy of the Licensed Content. Participant wan-ants that the Service and the
Licensed Content: (i) will conform to N/D's Guidelines, as applicable (ii) will
not infringe or violate any copyright, trademark, U.S. patent or any other third
party right, including without limitation, any music performance or other music
related rights; and (iii) will not contain any Content which violates any
applicable law or regulation. N/D shall have no obligations with
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respect to the Participant provided Content available on or through the Service,
including, but not limited to, any duty to review or monitor any such Content.
Changes to the Netscape Network or DCI Network. N/D reserve the right to
- ----------------------------------------------
redesign or modify the organization, structure, "look and feel," navigation and
other elements of the Netscape Network and DCI Network, including without
limitation, by adding or deleting channels, subchannels and/or screens. If N/D
eliminates or modifies an area of the Netscape Network or DO Network in a manner
that substantially modifies the nature of the distribution required under this
Agreement in a material adverse fashion, N/D, as appropriate, will work with
Participant in good faith to provide Participant with comparable distribution
reasonably satisfactory to Participant. N/D shall use commercially reasonable
efforts to provide Participant with prior written notice of such changes.
Duty to Inform. Participant shall promptly inform N/D, as appropriate of any
- --------------
information related to the Licensed Content which could reasonably lead to a
claim, demand or liability of or against N/D and/or its Affiliates by any third
party.
Response to Questions/Comments; Customer Service. Participant shall respond
- ------------------------------------------------
promptly and professionally to questions, comments, complaints and other
reasonable requests regarding the Licensed Content by end users or on request by
N/D, and shall cooperate and assist N/D in promptly answering the same.
Classifieds. To the extent Participant desires to implement any classifieds
- -----------
listing features through the Service, Participant shall obtain N/D's prior
written approval. Such approval may be conditioned upon, among other things,
Participant's conformance with any then- applicable service-wide technical or
other standards related to online classifieds.
Statements Through Netscape Network or DCI Network. Participant shall not make,
- --------------------------------------------------
publish, or otherwise communicate through the Netscape Network or DCI Network
any deleterious remarks concerning N/D or their Affiliates, directors, officers,
employees, or agents (including, without limitation, N/D's business projects,
business capabilities, performance of duties and services, or financial
position) which remarks are based on the relationship established by this
Agreement or information exchanged hereunder. This section is not intended to
limit good faith editorial statements made by Participant based upon publicly
available information, or information developed by Participant independent of
its relationship with ND and their employees and agents.
Harmful Content. Participant is solely responsible for any liability arising
- ---------------
out of or relating to (i) the Service and/or (ii) any material to which users
can link through the Service. If N/D becomes aware that the Service contains any
material that violates any of the terms and conditions of this Agreement or any
N/D policy, or that N/D otherwise deems likely to cause N/D material harm, then
N/D will inform Participant and may elect not to include the offending Content
or the Service in N/D's web sites. ND reserve the right not to include in
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N/D's web sites all or any part of the Service that does not substantially
conform to the terms set forth herein.
II. TRADEMARKS
-----------
Trademark License. In designing and implementing Promotional Materials
- -----------------
promoting the Service (as defined below) and subject to the other provisions
contained herein, Participant shall be entitled to use the following trade
names, trademarks and service marks of (a) Netscape: Netscape(R), Netcenter(TM),
and the Netscape N and Design logo, and (b) DCI: Digital City, DCI and DCI's
then current logo and N/D and their Affiliates shall be entitled to use the
trade names, trademarks and service marks of Participant associated with the
Service (collectively, together with the N/D marks listed above, the "Marks");
provided that each party: (i) does not create a unitary composite mark involving
a Mark of the other party without the prior written approval of such other party
and (ii) displays symbols and notices clearly and sufficiently indicating the
trademark status and ownership of the other party's Marks in accordance with
Netscape's then current trademark guidelines available at
http://home.netscape.com/legal_notices/trademarks.html and applicable trademark
law and practice.
Rights. Each party acknowledges that its utilization of the other party's Marks
- ------
will not create in it, nor will it represent it has, any right, title or
interest in or to such Marks other than the licenses expressly granted herein.
Each party agrees not to do anything contesting or impairing the trademark
rights of the other party, including registering or attempting to register the
Marks of the Title as a trademark, service mark, Internet domain name, trade
name, or any similar trademarks or name, with any domestic or foreign
governmental or quasi-governmental authority which would be likely to cause
confusion with the Marks. Licensee may not register or use the Marks or the
Title or an abbreviation of the Marks of the Title as part of an Internet domain
name.
Quality Standards. Each party agrees that the nature and quality of its
- -----------------
products and services supplied in connection with the other party's Marks shall
conform to quality standards communicated in writing by the other party for use
of its trademarks. Each party agrees to supply. the other party, upon request,
with a reasonable number of samples of any Materials publicly disseminated by
such party which utilize the other party's Marks. Each party shall comply with
all applicable laws, regulations and customs and obtain any required government
approvals pertaining to use of the other party's Marks.
Promotional Materials/Press Releases. Each party will submit to the other party,
- ------------------------------------
for its prior written approval, which shall not be unreasonably withheld or
delayed, any marketing, advertising, press releases or other promotional
materials related to the Service and/or referencing the other party and/or its
trade names, trademarks and service marks (the "Promotional Materials");
provided, however, that, following the initial public announcement of the
business relationship between the parties in accordance with the approval and
other requirements contained herein, either party's subsequent factual reference
to the existence of
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a business relationship between N/D and Participant, including, without
limitation, the availability of the Service on the Netscape Network and DCI
Network, or use of screen shots of the Service (so long as the Netscape Network
and /or DCI Network is clearly identified as the source of such screen shots)
for promotional purposes shall not require the approval of the other party.
Once approved, the Promotional Materials may be used by a party and its
affiliates for the purpose of promoting the Service and the content contained
therein and reused for such purpose until such approval is withdrawn with
reasonable prior notice. In the event such approval is withdrawn, existing
inventories of Promotional Materials may be depleted.
Infringement Proceedings. Each party agrees to promptly notify the other party
- ------------------------
of any unauthorized use of the other party's Marks of which it has actual
knowledge. Each party shall have the sole right and discretion to bring
proceedings alleging infringement of its Marks or unfair competition related
thereto; provided, however, that each party agrees to provide the other party,
at such other party's expense, with its reasonable cooperation and assistance
with respect to any such infringement proceedings.
11. REPRESENTATIONS AND WARRANTIES
------------------------------
Authorization. Each party represents and warrants to the other party that: (i)
- -------------
such party has the full corporate right, power and authority to enter into this
Agreement, to grant the licenses granted hereunder and to perform the acts
required of it hereunder; (ii) the execution of this Agreement by such party,
and the performance by such party of its obligations and duties hereunder, do
not and will not violate any agreement to which such party is a party or by
which it is otherwise bound; (iii) when executed and delivered by such party,
this Agreement will constitute the legal, valid and binding obligation of such
party, enforceable against such party in accordance with its terms; (iv) such
party's Promotional Materials, Licensed Content, Products, Services or any
content or links added to the Service when used pursuant to this Agreement, will
neither infringe on any copyright, U.S. patent or any other third party right
nor violate any applicable law or regulation and (v) such party acknowledges
that the other party makes no representations, warranties or agreements related
to the subject matter hereof which are not expressly provided for in this
Agreement.
Insurance. Participant, at its sole cost and expense, shall secure and maintain
- ---------
adequate insurance coverage as is necessary, as a reasonable prudent business.
Maintenance of the foregoing insurance shall in no way be interpreted as
relieving Participant of any responsibility or obligation whatsoever and
Participant may acquire, at its own expense, such additional insurance as
Participant deems necessary. Participant assumes full and complete liability for
all injuries to, or death of, any person, or for any damages to property arising
from the acts or omissions of Participant. Participant shall provide evidence of
insurance to N/D within 30 days of the Effective Date. Before any cancellation,
Participant shall provide N/D with 30 days' advance written notice.
IV. CONFIDENTIALITY
---------------
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Each party acknowledges that Confidential Information may be disclosed to the
other party during the course of this Agreement. Each party agrees that it will
take reasonable steps, at least substantially equivalent to the steps it takes
to protect its own proprietary information, during the term of this Agreement,
and for a period of three years following expiration or termination of this
Agreement, to prevent the disclosure of Confidential Information of the other
party, other than to its employees, or its other agents who must have access to
such confidential Information for such party to perform its obligations
hereunder, who will each agree to comply with this section. Notwithstanding the
foregoing, either party may issue a press release or other disclosure containing
Confidential Information without the consent of the other party, to the extent
such disclosure is required by law, rule, regulation or government or court
order. In such event, the disclosing party will provide at least five (5)
business days prior written notice of such proposed disclosure to the other
party. Further, in the event such disclosure is required of either party under
the laws, rules or regulations of the Securities and Exchange Commission or any
other applicable governing body, such party will (i) redact mutually agreed-upon
portions of this Agreement to the fullest extent permitted under applicable
laws, rules and regulations and (ii) submit a request to such governing body
that such portions and other provisions of this Agreement receive confidential
treatment under the laws, rules and regulations of the Securities and Exchange
Commission or otherwise be held in the strictest confidence to the fullest
extent permitted under the laws, rules or regulations of any other applicable
governing body; provided that, each party will redact all information
specifically identifying the dollar amount of this Agreement the level or
exclusivity and the term of the Agreement to the extent permitted under
applicable laws, rules and regulations.
V. TREATMENT OF CLAIMS
-------------------
Liability. EXCEPT AS PROVIDED BELOW IN THE "INDEMNITY" SECTION, 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 THE USE OF OR
INABILITY TO USE THE NETSCAPE NETWORK OR DCI NETWORK OR ONLINE AREA OR ANY OTHER
PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR
ANTICIPATED PROFITS OR LOST BUSINESS. EXCEPT AS PROVIDED BELOW IN THE
"INDEMNITY" SECTION, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR MORE
THAN THE AGGREGATE AMOUNTS PAYABLE HEREUNDER AS OF THE DATE LIABILITY ACCRUED.
No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE NETSCAPE
NETWORK OR DCI NETWORK OR THE ONLINE AREA OR ANY N/D PUBLISHING TOOLS, INCLUDING
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
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PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALLY OF THE FOREGOING, NCD
SPECIFICALLY DISCLAIM ANY WARRANTY REGARDING THE PROFITABILITY OF THE ONLINE
AREA.
Indemnity. Either party will defend, indemnify, save and hold harmless the
- ---------
other party and the officers, directors, agents, affiliates, distributors,
franchisees and employees of the other party from any and all third party
claims, demands, liabilities, costs or expenses, including reasonable attorneys'
fees ("Liabilities"), resulting from the indemnifying party's material breach of
any duty, representation, or warranty of this Agreement, including gross
negligence or willful misconduct.
If a party entitled to indemnification hereunder (the "Indemnified Party")
becomes aware of any matter it believes is indemnifiable hereunder involving,
any claim, action, suit, investigation, arbitration or other proceeding against
the Indemnified Party by any third parry (each an "Action"), the Indemnified
Party shall give the other party (the "Indemnifying Party") prompt written
notice of such Action. Such notice shall (i) provide the basis on which
indemnification is being asserted and (ii) be accompanied by copies of all
relevant pleadings, demands, and other papers related to the Action and in the
possession of the Indemnified Party. The Indemnifying Party shall have a period
of ten (10) days after delivery of such notice to respond. If the Indemnifying
Party elects to defend the Action or does not respond within the requisite ten
(10) day period, the Indemnifying Party shall be obligated to defend the Action,
at its own expense, and by counsel reasonably satisfactory to the Indemnified
Party. The Indemnified Party shall cooperate, at the expense of the Indemnifying
Party, with the Indemnifying Party and its counsel in the defense and the
Indemnified Party shall have the right to participate fully, at its own expense,
in the defense of such Action. If the Indemnifying Party responds within the
required ten (10) day period and elects not to defend such Action, the
Indemnified Party shall be free, without prejudice to any of the Indemnified
Party's rights hereunder, to compromise or defend (and control the defense of)
such Action. In such case, the Indemnifying Party shall cooperate, at its own
expense, with the Indemnified Party and its counsel in the defense against such
Action and the Indemnifying Party shall have the right to participate fully, at
its own expense, in the defense of such Action. Any compromise or settlement of
an Action shall require the prior written consent of both parties hereunder,
such consent not to be unreasonably withheld or delayed. In the event the
Indemnified Party agrees to a settlement or compromise without first obtaining
the written consent of the Indemnifying Party, then the Indemnifying Party shall
have no obligation, financial or otherwise, for any such settlement or
compromise so effected.
Acknowledgment. NCD AND PARTICIPANT EACH ACKNOWLEDGE THAT THE PROVISIONS OF
- --------------
THIS AGREEMENT WERE NEGOTIATED TO REFLECT AN INFORMED, VOLUNTARY ALLOCATION
BETWEEN THEM OF ALL RISKS (BOTH KNOWN AND UNKNOWN) ASSOCIATED WITH THE
TRANSACTIONS CONTEMPLATED HEREUNDER. THE LIMITATIONS AND DISCLAIMERS RELATED TO
WARRANTIES AND LIABILITY CONTAINED IN THIS AGREEMENT ARE
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INTENDED TO LIMIT THE CIRCUMSTANCES AND EXTENT OF LIABILITY. THE PROVISIONS OF
THIS SECTION SHALL BE ENFORCEABLE INDEPENDENT OF AND SEVERABLE FROM ANY OTHER
ENFORCEABLE OR UNENFORCEABLE PROVISION OF THIS AGREEMENT.
VI. ARBITRATION
-----------
(a) The parties shall act in good faith and use commercially reasonable
efforts to promptly resolve any claim, dispute, claim, controversy or
disagreement (each a "Dispute") between the parties or any of their respective
subsidiaries, affiliates, successors and assigns under or related to this
Agreement or any document executed pursuant to this Agreement or any of the
transactions contemplated hereby. If the parties cannot resolve the Dispute
within such timeframe, the Dispute shall be submitted to the Management
Committee for resolution. For ten (10) days after the Dispute was submitted to
the Management Committee, the Management Committee shall have the exclusive
right to resolve such Dispute; provided further that the Management Committee
shall have the final and exclusive right to resolve Disputes arising from any
provision of this Agreement which expressly or implicitly provides for the
parties to reach mutual agreement as to certain terms. If the Management
Committee is unable to amicably resolve the Dispute during the ten (10) day
period, then the Management Committee will consider in good faith the
possibility of retaining a third party mediator to facilitate resolution of the
Dispute. In the event the Management Committee elects not to retain a mediator,
the Dispute will be subject to the resolution mechanisms described below.
"Management Committee" shall mean a committee made up of a senior executive from
each of the parties for the purpose of resolving Disputes under this Section and
generally overseeing the relationship between the parties contemplated by this
Agreement. Neither party shall seek, nor shall be entitled to seek, binding
outside resolution of the Dispute unless and until the parties have been unable
to amicably resolve the dispute as set forth in this paragraph (a) and then,
only in compliance with the procedures set forth in this Section.
(b) Except for Disputes relating to issues of (i) proprietary rights,
including but not limited to intellectual property and confidentiality, and (ii)
any provision of this Agreement which expressly or implicitly provides for the
parties to reach mutual agreement as to certain terms (which shall be resolved
by the parties solely and exclusively through amicable resolution as set forth
in paragraph (a), any Dispute not resolved by amicable resolution as set forth
in paragraph (a) shall be governed exclusively and finally by arbitration. Such
arbitration shall be conducted by the American Arbitration Association ("AAA")
in Washington, D.C. and shall be initiated and conducted in accordance with the
Commercial Arbitration Rules ("Commercial Rules") of the AAA, including the AAA
Supplementary Procedures for Large Complex Commercial Disputes ("Complex
Procedures"), as such rules shall be in effect on the date of delivery of a
demand for arbitration ("Demand"), except to the extent that such rules are
inconsistent with the provisions set forth herein. Notwithstanding the
foregoing, the parties may agree in good faith that the Complex Procedures shall
not apply in order to promote the efficient arbitration
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of Disputes where the nature of the Dispute, including without limitation the
amount in controversy, does not justify the application of such procedures.
(c) The arbitration panel shall consist of three arbitrators. Each party
shall name an arbitrator within ten (10) days after the delivery of the Demand.
The two arbitrators named by the parties may have prior relationships with the
naming party, which in a judicial setting would be considered a conflict of
interest. The third arbitrator, selected by the first two, shall be a neutral
participant, with no prior working relationship with either party. If the two
arbitrators are unable to select a third arbitrator within ten (10) days, a
third neutral arbitrator will be appointed by the AAA from the panel of
commercial arbitrators of any of the AAA Large and Complex Resolution Programs.
If a vacancy in the arbitration panel occurs after the hearings have commenced,
the remaining arbitrator or arbitrators may not continue with the hearing and
determination of the controversy, unless the parties agree otherwise.
(d) The Federal Arbitration Act, 9 U.S.C. Secs. 1-16, and not state law,
shall govern the arbitrability of all Disputes. The arbitrators shall allow such
discovery as is appropriate to the purposes of arbitration in accomplishing a
fair, speedy and cost-effective resolution of the Disputes. The arbitrators
shall reference the Federal Rules of Civil Procedure then in effect in setting
the scope and timing of discovery. The Federal Rules of Evidence shall apply
in toto. The arbitrators may enter a default decision against any party who
fails to participate in the arbitration proceedings.
(e) The arbitrators shall have the authority to award compensatory damages
only. Any award by the arbitrators shall be accompanied by a written opinion
setting forth the findings of fact and conclusions of law relied upon in
reaching the decision. The award rendered by the arbitrators shall be final,
binding and non-appealable, and judgment upon such award may be entered by any
court of competent jurisdiction. The parties agree that the existence, conduct
and content of any arbitration shall be kept confidential and no party shall
disclose to any person any information about such arbitration, except as may be
required by law or by any governmental authority or for financial reporting
purposes in each party's financial statements.
(f) Each party shall pay the fees of its own attorneys, expenses of
witnesses and all other expenses and costs in connection with the presentation
of such party's case (collectively, "Attorneys' Fees"). The remaining costs of
the arbitration, including without limitation, fees of the arbitrators, costs of
records or transcripts and administrative fees (collectively, "Arbitration
Costs") shall be born equally by the parties. Notwithstanding the foregoing, the
arbitrators may modify the allocation of Arbitration Costs and award Attorneys'
Fees in those cases where fairness dictates a different allocation of
Arbitration Costs between the parties and an award of Attorneys' Fees to the
prevailing party as determined by the arbitrators.
(g) Any Dispute that is not subject to final resolution by the Management
Committee or to arbitration under this Section or law (collectively, "Non-
Arbitration Claims") shall be brought in a court of competent jurisdiction in
the Commonwealth of
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Virginia. Each party irrevocably consents to the exclusive jurisdiction of the
courts of the Commonwealth of Virginia and the federal courts situated in the
Commonwealth of Virginia, over any and all Non-Arbitration Claims and any and
all actions to enforce such claims or to recover damages or other relief in
connection with such claims or to enforce a judgment rendered in an arbitration
proceeding.
VII. MISCELLANEOUS
-------------
Auditing Rights. Each party shall maintain complete, clear and accurate records
- ---------------
of all expenses, revenues, fees, transactions and related documentation
(including agreements) in connection with the performance of this Agreement
("Records"). All such Records shall be maintained for a minimum of five (5)
years following termination of this Agreement. For the sole purpose of ensuring
compliance with this Agreement, each party shall have the right, at its
expense, to direct an independent certified public accounting firm subject to
strict confidentiality restrictions to conduct a reasonable and necessary
copying and inspection of portions of the Records of the other party which are
directly related to amounts payable to the party requesting the audit pursuant
to this Agreement. Any such audit may be conducted after twenty (20) business
days prior written notice, subject to the following. Such audits shall not be
made more frequently than once every twelve months. No such audit of N/D shall
occur during the period beginning on June 1 and ending October 1. In lieu of
providing access to its Records as described above, a party shall be entitled to
provide the other party with a report from an independent certified public
accounting firm confirming the information to be derived from such Records.
Excuse. Neither party shall be liable for, or be considered in breach of or
- ------
default under this Agreement on account of, any delay or failure) perform as
required by this Agreement as a result of any causes or conditions which are
beyond such party's reasonable control and which such party is unable to
overcome by the exercise of reasonable diligence.
Independent Contractors. The parties to this Agreement are independent
- -----------------------
contractors. Neither party is an agent, representative or partner of the other
party. Neither party shall have any right, power or authority to enter into any
agreement for or on behalf of, or incur any obligation or liability of, or to
otherwise bind, the other party. This Agreement shall not be interpreted or
construed to create an association, agency, joint venture or partnership between
the parties or to impose any liability attributable to such a relationship upon
either party.
Notice. Any notice, approval, request, authorization, direction or other
- ------
communication under this Agreement will be given in writing and will be deemed
to have been delivered and given for all purposes (i) on the delivery date if
delivered personally to the party to whom the same is directed; (ii) one
business day after deposit with a commercial overnight carrier, with written
verification of receipt; or (iii) five business days after the mailing date,
whether or not actually received, if sent by U.S. mail, return receipt
requested, postage and charges prepaid, or any other means of rapid mail
delivery for which a receipt is available. In the case of N/D, such notice will
be provided to both the Senior Vice President for Business Affairs, America
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Online, Inc. [*] and the General Counsel, Netscape Communications Corporation
[*] or the AOL General Counsel (for DCI) [*], each at the address of AOL set
forth in the first paragraph of this Agreement. In the case of Participant
except as otherwise specified herein, the notice address shall be the address
for Participant set forth in the first paragraph of this Agreement, with the
other relevant notice information, including the recipient for notice and, as
applicable, such recipient's fax number or e-mail address, to be as reasonably
identified by NCD.
No Waiver. The failure of either party to insist upon or enforce strict
- ---------
performance by the other party of any provision of this Agreement or to exercise
any right under this Agreement shall not be construed as a waiver or
relinquishment to any extent of such party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same shall be
and remain in full force and effect.
Return of Information. Upon the expiration or termination of this Agreement each
- ---------------------
party shall, upon the written request of the other party, return or destroy (at
the option of the party receiving the request) all of the other party's
Confidential Information.
Survival. Section 7.7 of the Interactive Services Agreement, Section III of
- --------
Exhibit D to the Interactive Services Agreement, Section III, IV, V, VI and VII
of this Exhibit G of the Interactive Services Agreement, Section B5 of Exhibit
Al and Section 1 and 2 of Exhibit C shall survive the completion, expiration,
termination or cancellation of this Agreement.
Entire Agreement. This Agreement sets forth the entire agreement and supersedes
- ---------------
any and all prior agreements of the parties with respect to the transactions set
forth herein. Neither party shall be bound by, and each party specifically
objects to, any term, condition or other provision which is different from or
in addition to the provisions of this Agreement (whether or not it would
materially alter this Agreement) and which is proffered by the other party in
any correspondence or other document, unless the party to be bound thereby
specifically agrees to such provision in writing.
Amendment. No change, amendment or modification of any provision of this
- ---------
Agreement shall be valid unless set forth in a written instrument signed by the
party subject to enforcement of such amendment.
Further Assurances. Each party shall take such action (including, but not
- ------------------
limited to, the execution, acknowledgment and delivery of documents) as may
reasonably be requested by any other party for the implementation or continuing
performance of this Agreement
Assignment. Participant shall not assign this Agreement or any right, interest
- ----------
or benefit under this Agreement without the prior written consent of AOL,
provided, however, that Participant may assign this Agreement without such
consent in connection with any merger, consolidation, any sale of all or
substantially all of Participant's assets or any other transaction in which more
than fifty percent (50%) of Participant's voting securities are transferred,
resulting in change-of-control of Participant which is not to an Interactive
Service
[*] Confidential Treatment Requested
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and subject to all of the terms of this Agreement All other assumptions of this
Agreement by any successor to Participant (including, without limitation, by way
of merger or consolidation shall be subject to AOL's prior written approval
which shall not be unreasonably withheld or delayed. Any such notice of
disapproval shall specify with particularity all of the bases for the
disapproval. Subject to the foregoing, this Agreement shall be fully binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns.
Construction; Severability. In the event that any provision of this Agreement
- --------------------------
conflicts with the law under which this Agreement is to be construed or if any
such provision is held invalid by a court with jurisdiction over the parties to
this Agreement, (i) such provision shall be deemed to be restated to reflect as
nearly as possible the original intentions of the parties in accordance with
applicable law, and (ii) the remaining terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect.
Remedies. Except where otherwise specified, the rights and remedies granted to a
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party under this Agreement are cumulative and in addition to, and not in lieu
of, any other rights or remedies which the party may possess at law or in
equity.
Applicable Law; Jurisdiction. This Agreement shall be interpreted, construed and
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enforced in all respects in accordance with the laws of the Commonwealth of
Virginia except for its conflicts of laws principles. Each party irrevocably
consents to the exclusive jurisdiction of the courts of the Commonwealth of
Virginia and the federal courts situated in the Commonwealth of Virginia, in
connection with any action to enforce the provisions of this Agreement to
recover damages or other relief for breach or default under this Agreement, or
otherwise arising under or by reason of this Agreement.
Export Controls. Both parties shall adhere to all applicable laws, regulations
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and rules relating to the export of technical data and shall not export or re-
export any technical data, any products received from the other party or the
direct product of such technical data to any proscribed country listed in such
applicable laws, regulations and rules unless properly authorized.
Headings. The captions and headings used in this Agreement are inserted for
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convenience only and shall not affect the meaning or interpretation of this
Agreement.
Counterparts. This Agreement may be executed in counterparts, each of which
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shall be deemed an original and all of which together shall constitute one and
the same document.
Confidential
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EXHIBIT H NAMED ENTITIES
Participant may update this list a maximum of once per quarter and may add up to
2 additional Named Entities per quarter up to a total maximum of 30 Named
Entities at any given time.
[*]
[*] Confidential Treatment Requested
Confidential
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EXHIBIT I: PARTICIPANT CONTENT FOR INDEX PAGE
RateWatch
How much can you afford?
Rent vs. Buy
Refinance Decisions
Choose the Right Mortgage
Choose a Realtor
Estimated Closing Costs
Down Payment Strategies
Home Buying Process
HomeWatch
Rate Shopper
Home Valuation
Closing Costs
Glossary
Preapproval
Prequalification
Full Application
How Agents Work
Define Agent Needs
Find an Agent
Compare Schools
Community Reports
Confidential
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EXHIBIT J: DETAILED NETSCAPE CARRIAGE PLAN
[*]
[*] Confidential Treatment Requested
Confidential
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EXHIBIT K: WEEKLY REPORT
[*]
[*] Confidential Treatment Requested
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EXHIBIT L: PRESS RELEASE
iOWN JOINS WITH AOL'S NETCENTER AND DIGITAL CITY IN A MULTI-YEAR, MULTI-MILLION
DOLLAR ALLIANCE
Alliance Brings iOwn's Mortgage Services to Millions Via AOL, Inc. Brands
Agreement Highlights AOL, Inc.'s Multi-Brand Strategy
Dulles, VA and San Francisco, CA, XXX XX, 1999 - America Online, Inc. (NYSE:
AOL), the world's leading interactive services company, and iOwn, Inc., a
leading online mortgage company, today announced a multi-year marketing and
e-commerce alliance to bring the convenience and value of iOwn's mortgage
services to the millions of visitors to AOL's Netcenter and Digital City sites.
According to the multi-year, multi-million dollar agreement, iOwn will be the
exclusive provider of mortgage aggregation services in the Netcenter and Digital
City Mortgage Centers and Real Estate areas. iOwn's mortgage-related services
will also be available on a non-exclusive basis in certain other finance-related
areas of Netcenter and Digital City.
iOwn will offer visitors to Netcenter and Digital City a variety of home finance
services, including real-time mortgage rates from a range of leading national
lenders, free loan prequalification and preapproval and the ability to apply for
mortgages online. iOwn enables consumers to better evaluate their home finance
choices, by providing detailed information, up-front on the entire mortgage
process, such as iOwn's exclusive closing costs estimates which are county and
even city specific.
"With iOwn, these AOL brands can offer consumers a one-stop location where they
can easily shop for, compare and apply for mortgages from a variety of leading
mortgage providers," said Barry Schuler, President of AOL Interactive Services.
"iOwn's suite of on-line mortgage services will help us simplify the home
financing process for visitors to our Netcenter and Digital City sites."
Schuler added: "This agreement also reinforces the value of AOL's multi-brand
strategy. Our new pact with iOwn is the first cross-brand agreement for AOL,
Inc. to not feature the flagship AOL service and AOL.COM, and highlights the
tremendous advantage of our ability to offer our partners a variety of top
online brand resources that can best serve their unique needs."
"We are excited to work with these key AOL properties to give consumers the
information and tools they need to make confident home financing decisions,"
said Ned Hoyt, iOwn CEO and President. "The Mortgage Center will provide
consumers with the ability to easily shop for the best rates, educate themselves
on the home financing process and apply online to take advantage of iOwn's
significant cost savings."
About America Online
Confidential
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Founded in 1985, America Online, Inc., based in Dulles, Virginia, is the world's
leader in interactive services, Web brands, Internet technologies, and
e-commerce services. America Online, Inc. operates: two worldwide Internet
services, America Online, with more than 17 million members, and CompuServe,
with approximately 2 million members; several leading Internet brands including
ICQ and Digital City, Inc.; the Netscape Netcenter and AOL.COM portals; and the
Netscape Navigator and Communicator browsers. Through its strategic alliance
with Sun Microsystems, the Company develops and offers easy-to-deploy,
end-to-end e-commerce and enterprise solutions for companies operating in the
Net Economy.
About iOwn.com
iOwn, Inc., (www.iown.com), is a leading Internet mortgage company that helps
consumers find both a home and a low-cost mortgage online. Through onsite
content, customized tools and experienced loan specialists, who support each
customer throughout the entire mortgage transaction, iOwn simplifies the home
buying and refinancing process, while passing on significant financial savings
to the customer. Consumers can use the site to shop and compare rates, search
for a home from a large selection of current home listings, investigate
neighborhoods, prequalify, preapprove and apply for their mortgage. iOwn was
founded in October 1996 as HomeShark, Inc., and has headquarters in San
Francisco, Calif., with a customer service center in Martinez, Calif.
Confidential
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EXHIBIT 10.8
SNAP PROMOTION AGREEMENT
HomeShark
This Promotion Agreement (the "Agreement") is dated as of October 19, 1998 (the
"Effective Date") between Snap! LLC, a Delaware limited liability company
("Snap"), and HomeShark, Inc., a California corporation (the "Company").
Pursuant to this Agreement, Snap will provide various promotions to the Company
to assist the Company in promoting its Internet site and the products and
services offered through its Internet site. Accordingly, the parties hereby
agree as follows:
1. Background.
1.1 The Company operates an Internet site located at
http://www.homeshark.com designed to provide Internet-based residential
property listings, mortgage information, mortgage loan application and
processing services, and other real estate and mortgage-related
products and services to online consumers.
1.2 Snap operates a search and aggregation "portal" site on the World Wide
Web.
2. Definitions.
"Above the Fold" means that a particular item on a Web page is viewable on a
computer screen at an 800 x 600 pixels resolution when the User first
accesses such Web page, without scrolling down to view more of the Web page.
"Anchor Tenant" means a content provider with a fixed promotional and
content position within a Snap Center that always appears Above the Fold,
and which position is greater in size and prominence than that of any third
party within such Snap Center.
"Co-Branded Site" means the co-branded version of the Company Site that is
created pursuant to Section 4.3 of this Agreement and is maintained and
hosted by the Company.
"Co-Branded User" means any User of the Co-Branded Site.
"Company Marks" means any trademarks, trade names, service marks and logos
that may be delivered by the Company to Snap expressly for inclusion in the
Promotions.
"Company Products" means all products and services offered through the
Company Site or the Co-Branded Site.
"Company Site" means the Internet site operated by the Company at
http://www.homeshark.com, together with any mirror sites, co-branded sites
(not including the Co-Branded Site), and successors to the foregoing.
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"Competitor" of a party means any competitor of such party listed in
Exhibit B. Either party may amend Exhibit B once during each calendar
quarter, so long as such amendment is approved by the other party, which
approval shall not be unreasonably withheld. Snap, NBC, and CNET may not be
added as Competitors.
"Competitive Services" shall mean any content, services or tools that are
similar to those made available to Users via the Company Site and are also
directly related to buying and selling residential real estate, mortgages,
or community and neighborhood information.
"Impression" means the display on any Snap Site of a Web page containing at
least one Promotion.
"Jump Page" means any Snap Web page in the Real Estate section of the Snap
Classifieds, Real Estate Center, or Loan Center of the Snap Site containing
the company marks of Snap and the Company and content or a tool linking to
the Co-Branded Site, as further described in Section 4.2. The URL of a Jump
Page will begin with http://www.homeshark.snap.com.
"Keyword Banners" means banners to be displayed on search results pages
corresponding with the keywords listed in Exhibit A. Such Keyword Banners
will be displayed as set forth on Exhibit A.
"Launch Date" means the date on which the Web pages and navigational tools
associated with the Jump Page and Co-Branded Site function Properly and
such page and site are made accessible to Users.
"Period" means a defined time frame in which measurements will occur. The
Term of this Agreement will cover [*] as follows: [*]
"Preferred Tenant" means a fixed promotional and content position within a
Snap Center that appears below the Anchor Tenant and which is greater in
size and prominence than that of any third party, except the Anchor Tenant
in such Snap Center.
"Promotional Pages" means the Real Estate Center, the Loan Center, the Co-
Branded Site, and the Jump Pages.
"Promotions" means Above the Fold banners, buttons, text links, windows,
Keyword Banners, and other promotions that are offered by Snap now or in
the future and which link directly to the Company Site.
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"'Real Estate Center" means a collection of related Web sites, Web pages,
links, portals and other resources on the Snap Sites that will feature
mortgage services, residential real estate listings and Realtor referral
services.
"Snap Center" means a collection of related Web sites, Web pages, links,
portals, and other resources on the Snap Site sharing similar or
complementary topics or themes.
"Snap Marks" means any trademarks, trade names, service marks and logos
delivered by Snap to the Company expressly for inclusion in the Co-Branded
Site.
"'Snap Producer" means an individual or group of individuals holding
editorial authority and responsibility for a portal, site, collection,
area, center or page on the Snap Site.
"Snap Products" means all Snap products and services offered through the
Snap Sites, excluding Company Products.
"'Snap Sites" means any and all search and content aggregation sites,
whether operated by ,Snap or a third party under the "Snap" brand,
including, without limitation, the site located at http://www.snap.com,
together with any mirror sites, any co-branded editions of such site that
have been or may be developed for Distributors (if included pursuant to
Section 15.1), and successors to the foregoing.
"Tenant Positions" mean the Anchor Tenant position and the Preferred Tenant
position.
"Term" means the term of this Agreement, beginning on October 19, 1998 and
ending on [*] unless otherwise terminated as provided in Section 6.
"User" means any end-user of the Snap Site or the Co-Branded Site with a
unique user ID.
3. Promotions.
3.1 From the Effective Date through [*] Snap will deliver for the Company
[*] Impressions per month. During the third and fourth Periods, Snap
will deliver for the Company [*] Impressions per month. Snap agrees
that at least [*] Impressions per month [*] Impressions per month [*].
The Keyword Banners will appear as set forth on Exhibit A. To the
extent technically feasible for Snap, the Company shall have the right
to direct the location and placement of the foregoing Impressions
within sub-areas of the aforementioned areas, provided that the
requested targeting of such sub-areas does not preclude Snap from
delivering Impressions in any of the other targeted areas, as Snap
deems necessary to meet the minimum Impressions
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herein. The remaining Impressions may be delivered anywhere on the Snap
Site as determined in Snap's discretion. The Company may request a
reallocation of the number, location, type and timing of the
Promotions, and Snap will use commercially reasonable efforts to
implement such request within 30 days, subject to available inventory.
[*] provided that each Promotion appearing on such page will be
counted as one Impression. All numbers set forth in this Section 3.1
may be adjusted pursuant to Section 7.2.4.
3.2 The Company will design any graphics and other materials required for
the Promotions and will supply digital copies of such materials to
Snap. Such materials will be designed and delivered in accordance with
Snap's reasonable technical and editorial guidelines, as in effect from
time to time. Snap will provide reasonable assistance to the Company in
connection with the design and delivery of such materials.
3.3 The Company will be responsible for ensuring that each URL provided to
Snap for use in a Promotion takes the User to the appropriate area
within the Company Site, and that such sites function with reasonable
reliability and in a commercially reasonable manner throughout the
Term. The Company agrees that the Company Site and the Co-Branded Site
will comply with the performance standards set forth in Section 16
throughout the Term.
3.4 Underdelivery.
3.4.1 If Snap does not deliver the required number of total
Impressions during any given month (without regard to the
percentages in Section 3. 1), Snap will have an additional [*]
to deliver the Impressions on the Snap Site. The Company
acknowledges that the percentages set forth in Section 3.1 shall
be delivered annually and may not be delivered in any given
month.
3.4.2 If Snap does not deliver the required number of Impressions
during the [*] period described in Section 3.4. 1, above, the
Company agrees that for an additional [*] Snap may deliver
the Impressions on any World Wide Web site operated by CNET,
Inc. or the National Broadcasting Company, Inc., subject to
Company's prior consent (which shall not be unreasonably
withheld) and provided that such substituted Impressions are
substantially equivalent in value.
3.4.3 If Snap does not deliver the required number of Impressions
during the [*] period described in Section 3.4.2, above, the
Company will have the right to receive a credit against future
payments or rollover of the
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Impressions into future delivery periods of the undelivered
amount. During the first year, such credit or rollover will be
granted in an amount equal to [*] per [*] Impressions that
remain undelivered, and [*] per [*] Impressions that remain
undelivered. During the second year, such credit or rollover
will be granted in an amount equal to [*] per [*] Impressions
that remain undelivered, and [*] per [*] Impressions that remain
undelivered.
3.5 [*]
4. Jump Pages and Co-Branded Site.
4.1 Launch Date. The parties will use diligent efforts to achieve a Launch
Date within 30 days after the effective date of this Agreement;
provided, however, that if the Launch Date occurs after such 30 days
due to the fault of the Company, then, for all purposes herein, the
Launch Date shall be deemed to be the date that is 30 days after the
effective date of this Agreement.
4.2 Jump Pages
4.2.1 Snap will develop and implement Jump Pages in accordance with
this Section, subject to the reasonable approval of the
Company. The Company will provide reasonable assistance to Snap
in connection therewith. Notwithstanding the description of the
Jump Pages set forth below or any other provisions of this
Agreement, Snap may, in the exercise of its reasonable
discretion, make changes to the number, design and
functionality of the Jump Pages or any area of the: Snap Site,
subject to Section 7.
4.2.2 Snap will host the Jump Pages on its servers (or on servers
within its control) and will provide all computer hardware,
software and personnel necessary to operate and maintain the
Jump Pages as functional pages accessible to users of the World
Wide Web. Each Jump Page may have a different theme, emphasis,
or design, and may provide any or all of the features and
functionality of the Snap Site, as determined by the
unrestricted discretion of a Snap Producer. Further, the Jump
Pages may include editorial content as determined by Snap.
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4.2.3 The Company will provide Snap with the Company's search and
selection interfaces for display on the Jump Pages so that
Users of the Jump Pages may search the Company's database of
residential real estate listings and mortgage information. Such
search and selection interfaces may also be included on other
pages on the Snap Site, in Snap's discretion. Examples of such
interfaces are shown in Illustration C-4.
4.2.4 Each Jump Page will include at least one Snap Mark and one
Company Mark, as set forth on Illustration C-4.
4.3 Co-Branded Site
4.3.1 The Company will develop the Co-Branded Site In accordance with
this Section 4.3, and Snap will provide reasonable assistance
in connection therewith. The URL of the Co-Branded Site will be
http://_____________.snap.com/[page name].
4.3.2 Each page on the Co-Branded Site will include branding for Snap
and the Company, and each Snap logo or graphic will include an
embedded link to the Snap Site. To the extent feasible, but
subject to the final discretion of the Company, pages of the
Co-Branded Site will also include appropriate navigation
features, such as drop-down menus, breadcrumb trails or
navigation bars, which will include links to the Snap Site.
4.3.3 The Company will host the Co-Branded Site on its servers (or on
servers within its control) and will provide all computer
hardware, software and personnel necessary to operate and
maintain the Co-Branded Site as a functional site accessible to
users of the World Wide Web.
4.3.4 Unless otherwise mutually agreed to by the parties, the Co-
Branded Site will provide all of the features and functionality
provided by, and will perform in a manner substantially
identical to, the Company Site, as the Company Site may be
updated and enhanced from time to time. Snap acknowledges that
the Company may change the design and functionality of the
Company Site from time to time, in which case the design and
functionality of the Co-Branded Site will be changed in a
similar fashion.
4.3.5 The Co-Branded Site will display advertising consistent with
the number, type, and placement of advertising displayed on the
Company Site. The Company will be primarily responsible for
selling advertising on the Co-Branded Site. [*] Either party
may exchange advertising space on the Co-Branded Site for
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products or services from a third-party (i.e., barter);
provided that (1) such advertising space may be bartered only
if [*] or (2) [*]. Unless otherwise agreed, [*]. Barter
advertisements that do not meet one of the foregoing criteria
will be treated as a sale of advertising [*] and the bartering
party will be responsible for making payment to the other as
set forth above. For the purposes of this paragraph, "Net
Revenue" shall mean the gross price charged for the
advertisement minus any advertising agency fees paid. The
Company will not display advertisements of Snap Competitors on
the Co-Branded Site. Snap will not sell advertising on the Co-
Branded Site to any Company Competitor, or serve on the Co-
Branded Site the advertisements of any Company Competitor.
Further, if any advertisement on the Co-Branded Site is
reasonably deemed inappropriate by either party, such
advertisement shall be removed from the Co-Branded Site
immediately upon notice from the party requesting removal.
5. Payments and Credits.
5.1 [*]
5.1.1 [*]
5.1.2 [*]
5.1.3 [*]
5.1.4 [*]
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5.1.5 [*]
5.2 [*]
5.2.1 [*]
5.2.2 [*]
5.2.3 [*]
5.2.4 [*]
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5.2.5 [*]
5.3 [*]
5.4 [*]
5.4.1 [*]
5.4.2 [*]
5.5 [*]
6. Termination.
6.1 Either party may terminate this Agreement at any time by giving
written notice of termination to the other party if the other party
commits a material breach of its obligations hereunder that is not
cured within 30 days after notice thereof from the non-breaching
party; provided, however, that if the Company fails to make a payment
as required hereunder, Snap may terminate this Agreement 15 days
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following the date such written notice of non-payment is received by
the Company.
6.2 If Snap fails to attain the following [*] (as measured pursuant to
Section 8.3) at the end of the respective Period, the Company may, at
its option, terminate or renegotiate this Agreement upon 30 days
written notice to Snap:
Period Users
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[*] [*]
[*] [*]
[*] [*]
6.3 If either party is the subject of any voluntary or involuntary
proceeding relating to its liquidation or insolvency that is not
dismissed within ninety (90) days of commencement, the parties may
mutually agree to terminate this Agreement. Such termination will be
treated as taken in the ordinary course of business and will not
require court or creditor approval. Notwithstanding the foregoing,
each party reserves all rights, statutory or otherwise, against the
other related to any voluntary or involuntary proceeding relating to
liquidation or insolvency.
6.4 Snap may terminate this Agreement with 30 days advance written notice
upon the assignment of Company's rights and obligations under this
Agreement to a Snap Competitor (as set forth in Exhibit B).
6.5 If upon the expiration of the Term the Company desires to renew this
Agreement, the Company shall notify Snap in writing at least 30 days
prior to termination. Upon such notice, the parties will meet
together in good faith to discuss such renewal.
6.6 Upon the termination or expiration of this Agreement, all licenses
granted hereunder shall immediately terminate; each party shall return
or destroy, all Confidential Information of the other party in its
possession, and the provisions Sections 6.6, 13, 14, and 15 and any
obligations incurred prior to termination will survive any termination
of this Agreement.
7. Exclusivity.
7.1 General Exclusivity. During the Term and subject to Section 7.2.2, the
Company shall be the exclusive provider of mortgage services,
residential real estate listings, and Realtor referral services for the
Snap Sites, and Snap shall not display Promotions, advertisements, or
direct links to any Company Competitors (excluding any links from User-
directed general searches), except that:
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(a) Snap may display standard banner advertisements or other standard
promotional equivalent of banners advertisements, which are
substantially equivalent in value and prominence to such banner
advertisements, of Company Competitors (collectively, the
"Competitor Ads"); provided that (i) such Competitor Ads are
displayed in a manner consistent with Snap's editorial practices
across the Snap Sites, (ii) each page may contain Competitor Ads
for no more than one Competitor at any time; and (iii) each page
may contain up to two Competitor Ads, for any one Competitor so
long as are both are of the same type and are consistent with
Snap's standard business practices.
(b) Snap may display unpaid links to and content of Competitive
Services, provided that: (i) such links and content are displayed
in a manner consistent with Snap's editorial practices across the
Snap Sites, (ii) Snap provides no direct links from the
Promotional Pages to any Company Competitor; and (iii) Snap
provides no direct links from the Promotional Pages to Competitive
Services unless, in the reasonable judgment of a Snap Producer,
such Competitive Services are of greater quality than the
corresponding Company service. Notwithstanding the foregoing and
subject to Sections 7.1 (c) and 7.3.2(c), under no circumstances
may Snap display direct, unpaid links from the Promotional Pages
to the following subset of Competitive Services: residential real
estate listings and mortgage rates, quotes, applications, and
Realtor referral services.
(c) The Anchor Tenant in the Loan Center may have Promotions and
provide content, information, resources and tools anywhere on the
Snap Site other than the Real Estate Center, the Jump Page, and
the Co-Branded Site (except Competitor Ads permitted pursuant to
Section 7.1 (a)).
(d) The Company acknowledges and agrees that Snap may enter into an
exclusive relationship with a provider of listings, content,
information, resources and tools related to rental real estate,
including but not limited to apartments, condominiums, homes, and
other residential property (the "Rental Provider"), and that such
Rental Provider may have rental listings and Promotions (except
Promotions for services of such rental provider related to
mortgage services, residential real estate listings or Realtor
referral services) anywhere on the Snap Site. Further, the Company
acknowledges that Snap is under no obligation to use any listings,
information, tools, or other resources provided by the Company
related to rental real estate.
7.2 Additional Exclusivity Obligations.
7.2.1 Real Estate Center. During the Term, Snap will feature the
Company as the Anchor Tenant and the Preferred Tenant within
the Real Estate Center,
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and shall promote and link to the Company Products within and
throughout the Real Estate Center substantially in accordance
with Illustration C-1, subject to the reasonable discretion of a
Snap Producer. Snap agrees that any Snap Producer's editorial
changes will not meaningfully decrease the relative size,
prominence, and positioning of Company's Anchor Tenancy or
Preferred Tenancy within the Real Estate Center. The Company's
Anchor Tenant position and Preferred Tenant position will be
subject to the following:
(a) Subject to the sole discretion of a Snap Producer, Snap may
allow the Company to provide mortgage information within the
area designated by Snap as the Anchor Tenant position;
(b) The Company may provide mortgage and financial information
within the area designated by Snap as the Preferred Tenant
position, provided that up to [*] of the total area of the
Preferred Tenant position may be used by Snap to promote the
Snap Loan Center, subject to the discretion of a Snap
Producer.
7.2.2 Loan Center. During the Term, Snap will feature the Company as
the Preferred Tenant within the Loan Center, and shall promote
and link to the Company Products within and throughout the Loan
Center substantially in accordance with Illustration C-2, subject
to the reasonable discretion of a Snap Producer. Snap agrees that
any Snap Producer's editorial changes will not meaningfully
decrease the relative size, prominence, and positioning of
Company's Preferred Tenancy within the Loan Center.
Notwithstanding Section 7.1, Snap may display promotions,
content; and advertisements for, and links to the Loan Center
Anchor Tenant, consistent with Snap's agreement with such Anchor
Tenant.
7.2.3 Links. Snap will use commercially reasonable efforts to
aggressively promote the Real Estate Center throughout the Snap
Site through Above the Fold links, advertisements, editorials,
and other methods as determined in Snap's reasonable discretion
(collectively the "Internal Promotions"). Initially, Snap will
place Internal Promotions regarding the Real Estate Center on all
of the areas set forth on Exhibit 1) hereto. At Snap's sole
option during the Term, Snap may remove Internal Promotions from
certain areas, provided that (1) Internal Promotions are always
provided in [*] (2) Internal Promotions are always provided in at
least [*] (as determined by Snap), (3) Internal Promotions are
always provided in at least [*] (as determined by Snap), and (4)
Internal Promotions are always provided in [*]. Snap will
endeavor to place the Internal Promotions within areas and
centers that contain content, information and services relating
to real estate and mortgages
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including but not limited to home buying, home ownership, home
improvement, property listings, relocation and relocation
services, moving and moving services, apartment rentals,
corporate housing, home sales, home repair and improvement,
home decorating, home gardening, construction and construction
services, architecture, community information and demographics,
new homes developments, 'real estate agents, loans, home
finance, mortgages and mortgage rates, personal finance, and
family.
7.2.4 In addition to the links in Section 7.2.3, Snap will link to
the Real Estate Center from the front door of the Snap Site on
at least [*] provided, however, that any time prior to the date
that is [*] after the Launch Date (the "Option Date"), the
Company may send written notice to Snap directing Snap to
decrease such number of days from [*]. If such notice is
received, Snap will decrease such days as directed and
contemporaneously adjust the numbers and percentages in Section
3.1 as follows, effective as of the Option Date: [*]. All other
amounts in this Agreement shall remain the same.
7.3 Classifieds.
7.3.1 Exclusivity. During the Term, the Company shall be the
exclusive provider of real estate listings in the Real Estate
Classifieds area of the Snap Sites. Snap shall promote and link
to the Company's listings and other promotional content in the
Classifieds area, substantially in accordance with Illustration
C-3, subject to the reasonable discretion of a Snap Producer.
Snap agrees that any Snap Producer's editorial changes will not
meaningfully decrease the relative size, prominence, and
positioning of Company's real estate listings within the
Classifieds area.
7.3.2 Notwithstanding the exclusivity provision in Section 7.3.1,
above, Snap may, from time to time, notify the Company in
writing that the number of Company listings for any particular
city is not reasonably sufficient. The Company shall have 30
days from receipt of such notice to supplement its listings,
during which time Snap will not discuss supplemental listings
with any other listings provider. If after such time Snap
determines (in its reasonable discretion) that the Company's
listings for such city remain insufficient, Snap may provide
listings for such city from other listings providers in the
"Local" area of Snap (whether by geographic category, User
customization within My Snap!, or automatic localization
features) as follows: (a) Snap will use commercially reasonable
efforts to obtain an
[*] Confidential Treatment Requested
13
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adequate number of listings from local listing providers; (b)
if Snap cannot obtain an adequate number of listings as
provided in subsection (a), Snap will use commercially
reasonable efforts to obtain an adequate number of listings
from any national listing provider that is not a Company
Competitor; and (c) if Snap cannot obtain an adequate number of
listings as provided in subsections (a) and (b), Snap may use
commercially reasonable efforts to obtain an adequate number of
listings from any national listing provider, including a
Company Competitor. Any listings provided by other providers
will be less prominent than the Company's listings. The Company
will notify Snap when it has added a sufficient amount of Real
Estate listings for such city, and upon reasonable verification
by Snap, Snap shall remove any non-Company listings and replace
them with Company listings within fifteen (15) days. For the
purposes of this Section, a reasonably sufficient number of
listings for a particular locality is a number equal to or
greater than [*] of the number of listings provided by the top
listings service for the same locality, as such locality is
defined by the Company.
7.3.2 The Company will use diligent efforts to maintain and grow the
number of real estate listings available through its service
during the term of the Agreement.
7.4 If during the Term the existing Anchor Tenant in the Loan Center
ceases to hold such position, Snap will negotiate exclusively and in
good faith with the Company for a period of 30 days regarding the
Company's purchase of such Anchor Tenant position on terms to be
proposed by Snap. Such terms will include, but not be limited to, an
agreement that the amounts of all Promotions in Section 3.1 and the
amounts of all payments in Sections 5.1.1, 5.1.2, 5.1.3, 5.2.1,
5.2.2., and 5.2.3 will immediately increase by [*] effective for the
remainder of the Term. If Snap and the Company are unable to reach
agreement on such an arrangement within such 30 day period, Snap will
be free to negotiate with third parties with respect to such an
arrangement, provided that Snap may not enter into any agreement
regarding the Anchor Tenant positions with a third party on terms
materially more favorable that those offered to Company.
8. Reporting.
8.1 Within 30 days after the end of each month during the Term, Snap will
provide to the Company a report that includes the following
information for such month: (a) standard reports with respect to the
banner advertisements included within the Promotions, and (b) the
number of User sessions and Users who accessed the Real Estate Center,
the Loan Center, the Snap Classifieds area, and each Jump Page.
8.2 Within 30 days after the end of each month during the Term, the
Company will provide to Snap a report that includes the following
information for such month:
[*] Confidential Treatment Requested
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(a) the aggregate number of clickthroughs from the Snap Site to the
Company Site and the Co-Branded Site; (b) the number of Co-Branded
User sessions and Users; and (c) the total page views, on a daily
basis, on the Co-Branded Site. The Company will obtain the foregoing
data by tagging each Co-Branded User using a cookie or other similar
technology, as agreed upon by the parties. In addition, the Company
will make available on a quarterly basis a report that describes, on a
weekly basis, the percentage of unsold advertising inventory and the
amount of such inventory that was bartered by the Company pursuant to
Section 7.3.5.
8.3 The total number of users measured for purposes of Sections 5.4 and
6.2 will initially be determined by Media Metrix. If either party
desires to use an alternative Web profiling company, Snap and the
Company shall meet in good faith to mutually agree upon a new company
to measure such Users. Within 30 days of the end of each Period, Snap
shall provide the Company (at no cost) a report from Media Metrix
stating the aggregate number of Users (using At Home numbers) at the
end of such Period ("Media Metrix Report"). Snap may, at its sole
discretion, substitute its audited internal audience measurements for
those of any third party provider at any time, on the following
conditions: (1) once provided by Snap, such audience measurements.
will be provided by Snap (and not a third party) for the remainder of
the Term; (2) the Snap numbers will be weighted against the third
party provider numbers at the time of substitution, and such weighting
will be applied during the remainder of the Term (e.g., if the third
party provider reports 4 million Users and Snap reports 5 million
users, the Snap numbers will be weighted to equal 4 million Users and
such weighting will apply to all subsequent reports); (3) in no event
may Snap's actual numbers be less than those set forth in Sections 5.4
and 6.2; and (4) the Company may audit such audience measurements one
time in each calendar year upon 30 days written notice to Snap.
9. User Data. The Company will be the sole owner of any information that the
Company collects from Users through the Co-Branded Site, and Snap will be
the sole owner of any information that Snap collects from Users through the
Snap Site (including the Real Estate Center and Loan Center). Each party
will have the right to use any information provided by the other party
pursuant to Section 8 subject to the confidentiality restrictions set forth
in Section 15.8. Unless otherwise clearly disclosed to Users on the
respective site, all data collected from Users through the Company Site and
Co-Branded Site will be kept confidential and not disclosed to third
parties in accordance with the published privacy policy of Snap.
10. Reciprocal Marketing. The Company will display a button or other graphical
link to be provided by Snap, which links to the Snap Site, on all pages
except those beyond the password-protected pages in the Co-Branded Site and
on designated pages of the Company Site. All such links on the Co-Branded
Site and Company Site will be displayed Above the Fold. Snap agrees not to
specifically target (separately from the general database of Snap Users)
any Users who access the Snap Site through such links.
[*] Confidential Treatment Requested
15
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11. Localized Content. The Company will assist Snap in developing a system
through which Snap can deliver to the Company the geographic location of a
particular User and the Company can return to such User current Real Estate
listings and other agreed-upon information specific to such location. For
such purposes, a User's location may be identified by city and state, zip
code, IP or unique user address or other reasonable means. Once developed,
such localized content will be placed on the Co-Branded Site as mutually
agreed by the parties and on the Snap Site as determined by Snap.
12. Licenses.
12.1 The Company hereby grants to Snap a non-exclusive, non-transferable,
royalty-free license, effective throughout the Term, to use, display
and publish the Company Marks and those programs, software, materials
or content developed by the Company and made available to Snap (
"Company Tools"), solely within the Promotions and the Tenant
Positions on the Snap Sites.
12.2 Any use of the Company Marks or the Company Tools by Snap must comply
with any reasonable usage guidelines communicated by the Company to
Snap from time to time. Nothing contained in this Agreement will give
Snap any right, title or interest in or to the Company Tools, the
Company Marks or the goodwill associated therewith, except for the
limited usage rights expressly provided above. Snap acknowledges and
agrees that, as between the Company and Snap, the Company is the sole
owner of all rights in and to the Company Marks and the Company
Tools.
12.3 Snap hereby grants to the Company a non-exclusive, non-transferable,
royalty free license, effective throughout the Term, to use, display
and publish the Snap Marks solely within the Co-Branded Site. Any use
of the Snap Marks by the Company must comply with any reasonable
usage guidelines communicated to the Company by Snap from time to
time. Nothing contained in this Agreement will give the Company any
right, title or interest in or to the Snap Marks or the goodwill
associated therewith, except for the limited usage rights expressly
provided above. The Company acknowledges and agrees that, as between
the Company and Snap, Snap is the sole owner of all rights in and to
the Snap Marks.
13. Responsibility for the Products.
13.1 The Company acknowledges and agrees that, as between the Company and
Snap, the Company will be solely responsible for any claims or other
losses associated with or resulting from the marketing or operation
of the Company Site or the Co-Branded Site or the offer or sale of
any Company Products by the Company or through the Company Site or
the Co-Branded Site. Snap is not authorized to make, and agrees not
to make, any representations or warranties concerning the
16
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Company Products, except to the extent (if any) contained within
Promotions delivered to Snap by the Company.
13.2 Snap acknowledges and agrees that, as between the Company and Snap,
Snap will be solely responsible for any claims resulting from the
marketing or operation of the Snap Sites or the offer or sale of any
Snap Products by Snap or through the Snap Site. The Company is not
authorized to make, and agrees not to make, any representations or
warranties concerning the Snap Products, except to the extent (if
any) contained within links or content delivered to the Company by
Snap for inclusion on the Co-Branded Site.
14. Mutual Indemnification.
14.1 Indemnification by Snap. Snap shall indemnify and hold the Company
harmless from and against any costs, losses, liabilities and
expenses, including all court costs, reasonable expenses and
reasonable attorney's fees (collectively, "Losses") that the Company
may suffer, incur or be subjected to by reason of any legal action,
proceeding, arbitration or other claim by a third party, whether
commenced or threatened, arising out of or as a result of (a) the use
of the Snap Marks by the Company in accordance with this Agreement;
(b) any content provided by Snap to the Company for display on the
Co-Branded Site; (c) the operation of the Snap Site (except in cases
where the Company is required to indemnify Snap under the following
paragraph); or (d) the offer or sale of Snap Products by Snap or
through the Snap Site.
14.2 Indemnification by the Company. The Company shall indemnify and hold
Snap harmless from and against any Losses that Snap may suffer, incur
or be subjected to by reason of any legal action, proceeding,
arbitration or other claim by a third party, whether commenced or
threatened, arising out of or as a result of (a) the use of the
Company Marks or the Company Tools by Snap in accordance with this
Agreement; (b) any content provided by the Company to Snap for
display on the Snap Site; (c) the operation of the Company Site or
the Co-Branded Site; or (d) the offer or sale of the Company Products
by the Company or through the Company Site or Co-Branded Site.
14.3 Indemnification Procedures. If any party entitled to indemnification
under this Section (an "Indemnified Party") makes an indemnification
request to the other, the Indemnified Party shall permit the other
party (the "Indemnifying Party") to control the defense, disposition
or settlement of the matter at its own expense; provided that the
Indemnifying Party shall not, without the consent of the Indemnified
Party enter into any settlement or agree to any disposition that
imposes an obligation on the Indemnified Party that is not wholly
discharged or dischargeable by the Indemnifying Party, or imposes any
conditions or obligations on the Indemnified Party other than the
payment of monies that are readily measurable for purposes of
determining the monetary indemnification or
17
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reimbursement obligations of Indemnifying Party. The Indemnified
Party shall notify Indemnifying Party promptly of any claim for which
Indemnifying Party is responsible and shall cooperate with
Indemnifying Party in every commercially reasonable way to facilitate
defense of any such claim; provided that the Indemnified Party's
failure to notify Indemnifying Party shall not diminish Indemnifying
Party's obligations under this Section except to the extent that
Indemnifying Party is materially prejudiced as a result of such
failure. An Indemnified Party shall at all times have the option to
participate in any matter or litigation through counsel of its own
selection and at its own expense.
15. Miscellaneous.
15.1 Notwithstanding Sections 4 and 7, above, the Company acknowledges
that Snap produces co-branded editions of the Snap Site for various
resellers, distributors and other licensees (collectively the
"Distributors"). In some cases, such Distributors are entitled to
replace Snap's default content with other content within their own
co-branded editions of the Snap Site. Notwithstanding the other
provisions of this Agreement, if any such Distributor has exercised
its right to replace the Company's content with other content, then
Snap will not be required to display the Promotions or the Company's
content within such Distributor's co-branded edition of the Snap
Site. In such event, any users of such Distributor's co-branded
edition of the Snap Site shall not be included in the calculation of
Users. If Snap does display the Promotions or the Company's content
within a co-branded edition of the Snap Site, such display will be
governed by this Agreement and users of such site shall be included
in the calculation of Users.
15.2 LIMITATION OF DAMAGES. NEITHER PARTY WILL BE LIABLE FOR ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING OUT OF OR
RELATED TO THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY (INCLUDING NEGLIGENCE), AND EVEN IF SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. FURTHER, EXCEPT FOR ANY
CLAIM FOR INDEMNIFICATION ARISING UNDER SECTION 14 ABOVE, IN NO EVENT
SHALL EITHER PARTY BE LIABLE FOR DAMAGES IN EXCESS OF $1,000,000.00.
15.3 Assignment. Neither party may assign this Agreement, in whole or in
part, without the other party's written consent; provided, however,
that either party may assign this Agreement without such consent in
connection with any merger, consolidation, any sale of all or
substantially all of that party's assets or any other transaction in
which more than 50% of that party's voting securities are transferred
to any person or entity other than a Competitor of the other party,
subject to the terms of this Agreement. Any other attempt to assign
this Agreement other than in accordance with this provision shall be
null and void.
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15.4 Relationship of Parties. This Agreement will not be construed to
create a joint venture, partnership or the relationship of principal
and agent between the parties hereto, nor to impose upon either party
any obligations for any losses, debts or other obligations incurred
by the other party except as expressly set forth herein.
15.5 Entire Agreement. This Agreement constitutes and contains the entire
agreement between the parties with respect to the subject matter
hereof and supersedes any prior oral or written agreements. This
Agreement may not be amended except in writing signed by both
parties. Each party acknowledges and agrees that the other has not
made any representations, warranties or agreements of any kind,
except as expressly set forth herein.
15.6 Audit Rights. During the Term and for one year thereafter, each party
will have the right, no more than once per calendar year, to engage
an independent third party to audit the books and records of the
other party relevant to the quantification of the Promotions, upon
reasonable notice and during normal business hours, and the other
party will provide reasonable cooperation in connection with any such
audit. The party requesting the audit will pay all expenses of the
auditor unless the audit reveals an underpayment by the other party
of more than 5%, in which case the other party will reimburse all
reasonable expenses of the auditor.
15.7 Applicable Law. This Agreement will be construed in accordance with
and governed by the laws of the State of California, without regard
to principles of conflicts of law.
15.8 Confidentiality. In connection with the activities contemplated by
this Agreement, each party may have access to confidential or
proprietary technical or business information of the other party,
including without limitation (a) proposals, ideas or research related
to possible new products or services; (b) financial statements and
other financial information; (c) any reporting information in Section
8 herein; and (d) the material terms of this Agreement and the
relationship between the parties; provided, however, that such
information will be considered confidential only if it is
conspicuously designated as "Confidential," or if provided orally,
identified at the time of disclosure as confidential (collectively,
"Confidential Information"). Each party will take reasonable
precautions to protect the confidentiality of the other party's
Confidential Information, which precautions will be at least
equivalent to those taken by such party to protect its own
Confidential Information. Except as required by law or as necessary
to perform under this Agreement, neither party will knowingly
disclose the Confidential Information of the other party or use such
Confidential Information for its own benefit or for the benefit of
any third party. Each party's obligations in this Section with
respect to any portion of the other party's Confidential Information
shall terminate when the party seeking to avoid its obligation under
such Paragraph can document that: (i) it was in the public domain at
or subsequent
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to the time it was communicated to the receiving party ("Recipient")
by the disclosing party ("Discloser") through no fault of Recipient;
(ii) it was rightfully in Recipient's possession free of any
obligation of confidence at or subsequent to the time it was
communicated to Recipient by Discloser; (iii) it was developed by
employees or agents of Recipient independently of and without
reference to any information communicated to Recipient by Discloser;
(iv) it was communicated by the Discloser to an unaffiliated third
party free of any obligation of confidence; or (v) the communication
was in response to a valid order by a court or other governmental
body, was otherwise required by law or was necessary to establish
the rights of either party under this Agreement.
15.9 Press Release. Notwithstanding Section 15.8, Snap and the Company
agree to collaborate and mutually agree on the contents of a joint
press release concerning this Agreement. Each party may from time to
time issue a press release concerning this Agreement or the parties'
business relationship upon prior written approval by the other
party. Each party will provide an appropriate quote from one of its
senior executive officers for use in any approved press release.
Each party will provide the other with a reasonable opportunity to
review and comment on its press release.
15.10 Illustrations. All Illustrations attached to the Exhibits are for
illustrative purposes only and shall not be deemed to bind, obligate
or restrict either party from making changes in such party's
discretion; provided, however, that Snap may not make changes to any
Snap Site page or Jump Page which meaningfully decreases the size,
value and prominence of any content or promotions with respect to
the corresponding Illustrations without the Company's consent.
15.11 Attorney Fees. In any action or suit to enforce any right or remedy
under this Agreement or to interpret any provision of this
Agreement, the prevailing party shall be entitled to recover its
costs, including reasonable attorneys' fees.
15.12 Dispute Resolution. In the event that any dispute arises hereunder,
the parties agree that prior to commencing litigation, arbitration,
or any other legal proceeding, each party shall send an officer of
such party to negotiate a resolution of the dispute in good faith at
a time and place as may be mutually agreed. Each officer shall have
the power to bind its respective party in all material respects
related to the dispute. If the parties cannot agree on a time or
place, upon written notice from either party to the other, the
negotiations shall be held at the principal executive offices of
Snap twenty one days following such notice (or on the next
succeeding business day, if the twenty first day is a weekend or
holiday).
16. General Performance Standards. The Company Site, the Co-Branded Site and
the Company's related operations must comply with the following performance
standards throughout the Term:
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16.1 The Company Site and Co-Branded Site will be operational and fully
functional in all material respects (i.e. capable of displaying
information and conducting transactions as contemplated in the
ordinary course of business) at least 97% of the time during any 30
day period.
16.2 The average time required to start displaying the HTML on a page of
the Company Site or Co-Branded Site after a link from the Snap Site
shall not exceed a daily average of three seconds, and the average
time required to deliver an entire page of the Company Site or Co-
Branded Site over the open Internet shall not exceed a daily average
of six seconds. For measurements required in this paragraph, the
Company may assume standard T1 connectivity to the Internet.
16.3 Without limiting the effect of Paragraph 16.1 and 16.2 above, the
Company shall provide to Users coming to the Company Site or the Co-
Branded Site from the Promotions at least the same level of service
as is offered to Users coming directly to the Company Site.
16.4 The Company Site and Co-Branded Site will offer Real Estate listings
and mortgage-related services as well as links to various Real Estate
resources and shall not, to the best of the Company's knowledge: (a)
contain defamatory or libelous material or material which discloses
private or personal matters concerning any person, without such
person's consent; (b) permit to appear or be uploaded any messages,
data, images or programs which are illegal, contain nudity or
sexually explicit content which are, by law, obscene, profane or
pornographic; or (c) permit to appear or be uploaded any messages,
data, images or programs that would knowingly or intentionally (which
includes imputed intent) violate the property rights of others,
including unauthorized copyrighted text, images or programs, trade
secrets or other confidential proprietary information, or trademarks
or service marks used in an infringing fashion.
16.5 If any of the performance standards set forth above are not met by
the Company, Snap may immediately remove any or all links to the
Company Site or Co-Branded Site, as applicable, at Snap's sole
discretion. If the Company Site fails to operate fully and
functionally in any material respect for any period of four or more
consecutive hours, even if otherwise in compliance with the
performance standards, Snap may immediately remove any or all links
to the Company Site or Co-Branded Site, as applicable, at Snap's sole
discretion until such time as the Company notifies Snap that such
Company Site or Co-Branded Site has resumed acceptable operation.
These remedies are for Snap's editorial purposes and in no way limit
Snap's ability to terminate this contract or pursue any other
remedies hereunder in the event the performance standards set forth
herein are not met.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the date first written above.
SNAP, LLC HOMESHARK, INC.
By: ________________________ By: ___________________________
Name: ________________________ Name: ___________________________
Title: ________________________ Title: ___________________________
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Exhibit A
Keywords
1. The Company will receive Keyword Banners [*] the following are
searched on Snap:
[*]
[*] Confidential Treatment Requested
23
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[*]
[*] Confidential Treatment Requested
24
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Exhibit B
Competitors
1. [*]
[*] Confidential Treatment Requested
25
<PAGE>
[*]
[*] Confidential Treatment Requested
26
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Exhibit C
Illustrations
1. Illustration C-1: Snap Real Estate Center
2. Illustration C-2: Snap Loan Center
3. Illustration C-3: Snap Classifieds
4. Illustration C-4: Jump Page
27
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Exhibit D
Target Areas for Internal Promotions
[*]
[*] Confidential Treatment Requested
28
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EXHIBIT 10.9
HOMESCOUT PROMOTION AGREEMENT
This HOMESCOUT PROMOTION AGREEMENT (the "Agreement") is made as of November
1, 1999 (the "Effective Date") by and between iOwn, Inc. ("iOwn"), a California
corporation with its principal place of business at 333 Bryant Street, Lower
Level, San Francisco, CA 94107 and Homes.com, LLC, a Delaware limited liability
company, with its principal place of business located at 800 Menlo Avenue, #210,
Menlo Park, CA 94025 ("Partner").
WHEREAS, iOwn is the owner and operator of a Web site that provides home
buying related products, services and content, including a searchable database
of real estate for sale by various partners known as the "HomeScout" service (as
described further herein); and
WHEREAS Partner operates a variety of Web properties and real estate-
related Web services, including a series of Web Site products upon which real
estate professionals may list real estate for sale and other information about
themselves; and
WHEREAS, the parties desire that iOwn promote real estate listings from
Partner's Web Site products within HomeScout as provided further herein;
NOW, THEREFORE, in consideration of the mutual consideration, promises,
representations, and covenants set forth herein, the receipt and sufficiency of
which are hereby acknowledged, iOwn and Partner agree as follows:
1. Definitions.
-----------
(a) "Customer" means a real estate professional client of Partner, for
whom Partner provides Web site products upon which the client may list
real estate for sale and other information about themselves; Customers
include both individual real estate professionals promoting themselves
as individuals ("Agent Customers"), and brokers representing an office
of real estate professionals, promoting themselves together ("Broker
Customers').
(b) "Customer Listings Data" means information relating to real estate
listed for sale, which is available for view on a Customer's web site,
as provided or hosted by Partner.
(c) "HomeScout" means a Web-based service provided by iOwn consisting of a
database of real estate for sale which can be searched in response to
user queries, and which displays a summary results page ("Results
Page"), in response to such queries, which contains a summary if the
relevant real estate listings promoted within HomeScout, and which
also contains Links to the Web Sites of real estate professionals
hosting the listed property (the "Listings Detail Page"). iOwn may
modify the HomeScout service at any time in its sole discretion.
<PAGE>
(d) "HomeScout Data Standards" means the set of data fields that summarize
Customer Listings Data which are transmitted to iOwn by Partner, in
order to promote Partner's Customers' Web Sites within HomeScout,
which data fields are further defined, including minimum required and
optional fields, as well as data cleanliness requirements therefor, in
Exhibit B hereto, and as iOwn may change from time to time in its
reasonable discretion.
(e) "HomeScout Data Transmission Standards" shall mean those procedures
and standards for Partner's transmission of the Customer Listings Data
to iOwn, as set forth in Exhibit C herein, and as iOwn may change from
time to time in its reasonable discretion.
(f) "HomeScout Minimum Data Set" means the minimum set of data fields and
cleanliness levels within the HomeScout Data Standards which must be
transmitted to iOwn in connection with promoting such Customer
Listings Data within HomeScout, as further defined in Exhibit B
hereto, and as iOwn may change for time to time in its reasonable
discretion.
(g) "iOwn Web Site" means the Web Site owned and maintained by iOwn that
is currently located at the URL www.iown.com and all successors.
(h) "Link" means the hypertext graphic and/or textual link that may be
initiated by clicking an icon, logo, button, image or text to
establish a direct connection to a different page of a Web Site or to
a different Web Site.
(i) "Member Access Panel" means that portion of the customers web site
which is used by the agent or broker to sign into, modify, or adjust
their site.
(j) "Partner Promotional Fee" means the fees set forth in Section 4
herein, which iOwn shall charge to Partner for promotion of Partner's
Customers Web Sites within HomeScout.
(k) "Partner Marks" means Partner's trademarks, service marks, trade
names, trade dress, logos, look and feel or other indicia of source.
(l) "Web Site" means a World Wide Web site on the Internet.
2. Partner Duties.
--------------
(a) Promotion of HomeScout to Customers. Partner will use commercially
-----------------------------------
reasonable efforts to promote the HomeScout service to its Customers.
Without limitation to the foregoing, Partner will integrate as a
default portion of Partner's standard Member Access Panel, a "Click
Agreement", authorizing the promotion of each Customer's Web Site
and Customer Listings Data within HomeScout. Such Click Agreement
shall require the Customer to manually opt out if they do
<PAGE>
not desire to be promoted within HomeScout. If more than one
promotional option exists within the Member Access Panel, then
HomeScout shall be the first such click agreement that is offered to
the customer.
(b) Form of Consent. Partner shall submit its proposed form of consent
---------------
described in 2(a) above to iOwn for approval. iOwn shall work with
Partner to decide on mutually agreeable contract language, as
indicated by iOwn's written approval. Once so approved, the consent
language will be attached hereto as Exhibit E. iOwn's standard form
of permission is attached hereto as Exhibit A, as an example to
Partner. Partner will obtain such consent from all Customers prior to
sending any such Customers' Listings Data to iOwn for inclusion within
the HomeScout service.
(c) Data Transmission. For all Customers who do not opt out of promotion
-----------------
within HomeScout, Partner will provide iOwn with such Customers'
Customer Listings Data as follows:
(i) Nature of the Data. Partner will use commercially reasonable
------------------
efforts to maintain the HomeScout Data Standards for Customer
Listing Data, as set forth in Exhibit B, but in no event will
fail to maintain the HomeScout Minimum Data Set set forth
therein.
(ii) Method of Transmission. Partner will send Customer Listing Data
----------------------
(pursuant to the standards of Section 2(b)(i)) to iOwn in
accordance with the HomeScout Data Transmission Standards set
forth in Exhibit C.
(iii) Updates. Partner will transmit any change in any Customer
-------
Listing Data to iOwn pursuant to the HomeScout Data
Transmission Standards as soon as commercially reasonable (but
in no case more than 24 hours, and no less frequently than once
per week) after Partner's receipt of such change.
(d) Data Inaccuracies. Partner will be solely responsible for Partner's
-----------------
failure to transmit Customer Listing Data accurately or otherwise in
accordance herewith. UNDER NO CIRCUMSTANCES WILL iOwn BE LIABLE IN
ANY WAY FOR ANY ERRORS, INACCURACIES, FAILURES BY PARTNER TO TRANSMIT
(TIMELY OR OTHERWISE) CUSTOMER LISTING DATA AND PARTNER AGREES THAT IT
WILL BE SOLELY RESPONSIBLE FOR SUCH LIABILITY.
3. iOwn Duties.
-----------
(a) iOwn will use commercially reasonable efforts to include all Customer
Listing Data transmitted in accordance with Section 2 above within the
HomeScout service.
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(b) iOwn will use commercially reasonable efforts to host and maintain the
HomeScout service, and to increase usage of the HomeScout service over
time.
(c) iOwn will use a portion of such compensation paid by Partner hereunder
for promotion and marketing to increase usage of the HomeScout
Service.
4. Fees; Payment.
-------------
(a) Fees For Agent Customer Listings. For each Agent Customer for whom
--------------------------------
Customer Listing Data is transmitted to iOwn pursuant to Section 2,
iOwn will invoice Partner as follows: [*] during which, such Agent's
Customer Listing Data is promoted within HomeScout.
(b) Fees For Broker Customer Listings. For each Broker Customer for whom
---------------------------------
Customer Listing Data is transmitted to iOwn pursuant to Section 2,
iOwn will invoice Partner as follows: [*] during which such Broker
Customer Listing Data is promoted within HomeScout.
(c) Invoices. [*] iOwn will calculate the number of each type of
--------
Customers with Customer Listings Data promoted within HomeScout and
will invoice Partner the corresponding fees as set forth in this
Section 4. However, in any case, the [*].
(d) Payment of Invoices. Partner shall pay all invoices from iOwn within
-------------------
thirty (30) days of the date of such invoices. All fees not paid
within thirty (30) days of when such fees become due shall be subject
to a finance charge of one and one half percent (1.5%) per month
simple interest, with such interest charges starting on the due date
for such fees.
(e) Taxes. Partner shall be solely responsible for the payment of any and
-----
all sales, use, value-added, or similar taxes that may accrue in
connection with the promotion of Customer Listing Data within
HomeScout. Each party shall be responsible for any taxes based on
their respective income.
5. Term. This Agreement will become effective as of the Effective Date and
----
shall remain in effect for the Initial Term, and after the Initial Term
this Agreement shall be automatically extended for successive Renewal
Terms, unless either party provides notice of termination at least sixty
(60) calendar days prior to the end of the Initial Term or
[*] Confidential Treatment Requested
<PAGE>
Renewal Term, as the case may be, or unless this Agreement is otherwise
terminated as provided in the Standard Terms and Conditions.
Initial Term: [*]
Renewal Term: [*]
6. Standard Terms and Conditions. This Agreement will be governed by iOwn's
-----------------------------
Standard Terms and Conditions set forth in Exhibit D hereto ("Standard
Terms and Conditions").
The parties have caused this Agreement to be executed by their duly authorized
representatives as of the Effective Date.
iOWN, INC. HOMES.COM, LLC
By:_______________________________ By:_________________________________
Name: Ned Hoyt Name:_______________________________
Title: Chief Executive Officer Title:______________________________
Address: Address:
333 Bryant Street, Lower Level 800 Menlo Avenue, #210
San Francisco, CA 94107 Menlo Park, CA 94025
[*] Confidential Treatment Requested
<PAGE>
EXHIBIT A
---------
Form of Permission
COOPERATIVE MARKETING AGREEMENT
iOwn, Inc. owns and operates a web site located primarily at www.iown.com,
-------------
which provides educational and mortgage brokerage services to homebuyers and
includes and Internet Real Estate marketing service known as HomeScout(R)
located primarily but not exclusively at www.homescout.com.
-----------------
________________________ wishes to increase homebuyer traffic to its web
site and online listings by participating in HomeScout and establishing non-
exclusive linking to property listings on its web site.
WHAT WE WILL DO FOR YOU
HomeScout(R) will provide you with [*] to your web site and your
listings by direction homebuyers to your site.
In response to a user query, HomeScout(R) will generate summary results
from the summary data you provide. Each summary listing generated by a user
search will include a link to a detailed listing located on your web site.
ALL WE NEED FROM YOU
Provide HomeScout(R) with a tab-delimited text file with a summary of your
listing data using HomeScout's preferred format. Details are located at
[*]
Regular updates ____ times per week.
OWNERSHIP & RESPONSIBILITIES
You retain all right, title and interest in and to the intellectual
property of your web sites, data collected and any products and services on your
web site. Nothing in this agreement entities iOwn, Inc. to any ownership in or
exclusivity of access to the detailed listing on your web site.
You agree to accept responsibility for the summary data provided to us and
iOwn, Inc. agrees to accept responsibility for accurately displaying the data
provided.
[*] Confidential Treatment Requested
<PAGE>
EXHIBIT B
---------
Data Standards
Partner will insure that all Customer Listing Data is in accordance with the
format and cleanliness standards provided by iOwn (and modified by iOwn from
time to time) as set forth at the following URL:
[*]
[*] Confidential Treatment Requested
<PAGE>
EXHIBIT C
---------
Data Transmission Standards
Partner will transmit Customer Listing Data in accordance with the standards
provided by iOwn (and modified by iOwn from time to time) as set forth at the
following URL:
[*]
<PAGE>
EXHIBIT D
---------
Standard Terms and Conditions
1. Licenses
--------
(a) License Grant by Partner. Partner hereby grants to iOwn a
------------------------
nonexclusive, royalty-free right to: (a) use, reproduce, publicly
display, publish, and transmit electronically Partner's and Customers'
text, data, information, graphics or other materials provided by
Partner hereunder to iOwn for use in connection with iOwn's
obligations hereunder ("Partner Content"), in whole or in part, on or
in connection with iOwn; (b) use, reproduce, publicly display and
transmit electronically Partner's or Customers' trademarks, service
marks, trade names, logos or other source identifiers (collectively,
the "Partner Marks") as necessary to meet iOwn's obligations hereunder
and subject to the guidelines set forth in Section 1(c) ("Use of
Marks") below. Except as provided for herein, Partner reserves all
right, title, and interest in and to Partner's Web Site, the Partner
Content and the Partner Marks, along with any intellectual property
rights associated with any of the foregoing, and no title to or
ownership of any of the foregoing is transferred to iOwn or any other
entity or person under this Agreement.
(b) License Grant by iOwn. iOwn hereby grants to Partner a nonexclusive,
---------------------
royalty-free right to use, reproduce, publicly display and transmit
electronically iOwn's trademarks, service marks, trade names, logos or
other source identifiers provided by iOwn (collectively, the "iOwn
Marks") at necessary to meet Partner's promotional obligations
hereunder and subject to the guidelines set forth in Section 1(c)
("Use of Marks") below. Except as provided for herein, iOwn reserves
all right, title, and interest in and to the iOwn Web Site, the iOwn
Content and the iOwn Marks, along with any intellectual property
rights associated with any of the forgoing, and no title to or
ownership of any of the foregoing is transferred to Partner or any
other entity or person under this Agreement.
(c) Use of Marks. Partner will not use or exploit any of the iOwn Marks,
------------
and iOwn will not use or exploit any of the Partner Marks, except in
such form as the other Party may consent to, which consent will not be
unreasonably withheld or delayed. Each Party's use of the other
Party's trademarks pursuant to the licenses set forth above shall be
in accordance with such other Party's reasonable policies regarding
use of its trademarks as may be established from time to time. Neither
Party shall use the other Party's trademarks in a manner that
disparages the other Party or its products or services, or portrays
the other Party in a false, competitively adverse or poor light.
<PAGE>
(d) Notices. Each party agrees to display mutually agreeable trademark
-------
and copyright notices or legends of the other party when using such
other party's Marks. Each party shall in advance submit to the other
party the proposed placement of such notices or legends (including,
without limitation, the place and manner of incorporation into
electronic media or transmissions), and such other party shall have
the right, acting reasonably, to approve the same.
2. Public Announcements. Any public announcements relating to this Agreement
--------------------
will be subject to the parties' mutual written approval. All such
announcements will include a reasonably prominent reference to iOwn and
Partner.
3. Termination.
-----------
(a) Early Termination. This Agreement may be terminated at any time by
-----------------
either party, effective immediately upon notice, if the other party:
(a) becomes insolvent; (b) files a petition in bankruptcy or (c) makes
an assignment for the benefit of its creditors. Either party may
terminate the Agreement, effective upon thirty (30) days written
notice, in the event that the other party breaches any of its
responsibilities or obligations under the Agreement in any material
respect (including, without limitation, failure to pay) which breach
is not remedied within thirty (30) days following written notice to
such party.
(b) Effect of Termination. The provisions in the Sections of
---------------------
Confidentiality, Indemnification, Limitation of Liability,
Representation and Warranties, and Miscellaneous, and the terms on the
Licenses Section regarding ownership, of these Standard Terms and
Conditions shall survive any termination or expiration of the
Agreement.
4. Confidentiality. iOwn and Partner hereby acknowledge that in, the course
---------------
of activities under this Agreement each of them may have access to
confidential and proprietary information which relates to the other party's
technology, marketing and business (the "Confidential Information"). Each
party agrees to preserve and protect the confidentiality of the
Confidential Information and to not use except as provided for under the
terms of this Agreement or to disclose, or distribute to any third party
Confidential Information without the prior written consent of the other
party; provided, however, that any party hereto may disclose to any other
-------- -------
party any information which receiving party demonstrates: (i) is or becomes
generally known or available by publication, commercial use, or otherwise
through no fault of a party; (ii) is discovered or created by the receiving
party without reference to the Confidential Information, as shown in
records of such party; or (iii) is lawfully obtained from a third party who
has the right to make such disclosure; (iv) is released for publication by
the other, (v) is required to be disclosed by a valid court order, or (vi)
otherwise learned through legitimate means, other than from a third party
under confidentiality obligations. Each party agrees for the Term of this
Agreement and for a period of five (5) years thereafter to protect the
confidentiality of the Confidential Information and to not use or disclose
any Confidential Information to third
<PAGE>
parties. Without limiting the scope of the duty, the parties agree to limit
their internal distribution of Confidential Information to their board of
directors, employees, and agents, and to take reasonable steps to ensure
that the dissemination is so limited. The actions or negligence of the
parties, directors, employees, or agents shall be deemed to be the actions
or negligence of the respective party, with regard to the Confidential
Information of the other party. Moreover, any party hereto may disclose any
Confidential Information hereunder to such party's agents, attorneys and
other representatives or any court of competent jurisdiction or any other
party empowered hereunder as reasonably required to resolve any dispute
between the parties hereto.
5. Indemnification.
---------------
(a) Indemnification by iOwn. iOwn, at its own expense, will indemnify,
-----------------------
defend and hold harmless Partner, and its employees, representatives
and agents, against any claim, suit, action, or other proceeding
brought against Partner or such party by a third party, to the extent
that such claim, suit, action or other proceeding is based on or
arises from:
(i) any final adjudication that the use of the HomeScout service
in accordance with this Agreement (other than by reason of
any Partner Brand Features, Partner Content or other items
or materials supplied by Partner) infringes any Intellectual
Property Right of any third party, or any right of
personality or publicity, is libelous or defamatory, or
otherwise has resulted in actionable injury or damage to any
third party; or
(ii) any misrepresentation or breach of representation or
warranty of iOwn contained herein.
iOwn will pay all costs, damages, and expenses, including, but not
limited to, reasonable attorneys' fees and costs awarded as a result of
final adjudication against or otherwise incurred by Partner in connection
with or arising from any such claim, suit, action or proceeding
attributable to any such claim.
Notwithstanding the above, iOwn shall not be liable for any claim,
suit, action or other proceeding that is based on or arises as a result of
any software, content, materials or services provided to iOwn by a third
party, except and only to the extent that iOwn is actually indemnified by
the third party content provider for the same.
(b) Indemnification by Partner. Partner, at its own expense, will
--------------------------
indemnify, defend and hold harmless iOwn, and its employees,
representatives and agents, against any claim, suit, action, or other
proceeding brought against iOwn or such party by a third party, to the
extent that such claim, suit, action or other proceeding is based on
or arises from:
<PAGE>
(i) any final adjudication that the use of any Partner Brand
Features, Partner Content (including without limitation Customer
Listing Data) or other items or materials supplied by Partner in
accordance with this Agreement infringes any Intellectual
Property Right of any third party, or any right of personality or
publicity, is libelous or defamatory, or otherwise has resulted
in actionable injury or damage to any third party; or
(ii) any misrepresentation or breach of representation or
warranty of Partner contained herein.
Partner will pay all costs, damages, and expenses, including,
but not limited to, reasonable attorneys' fees and costs finally
awarded against or otherwise incurred by iOwn in connection with or
arising from any such claim, suit, action or proceeding attributable
to any such claim.
(c) Procedures. Each party's obligation to indemnify the other hereunder
----------
shall be conditioned upon (v) the indemnified party providing the
indemnifying party with prompt written notice of any claim that could
lead to a claim for, indemnification; (w) the indemnified party
permitting the indemnifying party to assume and control the defense of
such action, with counsel chosen by the indemnifying party, who shall
be reasonably acceptable to the indemnified party; (x) the indemnified
party will have the right to participate in any defense of such claim
and/or be represented by counsel of its own choosing at its expense;
(y) the indemnifying party will not settle any claim or action of the
claiming party's behalf without the claiming party's prior written
permission, and in the event the parties agree to settle a claim or
action, the indemnifying party agrees not to disclose the settlement
or to permit the opposing party to disclose the settlement without
fast obtaining the claiming party's written permission; and (z) the
indemnified party not entering into any settlement or compromise of
any such claim without the indemnifying party's prior written consent.
In the event the indemnified party enters into any settlement or
compromise of any such claim without the indemnifying party's prior
written consent, then the indemnifying party shall have no obligation,
financial or otherwise for any such settlement or compromise so
effected.
6. Limitation of Liability. EXCEPT AS EXPRESSLY PROVIDED HEREIN, iOwn
-----------------------
PROVIDES THE HOMESCOUT SERVICE "AS IS" AND iOwn DISCLAIMS ALL WARRANTIES OF
ANY KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY
IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
NON-INFRINGEMENT AND IMPLIED WARRANTIES ARISING FROM USAGE OF TRADE, COURSE
OF DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, iOwn DOES NOT WARRANT THAT THE HOMESCOUT SERVICE WILL BE
FREE FROM BUGS, DEFECTS OR ERRORS, OR THAT THE HOMESCOUT SERVICE WELL BE
ACCESSIBLE WITHOUT
<PAGE>
INTERRUPTION. 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, SUCH AS, BUT NOT
LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. IN NO
EVENT SHALL iOwn's LIABILITY UNDER THIS AGREEMENT EXCEED THE TOTAL AMOUNTS
PAID TO iOwn BY PARTNER HEREUNDER.
7. Representation and Warranties.
-----------------------------
(a) Each Party to this Agreement represents and warrants to the other
Party that: (a) such Party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts
required of it hereunder; (b) such Party has, or shall license or
acquire, all rights necessary to perform its obligations hereunder,
(c) the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do
not and will not violate any agreement to which such Party is a party
or by which it is otherwise bound.
(b) iOwn represents and warrants that the iOwn Marks and iOwn Content will
not infringe a third party's copyright or trademark and will not
misappropriate a third party's trade secret.
(c) HC represents and warrants that the HC mark and HC Content will not
infringe a third party's copyright or trademark and will not
misappropriate a third party's trade secret.
8. Miscellaneous.
-------------
(a) Amendments and Waivers. Any term of this Agreement may be amended or
----------------------
waived only with the written consent of the parties or their
respective successors and assigns. Any amendment or waiver effected
in accordance with this Section 12.1 shall be binding upon the parties
and their respective successors and assigns.
(b) Successors and Assigns. Neither party may assign this Agreement, in
----------------------
whole or in part, without the other party's written consent; provided,
--------
however, that iOwn may assign this Agreement without such consent in
-------
connection with any merger, consolidation, any sale of all or
substantially all of iOwn's assets or any other transaction in which
more than fifty percent (50%) of iOwn's voting securities are
transferred, subject to all of the terms of this Agreement. Any
attempt to assign this Agreement other than in accordance, with this
provision shall be null and void.
(c) Governing Law. This Agreement and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be
governed, construed
<PAGE>
and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law
provision or rule (whether of the State of California or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California. Partner hereby
consents to the personal jurisdiction of California, acknowledges that
venue is proper in any state or federal court in California, and
waives any objection that it has or may have in the future with
respect to any of the foregoing.
(d) Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) Notices. Any notice required or permitted by this Agreement shall be
-------
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service, or forty-eight
(48) hours after being deposited in the regular mail as certified
registered mail with postage prepaid, if such notice is addressed to
the party to be, notified at such party's address as set forth in the
Agreement.
(f) Severability. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith, in order to maintain the
economic position enjoyed by each party as close as possible to that
under the provision rendered unenforceable. In the event that the
parties cannot reach a mutually agreeable and enforceable replacement
for such provision, then (i) such provision shall be excluded from
this Agreement, (ii) the balance of the Agreement shall be interpreted
as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
(g) Entire Agreement. This Agreement is the product of both of the
----------------
parties hereto, and constitutes the entire agreement between such
parties pertaining to the subject matter hereof, and merges all prior
negotiations and drafts of the parties with regard to the transactions
contemplated by this Agreement. Any and all other written or oral
agreements existing between the parties hereto regarding such
transactions are expressly canceled.
(h) Arbitration. Any dispute or claim arising out of or in connection
-----------
with this Agreement will be settled by arbitration in San Francisco,
California in accordance with the then-current Commercial Arbitration
Rules of the American Arbitration Association by three arbitrators
appointed in accordance with said rules. Each party shall select one
such arbitrator, and the two arbitrators so chosen shall select the
third arbitrator. The arbitrators shall apply California law, without
reference to rules of conflicts of law or rules of statutory
arbitration, to the resolution of any dispute. Judgment on the award
rendered by the arbitrator may be entered in any court having
jurisdiction thereof. Notwithstanding the
<PAGE>
foregoing, the parties may apply to any court of competent
jurisdiction for preliminary or interim equitable relief, or to compel
arbitration in accordance with this paragraph, without breach of this
arbitration provision.
(i) Advice of Legal Counsel. Each party acknowledges and represents that,
-----------------------
in executing this Agreement, it has had the opportunity to seek advice
as to its legal rights from legal counsel and that the person signing
on its behalf has read and understood all of the terms and provisions
of this Agreement. This Agreement shall not be construed against any
party by reason of the drafting or preparation thereof.
(j) No Partnership Implied; Future Business Activity. Neither this
------------------------------------------------
Agreement nor any terms and conditions contained herein may be
construed as creating or constituting a Partnership, joint venture or
agency relationship between the parties. This Agreement shall not
limit either party's present or future business activities of any
nature, including business activities which could be competitive with
the other party, except to the extent such activities would involve a
breach of (a) the confidentiality provisions of Section 8 above or (b)
any other express provision of this Agreement.
(k) Taxes. Each party shall pay all taxes, assessments, duties, tariffs,
-----
imposts, permits and fees however designated, which are levied upon it
and related to its performance of its obligations or exercise of its
rights under this Agreement. In no event shall one party be
responsible for any taxes levied against the other party's net income.
(1) Attorney Fees. The prevailing Party in any dispute hereunder shall be
-------------
entitled to recover from the other Party its costs, expenses and
reasonable attorneys' fees (including any fees for expert witnesses,
paralegals or other legal service providers).
<PAGE>
EXHIBIT E
---------
Approved Consent Language
<PAGE>
PREFERRED PROVIDER AGREEMENT
This PREFERRED PROVIDER AGREEMENT (the "Agreement") is made as of November
1, 1999 (the "Effective Date") by and between iOwn, Inc. ("iOwn"), a California
corporation with its principal place of business at 333 Bryant Street, Lower
Level, San Francisco, CA 94107 and Homes.com, LLC, a Delaware limited liability
company, with its principal place of business located at 800 Menlo Avenue,
#210, Menlo Park, CA 94025 ("HC").
RECITALS
WHEREAS, iOwn is the owner and operator of the iOwn Web Site (as defined
below) that provides home buying related products, services and content, and HC
operates a variety of Web properties and real estate-related Web services,
including the Personal Brand service (as defined below); and
WHEREAS, the Parties desire to establish co-branded versions of the
PersonalBrand product which iOwn will promote, and HC will provide, to real
estate professionals who use the iOwn Web Site;
NOW, THEREFORE, in consideration of the mutual consideration, promises,
representations, and covenants set forth herein, the receipt and sufficiency of
which are hereby acknowledged, iOwn and HC agree as follows:
AGREEMENT
1. Definitions
1.1 "AgentDirect" means a version of PersonalBrand containing a reduced
set of functionality as compared to the standard version of the
PersonalBrand which has no Monthly Fee. HC may modify the AgentDirect
product from time to time.
1.2. "iOwn Agent" means real estate agents (as opposed to brokers) who are
either registered in iOwn's existing database of real estate
professionals or are users of areas of iOwn's Web Site tailored for
the agent population.
1.3. "Co-Branded PersonalBrand" means a version of the PersonalBrand
products, including AgentDirect, that is developed and maintained by
HC in accordance with the specifications set forth in Exhibit A
hereto, as further described in Section 2.
1.4. "HC Content" means HC's text, data, information, graphics or other
materials provided by HC hereunder to iOwn and subject to HC's prior
approval.
1.5. "HC Marks" means HC trademarks, service marks, trade names, logos or
other source identifiers
<PAGE>
1.6. "HC Web Site" means the Web Site owned and maintained by HC that is
currently located at the URL www.homes.com and all successors.
1.7. "Marks" means an entity's trademarks, service marks, trade names,
logos or other source identifiers.
1.8. "iOwn Competitor" means any company, person or entity whose business
or proposed business in any way involves products, services or
technology that could reasonably be determined by iOwn to be
competitive with any of iOwn's present products, services, or
technology.
1.9. "iOwn Content" means iOwn's text, data, information, graphics, or
other materials provided by iOwn to HC hereunder and subject to
iOwn's prior approval.
1.10. "iOwn Marks" means iOwn trademarks, service marks, trade names,
logos or other source identifiers.
1.11. "iOwn Mortgage Center" means a Web Site that is developed and
operated by iOwn that includes information and other content related
to mortgages, at a URL to be provided by iOwn.
1.12. "iOwn Web Site" means the Web Site owned and maintained by iOwn that
is currently located at the URL www.iOwn.com and all successors.
1.13. "Link" means the hypertext graphic and/or textual fink that may be
initiated by clicking an icon, logo, button, image or text to
establish a direct connection to a different page of a Web Site or to
a different Web Site.
1.14. "Monthly Fee" means the monthly fee HC charges a real estate agent
for maintenance, hosting and serving of the PersonalBrand pursuant to
HC's standard terms and conditions.
1.15. "PersonalBrand" means all versions of the "mypersonalbrand.com"
personalized Web Site services that HC offers or will offer on the HC
Web Site, including development, maintenance, and hosting of Web
Sites for real estate professionals. HC may modify the PersonalBrand
product from time to time.
1.16. "Personalized Co-Branded Mortgage Center" means a Co-Branded Mortgage
Center that (a) includes the iOwn Marks, HC Marks, and the applicable
iOwn Agent's Marks, (b) is Linked to from such agent's or broker's
Preferred PageorPersonalBrand, and (c) contains iOwn Content, as
further specified in Exhibit B hereto.
<PAGE>
1.17. "Set-up Fee" means the initial fee for design and development that
HC charges a real estate agent pursuant to HC's standard terms and
conditions, who is purchasing the PersonalBrand product.
1.18. "Sign-up Page" means a page hosted by HC which is linked to from the
iOwn Web Site, and upon which iOwn Agents will be able to sign up for
the Co-Branded PersonalBrand
1.19. "Web Site" means a World Wide Web site on the Internet.
2. HC Duties. HC will design, host, maintain and support the Co-Branded
---------
PersonalBrand, including a Co-Branded AgentDirect version of PersonalBrand, for
iOwn Agents as described in this Section 2.
2.1 Co-Branded PersonalBrand.
------------------------
2.1.1 Product Features. The Co-Branded PersonalBrand product will
----------------
have substantially the same features as the
mypersonalbrand.com Web marketing site that is generally
commercially available from HC (including without limitation
such Web page design, hosting, maintenance and support
services as HC provides to its mypersonalbrand.com customers),
except that: (a) each Co-Branded PersonalBrand Web, page will
contain branding of HC, iOwn and the relevant iOwn Agent, as
described in Exhibit A hereto, as well as any Links or
promotional features described therein; (b) the Co-Branded
PersonalBrand, shall contain a Link to a Personalized Co-
Branded Mortgage Center-, and (c) HC shall delete any
functionality on the Co-Branded PersonalBrand that permits
iOwn Agents to designate an alternative provider of mortgage
services or information on the Co-Branded PersonalBrand.
2.1.2 Exclusive Promoted Mortgage Provider for PersonalBrand. iOwn
------------------------------------------------------
shall be the exclusive mortgage provider partner that HC
promotes on the iOwn Co-Branded PersonalBrand pages. HC,
therefore, shall not enter into any co-branding, co-marketing,
affiliate or co-promotion agreements with other mortgage
providers for promotion within any iOwn Co-Branded
PersonalBrand page.
2.1.3 Survivability. In the event of any termination or expiration
-------------
of this Agreement, HC's obligations (a) with regard to Co-
Branded PersonalBrand features, branding, Links and
exclusivity hereunder, and (b) with regard to the continued
provision of the same hosting, maintenance and support
services as HC provides to its "mypersonalbrand.com"
customers, shall survive the termination or expiration of this
Agreement.
2.2 Offering of Co-Branded PersonalBrand to iOwn Agents.
---------------------------------------------------
<PAGE>
2.2.1 Terms of Service. HC will offer the Co-Branded PersonalBrand
----------------
to all iOwn Agents on the Sign-up Page, according with the
following terms: (a) iOwn will be the exclusive provider of
mortgage products and information on the iOwn Agent's Co-
Branded PersonalBrand, (b) such Co-Branded PersonalBrands will
not contain advertising for or Links to iOwn Competitors, and
(c) any PersonalBrand features, branding, Links and
exclusivity hereunder will be perpetual for the life of the
Co-Branded PersonalBrand, will not removable by the iOwn
Agent, and shall survive the termination or expiration of this
Agreement.
2.2.2 Sign-up Page. HC will host and serve a Sign-up page with
------------
branding of HC and iOwn, as mutually agreed by the parties.
The Sign-up page will not offer any products other than the
Co-Branded PersonalBrand.
2.3 Fees to iOwn Agents.
-------------------
2.3.1 [*] for the Co-Branded PersonalBrand product.
2.3.2 Monthly Fees. HC may charge Monthly Fees to iOwn Agents for
------------
the Co-Branded Personal Brand, in accordance with this Section
2.3.2.
2.3.2.1 Favored Pricing. [*] for any standard
---------------
mypersonalbrand.com products. [*]
2.3.2.2 Pricing to iOwn. [*] for any or all iOwn Agents, then
---------------
HC [*] of HC's price pursuant to Section 2.3.2.1
above.
2.4 Reporting and customer information.
----------------------------------
2.4.1 The iOwn agents shall be considered customers of iOwn, and HC
will not use their customer information for any purposes other
than the provision of services specified in this agreement.
2.4.2 HC will provide to iOwn on a series of reports detailing the
usage of the HC services by iOwn agents.
2.4.2.1 HC will provide reports of new agents who have signed
up for the Co-branded PersonalBrand products on a
weekly basis, along with a summary of the total
agents signed up to date.
[*] Confidential Treatment Requested
<PAGE>
2.4.2.2 HC will provide iOwn with dynamic access to the
customer information which it collects about the iOwn
agents who sign up for the Cobranded Personal Brand
product.
3. iOwn Duties.
-----------
3.1 Promotion of Co-Branded PersonalBrand to iOwn Agents. iOwn will use
----------------------------------------------------
commercially reasonable efforts to promote the Co-Branded
PersonalBrand products to iOwn Agents. Without limitation to the
foregoing, iOwn will, place Links promoting the Co-Branded
PersonalBrand on areas of iOwn's Web Site tailored for iOwn Agents.
Such Links, when selected by iOwn Agents, will transfer iOwn Agents to
the Sign-up Page.
3.2 Preferred Provider. iOwn hereby appoints HC as iOwn's "Preferred
------------------
Provider" of Web page design, hosting, maintenance, and domain name
registry services to iOwn Agents. As a preferred provider, iOwn will
give superior placement to HC and/or the Co-Branded PersonalBrand as
among other providers of such services and/or such services.
4. Invoices, Payment.
-----------------
4.1 Invoices. iOwn will invoice HC [*] in consideration of iOwn's
--------
services hereunder.
4.2 Payment of Invoices. HC shall pay all invoices from iOwn within
-------------------
thirty (30) days of the date of such invoices. All fees not paid
within thirty (30) days of when such fees become due shall be subject
to a finance charge of one and one half percent (1.5%) per month
simple interest, with such interest charges starting on the due date
for such fees.
5. Term. This Agreement will become effective as of the Effective Date and
----
shall remain in effect for the Initial Term, and after the Initial Term
this Agreement shall be automatically extended for successive Renewal
Terms, unless either party provides notice of termination at least sixty
(60) calendar days prior to the end of the Initial Term or Renewal Term, as
the case may be, or unless this Agreement is otherwise terminated as
provided in the Standard Terms and Conditions.
Initial Term: [*]
Renewal Term: [*]
6. Standard Terms and Conditions. This Agreement will be governed by iOwn's
-----------------------------
Standard Terms and Conditions set forth in Exhibit C hereto ("Standard
Terms and Conditions").
[*] Confidential Treatment Requested
<PAGE>
The Parties have caused this Agreement to be executed by their duly
authorized representatives as of the Effective Date.
iOWN, INC. HOMES.COM, LLC
By:____________________________ By:____________________________
Name: Ned Hoyt Name:__________________________
Tide: Chief Executive Officer Title:_________________________
Address: Address:
333 Bryant Street, Lower Level 800 Menlo Avenue, #210
San Francisco, CA 94107 Menlo Park, CA 94025
<PAGE>
EXHIBIT A
CO-BRANDED PERSONALBRAND BRANDING AND PAGE FEATURES
To be mutually agreed by the parties and set forth in this Exhibit A.
<PAGE>
EXHIBIT B
PERSONALIZED CO-BRANDED MORTGAGE CENTER
To be substantially similar to the cobranded mortgage center created under the
existing "Cobranding and Promotion agreement" between the parties, with any
changes to be mutually agreed by the parties and set forth in this Exhibit B.
<PAGE>
EXHIBIT C
STANDARD TERMS AND CONDITIONS
1. Licenses
--------
(a) License Grant by iOwn. iOwn hereby grants to HC a nonexclusive,
---------------------
royalty-free right to: (a) use, reproduce, modify, create derivative
works of, publicly display, publish, and transmit electronically
iOwn's text, data, information, graphics or other materials provided
by iOwn hereunder to HC for use in connection with HC's obligations
hereunder ("iOwn Content"), in whole or in part; (b) use, reproduce,
publicly display and transmit electronically iOwn's trademarks,
service marks, trade names, logos or other source identifiers
(collectively, the "iOwn Marks") as necessary to meet HC's obligations
hereunder and subject to the guidelines set forth in Section I (c)
("Use of Marks") below. Except as provided for herein, iOwn reserves
all right, title, and interest in and to iOwn's Web Site, the iOwn
Content and the iOwn Marks, along with any intellectual property
nights associated with any of the foregoing, and no title to or
ownership of any of the foregoing is transferred to HC or any other
entity or person under this Agreement.
(b) License Grant by HC. HC hereby grants to iOwn a nonexclusive,
-------------------
royalty-free right to use, reproduce, publicly display and transmit
electronically HC's trademarks, service marks, trade names, logos or
other source identifiers provided by HC (collectively, the "HC Marks")
as necessary to meet iOwn's promotional obligations hereunder and
subject to the guidelines set forth in Section 1(c) ("Use of Marks")
below. Except as provided for herein, HC reserves all right, title,
and interest in and to the HC Web Site, the HC Content and the HC
Marks, along with any intellectual property rights associated with any
of the forgoing, and no title to or ownership of any of the foregoing
is transferred to iOwn or any other entity or person under this
Agreement.
(c) Use of Marks. HC will not use or exploit any of the iOwn Marks, and
------------
iOwn will not use or exploit any of the HC Marks, except in such form
as the other Party may consent to, which consent will not be
unreasonably withheld or delayed. Each Party's use of the other
Party's trademarks pursuant to the licenses set forth above shall be
in accordance with such other Party's reasonable policies regarding
use of its trademarks as may be established from time to time. Neither
Party shall use the other Party's trademarks in a manner that
disparages the other Party or its products or services, or portrays
the other Party in a false, competitively adverse or poor light.
(d) Notices. Each party agrees to display mutually agreeable trademark
-------
and copyright notices or legends of the other party when using such
other party's Marks. Each party shall in advance submit to the other
party the proposed placement of such notices or legends (including,
without limitation, the place and manner of
<PAGE>
incorporation into electronic media or transmissions), and such other
party shall have the right, acting reasonably, to approve the same.
2. Public Announcements. Any public announcements relating to this Agreement
--------------------
will be subject to the parties' mutual written approval. All such
announcements will include a reasonably prominent reference to iOwn and HC.
3. Termination.
-----------
(a) Early Termination. This Agreement may be terminated at any time by
-----------------
either party, effective immediately upon notice, if the other party:
(a) becomes insolvent; (b) files a petition in bankruptcy or (c) makes
an assignment for the benefit of its creditors. Either party may
terminate the Agreement, effective upon thirty (30) days written
notice, in the event that the other party breaches any of its
responsibilities or obligations under the Agreement in any material
respect (including, without limitation, failure to pay) which breach
is not remedied within thirty (30) days following written notice to
such party.
(b) Effect of Termination. The provisions in the Sections of
---------------------
Confidentiality, Indemnification, Limitation of Liability,
Representation and Warranties, and Miscellaneous, and the terms on the
Licenses Section regarding ownership, of these Standard Terms and
Conditions shall survive any termination or expiration of the
Agreement.
4. Confidentiality. iOwn and HC hereby acknowledge that in the course of
---------------
activities under this Agreement each of them may have access to
confidential and proprietary information which relates to the other party's
technology, marketing and business (the "Confidential Information"). Each
party agrees to preserve and protect the confidentiality of the
Confidential Information and to not use except as provided for under the
terms of this Agreement or to disclose, or distribute to any third party
Confidential Information without the prior written consent of the other
party; provided, however, that any party hereto may disclose to any other
-------- -------
party any information which receiving party demonstrates: (i) is or becomes
generally known or available by publication, commercial use, or otherwise
through no fault of a party; (ii) is discovered or created by the receiving
party without reference to the Confidential Information, as shown in
records of such party; or (iii) is lawfully obtained from a third party who
has the right to make such disclosure; (iv) is released for publication by
the other; (v) is required to be disclosed by a valid court order, or (vi)
otherwise learned through legitimate means, other than from a third party
under confidentiality obligations. Each party agrees for the Term of this
Agreement and for a period of five (5) years thereafter to protect the
confidentiality of the Confidential Information and to not use or disclose
any Confidential Information to third parties. Without limiting the scope
of the duty, the parties agree to limit their internal distribution of
Confidential Information to their board of directors, employees, and
agents, and to take reasonable steps to ensure that the dissemination is so
limited. The actions or negligence of the parties, directors, employees,
or agents shall be deemed to be
<PAGE>
the actions or negligence of the respective party, with regard to the
Confidential Information of the other party. Moreover, any party hereto may
disclose any Confidential Information hereunder to such party's agents,
attorneys and other representatives or any, court of competent jurisdiction
or any other party empowered hereunder as reasonably required to resolve
any dispute between the parties hereto.
5. Indemnification.
---------------
(a) Indemnification by iOwn. iOwn, at its own expense, will indemnify,
-----------------------
defend and hold harmless HC, and its employees, representatives and
agents, against any claim, suit, action, or other proceeding brought
against HC or such party by a third party, to the extent that such
claim, suit, action or other proceeding is based on or arises from:
(i) any final adjudication that the use of the HomeScout
service in accordance with this Agreement (other than by reason
of any HC Brand Features, HC Content or other items or materials
supplied by HC) infringes any Intellectual Property Right of any
third party, or any right of personality or publicity, is
libelous or defamatory, or otherwise has resulted in actionable
injury or damage to an), third party; or
(ii) any misrepresentation or breach of representation or
warranty of iOwn contained herein.
iOwn will pay all costs, damages, and expenses, including, but
not limited to, reasonable attorneys' fees and costs awarded as a
result of final adjudication against or otherwise incurred by HC in
connection with or arising from any such claim, suit, action or
proceeding attributable to any such claim.
Notwithstanding the above, iOwn shall not be liable for any
claim, suit, action or other proceeding that is based on or arises as
a result of any software, content, materials or services provided to
iOwn by a third party, except and only to the extent that iOwn is
actually indemnified by the third party content provider for the same.
(b) Indemnification by HC. HC, at its own expense, will indemnify, defend
---------------------
and hold harmless iOwn, and its employees, representatives and agents,
against any claim, suit, action, or other proceeding brought against
iOwn or such party by a third party, to the extent that such claim,
suit, action or other proceeding is based on or arises from:
(i) any final adjudication that the use of any HC Brand
Features, HC Content (including without limitation Customer
Listing Data) or other items or materials supplied by HC in
accordance with this Agreement infringes any Intellectual
Property Right of any third party, or
<PAGE>
any right of personality or publicity, is libelous or defamatory,
or otherwise has resulted in actionable injury or damage to any
third party; or
(ii) any misrepresentation or breach of representation or
warranty of HC contained herein.
HC will pay all costs, damages, and expenses, including, but not
limited to, reasonable attorneys' fees and costs finally awarded
against or otherwise incurred by iOwn in connection with or arising
from any such claim, suit, action or proceeding attributable to any
such claim.
(c) Procedures. Each party's obligation to indemnify the other hereunder
----------
shall be conditioned upon (v) the indemnified party providing the
indemnifying party with prompt written notice of any claim that could
lead to a claim for indemnification; (w) the indemnified party
permitting the indemnifying party to assume and control the defense of
such action, with counsel chosen by the indemnifying party, who shall
be reasonably acceptable to the indemnified party; (x) the indemnified
party will have the right to participate in any defense of such claim
and/or be represented by counsel of its own choosing at its expense;
(y) the indemnifying party will not settle any claim or action of the
claiming party's behalf without the claiming party's prior written
permission, and in the event the parties agree to settle a claim or
action, the indemnifying party agrees not to disclose the settlement
or to permit the opposing party to disclose the settlement without
first obtaining the claiming party's written permission; and (i) the
indemnified party not entering into any settlement or compromise of
any such claim without the indemnifying party's prior written consent.
In the event the indemnified party enters into any settlement or
compromise of any such claim without the indemnifying party's prior
written consent, then the indemnifying party shall have no obligation,
financial or otherwise for any such settlement or compromise so
effected.
6. Limitation of Liability. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE PARTIES
-----------------------
PROVIDE ALL SERVICES HEREUNDER "AS IS" AND EACH PARTY DISCLAIMS ALL
WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NON-INFRINGEMENT AND IMPLIED WARRANTIES ARISING FROM
USAGE OF TRADE, COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, NEITHER PARTY WARRANTS THAT THEIR
RESPECTIVE SERVICES WELL BE FREE FROM BUGS, DEFECTS OR ERRORS, OR THAT THE
SERVICES HEREUNDER WELL BE ACCESSIBLE WITHOUT INTERRUPTION. 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
<PAGE>
DAMAGES, ARISING FROM ANY PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT
LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. EXCEPT
FOR PAYMENT OBLIGATIONS UNDER SECTION 4 OF THE BODY OF TIES AGREEMENT,
NEITHER PARTY'S LIABILITY UNDER THIS AGREEMENT SHALL EXCEED THE TOTAL
AMOUNTS TO BE PAID HEREUNDER.
7. Representation and Warranties.
-----------------------------
(a) Each Party to this Agreement represents and warrants to the other
Party that: (a) such Party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts
required of it hereunder; (b) such Party has, or shall license or
acquire, all rights necessary to perform its obligations hereunder,
(c) the execution of this Agreement by such Party, and the performance
by such Party of its obligations and duties hereunder, do not and will
not violate any agreement to which such Party is a party or by which
it is otherwise bound.
(b) iOwn represents and warrants that the iOwn Marks and iOwn Content will
not infringe a third party's copyright or trademark and will not
misappropriate a third party's trade secret.
(c) HC represents and warrants that the HC mark and HC Content will not
infringe a third party's copyright or trademark and will not
misappropriate a third party's trade secret.
8. Miscellaneous.
-------------
(a) Amendments and Waivers. Any term of this Agreement may be amended or
----------------------
waived only with the written consent of the parties or their
respective successors and assigns. Any amendment or waiver effected
in accordance with this Section 12.1 shall be binding upon the parties
and their respective successors and assigns.
(b) Successors and Assigns. Neither party may assign this Agreement, in
----------------------
whole or in part, without the other party's written consent; provided,
however that iOwn may assign this Agreement without such consent in
connection with any merger, consolidation, any sale of all or
substantially all of iOwn's assets or any other transaction in which
more than fifty percent (50%) of iOwn's voting securities are
transferred, subject to all of the terms of this Agreement. Any
attempt to assign this Agreement other than in accordance with this
provision shall be null and void.
(c) Governing Law. This Agreement and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the
State of California, without giving effect to principles of conflicts
of law provision or rule (whether of the
<PAGE>
State of California or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
California. HC hereby consents to the personal jurisdiction of
California, acknowledges that venue is proper in any state or federal
court in California, and waives any objection dig it has or may have
in the future with respect to any of the foregoing.
(d) Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) Notices. Any notice required or permitted by this Agreement shall be
-------
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service, or forty-eight
(48) hour.; after being deposited in the regular mail as certified
registered mail with postage prepaid, if such notice is addressed to
the party to be notified at such party's address as set forth in the
Agreement.
(f) Severability. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith, in order to maintain the
economic position enjoyed by each party as close as possible to that
under the provision rendered unenforceable. In the event that the
parties cannot reach a mutually agreeable and enforceable replacement
for such provision, then (i) such provision shall be excluded from
this Agreement, (ii) the balance of the Agreement shall be interpreted
as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
(g) Entire Agreement. This Agreement is the product of both of the
----------------
parties hereto, and constitutes the entire agreement between such
parties pertaining to the subject matter hereof, and merges all prior
negotiations and drafts of the parties with regard to the transactions
contemplated by this Agreement. Any and all other written or oral
agreements existing between the parties hereto regarding such
transactions are expressly canceled.
(h) Arbitration. Any dispute or claim arising out of or in connection
-----------
with this Agreement will be settled by arbitration in San Francisco,
California in accordance with the then-current Commercial Arbitration
Rules of the American Arbitration Association by three arbitrators
appointed in accordance with said rules. Each party shall select one
such arbitrator, and the two arbitrators so chosen shall select the
third arbitrator. The arbitrators shall apply California law, without
reference to rules of conflicts of law or rules of statutory
arbitration, to the resolution of any dispute. Judgment on the award
rendered by the arbitrator maybe entered in any court having
jurisdiction thereof Notwithstanding the foregoing, the parties may
apply to any court of competent jurisdiction for
<PAGE>
preliminary or interim equitable relief, or to compel arbitration in
accordance with this paragraph, without breach of this arbitration
provision.
(i) Advice of Legal Counsel. Each party acknowledges and represents that,
-----------------------
in executing this Agreement, it has had the opportunity to seek advice
as to its legal rights from legal counsel and that the person signing
on its behalf has read and understood all of the terms and provisions
of this Agreement. This Agreement shall not be construed against any
party by reason of the drafting or preparation thereof.
(j) No Partnership Implied; Future Business Activity. Neither this
------------------------------------------------
Agreement nor any terms and conditions contained herein may be
construed as creating or constituting a Partnership, joint venture or
agency relationship between the parties. This Agreement shall not
limit either party's present or future business activities of any
nature, including business activities which could be competitive with
the other party, except to the extent such activities would involve a
breach of (a) the confidentiality provisions of Section 8 above or (b)
any other express provision of this Agreement.
(k) Taxes. Each party shall pay all taxes, assessments, duties, tariffs,
-----
imposts, permits and fees however designated, which are levied upon it
and related to its performance of its obligations or exercise of its
rights under this Agreement. In no event shall one party be
responsible for any taxes levied against the other party's net income.
(l) Attorney Fees. The prevailing Party in any dispute hereunder shall be
-------------
entitled to recover from the other Party its costs, expenses and
reasonable attorneys' fees (including any fees for expert witnesses,
paralegals or other legal service providers).
<PAGE>
CO-BRANDING AND PROMOTION AGREEMENT
This CO-BRANDING AND PROMOTION AGREEMENT (the "Agreement") is made as of
November 1, 1999 (the "Effective Date") by and between iOwn, Inc. ("iOwn"), a
California corporation with its principal place of business at 333 Bryant
Street, Lower Level, San Francisco, CA 94107 and Homes.com, LLC, a Delaware
limited liability company, with its principal place of business located at 800
Menlo Avenue, #210, Menlo Park, CA 94025 ("HC").
RECITALS
WHEREAS, iOwn is the owner and operator of the iOwn Web Site (as defined
below) that provides home buying related products, services and content, and HC
operates a variety of Web properties and real estate-related Web services,
including the HC Web Site (as defined below); and
WHEREAS, the Parties desire to establish a co-branded mortgage information
center that will be located on the HC Web Site, and the Parties desire to drive
traffic to such co-branded mortgage information center through a broad range of
marketing and promotional programs;
NOW, THEREFORE, in consideration of the mutual consideration, promises,
representations, and covenants set forth herein, the receipt and sufficiency of
which are hereby acknowledged, iOwn and HC agree as follows:
AGREEMENT
1. Definitions
1.1. "Ad Copy" means the artwork and copy provided by iOwn to HC for an
advertisement, newsletter or business reply card.
1.2. "Agent/Broker View" means the Web tools that an agent or broker sees
upon signing into the password protected area of his/her PersonalBrand
or Preferred Page Web Site.
1.3. "Consumer View" means the view of a Web Site that a visitor to a
PersonalBrand or Preferred Page sees, without entering the agent's or
broker's password protected area.
1.4. "Co-Branded Mortgage Center" means a Web Site that is developed and
operated by iOwn consistent with the Statement of Work (as defined in
Section 5.1 below), co-branded with HC Marks and iOwn Marks, and that
includes information and other content related to mortgages. An
example of a screen shot of a Co-Branded Mortgage Center is attached
as Exhibit A ("Screen Shot").
---------
<PAGE>
1.5. "Full Application Qualified Lead" is a [*] on the Full Application
page on the iOwn Web Site [*] of first accessing such Co-Branded
Mortgage Center and who passes iOwn's customer underwriting filter.
1.6. "HC Content" means HC's text, data, information, graphics or other
materials provided by HC hereunder to iOwn and subject to HC's prior
approval.
1.7. "HC Marks" means HC trademarks, service marks, trade names, logos or
other source identifiers
1.8. "HC Web Site" means the Web Site owned and maintained by HC that is
currently located at the URL www.homes.com and all successors.
1.9. "Marks" means an entity's trademarks, service marks, trade names,
logos or other source identifiers.
1.10. "iOwn Competitor" means any company, person or entity whose business
or proposed business in any way involves products, services or
technology that could reasonably be determined by iOwn to be
competitive with any of iOwn's present or proposed products,
services, or technology.
1.11. "iOwn Content" means iOwn's text, data, information, graphics, or
other materials provided by iOwn to HC hereunder and subject to
iOwn's prior approval.
1.12. "iOwn Marks" means iOwn trademarks, service marks, trade names, logos
or other source identifiers.
1.13. "iOwn Web Site" means the Web Site owned and maintained by iOwn that
is currently located at the URL www.iOwn.com and all successors.
1.14. "Link" means the hypertext graphic and/or textual link that may be
initiated by clicking an icon, logo, button, image or text to
establish a direct connection to a different page of a Web Site or to
a different Web Site.
1.15. "PersonalBrand" means the "mypersonalbrand.com" personalized web
pages purchased by real estate professionals directly (rather than by
their broker) and that HC develops, maintains, and hosts. HC may
modify the PersonalBrand product from time to time.
1.16. "Personalized Co-Branded Mortgage Center" means a Co-Branded Mortgage
Center that (a) includes the iOwn Marks, HC Marks, and the applicable
agent's or broker's Marks, (b)is Linked to from such agent's or
broker's Preferred Page or PersonalBrand, and (c) contains iOwn
Content.
[*] Confidential Treatment Requested
-2-
<PAGE>
1.17. [*] means a [*] who completes an application and clicks the "submit"
button the Pre Approval page on the iOwn Web site [*] of first
accessing such Co-Branded Mortgage Center and who passes iOwn's
customer underwriting filter.
1.18. "Preferred Pages" means the personalized web pages purchased by real
estate brokers for the brokerage and for such brokers' agents
including any pages for such brokers or such brokers' affiliated
agents. HC develops, maintains, and hosts the Preferred Pages. HC may
modify the Preferred Pages product from time to time.
1.19. "Promotional PersonalBrand" means PersonalBrands Web Pages sold to
agents who agree to have iOwn be the exclusive mortgage provider on
the Consumer View and Agent/Broker View of their Personalized
PersonalBrand. Such Promotional PersonalBrands differ from other
PersonalBrands as follows: (a) HC shall delete any functionality that
permits such agents to designate an alternative provider of
mortgages, (b) HC shall waive such agents' Set-up Fee and (c) HC
shall invoice iOwn for such Set-up Fees as set forth in Section 8.2
below.
1.20. Promotional Preferred Pages means Preferred Pages Web Pages sold to
brokers who agree to have iOwn as the exclusive mortgage provider on
the Consumer View and Agent/Broker View of their brokerage, and their
agents', Personalized Preferred Pages. Such Promotional Preferred
Pages shall differ from other Preferred Pages as follows: (a) HC
shall delete any functionality that permits such agents to designate
an alternative provider of mortgages, (b) HC shall waive such agents'
Set-up Fee and (c) HC shall invoice iOwn for such Set-up Fees as set
forth in Section 8.1 below.
1.21. "Set-up Fee" means the initial fee for design and development that HC
charges a real estate agent or broker (as applicable), pursuant to
HC's standard terms and conditions, who is purchasing either the
PersonalBrand or Preferred Page product.
1.22. "Site Visitor" means a unique visitor (possessing a unique internet
protocol address) to the Co-Branded Mortgage Center who first
accessed either the iOwn Web Site or the Co-Branded Mortgage Center
through the HC Web Site or through a Personalized Co-Branded Mortgage
Center.
1.11 "Web Site" means a World Wide Web site on the Internet.
2. Preferred Pages
2.1. Integration with Preferred Pages. The Parties shall work together to
---------------------------------
integrate a Personalized Co-Branded Mortgage Center into all existing
and new Preferred
[*] Confidential Treatment Requested
-3-
<PAGE>
Pages, including both the Consumer Views and Agent/Broker Views
thereof, as set forth in Exhibit B ("Integration").
---------
2.2. Alternative Provider Requests. In the event that an agent or broker
------------------------------
requests that HC place a Link from the Preferred Page to alternative
mortgage provider, then the Parties agree that HC may honor such
request. Without limiting the foregoing and prior to honoring such
request, HC agrees to use its best efforts to introduce such agent or
broker to iOwn so that iOwn may promote its mortgage services to such
agent or broker.
2.3. Promotion of Preferred Pages. During the Initial Term, HC will use
----------------------------
its best efforts to sell at least [*] of Promotional Preferred Pages,
based on the Set-up Fees rates set forth in Exhibit F ("Preferred
---------
Pages Set-up Fees"). HC shall include language HC's standard contract
for the sale of Promotional Preferred Pages that states that (a)
iOwn's shall be the exclusive mortgage provider on the Personalized
Co-Branded Mortgage Center for the life of the Promotional Preferred
Page, and (b) iOwn is a third party beneficiary to such contract for
the purpose of enforcing the above stated section. If HC fails to
sell at least [*] of Promotional Preferred Pages during the Initial
Term, then HC will continue to use its best efforts to sell such
Promotional Preferred Pages after the Initial Term (whether during
any Renewal Term or after the termination or expiration of this
Agreement), in accordance with the terms of this Section 2.3, [*].
2.4. Link to Personalized Co-Mortgage Center. HC shall include in HC's
----------------------------------------
standard contract for the sale of Promotional Preferred Pages a
provision that states that the Link from the Promotional Preferred
Pages to the Personalized Co-Mortgage Center ("Personalized Link")
shall survive the termination or expiration of this Agreement. After
a [*] such agent may request that HC remove the Personalized Link
subject to the payment of a new Set-up Fee at the then-current rates.
If an agent makes such a request, [*] of the resulting Set-up Fees.
Such payment shall be made to iOwn on a quarterly basis.
3. PersonalBrand
3.1. Integration with PersonalBrand. The Parties shall work together to
-------------------------------
integrate a Personalized Co-Branded Mortgage Center into all existing
and new PersonalBrand pages, including both the Consumer Views and
Agent/Broker Views thereof, as set forth in Exhibit B
---------
("Integration").
3.2. Alternative Provider Requests. In the event that an agent requests
------------------------------
that HC place a Link from the PersonalBrand to alternative mortgage
provider, then the Parties
[*] Confidential Treatment Requested
-4-
<PAGE>
agree that HC may honor such request. Without limiting the foregoing
and prior to honoring such request, HC agrees to use its best efforts
to introduce such agent to iOwn so that iOwn may promote its mortgage
services to such agent.
3.3. Promotion of PersonalBrand. During the [*] HC will use its best
--------------------------
efforts to sell at least [*] Promotional PersonalBrands. HC shall
include language in HC's standard contract for the sale of
Promotional PersonalBrands (a) that states that iOwn shall be the
exclusive mortgage provider for the life of the Personalized Co-
Branded Mortgage Center, and (b) that iOwn is a third party
beneficiary to such contract for the purpose of enforcing the above
stated section. If HC fails to sell at least [*] Promotional
PersonalBrands during the Initial Term, then HC will continue to use
its best efforts to sell such [*] Promotional PersonalBrands after
the Initial Term (whether during any Renewal Term or after the
termination or expiration of this Agreement), in accordance with the
terms of this Section 3.3, [*].
3.4. Link to Personalized Co-Mortgage Center. HC shall include in HC's
----------------------------------------
standard contract for the sale of Promotional PersonalBrand a
provision that states that the Personalized Link shall survive the
termination or expiration of this Agreement. After a [*] term, such
agent may request that HC remove the Personalized Link subject to the
payment of a new Set-up Fee at the then-current rates. [*].
4. Integration with HC Web Site
4.1. Termination of Current HC Mortgages Page Obligation. Immediately
----------------------------------------------------
after the Effective, HC will use best efforts to terminate any
existing obligations or agreements, whether written, oral or implied
by conduct, that relate to advertising, branding or content provision
on the HC Web Site regarding mortgages. To the extent that any such
obligations or agreements are not immediately terminable, HC will use
its best efforts to diminish and minimize the prominence or placement
of such advertising, branding or content during such time as such
obligations are in effect. HC will not renew any existing
agreements.. A list of all such agreements and their expiration dates
is attached as Exhibit C ("Mortgage Advertisement Agreements").
---------
4.2. Links. HC shall provide iOwn with a Link from the home page of the HC
-----
Web Site to the Co-Branded Mortgage Center. In addition, HC shall
provide iOwn with a Link on the HC's navigation bar. Such Link shall
be titled "Mortgages" as set forth in Exhibit E ("Link Screen Shot").
------------------------------
HC will ensure that each such Link conveys users directly to the Co-
Branded Mortgage Center. In addition, HC shall
[*] Confidential Treatment Requested
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not take any action, or assist, authorize or encourage any third
party to take any action, that would cause the appearance or
presentation of the Co-Branded Mortgage Center as seen by users of
Links to be different from that seen by users who access the Co-
Branded Mortgage Center by hand-entering the applicable URL into a
generally commercially available browser which has not been
customized for a particular person or entity.
4.3. Exclusivity. HC hereby appoints iOwn as its exclusive provider of
-----------
mortgages on the HC Web Site., The Parties acknowledge that such
exclusivity is subject to the existing agreements listed in Exhibit C
---------
("Mortgage Advertisement Agreements"). If HC is providing a co-
branded or affiliate version of the HC Web Site to a third party
partner who asks HC to incorporate an alternative mortgage provider,
then HC may honor such request. Without limiting the foregoing and
prior to honoring such request, HC agrees to use its best efforts to
introduce such partner to iOwn so that iOwn may promote iOwn's
mortgage services to such partner. The Parties agree, however, that
HC may not solicit such request from partner.
5. Co-Branded Mortgage Center
5.1. Development of the Co-Branded Mortgage Center. The Parties agree to
----------------------------------------------
work together to develop specifications for the development of a Co-
Branded Mortgage Center ("Statement of Work") as set forth in Exhibit
-------
D ("Statement of Work"). Such Co-Branded Mortgage Center shall be the
---------------------
framework for the Personalized Co-Branded Mortgage Centers and shall
be Linked to the HC Web Site as set forth above in Section 4.2
("Links").
5.2. Content and Services. The Parties will mutually agree on the content
---------------------
and information to be placed in the Co-Branded Mortgage Center. iOwn
will be solely responsible for the sale and placement of advertising
on the Co-Branded Mortgage Center, at iOwn's sole discretion. If HC,
in its reasonable discretion, finds any advertising on the Co-Branded
Mortgage Center to be objectionable, then HC may notify iOwn and iOwn
shall use commercially reasonable efforts to remove such advertising.
iOwn will own all right, title and interest in and to all information
(including user-related information) that is created or collected in
the operation of the Co-Branded Mortgage Center. iOwn will use
commercially reasonable efforts to provide "Hosting Services" for the
Co-Branded Mortgage Center, including all necessary technical,
support, sales, administrative and management personnel, facilities,
equipment and supplies. For purposes of this Agreement, "Hosting
Services" means the provision and management of servers,
telecommunications, facilities, maintenance, and operations related
to the delivery of Internet based services and content.
6. Advertising
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6.1. Promotion. The Parties agree to mutually promote and advertise the
----------
Co-Branded Mortgage Center as set forth herein, and as otherwise
mutually agreed by the Parties. In addition, HC will prominently
promote the iOwn services and promotional offers in all of its
standard sales and marketing efforts for the Preferred Pages and
PersonalBrands products.
6.2. Banner Advertisements. HC will place a run of site "Banner
----------------------
Advertisement" that will be displayed on the top of the pages of the
HC Web Site throughout the Term. For purposes of this Agreement,
"Banner Advertisement" will mean a Link from the HC Web Site to Co-
Branded Mortgage Center in the form of an iOwn advertisement. The
Parties agree that such Banner Advertisement will be at least ___ x
____ pixels. iOwn will provide HC with the relevant text, graphics,
and format for such Banner Advertisements.
6.3. Impressions. HC will use best efforts to provide iOwn with at least
------------
[*] of the Banner Advertisement per month during the Term. For
purposes of this Agreement, "Impression" shall mean each time that
the Banner Advertisement is served on the HC Web Site.
6.4. Verification. By six p.m. Pacific Standard Time, on the fifteenth
-------------
(15) day of each month, HC will deliver monthly reports to iOwn in a
mutually agreeable format. These reports shall contain information
regarding the number of Impressions for the preceding calendar month.
6.5. Newsletters. HC agrees that iOwn shall be the exclusive mortgage-
------------
related sponsor or advertiser in HC's newsletters and other
informational distributions (such as e-mails to HC's members)
(collectively "Newsletters"). As mutually agreed to by the Parties,
HC further agrees to include iOwn information and Ad Copy (as defined
below) promoting the Co-Branded Mortgage Center to place in such
Newsletters. The Parties shall agree upon the content and placement
of such information and Ad Copy before each distribution of a
Newsletter.
6.6. Homes and Land.
---------------
6.6.1 Full Page Advertisements. HC will cause one (1) full-page,
-------------------------
full-color print advertisement promoting the Co-Branded Mortgage
Center to be inserted in each issue of every local version of "Homes
and Land" magazines published by PCL Media, Ltd of Tallahassee,
Florida. iOwn will provide the Ad Copy to HC or to a third party
designated by HC as is required by the circumstance of such insertion
rights.
6.6.2 Business Reply Cards. At iOwn's request, four (4) times
---------------------
during the Initial Term, and two (2) times during each Renewal Term,
HC will cause one (1) reply card to be inserted in each issue of
every local version of "Homes and Land" magazine published by PCL
Media, Ltd of Tallahassee, Florida. In iOwn's sole
[*] Confidential Treatment Requested
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discretion, iOwn will provide Ad Copy to HC or to a third party
designated by HC as is required by the circumstance of such insertion
rights. Subject to HC's reasonable approval, iOwn shall determine, in
its sole discretion, the content and subject matter of the business
reply card. The Parties acknowledge and agree that such content is
not required to reference the Co-Branded Mortgage Center.
6.6.3 Definition. For purposes of this Section 6.6. the term
-----------
"cause ... to be inserted" means that HC will either assign such
insertion rights to iOwn as HC may have (whether by contract,
promotional "comps" or the like), or HC will secure such insertion
rights for iOwn at HC's sole cost and expense.
7. HomeLine and HomeMail Lead Mailings
7.1. HomeLine Mailings. iOwn will develop and provide to HC marketing
------------------
collateral materials that promote both iOwn and the Co-Branded
Mortgage Center to be inserted in HC's standard mailings to "HomeLine
Customers". For purposes of this Agreement, "HomeLine Customer" means
a potential customer that requests information from HC's 800
telephone number or requests information from a similar Link on the
HC Web Site. HC agrees to include such marketing collateral in HC's
mailings to HomeLine customers. [*].
7.2. HomeMail Mailings. iOwn will develop and provide to HC some marketing
------------------
collateral materials that promote both iOwn and the Co-Branded
Mortgage Center to be inserted in HC's standard mailings to "HomeMail
Customers". For purposes of this Agreement, "HomeMail Customer" means
a customer who lists a home with a real estate agent who advertises
such listing in Homes and Land magazine and to whom HC mails a
complimentary copy of such magazine. HC agrees to include such
marketing collateral in HC's mailings to HomeMail customers. [*].
8. Revenue
8.1. Promotional Preferred Pages
---------------------------
8.1.1 As set forth in Section 2.3 ("Promotion of Preferred
Pages"), iOwn will pay HC the Set-up Fees for the Promotional
Preferred Pages at the rates set forth in Exhibit F ("Promotional
---------
Pages Set-up Fees")during the Term of the Agreement. At the end of
each quarter during the Initial Term, HC shall invoice iOwn for a
quarterly minimum of Promotional Preferred Page Set-up Fees of [*]
("Promotional Preferred Pages Fees Minimum") for the previous
quarter. iOwn shall pay such Promotional Preferred Page Fees Minimum
within sixty (60) days of iOwn's receipt of the invoice.
[*] Confidential Treatment Requested
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8.1.2 Reports. Along with such invoice, HC will send a report to
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iOwn that (a) states the number of Promotional Preferred Pages Set Up
Fees credited to real estate brokers during the previous quarter and
since the Effective Date, (b) deducts the total quarterly Promotional
Preferred Pages Fees Minimum paid to date, and (c) demonstrates the
credit or debit that results from such deduction. In the event that
there is either a credit or debit balance on such quarterly report,
neither Party shall be required to expedite any payments due under
this Section.
8.1.3 Reconciliation. At the expiration of the Initial Term, the
---------------
Parties shall have a final accounting of number of Promotional
Preferred Pages Set Up Fees credited and the total Promotional
Preferred Pages Fees Minimums paid. In the event that HC has not sold
a number of Promotional Preferred Pages that equal the Promotional
Preferred Pages Fees Minimums paid, then HC will continue to sell the
Promotional Preferred Pages as set forth in Section 2.3 ("Promotion
of Preferred Pages") above at [*]. However, once HC sells the number
of Promotional Preferred Pages that equal the Promotional Preferred
Pages Minimums, either at the end of the Initial Term or during a
Renewal Term, iOwn will pay HC on a quarterly basis at the rates set
forth herein but not subject to the Promotional Preferred Page
Minimums during the Initial Term and any Renewal Terms. Once HC has
sold a number of Promotional Preferred Pages that equal [*], HC will
provide iOwn with written notice. Within twenty (20) business days
after such notice, the Parties agree to meet and discuss in good
faith how to proceed once HC has sold enough Promotional Preferred
Pages to equal the Preferred Pages Fees Minimums.
8.2. Promotional PersonalBrand.
-------------------------
8.2.1 Fees. As set forth in Section 3.3 ("Promotion of
-----
PersonalBrand"), iOwn will pay HC the Set-up Fees for the Promotional
PersonalBrand at [*] during the Term of the Agreement. At the end of
each quarter during the Initial Term, HC shall invoice iOwn for a
quarterly minimum of Promotional PersonalBrand Set-up Fees of [*]
("Promotional PersonalBrand Fees Minimum") for the previous quarter.
iOwn shall pay such Promotional PersonalBrand Fees Minimum within
sixty (60) days of iOwn's receipt of the invoice.
8.2.2 Reports. Along with such invoice, HC will send a report to
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iOwn that (a) states the number of Promotional PersonalBrand Set Up
Fees credited to real estate brokers during the previous quarter and
since the Effective Date, (b) deducts the total quarterly Promotional
PersonalBrand Fees Minimum paid to date, and (c) demonstrates the
credit or debit that results from such deduction. In the event that
there is either a credit or debit balance on such quarterly report,
neither Party shall be required to expedite any payments due under
this Section.
[*] Confidential Treatment Requested
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8.2.3 Reconciliation. At the expiration of the Initial Term, the
---------------
Parties shall have a final accounting of number of Promotional
PersonalBrand Set Up Fees credited and the total Promotional
PersonalBrand Fees Minimums paid. In the event that HC has not sold
[*] Promotional PersonalBrands, then HC will continue to sell the
Promotional PersonalBrand as set forth in Section 3.3 ("Promotion of
PersonalBrand") [*]. However, after HC sells the required [*]
Promotional PersonalBrand either at the end of the Initial Term or
during a Renewal Term, iOwn will pay HC on a quarterly basis at the
rates set forth herein but not subject to the Promotional
PersonalBrand Minimums during the Initial Term and any Renewal Terms.
Within ten (10) business days after HC has sold [*] Promotional
PersonalBrands, HC will provide iOwn with written notice. Within
twenty (20) business days after such notice, the Parties agree to
meet and discuss in good faith how to proceed once HC has sold [*]
PersonalBrands.
8.3. Marketing Fees. iOwn will pay HC a marketing fee of [*] ("Full
--------------
Application Marketing Fee"). iOwn will also pay HC a marketing fee of
[*] ("Pre-Approval Marketing Fee"). The Full Application Marketing
Fee and Pre-Approval Marketing Fee are collectively referred to as
"Marketing Fees". iOwn will pay HC a [*] Marketing Fee of [*]
("Marketing Fee Quarterly Minimum"). Along with each payment, iOwn
will send a report to HC that (a) states the number of Full
Application Qualified Leads and Pre-Approval Qualified Leads received
in the applicable quarter and since the Effective Date, (b)
calculates out the total Marketing Fees due since the Effective Date,
and (c) deducts the total Marketing Fees paid since the Effective
Date. In the event that the total Marketing Fees due exceeds the
Marketing Fees Quarterly Minimum payments that iOwn has made to HC,
iOwn will include a payment for the remainder due with the report.
iOwn shall mail such report and payment, if applicable, within sixty
(60) days of the end of the quarter. After the expiration of the
Initial Term, iOwn shall continue to pay HC the Full Application
Marketing Fees and the Pre-Approval Marketing Fees, but shall not be
subject to paying the [*]. To the degree that any agent or broker
customer seeks to participate in the Marketing Fees revenues, HC
agrees to take full responsibility for such participation out of
Marketing Fees paid to HC by iOwn.
8.4. Advertising. As consideration for the advertising as set forth in
-----------
Section 6 above, iOwn agrees to pay HC a [*]. iOwn shall pay such
quarterly payments within thirty (30) days of the end of each
quarter.
[*] Confidential Treatment Requested
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8.5. Taxes. Each Party shall be responsible for the taxes that result from
-----
such Party's performance of its obligations under this Agreement.
Without limiting the foregoing, each Party is responsible for paying
their respective corporate income taxes for any revenues associated
with this Agreement.
8.6. Audit. During the Term of this Agreement and for two (2) years after
-----
its termination or expirations, each Party shall maintain complete
and accurate records that relate to its performance of its
obligations hereunder. Such records that relate to the calculation
and payment of any payments under this Agreement shall be kept in
compliance with generally accepted methods of accounting. Once a year
during the Term of this Agreement and once after the termination or
expiration of this Agreement, each Party ("Auditing Party") will be
entitled to have its independent certified public auditor review the
other Party's ("Audited Party") records and information relating to
the calculation and payment of the fees due hereunder. Such audit may
happen upon twenty (20) days written notice, during normal business
hours, in a manner so as to minimize the impact on the Audited
Party's normal course of business, and at the Auditing Party's
expense. In the event that the audit reveals an underpayment of more
than five percent (5%) of the amount paid during any audit period,
the Audited Party will bear the cost of the audit. If any audit
should disclose any underpayment or overpayment, then the Audited
Party shall send the Auditing Party a payment or credit, as
applicable, within thirty (30) days of receiving written notice of
such discrepancy.
9. Licenses
9.1. License Grant by HC. HC hereby grants to iOwn a nonexclusive,
-------------------
royalty-free right to: (a) use, reproduce, publicly display, publish,
and transmit electronically the HC Content in whole or in part, on or
in connection with the iOwn Web Site, for use in connection with
iOwn's obligations hereunder; and (b) use, reproduce, publicly
display and transmit electronically the HC Marks as necessary to meet
iOwn's obligations hereunder and subject to the guidelines set forth
in Section 9.3("Use of Marks") below. Except as provided for herein,
HC reserves all right, title, and interest in and to the HC Web Site,
the HC Content and the HC Marks, along with any intellectual property
rights associated with any of the forgoing, and no title to or
ownership of any of the foregoing is transferred to iOwn or any other
entity or person under this Agreement.
9.2. License Grant by iOwn. iOwn hereby grants to HC a nonexclusive,
---------------------
royalty-free right to: (a) use, reproduce, publicly display, publish
and transmit electronically the iOwn Content and Ad Copy for use
solely in connection with HC's obligations hereunder; and (b) use,
reproduce, publicly display and transmit electronically the iOwn
Marks as necessary to meet HC's obligations hereunder and subject to
the guidelines set forth in Section 9.3 ("Use of Marks") below.
Except as provided for herein, iOwn reserves all right, title, and
interest in and to the iOwn Web Site, Ad Copy, the iOwn Content and
the iOwn Marks, along with any intellectual property
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rights associated with any of the forgoing, and no title to or
ownership of any of the foregoing is transferred to HC or any other
entity or person under this Agreement.
9.3. Use of Marks. HC will not use or exploit any of the iOwn Marks, and
------------
iOwn will not use or exploit any of the HC Marks, except in such form
as the other Party may consent to, which consent will not be
unreasonably withheld or delayed. Each Party's use of the other
Party's trademarks pursuant to the licenses set forth above shall be
in accordance with such other Party's reasonable policies regarding
use of its trademarks as may be established from time to time.
Neither Party shall use the other Party's trademarks in a manner that
disparages the other Party or its products or services, or portrays
the other Party in a false, competitively adverse or poor light.
9.4. Notices. Each Party agrees to display mutually agreeable trademark
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and copyright notices or legends of the other Party when using such
other Party's Marks. Each Party shall in advance submit to the other
Party the proposed placement of such notices or legends (including,
without limitation, the place and manner of incorporation into
electronic media or transmissions), and such other Party shall have
the right, acting reasonably, to approve the same.
10. Public Announcements. Any public announcements relating to this Agreement
will be subject to the Parties' mutual written approval. Such announcements,
as well as all references to the Co-Branded Mortgage Center by HC within the
HC Web Site or otherwise, will include a reasonably prominent reference to
iOwn as the provider of mortgage content in the Co-Branded Mortgage Center.
11. Term and Termination
11.1. Term. The term of this Agreement shall be [*] commencing on the
-----
Effective Date, unless terminated sooner in accordance with this
Agreement ("Initial Term"). Thereafter the term of this Agreement
will automatically renew for [*] ("Renewal Term"), unless terminated
by either Party by written notice to the other Party within ninety
(90) days of the end of the current Term. The Initial Term and
Renewal Term may be individually or collectively referred to as
"Term".
11.2. Early Termination. This Agreement may be terminated at any time by
-----------------
either Party, effective immediately upon notice, if the other Party:
(a) becomes insolvent; (b) files a petition in bankruptcy or (c)
makes an assignment for the benefit of its creditors. Either Party
may terminate the Agreement, effective upon thirty (30) days written
notice, in the event that the other Party breaches any of its
responsibilities or obligations under the Agreement in any material
respect (including, without limitation, failure to pay) which breach
is not remedied within thirty (30) days following written notice to
such Party.
[*] Confidential Treatment Requested
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11.3. Effect of Termination. The defined term and the rights and
---------------------
obligations set forth in the following sections shall survive any
termination or expiration of this Agreement: 2.3 ("Promotion of
Preferred Pages"), 3.3 ("Promotion of PersonalBrand"), 8.5
("Taxes"), 8.6 ("Audit"), 11 ("Term and Termination"), 12
("Confidentiality"), 13 ("Indemnification"), 14 ("Limitation of
Liability"), 16 ("Miscellaneous"). [
12. Confidentiality. iOwn and HC hereby acknowledge that in the course of
activities under this Agreement each of them may have access to
confidential and proprietary information which relates to the other Party's
technology, marketing and business (the "Confidential Information").
------------------------
Confidential Information includes but is not limited to the terms of this
Agreement, the number of Full Application Qualified Leads and Preapproval
Qualified Leads, or any other written or oral disclosure of such
information. Each Party agrees to preserve and protect the confidentiality
of the Confidential Information and to not use except as provided for under
the terms of this Agreement or to disclose, or distribute any Confidential
Information to any third party without the prior written consent of the
other Party; provided, however, that any Party hereto may disclose to any
-------- -------
other Party any information which receiving Party demonstrates: (i) is or
becomes generally known or available by publication, commercial use, or
otherwise through no fault of a Party; (ii) is discovered or created by the
receiving Party without reference to the Confidential Information, as shown
in records of such Party; or (iii) is lawfully obtained from a third party
who has the right to make such disclosure; (iv) is released for publication
by the other; (v) is required to be disclosed by a valid court order; or
(vi) otherwise learned through legitimate means, other than from a third
party under confidentiality obligations. Each Party agrees for the Term of
this Agreement and for a period of five (5) years thereafter to protect the
confidentiality of the Confidential Information as set forth herein.
Without limiting the scope of the duty, the Parties agree to limit their
internal distribution of Confidential Information to their board of
directors, employees, independent contractors, and agents, and to take
reasonable steps to ensure that the dissemination is so limited. The
actions or negligence of the Parties, directors, employees, or agents shall
be deemed to be the actions or negligence of the respective Party, with
regard to the Confidential Information of the other Party. Moreover, any
Party hereto may disclose any Confidential Information hereunder to such
Party's agents, attorneys and other representatives or any court of
competent jurisdiction or any other Party empowered hereunder as reasonably
required to resolve any dispute between the Parties hereto.
13. Indemnification
13.1. Indemnification by iOwn. iOwn, at its own expense, will indemnify,
-----------------------------
defend and hold harmless HC, and its employees, representatives and
agents, against any claim, suit, action, or other proceeding brought
against HC or such Party by a third party, to the extent that such
claim, suit, action or other proceeding is based on or arises from
any final adjudication that iOwn breached a representation or
warranty set forth in this Agreement. iOwn will pay all costs,
damages, and
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<PAGE>
expenses, including, but not limited to, reasonable attorneys' fees
and costs awarded as a result of final adjudication against or
otherwise incurred by HC in connection with or arising from any such
claim, suit, action or proceeding attributable to any such claim.
13.2. Indemnification by HC. HC, at its own expense, will indemnify,
---------------------
defend and hold harmless iOwn, and its employees, representatives
and agents, against any claim, suit, action, or other proceeding
brought against iOwn or such Party by a third party, to the extent
that such claim, suit, action or other proceeding is based on or
arises from any final adjudication that HC breached a representation
or warranty set forth in this Agreement HC will pay all costs,
damages, and expenses, including, but not limited to, reasonable
attorneys' fees and costs finally awarded against or otherwise
incurred by iOwn in connection with or arising from any such claim,
suit, action or proceeding attributable to any such claim.
13.3. Procedures. Each Party's obligation to indemnify the other hereunder
----------
shall be conditioned upon (v) the indemnified Party providing the
indemnifying Party with prompt written notice of any claim that
could lead to a claim for indemnification; (w) the indemnified Party
permitting the indemnifying Party to assume and control the defense
of such action, with counsel chosen by the indemnifying Party, who
shall be reasonably acceptable to the indemnified Party; (x) the
indemnified Party will have the right to participate in any defense
of such claim and/or be represented by counsel of its own choosing
at its expense; (y) the indemnifying Party will not settle any claim
or action of the claiming Party's behalf without the claiming
Party's prior written permission, and in the event the Parties agree
to settle a claim or action, the indemnifying Party agrees not to
disclose the settlement or to permit the opposing Party to disclose
the settlement without first obtaining the claiming Party's written
permission; and (z) the indemnified Party not entering into any
settlement or compromise of any such claim without the indemnifying
Party's prior written consent. In the event the indemnified Party
enters into any settlement or compromise of any such claim without
the indemnifying Party's prior written consent, then the
indemnifying Party shall have no obligation, financial or otherwise
for any such settlement or compromise so effected.
14. Waiver of Consequential Damages and Limitation 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, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE
OR ANTICIPATED PROFITS OR LOST BUSINESS. EXCEPT FOR THE PAYMENT OBLIGATIONS
SET FORTH HEREIN, IN NO EVENT SHALL EITHER PARTY'S LIABILITY UNDER THIS
AGREEMENT EXCEED THE TOTAL AMOUNTS PAID BY IOWN TO HC HEREUNDER.
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15. Representation and Warranties.
15.1. Each Party to this Agreement represents and warrants to the other
Party that: (a) such Party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts
required of it hereunder; (b) such Party has, or shall license or
acquire, all rights necessary to perform its obligations hereunder,
(c) the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder,
do not and will not violate any agreement to which such Party is a
party or by which it is otherwise bound.
15.2. iOwn represents and warrants that the iOwn mark, iOwn Content, and
Ad Copy will not infringe a third party's copyright or trademark and
will not misappropriate a third party's trade secret.
15.3. HC represents and warrants that the HC mark and HC Content will not
infringe a third party's copyright or trademark and will not
misappropriate a third party's trade secret.
15.4. HC represents and warrants that it has the right to provide iOwn
with business reply card and full page advertising in the Homes &
Land magazine publication as contemplated in this Agreement.
15.5. EXCEPT AS SET FORTH HEREIN, BOTH PARTIES DISCLAIM ALL WARRANTIES OF
ANY KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR NON-INFRINGEMENT AND IMPLIED WARRANTIES ARISING FROM
USAGE OF TRADE, COURSE OF DEALING OR COURSE OF PERFORMANCE WITH
REGARD TO ANY CONTENT, INFORMATION, PRODUCTS, OR SERVICES PROVIDED
HEREUNDER. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IOWN
DOES NOT WARRANT THAT THE CO-BRANDED MORTGAGE CENTER WILL BE FREE
FROM BUGS, DEFECTS OR ERRORS, OR THAT THE CO-BRANDED MORTGAGE CENTER
WILL BE ACCESSIBLE WITHOUT INTERRUPTION.
16. Miscellaneous
-------------
16.1. Amendments and Waivers. Any term of this Agreement may be amended or
----------------------
waived only with the written consent of the Parties or their
respective successors and assigns. Any amendment or waiver effected
in accordance with this Section 16.1 shall be binding upon the
Parties and their respective successors and assigns.
16.2. Successors and Assigns. Neither Party may assign this Agreement, in
----------------------
whole or in part, without the other Party's written consent;
provided, however, that either
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Party may assign this Agreement without such consent in connection
with any merger, consolidation, any sale of all or substantially all
of such Party's assets or any other transaction in which more than
fifty percent (50%) of such Party's voting securities are
transferred, subject to all of the terms of this Agreement. This
Agreement shall be binding on any such assignee. Any attempt to
assign this Agreement other than in accordance with this provision
shall be null and void.
16.3. Governing Law. This Agreement and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the Parties hereto shall be
governed, construed and interpreted in accordance with the laws of
the State of California, without giving effect to principles of
conflicts of law provisions. Both Parties hereby consent to the
personal jurisdiction of California, acknowledges that venue is
proper in any state or federal court in California, and waives any
objection that such Party has or may have in the future with respect
to any of the foregoing.
16.4. Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.
16.5. Notices. Any notice required or permitted by this Agreement shall be
-------
in writing and shall be deemed sufficient upon receipt, when
delivered personally or by courier, overnight delivery service, or
forty-eight (48) hours after being deposited in the regular mail as
certified registered mail with postage prepaid, if such notice is
addressed to the Party to be notified at such Party's address as set
forth in the Agreement.
16.6. Severability. If one or more provisions of this Agreement are held
------------
to be unenforceable under applicable law, the Parties agree to
renegotiate such provision in good faith, in order to maintain the
economic position enjoyed by each Party as close as possible to that
under the provision rendered unenforceable. In the event that the
Parties cannot reach a mutually agreeable and enforceable
replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement
shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with
its terms.
16.7. Arbitration. Any dispute or claim arising out of or in connection
-----------
with this Agreement will be settled by arbitration in San Francisco,
California in accordance with the then-current Commercial
Arbitration Rules of the American Arbitration Association by three
arbitrators appointed in accordance with said rules. Each Party
shall select one such arbitrator, and the two arbitrators so chosen
shall select the third arbitrator. The arbitrators shall apply
California law, without reference to rules of conflicts of law or
rules of statutory arbitration, to the resolution of any dispute.
Judgment on the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof. Notwithstanding the
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foregoing, the Parties may apply to any court of competent
jurisdiction for preliminary or interim equitable relief, or to
compel arbitration in accordance with this paragraph, without breach
of this arbitration provision.
16.8. Attorney Fees. The prevailing Party in any dispute hereunder shall
-------------
be entitled to recover from the other Party its costs, expenses and
reasonable attorneys' fees (including any fees for expert witnesses,
paralegals or other legal service providers).
16.9. Advice of Legal Counsel. Each Party acknowledges and represents
-----------------------
that, in executing this Agreement, it has had the opportunity to
seek advice as to its legal rights from legal counsel and that the
person signing on its behalf has read and understood all of the
terms and provisions of this Agreement. This Agreement shall not be
construed against any Party by reason of the drafting or preparation
thereof.
16.10. No Partnership Implied; Future Business Activity. Neither this
------------------------------------------------
Agreement nor any terms and conditions contained herein may be
construed as creating or constituting a partnership, joint venture
or agency relationship between the Parties. This Agreement shall not
limit either Party's present or future business activities of any
nature, including business activities which could be competitive
with the other Party, except to the extent such activities would
involve a breach this Agreement.
16.11. Entire Agreement. This Agreement is the product of both of the
----------------
Parties hereto, and constitutes the entire agreement between such
Parties pertaining to the subject matter hereof, and supersedes all
prior negotiations and drafts of the Parties with regard to the
transactions contemplated by this Agreement. Any and all other
written or oral agreements existing between the Parties hereto
regarding such transactions are expressly canceled.
The Parties have caused this Agreement to be executed by their duly
authorized representatives as of the Effective Date.
iOWN, INC. HOMES.COM, LLC
Name: Ned Hoyt Name:
By:______________________ By:_______________________
Title:___________________ Title:____________________
Address: Address:
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333 Bryant Street, Lower Level 800 Menlo Avenue, #210
San Francisco, CA 94107 Menlo Park, CA 94025
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EXHIBIT A
SCREEN SHOT
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<PAGE>
EXHIBIT B
INTEGRATION
[NEED TECH INPUT HERE]
1. iOwn's Obligations
Provide design and content input
Provide HC with the relevant graphics and text for the Links that HC will
be placing on the appropriate pages.
Use commercially reasonable efforts to tailor the provision of mortgage
services for the agents in the both the Consumer View and Agent/Broker View on
the PersonalBrand and Preferred Pages Web Sites.
2. HC Obligations
Implement agreed-upon design and frame into existing and new Preferred
Pages and PersonalBrand Pages, such that the Personalized Co-Branded Mortgage
Center will be co-branded dynamically to each PersonalBrand or Preferred Pages'
look and feel.
For all Preferred Pages, [*] HC will create functionality that permits such
broker or agent to manually designate an alternative local provider of mortgage
services through a negative selection option whereby such agent or broker will
have to "unselect" iOwn.
For Preferred Pages and PersonalBrand pages [*] implement technical blocks
within the Agent Views such that the agent or broker may not designate an
alternative to iOwn as their default mortgage provider.
Provide Links to the Personalized Co-Branded Mortgage Center from both
the Consumer View and Agent/Broker Views of the PersonalBrand and Preferred
Pages Web Sites, that will be tailored or contain information that is specific
to such real estate professional and allow iOwn to capture that information and
tailor the Personalized Co-Branded Mortgage Center as part of delivering the
Personalized Co-Branded Mortgage Center.
Create Links from the Promotional PersonalBrands and Promotional Preferred
Pages to the Personalized Co-Mortgage Center such that the Links shall be for
the life of the Promotional PersonalBrand or Promotional Preferred Pages.
[*] Confidential Treatment Requested
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EXHIBIT C
MORTGAGE ADVERTISEMENT AGREEMENTS
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EXHIBIT D
STATEMENT OF WORK
1. Specifications and Schedule
---------------------------
HC agrees to use commercially reasonable efforts to have the existing Co-Branded
Mortgage Center be exclusive to iOwn by [*].
The Parties will use commercially reasonable efforts to agree upon a first set
of specifications for a revised Co-Branded Mortgage Center by [*].
The Parties will use commercially reasonable efforts to implement such
specifications by [*].
2. iOwn Content iOwn Content may include, but is not limited to the following:
------------
HomeBuying Tools
. How Much Can You Afford? (tool and guide): Helps users quickly assess their
broad home purchasing power through a combination of a calculator and an
educational guide.
. Choose the Right Mortgage (tool and guide): Two tools to help users
determine the right mortgage product, first by comparing monthly payments
of different products, the second by recommending a mortgage and reviewing
actual rates and payments across any number of loans.
. Down Payment Strategies (guide): Helps users to determine their optimal
down payment for their property and how to accumulate the down payment.
. Estimate Your Closing Costs (guide): Review the standard fees in the home
buying process, learn how to compare closing costs to find the lowest
loans, and gain knowledge about lender rates, points and rebates.
. RateWatch (not co-branded- notification service): an e-mail notification
service that allows the user to monitor interest rates for a specific
mortgage. iOwn will e-mail the user when rates reach or fall below a
specified rate.
. Refi Check: Allows user to compare their current mortgage to one offered
through iOwn so they can evaluate refinance opportunities.
. Rent vs. Buy: Allows users to evaluate their current financial situation
and describes how purchasing a home would affect them.
Mortgage Services
. Rate Shopper (tool): Provides an impartial, customized comparison of
available interest rates from a database of national and regional lenders.
Users can specify criteria most
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important to them in a loan, including rate, points, product type, etc.,
and generate a rank-ordered list of rates meeting their criteria.
. Prequalification: Provides a formal analysis of a borrower's application
information based on a small subset of data, and uses actual lender
guidelines to assess how likely they are to get a loan. Information is
password-protected to ensure security and allow repeated access to the
information entered. This tool generates a certified prequalification
letter and worksheet to use with Realtors and sellers to help in the offer
process. This tool is fully iOwn branded.
. Preapproval: Allows user to conduct a detailed, real time analysis of their
borrowing situation, without having identified their target property, based
on actual criteria specified by national and regional lenders. Information
is password-protected to ensure security and allow repeated access to the
information entered by the user. This tool is fully iOwn branded.
. Full Application: Captures all required data for to proceed with a loan
application. Information is password-protected to ensure security and allow
repeated access to the information entered. This tool is fully iOwn
branded.
3. Changes to the Specifications or Schedule The Parties acknowledge that
-----------------------------------------
there may need to be revisions to the specifications or schedule for the Co-
Branded Mortgage Center. Either Party may propose changes to the specifications
or schedule by providing the other Party with written notice. The Parties agree
to work together to review and asses any such change request. If the Parties
agree upon a change, then the Statement of Work shall be so amended.
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EXHIBIT E
LINK SCREEN SHOT
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EXHIBIT F
PREFERRED PAGES SET UP FEES
[*]
[*] Confidential Treatment Requested
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<PAGE>
Amendment to HOMESCOUT DATA AGREEMENT
THIS AMENDMENT (the "Amendment") is entered into by and between iOwn, Inc., a
California corporation with its principal place of business at 333 Bryant Street
Lower, Level, San Francisco, California 94107 ("iOwn") and the Homes.com
division of PCL Media, Ltd, a Florida limited partnership with its principal
place of business at 1600 Capital Circle, S.W., Tallahassee, FL 32310 ("PCL")
and is effective as of the 1/st/ of November, 1999 ("Effective Date").
WHEREAS, iOwn and PCL entered into a HOMESCOUT DATA AGREEMENT (the "Agreement")
dated June 30, 1999;
WHEREAS, the parties desire to amend that Agreement;
NOW, THEREFORE, in consideration of the mutual consideration, promises,
representations, and covenants set forth herein, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
Effective _____________________, 1999, PCL transferred all of its rights and
obligations under the Agreement to Homes.com, LLC, a Delaware limited liability
company, with its principal place of business located at 800 Menlo Avenue, #2
10, Menlo Park, CA 94025 ("Homes"), a successor-in-interest to PCL's rights and
obligations thereunder. Homes represents and wan-ants that such transfer is
valid and effective, that Homes has the authority to make such representation,
agrees to be bound to all duties of PCL thereunder, and will execute any further
documents required to evidence such transfer. Upon such terms, iOwn consents to
the above transfer from PCL to Homes.
Section 3(d) is hereby incorporated into the Agreement as set forth below:
3(d) Exclusivity. Homes will not post or will remove any and all
sponsorships, Links, promotions, advertisements, content or other data
from mortgage brokers or related mortgage or lending companies other
than iOwn from any and all Web pages that Homes displays the HomeScout
Data.
Section 4(a) is hereby deleted in its entirety and replaced with the following
Language:
4(a) An amount equal to [*] as a one time set-up fee;
Section 4(b) is hereby incorporated into the Agreement as set forth below:
4(b) An amount equal to [*] per month through [*] in connection with the
use of the HomeScout Data in accordance with the terms herein and
subject to the performance standards included in Exhibit C; and
BY
[*] Confidential Treatment Requested
<PAGE>
Section 4(c) is hereby incorporated into the Agreement as set forth below:
4(c) An amount equal to [*] through the expiration of the Term of the,
Agreement, in connection with the use of the HomeScout Data in
accordance with the tam herein and subject to the performance standards
included in Exhibit Co
Section 5 is hereby deleted in its entirety and replaced with the following
language:
This Agreement will become effective as of the Effective Date written
above and shall remain in effect for the Initial Term described below,
and after the Initial Term this Agreement shall be automatically
extended for successive Renewal Terms, unless either party provides
written notice of its intent not to renew at least thirty (30) days
prior to the end of the Initial Term or Renewal Term, as the case may
be, or unless this Agreement is otherwise terminated as provided in the
Standard Terms and Conditions.
Initial Term: [*]
Renewal Terms: [*]
Section 5.1 (d) of Exhibit A is hereby deleted in its entirety.
Exhibit C is hereby deleted in its entirety.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
listed above.
PCL MEDIA, LTD. iOWN, INC.
By: __________________________ By: __________________________
Name: __________________________ Name: Ned Hoyt
Title:__________________________ Title: Chief Executive Officer
Date: __________________________ Date: __________________________
BY
[*] Confidential Treatment Requested
<PAGE>
EXHIBIT 10.10
EXECUTION COPY
Platinum Premiere Partner Package Agreement
This Platinum Premiere Partner Package Agreement (the "Agreement"),
effective as of 10-1 , 1999 (the "Effective Date"), is made and entered into
--------
by and between EarthLink Network, Inc. a Delaware corporation, and iOwn, Inc.
("iOwn"), a California corporation.
RECITALS
WHEREAS, EarthLink is an Internet service provider which owns, licenses,
operates or distributes online information, communication, and transaction
services through the EarthLink/Sprint Service;
WHEREAS, iOwn is an online provider of home financing and related products
which owns, operates and maintains the iOwn Site, through which iOwn provides,
among other things, the Services;
WHEREAS, the parties desire that iOwn provide the Services through the Co-
Branded Site as the Default Provider of real estate multiple listing and
mortgages on the EarthLink Finance Portal and through the EarthLink Personal
Start Page; and
WHEREAS, the parties desire that EarthLink provide links from the EarthLink
Site to the Co-Branded Site so that EarthLink Members and Internet users may
access such Services.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and other valuable and sufficient consideration, the receipt of which is hereby
acknowledged, EarthLink and iOwn agrees as follows:
TERMS
DEFINITIONS. The following definitions shall apply to the Agreement:
-----------
1.1. "Affiliate" means, With respect to either party, any person or entity
at any time Controlling, Controlled by or under common Control with that party.
1.2. "Banner Advertisement" means a rotating or permanent banner
advertisement located on the EarthLink Site no smaller than 468 pixels by 60
pixels (or such other dimensions as the parties may from time to time agree upon
in writing), which permits users to navigate directly to a page on the
Co-Branded Site selected by iOwn (and subject to EarthLink's reasonable
approval).
1.3. "Co-Brand" means that a party will cause its Web page to display the
other party's Marks in a manner that is equal in prominence and position to its
own Marks appearing thereon.
1.4. "Co-Branded Site" means a version of the iOwn Site created, provided,
served and maintained by iOwn within which certain Web pages (including the fast
page linked to from the EarthLink Site) are Co-Branded with the EarthLink/Sprint
Marks and certain other Web pages are not Co-Branded with the EarthLink/Sprint
Marks.
1.5. "Company Information" means collectively the Confidential Information
and Trade Secrets. Company Information also includes information, which has been
disclosed to the disclosing party by a third party, and that the disclosing
party is obligated to treat as confidential or secret. EarthLink's Company
Information includes, without limitation, the names, contact and financial
information (including, but not limited to e-mail addresses) provided by members
on the EarthLink Site and any traffic data and unique user information related
to the EarthLink Site.
1.6. "Confidential Information" means any and all information related to
the services and/or business of a party that does not constitute a Trade Secret
and that is treated as confidential or secret by the party (that is, it is the
subject of efforts by the disclosing party that are reasonable under the
circumstances to maintain its secrecy) including, but not limited to, the terms
and conditions of this Agreement. iOwn's Confidential
[*] Confidential Treatment Requested
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EXECUTION COPY
Information includes, without limitation, Leads, conversion of unique site
visitors and conversion of page views data. Confidential Information shall not
include information (a) already lawfully known to or independently developed by
the receiving party, (b) disclosed in published materials, (c) generally known
to the public, or (d) lawfully obtained from any third party without any
obligation of confidentiality.
1.7. "Control," "Controlling" and "Controlled" means possessing, directly
or indirectly, the power to direct or cause the direction of the management and
policies of an entity or other person, whether through ownership of voting
securities, or by contract.
1.8. "EarthLink Competitive Services" means any Internet access services,
telephone services (whether long distance, wireless or local), Internet
telephony services, telecommunications services (including without limitation,
ISDN, frame relay, ADSL, etc.), Web hosting services, e-mail services (free or
otherwise), start page services, or portal services, except such services
provided by EarthLink and Sprint and those services and products offered by
EarthLink and Sprint.
1.9. "EarthLink Member" means any authorized user of the EarthLink/Sprint
Service.
1.10. "EarthLink Personal Start Page" refers to that page which is
available to all EarthLink Members when such EarthLink Members access the
EarthLink Site. EarthLink's Personal Start Page may be modified by EarthLink
Members from time to time, and in their discretion. See attachment to Exhibit C.
1.11. "EarthLink Premiere Partners" means a third party entering into or
which has entered into an extensive co-promotional partnership with EarthLink,
which EarthLink designates, its "Premiere Partnership Program" or such other
name as EarthLink may devise from time to time. EarthLink will identify its
Premiere Partners in writing to iOwn as needed to implement the terms of this
Agreement. See attachment to Exhibit C.
1.12. "EarthLink Site" means, collectively, all pages of EarthLink's
various Web sites, the EarthLink Personal Start Page, the EarthLink Finance
Portal and any other Web pages owned or controlled by EarthLink available
through www.earthlink.net, or any successor site thereto available through the
EarthLink/Sprint Service.
1.13. "EarthLink Finance Portal" means those Web pages selected by
EarthLink that EarthLink designates as the EarthLink Finance Portal, including
without limitation, any Web pages owned or hosted by a third party provider.
1.14. "EarthLink/Sprint Service" means the EarthLink narrowband, and not
broadband, dial-up Internet access service.
1.15. "EarthLink Real Estate Web Channel" means the categories related to
mortgage and real estate content contained on the EarthLink Site selected by
EarthLink to be included in the EarthLink Real Estate Web Channel which will be
accessed via a link from the EarthLink Personal Start Page(Should EarthLink
change the EarthLink Real Estate Web Channel to the EarthLink Real
Estate/Mortgage Web Channel, iOwn shall be the Default Provider of such
EarthLink Real Estate/Mortgage Web Channel).
1.16. "eLink" means the email newsletter program employed by EarthLink
through which it provides notices and information regarding, for instance, new
services by means of email mailings to EarthLink Members.
1.17. "Guaranteed Leads" shall have the meaning set forth in Section 2.2
(b).
1.18. "Guaranteed Leads Fee" shall have the meaning set forth in Section
2.l (e).
1.19. "Initial Term" shall have the meaning set forth in Section 6.1
herein.
1.20. "iOwn Icon" means any graphical or textual icon, which is capable of
hyperlinking to the Co-Branded Site including, but not limited to, any Banner
Advertisements and Promotional Placements.
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1.21. "iOwn Site" means, collectively, all points of presence and/or
services maintained from time to time by or on behalf of iOwn or its Affiliates
on the Internet at (i) the URL iown.com (and any replacement or successor
thereto), (ii) each other URL having the iown.com domain (and any replacement or
successor thereto), and (iii) such other URLs as iOwn may notify EarthLink from
time to time.
1.22. "Lead" means a visitor originating from the EarthLink Site who
completes and clicks the "submit" button within the PreApproval or Full
Application sections of the Co-Branded Site and who passes iOwn's credit filter,
provided such visitor has not qualified as a Lead previously under this
Agreement unless such visitor actually purchased an iOwn product and is a bona
fide purchaser of additional iOwn products. EarthLink acknowledges that iOwn
tracks visitors to the Co-Branded Site for a period of ninety (90) days from the
date such visitor initially visited the Co-Branded Site from the EarthLink Site.
Therefore, EarthLink further acknowledges that iOwn will track any visitor who
initially navigates from the EarthLink Site to the Co-Branded Site for a period
of ninety (90) days and will count such visitor as a Lead (provided the other
requirements above are met), regardless of how such visitor returns to the Co-
Branded Site during such ninety (90) day time period. However, if a visitor
returns to the Co-Branded Site through means other than through the EarthLink
Site more than ninety (90) days after visiting the Co-Branded Site via the
EarthLink Site, iOwn will not be able to track such visitor as an EarthLink Lead
and such visitor will not be credited as a Lead. EarthLink acknowledges that any
first time visitor to the Co-Branded Site from the EarthLink Site which has
visited an iOwn Site (through a different iOwn promotional partner) within the
ninety (90) days immediately preceding the visit to the Co-Branded Site, shall
not be considered a Lead for purposes of this Agreement.
1.23. "Leads Fee" shall have the meaning set forth in Section 2.1(f).
1.24. "Marks" means any trademark, trade name, service mark, logo, slogan
and copyright and proprietary notices associated with a party's products or
services as contained in Exhibit A and Exhibit B.
1.25. "Default Provider" means the provider of a service or product that a
user will automatically view when they access the EarthLink Site unless the user
affirmatively acts to change the Default Provider option after logging onto the
EarthLink Site. EarthLink has only one Default Provider per EarthLink Site
category.
1.26. "Promotion Fee" has the meaning assigned in Section 2.1(d).
1.27. "Promotional Placement" means a graphical or text link located on
the EarthLink Site through which users may directly link to a location on the
Co-Branded Site to be determined by iOwn (subject to EarthLink's reasonable
approval).
1.28. "Renewal Term(s)" shall have the meaning set forth in Section 6.1
herein.
1.29. "Services" shall be limited to (i) presenting through a World Wide
Web site online multiple real estate listing information and services, (ii)
presenting through a World Wide Web site online mortgage information and
services, (iii) providing for the processing of any and all transactions arising
from such multiple real estate listing services and mortgage services, and (iv)
providing customer support to such Internet users regarding such multiple real
estate listing services and mortgage services and each such transaction. Sale by
Owner real estate services provided by iOwn shall not, under this Agreement, be
promoted by EarthLink.
1.30. "Sprint" means, collectively, Sprint Corporation and Sprint
Communications Company L.P.
1.31. "Term" means the Initial Term and any Renewal Term(s) of this
Agreement as defined in Section 6.1 herein.
1.32. "Territory" means the United States and, as mutually agreed upon by
the parties, other areas. The EarthLink Site is accessible to users on a
worldwide basis, however, EarthLink does not necessarily provide services to
such users.
1.33 "Trade Secrets" means all non-public information whether tangible or
intangible related to the services or business of the disclosing party that (a)
derives economic value, actual or potential, from not being
<PAGE>
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generally known to or readily ascertainable by other persons who can obtain
economic value from its disclosure or use; and (b) is the subject of efforts by
the disclosing party that are reasonable under the circumstances to maintain its
secrecy, including, without limitation, (i)marking any information reduced to
tangible form clearly and conspicuously with a legend identifying its
confidential of trade secret nature; (ii)identifying any oral communication as
confidential or secret immediately before, during, or after such oral
communication; or (iii) otherwise treating such information as confidential or
secret. Assuming the criteria in clauses (a) and (b) above are met, Trade
Secrets includes information, without regard to form, including, but not limited
to, technical and nontechnical data, formulas, patterns, designs, compilations,
computer programs and software, devices, inventions, methods, techniques,
drawings, processes, financial data, financial plans, product plans, lists of
actual or potential customers and suppliers which are not commonly known by or
available to the public, research, development, and existing and future
products.
2. OBLIGATIONS OF THE PARTIES.
--------------------------
2.1. Duties and Obligations of iOwn. In connection with this Agreement,
------------------------------
iOwn shall have the following duties and obligations:
(a) License. During the Term, and subject to the provisions of
-------
Section 2.3 herein, iOwn grants to EarthLink a nonexclusive,
royalty-free, license throughout the Territory to use, reproduce,
display, and distribute iOwn's Marks (as defined in Exhibit B) in
connection with links to or from, or in conjunction with, the
EarthLink Site, or in or on any other media including, but not
limited to any promotional material or any of EarthLink's
partners' Web sites, but in each case only as reasonably
necessary for EarthLink to perform as contemplated by this
Agreement.
(b) The Services. iOwn shall provide the Services in accordance with
------------
the Service Specifications set forth in Exhibit D hereto through
the Co-Branded Site and as the Default Provider of the real
estate multiple listing services and mortgage services, on the
EarthLink Finance Portal on the EarthLink Site and through the
EarthLink Personal Start Page. Features to be offered by iOwn
include, but are not limited to, iOwn's "RateShopper" calculator,
"Afford" calculator, "Choose the right mortgage" calculator,
"Should you refinance?" calculator, "Closing Costs" tool, "Rent
vs. Buy" calculator, "Rate Watch" tool, "HomeScout" listings
search engine and links to the iOwn mortgage applications:
Preapproval, Prequalification and Full Application as listed in
Exhibit G. The Services accessible through the EarthLink Site
shall link only to the Co-Branded Site. iOwn shall design,
create, edit, manage, update and maintain the Co-Branded Site for
the purpose of providing Internet users with access to the
Services on a twenty-four (24) hours per day, seven (7) days per
week basis, such that the Services provided through the Co-
Branded Site will retain parity with the Services provided by
iOwn to any third party or through the main iOwn Site in terms of
freshness of content, services and features. During the Term,
iOwn agrees to (i) work diligently with EarthLink to integrate
the Services into the EarthLink Site and (ii) assist EarthLink in
a commercially reasonable manner to foster usage and enjoyment of
the Services by EarthLink Members on an on-going basis.
(c) Billing, Processing and Collection. iOwn shall be solely
----------------------------------
responsible for all processing that arises out of any and all
transactions (whether they are conducted through the telephone,
by mail, or electronically) that are conducted through the Co-
Branded Site including, without limitation, any and all billing,
collection, refunding, exchanging of goods and/or services,
crediting, and maintenance of records corresponding to such
transactions. Further, iOwn hereby agrees and acknowledges that
iOwn shall conduct all such processing in a professional and
workmanlike manner, on a timely and efficient basis.
(d) Promotion Fee. iOwn shall pay to EarthLink the promotion fee as
-------------
follows (the "Promotion Fee"): (i) [*]
[*] Confidential Treatment Requested
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within five (5) days of the Effective Date, or of a Renewal Date,
as applicable; (ii) [*] within thirty (30) days following the end
of [*] after the Effective Date, or of a Renewal Date, as
applicable; (iii) [*] within thirty (30) days following the end
of [*] after the Effective Date, or of a Renewal Date, as
applicable; and (iv) [*] within thirty (30) days following the
end of [*] after the Effective Date, or of a Renewal Date, if
applicable.
(e) Guaranteed Leads Fee. In addition to the Promotion Fee, iOwn
--------------------
shall pay to EarthLink the guaranteed leads fee as follows (the
"Guaranteed Leads Fee"): (i) [*] of the Effective Date, or on a
Renewal Date, as applicable; (ii) [*] within thirty (30) days
following the end of [*] after the Effective Date or of a Renewal
Date, as applicable; (iii) [*] within thirty (30) days following
the end of [*] after the Effective Date, or of a Renewal Date, as
applicable; and (iv) [*] within thirty (30) days following the
end of [*] after the Effective Date, or of a Renewal Date, if
applicable.
(f) Additional Leads. In addition to the Promotion Fee and the
----------------
Guaranteed Leads Fee, iOwn shall pay to EarthLink the sum of [*]
multiplied by the number of Leads generated under this Agreement
in excess of the Guaranteed Leads (the "Leads Fee"). The Leads
Fee shall be paid to EarthLink on a cumulative basis within
thirty (30) days following the end of each calendar month that
the Leads are generated during the Initial Term and each Renewal
Term, if any, accompanied by a report from iOwn supporting each
Leads Fee.
(g) Customer Support. iOwn shall provide, in a professional and
----------------
workmanlike manner, customer support regarding the Services
offered to EarthLink Members through the Co-Branded Site, and the
purchasing and ordering thereof. iOwn hereby agrees and
acknowledges that such customer support shall be accessible by
EarthLink Members during regular business hours through a toll
free telephone number provided, paid for and maintained
exclusively by iOwn, which shall be referenced in the Co-Branded
Site.
(h) Competitive Advertising. iOwn shall not display advertising of
-----------------------
any kind (co-operative or otherwise) for, or otherwise promote in
any way, any EarthLink Competitive Services on any page of the
Co-Branded Site. The current list of providers of Competitive
Services, which is subject to change by EarthLink in its sole
discretion, is attached hereto as Exhibit E.
(i) Premiere Partners. iOwn shall set aside and reserve an amount of
-----------------
space situated on the uppermost portion of the screen in every
page of the Co-Branded Site, which space shall be suitably
sizable, but not to exceed [*] of the area of the page above the
fold, in order to incorporate branding from EarthLink Premiere
Partners. EarthLink Premiere Partners will not include any of
iOwn's competitors as determined by iOwn in its sole discretion.
The current list of iOwn competitors is attached hereto as
Exhibit F. iOwn shall, upon EarthLink's direction, incorporate
---------
such EarthLink Premiere Partners branding into the space
referenced above in any or all pages of the Co-Branded Site. iOwn
agrees and acknowledges that EarthLink may, in its sole
discretion, from time to time add or remove such EarthLink
Premiere Partners branding from the Co-Branded Site and that iOwn
will work together with EarthLink to incorporate any
modifications to such EarthLink Premiere Partners branding. This
presence of EarthLink Premiere Partners will be limited to one of
the following: one logo, GIF or HTML link, or branding, which
shall be mutually agreed upon by both EarthLink and iOwn. The
presence shall link to a Co-
[*] Confidential Treatment Requested
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Branded Site of EarthLink Premiere Partners. The parties will
work together to create designs that are suitable, in EarthLink's
sole discretion, for each and all of these Co-Branded pages, and
iOwn will provide EarthLink with design specifications and sample
designs within thirty (30) business days after the Effective Date
in order to allow EarthLink to generate new EarthLink Premiere
Partners branding. iOwn shall execute any changes to pages of the
Co-Branded Site required under this Section 2.l(i).
(j) User Information. iOwn shall not send unsolicited emails to any
----------------
EarthLink Member. iOwn may send promotional email messages to
EarthLink Members who have provided their email addresses
directly to iOwn. Under no circumstances will iOwn send or enable
others to send email messages to EarthLink Members, which promote
EarthLink Competitive Services. In no event shall iOwn offer to
any third party a list which would permit such third party to
identify the iOwn registrant as an EarthLink Member.
(k) Reports/Tracking Leads. Within thirty (30) days after the last
----------------------
day of each calendar month, iOwn will provide EarthLink with a
monthly report of Leads generated hereunder. iOwn shall not use
any means whatsoever, including without limitation, (i)
encouraging visitors to bookmark the iOwn Site or Co-Branded Site
or (ii) sending promotional emails to visitors which link to the
iOwn Site or Co-Branded Site, to attempt to circumvent the way
EarthLink Leads are tracked under this Agreement.
(l) Audit. No more than once per calendar year, during the Term of
-----
the Agreement, and during the one (1) year period immediately
following the Term, EarthLink shall have the right, upon
reasonable notice, during normal business hours, at EarthLink's
own expense, through an independent auditor chosen by EarthLink,
to audit iOwn's books, records and logs that relate to Leads, the
Promotion Fee or other payments owed to EarthLink hereunder. If
an audit of the appropriate records, books of account or logs
reveals that iOwn has understated the amounts owed to EarthLink
under this Agreement for the period under audit, then iOwn shall
promptly pay any amounts owed to EarthLink. If the amount of
underpayment for the period under audit equals or exceeds five
percent (5%) of the total mount owed during such period, then
iOwn shall reimburse EarthLink for all reasonable costs and
expenses incurred in connection with conducting the audit.
(m) Other Restrictions on Goods and/or Services Offered. iOwn shall
---------------------------------------------------
not sell, offer, attempt to sell or offer, or otherwise promote
in any way, through the Co-Branded Site, any goods or services
that are illegal, or which in EarthLink's reasonable discretion,
constitute pornographic or similarly adult-themed material; get
rich quick programs, pyramid schemes, or any goods or services
which involve deceptive marketing or commercial practices that
are impressible under United States federal or state law. iOwn
agrees and acknowledges that if EarthLink determines, in its sole
discretion, that iOwn has in any way violated this Section
2.1(m), and that violation is not corrected by iOwn within five
(5) business days of written notification from EarthLink to iOwn,
then, in addition to any and all remedies available to EarthLink
hereunder or otherwise, EarthLink may immediately remove all iOwn
related content, advertisements, promotions, references and links
from the EarthLink Site and any other promotional medium.
(n) Technical Implementation. iOwn shall work in good faith with
------------------------
EarthLink's Account Management Department as to account matters
and with EarthLink's Member Services and Support Department as to
technical issues.
(o) Late Payment. All mounts owed by iOwn to EarthLink hereunder not
------------
paid when due and payable will bear interest from the date such
amounts are due and payable at the rate of 1.5% per month (or the
maximum rate allowed by law).
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2.2. Duties and Obligations of EarthLink. In connection with this
-----------------------------------
Agreement, EarthLink shall have the following duties and obligations:
(a) License. During the Term, and subject to the provisions of
-------
Section 2.3, EarthLink grants to iOwn a nonexclusive,
nonsublicenseable, nontransferable, fully paid-up license,
throughout the Territory, to use, reproduce, display and
distribute the EarthLink/Sprint Marks (as defined in Exhibit A),
---------
and any and all intellectual property rights contained therein
exclusively on the Co-Branded Site or in or on promotional
material, but only as such use is reasonably necessary for iOwn
to perform as contemplated by this Agreement.
(b) Guaranteed Leads. In exchange for the Guaranteed Leads Fee,
----------------
EarthLink shall provide [*] Leads during the Initial Term and any
Renewal Term of this Agreement as applicable (the "Guaranteed
Leads"). If upon the scheduled date for expiration EarthLink has
failed to provide the Guaranteed Leads during such Initial Term
or Renewal Term, then such Initial Term or Renewal Term shall be
automatically extended until iOwn has received, in the aggregate,
the Guaranteed Leads and such failure shall not constitute a
breach of this Agreement; provided, however, that the Initial
Term or Renewal Term shall not be so extended if this Agreement
is terminated by either party early in accordance with Sections
2.3, 3.1(c), 3.2(c), 6.2, 7.13 or Exhibit D of this Agreement.
(c) Managing the Services. Throughout the Term, EarthLink will
---------------------
provide and maintain the Promotional Placements and Banner
Advertisements and perform the other obligations specified in
Exhibit C hereto, in accordance with the provisions contained in
---------
that Exhibit C and the terms and conditions of this Agreement.
---------
Upon receipt of the Services in the format described herein,
EarthLink shall include the Services as the Default Provider of
the real estate multiple listing services and mortgage services
on the EarthLink Site. Notwithstanding the foregoing, iOwn
acknowledges and agrees that EarthLink Members may cause the
multiple real estate listing and mortgage services providers
accessible through the EarthLink Site to be provider(s) other
than iOwn. iOwn acknowledges and agrees that EarthLink has other
promotional programs through which certain partners promote the
EarthLink/Sprint Service and provide new EarthLink Members to
EarthLink. iOwn further acknowledges and agrees that certain
promotional partners require the ability to restrict the
advertising that appears on the EarthLink Site of EarthLink
Members brought to EarthLink through such promotional partner.
Therefore, iOwn agrees that EarthLink retains the right to remove
the Services from the EarthLink Site (at EarthLink's sole
discretion), in the event that a promotional partner of EarthLink
requires that such a deletion or move be made, and then such
deletion or move will only be effective as regards the EarthLink
Site accessible by EarthLink Members brought to EarthLink through
the requesting promotional partner.
(d) Maintenance and Implementation of Services. During the Term,
------------------------------------------
EarthLink agrees to (i) work diligently with iOwn to integrate
the Services into the EarthLink Site and (ii) assist iOwn in a
commercially reasonable manner to foster usage and enjoyment of
the Services by EarthLink Members on an on-going basis. EarthLink
shall launch the Co-Branded Site within thirty (30) days of
receipt of such site materials and data from iOwn, assuming iOwn
has met the format requirements required of such site materials
and data as mandated in this Agreement.
(e) User Information. EarthLink acknowledges that all information
----------------
provided directly by users of the Co-Branded Site to iOwn belongs
solely to iOwn.
2.3. Promotional Material/Press Releases. Each party requires that each use
-----------------------------------
of its Marks or the Marks of its licensors are in accordance with Exhibit A, in
---------
the case of EarthLink, and Exhibit B, in the case of iOwn. Prior to the initial
---------
launch of any Web pages or other Internet locations branded with the other
party's Marks including,
[*] Confidential Treatment Requested
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but not limited to, the Co-Branded Site or the release of any marketing,
advertising, press releases, or other promotional materials that reference the
other party and/or the other party's Marks, the releasing party shall submit a
written request for approval to the other party together with a copy of the
materials to be released, which request shall be made no less than ten (10)
business days prior to the requested release date (the other party shall not
unreasonably withhold or delay the granting of its approval thereof). If the
releasing party has not received a written negative response from the other
party within five (5) days after request for approval, approval has been granted
from the other party to the releasing party. Title to and ownership of the
respective owner's Marks shall remain with the owner. The licensee shall not
take any action inconsistent with the owner's ownership of the Marks and any
benefits accruing from use of such Marks shall automatically vest in the owner.
Neither party shall create any combination Marks with the other party's Marks.
If a licensee's use of the Marks does not conform to the owner's quality
standards in the owner's reasonable opinion, then the owner will notify the
licensee in writing to the licensee of such nonconformance and such notice shall
be delivered by United States mail, registered or certified or by reliable
personal delivery, overnight courier service, with proof of service, and the
licensee shall have thirty (30) days to cure such nonconformance. If the
nonconformance is not cured within such period, the owner may immediately
terminate this Agreement upon written notice to the licensee.
2.4. Press Releases. iOwn acknowledges and agrees that EarthLink shall
--------------
within ten (10) business days of the Effective Date, make the first public
announcement, subject to prior approval by iOwn, regarding this Agreement and
the parties' relationship established hereby. All other press releases are
subject to both parties' prior written consent.
2.5. Non-exclusive Engagement. iOwn agrees that EarthLink may, in its sole
------------------------
discretion, retain third parties which provide services and functions similar or
identical to the Services and any other services or functions being provided by
iOwn under this Agreement for inclusion in the EarthLink Site, as EarthLink may
choose in its sole discretion subject to conditions of this Agreement
2.6. Reports. Within thirty (30) calendar days after the last day of each
-------
calendar month, EarthLink will provide iOwn with a monthly report of page views,
unique users(to the extent EarthLink tracks unique users) and impressions
pertaining to each page with iOwn brand features on the EarthLink Site subject
to EarthLink's ability to retrieve such data.
2.7. Customer Support. EarthLink provides customer support regarding the
----------------
EarthLink/Sprint Service offered to iOwn visitors through the EarthLink Site.
EarthLink hereby agrees and acknowledges that such customer support shall be
accessible by iOwn visitors during regular business hours through a toll free
telephone number provided, paid for and maintained exclusively by EarthLink,
which shall be referenced in the EarthLink Site.
2.8. Premiere Partners. EarthLink shall promote iOwn as a Premiere Partner
-----------------
where, in its sole discretion, EarthLink finds it appropriate to do so.
EarthLink may not display or sell any advertising from competitors of iOwn on
the Co-Branded Site. See Exhibit F for a list of iOwn competitors; such list may
be updated by iOwn, in good faith and at the sole discretion of iOwn, and
submitted to EarthLink at the end of each calendar month.
2.9 Other Restrictions on Goods and/or Services Offered. EarthLink does
---------------------------------------------------
not sell, offer and it does not attempt to sell or offer, (nor will
EarthLink sell, offer or attempt to sell or offer) or otherwise
promote in any way, through the EarthLink Site goods or services that
are illegal, or which in EarthLink's reasonable discretion, constitute
pornographic or similarly adult-themed material, get rich quick
programs, pyramid schemes, or any goods or services which involve
deceptive marketing or commercial practices.
3. REPRESENTATIONS AND WARRANTIES.
-------------------------------
3.1. EarthLink. EarthLink represents and warrants to iOwn that:
---------
(a) EarthLink has the power and authority to enter into and perform
its obligations under this Agreement;
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EXECUTION COPY
(b) EarthLink shall at all times comply with all local, state and
federal laws, rules and regulations applicable to the Co-
Branded Site, the EarthLink/Sprint Service and EarthLink's
performance under this Agreement; and
(c) EarthLink has the full right to grant or otherwise permit iOwn
to use EarthLink and Sprint's Marks, and is aware of no claims
by any third parties adverse to any of such intellectual
property rights, except for Sprint's ownership of its Marks
contained in the co-branded EarthLink/Sprint Marks. If
EarthLink's or Sprint's intellectual property rights are
alleged or held to infringe the intellectual property rights of
a third party, EarthLink shall, at its own expense, and in its
sole discretion, (i) procure for iOwn the right to continue to
use the allegedly infringing intellectual property or (ii)
replace or modify the intellectual property to make it non-
infringing; provided, however, if neither option is possible or
economically feasible and if the inability to use such
intellectual property would cause a material breach of this
Agreement (as determined by iOwn), iOwn may immediately
terminate this Agreement upon notice to EarthLink.
3.2. iOwn. iOwn represents and warrants to EarthLink that:
----
(a) iOwn has the power and authority to enter into and perform its
obligations Under this Agreement;
(b) iOwn and the Services shall at all times comply with all local,
state and federal laws, rules and regulations applicable to the
Co-Branded Site, the Services and iOwn's performance under this
Agreement; and
(c) iOwn has the full and exclusive right to grant or otherwise
permit EarthLink to access the Co-Branded Site, to use the
Services and to use iOwn's Marks; and is aware of no claims by
any third parties adverse to any of such intellectual property
rights. iOwn shall, at its own expense, and in its sole
discretion, (i) procure for EarthLink the right to continue to
use the allegedly infringing intellectual property or (ii)
replace or modify the intellectual property to make it non-
infringing; provided, however, that if neither option is
possible or economically feasible and if the inability to use
such intellectual property would cause a material breach of
this Agreement (as determined by EarthLink), EarthLink may
immediately terminate this Agreement upon notice to iOwn. iOwn
has applied for a federal trademark registration for "iOwn,
Inc." and "iOwn.com" in the U.S., Canada, Australia and the
U.K. and the "i" logo in the U.S. and Canada (see Exhibit B).
4. CONFIDENTIALITY.
---------------
Each party acknowledges that Company Information may be disclosed to the
other party during the course of this Agreement. Each party agrees that it shall
take reasonable steps, which shall include, at a minimum, the steps it takes to
protect its own Company Information, to prevent the duplication or disclosure of
Company Information, other than by or to its employees or agents who must have
access to the Company Information to perform such party's obligations hereunder,
who shall each agree to comply with the terms of this Section 4 except that each
party may disclose the other party's information to such party's agents,
attorneys and other representatives or any court of competent jurisdiction or
any other party empowered hereunder as reasonably required to resolve any
dispute between the parties hereto. The actions or negligence of the parties,
directors, employees, or agents shall be deemed to be the actions or negligence
of the respective party, with regard to the Confidential Information of the
other party. Each party agrees that if it is required by law to disclose the
other party's Company Information, such disclosing party must first give written
notice of such required disclosure to the other party and permit the other party
to make a reasonable effort to obtain a protective order requiring that the
Company Information so disclosed be used only for the purposes for which
disclosure is required. Each party shall protect the other party's Company
Information during the Term and for two (2) years after the termination of this
Agreement.
5. LIMITATION OF LIABILITY: DISCLAIMER: INDEMNIFICATION.
----------------------------------------------------
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5.1. Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
-----------------------
THE OTHER PARTY FOR ANY LOSS OF PROFITS, LOSS OF BUSINESS, LOSS OF USE OR DATA,
INTERRUPTION OF BUSINESS, OR FOR INDIRECT, SPECIAL, INCIDENTAL, EXEMPLARY,
MULTIPLE, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY KIND, WHETHER BASED ON
CONTRACT, TORT (INCLUDING WITHOUT LIMITATION, NEGLIGENCE), WARRANTY, GUARANTEE
OR ANY OTHER LEGAL OR EQUITABLE GROUNDS, EVEN IF SUCH PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. NEITHER PARTY SHALL MAKE REPRESENTATIONS OR
WARRANTIES TO ANY END USER OR THIRD PARTY ON BEHALF OF THE OTHER PARTY AND IN NO
EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY REPRESENTATION OR
WARRANTY MADE TO ANY END USER OR THIRD PARTY BY THE OTHER PARTY. THESE
LIMITATIONS SHALL SURVIVE AND APPLY NOTWITHSTANDING THE VALIDITY OF THE LIMITED
REMEDIES PROVIDED FOR IN THE AGREEMENT. THE LIMITATIONS SET FORTH IN THIS
SECTION 5.1 SHALL NOT APPLY TO THE PARTIES' INDEMNIFICATION OBLIGATIONS SET
FORTH IN SECTION 5.3 BELOW OR TO THE PARTIES' INJUNCTIVE RELIEF REMEDIES SET
FORTH IN SECTION 5.4 BELOW.
5.2. Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THE AGREEMENT, NEITHER
----------
PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY OTHER
REPRESENTATIONS OR WARRANTIES REGARDING THE EARTHLINK/SPRINT SERVICE OR THE
SERVICES OR OTHERWISE RELATING TO THIS AGREEMENT, INCLUDING ANY IMPLIED WARRANTY
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES
ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE.
5.3. Indemnity. Each party agrees to indemnify, defend and hold harmless
---------
the other party and its officers, directors, employees, agents, successors and
assigns from and against any and all losses, liabilities, damages, penalties and
claims and all related costs and expenses (including reasonable attorneys' fees)
related to claims made by third parties against the indemnified party alleging
that the indemnifying party's Marks or other intellectual property infringe the
patents, copyrights, trademarks or service marks or other intellectual property
rights of such third parties. iOwn agrees to further indemnify, defend and hold
harmless EarthLink from and against all third party claims, causes of action,
liabilities and all associated reasonable costs and expenses relating to any
transactions conducted through, or the quality or nature of products or services
appearing on or provided through, the Services or the Co-Branded Site. EarthLink
agrees to further indemnify, defend and hold harmless iOwn from and against all
third party claims, causes of action, liabilities and all associated reasonable
costs and expenses relating to any transactions conducted through, or the
quality or nature of products or services appearing on or provided through, the
EarthLink Site, excepting the Co-Branded Site. Each party agrees to promptly
notify the indemnifying party in writing of any indemnifiable claim. The
indemnified party shall cooperate in all reasonable respects with the
indemnifying party and its attorneys in the investigation, trial, defense and
settlement of such claim and any appeal arising therefrom. The indemnified party
may participate in such investigation, trial, defense and settlement of such
claim and any appeal arising therefrom, through its attorneys or otherwise, at
its own cost and expense. No settlement of a claim shall be entered into without
the consent, such consent not to be unreasonably withheld, of the indemnified
party unless such settlement provides for the full release of the indemnified
party.
5.4. Injunctive Relief. The parties hereby agree and acknowledge that
-----------------
violation by one party of the provisions of Sections 2.1(j) or 4 may cause
irreparable harm to the other party not adequately compensable by monetary
damages. In addition to other relief, it is agreed that temporary and permanent
injunctive relief shall be available to the parties to prevent any actual or
threatened violation of such provisions as provided by law.
6. TERM, RENEWAL AND TERMINATION.
------------------------------
6.1. Term. The initial term of this Agreement shall be [*] from the
----
Effective Date of this Agreement (the "Initial Term"). After the Initial Term,
this Agreement shall automatically renew (any such renewal date referred to
herein as a "Renewal Date") for separate, consecutive [*] ("Renewal Term(s)")
unless written notice of termination is given by either party thirty (30) days
prior to the expiration of the Initial or Renewal Term.
6.2 Termination. This Agreement may be terminated by the parties as
-----------
follows:
[*] Confidential Treatment Requested
<PAGE>
EXECUTION COPY
(a) Except as provided herein, either party may terminate this
Agreement at any time in the event of a material breach by the
other party of this Agreement that remains uncured thirty (30)
days after the breaching party's receipt of written notice of the
breach;
(b) Except as provided herein, either party may terminate this
Agreement immediately if the other party is unable to pay its
debts as due, or enters into or files (or has filed or commenced
against it) a petition, arrangement, action or other proceeding
seeking relief or protection under the bankruptcy laws of the
United States or similar laws of the United States or any state
of the United States;
(c) Either party may terminate this Agreement, at its option, upon
thirty (30) days written notice in the event that either party
discontinues its website. In the event of termination pursuant to
this section, the parties will have no further obligation to each
other following the effective date of termination, and all fees
paid, if any, shall be prorated as of the effective date of the
termination, with appropriate refunds made; and
(d) iOwn may terminate this Agreement, at its option upon fifteen
(15) business days written notice in the event that EarthLink
does not provide [*], such Leads being a part of the Guaranteed
Leads. Such a termination will not result in a refund of any fees
paid by iOwn to EarthLink. If this agreement is terminated under
this Section 6.2(d), EarthLink shall continue to provide Leads
and promote iOwn as provided for in this Agreement, until iOwn
has received, in the aggregate, the Leads for that quarter. If,
subsequent to iOwn's notice of termination and during the
requisite fifteen (15) business days notice period pursuant to
this Section 6.2(d), EarthLink should over-deliver the [*]
required, iOwn shall pay to EarthLink the required Leads Fee of
[*] as set forth in Section 2.1(f). This Leads Fee shall be paid
to EarthLink on a cumulative basis within thirty (30) days
following the termination of this Agreement.
6.3. Effects of Termination. Within one (1) business day after termination
----------------------
of this Agreement for any reason, each party shall purge all links connecting
the EarthLink Site to the Co-Branded Site. Within ten (10) business days after
termination of this Agreement for any reason, each party shall: (i) purge all
Marks as used in connection with this Agreement from any and all computer
systems, files, or storage media within their possession or control; (ii) return
to the other party any and all documents or other media embodying any use of the
other party's Marks; and (iii) certify to the other party in writing that it has
complied with the foregoing obligations. Upon any termination or other
expiration of this Agreement, each of the respective licenses granted in
Sections 2.1 and 2.2 and all other rights of the parties under this Agreement
shall terminate, except that, notwithstanding any of the foregoing, the rights
and obligations under Sections 2.1(j), 2.1(1), 2.1(o), 4, 5, 6.3, 6.4 and 7
shall continue in full force and effect
6.4. No Damages or Indemnification for Termination. Neither party shall be
---------------------------------------------
liable to the other party for any costs or damages of any kind, including
incidental or consequential damages, or for indemnification, solely on account
of the lawful termination of this Agreement, even if informed of the possibility
of such damages.
7. GENERAL PROVISIONS.
------------------
7.1. Independent Contractors. The parties to this Agreement are independent
-----------------------
parties and nothing herein shall be construed as creating an employment
relationship between the parties. Neither party is an agent or representative of
the other party and neither party shall have any right, power or authority to
enter into any agreement for or on behalf of, or incur any obligation or
liability, or to otherwise bind, the other party. The Agreement shall not be
interpreted or construed to create an association, agency, joint venture or
partnership between the parties or to impose any liability attributable to such
a relationship upon either party.
7.2. Entire Agreement. The Agreement, including any exhibits attached
----------------
hereto, constitutes the entire understanding and agreement with respect to its
subject matter, and supersedes any and all prior or
[*] Confidential Treatment Requested
<PAGE>
EXECUTION COPY
contemporaneous representations, understandings and agreements whether oral or
written between the parties relating to the subject matter of this Agreement,
all of which are merged in this Agreement.
7.3. Severability of Provisions. In the event that any provision of this
--------------------------
Agreement is found, to be invalid or unenforceable pursuant to judicial decree
or decision, the remainder of this Agreement shall remain valid and enforceable
according to its terms.
7.4. Assignment. Either party may assign, upon prior written notice to the
----------
other party, this Agreement to a third party as long as such third party is not
a competitor of the other party, in which case the assignment is prohibited. See
Exhibits E and F. Any assignment in violation of the terms hereof shall be void
and of no force or effect.
7.5. Governing Law. The Agreement shall be governed by the laws of
-------------
California without giving effect to applicable conflict of laws provisions. All
actions with respect of this Agreement shall be brought in the federal and state
courts having jurisdiction within California and the parties expressly consent
to the personal jurisdiction of such courts. In the event any litigation or
other proceeding is brought by either party in connection with this Agreement,
the prevailing party in such litigation or other proceeding shall be entitled to
recover from the other party all costs, attorneys' fees and other expenses
incurred by such prevailing party in such litigation.
7.6. Dispute Resolution.
-------------------
(a) Except for the right of either party to apply to a court of
competent jurisdiction for a temporary restraining order, a
preliminary injunction, or other equitable relief to preserve the
status quo or prevent irreparable harm, any and all claims,
disputes or controversies arising under, out of, or in connection
with this Agreement, including any dispute relating to patent
validity or infringement, which the parties have been unable to
resolve by amicable discussion shall be resolved as set forth
below:
(b) If a party feels that a dispute is unlikely to be resolved
amicably by good faith negotiations between the parties, that
party may send written notice, clearly marked "Dispute Notice,"
to the other party of the issues in dispute demanding that the
dispute be settled by binding arbitration in accordance with this
provision. The parties shall then have thirty (30) days from the
date of receipt of the Dispute Notice to attempt resolution of
the dispute by negotiations between their senior officials, or
representatives of such officials having authority to bind the
organizations.
(c) If the matter has not resolved within thirty (30) days of the
Dispute Notice, or if the parties fail to meet within such thirty
(30) day period, either party may require the matter to be
settled by final and binding arbitration by sending written
notice of such election to the other party clearly marked
"Arbitration Demand".
(d) The arbitration shall be conducted pursuant to the commercial
arbitration rules of the American Arbitration Association, in
accordance with the following procedures:
(i) The arbitration tribunal shall consist of three arbitrators.
Each party shall nominate in the request for arbitration and
the answer thereto one arbitrator, and the two arbitrators
so named will then jointly appoint the third arbitrator as
chairman of the arbitration tribunal.
(ii) The decision of the arbitration tribunal shall be final and
binding upon the parties hereto, and may be entered in any
competent court for judicial acceptance of such award and
order of enforcement. Each party hereby submits itself of
such court, but only for the entry of judgment with respect
to the decision of the arbitrators hereunder.
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(iii) The arbitration proceeding shall take in a location to be
mutually agreed by the parties, or if the parties cannot
reach agreement, a location to be selected by the chairman
of the arbitration panel other than the location of the
principal place of business of either party.
(iv) In any arbitration, either party may conduct discovery on
the other party. Such discovery will be conducted
according to procedures determined by the arbitration
tribunal.
7.7. Notices. Except as specifically provided in this Agreement, all
-------
notices required hereunder shall be in writing and shall be delivered by United
States mail, registered or certified or by reliable personal delivery, overnight
courier service, with proof of service, to the parties at their respective
addresses set forth below in this Section 7.7, or at such other address(es) as
shall be specified in writing by such party to the other party in accordance
with the terms and conditions of this Section 7.7. All notices shall be deemed
effective upon personal delivery, or three (3) business days following deposit
with any overnight courier service or with the U.S. Postal System, first class
postage attached, in accordance with this Section 7.7.
If to iOwn: iOwn, Inc.
118 King Street
Suite 260
San Francisco, CA 94107
Attn: Chief Financial Officer
with a copy to: Megan Gray, Esq.
Baker and Hostetler
600 Wilshire Boulevard
Los Angeles, CA 90017
If to EarthLink: EarthLink Network, Inc.
3100 New York Drive
Pasadena, California 91107
Attn: Director of Legal Affairs
with copies to: Howard Lefkowitz, V.P. Business Development
Leland Thoburn, V.P. Business Affairs
EarthLink Network, Inc.
3100 New York Drive
Pasadena, California 91107
7.8. Non-Solicitation. During the Term of this Agreement and for a period
----------------
of twelve (12) months following the termination or expiration of this Agreement,
neither party may directly solicit, divert or hire away, or attempt to solicit,
divert or hire away any person employed by the other party with whom such party
had regular contact with during the course of its performance under this
Agreement, unless such person's employment has been terminated for at least six
(6) months or unless the other party gives its prior consent to such hiring,
such consent not to be unreasonably withheld. Notwithstanding the foregoing,
nothing herein shall prevent either party from considering for employment or
hiring any individual, whether or not an employee of the other party, who has
responded to a general solicitation for employment from either party in a
newspaper announcement or other public solicitation.
7.9. Waiver. No waiver of any provision of this Agreement, or any rights
------
or obligations of either party under this Agreement, shall be effective, except
pursuant to a written instrument signed by the party or parties waiving
compliance, and any such waiver shall be effective only in the specific instance
and for the specific purpose stated in such writing.
7.10. Headings. This section and paragraph headings used in this Agreement
--------
are inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement.
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7.11. Amendment. The terms and conditions of this Agreement included but
---------
not limited to any and all Exhibits may not be modified or amended other than by
a writing signed by both parties.
7.12. Sprint Intellectual Property Rights. EarthLink markets its Internet
-----------------------------------
access services under the EarthLink/Sprint brand. Therefore, both EarthLink and
Sprint Marks are likely to appear on any Web page that includes an
EarthLink/Sprint brand. To the extent that such Sprint brands or Marks are used,
iOwn acknowledges and agrees that Sprint is a third party beneficiary hereunder
and has the right to enforce any provision of this Agreement that relates to any
intellectual property or Marks of EarthLink or Sprint.
7.13. Force Majeure. Either party shall be excused from any delay or
-------------
failure in performance hereunder caused by reason of any occurrence or
contingency beyond its reasonable control, including but not limited to, acts of
God, earthquake, labor disputes and strikes, riots, war, and governmental
requirements. Notwithstanding the foregoing, a change in economic conditions or
technology shall not be deemed a Force Majeure event. The obligations and rights
of the party so excused shall be extended on a day-to-day basis for the period
of time equal to that of the underlying cause of the delay. In the event of a
force majeure event materially affecting the parties' performance under this
Agreement that lasts for more than thirty (30) days, either party may terminate
this Agreement.
7.14. Execution by Facsimile. This Agreement may be executed and delivered
----------------------
by facsimile and the parties agree that such facsimile execution and delivery
shall have the same force and effect as delivery of an original document with
original signatures, and that each party may use such facsimile signatures as
evidence of the execution and delivery of this Agreement by all parties to the
same extent that an original signature could be used.
<PAGE>
EXECUTION COPY
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the Effective Date set forth above.
EARTHLINK NETWORK, INC iOWN, INC.
By: /s/ Howard Lefkowitz By: /s/ Lee T. Kirkpatrick
-------------------------- -------------------------------
Howard Lefkowitz
V.P. Business Development Lee T. Kirkpatrick
-------------------------------
EarthLink Network, Inc. 118 King Street
3100 New York Drive Suite 260
Pasadena, California 91107 San Francisco, California 94107
Phone: (626)296-5011 Phone: (415)659-6896
Fax: (626) 296-8983 Fax: (415) 908-6430
<PAGE>
EXECUTION COPY
EXHIBIT A
EarthLink Marks
- --------------------------------------------------------------------------------
NOTE: THIS EXHIBIT MAY BE AMENDED IN WRITING FROM TIME TO TIME AS REQUIRED
BY EARTHLINK AND ALL SUCH AMENDMENTS SHALL BE INCORPORATED HEREIN.
Trademarks, trade names, logos and other product and proprietary
----------------------------------------------------------------
identifiers.
------------
EarthLink Network(R)
EarthLink Network TotalAccess(TM)
EarthLink Network(R) is a registered trademark of EarthLink Network, Inc.
EarthLink Network TotalAccess(TM) is a trademark of EarthLink Network, Inc.
EarthLink Sprint(SM) and the EarthLink Sprint logo are registered
trademarks of EarthLink Network, Inc. and Sprint Corporation
- --------------------------------------------------------------------------------
<PAGE>
EXECUTION COPY
EXHIBIT B
iOwn Marks
- --------------------------------------------------------------------------------
NOTE: THIS EXHIBIT MAY BE AMENDED IN WRITING FROM TIME TO TIME AS REQUIRED
BY iOWN AND ALL SUCH AMENDMENTS SHALL BE INCORPORATED HEREIN.
Trademarks, trade names, logos and other product and proprietary
----------------------------------------------------------------
identifiers.
-----------
iOwn owns the "HomeScout" trademark as registered with the federal
trademark registry.
iOwn has filed with the federal trademark registry an Intent to Use "iOwn,
Inc.", "i" and "iOwn.com" in the US, Canada, Australia and the UK. iOwn has
filed with the federal trademark registry Intent to Use the iOwn logo in
the US.
iOwn.com
THE BEST LOANS ONLINE
RED color of letter "i" in iOwn is Pantone 485.
Font for "The best loans online" is
Berthold XXX XXX Condensed, bold.
- --------------------------------------------------------------------------------
<PAGE>
EXECUTION COPY
EXHIBIT C
EarthLink's Promotional Obligations
1. Promotions
EarthLink shall perform the following obligations with respect to the
EarthLink Site("Screen Shots" attachments to this Exhibit C exemplify the
EarthLink promotions to be provided to iOwn):
A. EarthLink Site. EarthLink shall, within EarthLink's reasonable
discretion, include the Services provided by iOwn on the EarthLink Site as
follows:
1. a non-rotating text link above the fold on the EarthLink
Personal Start Page;
2. a non-rotating text link in the top bar on the EarthLink
Finance Portal. This promotional placement will link directly to the
Co-Branded Site;
3. a Promotional Placement in the EarthLink Personal Start Page
Message of the Day rotation, which is a daily changing text message
that appears above the fold on the EarthLink Personal Start Page that
highlights and provides links to interesting and useful products and
services for EarthLink Members;
4. a non-rotating Promotional Placement designated as
"Mortgage/Real Estate," which will link from the EarthLink Real Estate
Web Channel provided through the default provider of such channel. (if
the user changes the default channel provider the Promotional
Placement will not appear on the customizable providers Real Estate
Web Channel) This promotional placement will link directly to the Co-
Branded Site;
5. inclusion of other iOwn related content as agreed between
the parties in writing.
6. a rotation of a Promotional Placement designated as
"Mortgage/Real Estate," which will be placed in the Premiere Partner
section above the fold of the EarthLink Home Page. This promotional
placement will link directly to the Mortgage Co-Branded Site; and
7. other links on site where available and appropriate in
EarthLink's sole discretion.
B. Banner Advertisements. Banner Advertisements on such locations of
the EarthLink Site as determined by EarthLink in its sole discretion.
EarthLink shall deliver at least [*] run of service Banner Advertisements
per month, for a total of [*] run of service Banners Advertisements during
the Initial Term or during each Renewal Term, as applicable, iOwn will
provide any creative to be used for advertisement of iOwn Brand Features or
services.
C. Other Promotional Placements. In addition to the Promotional
Placements described in paragraphs A and B above, such other Promotional
Placements on the EarthLink Site as may be agreed upon by the parties from
time to time.
2. bLink
EarthLink shall place a full page, four (4) color advertisement of iOwn's
Services in each issue of bLink, which is a hard-copy periodical, during the
Term. iOwn advertisements are subject to EarthLink's reasonable editorial
discretion and to be developed by iOwn, in consultation with EarthLink. iOwn
agrees that any iOwn advertisement that appears in bLink must be specifically
targeted at EarthLink Members and must promote the iOwn Mortgage/Real Estate
Services on the EarthLink Personal Start Page.
[*] Confidential Treatment Requested
<PAGE>
EXECUTION COPY
3. eLink
iOwn will be profiled as a new EarthLink Personal Start Page service in
eLink, as well as being given text "advertising" space for any special "for
EarthLink Members only" promotions that EarthLink and iOwn might jointly create
to promote the Services.
<PAGE>
EXECUTION COPY
[IMAGE OF SCREENSHOT]
<PAGE>
EXECUTION COPY
[IMAGE OF SCREENSHOT]
<PAGE>
EXECUTION COPY
[IMAGE OF SCREENSHOT]
<PAGE>
EXECUTION COPY
EXHIBIT D
Service Specifications
1. Service Interruptions. For the purposes of this Agreement, the
---------------------
following issues are defined as "Service Interruptions":
a) "Complete Outage". means the Co-Branded Site is not reachable by
EarthLink Members for five (5) consecutive minutes or more; provided
however, that iOwn may perform major system upgrades and/or service
maintenance on a scheduled and pre-announced basis which may put the Co-
Branded Site down for up to eight (8) consecutive hours.
b) "Partial Outage". means the Co-Branded Site is reachable by less
than seventy percent (70%) of EarthLink Members, or the response time for a
50K HTML page is greater than thirty (30) seconds for a 56k or faster
modem.
c) "URL Errors". means any errors in URL's, missing pages, or typos
in URLs including any iOwn error that causes EarthLink to present an
incorrect URL on the EarthLink Site, or which causes EarthLink to attempt
to harvest information from an incorrect URL.
2. Response Team. iOwn will at all times during the Term and at iOwn's
-------------
sole cost and expense, maintain a 24 hour a day, 7 day a week a contact person
responsible for monitoring the Co-Branded Site. The contact person will be
available to EarthLink on a 24 hour a day, 7 day a week basis by phone and email
for consultation on Service Interruption issues and to assist in the restoration
of service following a Service Interruption. iOwn will provide EarthLink with
the names and phone numbers and email addresses of its contact person, and
ensure that any changes to the contact information is provided to EarthLink.
EarthLink will at all times during the Term and at EarthLink's sole cost and
expense, maintain a 24 hour a day, 7 day a week a contact person responsible for
monitoring the EarthLink Site. The contact person will be available to iOwn on a
24 hour a day, 7 day a week basis by phone and email for consultation on Service
Interruption issues and to assist in the restoration of service following a
Service Interruption. EarthLink will provide iOwn with the names and phone
numbers and email addresses of its contact person, and ensure that any changes
to the contact information are provided to iOwn.
3. Escalation Procedures for EarthLink.
-----------------------------------
The following measures to be taken by EarthLink in response to Service
Interruptions shall occur when such Service Interruptions are due to errors or
omissions by iOwn personnel or agents. Such measures will not be taken if the
error or omission originates from the actions of EarthLink personnel or agents.
a) In the event of a Complete Outage, the iOwn contact person will
contact EarthLink as soon as practicable following iOwn's identification of
a Service Interruption and will notify EarthLink of the nature of the
Service Interruption and the estimated time of resumption of service.
iOwn's contact person will keep EarthLink notified of progress in resolving
the Service Interruption. If the Service Interruption is estimated to last
longer than thirty (30) minutes, EarthLink will have the option, at
EarthLink's sole discretion, of:
i) removing any links or references to the Co-Branded Site from
the EarthLink Site; or
ii) to redirect any links to any web address or Services
experiencing a Service Interruption, to an explanatory page of
EarthLink's choosing. EarthLink may publish such explanatory page, and
may choose in its sole discretion the wording of any explanatory
messages on such page.
<PAGE>
EXECUTION COPY
b) Partial Outage. Shall be managed by iOwn in all respects
identically to a Complete Outage, except that EarthLink will not have the
right to remove any link or reference to the Co-Branded Site.
c) URL Errors. EarthLink will contact iOwn with regards to any URL
Error, and iOwn will work in a commercially reasonable manner to repair
such Service Interruption. EarthLink may remove any links or references on
the EarthLink Site to the Co-Branded Site until such time as the Service
Interruption is repaired to EarthLink's satisfaction. If the URL Error is
not corrected within five (5) business days of first notification,
EarthLink would have the right to remove any links or references on the
EarthLink Site to the Co-Branded Site until such error is cured.
4. iOwn Notice. iOwn will give EarthLink no less than fifteen (15) days
-----------
prior notice of any changes to its URLs or any of its processes and procedures
that will technically affect the manner in which EarthLink links to the Mortgage
Co-Branded Site.
<PAGE>
EXECUTION COPY
EXHIBIT E
EarthLink Competitors
NOTE: THIS EXHIBIT E MAY BE AMENDED IN WRITING FROM TIME TO TIME AS REQUIRED BY
EARTHLINK AND ALL SUCH AMENDMENTS SHALL BE INCORPORATED HEREIN.
[*]
[*] Confidential Treatment Requested
<PAGE>
EXECUTION COPY
Exhibit F
iOwn's [*]
NOTE: THIS EXHIBIT F MAY BE AMENDED IN WRITING FROM TIME TO TIME AS REQUIRED BY
iOWN AND ALL SUCH AMENDMENTS SHALL BE INCORPORATED HEREIN.
[*]
[*] Confidential Treatment Requested
<PAGE>
EXECUTION COPY
EXHIBIT G.
----------
CO-BRANDED SITE PLAN
1. iOwn Services which may be offered in the Co-Branded Site(this list is not
an exclusive list of Services):
HomeBuying Tools
. How Much Can You Afford? (tool and guide): Helps users quickly assess their
broad home purchasing power through a combination of a calculator and an
educational guide.
. Choose the Right Mortgage (tool and guide): Two tools to help users determine
the right mortgage product, first by comparing monthly payments of different
products, the second by recommending a mortgage and reviewing actual rates
and payments across any number of loans.
. HomeScout: Allows users to search over 750,000 listings around the country
for properties that match their criteria.
. AgentFinder: Allows users to search for an agent by city and state and
provides detailed information on selecting the right agent.
. HomeWatch (not co-branded- notification service): Notification service for
homeowners, which provides customized email alerts regarding refinance
opportunities and recent local home sales.
. HomeValuation (not co-branded- tool): Allows users to estimate a particular
property's value using recent comparable sales data.
. Down Payment Strategies (guide): Helps users to determine their optimal down
payment for their property and how to accumulate the down payment.
. Estimate Your Closing Costs (guide): Review the standard fees in the home
buying process, learn how to compare closing costs to find the lowest loans,
and gain knowledge about lender rates, points and rebates.
. RateWatch (not co-branded- notification service): an e-mail notification
service that allows the user to monitor interest rates for a specific
mortgage, iOwn will e-mail the user when rates reach or fall below a specified
rate.
. Refi Check: Allows user to compare their current mortgage to one offered
through iOwn so they can evaluate refinance opportunities.
. Rent vs. Buy: Allows users to evaluate their current financial situation and
describes how purchasing a home would affect them.
Mortgage Services
. Rate Shopper (tool): Provides an impartial, customized comparison of
available interest rates from a database of national and regional lenders.
Users can specify criteria most important to them in a loan, including rate,
points, product type, etc., and generate a rank-ordered list of rates meeting
their criteria.
. Prequalification: Provides a formal analysis of a borrower's application
information based on a small subset of data, and uses actual lender guidelines
to assess how likely they are to get a loan. Information is password-protected
to ensure security and allow repeated access to the information entered. This
tool generates a certified prequalification letter and worksheet to use with
Realtors and sellers to help in the offer process. This tool is fully iOwn
branded.
<PAGE>
EXECUTION COPY
. Preapproval: Allows user to conduct a detailed, real time analysis of their
borrowing situation, without having identified their target property, based on
actual criteria specified by national and regional lenders. Information is
password-protected to ensure security and allow repeated access to the
information entered by the user. This tool is fully iOwn branded.
. Full Application: Captures all required data for to proceed with a loan
application. Information is password-protected to ensure security and allow
repeated access to the information entered, This tool is fully iOwn branded.
<PAGE>
Exhibit 10.11
===============================================================================
WAREHOUSING CREDIT AND SECURITY AGREEMENT
(SINGLE-FAMILY MORTGAGE LOANS)
===============================================================================
BETWEEN
iOWN, INC., a California corporation
AND
BANK UNITED,
a federal savings bank
Dated as of October 8, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. DEFINITIONS........................................................... Page 1
1.1 Defined Terms............................................... Page 1
-------------
1.2 Other Definitional Provisions............................... Page 12
-----------------------------
2. THE CREDIT............................................................ Page 12
2.1 The Commitment.............................................. Page 12
--------------
2.2 Procedures for Obtaining Advances........................... Page 13
---------------------------------
2.3 Note........................................................ Page 15
----
2.4 Interest.................................................... Page 15
--------
2.5 Principal Payments.......................................... Page 16
------------------
2.6 Expiration of Commitment.................................... Page 17
------------------------
2.7 Method of Making Payments................................... Page 18
-------------------------
2.8 Non-Usage Fee............................................... Page 18
-------------
2.9 Miscellaneous Charges....................................... Page 18
---------------------
2.10 Bailee...................................................... Page 18
------
3. COLLATERAL............................................................ Page 19
3.1 Grant of Security Interest.................................. Page 19
--------------------------
3.2 Security Interest in Mortgage-backed Securities............. Page 20
-----------------------------------------------
3.3 Delivery of Collateral Documents............................ Page 20
--------------------------------
3.4 Delivery of Additional Collateral or Mandatory Prepayment... Page 21
---------------------------------------------------------
3.5 Right of Redemption from Pledge............................. Page 21
-------------------------------
3.6 Collection and Servicing Rights............................. Page 22
-------------------------------
3.7 Return or Release of Collateral at End of Commitment........ Page 22
----------------------------------------------------
3.8 Master Repurchase Agreement................................. Page 22
---------------------------
4. CONDITIONS PRECEDENT.................................................. Page 22
4.1 Initial Advance............................................. Page 22
---------------
4.2 Each Advance................................................ Page 24
------------
5. REPRESENTATIONS AND WARRANTIES........................................ Page 25
5.1 Organization; Good Standing Subsidiaries.................... Page 25
----------------------------------------
5.2 Authorization and Enforceability............................ Page 25
--------------------------------
5.3 Financial Condition......................................... Page 26
-------------------
5.4 Litigation.................................................. Page 26
----------
5.5 Compliance with Laws........................................ Page 26
--------------------
5.6 Regulation U................................................ Page 26
------------
5.7 Investment Company Act...................................... Page 26
----------------------
5.8 Agreements.................................................. Page 26
----------
5.9 Title to Properties......................................... Page 27
-------------------
5.10 ERISA....................................................... Page 27
-----
5.11 Eligibility................................................. Page 27
-----------
5.12 Special Representations Concerning Collateral............... Page 28
---------------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.13 RICO........................................................ Page 30
----
5.14 Proper Names................................................ Page 30
------------
5.15 Direct Benefit From Loans................................... Page 30
-------------------------
5.16 Loan Documents Do Not Violate Other Document................ Page 30
--------------------------------------------
5.17 Consents Not Required....................................... Page 30
---------------------
5.18 Material Fact Representations............................... Page 30
-----------------------------
5.19 Place of Business........................................... Page 31
-----------------
5.20 Use of Proceeds; Business Loans............................. Page 31
-------------------------------
5.21 No Undisclosed Liabilities.................................. Page 31
--------------------------
5.22 Tax Returns and Payments.................................... Page 31
------------------------
5.23 Subsidiaries................................................ Page 31
------------
5.24 Holding Company............................................. Page 32
---------------
5.25 Year 2000 Issue............................................. Page 32
---------------
6. AFFIRMATIVE COVENANTS................................................. Page 32
6.1 Payment of Note............................................. Page 32
---------------
6.2 Financial Statements and Other Reports...................... Page 32
--------------------------------------
6.3 Maintenance of Existence: Conduct of Business............... Page 33
---------------------------------------------
6.4 Compliance with Applicable Laws............................. Page 34
-------------------------------
6.5 Inspection of Properties and Books.......................... Page 34
----------------------------------
6.6 Notice...................................................... Page 34
------
6.7 Payment of Debt Taxes, etc.................................. Page 34
--------------------------
6.8 Insurance................................................... Page 35
---------
6.9 Closing Instructions........................................ Page 35
--------------------
6.10 Other Loan Obligations...................................... Page 35
----------------------
6.11 Use of Proceeds of Advances................................. Page 35
---------------------------
6.12 Special Affirmative Covenants Concerning Collateral......... Page 35
---------------------------------------------------
6.13 Cure of Defects in Loan Documents........................... Page 36
---------------------------------
6.14 Year 2000 Compliant......................................... Page 37
-------------------
7. NEGATIVE COVENANTS.................................................... Page 37
7.1 Contingent Liabilities...................................... Page 37
----------------------
7.2 Pledge of Mortgage Loans.................................... Page 37
------------------------
7.3 Merger; Acquisitions........................................ Page 37
--------------------
7.4 Loss of Eligibility......................................... Page 38
-------------------
7.5 Debt to Adjusted Tangible Worth Ratio....................... Page 38
-------------------------------------
7.6 Minimum Adjusted Tangible Net Worth......................... Page 38
-----------------------------------
7.7 Transactions with Affiliates................................ Page 38
----------------------------
7.8 Limits on Corporate Distributions........................... Page 38
---------------------------------
7.9 RICO........................................................ Page 38
----
7.10 No Loans or Investments Except Approved Investments......... Page 38
---------------------------------------------------
7.12 Changes in Accounting Methods............................... Page 39
-----------------------------
7.13 No Sales, Leases or Dispositions of Property................ Page 40
--------------------------------------------
7.14 Changes in Business or Assets............................... Page 40
-----------------------------
7.15 Changes in Office or Inventory Location..................... Page 40
---------------------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
7.16 Special Negative Covenants Concerning Collateral............ Page 40
------------------------------------------------
7.17 No Indebtedness............................................. Page 40
---------------
8. DEFAULTS; REMEDIES.................................................... Page 41
8.1 Events of Default........................................... Page 41
-----------------
8.2 Remedies.................................................... Page 44
--------
8.3 Application of Proceeds..................................... Page 46
-----------------------
8.4 Lender Appointed Attorney-in-Fact........................... Page 47
---------------------------------
8.5 Right of Set-Off............................................ Page 47
----------------
9. NOTICES............................................................... Page 47
10. REIMBURSEMENT OF EXPENSES; INDEMNITY.................................. Page 48
11. FINANCIAL INFORMATION................................................. Page 49
12. MISCELLANEOUS......................................................... Page 49
12.1 Terms Binding Upon Successors; Survival of Representations.. Page 49
----------------------------------------------------------
12.2 Assignment.................................................. Page 49
----------
12.3 Amendments.................................................. Page 50
----------
12.4 Governing Law............................................... Page 50
-------------
12.5 Participations.............................................. Page 50
--------------
12.6 Relationship of the Parties................................. Page 50
---------------------------
12.7 Severability................................................ Page 50
------------
12.8 Usury....................................................... Page 51
-----
12.9 Consent to Jurisdiction..................................... Page 51
-----------------------
12.10 Arbitration................................................. Page 52
-----------
12.11 ADDITIONAL INDEMNITY........................................ Page 53
--------------------
12.12 No Waivers Except in Writing................................ Page 54
----------------------------
12.13 Waiver of Jury Trial........................................ Page 54
--------------------
12.14 Multiple Counterparts....................................... Page 54
---------------------
12.15 No Third Party Beneficiaries................................ Page 54
----------------------------
12.16 RELEASE OF LENDER LIABILITY................................. Page 54
---------------------------
12.17 Entire Agreement; Amendment................................. Page 54
---------------------------
12.19 NO ORAL AGREEMENTS.......................................... Page 55
------------------
EXHIBIT "A" .................................................................. Page 57
EXHIBIT "B" .................................................................. Page 59
EXHIBIT "C" .................................................................. Page 60
EXHIBIT "D" .................................................................. Page 64
EXHIBIT "E" .................................................................. Page 65
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
EXHIBIT "F" .................................................................. Page 66
ANNEX "A" .................................................................. Page 67
EXHIBIT "G" .................................................................. Page 69
EXHIBIT "H" .................................................................. Page 70
EXHIBIT "I" .................................................................. Page 71
EXHIBIT "J" .................................................................. Page 73
EXHIBIT "K" .................................................................. Page 77
EXHIBIT "L" .................................................................. Page 79
EXHIBIT "M" .................................................................. Page 80
EXHIBIT "N" .................................................................. Page 83
</TABLE>
iv
<PAGE>
WAREHOUSING CREDIT AND SECURITY AGREEMENT
-----------------------------------------
THIS WAREHOUSING CREDIT AND SECURITY AGREEMENT (this "Agreement"), is dated
as of October 8, 1999, by and between iOWN, INC., a California corporation (the
"Company"), having its principal office at 118 King Street, Suite 226, San
Francisco, California 94107, and BANK UNITED, a federal savings bank (the
"Lender"), having its principal office at 3200 Southwest Freeway, Suite 2702,
Houston, Texas 77027.
WHEREAS, the Company has requested the Lender to make certain loans to the
Company to finance the origination or purchase of Mortgage Loans (as that term
is herein defined) which loans are for the benefit of the Company;
WHEREAS, the Lender is willing to make such loans as herein provided, upon
the terms, agreements and covenants and subject to the conditions hereinafter
set forth and in reliance on the representations and warranties herein made and
referred to; and
WHEREAS, the Company and the Lender desire to set forth herein the terms
and conditions upon which the Lender shall provide warehouse financing to the
Company;
NOW, THEREFORE, for good and valuable consideration, the amount and
sufficiency of which are hereby acknowledged by the parties hereto, to induce
the Lender to provide the warehouse financing facility to the Company and in
reliance of the representations and warranties made herein, the parties hereto
hereby agree as follows:
1. DEFINITIONS.
1.1 Defined Terms. Capitalized terms defined below or elsewhere in this
-------------
Agreement (including the exhibits hereto) shall have the following meanings:
"Adjusted Tangible Net Worth" means, with respect to the Company at
---------------------------
any date, the Tangible Net Worth of Company at such date [*] of the unpaid
principal balances of Mortgage Loans for which the Company owns the
Servicing Rights at such date.
"Advance" means a disbursement by the Lender under the Commitment
-------
pursuant to Article 2 of this Agreement.
"Advance Request" has the meaning set forth in Section 2.2(a) hereof.
---------------
"Affiliate" shall mean any Person controlling, controlled by or under
---------
common control with any other Person. For purposes of this definition
"control" (including "controlled by" and "under common control with") means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract, or otherwise or owning or
possessing the power to vote 10% or more of any class of voting
[*] Confidential Treatment Requested
<PAGE>
securities of any Person. Without limiting the generality of the foregoing,
for purposes of this Agreement, Company and each of its respective
Subsidiaries shall be deemed to be Affiliates of one another.
"Aged Mortgage Loans" means an Eligible Mortgage Loan that has been
-------------------
included in Collateral for a period of more than ninety (90) days.
"Agreement" means this Warehousing Credit and Security Agreement
---------
(Single Family Mortgage Loans), either as originally executed or as it may
from time to time be supplemented, modified or amended.
"Applicable Law" means the laws of the State of Texas and the United
--------------
States of America in effect from time to time and applicable to the
transactions between the Lender and the Company pursuant to this Agreement
and the other Loan Documents whichever pen-nits the charging and collection
of the highest nonusurious rate of interest on such transactions. For
purposes of determining Texas law with respect to the highest nonusurious
rate of interest the "weekly ceiling" as defined in Chapter 303 of the
Texas Finance Code (the "Texas Finance Code"), as amended, shall be
------------------
controlling.
"Approved Custodian" means a Person acceptable to the Lender from time
------------------
to time' in its sole discretion, who possesses Mortgage Loans that secure
Mortgaged-backed Securities.
"Bailee Letter" has the meaning set forth in Section 3.3 hereof.
-------------
"Business Day" means any day excluding Saturday, Sunday and any day on
------------
which Lender is closed for business.
"Capitalized Lease" means any lease under which rental payments are
-----------------
required to be capitalized on a balance sheet of the lessee in accordance
with GAAP.
"Capitalized Rentals" means the amount of aggregate rentals due and to
-------------------
become due under all Capitalized Leases under which the Company is a lessee
that would be reflected as a liability on a balance sheet of the Company.
"Change of Control" means
-----------------
(a) a sale of substantially all of the Company's assets to any
Person or related group of Persons; or,
(b) without the Lender's prior written consent, the transfer of
more than fifty percent (50%) of the total voting power entitled to
vote in election of directors, managers, or trustees of the Company.
"Collateral" has the meaning set forth in Section 3.1 hereof.
----------
2
<PAGE>
"Collateral Documents" means all of the documents and other items
--------------------
described on Exhibit "C" hereto and required to be delivered to the Lender
-----------
in connection with an Advance.
"Collateral Value" means
----------------
(a) with respect to any Eligible Mortgage Loan, an amount equal
to the least of (i) the actual out-of-pocket cost of such Mortgage
Loan to the Company, i.e., the net amount actually funded against such
Mortgage Loan or the net purchase price of such Mortgage Loan, (ii)
the Par Value thereof, (iii) the amount which the Investor has
committed to pay for such Mortgage Loan pursuant to a Purchase
Commitment, or (iv) if in the absence of the Purchase Commitment, the
Fair Market Value of such Mortgage Loan;
(b) with respect to Mortgage-backed Securities, an amount equal
to the least of (i) the sum of the principal balances of the Mortgage
Loans from which such Mortgage-backed Securities were created, (ii)
the amount which the Investor has committed to pay for such Mortgage-
backed Securities pursuant to a Purchase Commitment, or (iii) the Fair
Market Value of such Mortgage-backed Security;
(c) with respect to Collateral that is not described within (a)
or (b), and that is pledged pursuant to Section 3.4 hereof, Collateral
Value shall equal an amount established by Lender in its sole
discretion;
(d) with respect to Collateral that is not described in (a), (b),
or (c) the Collateral Value shall be equal to $0.00;
(e) notwithstanding the foregoing, with respect to Mortgage Loans
that are not or cease to be Eligible Mortgage Loans, the Collateral
Value thereof shall equal $0.00.
"Commitment" has the meaning set forth in Section 2.1(a) hereof.
----------
"Company" has the meaning set forth in the first paragraph of this
-------
Agreement.
"Conventional Mortgage Loan" means a Single-family Mortgage Loan,
--------------------------
other than an FHA Loan or VA Loan, that complies with all applicable
requirements for purchase under the FNMA or FHLMC standard form of
conventional mortgage purchase contract.
"Credit A Mortgage Loan" means a FHA Loan, VA Loan, Conventional
----------------------
Mortgage Loan, or Jumbo Loan.
"Debt" means, with respect to any Person, at any date (a) all
----
indebtedness or other obligations of such Person which, in accordance with
GAAP, would be included in
3
<PAGE>
determining total liabilities as shown on the liabilities side of a balance
sheet of such Person at such date; and (b) all indebtedness or other
obligations of such Person for borrowed money or for the deferred purchase
price of property or services; provided that for purposes of this
Agreement, there shall be excluded from Debt at any date loan loss
reserves, deferred taxes arising from capitalized excess service fees, and
operating leases. With respect to the Company, the term "Debt" shall
include all off balance sheet warehouse loan obligations owed to any
Person, including, without limitation, indebtedness or other obligations of
the Company under all master repurchase arrangements similar to the Master
Repurchase Agreement.
"Default" means the occurrence of any event or existence of any
-------
condition which, but for the giving of notice, the lapse of time, or both,
would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.4(c) hereof.
------------
"Electronic Request" has the meaning set forth in Section 2.2(a)
------------------
hereof.
"Eligible Mortgage Loan" means a Mortgage Loan, that, at all times
----------------------
during the term of this Agreement, (a) is, without duplication, a Subprime
Mortgage Loan, a Credit "A" Mortgage Loan, or a Second Mortgage Loan; (b)
is evidenced by loan documents that are the standard forms approved by FNMA
or FHLMC or forms previously approved, in writing, by the Lender in its
sole discretion; (c) is validly pledged to the Lender, subject to no other
Liens; (d) is not in default in the payment of principal and interest or in
the performance of any obligation under the Mortgage Note or the Mortgage
evidencing or securing such Eligible Mortgage Loan for a period of 60 days
or more; (e) has closed less than 25 days prior to the date of the Advance
made in connection with such Eligible Mortgage Loan; and (f) is covered by
a Purchase Commitment.
"Eligible Mortgage Pool" means a pool of Mortgage Loans that will
----------------------
secure a "mortgage related security", as defined in Section 3(a)(41) of the
Exchange Act administered or to be administered by a trustee acceptable to
Lender in its sole discretion where the Mortgage, Mortgage Note and other
documents relating to such Mortgage Loans are held or to be held by an
Approved Custodian.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
-----
all rules and regulations promulgated thereunder, as amended from time to
time and any successor statute.
"Event of Default" means any of the conditions or events set forth in
----------------
Section 8.1 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time and any successor statute.
4
<PAGE>
"Fair Market Value" shall mean, at any date, with respect to:
-----------------
(a) any Mortgage-backed Security, the bid price rate reflected on
the Telerate screen for a Mortgage-backed Security with the closest
coupon rate that does not exceed that of the Mortgage-backed Security
in question multiplied by the original face amount of such Mortgage-
backed Security, and multiplied by the current pool factor for such
Mortgage-backed Security.
(b) any Mortgage Loan, the market price rate reflected on the
Telerate screen for thirty (30) day mandatory future delivery of such
Mortgage Loan multiplied by the outstanding principal balance thereof.
In the event Telerate does not publish or ceases to publish either the
market or bid price for any Mortgage Loan or Mortgage-backed Security
referenced in (a) and (b) above, the average bid price quoted in writing to
the Lender as of the date of determination by any two nationally recognized
dealers selected by Lender that are making a market in similar Mortgage
Loans or Mortgaged-backed Securities shall be utilized in lieu of the
market or bid price, as the case may be.
"FHA" means the Federal Housing Administration and any, successor
---
thereto.
"FHA Loan" means a Single-family Mortgage Loan, payment of which is
--------
partially or completely insured by the FHA under the National Housing Act
or Title V of the Housing Act of 1949 or with respect to which there is a
current, binding and enforceable commitment for such insurance issued by
the FHA.
"FHLMC" means the Federal Home Loan Mortgage Corporation and any
-----
successor thereto.
"FHLMC Guide" means the Freddie Mac Sellers' and Servicers' Guide,
-----------
dated September 17, 1984, applicable bulletins, the applicable MIDANET
Users Guide (or the MIDAPHONE User's Guide) and any particular purchase
documents as defined in the Sellers' and Servicers' Guide, as revised
prior to the date hereof.
"FICA" means the Federal Insurance Contributions Act.
----
"First Mortgage" means a mortgage or deed of trust which constitutes a
--------------
first Lien on the property covered thereby.
"First Mortgage Loan" means a Mortgage Loan secured by a First
-------------------
Mortgage.
"Floating Rate" has the meaning set forth in Section 2.4(a) hereof
-------------
"FNMA" means the Federal National Mortgage Association and any
----
successor thereto.
5
<PAGE>
"FNMA Guide" means the FNMA Servicing Guide dated June 30,1990, as
----------
revised prior to the date hereof.
"Funding Account" means the non-interest bearing demand checking
---------------
account established with, maintained by, and pledged to Lender into which
shall be deposited the proceeds of Advances, the proceeds from any sale of
Collateral, and from which funds shall be disbursed for the acquisition of
Mortgage Loans.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment
of the accounting profession, which are applicable to the circumstances as
of the date of determination.
"GNMA" means the Government National Mortgage Association and any
----
successor thereto.
"GNMA Guide" means the GNMA I Mortgage-Backed Securities Guide,
----------
Handbook GNMA 5500. I REV. 6, as revised prior to the date hereof, and as
may be revised from time to time, and GNMA II Mortgage-Backed Securities
Guide Handbook GNMA 5500.2, as revised prior to the date hereof.
"HUD" means the Department of Housing and Urban Development and any
---
successor thereto.
"Indebtedness" means and includes, without duplication, (1) all items
------------
which in accordance with GAAP, consistently applied, would be included on
the liability side of a balance sheet on the date as of which Indebtedness
is to be determined (excluding shareholders' equity), (2) Capitalized
Rentals under any Capitalized Lease, (3) guaranties, endorsements and other
contingent obligations in respect of, or any obligations to purchase or
otherwise acquire, Indebtedness of others, and (4) indebtedness secured by
any mortgage, pledge, security interest or other Lien existing on any
property owned by the Person with respect to which indebtedness is being
determined, whether or not the indebtedness secured thereby shall have been
assumed.
"Indemnified Liabilities" has the meaning set forth in Article 10
-----------------------
hereof.
"Interim Date" has the meaning set forth in Section 4.1 (a)(5) hereof.
------------
"Internal Revenue Code" means the Internal Revenue Code of 1986, or
---------------------
any subsequent federal income tax law or laws, as any of the foregoing have
been or may from time to time be amended.
6
<PAGE>
"Investor" means FNMA, FHLMC, GNMA, any of the Persons listed in
Exhibit "L" hereto, or a financially responsible institution which is
acceptable, to Lender, in its sole discretion; provided that at any time by
written notice to Company Lender may disapprove any Investor in its sole
discretion, whether or not that Person is named as an Investor in this
definition or in Exhibit "L" or has been previously approved as an Investor
by Lender. Upon receipt of such notice, the Persons named in Lender's
notice shall no longer be Investors from and after the date of the receipt
of such notice.
"Jumbo Loan" means a Single-family Mortgage Loan (other than a FHA
Loan or VA Loan) that is underwritten in accordance with standards of an
Investor that are generally comparable to the underwriting standards
established by FNMA or FHLMC, except that the amount of such Mortgage Loan
exceeds the maximum amount under those requirements, but in no event shall
the amount of such Single-family Mortgage Loan exceed one Million Dollars
($1,000,000.00) and provided further that such Single-family Mortgage Loan
exceeding Six Hundred Thousand Dollars ($600,000.00) must be underwritten
in accordance with Investor guidelines so that it is readily salable to
such Investor, and prior approved by an Investor for purchase.
"Lender" has the meaning set forth in the first paragraph of this
Agreement.
"LIBOR Rate" means a rate of interest equal to the London Interbank
Offered Rate for U. S. dollar deposits as quoted by Telerate, Bloomberg or
any other rate quoting service, selected by Lender in its sole discretion
for an interest period of one month. In the event such rate ceases to be
published, LIBOR Rate shall mean a comparable rate of interest reasonably
selected by Lender.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale
or other title retention agreement, any lease in the nature thereof, and
any agreement to give any security interest).
"Loan Documents" means this Agreement, the Note, and each other
document, instrument or agreement executed by the Company or any other
Person in connection herewith or therewith, as any of the same may be
amended, restated, renewed or replaced from time to time.
"Margin Stock" has the meaning assigned to that term in Regulation U
of the Board of Governors of the Federal Reserve System as in effect from
time to time.
"Master Repurchase Agreement" means that certain Master Repurchase
Agreement dated of even date herewith by and between Company and Lender.
"Maximum Rate" means the maximum lawful non-usurious rate of interest
(if any) that, under Applicable Law, the Lender may charge the Company on
the Advances
7
<PAGE>
from time to time. To the extent that the interest rate laws of the State
of Texas are applicable and unless changed in accordance with law, the
applicable rate ceiling shall be the "weekly ceiling" determined in
accordance with the Texas Finance Code, as amended.
"Monthly Average LIBOR Rate" means the average of all LIBOR Rates
quoted during a given month. In the event (i) the, Note is paid in full
and the Commitment is terminated prior to a month end; or (ii) the initial
Advance hereunder occurs on a date other than the first day of that month
on which LIBOR Rates are quoted, the Monthly Average LIBOR Rate shall mean,
in the case of clause (i), the average of all LIBOR Rates quoted that month
up to and including the last Business Day prior to such payment in full;
or, in the case of clause (ii), the LIBOR Rates quoted on the date of the
initial Advance through the end of that month.
"Mortgage" means a First Mortgage or Second Mortgage on improved real
property.
"Mortgage-backed Securities" means FHLMC, GNMA or FNMA securities that
are backed by Mortgage Loans.
"Mortgage Loan" means any loan evidenced by a Mortgage Note. A
Mortgage Loan, unless otherwise expressly stated herein, means a Single-
family Mortgage Loan.
"Mortgage Note" means a note secured by a Mortgage.
"Mortgage Note Amount" means, as of the date of determination, the
then outstanding unpaid principal amount of a Mortgage Note.
"Mortgage Pool" means a pool of Mortgage Loans that were warehoused
with the Lender, on the basis of which there is to be issued a Mortgage-
backed Security.
"Mortgaged Property" means the property, real, personal, tangible or
intangible, securing a Mortgage Note.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA that is maintained for employees of the Company
or a Subsidiary of the Company.
"Net Investable Balances" means the average collected balances in non-
interest bearing deposit accounts controlled or maintained by the Company
and its Subsidiaries in accounts at the Lender, less balances to support
float, activity charges, reserve requirements, Federal Deposit Insurance
Corporation insurance premiums and such other assessments as may be imposed
by governmental authorities from time to time.
"Note" has the meaning set forth in Section 2.3 hereof.
8
<PAGE>
"Notices" has the meaning set forth in Article 9 hereof.
-------
"Obligations" means any and all indebtedness, obligations and
-----------
liabilities of the Company to the Lender (whether now existing or hereafter
arising, voluntary or involuntary, whether or not jointly owed with others,
direct or indirect absolute or contingent, liquidated or unliquidated, and
whether or not from time to time decreased or extinguished and later
increased, created or incurred), arising out of or related to the Loan
Documents, or any of them, and any renewals, extensions, enlargements,
reinstatements or rearrangements thereof.
"Officer's Certificate" means a certificate executed on behalf of the
---------------------
Company by its chief financial officer or its treasurer or by such other
officer as may be designated herein, in form and substance satisfactory to
Lender.
"OTS" means the Office of Thrift Supervision.
---
"Par Value" means, with respect to any Mortgage Loan, at the time of
---------
any determination, the unpaid principal balance of such Mortgage Loan on
such date.
"Participant" has the meaning set forth in Section 12.5 hereof.
-----------
"Person" means and includes natural persons, corporations, limited
------
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts,
business trusts or other organizations, whether or not legal entities, and
federal and state governments and agencies or regulatory authorities and
political subdivisions thereof
"Plans" has the meaning set forth in Section 5.10 hereof.
-----
"Pledged Mortgages" has the meaning set forth in Section 3.1(a)
-----------------
hereof.
"Pledged Securities" has the meaning set forth in Section 3.1(b)
------------------
hereof.
"PMI" means any private mortgage insurance company which is
---
acceptable to Lender, in its sole discretion; provided that at any time by
--------
written notice to Company, Lender may disapprove any PMI because it has
determined in its sole discretion and for any reason that it is no longer
comfortable with that Person being a PMI, whether or not that Person has
been previously approved as a PMI by Lender. Upon receipt of such notice,
the Persons named in Lender's notice shall no longer be PMIs from and after
--
the date of receipt of such notice.
"Purchase Commitment" means a written commitment, in form and
-------------------
substance satisfactory to the Lender, issued in favor of the Company by an
Investor pursuant to which that Investor commits to purchase Mortgage Loans
or Mortgage-backed Securities.
9
<PAGE>
"Purchase Price" shall have the meaning set forth in the Master
--------------
Repurchase Agreement.
"Redemption Amount" has the meaning set forth in Section 3.5 hereof.
-----------------
"RICO" means the Racketeer Influenced and Corrupt Organizations Act of
----
1970, as amended.
"Second Mortgage" means a mortgage or deed of trust which constitutes
---------------
a second Lien on the property covered thereby.
"Second Mortgage Loan" means a Mortgage Loan secured by a Second
--------------------
Mortgage that (a) has a combined loan-to-collateral value not greater than
100% (ratio to be based upon all loans, including such Second Mortgage Loan
and all loans secured by the Mortgaged Property securing such Second
Mortgage Loan) and (b) is underwritten in conformity with underwriting
standards approved by an Investor so that it is readily salable to such
Investor.
"Securities" means the Mortgage Notes, securities, and financial
----------
instruments sold by Company to the Lender under the Master Repurchase
Agreement at any time and from time to time.
"Servicing Contract" means, with respect to any Person, the
------------------
arrangement, whether or not in writing, pursuant to which such Person has
the right to service Mortgage Loans.
"Servicing Rights" means (a) the rights, obligations, remedies,
----------------
powers, and responsibilities of a Person to service Mortgage Loans owned by
that Person, including without limitation the right to collect principal
and interest payments, administer escrow accounts, and the right to own and
possess loan files and all records, documents, and data relating to such
Mortgage Loans, and (b) the obligations, rights, remedies, powers,
privileges, benefits and responsibilities of a Person to service Mortgage
Notes for GNMA, FNMA or FHLMC under and in accordance with the GNMA Guide,
the FNMA Guide and the FHLMC Guide, respectively or for any Investor under
any Servicing Contract, including, without limitation, (i) the right to
receive servicing fees, termination fees, net sales proceeds, late charges,
insufficient fund fees, and other ancillary income relating to the Mortgage
Notes (ii) the right to hold and administer the escrow accounts, and (iii)
the right to all loan files, insurance files, tax records, collection
records, documents, ledgers, computer printouts, computer tapes and other
records, data or information relating to the Mortgage Notes, the escrow
accounts or the servicing or otherwise necessary or proper to perform the
obligations of servicer.
"Single-family Mortgage Loan" means a Mortgage Loan secured by a
---------------------------
Mortgage covering improved real property containing one to four family
residences.
"Statement Date" has the meaning set forth in Section 4.1 (a)(5)
--------------
hereof.
10
<PAGE>
"Subordinated Debt" means, with respect to any Person, all
-----------------
Indebtedness of such Person, for borrowed money, which is, by its terms
(which terms shall have been approved by the Lender) or by the terms of a
subordination agreement, in form and substance satisfactory to the Lender,
effectively subordinated in right of payment to all other present and
future obligations and all indebtedness of such Person, of every kind and
character, owed to the Lender.
"Subprime Mortgage Loan" means a Single-family Mortgage Loan that (a)
----------------------
is, in the reasonable judgment of the Lender, consistent in all respects
with traditional standards imposed by whole loan purchasers, relevant
rating agencies and pool insurers for classification as "A-", "B", or "C"
Mortgage Loans, (b) has a maximum loan amount that does not exceed
$350,000.00, (c) is secured by a First Mortgage or Second Mortgage, (d) has
a combined loan-to-collateral value ratio not greater than 100% (ratio to
be based upon all loans, including such Single-family Mortgage Loan, and
all loans secured by the Mortgaged Property securing such Single-family
Mortgage Loan), and (e) is covered by a Purchase Commitment.
"Subsidiary" means any corporation, association or other business
----------
entity in which more than fifty percent (50%) of the total voting power or
shares of stock entitled to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by any Person or one or more of the other Subsidiaries of that
Person or a combination thereof.
"Tangible Net Worth" means, with respect to any Person at any date,
------------------
the sum of the total shareholders' equity in such Person (including capital
stock, additional paid-in capital, and retained earnings, but excluding
treasury stock, if any), on a consolidated basis; less the aggregate book
value of all intangible assets of such Person (as determined in accordance
with GAAP), including without limitation, goodwill, trademarks, trade
names, service marks, copyrights, patents, licenses, franchises, and
Servicing Rights, each to be determined in accordance with GAAP consistent
with those applied 'in the preparation of the financial statements referred
to in Section 5.3 hereof; provided that, for purposes of this Agreement,
there shall be excluded from total assets, advances or loans to
shareholders, officers or Affiliates, investments in Affiliates, assets
pledged to secure any liabilities not included in the Debt of such Person
and those other assets which would be deemed by HUD to be non-acceptable in
calculating adjusted net worth in accordance with its requirements in the
Audit Guide for Audit of Approved Non-Supervised Mortgagees", as in effect
as of such date.
"Termination Date" means [*] or such earlier date upon which Lender's
----------------
obligation to fund shall be terminated pursuant to the terms of this
Agreement.
"Tribunal" means any court or governmental department commission,
--------
board, bureau, agency, or instrumentality of any state, commonwealth,
nation, territory,
[*] Confidential Treatment Requested
11
<PAGE>
possession, county, parish, or municipality, whether now or hereafter
constituted and/or existing.
"VA" means the Veterans Administration and any successor thereto.
--
"VA Loan" means a Single-family Mortgage Loan, payment of which is
-------
partially or completely guaranteed by the VA under the Servicemen's
Readjustment Act of 1944 or Chapter 37 of Title 38 of the United States
Code or with respect to which there is a current binding and enforceable
commitment for such a guaranty issued by, the VA.
"Wet Settlement Advance" means a disbursement by the Lender under the
----------------------
Commitment and pursuant to Section 2.2(a) of this Agreement in respect of
the closing or settlement of a Single-family Mortgage Loan, in anticipation
of and pending subsequent delivery and examination of the Collateral
Documents as provided in Section II of Exhibit "C".
-----------
"Year 2000 Issue" means the failure of computer software, hardware,
---------------
and firmware systems and equipment containing embedded computer chips to
properly receive, transmit, process, manipulate, store, retrieve, re-
transmit or in any other way utilize data and information due to the
occurrence of the, year 2000 or the inclusion of dates on or after January
1, 2000.
1.2 Other Definitional Provisions.
-----------------------------
(a) Accounting terms not otherwise defined herein shall have the
meanings given the terms under GAAP.
(b) Defined terms may be used in the singular or the plural, as the
context requires.
2. THE CREDIT.
2.1 The Commitment.
--------------
(a) Subject to the terms and conditions of this Agreement and provided
no Default or Event of Default has occurred and is continuing, the Lender
agrees, from time to time during the period from the date hereof to and
including the Termination Date, to make Advances to the Company, provided
the sum of the total aggregate principal amount outstanding at any one time
of all such Advances plus the aggregate Purchase Prices of all Securities
which have not been repurchased by the Company under the Master Repurchase
Agreement shall not exceed TEN MILLION AND NO/100 DOLLARS
($10,000,000.00). The obligation of the Lender to make Advances hereunder
up to such limit is hereinafter referred to as the "Commitment." Within the
Commitment, the Company may borrow, repay and reborrow. All Advances under
this Agreement shall constitute a single indebtedness, and all of the
Collateral shall be
12
<PAGE>
security for the Note and for the performance of all the Obligations of the
Company to the Lender. Notwithstanding anything contained herein to the
contrary or otherwise, each purchase of Securities by the Lender under the
Master Repurchase Agreement will automatically reduce by the amount of the
purchase price for such Securities, dollar for dollar, the principal amount
available to be borrowed within the Commitment for so long as that purchase
is outstanding under the Master Repurchase Agreement.
(b) Advances shall be used by the Company solely for the purpose of
funding the acquisition or origination of Eligible Mortgage Loans, as
specified in the Advance Request and none other, and shall be made at the
request of the Company in the manner hereinafter provided in Section 2.2,
against the pledge of such Mortgage Loans and such other collateral as is
set forth in Section 3.1 hereof as Collateral therefor. Advances shall
also be subject to the following restrictions:
(1) No Advance shall be made against Mortgage Loans which are not
Eligible Mortgage Loans.
(2) The aggregate amount of Wet Settlement Advances outstanding
at any one time shall not exceed [*].
(3) The aggregate amount of Advances against Second Mortgage
Loans outstanding at any one time shall not exceed [*].
(4) The aggregate amount of Advances against Aged Mortgage Loans
outstanding at any one time shall not exceed [*].
(c) No Advance against an Eligible Mortgage Loan shall exceed an
amount equal to [*] of the Collateral, Value of such
Mortgage Loan, to be determined as of the date such Mortgage Loan is
pledged to Lender.
2.2 Procedures for Obtaining Advances.
---------------------------------
(a) The Company may obtain an Advance hereunder subject to the
following:
(1) The Company may obtain an Advance hereunder, subject to the
satisfaction of the conditions set forth in Sections 4.1 and 4.2
hereof, upon compliance with the procedures set forth in this Section
2.2 and in Exhibit "C" attached hereto and made a part hereof Requests
-----------
for Advances shall be initiated by the Company (i) by delivering to
the Lender and its designee, by telecopy (with original to be sent
immediately thereafter by overnight mail) a completed and signed
request for an Advance (an "Advance Request") in the form of Exhibit
-------
"A", attached hereto and made a part hereof, or (ii) by using the
---
[*] Confidential Treatment Requested
13
<PAGE>
electronic data transmission service provided by the Lender and its
licensor, MBMS Incorporated, to transmit to the Lender a request for
Advance ("Electronic Request"), which shall include all information
required by Exhibit "A" through the Warehouse Management System
-----------
software provided by the Lender and its licensor, MBMS Incorporated.
The Lender shall have the right, on not less than three (3) Business
Days' prior notice to the Company, to modify the Advance Request,
Electronic Request, or any exhibits hereto to conform to current legal
requirements or Lender practices, and, as so modified, said Advance
Request, Electronic Request or exhibits shall be deemed a part hereof
In consideration of the Lender permitting the Company to make
Electronic Requests for Advances utilizing the Warehouse Management
System software or Advance Requests by telecopy, the Company covenants
and agrees to assume liability for and to protect, indemnify and save
the Lender harmless from, any and all liabilities, obligations,
damages, penalties, claims, causes of action, costs, charges and
expenses, including attorneys' fees and expenses of employees, which
may be imposed, incurred by or asserted against the Lender by reason
of any loss, damage or claim howsoever arising or incurred because of,
out of or in connection with (i) any action of the Lender pursuant to
Electronic Requests or Advance Requests by telecopy, (ii) the breach
of any provisions of this Agreement by the Company, (iii) the transfer
of funds pursuant to such Electronic Requests or Advance Requests by
telecopy, or (iv) the Lender's honoring or failing to honor any
Electronic Request or Advance Request by telecopy for any reason or no
reason whatsoever. The Lender is entitled to rely upon and act upon
Electronic Requests or Advance Requests by telecopy, and the Company
shall be unconditionally and absolutely estopped from denying (x) the
authenticity and validity of any such transaction so acted upon by the
Lender once the Lender has advanced funds and has deposited or
transferred such funds as requested in any such Electronic Request or
Advance Request by telecopy, and (y) the Company's liability and
responsibility therefor.
(2) In the case of any Wet Settlement Advances, the Company shall
follow the procedures and, at or prior to the Lender's making of such
Wet Settlement Advance, shall deliver to the Lender or its designee
the documents set-forth in Section 11 of Exhibit "C" hereto. In case
-----------
of Collateral financed through a Wet Settlement Advance, the Company
shall cause all Collateral Documents to be delivered to the Lender or
its designee within five (5) Business Days after the date of the Wet
Settlement Advance relating thereto.
(3) Before funding, the Lender and its designee shall have a
reasonable time to examine such Advance Request and the Collateral
Documents to be delivered prior to such requested Advance, as set
forth in the applicable Exhibit hereto, and may reject such of them as
do not meet the requirements of this Agreement or of the related
Purchase Commitment. The Advance Request and the Collateral Documents
must be received by Lender no later than 2:00 p.m. Houston, Texas time
in order for funding to occur the same day.
14
<PAGE>
(b) To make an Advance, the Lender shall credit the Funding Account
upon compliance by the Company with the terms of this Agreement.
2.3 Note. The Company's obligation to pay the principal of, and interest
----
on, all Advances made by the Lender shall be evidenced by a promissory note (the
"Note") of the Company dated as of the date hereof, in form of Exhibit "N"
-----------
hereto. The term "Note" shall include all extensions, renewals and
modifications of the Note and all substitutions therefor. All terms and
provisions of the Note are hereby incorporated herein.
2.4 Interest.
--------
(a) (1) Except as provided in Section 2.4(c) below, the unpaid
amount of each Advance against Mortgage Loans that are not Aged
Mortgage Loans shall bear interest from the date of such Advance until
paid in full, at a rate of interest equal to the lesser of (i) the
Maximum Rate, or (ii) [*] (the "Floating Rate") [*] provided, however,
that the unpaid portion of Advances against Mortgage Loans (excluding
Aged Mortgage Loans) equal to Net Investable Balances shall bear
interest at the rate of [*].
(2) Except as provided in Section 2.4(c) below, the unpaid amount
of each Advance outstanding against Aged Mortgage Loans shall bear
interest from the date such Mortgage Loans become Aged Mortgage Loans
until such Advance is paid in full at a rate of interest equal to the
lesser of (i) the Maximum Rate or (ii) a fluctuating rate of interest
which is equal to [*] per annum over, the Monthly Average LIBOR Rate.
(3) Notwithstanding the foregoing, provided that, the Company
achieves a minimum Adjusted Tangible Net Worth [*] the interest rates
set forth in Section 2.4(a)(1) and (2) above shall be reduced [*]
effective on the first (1st) day of the first (1st) calendar month
following the Company's satisfactory achievement of the [*] minimum
Adjusted Tangible Net Worth requirement [*].
(b) Interest shall be computed on the basis of a 360-day year and
applied to the actual number of days elapsed in each interest calculation
period and shall be payable monthly in arrears, on the first day of each
month, commencing with the first month following the date of this
Agreement, and ending on Termination Date.
(c) Obligations not paid when due (whether at stated maturity, upon
acceleration following the occurrence of an Event of Default or otherwise)
shall bear interest, from the date due until paid in full, at a rate of
interest ("Default Rate") at all times equal to the lesser of (i) [*] or
(ii) the Maximum Rate, said interest to be payable on demand by Lender.
[*] Confidential Treatment Requested
15
<PAGE>
2.5 Principal Payments.
------------------
(a) The outstanding unpaid principal amount of all Advances shall be
payable in full upon [*].
(b) The Company shall have the right to prepay the outstanding
Advances in whole or in part from time to time, without premium or penalty,
subject to the Company's obligation to pay the Non-Usage Fee pursuant to
Section 2.8 hereof.
(c) The Company shall be obligated to pay to the Lender, without the
necessity of prior demand or notice from the Lender, and the Company
authorizes the Lender to charge the Funding Account or any other accounts
of the Company (excluding any monies held by Company in trust for third
parties) in Lender's possession for the amount of any outstanding Advance
against a specific Mortgage Loan, upon the earliest occurrence of any of
the following events:
(1) The expiration of [*] from the date of any Advance for any
Mortgage Loan (excluding Aged Mortgage Loans);
(2) The expiration of [*] from the date the Mortgage Loan was
delivered to an Investor for examination and purchase, without the
purchase being made, or upon rejection of the Mortgage Loan as
unsatisfactory by an Investor;
(3) The expiration of [*] from the date Mortgage Loan is delivered
to the certificating custodian acceptable to the Lender for the
issuance of a Mortgage-backed Security;
(4) The expiration of [*] Business Days from the date a Wet
Settlement Advance was made without receipt of all Collateral
Documents relating to such Mortgage Loan, or such Collateral
Documents, upon examination by the Lender, are found not to be in
compliance with the requirements of this Agreement or the related
Purchase Commitment;
(5) The expiration of [*] calendar days from the date a Collateral
Document in connection with such Mortgage Loan was delivered to the
Company for correction or completion, without being returned to the
Lender, corrected or completed;
(6) The Mortgage Loan is not or ceases to be an Eligible Mortgage
Loan;
(7) The expiration of [*] Business Days after the date on which
the related Purchase Commitment, if any, expires, is terminated or
otherwise
[*] Confidential Treatment Requested
16
<PAGE>
canceled or no longer in full force and effect and the specific
Mortgage Loan was not delivered under the Purchase Commitment prior to
such termination, expiration or cancellation;
(8) Upon sale of the Mortgage Loan.
Upon receipt of such payment by the Lender, such Mortgage Loans or
Mortgage-backed Securities shall be considered to have been redeemed from
pledge, and the Collateral Documents relating thereto which have not been
delivered to the Investor or the pool custodian or pool trustee shall be
released by the Lender to the Company.
(d) With respect to Aged Mortgage Loans, the Company shall be
obligated to pay to the Lender (and the Company authorizes the Lender to
charge the Funding Account or any other accounts of the Company [excluding
monies held by the Company in trust for third parties] in Lender's
possession for the payment thereof) the principal payments in the amounts
and on the dates specified below:
(1) On the date a Pledged Mortgage becomes an Aged Mortgage Loan,
a principal payment in an amount necessary to reduce the outstanding
unpaid Advances made against such Aged Mortgage Loan to an amount
equal to [*] of the Collateral Value of such Aged Mortgage Loan;
(2) On the date an Aged Mortgage Loan has been included in the
Collateral for [*] (computed from the date such Aged Mortgage Loan was
originally pledged to the Lender), a principal payment in an amount
necessary to reduce the outstanding unpaid Advances made against such
Aged Mortgage Loan to an amount equal to [*] of the Collateral Value
of such Aged Mortgage Loan;
(3) On the date an Aged Mortgage Loan has been included in the
Collateral for [*] (computed from the date such Aged Mortgage Loan was
originally pledged to the Lender), a principal payment in an amount
necessary to reduce the outstanding unpaid Advances made against such
Aged Mortgage Loan to an amount equal to [*] of the Collateral Value
of such Aged Mortgage Loan;
(4) On the date an Aged Mortgage Loan has been included in the
Collateral for [*] (computed from the date such Aged Mortgage
Loan was originally pledged to the Lender), an amount equal to the
[*] against such Aged Mortgage Loan.
2.6 Expiration of Commitment. Unless extended or terminated earlier as
------------------------
permitted hereunder, the Commitment shall expire of its own term, and without
the necessity of action by the Lender, at the close of business on the
Termination Date. However, the remainder of this Agreement shall remain in full
force and effect until all amounts due on the Obligations have
[*] Confidential Treatment Requested
17
<PAGE>
been paid in full. The Lender has not made, and does not hereby make, any
commitment to renew, extend, rearrange or otherwise refinance the outstanding
and unpaid principal of the Note or accrued interest thereon. In the event,
however, the Lender from time to time renews, extends, rearranges, increases
and/or otherwise refinances any portion or all of any Obligation and any accrued
interest thereon at any time, such refinancing shall be evidenced by an
appropriate promissory note in form and substance satisfactory to the Lender
and, unless otherwise noted or modified at such time or times by the terms of
such promissory note or any agreements executed in connection therewith, any
such promissory note or notes and refinancing evidenced thereby shall be
governed in all respects by the terms of this Agreement.
2.7 Method of Making Payments. Except as otherwise specifically provided
-------------------------
herein, all payments hereunder shall be made to the Lender not later than the
close of business (Houston time) on the date when due unless such date is a non-
Business Day, in which case, such payment shall be due on the first Business Day
thereafter, and shall be made in lawful money of the United States of America in
immediately available funds.
2.8 Non-Usage Fee. At the end of each month during the term of this
-------------
Agreement (i.e., from its effective date through the Termination Date), the
-----
Lender shall determine average usage of the Commitment by calculating the
arithmetic daily average of the outstanding balance of Advances in that month.
The Lender shall then subtract the average usage (the "Unused Portion") from the
--------------
Commitment (the result being called the "Unused Portion") and the Company shall
--------------
pay in arrears (without duplication of payment), on or before five (5) days
after the later of (a) the end of each month or (b) the Company's receipt of the
Lender's bill for such monthly period, a Non-Usage Fee equal to [*] on the total
amount of the Unused Portion of the Commitment for that month, as compensation
to the Lender for its agreement to make the Commitment available to the Company
during that month and not as compensation for the use, forbearance or detention
of money (i.e., as a "true commitment fee" under Texas law); provided that such
------ --------
fee shall be waived for any month if the Unused Portion for such month is [*] of
the Commitment. Each calculation by the Lender of the amount of any Non-Usage
Fee shall be conclusive and binding on the Company, absent manifest error.
2.9 Miscellaneous Charges. At the end of each month during the term of
---------------------
this Agreement, the Company shall pay to the Lender in arrears on or before five
(5) days after the later of (a) the end of each calendar month or (b) the
Company's receipt of the Lender's bill for such monthly period, a transaction
fee equal to [*] per Pledged Mortgage held by Lender during such month and for
which Lender has not previously received a transaction fee, for the handling and
administration of Advances and Collateral. For the purposes hereof, Company
shall, at its sole cost and expense, pay all miscellaneous charges and expenses
incurred by the Lender in connection with the handling and administration of
Advances and Collateral, including, without limitation, all charges for security
delivery fees, wiring fees, and charges for overnight delivery of Collateral to
Investors. Miscellaneous charges are due when incurred, but shall not be
delinquent if paid within ten (10) days after receipt of an invoice or an
account analysis statement from the Lender.
[*] Confidential Treatment Requested
18
<PAGE>
2.10 Bailee. Lender appoints Company and Company shall act as its bailee to
------
(i) hold in trust for Lender (A) the original recorded copy of the mortgage,
deed of trust, or trust deed securing each Pledged Mortgage, (B) a mortgagee
policy of title insurance (or binding unexpired and unconditional commitment to
issue such insurance if the policy has not yet been delivered to Company)
insuring the Company's perfected, first priority Lien created b, that mortgage,
deed of trust, or trust deed, (C) the original insurance policies for each
Pledged Mortgage, and (D) all other original documents relating to each Pledged
Mortgage, including any promissory notes, any other loan documents, and
supporting documentation, surveys, settlement statements, closing instructions,
and Mortgage-backed Securities, and (ii) deliver to Lender any of the foregoing
items as soon as reasonably practicable upon Lender's request.
3. COLLATERAL.
3.1 Grant of Security Interest. As security for the payment of the Note
--------------------------
and for the performance of all of the Company's Obligations hereunder, the
Company hereby assigns and transfers all right, title and interest in and to and
grants a security interest to the Lender in the following described property,
whether now owned or hereafter acquired (the "Collateral"):
(a) All Mortgage Loans including all Mortgage Notes and Mortgages
evidencing such Mortgage Loans including without limitation all Mortgage
Loans in respect of which Wet Settlement Advances have been made by the
Lender, which from time to time are delivered or caused to be delivered to
the Lender or its designee, come into the possession, custody or control of
the Lender for the purpose of assignment or pledge or in respect of which
an Advance has been made by the Lender hereunder (the "Pledged Mortgages").
(b) All Mortgage-backed Securities which are from time to time
delivered or caused to be delivered to, or are otherwise in the possession
of the Lender, or-its designee, its agent, bailee or custodian as assignee
or pledged to the Lender, or for such purpose are registered by book-entry
in the name of the Lender (the "Pledged Securities").
(c) All private mortgage insurance and all commitments issued by the
FHA or VA to insure or guarantee any Mortgage Loans included in the Pledged
Mortgages; all guaranties related to Pledged Securities; all Purchase
Commitments held by the Company covering the Pledged Mortgages or the
Pledged Securities and all proceeds resulting from the sale thereof to
Investors pursuant thereto; all personal property, contract rights,
servicing and servicing fees and income or other proceeds, amounts and
payments payable to the Company as compensation or reimbursement, accounts
and general intangibles of whatsoever kind relating to the Pledged
Mortgages, the Pledged Securities and all other documents or instruments
relating to the Pledged Mortgages, the Pledged Securities, including,
without limitation, any interest of the Company in any fire, casualty or
hazard insurance policies and any awards made by any public body or decreed
by any court of competent jurisdiction for a taking or for degradation of
value in any eminent domain proceeding as the same relate to the Pledged
Mortgages.
19
<PAGE>
(d) All right, title and interest of the Company in and to all escrow
accounts, documents, instruments, files, surveys, certificates,
correspondence, appraisals, computer programs, tapes, discs, cards,
accounting records (including all information, records, tapes, data,
programs, discs and cards necessary or helpful in the administration or
servicing of the foregoing Collateral) and other information and data of
the Company relating to the foregoing Collateral.
(e) All now existing or hereafter acquired cash delivered to or
otherwise in the possession of the Lender or its agent, bailee or custodian
or designated on the books and records of the Company as assigned and
pledged to the Lender.
(f) All cash and non-cash proceeds of the foregoing Collateral,
including all dividends, distributions and other rights in connection with,
and all additions to, modifications of and replacements for, the foregoing
Collateral, and all products and proceeds of the foregoing Collateral,
together with whatever is receivable or received when the foregoing
Collateral or proceeds thereof are sold, collected, exchanged or otherwise
disposed of, whether such disposition is voluntary or involuntary,
including, without limitation, all rights to payment with respect to any
cause of action affecting or relating to the foregoing Collateral or
proceeds thereof.
3.2 Security Interest in Mortgage-backed Securities. The Company's ability
-----------------------------------------------
to convert Mortgage Loans that are within the Collateral to Mortgage-backed
Securities are subject to the following conditions:
(a) Pledged Mortgages that are to be transferred to a Pool custodian
in connection with the issuance of Mortgage-backed Securities, shall be
released from the Lender's security interest only against payment to the
Lender of the amount due the Lender in connection with such Pledged
Mortgages as determined in accordance with Section 3.5 of this Agreement or
against the issuance of such Mortgage-backed Securities and the
continuation of the Lender's first priority, perfected security interest in
such Mortgage-backed Securities and the proceeds thereof until payment due
the Lender in respect of said Pledged Mortgages is made to the Lender.
(b) In the case of Mortgage-backed Securities created from Pledged
Mortgages, the Lender shall have the exclusive right to the possession of
the Mortgage-backed Securities or, if the Mortgage-backed Securities are
not to be issued in certificated form, shall have the right to have the
book entries for the Mortgage-backed Securities issued in the Lender's name
or the name or names of its designees. Lender shall cause delivery of the
Mortgage-backed Securities to be made to the Investor or the book entries
registered -in the name of the Investor or the Investor's designee only
against payment therefor. The Company acknowledges that the Lender may
enter into one or more standing arrangements with other financial
institutions for the issuance of Mortgage-backed Securities in book entry
form in the name of such other financial institutions, as agent for the
Lender, and the Company agrees upon request of the Lender,
20
<PAGE>
to execute and deliver to such other financial institutions the Company's
written concurrence in any such standing arrangements.
3.3 Delivery of Collateral Documents. The Lender or its designee
--------------------------------
exclusively shall deliver Pledged Mortgages or Pledged Securities to (a) an
Investor that has issued a Purchase Commitment with respect thereto for its
examination and purchase, or (b) an Approved Custodian for purposes of
examination or delivery in connection with the issuance of Mortgage-backed
Securities. In such cases where the Lender must deliver documents to an Investor
or Approved Custodian, the Lender must receive signed shipping instructions (in
the form of Exhibit "D" attached hereto), no later than 2:00 p.m. Houston,
-----------
Texas time one (1) Business Day prior to the expiration of the appended
Purchase Commitment, in addition to any other documents listed in Section III of
Exhibit "C" in respect of the issuance of Mortgage-backed Securities. If
- -----------
shipping instructions are received by Lender before 2:00 p.m. Houston, Texas
time of any Business Day, Lender will ship the documents together with the
Bailee Letter (in form of Exhibit "K") to the Investor or Approved Custodian on
-----------
the same Business Day, otherwise Lender will ship the documents, the next
Business Day following receipt of shipping instructions. In any case in which an
Advance has been made hereunder against Pledged Mortgages, based on the
existence of a Purchase Commitment covering such Pledged Mortgages, the Company
agrees that such Pledged Mortgages will not be placed in any mortgage pool other
than an Eligible Mortgage Pool, unless such Pledged Mortgages have been redeemed
from pledge as permitted hereunder or other arrangements, satisfactory to the
Lender in its sole discretion, have been made for the redemption of such Pledged
Mortgages from pledge hereunder. The Lender may deliver any document relating to
the Collateral to the Company for correction or completion against a trust
receipt in the form of Exhibit "E" attached hereto executed by the Company.
-----------
The Company hereby represents and warrants to and agrees with the Lender that
any request by the Company for release of the Collateral consisting of or
relating to Mortgage Loans to the Company shall be solely for the purposes of
correcting clerical or non-substantial documentation problems in preparation for
returning such Collateral to the Lender for ultimate sale or exchange and the
aggregate Collateral Value of the Collateral released to the Company pursuant to
this Section 3.3 will not exceed [*]; the Company shall request such
release in compliance with all of the terms and conditions of such release set
forth herein; and the Company will return to the Lender such documentation
released to the Company pursuant to this Section 3.3 within ten (10) calendar
days after such delivery.
3.4 Delivery of Additional Collateral or Mandatory Prepayment. At any time
---------------------------------------------------------
that the aggregate Collateral value of the Collateral then pledged hereunder is
less than the aggregate amount of the Advances then outstanding hereunder, the
Lender may request, and the Company shall within two (2) Business Days after
Notice by the Lender (a) deliver to the Lender or its designee for pledge
hereunder additional Mortgage Loans and/or cash, in aggregate amounts sufficient
to cover the difference between the Collateral Value of the Collateral pledged
and the aggregate amount of Advances outstanding hereunder, or (b) repay the
Advances in an amount sufficient to reduce the aggregate balance thereof
outstanding to an amount equal to or below the Collateral Value of the
Collateral pledged hereunder. If at any time or from time to time any of the
limitations of Section 2.1 hereof are exceeded, the Company shall immediately
pay to the Lender the amount of such excess for application to the principal
balance of the Note.
[*] Confidential Treatment Requested
21
<PAGE>
3.5 Right of Redemption from Pledge. So long as no Event of Default has
-------------------------------
occurred, the Company may redeem a Mortgage Loan or Mortgage-backed Security, by
notifying the Lender of its intention to redeem such Mortgage Loan or Mortgage-
backed Security, from pledge and by paying, or causing an Investor to pay, to
the Lender, for application to prepayment of the principal balance of the Note,
an amount (the "Redemption Amount") equal to the Collateral Value of the
Mortgage Loan or Mortgage-backed Security, to be released as of the date of such
application, but, in no event less than the amount of the outstanding, unpaid
Advances made with respect to or relating to such Mortgage Loan or Mortgage-
backed Security.
3.6 Collection and Servicing Rights. So long as no Event of Default shall
-------------------------------
have occurred, the Company shall be entitled to service and receive and collect
directly all sums payable to the Company in respect of the Collateral other than
proceeds of any Purchase Commitment or proceeds of the sale of any Collateral.
Following the occurrence of any Event of Default, the Lender or its designee
shall thereafter be entitled to service and receive and collect all sums payable
to the Company in respect of the Collateral, and in such case (a) the Lender or
its designee in its discretion may, in its own name or in the name, of the
Company or otherwise, demand, sue for, collect or receive any money or property
at any time payable or receivable on account of or in exchange for any of the.
Collateral, but shall be under no obligation to do so, (b) the Company shall, if
the Lender so requests, forthwith pay to the Lender at its principal office all
amounts thereafter received by the Company upon or in respect of any of the
Collateral, advising the Lender as to the source of such funds, and (c) all
amounts so received and collected by the Lender shall be held by it as part of
the Collateral.
3.7 Return or Release of Collateral at End of Commitment. If (a) the
----------------------------------------------------
Commitment shall have expired or been terminated, and (b) no Advances, interest
or other Obligations evidenced by the Loan Documents or due under this Agreement
shall be outstanding and unpaid, the Lender shall deliver or release all
Collateral in its possession to the Company. The receipt of the Company for any
Collateral released or delivered to the Company pursuant to any provision of
this Agreement shall be a complete and full acquittance for the Collateral so
returned, and the Lender shall thereafter be discharged from any liability or
responsibility therefor.
3.8 Master Repurchase Agreement. If the Lender purchases any Pledged
---------------------------
Mortgages under the Master Repurchase Agreement the Purchase Price to be paid by
the Lender for such Pledged Mortgage under the Master Repurchase Agreement shall
be credited against the Note in an amount equal to the outstanding Advance made
against such Pledged Mortgage and the balance of the Purchase Price after such
application, if any, shall be paid to the Company. Any Pledged Mortgage shall be
eligible for purchase by Lender under the Master Repurchase Agreement
following, delivery of such Pledged Mortgage to the Investor.
4. CONDITIONS PRECEDENT.
4.1 Initial Advance. The obligation of the Lender to make the initial
---------------
Advance under this Agreement is subject to the satisfaction, in the sole
discretion of the Lender, on or before the date thereof, of the following
conditions precedent:
22
<PAGE>
(a) The Lender shall have received the following, all of which must
be satisfactory in form and content to the Lender, in its sole discretion:
(1) The Loan Documents dated as of the date hereof duly executed by
the Company;
(2) Certified copies of the Company's articles of incorporation and
bylaws and certificates of good standing dated no less recently than ninety
(90) days prior to the date of this Agreement and a certification from the
taxing authority of the state of incorporation stating that the Company is
in good standing with said taxing authority;
(3) An original resolution of the board of directors of the Company,
certified as of the date of this Agreement by its corporate secretary,
authorizing the execution, delivery and performance of this Agreement and
the other Loan Documents, and all other instruments or documents to be
delivered by the Company pursuant to this Agreement;
(4) A certificate (in the form of Exhibit "J") of the Company's
-----------
corporate secretary as to the resolution of the board of directors of the
Company authorizing the execution, delivery and performance of this
Agreement and the other Loan Documents and the incumbency and authenticity
of the signatures of the officers of the Company executing this Agreement
and the other Loan Documents and each Advance Request and all other
instruments or documents to be delivered pursuant hereto (the Lender being
entitled to rely thereon until a new such certificate has been furnished to
the Lender);
(5) Financial statements of the Company (and its Subsidiaries, on a
consolidated basis) containing a balance sheet as of December 31, 1998 (the
"Statement Date") and related statements of income, changes in
stockholders, equity and cash flows for the period ended on the Statement
Date and a balance sheet as of April 30, 1999 ("Interim Date") and related
statement of income for the period ended on the Interim Date, all prepared
in accordance with GAAP applied on a basis consistent with prior periods
and in the case of the statements as of the Statement Date, audited by
independent certified public accountants of recognized standing acceptable
to the Lender;
(6) A favorable written opinion of counsel to the Company, dated as
of the date of this Agreement, to be in substantially the form of
Exhibit "M" hereto, and addressed to the Lender;
-----------
(7) A tax, lien and judgment search of the appropriate public records
for the Company, including a search of Uniform Commercial Code financing
statements, which search shall not have disclosed the existence of any
prior Lien on the Collateral other than in favor of the Lender or as
permitted hereunder;
23
<PAGE>
(8) Copies of the certificates, documents or other written
instruments which evidence the Company's eligibility described in Section
5.11 hereof, all in form and substance satisfactory to the Lender;
(9) Copies of the Company's errors and omissions insurance policy or
mortgage impairment insurance policy and blanket bond coverage policy, all
in form and content satisfactory to the Lender, showing compliance by the
Company as of the date of this Agreement with the related provisions of
Section 6.8 hereof and showing Lender as an additional loss payee on such
policies;
(10) Executed financing statements in recordable form covering the
Collateral and ready for filing in all jurisdictions required by the
Lender;
(11) Evidence that the Funding Account has been established with the
Lender.
4.2 Each Advance. The obligation of the Lender to make the initial and
------------
each subsequent Advance under this Agreement is subject to the satisfaction, in
the sole discretion of the Lender, as of the date of each such Advance, of the
following additional conditions precedent:
(a) In connection with an Advance, the Company shall have delivered
to the Lender 'the Advance Request or the Electronic Request, Collateral
Documents, and documents required under and shall have satisfied the
procedures set forth in Section 2.2 and Exhibit "C". All items delivered
-----------
to the Lender or its designee shall be satisfactory to the Lender in form
and content, and the Lender may reject such of them as do not meet the
requirements of this Agreement or of the related Purchase Commitment.
(b) The Lender shall have received evidence satisfactory to it as to
the making mid/or continuation of any book entry or the due filing and
recording in all appropriate offices of all financing statements and other
instruments as may be necessary to perfect the security interest of the
Lender in the Collateral under the Uniform Commercial Code of Texas or
other applicable law.
(c) The representations and warranties of the Company contained in
Article 5 hereof shall be accurate and complete in all material respects as
if made on and as of the date of each Advance.
(d) The Company shall have performed all agreements to be performed
by it hereunder, including without limitation, the payment of all Non-Usage
Fees when due hereunder, and, as of the date of the Advance Request, and
after giving effect to the requested Advance, there shall exist no Default
or Event of Default hereunder.
(e) The Company shall not have incurred any material liabilities,
direct or contingent, except as approved by Lender pursuant to Section
7.17, since the dates of the Company's most recent financial statements
theretofore delivered to the Lender.
24
<PAGE>
(f) The Lender shall have received from counsel for the Company, if
requested by the Lender in its sole discretion, an updated opinion, in form
and substance satisfactory to the Lender, addressed to the Lender and dated
as of the date of such Advance, covering such of the matters as the Lender
may reasonably request.
(g) Such additional documents, instruments, and information as Lender
or its legal counsel may require, including, without limitation, all
documents, instruments and information required pursuant to Section 4.1 of
this Agreement.
Acceptance of the proceeds of the requested Advance by the Company shall be
deemed a representation by the Company that all conditions set forth in this
Article 4 shall have been satisfied as of the date of such Advance.
5. REPRESENTATIONS AND WARRANTIES.
The Company hereby represents and warrants to the Lender, as of the date of
this Agreement and (unless otherwise notified in writing by the Company and
Lender, in its sole discretion, approves in writing) as of the date of each
Advance Request and the making of each Advance, that:
5.1 Organization, Good Standing, Subsidiaries. The Company and each
-----------------------------------------
Subsidiary of the Company is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation, has
the full legal power and authority to own its property and to carry on its
business as currently conducted and is duly qualified as a foreign corporation
to do business and is in good standing in each jurisdiction in which the
transaction of its business makes such qualification necessary, except in
jurisdictions, if any, where a failure to be in good standing has no material
adverse effect on the business, operations, assets or financial condition of the
Company or any such Subsidiary. For the purposes hereof, good standing shall,
include qualification for any and all licenses and payment of any and all taxes
required in the jurisdiction of its incorporation and in each jurisdiction in
which the Company transacts business. The Company has no Subsidiaries except as
set forth on Exhibit "G" hereto. Exhibit "G" sets forth with respect to each
----------- -----------
such Subsidiary, its name, address, place of incorporation, each state in which
it is qualified as a foreign corporation, and the percentage ownership of the
Company in such Subsidiary.
5.2 Authorization and Enforceability. The Company has all requisite
--------------------------------
corporate power and authority to execute, deliver, create, issue, comply and
perform this Agreement, the Note and all other Loan Documents to which the
Company is party and to make the borrowings hereunder. The execution, delivery
and performance by the Company of this Agreement, the Note and all other Loan
Documents to which the Company is party and the making of the borrowings
hereunder and thereunder, have been duly and validly authorized by all necessary
corporate action on the part of the Company (none of which actions has been
modified or rescinded, and all of which actions are in full force and effect)
and do not and will not conflict with or violate any provision of law or of the
articles of incorporation or by-laws of the Company, conflict with or
25
<PAGE>
result in a breach of or constitute a default or require any consent under any
contracts to which Company is a party, or result in the creation of any Lien
upon any property or assets of the Company other than the Lien on the Collateral
granted hereunder, or result in or require the acceleration of ;any Indebtedness
of the Company pursuant to any agreement, instrument or indenture to which the
Company is a party or by which the Company or its property may be bound or
affected. This Agreement, the Note and all other Loan Documents contemplated
hereby or thereby constitute legal, valid, and binding obligations of the
Company, enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency or other such laws affecting the enforcement
of creditors' rights generally.
5.3 Financial Condition. The balance sheet of the Company provided to
-------------------
Lender pursuant to Section 4.1(a)(5) hereof (and if applicable, its
Subsidiaries, on a consolidating and consolidated basis) as at the Statement
Date, and the related statements of income, changes in stockholders' equity, and
cash flows for the fiscal year ended on the Statement Date, heretofore furnished
to the Lender, fairly present the financial condition of the Company and its
Subsidiaries as at the Statement Date and the Interim Date and the results of
its and their operations for the fiscal period ended on the Statement Date and
the Interim Date. The Company had, on the Statement Date and the Interim Date,
no known material liabilities, direct or indirect, fixed or contingent, matured
or unmatured, or liabilities for taxes, long-term leases or unusual forward or
long-term commitments not disclosed by, or reserved against in, said balance
sheet and related statements, and at the present time there are no material
unrealized or anticipated losses from any loans, advances or other commitments
of the Company except as heretofore disclosed to the Lender in writing. Said
financial statements were prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved. Since the Statement Date,
there has been no material adverse change in the business, operations, assets or
financial condition of the Company or its Subsidiaries, nor is the Company aware
of any state of facts particular to the Company which (with or without notice or
lapse of time or both) would or could result in any such material adverse
change.
5.4 Litigation. Except as disclosed on Exhibit "H", there are no actions,
---------- -----------
claims, suits or proceedings pending, or to the knowledge of the Company,
threatened or reasonably anticipated against or affecting the Company or any
Subsidiary of the Company in any court or before any arbitrator or before any
government commission, board, bureau or other administrative agency which, if
adversely determined, may reasonably be expected to result in any material and
adverse change in the business, operations, assets or financial condition of the
Company or any of Company's Subsidiaries, as a whole.
5.5 Compliance with Laws. To the knowledge of Company, neither the
--------------------
Company nor any Subsidiary of the Company is in violation of any provision of
any law, or of any judgment, award, rule, regulation, order, decree, writ or
injunction of any court or public regulatory body or authority which might have
a material adverse effect on the business, operations, assets or financial
condition of the Company or any of Company's Subsidiaries, as a whole.
5.6 Regulation U. The Company is not engaged principally, or as one of its
------------
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin
26
<PAGE>
Stock, and no part of the proceeds of any Advances made hereunder will 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.
5.7 Investment Company Act. Neither the Company nor any of its
----------------------
Subsidiaries is an "investment company" or controlled by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
5.8 Agreements. Neither the Company nor any Subsidiary of the Company is a
----------
party to any agreement, instrument or indenture, or subject to any restriction,
materially and adversely affecting its business, operations, assets or financial
condition, except as disclosed in the financial statements described in Section
5.3 hereof The Company and each Subsidiary of the Company are not in default in
the performance, observance or fulfillment of any of the obligations, covenants
or conditions, contained in any agreement, instrument, or indenture which
default could have a material adverse effect on the business, operations,
properties or financial condition of the Company as a whole. No holder of any
Indebtedness of the Company or of any of its Subsidiaries has given notice of
any alleged default thereunder or, if given, the same has been cured or will be
cured by Company within the cure period provided therein, and no liquidation or
dissolution of the Company or any of its Subsidiaries and no receivership,
insolvency, bankruptcy, reorganization or other similar proceedings relative to
the Company or any of its Subsidiaries or any of their respective properties is
pending, or to the knowledge of the Company, threatened.
5.9 Title to Properties. The Company and each Subsidiary of the Company
-------------------
has good, valid, insurable (in the case of real property) and marketable title
to all of its properties and assets (whether real or personal, tangible or
intangible) reflected on the financial statements described in Section 5.3
hereof, and all such properties and assets are free and clear of all Liens
except as disclosed in such financial statements and not prohibited under this
Agreement.
5.10 ERISA. All plans ("Plans") of a type described in Section 3(3) of
-----
ERISA in respect of which the Company or any Subsidiary of the Company is an
"Employer," as defined in Section 3(5) of ERISA, are in substantial compliance
with ERISA, and none of such Plans is insolvent or in reorganization, has an
accumulated or waived funding deficiency within the meaning of Section 412 of
the Internal Revenue Code, and neither the Company nor any Subsidiary of the
Company has incurred any material liability (including any material contingent
liability) to or on account of any such Plan pursuant to Sections 4062, 4063,
4064, 4201 or 4204 of ERISA, and no proceedings have been instituted to
terminate any such Plan, and no condition exists which presents a material risk
to the Company or a Subsidiary of the Company of incurring a liability to or on
account of any such Plan pursuant to any of the foregoing Sections of ERISA. No
Plan or trust forming a part thereof has been terminated since December 1, 1974.
5.11 Eligibility. The Company has all requisite corporate power and
-----------
authority and all necessary licenses, permits, franchises and other
authorizations to own and operate its property and to carry on its business as
now conducted. If approved now or hereafter as a lender or seller/servicer for
any one or more of the governmental agencies as set forth below, the Company
27
<PAGE>
will remain at all times approved and qualified and in good standing and meet
all requirements applicable to such status:
(a) FNMA approved seller/servicer of Mortgage Loans, eligible to
originate, purchase, hold, sell, and service Mortgage Loans to be sold to
FNMA.
(b) FHLMC approved seller/servicer of Mortgage Loans, eligible to
originate, purchase, hold, sell, and service Mortgage Loans to be sold to
FHLMC.
(c) GNMA approved seller/servicer of Mortgage Loans, eligible to
originate, purchase, hold, sell, and service Mortgage Loans to be sold to
GNMA.
(d) HUD approved lender, eligible to originate, purchase, hold, sell
and service FHA-insured Mortgage Loans.
(e) VA lender in good standing under the VA loan guarantee program
eligible to originate, purchase, hold, sell, and service VA-guaranteed
Mortgage Loans.
5.12 Special Representations Concerning Collateral. The Company hereby
---------------------------------------------
represents and warrants to the Lender, as of the date of this Agreement and as
of the date of each Advance, that:
(a) The Company is the legal and equitable owner and holder, free and
clear of all Liens (other than Liens granted hereunder), of the Pledged
Mortgages and the Pledged Securities. All Pledged Mortgages, Pledged Securities,
and Purchase Commitments have been duly authorized and validly granted or issued
to the Company, and all of the foregoing items of Collateral comply with all of
the requirements of this Agreement, and have been validly pledged or assigned to
the Lender, subject to no other Liens.
(b) The Company has, and will continue to have, the full right, power
and authority to pledge the Collateral pledged and to be pledged by it
hereunder.
(c) Any Mortgage Loan and related documents included in the Pledged
Mortgages (1) as of the date of the Advance Request for such Mortgage Loan, has
been duly executed and delivered by the parties thereto at a closing held not
more than twenty-five (25) days prior to such date; (2) has been made in
compliance with all requirements of the Real Estate Settlement Procedures Act,
Equal Credit Opportunity Act, the federal Truth-In-Lending Act and all other
applicable laws and regulations; (3) to the Company's knowledge, is valid and
enforceable in accordance with its terms, without defense or offset; (4) has not
been modified or amended except in writing, which writing is part of the
Collateral Documents, nor any requirements thereof waived; and (5) complies with
the terms of this Agreement and, if applicable, with the related Purchase
Commitment held by the Company. Each Mortgage Loan has been fully advanced in
the face amount thereof and each Mortgage creates a Lien on the premises
described therein.
28
<PAGE>
(d) No monetary default, nor, to the knowledge of the Company, any event
which, with notice or lapse of time or both, would become a default, has
occurred and is continuing under any Mortgage Loan included in the Pledged
Mortgages; provided, however, that, with respect to Pledged Mortgages which have
already been pledged as Collateral hereunder, if any such default or event has
occurred, the Company will promptly notify the Leader and the same shall not
have continued for more than sixty (60) days.
(e) The Company has complied with all laws, rules and regulations in
respect of the FHA insurance or VA guarantee of each Mortgage Loan included in
the Pledged Mortgages designated by the Company as an FHA insured or VA
guaranteed Mortgage Loans, and such insurance or guarantee is in full force and
effect. All such FHA insured and VA guaranteed Mortgage Loans comply in all
respects with all applicable requirements for purchase under the FNMA standard
form of selling contract for FHA insured and VA guaranteed loans and any
supplement thereto then in effect.
(f) All fire and casualty policies covering Mortgaged Property encumbered
by a Pledged Mortgage (1) name the Company and its successors and assigns as the
insured under a standard mortgagee clause, (2) are and will continue to be in
full force and effect, and (3) afford and will continue to afford insurance
against fire and such other risks as are usually insured against in the broad
form of extended coverage insurance from time to time available, as well as
insurance against flood hazards if the same is required by FHA or VA.
(g) Pledged Mortgages encumbering Mortgaged Property located in a special
flood hazard area designated as such by the Secretary of HUD are and shall
continue to be covered by special flood insurance under the National Flood
Insurance Program.
(h) Each FHA insured Mortgage Loan pledged hereunder meets all applicable
governmental requirements for such insurance. Each Mortgage Loan, against which
an Advance is made on the basis of a Purchase Commitment meets all requirements
of such Purchase Commitment. The Company shall assure that Mortgage Loans
pledged pursuant to this Agreement and intended to be used in the formation of
Mortgage-backed Securities shall comply, or prior to the formation of any such
Mortgage-backed Security, shall comply with the requirements of the governmental
instrumentality, department or agency guaranteeing such Mortgage-backed
Security.
(i) For Pledged Mortgages which will be used to secure GNMA Mortgage-
backed Securities, the Company has received from GNMA a Confirmation Notice or
Confirmation Notices for Request Additional Commitment Authority and for Request
Pool Numbers, and there remains available thereunder a commitment on the part of
GNMA sufficient to permit the issuance of GNMA Mortgage-backed Securities in an
amount at least equal to the amount of such Pledged Mortgages designated by the
Company as the Mortgage Loans to be used to secure such GNMA Mortgage-backed
Securities; each such Confirmation Notice is in full force and effect; each of
such Pledged Mortgages has been assigned by the Company to one of such Pool
Numbers and a portion of the available GNMA Commitment has been allocated
thereto by the Company, in an amount at least equal to the principal amount of
each Mortgage Note secured by
29
<PAGE>
such Pledged Mortgages; and each such assignment and allocation has been
reflected in the books and records of the Company.
(j) Each Pledged Mortgage in excess of $250,000.00 is supported by an
appraisal that meets the appraisal requirements of FNMA or FHLMC (in the case of
residential Mortgaged Property), or the Office of Thrift Supervision for the
type of Mortgaged Property securing that Pledged Mortgage; or, alternatively,
such Pledged Mortgage is eligible for purchase or is guaranteed or insured by a
U.S. Government agency or a U.S. Government sponsored enterprises.
5.13 RICO. The Company is not in violation of any laws, statutes or
----
regulations, including, without limitation, RICO, which contain provisions which
could potentially override Lender's security interest in the Collateral.
5.14 Proper Names. The Company does not operate in any jurisdiction under
------------
a trade name, division, division name or name other than those names set forth
on Exhibit "I" attached hereto and all such names included on Exhibit "I" are
----------- -----------
utilized by the Company only in the jurisdictions listed therein.
5.15 Direct Benefit From Loans. The Company has received, or, upon the
-------------------------
execution and funding thereof, will receive (a) direct benefit from the making
and execution of this Agreement and the other Loan Documents to which it is a
party, and (b) fair and independent consideration for the entry into, and
performance of, this Agreement and the other Loan Documents to which it is a
party. Contemporaneously with the disbursements of each Advance by the Lender to
the Company, all such proceeds will be used to finance the origination or
purchase of Eligible Mortgage Loans.
5.16 Loan Documents Do Not Violate Other Documents. Neither the
---------------------------------------------
execution and delivery by the Company of this Agreement or any other Loan
Document to which it is a party nor the consummation of the transactions herein
and therein contemplated, nor the performance of, or compliance with, the terms
and provisions hereof and thereof, does or will contravene, breach or conflict
with any provision of either of its articles of incorporation or by-laws, or any
applicable law, statute, rule or regulation or any judgment, decree, writ,
injunction, franchise, order or permit applicable to the Company or its assets
or properties, or does or will conflict or be inconsistent with, or does or will
result in any breach or default of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, or result in the creation or
imposition of any Lien upon any of the property or assets of the Company
pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement,
or other instrument to which the Company is a party or by which the Company or
any of its property may be bound, the contravention, conflict inconsistency,
breach or default of which will have a materially adverse effect on the
Company's condition, financial or otherwise, or affect its ability to perform,
promptly and fully, its obligations hereunder or under any of the other Loan
Documents.
5.17 Consents Not Required. Except for those consents that have already
---------------------
been obtained and delivered to Lender or required as a condition to any Advance
hereunder, no consent of any Person and no consent, license, permit, approval,
or authorization of, exemption
30
<PAGE>
by, or registration or declaration with, any Tribunal is required in connection
with the execution, delivery, performance, validity, or enforceability of this
Agreement or any of the Loan Documents by the Company.
5.18 Material Fact Representations. Neither the Loan Documents nor any
-----------------------------
other agreement, document certificate, or written statement furnished to the
Lender by or on behalf of the Company in connection with the transactions
contemplated in any of the Loan Documents contains any untrue statement of a
material adverse fact. There are no material adverse facts or conditions
relating to the making of the Commitment any of the Collateral, and/or the
financial condition and business of the Company known to the Company which have
not been fully disclosed, in writing, to the Lender, it being understood that
this representation is made as of, and shall be limited to the date of this
Agreement. All writings heretofore or hereafter exhibited or delivered to the
Lender by or on behalf of the Company are and will be genuine and what they
purport to be.
5.19 Place of Business. The principal place of business of the Company is
-----------------
118 King Street, Suite 226, San Francisco, California 94107, and the chief
executive office of the Company and the office where it keeps its financial
books and records relating to its property and all contracts relating thereto
and all accounts arising therefrom is located at the address set forth for the
Company in Section 9 hereof.
5.20 Use of Proceeds; Business Loans. The Company will use the proceeds of
-------------------------------
the Advances made pursuant to the Commitment solely as follows, and for no other
purpose: finance the origination and purchase of Eligible Mortgage Loans. All
loans evidenced by the Note are and shall be "business loans", as such term is
used in the Depository Institutions Deregulation and Monetary Control Act of
1980, as amended, and such loans are for business or commercial purposes and not
primarily for personal, family, household or agricultural use, as such terms are
used or defined in Texas Finance Code, Regulation Z promulgated by the Board of
Governors of the Federal Reserve System, and Titles I and V of the Consumer
Credit Protection Act. The provisions of the Texas Finance Code which regulate
revolving loans and revolving triparty accounts shall not apply to this
Agreement.
5.21 No Undisclosed Liabilities. Other than as permitted in Section 7.17
--------------------------
hereof, the Company does not have any liabilities or Indebtedness, direct or
contingent, except for liabilities or Indebtedness which, in the aggregate, do
not exceed [*].
5.22 Tax Returns and Payments. All federal, state and local income,
------------------------
excise, property and other tax returns required to be filed with respect to
Company's operations and those of its Subsidiaries in any jurisdiction have been
filed on or before the due date thereof (plus any applicable extensions); all
such returns are true and correct; all taxes, assessments, fees and other
governmental charges upon the Company, and Company's Subsidiaries and upon its
property, income or franchises, which are due and payable have been paid,
including, without limitation, all FICA payments and withholding taxes, if
appropriate, other than those which are being contested in good faith by
appropriate proceedings, diligently pursued and as to which the
[*] Confidential Treatment Requested
31
<PAGE>
Company has established adequate reserves determined in accordance with GAAP,
consistently applied. The amounts reserved, as a liability for income and other
taxes payable, in the financial statements described in Section 5.3 hereof are
sufficient for payment of all unpaid federal, state and local income, excise,
property and other taxes, whether or not disputed, of the Company and its
Subsidiaries, accrued for or applicable to the period and on the dates of such
financial statements and all years and periods prior thereto and for which the
Company, and Company's Subsidiaries may be liable in their own right or as
transferee of the assets of, or as successor to, any other Persons
5.23 Subsidiaries. Except as shown on Exhibit "G", the Company has not
------------ -----------
issued, and does not have outstanding, any warrants, options, rights or other
obligations to issue or purchase any shares of its capital stock or other
securities. The outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable. All of
Company's Subsidiaries are listed on Exhibit "G" attached hereto.
-----------
5.24 Holding Company. The Company is not a "holding company" or a
---------------
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
5.25 Year 2000 Issue. The Company and its Subsidiaries have reviewed the
---------------
effect of the year 2000 Issue on the computer software, hardware, and firmware
systems and equipment containing embedded microchips owned or operated by or for
the Company and its Subsidiaries or used or relied upon in the conduct of their
business (including systems and equipment supplied by others or with which such
computer systems of the Company and its Subsidiaries interface). The Company and
its Subsidiaries have reviewed and determined that the costs to the Company and
its Subsidiaries of any reprogramming required as a result of the Year 2000
Issue to permit the proper functioning of such systems and equipment and the
proper processing of data, and the testing of such reprogramming, and of the
reasonably foreseeable consequences of the year 2000 Issue to the Company or any
of its Subsidiaries (including reprogramming errors and the failure of systems
or equipment supplied by others), are not reasonably expected to result in a
Default or Event of Default or to have a material adverse effect on the
business, assets, operations, prospects, or condition (financial or otherwise)
of the Company or its Subsidiaries.
6. AFFIRMATIVE COVENANTS.
The Company hereby covenants and agrees that, so long as the Commitment is
outstanding or there remain any Obligations of the Company to be paid or
performed under this Agreement or' under any other Loan Document, the Company
shall:
6.1 Payment of Note. Punctually pay or cause to be paid the principal of,
---------------
interest on and all other amounts payable hereunder and under the Note in
accordance with the terms thereof
6.2 Financial Statements and Other Reports. Deliver or cause to be
--------------------------------------
delivered to the Lender:
32
<PAGE>
(a) As soon as available and in any event within thirty (30) days
after the end of each calendar month, statements of income and changes in
stockholders' equity and cash flow of the Company and, if applicable,
Company's Subsidiaries, on a consolidated and consolidating basis for the
immediately preceding month, and related balance sheet as at the end of the
immediately preceding month, all in reasonable detail, prepared in
accordance with GAAP applied on a consistent basis, and certified as to the
fairness of presentation by the president and chief financial officer of
the Company, subject, however, to year-end audit adjustments.
(b) As soon as available and in any event within ninety (90) days
after the close of each fiscal year: statements of income, changes in
stockholders' equity and cash flows of the Company, and, if applicable,
Company's Subsidiaries, on a consolidated and consolidating basis for such
year, the related balance sheet as at the end of such year (setting forth
in comparative form the corresponding figures for the preceding fiscal
year), all in reasonable detail, prepared in accordance with GAAP applied
on a consistent basis throughout the periods involved, and accompanied by
an opinion in form and substance satisfactory to the Lender and prepared by
an accounting firm reasonably satisfactory to the Lender, or other
independent certified public accountants of recognized standing selected by
the Company and acceptable to the Lender, as to said financial statements
and a certificate signed by the president and chief financial officer of
the Company stating that said financial statements fairly present the
financial condition and results of operations of the Company and, if
applicable, Company's Subsidiaries as at the end of, and for, such year.
(c) Together with each delivery of financial statements required in
this Section 6.2, an Officer's Certificate in substantially the form of
Exhibit "F" hereto.
-----------
(d) With respect to Aged Mortgage Loans, copies of the complete
credit and collateral file relating each Aged Mortgage Loan, an updated
title opinion covering the Mortgaged Property securing each Aged Mortgage
Loan issued inform and substance acceptable to Lender and issued by a title
company acceptable to Lender, a current appraisal or brokers price opinion
certifying the current market value of the Mortgaged Property securing each
Aged Mortgage Loan in form and substance acceptable to Lender and such
other information or documentation relating to the borrowers or Mortgaged
Property of each Aged Mortgage Loan, all of the foregoing to be provided as
the Lender in its discretion may request at any time or from time to time
and at the sole cost and expense of the Company.
(e) Reports in respect of the Pledged Mortgages and Pledged
Securities, in such detail and at such times as the Lender in its
discretion may request at any time or from time to time, including, without
limitation, a monthly pipeline report in form satisfactory to Lender, to be
delivered with the monthly financial statements required in Section 6.2(a).
33
<PAGE>
(f) Copies of all regular or periodic financial and other reports, if
any, which the Company shall file with the Securities and Exchange
Commission or any governmental agency successor thereto and copies of any
audits completed by GNMA, FHLMC, or FNMA. Copies of the Mortgage Bankers'
Financial Reporting Forms (FNMA Form 1002) which the Company shall have
filed with FNMA.
(g) From time to time, with reasonable promptness, such further
information regarding the business, operations, properties or financial
condition of the Company as the Lender may reasonably request.
6.3 Maintenance of Existence, Conduct of Business. Preserve and maintain
---------------------------------------------
its corporate existence in good standing and all of its rights, privileges,
licenses and franchises necessary in the normal conduct of its business,
including, without limitation, its eligibility as lender, seller/servicer and
issuer described under Section 5.11 hereof, conduct its business in an orderly
and efficient manner, maintain a net worth of acceptable assets as required by
HUD at any and all times for maintaining the Company's status as a FHA approved
mortgagee; and make no material change in the nature or character of its
business or engage in any business in which it was not engaged on the date of
this Agreement.
6.4 Compliance with Applicable Laws. Comply with the requirements of all
-------------------------------
applicable laws, rules, regulations and orders of any governmental authority, a
breach of which could materially adversely affect its business, operations,
assets, or financial condition, except where contested in good faith and by
appropriate proceedings, and with sufficient reserves established therefor.
6.5 Inspection of Properties and Books. Permit authorized representatives
----------------------------------
of the Lender to (a) discuss the business, operations, assets and financial
condition of the Company and Company's Subsidiaries with their officers and
employees and to examine their books of account, records, reports and other
papers and make copies or extracts thereof, and (b) inspect all of the Company's
property and all related information and reports at Lender's expense, all at
such reasonable times as the Lender may request. The Company will provide its
accountants with a copy of this Agreement promptly after the execution hereof
and will instruct its accountants to answer candidly any and all questions that
the officers of the Lender or any authorized representatives of the Lender may
address to them in reference to the financial condition or affairs of the
Company and Company's Subsidiaries. The Company may have its representatives in
attendance at any meetings between the officers or other representatives of the
Lender and the Company accountants held in accordance with this authorization.
6.6 Notice. Give prompt written notice to the Lender of (a) any action,
------
suit or proceeding instituted by or against the Company or any of its
Subsidiaries in any federal or state court or before any commission or other
regulatory body (federal, state or local, domestic or foreign) which action,
suit or proceeding has at issue in excess of Twenty-Five Thousand Dollars
($25,000.00) (except for normal collection and foreclosure proceedings initiated
by the Company, in connection with a Mortgage Loan or any other mortgage loan),
or any such proceedings threatened against the Company, or any of Company's
Subsidiaries in writing
34
<PAGE>
containing the details thereof, (b) the filing, recording or assessment of any
federal, state or local tax Lien against it, or any of its assets or any of its
Subsidiaries, (c) the occurrence of any Event of Default hereunder or the
occurrence of any Default and continuation thereof for five (5) days, (d) the
suspension, revocation or termination of the Company's eligibility, in any
respect, as approved lender, seller/servicer or issuer as described under
Section 5.11 hereof, (e) the transfer, loss or termination of any Servicing
Contract to which the Company is a party, or which is held for the benefit of
the Company, and the reason for such transfer, loss or termination, if known to
the Company, and (0 any other action, event or condition of any nature which may
lead to or result in a material adverse effect upon the business, operations,
assets, or financial condition of the Company or Company's Subsidiaries or
which, with or without notice or lapse of time or both, would constitute a
default under any other agreement instrument or indenture to which the Company
is a party or to which the Company its properties or assets may be subject.
6.7 Payment of Debt, Taxes, etc. Pay and perform all obligations and
----------------------------
Indebtedness of the Company, and cause to be paid and performed all obligations
and Indebtedness of its' Subsidiaries in accordance with the terms thereof and
pay and discharge or cause to be paid and discharged all taxes, assessments and
governmental charges or levies imposed upon the Company or its Subsidiaries, or
upon their respective income, receipts or properties before the same shall
become past due, as well as all lawful claims for labor, materials and supplies
or otherwise which, if unpaid, might become a Lien or charge upon such
properties or any part thereof, provided, however, that the Company and its
-------- -------
Subsidiaries shall not be required to pay obligation, Indebtedness, taxes,
assessments or governmental charges or levies or claims for labor, materials or
supplies for which the Company or its Subsidiaries shall have obtained an
adequate bond or adequate insurance or which are being contested in good faith
and by proper proceedings which are being reasonably and diligently pursued if
such proceedings do not involve any likelihood of the sale, forfeiture or loss
of any such property or any interest therein while such proceedings are pending,
and provided further that book reserves adequate under generally accepted
accounting principles shall have been established with respect thereto and
provided further that the owing Person's title to, and its right to use, its
property is not materially adversely affected thereby.
6.8 Insurance. Maintain (a) errors and omissions insurance or mortgage,
---------
impairment insurance and blanket bond coverage, with such companies and in such
amounts as satisfy prevailing FNMA and FHLMC requirements applicable to a
qualified mortgage originating institution, and (b) liability insurance and fire
and other hazard insurance on its properties, with responsible insurance
companies approved by the Lender, in such amounts and against such risks as is
customarily carried by similar businesses operating in the same vicinity; and
(c) within thirty (30) days after notice from the Lender, obtain such additional
insurance as the Lender shall reasonably require, all at the sole expense of the
Company. Copies of such policies shall be furnished to the Lender without charge
upon obtaining such coverage or any renewal of or modification to such coverage.
6.9 Closing Instructions. The Company agrees to indemnify and hold the
--------------------
Lender harmless from and against any loss, including reasonable attorneys' fees
and costs, attributable to the failure of a title insurance company, agent or
attorney to comply with the disbursement or
35
<PAGE>
instruction letter or letters of the Company or of the Lender relating to any
Mortgage Loan. The Lender shall have the right to pre-approve the closing
instructions of the Company to the title insurance company, agent or attorney in
any case where the Mortgage Loan to be created at settlement is intended to be
warehoused by the Company pursuant hereto.
6.10 Other Loan Obligations. Perform all obligations under the terms of
----- ----------------
each loan agreement, note, mortgage, security agreement or debt instrument by
which the Company is bound or to which any of its property is subject, and
promptly notify the Lender in writing of a declared default under or the
termination, cancellation, reduction or non-renewal of any of its other lines of
credit or financing agreements with any other lender. Exhibit "B" hereto is a
-----------
true and complete list of all such lines of credit or financing agreements as of
the date hereof.
6.11 Use of Proceeds of Advances. Use the proceeds of each Advance solely
--------------------
for the purpose of financing or purchasing Eligible Mortgage Loans.
6.12 Special Affirmative Covenants Concerning Collateral.
---------------------------------------------------
(a) Warrant and defend the right, title and interest of the Lender in
and to the Collateral against the claims and demands of all Persons
whomsoever.
(b) Service or cause to be serviced all Pledged Mortgages in
accordance with the standard requirements of the issuers of Purchase
Commitments covering the same and all applicable FHA and VA requirements,
including without limitation taking all actions necessary to enforce the
obligations of the obligors under such Mortgage Loans. The Company shall
service or cause to be serviced all Mortgage Loans backing Pledged
Securities in accordance with applicable governmental requirements and
issuers of Purchase Commitments covering the same. The Company shall hold
all escrow funds collected in respect of Pledged Mortgages and Mortgage
Loans backing Pledged Securities in trust, without commingling the same
with non-custodial funds, and apply the same for the purposes for which
such funds were collected.
(c) Execute and deliver to the Lender such Uniform Commercial Code
financing statements with respect to the Collateral as the Lender may
request. The Company shall also execute and deliver to the Lender such
further instruments of sale, pledge or assignment or transfer, and such
powers of attorney, as required by the Lender to secure the Collateral, and
shall do and perform all matters and things necessary or desirable to be
done or observed, for the purpose of effectively creating, maintaining and
preserving the security and benefits intended to be afforded the Lender
under this Agreement. The Lender shall have all the rights and remedies of
a secured party under the Uniform Commercial Code of Texas, or any other
applicable law, in addition to all rights provided for herein.
(d) Notify the Lender within two (2) Business Days after receipt of
notice from an Investor of any default under, or of the termination of, any
Purchase
36
<PAGE>
Commitment relating to any Pledged Mortgage, Eligible Mortgage Pool or
Pledged Security.
(e) Promptly comply in all respects with the terms and conditions of
all Purchase Commitments, and all extensions, renewals and modifications or
substitutions thereof or thereto. The Company will cause to be delivered
to the Investor the Pledged Mortgages and Pledged Securities to be sold
under each Purchase Commitment not later than the expiration thereof.
(f) Maintain, at its principal office or in a regional office
approved by the Lender, or in the office of a computer service bureau
engaged by the Company and approved by the Lender, and, upon request shall
make available to the Lender the originals, or copies in any case where the
originals have been delivered to the Lender or to an Investor, of its
Mortgage Notes and Mortgages included in Pledged Mortgages, Mortgage-backed
Securities delivered to the Lender as Pledged Securities, Purchase
Commitments, and all related Mortgage Loan documents and instruments, and
all files, surveys, certificates, correspondence, appraisals, computer
programs, tapes, discs, cards, accounting records and other information and
data relating to the Collateral.
6.13 Cure of Defects in Loan Documents. Promptly cure and cause to be
---------------------------------
promptly cured any defects in the creation, issuance, execution and delivery of
this Agreement and the other Loan Documents; and upon request of the Lender and
at the Company's expense, the Company will promptly execute and deliver, and
cause to be executed and delivered, to the Lender or its designee, all such
additional documents, agreements and/or instruments in compliance with or in
accomplishment of the covenants and agreements of this Agreement and the other
Loan Documents, and/or to create, perfect; preserve, extend and/or maintain any
and all Liens created pursuant hereto or pursuant to any other Loan Document as
valid and perfected Liens (of a priority as set forth in this Agreement) in
favor of the Lender to secure the Obligations, all as reasonably requested from
time to time by the Lender.
6.14 Year 2000 Compliant. Take all necessary action to complete in all
-------------------
material respects by December 31, 1999, the reprogramming of computer software,
hardware, and firmware systems used or relied upon in the conduct of the
Company's business (including systems and equipment supplied by others or with
which such systems of Company interface) required as a result of the Year 2000
Issue to permit the proper functioning of such computer systems and other
equipment and testing of such systems and equipment as so reprogrammed. At the
request of the Leader, Company shall provide to the Lender reasonable assurance
of its compliance with the preceding sentence.
7. NEGATIVE COVENANTS.
The Company hereby covenants and agrees that, so long as the Commitment is
outstanding or there remain any Obligations of the Company to be paid or
performed under this Agreement or any other Loan Document, the Company shall
not, either directly or indirectly, without the prior written consent of the
Lender:
37
<PAGE>
7.1 Contingent Liabilities. Assume, incur, create, guarantee, endorse, or
----------------------
otherwise become or be liable for the obligation of any Person other than the
Company except by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business and excluding the sale of Mortgage
Loans with recourse in the ordinary course of the company's business.
7.2 Pledge of Mortgage Loans. Except for Mortgage Loans pledged to the
------------------------
lenders described in Exhibit "B", pledge or grant a security interest in any
-----------
existing or future Mortgage Loans acquired by the Company other than to the
Lender except as otherwise expressly permitted in this Agreement; provided,
however, that if no Default or Event of Default has occurred and is continuing,
servicing on individual Mortgage Loans may be sold concurrently with and
incidental to the sale of such Mortgage Loans (with servicing released) in the
ordinary course of the Company's business.
7.3 Merger; Acquisitions. Wind up, liquidate or dissolve its affairs or
--------------------
enter into any transaction of merger or consolidation (except mergers or
consolidations of a Subsidiary into the Company, with the Company as the
surviving corporation), or convey, sell, lease or otherwise dispose of (or agree
to do any of the foregoing at any future time) all or any part of its property
or assets which are material (including, but not limited to, any rights to
service Mortgage Loans), individually or in the aggregate, other than obsolete
or worn out property, whether now owned or hereafter acquired, other than in the
ordinary course of business as presently conducted and at fair market value,
without the prior approval of the Lender (which approval shall not be reasonably
withheld), except that the Company and its Subsidiaries may, in the ordinary
course of business, acquire Mortgage Loans for resale and sell Mortgage Loans
and Mortgage-backed Securities.
7.4 Loss of Eligibility. Take any action that would cause the Company to
-------------------
lose all or any part of its status as an eligible lender, seller/servicer and
issuer as described under Section 5.11 hereof.
7.5 Debt to Adjusted Tangible Worth Ratio. Permit the ratio of Debt to
-------------------------------------
Adjusted Tangible Worth of tile Company (and its Subsidiaries, on a consolidated
basis) to exceed [*] computed as of the end of each calendar month.
7.6 Minimum Adjusted Tangible Net Worth. Permit Adjusted Tangible Net
-----------------------------------
Worth of the Company (and its Subsidiaries, on a consolidated basis) to be less
than [*] computed as of the end of each calendar month; provided, however, that
-------- -------
if the interest rate on the Note is reduced in accordance with Section 2.4(a)(3)
hereof, the minimum Adjusted Tangible Net Worth requirement pursuant to this
Section 7.6 from that date and thereafter shall increase from [*].
7.7 Transactions with Affiliates. Directly or indirectly (a) make any
----------------------------
loan, advance, extension of credit or capital contribution to any of its
Affiliates, (b) transfer, sell, pledge, assign or otherwise dispose of any of
its assets to or on behalf of such Affiliates, (c) merge or
[*] Confidential Treatment Requested
38
<PAGE>
consolidate with or purchase or acquire, assets from such Affiliates, or (d)
transfer, pledge, or assign or otherwise pay management fees in excess of [*]
per annum to or on behalf of such Affiliates, except for transactions described
in clauses (a) through (c) of this Section 7.7 involving not more than [*] each.
7.8 Limits on Corporate Distributions. Pay, make or declare or incur any
---------------------------------
liability to pay, make or declare any dividend (excluding stock dividends) or
other distribution, direct or indirect, on or on account of any shares of its
stock or any redemption or other acquisition, direct or indirect, of any shares
of its stock or of any warrants, rights or other options to purchase any shares
of its stock nor purchase, acquire, redeem or retire any stock or ownership
interest in itself whether now or hereafter outstanding except that so long as
no Default, Event of Default or violation of Sections 7.5, and 7.6 hereof exists
at such time, or would exist immediately thereafter, the Company may declare and
pay cash dividends to its shareholders; provided, however, that (a) such cash
-------- --------
dividends must be declared and paid within 20 days after delivery to Lender of
the financial statements described in Section 6.2(a) hereof, and (b) provided,
--------
further that such dividends shall not exceed, in the aggregate during any fiscal
- -------
year, fifty percent (50%) of the Company's net income for such fiscal year.
7.9 RICO. Violate any laws, statutes or regulations, whether federal or
----
state, for which forfeiture of its properties is a potential penalty, including,
without limitations, RICO.
7.10 No Loans or Investments Except Approved Investments. Without the
---------------------------------------------------
prior written consent of Lender, make or permit to remain outstanding any loans
or advances to, or investments in, any Person, except that the foregoing
restriction shall not apply to:
(a) investments in marketable obligations maturing no later than 180 days
from the date of acquisition thereof by the Company and issued and full,
guaranteed, directly, by the full faith and credit of the Government of the
United States of America or any agency thereof; and
(b) investments, in certificates of deposit maturing no later than 180
days from the date of issuance thereof and issued by commercial banks in the
United States and such banks rated by Moody's Investor Service, Inc. and
receiving a rating of [*] or higher on Moody's short term debt rating or
rated by Standard & Poor's Corporation and receiving a rating of [*] or
higher on S&P's short term debt rating, or issued by Lender, it being
acknowledged and agreed that the foregoing requirements shall pertain to
certificates of deposit issued and/or received on a date on or after the date of
this Agreement); and
(c) investments not to exceed [*] in the aggregate.
7.11 Charter Documents and Business Termination.
------------------------------------------
(a) Except as permitted in Section 7.3 and 7.11 (d) hereof, issue,
sell or commit to issue or sell any shares of its capital stock of any
class, or other equity or investment security,
[*] Confidential Treatment Requested
39
<PAGE>
(b) Amend or otherwise modify its corporate charter or otherwise
change its corporate structure in any manner which will have a materially
adverse effect on the Company's condition, financial or otherwise, or which
will have a material adverse effect upon the Company's ability to perform,
promptly and fully, its obligations hereunder or under any of the other
Loan Documents, or
(c) Take any action with a view toward its dissolution,* liquidation
or termination; or, in fact, dissolve, liquidate or terminate its
existence; or
(d) Prior written consents of the Lender is not required if the
Company issues (a) shares or capital stock in a public offering greater
than [*] (b) issues shares or capital stock in secondary offering greater
than [*] (c) sells shares or capital stock to existing investors, or (d)
sells shares or capital stock to a new investor in which the new investor's
ownership is less than [*] of the entity.
7.12 Changes in Accounting Methods. Make any change in its accounting
-----------------------------
method as in effect on the date of this Agreement or change its fiscal year
ending date from December 31, unless such changes (a) are required for
conformity with generally accepted accounting principles and, in such event, the
Company will give prior written notice of each such change to the Lender or (b)
or if not so required, are in conformity with generally accepted accounting
principles and have the prior written approval of the Lender which approval
shall not be unreasonably withheld.
7.13 No Sales, Leases or Dispositions of Property. Except in the ordinary
--------------------------------------------
course of its business, sell, lease, transfer or otherwise dispose of all or any
material portion or portions or integral part of its properties or assets,
whether now owned or hereafter acquired (whether in a single transaction or in a
series of transactions), or enter into any arrangement, directly or indirectly,
with any person, whereby it shall sell or transfer any of its properties or
assets, whether now owned or hereafter acquired, and thereafter rent or lease as
lessee such property or any part thereof which it intends to use for
substantially the same purpose or purposes as the property sold or transferred.
7.14 Changes in Business or Assets. Except as permitted by Section 7.3
-----------------------------
hereof, make any substantial change (a) in the nature of its business as now
conducted, or (b) in the use of its property as now used and proposed to be
used.
7.15 Changes in Office or Inventory Location. Change the address and/or
---------------------------------------
location of its chief executive office or principal place of business or the
place where it keeps its books and records or its inventory to a location
outside the State of California unless, prior to any such change, the Company
shall execute and cause to be executed such additional agreements and/or lien
instruments as the Lender may reasonably request to conform with the provisions
hereof and the transactions and perfected Liens in the Collateral contemplated
under Us Agreement and the other Loan Documents.
[*] Confidential Treatment Requested
40
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7.16 Special Negative Covenants Concerning Collateral.
------------------------------------------------
(a) Amend or modify, or waive any of the terms and conditions of, or
settle or compromise any claim in respect of, any Pledged Mortgages or
Pledged Securities.
(b) Sell, assign, transfer or otherwise dispose of, or grant any
option with respect to, or pledge or otherwise encumber (except pursuant to
this Agreement or as permitted herein) any of the Collateral or any
interest therein.
(c) Make any compromise, adjustment or settlement in respect of any
of the Collateral or accept other than cash in payment or liquidation of
the Collateral.
7.17 No Indebtedness. Except for the Indebtedness described in Exhibit
--------------- -------
"B" hereto, without the prior written consent of Lender, incur, create, assume
- ---
or guarantee or in any manner become or be liable or permit to be outstanding
any Indebtedness (including obligations for the payment of rentals other than
provided for herein) nor guarantee any contract or other obligation, and will
not in any way become or be responsible for obligations of any Person, whether
by agreement to purchase the Indebtedness of any other Person or agreement for
the furnishing of funds to any other Person through the purchase of goods,
supplies or services (or by way of stock purchase, capital contribution, advance
or loan) for the purpose of paying or discharging the Indebtedness of any other
Person or otherwise, except that the foregoing restrictions shall not apply to:
(a) the Obligations.
(b) liabilities for taxes, assessments, governmental charges or
levies which are not yet due and payable or which are being contested in
good faith by appropriate proceedings diligently conducted if reserves
adequate under generally accepted accounting principles have been
established therefor.
(c) endorsements of negotiable instruments for collection in the
ordinary course of business.
(d) Indebtedness incurred in the ordinary course of business in,
connection with normal trade or business obligations which are payable
within 90 days of the occurrence thereof, provided, however, that no
-------- -------
Indebtedness shall be incurred by the Company to any Affiliate other than
in the ordinary course of business and upon substantially the same or
better terms as it could obtain in an arm's length transaction with a
Person who is not an Affiliate.
(e) Indebtedness of less than [*] in the aggregate, incurred in the
ordinary course of business.
[*] Confidential Treatment Requested
41
<PAGE>
(f) Indebtedness incurred in the ordinary course of business for the
purpose of leasing office space or equipment to be used in the conduct of
the business of the Company.
8. DEFAULTS; REMEDIES.
8.1 Events of Default. The occurrence of any of the following conditions
-----------------
or events shall be an event of default ("Event of Default"):
(a) Failure to pay the principal of any Advance when, due, whether at
stated maturity, by acceleration, or otherwise; or failure to pay any
installment of interest on any Advance or any other amount due under this
Agreement within ten (10) days after the due date; or failure to pay,
beyond any applicable grace period, the principal or interest on any other
indebtedness due the Lender; or
(b) Failure of the Company to pay any sums due and payable under the
Master Repurchase Agreement or Company's breach or default of any term,
condition, covenant, or agreement of the Master Repurchase Agreement; or
(c) Failure of the Company or any of its Subsidiaries to pay, or any
default in the payment of any principal or interest on, any other
Indebtedness or in the payment of any contingent obligation beyond any
period of grace provided; or breach or default with respect to any other
material term of any other Indebtedness of any loan agreement, mortgage,
indenture or other agreement relating thereto, if the effect of such
failure, default or breach is to cause, or to permit the holder or holders
thereof (or a trustee on behalf of such holder or holders) to cause,
Indebtedness of the Company or its Subsidiaries in the aggregate amount of
[*] or more to become or be declared due prior to its stated maturity (upon
the giving or receiving of notice, lapse of time, both, or otherwise) or
failure of the Company to comply with Section 6.11 hereof; or
(d) Any of the Company's representations or warranties made or deemed
made herein or in any other Loan Document, or in any statement or
certificate at any time given by the Company in writing pursuant hereto or
thereto shall be inaccurate or incomplete in any materially adverse respect
on the date as of which made or deemed made; or
(e) The Company shall default in the performance of or compliance
with any term or covenant contained in this Agreement and such default
shall not have been remedied or waived within thirty (30) days after
receipt of notice from the Lender of such default other than those referred
to above in Subsections 8.1 (a), 8.1 (b), 8.1 (c), or 8.1 (d); or
(f) (1) A court having jurisdiction shall enter a decree or order
for relief in respect of the Company or any of Company's Subsidiaries in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect in
[*] Confidential Treatment Requested
42
<PAGE>
respect of the Company or any of Company's Subsidiaries, which decree or
order is not stayed; or a filing of an involuntary case under any
applicable bankruptcy, insolvency or other similar law in respect of the
Company or any of Company's Subsidiaries has occurred; or (2) any other
similar relief shall be granted under any applicable federal or state law;
or a decree or order of a court having jurisdiction for the appointment of
a receiver, liquidator, sequestrator, trustee, custodian or other officer
having similar powers over the Company or any of Company's Subsidiaries, or
over all or a substantial part of their respective property, shall have
been entered; or the involuntary appointment of an interim receiver,
trustee or other custodian of the Company or any of Company's Subsidiaries,
for all or a substantial part of their respective property; or the issuance
of a warrant of attachment, execution or similar process against any
substantial part of the property of the Company or any of Company's
Subsidiaries, and the continuance of any such events in Subsections (1) and
(2) above for sixty (60) days unless dismissed or discharged; or
(g) The Company or any of Company's Subsidiaries shall have an order
for relief entered with respect to it or commence a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or shall consent to the entry of an order for relief in an
involuntary case, or to the conversion to an involuntary case, under any
such law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; the making by the Company or any of Company's Subsidiaries of any
assignment for the benefit of creditors; or the failure of the Company or
any of Company's Subsidiaries, or the admission by any of them of its
inability, to pay its debts as such debts become due; on
(h) Any money judgment, writ or warrant of attachment, or similar
process involving in any case an amount in excess of [*] shall be entered
or filed against the Company or any of its Subsidiaries or any of their
respective assets and shall remain undischarged, unvacated, unbonded or
unstayed for a period of thirty (30) days or in any event no later than
five (5) days prior to the date of any Proposed sale thereunder; or
(i) Any order, judgment or decree shall be entered against the Company
decreeing the dissolution or split up of the Company and such order shall
remain undischarged or unstayed for a period in excess of twenty (20) days;
or
(j) Any Plan maintained by the Company or any of Company's
Subsidiaries shall be terminated within the meaning of Title IV of ERISA or
a trustee shall be appointed by an appropriate United States district court
to administer any Plan, or the Pension Benefit Guaranty Corporation (or any
successor thereto) shall institute proceedings to terminate any Plan or to
appoint a trustee to administer any Plan if as of the date thereof the
Company's or any Subsidiary's liability (after giving effect to the tax
consequences thereof) to the Pension Benefit Guaranty Corporation (or any
successor thereto) for unfunded guaranteed vested benefits under the Plan
exceeds the then current
[*] Confidential Treatment Requested
43
<PAGE>
value of assets accumulated in such Plan by more than [*] (or in the case
of a termination involving the Company or any of Company's Subsidiaries as
a "substantial employer" (as defined in Section 4001(a)(2) of ERISA) the
withdrawing employer's proportionate share of such excess shall exceed such
amount); or
(k) The Company or any of Company's Subsidiaries as employer under a
Multiemployer Plan shall have made a complete or partial withdrawal from
such Multiemployer Plan and the plan sponsor of such Multiemployer Plan
shall have notified such withdrawing employer that such employer has
incurred a withdrawal liability in an annual amount exceeding [*]; or
(l) The Company shall purport to disavow its obligations hereunder or
shall contest the validity or enforceability hereof, or the Lender's
security interest on any portion of the Collateral shall become
unenforceable or otherwise impaired; provided that, subject to the Lender's
approval, no Event of Default shall occur as a result of such impairment if
all Advances made against any such Collateral shall be paid in full within
ten (10) days of the date of such impairment; or
(m) The Company dissolves or terminates its existence, or
discontinues its usual business; or
(n) Any court shall find or rule, or the Company shall assert or
claim, (i) that the Lender does not have a valid, perfected, enforceable
Lien and security interest in the Collateral of the priority as represented
in this Agreement or in any other Loan Document, or (ii) that this
Agreement or any of the Loan Documents does not or will not constitute the
legal, valid, binding and enforceable obligations of the party or parties
(as applicable) thereto, or (iii) that any Person has a conflicting or
adverse Lien, claim or right in, or with respect to, the Collateral and the
Company is unable within 10 days; to have such finding or ruling reversed
or to have such adverse Lien, claim or right removed; or
(o) The Company shall have concealed, removed, or permitted to be
concealed or removed, any part of its property, with intent to hinder,
delay or defraud its creditors or any of them, or made or suffered a
transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or shall have made any
transfer of its property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid; or shall have
suffered or permitted, while insolvent, any creditor to obtain a Lien upon
any of its property through legal proceedings or distraint or other process
which is not vacated within 60 days from the date thereof; or
(p) There shall be a material adverse change in the financial
condition, business or operations of the Company; or
(q) A Change of Control occurs.
[*] Confidential Treatment Requested
44
<PAGE>
8.2 Remedies.
--------
(a) Upon the occurrence of any Event of Default described in Sections
8.1(f) or 8.1(g), the Commitment shall be terminated and all Obligations of
the Company shall automatically become due and payable, without presentment
for payment, demand, notice of non-payment, protest, notice of protest,
notice of intent to accelerate, notice of acceleration, maturity, or any
other notices or requirements of any kind of Lender to the Company or any
other Person liable thereon or with respect thereto, all of which are
hereby expressly waived by the Company.
(b) Upon the occurrence of any Event of Default, other than those
described in Sections 8.1(f) or 8.1(g) the Lender may, by written notice to
the Company, terminate the Commitment and/or declare all Obligations of the
Company to be immediately due and payable, whereupon the same shall
forthwith become due and payable, together with all accrued and unpaid
interest thereon, and the obligation of the Lender to make any Advances
shall thereupon terminate.
(c) Upon the occurrence of any Event of Default, the Lender may also
do any of the following:
(1) Foreclose upon or otherwise enforce its security interest in
and Lien on the Collateral to secure all payments and performance of
Obligations of the Company in any manner permitted by law or provided
for hereunder.
(2) Notify all obligors in respect of the Collateral that the
Collateral has been assigned to the Lender and that all payments
thereon are to be made directly to the Lender or such other party as
may be designated by the Lender, settle, compromise, or release, in
whole or in part, any amounts owing on the Collateral, any such
obligor or any Investor or any portion of the Collateral, (in terms
acceptable to the Lender; enforce payment and prosecute any action or
proceeding with respect to any and all Collateral; and where any such
Collateral is in default, foreclose on and enforce security interests
in, such Collateral by any available judicial procedure or without
judicial process and sell property acquired as a result of any such
foreclosure.
(3) Act, or contract with a third party to act, as servicer or
subservicer of each item of Collateral requiring servicing and perform
all obligations required in connection with Purchase Commitments, such
third party's fees to be paid by the Company.
(4) Require the Company to assemble the Collateral and/or books
and records relating thereto and make such available to the Lender at
a place to be designated by the Lender.
45
<PAGE>
(5) Enter onto property where any Collateral or books and
records relating thereto are located and take possession thereof with
or without judicial process.
(6) Prior to the disposition of the Collateral, prepare it for
disposition in any manner and to the extent the Lender deems
appropriate.
(7) Exercise all rights and remedies of a secured creditor under
the Uniform Commercial Code of Texas or other applicable law,
including, but not limited to, selling or otherwise disposing of the
Collateral, or any part thereof, at one or more public or private
sales, whether or not such Collateral is present at the place of sale,
for cash or credit or future delivery, on such terms and in such
manner as the Lender may determine, including, without limitation,
sale pursuant to any applicable Purchase Commitment. If notice is
required under such applicable law, the Lender will give the Company
not less than ten (10) days notice of any such public sale or of the
date after which private sale may be held. The Company agrees that
ten (10) days notice shall be reasonable notice. The Lender may,
without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at
the time and place fixed for the sale, and such sale may be made at
any time or place to which the same may be so adjourned. In case of
any sale of all or any part of the Collateral on credit or for future
delivery, the Collateral so sold may be retained by the Lender until
the selling price is paid by the purchaser thereof, but the Lender
shall not incur any liability in case of the failure of such purchaser
to take up and pay for the Collateral so sold and, in case of any such
failure, such Collateral may again be sold upon like notice. The
Lender may, however, instead of exercising the power of sale herein
conferred upon it, proceed by a suit or suits at law or in equity to
collect all amounts due upon the Collateral or to foreclose the pledge
and sell the Collateral or any portion thereof under a judgment or
decree of a court or courts of competent jurisdiction, or both.
(8) Proceed against the Company on the Note.
(d) The Lender shall incur no liability as a result of the sale or
other disposition of the Collateral, or any part thereof, at any public or
private sale or disposition. The Company hereby waives (to the extent
permitted by law) any claims it may have against the Lender arising by
reason of the fact that the price at which the Collateral may have been
sold at such private sale was less than the price which might have been
obtained at a public sale or was less than the aggregate amount of the
outstanding Advances and the unpaid interest accrued thereon, even if the
Lender accepts the first offer received and does not offer the Collateral
to more than one offeree and none of the actions described herein shall
render Lender's disposition of the Collateral in such a manner as
commercially unreasonable.
46
<PAGE>
(e) The Company specifically waives (to the extent permitted by law)
any equity or right of redemption, all rights of redemption, stay or
appraisal which the Company has or may have under any rule of law or
statute now existing or hereafter adopted, and any right to require the
Lender to (1) proceed against any Person, (2) proceed against or exhaust
any of the Collateral or pursue its rights and remedies as against the
Collateral in any particular order, or (3) pursue any other remedy in its
power. The Lender shall not be required to take any steps necessary to
preserve any rights of the Company against holders of mortgages prior in
lien to the Lien of any Mortgage included in the Collateral or to preserve
rights against prior parties.
(f) The Lender may, but shall not be obligated to, advance any sums or
do any act or thing necessary to uphold and enforce the Lien and priority
of, or the security intended to be afforded by, any Mortgage included in
the Collateral, including, without limitation, payment of delinquent taxes
or assessments and insurance premiums. All advances, charges, costs and
expenses, including reasonable attorneys' fees and disbursements, incurred
or paid by the Lender in exercising any right, power or remedy conferred by
this Agreement or in the enforcement hereof, together with interest
thereon, at the Default Rate, from the time of payment until repaid, shall
become a part of the principal balance outstanding hereunder and under the
Note.
(g) No failure on the part of the Lender to exercise, and no delay in
exercising, any right, power or remedy provided hereunder, at law or in
equity shall operate as a waiver thereof; nor shall any single or partial
exercise by the Lender of any right, power or remedy provided hereunder, at
law or in equity preclude any other or further exercise thereof or the
exercise of any other right power or remedy. The remedies herein provided
are cumulative and are not exclusive of any remedies provided at law or in
equity.
8.3 Application of Proceeds. The proceeds of any sale, disposition or
-----------------------
other enforcement of the Lender's security interest in all or any part of the
Collateral shall be applied by the Lender:
First, to the payment of the costs and expenses of such sale or
-----
enforcement including reasonable compensation to the Lender's agents and
counsel, and all expenses, liabilities and advances made or incurred by or
on behalf of the Lender in connection therewith;
Second, to the payment of any other amounts due (other than principal
------
and interest) under the Note or this Agreement;
Third, to the payment of interest accrued and unpaid on the Note;
-----
Fourth to the payment of the outstanding principal balance of the
------
Note; and
47
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Finally to the payment to the Company, or to its successors or
-------
assigns, or as a court of competent jurisdiction may direct, of any surplus
then remaining from such proceeds.
If the proceeds of any such sale, disposition or other enforcement are
insufficient to cover the costs and expenses of such sale, as aforesaid, and the
payment in fall of all Obligations of the Company, the Company shall remain
liable for any deficiency.
8.4 Lender Appointed Attorney-in-Fact. The Lender is hereby appointed the
---------------------------------
attorney-in-fact of the Company, with full power of substitution, for the
purpose of carrying out the provisions hereof and taking any action and
executing any instruments which the Lender may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest and shall remain in full force and
effect until the full and final payment and performance of all Obligations.
Without limiting the generality of the foregoing, the Lender shall have the
right and power to give notices of its security interest in the Collateral to
any Person, either in the name of the Company or in its own name, to endorse all
Pledged Mortgages or Pledged Securities payable to the order of the Company, to
change or cause to be changed the book-entry registration or name of subscriber
or Investor on any Pledged Security, or to receive, endorse and collect all
checks made payable to the order of the Company representing any payment on
account of the principal of or interest on, or the proceeds of sale of, any of
the Pledged Mortgages or Pledged Securities and to give full discharge for the
same.
8.5 Right of Set-Off. If the Company shall default in the payment of the
----------------
Note, any interest accrued thereon, or any other sums which may become payable
hereunder when due, or in the performance of any of its other Obligations under
this Agreement, the Lender, shall have the right, at any time and from time to
time, without notice, to set-off and to appropriate or apply any and all
property or indebtedness of any kind at any time held or owing by the Lender to
or for the credit of the account of the Company (excluding any monies held by
the Company in trust for third parties) against and on account of the
Obligations, irrespective of whether or not the Lender shall have made any
demand hereunder and whether or not said Obligations shall have matured,
provided, however, that the Lender shall not be allowed to set-off against funds
- -------- -------
in accounts with respect to which (i) the Company is a trustee or an escrow
agent in respect of bona fide third parties other than Affiliates, and (ii) such
trust or escrow arrangement was so denominated at the time of the creation of
such, account.
9. NOTICES.
All notices, demands, consents, requests and other communications required
or permitted to be given or made hereunder (collectively, "Notices") shall,
except as otherwise expressly provided hereunder, be in writing and shall be
delivered in person or mailed, first class, return receipt requested, postage
prepaid, or delivered by overnight courier, addressed to the respective parties
hereto at their respective addresses hereinafter set forth or, as to any such
party, at such other address as may be designated by it in a Notice to the
other. All Notices shall be conclusively deemed to have been properly given or
made when duly delivered, in person or by
48
<PAGE>
overnight courier, or if mailed on the third Business Day after being deposited
in the mails, addressed as follows:
If to the Company: iOwn, Inc.
Attn: Edward P. Hoyt, President
118 King Street, Suite 226
San Francisco, California 94107
Fax No.: (925) 957-2549
If to the Lender: Bank United
Attn: Ms. Julie A. Persse, Vice President
Mortgage Banker Finance
1646 North California Boulevard, Suite 342
Walnut Creek, California 94596
Fax No.: (925) 210-8065
with a copy to: Bank United
Attn: Frank Hattemer
Managing Director, Mortgage Banker Financing
3200 Southwest Freeway, Suite 2702
Houston, Texas 77027
Fax No.: (713) 543-6022
and: Bank United
Attn: Jonathon K. Heffron
General Counsel
3200 Southwest Freeway, Suite 2600
Houston, Texas 77027
Fax No.: (713) 543-6469
10. REIMBURSEMENT OF EXPENSES; INDEMNITY.
The Company shall: (a) pay all out-of-pocket costs and expenses of the
Lender, including, without limitation, reasonable attorneys' fees, in connection
with the preparation, negotiation, documentation, enforcement and administration
of this Agreement, the Note, and other Loan Documents and the making and
repayment of the Advances and the payment of interest thereon; provided,
--------
however, costs and expenses of Lender for attorneys fees in connection with the
- -------
preparation, negotiation and documentation of the lending transaction evidenced
by this Agreement shall not exceed $3,000.00 plus the reasonable expenses of
Lender's counsel; (b) pay, and hold the Lender and any holder of the Note
harmless from and against, any and all present and future stamp, documentary and
other similar taxes with respect to the foregoing matters and save the Lender
and the holder or holders of the Note harmless from and against any and all
liabilities with respect to or resulting from any delay or omission to pay such
taxes; (c) INDEMNIFY, PAY AND HOLD HARMLESS THE LENDER AND ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES OR AGENTS AND ANY SUBSEQUENT
49
<PAGE>
HOLDER OF THE NOTE FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS
OF ANY KIND WHATSOEVER (THE "INDEMNIFIED LIABILITIES") WHICH MAY BE IMPOSED
UPON, INCURRED BY OR ASSERTED AGAINST THE LENDER OR SUCH HOLDER IN ANY WAY
RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE NOTE, OR ANY OTHER LOAN
DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY TO THE EXTENT
THAT ANY SUCH INDEMNIFIED LIABILITIES RESULT (DIRECTLY OR INDIRECTLY) FROM ANY
CLAIMS MADE, OR ANY ACTIONS, SUITS OR PROCEEDINGS COMMENCED OR THREATENED, BY OR
ON BEHALF OF ANY CREDITOR (EXCLUDING THE LENDER AND THE HOLDER OR HOLDERS OF THE
NOTE), SECURITY HOLDER, SHAREHOLDER, CUSTOMER (INCLUDING, WITHOUT LIMITATION,
ANY PERSON HAVING ANY DEALINGS OF ANY KIND WITH THE COMPANY), TRUSTEE, DIRECTOR,
OFFICER, EMPLOYEE AND/OR AGENT OF THE COMPANY ACTING IN SUCH CAPACITY, THE
COMPANY OR ANY GOVERNMENTAL REGULATORY BODY OR AUTHORITY. THE FOREGOING
INDEMNITY SHALL NOT APPLY TO THE EXTENT THE INDEMNIFIED LIABILITIES RESULT FROM
THE NEGLIGENCE OR WILLFUL MISCONDUCT OF THE LENDER OR LENDER'S OWN VIOLATIONS OF
REGULATIONS APPLICABLE TO IT. THE AGREEMENT OF THE COMPANY CONTAINED IN THIS
SUBSECTION (c) SHALL SURVIVE THE EXPIRATION OR TERMINATION OF THIS AGREEMENT AND
THE PAYMENT IN FULL OF THE NOTE. ATTORNEYS' FEES AND DISBURSEMENTS INCURRED IN
ENFORCING, OR ON APPEAL FROM, A JUDGMENT PURSUANT HERETO SHALL BE RECOVERABLE
SEPARATELY FROM AND, IN ADDITION TO ANY OTHER AMOUNT INCLUDED IN SUCH JUDGMENT,
AND THIS CLAUSE IS INTENDED TO BE SEVERABLE FROM THE OTHER PROVISIONS OF THIS
AGREEMENT AND TO SURVIVE AND NOT BE MERGED INTO SUCH JUDGMENT.
11. FINANCIAL INFORMATION.
All financial statements and reports furnished to the Lender hereunder
shall be prepared in accordance with GAAP, applied on a basis consistent with
that applied in preparing the financial statements as at, and for the period
ended, the Statement Date (except to the extent otherwise required to conform to
good accounting practice).
12. MISCELLANEOUS.
12.1 Terms Binding Upon Successors: Survival of Representations. The
----------------------------------------------------------
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. All
representations, warranties, covenants and agreements herein contained on the
part of the Company shall survive the making of any Advance and the execution of
the Note, and shall be effective so long as the Commitment is outstanding
hereunder or there remain any Obligations of the Company hereunder or under the
Note to be paid or performed.
50
<PAGE>
12.2 Assignment. This Agreement may not be assigned by the Company. The
----------
Lender may assign, at any time, in whole or in part, its rights and delegate its
obligations under this Agreement and the other Loan Documents, along with the
Lender's security interest in any or all of the Collateral, and any assignee
thereof may enforce Us Agreement and the other Loan Documents, and such security
interest.
12.3 Amendments. Except as otherwise provided in Us Agreement, this
----------
Agreement may not be amended, modified or supplemented unless such amendment,
modification or supplement is set forth in a writing signed by the parties
hereto.
12.4 Governing Law. This Agreement and the other Loan Documents shall be
-------------
governed by the laws of the State of Texas, without reference to its principles
of conflicts of laws.
12.5 Participations. The Lender may at any time sell, assignor grant
--------------
participations in, or otherwise transfer to any other Person (a "Participant"),
all or part of the Obligations of the Company under this Agreement. Without
limitation of the exclusive right of the Lender to collect and enforce such
Obligations, the Company agrees that each disposition will give rise to a
debtor-creditor relationship of the Company to the Participant, and the Company
authorizes each Participant, upon the occurrence of an Event of Default, to
proceed directly by right of setoff, banker's lien, or otherwise, against any
assets of the Company which may be in the hands of such Participant The Company
authorizes the Lender to disclose to any prospective Participant and any
Participant any and all information in the Lender's possession concerning the
Company, this Agreement and the Collateral.
12.6 Relationship of the Parties. This Agreement provides for the making
---------------------------
of Advances" by the Lender, in its capacity as a lender, to the Company, in its
capacity as a borrower, and for the payment of interest, repayment of principal
by the Company to the Lender, and for the payment of certain fees by the Company
to the Lender. The relationship between the Lender and the Company is limited
to that of creditor/secured party, on the one hand, and debtor, on the other
hand. The provisions herein for compliance with financial covenants and
delivery of financial statements are intended solely for the benefit of the
Lender to protect its interests as lender in assuring payments of interest and
repayment of principal and payment of certain fees, and nothing contained in
this Agreement shall be construed as permitting or obligating the Lender to act
as a financial or business advisor or consultant to the Company, as permitting
or obligating the Lender to control the Company or to conduct the Company's
operations, as creating any fiduciary obligation on the part of the. Lender to
the Company, or as creating any joint venture, agency, or other relationship
between the parties hereto other than as explicitly and specifically stated in
this Agreement. The Company acknowledges that it has had the opportunity to
obtain the advice of experienced counsel of its own choosing in connection with
the negotiation and execution of this Agreement and to obtain the advice of such
counsel with respect to all matters contained herein, including, without
limitation, the provision for waiver of trial by jury. The Company further
acknowledges that it is experienced with respect to financial
51
<PAGE>
and credit matters and has made its own independent decisions to apply to the
Lender for credit and to execute and deliver this Agreement.
12.7 Severability. If any provision of this Agreement shall be declared
------------
to be illegal or unenforceable in any respect, such illegal or unenforceable
provision shall be and become absolutely null and void and of no force and
effect as though such provision were not in fact set forth herein, but all other
covenants, terms, conditions and provisions hereof shall nevertheless continue
to be valid and enforceable.
12.8 Usury. It is the intent of Lender and the Company in the execution
-----
and performance of this Agreement and the Note or any Loan Document to remain in
strict compliance with Applicable Law from time to time in effect. In
furtherance thereof, Lender and the Company stipulate and agree that none of the
terms and provisions contained in the Note, this Agreement or any Loan Document
shall ever be construed to create a contract to pay for the use, forbearance or
detention of money with interest at a rate or in an amount in excess of the
Maximum Rate or amount of interest permitted to be charged under Applicable Law.
For purposes of this Agreement, the Note and any other Loan Document, "interest"
shall include the aggregate of all charges which constitute interest under
Applicable Law that are contracted for, taken, charged, reserved, or received
under this Agreement the Note or any other Loan Document. The Company shall
never be required to pay unearned interest or interest at a rate or in an amount
in excess of the Maximum Rate or amount of interest that may be lawfully charged
under Applicable Law, and the provisions of this paragraph shall control over
all other provisions of this Agreement and the Note or any Loan Document, which
may be in actual or apparent conflict herewith. If the Note is prepaid, or if
the maturity of the Note is accelerated for any reason, or if under any other
contingency the effective rate or amount of interest which would otherwise be
payable under the Note would exceed the Maximum Rate or amount of interest
Lender or any other holder of the Note is allowed by Applicable Law to charge,
contract for, take, reserve or receive, or in the event Lender or any holder of
the Note shall charge, contract for, take, reserve or receive monies that are
deemed to constitute interest which would, in the absence of this provision,
increase the effective rate or amount of interest payable under the Note to a
rate or amount in excess of that permitted to be charged, contracted for, taken,
reserved or received under Applicable Law then in effect then the principal
amount of the Note or the amount of interest which would otherwise be payable
under the Note or both shall be reduced to the amount allowed under Applicable
Law as now or hereinafter construed by the courts having jurisdiction, and all
such moneys so charged, contracted for, taken, reserved or received that are
deemed to constitute interest in excess of the Maximum Rate or amount of
interest permitted by Applicable Law shall immediately be returned to or
credited to the account of the Company upon such determination. Lender and the
Company further stipulate and agree that, without limitation of the foregoing,
all calculations of the rate or amount of interest contracted for, charged,
taken, reserved or received under the Note which are made for the purpose of
determining whether such rate or amount exceeds the Maximum Rate, shall be made
to the extent not prohibited by Applicable Law, by amortizing, prorating,
allocating and spreading during the period of the full stated term of the Note,
all interest at any time contracted for, charged, taken, reserved or received
from the Company or otherwise by Lender or any other holder of the Note.
52
<PAGE>
12.9 Consent to Jurisdiction. Subject to the provisions of Section 12.10
-----------------------
of this Agreement, the Company hereby agrees that any action or proceeding under
this Agreement, the Note or any document delivered pursuant hereto may be
commenced against it in any court of competent jurisdiction within the State of
Texas, by service of process upon the Company by first class registered or
certified mail, return receipt requested, addressed to the Company at its
address last known to the Lender. The Company agrees that any such suit, action
or proceeding arising out of or relating to this Agreement or any other such
document may be instituted in Harris County, State District Court or in the
United States District Court for the District of Texas at the option of the
Lender, and the Company hereby waives any objection to the venue, or any claim
as to inconvenient forum, of any such suit, action or proceeding. Nothing
herein shall affect the right of the Lender to accomplish service of process in
any other manner permitted by law or to commence legal proceedings or otherwise
proceed against the Company in any other jurisdiction or court.
12.10 Arbitration. To the maximum extent not prohibited by law, any
-----------
controversy, dispute or claim arising out of, in connection with, or relating to
the Commitment or the Loan Documents or any transaction provided for therein,
including but not limited to any claim based on or arising from an alleged tort
or an alleged breach of any agreement contained in any of the Loan Documents,
shall, at the request of any party to the Loan Documents (either before or after
the commencement of judicial proceedings), be settled by arbitration pursuant to
Title 9 of the United States Code, which the parties hereto acknowledge and
agree applies to the transaction involved herein, and in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"). If Title 9 of the United States Code is inapplicable to any such claim,
dispute or controversy for any reason, such arbitration shall be conducted
pursuant to the Texas General Arbitration Act and in accordance with the
Commercial Arbitration Rules of the AAA. In any such arbitration proceeding:
(i) all statutes of limitations which would otherwise be applicable shall apply;
and (ii) the proceeding shall be conducted in Houston, Texas, by a single
arbitrator, if the amount in controversy is $1,000,000.00 or less, or by a panel
of three arbitrators if the amount in controversy is over $ 1,000,000.00. All
arbitrators shall be selected by the process of appointment from a panel
pursuant to Section 13 of the AAA Commercial Arbitration Rules and each
arbitrator shall be either an active attorney, a mortgage banker or retired
judge with an AAA acknowledged expertise in the subject matter of the
controversy, dispute or claim. Any award rendered in any such arbitration
proceeding shall be final and binding, and judgment upon any such award may be
entered in any court having jurisdiction.
If any party to any Loan Document files a proceeding in any court to
resolve any such controversy, dispute or claim, such action shall not constitute
a waiver of the right of such party or a bar to the right of any other party to
seek arbitration under the provisions of this Section of that or any other
claim, dispute or controversy, and the court shall, upon motion of any party to
the proceeding, direct that such controversy, dispute or claim be arbitrated in
accordance with this Section.
Notwithstanding any of the foregoing, the parties hereto agree that no
arbitrator or panel of arbitrators shall possess or have the power to (i) assess
punitive damages, (ii) dissolve, rescind
53
<PAGE>
or reform (except that the arbitrator may construe ambiguous terms) any Loan
Document, (iii) enter judgment on the debt, (iv) exercise equitable powers or
issue or enter any equitable remedies with respect to matters submitted to
arbitration, or (v) allow discovery of attorney/client privileged information.
The Commercial Arbitration Rules of the AAA are hereby modified to this extent
for the purpose of arbitration of any dispute, controversy or claim arising out
of, in connection with, or relating to the Loan or any Loan Document. The
parties hereby further agree to waive, each to the other, any claims for
punitive damages and agree neither an arbitrator nor any court shall have the
power to assess such damages.
No provision of, or the exercise of any rights under, this Section shall
limit or impair the right of any party to any Loan Document before, during or
after any arbitration proceeding to: (i) exercise self-help remedies such as
setoff or repossession; (ii) foreclose (judicially or otherwise) any Lien on or
security interest in any real or personal Collateral; or (iii) obtain emergency
relief from a court of competent jurisdiction to prevent the dissipation,
damage, destruction, transfer, hypothecation, pledging or concealment of assets
or of Collateral securing any Indebtedness, obligation or guaranty referenced in
any Loan Document. Such emergency relief may be in the nature of, but is not
limited to: pre-judgment attachments, garnishments, sequestrations, appointments
of receivers, or other emergency injunctive relief to preserve the status quo.
12.11 Additional Indemnity. IN ADDITION TO THE INDEMNITY PROVIDED IN
--------------------
SECTION 10, THE COMPANY SHALL INDEMNIFY AND HOLD THE LENDER, ITS SUCCESSORS,
ASSIGNS, AGENTS, AND EMPLOYEES, HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS,
ACTIONS, SUITS, PROCEEDINGS, COSTS, EXPENSES, DAMAGES, FINES, PENALTIES, AND
LIABILITIES, INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND COSTS, ARISING
OUT OF, CONNECTED WITH, OR RESULTING FROM (A) THE OPERATION OF THE COMPANY'S
BUSINESSES, (B) THE LENDER'S PRESERVATION OR ATTEMPTED PRESERVATION OF
COLLATERAL, AND (C) ANY FAILURE OF THE SECURITY INTERESTS AND LIENS IN THE
COLLATERAL GRANTED TO THE LENDER PURSUANT TO THIS AGREEMENT TO BE OR TO REMAIN
PERFECTED OR TO HAVE THE PRIORITY AS CONTEMPLATED THEREIN. THIS INDEMNITY SHALL
NOT APPLY TO THE EXTENT THE SUBJECT OF THE INDEMNIFICATION IS CAUSED BY OR
ARISES OUT OF THE NEGLIGENCE OR WILLFUL MISCONDUCT OF THE LENDER. AT THE
LENDER'S REQUEST, THE COMPANY SHALL, AT ITS OWN COST AND EXPENSE, DEFEND OR
CAUSE TO BE DEFENDED ANY AND ALL SUCH ACTIONS OR SUITS THAT MAY BE BROUGHT
AGAINST' THE LENDER AND, IN ANY EVENT, SHALL SATISFY, PAY, AND DISCHARGE ANY AND
ALL JUDGMENTS, AWARDS, PENALTIES, COSTS, AND FINES THAT MAY BE RECOVERED AGAINST
THE LENDER IN ANY SUCH ACTION, PLUS ALL ATTORNEYS' FEES AND COSTS RELATED
THERETO TO THE EXTENT PERMITTED BY APPLICABLE LAW; PROVIDED, HOWEVER, THAT THE
LENDER SHALL GIVE THE COMPANY (TO THE EXTENT THE LENDER SEEKS INDEMNIFICATION
THEREFOR FROM THE COMPANY UNDER THIS SECTION 12.11) WRITTEN NOTICE OF ANY SUCH
CLAIM, DEMAND, OR SUIT AFTER THE LENDER HAS RECEIVED WRITTEN NOTICE THEREOF, AND
THE LENDER
54
<PAGE>
SHALL NOT SETTLE ANY SUCH CLAIM, DEMAND, OR SUIT, IF THE LENDER SEEKS
INDEMNIFICATION THEREFOR FROM THE COMPANY, WITHOUT FIRST GIVING NOTICE TO THE
COMPANY OF THE LENDER'S DESIRE TO SETTLE AND OBTAINING THE CONSENT OF THE
COMPANY TO THE SAME, WHICH CONSENT THE COMPANY HEREBY AGREES NOT TO UNREASONABLY
WITHHOLD. ALL OBLIGATIONS OF THE COMPANY UNDER THIS SECTION 12.11 SHALL SURVIVE
THE PAYMENT OF THE NOTE AND THE OBLIGATIONS.
12.12 No Waivers Except in Writing. No failure or delay on the part of
----------------------------
the Lender in exercising any power or right hereunder or under any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. No notice to or demand on
the Company or any other Person in any case shall entitle the Company or such
other Person to any other or further notice or demand in similar or other
circumstances.
12.13 Waiver of Jury Trial. Company hereby expressly waives any right to
--------------------
a trial by jury in any action or legal proceeding arising out of or relating to
this Agreement or any other Loan Document for the transactions contemplated
hereby or thereby.
12.14 Multiple Counterparts. This Agreement may be executed in any number
---------------------
of counterparts, all of which, taken together, shall constitute one and the same
instrument.
12.15 No Third Party Beneficiaries. This Agreement is for the sole and
----------------------------
exclusive benefit of the Company and Lender. This Agreement does not create,
and is not intended to create, any rights in favor of or enforceable by any
other Person. This Agreement may be amended or modified by the agreement of the
Company and Lender, without any requirement or necessity for notice to, or the
consent of or approval of any other Person.
12.16 Release Of Lender Liability. TO THE MAXIMUM EXTENT NOT PROHIBITED
---------------------------
BY LAW FROM TIME TO TIME IN EFFECT, THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY (AND AFTER IT HAS CONSULTED WITH ITS OWN ATTORNEY) IRREVOCABLY
AND UNCONDITIONALLY AGREES THAT NO CLAIM MAY BE MADE BY THE COMPANY AGAINST THE
LENDER OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, ACCOUNTANTS,
AGENTS OR INSURERS, OR ANY OF ITS OR THEIR SUCCESSORS AND ASSIGNS, FOR ANY
SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY BREACH OR
WRONGFUL CONDUCT (WHETHER THE CLAIM IS BASED ON CONTRACT OR TORT OR DUTY IMPOSED
BY LAW) ARISING OUT OF, OR RELATED TO, THE TRANSACTIONS' CONTEMPLATED BY ANY OF
THIS AGREEMENT, THE NOTE, OR ANY OTHER LOAN DOCUMENTS, OR ANY ACT, OMISSION, OR
EVENT OCCURRING IN CONNECTION HEREWITH OR THEREWITH. IN FURTHERANCE OF THE
FOREGOING, THE COMPANY HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY
CLAIM FOR ANY SUCH DAMAGES, WHETHER
55
<PAGE>
OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
12.17 Entire Agreement; Amendment. This Agreement, the Note, and the
---------------------------
other Loan Documents referred to herein embody the final, entire Agreement among
the parties hereto and supersede any and all prior commitments, agreements,
representations, and understandings, whether written or oral, relating to the
subject matter hereof The provisions of this Agreement and the other Loan
Documents to which the Company is a party may be amended or waived only by an
instrument in writing signed by the parties hereto.
12.18 Consents. With respect to any consent of Lender required by the
--------
provisions of Sections 7.3 and 7.11 hereof, Lender agrees, upon receipt of
written Notice from Company requesting its consent pursuant to such Sections, it
will use its best efforts to notify Company of its decision within seven (7)
Business Days from its receipt of Company's Notice; provided, however, if Lender
-------- -------
fails to notify Company of its decision within such time period, such failure
shall not be deemed consent of the Lender nor shall it impose any liability
whatsoever on the Lender.
12.19 No Oral Agreements. THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL
------------------
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
COMPANY:
--------
iOWN, INC., a California corporation
By: /s/ Charles E. Reed
----------------------------------------
Name: Charles E. Reed
--------------------------------------
Title: Vice President, Lending Services
-------------------------------------
LENDER
------
BANK UNITED
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
56
<PAGE>
EXHIBITS:
- --------
A - Advance Request
B - Existing Company Indebtedness
C - Procedures and Documentation for Warehousing Single-family Mortgage
Loans
D - Shipping Instructions
E - Trust Receipt
F - Officer's Certificate
G - Subsidiaries
H - Litigation
I - Trade Names
J - Secretary's Certificate
K - Bailee Letter
L - Investors
M - Legal Opinion
N - Promissory Note
57
<PAGE>
Bank United
EXHIBIT "A"
-----------
ADVANCE REQUEST FORM
SINGLE-FAMILY MORTGAGE LOANS
Loan Information
----------------
Mortgage Company: [Company Name] Loan Number: __
Mortgagor:__________________________ Prepared By: __
Street Address:_____________________ Warehouse Date: __/__/____
City, State, Zip:___________________ SSN: __ __ __ - __ __ - __ __ __ __
Note Amount:$_______________________ Note Date: __/__/____
Advance Request:$___________________ X Wet X Regular (Dry)
Loan Specific Take-out Commitment? X Yes X No Mortgage Loan Interest Rate:___%
(if "Yes," Investor:______________________________.
Expiration date __/__/____. Take-out Price:______%)
LTV of Mortgage Loan is:___% (if over 100%, FICO score:_______)
Documentation is: X Stated Doc X Full Doc
Loan Type (check all that apply): X 1/st/ lien X 2/nd/ lien X FNMA/FHLMC X
FHA/VA X Jumbo X Subprime
Closing Agent Information
-------------------------
Closing Agent is: X Title Company X Attorney
Name: _____________________________ Phone(___) ___-____
Address:________________________________________________________________________
Method of Advance
-----------------
X Wire Transfer (instructions included) X Bank United Check
Wire Amount:$___________.____ Check Amount:
$___________.____
X Bank United Cashier's Check
Check Amount:
$___________.____
Please debit the $___________.____ difference from our account number __ __ __
__-__ __ __-__ __
Wire Instructions
-----------------
Receiving Bank:__________________ ABA Number:__ __ __-__ __ __-__ __ __
City:____________________________ State:_______________________________________
Account Name:____________________ Account Number:______________________________
Required Documentation
----------------------
Wet Settlement Advance Regular (Dry) Advance
- ---------------------- ---------------------
X Completed Advance Request form X Completed Advance Request form
X Copy of Purchase Commitment X Original Mortgage Note endorsed in blank
58
<PAGE>
X Insured Closing Letter from Title Company X Original Assignment of Mortgage
in blank
X Closing Instructions from
Company to Closing Agent X Copy of Mortgage certified by
the Closing Agent as a true copy
closing by check, a copy of the check of the original sent for recording
We will deliver the following within 5 days: X Copy of Purchase Commitment
- -------------------------------------------
Commitment X Insured Closing Letter from
Title Company or
X Original Mortgage Note endorsed in blank Closing Instructions from
X Original Assignment of Mortgage in blank Company to Closing Agent
X Copy of Mortgage certified by the Closing
Agent as a true copy of the original sent
for recording.
Bailee Pledge Agreement
-----------------------
The Company creates and grants in favor and for the benefit of the Lender a
security interest in and to the Single-family Mortgage Loan referenced herein
and all instruments and documents described as Required Documentation and has
given notice of same to the Closing Agent. The Company agrees that the
Assignment of Mortgage to the Investor will not be sent for recording prior to
the Investor's purchase of the Mortgage Loan. The company agrees that this
Bailee Pledge Agreement shall be binding upon and ensure to the benefit of the
legal representatives, successors, and assigns of the Lender and that all
rights, interests, duties, and liabilities arising hereunder shall be determined
according to the laws of the State of Texas.
Company:[COMPANY NAME]
a______________________________
By: _______________________________
Name: _______________________________
Title: _______________________________
Date: _______________________________
59
<PAGE>
EXHIBIT "B"
-----------
LIST OF EXISTING INDEBTEDNESS OF COMPANY
----------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
LENDER TYPE OF COMMITMENT COLLATERAL OUTSTANDING
FINANCING AMOUNT BALANCE AS OF
_________, 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Comdisco Subordinated [*] See Attachment [*]
- ----------------------------------------------------------------------------------------------------
Debt (to be repaid in [*] installments)
- ----------------------------------------------------------------------------------------------------
</TABLE>
[*] Confidential Treatment Requested
60
<PAGE>
Attachment for Exhibit B
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 security interest in, all of Borrower's 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
61
<PAGE>
EXHIBIT "C"
-----------
PROCEDURES AND DOCUMENTATION FOR WAREHOUSING
--------------------------------------------
SINGLE-FAMILY MORTGAGE LOANS
----------------------------
The following procedures and documentation requirements must be
observed in all respects by the Company. All documents must be satisfactory to
Lender in its sole discretion. Terms used below, which are not otherwise
defined, shall have the meanings given them in the Warehousing Credit and
Security Agreement, as amended, modified or renewed from time to time. The HUD,
FNMA and FHLMC form numbers referred to herein are for convenience only and the
Company shall use the equivalent forms required at the time of delivery of the
Mortgage Loans or Mortgage-backed Securities.
I. Prior to making an Advance that is not a Wet Settlement Advance, the
Lender must receive the following:
1. Copy of settlement or funding check issued to, or signed
wire transfer request directing funds to escrow/title
company or closing agent.
2. If not an Electronic Request, Original Request for Advance
against Single-Family Mortgage Loans (Exhibit "A").
-----------
3. Original signed Mortgage Note, endorsed by the Company in
blank with corresponding interim endorsements, if
applicable.
4. Copy of the Mortgage certified true by the escrow/title
company or closing agent.
5. Certified true copies of all interim assignments (recorded
or sent for recordation) of the Mortgage.
6. An Assignment of the Mortgage to the Lender in recordable
form but unrecorded.
7. Copy of specific Purchase Commitment.
II. Prior to making a Wet Settlement Advance, the Lender must receive the
following:
1. Copy of settlement or funding check issued to, or signed
wire transfer request directing funds to escrow/title
company or closing agent.
62
<PAGE>
2. If not an Electronic Request, Original Request for Advance
against Single-Family Mortgage Loans (Exhibit "A").
-----------
3. Copy of specific Purchase Commitment.
4. A copy of the Company's final closing instructions to the
title company or closing agent, noting Lender's security
interest in the loan, as provided below:
"You are hereby notified that Bank United, a federal savings bank
(the "Lender") has a security interest in the promissory note,
the deed of trust or mortgage, and all other supporting documents
for the above referenced loan. Unless the Lender otherwise
instructs you, all loan documents are to be returned to the
undersigned company within twenty-four (24) hours after
settlement."
The Mortgage Note and other supporting documents described in Section
I must be received by the Lender within five (5) Business Days of the
date of the Wet Settlement Advance.
III. The Lender exclusively shall deliver Pledged Mortgages or Pledged
Securities and all related loan documents and/or pool documents to
Investor or Approved Custodian unless otherwise agreed in writing.
A. The following procedures are to be followed for deliveries of
Pledged Mortgages to Investors:
No later than 2:00 p.m. Houston, Texas time one (1) Business Day prior
to the expiration date of the Purchase Commitment, the Lender must receive the
following:
1. Signed or electronic shipping instructions for the delivery of
the Pledged Mortgages including the following:
a) Name and address of the office of the Investor to which the
loan documents are to be shipped and the preferred method of
delivery;
b) Instructions for endorsement of the Mortgage Note;
c) Names of Mortgagor and Mortgage Note Amounts of Pledged
Mortgages to be shipped; and
d) Number and expiration date of the Purchase Commitment.
2. All loan documents related to the Pledged Mortgages required for
delivery to the Investor.
63
<PAGE>
3. For deliveries of Pledged Mortgages to FNMA for cash purchase,
the following additional documents are required:
a) Original Loan Schedule (FNMA Form 1068 or 1069) showing the
Lender's designated FNMA payee code as recipient of the loan
purchase proceeds.
4. For deliveries of Pledged Mortgages to FHLMC for cash purchase,
the following additional documents are required:
a) Original completed Warehouse Lender Release of Security
Interest (FHLMC Form 996) to be executed by the Lender.
b) Original Wire Transfer Authorization for a Cash Warehouse
Delivery (FHLMC Form 987), designating the Lender as the
Warehouse Lender and showing the cash collateral account
designated by the Lender as the receiving account for loan
purchase proceeds.
B. The following procedures are to be followed for deliveries of
Pledged Mortgages to Approved Custodians:
No later than one (1) Business Day prior to required delivery date to
the Approved Custodian, the Lender must receive the following:
1. Signed or electronic shipping instructions for the delivery of
the Pledged Mortgages to the Approved Custodian including the
following:
a) Name and address of the office of the Approved Custodian to
which the loan documents are to be shipped and the preferred
method of delivery;
b) Instructions for endorsement of the Mortgage Note; and
c) Names of Mortgagor and Mortgage Note Amounts of Pledged
Mortgages to be shipped.
d) Commitment number and expiration date of the Purchase
Commitment for the Pledged Securities.
2. All loan documents related to the Pledged Mortgages required for
the issuance of the Mortgage-backed Securities.
64
<PAGE>
3. For FNMA Mortgage-backed Securities issuance, the following
additional documents are required:
a) Original Schedule of Mortgages (FNMA Form 2005 or 2025).
b) Original executed Security Release Certification (FNMA Form
2004) to be executed by the Lender.
c) Original Delivery Schedule (FNMA Form 2014), instructing
FNMA to issue the Mortgage-backed Securities in the name of
the Company with the Lender as pledgee and to deliver the
Mortgage-backed Securities to the Lender's custody account
at Banker's Trust (Account No. 92798) and bearing the
following instructions: These instructions may not be
changed without the prior written consent of Bank United.
4. For FHLMC Mortgage-backed Securities issuance, the following
additional documents are required:
a) Original Settlement Information and Delivery Authorization
(FHLMC Form 939), designating the Lender as the Warehouse
Lender and instructing FHLMC to deliver the Mortgage-backed
Securities to the Lender's custody account at Banker's
Trust, Account No. 92798.
5. For GNMA Mortgage-backed Securities issuance, the following
additional documents are required:
a) Signed original Schedule of Mortgages (HUD Form 11706).
b) Signed original Schedule of Subscribers (HUD Form 11705)
instructing GNMA to issue the Mortgage-backed Securities in
the name of the Company and designating Bankers Trust as
Agent for the Lender as the subscriber, using the following
language: BANKERS TRUST AS AGENT FOR BANK UNITED and deliver
the Mortgage-backed Securities to the Lender's custody
Account No. 92798 at Bankers Trust. The following
instructions must also be included on the form: "These
instructions may not be changed without the prior written
consent of Bank United."
c) Completed original Release of Security Interest (HUD Form
1711A) to be executed by the Lender.
Upon instruction by the Company, the Lender will complete the
endorsement of the Mortgage Note and make arrangements for the
delivery of the complete loan
65
<PAGE>
package with the appropriate Bailee Letter to the Investor or Approved
Custodian. Upon receipt of Mortgage-backed Securities, the Lender will
cause such Mortgage-backed Securities to be delivered to the Investor
which issued the Purchase Commitment. Mortgage-backed Securities will
be released to the Investor only upon payment of the purchase proceeds
to the Lender. Cash proceeds of sales of Pledged Mortgages and Pledged
Securities shall be applied to related Advances outstanding under the
Commitment. Provided no Default exists, the Lender shall return any
excess proceeds of the sale of Mortgage Loans or Mortgage-backed
Securities to the Company, unless otherwise instructed in writing.
66
<PAGE>
EXHIBIT "D"
-----------
FORM OF SHIPPING REQUEST AND AUTHORIZATION
------------------------------------------
[Company Letterhead]
Date: _______________________________
BANK UNITED
(Address]
Attention:____________________________ Re: Commitment No.________________
This letter is to serve as authorization for you to endorse and ship Loan
Documents for the following loans:
<TABLE>
<CAPTION>
Loan Number Borrower Name Note Amount
----------- ------------- -----------
<S> <C> <C>
</TABLE>
to the following address:
NAME:
ADDRESS:
ATTENTION:
Please endorse the notes as follows:
Please ship the Loan Documents either by ____________ or by such other courier
service we have specifically approved in writing. You are not responsible for
any delays in shipment or any other actions or inactions of the courier.
However, because the commitment expires on ___________, 19__, we ask that you
deliver the Loan Documents to the courier no later than ___________, 19__.
Please have the courier bill us by using our account no._____________. If you
should have any questions, or should feel the need for additional documentation,
please do not hesitate to call _________________________________.
iOWN, INC., a California corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
67
<PAGE>
EXHIBIT "E"
-----------
TRUST RECEIPT
-------------
Trust Receipt No. ______________ ______________________, 19__
The undersigned, iOWN, INC., a California corporation (the "Company"),
acknowledges receipt from Bank United, a federal savings bank ("Lender"),
pursuant to that certain Warehousing Credit and Security Agreement (Single-
Family Mortgage Loans) dated effective as of October 8, 1999, by and between the
Company and Lender (the "Agreement"), of the following described property (the
"Trust Property"), possession of which is herewith entrusted to the Company for
the purposes set forth below:
Mortgage Loan No.________________________ Note Amount:____________________
Obligor:_________________________________
Purpose: [Specify nature of clerical or other documentation problem to be
corrected.]
The Company hereby acknowledges that a security interest in the Trust
Property and in the proceeds of the Trust Property has been granted to the
Lender pursuant to the Agreement.
In consideration of the delivery of the Trust Property by the Lender
to the Company, the Company hereby agrees to hold the Trust Property in trust
for the Lender as provided under and in accordance with all provisions of the
Agreement and to return the Trust Property to the Lender no later than the close
of business on the tenth day following the date hereof or, if such day is not a
Business Day, on the following Business Day. The Company further agrees that
the aggregate Collateral Value of Single-family Mortgage Loans with respect to
which notes or other documentation has been released under trust receipts, does
not exceed $500,000.00.
iOWN, INC., a California corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
Delivery to Company Acknowledged
BANK UNITED
By:_____________________________
Name:______________________________________________
Title:_____________________________________________
The undersigned, acknowledges that the above-mentioned Trust Property
has been returned to the Lender on ________________________, 19__.
68
<PAGE>
BANK UNITED
By:___________________________________
Name:_________________________________
Title:________________________________
69
<PAGE>
EXHIBIT "F"
-----------
OFFICER'S CERTIFICATE
---------------------
COMPANY: iOWN, INC., a California corporation
LENDER: BANK UNITED
DATE: ____________________________________________________________
REPORTING PERIOD: ___________________ ended ___________________, 199__
This certificate is delivered to Lender under the Warehousing Credit and
Security Agreement dated effective as of October 8, 1999, between Company and
Lender (the "Agreement"), all the defined terms of which have the same meanings
when used herein.
I hereby certify that: (a) I am, and at all times mentioned herein have been,
the duly elected, qualified, and acting officer of Company designated below; (b)
to the best of my knowledge, the Financial Statements of Company for the period
shown above (the "Reporting Period") and which accompany this certificate were
prepared in accordance with GAAP and present fairly the financial condition of
Company as of the end of the Reporting Period and the results of its operations
for the Reporting Period, (c) a review of the Agreement and of the activities of
the Company during the Reporting Period has been made under my supervision with
a view to determining Company's compliance with the covenants, requirements,
terms, and conditions of the Agreement, and such review has not disclosed the
existence during or at the end of the Reporting Period (and I have no knowledge
of the existence as of the date hereof) of any Event of Default or Default,
except as disclosed on Annex "A" hereto (which specifies the nature and period
---------
of existence of each Event of Default or Default if any, and what action Company
has taken, is taking, and proposes to take with respect to each); (d) the
calculations described on the attached Annex "A" evidence that the Company is in
---------
compliance with the requirements of Sections 7.5 and 7.6 of the Agreement at the
end, of the Reporting Period (or if Company is not in compliance, showing the
extent of non-compliance and specifying the period of non-compliance and what
actions the Company proposes to take with respect thereto; (e) the Company was,
as of the end of the Reporting Period, in compliance and good standing with
applicable FNMA, GNMA, FHLMC, and HUD net worth requirements.
iOWN, INC., a California corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
70
<PAGE>
ANNEX "A"
---------
COMPANY NAME: iOWN, INC., a California corporation
REPORTING PERIOD: _______________________________________________________
All financial calculations set forth herein are as of the Reporting Period.
I. TANGIBLE NET WORTH
The Tangible Net Worth of the Company is:
GAAP Net Worth: $________
Minus: Intangible Assets, including Capitalized Servicing Rights: $________
Minus: Advances or loans to shareholders, officers or Affiliates $________
Minus: Investments in Affiliates: $________
Minus: Assets pledged to secure liabilities not included in Debt: $________
Minus: Any other HUD nonacceptable assets: $________
TANGIBLE NET WORTH: $________
II. ADJUSTED TANGIBLE NET WORTH
The Adjusted Tangible Net Worth of the Company is:
Tangible Net Worth (from above): $________
[*] $________
ADJUSTED TANGIBLE NET WORTH: $________
Minimum Adjusted Tangible Net Worth is [*]
Covenant Satisfied:_________________ Covenant Not Satisfied:_________
III. DEBT OF THE COMPANY
Total Liabilities: $________
71
<PAGE>
DEBT: $___________
IV. DEBT TO ADJUSTED TANGIBLE NET WORTH
The ratio of Debt to Adjusted Tangible Net Worth is: _____to 1.
Maximum Debt to Adjusted Tangible Net Worth Ratio is [*].
Covenant Satisfied:_________________ Covenant Not Satisfied:____________
V. DEFAULTS OR EVENTS OF DEFAULT (disclose nature and period of existence and
action being taken in connection therewith; if none, state none)
72
<PAGE>
EXHIBIT "G"
-----------
LIST OF SUBSIDIARIES
--------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
NAME ADDRESS OF STATE OF WHERE COMPANY
PRINCIPAL INCORPORATION QUALIFIED PERCENTAGE
OFFICE FOREIGN CO OWNERSHIP
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
None.
- ------------------------------------------------------------------------------------------------
</TABLE>
73
<PAGE>
EXHIBIT "H"
-----------
DISCLOSURE OF PENDING LITIGATION
(Include the caption of the case, including styling, cause number, and court in
which it is pending, date filed, status of the proceedings, and description of
claims, counterclaims and damages asserted.)
None.
74
<PAGE>
EXHIBIT "I"
-----------
TRADE NAMES OF COMPANY
----------------------
TRADE NAME JURISDICTION USED
Mark: iOwn, Inc. Federal Trademark, Service Mark
Owner Name: IOWN
(Applicant): Home Shark, Inc.
Owner Address:
118 King Street, Suite 225
San Francisco, California 94107
Attorney of Record: Shirley J. Su
Serial Number: 75-630471
Filing Date: 01/29/1999
Register: Principal
Type of Mark: Service Mark
International Class: 036
Goods and Services: on-line consumer and
business lending services via a global computer
information network
75
<PAGE>
TRADE NAME JURISDICTION USED
Mark: Homeshark Federal Trademark, Service Mark
(Applicant): Refi America, Inc.
Owner Address:
916 Union Street
San Francisco, California 94133
Owner Name: (Last Listed Owner)
Refi America, Inc.
Owner Address:
916 Union Street
San Francisco, California 94133
Attorney of Record: Mark A. Steiner
Serial Number: 75-169846
Filing Date: 09/23/1996
Register: Principal
Published for Opposition: 03/09/1999
Type of Mark: Service Mark
International Class: 036
Goods and Services: home purchase and sales
assistance services rendered via a global
computer information network, namely,
mortgage lending services. property listing
services, and providing information of use to
home buyers, home sellers, and real estate
brokers
76
<PAGE>
EXHIBIT "J"
-----------
CERTIFICATE OF CORPORATE RESOLUTIONS
AND INCUMBENCY OF OFFICERS
(BORROWING AUTHORITY)
-------------------
I, the undersigned, hereby certify that I am the Secretary of iOWN, INC., a
corporation duly organized and existing under the laws of the State of
California (the "Corporation").
I further certify that true and correct copies of the Articles of
Incorporation and Bylaws of the Corporation together with all amendments thereto
are attached hereto as Exhibits "A" and "B", respectively, and that such
--------------------
articles and bylaws remain unaltered and in full force and effect.
I further certify that the following resolutions were duly adopted by the
Board of Directors of the Corporation at a meeting of the Board of Directors of
the Corporation, duly and legally called and held in accordance with the
Articles of Incorporation and Bylaws of the Corporation on the ___ day of
___________ 1999, at which meeting a quorum was present and voting throughout,
or (if the foregoing date was not completed) pursuant to a written consent
signed by all of the members of the Board of Directors of the Corporation in
accordance with the Articles of Incorporation and Bylaws of the Corporation, and
that such resolutions are now in full force and effect and have not been
amended, modified or revoked:
"RESOLVED, that each of the following officers of this Corporation:
Edward P. Hoyt, President
Lee Kirkpatrick, Chief Financial Officer
Charles E. Reed, Vice President, Lending Services
acting alone without the joinder of any other officer, is hereby
authorized in the name and on behalf of this Corporation (i) to
borrow from and to otherwise incur liabilities to BANK UNITED
("Lender") from time to time, in such amounts, for such periods
of time, at such rates of interest and payable in such manner as
such officers may deem necessary or proper, and (ii) as evidence
of such indebtedness so incurred, to execute and deliver to
Lender such promissory notes, loan agreements and other
instruments, documents and agreements, containing such terms and
provisions as may be acceptable or agreeable to any one of such
officers, such acceptance and agreement to be conclusively
evidenced by the execution and delivery thereof by any one of
such officers;
FURTHER RESOLVED, that this Corporation grant to Lender a
lien and/or security interest upon such assets of this
Corporation as may be agreed upon between any one of the above
named officers and Lender, as security for all present and future
indebtedness, obligations and liabilities of this Corporation to
Lender and that each of said officers, acting alone without the
joinder of any other officer, is hereby authorized in the name
and on behalf of this Corporation to
77
<PAGE>
execute and deliver such security agreements, deeds of trust and
other instruments, documents and agreements as may be required by
Lender in connection with each such grant of a lien and/or
security interest and containing such terms and provisions as may
be acceptable or agreeable to any one of such officers, such
acceptance and agreement to be conclusively evidenced by the
execution and delivery thereof by any one of such officers;
FURTHER RESOLVED, that any one of the above named officers,
acting alone without the joinder of any other officer, is hereby
authorized in the name and on behalf of this Corporation to take
such further action and to do all things that any one of such
officers deems necessary in connection with any (i) increases,
renewals, extensions, rearrangements, retirements or compromises
of any indebtedness, obligations and liabilities owing to Lender
from time to time by this Corporation either directly or by
assignment, and (ii) amendments to any of the provisions
contained in any instruments, documents or agreements evidencing,
securing, governing and/or pertaining to any indebtedness,
obligations and liabilities owing to Lender by this Corporation
from time to time;
FURTHER RESOLVED, that any one of the above named officers,
or any one of the following representatives of this Corporation:
Pamela Fitzgerald
Chuck Nielsen
Jan Jernigan
acting alone without the joinder of any other officer or
representative, is hereby authorized in the name and on behalf of
this Corporation to (i) make requests for advances under any
credit facility that this Corporation may have with Lender from
time to time, and (ii) do or cause to be done all such acts or
things and to sign and deliver, or cause to be signed and
delivered, all such instruments, documents, agreements and
certificates (including without limitation, any and all notices
and certificates required or permitted to be given or made to
Lender under the terms of any of the instruments, documents or
agreements executed on behalf of this Corporation in connection
with these resolutions), as any and all of such officers or
representatives may deem necessary, advisable or appropriate to
effectuate and carry out the purposes and intent of the foregoing
resolutions and to perform the obligations of this Corporation
under all instruments, documents and agreements executed on
behalf of this Corporation in connection with any indebtedness,
obligations or liabilities incurred by this Corporation to Lender
from time to time;
FURTHER RESOLVED, that any one of the above named officers,
acting alone without joinder of any other officer or
representative is hereby authorized in the name and on behalf of
this Corporation (i) to sell and transfer notes, securities and
financial instruments of this Corporation to the Lender, from
time to time, in
78
<PAGE>
such amounts and on such terms and conditions and in such manner
as any one of such officers may deem necessary or proper and (ii)
in connection therewith, to execute and deliver to the Lender a
master repurchase agreement and such other documents and
agreements containing such terms and provisions as may be
acceptable or agreeable to any one of such officers, such
acceptance and agreement to be conclusively evidenced by the
execution and delivery thereof by any one of such officers;
FURTHER RESOLVED, that all acts, transactions or agreements
with Lender undertaken prior to the adoption of the foregoing
resolutions by any one or more of the officers and/or
representatives of this Corporation in its name and on its behalf
in connection with the foregoing matters are hereby ratified,
confirmed and adopted by this Corporation; and
FURTHER RESOLVED, that each of the officers of this
Corporation is hereby authorized and directed to certify these
resolutions to Lender;
FURTHER RESOLVED, the foregoing resolutions shall continue
in full force and effect, and the Lender is authorized to rely
upon the foregoing resolutions unless and until (i) countermanded
by resolution of the Board of Directors of this Corporation, and
(ii) a copy of such resolution, properly certified by an officer
of this Corporation, has actually been received by Lender."
I further certify that the foregoing resolutions do not conflict with the
Articles of Incorporation or Bylaws of the Corporation, or any amendments
thereto.
I further certify that neither the seal of the Corporation, nor the
attestation by the Secretary, Assistant Secretary or any other officer of the
Corporation, is necessary to make any instruments, documents or agreements
executed by the officers or representatives of this Corporation pursuant to the
foregoing resolutions, enforceable against the Corporation, unless such seal is
affixed to, or such attestation is provided on, such instruments, documents or
agreements.
I further certify that the officers of the Corporation set forth below have
been duly elected and qualified and as of the date hereof hold the specified
offices with the Corporation, that the signature set forth beside each officer's
name is the true signature of such officer, and that the signature set forth
beside the name of each of the representatives specified in the *foregoing
resolutions is the true signature of such representative:
<TABLE>
<CAPTION>
TITLE TYPED NAME SIGNATURE
----- ---------- ---------
<S> <C> <C>
President Edward P. Hoyt --------------------------
Chief Financial Officer Lee Kirkpatrick --------------------------
Vice Pres., Lending Services Charles E. Reed --------------------------
Pamela Fitzgerald --------------------------
Chuck Nielsen --------------------------
Jan Jernigan --------------------------
</TABLE>
79
<PAGE>
IN WITNESS WHEREOF, I hereunto subscribe my name this 8/th/ day of October,
1999.
By:__________________________________
______________, Secretary
STATE OF CALIFORNIA (S)
(S)
COUNTY OF ____________________ (S)
The foregoing instrument was acknowledged before me this 8th day of October,
1999, by Secretary of iOWN, INC., a California corporation, on behalf of said
corporation.
__________________________________
{Seal} NOTARY PUBLIC, STATE OF CALIFORNIA
80
<PAGE>
EXHIBIT "K"
BAILEE LETTER
-------------
(Investor Name and Address)
Re: Purchase of Mortgage Loans from iOWN, INC., a California corporation.
Ladies and Gentlemen:
Attached please find those Mortgage Loans listed separately on the attached
schedule, which Mortgage Loans are owned by iOWN, INC., a California corporation
(the "Company") and are, being delivered to you for purchase.
The Mortgage Loans comprise a portion of the Collateral under (and as the
term "Collateral" and capitalized terms not otherwise defined hereunder are
defined in) that certain Warehousing Credit and Security Agreement (Single-
family Mortgage Loans) ("Warehouse Agreement) dated effective as of October 8,
1999, by and between the Company and BANK UNITED, a federal savings bank
("Lender"). Each of the Mortgage Loans is subject to a security interest in
favor of Lender, which security interest shall be automatically released upon
our receipt of the full amount due to the Lender under the Warehouse Agreement
in connection with such Mortgage Loans (as set forth on the schedule attached
hereto) by wire transfer to the following account:
Bank United
Houston, Texas
ABA #313071904
Credit:____________
Account:_________________
Until payment therefor is received, the aforesaid security interest therein
will remain in full force and effect, and you shall hold possession of such
Collateral and the documentation evidencing same as custodian, agent and bailee
for and on behalf of Lender. In the event any Mortgage Loan is unacceptable for
purchase, return the reject item directly to the undersigned at the address set
forth below. In no event shall any Mortgage Loan be returned or sales proceeds
remitted in full no later than thirty (30) days from the date hereof. If you are
unable to comply with the above instructions, please so advise the undersigned
immediately.
NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS LETTER,
YOU CONSENT TO BE THE CUSTODIAN, AGENT AND BAILEE FOR LENDER ON THE TERMS
DESCRIBED IN THIS LETTER. THE UNDERSIGNED REQUESTS THAT YOU ACKNOWLEDGE RECEIPT
OF THE ENCLOSED MORTGAGE LOANS AND THIS LETTER BY SIGNING AND RETURNING THE
ENCLOSED COPY OF
81
<PAGE>
THIS LETTER TO THE UNDERSIGNED AT THE FOLLOWING ADDRESS: 3200 Southwest Freeway,
suite 2702 Houston, Texas 77027.
HOWEVER, YOUR FAILURE TO DO SO DOES NOT NULLIFY SUCH CONSENT.
Sincerely,
BANK UNITED
By:__________________________________________
Name:________________________________________
Title:_______________________________________
IRREVOCABLY ACKNOWLEDGED
AND AGREED TO:
[INVESTOR]
By:____________________________
Name:__________________________
Title:_________________________
82
<PAGE>
EXHIBIT "L"
-----------
LIST OF INVESTORS
-----------------
[*]
[*] Confidential Treatment Requested
83
<PAGE>
EXHIBIT "M"
-----------
OPINION LETTER
--------------
October 8, 1999
Bank United
3200 Southwest Freeway
Suite 2702
Houston, Texas 77027
Re: Warehousing Credit and Security Agreement (Single-Family Mortgage
Loans)
Gentlemen:
We have acted as special counsel for iOWN, INC., a California corporation
(the "Company"), in connection with the negotiation and execution of the
following documents (collectively, the "Credit Documents"):
1. the Warehousing Credit and Security Agreement (Single-Family Mortgage
Loans dated effective as of October 8, 1999 (the "Loan Agreement"),
between the Company and Bank United (the "Lender"); and
2. the Note dated effective as of October 8, 1999 (the "Note"), executed
and delivered by the Company.
Unless otherwise provided herein, terms used herein which are defined in
the Credit Documents (including schedules and exhibits thereto) and not defined
herein shall have the meanings attributed thereto in the Credit Documents.
A. Basis of Opinion.
----------------
As the basis for the conclusions expressed in this opinion letter, we have
examined, considered and relied upon the following:
(1) A copy of each of the Credit Documents executed by the Company;
(2) Recent Certificates of Domestic Status of the Company issued by
the Secretary of State of the State of California;
(3) A copy of the Articles of Incorporation and amendments thereto,
and a copy of the Bylaws of the Company, in each case as certified to us by the
Company Certificate;
(4) Such other documents and records as we have deemed relevant,
necessary or appropriate in connection with or as a basis for the opinions
hereafter set forth; and
(5) Such matters of law as we have considered necessary or
appropriate for the expression of the opinions contained herein.
For the purposes of this opinion letter, the documents and information-
referred to in this Section A are herein collectively referred to as the
"Documents".
B. Opinions.
--------
Based upon our examination and consideration of the foregoing Documents,
and subject to the comments, assumptions, exceptions, qualifications and
limitations set forth in Section C below, we arc of the opinion that:
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EXHIBIT "M"
-----------
OPINION LETTER
--------------
October 8, 1999
Bank United
3200 Southwest Freeway
Suite 2702
Houston, Texas 77027
Re: Warehousing Credit and Security Agreement (Single-Family Mortgage
Loans)
Gentlemen:
We have acted as special counsel for iOWN, INC., a California corporation
(the "Company"), in connection with the negotiation and execution of the
following documents (collectively, the "Credit Documents"):
1. the Warehousing Credit and Security Agreement (Single-Family Mortgage
Loans dated effective as of October 8, 1999 (the "Loan Agreement"),
between the Company and Bank United (the "Lender"); and
2. the Note dated effective as of October 8, 1999 (the "Note"), executed
and delivered by the Company.
Unless otherwise provided herein, terms used herein which are defined in
the Credit Documents (including schedules and exhibits thereto) and not defined
herein shall have the meanings attributed thereto in the Credit Documents.
A. Basis of Opinion.
----------------
As the basis for the conclusions expressed in this opinion letter, we have
examined, considered and relied upon the following:
(1) A copy of each of the Credit Documents executed by the Company;
(2) Recent Certificates of Domestic Status of the Company issued by
the Secretary of State of the State of California;
(3) A copy of the Articles of Incorporation and amendments thereto,
and a copy of the Bylaws of the Company, in each case as certified to us by the
Company Certificate;
(4) Such other documents and records as we have deemed relevant,
necessary or appropriate in connection with or as a basis for the opinions
hereafter set forth; and
(5) Such matters of law as we have considered necessary or
appropriate for the expression of the opinions contained herein.
For the purposes of this opinion letter, the documents and information-
referred to in this Section A are herein collectively referred to as the
"Documents".
B. Opinions.
--------
Based upon our examination and consideration of the foregoing Documents,
and subject to the comments, assumptions, exceptions, qualifications and
limitations set forth in Section C below, we arc of the opinion that:
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EXHIBIT "N"
-----------
PROMISSORY NOTE
---------------
$10,000,000.00 Houston, Texas October 8, 1999
FOR VALUE RECEIVED, the undersigned, iOWN, INC., a California corporation
(herein called the "Borrower"), hereby promises to pay to the order of BANK
UNITED, a federal savings bank (the "Lender" or, together with its successors
and assigns, the "Holder") whose principal place of business is 3200 Southwest
Freeway, Suite 2702, Houston, Texas 77027, or at such other place as the Holder
may designate from time to time, the principal sum of TEN MILLION AND NO/100
DOLLARS ($ 10,000,000.00) or so much thereof as may be outstanding from time to
time pursuant to the Warehousing Credit and Security Agreement (the "Agreement
dated the date hereof between the Borrower and the Lender, as the same may be
amended or supplemented from time to time, and to pay interest on said principal
sum or such part thereof as shall remain unpaid from time to time, from the date
of each Advance until repaid in full, and all other fees and charges due under
the Agreement, at the rate and at the times set forth in the Agreement. All
payments hereunder shall be made in lawful money of the United States and in
immediately available funds.
This Note is given to evidence an actual warehouse line of credit in the
above amount and is the Note referred to in the Agreement and is entitled to the
benefits thereof Reference is hereby made to the Agreement (which is
incorporated herein by reference as fully and with the same effect as if set
forth herein at length) for a description of the Collateral, a statement of the
covenants and agreements, a statement of the rights and remedies and securities
afforded thereby and other matters contained therein. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given them in
the Agreement.
The entire unpaid principal balance of this Note plus all accrued and
unpaid interest shall be due and payable in [*].
This Note may be prepaid in whole or in part at any time without premium or
penalty.
Should this Note be placed in the hands of attorneys for collection, the
Borrower agrees to pay, in addition to principal and interest, fees and charges
due under the Agreement, and all costs of collecting this Note, including
reasonable attorneys' fees and expenses.
This Note shall be construed and enforced in accordance with the laws of
the State of Texas, without reference to its principles of conflicts of law, and
applicable federal laws of the United States of America.
This Note is secured by all security agreements, collateral assignments,
deeds of trust and lien instruments executed by the Borrower in favor of Lender,
or executed by any other Person as security for this Note, including any
executed prior to, simultaneously with, or after the date of this Note.
[*] Confidential Treatment Requested
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<PAGE>
The Borrower and any and each co-maker, guarantor, accommodation party,
endorser or other Person liable for the payment or collection of this Note
expressly waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, bringing of suit, and diligence in
taking any action to collect amounts called for hereunder and in the handling of
Collateral at any time existing as security in connection herewith, and shall be
directly and primarily liable for the payment of all sums owing and to be owing
hereon, regardless of and without any notice, diligence, act or omission as or
with respect to the collection of any amount called for hereunder or in
connection with any Lien at any time had or existing as security for any amount
called for hereunder.
It is the intention of the parties hereto to conform strictly to usury laws
applicable to the Lender. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the United States
of America and the State of Texas), then, in that event notwithstanding anything
to the contrary herein or in the Agreement or in any other Loan Document or
agreement entered into in connection with or as security for this Note, it is
agreed as follows: (i) the aggregate of all consideration which constitutes
interest under law applicable to the Lender that is contracted for, taken,
reserved, charged, or received herein or under the Agreement or under any of the
other aforesaid Loan Documents or agreements or otherwise in connection herewith
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be credited by the Lender on the principal
amount of the Obligations (or, if the principal amount of the Obligations shall
have been paid in fall, refunded by the Lender to the Borrower, as required);
and (ii) in the event that the maturity of this Note is accelerated by reason of
an election of the Lender resulting from any Event of Default under the
Agreement or otherwise, or in the event of any required or permitted prepayment,
then such consideration that constitutes interest under law applicable to the
Lender may never include more than the maximum amount allowed by such applicable
law, and excess interest, if any, provided for in the Agreement or otherwise
shall be canceled automatically as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by the Lender on the
principal amount of the Obligations (or, if the principal amount of the
Obligations shall have been paid in full, refunded by the Lender to the
Borrower, as required). Without limiting the foregoing, all calculations of the
rate of interest taken, reserved, contracted for, charged, received or provided
for under this Note or any of the Loan Documents which are made for the purpose
of determining whether the interest rate exceeds the Maximum Rate shall be made,
to the extent allowed by law, by amortizing, prorating, allocating and spreading
in equal parts during the period of the full stated term of the loan evidenced
hereby, all interest at any time taken, reserved, contracted for, charged,
received, or provided for under this Note of any of the Loan Documents. To the
extent that Chapter 303 of the Texas Finance Code is relevant for purposes of
determining the Maximum Rate, the Lender hereby elects to determine the
applicable rate ceiling under such statute by the weekly rate ceiling from time
to time in effect, subject to the Lender's right subsequently to change such
method in accordance with applicable law.
BORROWER:
---------
87
<PAGE>
iOWN, INC., a California corporation
By:__________________________________________
Name:________________________________________
Title:_______________________________________
88
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EXHIBIT "A"
-----------
{See Attached}
89
<PAGE>
EXHIBIT "B"
-----------
{See Attached}
90
<PAGE>
EXHIBIT 10.13
SUBORDINATED LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of August 12, 1999, is entered
into by and between iOwn Holdings, Inc., a Delaware corporation, with its chief
executive office, and principal place of business located at 118 King St., Suite
226, San Francisco, CA (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 [*] in 2 installments of [*] ("Part I" and
Part II") 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
[*] Confidential Treatment Requested
1
<PAGE>
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 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(1)(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 BC 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(1)(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.
2
<PAGE>
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(1)(f) of the UCC, now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest.
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 (including without limitation, the warrant
agreement dated as of August 12, 1999) 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) any
Master Lease Agreement 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 [*] of the principal amount of Part I of the
Loan due at the Closing Date less the Commitment Deposit of [*] paid by check
number [*] plus the transaction due diligence and legal expenses of [*] and [*]
of the principal amount of Part II of the Loan due on the Advance Date of Part
II.
1.16 "Fixtures" means any "fixtures," as such term is defined in Section
9313(1)(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
[*] Confidential Treatment Requested
3
<PAGE>
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. General Intangibles does not include
intellectual property owned by third parties licensed or otherwise used by the
Borrower.
1.18 "Instruments" means any "instrument," as such term is defined in
Section 9105(1)(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, 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
4
<PAGE>
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 the date 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 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 Liens" 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(1) 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 guarantee 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.
5
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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 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 debt exceeding
[*] outstanding at any one time.
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 to be
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.
[*] Confidential Treatment Requested
6
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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, pursuant to which Borrower granted Lender the right to
purchase that number of shares of Series D 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 [*] percent per annum, shall be due and
payable in thirty-six (36) 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.
2.2 [*]
2.3 Borrower shall have the option to prepay the Loan, in whole or in
part, after 12 months from the Closing Date by paying the principal amount
thereon together with all accrued and unpaid interest with respect to such
principal amount, as of the date of such prepayment, without premium. In the
event Borrower prepays the Note(s) within 12 months from the Closing Date
hereof, Borrower shall pay the principal amount together with all accrued and
unpaid interest and a prepayment premium equal to [*] of the then outstanding
principal amount. In the event of a Merger whereby Lender does not consent to
the assignment of this Loan, Borrower shall prepay the Loan without prepayment
premium.
2.4 (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.
[*] Confidential Treatment Requested
7
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(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").
2.5 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 security interest in, all of Borrower's 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;
8
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4.1 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 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 Delaware, and is duly qualified as
a foreign corporation in all jurisdictions in which 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 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 Certificate 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 Loan
Agreement 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
9
<PAGE>
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 commercial 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 in amounts equal to the full replacement cost of the Collateral.
Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU
438 or equivalent) naming Lender as loss payee and additional insured. 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.
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"):
(i) As soon as practicable after the end of each fiscal year, and in
any event within one hundred twenty (120) days thereafter, consolidated balance
sheets of the Company and its subsidiaries, if any, as of the end of such fiscal
year, and consolidated statements of income, shareholders' equity and cash flows
of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles and setting forth in
each case in comparative form the figures for the previous fiscal year, all in
reasonable detail and audited (without qualification as to scope) by independent
auditors selected by the Company.
(ii) As soon as practicable after the end of each fiscal quarter, and
in any event within forty-five (45) days thereafter, a consolidated balance
sheet of the Company and its subsidiaries, if any, as of the end of each such
period, consolidated statements of income, consolidated statements of changes in
financial condition, a consolidated statement of cash flow of the Company and
its subsidiaries and a statement of shareholders' equity for such
10
<PAGE>
period and for the current fiscal year to date, and setting forth in each case
in comparative form the figures for corresponding periods in the previous fiscal
year, and setting forth in comparative form the budgeted figures, prepared in
accordance with generally accepted accounting principles (other than for
accompanying notes), subject to changes resulting from year-end audit
adjustments, all in reasonable detail and signed by the principal financial or
accounting officer of the Company.
(iii) As soon as practicable after the end of each month and in any
event within thirty (30) days thereafter, a consolidated balance sheet of the
Company and its subsidiaries, if any as of the end of each such period,
consolidated statements of income, consolidated statements of changes in
financial condition, a consolidated statement of cash flow of the Company and
its subsidiaries and a statement of shareholders' equity for such period and for
the current fiscal year to date, and setting forth in each case in comparative
form the figures for corresponding periods in the previous fiscal year, and
setting forth in comparative form the budgeted figures, prepared in accordance
with generally accepted accounting principles (other than for accompanying
notes), subject to changes resulting from year-end audit adjustments, all in
reasonable detail and signed by the principal financial or accounting officer of
the Company.
6.2 The Company shall permit any authorized representative of Lender and
its attorneys, at its expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by the Lender upon reasonable notice; provided, however, that the
Company shall not be obligated pursuant to this Section to provide access to any
information which it reasonably considers to be a trade secret or similar
confidential information.
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, and in the Event of
Default, 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 filed 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
11
<PAGE>
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 twenty (20) 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 2.3 hereof. Lender hereby consents to any Merger in which the surviving
entity has a Moody's Bond Rating of BA3 or better or a commercially acceptable
equivalent measure of creditworthiness as reasonably determined by Lender.
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 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
12
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Lender in the Collateral, and (b) have given the Lender no less than thirty (30)
days prior written notice of such relocation.
SECTION 7. CONDITIONS PRECEDENT TO LOAN
The obligation of Lender to fund the Loan on each Advance Date shall be
subject to Lender's discretion and satisfactory completion of its due diligence
and approval process, and satisfaction by Borrower or waiver by Lender, in
Lender's sole discretion, of the following conditions:
7.1 (a) [*]
(b) [*]
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, Note(s), and any documents
reasonably required by Lender to effectuate the liens of Lender, with
respect to all Collateral;
(b) 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) as certified by the Secretary of the
Company;
(c) certified copies of the Certificate 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;
(e) payment of the Facility Fee for Part I;
(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 Agreements as set
forth in Section 2, as applicable;
(c) payment of the Facility Fee (if applicable);
[*] Confidential Treatment Requested
13
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(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 written notice from Lender; 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, 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
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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 $250,000.00 or having a
Material Adverse Effect; or the entry of any judgment against Borrower involving
an award in excess of $250,000.00 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 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
ten (10) 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
15
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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 reasonable
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 of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
and duration of such prohibition or 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:
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(a) If to Lender:
-------------
COMDISCO, INC.
Legal Department
Attention: General Counsel
6111 North River Road
Rosemont, IL 60018
Facsimile: [*]
With a copy to:
---------------
COMDISCO, INC./COMDISCO VENTURES
6111 North River Road
Rosemont, IL 60018
Facsimile: [*]
(b) If to Borrower:
---------------
iOwn Holdings, Inc
Attention: Lee Kirkpatrick
118 King St. Suite 226
San Francisco, CA 94107
Facsimile: [*]
Phone: [*]
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 July 13, 1999,
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.
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
[*] Confidential Treatment Requested
17
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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
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,
18
<PAGE>
"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 or otherwise
referred to as confidential, 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.
19
<PAGE>
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: iOwn Holdings, Inc.
Signature: /s/ Lee T. Kirkpatrick
----------------------
Print Name: Lee T. Kirkpatrick
----------------------
Title: CFO & Secretary
----------------------
Accepted in Rosemont, Illinois:
- -------------------------------
LENDER: COMDISCO, INC.
Signature: /s/ James Labe
-------------------------
Print Name: James Labe
-------------------------
Title: President
Comdisco Ventures Division
-------------------------
20
<PAGE>
Exhibit A
Promissory Note
21
<PAGE>
Exhibit A
SUBORDINATED PROMISSORY NOTE
$ Date:
---------------------- -------------
Due:
-------------
FOR VALUE RECEIVED, iOwn Holdings, Inc., a Delaware 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 [*] 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 36 equal monthly
installments 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
August 12, 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.
[*] Confidential Treatment Requested
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<PAGE>
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: iOwn Holdings, Inc.
Signature:
---------------------------
Print Name:
---------------------------
Title:
---------------------------
-2-
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series D Preferred Stock of
iOwn Holdings, Inc.
Dated as of August 12, 1999 (the "Effective Date")
WHEREAS, iOwn Holdings, Inc., a Delaware corporation (the "Company") has
entered into a Subordinated Loan and Security Agreement dated as of August 12,
1999, and related Subordinated Promissory Note(s) (collectively, the "Loans")
with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Loans, the right to purchase shares of its Series D Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Loans and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
For Part I (as defined in the Loans) the Company hereby grants to the
Warrantholder, and the Warrantholder is entitled, upon the terms and subject to
the conditions hereinafter set forth, to subscribe to and purchase, from the
Company, 160,000 fully paid and non-assessable shares of the Company's Series D
Preferred Stock ("Preferred Stock") at a purchase price of $2.50 per share (the
"Exercise Price").
In the event Part II is made available (as set forth in the Loans) and the
Series E Preferred Stock financing closes after 90 days from the commitment date
of the Series E Preferred Stock financing, the Company hereby grants to the
Warrantholder, and the Warrantholder is entitled, upon the terms and subject to
the conditions hereinafter set forth, to subscribe to and purchase, from the
Company, 160,000 fully paid and non-assessable shares of the Company's Preferred
Stock at the Exercise Price. In the event the Company utilizes Part II and the
Series E Preferred Stock financing closes within 90 days from the commitment
date of the Series E Preferred Stock financing, then the Borrower will execute
and deliver to Warrantholder a Warrant Agreement, in form and substance
satisfactory to Warrantholder, whereby the Company shall grant to Warrantholder
the right to purchase that number of shares of Series E Preferred Stock equal to
$400,000 divided by the price per share of said Series E shares. Such Warrant
Agreement shall be delivered within fifteen (15) days of the close of the Series
E Preferred Stock financing.
The number and purchase price of such shares are subject to adjustment as
provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) ten (10) years
or (ii) five (5) years from the effective date of the Company's initial public
offering, whichever is longer.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering
-1-
<PAGE>
to the Company at its principal office a notice of exercise in the form attached
hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed.
Promptly upon receipt of the Notice of Exercise and the payment of the purchase
price in accordance with the terms set forth below, and in no event later than
twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a
certificate for the number of shares of Preferred Stock purchased and shall
execute the acknowledgment of exercise in the form attached hereto as Exhibit II
(the "Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public offering
of the Company's Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the SEC,
then the fair market value per share shall be the product of (x) the
initial "Price to Public" specified in the final prospectus with respect to
the offering and (y) the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the product of (x) the average of the closing
prices over a five (5) day period ending three days before the day the
current fair market value of the securities is being determined and
(y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the product of (x) the average of the closing
bid and asked prices quoted on the NASDAQ system (or similar system)
over the five (5) day period ending three days before the day the
current fair market value of the securities is being determined and
(y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the National Market or the over-the-
counter market, the current fair market value of Preferred Stock shall be
the product of (x) the highest price per share which the Company could
obtain from a willing buyer (not a current employee or director) for shares
of Common Stock sold by the Company, from authorized but unissued shares,
as determined in good faith by its Board of Directors and (y) the number of
shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise, unless the Company shall become
subject to a merger, acquisition or other consolidation pursuant to which
the Company is not the surviving party, in which case the fair market value
of Preferred Stock shall be deemed to be the value received by the holders
of the Company's Preferred Stock on a common equivalent basis pursuant to
such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and
-2-
<PAGE>
conditions of such amended Warrant Agreement shall be identical to those
contained herein, including, but not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
Authorization and Reservation of Shares. During the term of this Warrant
---------------------------------------
Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
------------------------------------
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to
-3-
<PAGE>
that price determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction (i) the numerator of which shall be the
total number of all shares of the Company's stock outstanding immediately prior
to such dividend or distribution, and (ii) the denominator of which shall be the
total number of all shares of the Company's stock outstanding immediately after
such dividend or distribution. The Warrantholder shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
shares of Preferred Stock (calculated to the nearest whole share) obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of shares of Preferred Stock issuable upon the exercise hereof
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment.
(e) Right to Purchase Additional Stock. If the Company has not paid any
----------------------------------
Subordinated Promissory Note(s) entered into pursuant to the Loan(s) in its
entirety by the Maturity Date (as defined in the applicable Subordinated
Promissory Note(s)), then for each additional month, or portion thereof,
thereafter that the outstanding principal is not paid, Warrantholder shall have
the right to purchase from the Company, at the Exercise Price (adjusted as set
forth herein), an additional number of shares of Preferred Stock which number
shall be determined by (i) multiplying the outstanding principal amount which
due but unpaid by 1% and (ii) dividing the product thereof by the Exercise
Price.
(f) Antidilution Riqhts. Additional antidilution rights applicable to the
-------------------
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit ____ (the "Charter"). The
Company shall promptly provide the Warrantholder with the same notices it
provide the holders of Preferred Stock.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
---------------------
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event;
(iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder:
(A) at least twenty (20) days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such Merger Event, dissolution, liquidation or winding up; (B) in the
case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such Merger Event, dissolution, liquidation or winding up); and
(C) in the case of a public offering, the Company shall give the Warrantholder
at least twenty (20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever;, provided, however,
that the Preferred Stock issuable pursuant to this Warrant Agreement may be
subject to restrictions on transfer under state and/or Federal securities laws.
The Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company
-4-
<PAGE>
shall not be required to pay any tax which may be payable in respect of any
transfer involved and the issuance and delivery of any certificate in a name
other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Loans and this Warrant Agreement are
not inconsistent with the Company's Charter 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 Loans and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms subject to the laws of general application relating to
bankruptcy, insolvency, and the relief of debtors, rules of law governing
specific performance, injunctive relief or other equitable remedies.
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition
The authorized capitalization of the Company as of June 21, 1999 is as follows:
(i) Preferred Stock. 108,807,648 shares of Preferred Stock of which (i)
2,492,900 are designated as Series A Preferred Stock, all of which are
issued and outstanding as of the Closing Date, (ii) 2,492,900 are
designated as Series A-1 Preferred Stock, none of which are issued and
outstanding as of the Closing Date, (iii) 12,170,924 are designated as
Series B Preferred Stock, 11,951,764 of which are issued and outstanding as
of the Closing Date, (iv) 12,170,924 are designated as Series B-1 Preferred
Stock, none of which are issued and outstanding as of the Closing Date, (v)
17,740,000 are designated as Series C Preferred Stock, 17,740,000 of which
are issued and outstanding as of the Closing Date, (vi) 17,740,000 are
designated as Series C-1 Preferred Stock, none of which are issued and
outstanding as of the Closing Date, (vii) 11,000,000 are designated as
Series D Preferred Stock, 7,820,643 of which are issued and outstanding
prior to the Closing Date, (viii) 11,000,000 are designated as Series D-1
Preferred Stock, none of which are issued and outstanding as of the Closing
Date, (ix) 11,000,000 are designated as Series E Preferred Stock, none of
which are issued and outstanding prior to the Closing Date and (ix)
11,000,000 are designated as Series E-1 Preferred Stock, none of which are
issued and outstanding as of the Closing Date. All such issued and
outstanding shares have been duly authorized and validly issued, and, to
our knowledge, are fully paid and nonassessable and were issued in
compliance with applicable federal and state securities laws. The Company
has reserved an aggregate of 108,807,648 shares of Common Stock for
issuance upon conversion of the Preferred Stock.
(ii) Common Stock. 125,000,000 shares of Common Stock (the "Common
Stock"), 7,375,668 of which have been duly authorized and validly issued,
and to our knowledge, are fully paid and nonassessable.
(iii) Rights to Acquire Stock. Except for (a) the conversion privileges
of the Preferred Stock, (b) the rights of first refusal as set forth in
Section 3.1 of the Rights Agreement, (c) the outstanding warrants to
purchase 219,160 shares of Series B Preferred Stock, (iv) the outstanding
warrants to purchase 30,000 shares of Common Stock (d) the shares of
Preferred Stock that have been reserved for issuance upon exercise of
warrants, and the shares of Common Stock that have been reserved for
issuance upon conversion of Preferred Stock, and 10,057,012 shares of
Common Stock reserved for issuance to employees, consultants, officers, or
directors of the Company pursuant to stock options or direct grants, of
which, to our knowledge, 6,753,375 are currently outstanding, there are, to
our knowledge, no options, warrants, conversion privileges or other rights
(or agreements for any such rights) outstanding to purchase or otherwise
obtain from the Company any of the Company's securities.
-5-
<PAGE>
(e) Insurance. The Company has in full force and effect insurance policies,
---------
with extended coverage, insuring the Company and its property and business
against such losses and risks, and in such amounts, as are customary for
corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
----------------------------------------
Warrant Agreement, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
------------------------
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without
-6-
<PAGE>
expense to such holder, one or more new certificates for the Warrant or for such
shares of Preferred Stock not bearing any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
-------------------
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
(g) Any transfer by Warrantholder to a nominee shall be limited to any
Affiliate (as described below) of any Warrantholder, provided that: (i) such
transfer may otherwise be effected in accordance with applicable securities
laws, (ii) such transfer is effected in compliance with the restrictions on
transfer contained in Fourth Amended and Restated Investor Rights Agreement
between the Company and holders of the Company's capital stock (iii) the Company
receives written notice of such transfer or assignment. No transfer or
assignment will divest a nominee or any subsequent owner of such rights and
powers unless all Registrable Shares are transferred or assigned. "Affiliate"
---------
means, with respect to any specified Person (as defined below), any other Person
which, directly or indirectly, controls, is under common control with, or is
owned or controlled by, such specified Person. For purposes of this Agreement,
(i) "control" means, with respect to any specified Person, either (x) the
beneficial ownership of 10% or more of any class of equity securities or (y) the
power to direct the management or policies of the specified Person through the
ownership of voting securities, by contract, voting agreement or otherwise, (ii)
the terms "controlling", "control with" and "controlled by", etc. shall have
meanings correlative to the foregoing and (iii) the officers, directors and 10%
shareholders of the Company shall be deemed to be Affiliates of the Company.
"Person" means any individual, corporation, general or limited partnership,
------
joint venture, association, limited liability company, joint stock company,
trust, business trust, bank, trust company, estate (including any beneficiaries
thereof), unincorporated organization, cooperative, association or government or
branch, agency or political subdivision thereof. Without in any way limiting the
presentations set forth above, the Warrantholder further agrees not to transfer
the warrant rights or make any disposition of all or any portion of the shares
of Preferred Stock issuable upon exercise of the Warrant unless and until:
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
(b) The Warrantholder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
proposed disposition, and if reasonably requested by the Company, such
Warrantholder shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not require
registration under the Securities Act.
11. TRANSFERS.
---------
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers and provided further that such transfer is
reasonably acceptable to the Company. The transfer shall be recorded on the
books of the Company upon receipt by the Company of a notice of transfer in the
form attached hereto as Exhibit III (the "Transfer Notice"), at its principal
offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer.
12. LOCKUP AGREEMENT.
----------------
-7-
<PAGE>
Warrantholder agrees that, if, in connection with the Initial Public
Offering of the Company's securities, the Company or the underwriters managing
the offering so request, the Warrantholder shall not sell, make any short sale
of, loan, grant any option for the purchase of or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company or such underwriters as the case may
be, for such period of time (not to exceed one hundred eighty (180) days) from
the effective date of such registration as may be requested by the Company or
the underwriters; provided that each officer and director of the Company who
owns stock of the Company and other holders of at least 5% of the Company's
voting securities also agrees to such restrictions. This Section shall be
binding on all transferees or assignees of Registrable Securities, whether or
not such persons are entitled to registration rights hereunder. "Registrable
-----------
Securities" means Common Stock issued or issuable on conversion of the Preferred
- ----------
and any shares of Common Stock issued or issuable in respect of such Common
Stock upon any stock split, stock dividend, recapitalization or similar event.
Shares of Common Stock or other securities shall only be treated as Registrable
Securities if they have not been sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction.
13. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governinq Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: Venture Lease
Administration, cc: Legal Department, attn.: General counsel, (and/or, if by
facsimile, ([*] and [*] and (ii) to the company at 118 King Street, Suite 260,
San Francisco, CA 94107, Attention: Lee Kirkpatrick (and/or if by facsimile,
[*]) or at such other address as any such party may subsequently designate by
written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
--------
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal
[*] Confidential Treatment Requested
-8-
<PAGE>
and enforceable provision, which comes closest to the intention of the parties
underlying the invalid, illegal or unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
----------
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Loans referenced in the preamble of this Warrant Agreement exceeds
$1,000,000, the Company will also provide Warrantholder with an opinion from
the Company's counsel in the form to be agreed upon. The Company shall also
supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: iOwn Holdings, Inc.
By: /s/ Lee Kirkpatrick
-------------------------
Title: CFO
-------------------------
Warrantholder: COMDISCO, INC.
By: /s/ James Labe
-------------------------
James Labe, President
Title: Comdisco Ventures Division
-------------------------
-9-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
TO:
------------------------------
(1) The undersigned Warrantholder hereby elects to purchase _________________
shares of the Series___________ Preferred Stock of ____________________,
pursuant to the terms of the Warrant Agreement dated the
__________________________ day of, 19__ (the "Warrant Agreement") between
----------------- and the Warrantholder, and tenders herewith payment of
the purchase price for such shares in full, together with all applicable
transfer taxes, if any.
(2) In exercising its rights to purchase the Series ___________ Preferred Stock
of __________, the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series ____ Preferred Stock in the name of the undersigned or in such
other name as is specified below.
- ---------------------------------
(Name)
- ---------------------------------
(Address)
Warrantholder: COMDISCO, INC.
By:
-------------------------------
Title:
----------------------------
Date:
-----------------------------
-10-
<PAGE>
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned ________________, hereby acknowledge receipt of the "Notice
of Exercise" from Comdisco, Inc., to purchase ___ shares of the Series _________
Preferred Stock of ______________________________, pursuant to the terms of the
Warrant Agreement, and further acknowledges that ____ shares remain subject to
purchase under the terms of the Warrant Agreement.
Company:
By:
-------------------------------
Title:
-------------------------------
Date:
-------------------------------
-11-
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- ----------------------------------------------------
(Please Print)
whose address is------------------------------------
- ----------------------------------------------------
Dated:
-------------------------------
Holder's Signature:
------------------
Holder's Address:
------------------
- ----------------------------------------------------
Signature Guaranteed:
-------------------------------
NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant Agreement.
-12-
<PAGE>
THIS SPACE FOR USE OF FILING OFFICER
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform
Commercial Code and will remain effective, with certain exceptions, for 5 years
from date of filing.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C>
A. NAME & TEL # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
- ---------------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
[ ]
[ ]
- ------------------------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION [if applicable]: LESSOR/LESSEE CONSIGNOR/CONSIGNEE NON-UCC FILING
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b)
- -----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1a. ENTITY'S NAME
iOWN Holdings, Inc.
------------------------------------------------------------------------------------------------------------------------------
OR 1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
118 King Steet, Suite 226 San Francisco CA USA 94107
------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR OPTIONAL ADD'NL 1a. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D.#, If any
TAX I.D. # INFO RE ENTITY DEBTOR OR COUNTRY OF
ORGANIZATION
[] NONE
- -----------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b)
------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY'S NAME
------------------------------------------------------------------------------------------------------------------------------
OR 2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- -----------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR OPTIONAL ADD'NL 2a. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D.#, If any
TAX I.D. # INFO RE ENTITY DEBTOR OR COUNTRY OF
ORGANIZATION
[] NONE
- -----------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S - (Original S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY'S NAME
Comdisco, Inc.
------------------------------------------------------------------------------------------------------------------------------
OR 3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- -----------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
6111 North River Road Rosemont IL USA 60018
- -----------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
See Exhibit I attached hereto and made a part hereof.
</TABLE>
Secretary of State, CA
3 pages attached
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
5. CHECK BOX [] This FINANCING STATEMENT is signed by the Secured Party 7. If filed in Florida (check one)
(if applicable) instead of the Debtor to perfect a security interest (a) [] Documentary stamp tax paid
in collateral annuity, subject to a security interest in [] Documentary stamp tax not
another jurisdiction when it was brought into this state, applicable
or when the debtor's location was changed to this state,
or (b) in accordance with other statutory provisions
(additional data may be required)
- -----------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. This FINANCING STATEMENT is to
/S/ iOwn Holdings, Inc. be filed (for record) (or recorded) in the
REAL ESTATE RECORDS
Attach Addendum (If applicable)
- -----------------------------------------------------------------------------------------------------------------------------------
9. Check to REQUEST SEARCH CERTIFICATES(S)
on Debtor(s) (ADDITIONAL FEE)
(optional)
[] All Debtors [] Debtor 1 [] Debtor 2
- -----------------------------------------------------------------------------------------------------------------------------------
(1) FILING OFFICER COPY - NATIONAL FINANCING STATEMENT (FORM UCC1) (TRANS) (REV. 12/18/95)
</TABLE>
<PAGE>
EXHIBIT I
This Financing Statement covers the following Collateral pledged by iOwn
Holdings, Inc. ("Debtor") to Comdisco, Inc. ("Secured Party") pursuant to the
Subordinated Loan and Security Agreement dated as of August 12, 1999 between
iOwn Holdings, Inc. as Borrower and Comdisco, Inc. as Lender ("Loan Agreement")
for purposes of securing payment of the Secured Obligations (as defined in the
Loan Agreement) now and hereafter owing by Debtor to Secured Party.
All of the Debtor's right, title and interest in: (i) all Receivables; (b) all
Equipment; (c) all Fixtures; (d) all General Intangibles; (e) all Inventory; (f)
all goods and personal property of Debtor, whether tangible or intangible and
whether now or hereafter owned or existing, leased, consigned by or to, or
acquired by, Debtor and wherever located; and (g) 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.
Capitalized terms used in this Exhibit I and not defined above shall have the
following meanings:
"Account" means any "account," as such term is defined in Section 9106 of the
UCC, now owned or hereafter acquired by Debtor or in which Debtor 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 Debtor (including, without limitation, under any trade name, style or
division thereof) whether arising out of goods sold or services rendered by
Debtor or from any other transaction, whether or not the same involves the sale
of goods or services by Debtor (including, without limitation, any such
obligation which may be characterized as an account or contract right under the
UCC) and all of Debtor'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 Debtor'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 rights to returned, reclaimed or repossessed goods), and
all monies due or to become due to Debtor under all purchase orders and
contracts for the sale of goods or the performance of services or both by Debtor
(whether or not yet earned by performance on the part of Debtor 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.
"Account Debtor" means any "account debtor," as such term is defined in Section
9105(1)(a) of the UCC.
"Chattel Paper" means any "chattel paper," as such term is defined in Section
9105(1)(b)of the UCC, now owned or hereafter acquired by Debtor or in which
Debtor now holds or hereafter acquires any interest.
"Contracts" means all contracts, undertakings, franchise agreements or other
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Debtor 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.
"Copyrights" means all of the following now owned or hereafter acquired by
Debtor or in which Debtor 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.
"Copyright License" means any written agreement granting any right to use any
Copyright or Copyright registration now owned or hereafter acquired by Debtor or
in which Debtor now holds or hereafter acquires any interest.
"Documents" means any "documents," as such term is defined in Section 9105(1)(f)
of the UCC, now owned or hereafter acquired by Debtor or in which Debtor now
holds or hereafter acquires any interest.
"Equipment" means any "equipment," as such term is defined in Section 9109(2) of
the UCC, now or hereafter owned or acquired by Debtor or in which Debtor 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.
"Fixtures" means any "fixtures," as such term is defined in Section 9313(1)(a)
of the UCC, now or hereafter owned or acquired by Debtor or in which Debtor now
holds or hereafter acquires any interest and, now or hereafter attached
<PAGE>
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 Debtor 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.
"General Intangibles" means any "general intangibles," as such term is defined
in Section 9106 of the UCC, now owned or hereafter acquired by Debtor or in
which Debtor now holds or hereafter acquires any interest and, in any event,
shall include, without limitation, all right, title and interest which Debtor
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.
"Instruments" means any "instrument," as such term is defined in Section
9105(1)(i) of the UCC, now owned or hereafter acquired by Debtor or in which
Debtor now holds or hereafter acquires any interest.
"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, software, data bases, skill,
expertise, experience, processes, models, drawings, materials and records.
"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 Debtor or in
which Debtor 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 Debtor 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 Debtor'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 Debtor or is held by Debtor or by others
for Debtor'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 Debtor or of any
carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or
other persons.
"License" means any Copyright License, Patent License, Trademark License or
other license of rights or interests now held or hereafter acquired by Debtor or
in which Debtor now holds or hereafter acquires any interest and any renewals or
extensions thereof.
"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.
"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 Debtor or in which Debtor now holds or hereafter acquires any interest.
"Patents" means all of the following now owned or hereafter acquired by Debtor
or in which Debtor 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 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.
<PAGE>
"Proceeds" means "proceeds," as such term is defined in Section 9306(1) 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 Debtor from time to time in respect of the
Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to Debtor 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 Debtor 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 Debtor 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.
"Receivables" shall mean and include all of the Debtor's 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.
"Trademark License" means any written agreement granting any right to use any
Trademark or Trademark registration now owned or hereafter acquired by Debtor or
in which Debtor now holds or hereafter acquires any interest.
"Trademarks" means any of the following now owned or hereafter acquired by
Debtor or in which Debtor 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.
"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.
<PAGE>
SUBORDINATED PROMISSORY NOTE
$2,500,000 Date: September 3, 1999
Due: September 1, 2002
FOR VALUE RECEIVED, iOwn Holdings, Inc., a Delaware 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 [*]together with interest at [*] 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 36 equal
monthly installments of [*] each, commencing October 1, 1999 and on the same day
of each month thereafter to and including September 1, 2002, 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
August 12, 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.
[*] Confidential Treatment Requested
-1-
<PAGE>
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: iOwn Holdings, Inc.
Signature: /s/ Lee T. Kirkpatrick
----------------------
Print Name: Lee T. Kirkpatrick
------------------
Title: CFO & Secretary
---------------
-2-
<PAGE>
Exhibit B
Advance Request
Date: 8/27/99
-------
To: Lender:
Comdisco, Inc.
% Comdisco Ventures
3000 Sand Hill Road
Menlo Park, CA 94025
Attention: Vika Tonga
[*]
Borrower hereby requests from Comdisco, Inc. ("Lender") an Advance in the
amount of [*] on 8/30/99, 1999 (the "Advance Date") under that
--- -------
Subordinated Loan and Security Agreement between Borrower and Lender dated
August 12, 1999 (the "Agreement").
- ---------
Please:
(a) Issue a check payable to Borrower
or
(b) Wire Funds to Borrower's account
Bank: Imperial Bank
-------------
Address: 2510 Manhattan Beach Blvd.
--------------------------
Redondo Beach, CA 90278
-----------------------
ABA Number: [*]
---------
Account Number: [*]
---------
Account Name: iOwn, Inc.
----------
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 27 day of August, 1999 by:
-- ------
BORROWER: iOWN, Inc.
----------
BY: /s/ Lee T. Kirkpatrick
----------------------
TITLE: CFO and Secretary
----------------------
PRINT: Lee T. Kirkpatrick
----------------------
[*] Confidential Treatment Requested
22
<PAGE>
Exhibit C
Financial Projections
23
<PAGE>
[*]
[*] Confidential Treatment Requested
<PAGE>
EXHIBIT 10.14
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes
only, April 16 , 19 99 , is made by and between Rincom Associates ("Lessor") and
-------- -- -----------------
iOwn, Inc. ("Lessee"), (collectively the "Parties," or individually a "Party").
- ----------
1.2(a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 333 Bryant Street , located in the City
-----------------
of San Francisco , County of San Francisco , State of California , with zip code
------------- ------------- ----------
94107 , as outlined on Exhibit A attached hereto ("Premises"). The "Building" is
- ----- -
that certain building containing the Premises and generally described as
(describe briefly the nature of the Building): See attached Exhibit "A" to
Lease. In addition to Lessee's rights to use and occupy the Premises as
hereinafter specified, Lessee shall have non-exclusive rights to the Common
Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall
not have any rights to the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along with al
other buildings and improvements thereon, are herein collectively referred to as
the "Industrial Center." (also see Paragraph 2.)
1.2(b) Parking: NO unreserved vehicle parking spaces ("Unreserved
--
Parking Spaces"); and Four (4) reserved vehicle parking spaces (Reserved Parking
--------
Spaces"). (Also see Paragraph 2.6 and Paragraph 53)
1.3 Term: as follows years and months ("Original Term") commencing
----------
See paragraph 52 ("Commencement Date") and ending October 31, 2004 ("Expiration
- ---------------- ----------------
Date"). (Also see Paragraph 3.)
1.4 Early Possession: See paragraph 52 ("Early Possession Date").
----------------
(Also see Paragraphs 3.2 and 3.3.)
1.5 Base Rent: $ 57,000.00 per month ("Base Rent"), payable on the
---------
First day of each month commencing See paragraph 52 (Also see Paragraph 4.)
- ----- ----------------
[X] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum 52 , attached hereto.
1.6(a) Base Rent Paid Upon Execution: $57,000.00 as Base Rent for the
---------
period month three of the Lease as defined in Paragraph 52
---------------------------------------------------
1.6(b) Lessee's Share of Common Area Operating Expenses: 22.11% percent
------
(22.11) ("Lessee's Share") as determined by
[X] prorata square footage of the Premises as compared to the total square
footage of the Building or [ ] other criteria as described in
Addendum .
----
1.7 Security Deposit: $100,000.00 ("Security Deposit"). (Also see
----------
Paragraph 5.)
1.8 Permitted Use: Internet company, software development and
------------------------------------------
related office use. ("Permitted Use") (Also see Paragraph 6.)
------------------
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see
Paragraph 8.)
1.10(a) Real Estate Brokers. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist
in this transaction and are consented to by the Parties (check
applicable boxes):
[X] Tri Commercial Real Estate Services
-----------------------------------
represents Lessor exclusively ("Lessor's Broker")
[X] ROK Properties represents Lessees exclusively ("Lessee's
--------------
Broker"); or
[ ] represents bot Lessor and Lessee ("Dual
--------------
Agency"). (Also see Paragraph 15)
1.10(b) Payment to Brokers. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $
------
for brokerage services rendered by said Broker(s) in connection with this
transaction. (See paragraph 60)
1.11 Guarantor. The obligations of the Lessees under this Lease are
to be guaranteed by ("Guarantor"). (Also see paragraph 37.)
----------------
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 67 , and Exhibits A through B , all of which
-- -- - -
constitute a part of this Lease.
2. Premises, Parking and Common Areas.
2.1 Lotting. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that my have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance rectify same at Lessor's expense,. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost expense.
2.3 Compliance with Covenants, Restrictions and Building Code.
Lessor warrants that any improvements (other than those constructed by Lessee or
at Lessee's direction (on or in the Premises which have been constructed or
installed by lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date Said warranties shall not apply to an
Alterations or Utility provided in this Lease, promptly after receipt of written
notice from Lessee given within six (6) months following the commencement Date
and setting forth with specificity the nature and extent of such non-compliance,
take such action, at Lessor's expense, as my be reasonable or appropriate to
rectify the non-compliance. Lessor makes not warranty that the Permitted Use in
paragraph 1.8 is permitted for the Premises under Applicable or appropriate to
rectify the non-compliance. Lessor makes no warranty that the Permitted Use in
Paragraph 1.8 is permitted for the Premises under Applicable Laws (as defined in
Paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it
has bee advised by the broker(s) to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and by
convenants or such investigation as it deems necessary with reference to such
matters, is satisfied with reference thereto, and assumes all responsibility
therefore as the same relate to Lessee's occupancy of the Premises and/or the
terms of this Lease; and (c) that neither Lessor, nor any of Lessor's agents,
has made any oral or written representations or warranties with respect to said
matters other than is set forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
Paragraph 2 shall be of no force of effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner of occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
<PAGE>
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces that said number
said parking spaces shall be used for parking by vehicles no larger than full-
size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicle other than Permitted Size Vehicles shall be parked and loaded
or unloaded as directed by Lessor in the Rules and Regulations (as defined in
Paragraph 40) issued by lessor. (Also see Paragraph 2.9)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this paragraph 2.6, then Lessor shall have the right, without
notice, In addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor
(c) Lessor shall at the Commencement Date of this Lease. provide
the parking facilities required by Applicable Law.
2.7 Common Areas--Definition. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior boundary
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to lime for the general non-
exclusive use 04 Lessor, Lessee and other lessees of the Industrial Center and
their respective employees, suppliers, shippers, customers, contractors and
individual fees. including parking areas, loading and unloading areas, bash
areas, roadways, sidewalks, walkways, padways, driveways and landscaped areas.
(See Insert 1, Exhibit "B")
2.8 Common Areas--Lease's Rights. Lessor hereby grants to Lessee.
for the benefit of Lessee and its employees, suppliers, shippers, contractors.
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use. the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to Include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked al any lime. In the
event that any unauthorized storage shall occur then Lessee shall have the
right, without notice, In addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee. which cost shall be
immediately payable upon demand by Lessor.
2.9 Common Areas--Rules and Regulations. Lessor or such other
person(s} as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from time to lime, to establish,
modify, amend and enforce reasonable Rules and Regulations with respect thereto
in accordance with Paragraph 40. Lessee agrees to abide by and Conform to all
such Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations
other lessees to the Industrial Center.
2.10 Common Areas--Changes. Lessor shall have the right, in Lessor's
reasonable discretion so long as it does not cause any material interference
from time to time
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances parking space parking areas, loading and unloading areas, ingress,
egress direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) to designate other land outside the boundaries of the
Industrial Center to be a part of the common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may in the exercise of sound business judgement, deem to be appropriate.
3. Term.
3.1. Term. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3
3.3. Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4 or if no Early Possession Date is specified, by the
Commence Date, Lessor shall not be subject to any liability therefor, nor shall
such failure affect the validity of this Lease, or the obligations of Lessee
hereunder, or extend the term hereof, but in such case, Lessee shall not, except
as otherwise provided Herein, be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period. Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
day of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee. (See
paragraph 52.2)
4. Rent
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges,
as the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the months involved. Payment of
Base Rent and other changes shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor
during the term hereof, In addition to the Base Rent, Lessee's Share (as
specified in Paragraph 1.6(b)) of all Common Area Operating Expenses, as
hereinafter defined of all increases over Lessee's share during the base year
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes
of this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat clean,
good order and condition, of the following:
(aa) the Common Area, including parking area, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Property management and security services and the
costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of
Common Areas.
(v) Any increase above the Base Real Property Taxes (as
defined in Paragraph 102(b)) for the Building and the Common Areas. Property tax
base year 1998-1999.
(vi) Any "Insurance Coal Increase" (as defined in Paragraph
8.1).
(vii) The cost of Insurance carried by Lessor with
respect to the Common Areas.
(viii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(ix) Any other services to be provided by Lessor that are
slated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Properly Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation
upon Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same. Lessor already
Provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share at Common Area Operating Expenses shall be
payable by Lessee within left (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate during each 12 month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such over
--2--
<PAGE>
payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement. (See paragraph 67)
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may
use, apply or retain all or any portion of said Security Deposit for the payment
of any amount due Lessor or to reimburse or compensate Lessor for any liability,
cost, expense, loss or damage (including attorney' fees) which Lessor may suffer
or incur by reason thereof. If Lessor uses or applies all or any portion of said
Security Deposit, for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, cost, expense, loss or damage (including
attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor
uses or applies all or any portion of said Security Deposit, Lessee shall within
ten (10) days after written request therefore deposit monies with Lessor
sufficient to restore said Security Deposit to the full amount required by this
Lease. Any time the Base Rent increases during the term of this Lease, Lessee
shall, upon written request from Lessor, deposit additional monies with Lessor
as an addition to the Security Deposit so that the total amount of the Security
Deposit shall at all not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor,
no part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any monies to
be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use
or permit the use of the Premises in a manner that is unlawful, creates waste or
a nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay
its consent to any written request by Lessee, Lessee's assignees or subtenants,
and by prospective assignees and subtenants of Lessee. Its assignees and
subtenants, for a modification of said Permitted Use, so long as the same will
not impair the structural integrity of the improvements on the Premises or in
the Building or the mechanical or electrical systems therein, does not conflict
with uses by other lessees, is not significantly more burdensome to the Premises
or the Building and the Improvements thereon, and is otherwise permissible
pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor
shall within five (5) business days after such request give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "Reportable Use" shall mean (i) the Installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice registration or business plan is
required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and In compliance
with all Applicable Requirements, use any ordinary and customary material
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor my (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability thereof, including but not limited to
the installation (and, at Lessor's option, remove all on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to all such documents as may be involved in any
Reportable Use Involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) Indemnification. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities,
judgements, costs, claims, liens, expenses, penalties, loss of permits and
attorney' and consultants' fees arising out of or involving any Hazardous
Substance brought onto the Premises by or for Lessee or by anyone under Lessee's
control. Lessee's obligations under this Paragraph 6.2(c) shall include, but not
be limited to, the effects of any contamination or injury to person, property or
the environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about Premises, including soil and
ground water conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
(See Insert 6, Exhibit "B")
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("Lenders") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times upon prior notice and a representative of
Lessee shall be given an opportunity to accompany Lessor and /or Lessor's
Representative for the purpose of inspecting the condition of the Premises and
for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case maybe, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2. (Condition),
2.3 (Compliance with Covenants Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditions, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceiling, floors, windows, doors, plate glass, and sky lights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. (See Insert 2 Exhibit "B")
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilating system,
and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the
actual cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required, perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 Lessor Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9.
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection
--3--
<PAGE>
systems and equipment, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing there services for which there
is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not
be obligated to maintain, repair or replace windows, doors or plate glass of the
Premises. Lessee expressly waives the benefit of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Building, Industrial Center of Common Areas in good order, condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility
Installations" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make non-
structural Utility Installations to the interior of the Premises (excluding the
roof) without Lessor's consent but upon notice to Lessor, so long as they are
not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed $2,500.00
per incident and $10,000.00 aggregate. (See Insert 3, Exhibit "B")
(b) Consent. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon; (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,5000.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) Lien Protection. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein,
Lessee shall give Lessor not less than ten (10) days notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of its sole expense, defend and protect itself, Lessor
and the premises against the same and shall pay and satisfy and such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory required by law for the holding of the Premises free
from the effect of such lien or claim. In addition, Lessor may require in such
Lessee to pay Lessor's reasonable attorney's fees and costs in participating
action if Lessor shall decide it is to its best interest to do so.
(d) See Insert 4, Exhibit "B".
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter provided
in this Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by lessee shall be the property of and owned by Lessee, but considered
a part of the Premises. Lessor so long as timely required by Lessor or otherwise
agreed to by the parties may in connection with Lessor's consent thereto elect
in writing to Lessee to be the owner of all or any specified part of the Lessee-
Owned Alterations and Utility Installations all Lessee-Owned alterations and
Utility Installations shall, at the expiration or earlier termination of this
Lease, become the property of Lessor and remain upon the Premises and be
surrendered with the Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any item of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises
by the end of the last day of the Lease term or any earlier termination date,
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. Ordinary wear and tear shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all its obligations under this
Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Lessee-Owned Alterations and Utility Installations, as well as
the removal of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or ground water contaminated
by Lessee, all as may then be required by Applicable Requirements and/or good
practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall
be removed by Lessee subject to its obligation to repair and restore the
Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) As used herein, the term "Insurance Cost Increase" is
defined as any increase in the actual cost of the insurance applicable to the
Building and required to be carried by Lessor pursuant to Paragraphs 8.2(b),
8.3(a) and 8.3(b), ("Required Insurance"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. "Insurance Cost Increase"
shall include, but not be limited to, requirements of the holder of a mortgage
or deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term "Insurance Cost Increase" shall
not, however, include any premium increases resulting from the nature of the
occupancy of any other Lessee of the Building. If the parties insert a dollar
amount in Paragraph 1.9, such amount shall be considered the "Base Premium." If
a dollar amount has not been inserted in Paragraph 1.9 and if the Building has
been previously occupied during the twelve (12) month period immediately
preceding the Commencement Date, the "Base Premium" shall be the annual premium
applicable to such twelve (12) month period. If the "Building" was not fully
occupied during such twelve (12) month period, the "Base Premium" shall be the
lowest annual premium reasonably obtainable for the Required Insurance as of the
Commencement Date, assuming the most nominal use possible of the Building. In no
event, however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b)
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional Insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant hereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage far liability assumed under this Lease as an "Insured contract"
for the performance of Lessee's indemnity obligations under this Lease The
limits of said insurance required by this Lease or as carried by Lessee shall
not. however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations end Utility Installations, Trade Fixtures and Lessee's personal
property shall be Insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
ensure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender or included in the Base
Premium), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections of
the Building required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
loss, but not including plate glass insurance Said policy of policies shall also
contain an agreed valuation provision in lieu of any co-insurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted US
Department of Labor Consumer Price Index for all Urban Consumers for the city
nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and keep in force
during the term of this Lease a policy o(cent) policies in the name of Lessor
with loss payable to Lessor and any Lender(s), Insuring the loss of the full
rental and other charges payable by all lessees of the Building to Lessor for
one year (including all Real Property Taxes, insurance costs, all Common Area
Operating Expenses and any scheduled rental increases) Said insurance may
provide that in the even[ the Lease is terminated by reason of an insured loss,
the period of indemnity for such coverage shall be extended beyond the date of
the completion of repairs or replacement of the Premises, to provide for one
full year's loss of rental revenues from the date of any such loss said
insurance shall contain an agreed valuation provision in lieu of any co-
insurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, Real Property Taxes, Insurance premium
costs and other expenses, if any, otherwise payable, for the next 12-month
period. Common Area Operating Expenses shall include any deductible amount in
the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any Increase in the
premiums for the property insurance of the Building and for the Common Areas
other buildings in the Industrial Center if said Increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
--4--
<PAGE>
(d) Lessee's Improvements. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of
express warranties, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgements, penalties, loss of permits, attorneys' and
consultants' fees, expenses and/or liabilities arising out of, involving or in
connection with, the occupancy of the Premises by Lessee, and conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessee upon
notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 Exemption of Lessor from Liability Except for injury or damage
caused by Lessor's gross negligence or willful misconduct, Lessor shall not be
liable for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said injury or damage results from conditions arising upon
the Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom. (See Insert
5, Exhibit "B")
9. Damage or Destruction
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is less than fifty percent (50%)
of the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty percent
(50%) or more of the then Replacement Cost of the Premises (excluding Lessee-
Owned Alterations and Utility Installations and Trade Fixtures) immediately
prior to such damage or destruction. In addition, damage or destruction to the
Building, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures of any lessees of the Building, the cost of which damage or
destruction is fifty percent (50%) or more of the then Replacement Cost
(excluding Lessee-Owned Alterations and Utility Installations and Trade Fixtures
of any lessees of the Building) of the Building shall, at the option of Lessor
be deemed to be Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depredation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Premises Partial Damage--Insured Loss. If Premises Partial
Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense,
repair such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations
and Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligations to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Except that rent shall abate as of the casualty date to
the extent Lessee is unable to occupy the Premises. Unless otherwise agreed,
Lessee shall in no event have any right to reimbursement from Lessor for any
funds contributed by Lessee to repair any such damage or destruction. Premises
Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3
rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party.
9.3 Partial Damage: Uninsured Loss. If Premises Partial Damage that
is not an insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage, except that rent shall abate as of the
casualty date to the extent Lessee is unable to occupy the Premises, totally at
Lessee's expense and without reimbursement from Lessor. Lessee shall provide
Lessor with the required funds or satisfactory assurance thereof within thirty
(30) days following such commitment from Lessee. In such event this Lease shall
continue in full force and effect, and Lessor shall proceed to make such repairs
as soon as reasonably possible after the required funds are available. If Lessee
does not give such notice and provide the funds or assurance thereof within the
times specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination. Except that rent shall abate as of the
casualty date to the extent Lessee is unable to occupy the Premises.
9.4 Total Destruction. Notwithstanding any other provision hereof,
if Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, except that rent shall
abate as of the casualty date to the extent Lessee is unable to occupy the
Premises, whether or not the damage or destruction is an Insured Loss or was
caused by a negligent or willful act of Lessee. In the event, however, that the
damage or destruction was caused by Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee except as released and waived in Paragraph
9.7.
9.5 Damage Near End Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continues, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired. Except for
abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation, or restoration
unless such damage is caused by Lessor's gross negligence or willful misconduct.
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(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue. Lessee may, at time prior
to the commencement of such repair or restoration, give written notice to any
Lenders of which Lessee has actual notice of Lessee's election to terminate this
Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) after the receipt of such notice, this Lease shall continue in full
force and effect. "Commence" as used in this Paragraph 9.6 shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefor (in which case
Lessee shall make the investigation and remediation thereof required by
Applicable Requirements and this Lease shall continue in full force and effect,
but subject to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor
may at Lessor's option either (i) investigate and remediate such Hazardous
Substance Condition, if required, as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) if the estimated cost to investigate and remediate such condition exceeds
twelve (12) times the then monthly Base Rent or $100,000 whichever is greater,
give written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such Hazardous Substance Condition of Lessor's
desire to terminate this Lease as of the date sixty (60) days following the date
of such notice. In the event Lessor elects to give such a notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten (10)
days after the receipt of such notice to give written notice to Lessor of
Lessee's commitment to pay for the excess costs of (a) investigation and
remediation of such Hazardous Substance Condition to the extent required by
Applicable Requirements, over (b) an amount equal to twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor
with the funds required of Lessee or satisfactory assurance thereof within
thirty (30) days following said commitment by Lessee. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
investigation and remediation as soon as reasonably possible after the required
funds are available. If Lessee does not give such notice and provide the
required funds or assurance thereof within the time period specified above, this
Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.8 Termination--Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises and the Building with respect to the termination of this Lease and
hereby waive the provisions of any present or future statute to the extent it is
inconsistent herewith.
10. Real Property Taxes
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a) applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 Real Property Tax Definitions.
(a) As used herein, the term "Real Property Taxes" shall include
any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"Real Property Taxes" shall also include any tax fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a change in ownership of the Industrial Center or
in the improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
(See Insert 7, Exhibit "B".)
(b) As used herein, the term "Base Real Property Taxes" shall be
the amount of Real Property Taxes, which are assessed against the Premises
Building or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall
not include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alteration, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed,
Real Property Taxes allocated to the Building shall be an equitable proportion
of the Real Property Taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined by Lessor from the
respective valuation assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable determination
thereof shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations. Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said property shall be assessed with Lessor's real property, Lessee
shall pay Lessor the taxes attributable to Lessee's property within ten (10)
days after receipt of a written statement setting forth the taxes applicable to
Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Building, in the manner and within the time periods set
forth in Paragraph 4.2(d).
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36. (See Insert 8, Exhibit "B")
(c) The involvement of Lessee or its assets in any transactions
(by way of merger, sale, acquisition, financing, refinancing, transfer,
leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than twenty-five percent (25%) of such Net Worth of
Lessee as it was represented to Lessor at the time of full execution and
delivery of this Lease or at the time of the most recent assignment to which
Lessor has consented, or considered an assignment of this Lease by Lessee to
which Lessor may reasonably withhold its consent. "Net Worth of Lessee" for
purposes of this Lease shall be the net worth of Lessee (excluding any
Guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1, or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a non-curable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days' written notice ("Lessor's Note"), increase the monthly Base Rent for
the Premises to the greater of the then fair market rental value of the
Premises, as reasonably determined by Lessor, or one hundred ten percent (110%)
of the Base Rent then in effect. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation or obsolescence, and considering
the Premises at its highest and best use and in good condition) or one hundred
ten percent (110%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index applicable
to the time of such adjustment, and (iii) any fixed rental adjustment scheduled
during the remainder of the Lease form shall be increased in the same ratio as
the new rental bears to the Base Rent in effect immediately prior to the
adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any obligations to be performed by Lessee
under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent subletting and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease of the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
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(d) In the event of any Default of any Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a deposit of $1,000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the proposed
assignment or sublease, whichever is greater, as a deposit for the amounts due
under Paragraph 36. Lessee agrees to provide Lessor with such other or
additional information and/or documentation as may be reasonably requested by
Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to two (2) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Except as provided in Paragraph 57.1, Lessor, as a condition
to giving its consent to any assignment or subletting, may require that the
amount and adjustment schedule of the rent payable under this Lease be adjusted
to what is then the market value and/or adjustment schedule for property similar
to the Premises as then constituted, as determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such Sublease. Lessor shall not, by reason of the
foregoing provision or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to the
sublessee for any failure of Lessee to perform and comply with any of Lessee's
obligations to such sublessee under such sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents and other charges due and to become
due under the sublease. Sublessee shall rely upon any such statement and request
from Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior
defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's prior
written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have the right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with, or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraph 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following Lessee's receipt of written notice thereof by or on
behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an authorized
assignment or subletting per Paragraph 12.1, (iv) a Tenancy Statement per
Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease
per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations
under this Lease if required under Paragraphs 1.11 and 37, (viii) the execution
of any document requested under Paragraph 42 (easements), or (vii) any other
documentation or information which Lessor may reasonably require of Lessee under
the terms of this lease, where any such failure continues for a period of ten
(10) days following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more that thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease be Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided, however,
in the event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurances of security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
of Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such pro-
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ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
Subparagraph 13.1(b), (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
Subparagraph 13.1(b), (c) or (d). In such case, the applicable grace period
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two (2) such grace periods shall constitute both an unlawful
detainer and a Breach of this Lease entitling Lessor to the remedies provided
for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the right to
sublet or assign, subject only to reasonable limitations. Lessor and Lessee
agree that the limitations on assignment and subletting in this Lease are
reasonable. Acts of maintenance or preservation, efforts to rlet the Premises,
or the appointment of a receiver to protect the Lessor's interest under this
Lease, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing prior to such expiration or termination (unless Lessee shall
holdover the Premises) or by reason of Lessee's occupancy of the Premises.
Nothing contained herein shall be construed as a consent by Lessor to any
holding over by Lessee.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance. (See Insert 11, Exhibit "B".)
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor 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, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to twelve pct (12%) of such
overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Lessor will incur by reason of late payment
by Lessee. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken
under the power of eminent domain or sold under the threat of the exercise of
said power (all of which are herein called "condemnation), this Lease shall
terminate as to the part so taken as of the date condemning authority takes
title or possession whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
portion of the Common Areas designated for Lessee's parking, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing within
ten (10) days after Lessor shall have given Lessee written notice of such taking
(or in the absence of such notice, within ten (10) days after the condemning
authority shall have taken possession) terminate this Lease as of the date the
condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
Base Rent shall be reduced the same proportion as the rentable floor are a of
the Premises taken bears to the total rentable floor area of the Premises. No
reduction of Base Rent shall occur if the condemnation does not apply to any
portion of the Premises unless the common areas are condemned in a manner that
materially affects Lessee's access to the Premises. Any award for the taking of
all or any part of the Premises under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution of value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any compensation, separately awarded
to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages received,
over and above Lessee's Share of the legal and other expenses incurred by Lessor
in the condemnation matter, repair any damage to the Premises caused by such
condemnation authority.
15. Brokers' Fees.
15.4 Representations and Warranties. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall
within ten (10) days after written notice from the other Party (the "Requesting
Party") execute, acknowledge and deliver to the Requesting Party a statement in
writing in a form similar to the then most current "Tenancy Statement" form
published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth. If Lessee
becomes a publicly held company, then Lessor shall only require publicly
available financial statements.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises. In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit)
any unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined. (See
Insert 10, Exhibit "B".)
18. Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party of this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
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23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or registered
mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses noted
adjacent to a Party's signature on this Lease shall be that Party's address for
delivery or mailing of notice purposes. Either Party may by written notice to
the other specify a different address for notice purposes, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for the purpose of mailing or delivering notices to Lessee. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent
or similar act by Lessee, or be construed as the basis of an estoppel to enforce
the provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any Default or Breach by
Lessee of any provision hereof. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased one hundred and fifty
percent (150%) of the Base Rent applicable during the month immediately
preceding such expiration or earlier termination. Nothing contained herein shall
be construed as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease unless and until they become the owner of the building, but that in the
event of Lessor's default with respect to any such obligation, Lessee will give
any Lender whose name and address have been furnished Lessee in writing for such
purpose notice of Lessor's default pursuant to Paragraph 13.5. If any Lender
shall elect to have this Lease and/or any Option granted hereby superior to the
lien of its Security Device and shall give written notice thereof to Lessee,
this Lease and such Options shall be deemed prior to such Security Device,
notwithstanding the relative dates of the documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not: (i)
be liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into
by Lessor after the execution of this lease, Lessee's subordination of this
Lease shall be subject to receiving assurance (a "non-disturbance agreement")
from the Lender that Lessee's possession and this Lease, including any options
to extend the term hereof, will not be disturbed so long as Lessee is not in
Breach hereof and attorns to the record owner of the Premises. (See Insert 9,
Exhibit "B".)
30.4 Self-Executing. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) in any such proceeding, action, or appeal thereon, shall
be entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times upon prior notice and a
representative of Lessee shall be given an opportunity to accompany Lessor
and/or Lessor's Representative for the purpose of showing the same to
prospective purchases, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term thereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any
such event to make a written election to the contrary by written notice to the
holder of any such lesser interest, shall constitute Lessor's election to have
such event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this
Lease per Paragraph 1.11, each such Guarantor shall have the same obligations as
Lessee under this lease, including but not limited to the obligation to provide
the Tenancy Statement and information required in Paragraph 16.
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<PAGE>
37.2. Additional Obligations of Guarantor. It shall constitute a
Default of the Lessee under this Lease if any such Guarantor fails or refuses,
upon reasonable request by Lessor to give: (a) evidence of the due execution of
the guaranty called for by this Lease, including the authority of the Guarantor
(and of the party signing on Guarantor's behalf) to obligate such Guarantor on
said guaranty, and resolution of its board of directors authorizing the making
of such guaranty, together with a certificate of incumbency showing the
signatures of the persons authorized to sign on its behalf, (b) current
financial statements of Guarantor as may from time to time be requested by
Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty
is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for
the Premises and the performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal to Original Lessee. Except with respect to a
Related Entity, each Option granted to Lessee in this Lease is personal to the
original Lessee named in Paragraph 1.1 hereof, and cannot be voluntarily or
involuntarily assigned or exercised by any person or entity other than said
original Lessee while the original Lessee is in full and actual possession of
the Premises and without the intention of thereafter assigning or subletting.
The Options, if any, herein granted to Lessee are not assignable, either as a
part of an assignment of this Lease or separately or apart therefrom, and no
Option may be separated from this Lease in any manner, by reservation or
otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised unless
the prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during the twelve (12) month period immediately preceding the exercise of the
Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
--10--
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCE. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR THEIR CONTRACTORS,
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN
A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE
PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: San Francisco, California Executed at: San Francisco, California
------------------------- -------------------------
on: 6/30/99 on:
---------------------------------- ----------------------------------
By LESSOR: By LESSEE:
Rincon Associates iOwn, Inc.
- -------------------------------------- --------------------------------------
A California General Partnership A California Corporation
- -------------------------------------- --------------------------------------
By: /s/ A. Robert Fisher By: /s/ Edward Plater Hoyt
---------------------------------- -----------------------------------
Name Printed: A. Robert Fisher Name Printed: Edward Plater Hoyt
------------------------ ------------------------
Title: Partner Title: President and CEO
------------------------------- -------------------------------
By: By: /s/ Lee T. Kirkpatrick
---------------------------------- ----------------------------------
Name Printed: Name Printed: Lee T. Kirkpatrick
------------------------ ------------------------
Title: Title: CFO
------------------------------- -------------------------------
Address: 333 Bryant Street, Suite 200 Address: 118 King Street, Suite 226
----------------------------- -----------------------------
San Francisco, CA 94107 San Francisco, CA 94107
- -------------------------------------- --------------------------------------
Telephone: (415) 981-6076 Telephone: (415) 908-6420
--------------------------- ---------------------------
Facsimile: ( ) Facsimile: ( )
--------------------------- ---------------------------
BROKER: BROKER:
Executed at: Executed at:
------------------------- -------------------------
on: on:
---------------------------------- ----------------------------------
By: By:
---------------------------------- ----------------------------------
Name Printed: Name Printed:
------------------------ ------------------------
Title: Title:
------------------------------- -------------------------------
Address: Address:
----------------------------- -----------------------------
- -------------------------------------- --------------------------------------
Telephone: ( ) Telephone: ( )
--------------------------- ---------------------------
Facsimile: ( ) Facsimile: ( )
--------------------------- ---------------------------
Note: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 South Flower
Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777.
--11--
<PAGE>
EXHIBIT "B"
INSERTS TO STANDARD INDUSTRIAL COMMERCIAL MULTI-TENANT LEASE-GROSS
BETWEEN RINCON ASSOCIATES, A CALIFORNIA GENERAL PARTNERSHIP,
AS LESSOR, AND iOwn, Inc., A CALIFORNIA CORPORATION,
AS LESSEE, FOR PREMISES LOCATED AT 333 BRYANT STREET,
SUITE 300, SAN FRANCISCO, CALIFORNIA
INSERT 1:
- --------
Insert to Paragraph 2.7 - Common Areas - Definitions. Add the following: "Common
Areas shall not include any telecommunications facilities that service one or
more Lessees in the Industrial Center."
INSERT 2:
- --------
Add the following to Paragraph 7.1(a) - Lessee's Obligations: "Lessee's
obligations hereunder shall include maintenance and repair of all
telecommunications wiring and cabling in the Premises and the connection of
Lessee's telecommunications wire and cabling with the Industrial Center's
intrabuilding network cabling."
INSERT 3:
- --------
Add the following to Paragraph 7.3(a) - Utility Installations, Trade Fixtures,
Alterations - Definitions; Consent Required: "For purposes of this Lease, the
installation, repair or removal by Lessee of telecommunications lines or the
making by Lessee of connection or disconnections of telecommunications lines in
a common telecommunications closet servicing the Premises and other portions of
the Industrial Center shall be deemed an alteration, addition or improvement
requiring Lessor's consent hereunder. If the Premises does not have its own
telecommunications line closet exclusively serving the Premises, then Lessee
shall not enter the telecommunications line closet serving the Premises and
other portions of the Industrial Center for purposes of connection,
disconnection, removal, repair or installation of telecommunications lines and
cabling without obtaining Lessor's prior consent. All such connection,
disconnection, removal, repair and installation shall be performed by a
qualified contractor approved by Lessor in advance."
INSERT 4:
- --------
Add the following as new Paragraph 7.3(d): "(d) Telecommunications Services. If
Lessee requires any extraordinary telecommunication services that require any
increase in the capacity of the Industrial Center's system and/or intrabuilding
network cabling, then Lessee shall notify Lessor of such and, if Lessor consents
in writing to such increase in capacity, Lessee shall pay, as additional rent,
the cost of any alterations, modifications or improvements required to be made
to the Industrial Center's telecommunications system and/or intrabuilding
network cabling to provide such extraordinary service."
INSERT 5:
- --------
Insert to Paragraph 8.8 - Exemption of Lessor from Liability. Unless caused by
Lessor's gross negligence or willful misconduct, Lessor shall not be liable for,
and Lessee hereby releases Lessor from any and all losses, damages, judgements,
costs, expenses and claims incurred by Lessee as a result of any interruption of
any utilities or other services, including, without limitation, any
telecommunications services.
<PAGE>
INSERT 6:
- --------
Insert to Paragraph 6.3 - Lessee's Compliance with Requirements. Notwithstanding
anything in Paragraph 6.3 or elsewhere in this Lease to the contrary, Lessee
shall have no obligation to modify any structural elements of the Premises or
the building encompassing the Premises or to modify any portion of the
electrical, water, HVAC or other utility systems of the Premises or the building
encompassing the Premises unless such modifications are required by Lessee's use
of the Premises; provided however, in no event shall this provision be deemed to
modify, affect or amend Lessee's obligations under the Lease to repair, maintain
and replace any and all mechanical, electrical, HVAC, and plumbing systems
servicing the Premises.
INSERT 7:
- --------
Insert to Paragraph 10.2(a) - Real Property Tax Definitions. The following shall
be excluded from the definition of "Real Property Taxes": all excess profits
taxes, franchise taxes, gift taxes, capital stock taxes, federal and state
income taxes, and other taxes applied or measured by Lessor's general or net
income (as opposed to rents, receipts, or income attributable to operations at
the Building).
INSERT 8:
- ---------
Insert to Paragraph 12.1(b) - Lessor's Consent Required. Notwithstanding
anything to the contrary contained in this Section 6, so long as Lessee delivers
to Lessor (1) at least fifteen (15) business days prior written notice of its
intention to assign or sublease the Premises to any Related Entity, which notice
shall set forth the name of the Related Entity, (2) a copy of the proposed
agreement pursuant to which such assignment or sublease shall be effectuated,
and (3) such other information concerning the Related Entity as Lessor may
reasonably require, including without limitation, information regarding any
change in the proposed use of any portion of the Premises and any financial
information with respect to such Related Entity, and so long as (i) any change
in the proposed use of the subject portion of the Premises is in conformance
with the uses permitted to be made under this Lease and do not involve the use
or storage of any Hazardous Substances (other than nominal amounts of ordinary
household cleaners, office supplies and janitorial supplies which are not
regulated by environmental laws), and (ii) at the time of the proposed
assignment or sublease, the net profits and financial condition of the Related
Entity is reasonably adequate and sufficient in relation to the then remaining
obligations of Lessee under the Lease, then Lessee may assign this Lease or
sublease any portion of the Premises (X) to any Related Entity, or (Y) in
connection with any merger, consolidation or sale of substantially all of the
assets of Lessee, without having to obtain the prior written consent of Lessor
thereto. For purposes of this Lease the term "Related Entity" shall mean and
refer to any corporation or entity which controls, is controlled by or is under
common control with Lessee as all of such terms are customarily used in the
industry.
INSERT 9:
- --------
Insert to Paragraph 30.3 - Non-Disturbance. Lessor shall use Lessor's
commercially reasonable efforts to obtain from the holder of each current
Security Device, a non-disturbance agreement in recordable form, providing among
other things, that in the event of any foreclosure or deed in lieu of
foreclosure ("Foreclosure") or the exercise of any other remedy under such
Security Device that: (a) Lessee's use, possession and enjoyment of the Premises
shall not be disturbed and this Lease shall continue in full force and effect as
long as Lessee is not in Default, and (b) this Lease shall automatically become
a lease directly between any successor to Lessor's interest as a result of any
Foreclosure and Lessee; provided, however, in no event shall obtaining such non-
disturbance agreement be a condition precedent to the effectiveness of this
Lease or Lessee's obligations hereunder.
<PAGE>
INSERT 10:
- ---------
Insert to Paragraph 17 - Lessor's Liability. Lessor's liability shall in no
event exceed Lessor's equity in the Building. In addition, in the event Lessor
shall change Lessor's form of ownership or organizational structure, in
consideration of Lessee's entering into this Lease on the terms and conditions
contained in this Lease, Lessee agrees and covenants with Lessor that (i) Lessee
shall look solely to the assets of such newly formed entity and under no event
or circumstance shall Lessee or any successor, assign, or subtenant of Lessee
seek recourse against any of the assets of the Individual General Partners of
Rincon Associates and (ii) Lessee hereby consents to the assignment and transfer
of Lessor's interest in and to the Lease to such newly formed entity. Lessee
shall execute and acknowledge, if applicable, such documents, instruments and
agreements reasonably requested by Lessor to evidence Lessee's agreement to the
foregoing and Lessee agrees to cooperate with Lessor to accomplish such change
of form of ownership.
INSERT 11:
- ---------
Insert to Paragraph 13.3 - Inducement of Breach: For purposes of this Paragraph
13.3 only, a "Breach" shall not be deemed to have occurred under Paragraph 13.1
(b) unless and until (i) the initial three (3) day period described in Paragraph
13.1(b) shall have expired and (ii) thereafter, an additional five (5) business
days shall have expired following Lessee's receipt of a second (2nd) written
notice of a failure of Lessee to make a payment described in Paragraph 13.1(b).
<PAGE>
SUBLEASE EXHIBIT "A"
STANDARD INDUSTRIAL LEASE -- MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Parties. This Lease, dated, for reference purposes only, June 13, 1997, is
------- --
made by and between RINCON ASSOCIATES, a California general partnership with
--------------------------------------------------------
its principal offices at 333 Bryant St., Suite 200, SF, CA 94107 (herein called
- ----------------------------------------------------------------
"Lessor") and Psygnosis, Inc., a California corporation with principal offices
----------------------------------------------------------------
at 333 Bryant Street, SF, CA 94107 (herein called "Lessor").
- ----------------------------------
2. Premises, Parking and Common Areas.
2.1 Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, real
property situated in the County of San Francisco, State of California commonly
------------- ----------
known as 333 Bryant Street and described as set forth on Exhibit "A",
----------------- -------------------------
approximately 25,288 rentable square feet herein referred to as the "Premises",
- -----------------------------------------
including rights to the Common Areas as hereinafter specified but not including
any rights to the roof of the Premises or to any Building in the Industrial
Center. The Premises are a portion of a building, herein referred to as the
"Building." The Premises, the Building, the Common Areas, the land upon which
the same are located, along with all other buildings and improvements thereon,
are herein collectively referred to as the "Industrial Center."
2.2 Vehicle Parking. Lessee shall be entitled to four (4) vehicle parking
--------
spaces, on those portions of the Common Areas designated by Lessor for parking.
Lessee shall not use more parking spaces than said number. Said parking spaces
shall be used only for parking by vehicles no larger than full size passenger
automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Vehicles
other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
2.2.1 Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
2.2.2 If Lessee permits or allows any of the prohibited activities described
in paragraph 2.2 of this Lease, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.3 Common Areas -- Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor, Lessee and of other
lessees of the Industrial Center and their respective employees, suppliers,
shippers, customers and invitees, including parking areas, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and
landscaped areas.
*See Addendum Paragraph 64
2.5 Common Areas -- Rules and Regulations. Lessor or such other persons(s) as
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend
and enforce reasonable rules and regulations with respect thereto. Lessee agrees
to abide by and conform to all such rules and regulations which will be provided
to Lessee by Lessor in writing when such are established and/or revised, and to
cause its employees, suppliers, shippers, customers, and invitees to so abide
and conform. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other lessees of the Industrial Center.
2.6 Common Areas -- Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas and walkways; (b) To close temporarily any of the
Common Areas for maintenance purposes so long as reasonable access to the
Premises remains available; (c) To designate other land outside the boundaries
of the Industrial Center to be a part of the Common Areas; (d) To add additional
buildings and improvements to the Common Areas; (e) To use the Common Areas
while engaged in making additional improvements, repairs or alterations to the
Industrial Center, or any portion thereof; (f) To do and perform such other acts
and make such other changes in, to or with respect to the Common Areas and
Industrial Center as Lessor may, in the exercise of sound business judgment,
deem to be appropriate.
2.6.1 Lessor shall at all times provide the parking facilities required by
applicable law and in no event shall the number of parking spaces that Lessee is
entitled to under paragraph 2.2 be reduced.
3. Term.
3.1 Term. The term of this Lease shall be as follows; commencing on
-----------
execution of the Lease and ending on October 31, 2002 unless sooner terminated
- ---------------------- ----------------
pursuant to any provision hereof.
* See Addendum Paragraph 65.
3.3 Early Possession. If Lessee occupies the Premises prior to said
commencement date in 3.1 above such occupancy shall be subject to all provisions
of this Lease, such occupancy shall not advance the termination date, and Lessee
shall pay rent for such period at the initial monthly rates set forth below.
4. Rent.
See Addendum, Paragraph 67.
<PAGE>
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
$31,083.00 as security for Lessee's faithful performance of Lessee's
- ----------
obligations hereunder if Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessee may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Lessor may become obligated by reason of Lessee's default, or to
compensate Lessor for any loss or damage which Lessor may suffer thereby. If
Lessor so uses or applies all or any portion of said deposit, Lessee shall
within ten (10) days after written demand therefor deposit cash with Lessor in
an amount sufficient to restore said deposit to the full amount then required of
Lessee if the monthly rent shall, from time to time, increase during the term of
this Lease. Lessee shall, at the time of such increase, deposit with Lessor
additional money as a security deposit so that the total amount of the security
deposit held by Lessor shall at all times bear the same proportion to the then
current Base Rent as the initial security deposit bears to the initial Base Rent
set forth in paragraph 4. Lessor shall not be required to keep said security
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for multimedia,
-----------
software design, development, production and testing, and administration
- ------------------------------------------------------------------------
offices in connection therewith or any other use which is reasonably comparable
- -------------------------------
and for no other purpose. Lessor represents to the best of its knowledge that
said use is permitted by current zoning laws.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state existing on the
date that the Lease term commences but without regard to the use for which
Lessee will occupy the Premises, does not violate any covenants or restrictions
of record, ADA, environmental laws, or any applicable building code,
regulation or ordinance in effect on such Lease term commencement date. In the
event it is determined that this warranty has been violated, then it shall be
the obligation of the Lessor, after written notice from Lessee, to promptly, at
Lessor's sole cost and expense, rectify any such violation in the event Lessee
does not give to Lessor written notice of the violation of this warranty within
six months from the date that the Lease term commences, the correction of same
shall be the obligation of the Lessee at Lessee's sole cost; provided, however,
if the violation concerns any latent defects, Lessee shall have thirty (30) days
from the discovery of such latent defects to give written notice of the
violation to Lessor and if Lessee fails to give such notice the correction of
the same shall be the obligation of Lessee at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's expense,
promptly comply with all applicable statues, ordinances, rules, regulations,
orders, covenants and restrictions of record, and requirements of any fire
insurance underwriters or rating bureaus, now in effect or which may hereafter
come into effect, whether or not they reflect a change in policy from that now
existing, during the term or any part of the term hereof, relating in any manner
to the Lessee's Tenant Improvements and the occupation and use by Lessee of the
Premises and of the Common Areas. Lessee shall not use nor permit the use of
the Premises or the Common Areas in any manner that will tend to create waste or
a nuisance or shall tend to disturb other occupants of the Industrial Center.
6.2 (c) Notwithstanding anything else to the contrary contained in this Lease,
through the term hereof, Lessee shall not be responsible for any costs incurred
due to other tenants' manner and use of occupancy of their respective premises.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free of debris on
the Lease commencement date (unless Lessee is already in possession) and Lessor
warrants to Lessee that the plumbing, hot water and chilled water for HVAC unit
on premises, and any other utilities serving the premises except telephone and
telecommunications, and HVAC air handler unit, and loading doors in the Premises
shall be in good operating condition and roof free of leaks on the Lease
commencement date. In the event that it is determined that this warranty has
been violated, then it shall be the obligation of Lessor, after receipt of
written notice from Lessee setting forth with specificity the nature of the
violation, to promptly, at Lessor's sole cost, rectify such violation. Lessee's
failure to give such written notice to Lessor within thirty (30) days after the
Lease commencement date shall cause the conclusive presumption that Lessor has
complied with all of Lessor's obligations hereunder. The warranty contained in
this paragraph 6.3(a) shall be of no force or effect if prior to the date of
this Lease, Lessee was an owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts the
Premises in their condition existing as of the Lease commencement date or the
date that Lessee takes possession of the Premises, whichever is earlier, subject
to all applicable zoning, municipal, county and state laws, ordinances and
regulations governing and regulating the use of the Premises, and any covenants
or restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Subject to the provisions of Addendum, paragraph 67
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's
expense, subject to reimbursement pursuant to Addendum, paragraph 67 shall keep
in good condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, plumbing to the Premises and main
electrical service to the Premises, and roof of the Premises, as well as the
parking lots, walkways, driveways, landscaping, fences, signs and utility
installations of the Common Areas and all parts thereof, as well as providing
the services for which there is an Operating Expense or a Common Area
Maintenance charge pursuant to Addendum, paragraph 67. Lessor shall not,
however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors or plate glass of the Premises. Lessor shall have no obligation to make
repairs under this paragraph 7.1 until a reasonable time after receipt of
written notice from Lessee of the need for such repairs. Lessee expressly waives
the benefits of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Premises in good order, condition
and repair. Lessor shall not be liable for damages or loss of any kind or nature
by reason of Lessor's failure to furnish any Common Area Services when such
failure is caused by accident, breakage, repairs, strikes, lockout, or other
labor disturbances or disputes of any character, or by any other cause beyond
the reasonable control of Lessor. Lessor shall repair at Lessor's sole expense
any damage to the premises caused by Lessor's willful misconduct or negligence
(but only to the extent of Lessor's negligence utilizing comparative negligence
standards) or default.
7.2 Lessee's Obligations.
(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense, shall
keep in good order, condition and repair the Premises and every part thereof
(whether or not the damaged portion of the Premises or the means of repairing
the same are reasonably or readily accessable to Lessee) including, without
limiting the generality of the foregoing, all plumbing, heating, ventilating and
air conditioning systems (Lessee shall procure and maintain, at Lessee's
expense, a ventilating and air conditioning system maintenance contract),
electrical and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surfaces of exterior walls, ceilings, windows,
doors, plate glass, and skylights located within the Premises. Lessor reserves
the right to procure and maintain the ventilating and air conditioning system
maintenance contract and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(b) If Lessee fails to perform Lessee's obligations under this Paragraph 7.2
or under any other paragraph of this Lease, Lessor may enter upon the Premises
after ten (10) days' prior written notice to Lessee (except in the case of
emergency, in which no notice shall be required), perform such obligations on
Lessee's behalf and put the Premises in good order, condition and repair, and
the cost thereof together with interest thereon at the maximum rate then
allowable by law or the prime rate plus four (4%), whichever is the lesser,
shall be due and payable as additional rent to Lessor together with Lessee's
next Base Rent installment.
(c) On the last day of the term hereof, or on any sooner termination, Lessee
shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear, casualty or damage due to Lessor's willful misconduct or
negligence (but only to the extent of Lessor's negligence utilizing comparative
negligence standards) or default excepted, clean and free of debris. Any damage
or deterioration of the Premises shall not be deemed ordinary wear and tear if
the same could have been prevented by good maintenance practices. Lessee shall
repair any damage to the Premises occasioned by the installation or removal of
Lessee's trade fixtures, alterations, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing on the Premises in good operating
condition.
7.3
(a) See Addendum Paragraph 66.
-2-
<PAGE>
See Addendum Paragraph 66.
(b) Any alterations, improvements, additions or Utility Installations in or
about the Premises or the Industrial Center that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in written
form, with proposed detailed plans. If Lessor shall give its consent, the
consent shall be deemed conditioned upon Lessee acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Lessor
prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials furnished
or alleged to have been furnished to or for Lessee at or for use in the
Premises, which claims are or may be secured by any mechanic's or materialmen's
lien against the Premises, or the Industrial Center, or any interest therein.
Lessee shall give Lessor not less than ten (10) day's notice prior to the
commencement of any work in the Premises, and Lessor shall have the right to
post notices of non-responsibility in or on the Premises or the Building as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense defend itself
and Lessor against the same and shall pay and satisfy any such adverse judgment
that may be rendered thereon before the enforcement thereof against the Lessor
or the Premises or the Industrial Center, upon the condition that if Lessor
shall require, Lessee shall furnish to Lessor a surety bond satisfactory to
Lessor in an amount equal to such contested lien claim or demand indemnifying
Lessor against liability for the same and holding the Premises and the
Industrial Center free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys fees and costs in
participating in such action if Lessor shall decide it is to Lessor's best
interest to do so.
(d) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, shall be the property of Lessor and shall
remain upon and be surrendered with the Premises at the expiration of the Lease
term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Notwithstanding the provisions of this paragraph 7.3(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, and other than Utility
Installations, shall remain the property of Lessee and may be removed by Lessee
subject to the provisions of paragraph 7.2.
7.4 Utility Additions. Lessor reserves the right to install new or additional
utility facilities throughout the Building and the Common Areas for the benefit
of Lessor or Lessee, or any other lessee of the Industrial Center, including,
but not by way of limitation, such utilities as plumbing, electrical systems,
security systems, communication systems, and fire protection and detection
systems, so long as such installations do not unreasonably interfere with
Lessee's use of the Premises.
8. Insurance; Indemnity.
8.1 Liability Insurance -- Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Combined Single
Limit Bodily Injury and Property Damage insurance insuring Lessee and Lessor
against any liability arising out of the use, occupancy or maintenance of the
Premises and the Industrial Center. Such insurance shall be in an amount not
less than $500,000.00 per occurrence. The policy shall insure performance by
Lessee of the indemnity provisions of this Paragraph 8. The limits of said
insurance shall not, however, limit the liability of Lessee hereunder.
8.2 Liability Insurance -- Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Industrial Center in an amount not less than $500,000.00 per occurrence.
8.3 Property Insurance. Lessor shall obtain and keep in force during the term
of this Lease a policy or policies of insurance covering loss or damage to the
Industrial Center improvements, but not Lessee's personal property, fixtures,
equipment or tenant improvements, in an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises) special extended perils
("all risk", as such term is used in the insurance industry), plate glass
insurance and such other insurance as Lessor deems advisable. In addition,
Lessor shall obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all Operating Expenses for said period.
8.4 Payment of Premium Increase.
(a) After the term of this Lease has commenced, Lessee shall not be
responsible for paying Lessee's Share of any increase in the property insurance
premium for the Industrial Center specified by Lessor's insurance carrier as
being caused by the use, acts or omissions of any other lessee of the Industrial
Center, or by the nature of such other lessee's occupancy which create an
extraordinary or unusual risk.
(b) Lessee, however, shall pay the entirety of any increase in the property
insurance premium for the Industrial Center over what it was immediately prior
to the commencement of the term of this Lease if the increase is specified by
Lessor's insurance carrier as being caused by the nature of Lessee's occupancy
or any act or omission of Lessee. Lessee shall in no event be responsible for
insurance cost increases resulting from increase in valuation arising from
improvements made by Lessor to other tenant spaces or the addition of earthquake
coverage, unless required by a third party.
(c) Lessee shall pay to Lessor, during the term hereof, in addition to the
rent, Lessee's Share (as defined n paragraph 4.2[a]) of the amount of any
increase in premiums for the insurance required under Paragraphs 8.2 and 8.3
over and above such premiums paid during the Base Period, as hereinafter
defined, whether such premium increase shall be the result of the nature of
Lessee's occupancy, any act or omission of Lessee, requirements of the holder of
a mortgage or deed of trust covering the Premises, increased valuation of the
Premises, or general rate increases. In the event that the Premises have been
occupied previously, the words "Base Period" shall mean the last twelve months
of the prior occupancy. In the event that the Premises have never been occupied
previously, the premiums during the "Base Period" shall be deemed to be the
lowest premiums reasonably obtainable for said insurance assuming the most
nominal use of the Premises. Provided, however, in lieu of the Base Period, the
parties may insert a dollar amount at the end of this sentence which figure
shall be considered as the insurance premium for the Base Period: $4,162.00
---------
property insurance and $11,041.00 liability insurance. In no event, however,
- -----------------------------------------------------
shall Lessee be responsible for any portion of the premium cost increase
attributable to liability insurance coverage limit in excess of $2,000,000
procured under paragraph 8.2
(d) Lessee shall pay any such premium increases to Lessor within 30 days
after receipt by Lessee of a copy of the premium statement or other satisfactory
evidence of the amount due. If the insurance policies maintained hereunder cover
other improvements in addition to the Premises, Lessor shall also deliver to
Lessee a statement of the amount of such increase attributable to the Premises
and showing in reasonable detail, the manner in which such amount was computed.
If the term of this Lease shall not expire concurrently with the expiration of
the period covered by such insurance, Lessee's liability for premium increases
shall be prorated on an annual basis.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
carried by Lessor. Lessee shall deliver to Lessor copies of liability insurance
policies required under paragraph 8.1 or certificates evidencing the existence
and amount of such insurance within seven (7) days after the commencement date
of this Lease. No such policy shall be cancellable or subject to reduction of
coverage or other material modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least (30) days prior to the
expiration of such policies, furnish Lessor with renewals, certificates or
"binders" thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and relieve
the other, and waive their entire right of recovery against the other for loss
or damage arising out of or incident to the perils insured against which perils
occur in, on or about the Premises, whether due to the negligence of Lessor or
Lessee or their agents, employees, contractors and/or invitees. Lessee and
Lessor shall, upon obtaining the policies of insurance required hereunder, give
notice to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
8.7 Indemnity. Except when due to Lessor's willful misconduct or negligence
(but only to the extent of Lessor's negligence utilizing comparative negligence
standards) or default under this Lease, Lessee shall indemnify and hold harmless
Lessor from and against any and all claims arising from Lessee's use of the
Industrial Center, or from the conduct of Lessee's business or from any
activity, work or things done, permitted or suffered by Lessee in or about the
Premises or elsewhere and shall further indemnify and hold harmless Lessor from
and against any and all claims arising from any breach or default in the
performance of any obligation on Lessee's part to be performed under the terms
of this Lease, or arising from any act or omission of Lessee, or any of Lessee's
agents, contractors, or employees, and from and against all costs, attorney's
fees, expenses and liabilities incurred in the defense of any such claim or any
action or proceeding brought thereon; and in case any action or proceeding be
brought against Lessor by reason of any such claim, Lessee upon notice from
Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessee, as a material part of the consideration to Lessor, hereby assumes all
risk of damage to property of Lessee or injury to persons, in, upon or about the
Industrial Center arising from any cause and Lessee hereby waives all claims in
respect thereof against Lessor. See Addendum, paragraph 68.
8.8 Exemption of Lessor from Liability. Except when due to Lessor's willful
misconduct or negligence (but only to the extent of Lessor's negligence
utilizing comparative negligence standards) or default under this Lease. Lessee
hereby agrees that Lessor shall not be liable for injury to Lessee's business or
any loss of income therefrom or for damage to the goods, wares, merchandise or
other property of Lessee, Lessee's employees, invitees, customers, or any other
person in or about the Premises or the Industrial Center, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Industrial Center, or from other sources or places and
regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible to Lessee. Lessor shall not be liable for any
damages arising from any act or neglect of any other lessee, occupant or user of
the Industrial Center, nor from the failure of Lessor to enforce the provisions
of any other lease of the Industrial Center.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean if the Premises are damaged or
destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the Premises.
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(b) "Premises Total Destruction: shall mean if the Premises are damaged or
destroyed to the extent that the cost of repair is fifty percent or more of the
then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the Building of which
the Premises are a part is damaged or destroyed to the extent that the cost to
repair is less than fifty percent of the then replacement cost of the Building.
(d) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent or more of the then replacement cost of the
Building.
(e) "Industrial Center Buildings" shall mean all of the buildings on the
Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean if the
Industrial Center Buildings are damaged or destroyed to the extent that the cost
of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was caused by an
event required to be covered by the insurance described in paragraph 8. The fact
that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(h) "Replacement Cost" shall mean the amount of money necessary to be spent
in order to repair or rebuild the damaged area to the condition that existed
immediately prior to the damage occurring excluding all improvements made by
lessees.
9.2 Premises Partial Damage; Premises Building Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5, if at
any time during the term of this Lease there is damage which is an insures Loss
and which falls into the classification of either Premises Partial Damage or
Premises Building Partial Damage, then Lessor shall at Lessor's expense, repair
such damage to the Premises to the condition which existed immediately prior to
the loss or damage, using the same quality materials and workmanship but only to
existing building and any improvements constructed by Lessee but not Lessee's
fixtures, equipment, or tenant improvements as soon as reasonably possible and
this Lease shall continue in full force and effect.
(b) Uninsured Loss. Subject to the provisions of paragraph 9.4 and 9.5, if
at any time during the term of this Lease there is damage which is not an
Insured Loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense) which damage prevents Lessee from using the Premises. Lessor may at
Lessor's option either (i) repair such damage as soon as reasonably possible at
Lessor's expense in which event this Lease shall continue in full force and
effect, or (ii) given written notice to Lessee within thirty (30) days after the
date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease of the date of the occurrence of such damage in the event
Lessor elects to give such notice of Lessor's intention to cancel and terminate
this Lease. Lessee shall have the right within ten (10) days after the receipt
of such notice to five written notice to Lessor of Lessee's intention to repair
such damage at Lessee's expense, without reimbursement from Lessor in which
event this Lease shall continue in full force and effect and Lessee shall
proceed to make such repairs as soon as reasonably possible if Lessee does not
give such notice within such 10-day period this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.
9.3 Premises Total Destruction; Premises Building Total Destruction;
Industrial Center Buildings Total Destruction.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage whether or not it is an Insured
Loss, and which falls into the classifications of either (i) Premises Partial
Damage, or (ii) Premises Building Total Destruction, or (iii)Industrial Center
Buildings Total Destruction then Lessor may at Lessor's option either (i) repair
such damage or destruction, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible at Lessor's expense and this Lease
shall continue in full force and effect, or (ii) five written notice to Lessee
within thirty (30) days after the date of occurrence of such damage of Lessor's
intention to cancel and terminate this Lease, IN which case this Lease shall be
cancelled and terminated as of the date of the occurrence of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last six months
of the term of this Lease there is substantial damage whether or not an insured
Less which falls within the classification of Premises Partial Damage, Lessor
may at Lessor's option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an option
to extend or renew this Lease and the time within which said option may be
exercised has not yet expired. Lessee shall exercise such option if it is to be
exercised at all no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Partial Damage during
the last six months of the term of this Lease if Lessee duly exercises such
option during said twenty (20) day period. Lessor shall, at Lessor's expense.
repair such damage, bit not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
elect. If Lessee fails to said twenty (20) day period by giving written notice
to Lessee of lessor's election to do so within ten (10) days after the
expiration of said twenty (20) day period, notwithstanding any term or provision
in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Premises pursuant to the
provision of this paragraph 9, the rent payable hereunder for the period during
which such damage, repair or restoration continues shall be abated in proportion
to the degree to which Lessee's use of the Premises is impaired. Except for
abatement of rent, if any. Lessee shall have no claim against Lessor for any
damage suffered by reason of any such damage destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under the
provisions of this paragraph 9 and shall not commence such repair or restoration
within ninety (90) days after such obligation shall accrue. Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
9.6 Termination - Advance Payments. Upon termination of this Lease pursuant to
this paragraph 9, an equitable adjustment shall be made concerning advance rent
and any advance payments made by Lessee to Lessor. Lessor shall, in addition,
return to Lessee so much of Lessee's security deposit as has not theretofore
been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any stature which relate
to termination of leases when leased property is destroyed and agree that such
event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Tax Increase. Lessor shall pay the real property tax, as
defined in paragraph 10.3 applicable to the Industrial Center provided, however,
that Lessee shall pay. In addition to rent, Lessee's Share (as defined in
Addendum, paragraph 67.1 of the amount if any by which real property taxes are
applicable to the Premises increase over the fiscal real estate tax year 1997 -
1998. Such payment shall be made by Lessee within thirty (30) days after receipt
of Lessor's written statement including a copy of the bill(s) from the taxing
authority setting forth the amount of such increase and the computation thereof.
If the term of this Lease shall not expire concurrently with the expiration of
the tax fiscal year. Lessee's liability for increased taxes for the last partial
lease year shall be prorated on an annual basis.
10.2 Additional Improvements. Lessee shall not be responsible for paying
Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other lessees or by Lessor for the
exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor
at the time that Operating expenses are payable under paragraph 4.2(c) the
entirely of any increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises by Lessee or at Lessee's
request. See Addendum, paragraph 70.
10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment,
generally, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Industrial Center or any portion
thereof by any authority having the direct or indirect power to tax, including
any city, county, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district thereof, as
against any legal or equitable interest of Lessor in the Industrial Center or in
any portion thereof as against Lessor's right to rent or other income therefrom
and as against Lessor's business of leasing the Industrial Center. The term
"real property tax" shall also include any tax, fee, levy, assessment or charge
(i) in substitution of, partially or totally, any tax, fee, levy, assessment or
charge herein above included within the definition of "real property tax," or
(ii) the nature of which was hereinbefore included within the definition of
"real property tax" or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged has been increased since June
1, 1978 or (iv) which is imposed as a result of transfer either partial or total
of Lessor's interest in the Industrial Center or which is added to a tax or
charge hereinbefore included within the definition of real property tax by
reason of such transferor (v) which is imposed by reason of this transaction,
any modification or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the Industrial Center is not separately assessed.
Lessee's Share of the real property tax liability shall be an equitable
proportion of the real property taxes for all of the land and improvements
included within the tax parcel assessed such proportion to be determined by
Lessor from the respective valuations assigned in the assessor's work sheets or
such other information as may be reasonably available Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishing, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible Lessee
shall cause said trade fixtures, furnishings, equipment, and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributes to
Lessee within ten (10) business days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises together
with any taxes thereon. If any such services are not separately metered to the
Premises Lessee shall pay at Lessor's option, either Lessee's Share a reasonable
proportion to be determined by Lessor of all charges jointly metered with other
premises in the Building, in accordance with Addendum paragraph 67.
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12. Assignment and Subletting
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Lessee's interest in the Lease or in the Premises, without
Lessor's prior written consent, which Lessor shall not unreasonably withhold.
Lessor shall respond to Lessee's request for consent hereunder in a timely
manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease without the need for notice to Lessee under paragraph 13.1.
12.2 See Addendum Paragraph 71
12.3 Terms and Conditions of Assignment. Regardless of Lessor's consent, no
assignment shall release Lessee of Lessee's obligations hereunder or alter the
primary liability of Lessee to pay the Base Rent and Lessee's Share of Operating
Expenses, and to perform all other obligations to be performed by Lessee
hereunder. Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of rent shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the breach of
any of the terms or conditions of this paragraph 12 or this Lease. Consent to
one assignment shall not be deemed consent to any subsequent assignment, in the
event of default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms of hereof. Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments of this Lease or amendments or
modifications to this Lease with assignees of Lessee, without notifying Lessee,
or any successor of Lessee, and without obtaining its or their consent thereto
and such action shall not relieve Lessee of liability under this Lease.
12.4 Terms and Conditions Applicable to Subletting. Regardless of Lessor's
consent, the following terms and conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be included in subleases:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease heretofore or hereafter made
by Lessee, and Lessor may collect such rent and income and apply same toward
Lessee's obligations under this Lease; provided, however, that until a default
shall occur in the performance of Lessee's obligations under this Lease. Lessee
may receive, collect and enjoy the rents accruing under such sublease. Lessor
shall not, by reason of this or any other assignment of such sublease to Lessor
nor by reason of the collection of the rents from a sublessee, be deemed liable
to the sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a default exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents due and to become due
under the sublease. Lessee agrees that such sublessee shall have the right to
rely upon any such statement and request from Lessor, and that such sublessee
shall pay such rents to Lessor without any obligation or right to inquire as to
whether such default exists and notwithstanding any notice from or claim from
Lessee to the contrary. Lessee shall have no right or claim against such
sublessee or Lessor for any such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and until
it has been approved in writing by Lessor. In entering into any sublease, Lessee
shall use only such form of sublease as is satisfactory to Lessor, and once
approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublessee shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) If Lessee's obligations under this Lease have been guaranteed by third
parties, then a sublease, and Lessor's consent thereto, shall not be effective
unless said guarantors give their written consent to such sublease and the terms
thereof.
(d) The consent by Lessor to any subletting shall not release Lessee from
its obligations or alter the primary liability of Lessee to pay the rent and
perform and comply with all of the obligations of Lessee to be performed under
this Lease.
(e) The consent by Lessor to any subletting shall not constitute a consent
to any subsequent subletting by Lessee or to any assignment or subletting by the
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable on the Lease or sublease and without obtaining
their consent and such action shall not relieve such persons from liability.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of its obligations
under this Lease, Lessor, at its option and without any obligation to do so, may
require any sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of Lessee under such sublease from the time of the exercise of
said option to the termination of such sublease; provided, however, Lessor shall
not be liable for any prepaid rents or security deposit paid by such sublessee
to Lessee or for any other prior defaults of Lessee under such sublease.
(h) Each and every consent required of Lessee under a sublease shall also
require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by Lessee
shall not constitute an acknowledgement that no default then exists under this
Lease of the obligations to be performed by Lessee nor shall such consent be
deemed a waiver of any then existing default, except as may be otherwise stated
by Lessor at the time.
(k) With respect to any subletting to which Lessor has consented, Lessor
agrees to deliver a copy of any notice of default by Lessee to the sublessee.
Such sublessee shall have the right to cure a default of Lessee within ten (10)
days after service of said notice of default upon such sublessee, and the
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such default cured by the sublessee.
12.5 Attorney's Fees. In the event Lessee shall assign or sublet the Premises
or request the consent of Lessor to any assignment or subletting or if Lessee
shall request the consent of Lessor for any act Lessee proposes to do then
Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events shall
constitute a material default of this Lease by Lessee:
(a) The abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other payment
required to be made by Lessee hereunder as and when due where such failure shall
continue for a period of three (3) business days after receipt of written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) Except as otherwise provided in this Lease, the failure by Lessee to
observe or perform any of the covenants, conditions or provisions of this Lease
to be observed or performed by Lessee, other than described in paragraph (b)
above, where such failure shall continue for a period of thirty (30) days after
receipt of written notice thereof from Lessor to Lessee; provided, however, that
if the nature of Lessee's noncompliance is such that more than thirty (30) days
are reasonably required for its cure then Lessee shall not be in default if
Lessee commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion, provided, however, under no
circumstances shall the cure period exceed one hundred and twenty (120) days. To
the extent permitted by law, such thirty (30) day notice shall constitute the
sole and exclusive notice required to be given to Lessee under applicable
Unlawful Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors: (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. (S) 101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to Lessor by
Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in
interest of Lessee or any guarantor of Lessee's obligation hereunder, was
materially false.
13.2 Remedies. In the event of any such material default by Lessee, Lessor may
at any time thereafter, with or without notice or demand without limiting Lessor
in the exercise of any right or remedy which Lessor may have by reason of such
default:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means. In which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided,
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
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<PAGE>
(b) Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have vacates or abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located. Unpaid
installments of rent and other unpaid monetary obligations of Lessee under the
terms of this Lease shall bear interest from the date due at the maximum rate
then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails to
perform obligations required of Lessor within a reasonable time, but in no event
later than thirty (30) days after written notice by Lessee to Lessor and to the
holder of any first mortgage or deed of trust covering the Premises whose name
and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation, provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of Base Rent, Lessee's Share of Operating Expenses or other sums due
hereunder will cause Lessor 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, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Industrial Center. Accordingly, if any installment of Base
Rent, Operating Expenses or any other sum due from Lessee shall not be received
by Lessor or Lessor's designee within five (5) business days after such amount
shall be due, then five (5) business days after Lessee receives written notice
of such amount being past due, Lessee shall pay to Lessor a late charge equal to
12% of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor shall
in no event constitute a waiver of Lessee's default with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder, whether
or not collected for three (3) consecutive installments of any of the aforesaid
monetary obligations of Lessee, then Base Rent shall automatically become due
and payable quarterly in advance, rather than monthly, notwithstanding paragraph
4.1 or any other provision of this Lease to the contrary. Notwithstanding the
foregoing, Lessee, during the term of this Lease shall be granted.
14. Condemnation. If the Premises or any portion thereof or the Industrial
Center are taken under the power of eminent domain or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"). This
Lease shall terminate as to part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than ten
percent of the floor area of the Premises or more than twenty-five percent of
that portion of the Common Areas designated as parking for the Industrial Center
is taken by condemnation, Lessee may at Lessee's option, to be exercised in
writing only within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this Lease
as of the date the condemning authority takes such possession. If Lessee does
not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the premises remaining,
except that the rent shall be reduced in the proportion that the floor area of
the Premises taken bears to the total floor area of the Premises. No reduction
of rent shall occur if the only area taken is that which does not have the
Premises located thereon. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee or as severance damages; provided, however, that Lessee
shall be entitled to any award for loss of or damage to Lessee's trade fixtures
and removable personal property. In the event that this Lease is not terminated
by reason of such condemnation, Lessor shall to the extent of severance damages
received by Lessor in connection with such condemnation, repair any damages to
the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority. Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
Notwithstanding the foregoing, Lessee shall be entitled to any condemnation
award or payment made under threat of condemnation for the moving costs,
unamortized portion of any tenant improvements made at the expense of Lessee,
loss of Lessee's personal property and Lessee's trade fixtures.
15. See Addendum Paragraph 58.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less than
fifteen (15) days prior written notice from the other party ("requesting party")
execute acknowledge and deliver to the requesting party a statement in writing
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect and the date to which the
rent and other charges are paid in advance, if any, and (ii) acknowledging that
there are not, to the responding party's knowledge, any uncured defaults on the
part of the requesting party, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises or of the business of the requesting party.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Industrial Center,
or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor only such publicly available financial statements of Lessee
as may be reasonably required by, such lender or purchaser. Such statements
shall include the past three (3) years financial statements of Lessee if
publicly available. All such financial statements shall be received by Lessor
and such lender or purchaser in confidence and shall be used only for the
purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Industrial Center, and except as expressly
provided in paragraph 15, in the event of any transfer of such title or
interest. Lessor herein named (and in case of any subsequent transfers then the
grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest shall be delivered to the grantee. The
obligations contained in this Lease to be performed by Lessor shall, subject as
aforesaid, be binding on Lessor's successors and assigns only during their
respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or the prime rate plus four (4%), whichever is the lesser
from the date due. Payment of such interest shall not excuse or cure any default
by Lessee under this Lease; provided, however, that interest shall not be
payable on late charges incurred by Lessee nor on any amounts upon which late
charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and insurance and tax expenses payable shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Industrial Center and Lessee acknowledges that
Lessee assumes all responsibility regarding the Occupational Safety Health Act,
the legal use and adaptability of the Premises and the compliance thereof with
all applicable laws and regulations in effect during the term of this Lease
except as otherwise specifically stated in this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by overnight delivery service (e.g. Federal Express,
UPS, etc.) or by personal delivery or by certified mail and if given personally
or by mail, shall be deemed sufficiently given if addressed to Lessee at the
premises with a copy to Sony Corporation of America Real Estate Department, 555
Madison Avenue, 2nd Floor, New York, NY 10022, Attn: VP Real Estate or to Lessor
at the address noted below the signature of the respective parties, as the case
may be. Either party may by notice to the other specify a different address for
notice purposes except that upon Lessee's taking possession of the Premises,
the Premises shall constitute Lessee's address for notice purposes. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
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24. Waivers. No waiver by either Party or any provision hereof shall be deemed
a waiver of any other provision hereof or of any subsequent breach by the other
Party of the same or any other provision. Lessor's consent to, or approval of,
any act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by Lessee. The acceptance of rent
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular
rent so accepted, regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Industrial Center is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the
Industrial Center is located.
30. Subordination
(a) This Lease, and any Option granted hereby, at Lessor's option, shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial Center and
to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents reasonably required to effectuate
an attornment, a subordination or to make this Lease or any Option granted
herein prior to the lien of any mortgage, deed of trust or ground lease, as the
case may be. Lessee's failure to execute such documents within fifteen (15) days
after written demand shall constitute a material default by Lessee hereunder
without further notice to Lessee.
31. Attorney's Fees. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times upon prior reasonable notice for the purpose of
inspecting the same, showing the same to prospective purchasers, lenders, or
lessees, and making such alterations, repairs, improvements or additions to the
Premises or to the Industrial Center as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises or the Building any
ordinary "For Sale" signs and Lessor may at any time during the last 120 days of
the term hereof place on or about the Premises any ordinary "For Lease" signs.
All activities of Lessor pursuant to this paragraph shall be without abatement
of rent, nor shall Lessor have any liability to Lessee for the same.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
34. Signs. Lessee shall not place any sign upon the Premises or the Industrial
Center without Lessor's prior written consent. Under no circumstances shall
Lessee place a sign on any roof of the Industrial Center. See Addendum paragraph
61.3.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Industrial Center.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the following
meaning (1) the right or option to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor. (2) the option or right of first refusal to lease the Premises or the
right of first offer to lease the Premises or the right of first refusal to
lease other space within the Industrial Center or other property of Lessor or
the right of first offer to lease other space within the Industrial Center or
other property of Lessor. (3) the right or option to purchase the Premises or
the Industrial Center, or the right of first refusal to purchase the Premises or
the Industrial Center, or the right of first offer to purchase the Premises or
the Industrial Center, or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is personal
to the original Lessee and may be exercised only by the original Lessee while
occupying the Premises who does so without the intent of thereafter assigning
this Lease or subletting the Premises or any portion thereof, and may not be
exercised or be assigned, voluntarily or involuntarily, by or to any person or
entity other than Lessee, provided, however, that an Option may be exercised by
or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease.
The Options if any, herein granted to Lessee are not assignable separate and
apart from this Lease, nor may any Option be separated from this Lease in any
manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend to renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary, (i) during the time commencing
from the date Lessor gives to Lessee a notice of default pursuant to paragraph
13.1(b) or 13.1(c) and continuing until the noncompliance alleged in said notice
of default is cured, or (ii) during the period of time commencing on the date
after a monetary obligation to Lessor is due from Lessee and unpaid (without any
necessity for notice thereof to Lessee) and continuing until the obligation is
paid or (iii) at any time after an event of default described in paragraphs
13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of
such default to Lessee), or (iv) in the event that Lessor has given to Lessee
three or more notices of default under paragraph 13.1(b), or paragraph 13.1(c),
whether or not the defaults are cured, during the 12 month period of time
immediately prior to the time that Lessee attempts to exercise the subject
Option.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or
13.1(e) (without any necessity of Lessor to give notice of such default to
Lessee), or (iv) Lessor gives to Lessee three or more notices of default under
paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured.
40. Security Measures. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Industrial Center or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
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<PAGE>
41. Easements. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights , dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. Authority. If Lessee is a corporation, trust or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
45. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease. This Lease shall become
binding upon Lessor and Lessee only when fully executed by Lessor and Lessee.
46. Addendum. Attached hereto is an addendum or addenda containing paragraphs
47 through 74 which constitute a part of this Lease.
- -- --
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR
APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO: THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL
AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
Rincon Associates Psygnosis, Inc.
A California General Partnership /s/ Ian Hetherington
- ---------------------------------- --------------------------------------
By /s/ A. Robert Fisher By
------------------------- ---------------------------
By A. Robert Fisher, Partner By Ian Hetherington, President
------------------------- ---------------------------
Executed on 6/30/97 Executed on 19/6/97
------- -------
(Corporate Seal) (Corporate Seal)
ADDRESS FOR NOTICES AND RENT ADDRESS
333 Bryant Street 919 East Hillsdale Blvd.
- ---------------------------------- ------------------------------
Suite 200 Foster City, CA 94404
- ---------------------------------- ------------------------------
San Francisco, CA 94107
- ---------------------------------- ------------------------------
American Industrial Real Estate Association, Los Angeles, CA (213) 687-8777
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<PAGE>
333 Bryant St. RINCON ASSOCIATES (LESSOR) AND PSYGNOSIS, INC. (LESSEE)
ADDENDUM TO LEASE
-----------------
47. Parking Spaces
--------------
47.1 During the term of the Lease, Lessor shall provide Lessee with four
(4) parking spaces in the garage; two (2) standard-size spaces, and
two (2) compact-size spaces.
47.2 The parking rental rate for this Lease for the first year of the
lease shall be in the amount of $140.00 per space per month in
addition to the Base Rent, as set forth in paragraph 4.1 of the
Lease. Said parking rental rate shall be increased by eight percent
(8.00%) per year.
47.3 All parking space locations shall be assigned to Lessee by Lessor and
the assignments may be reassigned from time to time during the term
of the Lease. Lessor may establish and issue parking regulations
which regulations from time to time may be amended by Lessor. All
such regulations shall be observed by Lessee.
47.4 Upon execution of this Lease, Lessee shall deliver to Lessor the sum
of one hundred and twenty dollars ($120.00) as a Security Deposit for
four (4) garage door openers to be provided to Lessee by Lessor.
47.5 Lessee will be put on a waiting list for up to two (2) additional
parking spaces, under the following conditions: Parking excluded from
this would be parking space that is currently being held for any
existing unleased space which will be included in the lease for that
space when leased. Short term parking, subject to parking priorities
included in lease agreements with other present tenants would be
parking space that becomes available at the termination of a present
tenant's lease vacating the premises until such space is re-leased.
Other parking spaces that may become available are those due to a
tenant relinquishing a space currently leased which is not included
in its lease agreement, subject to parking priorities included in
lease agreements with other present tenants. The initial rental rate
for such space shall be the then current rate set for such space by
Lessor subject to the terms and conditions of Lessor's standard
parking lease agreement. Lessee will be given priority on said
waiting list.
48. Improvements
------------
48.1 Lessor-Provided Improvements
48.1.1 Lessor shall provide the following improvements to Lessee's
Premises, as further described in Paragraph 48.1.1 a - d
below. The costs of said improvements shall be borne by
Lessor and shall be included in the Base Rent, and such
costs shall be excluded from the Lessee's Tenant Improvement
Allowance as defined in paragraph 49.1.
a) Mens' and women's toilets within the premises, using
Lessor's standards, as shown on Exhibit "B" attached
hereto.
b) Fill and feather all floors to provide a smooth surface
which will accept a "normal" carpet floor covering
installation. It is acknowledged that the floors in the
premises are not plane, flat or level. There are
variations in slope overall and there are local
variations between column bays. No leveling will be
done by Lessor.
c) Levelor blinds on the windows.
d) Perimeter windows shall be sealed and welded closed.
e) Install an override switch to operate the Building HVAC
system and a meter for purposes of monitoring
after-hours usage pursuant to paragraph 51.
ADDENDUM TO PSYGNOSIS, INC. LEASE Page 1 of 17
<PAGE>
48.1.2 See attached Work Letter, marked Exhibit "C", for provisions
relating to the construction of Lessor-Provided
Improvements.
48.2 Lessee's Tenant Improvements
48.2.1 The Lessee Tenant Improvement Allowance, as outlined in
paragraph 49, may be used for construction of all other
Lessee Tenant Improvements, with the exception of those
listed in paragraph 48.1.1.
48.2.2 Lessee shall pay for all costs, costs of changes, additions
or increases in the scope, quantity, or quality of any
components of the Lessee Tenant Improvements that:
a) Exceed the Lessee Tenant Improvement Allowance as
outlined in paragraph 49.
b) Exceed the Lessor-Provided Improvements as outlined in
paragraph 48.
48.2.3 Lessor has provided at no cost to Lessee a preliminary space
plan for tenant space layouts only. All interior design,
furnishing and decorating shall be supplied by Lessee. All
drawings and permits, with the exception of those for
Lessor-Provided Improvements as outlined in paragraph 48
will be provided by Lessee.
48.2.4 In the event that Lessee elects to hire Lessor's architects
and engineers to provide the services set forth in paragraph
48.2.3, then the costs of these services, as agreed upon by
Lessor and Lessee under separate contract, shall be charged
against the Lessee Tenant Improvement Allowance as set forth
in paragraph 49.1.
48.2.5 Lessee shall select and provide and maintain at its own
expense exclusive of the Lessee Tenant Improvement
Allowance, the following, all of which shall be installed by
Lessee in accordance with applicable codes:
a) furniture, fixtures and equipment, including work
stations and all electrical or other installation
hookups.
b) select, install and pay for Lessee's telephone system,
networking or other communication systems, including
service to the building for such systems; however,
Lessor shall provide conduit into the building.
c) specialty light fixtures and all track lighting
fixtures.
49. Lessee's Tenant Improvement Allowance
-------------------------------------
49.1 Lessor agrees to advance an allowance of $10.00 per sq. ft. of
rentable area plus $20,000.00 for Lessee's Tenant Improvements
("Lessee's Tenant Improvement Allowance").
49.2 Lessee shall be responsible for the cost of detailed planning and for
all interior design services as well as for layout and placement of
machines and equipment, over and above what Lessor is providing as
set forth in paragraph 48.2.3.
49.3 Lessee's Tenant Improvement Allowance Payment Procedure
-------------------------------------------------------
49.3.1 Lessor shall make payments of the Lessee's Tenant
Improvement Allowance toward the Construction of Lessee's
Tenant Improvements as provided in this Agreement.
49.3.2 Based on each Application for Payment submitted to Lessee's
Architect by the Contractor under the Contract for
Construction and based on Architect's issuance of a
Certificate for Payment (which is acceptable and approved by
Lessee's Construction Representative as defined in the
Construction Work Letter, Exhibit "C"), the Lessor shall
make its pro-rata share (Lessor's Percentage Share, as
hereinafter defined) of undisputed amounts of each Request
for Payment to Lessee and Lessee shall make full progress
payments to the Contractor in accordance with the Contract
for Construction.
<PAGE>
49.3.3 The Construction Contract Amount for Lessee's Tenant
Improvements shall be the construction cost of Lessee's
Tenant improvements as set forth in the Construction
Contract executed by and between Lessee and Nielsen Aire
Corporation and in paragraph 48.2, excluding items in
paragraph 48.2.5.
49.3.4 Lessor's and Lessee's pro-rata share of payments shall be
determined as follows:
49.3.4.1 Lessor's Percentage Share shall equal the total
Lessee's Tenant Improvement Allowance divided by
the total Construction Contract Amount.
49.3.4.2 Lessee's Percentage Share shall equal the total
Construction Contract Amount less the total Lessee
Tenant Improvement Allowance divided by the total
Construction Contract Amount.
49.3.5 Lessor shall make Payment of Lessor's Percentage Share to
Lessee no later than fifteen (15) days after issuance of
Certificate for Payment by Architect.
49.3.6 Lessor shall be under no obligation to make a payment to
Lessee on account of the Lessee Tenant Improvement Allowance
unless and until Lessee has made the previous approved
progress payment to Contractor.
49.3.7 Final payment shall not be made under the provisions of this
paragraph 49 until Contractor has delivered a complete
release of all liens arising out of the Contract for
Construction and receipts in full covering all labor,
materials and equipment for which a lien could be filed, or
a bond indemnifying Lessee and Lessor against any lien.
Final payment shall be defined as the last payment due the
Contractor, including retention.
49.3.8 If Lessee fails to make any timely payment of amounts due
the Contractor, then Lessor at its sole option may recover
any of its costs incurred to date in connection with the
Lessee's failure to make such payments, including without
limitation Lessor's Percentage Share by drawing down the
Letter-of-Credit or by any other legal means.
49.4 Lessee and Lessor hereby acknowledge that Lessor-Provided and
Lessee's Tenant Improve- ments to the Premises shall not commence
until this Lease is executed.
50. Rentable Area
-------------
For purposes of this lease, the Rentable Area is defined as 25,288 square
feet.
51. HVAC and Freight Elevator
-------------------------
51.1 Notwithstanding the definition of Lessee's Share of Operating
Expenses and Common Area Maintenance (CAM) Charges contained in
paragraph 67, Lessee shall pay the full cost of operation, repair and
maintenance of the HVAC system actually, within the Premises. Lessor
shall maintain the HVAC system located within Lessee's premises in
accordance with the manufacturer's recommended maintenance procedures
and Lessee will reimburse Lessor, upon demand, for the cost thereof,
subject to Lessee's consent to Lessor's access to its premises as
provided for in paragraph 73.
51.2 Lessee agrees and acknowledges that the building HVAC system is shut
down after normal building hours, as stipulated in paragraph 63, and
on weekends and holidays. As an accommodation to allow after-hours
operations of systems on weekdays after normal building hours and on
weekends and holidays, Lessor will install an override switch to
allow operation of the HVAC air-handling unit in the Premises (which
also can be controlled at Lessee's option by a time-clock in the
Mechanical room). Lessor will also install an override switch to
operate the building HVAC system (the cooling tower and chillers,
boilers and pumps, etc.) and a
<PAGE>
meter for purposes of monitoring such usage. Lessee agrees to pay to
Lessor, in addition to other rental payments, the cost of such after-
hours operation based upon an initial hourly rate in the amount of
$8.75 per hour ("After-hours Rate)". The After-hours Rate shall be
increased annually by five percent (5.0%) or, in the case of
substantial increases in utility or other costs associated with the
operation of the system that would not be covered by the rate, an
amount to be established and mutually agreed by the parties that is
additional to the then current After-hours Rate and is equal to such
substantial increased costs.
51.3 Notwithstanding the definition of Lessee's Share of Operating
Expenses and Common Area Maintenance (CAM) Charges contained in
paragraph 67, Lessee shall pay its pro-rata share in the proportion
of one third (1/3) of the expense for operation, repair and
maintenance of the freight elevator.
52. Electrical Service
------------------
The Premises and the HVAC unit on the Lower Level is separately metered for
electrical service and Lessee shall contract with PG&E and pay for all such
electrical service direct to PG&E.
53. Telephone and Telecommunications Service and Computer Networks
--------------------------------------------------------------
Lessee shall contract for and pay for all costs for, involved with or in
connection with telephone and telecommunications and computer networks,
including operation, maintenance, installation of equipment, wiring and
service within and to the Premises and to the building, if necessary.
54. Janitorial Services and Garbage
-------------------------------
Lessee shall provide and pay for the cost of janitorial services to
Lessee's Premises. A dumpster or other trash receptacle or system shall be
provided for building tenant's use in the garage level of the building.
Lessee shall be responsible for placing its own garbage in the dumpster or
other receptacle and commencing on occupancy or partial occupancy.
55. Hazardous Materials
-------------------
Lessee shall not be responsible in any way for any claim, damage, violation
of law or injury based upon or arising out of the actual or threatened
discharge, disbursal, release or escape of smoke, vapors, soot fumes,
acids, alkalis, toxic chemicals, liquids or gases, lead paint, radon, waste
materials, hazardous materials or other irritants, pollutants or
contaminants into or upon the land, the atmosphere or any course or body of
water, whether above or below ground which event is not related to Lessee's
use of its premises. Lessee shall have no liability in any way for any
loss, cost or expense arising out of or relating to any governmental
direction or request that the Lessor or any of its Lessees' test for,
monitor, clean-up, repair or take any other corrective measures which in
any way arise out of the actual or threatened discharge, disbursal, release
of escape, whether such activity results from the Lessors conduct or the
conduct of others (not including Lessee), and whether or not such a conduct
is sudden or gradual, and whether or not such is accidental, intended,
foreseeable, expected, fortuitous or inevitable, and wherever such occurs.
However Lessee will be one hundred percent (100%) liable and responsible
for any and all "clean-up" of said toxic waste and/or hazardous materials
contamination which Lessee, its agents, or future sublessee's, if any does
store, dispose, or transport in, use or cause to be on the premises in
violation of applicable law or governing agency(s), and will indemnify
Lessor and hold Lessor harmless from any liabilities, demands costs,
expenses and damages, including attorney fees incurred as a result of any
claims resulting from such contamination. It is agreed that the Lessee's
responsibilities related to toxic waste and hazardous materials will
survive the termination date of this Lease. Lessee also agrees not to use
or dispose of any toxic waste and hazardous materials on the premises
without first obtaining Lessor's prior written consent. In the event
written consent is granted by Lessor, Lessee agrees to complete compliance
with governmental regulations, and Lessee also agrees to install such toxic
waste and/or hazardous materials monitoring devices as Lessor deems
necessary.
<PAGE>
56. Loading Dock Use
----------------
Lessee shall cooperate with Lessor and other tenants to insure that the
freight elevator and the loading dock common area is maintained in a neat
and orderly condition and is accessible and usable by all tenants in the
Building. Lessee shall be entitled to continuing and shared access to
freight elevator and the loading dock area. No materials, supplies,
merchandise, or other items are to be stored in the garage area by Lessee.
57. Increases in Rent
-----------------
The monthly rental rate to be paid during months thirteen (13) through
sixty (60) shall be based upon the following schedule (Month 13 commences
November 1, 1998 (subject to Lessor-caused delays and force majeure and
subject to adjustment based on Lessee's payment of Rent and other payments
commencing before November 1, 1997)):
Months 13 through 24 $32,664.00
Months 25 through 36 $34,244.00
Months 37 through 48 $35,825.00
Months 49 through 60 $37,405.00
58. Brokers
-------
Lessor and Lessee each represent that it has not engaged any brokers who
would be entitled to any commission or fee based on the execution of this
lease, other than Tri Commercial Real Estate Services, Inc. and Edward S.
Gordon Company of California.
58.1 Lessor shall pay a brokerage fee for services rendered in the amount
of $61,639.56 to Tri Commercial Real Estate Services Inc.. In
addition to this Lessor shall pay a brokerage fee in the amount of
$82,186.08 to Edward S. Gordon Company of California.
58.2 One half of these brokerage fees shall be paid upon execution of the
Lease and receipt by Lessor of Security Deposit, First Month's rent
and Letter-of-Credit. The balance of the brokerage fees shall be paid
upon the occupancy of the space by Lessee.
58.3 Lessor and Lessee hereby indemnify each other against and from any
claims for any brokerage commissions and all costs, expenses and
liabilities in connection therewith, including, without limitation,
reasonable attorneys' fees and expenses, for any breach of the
foregoing. The foregoing shall survive the termination of the lease
for any reason.
59. Additional Security
-------------------
59.1 Purpose of Additional Security.
In addition to the provisions of paragraph 5, the purpose of this
additional Security is to recognize the risk assumed by Lessor in
Leasing the Premises, including but not limited to, cost of
commissions, cost of improvements, contributions to the cost of
Lessee's Tenant Improvements and all other costs in connection with
this lease and with the leasing of the Premises and in order to
insure Lessee's timely and faithful performance of each of Lessee's
obligations under this Lease, whether monetary or non-monetary in
nature.
59.2 Form and Timing of Additional Security.
Upon execution of this Lease by both parties, Lessee shall deposit
with Lessor an Irrevocable Letter-of-Credit in the initial amount of
Three-Hundred Seventy-Five Thousand Dollars ($375,000.00) as
described more fully in paragraph below.
<PAGE>
59.3 Letter-of-Credit.
The Letter-of-Credit referred to in the paragraph above, shall be
issued by an Issuer acceptable to Lessor and on terms and conditions
acceptable to Lessor, including, but not limited to, the following:
59.3.1 The Letter-of-Credit shall be guaranteed irrevocable;
59.3.2 The terms, conditions and Instructions of the
Letter-of-Credit shall be reviewed in advance of Lease
execution and approved by Lessor and shall not be
subsequently changed except by written agreement executed by
both Lessee and Lessor;
59.3.3 In the event that Issuer of the Letter-of-Credit issues the
Letter-of-Credit on a yearly term basis, Lessee guarantees
to maintain the Letter-of-Credit continuously effective,
with the same terms and conditions, throughout the term of
this Lease, including any extensions or option periods.
59.3.4 In addition Lessee shall maintain the effectiveness of the
Letter-of-Credit for a period not to exceed forty-five (45)
days after the later of (i) expiration of this Lease; (ii)
earlier termination of this Lease; or (iii) the complete
vacation of the Premises by Lessee ("45-Day Period") so that
Lessor, during the 45-Day Period, may confirm that all of
Lessee's obligations under this Lease have been fulfilled.
In order to permit Lessor a reasonable period of time within
which to obtain such confirmation, Lessee hereby waives the
thirty (30)-day notice from Lessor otherwise required by
Paragraph 13.1(c) of this Lease. If Lessor reasonably
determines that Lessee has not fulfilled all of its
obligations under this Lease, Lessor shall promptly notify
Lessee in writing of the basis for its determination, and
Lessee promptly shall remedy the stated problem. Lessor
shall use the 45-Day Period to obtain such information,
including bids and estimates, as Lessor will need to
document a draw-down against the Letter-of-Credit if Lessee
does not remedy the items described in Lessor's written
notice. If Lessor confirms to its reasonable satisfaction
that Lessee has complied with all of its obligations under
this Lease prior to the end of the forty-five (45) day
period, Lessor immediately shall so notify Lessee, and
Lessor and Lessee promptly shall instruct the issuer in
writing to terminate the Letter-of-Credit; in any event,
Lessor and Lessee shall so notify the issuer not later than
the last day of the 45-Day Period. Lessor and Lessee
acknowledge and agree that Lessee has waived its right to
any notice that would be required during the 45-Day Period
pursuant to Paragraph 13.1(c) of this Lease, and Lessee does
not waive any other notice to which it is entitled under
this Lease at any other time during the term hereof, as the
term may be extended; under the Lease and were entitled to a
thirty (day) notice to Cure, and Lessee does not waive any
other notice to which it is entitled under this Lease at any
other time during the term, as the term may be extended;
59.3.5 If, for any reason, the Letter-of-Credit will not be renewed
by the Issuer, then at least thirty (30) days prior to the
expiration date, the Issuer shall notify Lessor in writing
that the Letter-of-Credit shall not be renewed and on the
expiration date the entire proceeds of the Letter-of-Credit
shall be delivered to the Lessor by the Issuer to be held as
additional Security Deposit, without necessity of a demand;
59.3.6 If Lessee fails to meet any of the obligations under this
Lease, subject to all applicable notice and cure periods,
Lessor shall, upon demand to the Issuer of the
Letter-of-Credit in writing by a partner or authorized agent
of Lessor, have the right to receive payment, to be drawn
down against the Letter-of-Credit, sufficient to cover the
amount in default including all costs incurred by Lessor as
a result of such default or failure to meet Lessee's
obligations, within ten (10) days of the date of the demand;
59.3.7 Lessee agrees and acknowledges that said Letter-of-Credit
will not relieve Lessee of any of its obligations under the
Terms of the Lease not satisfied by the draw-down against
the Letter-of-Credit; and
<PAGE>
59.3.8 If Lessor rightfully draws down against the Letter-of-Credit
pursuant to the instructions therefor and this paragraph,
Lessee shall, for Lessor's benefit, increase the
Letter-of-Credit to the full amount required during the
period in question as set forth in paragraph 63.3.9 or
provide a replacement Letter-of-Credit in the same amount
with the same terms and conditions as the original
Letter-of-Credit.
59.3.9 Such replenishment or replacement of the Letter-of-Credit
shall be accomplished by Lessee within 10 days of Lessor's
transmittal of demand for a draw-down against the Letter-of-
Credit to the Bank. Lessor shall deliver a copy of the
demand for draw-down to Lessee at the time such is
transmitted to the bank that issued the Letter-of-Credit.
59.3.10 Subject to there being no default under the terms of this
Lease pending, the Letter-of-Credit amount may be reduced to
the amounts set forth in the following schedule:
Month 13 of Lease $300,000.00
Month 25 of Lease $225,000.00
Month 37 of Lease $150,000.00
Month 49 of Lease $ 75,000.00
59.3.11 The Letter-of-Credit shall be maintained during any option
period in the amount of Seventy-Five Thousand Dollars
($75,000.00). All other provisions of this Lease shall apply
to the Letter-of-Credit in such option period.
59.3.12 In the event that Lessee fails to either replenish the
Letter-of-Credit or provide a replacement Letter-of-Credit
in the full amount as set forth above and in the time also
set forth above, then Lessee shall be in material Default of
this Lease if such obligations are not completely fulfilled
within five (5) days after written notice thereof from
Lessor to Lessee.
59.3.13 Lessee agrees that at least thirty (30) days prior to the
expiration of the above-referenced current Letter-of-Credit,
Lessee will either make arrangements for its renewal or for
a substitute Letter-of-Credit. In the event of a renewal or
substitute Letter-of-Credit, the same terms and conditions
set forth in this amendment shall continue to apply. In the
event of a substitute Letter-of-Credit, Lessee shall,
however, make every effort to obtain terms and conditions in
said instrument the same as in the Initial Letter-of-Credit
and consistent with the terms and conditions of the Lease.
The wording of said Letter-of-Credit shall be subject to
Lessor's approval prior to the 30-day period.
59.3.14 In the event that a satisfactory renewal or substitute
Letter-of-Credit has not been arranged and guaranteed prior
to the above specified 30 day period, Lessee agrees that
Lessor shall have the right to demand and receive the entire
amount of the Letter-of-Credit upon its expiration as is
provided in paragraph 59.3.5 of the Lease upon notification
to the issuer in writing, with a copy of this Amendment,
stating the fact that no satisfactory renewal or substitute
Letter-of-Credit has been arranged as of the thirty (30) day
period and that Lessor shall be entitled to payment of the
entire amount of the Letter-of-Credit upon expiration of
same as if notice had been given by the issuer to Lessor of
its expiration as is provided in paragraph 59.3.5 of the
Lease.
<PAGE>
60. Bankruptcy
----------
60.1 Supplemental to and in addition to the provisions of paragraph 31
herein, in the event that Lessee shall become a debtor under any
chapter of any proceeding under the United States Bankruptcy Code,
Lessee agrees to pay to Lessor any and all attorney's fees and costs
incurred by Lessor in examining into and preserving and protecting
the rights of Lessor in connection with such bankruptcy case. Such
matters shall include, but are not limited to, (a) motions for relief
from the automatic stay; (b) matters pertaining to the assumption or
rejection of this Lease; (c) matters pertaining to any and all
administrative claims of Lessor in such proceedings; (d) reviewing
and examining any and all Chapter 11 plans and disclosure statements,
and the filing of any objections to same; (e) attendance at any and
all heading in said bankruptcy proceeding as are reasonably necessary
to investigate and protect Lessor's interests.
61. Tenant Identification
---------------------
61.1 Tenant identification signs shall be provided at Lessor's sole cost
and in Lessor's standard design without logo and shall be in the same
form as other tenants in the building as follows:
a) Building Standard tenant suite sign on wall adjacent to front
entry door of tenant space or on wall opposite elevator.
b) Building Standard directory signage in building lobby and garage
elevator lobby.
61.2 Lessee shall have the right to install additional signage (design of
which does not require Lessor's approval) and logo anywhere within
Lessee's premises.
61.3 Lessee may install a flag with its logo on one of the existing flag
poles on the building front. Location, design, and size of flag (not
to exceed that of existing flags) shall be subject to Lessor's prior
written approval, not to be unreasonably withheld or delayed.
61.4 All signage listed in paragraphs 61.2 through 61.3 above will be
provided at Lessee's sole cost and expense. In no event will a sign
be allowed on the exterior of the building or anywhere else on the
building.
62. Option for Two Additional Thirty-Six Month Terms
------------------------------------------------
62.1 Lessee shall have the option of extending the term of this Lease for
two consecutive (2) thirty-six (36) month periods to be determined as
follows and subject to all of the terms and conditions of the Lease;
provided 1) Lessee has not been in substantial default beyond any
applicable cure period at any time during the Lease term or option
period nor is in default in the performance of any of the terms and
conditions of the Lease upon commencement of said additional term,
and 2) Lessee has given to Lessor, six (6) months prior to the
expiration of the initial lease term, written notice of its intention
to exercise said option.
62.2 In the event that Lessee chooses to exercise its option to lease the
premises for either of the additional thirty-six (36) month terms,
the Initial Monthly Rental Rate for months one (1) through twelve
(12) of either of the thirty-six (36) month extension terms shall be
based on ninety five percent (95%) of the then "market rate" for
comparable space as improved, but shall not be less than the "Minimum
Initial Rental Rate", as defined hereinafter in paragraph 62.4. If
the parties are able to agree upon a mutually satisfactory rental
rate, then such agreement shall be placed in writing and shall be
signed by the parties hereto and shall become a part of this Lease.
<PAGE>
62.3 In the event that the parties are unable to agree upon the amount of
the Initial Monthly Rental Rate for months one (1) through twelve
(12) of either additional period ninety (90) days prior to the
commencement date of such period, then the disagreement shall be
promptly submitted to and decided by three (3) real estate brokers,
one to be appointed by Lessor, one by Lessee, and the third by the
two so appointed. Said real estate brokers shall be brokers active in
San Francisco familiar with the area in question and shall have a
minimum of five (5) years experience as a broker. Each party shall
pay its own broker and the cost of the third broker shall be divided
equally between Lessor and Lessee. If either Lessor or Lessee shall
fail or refuse to appoint a broker with thirty (30) days after
notice has been given to it by the other party, the party giving
such notice may and shall appoint a broker for and on behalf of the
party in default. The derision of a majority of the brokers shall be
binding upon Lessor and Lessee. The Initial Monthly Rental Rate
shall constitute the Base Rent and in no event shall the rate set by
the brokers be less than the "Minimum Initial Rental Rate" as
defined above. The brokers shall take into account all improvements
to the premises in determining the Initial Monthly Rental Rate for
the option period.
62.4 For the first year of either option period, the "Minimum Initial
Rental Rate" will be an amount equal to the amount of the last
month's rent of the prior lease period increased by five percent
(5%). The Rental Rate for subsequent years of either option period
shall be an amount equal to the Previous year's rental rate increased
by five percent (5%).
62.4.1 The Minimum Initial Rental Rate" for each option period is
agreed to be as follows:
Year One of Option Period One $39,275.00
Year One of Option Period Two To be determined as per above
provisions.
62.5 If Lessee exercises said Option for either of the Two Additional
Thirty-Six Month Terms, as defined in paragraph 62 of this Lease,
then Lessee represents and Warrants that it will deal with no broker,
agent or other person in connection with this Option transaction, and
that no broker, agent or other person brought about this Option
transaction, and Lessee agrees to hold harmless, indemnify, and
defend Lessor from and against any and all claims, demands, and
costs, including reasonable attorney's fees, arising from or relating
to any effort or demand of any broker, agent or other person who may
assert a right to a fee for brokerage services in connection with
this Option leasing transaction. The provisions of this section shall
survive the termination of this Lease.
62.6 All other terms and conditions of this Lease, except for the Option
to Extend as set forth in paragraph 62, would remain in full force
and effect during the Lease option period.
63. Building Hours
--------------
63.1 It is agreed and understood that the building hours are 7:45 am to
6:00 pm Monday through Friday, except for holidays and except for
unusual circumstances beyond reasonable control of landlord that may
alter the hours somewhat on occasion. Access to the premises can be
made before or after these hours by way of the garage elevator which
is keyed to the Lower Level by the Suite key or by the front stairway
entrance to the East of the main entrance and thence by First Floor
elevator, also keyed, to the Lower Level or the rear entrance at 40
Federal Street. Lessor reserves the right to change the building
hours at any time.
<PAGE>
64. Common Areas - Lessee's Rights
------------------------------
Lessor hereby grants to Lessee, for the benefit of Lessee and its
employees, suppliers, shippers, customers, and invitees, during the term of
this Lease, the non-exclusive right to use, in common with others entitled
to such use, the Common Areas as they exist from time to time, subject to
any rights, powers, and privileges reserved by Lessor under the terms
hereof or under the terms of any rules and regulations or restrictions
governing the use of the Building. Under no circumstances shall the right
herein granted to use the Common Areas be deemed to include the right to
store any property, temporarily or permanently, in the Common Areas. Any
such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time on
not less than 30 days prior written notice. In the event that any
unauthorized storage shall occur then lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have to
remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor. Notwithstanding the forgoing, no
such notice shall be required if the written permission contains a specific
term and or a termination date, and Lessor shall not be permitted to revoke
such permitted storage during said term.
65. Delay in Possession
-------------------
If Lessor is unable to deliver possession of the Premises to Lessee for
commencement of Lessee's Tenant Improvements within 30 days of the full
execution of this Lease by both parties, for any reason except Tenant
caused delays, Lessee shall have the option to terminate this Lease with no
further obligation to Lessor.
66. Alterations and Additions
-------------------------
Except as set forth below Lessee shall not, without Lessor's prior written
consent, not to be unreasonably withheld or delayed, make any alterations,
improvements, additions, or Utility installations in, on or about the
Premises, or the Industrial Center, except for nonstructural alterations to
the Premises not exceeding $2,500.00 per incident and $10,000.00 in the
aggregate during the term of this Lease. Lessor's consent may be refused,
however, if in Lessor's sole opinion such alterations reduce the value of
the building or remove improvements that were already made that are of
value to Lessor that would normally be left in the premises at the end of
the Lease. As used in this paragraph and in paragraph 7.3 the term "Utility
Installation" shall mean carpeting, window coverings, air lines, power
panels, electrical distribution systems, lighting fixtures, space heaters,
air conditioning, plumbing, and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term, provided Lessor's prior
written consent was conditioned upon removal, and restore the Premises and
the Industrial Center to their prior condition. Notwithstanding the
foregoing, for improvements approved by Lessor and conditioned with the
requirement for removal and for those improvements falling within the
$10,000.00 aggregate, Lessor will require Lessee to remove any or all of
said alterations, additions or Utility installations, unless Lessor shall
have notified Lessee in writing not less than ninety (90) days prior to
expiration of the term that removal and restoration is not required. Lessor
may require Lessee to provide Lessor, at Lessee's sole cost and expense, a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such improvements, to insure Lessor against any liability
for mechanic's and materialmen's liens and to insure completion of the
work. Should Lessee make any alterations, improvements, additions or
Utility installations in breach of this paragraph, Lessor may, at any time
during the term of this Lease, require that Lessee remove any or all of the
same. In any event, whether or not in excess of $2,500.00 per incident and
$10,000.00 in the aggregate, Lessee shall make no change or alteration to
the exterior of the Building nor the Industrial Center.
<PAGE>
67. Operating Expense and Common Area Maintenance (CAM) Expense
-----------------------------------------------------------
Lessee shall pay to Lessor during the term hereof, in addition to the Base
Rent, Lessee's Share, as hereinafter defined, of all increases over the
Base Year 1997 commencing January 1, 1998, of all Operating Expenses for
the Building or the Industrial Center, as hereinafter defined, during each
calendar year of the term of this Lease, and Lessee shall pay to Lessor
during the term hereof, in addition to the Base Rent and Operating
Expenses, Lessee's Share, as hereinafter defined, of all Common Area
Maintenance (CAM) Charges, in accordance with the following provisions:
67.1 "Lessee's Share" is defined, for purposes of this Lease, as 26.1
percent, which is based on the Net Rentable Area of the Premises
being 25,288 and the Net Rentable Area of the Building being 96,715.
Should the net rentable area of the Building be increased or
decreased by greater than or less than five (5) % as the case may be,
then Lessor shall provide a recalculation of the net rentable area of
the premises and Lessee's share.
67.2 "Operating Expenses" is defined, for purposes of this Lease, as all
costs incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean, good
order and condition, of the following:
(a) Alarm, security and fire detection systems and related
services.
(b) Management expenses or fees not to exceed 5% of gross
income.
(c) Building office not in excess of 2,000 square feet in area.
(d) Tenant and Building Directories and signage.
(e) Building HVAC system.
(f) Any other services or expenses not mentioned in Sections
67.2 (a) through (d) herein or elsewhere in the Lease that
is provided or incurred by Lessor in the operation of the
Building or the Industrial Center, subject to paragraph
67.8.
(ii) The cost of water, gas, electricity and other utilities to
service the Common Areas and Building HVAC System.
67.3 "Common Area Maintenance (CAM) Charges" is defined, for purposes of
this Lease, as all costs incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean, good
order and condition, of the following common areas:
(aa) Building Exterior, Main Lobby, Courtyard, Elevator Lobbies,
Corridors and Stairs.
(bb) Passenger Elevator.
(cc) Loading and Unloading Areas.
(dd) Garage and Parking Areas, Striping and Bumpers.
(ee) Trash Disposal Services and Area.
(ff) Roadways, Driveways, Sidewalks and Walkways.
(gg) Landscaped Areas and Irrigation Systems.
(hh) Common Area Lighting Systems.
(ii) Fences and gates.
(jj) Any other services or expenses not mentioned in Sections
67.3 (aa) through (jj) herein or elsewhere in the Lease
that is provided or incurred by Lessor in the operation,
repair and maintenance of the Common Areas of the Building
or the Industrial Center.
67.4 The inclusion of the improvements, facilities and services set forth
in paragraph 67.2 and 67.3 of the definition of Operating Expenses
and Common Area Maintenance (CAM) Charges shall not be deemed to
impose an obligation upon Lessor to either have said improvements or
facilities or to provide those services unless the Industrial Center
has the same as of the date of this Lease, Lessor already provides,
the services as of the date of this Lease, or Lessor has agreed
elsewhere in this Lease to provide the same or a portion thereof.
ADDENDUM TO PSYGNOSIS, INC. LEASE Page 11 of 17
<PAGE>
67.5 Lessee's Share of Operating Expenses and Common Area Maintenance
(CAM) Charges shall be payable by Lessee within thirty (30) days
after a reasonably detailed statement of actual expenses is presented
to Lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual
Operating Expenses and Common Area Maintenance (CAM) Charges and the
same shall be payable monthly or quarterly, as Lessor shall
designate, during each twelve-month period of the Lease term, on the
same day as the Base Rent is due hereunder. In the event that Lessee
pays Lessor's estimate of Lessee's Share of Operating Expenses and
Common Area Maintenance (CAM) Charges as aforesaid, Lessor shall
deliver to Lessee within sixty (60) days after the expiration of each
calendar year a reasonably detailed written statement showing
Lessee's Share of the actual Operating Expenses and Common Area
Maintenance (CAM) Charges incurred during the preceding year. If
Lessee's payments under this paragraph during said preceding year
exceed Lessee's Share as indicated on said statement, Lessee shall be
entitled to credit the amount of such overpayment against Lessee's
Share of Operating Expenses and Common Area Maintenance (CAM) Charges
next falling due. If Lessee's payments under this paragraph during
said preceding year were less than Lessee's Share as indicated on
said statement, Lessee shall pay to Lessor the amount of the
deficiency within thirty (30) days after delivery by Lessor to Lessee
of said statement.
67.6 Pursuant to paragraph 67.5, Lessor shall keep complete and accurate
records in accordance with good bookkeeping and accounting practices
regarding all Operating Expenses and Common Area Maintenance (CAM)
Charges. Lessee shall have the right to audit such records for each
calendar year during the term of this Lease notifying Lessor within
120 days following receipt of Lessor's reasonably detailed written
statement for each calendar year. If an audit (performed by a
certified public accountant or other qualified real estate consultant
on behalf of Lessee and at Lessee's expense) reveals that Lessor has
overcharged Lessee for Operating Expenses and Common Area Maintenance
(CAM) Charges, Lessor shall refund the amount overcharged within
thirty (30) days after such determination has been made. In the event
that the building is no longer owned by Rincon Associates and the
audit reveals that Lessor's overcharge to Lessee exceeds five (5)
percent, successor Lessor shall also pay to Tenant the reasonable
costs associated with such audit.
67.7 Notwithstanding any other provisions in the Lease, the terms and
conditions outlined in paragraph 67.5 and 67.6 shall also apply to
payment of insurance premium increases as outlined in paragraph
8.4 (d), payment of property tax increases as outlined in paragraph
10.1, and payment of HVAC and Freight Elevator charges as outlined in
paragraph 51.
67.8 Exclusions From Operating Expense and Common Area Maintenance (CAM)
Expense
Notwithstanding anything to the contrary, for the purposes of
calculating Lessee's share, Operating Expense and Common Area
Maintenance (CAM) Expense shall not include, or there shall be
deducted therefrom if included therein, the following:
a) Rental payments under a ground lease or master lease relating to
the Building or Industrial Center;
b) Capital costs related to noncompliance with laws existing as of
the date of the Lease;
c) Capital expenditures, except for a capital expenditure that
actually reduces Operating Expense or Common Area Maintenance
(CAM) Expense, and except for capital expenditures required or
due to changes in any applicable statutes, ordinances,
regulations or rules, provided that the cost of a capital
expenditure that reduces Operating Expense or Common Area
Maintenance (CAM) Expense shall be included in Operating Expense
and Common Area Maintenance (CAM) Expense only to the lesser of
(a) the extent of the reduction in Operating Expense or Common
Area Maintenance (CAM) Expense actually achieved, without regard
to the "useful life" of such capital expenditure, or b) the
amortization of the capital expenditure over its useful life. As
used herein, the term "useful life" shall be determined in
accordance with generally accepted real estate accounting
principles, consistently applied;
ADDENDUM TO PSYGNOSIS, INC. LEASE Page 12 of 17
<PAGE>
d) Costs of any item for which Lessor receives reimbursement from
insurance or condemnation proceeds or under warranty;
e) Costs, including permit, license and inspection costs, incurred
with respect to the installation of improvements for other
tenants or other occupants in the Building, or incurred in
renovating or otherwise improving, decorating, painting or
redecorating space for other tenants or other occupants of the
Building (other than such costs incurred in connection with a
Building management office);
f) Marketing or promotional costs, including but not limited to
leasing commissions, real estate brokerage commissions and
attorneys' fees in connection with the negotiation and preparing
of letters, deal memos, letters of intent, leases, subleases
and/or assignments, space planning costs, and other costs and
expenses incurred in connection with lease, sublease and/or
assignment negotiations and transactions with present or
prospective tenants or other occupants of the Building;
g) Interest, principal, attorneys' fees, environmental
investigations or reports, points, fees and other lender costs
and closing costs on debts or amortization on any mortgage or
mortgages or any other debt instrument encumbering the Building
or the Industrial Center;
h) Salaries of officers, executive or other employees of Lessor, any
Lessor Affiliate other than any personnel engaged in the
management, operation, maintenance, and repair of the Building,
and working in the Building management office.
i) Costs for which Lessee or any other tenant in the Building
reimburses Lessor (other than through such tenant's Proportionate
Share);
j) Advertising and promotional expenditures, including but not
limited to tenant newsletters, other than Building's tenant
newsletter received by the tenants of the Building and Industrial
Center, or Building promotional gifts, events or parties for
existing or future occupants, and the costs of signs (other than
the Building directory) in or on the Industrial Center
identifying the owner of the Building or other tenants' signs and
any costs related to the celebration or acknowledgement of
holidays, other than reasonable costs for gifts, refreshments
and/or food made available to all tenants of the Building for
such holiday celebrations or acknowledgements;
k) Electrical power or other utility costs for which any tenant
directly contracts with the local public service company;
l) Costs, penalties, fines, or awards and interest which it is
determined by a court of competent jurisdiction were incurred as
a result of Lessor's negligence in Lessor's operation of the
Industrial Center, penalties or fines for failure to make
payments and/or to file any income tax, or other tax or
informational returns when due;
m) Landlord's charitable or political contributions;
n) Costs, including but not limited to attorneys' fees, associated
with operating the business of the entity which constitutes
Landlord, except for the costs of operation of the Building,
including partnership accounting and legal matters, costs of
defending any lawsuits with any mortgagee, costs of selling,
syndicating, financing, mortgaging or hypothecating any of
Lessor's interest in the Building, Industrial Center, or any part
thereof and costs of any disputes between Lessor and its
employees;
o) Costs incurred in removing and storing the property of former
tenants or occupants of the Industrial Center;
ADDENDUM TO PSYGNOSIS, INC. LEASE Page 13 of 17
<PAGE>
p) Costs of any work or services performed for any tenant (including
Lessee) at such tenant's request which are not part of the normal
services provided to tenants of the Building without extra cost
and which are directly reimbursed to Lessor;
q) Costs of installing, operating and maintaining any specialty
service, observatory, broadcasting facilities, luncheon club,
museum, athletic or recreational club, or child care facility or
any other service operated or supplied by or normally operated or
supplied by a third party under an agreement between a third
party and a landlord, or any retail commercial concession
operated by Lessor;
r) Costs of any parties, ceremonies or other events for tenants or
third parties which are not tenants of the Building, whether
conducted in the Building, Industrial Center, or in any other
location;
s) Reserves of any kind, including but not limited to, replacement
reserves, and reserves for bad debts of lost rent or any similar
charge not involving the payment of money to third parties;
t) Costs incurred by Lessor in connection with rooftop
communications equipment of Lessor. or other persons, tenants or
occupants of the Building of the Industrial Center if such
communications equipment is not generally available to all
tenants or occupants of the Building or the Industrial Center;
u) Rent for the management office of the Building if and to the
extent that such management office is (a) in excess of 2,000
rentable square feet or (b) at a rental rate in excess of rates
then being generally charged for the Building;
v) Costs for services normally provided by a property manager where
Operating Costs already include a full management fee;
w) Entertainment and travel expenses, except industry-related
professional seminar travel of Lessor, its employees, agents,
partners and affiliates.
x) Costs and expenses recovered from third parties;
y) Costs attributable to deductible or uninsured portions of
restoration work attributable to casualty loss, provided,
however, such costs shall be part of includable operating costs
if Lessor has acquired policies of insurance with commercially
reasonable deductibles.
z) Costs attributable to restoration work following a condemnation.
68. Indemnity
---------
Add to Paragraph 8.7:
Notwithstanding anything to the contrary in this paragraph 8, Lessee shall
not be required to indemnify, defend or hold Lessor harmless from or
against claims, liability, loss, cost or expense arising out of (i) the
breach by Lessor, or Lessor's agents, employees, licensees, invitees or
independent contractors (collectively "Lessor's Agents"), of any covenant,
representation or warranty under this Lease, or (ii) the willful misconduct
of Lessor or Lessor's Agents.
Lessor shall indemnify and hold harmless Lessee and Lessee's employees,
officers, agents, directors and shareholders and the successors and assigns
of each of the foregoing (collectively "Lessee's Agents"), against and from
any and all claims, demands, losses, liabilities, damages, costs and
expenses (including without limitation attorneys' and consultants' fees and
the costs and expenses of defense) arising or resulting from (i) Lessor's
or Lessor's Agents' breach of any covenant representation or warranty under
this Lease, (ii) Lessor's or Lessor's Agents' willful misconduct or
negligence (but only to the extent of Lessor's negligence utilizing
comparative negligence standards) or default. The mutual indemnity
obligations of Lessor and Lessee under this Lease shall not release the
respective insurers of Lessor and Lessee from such insurer's obligations
under any policies.
ADDENDUM TO PSYGNOSIS, INC. LEASE Page 14 of 17
<PAGE>
69. Damage or Destruction
---------------------
Notwithstanding anything to the contrary in paragraph 9:
(a) If Lessor is required to or elects to rebuild the Premises, Lessor
shall notify Lessee within sixty (60) days of the date of such
casualty, and such notice shall specify Lessor's architect or
engineer's reasonable estimate as to the time required to rebuild or
restore the Premises.
(b) If, in the reasonable opinion of Lessor's architect or engineer, the
Premises will take longer than one hundred and eighty (180) days to
rebuild or restore, Lessee may, notwithstanding Lessors election to
rebuild, terminate this Lease by giving written notice to Lessor
within five (5) days after Lessee's receipt of Lessor's notice. Such
termination shall be effective thirty (30) days after Lessor's
receipt of Lessee's written notice to terminate the Lease.
(c) If Lessor fails to restore the Premises (including reasonable means
of access thereto) within a period which is sixty (60) days longer
than the period stated in Lessor's notice to Lessee as the estimated
rebuilding period, Lessee, at any time thereafter until such
rebuilding is completed, may terminate this Lease by delivering
written notice to Lessor of such termination, in which event this
Lease shall terminate as of the date of the giving of such notice.
(d) Lessee's rights of termination hereunder shall be in addition to its
right of termination under paragraph 9.5(b) of the Lease.
70. Additional Improvements
-----------------------
Add to Paragraph 10.2:
Lessee shall in no event be responsible for Tax Increases resulting from
(a) any financing or refinancing of the Premises or (b) increases in
valuation arising from improvements made by Lessor to other tenant spaces.
Any assessments payable by Lessor in installments shall be included in Real
Property Taxes on an installment basis whether or not Lessor actually pays
such assessments on the installment basis. Real Property Taxes and Lessee's
liability for Tax Increases shall be adjusted as appropriate to reflect any
reduction therein arising from a contest of the assessed valuation or tax
rate applicable to the Premises to the extent that the reduction does not
decrease below the base year taxes.
71. Lessee Affiliate
----------------
Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign
or sublet the Premises, or any portion thereof, without Lessor's consent,
provided that the use of the space, permitted under paragraph 6.1. hereof,
does not change or if it does and Lessor incurs additional assessments in
taxes, fees or incurs other costs as a result of such change of use, Lessee
shall be liable for such additional costs, to Sony Corporation of America
and any of its direct and indirect wholly owned subsidiaries or to any
corporation which controls, is controlled by or is under common control
with Lessee, or to any corporation resulting from the merger or
consolidation with Lessee, or to any person or entity which acquires all
the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee
Affiliate," provided that before such assignment shall be effective said
assignee shall assume, in full, the obligations of Lessee under this Lease.
Any such assignment shall not, in any way, affect or limit the ability of
Lessee under the terms of this Lease even if after such assignment or
subletting the terms of this Lease are materially changed or altered
without the consent of Lessee, the consent of whom shall not be necessary.
Notwithstanding the above, Lessor's consent to any assignment or subletting
of the Premises by Lessee to a Lessee Affiliate is conditioned upon
Lessor's prior receipt of an indemnification from Sony Corporation of
America, against any and all damages, costs, liabilities and expenses
arising out of such assignment or subletting.
ADDENDUM TO PSYGNOSIS, INC. LEASE Page 15 of 17
<PAGE>
72. Default; Remedies
-----------------
Add to Paragraph 13:
Pursuant to paragraph 49.1, Lessor agrees to advance Lessee Tenant
Improvement costs of $10.00 per sq. ft of rentable area plus $20,000.00.
Partial amortization of said Lessee Tenant Improvement costs as well as of
other Lessor-Provided Improvements, leasing costs, and costs are included
in the Base Rent of this Lease. Consequently, if Lessee breaches this Lease
at any point between the execution of the Lease and prior to the end of the
term, Lessor shall suffer the loss of advanced improvement costs,
including, but not limited to, fees and reimbursable expenses for
architectural services, and funds advanced to consultants and contractors
on Lessee's behalf. Lessee recognizes the risk assumed by Lessor in
advancing the costs of improvement and agrees that, if for any reason,
Lessee fails to occupy the Premises as contemplated under this Lease, or
abandons the Premises prior to the end of the Lease term, or otherwise
materially defaults on this Lease as provided in paragraph 13.1, above,
Lessee shall immediately become obligated to pay to Lessor all unpaid
improvement costs advanced on Lessee's behalf by Lessor plus interest at
the highest rate allowed by law, as well as any loan fees paid by Lessor,
and all other damages incurred by Lessor by reason of Lessee's default,
including, but not limited to, the cost of recovering possession of the
Premises; expenses of reletting, including necessary demolition, renovation
and alteration of the Premises, reasonable attorney's fees, and any real
estate commissions actually paid, the amount by which the unpaid rent for
the balance of the term after the time of such reletting exceeds the amount
of re-rental proceeds less the above expenses and that portion of the
leasing commission paid by Lessor pursuant to paragraph 58 pro-rated to the
unexpired term of this Lease.
73. Access to Premises
------------------
73.1 Lessee acknowledges that the gas meter for the entire building,
Lessee's HVAC system, and the after-hours HVAC meter for Lessee's
premises, are located within the Lessee's premises and must be
accessed through the Lessee's premises.
73.2 Lessee agrees that Lessor and Lessor's authorized agents shall have
access to Lessee's premises upon reasonable advance notice, except
for meter readings, emergencies, and routine maintenance of the HVAC
system, for the purpose of inspecting the same, making alterations,
repairs or improvements or additions to same, that are Lessor's
obligations, and to do any necessary maintenance to same. If a major
repair is required, reasonable advance notice shall be given. Lessor
will make every attempt, but is not under any obligation to, enter
the premises during business hours to perform the alterations,
repairs, improvements, additions and maintenance. If access is not
granted on a timely basis, then Lessee shall be liable to Lessor for
any extra cost associated with having to postpone such alterations,
repairs, improvements, or additions and for any claims from other
tenants of the Building which may be affected by the postponement of
such work or any other costs incurred by Lessor due to such
postponement.
73.3 Lessor shall not be liable in any manner for any inconvenience,
disturbance, loss of business, nuisance or other damage arising out
of Lessor's entry on the premises as provided in this paragraph,
except to the extent of the willful misconduct or negligence (but
only to the extent of Lessor's negligence utilizing comparative
negligence standards) or default of Lessor or its agents, employees,
contractors or invitees.
73.4 To provide for a situation in which a mechanical or electrical
emergency occurs that requires immediate attention and Lessee is
unavailable to let Lessor or its authorized agents enter the
premises, Lessee agrees to the following:
a) Lessee will provide Lessor with a list of at least three (3)
names and telephone numbers of Lessee's employees or
representatives authorized to admit Lessor to premises, and who
shall be available at all times to let Lessor or its authorized
agents into the premises with a reasonably quick response time.
ADDENDUM TO PSYGNOSIS, INC. LEASE Page 16 of 17
<PAGE>
b) In the event that none of Lessee's authorized employees or
representatives can be contacted or do not respond in a timely
manner, then Lessee shall be liable to Lessor for any extra cost
associated with having to postpone such alterations, repairs,
improvements, or additions and for any claims from other tenants
of the building which may be affected by the postponement of such
work, the cost of repairing, or if repair is not practical or
cost-effective, then the cost of replacement of, any equipment
damaged by delayed access or any other costs incurred by Lessor
due to such delayed access.
74. Rent
----
74.1. Base Rent Lessee shall pay to Lessor, as Base Rent for the Premises,
without any offset or deduction, except as may be otherwise expressly
provided in this Lease, on the first day of each month of the term
hereof, monthly payments in advance of thirty one thousand and eighty
three dollars ($31,083.00) subject to increase annually per paragraph
57 of the Addendum. Rent and other payments to commence on the
earlier of 1) Substantial Completion of Lessee's Tenant Improvements,
2) any occupancy of the Premises by Lessee, other than for
construction or installation of Lessee's furniture, fixtures and
equipment or 3) November 1, 1997 (subject to Lessor-caused delays and
force majeure).
7.4.2 Lessee shall pay Lessor upon execution hereof $31,083.00 as Base Rent
for the first month that Rent and other payments commence pursuant to
the provisions of paragraph 74.1 above. Rent for any period during
the term hereof which is for less than one month shall be a pro rata
portion of the Base Rent. Rent shall be payable in lawful money of
the United States to the Lessor at the address stated herein or to
such other persons or at such other places as Lessor may designate in
writing.
7.4.3 For purposes of this paragraph, "Substantial completion of Lessee's
Tenant Improvements" shall mean: "Substantial Completion of Lessee's
Tenant Improvements" shall be deemed to have occurred upon the first
date of occurrence of all the following conditions: (1) Construction
of the Lessee's Tenant Improvements shall have been completed in
accordance with the Construction Contract and in accordance with all
applicable laws, regulations and requirements of the applicable
governmental bodies except for minor "punch list" items, the
noncompletion of which shall not materially affect the appearance of
the Premises or the use and occupancy thereby by Lessee; (2) the
heating, plumbing, ventilating and air-conditioning systems, all
utility systems serving the Premises and all other systems of the
Premises shall have been installed and in good operating order, and
(3) all such certificates and permits, if any, evidencing the
completion of construction of the Improvements as may be required so
as to permit Tenant's occupancy of the Premises and use of the
improvements shall have been issued by the governing body requiring
the same. It is understood that where reference is hereinabove made
to the installation of utility systems, it shall mean and include the
connection of the lines, conduits and pipes thereof within the
Premises and into the Building in accordance with the final plans and
specifications. Lessee shall be responsible for contracting for and
obtaining delivery of electrical and telephone service.
ADDENDUM TO PSYGNOSIS, INC. LEASE Page 17 of 17
<PAGE>
EXHIBIT "A"
DESCRIPTION OF PREMISES
A portion of that certain five-story concrete building situated beginning at the
point of intersection of the southeasterly line of Bryant Street and the
southwesterly line of Rincon Street; running thence southeasterly along said
line of Rincon Street 160 feet to the northwesterly line of Federal Street;
thence at a right angle southwesterly along said line of Federal Street (and
Federal Street extended) 160 feet; thence at a right angle southwesterly along
said line of Federal Street (and Federal Street extended) 160 feet; thence at a
right angle northwesterly 160 feet to the southeasterly line of Bryant Street;
thence at a right angle northeasterly along said line of Bryant Street 160 feet
to the point of beginning, consisting of approximately 25,288 rentable square
feet on the Lower Level as shown on the drawing on page 2 of this Exhibit A,
attached hereto. The Premises represent 26.1% of the building for pro-rata
purposes.
DESCRIPTION OF PREMISES
RINCON ASSOCIATES (LESSOR) and PSYGNOSIS INC. (LESSEE)
333 Bryant Street
ADDENDUM TO PSYGNOSIS, INC. LEASE
Exhibit "A"
Page 1 of 2
<PAGE>
EXHIBIT "A"
[GRAPH APPEARS HERE]
PSYGNOSIS, INC.
LOWER LEVEL
333 BRYANT STREET
SAN FRANCISCO, CA.
EXHIBIT "A", page 2 of 2
<PAGE>
EXHIBIT "B"
[GRAPH APPEARS HERE]
PSYGNOSIS, INC.
LOWER LEVEL
333 BRYANT STREET
SAN FRANCISCO, CA.
EXHIBIT "B", page 1 of 2
<PAGE>
EXHIBIT "B"
[GRAPH APPEARS HERE]
PSYGNOSIS, INC.
LOWER LEVEL
333 BRYANT STREET
SAN FRANCISCO, CA.
EXHIBIT "B", page 2 of 2
<PAGE>
CONSTRUCTION WORK LETTER
------------------------
LEASE AGREEMENT BETWEEN
RINCON ASSOCIATES (Lessor) AND PSYGNOSIS (Lessee)
1. DEFINITIONS
-----------
As used in this Construction Work Letter, the following terms shall mean:
a. Applicable Bodies - all federal, state, county and local government and
quasi-governmental agencies having jurisdiction over the work to be
performed in accordance with this Construction Work Letter and the
Demised Premises and the Building;
b. Building - the structure referred to as 333 Bryant Street, San
Francisco, California of which the Demised Premises forms a part;
c. Demised Premises and/or Premises - the rented portion of the Building
which is the subject of the Lease Agreement and including twenty-five
thousand two-hundred eighty-eight (25,288) rentable square feet on the
Lower Level as shown in exhibits to the Lease Agreement and which is
more particularly described in the Lease Agreement;
d. Lease Agreement - that certain Lease Agreement dated April 18, 1997, by
and between Lessor and Lessee with respect to the Demised Premises;
e. Lessor-Provided Improvements - those improvements are defined as
Toilets, Floor Grinding and Patching and Window Blinds and other items
as set forth in paragraph 48.1 of the Lease and shall be referred to
herein as "Lessor-Provided Improvements".
2. IMPROVEMENTS
------------
a. Lessor agrees that it shall provide all of the Lessor-Provided
Improvements under this Construction Work Letter to the Demised Premises
at Lessor's sole cost and expense as provided herein.
b. The Lessor-Provided Improvements to be constructed by Lessor shall be,
completed in accordance with the Plans and Outline Specifications
attached hereto.
c. Lessor shall provide, at its sole cost and expense, architectural and
engineering services necessary to complete the Lessor-Provided
Improvements, the Final Plans and Specifications (including but not
limited to construction drawings, engineering drawings and
specifications) and design/build services.
Exhibit "C" to Lease
Page 1 of 6
<PAGE>
3. TIME AND MANNER OF PERFORMANCE:
-------------------------------
a. Lessor agrees that the Lessor-Provided Improvements shall be completed
in a good, workmanlike manner in compliance with all laws, rules and
regulations of all Applicable Bodies according to the custom and usage
of the local building trade. Lessor shall obtain, and pay for the cost
of all necessary governmental permits and approvals.
b. Lessee shall cooperate with Lessor in Lessor's construction of the
Lessor-Provided Improvements since Lessee will concurrently be
constructing Lessee's Tenant Improvements in the Demised Premises.
Lessor shall use best efforts to reach Substantial Completion of
Lessor-Provided Improvements prior to or upon completion of Lessee's
Tenant Improvements and installation of its furniture, fixtures and
equipment. However, if Substantial Completion is not achieved by
November 1, 1997 (subject to the limitations in subparagraph 3.c below)
through no fault of Lessee, Lessee shall not be required to commence
with payment of Rent until Substantial Completion of Lessor-Provided
Improvements (subject to the limitations in subparagraph 3.c below) has
occurred. Additionally, if the Lessor-Provided Improvements have not
been substantially completed within one hundred and eighty (180) days of
the date of this Lease through no fault of Lessee, then Lessee shall
have the option to terminate this Lease.
c. "Substantial Completion of Lessor-Provided Improvements" shall be deemed
to have occurred upon the first date of occurrence of all of the
following conditions: (1) Construction of the Lessor-Provided
Improvements shall have been completed in accordance with the Lease
Agreement and this Construction Work Letter and in accordance with all
applicable regulations and requirements of the Applicable Bodies except
for minor "punch list" items. Lessor shall cooperate in allowing the
electrical service to the toilet improvements to be connected to by
Lessor's contractor to Lessee's electrical distribution system during
the construction of Lessee's Tenant Improvements. In the event that the
toilet improvements are completed in advance of the electrical
distribution installation, any delay in Substantial Completion or in
obtaining the necessary permits or approvals for use or occupancy shall
be the responsibility of Lessee and Lessor shall be deemed to have
fulfilled all of its obligations under this Article 3. Lessee agrees
that the installation of window blinds may be accomplished during the
period that Lessee is installing its furniture, fixtures and equipment
and after substantial Completion of all other Lessor-Provided
Improvements.
d. Occupancy of the Premises, either before or after the date of
Substantial Completion of Lessor-Provided Improvements, shall not be
deemed a waiver of any rights of Lessee to the full completion of the
Lessor-Provided Improvements including each and every unfinished item
thereof nor shall it affect the obligation of the Lessor, upon and after
occupancy by Lessee of the Demised Premises, to diligently and duly
complete the work of finishing each and every unfinished item of
construction in accordance with the applicable provisions of this
Construction Work Letter.
Exhibit "C" to Lease
Page 2 of 6
<PAGE>
e. It shall be Lessee's responsibility to provide Lessor with a "punch
list" of those items of the Lessor-Provided Improvements which have not
been completed in accordance with this Construction Work Letter within
twenty (20) days from Substantial Completion of Lessor-Provided
Improvements, Lessor agrees to complete all unfinished "punch list"
items within (30) days after the receipt of said "punch list", to
Lessee's reasonable satisfaction and shall notify Lessee in writing as
soon as it deems such corrective action has been completed.
f. Lessee, at its sole risk, may at any time following receipt of Lessor's
notice pursuant to Section 3(d) enter upon the Premises during the
course of construction and install such furniture, furnishings, trade
and other fixtures, interior decorations, machinery and equipment as it
may elect and to begin the storing of Lessee's products. Entry at any
other time shall not be made without Lessor's prior consent. Such entry,
installation and storage shall not unreasonably interfere with the
construction by Lessor that, is then taking place both as to the Demised
Premises or the Lessor-Provided Improvements or with any labor employed
by Lessor or by any contractor or subcontractor in performing such
construction work. Lessee shall have no obligation to make any payment
to Lessor, whether in the form of Rent or otherwise, on account of any
such entry, installation and storage made by Lessee other than that set
forth in the Lease. Such entry, installation and/or storage shall not be
deemed to be an acceptance by Lessee of the Lessor-Provided
Improvements, or as an occupation by Lessee of the Demised Premises nor
shall the same constitute a waiver of any Rights that Lessee may have
under this Construction Work Letter or the Lease Agreement.
4. CHANGES IN THE WORK:
--------------------
a. Lessee shall have the right to changes in the Lessor-Provided
Improvements during the course of construction, provided that:
(1) Lessor shall approve all such changes and the time for Substantial
Completion of Lessor-Provided Improvements shall be extended for
such time as Lessor needs to complete changes including any delays
caused by (i) subcontractors who are unable to immediately
accommodate the delays or, (ii) any other "force majeure" reason.
Lessor shall not unreasonably withhold, delay or condition its
approval to any changes.
(2) All changes made pursuant to this Subsection "a" above which cause
an increase in cost of Lessor-Provided Improvements shall be borne
solely by the Lessee.
b. Upon final completion of the Lessor-Provided Improvements, Lessor shall
bill Lessee for the cost of the changes or additions as provided herein
which bill shall be paid by Lessee within thirty (30) days of receipt
thereof.
Exhibit "C" to Lease
Page 3 of 6
<PAGE>
c. Each and every change in the Lessor-Provided Improvements requested by
Lessee shall be evidenced by a specific written authorization which
shall specify (i) the cost of such change, and (ii) the anticipated time
of delay in Substantial Completion of Lessor-Provided Improvements
resulting from the change, if any, and signed by Lessor's and Lessee's
respective construction representatives. In no event shall any change or
changes be permitted without such authorizations.
d. Each and every authorization shall be prepared and executed by the
construction representative at the earliest possible opportunity and
shall indicate any change in the construction costs.
e. Any delay in the date of Substantial Completion of Lessor-Provided
Improvements resulting from such changes shall not delay the
commencement of the payment of Rent under the Lease.
f. With respect to the construction work being conducted in or about the
Premises, each party agrees to be bound by and authorize the other party
to rely upon the approval and actions of their respective construction
representatives. Unless changed by written notification, the parties
hereby designate the following individuals as their respective
construction representatives:
For Lessor:
Attn: Richard McEvoy
For Lessee:
Attn: Greg Lindsay
5. GUARANTEE:
---------
In lieu of any other warranties, expressed or implied, Lessor agrees that
whatever warranties or guarantees and rights thereunder provided by the
Contractor performing the construction of Lessor-Provided Improvements will
be passed on to Lessee. Lessor will require a one year guarantee against
defects in workmanship and/or materials for a period of twelve (12) months
from date of Substantial Completion. Notwithstanding the foregoing, Lessee
shall repair and maintain in good working order all Lessor-Provided
Improvements excepting those repairs necessitated by defects in workmanship
and/or materials that are covered under this guarantee.
6. CONDITIONS OF PREMISES ON TERMINATION:
-------------------------------------
It is expressly understood and agreed between the parties that the Lessor-
Provided Improvements shall be excluded from Lessee's obligations to remove
alterations at the termination of the Lease.
7. ALTERATIONS OR CHANGES BY LESSEE:
--------------------------------
No changes or alterations to Lessor-Provided Improvements shall be made by
Lessee except with Lessor's prior written approval.
Exhibit "C" to Lease
Page 4 of 6
<PAGE>
8. MISCELLANEOUS:
--------------
There shall be no subsequent alteration, amendment, change or addition to
this Construction Work Letter binding upon the Lessor and/or Lessee unless
it shall be reduced to a writing and signed by each of the parties.
9. SUCCESSORS AND ASSIGNS:
----------------------
The covenants and agreements herein contained shall bind, and the benefits
and advantages shall inure, to the respective successors and assigns of each
of the parties hereto.
10. INVALIDITY:
----------
The invalidity or enforceability of any provision of this Construction Work
Letter in any instance shall have no effect upon the validity or
enforceability of the remainder of this Construction Work Letter or the
validity or enforceability of such provision in any other instance.
11. WAIVER:
-------
Either party's waiver of any breach or Failure to enforce any of the terms
and conditions of this Construction Work Letter at anytime shall not in any
way effect, limit or waive such party's right thereafter to enforce and
compel strict compliance with every term and condition thereof.
12. COMPLETE AGREEMENT:
------------------
This Construction Work Letter, together with the Lease Agreement,
constitutes the complete agreement between parties with respect to the
Lessor-Provided Improvements and supersedes all prior communications and
agreements between the parties with respect to the Lessor Provided
Improvements.
Exhibit "C" to Lease
Page 5 of 6
<PAGE>
13. NOTICE:
-------
Notice to be given by the parties hereunder shall be in accordance with the
notice provision of the Lease Agreement.
Lessor:
By: /s/ A. Robert Fisher
---------------------------
Name/Title: Partner
---------------------------
Date: 6/30/97
---------------------------
Lessee:
By: /s/ I. Hetherington
---------------------------
Name/Title: Ian Hetherington, President
---------------------------
Date: 19/6/97
---------------------------
Exhibit "C" to Lease
Page 6 of 6
<PAGE>
SUBLEASE
EXHIBIT "B"
[GRAPH APPEARS HERE]
PSYGNOSIS, INC.
LOWER LEVEL
333 BRYANT STREET
SAN FRANCISCO, CA.
<PAGE>
EXHIBIT 10.15
MT. DIABLO TECH CENTER
777 ARNOLD DRIVE
MARTINEZ, CALIFORNIA
OFFICE LEASE
HOMESHARK, INC.
<PAGE>
MT. DIABLO TECH CENTRE
777 ARNOLD DRIVE
MARTINEZ, CALIFORNIA
OFFICE LEASE
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
1. Premises.................................................... 1
--------
2. Term........................................................ 1
----
3. Rent........................................................ 4
----
4. Taxes and Operating Expenses................................ 5
----------------------------
5. Other Taxes................................................. 7
-----------
6. Use......................................................... 8
---
7. Services, Utilities, and Parking............................ 10
--------------------------------
8. Maintenance, Repairs and Alterations........................ 10
------------------------------------
9. Insurance and Indemnity..................................... 12
-----------------------
10. Damage or Destruction....................................... 14
---------------------
11. Eminent Domain.............................................. 15
--------------
12. Assignment and Subletting................................... 15
-------------------------
13. Default by Tenant........................................... 18
-----------------
14. Landlord's Right to Cure Defaults........................... 21
---------------------------------
15. Default by Landlord......................................... 21
-------------------
16. Security Deposit............................................ 21
----------------
17. Estoppel Certificate........................................ 22
--------------------
18. Subordination, Amendment for Lender......................... 22
-----------------------------------
19. Attorneys' Fees............................................. 23
---------------
20. Notices..................................................... 23
-------
21. General Provisions.......................................... 23
------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
22. Rider and Exhibits.......................................... 25
</TABLE>
Exhibits
Exhibit A - Outline of Premises
Exhibit B - Verification Memorandum
Exhibit C - Initial Improvement of Premises
ii
<PAGE>
MT. DIABLO TECH CENTER
777 ARNOLD DRIVE
MARTINEZ, CALIFORNIA
BASIC LEASE INFORMATION
Lease Reference
---------------
Effective Date: December 31, 1998
Landlord: MT. DIABLO TECH, LLC, a
California limited liability
company
Tenant: HOMESHARK, INC., a
California corporation
Premises and Building Address: Paragraph 1
Entire Second Floor
777 Arnold Drive
Martinez, California
Approximate Area of Premises:
Approximately 33,424
rentable square feet ("rsf")
of "Office Space" and
commencing on the Warehouse
Commencement Date, 9,343 rsf
of "Warehouse Space" as
shown on Exhibit A
---------
Term Commencement:Office Space: Paragraph 2
The later of (i) March 1,
1999 and (ii) the date that
the Tenant Improvements are
substantially completed (as
defined in paragraph 7 of
Exhibit C).
---------
Warehouse Space: October 1,
1999 (the "Warehouse
Commencement Date")
Term Expiration: The last day of the (60th) Paragraph 2
full month following the
Term Commencement.
Base Rent: Paragraph 3 (a)
Term Commencement - Last day $1.20 per rsf of
of 20th month Premises per month
First day of 21st month - $1.25 per rsf of
iii
<PAGE>
Last day of 40th month Premises per month
First day of 41st month - $1.30 per rsf of
Term Expiration Premises per month
Tenant's Percentage Share: Paragraph 4(a)
33,424 rsf / 70,503 rsf =
47.41%
Commencing on the Warehouse
Commencement Date increasing
to 42,767 rsf / 70.503 rsf =
60.66%
Base Year for Operating Expenses and Property Paragraph 4(b), (c)
Taxes: 1999
Security Deposit: $80,200.00 Paragraph 16
Increasing as of May 1,
1999 to $102,600.00
Parking Spaces Allocated to Tenant: 134 Paragraph 7(e)
Tenant's Address for Notices:
HomeShark, Inc.
118 King Street, Suite 226
San Francisco, CA 94107
Attn: Lee Kirkpatrick,
Chief Financial Officer
with a copy to:
Premises
Attn: Facilities Manager
Landlord's Address Paragraph 21
for Notices: Mt. Diablo Tech, LLC
c/o SRM Associates
1125 Atlantic Avenue, Suite 102
Alameda, California 94501
Attn: Steven R. Meckfessel
Telecopier No. (510) 864-1020
Broker(s): Cushman & Wakefield of Paragraph 22(k)
California, Inc. and CRS
Commercial Real Estate
Services
iv
<PAGE>
Exhibits:
Exhibit A - Outline of Premises
Exhibit B - Verification Memorandum
Exhibit C - Initial Improvement of the Premises
The provisions of the Lease identified above in the margin 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.
v
<PAGE>
MT. DIABLO TECH CENTER
777 ARNOLD DRIVE
MARTINEZ, CALIFORNIA
BASIC LEASE INFORMATION
THIS LEASE is made and entered into as of the Effective Date by and
between MT. DIABLO TECH, LLC., a California limited liability company
("Landlord"), and HOMESHARK, INC., a California Corporation ("Tenant").
1. Premises.
--------
(a) Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord for the term of this Lease and at the rental and upon the conditions
set forth below, the Premises described as approximately 33,424 rsf on the
second floor within the building commonly known as 777 Arnold Drive, Martinez,
California (the "Building"). As of the Warehouse Commencement Date, the Premises
shall be expanded to include 9,343 rsf of additional space in the Building. The
Premises are more specifically identified on Exhibit A attached hereto. The
---------
Premises, the Building and the legal parcel on which the Building is located,
together with adjacent parking and other appurtenances, are collectively, the
"Property."
(b) Prior to delivery of the Premises to Tenant, Landlord shall cause
the substantial completion of the improvements within the Premises and the
Building as described in Exhibit C.
---------
2. Term.
----
(a) 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. If Landlord shall permit Tenant to
occupy the Premises prior to the date of term commencement, such occupancy shall
be subject to all the terms of this Lease. If Landlord, for any reason
whatsoever, cannot deliver possession of the Premises to Tenant on the Date of
term commencement, 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, subject to any contrary provisions in any agreement with Landlord
covering initial improvement of the Premises, rental shall be waived for the
period between commencement of the term and the time when Landlord can deliver
possession. The date of term expiration shall be extended by the number of days
of delay in delivery of possession and any additional period required so that it
will expire on the last day of a calendar month, and the commencement and
expiration dates shall be confirmed in a Verification Memorandum in the form of
Exhibit B executed by Landlord and Tenant promptly following delivery of
- ---------
possession. Landlord shall allow Tenant and its representatives to enter the
Premises prior to the Commencement Date
1
<PAGE>
to permit Tenant to make the Premises ready for its use and occupancy; provided,
however, that prior to such entry of the Premises, Tenant shall provide evidence
reasonably satisfactory to Landlord that Tenant's insurance as described in
Section 9 shall be in effect as of the time of such entry. Tenant shall not be
obligated to pay Rent or Operating Expenses during such early entry period.
(b) Tenant is hereby given one (1) option to extend the term of the
Lease Term on all of the provisions contained in this Lease, except for Base
Rent which shall be determined in accordance herewith. For the purposes of this
Paragraph 2(b), the extension of the term of the Lease shall be referred to as
the "Extended Term." The Extended Term shall be for a period of five (5) years
commencing upon the expiration of the initial term of the Lease.
(c) Tenant may exercise its right to the Extended Term by giving
Landlord written notice ("Option Notice") thereof at least nine (9) months but
not more than twelve (12) months before the expiration of the initial term of
the Lease. If Tenant is in default of its obligations under the Lease, which
default remains uncured after notice from Landlord for the time period set forth
in Paragraph 13(a), on the date of giving such Option Notice, such Option Notice
shall be invalid and the Lease shall expire at the end of the initial term of
the Lease. If Tenant is in default in its obligations under the Lease after
notice from Landlord, which default remains uncured for the time period set
forth in Paragraph 13(a), on the date the Extended Term is to commence, the
Extended Term shall not commence and this Lease shall expire at the end of the
initial Lease Term.
(d) The parties shall have thirty (30) days after Landlord receives
the Option Notice in which to agree on the Base Rent to be paid during the
Extended Term. Said rental shall approximate as nearly as possible the then fair
rental value of the Premises based upon the use specified in Paragraph 6 hereof
and the location of the Premises in the Martinez/Pleasant Hill/Concord area. If
the parties agree on the Base Rent for the Extended Term during that period,
they shall immediately execute an amendment to this Lease stating the new Base
Rent.
(e) If, within said 30-day period, the parties cannot agree upon the
fair rental value for the Premises as of the first day of the Extended Term, the
parties shall submit the matter to binding appraisal in accordance with the
following procedure: Within sixty (60) days from the date of the first meeting
between Landlord and Tenant, the parties shall either (1) jointly appoint an
appraiser for this purpose, or (2) failing this joint action, each separately
designate a disinterested appraiser. The parties shall each pay one-half (1/2)
of the fees and expenses of the jointly appointed appraiser; or, if the parties
separately designate disinterested appraisers, the parties shall pay the fees
and expenses of the appraiser appointed or designated by such party, and no
person may be appointed as an appraiser unless he or she has at least five (5)
2
<PAGE>
years' experience in appraising office buildings in the same County and is a
member of a recognized society of real estate appraisers. If the two (2)
appraisers thus appointed cannot reach an agreement on the fair rental value
within thirty (30) days after their appointment, the appraisers thus appointed
shall appoint a third disinterested appraiser having like qualifications. If,
within twenty (20) days after the third appraiser has been chosen, a majority of
the appraisers cannot reach an agreement on the fair rental value, then the
average of the two (2) closest appraisals shall determine the fair rental value.
Each party shall pay one-half (1/2) of the fees and expenses of the third
appraiser.
(f) In the event the parties have not agreed on the fair rental value
for the Premises upon the commencement date of the Extended Term, then Tenant
shall make a payment of Base Rent equal to the monthly installment required to
be paid for the last month of the initial term each and every month until the
fair rental value has been determined. Upon such determination, the agreed fair
rental value shall be retroactive to the commencement date of the Extended Term.
Tenant shall, within ten (10) days thereafter, make up any accumulated
deficiency for all months of the Extended Term.
(g) Tenant shall have no other right to extend the term of the Lease
beyond the Extended Term.
3. Rent.
----
(a) Tenant shall pay to Landlord as rental the amount specified in
the Basic Lease Information as the Base Rent. Base Rent shall be payable upon
Tenant's execution of this Lease and in advance on or before the first day of
the first full calendar month following commencement of the term and of each
successive calendar month thereafter during the term. Base Rent for any partial
month at the beginning or end of the Term shall be appropriately prorated based
on the actual number of days in the month.
(b) Tenant shall pay, as additional rent, all amounts of money
required to be paid to Landlord by Tenant hereunder in addition to monthly rent,
whether or not the same be designated "additional rent."
(c) Tenant hereby acknowledges that late payment by Tenant to
Landlord of rent and other amounts due hereunder 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, and late charges which may be imposed on
Landlord by the terms of any loan secured by the Building. Accordingly, if any
installment of rent or any other sums due from Tenant shall not be received by
Landlord within ten (10) days following the date due, Tenant shall pay to
Landlord a late charge equal to 10 percent (10%) of such overdue amount. The
parties hereby agree that such late charge represents a
3
<PAGE>
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.
(d) Any amount due to Landlord, if not paid when due, shall bear
interest from the date due until paid at the rate of 10% per annum or, if a
higher rate is legally permissible, at the highest rate legally permitted,
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.
(e) All payments due from Tenant to Landlord hereunder shall be made
to Landlord without deduction or offset in lawful money of the United States of
America at the address for payment set forth in the Basic Lease Information, or
to such other person or at such other place as Landlord may from time to time
designate by notice to Tenant.
4. Taxes and Operating Expenses.
----------------------------
(a) Tenant shall pay its percentage share, as specified in the Basic
Lease Information, of the increase of all Property Taxes assessed in respect of
the Property during the term over Base Property Taxes, and its percentage share
of the increase of all actual Operating Expenses paid or incurred by Landlord
over Base Operating Expenses. Tenant's percentage share is calculated by
dividing the rentable area of the Premises, as set forth in the Basic Lease
Information, by the rentable area of the Building. If during any calendar year
during the term, the Building is not fully occupied on the average, Operating
Expenses and Property Taxes shall be adjusted to equal Landlord's reasonable
estimate of Operating Expenses and Property Taxes had the total rentable area of
the Building been 95 percent occupied during such calendar year.
(b) For the purposes hereof, "Property Taxes" shall mean all real
property taxes, assessments or governmentally imposed fees or charges (and any
tax or assessment levied wholly or partly in lieu thereof) levied, assessed,
confirmed, imposed, or which become a lien against the Property or payable
during the term. Property Taxes shall also include the cost of protesting real
property taxes and assessments. Base Property Taxes shall be those assessed
during the Base Year set forth in the Basic Lease Information. Notwithstanding
anything to the contrary herein, Tenant shall not be required to pay any portion
of any tax or assessment expense (i) levied on Landlord's rental income, unless
such tax or assessment expense is imposed in lieu of real property taxes; (ii)
in excess of the amount which would be payable if such tax or assessment
expenses were paid in installments over the longest possible term; (iii) imposed
on land and
4
<PAGE>
improvements other than the Building and land appurtenant thereof; or (iv)
attributable to Landlord's net income, inheritance, gift, transfer, franchise,
estate or state taxes.
(c) For the purposes hereof, "Operating Expenses" shall mean all
expenses and costs of every kind and nature which Landlord shall pay or become
obligated to pay for the operation and management of the Property because of or
in connection with the ownership and operation of the Property, including,
without limitation: (i) all license, permit, and inspection fees except those
incurred in connection with improving space in the Building for tenants
(including Tenant); (ii) premiums for any insurance maintained by Landlord with
respect to the Property (not to exceed premium amounts for insurance customarily
carried by prudent landlords with respect to comparable office projects in the
Martinez/Richmond area); (iii) wages, salaries and related expenses' and
benefits of all on-site and off-site employees engaged in operation, maintenance
and security for the Building, but excluding any executive salaries or other
compensation to executives employed by Landlord; (iv) all supplies, materials,
'and equipment rental except rentals for equipment ordinarily considered to be
of a capital nature unless such equipment is used in providing janitorial
services to Building tenants; (v) all maintenance, repair, replacement,
janitorial, security, and service costs, except to the extent any tenant pays
for janitorial costs separately; (vi) management fees or a management cost
recovery equal to a market rate management fee; (vii) all maintenance and repair
costs related to the operation of the heating, ventilating and air conditioning
equipment serving the Premises; (viii) professional services fees; (ix)
amortization of the cost of capital improvements (together with interest thereon
at the rate paid by Landlord or which would have been paid if Landlord had
borrowed such funds) intended to reduce other Operating Expenses or are required
by law; (x) all charges for heat, water, gas, electricity and other utilities
used or consumed in the Building and surrounding areas, except to the extent to
which any tenant pays such charges directly; and (xi) all other operating,
management, and other expenses incurred by Landlord in connection with the
operation of the Property. Landlord shall not collect in excess of 100% of all
of Landlord's Operating Expenses and Landlord shall not recover, through
Operating Expenses, any item of cost more than once. Operating Expenses shall
not include the cost of repairs or restoration occasioned by a casualty to the
extent covered by insurance proceeds made available to Landlord, expenses
incurred in leasing to or procuring of tenants, leasing commissions, legal fees
related to other tenants' leases, advertising expenses, expenses for the
renovating of space for new tenants, debt service payments by Landlord except as
allowed above, nor any depreciation allowance or expense; costs for which
Landlord has received reimbursement from others, or costs and services which
Tenant reimburses Landlord or pays third parties or that Landlord provides
selectively to one or more tenants of the Building; costs of repairs directly
resulting from the negligence or willful misconduct of Landlord, its agents or
employees; repairs or rebuilding necessitated by condemnation to the extent
5
<PAGE>
Landlord receives proceeds from the applicable condemning authority; costs
associated with the operation of the business of the limited liability company
or entity which constitutes Landlord, or the operation of any parent, subsidiary
or affiliate of Landlord, as the same are distinguished from the costs of
operation of the Property; costs, fines or penalties incurred due to violation
of any law by Landlord or the Landlord's Parties; any fee for Landlord's general
administrative and overhead expenses; points, fees and other charges for
Landlord's financing or refinancing of the Building, and penalties or charges
for failure to perform Landlord's obligations under any financing secured by the
Building; costs, fines or penalties incurred due to the negligence or willful
misconduct of Landlord or the Landlord's Parties; costs relating to Hazardous
Materials not stored, used or disposed of by Tenant or its representatives;
costs relating to the repair, maintenance and replacement of the structural
elements of the Building and the Property; and any other costs, expense, fee or
charge which in accordance with generally accepted property management practices
would not be considered an expense of managing, operating, maintaining and
repairing the Property. Base Operating Expenses shall be those Operating
Expenses paid by Landlord or which Landlord becomes obligated to pay during the
Base Year. If Operating Expenses for the Base Year are not based on 12 months of
actual operation of the Property at full capacity, then the Base Year Operating
Expenses shall be adjusted to equal Landlord's reasonable estimate of Operating
Expenses had the total Building been fully occupied during such Base Year.
(d) (i) Tenant shall pay to Landlord each month at the same time and
in the same manner as monthly rent, 1/12th of Landlord's estimate of Tenant's
share of the increase in Property Taxes and Operating Expenses for the then
current calendar year payable by Tenant. Within 90 days after the close of each
calendar year, or as soon after such 90 day period as practicable, Landlord
shall deliver to Tenant a statement of actual Property Taxes and Operating
Expenses for such calendar year with such back-up information as Tenant may
reasonably request with regard to any particular expense. Landlord may determine
some items of Property Taxes and Operating Expenses on a cash basis and other
items on an accrual basis, so long as such determination is consistently applied
to the same item during all accounting periods. If on the basis of such
statement Tenant owes an amount that is less than the estimated payments for
such calendar year previously made by Tenant, Landlord shall credit such excess
against Operating Expenses and Property Taxes subsequently payable by Tenant. If
on the basis of such statement Tenant owes an amount that is more than the
estimated payments for such calendar year previously made by Tenant, Tenant
shall pay the deficiency to Landlord within 15 days after delivery of the
statement.
(ii) Tenant shall have the right, during normal business hours
within sixty (60) days following Landlord's delivery of Landlord's statement
regarding actual Property Taxes and actual Operating Expenses, to review and
contest Landlord's determination.
6
<PAGE>
Unless within such sixty (60) day period, Tenant gives notice to Landlord of its
contest of Landlord's determination, Landlord's statement shall be deemed final
and accepted by Tenant. Promptly after the giving of such written notice,
Landlord shall meet with Tenant in an attempt to reconcile any outstanding
disputes. Pending resolution of any dispute with Landlord, Tenant shall pay the
amount set forth in Landlord's statement.
(iii) The obligations of Landlord and Tenant under this
subparagraph with respect to the reconciliation between estimated payments and
actual Property Taxes and actual Operating Expenses for the last year of the
term shall survive the termination of this Lease.
5. Other Taxes. Tenant shall pay or reimburse Landlord for any
-----------
taxes 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 leasehold improvements made in or to the Premises at Tenant's
expense; for any taxes, assessments, fees or charges imposed by any public
authority or private community maintenance association upon or by reason of the
development, possession, use or occupancy of the Premises or the parking
facilities used by Tenant in connection with the Premises; and for any gross
receipts tax imposed with respect to the rental payable hereunder.
6. Use.
---
(a) The Premises shall be used and occupied by Tenant for general
office use and for no other purpose. Tenant shall, at Tenant's expense, comply
promptly with all applicable statutes, ordinances, rules, regulations, orders
and requirements in effect during the term regulating the use by Tenant of the
Premises except that repairs or alterations required to comply with laws general
applicable to the condition of the Premises for use as office space, and not
required or caused by Tenant's particular use or activities or by any
alterations made or proposed by Tenant, shall be made by Landlord (and the cost
thereof shall be included or excluded from Operating Expenses as provided in
Section 4 (c) (ix) above). Tenant shall not use or permit the use of the
Premises in any manner that will tend to create waste or a nuisance, or which
unreasonably disturbs other tenants of the Building, nor shall Tenant, its
employees, agents or invitees damage the Premises, the Building or related
improvements, nor place or maintain any signs on or visible from the exterior of
the Premises without Landlord's written consent, or use any corridors, sidewalks
or other areas outside of the Premises for storage or any purpose other than
access to the Premises. Tenant shall not conduct any auction at the Premises.
Notwithstanding any other provision of this Lease, Tenant shall not use, keep or
permit to be used or kept on the Premises any foul or noxious gas or substance,
nor shall Tenant do or permit to be done anything in and about the Premises,
either in connection with activities hereunder expressly permitted or otherwise,
which would cause an increase in premiums payable under, or a cancellation of,
any policy of insurance
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maintained by Landlord in connection with the Premises or the Building or which
would violate the terms of any covenants, conditions or restrictions affecting
the Building or the land on which it is located.
(b) Tenant shall strictly comply with all statutes, laws, ordinances,
rules, regulations, and precautions now or hereafter mandated or advised by any
federal, state, local or other governmental agency with respect to the use,
generation, storage, or disposal of hazardous, toxic, or radioactive materials
(collectively, "Hazardous Materials") provided that the foregoing shall not
include the obligation to remove, remediate, clean up, detoxify or pay for the
cost to investigate or monitor any Hazardous Materials unless the same were
caused to be located on or about the Premises by Tenant, its agents, or
employees or were disturbed or exacerbated by Tenant, its agents or employees.
As herein used, Hazardous Materials shall include, but not be limited to, those
materials identified in Sections 66680 through 66685 of Title 22 of the
California Code of Regulations, Division 4, Chapter 30, as amended from time to
time, and those substances defined as "hazardous substances," "hazardous
materials, "hazardous wastes," "chemicals known to cause cancer or reproductive
toxicity, "radioactive materials, 11 or other similar designations in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 et seq., the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801 et seq., 33 U.S.C. Section 1251 et seq., 42 U.S.C.
-- ---
Section 300(f) et seq., 42 U.S.C. 7401 et seq., California Health and Safety
Code Section 25249.5 et seq., California Water Code Section 13000 et seq.,
California Health and Safety Code Section 39000 et seq. and any other
governmental statutes, ordinances, rules, regulations, and precautions adopted
pursuant to the preceding laws or other similar laws, regulations and guidelines
now or hereafter in effect. Tenant shall not cause, or allow anyone else to
cause, any Hazardous Materials to be used, generated, stored, or disposed of on
or about the Premises or the Building other than reasonable quantities of office
and cleaning supplies in their retail containers. Tenant shall defend (with
counsel reasonably approved by Landlord), indemnify and hold Landlord, its
trustees, employees and agents, any entity having a security interest in the
Premises or the Building, and its and their employees and agents (collectively,
"Indemnitees") harmless from and against, and shall reimburse the Indemnitees
for, all liabilities, claims, costs, damages, and depreciation of property
value, including all foreseeable and unforeseeable consequential damages,
directly or indirectly arising out of the use, generation, storage, or disposal
of Hazardous Materials by Tenant or any person claiming under Tenant, including,
without limitation, the cost of any required or necessary investigation,
monitoring, repair, cleanup, or detoxification and the preparation of any
closure or other required plans, whether such action is required or necessary
prior to or following the termination of this Lease, as well as penalties, fines
and claims for contribution to the full extent that such action is attributable,
directly or
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indirectly, to the use, generation, storage, or disposal of Hazardous Materials
by Tenant or any person claiming under Tenant. Neither the consent by Landlord
to the use, generation, storage, or disposal of Hazardous Materials nor the
strict compliance by Tenant with all statutes, laws, ordinances, rules,
regulations, and precautions pertaining to Hazardous Materials shall excuse
Tenant from Tenant's obligation of indemnification set forth above. Tenant's
obligations under this paragraph 6 shall survive the expiration or termination
of this Lease.
(c) Landlord represents and warrants that Landlord has no actual
knowledge of any Hazardous Materials in more than de minimus amounts in, on or
about the Building, except as disclosed in that certain Phase I report by Erler
& Kalinowski, Inc. dated March 30, 1998 delivered by Landlord to Tenant. Except
to the extent that the Hazardous Materials in question was released, omitted,
used, stored, manufactured, transported or discharged by Tenant, or its agents,
employees or contractors, in violation of applicable laws, Tenant shall not be
responsible for and Landlord shall indemnify, defend with counsel reasonably
acceptable to Tenant, protect and hold harmless Tenant from any claim,
remediation obligation, investigation obligation, monitoring obligation, removal
obligation, cause of action, penalty, attorneys' fee, cost, expense or damage
owing or alleged to be owing to any third party with respect to any Hazardous
Materials present on or about the Premises, the Building or the Property, or the
soil, groundwater or surface water thereof. Landlord's representations,
warranties and indemnification under this paragraph shall survive termination of
this Lease.
7. Services, Utilities, and Parking.
--------------------------------
(a) Tenant shall pay for all water, electricity, gas, telephone
services and its share of refuse collection services furnished to Tenant or the
Premises. Such services shall be separately metered or allocated and charged to
Tenant by the provider thereof and paid directly by Tenant; however, if such
services are not separately metered then such services shall be billed to Tenant
based on its pro rata share of usage, and Tenant shall pay Landlord such billed
sum within ten (10) days of receiving an invoice therefor.
(b) Landlord shall not be liable for damages, consequential or
otherwise, nor shall there be any rent abatement, arising out of any curtailment
or interruption whatsoever in utility services unless due to the negligence or
willful misconduct of Landlord or the Landlord's Parties and such interruption
or curtailment continues for a period of ten (10) or more consecutive days. In
such event rent shall be abated until such utility services are restored to the
extent of the interference with Tenant's use of the Premises occasioned thereby.
Landlord shall use commercially reasonable efforts to cause all utility services
for the Building which may be curtailed or interrupted to be fully restored.
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(c) Tenant shall be responsible for its own janitorial services to
the Premises as may be customary for comparable office buildings.
(d) Tenant shall be entitled to use on a non-designated basis
approximately 134 vehicle parking spaces on the Property without paying any
additional rent therefor. Tenant's parking shall not be reserved and shall be
limited to vehicles no larger than standard size automobiles or pickup utility
vehicles. Tenant shall not cause large trucks or other large vehicles to be
parked within the Property. Vehicles shall be parked only in striped parking
spaces and not in driveways or other locations not specifically designated for
parking. Handicapped spaces shall only be used by those legally permitted to use
them.
8. Maintenance, Repairs and Alterations.
------------------------------------
(a) Subject to the provisions of paragraph 10 below, and except for
damages caused by Tenant, its agents or invitees, Landlord shall keep in good
condition and repair and replace when necessary the foundations and exterior
walls and roof of the Building and all common areas within the Building not
leased to tenants. Tenant expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford Tenant the right to make
repairs at Landlord's expense or to terminate this Lease because of Landlord's
failure to keep the Premises or the Building in good order, condition and
repair.
(b) Tenant shall, at Tenant's expense, maintain the interior portion
of the Premises including, but not limited to, all plumbing and electrical
fixtures and outlets, all computer and telecommunications wiring and outlets,
and any interior glass in good condition and repair. With respect to the
electrical and plumbing systems serving the Premises, Tenant shall be
responsible for the maintenance and repair of any such systems only to the point
where such systems join a main or other junction (e.g., sewer main or electrical
transformer) serving more than one user, unless such repair is specifically due
to Tenant's misuse. If Tenant fails to do so Landlord may, but shall not be
required to, enter the Premises and put them in good condition, and Landlord's
costs thereof shall automatically become due and payable as additional rent. At
the expiration of the term Tenant shall deliver up possession of the Premises in
good condition and repair, ordinary wear and tear, acts of God, casualties,
condemnation and alterations with respect to which Landlord has not reserve the
right to require removal excepted.
(c) Tenant shall not, without Landlord's prior consent, which shall
not be unreasonably withheld, conditioned or delayed, make any alterations,
improvements or additions in or about the Premises. Notwithstanding the
foregoing, Tenant shall not be required to obtain Landlord's prior consent for
minor, nonstructural alterations that (i) do not affect any of the Building
systems, (ii) are not visible from the exterior of the Premises, and (iii) cost
less than Fifteen
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Thousand Dollars ($15,000.00) per work of improvement, so long as Tenant gives
Landlord notice of the proposed alterations as set forth below. As a condition
to giving such consent, Landlord may require that Tenant remove any such
alterations, improvements or additions at the expiration of the term, and to
restore the Premises to their prior condition. Before commencing any work
relating to alterations, additions or improvements affecting the Premises,
Tenant shall notify Landlord of the expected date of commencement thereof and of
the anticipated cost thereof, and shall furnish complete drawings and
specifications describing such work as well as such information as shall
reasonably be requested by Landlord substantiating Tenant's ability to pay for
such work. Landlord shall then have the right at any time and from time to time
to post and maintain on the Premises such notices as Landlord reasonably deems
necessary to protect the Premises, the Building and Landlord from mechanics,
liens or any other liens. In any event, Tenant shall pay when due all claims for
labor or materials furnished to or for Tenant at or for use in the Premises.
Tenant shall not permit any mechanics, liens to be levied against the Premises
for any labor or materials furnished to Tenant or claimed to have been furnished
to Tenant or to Tenant's agents or contractors in connection with work performed
or claimed to have been performed on the Premises by or at the direction of
Tenant. All alterations, improvements or additions in or about the Premises
performed by or on behalf of Tenant other than Tenant's Work shall be done by
contractors reasonably designated or approved by Landlord, in a first-class,
workmanlike manner which does not disturb or interfere with other tenants and in
compliance with all applicable laws, ordinances, regulations and orders of any
governmental authority having jurisdiction thereover, as well as the
requirements of insurers of the Premises and the Building. Prior to commencing
any such work, if required by Landlord, Tenant shall purchase builder's risk
insurance in an amount no less than the value of the completed work of
alteration, addition or improvement on an all-risk basis, covering all perils
then customarily covered by such insurance. In addition, prior to the
commencement of any such work, if Landlord so requests in connection with
alterations the cost of which shall exceed $100,000, Tenant shall furnish to
Landlord performance and payments bonds in a form and issued by a surety
reasonably acceptable to Landlord in an amount equal to the cost of such work of
alteration, improvement or addition. Notwithstanding anything in this paragraph
8 to the contrary, upon Landlord's request, Tenant shall remove any contractor,
subcontractor or material supplier from the Premises and the Building if the
work or presence of such person or entity results in labor disputes in or about
the Building or damage to the Premises or the Building. Upon completion of work
performed for Tenant, at Landlord's request Tenant shall deliver to Landlord
evidence of full payment therefor and full and unconditional waivers and
releases of liens for all labor, services and/or materials used. Unless Landlord
requires their removal, as set forth above, all alterations, improvements or
additions which may be made on the Premises shall become the property of
Landlord and remain upon and be surrendered with the Premises at the termination
or expiration of the term; provided, however, that
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Tenant's machinery, equipment and trade fixtures, other than any which may be
affixed to the Premises so that they cannot be removed without material damage
to the Premises, shall remain the property of Tenant and shall be removed by
Tenant. Tenant may, at its own cost and expense, subject to any necessary
governmental approvals and Landlord's approval with respect to screening and
location, install a back-up electrical generator serving the Premises near the
exterior of the Building.
9. Insurance and Indemnity.
-----------------------
(a) Tenant shall obtain and maintain during the term of this Lease
commercial general liability insurance with a combined single limit for personal
injury and property damage in an amount not less than $2,000,000, and employer's
liability and workers' compensation insurance as required by law. Tenant's
commercial general liability insurance policy shall be endorsed to provide that
(1) it may not be canceled or altered in such a manner as adversely to affect
the coverage afforded thereby without 30 days' prior written notice to Landlord,
(2) Landlord is named as additional insured, (3) the insurer acknowledges
acceptance of the mutual waiver of claims by Landlord and Tenant pursuant to
subparagraph (b) below, and (4) such insurance is primary with respect to
Landlord and that any other insurance maintained by Landlord is excess and
noncontributing with such insurance. If, in the reasonable opinion of
Landlord's insurance adviser, based on a substantial increase in recovered
liability claims generally, the specified amounts of coverage are no longer
adequate, within 30 days following Landlord's request, such coverage shall be
appropriately increased. Tenant shall also obtain and maintain insurance
("Personal Property Insurance") covering leasehold improvements paid for by
Tenant and Tenant's personal property and fixtures from time to time in, on, or
at the Premises, in an amount not less than 100% of the full replacement cost,
without deduction for depreciation, providing protection against events
protected under "All Risk Coverage," as well as against sprinkler damage,
vandalism, and malicious mischief. Any proceeds from the Personal Property
Insurance shall be used for the repair or replacement of the property damaged or
destroyed, unless this Lease is terminated under an applicable provision herein.
If the Premises are not repaired or restored following damage or destruction in
accordance with other provisions herein, Landlord shall receive any proceeds
from the Personal Property Insurance allocable to Tenant's leasehold
improvements. Tenant shall obtain and maintain business interruption insurance
in an amount not less than the greater of Tenant' s annual gross revenue or an
amount adequate to provide for payment of Base Rent and other amounts due
Landlord under this Lease during a one year interruption of Tenant's business by
fire or other casualty. Prior to the commencement of the term, Tenant shall
deliver to Landlord duplicates of such policies or certificates thereof with
endorsements, and at least 30 days prior to the expiration of such policy or any
renewal thereof, Tenant shall deliver to Landlord replacement or renewal
binders, followed by duplicate policies or certificates within a reasonable time
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thereafter. If Tenant fails to obtain such insurance or to furnish Landlord any
such duplicate policies or certificates as herein required, Landlord may, at its
election, but shall not be obligated to, upon ten (10) days prior to notice to
Tenant, procure and maintain such coverage and Tenant shall reimburse Landlord
on demand as additional rent for any premium so paid by Landlord. Tenant shall
have the right to provide all insurance coverage required herein to be provided
by Tenant pursuant to blanket policies so long as such coverage is expressly
afforded by such policies.
(b) Landlord hereby waives all claims against Tenant, and Tenant's
trustees, and its and their officers, directors, partners, employees, agents and
representatives for loss or damage to the extent that such loss or damage is
insured against under any valid and collectable insurance policy insuring
Landlord or would have been insured against but for any deductible amount under
any such policy, and Tenant waives all claims against Landlord including
Landlord's trustees, and its and their officers directors, partners, employees,
agents and representatives (collectively, "Landlord's Parties") for loss or
damage to the extent such loss or damage is insured against under any valid and
collectable insurance policy insuring Tenant or required to be maintained by
Tenant under this Lease, or would have been insured against but for any
deductible amount under any such policy.
(c) As insurance is available to protect it, and as long as such
waiver does not violate public policy, Tenant hereby waives all claims against
Landlord and Landlord's Parties for damage to any property or injury to or death
of any person in, upon or about the Premises, the Building or the Property
arising at any time and from any cause, excepting only the negligence or willful
misconduct of Landlord or Landlord's Parties and Tenant shall hold Landlord and
Landlord's Parties harmless from and defend Landlord and Landlord's Parties
against (i) all claims for damage to any property or injury to or death of any
person arising in or from the use of the Premises by Tenant, except as to
Landlord or any of Landlord's Parties such as is caused by the negligence or
willful misconduct of Landlord or that of Landlord's Parties otherwise entitled
to indemnification, or (ii) arising from the negligence or willful misconduct of
Tenant, its employees, agents or contractors in, upon or about those portions of
the Building other than the Premises. The foregoing indemnity obligation of
Tenant shall include attorneys, fees, investigation costs and all other costs
and expenses incurred by Landlord or any of Landlord's Parties from the first
notice that any claim or demand is to be made or may be made. The provisions of
this paragraph 9 shall survive the expiration or termination of this Lease with
respect to any damage, injury or death occurring prior to such time.
(d) During the Lease term, to the extent such coverages are available
at a commercially reasonable cost, Landlord shall maintain in effect insurance
on the Building with responsible insurers, on an "all risk" or "special form"
basis, insuring the Building and the
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Tenant's Work in an amount equal to the full replacement cost thereof, excluding
land, foundations, footings and underground installations. Landlord shall also
maintain in full force throughout the term, commercial general liability
insurance providing coverage in amounts carried by prudent owners of commercial
property located in the vicinity of the Property. The cost of the premiums shall
be included in Operating Expenses.
(e) Notwithstanding anything to the contrary contained in this Lease,
Landlord shall not be released from, and shall indemnify, defend, protect and
hold harmless Tenant from, all damages arising from the negligence or willful
misconduct of Landlord or its agents, employees, contractors or invitees;
Landlord's violation of applicable laws, or a breach of Landlord's obligations
or representations under this Lease.
10. Damage or Destruction.
---------------------
(a) If during the term the Premises are totally or partially
destroyed, or any other portion of the Building is damaged in such a way that
Tenant's use of the Premises is materially interfered with, from a risk which is
wholly covered by insurance proceeds made available to Landlord for such
purpose, Landlord shall proceed with reasonable diligence to repair the damage
or destruction and restore the Building to substantially the same condition that
existed prior thereto and this Lease shall not be terminated; provided, however,
that if in the reasonable opinion of Landlord's architect or contractor the work
of repair cannot be completed in 180 days following such damage or destruction,
Landlord may at its election terminate this Lease by notice given to Tenant
within 30 days following the event Landlord shall promptly deliver to Tenant a
copy of the time estimate prepared by the architect or contractor estimating the
time for repair and restoration of the Premise.
(b) If during the term the Premises are totally or partially
destroyed, or any other portion of the Building is damaged in such a way that
Tenant's use of the Premises is materially interfered with, from a risk which is
not wholly covered by insurance proceeds made available to Landlord for repair
or reconstruction, Landlord may at its election by notice to Tenant given within
30 days following the event either restore the Premises to substantially the
same condition as existed prior thereto or terminate this Lease.
(c) In case of destruction or damage which materially interferes with
Tenant's use of the Premises, if this Lease is not terminated as above provided,
rent shall be abated during the period required for the work of repair based
upon the degree of interference with Tenant's use of the Premises. Except for
abatement of rent, Tenant shall have no claim against Landlord for any loss
suffered by Tenant due to damage or destruction of the Premises or any work of
repair undertaken as herein provided. Tenant expressly waives the
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provisions of Section 1932 and Section 1933(4) of the California Civil Code
which are superseded by this paragraph 10.
(d) Notwithstanding anything to the contrary contained in this Lease,
Tenant shall have the option to terminate this Lease in the event any of the
following occurs, which option may be exercised by delivery to Landlord of a
written notice of election to terminate within fifteen (15) days after Tenant
receives from Landlord the estimate of the time needed to complete such
restoration: (i) the Premises, with reasonable diligence, cannot be fully
repaired by Landlord within one hundred eighty (180) days after the damage or
destruction; or (ii) the Premises are substantially damaged by any peril within
the last twelve (12) months of the Term.
11. 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 or sold by
Landlord under threat thereof, this Lease shall terminate as to the part so
taken as of the date of taking or sale 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 if
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 for Tenant's purposes. In the event of any taking or such sale,
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 on a
square footage basis.
12. Assignment and Subletting.
-------------------------
(a) Tenant shall not assign this Lease or any interest herein or
sublet the Premises or any part thereof without the prior consent of Landlord,
which consent shall not be unreasonably withheld; Tenant shall not hypothecate
this Lease or any interest herein or permit the use of the Premises by any party
other than Tenant without the prior consent of Landlord, which consent may be
withheld by Landlord in its absolute discretion. 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. Any of 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, current financial statements of any proposed assignee or sublessee
and all other information reasonably requested by Landlord concerning the
proposed transaction and the parties involved therein. As a further
15
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condition to any consent granted by Landlord, the proposed assignee or sublessee
shall agree in writing to perform for the benefit of Landlord all of the
Tenant's obligations under this Lease or so much thereof as are allocable to any
portion of the Premises proposed to be sublet.
(b) 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) in Landlord's reasonable judgment, the use of the Premises
would entail any alterations which would lessen the value of the leasehold
improvements in the Premises, or would require materially increased
services by Landlord;
(2) 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;
(3) in the case of a subletting of less than the entire
Premises, if the subletting would result in the division of the Premises
into more than two subparcels or would require access to be provided
through space leased or held for lease to another tenant or improvements to
be made outside of the Premises.
(c) If at any time or from time to time during the term of this Lease
Tenant desires to sublet all or any part of the Premises, Tenant shall give
notice to Landlord setting forth the terms of the proposed subletting and the
space so proposed to be sublet. Landlord shall have the option, exercisable by
notice given to Tenant within 10 days after Tenant's notice is given, to
terminate the Lease as to that portion of the Premises proposed to be sublet,
effective as of the date of the proposed subletting if Tenant proposes to
sublease more than 60% of the Premises. Landlord may enter into a lease with the
proposed subtenant. if Tenant proposes to assign this Lease, Landlord may, by
notice given within 20 days of Tenant's notice, elect to terminate this Lease as
of the date of the proposed assignment. If Landlord so terminates this Lease,
Landlord may, if it elects, enter into a new lease covering the Premises or a
portion thereof with the intended assignee or subtenant on such terms as
Landlord and such person may agree, or enter into a new lease covering the
Premises or a portion thereof with any other person; in such event, Tenant shall
not be entitled to any portion of the profit, if any, which Landlord may realize
on account of such termination and reletting. Landlord's exercise of its
aforesaid option shall not be construed to impose any liability upon Landlord
with respect to any real estate brokerage
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commission(s) or any other costs or expenses incurred by Tenant in connection
with its proposed subletting or assignment. If Landlord does not exercise its
options to terminate this Lease or sublet the Premises, Tenant shall be free to
sublet such space to any third party on the same terms set forth in the notice
given to Landlord, subject to obtaining Landlord's prior consent as hereinabove
provided.
(d) As used in this paragraph 12, the term "assign" or "assignment"
shall include, without limitation, any sale, transfer or other disposition of
all or any portion of Tenant Is estate under this Lease, whether voluntary or
involuntary, and whether by operation of law or otherwise.
Notwithstanding anything to the contrary contained in this Lease, Tenant,
without Landlord's prior written consent, but with prior notice thereof, may
sublet the Premises or assign this Lease to: (i) a subsidiary, affiliate,
franchise, division or corporation controlling, controlled by or under common
control with Tenant, (ii) a successor corporation related to Tenant by merger,
consolidation, non-bankruptcy reorganization or government action; or (iii) a
purchaser of substantially all of Tenant's assets located at the Premises by
stock purchase or otherwise, (collectively, "Permitted Transferees"). For
purposes of this Lease, a sale of Tenant's capital stock through any public
exchange shall not be deemed an assignment, subletting or other transfer of this
Lease or the Premises requiring Landlord's consent. The provisions of Section 12
(f) and (g) shall not apply with respect to the transfer to a Permitted
Transferee.
(e) No sublessee shall have a right further to sublet, 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.
(f) In the case of an assignment, one-half of all sums or other
economic consideration received by Tenant as compensation for such assignment
shall be paid to Landlord after first deducting the cost of any related real
estate commissions, tenant improvements, and reasonable legal fees incurred in
connection with such assignment. In the event such consideration is received by
Tenant in installments, the portion of each installment to be paid to Landlord
shall be determined by subtracting from the installment an amount equal to the
total amount of the foregoing permitted deductions divided by the total number
of installments.
(g) In the case of a subletting, one-half of all 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, and (2) the cost of
any related real estate commissions and reasonable legal fees incurred in
connection with such subletting, amortized over the term of the sublease.
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(h) Regardless of Landlord's consent, no subletting or assignment
shall release Tenant of Tenant's obligations 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 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.
(i) If Tenant shall assign or sublet the Premises or request the
consent of Landlord to any assignment or subletting or if Tenant shall request
the consent of Landlord for any act that Tenant proposes to do, then Tenant
shall pay Landlord's reasonable attorneys, fees incurred in connection therewith
not to exceed $1000.00 per transaction.
(j) The voluntary or other surrender of this Lease by Tenant, the
mutual cancellation thereof or the termination of this Lease by Landlord as a
result of Tenant's default shall, at the option of Landlord, terminate all or
any existing subtenancies or may, at the option of Landlord, operate as an
assignment to Landlord of any or all of such subtenancies as defined below in
Section 13.
13. Default by Tenant.
-----------------
(a) Any of the following events shall constitute events of default
under this Lease:
(1) a default by Tenant in the payment of-any rent or other sum
payable hereunder within five (5) days after written notice that it is due;
(2) 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 30
days after notice by Landlord or beyond the time reasonably necessary for
cure if the default is of the nature to require more than 30 days to
remedy, provided that if Tenant has defaulted in the performance of the
same obligation more than one time in any twelve-month period and notice of
such default has been given by Landlord in such instance, no cure period
shall thereafter be applicable hereunder; or
18
<PAGE>
(3) the bankruptcy or insolvency of Tenant, any transfer by
Tenant in fraud of creditors, 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; the appointment of a receiver for a substantial part of
the assets of Tenant; or the levy upon this Lease or any estate of Tenant
hereunder by any attachment or execution.
(b) 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, do any of
the following:
(1) Landlord shall have the right, so long as such default
continues, to give notice of termination to Tenant, and on the date
specified in such notice this Lease shall terminate.
(2) In the event of any such termination of this Lease, Landlord
may then or at any time thereafter, 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.
(3) 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,
(i) 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
balance of the term after the time of award exceeds the amount of rental
loss that Tenant proves could be reasonably avoided, (ii) all legal
expenses and other related costs incurred by Landlord following Tenant's
default, (iii) 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 (iv) all costs (including,
without limitation, any brokerage commissions) incurred by Landlord in
reletting the Premises.
(4) For the purpose of determining the unpaid rent in the event
of a termination of this Lease, or the rent due hereunder in the event of a
reletting of the Premises, the monthly rent reserved in this Lease shall be
deemed to be the sum of the rental due under paragraph 3 above and the
amounts last
19
<PAGE>
payable by Tenant pursuant to paragraph 4 above and any "free rent" or rent
waived or abated by Landlord as an inducement for Tenant to enter into this
Lease.
(5) Landlord's acceptance of payment from Tenant of less than
the amount of rent then due shall not constitute a waiver of any rights of
Landlord or Tenant including, without limitation, any right of Landlord to
recover possession of the Premises.
(6) 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.
(c) 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 rental as it
becomes due under this Lease. Acts of maintenance or preservation, 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.
(d) Tenant hereby waives all rights under California Code of Civil
Procedure Section 1179 and California Civil Code Section 3275 providing for
relief from forfeiture, and any other right now or hereafter existing to redeem
the Premises or reinstate this Lease after termination pursuant to this
paragraph 14 or by order or judgment of any court or by any legal process.
(e) Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereby against the
other on any matters not relating to personal injury or property damage but
otherwise arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
and any emergency statutory or any other statutory remedy.
(f) 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.
14. Landlord's Right to Cure Defaults. 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 30 days after written notice thereof by
Landlord, 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
20
<PAGE>
provided. All sums so paid by Landlord and all necessary incidental costs
shall be deemed additional rent hereunder and shall be payable to Landlord on
demand, and Landlord shall have (in addition to any other right or remedy of
Landlord) the same rights and remedies in the event of the nonpayment thereof by
Tenant as in the case of default by Tenant in the payment of rental.
15. Default by Landlord. Landlord shall not be in default under this
-------------------
Lease unless Landlord fails to perform obligations required of Landlord
hereunder within a reasonable time, but in no, event later than 30 days after
notice by Tenant to Landlord specifying wherein Landlord has failed to perform
such obligation; provided, however, that if the nature of Landlord's obligation
is such that more than 30 days are required for 'performance, then Landlord
shall not be in default if Landlord commences performance within such 30 day
period and thereafter diligently prosecutes the same to completion.
16. Security Deposit. On execution of this Lease Tenant shall
----------------
deposit with Landlord the sum specified in the Basic Lease Information (the
"Deposit"). The Deposit shall be held by Landlord as security for the
performance by Tenant of all of the provisions of this Lease beyond applicable
cure periods. Following an event of default by Tenant under this Lease, Landlord
may use, apply or retain all or any portion of the Deposit for the payment of
any rent or other charge in default, or the payment of any other sum to which
Landlord may become obligated by Tenant's default, or to compensate Landlord for
any loss or damage which Landlord may suffer thereby. If Landlord so uses or
applies all or any portion of the Deposit, then within 10 days after demand
therefor Tenant shall deposit cash with Landlord in an amount sufficient to
restore the Deposit to the full amount thereof, and Tenant's failure to do so
shall be a material breach of this Lease. Landlord shall not be required to keep
the Deposit separate from its general accounts. If Tenant performs all of
Tenant's obligations hereunder, the Deposit, or so much thereof as has not
theretofore been applied by Landlord, shall be returned, without payment of
interest for its use, to Tenant (or, at Landlord's option, to the last assignee,
if any, of Tenant's interest hereunder) at the expiration of the term hereof,
and within 30 days after Tenant has vacated the Premises. No trust relationship
is created herein between Landlord and Tenant with respect to the Deposit.
17. Estoppel Certificate.
--------------------
(a) Tenant shall at any time within 10 business days following
request from Landlord execute, acknowledge and deliver to Landlord a statement
certifying (1) that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect), (2) the date to which the
rent, and other sums payable hereunder have been paid, (3) acknowledging that
there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder, or specifying such defaults, if any, which are
21
<PAGE>
claimed, and (4) such other matters as may reasonably be requested by Landlord.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Building.
(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, (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.
(c) If Landlord desires to sell, finance or refinance the Building,
within 10 days of Landlord's request, Tenant shall deliver to any lender
designated by Landlord such financial statements of Tenant as may be reasonably
required by such lender. All such financial statements shall be received by
Landlord in confidence and shall be used for the purposes herein set forth.
18. Subordination, Amendment for Lender.
-----------------------------------
(a) This Lease, at Landlord's option, shall be 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 and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Tenant's right to quiet possession of the Premises shall not be disturbed if
Tenant is not in default beyond applicable cure periods and so long as Tenant
shall pay the rent and observe and perform all of the provisions of this Lease,
unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, beneficiary, trustee or ground lessor shall elect to have this Lease
prior to the lien of its mortgage, deed of trust or ground lease, and shall give
notice thereof to Tenant, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior to or
subsequent to the date of said mortgage, deed of trust or ground lease or the
date of recording thereof. If 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; if 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 or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be, or to evidence such
attornment. Tenant's subordination to any future lender shall be conditioned
upon obtaining subordination and non-disturbance agreement reasonably acceptable
to Tenant.
(b) Within 10 days of Landlord's request therefor, Tenant shall
execute and deliver such amendments of this Lease as shall have been required by
Landlord's lender in connection with the making of a
22
<PAGE>
loan to be secured by the Property, provided such amendment does not increase
the obligations of Tenant under this Lease or materially or adversely affect
Tenant's leasehold interest.
19. Attorneys' Fees. If either party commences an action or proceeding
---------------
against the other party arising out of or in connection with this Lease, or
institutes any proceeding in a bankruptcy or similar court which has
jurisdiction over the other party or any or all of its property or assets, the
prevailing party in such action or proceeding and in any appeal in connection
therewith shall be entitled to have and recover from the unsuccessful party
reasonable attorneys' fees, court costs, expenses and other costs of,
investigation and preparation. If such prevailing party recovers a judgment in
any such action, proceeding, or appeal, such attorneys' fees, court costs and
expenses shall be included in and as a part of such judgment.
20. Notices. All notices, consents, demands and other communications
-------
from one party to the other 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, or delivered to a
generally recognized overnight courier service, charges 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 and with such other copies 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. If any notice is required to be given on a Saturday,
Sunday or legal holiday, then the notice shall be deemed to have been due on the
next business day.
21. General Provisions.
------------------
(a) This Lease shall be governed by and construed in accordance with
the laws of the State of California.
(b) The invalidity of any provision of this Lease, as determined by a
court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
(c) This Lease contains all agreements of the parties with respect to
any matter mentioned herein and supersedes any verbal and any prior written
understanding, conditions, representations, agreements or covenants, and may be
modified in writing only, signed by the parties.
(d) No waiver by Landlord of any provision hereof shall be deemed a
waiver of any other provision or of any subsequent breach by Tenant of the same
or any other provision. Landlord's consent to or approval of any act shall not
be deemed to render unnecessary the obtaining of Landlord's consent to or
approval of any subsequent act
23
<PAGE>
by Tenant. The acceptance of rent or any partial payment hereunder by Landlord
shall not be a waiver of any preceding breach by Tenant of any provision hereof,
other than the failure of Tenant to pay the particular rent accepted, regardless
of Landlord's knowledge of such preceding breach at the time of acceptance of
such rent.
(e) If Tenant remains in possession of the Premises or any part
thereof after the expiration of the term with the consent of Landlord, such
occupancy shall be a tenancy from month to month at a rental in the amount of
one and a half times the last month's rental during the term plus all other
charges payable hereunder, and upon all of the terms hereof.
(f) Subject to the provisions of this Lease restricting assignment or
subletting by Tenant, this Lease shall bind the parties, their personal
representatives, successors and assigns.
(g) Landlord and Landlord's agents shall have the right to enter the
Premises at reasonable times upon reasonable advance notice for the purpose of
inspecting the same, showing the same to prospective purchasers or lenders, and
making such alterations, repairs, improvements or additions to the Premises or
to the Building as Landlord may deem necessary or desirable. Landlord may at any
time during the last 120 days of the term place on or about the Premises any
ordinary "For Lease" sign.
(h) If Tenant is a corporation, each individual executing this Lease
on behalf of Tenant represents and warrants that he or she is duly authorized to
execute and deliver this Lease on behalf of the corporation in accordance with a
duly adopted resolution of the Board of Directors and that this Lease is binding
upon the corporation in accordance with its terms.
(i) The term "Landlord" as used herein means the then owner of the
Building and in the event of a sale of the Building the selling owner shall be
automatically relieved of all obligations of Landlord hereunder, except for acts
or omissions of Landlord theretofore occurring.
(j) Tenant warrants that it has had no dealings with any real estate
broker or agent other than the Broker(s) identified in the Basic Lease
Information in connection with the Premises or this Lease. Tenant shall
indemnify Landlord and hold it harmless from and against all claims, demands,
costs or liabilities (including, without limitation, attorneys' fees) asserted
by any party other than such Broker(s) based upon dealings of that party with
Tenant in connection with the Premises or this Lease.
22. Rider and Exhibits. The rider and exhibits, if any, specified in
------------------
the Basic Lease Information are attached to this Lease and by this reference
made a part hereof.
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease on the
respective dates indicated below.
TENANT: LANDLORD:
HOMESHARK, INC., a California MT. DIABLO TECH, LLC., a
Corporation California limited liability
company
By_______________________________
By Silverado Associates, LLC,
Its ________________________ Its Managing Member
By ______________________________ By ________________________________
Its ________________________ Its _______________________________
25
<PAGE>
EXHIBIT A
---------
<PAGE>
EXHIBIT B
---------
777 ARNOLD DRIVE
VERIFICATION MEMORANDUM
Re: Office Lease dated December ___, 1998, between MT. DIABLO TECH,
LLC, a California limited liability company ("Landlord"), and HOMESHARK, INC., a
California corporation, ("Tenant"), and for Premises known as a portion Second
Floor, 777 Arnold Drive, Martinez, California. Tenant hereby verifies that the
dates and amounts stated below are correct and further acknowledges and accepts
possession of the Premises.
Commencement Date: ____________________________________________
Expiration Date: _____________________________ (excluding any
options)
Option to Extend: ____________________________________________
Initial Base Rent: $___________________________________________
TENANT: LANDLORD:
HOMESHARK, INC., a California MT. DIABLO TECH, LLC, a
corporation California limited liability
company
By___________________________
Its ____________________ By Silverado Associates, LLC,
Its Managing Member
By __________________________________________
Its ______________________________________
-B-1-
<PAGE>
EXHIBIT C-1
-----------
HOMESHARK
BUILDING STANDARD FINISHES
CEILING: Armstrong "Second Look" Mock 2 x 2 in new 2 x 4 Donnline grid.
Ceiling height to be maximized within constraints of HVAC
ductwork, structure and electrical components.
LIGHTING: 2 x 4 parabolic fixture, lamping and ballast requirements to
meet Title 24 requirements for energy efficiency and switching.
WALLS: Smooth finish, 2 coats latex paint, eggshell in office areas,
semi-gloss in restrooms, if applicable
DOORS: Full-height, solid-core, stain-grade wood doors in metal frames
with Schlage "D-Series" or equivalent lever hardware.
CARPET: Allowance of $16 per square yard, installed.
RESILIENT FLR: Armstrong "Excelon" or equivalent VCT in cafe and utility
areas, sheet vinyl in restrooms, if applicable
POWER/SIGNAL: One combination telephone/data outlet (ring & string), two
duplex outlets per private office and/or private room. With
respect to workstations, Landlord shall provide power to the
Building junction box, but Tenant shall be responsible, at
Tenant's sole cost and expense, for distribution of power to
its workstations.
<PAGE>
EXHIBIT C
---------
INITIAL IMPROVEMENT OF PREMISES
1. Landlord and Tenant acknowledge that Tenant desires to effect
improvements to the Premises and Building as herein provided. Landlord shall
deliver possession of the Premises to Tenant (a) in compliance with all
applicable laws (including, without limitation, The Americans With Disabilities
Act of 1990), (b) with the roof in good repair, and (c) all electrical,
plumbing, sewer, water, gas and other Building systems serving the Premises in
good working condition and repair. If, during the first ninety (90) days of the
Term, any such Building system is not in the condition required hereby or any
repair as aforesaid has not been properly completed, Tenant shall notify
Landlord of the need for repair, and the repair shall be promptly completed by
Landlord at no cost to Tenant. Notwithstanding anything in this Lease to the
contrary, Landlord and Tenant hereby agree that the installation of the Building
elevator will not delay Tenant's occupancy and acceptance of the Premises,
unless the applicable governmental authority will not allow Tenant to occupy the
Premises until the elevator is completed.
2. Tenant and Landlord hereby approve that certain space plan for
the improvements for the Office Space to be made in the Premises and the
Building prepared by Ibsen Senty Architecture (the "Architect") and dated
December 18, 1998. In order to facilitate a timely delivery of the Warehouse
Space to Tenant as of October 1, 1999, Ibsen/Sentry Architecture shall prepare a
space plan for improvements within the Warehouse Space. Such Warehouse Space
plans shall be subject to Landlord's and Tenant's mutual approval and shall
include comparable improvements as the improvements contemplated for the Office
Space (i.e., the same proportionate number of offices and building standard
finishes, but not including the lunchroom or the restrooms) As used in this
Exhibit C, the term space plan shall apply to both the Office Space and the
Warehouse Space plans. The Architect shall prepare working drawings based upon
such space plan for such improvements. The improvements reflected in the
approved working drawings are hereinafter referred to as "Tenant's Work."
Tenant's Work shall include Building standard finishes in accordance with
Exhibit C-1 attached hereto.
3. Landlord shall be responsible for submitting plans and
specifications to the appropriate authorities for the issuance of required
permits, and the cost of such permits shall constitute part of Tenant's Work.
During the preparation and approval stages for the plans and specifications,
Landlord shall use its best efforts and due diligence to apply for and obtain
all required governmental permits and approvals in connection
-C-1-
<PAGE>
with Tenant's Work. Tenant shall fully cooperate with Landlord to obtain such
permits and approvals including, without limiting the generality of the
foregoing, executing permit applications and other documents and instruments
needed by Landlord in connection therewith.
4. Landlord shall obtain a bid for the completion of Tenant's Work
from a general contractor experienced in constructing office leasehold
improvements. Landlord shall enter into a contract with such general contractor
and shall use its best efforts to cause the contractor to commence, diligently
proceed with, and complete Tenant's Work in accordance with the approved plans
and specifications. Tenant acknowledges that Landlord does riot warrant the
timeliness of performance or the quality of the contractor's work.
5. Tenant may request deviations or changes ("Change Orders") in
Tenant's Work in the Premises from the plans and specifications as approved by
Landlord and by the required governmental agencies to which Landlord shall have
the right to give its prior written consent, which consent shall not be
unreasonably withheld. The cost of Tenant's Work shall not include the cost of
any Change Orders to the extent such Change Orders increase the total cost of
Tenant's Work. In the event Landlord or the general contractor proceeds with
such Change Orders without a prior determination of any increased costs or any
increased construction time resulting from such Change Orders and without
approval of such increases by Tenant, the amount thereof shall be as reasonably
determined by Landlord upon completion of Tenant's Work.
6. Landlord shall bear the cost of Tenant's Work as set forth in the
approved plans and specifications, and Tenant shall be responsible for the cost
of any Change Orders that increase the total cost of Tenant's Work. Landlord
may, at its option, require that Tenant deposit with Landlord the amount of the
cost of such Change Orders. Landlord shall, upon completion of Tenant's Work,
submit to Tenant reasonable supporting documentation of the amount of any cost
of Change Orders in excess of the total cost for Tenant's Work as set forth in
the approved plans and specifications. If Tenant does not make timely payment to
Landlord, Landlord may, but shall not be obligated to, advance Landlord's funds
to pay Tenant ' s share of the cost of Tenant's Work and any funds so advanced
shall be payable to Landlord upon demand as additional rent and shall bear
interest as provided in Paragraph 3(e) of this Lease. Landlord, shall not be
responsible for any further contributions toward Tenant Improvements following
the date the Premises are "substantially completed" (as defined below).
7. In addition the completion of Tenant's Work, Landlord shall
construct and bear the cost of certain Building
-C-2-
<PAGE>
and Property improvements ("Property Improvements") described as follows: (i)
installation of an elevator and (ii) installation of adequate telephone lines to
the PacBell minimum point of entry ("MPOE") to the Building. If required by
Tenant, Landlord shall make at least 300 pair of telephone lines available for
Tenant's use. Tenant shall be responsible for pulling its telephone lines from
the MPOE to the Premises and distribution thereof within the Premises.
8. Landlord shall do the work needed to deliver the Premises to
Tenant with Tenant's Work and the Property Improvements "substantially
completed." The Premises shall be deemed "substantially completed" when (a)
Landlord has completed the Tenant's Work and the Property Improvements in
accordance with the final plans and specifications approved by Landlord and
Tenant (except for Landlord's project manager's punch list, the completion or
correction of which will not materially interfere with Tenant's use or occupancy
of the Premises and the final completion of the elevator unless required by any
governmental agency); (b) there remains no incomplete or defective item of
Tenant's Work that would adversely affect Tenant's intended use of the Premises;
(c) Landlord has delivered possession of the Premises and the Tenant's Work to
Tenant; and (d) Landlord has obtained all approvals and permits from the
appropriate governmental authorities required for the legal occupancy of the
Premises, the Tenant's Work, and the Property Improvements. Landlord shall use
its best efforts to cause punch list items to be completed not later than 30
days, after Tenant's occupancy of the Premises.
9. If Landlord shall be delayed in substantially completing Tenant's
Work as a result of any of the following (hereinafter referred to as a "Tenant
Delay"):
a. Tenant's failure to pay, within 10 days after billing by
Landlord, for any portion of the cost of Tenant's Work for which
Tenant is responsible pursuant to paragraph 9 of this Exhibit C;
b. Tenant's change(s) in plans and specifications for Tenant's Work;
or
C. Tenant's request for special materials, finishes, or
installations;
then, notwithstanding anything to the contrary contained in the lease, the
commencement of rental shall be accelerated by the number of days of such Tenant
Delay.
Notwithstanding anything to the contrary contained in this Lease,
Tenant's acceptance of the Premises subject to the punchlist shall not be deemed
to be a waiver of Tenant's right to
-C-3-
<PAGE>
have defects in Tenant's Work or the Premises repaired at no cost to Tenant.
Tenant shall give notice to Landlord whenever such defect becomes reasonably
apparent, and Landlord shall repair such defect as soon as practicable.
-C-4-
<PAGE>
EXHIBIT 10.16
ADDENDUM NO. 1 TO
MASTER LEASE AGREEMENT NO. 7265
DATED AS OF July 20, 1998
BETWEEN
LINC CAPITAL INC., AS LESSOR
AND iOwn, Inc., formerly known as Home Shark, Inc. AS LESSEE
This Addendum is attached to and forms part of that certain Master Lease
Agreement No. 7265 dated as of July 20, 1998 (the "Lease") between LINC Capital
Inc., ("Lessor" or "LINC"), and iOwn, Inc. formerly known as Home Shark, Inc.
("Lessee") agreeing as follows:
A. Terms defined in the Lease shall have the same meanings herein unless
otherwise expressly set forth herein or otherwise required by context
hereof.
B. The following terms and conditions shall be added to the terms of the Lease
and are hereby incorporated therein by reference.
22. Leasing of Equipment
a. Lease Line. Subject to the terms and conditions herein set forth and
----------
in the applicable Equipment Schedule, and provided no event of default under the
Lease shall have occurred and be then continuing, Lessor agrees to purchase and
lease to Lessee, from time to time, the "Equipment" (as defined below). Subject
to the condition set forth in Section 29 below, the aggregate "Cost" (as defined
below) of Equipment purchased by Lessor pursuant to this Section 22.a shall in
no event exceed [*] (the "Lease Line Amount").
The first [*] of Cost of Equipment purchased by Lessor for lease to
Lessee is referred to herein as the "Existing Lease Line Amount". The next
[*] of Cost of Equipment purchased by Lessor for lease to Lessee is
referred to herein as the "First Supplemental Lease Line Amount". The final
[*] of Cost of Equipment purchased by Lessor for lease to Lessee is
referred to herein as the "Second Supplemental Lease Line Amount". Lessor shall
have no obligation to purchase Equipment having a Cost in excess of the First
Supplemental Lease Line Amount unless and until LINC has received independent
confirmation that the Lessee has received additional equity investments
aggregating at least [*].
All "Takedowns" (as defined below) shall be completed on or before October
31, 1999 (the "Last Takedown Date"). If all Takedowns which occur on or before
October 31, 1999 do not aggregate Equipment having a Cost equal to the Lease
Line Amount then LINC shall have the right to assess and Lessee agrees to pay
LINC a non-utilization fee equal to [*] of the difference between the Lease Line
Amount and the aggregate Cost of all Equipment purchased by LINC on the Last
Takedown Date. The non-utilization fee described above shall be due and payable
to LINC on the next business day after the Last Takedown Date.
b. Equipment. (1) Lessor will purchase certain computer equipment,
---------
peripherals computer equipment, workstations, software, office furniture and
office equipment, and ancillary equipment related thereto (the "Equipment") from
Lessee or from vendors designated by Lessee. The purchase price for the
Equipment will be equal to the lesser of either (i) 100% of the manufacturers'
net invoice price (excluding applicable sales or use taxes, freight,
installation, and similar charges) for the Equipment or (ii) the Net Book Value
of the Equipment (as defined below); and (iii) the then fair market value for
each item or commercial unit of the Equipment as determined by Lessor ("Cost").
(2) All Equipment shall be tangible personal property eligible for
MACRS depreciation under the Internal Revenue Code of 1986, as amended. The
depreciation benefits arising from the Equipment will be for the account of
Lessor.
(3) Each item of or commercial unit of the Equipment, its vendor
and all purchase orders, invoices and related documents will be subject to
review and approval by Lessor prior to funding any Takedown. Freight and
installation charges shall not exceed 15% of the Equipment Cost unless otherwise
agreed by Lessor.
(4) Notwithstanding the provisions of subsection (1) above, the
"Cost" of for any Equipment placed in service by Lessee more than ninety (90)
days prior to purchase by LINC ("Used Equipment") shall be the Sale Leaseback
Amount ("SLB Amount"). The SLB Amount
[*] Confidential Treatment Requested
<PAGE>
to be paid by LINC for Used Equipment shall be equal to the lesser of either (a)
75% of the Net Book Value of the Equipment or (b) 75% of the then fair market
value for each item or commercial unit of the type of Used Equipment acceptable
to LINC but in either event not to exceed [*] in the aggregate. Title to all
Used Equipment described in any Equipment Schedule shall pass to Lessor upon
payment of the SLB Amount.
(5) The "Net Book Value" shall mean the depreciated value of the
Equipment (determined in accordance with generally accepted accounting
principles according to the books and records of Lessee) and shall be supported
by the original manufacturer's net invoice amount actually paid by Lessee
(excluding applicable sales or use taxes, freight, installation and other
similar charges) as evidenced by canceled checks, copies of which are to be
delivered to Lessor prior to any purchase of Equipment by LINC.
c. Initial Lease Term and Monthly Lease Rate. For all Equipment purchased
-----------------------------------------
by Lessor up to the Existing Lease Line Amount, the Initial Lease Term shall be
36 months and the applicable Monthly Lease Rate factor during the initial 36
months shall be [*] of Cost per month. For all Equipment purchased by Lessor
in excess of the Existing Lease Line Amount, the Initial Lease Term shall be 36
months. The applicable Monthly Lease Rate factor during the initial 36 months
shall be [*] per month.
d. Rate Adjustment. For Equipment purchased by Lessor under the Existing
---------------
Lease Line Amount, the Monthly Lease Rate Factor will be indexed to the yield
for U.S. Treasury Notes maturing closest to the date 36 months from the
Commencement Date of the first Equipment Schedule under this Lease (the "Index
Instrument") which is [*]. For Equipment purchased by Lessor after the Existing
Lease Line Amount has been fully utilized, the Monthly Lease Rate Factor will be
[*].
e. Takedowns. "Takedowns" means the date of the final payment of the Cost
---------
of the Equipment for the applicable Equipment Schedules by LINC. All Takedowns
shall commence on the first day of the calendar month following Lessee's
acceptance of all Equipment on each Equipment Schedule. Any Equipment purchased
after the Initial Takedown shall be funded on subsequent Takedowns through
additional Equipment Schedules having Equipment with an aggregate Cost of at
least $100,000.00 each. Each Equipment Schedule will include all purchases of
Equipment made for Equipment on a progress payment basis in the previous
calendar quarter not previously included in an Equipment Schedule. All Equipment
Schedules shall takedown prior to the Last Takedown Date.
f. End of Term Options. Provided that the Lease has not been terminated
-------------------
by Lessor and that no Event of Default or event which, with notice or lapse of
time or both, would become an Event of Default shall have occurred and be
continuing, and not withstanding any other conflicting terms set forth in any
Equipment Schedule, Lessee shall elect at the end of the Initial Lease Term of
each Equipment Schedule now or hereafter covered by this Lease, one of the
following options below:
(i) Lessee's Option to Renew: At the expiration of the Initial Lease
------------------------
Term of each Equipment Schedule now or hereafter made under this Lease, Lessee
may elect to extend the Lease with respect to all, and not less than all, of the
Equipment covered under each such Equipment Schedule at their respective Initial
Lease Term expiration dates for 12 months (the "Extended Lease Term") for a
Monthly Lease Rate Factor equal to the greater of the then fair market monthly
rental value of the Equipment or 1.5% per month. Rent during any extended term
shall be paid monthly in advance plus any applicable taxes.
(ii) First Option to Purchase: At the expiration of the Initial Lease
------------------------
Term of each Equipment Schedule now or hereafter covered under this Lease, if
Lessee has paid all rental payments due during the Initial Lease Term (without
electing any extension thereof) of each Equipment Schedule covered under this
Lease, then Lessee shall have the Option to Purchase not less than all of the
Equipment on all Equipment Schedules made under this Lease at the end of the
Initial Lease Term at a Purchase Option Price equal to the Fair Market Value of
[*] Confidential Treatment Requested
-2-
<PAGE>
the Equipment but not less than 15% of the original Cost of the Equipment to
Lessor.
(iii) Second option to Purchase: If Lessee has elected to renew the
-------------------------
Lease, then at the expiration of the First Extended Lease Term, if Lessee has
paid all rental payments due during the Initial Lease Term and during the First
Extended Lease Term, Lessee shall have the option to purchase not less than all
of the Equipment on all Equipment Schedules made under this Lease at the end of
the Initial Lease Term at a Purchase Option Price equal to the Fair Market Value
of the Equipment.
(iv) Restocking Charge: If Lessee elects to return (or is required by
-----------------
Lessor to return) the Equipment covered on any Equipment Schedule made under the
Lease, Lessee agrees to pay Lessor as a Restocking charge an amount equal to 15%
of the Cost of such Equipment. Any applicable Restocking charge shall be due and
payable either (I) ninety (90) days the date Lessee notifies Lessor of its
intention to return the Equipment or (II) thirty (30) days after Lessor notifies
Lessee to return the Equipment.
28. Name Change Amendment.
The Lessee acknowledges that it has changed its legal name from Home Shark, Inc.
to iOwn, Inc. Lessee agrees that all references in the Lease to the name "Home
Shark, Inc." shall refer to "iOwn, Inc." and Lessor shall be authorized to
change each reference in the Lease from "Home Shark, Inc." to "iOwn, Inc".
IN WITNESS WHEREOF, this Addendum has been executed by a duly authorized officer
of Lessee as of the _____ day of ______________,1999.
iOwn, Inc. formerly known as Home Shark, Inc.
(Lessee)
By: /s/ Lee T. Kirkpatrick
------------------------------------------
Name: Lee T. Kirkpatrick
------------------------------------------
Title: CFO
------------------------------------------
LINC CAPITAL INC.
(Lessor)
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
-3-
<PAGE>
LINC CAPITAL, INC. LINC Capital, Inc.
MASTER LEASE AGREEMENT 303 East Wacker Drive, #1000
Chicago, Illinois 60601
(312) 946-1000
Lessee: Home Shark, Inc. Master Lease Agreement No. 7305 - 7265
Address: 118 King Street, Date: July 20, 1998
Suite 225,
San Francisco, CA 94107
LINC Capital, Inc. ("Lessor") hereby leases to Lessee and Lessee leases from
Lessor, in accordance with the terms and conditions hereinafter set forth, the
equipment and property purchased by Lessor for lease to the Lessee hereunder
together with all replacement parts, additions, accessories, alterations and
repairs incorporated therein or now or hereafter affixed thereto Add-on Items
(as defined herein) (herein collectively referred to as the "Equipment")
described in each Schedule which may be executed by Lessor and Lessee from time
to time (individually a "Schedule" and collectively, the "Schedules"), each of
which is made a part hereof. For all purposes of this Master Lease Agreement
("Lease"), each Schedule relating to one or more items of Equipment shall be
deemed a separate lease incorporating all of the terms and provisions of this
Lease. In the event of a conflict between the terms of this Lease and the terms
and conditions of an Schedule, the terms and conditions of the Schedule shall
govern and control that Schedule.
- -------------------------------------------------------------------------------
1. Term and Rental. The term of this Lease (the "Initial Lease Term") for
any item of Equipment shall be set forth in the Schedule relating to such item
of Equipment and shall commence (the "Commencement Date") on the Acceptance
Date. The "Acceptance Date" with respect to each Schedule shall be the
applicable of either: (1) the date of delivery to Lessee of all of the Equipment
to be leased thereunder; (2) in the case of Equipment which is the subject of a
sale and leaseback between Lessor and Lessee, the date upon which Lessor
purchases such Equipment from Lessee; or (3) in the case of Equipment requiring
installation, the date of installation of Equipment. If the Acceptance Date is
other than the first day of a calendar month, then the Commencement Date of the
Initial Lease Term set forth in any Schedule shall be the first day of the
calendar month following Lessee's acceptance of all Equipment listed on such
Schedule and Lessee shall pay to Lessor, in addition to all other sums due
hereunder, an amount equal to one-thirtieth of the amount of the average monthly
rental payment due or to become due hereunder multiplied by the number of days
from and including the Acceptance Date to the Commencement Date of the Initial
Lease Term set forth in the Schedule. During the entire Initial Lease Term and
any extension or renewal of the term of this Lease, Lessee agrees to pay the
total rental due hereunder which shall be the total amount of all rental
payments set forth in the Schedule plus such additional amounts as may become
due hereunder or pursuant to any written modification hereof or additional
written agreement hereto. Except as otherwise specified in the Schedule, rental
payments payable hereunder shall be due monthly and shall be payable in advance
on the first day of each month during the term of this Lease beginning with the
Commencement Date of the Initial Lease Term. All rental payments due hereunder
shall be sent to the address of the Lessor specified in this Lease or in the
Schedule or as otherwise directed by the Lessor in writing. Rental payments or
any other payments due hereunder not made by their scheduled due date shall be
overdue and shall be subject to a service charge in an amount equal to two
percent (2%) per month or the maximum rate permitted by law whichever is less
(the "Service Charge Rate") applied to amount of the overdue payments from the
date due until paid. If Lessor shall at any time accept a rental payment after
it shall become due, such acceptance shall not constitute or be construed as a
waiver of any or all of Lessor's rights hereunder, including without limitation
those rights of Lessor set forth in Sections 12 and 13 hereof.
2. Title. This is an agreement of lease only. Except as otherwise provided
in any applicable Schedule, Lessee shall have no right, title or interest in or
to the Equipment leased hereunder, except as to the lawful use thereof subject
to the terms and conditions of this Lease. All of the Equipment shall remain
personal property (whether or not the Equipment may at any time become attached
or affixed to real property). The Equipment is and shall remain the sole and
exclusive property of Lessor or its assignees. All replacement parts,
modifications, repairs, alterations, additions and accessories now or hereafter
incorporated in or affixed to the Equipment whether before or after the
Commencement Date (herein collectively call "Add-on Items") are hereby included
in the definition of "Equipment". All Add-on Items shall become the property of
Lessor upon being so incorporated or affixed to the Equipment and shall be
returned to Lessor as provided in Section 3 (other than alterations, additions
and accessions that are attached or affixed by Lessee with notice to Lessor
after the Commencement Date for which the Lessor has not given value or
purchased and which are readily removable by Lessee form the Equipment without
any diminution of value or functionality to the Equipment). Upon the request of
Lessor, Lessee will affix to the Equipment labels or other markings supplied by
Lessor indicating its ownership of the Equipment and shall keep the same affixed
for the entire term of this Lease. Lessee agrees to promptly execute and deliver
or cause to be executed and delivered to Lessor and Lessor is hereby authorized
to record or file, any statement and/or instrument reasonably requested by
Lessor for the purpose of showing Lessor's interest in the Equipment, including
without limitation, financing statements, security agreements, and waivers with
respect to rights in the Equipment from any owners or mortgagees of any real
estate where the Equipment may be located. In the event that Lessee fails or
refuses to execute and/or file Uniform Commercial Code financing statements or
other instruments or recordings which Lessor or its assignee reasonably deems
necessary to perfect or maintain perfection of Lessor's or its assignee's
interests hereunder, Lessee hereby appoints Lessor as Lessee's limited attorney-
in-fact to execute and record all documents necessary to perfect or maintain the
perfection of Lessor's interests hereunder. Lessee shall pay Lessor for any
costs or fees relating to any filings hereunder including, but not limited to
actual out of pocket costs, fees, searches, documentation preparation,
documentary stamps, privilege taxes and reasonable attorneys' fees. If any item
of Equipment includes computer software purchased by Lessor or for which Lessor
has given Lessee value, Lessee shall upon request made by Lessor, execute and
deliver and shall cause Seller (as hereinafter defined) to deliver all such
documents as are necessary to effectuate assignment of all software licenses to
Lessor.
3. Acceptance and Return of Equipment. Lessor shall, at any time prior to
unconditional acceptance of all Equipment by Lessee, have the right to cancel
this lease with respect to such Equipment (and if the Equipment or any portion
thereof has not previously been delivered, Lessor may refuse to pay for the
Equipment or any portion thereof or refuse to cause the same to be delivered)
if: (a) the Acceptance Date with respect to any item of Equipment to be leased
pursuant to any Schedule has not occurred within ninety (90) days of the
estimated Acceptance Date set forth in such Schedule or (b) there shall be, in
the reasonable judgement of Lessor, a material adverse change in the financial
condition or credit standing of Lessee or any guarantor of Lessee's performance
under this Lease since the date of the most recent financial statements of
Lessee or of such guarantor submitted to Lessor. Upon any cancellation by Lessor
pursuant to this Section or the provisions of any Schedule, Lessee shall
forthwith reimburse to Lessor all sums paid by Lessor with respect to such
Equipment plus all costs and expenses of Lessor incurred in connection with such
Equipment and any interest or rentals due
1
<PAGE>
hereunder in connection with such Equipment and shall pay to Lessor all other
sums then due hereunder, whereupon if Lessee is not then in default and has
fully performed all its obligations hereunder, Lessor will, upon request of
Lessee, transfer to Lessee without warranty or recourse any rights that Lessor
may then have with respect to such Equipment
Lessee agrees to promptly execute and deliver to Lessor (in no event later than
15 days after the Acceptance Date) a confirmation by Lessee of unconditional
acceptance of the Equipment in the form supplied by Lessor (the "Equipment
Acceptance"). Lessee agrees, before execution of the aforesaid Equipment
Acceptance to inform Lessor in writing of any defects in the Equipment, or in
the installation thereof, which have come to the attention of Lessee or its
agents and which might give rise to a claim by Lessee against the Seller or any
other person. If Lessee fails to give notice to Lessor of any such defects or
fails to deliver to Lessor the Equipment Acceptance as provided herein, it shall
be deemed an acknowledgment by Lessee (for purposes of this Lease only) that no
such defects in the Equipment or its installation exist and it shall be
conclusively presumed, solely as between Lessor and its assignees and Lessee,
that such Equipment has been unconditionally accepted by Lessee for lease
hereunder.
Except as otherwise provided in an Schedule, upon expiration or the cancellation
or termination of the Lease with respect to any Equipment, Lessee shall return
the Equipment to Lessor as provided herein. Lessee shall provide Lessor with not
less than ninety (90) days prior written notice of its intention to return the
Equipment upon expiration of the Initial Lease Term. Upon expiration or the
cancellation or termination of the Lease with respect to any Equipment. Lessee
shall, at its own expense, assemble, crate, insure and deliver all of the
Equipment and all of the service records and all software and software
documentation subject to this Lease and any Schedules hereto to Lessor in the
same good condition and repair as when received, reasonable wear and tear
resulting only from proper use thereof excepted, to such reasonable destination
within the continental United States as Lessor shall designate with all packing,
drayage and freight charges to the return destination designated by Lessor pre-
paid by Lessee with evidence of transit insurance on all items of Equipment at
no less than their estimated fair market value as specified by Lessor. Lessee
shall, immediately prior to such return of each item of Equipment or commercial
unit of Equipment, provide to Lessor a letter from the manufacturer of the
equipment or another service organization reasonably acceptable to Lessor
certifying that said item is in good working order, with reasonable wear and
tear resulting only from proper use thereof excepted, whether such item is
eligible for a maintenance agreement by such manufacturer, and all software and
related attachments are included thereon If any computer software requires
relicensing when removed from Lessee's premises, Lessee shall bear all costs of
such relicensing. Except as otherwise expressly provided in the Schedule, if
Lessee fails for any reason to provide the notice set forth above or Lessee
fails to redeliver the Equipment back to Lessor in accordance with the terms set
forth above, Lessee shall pay to Lessor, at Lessor's election, an amount equal
to the highest monthly payment set forth in the Schedule for a period of not
less than three (3) months and at the end of such period of time ("Holdover
Period"). Except as otherwise expressly provided in the Schedule, if Lessee
fails or refuses to return the Equipment as provided herein at the end of any
Holdover Period, Lessee shall pay to Lessor, at Lessor's option, an amount equal
to the highest monthly rental payment set forth in the Schedule for each month
or portion thereof, until Lessee so returns the Equipment to Lessor. Should
Lessor permit use by Lessee of any Equipment beyond the Initial Lease Term, or,
if applicable, any exercised extension or renewal term, the lease obligations of
Lessee shall continue and such permissive use shall no be construed as a renewal
of the term thereof, or as a waiver of any right or continuation of any
obligation of Lessor hereunder, and Lessor may take possession of any such
Equipment at any time upon demand.
4. Disclaimer of Warranties. LESSEE HAS EXCLUSIVELY SELECTED AND CHOSEN THE
TYPE, DESIGN, CONFIGURATION, SPECIFICATION AND QUALITY OF THE EQUIPMENT HEREIN
LEASED AND THE VENDOR, DEALER, SELLER, MANUFACTURER OR SUPPLIER THEREOF (HEREIN
COLLECTIVELY CALLED "SELLER"), AS SET FORTH IN THE SCHEDULES. LESSOR MAKES NO
REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING WITHOUT LIMITATION THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS, ADAPTABILITY, ANY IMPLIED WARRANTY OF QUIET
ENJOYMENT OR NON-INTERFERENCE OR SUITABILITY FOR ANY PARTICULAR PURPOSE, AND,
LESSEE LEASES HIRES AND RENTS THE EQUIPMENT AS IS, WHERE IS." Lessee understands
and agrees that neither Seller, nor any agent of Seller, is an agent of Lessor
or is in any manner authorized to waive or alter any term or condition of this
Lease. Lessor shall not be liable for any loss or damage suffered by Lessee or
by any other person or entity, direct or indirect or consequential, including,
but not limited to, business interruption and injury to persons or property,
resulting from non-delivery or late delivery, installation, failure or faulty
operation condition, suitability or use of the Equipment leased by Lessee
hereunder, or for any failure of any representations, warranties or covenants
made by the Seller. Any claims of Lessee, with respect to claims discussed in
the preceding sentences, shall not be made against Lessor but shall be made, if
at all, solely and exclusively against Seller, or any persons other than the
Lessor. Lessor hereby authorizes Lessee to enforce during the term of this
Lease, in its name, but at Lessee's sole effort and expense, all warranties,
agreements or representations, if any, which may have been made by Seller to
Lessor or to Lessee, and Lessor hereby assigns to Lessee solely for the limited
purpose of making and prosecuting any such claim, all rights which Lessor may
have against Seller for breach of warranty or other representation respecting
the Equipment.
5. Care, Transfer and Use of Equipment. Lessee, at its own expense, shall
maintain the Equipment in good operating condition, repair and appearance in
accordance with Seller's specifications and in compliance with all laws and
regulations applicable to the Equipment, Lessee and its business and shall
protect the Equipment from deterioration except for reasonable wear and tear
resulting only from proper use thereof. When generally offered with respect to
the Equipment, Lessee shall, at its expense, keep a maintenance contract in full
force and effect, throughout the term of this Lease and any Schedule hereto
unless otherwise agreed on the Schedule. The disrepair or inoperability of the
Equipment regardless of the cause thereof shall no relieve Lessee of the
obligation to pay rental hereunder. Lessee shall not make any modification,
alteration or addition to the Equipment (other than normal operation accessories
or controls). Lessee will not, and will not permit anyone other than the
authorized field engineering representatives of Seller or other maintenance
organization reasonably acceptable to Lessor to effect any inspection,
adjustment, preventative or remedial maintenance or repair to the Equipment.
Lessee may not (a) relocate or operate the Equipment at locations other than the
premises of Lessee specified in the applicable Schedule (the "Premises"), except
with Lessor's prior written consent, which shall not be unreasonably withheld if
such other location within the continental United States, or (b) SELL, CONVEY,
TRANSFER ENCUMBER, PART WITH POSSESSION OF, OR ASSIGN ANY ITEM OF EQUIPMENT OR
ANY OF ITS RIGHTS HEREUNDER, AND ANY SUCH PURPORTED TRANSACTION SHALL BE NULL
AND VOID AND OF NO FORCE OR EFFECT. In the event of a relocation of the
Equipment or any item
2
<PAGE>
thereof to which Lessor consents, all costs (including any additional property
taxes or other taxes and any additional expense of insurance coverage) resulting
from any such relocation, shall be promptly paid by Lessee upon presentation to
Lessee of evidence supporting such cost. Lessor shall have the right during
normal hours upon reasonable notice to Lessee, subject to applicable laws and
regulations, to enter Lessee's Premises in order to inspect, observe, affix
labels or other markings, or to exhibit the Equipment to prospective purchasers
or future lessees thereof, or to otherwise protect Lessor's interest therein.
6. Net Lease. THIS LEASE AND ANY SCHEDULE HERETO IS A NET LEASE, AND ALL
PAYMENTS HEREUNDER ARE NET TO LESSOR. All taxes, assessments, licenses, and
other charges (including, without limitation personal property taxes and sales
taxes, use taxes, leasing taxes and all other taxes based on gross receipts) and
penalties and interest on such taxes imposed, levied or assessed on the
ownership, possession, rental or use of the Equipment during the term of this
Lease and any Schedule hereto (except for Lessor's federal or state net income
taxes) shall be paid by Lessee when due and before the same shall become
delinquent, whether such taxes are assessed or would ordinarily be assessed
against Lessor or Lessee. To the extent possible under applicable law, for
personal property or ad valorem tax return purposes only, Lessee shall include
the Equipment on such reports and returns as may be required by local law, which
returns shall be timely filed by it. Lessee shall provide Lessor with evidence
that Lessee has complied with the foregoing provisions. In any event, Lessees
shall file all tax returns required for itself or Lessor with respect to the
Equipment and this Lease and Lessor hereby appoints Lessee as its attorney-in-
fact for such purpose. In case of failure by Lessee to so pay said taxes,
assessments, licenses or other charges, Lessor may pay all or any part of such
items, in which event the amount so paid by Lessor including any interest or
penalties thereon and reasonable attorney's fees incurred by Lessor in pursuing
its rights against Lessee or defending against any claims or defenses asserted
by or through Lessee shall be immediately paid by Lessee to Lessor as additional
rental hereunder. Lessee shall promptly pay all costs, expenses and obligations
of every kind and nature incurred in connection with the use or operation of the
Equipment which may arise or become due during the term of this Lease and any
Schedule hereto, whether or not specifically mentioned herein. In case of
failure by Lessee to comply with any provision of this Lease and any Schedule
hereto, Lessor shall have the right, but not the obligation, to effect such
compliance on behalf of Lessee. In such event, all costs and expenses incurred
by Lessor in effecting such compliance shall be immediately payable by Lessee to
Lessor as additional rental hereunder.
7. Indemnity. Lessee shall at its expense: (i) indemnify, protect and
defend Lessor's title to the Equipment from and against all persons claiming
against or through Lessee: (ii) at all times keep the Equipment then subject to
this Lease free from any and all liens, encumbrances attachments, levies,
executions, burdens, charges or legal process of any and every type whatsoever;
(iii) give Lessor immediate written notice of any breach of the Lease described
in clause (ii); and (iv) indemnify, protect and save Lessor harmless from any
loss, cost or expense (including reasonable attorney's fees) caused by the
Lessee's breach of any of the provisions of the Lease, whether incurred by
Lessor in pursuing its rights against Lessee or defending against any claims or
defenses asserted by or through Lessee. Lessee shall and does hereby agree to
indemnify, defend and hold Lessor and its assigns harmless from and against any
and all liability, loss, costs, injury, damage, penalties, suits, judgements,
demands, claims, expenses and disbursements (including without limitation,
reasonable attorneys' fees incurred by Lessor in pursuing its rights against
Lessee or defending against any claims or defenses asserted by or through
Lessee) of any kind whatsoever arising out of, on account of, or in connection
with this Lease and the Equipment leased hereunder, including, without
limitation its manufacture, selection, purchase, delivery, rejection,
installation, ownership, possession, leasing, renting, operation, control, use,
maintenance and the return thereof except for any such claims or damages from
Lessor's gross negligence or willful misconduct. This indemnity shall survive
the Initial Lease Term or earlier cancellation or termination of this Lease and
any Schedule hereto.
8. Insurance. Commencing on the date that risk of loss or damage passes to
Lessor from the Seller of any Equipment covered under this Lease and continuing
until Lessee has re-delivered possession of the Equipment to Lessor, Lessee
shall, at its own expense, keep the Equipment (including all Add-on Items
thereto) insured against all risks of loss or damage from every and any cause
whatsoever in such amounts (but in no event less than the greater of the
replacement value thereof or the amount set forth in any applicable Casualty
Schedule, whichever is higher) with such deductibles and exclusions as approved
by Lessor and in such form as is reasonably satisfactory to Lessor. All such
insurance policies shall protect Lessor and Lessor's assignee(s) as loss payees
as their interest may appear. Lessee shall also at its own expense, carry public
liability insurance, with Lessor and Lessor's assignee(s) as an additional
insured, in such amounts with such companies and in such form as is reasonably
satisfactory to Lessor, with respect to injury to person or property resulting
from or based in any way upon or in any way connected with or relating to the
installation, use or alleged use, or operation of any or all of the Equipment,
or its location or condition.
Not less than ten days prior to the Acceptance Date, Lessee shall deliver to
Lessor satisfactory evidence of such insurance and shall further deliver
evidence of renewal of each such policy not less than thirty (30) days prior to
expiration thereof. Each such policy shall contain an endorsement providing that
the insurer will give Lessor not less than thirty (30) days prior written notice
of the effective date of any alteration, change, cancellation, or modification
of such policy or the failure by Lessee to timely pay all required premiums,
costs, or charges with respect thereto. Upon Lessor's request, Lessee shall
cause its Insurance agent(s) to execute and deliver to Lessor Loss Payable
Clause Endorsement and Additional Insured Endorsement (bodily injury and
property damage liability insurance) forms provide to Lessees by Lessor. In case
of the failure to procure or maintain such insurance, Lessor shall have the
right, but not the obligation, to obtain such insurance and any premium paid by
Lessor shall be immediately due and payable by Lessee to Lessor as additional
rent hereunder. The maintenance of any policy or policies of insurance pursuant
to this Section shall not limit any obligation or liability of Lessee pursuant
to Sections 7 or 9 or any other provision of this Lease and any Schedule hereto.
9. Risk of Loss. Until such time as the Equipment is returned and delivered
to and accepted by Lessor at the expiration of this Lease, pursuant to the terms
of this Lease and any Schedule hereto, Lessee hereby assumes and shall bear the
entire risk of loss, damage, theft and destruction of the Equipment, or any
portion thereof, from any cause whatsoever ("Equipment Loss"). Without
limitation of the foregoing, no Equipment Loss shall relieve Lessee in any way
from its obligations hereunder. Lessee shall promptly notify Lessor in writing
of any Equipment Loss. In the event of any such Equipment Loss, Lessee shall:
(a) in the event Lessor determines such Equipment to be repairable, promptly
place at Lessee's expense, the Equipment in good repair, condition and working
order in accordance with Seller's specifications and to the satisfaction of
Lessor; or (b) in the event of an actual or constructive total loss of any item
of Equipment, at Lessor's option (i) promptly replaced at Lessee's expense, the
Equipment with like equipment of the same or a later model with the same Add-on
Items as the Equipment, and in good repair, condition and working order in
accordance with the Seller's specifications and to the satisfaction of Lessor;
or (ii) immediately pay to Lessor the amount obtained by multiplying the actual
Equipment Cost as specified in the applicable
3
<PAGE>
Schedule by the percentage contained in any applicable Casualty Schedule for the
date of such Equipment Loss plus, any unpaid rentals or any amounts due
hereunder.
If no Casualty Schedule has been made a part of any applicable Schedule, an
amount equal to the present value of the total amount of unpaid rentals and all
other amounts due and to become due under any applicable Schedule during the
term thereof as of the date of any payment, discounted at a rate equal to
discount rate of the Federal Reserve Bank of Chicago as of the Commencement Date
of the Lease with respect to each applicable Schedule shall be paid to Lessor by
Lessee, plus an additional amount equal to the estimated fair market value of
the Equipment at the end of the Initial Lease Term applicable to such Equipment
(the "End of Term Value"). In no event shall the amount of such End of Term
Value for the Equipment be less than twenty percent (20%) of the actual cost of
the Equipment unless a purchase option is granted (or other end of term payment
is required) under this Lease for other than the fair market value of the
Equipment then the actual amount of such Purchase Option Price (or other end of
term payment) specified in the applicable Equipment Schedule shall be due and
payable to Lessor as the End of Term Value under this section or such lesser or
greater amount specified in the applicable Schedule.
In the event Lessee is required to repair or replace any such item of Equipment
pursuant to Subsections (a) or (b)(i) of the preceding sentence, the insurance
proceeds received by Lessor, if any, pursuant to Section 8, after the use of
such funds to pay any unpaid amounts then due hereunder, shall be paid to Lessee
or, if applicable, to a third party repairing or replacing the Equipment upon
Lessee's furnishing proof reasonably satisfactory to Lessor that such repair or
replacement has been completed in a reasonably satisfactory manner. In the event
Lessor elects option (b)(ii), Lessee shall be entitled to a credit against the
payment required by said Subsection in an amount equal to such insurance
proceeds actually received by Lessor pursuant to Section 8 on account of such
Equipment, and, upon payment by Lessee to Lessor of all of the sums required
pursuant to Subsection (b)(ii), the applicable Schedule shall terminate with
respect to such item of Equipment and Lessee shall be entitled to whatever
interest Lessor may have in such item AS IS, WHERE IS and WITH ALL FAULTS in its
then condition and location without warranties of any type whatsoever, express
or implied.
10. Covenants of Lessee. Lessee agrees that its obligations under this Lease
and any Schedule hereto, including without limitation, the obligation to pay
rental, are irrevocable and absolute, shall not abate for any reason whatsoever
(including any claims against Lessor), and shall continue in full force and
effect regardless of any inability of Lessee to use the Equipment or any part
thereof for any reason whatsoever including, without limitation, war, act of
God, storms, governmental regulations, strike or other labor troubles, loss,
damage, destruction, disrepair, obsolescence, failure of or delay in delivery of
the Equipment, or failure of the Equipment to properly operate for any cause. In
the event of any alleged claim (including a claim which would otherwise be in
the nature of a set-off) against Lessor, Lessee shall fully perform and pay its
obligations hereunder (including the payment of all rents, without set-off or
defense of any kind) and its only exclusive recourse against Lessor shall be by
a separate action. Lessee agrees to furnish promptly to Lessor the annual
financial statements of Lessee (and of any guarantors of Lessee's performance
under this Lease and any Schedule hereto), prepared in accordance with generally
accepted accounting principles and such interim financial statements of Lessee
as Lessor may reasonably require during the entire term of this Lease and any
Schedule hereto. Either independent certified public accountants or the Lessee's
chief financial officer as requested by Lessor shall certify all such annual
financial statements. Lessee, if requested by Lessor prior to the initial
purchase by Lessor of Equipment for lease hereunder, shall provide at Lessee's
expense an opinion of its counsel acceptable to Lessor affirming the covenants,
representations and warranties of Lessee under this Lease and any Schedule
hereto. So long as there are amounts due Lessor under this Lease, Lessor shall
supply Lessor with such other financial and operating performance data as is
provided to its outside investors or commercial lenders and, if applicable,
required to be provided to shareholders by the Security and Exchange Commission,
and Lessor shall immediately notify Lessor of any material adverse change in its
financial condition or business prospects.
11. Representations and warranties. In order to induce Lessor to enter into
this Lease and any Schedule hereto and to lease the Equipment to Lessee
hereunder, Lessee represents and warrants that: (a) Financial Statements. (i)
applications, financial statements, and reports which have been submitted by
Lessee and any Obligors (as hereinafter defined) to Lessor are, and all
information hereafter furnished by Lessee and Obligors to Lessor will be, true
and correct in all material respects as of the date submitted; (ii) as of the
date hereof, the date of any Schedule and any Acceptance Date, there has been no
material adverse change in any matter stated in such applications, financial
statements and reports; and, (iii) none of the foregoing omit or omitted to
state any material fact which would make any of the foregoing false or
misleading. (b) Organization. Lessee is an organizational entity described on
the signature page hereof and is duly organized, validly existing and is duly
qualified to do business and is in good standing or subsisting or in other
similar active status in each State in which the Equipment will be located. (c)
Authority. Lessee has full power, authority and right to execute, deliver and
perform this Lease and any Schedule hereto, and the execution, delivery and
performance hereof has been authorized by all necessary action of Lessee. (d)
Enforceability. This Lease and any Schedule or other document executed in
connection therewith has been duly executed and delivered by Lessee and any
Obligor and constitutes a legal, valid and binding obligation of Lessee and any
Obligor enforceable in accordance with its terms. (e) Consents. The execution,
delivery and performance of this Lease and any Schedule hereto does not require
any approval or consent of any stockholders, partners or proprietors or of any
trustee or holders of any indebtedness or obligations of Lessee, and will not
contravene any law, regulation, judgment or decree applicable to Lessee, or the
certificate or articles of incorporation, partnership agreement, by-laws or
other governing documents of Lessee, or contravene the provisions of, or
constitute a default under, or result in the creation of any lien upon any
property of Lessee under any mortgage, instrument or other agreement to which
Lessee is a party or by which Lessee or its assets may be bound or affected.
Except as disclosed, no authorization, approval, license, filing or registration
with any court or governmental agency or instrumentality is necessary in
connection with the execution, delivery, performance, validity and
enforceability of this Lease and any Schedule hereto. (f) Title. On each
Commencement Date, Lessor shall have good and marketable title to the items of
Equipment which is subject to this Lease and any Schedule hereto on such date,
free and clear of all liens, except the lien of Seller which will be released
upon receipt of payment. Lessee warrants that no party has a security interest
in the Equipment which will not be released on or before payment by Lessor to
Seller of the Equipment and that the Equipment is and shall at all times remain
personal property regardless of how it may be affixed to any real property. (g)
Litigation. There is no action, suit, investigation or proceeding by or before
any court, arbitrator, agency or governmental authority pending or to Lessee's
knowledge threatened against or affecting Lessee: (i) which involves the
Equipment or the transactions contemplated by this Lease and any Schedule
hereto; or (ii) which, if adversely determined, could have a material adverse
effect on the financial condition, business or operation of Lessee.
12. Events of Default. An event of default ("Event of Default") shall
4
<PAGE>
occur hereunder if Lessee or any Obligor ("Obligor" shall include any guarantor
or surety of any obligations of Lessee to Lessor under this Lease and any
Schedule hereto): (i) fails to pay any installment of rent or other payment
required hereunder within five (5) days after its due date; or (ii) attempts to
or does remove from the Premises (except a relocation with Lessor's consent as
provided in Section 5), sell, transfer, encumber, part with possession of, or
sublet any item of the Equipment; or (iii) shall suffer or have suffered, in the
reasonable judgment of Lessor, a material adverse change in its financial
condition since the date of the last financial statements submitted to Lessor,
and as a result thereof Lessor in good faith deems itself to be insecure; or
(iv) breaches or shall have breached any representation or warranty made or
given by Lessee or Obligor in this Lease or in any other document furnished to
Lessor in connection herewith, or any such representation or warranty shall be
untrue or, by reason of failure to state amaterial fact or otherwise, shall
be misleading or any of the statements or other documents or information
submitted at any time heretofore or hereafter by Lessee or Obligor to Lessor
shall be untrue or, by reason of failure to state a material fact or otherwise,
shall be misleading or (v) fails to perform or observe any other covenant,
condition or agreement to be performed or observed by it hereunder, and such
failure or breach shall continue unremedied for a period of ten days after the
date on which notice thereof shall be given by Lessor to Lessee (unless such
remedial action cannot be completed within such ten day period but Lessee has in
good faith commenced to remedy such breach or failure and such remedy is in fact
achieved within a time period agreed to by Lessor); or (vi) shall become
insolvent or bankrupt or make an assignment for the benefit of creditors or
consent to the appointment of a trustee or receiver, or a trustee or receiver
shall be appointed for a substantial part of its property without its consent,
or bankruptcy or reorganization or insolvency proceeding shall be instituted by
or against Lessee or Obligor and Lessee fails to continue to pay all rentals
becoming due hereunder during the pendency of such proceedings and fails to
assume this Lease within sixty (60) days after the commencement of such
proceedings; or (vii) conveys, sells, transfers or assigns substantially all of
Lessee's or Obligor's assets or ceases doing business as a going concern, or, if
a corporation, ceases to be in good standing or files a statement of intent to
dissolve, or abandons any or all of the Equipment; or (viii) shall be in breach
of or default under any lease or other agreement at any time executed with
Lessor or any other lessor or with any lender to Lessee or Obligor such that
Lessee's obligations thereunder have been or are being accelerated.
13. Remedies. Upon the occurrence and during any continuance of an Event of
Default (the "Default Date") set forth in Section 12. Lessor may, in its sole
and absolute discretion, do any one or more of the following: (a) upon notice to
Lessee cancel all or any portion of this Lease or any Schedules executed
pursuant thereto; (b) enter Lessee's Premises and without removal of the
Equipment, render the Equipment unusable or, require Lessee to assemble the
Equipment and make unusable or, require Lessee to Assemble the Equipment and
make it available to Lessor at a place designated by Lessor, and/or dispose of
the Equipment by sale or otherwise (all of which determinations may be made by
Lessor in its sole and absolute discretion); (c) declare immediately due and
payable all sums due and to become due hereunder for the full term of the Lease
(including any renewal or purchase obligations which Lessee has contracted to
pay); (d) with or without canceling this Lease, recover from Lessee damages, in
an amount equal to the sum of: (i) all unpaid rent and other amounts that
became due and payable on, or prior to, the Default Date, (ii) the present value
of all future rentals and other amounts described in the Lease and not included
in (i) above discounted to the Default Date at a rate equal to the discount rate
of the Federal Reserve Bank of Chicago as of the Commencement Date of the Lease
with respect to each Schedule (which discount rate Lessee agrees is a
commercially reasonable rate which takes into account the facts and
circumstances at the time such Schedule commenced), (iii) all commercially
reasonable costs and expenses incurred by Lessor in enforcing Lessor's rights
under this Lease, or defending against any claims or defenses asserted by or
through Lessee, including but not limited to, costs of repossession, recovery,
storage, repair, sale, re-lease and reasonable attorneys' fees, (iv) the
estimated residual value of the Equipment as of the expiration of the Lease, (v)
any indemnity amount payable to Lessor hereunder; and (vi) interest on all of
the foregoing from the Default Date until the date payment is received by Lessor
at 2% per month or the highest rate permitted by law, whichever is less; (e)
exercise any other right or remedy which may be available to it under the
Uniform Commercial Code or any other applicable law.
If Lessor elects to dispose of any Equipment recovered from the possession of
Lessee after an Event of Default, Lessor shall dispose of such Equipment in a
commercially reasonable manner. Lessor reserves the right, in its sole and
absolute discretion, to control the timing and negotiate the terms of any re-
leasing or re-sale of any or all of the Equipment at a public auction or in a
private sale, at such time, on such term sand with such notice as Lessor shall
in its sole and absolute discretion deem commercially reasonable. In such event,
without any duty on Lessor's part to effect any such re-lease or sale of the
Equipment, Lessor will credit the present value of any proceeds from such sale
or re-lease actually received and retainable by it (net of any and all costs or
expenses) discounted from the date of Lessor's receipt thereof to the Default
Date at 2 1/2% in excess of the Prime Rate (or its equivalent) per annum in
effect at the First National Bank of Chicago on the date of such payment to the
amounts due to Lessor from Lessee under the provisions of (c), (d), and/or (e)
above. A cancellation of this Lease shall occur only upon notice by Lessor and
only as to such items of Equipment as Lessor specifically elects to cancel and
this Lease shall continue in full force and effect as to the remaining items of
Equipment, if any. If this Lease and/or any Schedule is deemed at any time to be
one intended as security, Lessee agrees that the Equipment shall secure, in
addition to the indebtedness set forth herein, any other indebtedness at any
time owing by Lessee to Lessor. No remedy referred to in this Section is
intended to be exclusive, but shall be cumulative and in addition to any other
remedy referred to above or otherwise available to Lessor at law or in equity.
No express or implied waiver by Lessor of any default shall constitute a waiver
of any other default by Lessee or a waiver of any of Lessor's rights.
14. Assignment by Lessor. LESSOR MAY (WITH OR WITHOUT NOTICE TO LESSEE) SELL,
TRANSFER, ASSIGN OR GRANT A SECURITY INTEREST IN ALL OR ANY PART OF ITS INTEREST
IN THIS LEASE, ANY SCHEDULE, ANY ITEMS OF EQUIPMENT OR ANY AMOUNT PAYABLE
HEREUNDER. In such an event, Lessee shall, upon receipt of written notice,
acknowledge any such sale, transfer, assignment or grant of a security interest
and shall pay its obligations hereunder or amounts equal thereto to the
respective transferee, assignee or secured party in the manner specified in any
instructions received from Lessor. Notwithstanding any such sale, transfer,
assignment or grant of a security interest by Lessor and so long as no Event of
Default shall have occurred hereunder, neither Lessor nor any transferee,
assignee or secured party shall interfere with Lessee's right of use or quiet
enjoyment of the Equipment. In the event of such sale, transfer, assignment or
grant of a security interest in all or any part of this Lease and any Schedule
hereto, or in the Equipment or in sums payable hereunder, as aforesaid, Lessee
agrees to execute such documents as may be reasonably necessary to evidence,
secure and complete such sale, transfer, assignment or grant of a security
interest and to perfect the transferee's, assignee's or secured party's interest
therein (with any filing fees at Lessor's expense) and Lessee further agrees
that the rights of any transferee, assignee or secured party shall not be
subject to any defense, set-off or counterclaim that Lessee may have against
Lessor or any other party, including the Seller, which defenses, set-offs and
counterclaims shall be asserted only against such party, and that any such
transferee, assignee or secured party shall have
5
<PAGE>
all of Lessor's rights hereunder, but shall assume none of Lessor's obligations
hereunder. Lessee acknowledges that any assignment or transfer by Lessor shall
not materially change Lessee's duties or obligations under this Lease and shall
not materially increase the burdens and risks imposed on Lessee.
15. Miscellaneous. All notices and demands relating hereto shall be in
writing and sent by either any nationally recognized overnight air courier or by
certified mail, return receipt requested, to Lessor or Lessee at their
respective addresses above or shown in the Schedule, or at any other address
designated by notice served in accordance herewith. Notice by overnight air
courier shall be effective one (1) business day after delivery. Notice by
certified mail shall become effective five (5) business days after deposit in
the United States mail, with proper postage prepaid, addressed to the party
intended to be served at the address designated herein. All obligations of
Lessee shall survive the termination or expiration of this Lease and any
Schedule hereto. If more than one Lessee is named in this Lease, the liability
of each hereunder to Lessor shall be joint and several. Lessee shall, upon
request of Lessor from time to time, perform all acts and execute and deliver to
Lessor all documents which Lessor deems reasonably necessary to implement this
Lease and any Schedule hereto, including, without limitation, certificates
addressed to such persons as Lessor may direct stating that this Lease and the
Schedule hereto is in full force and effect, that there are no amendments or
modifications thereto, that Lessor is not in default hereof or breach hereunder,
setting forth the date to which rentals due hereunder have been paid, and
stating such other matters as Lessor may reasonably request. This Lease and any
Schedule hereto shall be binding upon the parties and their successors, legal
representatives and assigns. Lessee's successors and assigns shall include,
without limitation, a receiver, debtor-in-possession, or trustee of or for
Lessee. If any person, firm, corporation or other entity shall guarantee this
Lease and the performance by Lessee of its obligations hereunder, all of the
terms and provisions hereof shall be duly applicable to such Obligor.
16. Conditions Precedent to Leasing. (i) Lessor shall have no obligation to
purchase any Equipment for lease to Lessee under any Schedule hereunder unless
or until acceptable documentation, the form of which will be provided by Lessor
has been executed by Lessee and delivered to Lessor; (ii) Lessor has confirmed
with Lessee that no material adverse change in Lessee's financial condition and
business prospects has occurred prior to each purchase of Equipment.
17. Invalidity. In the event that any provision of this Lease and any
Schedule hereto shall be unenforceable in whole or in part, such provision shall
be limited to the extent necessary to render the same valid, or shall be excised
from this Lease or any Schedule hereto, as circumstances may require, and this
Lease and the applicable Schedule shall be construed as if said provision had
been incorporated herein as so limited, or as if said provision had not been
included herein, as the case may be without invalidating any of the remaining
provision hereof.
18. End of Term Options. Provided that the Lease has not been terminated and
that no Event of Default or event which, with notice or lapse of time or both,
would become an Event of Default shall have occurred and shall be continuing,
Lessee shall at the end of the Initial Lease Term of the first Schedule be
entitled to elect and to exercise one of the options, if any, indicated in the
applicable Schedule which election shall be binding on Lessee with respect to
all Schedules entered into between Lessor and Lessee under this Lease. The
foregoing options granted hereunder shall be exercised by written notice
delivered to Lessor by Lessee not more than 180 days and not less than ninety
(90) days prior to the expiration of the Initial Lease Term of the Equipment,
subject to Schedule No 001.
19. Progress Payments. If requested by Lessee, progress payments will be made
for any amount over the Minimum Invoice Amount specified on each Progress
Payment Authorization per invoice to vendors in accordance with Lessor's
standard procedures. Unless otherwise agreed by Lessor the minimum progress
payment amount shall not be less than the Minimum Progress Payment Amount
specified on the Progress Payment Authorization. Interim rent, on progress
payments, shall be payable from the date progress payments are made by Lessor to
the Commencement Date of the corresponding Schedule. Interim rent shall be
calculated at the daily equivalent of the Monthly Lease Rate Factor. Lessee
shall deliver to Lessor a Progress Payment Authorization, not less than 30 days
prior to the due date thereof and in a form acceptable to Lessor, to make a
progress payment and, provided on such date no Events of Default have occurred
and be continuing hereunder or under the Lease. Lessor shall make the progress
payment set forth to the manufacturer(s) or supplier(s) as set forth in such
authorization.
20. Law. This Lease and any Schedule hereto shall be binding only when
accepted by Lessor at its corporate headquarters in Illinois and shall in all
respects be governed and construed, and the rights and the liabilities of the
parties hereto determined, except for local filing requirements, in accordance
with the laws of the State of Illinois. LESSEE WAIVES TRIAL BY JURY AND SUBMITS
TO THE JURISDICTION OF THE FEDERAL DISTRICT COURT OR ANY STATE COURT LOCATED
WITHIN COOK COUNTY IN THE STATE OF ILLINOIS AND WAIVES ANY RIGHT TO ASSERT THAT
ANY ACTION INSTITUTED BY LESSOR IN ANY SUCH COURT IS IN THE IMPROPER VENUE OR
SHOULD BE TRANSFERRED TO A MORE CONVENIENT FORUM.
Lessee's Initials _________
21. Amendments. This Lease and any Schedule hereto contain the entire
agreement between the parties with respect to the Equipment, this Lease and any
Schedule hereto and there is no agreement or understanding oral or written,
which is not set forth herein. This Lease and any Schedule hereto may not be
altered, modified, terminated or discharged except by a writing signed by the
party against whom such alteration, modification, termination or discharge is
sought.
Lessee's Initials _________
22. Lessee's Waivers. To the extent permitted by applicable law, Lessee
hereby waives any and all rights and remedies conferred upon a Lessee by Article
2A of the Uniform Commercial Code as adopted in any jurisdiction, including but
not limited to Lessee's rights to: (i) cancel this Lease; (ii) repudiate this
Lease; (iii) reject the Equipment; (iv) revoke acceptance of the Equipment; (v)
recover damages from Lessor for any breaches of warranty or for any other reason
related to the Equipment; (vi) claim a security interest in the Equipment in
Lessee's possession or control for any reason (vii) deduct all or any part of
any claimed damages resulting from Lessor's default, if any, under this Lease;
(viii) accept partial delivery of the Equipment (ix) "cover" by making any
purchase or lease of or contract to purchase or lease Equipment in substitution
for those due from Lessor; (x) recover any general, special, incidental, or
consequential damages for any reason whatsoever; and (xi) specific performance,
replevin, detinue, claim,
6
<PAGE>
identified to this Lease. To the extent permitted by applicable law (unless
expressly otherwise agreed hereunder), Lessee also hereby waives any rights now
or hereafter conferred by statute or otherwise which may require Lessor to sell,
lease or otherwise use any Equipment in mitigation of Lessor's damages as set
forth in Paragraph 13 or which may otherwise limit or modify any of Lessor's
rights or remedies under Paragraph 13. Any action by Lessee against Lessor for
any default by Lessor under this Lease, including breach of warranty or
indemnity, shall be commenced within one (1) year after any such cause of action
accrues.
Lessee's Initials _________
23. Counterparts. This Lease may be executed in any number of counterparts,
each of which shall be deemed an original. Each Schedule shall be executed in
three (3) serially numbered counterparts each of which shall be deemed an
original but only counterpart number 1 shall constitute "chattel paper" or
"collateral" within the meaning of the Uniform Commercial Code in any
jurisdiction.
24. Addendum. ("X" if applicable) [__] See Addendum(s) attached hereto and
made a part hereof.
The person executing this Lease for and on behalf of Lessee warrants and
represents, which warranty and representation shall survive the expiration or
termination of this Lease, that this Lease and the execution hereof has been
duly and validly authorized by Lessee, constitutes a valid and binding
obligation of Lessee and that he has authority to make such execution for and on
behalf of Lessee.
IN WITNESS WHEREOF, this Lease has been executed by Lessee this 22 day
------
of July 19 98.
------------ ----
ACCEPTED AT SAN FRANCISCO, CA ACCEPTED AT CHICAGO, ILLINOIS
HOME SHARK, INC LINC CAPITAL, INC.
Lessee Lessor
By: /s/ Lee T. Kirkpatrick By: /s/ William F. DeMars
---------------------------- ------------------------------
Title: Chief Financial Officer Title: Senior V.P.
------------------------- ---------------------------
Date: 7/22/98 Date: 10/7/98
-------------------------- ----------------------------
7
<PAGE>
CERTIFIED COPY OF RESOLUTION
----------------------------
Lease Contract No. 7265
I do hereby certify that I am the duly elected, qualified and acting Secretary
of iOWN, INC., a California corporation and as such, have custody of the records
of the Corporation including the minutes of the meetings of the Board of
Directors of the Corporation, and I do further certify that at a meeting of the
Board of Directors of said Corporation duly called and held on ________________
___________,19___, at which a quorum was present and acting throughout, the
following resolutions were duly adopted and that said resolutions are in full
force and effect as of the date hereof and have not been modified or rescinded
in any manner whatsoever.
RESOLVED: that the President, any Vice President, any Assistant Vice President,
the Treasurer, any Assistant Treasurer or ______________________________ or
______________________________, be and each of them is, authorized to execute
and deliver in the name and on behalf of the Corporation, agreements with LINC
Capital, Inc. (the "Company") providing for various financing arrangements with
the Company, including but not limited to the leasing of equipment by, and
financing the acquisition of equipment for, the Corporation, the borrowing of
monies and the pledging, mortgaging, or otherwise encumbering any or all of the
Corporation's assets as security therefore and the sale or assignment of certain
of the Corporation's assets pursuant to any sale and leaseback or other
financing arrangement, with or without recourse to the Corporation (all of the
foregoing are hereafter sometimes referred to collectively as "financing
arrangements"), all upon such terms and conditions and containing such
provisions as such officer(s), employee(s) or agent(s) may in his or their sole
discretion deem advisable, necessary or expedient; and
FURTHER RESOLVED: that the President, any Vice President, any Assistant Vice
President, the Treasurer, any Assistant Treasurer, or ______________________ or
_____________________________, be and each of them hereby is, authorized in the
name and on behalf of the Corporation to execute and deliver to the Company such
rental schedules, leases, security agreements, real estate mortgages, chattel
mortgages, installment purchase agreements, promissory notes, bills of sale,
certifications, documents, and instruments, and to do all other acts and things
and execute and deliver such other agreements as such officer(s), employee(s) or
agent(s} in his or their sole discretion determine to be necessary or required
in order to consummate and implement said financing arrangements; and
FURTHER RESOLVED: that the President, any Vice President, any Assistant Vice
President, the Treasurer, any Assistant Treasurer or ______________________ or
______________________________, be and each of them hereby is authorized to
execute and deliver in the name and on behalf of this Corporation, from time to
time, amendments, renewals or extensions of any or all documents previously
delivered to the Company, in such form and content as shall be approved by the
officer(s), employee(s) or agent(s) who execute the same with such execution to
be conclusive evidence of such approval; and
FURTHER RESOLVED: that the acts and doings of said officer(s), employee(s) or
agent(s) or any of them in respect to the subject matter hereof, and all of the
prior acts and doings of such officer(s), employee(s) or agent(s) of the
Corporation with the Company, and all agreements, written or oral, and any and
all instruments of any and every kind, nature, or description whatsoever
heretofore executed and delivered by the Corporation to the Company,
<PAGE>
are hereby fully ratified, approved, adopted and confirmed, and declared to be
and represent binding obligations of the Corporation in accordance with the
respective terms and provisions thereof; and
FURTHER RESOLVED: that the authorizations herein set forth shall remain in full
force and effect until written notice of their modification or discontinuance
shall be given to and actually received by the Company at is offices in Chicago,
Illinois, but no such modification or discontinuance shall affect the validity
of the acts of any person, authorized to so act by these resolutions, performed
prior to the receipt of such notice by the Company.
I further certify that there is no provision in the charter or by-laws of the
Corporation limiting the power of the Board of Directors to pass the foregoing
resolutions, that the same are in conformity with the provision of said charter
and by-laws and that no shareholder consent is required to permit the action
provided for thereby.
I further certify that the persons whose names, titles and signatures appear
below are duly elected (or appointed), qualified and acting officer(s),
employee(s) or agent(s) of the Corporation and hold on the date of this
certificate, the office or position set forth opposite their respective names,
and the signatures appearing opposite their respective names are the genuine
signatures of such officer(s), employee(s), or agent(s).
NAME TITLE OR POSITION SIGNATURE
Lee Kirkpatrick CFO & Secretary /s/ Lee Kirkpatrick
- ---------------------- --------------------- ----------------------------
Edward Hoyt CEO and President /s/ Edward Hoyt
- ---------------------- --------------------- ----------------------------
- ---------------------- --------------------- ----------------------------
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of said
Corporation this 4 day of May , 19 99.
----- ------------ ----
iOWN, INC.
/s/ Edward Hoyt
--------------------------------
President
/s/ Lee Kirkpatrick
- ------------------------------ --------------------------------
(Corporate Seal) Secretary
<PAGE>
OFFICER'S CERTIFICATE
---------------------
(WARRANTS)
The undersigned hereby certifies to LINC Capital, Inc. ("LINC"), its successors
and assigns that s/he is the Secretary of iOwn, Inc., a California corporation
(the "Company") and that as such s/he is authorized to execute this certificate
on behalf of the Company. With respect to Master Lease Agreement No. 7265 dated
as of July 20, 1998 (together with all Exhibits, Schedules, or Addenda being
referred to herein as the "Lease Documents") between LINC, as Lessor and the
Company as Lessee, the undersigned further certifies, represents and warrants as
follows each capitalized term used herein having the same meaning given to it in
the Lease Documents unless otherwise specified herein):
1. RESTATEMENT OF REPRESENTATIONS. The representations and warranties of the
------------------------------
Company contained in the Lease Documents were true and correct when made, are
repeated and are true and correct at and as of the time of delivery hereof.
2. CORPORATE STATUS. The Company is a corporation duly organized and validly
----------------
existing under the laws of the State of its incorporation identified above. The
Company is in good standing under the laws of such Jurisdiction and each
jurisdiction where the Equipment is, or is to be located, and, where the
Company's ownership or lease of property or the conduct of its business requires
such qualification.
3. CORPORATE POWER AND AUTHORITY. The Company has full power and authority to
-----------------------------
own and hold Property under lease; to conduct its business as presently
conducted; and to enter into, carry out and perform its obligations under the
terms of the Lease Documents. The execution and delivery by the Company of the
Lease Documents have been duly authorized by all necessary action on the part of
the Company. The Lease Documents constitute the legal, valid and binding
obligation of the Company, enforceable in accordance with their respective
terms, except to the extent that the enforceability may be modified or limited
by bankruptcy, insolvency, and other similar laws affecting the enforcement of
LINC's or creditor's rights in general and except as may be limited by the
application of general principles of equity.
4. NO CONFLICTS. The execution, delivery and performance by the Company of the
------------
Lease Documents will not violate or contravene the Company's Articles of
Incorporation or By-Laws. Such transactions do not: (a.) contravene any law,
governmental rule, regulation or administrative order applicable to the Company;
(b.) do not and will not, in any material respect (separately or in the
aggregate), violate or contravene any provision of, or constitute a default
under, any indenture, mortgage, contract, agreement or other instrument to which
the Company is a party or to which the Company or its property is subject; or
(c.) violate or contravene any judgment, decree or order binding upon the
Company or to which its property is subject.
5. GOVERNMENTAL APPROVALS. No consent or approval of, giving of notice to,
----------------------
registration with, or taking of any other action in respect of, any Federal,
State, or other governmental authority or agency is required with respect to the
execution, delivery and performance by the Company of the Lease Documents; or,
if any such approval, notice, registration or action is required, it has been
obtained.
<PAGE>
6. LITIGATION. There are no actions, suits or proceedings pending or threatened
----------
against or affecting the Company in any court or before any governmental
commission, board or authority which, if adversely determined, will have a
material adverse effect (separately or in the aggregate) on the ability of the
Company to perform its obligations under the any of Lease Documents.
7. DEFAULT. No event has occurred and is continuing which constitutes a default
-------
under any of the Lease Documents.
8. CONDITION OF THE EQUIPMENT. The Equipment is personal property and when
--------------------------
subject to use by the Company under the Lease Documents, will not be or become a
fixture under the laws of the State where it is, or will be, located.
9. CAPITAL STRUCTURE. As of the date hereof, and prior to the issuance of the
-----------------
Warrant, the capital structure of the Company or the affiliate of the Company
who is issuing the Warrant to LINC (the "Issuer") consists of the number and
classes of shares of the Issuer's capital stock, as set forth in the following
table, which are: (a.) authorized; (b.) issued and outstanding; (c.) reserved
for issuance upon the exercise of options, warrants and other rights agreements;
end (d.) reserved for issuance upon the conversion of convertible securities
(including convertible securities issuable upon the exercise of options,
warrants and other rights agreements). All such issued and outstanding shares
are duly authorized, validly issued, fully paid and non-assessable. Except with
respect to the shares set forth in the table, there are no outstanding options,
warrants, other rights agreements, conversion rights or other agreements for the
purchase or acquisition from Issuer of any shares of its capital stock.
<TABLE>
<CAPTION>
Number of Shares Reserved
for Issuance Upon
-----------------------------------------
Exercise of
Number of Number of Options, Warrants Conversion of
Classes of Capital Stock Shares Shares Issued Other Rights Convertible
of Issuer Authorized And Outstanding Agreements Securities
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
- -------------------------------------------------------------------------------------------------------------
Series Preferred Stock
- -------------------------------------------------------------------------------------------------------------
Series Preferred Stock
- -------------------------------------------------------------------------------------------------------------
Series Preferred Stock
- -------------------------------------------------------------------------------------------------------------
Series Preferred Stock
- -------------------------------------------------------------------------------------------------------------
Total Preferred Stock
- -------------------------------------------------------------------------------------------------------------
</TABLE>
10. ISSUANCE AND STATUS OF WARRANT. The Warrant has been duly authorized and
------------------------------
validly issued. The issuance of the Warrant is not subject to any preemptive
rights or rights of first refusal granted by Issuer, other than rights that have
been waived. The shares of the Class of Stock issuable upon exercise of the
Warrant (the "Warrant Shares"), and the shares of the Class of Stock issuable
upon conversion of the Warrant Shares (the "Conversion
2
<PAGE>
Shares"), have bean duly and validly reserved and are not subject to any
preemptive rights or rights of first refusal granted by Issuer or any other
person, other than rights that have been waived. Upon exercise of the Warrant in
accordance with the terms thereof, and upon conversion of the Warrant Shares to
Conversion Shares in accordance with Issuer's Articles/Certificate of
Incorporation, the Warrant Shares and the Conversion Shares, respectively, will
be duly authorized, validly issued, fully paid and non-assessable.
11. SECURITIES LAW COMPLIANCE. The issuance of the Warrant is in compliance with
-------------------------
or exempt from the registration requirements of the Securities Act of 1933, as
amended, and the registration or qualification requirements of applicable state
"Blue Sky" laws, and the regulations issued pursuant to such laws.
IN WITNESS WHEREOF, the undersigned has executed this certificate this
__________ day of ____________, 19 _____.
LESSEE: IOWN, inc.
By: /s/ Lee T. Kirkpatrick
----------------------
Name: Lee T. Kirkpatrick
----------------------
Title: CFO
----------------------
3
<PAGE>
EXHIBIT 10.17
[LETTERHEAD OF PHOENIX LEASING APPEARS HERE]
August 30, 1999
Mr. Lee Kirkpatrick
Chief Financial Officer
iOwn.com, Inc.
118 King Street, Suite 260
San Francisco, CA 94107
Dear Lee:
We are pleased to offer this commitment for a [*] increase to the existing
loan facility. All terms and conditions of the Senior Loan and Security
Agreement ("Loan") remain in effect with the following changes:
Conditions precedent to funding:
. Satisfactory performance to plan "iOwn.com, Inc. Balance Sheet and
Statement of Operations fax dated 7-27-99" at all funding, viable through
12-31-99.
. Proof of closure of $25M equity round to close by 9-30-99.
If you are in agreement with the aforementioned, please have a person authorized
to sign on behalf of your company sign and date this letter as indicated below
and return to me along with a commitment fee replenishment of $3000. Upon
receipt from you of the original of this letter, we shall proceed with your new
equipment financing requirements.
PHOENIX LEASING INCORPORATED iOWN.COM, INC.
By: /s/ Robert S. Borges By:________________________
---------------------------
Title: Director Business Dev't. Title:_____________________
------------------------
Date: August 30, 1999 Date:______________________
--------------------------
[*] Confidential Treatment Requested
<PAGE>
SENIOR LOAN AND SECURITY AGREEMENT NO. L6190
THIS SENIOR LOAN AND SECURITY AGREEMENT NO. L6190 (this "Security Agreement") is
dated as of November 20, 1998 between HOME SHARK, INC., a California
corporation ("Borrower") and PHOENIX LEASING INCORPORATED, a California
corporation ("Lender").
RECITALS
A. Borrower desires to borrow from Lender in one or more borrowings an
amount not to exceed [*] in the aggregate, and Lender desires to loan,
subject to the terms and conditions herein set forth, such amount to Borrower
(each, a "Loan" and collectively, the "Loans"). Such borrowings shall be
evidenced by one or more Senior Secured Promissory Notes (each, a "Note" and
collectively, the "Notes"), in the form attached hereto.
B. As security for Borrower's obligations to Lender under this Security
Agreement, the Notes and any other agreement between Borrower and Lender,
Borrower will grant to Lender hereunder a first priority security interest in
certain of its equipment, machinery, fixtures, other items and intangibles,
including but not limited to servers, personal computers, peripherals,
workstations, office equipment, furniture, phone system and also certain custom
use equipment, installation and delivery costs, purchase tax, toolings, software
and other items generally considered fungible or expendable ("Soft Costs")
whether now owned by Borrower or hereafter acquired, and all substitutions and
replacements of and additions, improvements, accessions and accumulations to
said equipment, machinery and fixtures and other items, together with all rents,
issues, income, profits and proceeds therefrom (collectively, the "Collateral")
which is described on the Note attached hereto or any subsequently-executed
Note entered into by Lender and Borrower and which incorporates this Security
Agreement by reference.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
SECTION 1. TERM OF AGREEMENT. The term of this Security Agreement begins on the
date set forth above and shall continue thereafter and be in effect so long as
and at any time any Note entered into pursuant to this Security Agreement is in
effect. The Term and monthly payment amount payable with respect to each item of
Collateral shall be as set forth in and as stated in the respective Note(s). The
terms of each Note hereto are subject to all conditions and provisions of this
Security Agreement as it may at any time be amended. Each Note shall constitute
a separate and independent Loan and contractual obligation of Borrower and
shall incorporate the terms and conditions of this Security Agreement and any
additional provisions contained in such Note. In the event of a conflict between
the terms and conditions of this Security Agreement and any provisions of such
Note, the provisions of such Note shall prevail with respect to such Note only.
SECTION 2. NON-CANCELABLE LOAN. This Security Agreement and each Note cannot be
canceled or terminated except as expressly provided herein. Borrower agrees that
its obligations to pay all monthly payment amounts and other sums payable
hereunder (and under any Note) and the rights of Lender and any assignee in and
to such amounts and other sums, are absolute and unconditional and are not
subject to any abatement, reduction, setoff, defense, counterclaim or recoupment
due or alleged to be due to, or by reason of, any past, present or future claims
which Borrower may have against Lender, any assignee, the manufacturer or seller
of the Collateral, or against any person for any reason whatsoever.
SECTION 3. LENDER COMMITMENT. (a) General Terms. Subject to the terms and
-------------
conditions of this Security Agreement and so long as no Event of Default or
event which with the giving of notice or passage of
[*] Confidential Treatment Requested
1
<PAGE>
time, or both, could become an Event of Default has occurred, Lender hereby
agrees to make one or more senior secured Loans to Borrower, subject to the
following conditions: (i) each Loan shall be evidenced by a Note; (ii) the total
principal amount of the Loans shall not exceed [*] in the aggregate (the
"Commitment") provided that no more than [*] of the amount of the utilized
Commitment may be used to finance Soft Costs; (iii) at the time of each Loan,
no Event of Default or event which with the giving of notice or passage of time,
or both, could become an Event of Default shall have occurred and be continuing,
as reasonably determined by Lender, and certified by Borrower; (iv) the amount
of each Loan shall be at least [*] except for a final Loan which may be less
than [*]; (v) Lender shall not be obligated to make any Loan after [*];
(vi) for each Loan, Borrower shall present to Lender a list of proposed
Collateral for approval by Lender in its sole discretion; (vii) for each Loan,
Borrower shall have provided Lender with each of the closing documents described
in Exhibit A hereto (which documents shall be in form and substance reasonably
acceptable to Lender); (viii) Borrower is performing according to and not
materially deviating from its business plan referred to as "HOME SHARK, INC.
CASH FORECAST-CONFIDENTIAL", 4 pages, dated April 20, 1998 (the "Business
Plan"), as may be amended from time to time in form and substance acceptable to
Lender. Performance will be measured by prorating quarterly figures to a monthly
basis; (ix) there shall be no material adverse change in Borrower's condition,
financial or otherwise, that would materially impair the ability of Borrower to
meet its payment and other obligations under this Loan (a "Material Adverse
Effect") as reasonably determined by Lender, and Borrower so certifies, from
(yy) the date of the most recent financial statements delivered by Borrower to
Lender to (zz) the date of the proposed Loan; (x) Borrower shall use the
proceeds of all Loans hereunder to purchase or reimburse the purchase of
Collateral; (xi) at the time of each Loan, Borrower has reimbursed Lender for
all UCC filing and search costs, inspection and labeling costs, and appraisal
fees, if any; (xii) all Collateral has been marked and labeled by Lender or
Lender's agent; and (xiii) Lender has received in form and substance acceptable
to Lender: (a) Borrower's interim financial statements signed by a financial
officer of Borrower, (b) prior to the first funding, evidence of Borrower's
receipt of $7,500,000 equity by September 4, 1998; (c) prior to the first
funding, evidence of Borrower's [*] cash position as of March 31, 1998;
and (d) complete copies of the Borrower's audit reports for its most recent
fiscal year, which shall include at least Borrower's balance sheet as of the
close of such year, and Borrower's statement of income and retained earnings and
of changes in financial position for such year, prepared on a consolidated basis
and certified by independent public accountants. Such certificate shall not be
qualified or limited because of restricted or limited examination by such
accountant of any material portion of the company's records. Such reports shall
be prepared in accordance with generally accepted accounting principles and
practices consistently applied.
(b) The Notes. Each Loan shall be evidenced by a Note [*].
---------
Each Note shall bear interest and be payable at the times and in the manner
provided therein. Following payment of the Indebtedness related to each Note,
Lender shall promptly return such Note, marked "canceled," to Borrower.
SECTION 4. SECURITY INTERESTS. (a) Borrower hereby grants to Lender a first
security interest in all Collateral; (b) This Security Agreement secures (i) the
payment of the principal of and interest on the Notes and all other sums due
thereunder and under this Security Agreement (the "Indebtedness") and (ii) the
performance by Borrower of all of its other covenants now or hereafter existing
under the Notes, this Security Agreement and any other obligation owed by
Borrower to Lender (the "Obligations").
SECTION 5. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants that (a) it is in good standing under the laws of the state of its
formation, duly qualified to do business and will remain duly qualified during
the term of each Loan in each state where necessary to carry on its present
business and operations, including the jurisdiction(s) where the Collateral will
be located as specified on each Exhibit A to each Note, except where failure to
be so qualified would not have a Material Adverse Effect; (b) it
[*] Confidential Treatment Requested
2
<PAGE>
has full authority to execute and deliver this Security Agreement and the Notes
and perform the terms hereof and thereof, and this Security Agreement and the
Notes have been duly authorized, executed and delivered and constitute valid
and binding obligations of Borrower enforceable in accordance with their terms;
(c) the execution and delivery of this Security Agreement and the Notes will not
contravene any law, regulation or judgment affecting Borrower or result in any
breach of any material agreement or other instrument binding on Borrower; (d) no
consent of Borrower's shareholders or holder of any indebtedness, or filing
with, or approval of, any governmental agency or commission, which has not
already been obtained or performed, as appropriate, is a condition to the
performance of the terms of this Security Agreement or the Notes; (e) there is
no action or proceeding pending or threatened against Borrower before any court
or administrative agency which might have a Material Adverse Effect on the
business, financial condition or operations of Borrower; (f) at the time any
Loan is made hereunder, Borrower owns and will keep all of the Collateral free
and clear of all liens, claims and encumbrances, and, except for this Security
Agreement, there is no deed of trust, mortgage, security agreement or other
third party interest against any of the Collateral; (g) at the time any Loan is
made hereunder, Borrower has good and marketable title to the Collateral; (h) at
the time any Loan is made hereunder, all Collateral has been received, installed
and is ready for use and is satisfactory in all respects for the purposes of
this Security Agreement; (i) the Collateral is, and will remain at all times
under applicable law, removable personal property, which is free and clear of
any lien or encumbrance except in favor of Lender, notwithstanding the manner in
which the Collateral may be attached to any real property; (j) all credit and
financial information submitted to Lender herewith or at any other time is and
will at the time given be true and correct in all material respects; and (k) the
security interest granted to Lender hereunder is a first priority security
interest, and (l) on or before January 1, 2000, Borrower's computer system shall
be Year 2000 performance compliant and will thus be able to accurately process
date data from, into and between the twentieth and twenty-first centuries
including leap year calculations.
SECTION 6. METHOD AND PLACE OF PAYMENT. Borrower shall pay to Lender, at such
address as Lender specifies in writing, all amounts payable to it under this
Security Agreement and the Notes.
SECTION 7. LOCATION; INSPECTION; LABELS. All of the Collateral shall be located
at the address (the "Collateral Location") shown on Exhibit A to each Note and
shall not be moved without Lender's prior written consent which location shall
in all events be within the United States. All of the records regarding the
Collateral shall be located at 118 King Street, #225, San Francisco, CA 94107,
or such other location of which Borrower has given notice to Lender in
accordance with this Security Agreement. Lender shall have the right to inspect
Collateral, including records relating thereto, and Borrower's books and records
at any time (upon reasonable notification) during regular business hours, such
books and records to be maintained in accordance with generally accepted
accounting principles. Borrower shall be responsible for all labor, material and
freight charges incurred in connection with any removal or relocation of
Collateral which is requested by Borrower and consented to by Lender, as well as
for any charges due to the installation or moving of the Collateral. Payments
under the Notes and under this Security Agreement shall continue during any
period in which the Collateral is in transit during a relocation. During
Borrower's regular business hours and upon at least two days' notice to
Borrower, Lender or its agent shall mark and label Collateral, which labels (to
be provided by Lender) shall state that such Collateral is subject to a security
interest of Lender, and Borrower shall keep such labels on the Collateral as so
labeled.
SECTION 8. COLLATERAL MAINTENANCE. (a) General. Borrower will reasonably permit
-------
Lender to inspect each item of Collateral and its maintenance records during
Borrower's regular business hours upon reasonable notice. Borrower will at its
sole expense comply with all applicable laws, rules, regulations, requirements
and orders with respect to the use, maintenance, repair, condition, storage and
operation of each item of Collateral. Any addition or improvement that is so
required or cannot be so removed will immediately become Collateral of Lender.
(b) Service and Repair. With respect to the Collateral, Borrower will at its
------------------
sole expense
3
<PAGE>
maintain and service and repair any damage to each item of Collateral in a
manner consistent with prudent industry practice and Borrower's own practice so
that such item of Collateral is at all times (i) in the same condition as when
delivered to Borrower, except for ordinary wear and tear, and (ii) in good
operating order for the function intended by its manufacturer's warranties and
recommendations.
SECTION 9. LOSS OR DAMAGE. Borrower assumes the entire risk of loss to the
Collateral through use, operation or otherwise. Borrower hereby indemnifies and
holds harmless Lender from and against all claims, loss of Loan payments, costs,
damages, and expenses relating to or resulting from any loss, damage or
destruction of the Collateral, any such occurrence being hereinafter called a
"Casualty Occurrence." No later than the first payment date following such
Casualty Occurrence, or, if there is no such payment date, no later than thirty
(30) days after such Casualty Occurrence, Borrower shall, at its election,
either: (a) repair the Collateral returning it to good operating condition, or
(b) replace the Collateral with Collateral acceptable to Lender in its
reasonable discretion, in good condition and repair taking all steps required by
Lender to perfect Lender's first priority security interest therein, which
replacement Collateral shall be subject to the terms of this Security Agreement,
or (c) on the first day payment is due on any Note following the Casualty
Occurrence, or if there is no such payment date, thirty (30) days after such
Casualty Occurrence, pay to Lender an amount equal to the Balance Due (as
defined below) for each lost or damaged item of Collateral. The Balance Due for
each such item is the sum of: (i) all amounts for each item which may be then
due or accrued to the payment date, plus (ii) as of such payment date, an amount
equal to the product of the fraction specified below times the sum of all
remaining payments under the respective Note, including the amount of any
mandatory payment required to be paid by Borrower to Lender at the maturity of
the Note. The numerator of the fraction shall be the collateral value (as set
forth on the applicable Note) of the item and the denominator shall be the
aggregate collateral value of all items under the Note. Upon the making of such
payments, Lender shall release such item of Collateral from its lien hereunder.
SECTION 10. INSURANCE. Borrower at its expense shall keep the Collateral insured
against all risks of physical loss for at least the replacement value of the
Collateral (including, in the case of Collateral which is vehicles,
comprehensive and collision coverage) and in no event for less than the amount
payable following a Casualty Occurrence (as provided in Section 9). Such
insurance shall provide for a loss payable endorsement to Lender and/or any
assignee of Lender. Borrower shall maintain commercial general liability
insurance, including products liability and completed operations coverage, with
respect to loss or damage for personal injury, death or property damage in an
amount not less than $2,000,000 in the aggregate, (and in the case of Collateral
which is vehicles, in an amount not less than $1,000,000 covering bodily injury
and property damage in a combined single limit) naming Lender and/or Lender's
assignee as additional insured. Such insurance shall contain insurer's agreement
to give thirty (30) days' advance written notice to Lender before cancellation
or material change of any policy of insurance. Borrower will provide Lender and
any assignee of Lender with a certificate of insurance from the insurer
evidencing Lender's or such assignee's interest in the policy of insurance. Such
insurance shall cover any Casualty Occurrence to any unit of Collateral.
Notwithstanding anything in Section 9 or this Section 10 to the contrary, this
Security Agreement and Borrower's obligations hereunder shall remain in full
force and effect with respect to any unit of Collateral which is not subject to
a Casualty Occurrence. If Borrower fails to provide or maintain insurance as
required herein, Lender shall have the right, but shall not be obligated, to
obtain such insurance. In that event, Borrower shall pay to Lender the cost
thereof.
Any item or items that are subject to a Casualty Occurrence as contemplated in
Section 9 hereof and for which Borrower receives and retains insurance proceeds
for the full replacement value, shall no longer be subject to the terms of this
Agreement.
4
<PAGE>
SECTION 11. MISCELLANEOUS AFFIRMATIVE COVENANTS. So long as any portion of the
Indebtedness is unpaid and as long as any of the Obligations are outstanding
Borrower will: (a) duly pay all governmental taxes and assessments at the time
they become due and payable; provided, however, Borrower may contest the same in
good faith so long as no payment default by Borrower has occurred and is
continuing; (b) comply with all applicable material governmental laws, rules and
regulations relating to its business and the Collateral where a failure to
comply would have a Material Adverse Effect; (c) take no action to adversely
affect Lender's security interest in the Collateral as a first and prior
perfected security interest; (d) furnish Lender with its annual audited
financial statements within one hundred twenty (120) days following the end of
Borrower's fiscal year, unaudited quarterly financial statements within forty-
five (45) days after the end of each fiscal quarter, and within thirty (30) days
of the end of each month a financial statement for that month prepared by
Borrower, and including an income statement and balance sheet, all of which
shall be certified by an officer of Borrower as true and correct and shall be
prepared in accordance with generally accepted accounting principles
consistently applied, and such other information as Lender may reasonably
request; and (e) promptly (but in no event more than five (5) days after the
occurrence of such event) notify Lender of any change in Borrower's condition
during the commitment period which constitutes a Material Adverse Effect, and of
the occurrence of any Event of Default.
SECTION 12. INDEMNITIES. Borrower will protect, indemnify and save harmless
Lender and any assignees from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including reasonable
attorneys' fees and expenses), imposed upon or incurred by or asserted against
Lender or any assignee of Lender by Borrower or any third party by reason of the
occurrence or existence (or alleged occurrence or existence) of any act or event
relating to or caused by any portion of the Collateral, or its purchase,
acceptance, possession, use, maintenance or transportation, including without
limitation, consequential or special damages of any kind, any failure on the
part of Borrower to perform or comply with any of the terms of this Security
Agreement or any Note, claims for latent or other defects, claims for patent,
trademark or copyright infringement and claims for personal injury, death or
property damage, including those based on Lender's negligence or strict
liability in tort and excluding only those based on Lender's gross negligence or
willful misconduct. In the event that any action, suit or proceeding is brought
against Lender by reason of any such occurrence, Borrower, upon Lender's
request, will, at Borrower's expense, resist and defend such action, suit or
proceeding or cause the same to be resisted and defended by counsel reasonably
acceptable by Lender. Borrower's obligations under this Section 12 shall survive
the payment in full of all the Indebtedness and the performance of all
Obligations with respect to acts or events occurring or alleged to have occurred
prior to the payment in full of all the Indebtedness and the performance of all
Obligations.
SECTION 13. TAXES. Borrower agrees to reimburse Lender (or pay directly if
instructed by Lender) and any assignee of Lender for, and to indemnify and hold
Lender and any assignee harmless from, all fees (including, but not limited to,
license, documentation, recording and registration fees), and all sales, use,
gross receipts, personal property, occupational, value added or other taxes,
levies, imposts, duties, assessments, charges, or withholdings of any nature
whatsoever, together with any penalties, fines, additions to tax, or interest
thereon (the foregoing collectively "Impositions"), except same as may be
attributable to Lender's income, arising at any time prior to or during the term
of any Notes or of this Security Agreement, or upon termination or early
termination of this Security Agreement and levied or imposed upon Lender
directly or otherwise by any Federal, state or local government in the United
States or by any foreign country or foreign or international taxing authority
upon or with respect to (a) the Collateral, (b) the exportation, importation,
registration, purchase, ownership, delivery, leasing, financing, possession,
use, operation, storage, maintenance, repair, return, sale, transfer of title,
or other disposition thereof, (c) the rentals, receipts, or earnings arising
from the Collateral, or any disposition of the rights to such rentals, receipts,
or earnings, (d) any payment pursuant to this Security Agreement or the Notes,
or (e) this Security Agreement, the Notes or any transaction or any part hereof
or thereof.
5
<PAGE>
SECTION 14. RELEASE OF LIENS. Upon payment of all of the Indebtedness and
performance of all of the Obligations, Lender shall execute UCC termination
statements and such other documents as Borrower shall reasonably request to
evidence the release of Lender's lien relating to the Collateral.
SECTION 15. ASSIGNMENT. WITHOUT LENDER'S PRIOR WRITTEN CONSENT WHICH CONSENT
WILL NOT BE UNREASONABLY WITHHELD OR DELAYED, BORROWER SHALL NOT (a) ASSIGN,
TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS SECURITY AGREEMENT,
ANY NOTE, ANY COLLATERAL, OR ANY INTEREST THEREIN, (b) LEASE OR LEND COLLATERAL
OR PERMIT IT TO BE USED BY ANYONE OTHER THAN BORROWER OR BORROWER'S EMPLOYEES,
CONTRACTORS AND AGENTS OR (c) MERGE INTO, CONSOLIDATE WITH OR CONVEY OR TRANSFER
ITS PROPERTIES SUBSTANTIALLY AS AN ENTIRETY TO ANY OTHER PERSON OR ENTITY
EXCEPT TO A SUCCESSOR IN INTEREST TO ALL OR SUBSTANTIALLY ALL OF THE BUSINESS OF
BORROWER; PROVIDED, HOWEVER, THAT, THE FINANCIAL CONDITION OF SUCH SUCCESSOR IS
GREATER THAN OR EQUAL TO BORROWER AS DETERMINED IN GOOD FAITH BY LENDER AND THE
SUCCESSOR'S BUSINESS AND ITS MAJOR INVESTORS ARE REASONABLY ACCEPTABLE TO
LENDER. LENDER MAY ASSIGN ANY OF THE NOTES, THIS SECURITY AGREEMENT OR ITS
SECURITY INTEREST IN ANY OR ALL COLLATERAL OR ANY OR ALL OF THE ABOVE, IN
WHOLE OR IN PART TO ONE OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO
BORROWER. If Borrower is given notice of such assignment it agrees to
acknowledge receipt thereof in writing and Borrower shall execute such
additional documentation as Lender's assignee and/or secured party shall
reasonably require at Lender's expense. Each such assignee and/or secured party
shall have all of the rights, but (except as provided in this Section 15) none
of the obligations, of Lender under this Security Agreement, unless such
assignee or secured party expressly agrees to assume such obligations in
writing. Borrower shall not assert against any assignee and/or secured party any
defense, counterclaim or offset that Borrower may have against Lender.
Notwithstanding any such assignment, and providing no Event of Default has
occurred and is continuing, Lender, or its assignees, secured parties, or their
agents or assigns, shall not interfere with Borrower's right to quietly enjoy
use of Collateral subject to the terms and conditions of this Security
Agreement. Subject to the foregoing, the Notes and this Security Agreement shall
inure to the benefit of, and are binding upon, the successors and assignees of
the parties hereto. Borrower and Lender each acknowledge that any such
assignment by Lender will not change Borrower's duties or obligations under this
Security Agreement and the Notes or increase any burden or risk on Borrower.
SECTION 16. DEFAULT. (a) Events of Default. Any of the following events or
-----------------
conditions shall constitute an "Event of Default" hereunder: (1) Borrower's
failure to pay any monies due to Lender hereunder or under any Note beyond the
tenth (l0th) day after the same is due; (ii) Borrower's failure to comply with
its obligations under Section 10 or Section 15; (iii) any representation or
warranty of Borrower made in this Security Agreement or the Notes or in any
other agreement, statement or certificate furnished to Lender in connection with
this Security Agreement or the Notes shall prove to have been incorrect in any
material respect when made or given; (iv) Borrower's failure to comply with or
perform any material term, covenant or condition of this Security Agreement or
any Note or under any other agreement between Borrower and Lender or under any
lease or mortgage of real property covering the location of the Collateral if
such failure to comply or perform is not cured by Borrower within thirty (30)
days after Borrower knows of the noncompliance or nonperformance or notice from
Lender or such longer period that Borrower is diligently attempting to effect
such cure; (v) seizure of any of the Collateral under legal process; (vi) the
filing by or against Borrower of a petition for reorganization or liquidation
under the Bankruptcy Code or any amendment thereto or under any other insolvency
law providing for the relief of debtors; (vii) the voluntary or involuntary
making of an assignment of a substantial portion of its assets by Borrower for
the benefit of its creditors, the appointment of a receiver or trustee for
Borrower for any of Borrower's assets, the institution by or against Borrower of
any formal or informal proceeding for dissolution, liquidation, settlement
6
<PAGE>
of claims against or winding up of the affairs of Borrower provided that in the
case of all such involuntary proceedings, same are not dismissed within ninety
(90) days after commencement; or (viii) the making by Borrower of a transfer of
all or a material portion of Borrower's assets or inventory not in the ordinary
course of business.
(b) Remedies. If any Event of Default has occurred, Lender may in its sole
--------
discretion exercise one or more of the following remedies with respect to any or
all of the Collateral: (i) declare due any or all of the aggregate sum of all
remaining payments under the Notes, including the amount of any mandatory or
optional payment required or permitted to be paid by Borrower to Lender at the
maturity of the Notes ("Remaining Payments"); (ii) proceed by appropriate court
action or actions either at law or in equity to enforce Borrower's performance
of the applicable covenants of the Notes and this Security Agreement or to
recover all damages and expenses incurred by Lender by reason of an Event of
Default; (iii) except as provided by law, without court order or prior demand,
enter upon the premises where the Collateral is located and take immediate
possession of and remove it without liability of Lender to Borrower or any other
person or entity; (iv) terminate this Security Agreement and sell the Collateral
at public or private sale, or otherwise dispose of, hold, use or lease any or
all of the Collateral in a commercially reasonable manner; or (v) exercise any
other right or remedy available to it under applicable law. If Lender has
declared due any or all of the Remaining Payments, Borrower will pay immediately
to Lender, without duplication, (A) the Remaining Payments, (B) all amounts
which may be then due or accrued, and (C) all other amounts due under this
Security Agreement and under the Notes (Lender's Return, as referred to below,
means the amounts described in clauses (A), (B) and (C) above). The net proceeds
of any sale or lease of such Collateral will be credited against Lender's
Return. The net proceeds of a sale of the Collateral pursuant to this Section
16(b) is defined as the sales price of the Collateral less selling expenses,
including, without limitation, costs of remarketing the Collateral and all
refurbishing costs and commissions paid with respect to such remarketing. The
net proceeds of a lease of the Collateral pursuant to this Section 16(b) is
defined as the amount equal to the monthly payments due under such lease
(discounted at 6% per annum compounded monthly on the basis of a 360 day year
(the "Discount Rate") plus the residual value of the Collateral at the end of
the basic term of such lease, as reasonably determined by Lender, and discounted
at the Discount Rate.
Borrower agrees to pay all reasonable out-of-pocket costs of Lender incurred in
enforcement, and related exercise of remedies, of this Security Agreement, the
Notes or any instrument or agreement required under this Security Agreement,
including, but not limited to reasonable attorneys' fees and litigation expenses
and fees of collection agencies ("Remedy Expenses"). Following an Event of
Default and at Lender's request, Borrower shall assemble the Collateral and make
it available to Lender at such time and location as Lender may reasonably
designate. Borrower waives any right it may have to redeem the Collateral until
Lender's return under any and all Notes is paid in full.
Declaration that any or all amounts under this Security Agreement and/or the
Notes are immediately due and payable and Lender's taking possession of any or
all Equipment shall not terminate this Security Agreement or any of the Notes
unless Lender so notifies Borrower in writing. None of the above remedies is
intended to be exclusive but each is cumulative and may be enforced separately
or concurrently.
(c) Application of Proceeds. The proceeds of any sale of all or any part of
-----------------------
the Collateral and the proceeds of any remedy afforded to Lender by this
Security Agreement shall be paid to and applied as follows:
First, to the payment of reasonable costs and expenses of suit or
-----
foreclosure, if any, and of the sale, if any, including, without limitation,
refurbishing costs, costs of remarketing and commissions related to remarketing,
all Remedy Expenses, all reasonable expenses, liabilities and advances incurred
or made pursuant
7
<PAGE>
to this Security Agreement or any Note by Lender in connection with foreclosure,
suit, sale or enforcement of this Security Agreement or the Notes, and taxes,
assessments or liens superior to Lender's security interest granted by this
Security Agreement;
Second, to pay Lender an amount equal to Lender's Return, to the
------
extent not previously paid by Borrower; and
Third, to the payment of any surplus to Borrower or to whomever may
-----
lawfully be entitled to receive it.
(d) Effect of Delay; Waiver; Foreclosure on Collateral. No delay or
--------------------------------------------------
omission of Lender, in exercising any right or power arising from any Event of
Default shall prevent Lender from exercising that right or power if the Event of
Default continues. No waiver of an Event of Default, whether full or partial, by
Lender or such holder shall be taken to extend to any subsequent Event of
Default, or to impair the rights of Lender in respect of any damages suffered as
a result of the Event of Default. The giving, taking or enforcement of any other
or additional security, collateral or guaranty for the payment or discharge of
the Indebtedness and performance of the Obligations shall in no way operate to
prejudice, waive or affect the security interest created by this Security
Agreement or any rights, powers or remedies exercised hereunder or thereunder.
Lender shall not be required first to foreclose on the Collateral prior to
bringing an action against Borrower for sums owed to Lender under this Security
Agreement or under any Note.
SECTION 17. LATE PAYMENTS. Borrower shall pay Lender a late charge of 8% of any
payment owed Lender by Borrower which is not paid when due (taking into account
applicable grace periods), for every month such payment is not paid when due,
but in no event an amount greater than the highest rate permitted by applicable
law. If such amounts have not been received by Lender at Lender's place of
business or by Lender's designated agent by the date such amounts are due under
this Security Agreement or the Notes, Lender shall bill Borrower for such
charges. Borrower acknowledges that invoices for amounts due hereunder or under
the Notes are sent by Lender for Borrower's convenience only. Borrower's
non-receipt of an invoice will not relieve Borrower of its obligation to make
payments hereunder or under the Notes.
SECTION 18. PAYMENTS BY LENDER. If Borrower shall fail to make any payment or
perform any act required hereunder (including, but not limited to, maintenance
of any insurance required by Section 10), then Lender may, but shall not be
required to, after such notice to Borrower as is reasonable under the
circumstances, make such payment or perform such act with the same effect as if
made or performed by Borrower. Borrower will upon demand reimburse Lender for
all sums paid and all reasonable costs and expenses incurred in connection with
the performance of any such act.
SECTION 19. FINANCING STATEMENTS. Borrower hereby appoints Lender (and each of
Lender's officers, employees or agents designated by Lender) with full power of
substitution by Lender, as Borrower's attorney, with power to execute and
deliver on Borrower's behalf, financing statements and other documents necessary
to perfect and/or give notice of Lender's security interest in any of the
Collateral. Notwithstanding the above, Borrower will, upon Lender's request,
execute all financing statements pursuant to the Uniform Commercial Code and all
such other documents reasonably requested by Lender to perfect Lender's security
interests hereunder. Borrower authorizes Lender to file financing statements
signed only by Lender (where such authorization is permitted by law) at all
places where Lender deems necessary.
SECTION 20. NATURE OF TRANSACTION. Lender makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
8
<PAGE>
SECTION 21. SUSPENSION OF LENDER'S OBLIGATIONS. The obligations of Lender
hereunder will be suspended to the extent that Lender is hindered or prevented
from complying therewith because of labor disturbances, including but not
limited to strikes and lockouts, acts of God, fires, floods, storms, accidents,
industrial unrest, acts of war, insurrection, riot or civil disorder, any order,
decree, law or governmental regulations or interference, failure of the
manufacturer to deliver any item of Collateral or any cause whatsoever not
within the sole and exclusive control of Lender.
SECTION 22. LENDER'S EXPENSE. Borrower shall pay Lender all reasonable costs and
expenses including reasonable attorney's fees and the fees of collection
agencies, incurred by Lender in connection with any bankruptcy or post-judgment
proceeding, whether or not suit is filed and, in each and every action, suit or
proceeding, including any and all appeals and petitions therefrom.
SECTION 23. ALTERATIONS; ATTACHMENTS. Other than in conformity with the
manufacturer's warranty and/or other functional improvements no alterations or
attachments shall be made to the Collateral without Lender's prior written
consent, which shall not be given for changes that will affect the reliability
and utility of the Collateral or which cannot be removed without damage to the
Collateral, or which in any way affect the value of the Collateral for purposes
of resale or lease. All attachments and improvements to the Collateral shall be
deemed to be "Collateral" for purposes of the Security Agreement, and a first
priority security interest therein shall immediately vest in Lessor.
SECTION 24. CHATTEL PAPER. (a) One executed copy of the Security Agreement will
be marked "Original" and all other counterparts will be duplicates. To the
extent, if any, that this Security Agreement constitutes chattel paper (as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in the Security Agreement may be created in
any documents other than the "Original." (b) There shall be only one original of
each Note and it shall be marked "Original," and all other counterparts will be
duplicates. To the extent, if any, that any Notes to this Security Agreement
constitutes chattel paper (or as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction) no security interest in any
Notes(s) may be created in any documents other than the "Original."
SECTION 25. COMMITMENT FEE. Borrower has paid to Lender a commitment fee
("Fee") of [*]. The Fee shall be applied by Lender first to reimburse Lender
for all out-of-pocket UCC and other search costs, inspections and labeling costs
and appraisal fees, if any, incurred by Lender, and then proportionally to the
first monthly payment for each Note hereunder in the proportion that the
Collateral value for such Note bears to Lender's entire commitment. However, the
portion of the Fee which is not applied to such monthly payments shall be
non-refundable except if Lender defaults in its obligation to fund Loans
pursuant to Section 3.
SECTION 26. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery service (including overnight service)
and shall be directed, as the case may be, to Lender at 2401 Kerner Boulevard,
San Rafael, California 94901, Attention: Asset Management and to Borrower at 118
King Street, #225, San Francisco, CA 94107, Attention: Chief Financial Officer.
SECTION 27. MISCELLANEOUS. (a) Borrower shall provide Lender with such corporate
resolutions, financial statements and other documents as Lender shall reasonably
request from time to time. (b) Borrower represents that the Collateral hereunder
is used solely for business purposes. (c) Time is of the essence with respect to
this Security Agreement. (d) Borrower acknowledges that Borrower has read this
Security Agreement and the Notes, understands them and agrees to be bound by
their terms and further agrees that this Security Agreement and the Notes
constitute the entire agreement between Lender and Borrower with respect to the
subject matter hereof and supersede all previous agreements, promises, or
representations. (e) This Security Agreement
[*] Confidential Treatment Requested
9
<PAGE>
and the Notes may not be changed, altered or modified except by an instrument
signed by an officer or authorized representative of Lender and Borrower. (f)
Any failure of Lender to require strict performance by Borrower or any waiver by
Lender of any provision herein or in a Note shall not be construed as a consent
or waiver of any other breach of the same or any other provision (g) If any
provision of this Security Agreement or any Note is held invalid, such
invalidity shall not affect any other provisions hereof or thereof. (h) The
obligations of Borrower to pay the Indebtedness and perform the Obligations
shall survive the expiration or earlier termination of this Security Agreement
and each Note until all Obligations of Borrower to Lender have been met and all
liabilities of Borrower to Lender and any assignee have been paid in full (1)
Borrower will notify Lender at least 30 days before changing its name, principal
place of business or chief executive office. (j) Borrower will, at its expense,
promptly execute and deliver to Lender such documents and assurances (including
financing statements) and take such further action as Lender may reasonably
request in order to carry out the intent of this Security Agreement and Lender's
rights and remedies.
SECTION 28. JURISDICTION AND WAIVER OF JURY TRIAL. This Security Agreement and
the Notes shall be deemed to have been negotiated, entered into and performed in
the State of California and it is understood and agreed that the validity of
this Security Agreement and of any of the terms and provisions, of the Security
Agreement and Notes, as well as the rights and duties of Lender and Borrower,
shall be construed pursuant to and in accordance with the laws of the State of
California, without giving effect to conflicts of law principles. It is agreed
that exclusive jurisdiction and venue for any legal action between the parties
arising out of or relating to this Security Agreement and each Note shall be in
the Superior Court for Marin County, California, or, in cases where federal
diversity jurisdiction is available, in the United States District Court for the
Northern District of California situated in San Francisco. BORROWER AND LENDER
EACH, TO THE EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY
JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS SECURITY AGREEMENT, ANY
NOTE, ANY SECURITY DOCUMENTS, OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION
HEREWITH.
SECTION 29. ADDITIONAL INTEREST COMPENSATION: (a) General. Borrower shall be
-------
required to choose a final payment or Note extension election ("Additional
Interest Compensation") at the expiration of the first Note's term. Borrower
shall provide written notice of its election to Lender at least 90 days prior to
the end of the term of the first Note. That choice shall be an election of
Borrower's additional interest compensation election for all, but not less than
all, of the Collateral under all Notes under the Security Agreement.
In the event Borrower does not provide 90 days' prior written notice of its
election, Borrower shall be deemed to have elected Election No.2.
(b) End of Loan Position Elections. As Additional Interest Compensation.
------------------------------
Borrower shall be required to:
Election No. 1: Make a final payment equal to 15% of the Note's original
- --------------
principal amount.
10
<PAGE>
Election No.2: Extend the Note's term for an additional 12 months ("Extended
Term") for a monthly rate of 1.5% of the Note's original principal amount.
IN WITNESS WHEREOF, Borrower and Lender have caused this Security Agreement to
be executed as of the date and year first above written.
PHOENIX LEASING INCORPORATED HOME SHARK, INC.
By:______________________________ By: /s/ Lee T. Kirkpatrick
------------------------------
Name:____________________________ Name (Print): Lee T. Kirkpatrick
-------------------
Title:___________________________ Title: CFO
---------------------------
HEADQUARTERS LOCATION:
----------------------
118 King Street, #225
San Francisco, CA 94107
County of San Francisco
EXHIBITS AND SCHEDULES:
----------------------
Exhibit A -- Closing Memorandum
11
<PAGE>
EXHIBIT A TO
SENIOR LOAN AND SECURITY AGREEMENT NO. L6190
DATED NOVEMBER 20, 1998
CLOSING MEMORANDUM
------------------
1* Duly executed Senior Loan and Security Agreement.
2. Duly executed Senior Security Promissory Note with Exhibit A Collateral
description attached.
3. Insurance certificates reflecting coverage required under Section 10 of
the Senior Loan and Security Agreement.
4.* Resolutions of Borrower's board of directors.
5. Real Property Waiver.**
6. UCC-1 Financing Statements with respect to the Collateral.
7. Opinion of Borrower's counsel.
8. UCC search (Lender will obtain).
9. Certificate of Chief Financial Officer stating that (i) there are no liens,
charges, security interest or other encumbrances that may affect Lender's
right, title and interest in the Collateral and there are no UCC-l
financing statements filed or in the process of being filed against any of
the Collateral, (ii) Borrower is performing according to Borrower's
business plan, (iii) no change which is a Material Adverse Effect has
occurred in the financial condition of Borrower, (iv) no default has
occurred, and (v) the representations and warranties in Section 5 of the
Senior Loan and Security Agreement are true and correct as if made on the
date of the Loan.
10.* Certificate from the Secretary of State of Borrower's state of
incorporation, and from the state in which Borrower's chief executive
office is located, if different, stating the Borrower is in good standing
or is authorized to transact business, as the case may be, dated not more
than thirty days prior to the first Loan (Lender will obtain).
11.* Borrower's Business Plan.
12. Borrower's most recent financial statements.
13. List of proposed Collateral.
14. Purchase documentation verifying Borrower's ownership of equipment.
15. See Section 3 of the Senior Loan and Security Agreement for additional
conditions to closing.
16. Intercreditor Agreement, if applicable.
* First Loan only.
** Required if any Equipment is a fixture, i.e., attached to real property,
or located in certain states.
<PAGE>
CORPORATE RESOLUTION TO BORROW
RESOLVED: That this corporation, HOME SHARK, INC., borrow funds from PHOENIX
LEASING INCORPORATED, a California corporation, ("Lender") and grant as
collateral for such borrowings such items of personal property and fixtures, and
upon such terms and conditions, as the officer or officers hereinafter
authorized, in their discretion, may deem necessary or advisable provided,
--------
however, that the aggregate principal amount of borrowings hereunder shall not
- -------
exceed the sum of [*].
RESOLVED FURTHER: That:
LEE KIRKPATRICK CFO /s/ Lee Kirkpatrick
(Print or type name) (Title of Corporate Officer) (Specimen signature)
or
(Print or type name) (Title of Corporate Officer) (specimen signature)
of this corporation (this officer or officers authorized to act pursuant hereto
being hereinafter designated as "authorized officers"), are individually
authorized, directed and empowered, in the name of this corporation, to execute
and deliver to Lender, and Lender is requested to accept, any notes, security
agreements, and other documents or agreements that may be required by Lender in
connection with such borrowings.
RESOLVED FURTHER: That the authorized officers are individually authorized,
directed and empowered, in the name of this corporation, to do or cause to be
done all such further acts and things as they shall deem necessary, advisable,
convenient, or proper in connection with the execution and delivery of any such
notes, security agreements, and other documents or agreements and in connection
with or incidental to the carrying of the same into effect, including without
limitation, the execution, acknowledgment, and delivery of all instruments and
documents which may reasonably be required by Lender under or in connection with
any such borrowing.
RESOLVED FURTHER: That Lender is authorized to act upon these resolutions until
written notice of their revocation is delivered to Lender, and that the
authority hereby granted shall apply with equal force and effect to the
successors in office of the officers herein named.
I, Edward Hoyt, President and CEO of HOME SHARK, INC., a corporation
incorporated under the laws of the State of California, do hereby certify
that the foregoing is a full, true and correct copy of resolutions of the
Board of Directors of the said corporation, duly and regularly passed or
adopted by the Board of Directors of said corporation as required by law and
by the by-laws of the said corporation on the 19th day of August, 1998.
I further certify that said resolutions are still in full force and effect and
have not been amended or revoked and that the specimen signatures appearing
above are the signatures of the officers authorized to sign for this corporation
by virtue of the said resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand as such President and CEO, and
affixed the corporate seal of the said corporation, this _______ day of
__________, 19__.
AFFIX CORPORATE Edward Plater Hoyt
SEAL HERE ----------------------------
PRESIDENT AND CEO OF HOME SHARK, INC.
[PERSON WHO SIGNS HERE MUST BE DIFFERENT FROM
PERSON(S) WHO SIGNED ABOVE.]
[*] Confidential Treatment Requested
<PAGE>
AMENDMENT NO. 1 TO SENIOR LOAN AND SECURITY AGREEMENT NO. L6190
THIS AMENDMENT NO. 1 TO SENIOR LOAN AND SECURITY AGREEMENT NO. L6190
("Amendment") is dated as of February 16, 1999, by and between HOME SHARK, INC.
("Borrower") and PHOENIX LEASING INCORPORATED ("Lender").
RECITALS
WHEREAS, Borrower and Lender entered into that certain Senior Loan and Security
Agreement No. L6190, dated as of November 20, 1998 (the "Security Agreement"),
pursuant to which Borrower is financing equipment with an aggregate purchase
price of [*], (the "Initial Commitment");
WHEREAS, Borrower has requested that Lender increase the dollar limit on the
aggregate purchase price of equipment which Lender is willing to finance for
Borrower under the Security Agreement by an additional [*], (such
increase hereinafter referred to as the "Additional Commitment");
WHEREAS, Lender is willing to provide the Additional Commitment, on the terms
set forth herein and Borrower is willing to agree to such terms; and
WHEREAS, Borrower and Lender now desire to amend the Security Agreement to
provide for the Additional Commitment, and as otherwise provided in this
Amendment;
NOW, THEREFORE, IT IS AGREED THAT:
1. Definitions. Unless otherwise indicated, words and terms which are defined
-----------
in the Security Agreement shall have the same meaning where used herein. Upon
execution of this Amendment, (i) the term "Security Agreement" shall be deemed
to include this Amendment, (ii) the term "Collateral" shall be deemed to include
the "Additional Commitment Collateral," (iii) the term "Note(s)" shall be
deemed to include any "Additional Commitment Note(s)," and (iv) the term "Loan"
shall be deemed to include "Additional Commitment Loan," as these terms are
defined herein.
2. Amendments. The Security Agreement is hereby amended as follows:
----------
(a) Following Section 3, a new Section 3A is added as follows:
3A. LENDER ADDITIONAL COMMITMENT. (a) General Terms. Subject to the
terms and conditions of this Security Agreement and so long as no
Event of Default or event which with the giving of notice or passage
of time, or both, could become an Event of Default has occurred or is
continuing, upon full funding of the Initial Commitment, Lender hereby
agrees to make one or more additional senior secured Loans "Additional
Commitment Loans" to Borrower, subject to the following conditions:
(i) each Additional Commitment Loan shall be evidenced by an
Additional Commitment Note; (ii) the total principal amount of the
Additional Commitment Loans shall not exceed [*] in the aggregate (the
"Additional Commitment"), but in any event the Initial Commitment
together with the Additional Commitment shall not exceed [*]; provided
that no more than [*] of the amount of the utilized Additional
Commitment may be used to finance Soft Costs; (iii) at the time of
each Additional Commitment Loan, no Event of Default or event which
with the giving of notice or passage of time, or both, could become an
Event of Default shall have occurred and be continuing, as reasonably
determined by Lender, and certified by Borrower; (iv) the amount of
each Additional Commitment Loan shall be at least [*] except for a
final Additional Commitment Loan which may be less than [*]; (v)
Lender shall not be obligated to make any Additional Commitment Loan
[*] Confidential Treatment Requested
1
<PAGE>
after [*]; (vi) for each Additional Commitment Loan, Borrower shall
present to Lender a list of proposed Additional Commitment Collateral
for approval by Lender in its sole discretion; (vii) for each
Additional Commitment Loan, Borrower shall have provided Lender with
each of the closing documents described in Exhibit A hereto (which
documents shall be in form and substance reasonably acceptable to
Lender); (viii) Borrower is performing according to its business plan
referred to as "October-Based Forecast Draft-Confidential" dated
November 18, 1998 (the "Additional Commitment Business Plan"), as may
be amended from time to time in form and substance acceptable to
Lender. Performance will be measured by prorating quarterly figures to
a monthly basis; (ix) there shall be no material adverse change in
Borrower's condition, financial or otherwise, that would materially
impair the ability of Borrower to meet its payment and other
obligations under this Additional Commitment Loan (a "Material Adverse
Effect") as reasonably determined by Lender, and Borrower so
certifies, from (yy) the date of the most recent financial statements
delivered by Borrower to Lender to (zz) the date of the proposed
Additional Commitment Loan; (x) prior to payment in full of all
Additional Commitment Notes, Borrower shall not offer any loan secured
by any equipment, furniture or fixtures to any other person or entity
other than Lender, unless Lender declines to finance such transaction
or Borrower and Lender are unable to agree on the terms of such
financing; (xi) Borrower shall use the proceeds of all Additional
Commitment Loans hereunder to purchase or reimburse the purchase of
Additional Commitment Collateral; (xii) at the time of each Additional
Commitment Loan, Borrower has reimbursed Lender for all UCC filing and
search costs, inspection and labeling costs, and appraisal fees, if
any; (xiii) all Additional Commitment Collateral has been marked and
labeled by Lender or Lender's agent; and (xiv) Lender has received in
form and substance acceptable to Lender:(a) Borrower's interim
financial statements signed by a financial officer of Borrower, (b)
prior to the funding of the First Additional Commitment Loan, evidence
of Borrower's [*] cash position as of December 31, 1998; (c) prior to
any fundings after May 30, 1999, a new 1999 business plan; and (d)
complete copies of the Borrower's audit reports for its most recent
fiscal year, which shall include at least Borrower's balance sheet as
of the close of such year, and Borrower's statement of income and
retained earnings and of changes in financial position for such year,
prepared on a consolidated basis and certified by independent public
accountants. Such certificate shall not be qualified or limited
because of restricted or limited examination by such accountant of any
material portion of the company's records. Such reports shall be
prepared in accordance with generally accepted accounting principles
and practices consistently applied.
(b) The Notes. Each Additional Commitment Loan shall be evidenced by
---------
an Additional Commitment Note which may not be prepaid in whole or in
part. Each Additional Commitment Note shall bear interest and be
payable at the times and in the manner provided therein. Following
payment of the Indebtedness related to each Additional Commitment
Note, Lender shall promptly return such Additional Commitment Note,
marked "canceled," to Borrower.
(b) Following Section 25, a new Section 25A is added as follows:
25A. ADDITIONAL COMMITMENT FEE. Borrower has paid to Lender a
commitment fee ("Additional Commitment Fee") of [*] Dollars ([*]) with
respect to the Additional Commitment. The Additional Commitment Fee
shall be applied by Lender first to reimburse Lender for all out-of-
pocket UCC search costs, inspections and appraisal fees incurred by
Lender, and then proportionally to the first month's payment under
each Additional Commitment Note, in the proportion that the collateral
value for such Additional Commitment Note bears to the Additional
[*] Confidential Treatment Requested
2
<PAGE>
Commitment. However, the portion of the Additional Commitment Fee
which is not applied to such monthly payments shall be non-refundable
except if Lender defaults in its obligation to fund Additional
Commitment Loans pursuant to Section 3A.
3. Representations and Warranties: Borrower hereby reconfirms as of the date
------------------------------
hereof, its representations and warranties set forth in Section 5 of the
Security Agreement.
4. Continued Validity of Security Agreement. Except as amended by this
----------------------------------------
Amendment, the Security Agreement shall continue in full force and effect as
originally constituted and is ratified and affirmed by the parties hereto. Such
Amendment shall not amend or otherwise affect any of the Notes executed and
delivered by Borrower prior to the date hereof.
5. Authorization. Each party represents to the other that the individual
-------------
executing this Amendment on its behalf is the duly appointed signatory of such
party to this Amendment and that such individual is authorized to execute this
Amendment by or on behalf of such party and to take all action required by the
terms of this Amendment.
6. When Amendment is Effective. This Amendment shall be binding and deemed
---------------------------
effective when executed by Borrower and accepted and executed by Lender. Upon
such effectiveness this Amendment shall be deemed to have amended the Security
Agreement as provided herein.
7. Captions. Section headings and numbers have been set forth herein for
--------
convenience only. Unless the contrary is compelled by the context, everything
contained in each section applies equally to this entire Amendment.
8. No Novation. This Amendment is not intended to be, and shall not be
-----------
construed to create, a novation or accord and satisfaction, and, except as
otherwise provided herein, the Security Agreement shall remain in full force and
effect.
9. Severability. Each provision of this Amendment shall be severable from
------------
every other provision of this Amendment for the purpose of determining the legal
enforceability of any specific provision.
10. Entire Agreement. The Security Agreement as amended by this Amendment
----------------
constitutes the entire agreement between Borrower and Lender with respect to
the subject matter hereof and supersedes all prior and contemporaneous
negotiations, communications, discussions and agreements concerning such
subject matter. Borrower acknowledges and agrees that Lender has not made any
representation, warranty or covenant in connection with this Amendment.
11. Conflicts. In the event of any conflict between the terms of this
---------
Amendment and terms of the Security Agreement, the terms of this Amendment
shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first set forth above.
LENDER: BORROWER:
PHOENIX LEASING INCORPORATED HOME SHARK, INC.
By:_________________________ By: /s/ Lee T. Kirkpatrick
---------------------------
Name:_______________________ Name: Lee T. Kirkpatrick
-------------------------
Title:______________________ Title: Secretary & CFO
------------------------
3
<PAGE>
EXHIBIT A TO
AMENDMENT NO. 1 TO
SENIOR LOAN AND SECURITY AGREEMENT NO. L6190
DATED NOVEMBER 20, 1998
CLOSING MEMORANDUM
1* Duly executed Amendment No. 1 to Senior Loan and Security Agreement.
2. Duly executed Additional Commitment Senior Secured Promissory Note with
Exhibit A Additional Commitment Collateral description attached.
3.* Insurance certificates reflecting additional amount of coverage required
under Section 10 of the Senior Loan and Security Agreement.
4.* Resolutions of Borrower's board of directors reflecting new amount of
borrowings.
5. Real Property Waiver.**
6. UCC-1 Financing Statements with respect to the Additional Commitment
Collateral.
7. UCC search (Lender will obtain).
8. Certificate of Chief Financial Officer stating that (i) there are no liens,
charges, security interests or other encumbrances that may affect Lender's
right, title and interest in the Additional Commitment Collateral and
there are no UCC-1 financing statements filed or in the process of being
filed against any of the Additional Commitment Collateral, (ii) Borrower is
performing according to Borrower's Additional Commitment Business Plan,
(iii) no change which is a Material Adverse Effect has occurred in the
financial condition of Borrower, (iv) no default has occurred, and (v) the
representations and warranties in Section 5 of the Senior Loan and Security
Agreement are true and correct as if made on the date of the Additional
Commitment Loan.
9.* Certificate from the Secretary of State of Borrower's state of
incorporation; and from the state in which Borrower's chief executive
office is located, if different, stating the Borrower is in good standing
or is authorized to transact business, as the case may be, dated not more
than thirty days prior to the first Additional Commitment Loan (Lender will
obtain).
10.* Borrower's Additional Commitment Business Plan.
11. Borrower's most recent financial statements.
12. List of proposed Additional Commitment Collateral.
13. Purchase documentation verifying Borrower's ownership of Additional
Commitment Collateral.
14. See Section 3A of the Senior Loan and Security Agreement for additional
conditions to closing.
15. lntercreditor Agreement, if applicable.
* First Additional Commitment Loan only.
** Required if any Collateral is a fixture, i.e., attached to real property,
or located in certain states.
<PAGE>
AMENDMENT NO.2 TO SENIOR LOAN AND SECURITY AGREEMENT NO. L6190
THIS AMENDMENT NO. 2 TO SENIOR LOAN AND SECURITY AGREEMENT ("Amendment No.
2") is entered into effective April 30, 1999, by and between PHOENIX LEASING
INCORPORATED as lender ("Lender") and iOWN, INC. as Borrower ("Borrower").
WHEREAS, Lender and HOME SHARK, INC., as Borrower, entered into (i) the Senior
Loan and Security Agreement No. L6190 dated as of November 20, 1998, ("Security
Agreement"), (ii) all Senior Secured Promissory Notes, (the "Note(s)") and (iii)
the other instruments and documents contemplated by the Security Agreement (with
the Security Agreement and the Note(s), the "Loan Documents").
WHEREAS, Borrower has changed its name from HOME SHARK, INC. to iOWN, INC.;
WHEREAS, Lender and Borrower now wish to amend each of the Loan Documents to
reflect the Borrower's name change;
NOW, THEREFORE, for valuable consideration, the receipt of which is hereby
acknowledged, each of the Loan Documents in which the Borrower is referred to as
HOME SHARK, INC. is amended to change such reference to read iOWN, INC. All of
the other terms and conditions in each of the Loan Documents are hereby
reaffirmed and ratified.
Borrower will do and perform any act, and will execute, acknowledge, deliver,
file, register, record and deposit (and will file, reregister, rerecord or
redeposit whenever required) all instruments and documents required by law or
reasonably requested by Lender to protect, to Lender's satisfaction, Lender's
security interest in the Equipment financed pursuant to the Security Agreement.
This Amendment No. 2 shall be governed by California law, without giving effect
to conflicts of law principles.
All defined terms shall have the same meaning as in the Security Agreement
except as specifically provided herein. In all other respects, the Loan
Documents remain unchanged.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 as of the
date above written.
LENDER: BORROWER:
PHOENIX LEASING INCORPORATED iOWN, INC.
By: /s/ Tim Taylor By: /s/ Lee T. Kirkpatrick
------------------------ --------------------------
Name: Tim Taylor Name: Lee T. Kirkpatrick
---------------------- -----------------------------
Title: AVP Title: CFO
--------------------- ---------------------------
<PAGE>
CORPORATE RESOLUTION TO BORROW
RESOLVED: That this corporation, HOME SHARK, INC., borrow funds from PHOENIX
LEASING INCORPORATED, a California corporation, ("Lender") and grant as
collateral for such borrowings such items of personal property and fixtures,
and upon such terms and conditions, as the officer or officers hereinafter
authorized, in their discretion, may deem necessary or advisable; provided,
--------
however, that the aggregate principal amount of borrowings hereunder shall
-------
not exceed the sum [*].
RESOLVED FURTHER: That:
Lee Kirkpatrick CFO Secretary /s/ Lee Kirkpatrick
--------------- ------------- -------------------
(Print or type name) (Title of Corporate Officer) (specimen signature)
or
_____________________ ___________________________ ________________________
(Print or type name) (Title of Corporate Officer) (specimen signature)
of this corporation (this officer or officers authorized to act pursuant
hereto being hereinafter designated as "authorized officers"), are
individually authorized, directed and empowered, in the name of this
corporation, to execute and deliver to Lender, and Lender is requested to
accept, any notes, security agreements, and other documents or agreements
that may be required by Lender in connection with such borrowings.
RESOLVED FURTHER: That the authorized officers are individually authorized,
directed and empowered, in the name of this corporation, to do or cause to be
done all such further acts and things as they shall deem necessary,
advisable, convenient, or proper in connection with the execution and
delivery of any such notes, security agreements, and other documents or
agreements and in connection with or incidental to the carrying of the same
into effect, including without limitation, the execution, acknowledgment, and
delivery of all instruments and documents which may reasonably be required by
Lender under or in connection with any such borrowing.
RESOLVED FURTHER: That Lender is authorized to act upon these resolutions
until written notice of their revocation is delivered to Lender, and that the
authority hereby granted shall apply with equal force and effect to the
successors in office of the officers herein named.
I, Edward Hoyt, President and CEO of HOME SHARK, INC., a corporation
incorporated under the laws of the State of California, do hereby certify
that the foregoing is a full, true and correct copy of resolutions of
the Board of Directors of the said corporation, duly and regularly passed or
adopted by the Board of Directors of the said corporation as required by law
and by the by-laws of the said corporation on the 19 day of August, l998.
I further certify that said resolutions are still in full force and effect
and have not been amended or revoked and that the specimen signatures appearing
above are the signatures of the officers authorized to sign for this corporation
by virtue of the said resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand as such secretary, and affixed
the corporate seal of the said corporation, this 12 day of February, 1999.
[SEAL] /s/ Edward P. Hoyt
--------------------------------------
PRESIDENT AND CEO OF HOME SHARK, INC.
(PERSON WHO SIGNS HERE MUST BE DIFFERENT
FROM PERSON(S) WHO SIGNED ABOVE.)
[*] Confidential Treatment Requested
<PAGE>
EXHIBIT 10.18
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of November ____, 1999
(the "Agreement") by and among iOwn Holdings, Inc., a Delaware corporation
---------
("iOwn"), iMerger Sub, Inc., a Delaware corporation and the wholly-owned
- ------
subsidiary of iOwn Holdings, Inc. ("iOwn Sub"), Genesis 2000, Inc., a California
--------
corporation (the "Company"), Douglas D. Hubert, Donald C. Schaeffer and
-------
Niederhoffer-Henkel Century Group (the "Brokers") and each of Homayoon Majd,
-------
Kamyar Tafreshi and Farhad Mirfakhrai (each, a "Selling Stockholder" and
-------------------
collectively, the "Selling Stockholders").
--------------------
WHEREAS, the Board of Directors of both iOwn and the Company have
determined that a business combination between iOwn and the Company merging
their respective businesses is in the best interests of their respective
companies and stockholders and presents an opportunity for their respective
companies to achieve long-term strategic and financial benefits, and accordingly
have agreed to effect the merger provided for herein upon the terms and subject
to the conditions set forth herein; and
WHEREAS, it is the intention of the parties to this Agreement that (a)
for federal income tax purposes, the merger provided for herein shall qualify as
a "reorganization" within the meaning of Section 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "Code"); and (b the shares of iOwn Stock
----
(as defined herein) to be issued pursuant to the Merger shall be exempt
securities pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"); and
--------------
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger.
----------
Upon the terms and subject to the conditions of this Agreement,
at the Effective Time (as defined in Section 1.3 of this Agreement), iOwn Sub
shall be merged with the Company in accordance with the laws of the State of
Delaware and the terms of this Agreement (the "Merger"), whereupon the separate
------
corporate existence of the Company shall cease, and iOwn Sub shall be the
surviving corporation of the Merger (iOwn Sub, as the surviving corporation
after the Merger is sometimes referred to herein as the "Surviving
---------
Corporation").
- -----------
1.2 Closing.
-------
Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place (a) at the offices of
-------
Perkins Coie llp, 135 Commonwealth Avenue, Suite 250, Menlo Park, CA 94025 at
10:00 a.m. three business days after all the conditions set forth in Article VI
of this Agreement (other than those that are waived by the party or parties for
whose benefit such conditions exist) are satisfied; or (b) at such other place,
time, and/or date as the parties hereto
[*] Confidential Treatment Requested
<PAGE>
may otherwise agree. The date upon which the Closing shall occur is referred to
herein as the "Closing Date."
------------
1.3 Effective Time.
--------------
If all the conditions to the Merger set forth in Article VI of
this Agreement have been fulfilled or waived and this Agreement shall not have
been terminated as provided in Article VIII hereof, the parties hereto shall
cause a certificate of merger (the "Certificate of Merger") to be properly
---------------------
executed and filed in accordance with the laws of the States of California and
Delaware and the terms of this Agreement on or before the Closing Date. The
parties hereto shall also take such further actions as may be required under the
laws of the States of California and Delaware in connection with the
consummation of the Merger. The Merger shall become effective at such time as
the Certificates of Merger are duly filed with the Secretary of State of the
States of California and Delaware or at such later time as is specified in the
Certificate of Merger (the "Effective Time"). From and after the Effective Time,
--------------
the Surviving Corporation shall possess all the rights, privileges, powers and
franchises and be subject to all of the restrictions, disabilities and duties of
the Company and iOwn Sub, all as provided under applicable law.
1.4 The Merger Consideration
------------------------
The "Gross Merger Consideration" shall consist of the following:
--------------------------
(a) Two Million Five Hundred Thousand (2,500,000) shares of iOwn
Common Stock (the "Common Stock Merger Consideration");
---------------------------------
(b) Two Million Five Hundred Thousand (2,500,000) shares of iOwn
Series E Preferred Stock (the "Series E Merger Consideration");
-----------------------------
(c) Secured Convertible Promissory Notes to the Selling
Stockholders totaling an aggregate of Eight Million Seven Hundred and Fifty
Thousand Dollars ($8,750,000), in the form set forth in Exhibit A attached
hereto, including the security agreement form set forth in Exhibit B attached
hereto (the "Principal Notes Merger Consideration");
------------------------------------
(d) Secured Promissory Notes to the Selling Stockholders
totaling an aggregate of One Million Dollars ($1,000,000), in the form set forth
in Exhibit C attached hereto, including the security agreement for set forth in
Exhibit B attached hereto (the "Short Term Notes Merger Consideration");
-------------------------------------
(e) Two Million Dollars ($2,000,000) in cash or cash equivalents
(the "Combined Entity Cash Consideration") to be paid within five (5) business
----------------------------------
days after the publication of quarterly financial information, but in any case
not more than forty-five (45) calendar days after the quarter of attainment by
iOwn reflecting gross revenues (as currently determined in accordance with GAAP)
from the Company/Surviving Corporation's operations of Five Million Dollars
($5,000,000) for the calendar year commencing January 1, 2000 and ending
December 31, 2000; provided that
-2-
<PAGE>
interest shall accrue at an annual rate of six percent (6%) on Combined Entity
Cash Consideration from the date of attainment; and
(f) Two Million Dollars ($2,000,000) in cash or cash equivalents
(the "Combined Entity EPASS Cash Consideration") to be paid within five (5)
----------------------------------------
business days after the publication of quarterly financial information, but in
any case not more than forty-five (45) calendar days after the quarter of
attainment by iOwn reflecting One Million Dollars ($1,000,000) in EPASS Gross
Revenues (as defined below) for the calendar year commencing January 1, 2000 and
ending December 31, 2000; provided that interest shall accrue at an annual rate
of six percent (6%) on Combined Entity EPASS Cash Consideration from the date of
attainment; and
(g) Up to an additional Two Million Dollars ($2,000,000) in cash
or cash equivalents or in stock equities (the "Subsidiary Consideration") to be
------------------------
paid within five (5) business days after publication of financial information
for the fiscal years ended December 31, 2000 and December 31, 2001, but in any
case not more than forty-five (45) calendar days after the fiscal years ended
December 31, 2000 and December 31, 2001; provided that interest shall accrue at
an annual rate of six percent (6%) on Subsidiary Consideration from the date of
attainment; provided further that the amount of any such pay out shall be
determined by calculating seventy-five percent (75%) of EPASS Gross Revenues
over One Million Dollars ($1,000,000) in the calendar year 2000 and twenty-five
percent (25%) of all EPASS Gross Revenues over One Million Dollars ($1,000,000)
in calendar year 2001; The initial payments up to $1,625,000 shall be paid in
cash or cash equivalents, and the remaining $375,000 in Common Stock of iOwn at
the then fair market value of such shares, provided that if such Common Stock is
publicly traded, the fair market value shall be the average closing price for
the thirty (30) day period immediately preceding such payment.
(h) For purposes of Sections 1.4(e), (f) and (g), the term
"EPASS Gross Revenues" shall mean and include any and all gross revenues
generated from the Company/Surviving Corporation's EPASS offering or successor
products/services of equal or substantially similar functionality, through its
EPASS connectivity with mortgage and related business service providers or
businesses (ex., institutional lenders, title companies, insurance and bond
companies) and advertisers, and in addition to calculating the EPASS Gross
Revenues, such revenue number shall include an additional fifteen basis points
(0.15%) times the total dollar volume of loan origination directed to iOwn from
the Company/Surviving Corporation's EPASS system; provided that EPASS Gross
Revenues shall be calculated on an accrual basis as any such EPASS Gross
Revenues would be recognized in accordance with GAAP.
(i) Notwithstanding the foregoing, in consideration of the
services rendered by the Company's and the Selling Stockholders' brokers in this
transaction, Douglas D. Hubert, Donald C. Schaeffer and Niederhoffer-Henkel
Century Group (collectively, the "Brokers"), and at the direction of the Selling
Stockholders', the percentage amounts set forth in Exhibit J shall be deducted
from the from the Gross Merger Consideration set forth in subparagraphs 1.4 (a)
through (g) above and paid to such brokers concurrent with the payment to, and
in like kind consideration to the Selling Stockholders' hereunder, subject to
the terms and conditions of this Agreement.
-3-
<PAGE>
(j) iOwn agrees to renegotiate with the Selling Stockholders the
financial and other terms set forth in Section 1.4(e), (f) and (g) in good faith
should there be any material changes to the organization and operation (of the
surviving entity as a whole), goals or strategy of the Surviving Corporation
during the attainment period(s), and prior to (xx) expiration of the designated
annual periods, or (yy) payments thereof, which, aside from any external market
factors, would impact the ability of the Surviving Corporation to achieve the
objectives outlined herein. In the event that the matter stated herein has not
been resolved within thirty (30) days of such date, unless otherwise extended in
writing by the parties hereto, as the Selling Stockholders request
renegotiation, the matter may be referred to arbitration pursuant to Section
9.13 hereof.
(k) In the event that any of the Selling Stockholders'
employment is (i) terminated without Cause, as defined in each Selling
Stockholders' respective Employment Agreement attached hereto as Exhibit D, such
terminated Selling Stockholder shall be deemed to have attained the necessary
revenues to trigger payments under Subsections (e), (f) and (g) hereof and shall
receive payment by the iOwn within fifteen (15) days of the date of such
termination equal to such terminated Selling Stockholder(s) [*] interest in
the aggregated earn-out held by the Selling Stockholders thereunder. For
purposes of this Section 1.4(k), Selling Stockholder shall be entitled to the
acceleration rights hereunder in the event that (i) such individual's employment
is terminated without Cause, (ii) such individual voluntarily terminates his
employment, as contemplated in his respective Employment Agreement, or (iii)
such individual terminates his employment as a result of a breach by iOwn of the
Employment Agreement which goes uncured for thirty (30) days.
(l) The matters set forth in this Section 1.4 shall survive the
Closing and Merger.
1.5 Exchange of Shares.
------------------
At the Effective Time, by virtue of the Merger and without any
action on the part of the Company, iOwn, iOwn Sub, the Selling Stockholders and
the holders of any shares of capital stock of iOwn Sub:
(a) Each share of common stock, par value $0.001 per share, of iOwn
Sub, which shall be outstanding immediately prior to the Effective Time, shall
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, par value $0.001 per share, of the
Surviving Corporation.
(b) Each share of common stock, par value $0.01 per share ("Company
Common Stock") of the Company issued and outstanding and owned by the Selling
Stockholders immediately prior to the Effective Time, shall, at the Effective
Time, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into and exchanged for the right to receive a portion of
the Gross Merger Consideration, as follows:
(i) each Selling Stockholder shall have the right to
receive the number of shares of iOwn Common Stock equal to [*]
of the Common Stock Merger Consideration;
[*] Confidential Treatment Requested
-4-
<PAGE>
(ii) each Selling Stockholder shall have the right to
receive the number of shares of iOwn Series E Preferred Stock equal to
[*] of the Series E Merger Consideration;
(iii) as with respect to Sections 1.4(c), each Selling
Stockholder shall be entitled to receive a Note the aggregate face
value of which shall be [*] of the Principal Notes Merger
Consideration;
(iv) as with respect to Sections 1.4(d), each Selling
Stockholder shall be entitled to receive a Note the aggregate face
value of which shall be [*] of the Short Term Notes Merger
Consideration;
(v) as with respect to Section 1.4(e), each Selling
Stockholder shall be entitled to receive cash or cash equivalents in
an amount equal to [*] the Combined Entity Cash Consideration;
(vi) as with respect to Section 1.4(f), each Selling
Stockholder shall be entitled to receive cash or cash equivalents in
an amount equal to [*] the Combined Entity EPASS Cash
Consideration; and
(vii) as with respect to Section 1.4(g), each Selling
Stockholder shall be entitled to receive cash or cash equivalents in
an amount equal to [*] the Subsidiary Cash Consideration.
(viii) Notwithstanding the foregoing, the amounts set forth
in subsections (i) through (vi) above shall be equally decreased pro
rata among the Selling Stockholders to the extent stated in Section
1.4(i).
(ix) By way of clarification, each Selling Stockholder
shall have the right to receive as with respect to its corresponding
subsection in Section 1.4: [*]; provided, however, that all such
numbers shall be adjusted pursuant to the terms hereunder (including,
without limitation, the terms set forth in Subsection (viii) above)
and subject to escrow as set forth herein.
(c) No fractional share of iOwn Stock or fractional United States
cent shall be issued in the Merger. All share and cent determinations will be
rounded down to the nearest whole number.
[*] Confidential Treatment Requested
-5-
<PAGE>
(d) The shares of iOwn Stock issued in connection with the
Transactions will not be registered under the Securities Act. Except as stated
in Section 1.4(i), such shares may not be transferred or resold thereafter,
except in compliance with the terms of the Ancillary Documents (as defined in
Section 4.2 herein) and following registration under the Securities Act or in
reliance on an exemption from registration under the Securities Act. iOwn shall
use reasonable efforts, and will take such measures and timely file such
information, documents and reports as shall be required by the SEC as a
condition to the availability of Rule 144 and to remain in compliance with the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
(e) Notwithstanding anything to the contrary contained herein, no
dividends or other distributions declared or made after the Effective Time with
respect to shares of iOwn Stock with a record date after the Effective Time
shall be paid with respect to any shares of Company Stock represented by a
certificate ("Certificate") until such Certificate is surrendered for exchange
as provided herein. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be immediately paid to the holder
of the certificates representing whole shares of iOwn Stock (preferred and
common) issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore payable with respect to such whole shares
of iOwn Stock (preferred and common) and not paid, less the amount of any
withholding taxes which may be required thereon, (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of iOwn Stock (preferred and
common), less the amount of any withholding taxes which may be required thereon
and (iii) the amount of any cash payable with respect to fractional shares of
iOwn Stock (preferred and common) to which such holder is entitled pursuant to
this Section 1.5.
(f) Subject to the provisions of this Article I, each of the Selling
Stockholders shall be required to deposit 275,000 (825,000 in the aggregate for
the Selling Stockholders) shares of iOwn Series E Preferred Stock and 275,000
(825,000 in the aggregate for the Selling Stockholders) shares of iOwn Common
Stock, (and shall not be required to escrow any consideration set forth in
Sections 1.4(e), (f) and (g) above) (the "Escrow Amount") into an escrow account
(the "Escrow"), for the purpose of securing the indemnification obligations of
the Selling Stockholders set forth in this Agreement. Such shares shall be held
and distributed in accordance with the terms of an Escrow Agreement (the "Escrow
Agreement") to be entered into by and among iOwn, the Selling Stockholders and
such party as the parties may mutually agree upon, as escrow agent (the "Escrow
Agent"), which Escrow Agreement shall be in substantially the form attached
hereto as Exhibit E. The adoption of this Agreement and the approval of the
Merger by the Stockholders shall constitute approval of the Escrow Agreement
and of all the arrangements relating thereto, including without limitation the
placement of the Escrow Shares (as defined in Section 1.6 herein). Any shares
of iOwn stock issued or distributed by iOwn as it relates to the not yet
released Escrow Shares, solely as the result of a stock split, stock dividend or
recapitalization shall be added to the Escrow and become a part thereof.
(g) As a result of the Merger and without any action on the part of
the holder thereof, at the Effective Time, all shares of Company Common Stock
shall cease to be outstanding and shall be canceled and retired and shall cease
to exist, and each holder of shares of Company Common Stock shall thereafter
cease to have any rights with respect to such shares of Company Common Stock,
[*] Confidential Treatment Requested
-6-
<PAGE>
except for the right to receive (except as otherwise provided in Section 1.8
hereof), without interest, the consideration set forth in this Section 1.5 upon
the surrender of a certificate (each, a "Certificate") representing such shares
of Company Common Stock, in accordance with the provisions of this Article I.
(h) Each share of Company Common Stock held by the Company as
treasury stock or owned by iOwn or any subsidiary of iOwn at the Effective Time
shall be canceled, and no payment shall be made with respect thereto.
1.6 Mechanics of the Exchange.
(a) At the Effective Time, the Selling Stockholders shall be entitled
to immediately surrender the Certificates which immediately prior to the
Effective Time represented the Company Stock, and which were converted into the
right to receive a portion of the Gross Merger Consideration, to iOwn for
cancellation in exchange for the portion of the Gross Merger Consideration to
which such holder is entitled pursuant to Section 1.5 hereof.
Upon surrender of a Certificate for cancellation to iOwn, together
with such documents as may reasonably be required by iOwn:
(i) the holder of the Certificate shall be entitled to
immediately (except as stated in Section 1.6(i)(D) below) receive in
exchange therefor, and subject to Section 1.6(i)(E):
(A) one or more certificates representing, in the
aggregate, that whole number of shares of iOwn Stock that is equal
to that number of shares of iOwn Stock that such holder has the
right to receive in respect to such Certificate pursuant to the
provisions of Section 1.5 hereof (after taking into account all
shares of Company Stock then held by such holder), less the number
of shares that represents such Selling Stockholder's pro rata
portion of the number of shares of iOwn Preferred Stock and iOwn
Common Stock that are to be held in escrow by the Escrow Agent
pursuant to the Escrow Agreement (such iOwn Preferred Stock and
iOwn Common Stock being the "Escrow Shares");
(B) Notes (including security agreements) in the
amounts determined pursuant to the provisions in Section 1.5
hereof (after taking into account all shares of Company Stock then
held by such holder) (together the "Additional Payments");
(C) if, and when entitled to pursuant to Section
1.5(b)(v), 1.5(b)(vi) and 1.5(b)(vii), a check or wire transfer,
as determined by the Selling Stockholder, in the amount equal to
the cash that such holder has the right to receive in respect to
such Certificate pursuant to the provisions of Section 1.5 hereof
(after taking into account all shares of Company Stock then held
by such holder); and
-7-
<PAGE>
(E) The Brokers shall receive certificates,
notes and consideration consistent with Section 1.4(i), subject
to the terms and conditions of this Agreement and the escrow.
(ii) iOwn shall deliver to the Escrow Agent the
appropriate number of certificates representing the Escrow
Shares, on behalf of and as nominee for the Selling Stockholders
and Brokers representing, in the aggregate, the Escrow Shares,
which will be held in escrow by the Escrow Agent in accordance
with the Escrow Agreement; and
(iii) the Certificate so surrendered shall
forthwith be canceled.
Except as provided for in connection with the Principal Notes Merger
Consideration and the Short Term Notes Merger Consideration, no interest shall
be paid or accrued for the benefit of holders of the Certificates on the
consideration payable upon the surrender of the Certificates, except that any
delinquent payments under Sections 1.5 (b)(v), 1.5(b)(vi) and 1.5(b)(vii) shall
accrue interest at the rate of 10% per annum until paid in full. It shall be a
condition of payment that the Certificates so surrendered shall be properly
endorsed or otherwise in proper form for transfer to iOwn.
(b) In the event that any Certificates shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Selling
Stockholder claiming such Certificate to be lost, stolen or destroyed, iOwn will
issue or cause to be issued in exchange for such lost, stolen or destroyed
Certificate the applicable portion of the Gross Merger Consideration which the
shares of the Company Stock represented by the Certificate are exchanged in
accordance with Section 1.5. When authorizing such issuance in exchange
therefor, iOwn may, in its discretion and as a condition precedent to the
issuance thereof, require such Selling Stockholder to give iOwn a bond in such
sum as it may direct as indemnity, or such other form of indemnity, as it shall
direct, against any claim that may be made against iOwn with respect to the
Certificate alleged to have been lost, stolen or destroyed.
(c) iOwn may, at its option, meet its obligations under this
Section 1.6 through a bank or trust company selected by iOwn to act as exchange
agent in connection with the Merger. iOwn shall be responsible for the acts and
omissions of such selected bank or trust company.
(e) If any certificate for iOwn Stock is to be issued in a name
other than that in which the Certificate surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the person requesting
such exchange shall (i) pay to iOwn any transfer or other taxes required by
reason of the issuance of certificates for such securities in a name other than
that of the registered holder of the Certificate surrendered, or (ii) establish
to the satisfaction of iOwn that such tax has been paid or is not applicable.
(f) Notwithstanding anything in this Agreement to the contrary,
neither iOwn nor any other party hereto shall be liable to a holder of shares of
iOwn Stock for any portion of the Gross Merger Consideration, any dividends on
shares of iOwn Stock issued as part of the Gross Merger Consideration, or any
payment for any fractional interests, delivered to a public official pursuant to
-8-
<PAGE>
applicable escheat laws following the passage of time specified therein and
reasonable attempts to find such entitled beneficiary.
(g) At or after the Effective Time, there shall be no transfers
on the stock transfer books of the Company of the shares of Company Stock which
were outstanding at the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged for the consideration set forth in this Article I deliverable in
respect thereof pursuant to this Agreement in accordance with the procedures set
forth herein.
1.7 Adjustment of Gross Exchange Ratio.
----------------------------------
In the event that, subsequent to the date of this Agreement
but prior to the Effective Time, the outstanding shares of iOwn Stock shall have
been changed into a different number of shares or a different class as a result
of a stock split, reverse stock split, stock dividend, subdivision,
reclassification, split, combination, exchange, recapitalization or other
similar transaction, the Exchange of Shares set forth in Section 1.5 above shall
be appropriately adjusted.
1.8 Dissenting Shares. Any Dissenting Shares shall be converted
-----------------
into the right to receive from the Surviving Corporation such consideration as
may be determined to be due with respect to each such Dissenting Share pursuant
to Section 262 of the Delaware General Corporate Law (the "DGCL") and Sections
1300 et seq. of the California Corporations Code (the "CCC"); provided, however,
that shares of Company Common Stock that are Dissenting Shares at the Effective
Time of the Merger and are held by a holder who shall, after the Effective Time
of the Merger, withdraw his demand for appraisal or lose his right of appraisal
as provided in the Section 262 of the DGCL and Sections 1300 et seq. of the CCC,
shall be deemed to be converted, as of the Effective Time of the Merger, into
the right to receive consideration in accordance with the procedures specified
in Section 1.5. The Company shall give iOwn (i) prompt notice of any written
demands for appraisal, withdrawals of demands for appraisal and any other
instruments served pursuant to Section 262 of the DGCL and Sections 1300 et seq.
of the CCC received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under Section
262 of the DGCL and Sections 1300 et seq. of the CCC. The Company will not
voluntarily make any payment with respect to any demands for appraisal and will
not, except with the prior written consent of iOwn, settle or offer to settle
any such demands. It is understood and agreed that the obligation to make any
payment under Section 262 of the DGCL and Sections 1300 et seq. of the CCC shall
be exclusively that of the Surviving Corporation and that iOwn shall be under no
obligation to perform and discharge any such obligation or to reimburse or make
any contribution to the capital of the Surviving Corporation to enable it to
perform and discharge any such obligation.
1.9 Tax Consequences and Accounting Treatment.
-----------------------------------------
It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368(a)(2)(D) of the
Code. Furthermore, the Selling Stockholders are solely responsible for all sales
and transfer taxes, if any arising from the transaction contemplated by this
Agreement.
-9-
<PAGE>
1.10 Taking of Necessary Action; Further Action.
------------------------------------------
If, at any time after the signing of this Agreement and
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and iOwn Sub, the officers and directors of
the Company and iOwn Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is consistent with this Agreement.
ARTICLE II
CERTAIN MATTERS RELATING TO
THE SURVIVING CORPORATION
2.1 Certificate of Incorporation of the Surviving Corporation.
---------------------------------------------------------
The certificate of incorporation of iOwn Sub in effect at
the Effective Time shall be the certificate of incorporation of the Surviving
Corporation until amended in accordance with its terms and pursuant to
applicable law; provided however, that Article I of the Certificate of
Incorporation of the Surviving Corporation shall be amended to read as follows:
"The name of the corporation is Genesis 2000, Inc.".
2.2 By-Laws of the Surviving Corporation.
------------------------------------
The By-Laws of iOwn Sub in effect at the Effective Time
shall be the By-Laws of the Surviving Corporation until amended in accordance
with the terms of such By-Laws and pursuant to applicable law and the
Certificate of Incorporation of the Surviving Corporation.
2.3 Directors of the Surviving Corporation.
--------------------------------------
The directors of the Surviving Corporation immediately after
the Effective Time shall consist of the persons who held such office in the
Surviving Corporation and such directors shall hold office until their
successors are duly appointed or elected in accordance with applicable law.
2.4 Officers of the Surviving Corporation.
-------------------------------------
The officers of the Surviving Corporation immediately after
the Effective Time shall consist of the persons who held such office in the
Surviving Corporation and such officers shall hold office until their successors
are duly appointed or elected in accordance with applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF iOWN AND iOWN SUB
iOwn and iOwn Sub represent and warrant to the Company that
the statements contained in this Article III are true and correct, except as set
forth in the disclosure statement delivered
-10-
<PAGE>
by iOwn and iOwn Sub to the Company concurrently herewith and identified as the
"iOwn Disclosure Statement."
-------------------------
3.1 Organization, Standing, and Qualification.
-----------------------------------------
Each of iOwn and iOwn Sub (i) is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware; (ii) has all, requisite power and authority to own or lease, and
operate its properties and assets, and to carry on its business as now
conducted, except where the failure to have such power and authority would not
have a Material Adverse Effect (as defined herein) on iOwn or iOwn Sub; (iii) is
duly qualified or licensed to do business and is in good standing in all
jurisdictions in which it owns or leases property or in which the conduct of its
business requires it to so qualify or be licensed except where the failure to so
qualify would not have a Material Adverse Effect on iOwn or iOwn Sub; and (iv)
has obtained all licenses, permits, franchises and other governmental
authorizations necessary to the ownership or operation of its properties or the
conduct of its business except where the failure to have obtained such licenses,
permits, franchises or authorizations would not have a Material Adverse Effect
on iOwn or iOwn Sub.
For purposes of this Agreement, a "Material Adverse Effect"
-----------------------
when used with respect to any entity means (a) a material adverse effect on the
business, results of operations, financial condition or prospects of such entity
and its subsidiaries, if any, taken as a whole, or (b) a material impairment in
the ability of such entity or its subsidiaries to perform any of their
obligations under this Agreement or to consummate the Merger.
3.2 Authorization of Agreement and Other Documents.
----------------------------------------------
The execution and delivery of this Agreement and the other
documents executed in connection herewith to which iOwn or iOwn Sub is a party
(collectively, the "iOwn Ancillary Documents"), have been duly authorized by the
------------------------
Board of Directors of iOwn and iOwn Sub and no other proceedings on the part of
iOwn or iOwn Sub or their stockholders are necessary to authorize the execution,
delivery or performance of this Agreement or any iOwn Ancillary Document, except
the approval of the Merger by the sole stockholder of iOwn Sub. This Agreement
is, and, as of the Closing Date, each of the iOwn Ancillary Documents will be, a
valid and binding obligation of iOwn and/or iOwn Sub, as the case may be,
enforceable against iOwn and/or iOwn Sub, as the case may be, in accordance with
its terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting enforcement of creditors, rights generally, and by
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).
3.3 No Violation.
------------
Neither the execution and delivery by iOwn and iOwn Sub of
this Agreement or the iOwn Ancillary Agreements, nor the consummation by iOwn
and iOwn Sub of the transactions contemplated hereby and thereby in accordance
with their respective terms, will (a) conflict with or result in a breach of any
provisions of the Certificate of Incorporation or By-Laws of iOwn or iOwn Sub;
(b) result in a breach or violation of, a default under, or the triggering of
any payment or other
-11-
<PAGE>
material obligations pursuant to, or accelerate vesting under, any of the iOwn
stock option plans, or any grant or award made under any of the foregoing; (c)
violate, conflict with, result in a breach of any provision of, constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, result in the termination, or in a right of
termination or cancellation of, accelerate the performance required by, result
in the triggering of any payment or other material obligations pursuant to,
result in the creation of any lien, security interest, charge or encumbrance
upon any of the material properties of iOwn or iOwn Sub under, or result in
being declared void, voidable, or without further binding effect, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust or any material license, franchise, permit, lease, contract, agreement or
other instrument, commitment or obligation to which iOwn or iOwn Sub is a party,
or by which iOwn or iOwn Sub or any of their respective properties is bound or
affected, except for any of the foregoing matters which would not have a
Material Adverse Effect on iOwn or iOwn Sub; (d) contravene or conflict with or
constitute violation of any provision of any law, regulation, judgement,
injunction, order or decree binding upon or applicable to iOwn or iOwn Sub,
except for any of the foregoing matters which would not have a Material Adverse
Effect on iOwn or iOwn Sub; or (e) other than the filings provided for in
Sections 1.3 and 5.3, filings under applicable federal, state and local laws and
regulations, or applicable federal or state securities laws or filings in
connection with the maintenance of qualification to do business in other
jurisdictions (collectively, the "Regulatory Filings"), require any material
------------------
consent, approval or authorization of, or declaration of, or registration with,
any domestic governmental or regulatory authority, the failure to obtain or make
which would have a Material Adverse Effect on iOwn or iOwn Sub.
3.4 Capitalization.
---------------
(a) The authorized capital stock of iOwn consists solely of (a)
150,000,000 shares of Common Stock, 7,368,395 of which are issued and
outstanding, and (b) 121,964,068 shares of Preferred Stock of which (i)
2,492,900 are designated as Series A Preferred Stock, all of which are issued
and outstanding, (ii) 2,492,900 are designated as Series A-1 Preferred Stock,
none of which are issued and outstanding, (iii) 12,170,924 are designated as
Series B Preferred Stock, 11,951,764 of which are issued and outstanding, (iv)
12,170,924 are designated as Series B-1 Preferred Stock, none of which are
issued and outstanding, (v) 17,740,000 are designated as Series C Preferred
Stock, 17,740,000 of which are issued and outstanding, (vi) 17,740,000 are
designated as Series C-1 Preferred Stock, none of which are issued and
outstanding, (vii) 11,000,000 are designated as Series D Preferred Stock,
7,820,643 of which are issued and outstanding, (viii) 11,000,000 are designated
as Series D-1 Preferred Stock, none of which are issued and outstanding, (ix)
5,200,000 are designated as Series DD Preferred Stock, none of which are issued
and outstanding, (x) 5,200,000 are designated Series DD-1 Preferred Stock, none
of which are issued and outstanding, (xi) 11,666,667 are designated as Series E
Preferred Stock, 6,907,134 of which are issued and outstanding, (xii) 11,666,667
are designated Series E-1 Preferred Stock, none of which are issued and
outstanding, (xiii) 711,543 are designated as Series EE Preferred Stock, none of
which are issued and outstanding, and (xiv) 711,543 are designated as Series EE-
1 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 and were issued in compliance with applicable
federal and state securities laws. iOwn has reserved an aggregate of
139,389,475 shares of Common Stock for issuance upon conversion of the Preferred
Stock and 10,057,012 shares of its Common Stock for issuance to officers,
directors, employees, sales
-12-
<PAGE>
representatives and consultants of iOwn pursuant to iOwn's 1997 Stock Option
Plan. The Company has reserved authorized but unissued shares of Common Stock in
an amount that would be sufficient to effect the conversion of all outstanding
shares of Preferred Stock as of such date.
(b) The authorized capital stock of iOwn Sub consists of ten
thousand (10,000) shares of common stock, $0.001 par value per share, all of
which shares are issued and are outstanding, all of which shares are owned
beneficially and of record by iOwn. All issued and outstanding shares of iOwn
Sub's capital stock have been duly authorized and validly issued, and are fully
paid and nonassessable. There are no outstanding options, warrants or other
rights to purchase, or securities convertible into or exchangeable for, shares
of the capital stock of iOwn Sub, and there are no agreements or commitments to
which iOwn Sub is a party or by which it is bound pursuant to which iOwn Sub is
or may become obligated to issue additional shares of its capital stock.
3.5 No Brokers.
----------
iOwn has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of the
Company, the Selling Stockholders, or iOwn, iOwn Sub or their subsidiaries to
pay any finder's fee, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
3.6 Litigation.
----------
There is no litigation or proceeding, in law or in equity, and
there are no proceedings or governmental investigations before any commission or
other administrative authority, pending or, to iOwn's knowledge, threatened
against iOwn or iOwn Sub, or any of iOwn's or iOwn Sub's respective officers,
directors or affiliates, with respect to or affecting iOwn's or iOwn Sub's
operations, business, products, sales practices or financial condition, or
related to the consummation of the transactions contemplated hereby, or by the
iOwn Ancillary Documents or the Ancillary Documents which, in each case, if
conducted with results unfavorable to iOwn or iOwn Sub, would have a Material
Adverse Effect on iOwn. There are no facts known to iOwn which, if known by a
potential claimant or governmental authority, would give rise to a claim or
proceeding which, if asserted or conducted with results unfavorable to iOwn or
iOwn Sub, would have a Material Adverse Effect on iOwn.
3.7 Claims.
------
Each of iOwn and iOwn Sub represents and warrants, to its
knowledge, that it is not presently aware of any basis for any indemnity claim
that it could bring under Section 7 of this Agreement or of any indemnity claim
in the future that could be brought subsequent to the Closing due solely to the
passage of time. Notwithstanding the foregoing, nothing in this Section 3.7
shall prevent iOwn or iOwn Sub from making any claim under Section 7 hereof.
3.8 Issuance of Shares.
------------------
-13-
<PAGE>
The iOwn Stock to be issued by iOwn pursuant to this Agreement will be
duly authorized, validly issued, fully paid and nonassessable.
3.9 Disclosure.
----------
No representation, warranty, assurance or statement by iOwn or iOwn
Sub or by any of their respective officers or directors contained in any
document, certificate or other writing furnished or to be furnished by such
entities or individuals to the Selling Stockholders or any of their
representatives pursuant to due diligence conducted by the Company and the
Selling Stockholders, this Agreement or the iOwn Ancillary Documents contains or
will contain any untrue statement of material fact, or omits or will omit to
state any material fact necessary, in light of the circumstances under which it
was made, in order to make the statements herein or therein not misleading.
3.10 Required Consents and Approvals.
-------------------------------
No consent or approval is required by virtue of the execution hereof
by iOwn or iOwn Subsidiary or the consummation of any of the transactions
contemplated herein by iOwn or iOwn Sub to avoid a violation or breach of, or
default under, or the creation of a lien on assets of iOwn or iOwn Sub pursuant
to the terms of, any regulation, order, decree or award of any court or
governmental agency, or any lease, agreement, contract, mortgage, note, license,
or any other instrument to which iOwn or iOwn Sub is a party or to which each or
any of each's property or iOwn's Stock or iOwn Sub's capital stock is subject.
3.11 No Material Change.
------------------
iOwn has not suffered any material adverse change in its financial
condition or business since the date hereof .
3.12 Compliance with Laws - General.
------------------------------
(a) iOwn holds all permits, licenses, variances, exemptions, orders
and approvals of any court, arbitral, tribunal, administrative agency or
commissioner or other governmental or other regulatory authority or agency
("Governmental Entities") necessary for the lawful conduct of its business the
---------------------
failure of which to obtain would have a Material Adverse Effect on its business
(the "Permits").
-------
(b) iOwn is in substantial compliance with the material terms of its
Permits.
(c) iOwn is in substantial compliance with all material laws,
ordinances or regulations of all Governmental Entities (including, but not
limited to, those related to occupational health and safety, controlled
substances or employment and employment practices) that are applicable to iOwn
or affect or relate to this Agreement or the transactions contemplated hereby.
-14-
<PAGE>
(d) As of the date of this Agreement, and as of the Closing, no
investigation, review, inquiry or proceeding by any Governmental Entity with
respect to iOwn is to the knowledge of iOwn, pending or threatened.
(e) iOwn currently is not subject to any agreement, contract or
decree with any Governmental Entities arising out of any current or previously
existing violations of any laws, ordinances or regulations applicable to iOwn.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and each Selling Stockholder severally represents
and warrants to iOwn and iOwn Sub that the statements contained in this Article
IV are true and correct, except as set forth in the disclosure statement
delivered by the Company to iOwn and iOwn Sub concurrently herewith and
identified as the "Company Disclosure Statement." All exceptions noted in the
----------------------------
Company Disclosure Statement shall be numbered to correspond to the applicable
sections to which such exception refers.
4.1. Organization, Standing and Qualification.
----------------------------------------
The Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of California (ii) has
all requisite power and authority to own or lease, and operate its properties
and assets, and to carry on its business as now conducted and as currently
proposed to be conducted except where the failure to have such power and
authority would not have a Material Adverse Effect on the Company; (iii) is duly
qualified or licensed to do business and is in good standing in all
jurisdictions in which it owns or leases property or in which the conduct of its
business requires it to so qualify or be licensed except where the failure to so
qualify would not have a Material Adverse Effect on the Company; and (iv) has
obtained all licenses, permits, franchises and other governmental authorizations
necessary to the ownership or operation of its properties or the conduct of its
business except where the failure to have obtained such licenses, permits,
franchises or authorizations would not have a Material Adverse Effect on the
Company.
4.2 Authorization of Agreement and Other Documents.
----------------------------------------------
The execution and delivery of this Agreement and the other
documents executed in connection herewith to which the Company is a party
(collectively, the "Company Ancillary Documents"; the iOwn Ancillary Documents
---------------------------
and the Company Ancillary Documents, collectively, the "Ancillary Documents"),
-------------------
have been duly authorized by the Board of Directors of the Company and no other
proceedings on the part of the Company or its Stockholders are necessary to
authorize the execution, delivery or performance of this Agreement or any
Ancillary Document, except the approval of the Merger by the Stockholders. This
Agreement is, and, as of the Closing Date, each of the Company Ancillary
Documents will be, a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar
-15-
<PAGE>
laws affecting enforcement of creditors, rights generally, and by general
principles of equity (regardless of whether enforcement is considered in a
proceeding at law or in equity).
4.3 No Violation.
------------
Neither the execution and delivery of this Agreement or the
Company Ancillary Documents nor the consummation by the Company of the
transactions contemplated hereby and thereby in accordance with their respective
terms, will (a) conflict with or result in a breach of any provisions of the
Certificate of Incorporation or By-Laws of the Company; (b) result in a breach
or violation of, a default under, or the triggering of any payment or other
material obligations pursuant to, or accelerate vesting under, any of the
Company stock option plans ("Company Stock Option Plans"), or any grant or award
made under any of the foregoing; (c) violate, conflict with, result in a breach
of any provision of, constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, result in the
termination, or in a right of termination or cancellation of, accelerate the
performance required by, result in the triggering of any payment or other
material obligations pursuant to, result in the creation of any lien, security
interest, charge or encumbrance upon any of the material properties of the
Company under, or result in being declared void, voidable, or without further
binding effect, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust or any material license, franchise, permit,
lease, contract, agreement or other instrument, commitment or obligation to
which the Company is a party, or by which the Company or any of its properties
is bound or affected, except for any of the foregoing matters which would not
have a Material Adverse Effect on the Company; (d) contravene or conflict with
or constitute a violation of any provision of any law, regulation, judgement,
injunction, order or decree binding upon or applicable to the Company, except
for any of the foregoing matters which would not have a Material Adverse Effect
on the Company; or (e) other than the Regulatory Filings, require any material
consent, approval or authorization of, or declaration of, or registration with,
any domestic governmental or regulatory authority, the failure to obtain or make
which would have a Material Adverse Effect on the Company.
4.4 Capitalization.
--------------
(a) The total authorized capital stock of the Company consists of
100,000 shares of capital stock, comprised of (i) 100,000 shares of the Company
Common Stock, 99,999 shares of which are issued and outstanding. No other
shares of capital stock are issued or outstanding. All issued and outstanding
shares of the Company's capital stock have been duly authorized and validly
issued, are fully paid and nonassessable, and have been issued in full
compliance with all applicable securities laws and other applicable legal
requirements, and none of such shares has been issued in violation of any
applicable preemptive rights. There are no agreements or commitments to which
the Company is a party or by which it is bound for the redemption or repurchase
of any shares of its capital stock. Except for options issued under the Company
Stock Option Plan, there are no outstanding options, warrants or other rights to
purchase, or securities convertible into or exchangeable for, shares of the
capital stock of the Company, and except as contemplated by this Agreement and
except with respect to options issued under the Company Stock Option Plan, there
are no agreements or commitments to which the Company is a party or by which it
is bound pursuant to which the Company is or may become obligated to issue
additional shares of its capital stock.
-16-
<PAGE>
(b) The Company has never repurchased, redeemed or otherwise
reacquired (or agreed, committed or offered (in writing or otherwise) to
repurchase, redeem or otherwise reacquire) any shares of capital stock or other
securities, except from employees of the Company pursuant to the terms of the
Company's Stock Option Plan.
4.5 Ownership Interests.
-------------------
The Company has no subsidiaries and does not own any direct or
indirect interest in any corporation, joint venture, limited liability company,
partnership, association or other entity. Since October 31, 1999, the Company
has not (i) disposed of the capital stock (other than Company Common Stock) or
all or substantially all of the assets of any ongoing business, or (ii)
purchased the business and/or all or substantially all of the assets of another
person, firm or corporation (whether by purchase of stock, assets, merger or
otherwise).
4.6 Constituent Documents.
---------------------
True and complete copies of the Certificate of Incorporation and
all amendments thereto, the By-Laws as amended and currently in force, all stock
records, and all corporate minute books and records of the Company have been
furnished or made available by the Company to iOwn for inspection. Said stock
records accurately reflect all stock transactions and the current stock
ownership of the Company. The corporate minute books and records of the Company
contain true and complete copies of all resolutions adopted by the stockholders
or the board of directors of the Company and any other action formally taken by
them respectively as such.
4.7 Compliance with Laws - General.
------------------------------
(a) The Company holds all permits, licenses, variances, exemptions,
orders and approvals of any court, arbitral, tribunal, administrative agency or
commissioner or other governmental or other regulatory authority or agency
("Governmental Entities") necessary for the lawful conduct of its business (the
---------------------
"Permits").
-------
(b) The Company is in substantial compliance with the material terms
of its Permits.
(c) The Company is in substantial compliance with all material laws,
ordinances or regulations of all Governmental Entities (including, but not
limited to, those related to occupational health and safety, controlled
substances or employment and employment practices) that are applicable to the
Company or affect or relate to this Agreement or the transactions contemplated
hereby.
(d) As of the date of this Agreement, and as of the Closing, no
investigation, review, inquiry or proceeding by any Governmental Entity with
respect to the Company is to the knowledge of the Company, pending or
threatened.
(e) The Company currently is not subject to any agreement, contract
or decree with any Governmental Entities arising out of any current or
previously existing violations of any laws, ordinances or regulations applicable
to the Company.
-17-
<PAGE>
4.8 Books and Records.
-----------------
The Company's books, accounts and records are, and have been, in
all material respects, maintained in the Company's usual, regular and ordinary
manner, in accordance with GAAP and all material transactions to which the
Company is or has been a party are properly reflected therein.
4.9 Financial Statements.
--------------------
(a) The Disclosure Statement contains complete and accurate copies of
the audited balance sheets, statements of income and stockholders' equity,
statements of cash flows and notes to financial statements (together with any
supplementary information thereto) of the Company as of and for the years ended
December 31, 1998 and the four (4) month period ended April 30, 1999. The
financial statements described in the preceding sentence are hereinafter
referred to as the "Financial Statements." The Disclosure Schedule also contains
--------------------
complete and accurate copies of the unaudited balance sheet, unaudited statement
of income and unaudited statement of cash flows of the Company as of and for the
ten-month period ended October 31, 1999. The financial statements described in
the preceding sentence are referred to herein as the "Interim Financial
-----------------
Statements". The Financial Statements and the Interim Financial Statements
- ----------
present accurately and completely the financial position of the Company as of
the dates thereof (subject, in the case of the Interim Financial Statements, to
normal year-end audit adjustments) and the results of operations and cash flows
of the Company for the periods covered by said statements, and the Financial
Statements are presented in accordance with GAAP.
(b) The Company has provided to or made available to iOwn or its
counsel complete and correct copies of all attorneys, responses to audit inquiry
letters and all management letters from the Company's independent certified
public accountants for the last five (5) fiscal years of the Company.
(c) The Company has maintained sufficient records, receipts, papers
and such other requisite data such that an audit of the Company's historical
financials is feasible for the fiscal years 1997 and 1998, as well as for the
ten (10) month period ended October 31, 1999.
4.10 Accounts Receivables; Accounts Payable.
--------------------------------------
(a) To the best knowledge of the Company and each of the Selling
Stockholders, none of the trade receivables and notes receivable which are
reflected on the Financial Statements, the Interim Financial Statements or which
arose subsequent to the date of the Interim Financial Statements, is or was
subject to any counterclaim or set off. All of such trade receivables arose out
of bona fide, arms-length transactions for the sale of goods or performance of
services, and all such trade receivables and notes receivable are good in the
ordinary course of business using normal collection practices at the aggregate
recorded amounts thereof, less the amount of applicable reserves for doubtful
accounts and for allowances and discounts, and the Company is aware of no reason
that such trade receivables and notes receivables are not collectible beyond
that which is reserved for in the Company's financials. All such reserves,
allowances and discounts, were and are adequate and materially consistent in
extent
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<PAGE>
with reserves, allowances and discounts previously maintained by the Company in
the ordinary course of its business. From October 31, 1999 to the date of
signing of this Agreement, there has not been a material change in the aggregate
amount of the Company's aggregate trade receivables or a Material Adverse Change
(defined below in Section 4.26) in the aging thereof.
(b) To the best knowledge of the Company and each of the Selling
Stockholders, none of the trade payables and notes payable which are reflected
on the Financial Statements, the Interim Financial Statements or which arose
subsequent to the date of the Interim Financial Statements, is or was subject to
any counterclaim or set off. All of such trade payables arose out of bona fide,
arms-length transactions for the purchase of goods or performance of services,
and all such trade payables and notes payable are good in the ordinary course of
business using normal payment practices at the aggregate recorded amounts
thereof, and the trade payables and notes payable are accurate and complete and
reflect all such payables outstanding by the Company in the ordinary course of
its business. From October 31, 1999 to the date of signing of this Agreement,
there has not been a material change in the aggregate amount of the Company's
aggregate trade payables or notes payable or a Material Adverse Change (defined
below in Section 4.26) in the aging thereof.
4.11 Bank Accounts.
-------------
The Disclosure Statement contains a list showing: (a) the name
of each bank, safe deposit company or other financial institution in which the
Company has an account, lock box or safe deposit box; (b) the names of all
persons authorized to draw thereon or to have access thereto and the names of
all persons and entities, if any, holding powers of attorney from the Company;
and (c) all instruments or agreements to which the Company is a party as an
endorser, surety or guarantor, other than checks or other instruments endorsed
for collection or deposit.
4.12 Intellectual Property.
---------------------
(a) The Company has disclosed in Schedule 4.12 all owned copyrights,
-------------
copyright registrations and copyright applications, trademark registrations and
applications for registration, patents and patent applications, trademarks,
service marks, trade names, trade secrets, or Internet domain names
(collectively, the "Disclosed Intellectual Property Rights" and together with
any and all licenses, databases, computer programs and other computer software
user interfaces, know-how, trade secrets, customer lists, proprietary
technology, processes and formulae, source code, object code, algorithms,
architecture, structure, display screens, layouts, development tools,
instructions, templates, marketing materials, inventions, trade dress, logos and
designs and all documentation and electronic media constituting, describing or
relating to the foregoing, the "Intellectual Property Rights") used in the
Company's business as presently conducted, including a list of all software
functionality in development for future versions of the Company's proprietary
software, as well as all licenses, assignments and releases of Intellectual
Property Rights of others in material works embodied in its currently supported
or in-development products, excluding off the shelf products. All Intellectual
Property Rights purported to be owned by the Company and held by any employee,
officer or consultant have been validly assigned to the Company. The
Intellectual Property Rights are sufficient to carry on the business of the
Company as presently conducted and, to the Company's knowledge, to
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the extent that specific software or functionality is currently in development
(including, without limitation, EPASS lender interactivity and mortgage411.com),
provided that for purposes of this sentence, such Intellectual Property Rights
shall not include off the shelf, third party software. The Company has exclusive
ownership of or license to use all of Company's owned Intellectual Property
Rights identified in Schedule 4.12 or has obtained any licenses, releases or
-------------
assignments reasonably necessary to use all third parties' Intellectual Property
Rights in works embodied in its products. To the best of the Company's and each
of the Selling Stockholder's knowledge, the past and present business activities
or products of the Company did not and do not infringe any Intellectual Property
Rights of others. The Company has not received any notice or other claim from
any person asserting that any of the Company's activities infringe or may
infringe any Intellectual Property Rights of such person.
(b) The Company has the right to use, free and clear of claims or
rights of others, all trade secrets, customer lists, hardware designs,
programming processes, software and other information required for or incident
to its products or its business as presently conducted or contemplated. The
Company has taken all reasonable measures to protect and preserve the security
and confidentiality of its Intellectual Property Rights. All employees and
consultants of the Company involved in the design, review, evaluation or
development of products or Intellectual Property Rights have executed
nondisclosure and assignment of inventions agreements sufficient to protect the
confidentiality of the Company's Intellectual Property Rights and to vest in the
Company exclusive ownership of such Intellectual Property Rights. All trade
secrets and other confidential information of the Company are presently valid
and protectable and are not part of the public domain or knowledge, nor have
they been used, divulged or appropriated for the benefit of any person other
than the Company or otherwise to the detriment of the Company. To the knowledge
of the Company's and each of the Selling Stockholder's, no employee or
consultant of the Company has used any trade secrets or other confidential
information of any other person in the course of their work for the Company.
(c) The Company is the exclusive owner of all right, title and
interest in its Intellectual Property Rights as purported to be owned by the
Company and such Intellectual Property Rights are valid and in full force and
effect. No university, government agency (whether federal or state) or other
organization has sponsored research and development conducted by the Company or
has any claim of right to or ownership of or other encumbrance upon the
Intellectual Property Rights of the Company. The Company is not aware of any
infringement by others of its copyrights or other Intellectual Property Rights
in any of its products, technology or services, or any violation of the
confidentiality of any of its proprietary information. To the Company's and the
Shareholders' knowledge, the Company is not making unlawful use of any
confidential information or trade secrets of any past or present employees of
the Company.
(d) Neither the Company nor, to the knowledge of the Company, any of
the Company's employees, have any agreements or arrangements with former
employers of such employees relating to confidential information or trade
secrets of such employers or are bound by any consulting agreement relating to
confidential information or trade secrets of another entity that are being
violated by such persons. The activities of the Company's employees on behalf of
the Company do not violate any agreements or arrangements known to the Company
which any such employees have with former employers or any other entity to whom
such employees may have rendered consulting services.
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<PAGE>
(e) All officers and key employees, including all developers
(contract or otherwise) of or to the Company, have executed and delivered to and
in favor of the Company an agreement regarding the protection of confidential
and proprietary information and the assignment to the Company of all
Intellectual Property Rights arising from the services performed for the Company
by such persons, the form of which has been delivered to iOwn.
(f) The Company has all franchises, permits, licenses and other
rights and privileges reasonably necessary to permit it to own its property and
to conduct its business as it is presently conducted and reasonably anticipated
to be conducted.
4.13 Company Software.
----------------
(a) Section 4.13 of the Company Disclosure Statement sets forth a
true and complete list and description of all software programs, systems and
applications (A) designed or developed or under development by employees of the
Company or by consultants on the Company's behalf (including all documentation
therefor, the "Owned Software") or (B) licensed by the Company from any third
party or constituting "off-the-shelf" software (the "Licensed Software"), in
each case that is manufactured or used by the Company in the operation of its
business or marketed, licensed or sold by the Company to third parties
(collectively, the "Software") and, in the case of Licensed Software, other than
"off-the-shelf" software, Section 4.13(a) of the Company Disclosure Statement
identifies each license agreement with respect thereto.
(b) All of the Owned Software are original works of authorship and
are protected by the copyright laws of the United States. The Company owns all
right, title and interest in and to the Owned Software, and all copyrights
thereto, free and clear of any Encumbrance and has not sold, assigned, licensed,
distributed or in any other way disposed of or subjected the Owned Software to
any Encumbrance. None of the Owned Software incorporates, is based on or is a
derivative work of any third party code that is subject to the terms of a public
source license or otherwise imposes conditions on the terms and conditions under
which the Owned Software may be used or distributed.
(c) The Licensed Software is validly held and used by the Company
and may be used by the Company pursuant to the applicable license agreement with
respect thereto without the consent of or notice to any third party and is fully
and freely utilizable by the Surviving Corporation without the consent of or
notice to any third party. To the knowledge of the Company, all of the Company's
computer hardware has validly licensed software installed therein and the
Company's use thereof does not conflict with or violate any such license.
(d) Schedule 4.13(d) of the Disclosure Statement sets forth the
licensees of the Owned Software to which the Company currently provides support
services. The Owned Software (to the Extent of versions 11 and 12 of the
Genesis 2000 product and version 1 of the WebBuilder product) is free from any
significant software defect, is free from any significant programming,
documentation error or virus ("Bugs") not inconsistent with commercially
reasonable standards acceptable for such Bugs, operates and runs in a
commercially reasonable business manner, conforms in all material respects to
the specifications thereof, and, with respect to the Owned Software, the
applications can be compiled from their associated source code without undue
burden. Except as otherwise stated in the
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<PAGE>
Disclosure Statement, the Company and the Selling Stockholders are not aware of
any Bugs in the Owned Software.
(e) The Company does not maintain any historical customer or
product usage data except for such data maintained on the EPASS server or
WebBuilder server, which such customer data has never been altered by the
Company. The Company has made all documentation relating to the use,
maintenance and operation of the Owned Software available to iOwn, all of which
is true and accurate in all material respects.
(f) All Owned Software, and, to the best knowledge of the Company,
Licensed Software (including existing products Software and technology and
Software and technology currently under development) used in the operation of
the business as presently conducted will at all times (i) record, store,
process, calculate, manage, manipulate and present calendar dates falling
before, on and after (and if applicable, spans of time including) December 31,
1999, including, without limitation, single-century formulas and multi-century
formulas and (ii) create, calculate, recognize, accept, display, store,
retrieve, accent, compare, sort, manipulate, or process any information
dependent on or relating to such dates or otherwise provide use of dates or
date-dependent or date-related data, including, but not limited to, century
recognition, day-of-the week recognition, leap years, date values and interfaces
of date functionalities, without loss of accuracy, functionality, data integrity
and performance and will provide that all date-related data and user interface
functionalities and data fields include the indication of century, provided that
the data provided by the end user or from and through third party products is
properly transmits such data in Y2K compliance as required and specified by the
Owned Software.
4.14 Title to Properties.
-------------------
Attached to the Disclosure Statement is a list and description of
each item of real or tangible personal property owned by the Company which has a
net book value in excess of $2,000. The Company (i) has good, marketable, legal
and valid title to such property free and clear of all liens, claims,
encumbrances or security interests (collectively, "Liens"), except for (A) Liens
-----
set forth on the Disclosure Statement and (B) (x) mechanic's, materialmen's, and
similar liens, (y) liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar legislation and (z) liens on
goods in transit incurred pursuant to documentary letters of credit; and (ii)
enjoys peaceful and undisturbed possession under all leases to which it is a
party as lessee. All of the leases to which the Company is a party (other than
leases for Leased Premises, as defined herein) are legal, valid and binding
obligations of the Company and in full force and effect, and no default by the
Company, or any other party thereto has occurred or is continuing thereunder. No
property or asset used by the Company in connection with the operation of its
business is held under any lease or under any conditional sale or other title
retention agreement. All tangible assets and facilities of the Company are in
good operating condition and repair.
4.15 Real Estate.
-----------
(a) The Company does not own any real estate, or have the option to
acquire any real estate (the "Real Estate").
-----------
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<PAGE>
(b) The Company does not lease any real estate other than the
premises identified in the Disclosure Statement in Schedule 4.15 as being so
-------------
leased (the "Leased Premises"). The Leased Premises are leased to the Company,
---------------
pursuant to written leases, true, correct and complete copies of which have been
provided to or made available to iOwn or its counsel. To the knowledge of the
Company, none of the improvements comprising the Leased Premises, or the
businesses conducted or proposed to be conducted by the Company thereon, are in
violation of any building line or use or occupancy restriction, limitation,
condition or covenant of record or any zoning or building law, code or
ordinance, public utility or other easements or other applicable law. The
Company is not in any material default under any agreement relating to the
Leased Premises nor is the lessor thereto in default thereunder.
(c) To the knowledge of the Company, the Leased Premises is
currently served by gas, electricity, water, sewage and waste disposal and other
utilities adequate to operate such Leased Premises at its current rate of usage,
and there are no utility companies serving any such Leased Premises that have
threatened the Company with any reduction in service.
(d) To the knowledge of the Company, there are no challenges or
appeals pending regarding the amount of the taxes on, or the assessed valuation
of, the Real Estate or the Leased Premises, and no special arrangements or
agreements exist with any governmental authority with respect thereto (the
representations and warranties contained in this Section 4.15(d) shall not be
deemed to be breached by any prospective general increase in real estate tax
rates).
(e) To the knowledge of the Company, there are no condemnation
proceedings pending or threatened with respect to any portion of the Real Estate
or the Leased Premises.
(f) To the knowledge of the Company, there is no tax assessment (in
addition to the normal, annual general real estate tax assessment) pending or
threatened with respect to any portion of the Real Estate or, to the extent the
Company is liable for payment therefor, the Leased Premises.
(g) The buildings and other facilities located on the Real Estate
and the Leased Premises are free of any material latent structural or
engineering defects known to the Company or any material patent structural or
engineering defects known to the Company.
4.16 Contracts.
---------
(a) Except as set forth in Schedule 4.16 of the Disclosure
Statement, the Company is not a party to, or bound by, or the issuer or
beneficiary of, any undischarged written or oral: (i) agreement or arrangement
obligating the Company to pay or receive, or pursuant to which the Company has
previously paid or received, an amount in excess of $10,000; (ii) employment or
consulting agreement or arrangement; (iii) collective bargaining agreement; (iv)
plan or contract or arrangement providing for bonuses, options, deferred
compensation, retirement payments, profit sharing, medical and dental benefits
or the like covering employees of the Company, other than Plans, Welfare Plans
and Employee Benefit Plans (in each case as defined herein) described in the
Disclosure Statement; (v) agreement restricting in any manner the Company's
right to compete with any other person or entity, the Company's right to sell to
or purchase from any other person or entity, the right of
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<PAGE>
any other party to compete with the Company, or the ability of such person or
entity to employ any of the Company's employees; (vi) agreement between the
Company and any of its affiliates or other Related Parties (as herein in Section
4.25 below); (vii) guaranty, performance, bid or completion bond, or surety or
indemnification agreement; (viii) requirements contract; (ix) loan or credit
agreement, pledge agreement, note, security agreement, mortgage, debenture,
indenture, factoring agreement or letter of credit; (x) agreement for the
treatment or disposal of materials of Environmental Concern (as defined herein);
(xi) power of attorney; (xii) partnership or joint venture agreement; or (xiii)
any other agreement not entered into in the ordinary course of business. Except
as set forth in Schedule 4.16 of the Disclosure Statement, the Company is not
currently negotiating (and has not entered into preliminary discussions with
respect to) any transaction involving an aggregate payment by the Company and/or
receipts to the Company in excess of $50,000.
(b) All agreements, leases, subleases and other instruments
referred to in this Section 4.16, are in full force and binding upon the
Company, and the other parties thereto. The Company is not and, to the Company's
knowledge, none of the other parties thereto are in default of a material
provision under any such agreement, lease, sublease or other instrument. No
event, occurrence or condition exists which, with the lapse of time, the giving
of notice, or both, or the happening of any further event or condition, would
become a default of a material provision under any such agreement, lease,
sublease or other instrument by the Company, or, to the knowledge of the
Company, the other contracting party. The Company has not released or waived any
material right under any such agreement, lease, sublease or other instrument.
(c) Immediately after the Closing, except as contemplated by this
Agreement, the Company will not be bound by the terms of any stock option
agreement, registration rights agreement, stockholders agreement, management
agreement, consulting agreement or any other agreement relating to the equity or
management of the Company.
(d) The Company is not a party to, or bound by, any unexpired,
undischarged or unsatisfied written or oral contract, agreement, indenture,
mortgage, debenture, note or other instrument under the terms of which
performance by the Company according to the terms of this Agreement will be a
default of a material provision under or an event of acceleration, or grounds
for termination, or whereby timely performance by the Company of this Agreement
may be prohibited, prevented or delayed.
4.17 Insurance.
---------
The Disclosure Statement contains a true and correct list of
all insurance policies which are owned by the Company or which name the Company
as an insured (or loss payee), including without limitation those which pertain
to the Company's assets, employees or operations. All such insurance policies
are in full force and effect and the Company has not received notice of
cancellation of any such insurance policies. In the three (3) year period ending
on the date hereof, the Company has not received any written notice from, or on
behalf of, any insurance carrier relating to or involving an annual increase by
over 10% in insurance rates or non-renewal of a policy, or requiring or
suggesting material alteration of any of the Company's assets, purchase of
additional equipment, or material
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<PAGE>
modification of any of the Company's methods of doing business. The Company has
not made any claim for reimbursement from its insurance carriers since June 30,
1998.
4.18 Litigation.
----------
There is no litigation or proceeding for which the Company has
been served or of which the Company is aware, in law or in equity, and there are
no proceedings or, to the knowledge of the Company, governmental investigations
before any commission or other administrative authority, pending or, to the
knowledge of the Company, threatened against the Company, or any of the
Company's officers, directors or affiliates, with respect to or affecting the
Company's operations, business, products, sales practices or financial
condition, or related to the consummation of the transactions contemplated
hereby or by the Ancillary Documents. There are no facts known to the Company
which, if known by a potential claimant or governmental authority, would give
rise to a material claim or proceeding which, if asserted or conducted with
results unfavorable to the Company, would have a Material Adverse Effect on the
Company.
4.19 Warranties.
----------
The Company has not made any oral or written warranties with
respect to the quality or absence of defects of its products or services which
it has sold or performed which are in force as of the date hereof except as are
described in the Disclosure Statement, other than written warranties made in the
ordinary course of business.
4.20 Arbitration.
-----------
The Company is not a party to, or bound by, any decree, order
or arbitration award (or agreement entered into in any administrative, judicial
or arbitration proceeding with any governmental authority) with respect to or
affecting the properties, assets, personnel or business activities of the
Company.
4.21 Taxes.
-----
(a) As used in this Agreement, (i) the term "Taxes" means all
-----
federal, state, local, foreign and other net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, windfall profits, customs, duties or other
taxes, fees, assessments or charges of any kind whatever of a nature similar to
taxes, together with any interest and any penalties, additions to tax or
additional amounts with respect thereto, and the term "Tax" means any one of the
---
foregoing Taxes; and (ii) the term "Returns" means all returns, declarations,
-------
reports, statements and other documents required to be filed in respect of
Taxes, and the term "Return" means any one of the foregoing Returns.
------
(b) There have been properly completed and filed on a timely basis
and in correct form all Returns required to be filed by the Company. As of the
time of filing, the foregoing Returns
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<PAGE>
were correct and complete. An extension of time within which to file any Return
which has not been filed has not been requested or granted.
(c) With respect to all amounts in respect of Taxes imposed upon
the Company, or for which the Company is or could be liable, whether to taxing
authorities (as, for example, under law) or to other persons or entities (as,
for example, under tax allocation agreements), with respect to all taxable
periods or portions of periods ending on or before the date of the Interim
Financial Statements, all applicable tax laws and agreements have been
materially complied with, and all amounts required to be paid by the Company, to
taxing authorities or others, on or before the date hereof have been paid or
fully reserved for on the Financial Statements or Interim Financial Statements,
and any Taxes accrued but not due and payable as of the date of the Interim
Financial Statements have been accrued or otherwise reserved for in the Interim
Financial Statements. No Taxes have been (or will prior to the Closing Date be)
recorded by the Company other than in the ordinary course of business. There are
no Liens filed against any asset of the Company resulting from the failure to
pay any Tax when due.
(d) No issues have been raised (and are currently pending) by any
taxing authority in connection with any of the Returns. No waivers of statutes
of limitation with respect to the Returns have been given by the Company (or
with respect to any Return which a taxing authority has asserted should have
been filed by the Company) which waivers are still in effect. The Disclosure
Statement sets forth those years for which examinations have been completed,
those years for which examinations are presently being conducted, and those
years for which required Returns have not yet been filed. All deficiencies
asserted or assessments made as a result of any examinations have been fully
paid, or are fully reflected as a liability in the Financial Statements, or are
being contested and an adequate reserve therefor has been established and is
fully reflected as a liability in the Financial Statements or the Interim
Financial Statements.
(e) The unpaid Taxes of the Company do not exceed the reserve for
tax liability (excluding any reserve for deferred Taxes established to reflect
timing differences between book and tax income) set forth or included in the
Interim Financial Statements, as adjusted for the passage of time through the
Closing.
(f) The Company is not or at any time has been a party to or bound
by (nor will the Company become a party to or bound by) any tax indemnity, tax
sharing or tax allocation agreement.
(g) The Company has never been a member of an affiliated group of
corporations, within the meaning of section 1504 of the Code.
(h) All material elections with respect to Taxes affecting the
Company as of the date hereof that are not reflected in the Company's Returns
are set forth in the Disclosure Statement.
4.22 ERISA.
-----
Neither the Company nor any corporation or business which is now
or at the relevant time was an affiliate of the Company as determined under the
Code section 414(b), (c), (m) or (o) ("ERISA Affiliate") maintains, administers,
---------------
contributes to or has any liability under, or has maintained,
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<PAGE>
administered, contributed to or had any liability under, nor do the employees of
the Company, or any ERISA Affiliate receive or have any reason to expect to
receive as a condition of employment, benefits pursuant to any: employee pension
benefit plan (as defined in Section 3(2) of ERISA) ("Plan"), including, without
----
limitation, any multi-employer plan as defined in Section 3(37) of ERISA
("Multi-Employer Plan") or any non-qualified deferred compensation plan or
-------------------
retirement plan; employee welfare benefit plan (as defined in Section 3(1) of
ERISA) ("Welfare Plan"), including any other plan, program, agreement or
------------
arrangement under which former employees of the Company, or an ERISA Affiliate
(or their beneficiaries) are entitled, or current employees of the Company or an
ERISA Affiliate will be entitled, following termination of employment, to
medical, health or life insurance or other benefits other than pursuant to
benefit continuation rights granted by state or federal law; or bonus, stock,
stock purchase, or stock option plan, severance plan, salary continuation,
vacation, sick leave, fringe benefit, incentive, insurance, welfare or similar
plan or arrangement ("Employee Benefit Plan") other than those Plans, Welfare
---------------------
Plans and Employee Benefit Plans described in the Disclosure Statement;
(a) All Plans, Welfare Plans and Employee Benefit Plans and any
related trust agreements, insurance contracts or annuity contracts (or any
related trust instruments) comply with and are and have been operated in
accordance with each applicable provision of ERISA, the Code (including, without
limitation, the requirements of Code section 401(a) to the extent any Plan is
intended to conform to that section), other Federal statutes, state law
(including, without limitation, state insurance law) and the regulations and
rules promulgated pursuant thereto or in connection therewith. Neither the
Company nor any ERISA Affiliate has any notice or knowledge of any violation of
any of the foregoing by any Plan, Welfare Plan, or Employee Benefit Plan. Each
Welfare Plan which is a group health plan (within the meaning of section
5000(b)(1) of the Code) complies with and has been maintained and operated in
accordance with each of the requirements of section 162(k) of the Code as in
effect for years beginning prior to 1989, Section 4980B of the Code for years
beginning after December 31, 1988 and Part 6 of Subtitle B of Title I of ERISA.
A favorable determination as to the qualification under the Code of each of the
Plans which is intended to qualify under section 401 of the Code and each
material amendment thereto has been made by the Internal Revenue Service
("IRS"), or if it has not been made, can still be made pursuant to extended
---
deadlines promulgated by the IRS, each trust funding Welfare Plans or Plans is
and has been tax-exempt and each Plan and related trust agreement remain
qualified under the Code. Future compliance with the requirements of ERISA and
the Code as in effect on the date hereof and any collective bargaining
agreements to which the Company or any ERISA Affiliate is subject or bound will
not result in any increase in benefits under any Plan or any Welfare Plan. All
required reports, notices and descriptions with respect to the Plans, Welfare
Plans and Employee Benefit Plans have been appropriately filed or distributed
(including without limitation IRS Forms 5500 Annual Reports, summary plan
descriptions, summary annual reports, notice to interested parties and any
notice of plan amendment which is required prior to the effectiveness of such
amendments) and all required surety bonds have been properly and timely
purchased and maintained. The costs of administering the Plans, Welfare Plans
and Employee Benefit Plans, including fees for the trustees and other service
providers which are customarily paid by the Company, have been paid or will be
paid or accrued on the Company's financial statements prior to the date hereof.
(b) Neither any Plan or Welfare Plan fiduciary nor any Plan or
Welfare Plan has engaged in any transaction in violation of Section 406 of ERISA
or any "prohibited transaction" (as
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<PAGE>
defined in section 4975(c)(1) of the Code) for which a valid exemption is not
available. Neither the Company nor any ERISA Affiliate has failed to make any
contributions or to pay any amounts due and owing to a Plan, Welfare Plan or
Employee Benefit Plan, including, in all cases, Multi-Employer Plans, as
required by the terms of any Plan, Welfare Plan or Employee Benefit Plan, or
collective bargaining agreement or ERISA or any other applicable law. There has
been no reduction or curtailment of accrued benefits with respect to any of the
Plans. Full payment has been made or such amount has been accrued on the
Company's financial statements of all amounts which the Company or any ERISA
Affiliate is required or committed to pay to the Plans as of the date hereof;
(c) True and complete copies of each Plan, Welfare Plan and
Employee Benefit Plan, related trust agreements, insurance contracts, annuity
contracts or other funding vehicles, determination letters, summary plan
descriptions, copies of any pending applications, filings or notices with
respect to any of the Plans, Welfare Plans or Employee Benefit Plans with the
IRS, the Pension Benefit Guaranty Corporation ("PBGC"), the Department of Labor
----
or any other governmental agency, copies of all corporate resolutions or other
documents pertaining to the adoption of the Plans, Welfare Plans or Employee
Benefit Plans or any amendments thereto or to the appointment of any fiduciaries
thereunder and copies of any investment management agreements thereunder and of
any fiduciary insurance policies, surety bonds, rules, regulations or policies,
of the trustees or of any committee thereunder, all communications and notices
to employees regarding any Plan, Welfare Plan, or Employee Benefit Plan, annual
reports on Form 5500, Form 990 financial statements and actuarial reports for
the most recent five Plan years, and each plan, agreement, instrument and
commitment referred to herein, have been furnished to iOwn and its counsel, and
all such Plans, Welfare Plans, or Employee Benefit Plans are listed on the
Disclosure Statement. All of the foregoing are legally valid, binding, in full
force and effect, and there are no defaults thereunder; and none of the rights
of the Company thereunder will be impaired by this Agreement or the consummation
of the transaction contemplated hereby. The annual reports on Form 5500
furnished to iOwn fully and accurately set forth the financial and actuarial
condition of each Plan and each trust funding any Welfare Plan. With respect to
each Plan, Welfare Plan and Employee Benefit Plan, the Disclosure Statement sets
forth the name and address of the administrator and trustees and the policy
number and insurer under all insurance policies;
(d) The aggregate present value of all accrued benefits, both
vested and non-vested, pursuant to each Plan subject to Title IV of ERISA,
determined on the basis of current participation and projected compensation for
active participants, and including the maximum value of all subsidized benefits,
and earnings, set forth in the 1995 actuarial report for the Plan, using PBGC
actuarial assumptions and methods applicable to a defined benefit pension plan
terminating on such date, does not exceed the current fair market value of Plan
assets. None of the Plans, Welfare Plans or Employee Benefit Plans has any
material unfunded liabilities which are not reflected on the Financial
Statements or, in the case of a Plan, on the latest actuarial report issued with
respect to such Plans. None of the Plans is a "top-heavy" plan, as defined in
Section 416 of the Code. The Company does not have plans, programs, arrangements
and has not made any other commitments to its employees, former employees or
their beneficiaries under which it has any obligation to provide any retiree or
other employee benefit payments which are not adequately funded through a trust
or other funding arrangement. There have been no changes in the operation or
interpretation of any of the Plans, Welfare Plans or Employee Benefit Plans
since the most recent annual report or actuarial report which would have any
material
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<PAGE>
effect on the cost of operating or maintaining such Plans, Welfare Plans or
Employee Benefit Plans; and
(e) There are no pending or threatened claims, lawsuits or
arbitration asserted or instituted against any of the Plans, Welfare Plans, or
Employee Benefit Plans, other than, in each case, Multi-Employer Plans, or any
fiduciaries thereof, except in the case of Multi-Employer Plans, fiduciaries
that are officers, employees, directors, agents or owners of the Company or
ERISA Affiliates of the Company, with respect to their duties to the Plan,
Welfare Plans or Employee Benefit Plan or the assets of any trusts thereunder,
by any employee or beneficiary covered under any Plans, Welfare Plans or
Employee Benefit Plans or otherwise involving any Plan, Welfare Plan or Employee
Benefit Plan (other than routine claims for benefits); and the Company has no
knowledge of any facts which would give rise to or could reasonably be expected
to give rise to any such claims, lawsuits or arbitrations. To the knowledge of
the Company, neither the Company nor any its ERISA Affiliates, nor any of their
directors, officers, employees or any other "fiduciary," as such term in defined
in Section 3(21) of ERISA, has any liability for failure to comply with ERISA or
the Code or failure to act in connection with the administration or investment
of any Plan.
4.23 Labor Matters.
-------------
Except as set forth in the Disclosure Statement or for events
that occur after the date hereof which are disclosed in writing by the Company
to iOwn, (a) there is no labor strike, dispute, slowdown, work stoppage or
lockout pending or, to the knowledge of the Company, threatened against or
affecting the Company and during the past three years, there has not been any
such action; (b) there are no union claims to represent the employees of the
Company, (c) the Company is not a party to or bound by any collective bargaining
or similar agreement with any labor organization, or work rules or practices
agreed to with any labor organization or employee association applicable to
employees of the Company; (d) none of the employees of the Company are
represented by any labor organization and the Company does not have any
knowledge of any current union organizing activities among the employees of the
Company, nor to the knowledge of the Company does any question concerning
representation exist concerning such employees; (e) to the knowledge of the
Company, the Company is, and has at all times been, in material compliance with
all applicable employment laws and practices, including, without limitation, any
such laws relating to employment discrimination, occupational safety and health
and unfair labor practices; (f) there is no unfair labor practice charge or
complaint against the Company pending or, to the knowledge of the Company,
threatened before the National Labor Relations Board or, to the knowledge of the
Company, any charges or complaints, or facts which could give rise to a charge
or complaint, pending or threatened with any Governmental Entity who has
jurisdiction over unlawful employment practices; (g) there is no grievance or
arbitration proceeding arising out of any collective bargaining agreement or
other grievance procedure pending relating to the Company; (h) the Company is
not delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
them to the date of this Agreement or amounts required to be reimbursed to such
employees; (i) upon termination of the employment of any of the employees of the
Company after the Closing, the Company will not be liable to any of its
employees for severance pay; (j) the employment of each of the Company's
employees is terminable at will without cost to the Company except for payments
disclosed on the Disclosure Statement or required under the Plans, Welfare Plans
and Employee
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<PAGE>
Benefit Plans and payment of accrued salaries or wages and vacation pay; (k) no
employee or former employee of the Company has any right to be rehired by the
Company prior to the Company's hiring a person not previously employed by the
Company; and (1) the Disclosure Statement contains a true and complete list of
all employees who are employed by the Company as of October 31, 1999, and said
list correctly reflects their salaries, wages, other compensation (other than
benefits under the Plans, Welfare Plans and Employee Benefit Plans), dates of
employment and positions. The Company does not owe any past or present employee
any sum in excess of $50,000 individually or $100,000 in the aggregate other
than for accrued wages or salaries for the current payroll period, and amounts
payable under Plans, Welfare Plans or Employee Benefit Plans. No employee owes
any sum to the Company in excess of $50,000, and all employees together do not
owe the Company in excess of $100,000.
4.24 Interim Conduct of Business.
---------------------------
Except as otherwise contemplated by this Agreement, and as
reflected in the Interim Financial Statements, between October 31, 1999 and the
date of signing of this Agreement, the Company has not:
(a) sold, assigned, leased, exchanged, transferred or otherwise
disposed of any portion of its assets or property, except for sales of Inventory
and cash applied in the payment of the Company's Liabilities in the usual and
ordinary course of business in accordance with the Company's past practices;
(b) written off any asset which has a net book value which exceeds
$10,000 individually or $50,000 in the aggregate in value, or suffered any
casualty, damage, destruction or loss, or interruption in use, of any material
asset, property or portion of Inventory (whether or not covered by insurance),
on account of fire, flood, riot, strike or other hazard or Act of God;
(c) waived any material right arising out of the conduct of, or
with respect to, its business;
(d) made (or committed to make) capital expenditures in an amount
which exceeds $10,000 for any item or $50,000 in the aggregate;
(e) made any change in accounting methods or principles;
(f) borrowed any money or issued any bonds, debentures, notes or
other corporate securities (other than equity securities), including without
limitation, those evidencing borrowed money;
(g) entered into any transaction with, or made any payment to, or
incurred any liability to, any Related Party (as defined herein) in an amount
which exceeds $25,000 or $100,000 in the aggregate (except for payment of salary
and other customary expense reimbursements made in the ordinary course of
business to Related Parties who are employees of the Company);
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<PAGE>
(h) increased the compensation payable to any employee, except for
normal pay increases in the ordinary course of business consistent with past
practices;
(i) made any payments or distributions to its employees, officers
or directors except such amounts as constitute currently effective compensation
for services rendered, or reimbursement for reasonable ordinary and necessary
out-of-pocket business expenses;
(j) paid or incurred any management or consulting fees, or engaged
any consultants, except in the ordinary course of business;
(k) hired any employee who has an annual salary in excess of
$50,000, or employees with aggregate annual salaries or wages in excess of
$100,000;
(l) terminated any employee having an annual salary or wages in
excess of $100,000 or employees with aggregate annual salaries or wages in
excess of $100,000;
(m) adopted any new Plan, Welfare Plan or Employee Benefit Plan;
(n) issued or sold any securities of any class, except for the
grant or exercise of options to purchase Company Common Stock under the Company
Stock Option Plan;
(o) paid, declared or set aside any dividend or other distribution
on its securities of any class, except as contemplated by this Agreement with
respect to the Preferred Stock, or purchased, exchanged or redeemed any of its
securities of any class; or
(p) without limitation by the enumeration of any of the foregoing,
entered into any transaction other than in the usual and ordinary course of
business in accordance with past practices.
Notwithstanding the foregoing, the Company shall not be deemed to have breached
the terms of this Section 4.24 by entering into this Agreement or by
consummating the transactions contemplated hereby.
4.25 Affiliated Transactions.
-----------------------
Since January 1, 1998, the Company has not been a party to any
transaction (other than employee compensation and other ordinary incidents of
employment) in excess of $25,000 individually or $100,000 in the aggregate with
a "Related Party". For purposes of this Agreement, the term "Related Party"
------------- -------------
shall mean: any present or former officer or director present 10% stockholder or
present affiliate of the Company, any present or former known spouse, ancestor
or descendant of any of the aforementioned persons or any trust or other similar
entity for the benefit of any of the foregoing persons. No property or interest
in any property (including, without limitation, designs and drawings concerning
machinery) which relates to and is or will be necessary or useful in the present
or currently contemplated future operation of the Company's business, is
presently owned by or leased or licensed by or to any Related Party. Prior to
the Closing, all amounts due and owing to or from the Company by or to any of
the Related Parties (excluding employee compensation and other incidents of
employment)
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<PAGE>
shall be paid in full. Neither the Company, nor to the Company's knowledge, any
Related Party has an interest, directly or indirectly, in any business,
corporate or otherwise, which is in competition with the Company's business.
4.26 Material Adverse Change.
-----------------------
Between October 31, 1999 and the date of signing of this
Agreement, the Company has not suffered any material adverse change in the
business, operations, assets, liabilities, financial condition or prospects of
the Company; provided that the Company is operating in a substantially similar
manner and the market conditions are substantially similar to those at the time
of this Agreement. For purposes of this Agreement, "Material Adverse Change"
shall mean any condition, event, or circumstance which is reasonably likely or
has resulted in damages, costs or expenses in excess of fifty thousand dollars
($50,000); provided that in no event shall any change that results solely from a
change in accounting method (i.e. from cash to accrual accounting) be considered
a Material Adverse Change or be deemed in any way to have resulted in damages,
costs or expenses to the Company.
4.27 Bribes.
------
Neither the Company, nor, to its knowledge, any of its current
officers, directors, employees, agents or representatives has made, directly or
indirectly, with respect to the Company, or its respective business activities,
any bribes or kickbacks, illegal political contributions, payments from
corporate funds not recorded on the books and records of the Company, payments
from corporate funds to governmental officials, in their individual capacities,
for the purpose of affecting their action or the action of the government they
represent, to obtain favorable treatment in securing business or licenses or to
obtain special concessions, or illegal payments from corporate funds to obtain
or retain business.
4.28 Absence of Indemnifiable Claims, etc.
------------------------------------
There are no pending claims and, to the knowledge of the
Company, no facts that would entitle any director, officer or employee of the
Company to indemnification by the Company under applicable law, the Certificate
of Incorporation or By-laws of the Company or any insurance policy maintained by
the Company, other than written indemnities in the ordinary course of business.
4.29 No Undisclosed Liabilities.
--------------------------
There are no material liabilities of the Company other than (i)
liabilities disclosed or provided for in the Financial Statements and Interim
Financial Statements; (ii) liabilities under this Agreement (or contemplated
hereby) or disclosed in the Disclosure Statement and (iii) liabilities incurred
between October 31, 1999 and the date of signing of this Agreement, other than
in the ordinary course of business and consistent with past practices of the
Company. For purposes of this Section 4.29, a "material liability" shall mean
any condition, event, or circumstance which is
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<PAGE>
reasonably likely to or has resulted in damages, costs or expenses in excess of
fifty thousand dollars ($50,000).
4.30 No Brokers.
----------
The Company has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of the
Company or iOwn or iOwn Sub to pay any finder's fee, brokerage or agent's
commissions or other like payments in connection with negotiations leading to
this Agreement or the consummation of the transactions contemplated hereby.
4.31 Tax Free Reorganization.
-----------------------
The Company has not taken or failed to take any action which
would prevent the Merger from constituting a reorganization within the meaning
of Section 368(a)(2)(D) of the Code.
4.32 Disclosure.
----------
No representation or warranty by or information supplied or to
be supplied by the Company or each of the Selling Stockholders contained in this
Agreement and no statement contained in the Disclosure Statement, certificates
or other documents or instruments delivered or to be delivered pursuant to this
Agreement by the Company or its representatives or any of the Selling
Stockholders contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary to make the statements
contained therein not misleading.
4.33 Company Customers.
-----------------
The Company has no fewer than [*] of the Company's Genesis
2000 loan origination software. Under those office licenses, there exist up to
[*] for the Company's Genesis 2000 loan origination software. No fewer than [*]
or upgrades to Version 12 of the Company's Genesis 2000 loan origination
software have been acquired.
ARTICLE V
COVENANTS
5.1 Alternative Proposals.
---------------------
Prior to the Effective Time, the Company agrees (a) except to
the extent required by fiduciary duty obligations under applicable laws, that it
shall not, and it shall direct and cause its officers, directors, employees,
agents and representatives (including, without limitation, any investment
banker, attorney or accountant retained by it) not to, initiate, respond to,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its Stockholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, the Company (any
such proposal or offer being hereinafter referred to
[*] Confidential Treatment Requested
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<PAGE>
as an "Alternative Proposal") or engage in any negotiations concerning, or
--------------------
provide any confidential information or data to, or have any discussions with,
any person relating to an Alternative Proposal, or otherwise facilitate any
effort or attempt to make or implement an Alternative Proposal; (b) that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing, and it will take the necessary steps to inform the
individuals or entities referred to above of the obligations undertaken in this
Section 5.1; and (c) that it will notify iOwn immediately if any such inquiries
or proposals are received by, any such information is requested from, or any
such negotiations or discussions are sought to be initiated or continued with,
it and provide iOwn with the details of any such proposal, other than the
identity of such prospective third party.
5.2 Interim Operations.
------------------
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, except
as set forth in the Disclosure Statement, unless iOwn has consented in writing
thereto, the Company:
(a) Shall conduct its operations according to its usual,
regular and ordinary course in substantially the same manner as
heretofore conducted;
(b) To the extent consistent with its business, shall use
its reasonable efforts to preserve intact its business organization
and goodwill, keep available the services of its officers and
employees and maintain satisfactory relationships with those persons
having business relationships with it;
(c) Shall not amend its Certificate of Incorporation or By-
Laws or comparable governing instruments, except as contemplated by
this Agreement;
(d) Shall promptly notify iOwn of any material emergency or
other Material Adverse Effect of the Company, any litigation or
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the breach of any
representation or warranty contained herein;
(e) Shall not (A) except pursuant to the exercise of
options, warrants, conversion rights and other contractual rights
existing on the date hereof and disclosed pursuant to this Agreement,
issue any shares of its capital stock, effect any stock split or
otherwise change its capitalization as it existed on the date hereof;
(B) grant, confer or award any option, warrant, conversion right or
other right not existing on the date hereof to acquire any shares of
its capital stock, except pursuant to the Company Stock Option Plans;
(C) increase any compensation or enter into or amend any employment
agreement with any of its present or future officers, directors or
employees, except for normal increases consistent with past practice;
(D) grant any severance or termination package to any employee or
consultant, except to the extent consistent with past practices; (E)
hire any new employee who shall have a salary of greater than
$50,000.00, or terminate the employment of any employee not in the
normal course of business; or (F) adopt any
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<PAGE>
new employee benefit plan (including any stock option, stock benefit
or stock purchase plan) or amend any existing employee benefit plan in
any material respect, except for changes which are less favorable to
participants in such plans;
(f) Shall not (A) declare, set aside or pay any dividend or
make any other distribution or payment with respect to any shares of
its capital stock or other ownership interests; or (B) directly or
indirectly, redeem, purchase or otherwise acquire any shares of its
capital stock, or make any commitment for any such action, except as
set forth in Section 5.9;
(g) Shall not enter into any agreement or transaction, or
agree to enter into any agreement or transaction, outside the ordinary
course of business, including, without limitation, any transaction
involving a merger, consolidation, joint venture, partial or complete
liquidation or dissolution, reorganization, recapitalization,
restructuring or a purchase, sale, lease or other disposition of a
material portion of assets or capital stock;
(h) Shall not incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities
or warrants or rights to acquire any debt securities of others other
than (i) in the ordinary course of its business consistent with past
practices, but in no event in an amount exceeding $10,000 individually
or $100,000 in the aggregate (other than normal expenditures for the
purchase of raw materials or other supplies) or (ii) pursuant to the
Company's bank line of credit in the ordinary course of business
consistent with past practices;
(i) Shall not make any loans, advances or capital
contributions to, or investments in, any other Person (as defined
below), except for loans to employees made in connection with the
purchase of Company Common Stock under existing option agreements and
advances of expenses made to employees in the ordinary course of
business;
(j) Except as described in the Disclosure Statement, shall
not make or commit to made any capital expenditures in excess of
$25,000 individually or $100,000 in the aggregate;
(k) Shall not apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any amount
payable directly or indirectly to or for the benefit of any affiliate
or Related Party of the Company or enter into any transaction with any
affiliate or Related Party of the Company (except for payment of
salary and other customary expense reimbursements made in the ordinary
course of business to Related Parties who are employees of the
Company);
(l) Shall not alter the manner of keeping its books,
accounts or records, or change in any manner the accounting practices
therein reflected;
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<PAGE>
(m) Shall not grant or make any mortgage or pledge or
subject itself or any of its material properties or assets to any
lien, charge or encumbrance of any kind, except Liens for taxes not
currently due; and
(n) Shall maintain insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
currently in effect.
The word "Person" means an individual, a corporation, a limited
------
liability company, a partnership, an association, a trust or any other entity or
organization, or any affiliate (as that term is defined in the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder) of any of the foregoing.
5.3 Filings; Other Action.
---------------------
Subject to the terms and conditions herein provided, the Company
and iOwn shall: (a) use all reasonable efforts to cooperate with one another in
(i) determining which filings are required to be made prior to the Effective
Time with, and which consents, approvals, permits or authorizations are required
to be obtained prior to the Effective Time from, governmental or regulatory
authorities of the United States, the several states and foreign jurisdictions
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby; and (ii) timely making all
such filings and timely seeking all such consents, approvals, permits or
authorizations; (b) use commercially reasonable efforts to obtain all consents
under or with respect to, any contract, lease, agreement, purchase order, sales
order or other instrument, Permit or Environmental Permit, where the
consummation of the transactions contemplated hereby would be prohibited or
constitute an event of default, or grounds for acceleration or termination, in
the absence of such consent; and (c) take, or cause to be taken, all other
commercially reasonable actions as are reasonably necessary, proper or
appropriate to consummate and make effective the transactions contemplated by
this Agreement. If, at any time after the Effective Time, any further
commercially reasonable action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors of iOwn and the
Surviving Corporation shall take all such necessary action.
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<PAGE>
5.4 Inspection of Records.
---------------------
From the date hereof to the Effective Time, the Company shall (a)
allow all designated officers, attorneys, accountants and other representatives
of iOwn access at all reasonable times to the offices, records and files,
correspondence, audits and properties, as well as to all information relating to
commitments, contracts, titles and financial position, or otherwise pertaining
to the business and affairs of the Company, other than customer identities,
unless otherwise agreed to by the Company; (b) furnish to iOwn, its counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information as such persons may reasonably request;
and (c) instruct the employees, counsel and financial advisors of the Company to
reasonably cooperate with iOwn and its investigation of the business of the
Company. From the date hereof to the Effective Time, iOwn shall (a) furnish to
the Company, its counsel, financial advisors, auditors and other authorized
representative such financial and operating data and other information as such
persons may reasonably request, and (b) instruct the officers, counsel and
financial advisors of iOwn to cooperate with the Company in its investigation of
the business of iOwn or iOwn Sub. All information disclosed by the Company to
iOwn and its representatives or by iOwn to the Company and its representatives
shall be subject to the terms of that certain Non-Disclosure Agreement (the
"Confidentiality Agreement") dated as of August 19, 1999 between iOwn and the
-------------------------
Company, which shall be in the form of Exhibit F hereto.
5.5 Publicity.
---------
No parties to this Agreement shall make any press release or
public announcement with respect to this Agreement, the Merger or the
transactions contemplated hereby without the prior written consent of the other
parties hereto.
5.6 Prompt Action.
-------------
Each party hereto shall, subject to the fulfillment at or before
the Effective Time of each of the conditions of performance set forth herein or
the waiver thereof, promptly perform such acts and execute such documents as may
be reasonably required to effect the Merger.
5.7 Expenses.
--------
Whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses; provided that iOwn
shall bare all fees and costs associated with PricewaterhouseCoopers' audit of
the Company's finances (and Arthur Anderson if iOwn requires such auditor's
services).
5.8 Tax Treatment of Merger.
-----------------------
From and after the date hereof and until the Effective Time, none
of iOwn, iOwn Sub, the Company or any of their respective affiliates shall
knowingly take any action, or knowingly fail to take any action, that would
jeopardize qualification of the Merger as a reorganization within the
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<PAGE>
meaning of Section 368(a) of the Code or enter into any contract, agreement,
commitment or arrangement with respect to the foregoing.
5.9 Company Cash and Deposits. From time to time after the date of
-------------------------
this Agreement each of the Selling Stockholders, in proportion to his percentage
ownership in the Company, shall be entitled to continue to receive regular
distributions consistent with past practices and immediately prior to the
Closing are entitled to withdraw all remaining cash and deposits of the Company.
5.10 Error and Omissions Insurance. iOwn agrees to continue in full
-----------------------------
force and effect the Company's current errors and omissions insurance for a term
of no fewer than twenty-four (24) months from the Effective Date. Any proceeds
from such insurance policies shall be first equally applied against any Damages
(as defined in Section 7.2(a) hereof) owing by the Selling Stockholders
hereunder.
5.11 Audit Assistance. The Company and the Selling Stockholders
----------------
agree that they will reasonably cooperate with iOwn's auditors to assist the
auditors in promptly completing an audit of the Company's financials (including
an audit of the Company's historical financials). iOwn, the Company and the
Selling Stockholders will use best efforts to complete the Company audit as
quickly as possible.
5.12 Company Controller. The Company and Selling Stockholders agree
------------------
to allow iOwn between the date of signing of this Agreement and the Closing to
place an iOwn employee or representative in the Company to observe all financial
matters of the Company during such period. The Company and Selling Stockholders
agree to report all material financial transactions during such period to the
iOwn employee or representative so placed.
ARTICLE VI
CONDITIONS
6.1 Conditions to Each Party's Obligation to Effect the Merger.
----------------------------------------------------------
The respective obligations of each party to effect the Merger
shall be subject to the fulfillment at or prior to the Closing Date of each of
the following conditions (unless waived by each of the parties hereto in
accordance with the provisions of Section 8.6 hereof):
(a) No preliminary or permanent injunction or other order or decree
by any federal or state court which prevents the consummation of the Merger or
materially changes the terms or conditions of this Agreement shall have been
issued and remain in effect. In the event any such order or injunction shall
have been issued, each party agrees to use its reasonable efforts to have any
such injunction lifted.
(b) All material consents, authorizations, orders and approvals of
(or filings or registrations with) any governmental commission, board or other
regulatory body required in
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<PAGE>
connection with the execution, delivery and performance of this Agreement shall
have been obtained or made, except for filings in connection with the Merger and
any other documents required to be filed after the Effective Time.
(c) iOwn, the Stockholders, Brokers and the Escrow Agent shall have
entered into the Escrow Agreement.
(d) This Agreement and the Merger and other transactions
contemplated hereby shall have been approved and adopted by the requisite vote
of the Stockholders.
6.2 Conditions to Obligation of the Company to Effect the Merger.
------------------------------------------------------------
The obligation of the Company and the Selling Stockholders to
effect the Merger shall be subject to the fulfillment at or prior to the Closing
Date of the following conditions (unless waived by the Company in accordance
with the provisions of Section 8.6 hereof):
(a) iOwn and iOwn Sub shall have performed, in all material
respects, all of its agreements contained herein that are required to be
performed by iOwn and iOwn Sub on or prior to the Closing Date, and the Company
shall have received a certificate of the Chairman or President of iOwn and iOwn
Sub, dated the Closing Date, certifying to such effect.
(b) The representations and warranties of iOwn and iOwn Sub
contained in this Agreement and in any document delivered in connection herewith
shall be true and correct as of the Closing in all material respects, and the
Company shall have received a certificate of the President or Chief Financial
Officer of iOwn, dated the Closing Date, certifying to such effect.
(c) The Company shall have received from iOwn certified copies of
the resolutions of iOwn's and iOwn Sub's Boards of Directors approving and
adopting this Agreement, the iOwn Ancillary Documents and the transactions
contemplated hereby and thereby.
(d) From the date of this Agreement through the Effective Time,
there shall not have occurred any event that would have or would be reasonably
likely to have a Material Adverse Effect in the financial condition, business,
operations or prospects of iOwn and iOwn Sub, taken as a whole.
(e) iOwn shall have executed and delivered the Notes and security
documents to each of the Selling Stockholders.
(f) iOwn and iOwn Sub shall have executed and delivered such other
documents and taken such other actions as the Company or the Selling
Stockholders shall reasonably request.
(g) iOwn shall have paid [*] into the Company at the time of the
Closing.
(h) The Company shall have received the opinion of Perkins Coie LLP
in the form attached hereto as Exhibit G.
[*] Confidential Treatment Requested
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<PAGE>
(i) Promptly after the Closing, the Surviving Corporation shall
assign the rights to and delegate all obligations under the identified
automobile leases in the Disclosure Statement to each of the Selling
Stockholders, as directed by such individuals. Each Selling Stockholder agrees
to hold harmless and indemnify the Surviving Corporation and iOwn for any and
all liabilities arising from such leases at and after the effective date of the
assignment and delegation. All parties shall reasonably cooperate with each
other in concluding such transactions.
6.3 Conditions to Obligation of iOwn and iOwn Sub to Effect the
-----------------------------------------------------------
Merger.
- ------
The obligations of iOwn and iOwn Sub to effect the Merger shall
be subject to the fulfillment at or prior to the Closing Date of the following
conditions (unless waived by the Company in accordance with the provisions of
Section 8.6 hereof):
(a) The Company shall have performed, in all material respects, all
of its agreements contained herein that are required to be performed by the
Company on or prior to the Closing Date, and iOwn shall have received a
certificate of the Chairman or President of the Company, dated the Closing Date,
certifying to such effect.
(b) The representations and warranties of the Company contained in
this Agreement and in any document delivered in connection herewith shall be
true and correct as of the Closing, in all material respects, and iOwn shall
have received a certificate of the Chairman or President of the Company, dated
the Closing Date, certifying to such effect.
(c) iOwn shall have received from the Company certified copies of the
resolutions of the Company's Board of Directors and Stockholders approving and
adopting this Agreement, the Company Ancillary Documents and the transactions
contemplated hereby and thereby.
(d) No holders of outstanding shares of Company Common Stock shall
have perfected dissenters rights under applicable law.
(e) The Company shall have received all necessary consents with
respect to any material contract, lease, purchase order, sales order, license
agreement, Permit, and license which are required as a result of a change of
control of the Company.
(f) Each Selling Stockholder shall have entered into an Employment
Agreement in the form attached hereto as Exhibit D and 75% of the current
-
Company employees shall have signed employment agreements or offer letters on
the principal terms set forth in Exhibit H
---------
(g) The Company shall have executed and delivered such other
documents and taken such other actions as iOwn shall reasonably request.
(h) iOwn shall have received the opinion of Anik & Heiberg Law
Offices, in the form attached hereto as Exhibit I.
ARTICLE VII
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<PAGE>
INDEMNIFICATION
7.1 General.
-------
From and after the Closing, the parties shall severally be
responsible to indemnify each other as provided in this Article VII. For the
purposes of this Article VII, each party shall be deemed to have remade all of
its representations and warranties contained in this Agreement at the Closing
with the same effect as if originally made at the Closing; provided, however,
that the iOwn Disclosure Statement and the Disclosure Statement may be updated
at the Closing by iOwn or the Company, as the case may be, and no indemnity
shall be provided hereunder with respect to the matters set forth therein,
including, without limitation, delivery of a balance sheet revised as of the
Closing. No disclosure contained in the updated iOwn Disclosure Statement or the
Disclosure Statement, as the case may be, shall be deemed a waiver of iOwn's or
the Company's representations and warranties made on the date hereof with
respect to the conditions to closing set forth in Sections 6.2(b) and 6.3(c)
hereof; provided, however, that any updates contained in the iOwn Disclosure
Statement or the Disclosure Statement that were permitted pursuant to Section
5.2 hereof shall not give either party the right to terminate this Agreement
pursuant to Article VIII hereof.
Subject to further limitations stated in this Article VII hereof
and Section 5.10, (i) the maximum liability of each Selling Stockholder under
this Article VII shall not exceed more than one-third of the asserted or awarded
claim or damages, (ii) the respective iOwn Indemnitees, as defined below, shall
be obligated to take any and all actions to mitigate any and all damages
sustained by such parties, provided that such duty to mitigate shall in no way
limit iOwn's ability to make any claim under Section 7 hereunder, and (iii) all
claims, actions, demands and collection efforts must be equally taken by the
iOwn Indemnitees against each of the Selling Stockholders, provided that the
unavailability of one or more Selling Stockholders shall in no way limit iOwn's
ability to make any claim under Section 7 hereunder against the other available
Selling Stockholders, subject to their respective liability limitations
hereunder. At no time shall any of the Selling Stockholders be responsible for
the liabilities of the other Selling Stockholders. Any insurance proceeds paid
pursuant to Section 5.10 shall first off-set any liability payments due and
owing by the Selling Stockholders hereunder.
7.2 Certain Definitions.
-------------------
As used in this Article VII, the following terms shall have the
indicated meanings:
(a) "Damages" shall mean all liabilities, assessments, levies,
-------
losses, taxes, fines, penalties, damages, costs and expenses, including, without
limitation, reasonable fees and expenses of attorneys, accountants and other
professionals, actually sustained or incurred by an Indemnified Party in
connection with the defense or investigation of any claim (after giving effect
to any insurance proceeds actually received by an Indemnified Party).
(b) "Indemnified Party" shall mean a party hereto who is entitled to
-----------------
indemnification from another party hereto pursuant to this Article VII.
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(c) "Indemnifying Party" shall mean a party hereto who is required to
------------------
provide indemnification under this Article VII to another party hereto.
(d) "Third Party Claims" shall mean any claims for Damages which are
------------------
asserted or threatened by a party other than the parties hereto, their
successors and permitted assigns, against any Indemnified Party or to which an
Indemnified Party is subject.
(e) "iOwn" shall mean iOwn and iOwn Sub for purposes of this Article
----
VII, where not otherwise stated in such manner.
7.3 The Stockholders' Indemnification Obligations.
---------------------------------------------
(a) Subject to the limitations stated in this Article VII, each of
the Company and the Selling Stockholders shall severally be responsible to
indemnify, save and keep iOwn, iOwn Sub, the Surviving Corporation, each of
their respective subsidiaries and their respective successors and permitted
assigns (each an "iOwn Indemnitee" and collectively the "iOwn Indemnitees")
--------------- ----------------
harmless against and from all Damages sustained or incurred by any iOwn
Indemnitee, as a result of or arising out of: (a) any inaccuracy in or breach of
any representation and warranty made by the Company to iOwn or iOwn Sub herein
or in any Ancillary Document; and (b) any breach by the Company, or the
Stockholders' Agent of, or failure of the Company, or the Stockholders' Agent to
comply with, any of the covenants or obligations under this Agreement or the
Ancillary Documents to be performed by the Company, or the Stockholders' Agent
(including without limitation the Stockholders' obligations under this Article
VII).
(b) Except with respect to (i) claims based on intentional fraud
committed by the Company or any Selling Stockholders which are not limited and
(ii) claims under Sections 4.4 (Capitalization), 4.12 (Intellectual Property)
and 4.21 (Taxes), with respect to which the limitations are set forth in Section
7.5 hereof and for which claims must be brought first against the Escrow Shares
to the extent thereof, iOwn agrees that iOwn's sole and exclusive remedy and
recourse against the Company and each of the Selling Stockholders and each
Selling Stockholder's maximum liability under this Agreement for Damages
attributable to any inaccuracy in or breach of any representations or warranties
or covenants contained herein shall be against and up to such Selling
Stockholder's pro rata share held in escrow pursuant to the Escrow Agreement.
In no event may iOwn, as a shareholder in the Company/Surviving Corporation, sue
Selling Stockholders in their capacity as a director or officer of the Company
for acts that occurred prior to the date hereof.
(c) NOTWITHSTANDING ANY PROVISION IN THIS ARTICLE VII TO THE
CONTRARY, EXCEPT WITH RESPECT TO INTENTIONAL FRAUD CLAIMS OR CLAIMS OF BREACH OF
THE REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTIONS 4.4, 4.12 AND 4.21, THE
SELLING SHAREHOLDERS SHALL NOT BE RESPONSIBLE FOR ANY CONSEQUENTIAL, INDIRECT,
LOSS OF PROFITS, PUNITIVE, INCIDENTAL OR SPECIAL DAMAGES ARISING FROM ANY CLAIM
OR ACTION RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT, WHETHER BASED ON CONTRACT, TORT OR OTHERWISE, AND WHETHER OR NOT
FIRST ADVISED OF SUCH POSSIBILITY.
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7.4 iOwn's Indemnification Obligations.
----------------------------------
iOwn shall indemnify, save and keep the Selling Stockholders and
their respective successors and permitted assigns ("Seller Indemnitees"),
forever harmless against and from all Damages sustained or incurred by any
Seller Indemnitee, as a result of or arising out of: (a) any inaccuracy in or
breach of any representation and warranty made by iOwn or iOwn Sub to the
Company and the Selling Stockholders herein or in any iOwn Ancillary Document;
and (b) any breach by iOwn or iOwn Sub of, or failure by iOwn or iOwn Sub to
comply with, any of the covenants or obligations under this Agreement or the
iOwn Ancillary Documents to be performed by iOwn or iOwn Sub (including without
limitation its obligations under this Article VII).
7.5 Limitation on Indemnification Obligations.
-----------------------------------------
(a) Except as otherwise provided herein, all representations,
covenants and warranties contained in this Agreement shall survive the Closing
for a period of twelve months from the Effective Date. Notwithstanding the
foregoing, the representations and warranties contained in Sections 3.2
(Authorization of Agreement and Other Documents), 3.3 (No Violation), 3.9
(Issuance of Shares), 3.12 (Required Consents and Approvals), 4.4
(Capitalization), 4.12 (Intellectual Property) and 4.21 (Taxes) shall survive
the Closing for a period of twenty-four months from the Effective Date. The
foregoing survival periods are collectively referred to herein as the "Survival
--------
Period". A claim by an iOwn Indemnitee or a Seller Indemnitee for
- ------
indemnification under this Article VII (except with respect to any claims of
fraud, which claim may be brought indefinitely) must be asserted within the
Survival Period. Notwithstanding anything herein to the contrary, any
representation, warranty, covenant and agreement which is subject to a claim for
indemnification which is properly asserted prior to the expiration of the
Survival Period shall survive with respect to such claim or any dispute with
respect thereto until the final resolution thereof.
(b) The Selling Stockholders' obligations under this Article VII are
subject to the following limitation: (i) except as provided for in Section
7.5(b)(i) hereof, iOwn shall not be entitled to any recovery for an Indemnity
Claim under Section 7.3 until the total amount of all Damages under Section 7.3
exceeds [*] ("Indemnity Level") and then iOwn shall be entitled to recovery all
such Damages including the initial [*]; and (ii) the maximum indemnification
obligation of the Selling Stockholder with respect to claims based on any
inaccuracy in or breach of Section 4.4, 4.12 and 4.21 shall be the value of one
hundred percent (100%) of Selling Stockholder's portion of the Gross Merger
Consideration. Notwithstanding anything in this Agreement to the contrary,
nothing contained in this Article VII shall limit a claim based on fraud
committed by the Company or any Selling Stockholder. Furthermore, the Selling
Stockholders are permitted at any time to first pay or contribute to such
Damages prior to payment by iOwn, and hence such Damages shall not be
attributable towards the Indemnity Level.
[*] Confidential Treatment Requested
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<PAGE>
7.6 Cooperation.
-----------
Subject to the provisions of Section 7.8, the Indemnifying Party
shall have the right, at its own expense, to participate in the defense of any
Third Party Claim, and if said right is exercised, the parties shall cooperate
in the investigation and defense of said Third Party Claim.
7.7 Subrogation.
-----------
The Indemnifying Party shall not be entitled to require that any
action be brought against any other person before action is brought against it
hereunder by the Indemnified Party and shall not be subrogated to any right of
action until it has paid in full or successfully defended against the Third
Party Claim for which indemnification is sought.
7.8 Indemnification Claims Procedures.
---------------------------------
(a) Promptly following the receipt of notice by the iOwn Indemnitees
of a Third Party Claim which the iOwn Indemnitees believe may result in a demand
against the Escrow, iOwn shall notify the Stockholder Agent of such claim in
accordance with the provisions of the Escrow Agreement. Promptly following the
receipt by the Seller Indemnitees of notice of a Third Party Claim which the
Seller Indemnitees believe may result in a demand for indemnification pursuant
to Section 7.4 hereof, the Stockholder Agent shall notify iOwn of such claim.
The party receiving the notice of the Third Party Claim shall notify the other
party hereto of such Third Party Claim. The failure to give such notice shall
not relieve the Indemnifying Party of its obligations under this Agreement
except to the extent that the Indemnifying Party is substantially prejudiced as
a result of the failure to give such notice. Within fifteen (15) business days
after receipt of the notice by the Indemnifying Party pursuant to the preceding
sentence, the Indemnifying Party shall notify the Indemnified Party whether it
elects to control, the defense of the Third Party Claim. If the Indemnifying
Party elects to undertake the defense of such Third Party Claim, it shall do so
at its own expense with counsel of its own choosing and it shall acknowledge in
writing without, qualification its indemnification obligations as provided in
this Agreement to the Indemnified Party as to such Third Party Claim. If the
Indemnifying Party elects not to defend the Third Party Claim or fails to pursue
such Third Party Claim diligently, the Indemnified Party shall have the right to
undertake, conduct and control the defense of such Third Party Claim through
counsel of its own choosing. The party that litigates or contests the Third
Party Claim shall keep the other party fully advised of the progress and
disposition of such claim.
(b) In the event the Indemnifying Party elects not to undertake the
defense of the Third Party Claim or fails to pursue diligently the defense of
such a claim and the Indemnified Party litigates or otherwise contests or
settles the Third Party Claim, then, provided that a final determination has
been made that the Indemnified Party is entitled to indemnification hereunder,
the Indemnifying Party shall promptly reimburse the Indemnified Party for all
reasonable amounts paid to settle such claim or all amounts paid in satisfaction
of a judgment against the Indemnified Party in contesting such claim and in
providing its right to indemnification hereunder, all in accordance with the
provisions of this Article VII. Notwithstanding the foregoing, no settlement of
any Third Party Claim without the
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<PAGE>
prior written consent of the Indemnifying Party shall be determinative of the
validity of any claim that the Indemnified Party is entitled to indemnification
hereunder.
(c) No Third Party Claim will be settled by the Indemnifying Party
without the prior written consent of the Indemnified Party, which consent will
not be unreasonably withheld or delayed; provided, however, that if such claim
asserts that the Indemnifying Party is jointly and severally liable and the
Indemnified Party shall be fully released from all liability relating to such
Third Party Claim in connection with such settlement, the Indemnifying Party
shall not be required to obtain the consent of the Indemnified Party. If,
however, the Indemnified Party refuses to consent to a bona fide offered
settlement which the Indemnifying Party wishes to accept, the Indemnified Party
may continue to pursue such Third Party Claim free of any participation by the
Indemnifying Party, at the sole expense of the Indemnified Party. In such event,
the Indemnifying Party shall pay to the Indemnified Party the amount of the
offer of settlement which the Indemnified Party refused to accept, plus the
costs and expenses incurred by the Indemnified Party prior to the date the
Indemnifying Party notifies the Indemnified Party of the offer of settlement,
all in accordance with the terms of this, Article VII, and, upon the payment or
receipt of such amount, as the case may be, the Indemnifying Party shall have no
further liability with respect to such Third Party Claim. The Indemnifying Party
shall be entitled to recover from the Indemnified Party any additional expenses
incurred by such Indemnifying Party as a result of the decision of the
Indemnified Party to pursue the matter.
ARTICLE VIII
TERMINATION
8.1 Termination by Mutual Consent.
-----------------------------
This Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective Time by the mutual written consent of iOwn
and the Company.
8.2 Termination by Either iOwn or the Company.
-----------------------------------------
This Agreement may be terminated and the Merger may be abandoned
by action of the Board of Directors of either iOwn or the Company if (a) the
Merger shall not have been consummated on or prior to [*]; provided, however,
that the right to terminate this Agreement under this Section 8.2(a) will not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the merger to
occur on or before such date; (b) the approval of the Selling Stockholders shall
not have been obtained at a meeting duly convened therefor or at any adjournment
thereof; provided, however, that the Company shall not have the right to
terminate this Agreement under this Section 8.2(b) if the Company caused
(directly or indirectly) or aided in the failure to obtain such approval; or (c)
a court of competent jurisdiction or a governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action either (i) permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement; or (ii)
compelling iOwn, iOwn Sub or the Surviving Corporation to dispose of or hold
separate all or a material portion of the
[*] Confidential Treatment Requested
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<PAGE>
respective businesses or assets of iOwn, the Company or their respective
subsidiaries, and such order, decree, ruling or other action shall have become
final and non-appealable.
8.3 Termination by the Company.
--------------------------
This Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective Time by action of the Board of Directors of
the Company, if there has been a material breach by iOwn or iOwn Sub of any
representation, warranty, covenant or agreement set forth in this Agreement on
the part of iOwn, which breach is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by the Company to
iOwn.
8.4 Termination by iOwn.
-------------------
This Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective Time by action of the Board of Directors of
iOwn, if there has been a material breach by the Company of any representation,
warranty, covenant or agreement set forth in this Agreement on the part of the
Company, which breach is not curable or, if curable, is not cured within 30 days
after written notice of such breach is given by iOwn to the Company.
8.5 Effect of Termination and Abandonment.
-------------------------------------
In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article 8, all obligations of the parties hereto
shall terminate, except the obligations of the parties pursuant to Sections 5.5
and 5.7, and the confidentiality obligations under the Confidentiality Agreement
(as reaffirmed in Section 5.4) which obligations shall survive the termination
of this Agreement.
8.6 Extension; Waiver.
-----------------
At any time prior to the Effective Time, any party hereto, by
action taken by its Board of Directors, may, to the extent legally allowed, (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto; (b) waive any inaccuracies in the representations and
warranties made to such Party contained herein or in any document delivered
pursuant hereto; and (c) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices.
-------
All notices required or permitted to be given hereunder shall be
in writing and may be delivered by hand, by facsimile, by nationally recognized
private courier, or by United States mail. Notices delivered by mail shall be
deemed given three (3) business days after being deposited in
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<PAGE>
the United States mail, postage prepaid, registered or certified mail. Notices
delivered by hand by facsimile, or by nationally recognized private carrier
shall be deemed given on the day following receipt; provided, however, that a
notice delivered by facsimile shall only be effective if such notice is also
delivered by hand, or deposited in the United States mail, postage prepaid,
registered or certified mail, on or before two (2) business days after its
delivery by facsimile. All notices shall be addressed as follows:
If to iOwn or iOwn Sub: If to the Company:
iOwn Holdings, Inc. Genesis 2000, Inc.
333 Bryant Street, Lower Level 5000 North Parkway Calabasis, Suite 200
San Francisco, CA 94107 Calabasis, CA 91302
Fax: (415) 618-3501 Fax: (707) 988-7424/
---------------
(707) 982-8765/(707) 988-7238
-----------------------------
Attn: Chief Financial Officer Attn: Kamyar Tafreshi, Homayoon Majd and
----------------------------------
Farhad Mirfakhrai
-----------------
With copies to: With copies to (In the case of
Company/Selling Stockholder(s)):
Perkins Coie llp Anik & Heiberg Law Offices
250 Montgomery Street, 16/th/ Floor 5655 Lindero Cyn. Rd., Suite 601
San Francisco, CA 94104 Westlake Village, CA 91302
Fax: (415) 781-2525 Fax: (818) 889-4905
Attn: David M. Hornik Attn: Paul Anik
Homayoon Majd
24235 Park Granada
Calabasas, CA 91302
Fax: (707) 982-8765
Kamyar Tafreshi
7642 Foxboro Lane
West Hills, CA 91304
Fax: (707) 988-7424
Farhad Mirfakhrai
5028 Woodley Avenue
Encino, CA 91435
Fax: (707) 988-7238
or to such other address or addressee(s) as any party shall specify by written
notice so given, and such notice shall be deemed to have been delivered as of
the date so telecommunicated, personally delivered or mailed.
9.2 Assignment, Binding Effect.
--------------------------
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<PAGE>
Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
permitted successors and assigns. Notwithstanding anything contained in this
Agreement to the contrary, except for the provisions of Sections 1.4, 1.5, 1.6,
1.7, and 1.8, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9.3 Entire Agreement.
----------------
This Agreement, the Exhibits, the Disclosure Statement, the iOwn
Disclosure Statement, the Confidentiality Agreement, the Employment Agreements,
the Ancillary Documents and any other documents delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
9.4 Amendment.
---------
This Agreement may be amended by the parties hereto, by action
taken by their respective Boards of Directors, at any time before or after
approval of matters presented in connection with the Merger by the Stockholders,
but after any such Stockholder approval, no amendment shall be made which by law
requires the further approval of Stockholders without obtaining such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
9.5 Governing Law.
-------------
This Agreement shall be governed by and construed in accordance
with the laws of the State of California without regard to its rules of conflict
of laws.
9.6 Counterparts.
------------
This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
9.7 Headings.
--------
Headings of the Articles and Sections of this Agreement are for
the convenience of the parties only and shall be given no substantive or
interpretive effect whatsoever.
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<PAGE>
9.8 Interpretation.
--------------
In this Agreement, unless the context otherwise requires, words
describing the singular number shall include the plural and vice versa, and
words denoting any gender shall include all genders and words denoting natural
persons shall include corporations and partnerships and vice versa.
9.9 Waivers.
-------
Except as provided in this Agreement, no action taken pursuant
to this Agreement, including, without limitation, any investigation by or on
behalf of any party, shall be deemed to constitute a waiver by the party taking
such action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
9.10 Incorporation of Exhibits.
-------------------------
The Disclosure Statement, the iOwn Disclosure Statement and all
Exhibits attached hereto and referred to herein are hereby incorporated herein
and made a part hereof for all purposes as if fully set forth herein.
9.11 Severability.
------------
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
9.12 Enforcement of Agreement.
------------------------
The parties hereto agree that irreparable damage would occur in
the event that any of the provisions of this Agreement was not performed in
accordance with its specific terms or was otherwise breached. It is accordingly
agreed that the parties shall be entitled to seek an injunction or injunctions
to prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any California Court, this being in addition to any other
remedy to which they are entitled at law or in equity.
9.13 Arbitration.
-----------
Except as otherwise provided in Section 9.12 hereof, all
disputes, differences, or questions arising out of or relating to this
Agreement, or the validity, interpretation, breach, violation or
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<PAGE>
termination thereof (including disputes arising under this Clause), shall be
finally and solely determined and settled by arbitration which shall be
conducted as follows:
(i) Except as otherwise expressly provided in this
subparagraph, the arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the
American Arbitration Association (AAA).
(ii) All arbitration hearings shall be conducted (and the
arbitrator shall reside) in San Francisco, California (if
the initial defendant is iOwn or iOwn Sub) or in Woodland
Hills, California (if the initial defendant is or are the
Selling Stockholder(s)) unless the parties stipulate or
the arbitrator rules that any non-evidentiary hearing may
be conducted by telephone.
(iii) The arbitration shall be conducted by one (1) arbitrator
selected as follows: (v) the AAA office in San Francisco,
California (if the initial defendant is iOwn or iOwn Sub)
or in Woodland Hills, California or closest AAA office to
Woodland Hills, California (if the initial defendant is or
are the Selling Stockholder(s)) shall provide to each
party a proposed list of arbitrators within three (3)
business days of the demand for arbitration; (w) each
party shall strike any arbitrators deemed unacceptable,
but shall leave at least three (3) names unstricken, and
shall return the list to the AAA within three (3) business
days; (x) if there are any names unstricken on the lists
of all parties, the AAA shall appoint one (1) as the
arbitrator; (y) if all names have been stricken by at
least one party, the procedure shall be repeated; (z) if
all names are stricken by at least one party on the second
list, the AAA shall submit a third list, and each party
shall strike two (2) names, and the AAA shall appoint the
arbitrator from among the names not stricken by any party.
(iv) Within ten (10) days of the appointment of the arbitrator,
a preliminary hearing shall be held for scheduling of
discovery and the final hearing dates.
(v) Each party shall have the right to take the depositions of
two (2) individuals affiliated with the opposing party for
up to six (6) hours of testimony, who shall be selected by
the deposing party in accordance with the procedure
outlined in Federal Rule of Civil Procedure 30(b)(6). Each
party shall identify any and all experts who will submit
any evidence in any form at least forty five (45) days
before the final hearing and shall promptly make such
experts available for a deposition. All counter-experts
shall be designated within ten (10) days of the conclusion
of the deposition of the expert being countered and shall
promptly be made available for a deposition. In addition,
each party may submit up to ten (10) document requests
(including subparts) and ten
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(10) interrogatories (including subparts), which shall be
fully answered and complied with within fifteen (15) days
of receipt. For good cause shown, the arbitrator may
expand, but not reduce, the foregoing discovery rights of
the parties. Any and all discovery disputes shall be
resolved by the arbitrator within three (3) days of
submission by either party in writing or by telephone,
with the other party having a reasonable opportunity to
respond.
(vi) The arbitrator shall have the power and authority to grant
any appropriate equitable relief, including but not
limited to, the designation of the terms of any escrow
account and the granting of a temporary restraining order
or preliminary injunction, provided, however, that, upon a
showing that irreparable harm is likely to occur before a
hearing can be held before the arbitrator, any party may
seek emergency interim equitable relief from any state or
federal court in San Francisco or Los Angeles Counties, to
which all parties submit to jurisdiction.
(vii) An award entered by the arbitrator shall be final and
binding, and judgment on such award may be entered by any
court having jurisdiction, specifically including any
state or federal court in California, which the parties
stipulate has jurisdiction.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year first
written above.
iOWN HOLDINGS, INC.
By:_____________________________________
Title:__________________________________
iMERGER SUB, INC.
By:_____________________________________
Title:__________________________________
GENESIS 2000, INC.
By:_____________________________________
Title:__________________________________
SELLING STOCKHOLDERS
________________________________________
Name: Homayoon Majd
________________________________________
Name: Kamyar Tafreshi
________________________________________
Name: Farhad Mirfakhrai
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year first
written above.
BROKERS
Niederhoffer-Henkel & Co.
________________________________________
By:
Title:
________________________________________
Name: Douglas D. Hubert
________________________________________
Name: Donald C. Schaeffer
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<PAGE>
IOWN DISCLOSURE STATEMENT
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<PAGE>
COMPANY DISCLOSURE STATEMENT
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<PAGE>
EXHIBIT A
CONVERTIBLE PROMSORY NOTE
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<PAGE>
EXHIBIT B
SECURITY AGREEMENT
-57-
<PAGE>
EXHIBIT C
PROMISORY NOTE
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<PAGE>
EXHIBIT D
EMPLOYMENT AGREEMENT
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<PAGE>
EXHIBIT E
ESCROW AGREEMENT
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<PAGE>
EXHIBIT F
NONDISCLOSURE AGREEMENT
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<PAGE>
EXHIBIT G
OPINION OF PERKINS COIE LLP
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<PAGE>
EXHIBIT H
PRINCIPAL EMPLOYMENT TERMS
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<PAGE>
EXHIBIT I
OPINION OF ANIK & HEIBERG LAW OFFICES
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<PAGE>
EXHIBIT J
BROKER COMPENSATION
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<PAGE>
EXHIBIT 10.19
LEASE
(FULL SERVICE)
"THIS LEASE is made between Lessor and Lessee named below as of the later
of the dates set forth under their respective signatures.
BASIC LEASE PROVISIONS
----------------------
1. Building Name: Wolcott Business Center
Premises Address: 5000 No. Parkway Calabasas #201, Calabasas, CA 91302
-------------------------------
2. Rentable area: 931 S.F. Useable area S.F.
------------------ ---------------
3. Building Maintenance Percentage:
----------------------------------------
4. Basic Annual Rent: $16,758.00 ($ per sq. ft.)
--------------------- ---------------
5. Monthly Rental Installments: $1,396.50 ($ 1.50 per sq. ft.)
---------------- ------------
6. Terms: 2 years and 1/2 months, to terminate with the lease of Suite 200
--- -----
7. Lease Commencement Date: 4/15/93
-------------------------------------------------
8. Security Deposit: $1,396.50
--------------------------------------------------------
9. Broker(s): N/A
---------------------------------------------------------------
10. Lease Occupancy Date: 4/15/93
---------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have executed this Lease, consisting
of the foregoing Basic Lease provisions and Articles 1 through 26 which follow,
as of the later of the dates below.
LESSOR: Wolcott Business Center LESSEE:
/s/ William L. Wolcott
- -------------------------------- --------------------------------------
William L. Wolcott Homayoon Majd
/s/ Farhad Mirfakhrai
--------------------------------------
Farhad Mirfakhrai
/s/ Kamyar Tafreshi
--------------------------------------
Kamyar Tafreshi
GUARANTOR:
DATED: DATED:
-------------------------- -------------------------------
ADDRESS: 5000 N. Parkway Calabasas #202 ADDRESS:
------------------------------ -----------------------------
Calabasas, CA. 91302
- --------------------------------------- -------------------------------------
MAIL: P.O. Box 8237, Calabasas, CA. 91302
- ---------------------------------------
TELEPHONE NO.: (818) 222-1221 TELEPHONE NO.:
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
Base Lease Provisions........................ 1
Table of Contents............................ 2
1. Lease of Premises............................ 4
2. Term......................................... 4
3. Rent & Security Deposit...................... 4
4. Operating Expense Adjustment................. 6
5. Use.......................................... 8
6. Maintenance, Repairs and Alterations......... 8
7. Insurance: Indemnity......................... 10
8. Damage or Destruction........................ 11
9. Personal Property Taxes...................... 12
10. Utilities.................................... 12
11. Assignment and Subletting.................... 13
12. Defaults: Remedies........................... 13
13. Condemnation or Restriction on Use........... 15
14. Brokers...................................... 17
15. Lessor's Liability........................... 17
16. General Provisions........................... 18
16.1 Estoppel Certificate................ 18
16.2 Severability........................ 18
16.3 Time of Essence..................... 18
16.4 Captions............................ 18
16.5 Notices............................. 18
16.6 Waivers............................. 18
16.7 Holding Over........................ 18
16.8 Cumulative Remedies................. 18
16.9 Inurement; Choice of Law............ 18
16.10 Subordination....................... 18
16.11 Attorney's Fees..................... 19
16.12 Lessor's Access..................... 19
16.13 Corporate Authority................. 19
16.14 Rights of Others.................... 19
16.15 Safety & Health..................... 20
16.16 Surrender of Cancellation........... 20
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
16.17 Entire Agreement.................... 20
16.18 Signs............................... 20
16.19 Interest on Past Due Obligations.... 20
16.20 Gender: Number...................... 20
16.21 Lease Not Subject to Levy........... 20
16.22 Quitclaim........................... 20
16.23 Confidentiality of Lease............ 20
16.24 Financial Statements................ 21
17. Construction.................................. 21
18. Parking....................................... 21
19. Consents...................................... 21
20. Guarantor..................................... 21
21. Quiet Possession.............................. 21
23. Security Measures............................. 22
24. Easements and C,C & R's....................... 22
25. Auctions...................................... 22
Rules and Regulations
</TABLE>
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<PAGE>
1. LEASE OF PREMISES
-----------------
Lessor hereby leases to Lessee and Lessee leases from Lessor for the
term, at the rental, and upon all conditions set forth in this Lease, those
certain premises (the "Premises") in that certain building (the "Building")
which address is North Parkway Calabasas, California, identified
-----------------------
in Item 1 of the Basic Lease Provisions, together with non-exclusive use of any
common areas in the Building and of the parking areas adjoining the Building in
common with other tenants of the building, if any. The approximate location of
the building, Premises and associated parking is indicated on Exhibit "A" which
is attached hereto and incorporated hereto and incorporated herein by this
reference.
2. TERM
----
2.1 Commencement of Term
--------------------
(a) The term of the Lease shall be as shown in Item 6 of the
Basic Lease Provisions, commencing on the Lease or such later date as may be
herein provided, unless sooner terminated pursuant to any provision hereof.
(b) Notwithstanding the foregoing, the term of this Lease shall
commence upon delivery of the possession of the Premises, and the date thereof
shall constitute the date of commencement of the term of this Lease. Delivery of
possession of the Premises shall occur upon written tender of same by Lessor.
(c) If delivery of possession occurs prior to the Lease
Commencement Date, the term of this Lease and all obligations of this Lease,
shall commence on such date of delivery of possession but the date of
termination shall not be advanced. Occupancy by Lessee for any purpose shall
constitute an acknowledgement that the Building and Premises have been
satisfactorily completed and Lessor shall have no further responsibility with
respect to construction except as herein expressly set forth. Lessee's execution
and delivery to Lessor prior to its occupancy of the Premises of a "Certificate
of Lessee's Acceptance of Occupancy" letter shall be deemed to be conclusive as
to the commencement of the term and Lessee's obligations under this Lease.
(d) The actual date of commencement (the "Commencement Date")
shall be confirmed by the parties by initialing the lower portion of the Basic
Lease Provisions, after insertion of the Commencement Date and expiration date
of the Lease, promptly following such commencement, but failure of Lessee to
acknowledge the Commencement Date as established pursuant to this Article shall
not affect any obligation of Lessee hereunder or Lessor's determination of the
Commencement Date pursuant to this Article 2.
2.2 Delay in Commencement. Notwithstanding the Lease Commencement
---------------------
Date, if for any reason Lessor cannot deliver possession of the Premises to
Lessee on or before said date, Lessor shall not be subject to any liability
therefor, nor shall such failure affect the validity of this Lease or the
obligations of Lessee hereunder or extend the term hereof, but in such case
Lessee shall not be obligated to pay rent until delivery of possession of the
Premises has occurred; provided, however, that if Lessor shall not have
delivered possession of the Premises within two (2) months after said Lease
Commencement Date, Lessor or Lessee may, at Lessee's option, by notice in
writing to Lessor within ten (10) days thereafter, cancel this Lease, in which
event the parties shall be discharged from all obligations hereunder.
3. RENT & SECURITY DEPOSIT
----
3.1 Basic Rent. Lessee shall pay to Lessor as rent for the Premises
----------
a basic annual rent in the amount specified in Item 4 of the Basic Lease
Provisions, payable without deduction or offset, in equal monthly installments
in the amounts specified in Item 5 of the Basic Lease Provisions in advance, on
the first day of each month, in lawful money of the United States, to Lessor at
the address stated herein, or to such other persons or such other places as
Lessor may designate in writing. Rent for any period during the term hereof
which is for less than one month shall be a pro rata portion of the monthly
installment based upon a thirty (30) day month.
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<PAGE>
3.2 SECURITY DEPOSIT
----------------
Concurrently with Lessee's execution of this Lease, it has
deposited with Lessor the sum specified in Item 8 of the Basic Lease Provisions
as security of the faithful performance by lessee of all covenants and
conditions of this Lease. If Lessee shall breach or default in the performance
of any covenants or conditions of the Lease, including the payment of rent,
Lessor may use, apply or retain the whole or any part of such security deposit
for payment of any rent in default. If Lessor so uses or applies all or any
portion of said deposit, Lessee shall within three (3) days after written demand
therefor deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount herein above stated and Lessee's failure to do so
shall be a material breach of this lease. Should Lessee comply with all
covenants and conditions of this Lease, the Security deposit or any balance
thereof shall be returned to Lessee (or at the option of Lessor, to the last
assignee of Lessee's interest in this Lease) at the expiration of the term.
Lessee shall not be entitled to interest on the security deposit and Lessor
shall have the right to comingle said security deposit with other funds of
Lessor. Should Lessor sell its interest in the Premises, Lessor may deposit with
the purchaser thereof the then unexpended or unappropriated funds deposited by
Lessee and thereupon Lessor shall be discharged from any further liability for
such funds.
-5-
<PAGE>
5. USE
---
5.1 The premises shall be used and occupied for general office
purposes relating to the conduct of business in a manner consistent and in
compliance with all applicable ordinances and other governmental requirements
affecting the Premises, and the Rules and Regulations attached hereto and all
additions to such Rules an Regulations as Lessor may from time to time
reasonably adopt for the safety, care and cleanliness of the premises or the
preservation of good order, and for no other purpose whatsoever without the
express written consent of Lessor, which consent shall be in the sole and
absolute discretion of Lessor. Lessor shall not be responsible to Lessee for
nonperformance of any said Rules and Regulations by any other tenant of the
Building.
5.2 Compliance with Law. Lessee shall, at Lessee's expense, comply
-------------------
promptly with all applicable statutes, ordinances, rules, regulations, orders
and requirements in effect during the term or any part of the term hereof
regulating the use by Lessee of the Premises. Lessee shall not use or permit the
use of the Premises in any manner that will tend to create waste or a nuisance
or, if there shall be more than one tenant of the Premises, which shall tend to
disturb such other tenants.
5.3 Insurance Cancellation. Notwithstanding the provisions of
----------------------
Paragraph 5.1 above, no use shall be made or permitted to be made of the
Premises nor acts done which will cause the cancellation of any insurance policy
covering said Premises or the Building, and if Lessee's use of the Premises
causes an increase in said insurance rates Lessee shall pay any such increases.
6. MAINTENANCE, REPAIRS AND ALTERATIONS
------------------------------------
6.1 Lessor's Obligations. Lessor shall during the term of this lease
--------------------
maintain, or cause to be maintained, in good order, condition and repair, the
roof and walls of the Building (excluding the interior surface thereof and
excluding windows entirely) and any common areas in the Building ("Building
Maintenance"), as well as all parking areas, driveways, sidewalks, private roads
or streets, landscaping and all other areas located within the site, other than
areas occupied by buildings (such nonbuilding areas being herein referred to as
"common areas" and the maintenance thereof being sometime herein referred to as
"common area maintenance"), all signs, plumbing, electrical and air conditioning
equipment on or adjacent to the Premises, whether interior or exterior to the
Building. Lessor responsible for windows, except for breakage due to Lessee's
negligence.
6.2 Lessee's Obligations. Lessee shall during the term of this lease
--------------------
keep in good order, condition and repair, the interior of the Premises and every
part thereof, including without limitation all windows and doors. Except in the
event of Lessor's negligence, Lessor shall incur no expense nor have any
obligation of any kind whatsoever in connection with maintenance of the interior
of the Premises, as defined above, and Lessee expressly waives the benefits of
any statute now or hereafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the interior of the Premises in good order, condition
and repair. Notwithstanding the foregoing, Lessor shall be liable for
maintenance or repairs which are caused by Lessor's negligence.
6.3 Surrender. On the last day of the term hereof, or on any sooner
---------
termination, Lessee shall surrender the Premises to Lessor in good order and
condition, broom clean, ordinary wear and tear excepted. Lessee shall repair any
damage to the Premises occasioned by the removal of Lessee's trade fixtures,
furnishing and equipment, which repair shall include the patching and filling of
holes and repair of structural damage.
6.4 Alterations and Additions.
-------------------------
(a) Lessee shall not, without Lessor's prior written consent,
make any alterations, improvements, additions, utility installations in or about
the Premises, except for nonstructural alterations not exceeding
-6-
<PAGE>
$500 in cost. As used in this Paragraph 6.4 the term "utility installations
shall include bus ducting, power panels, fluorescent fixtures, space heater
conduits and wiring. As a condition to giving such consent, Lessor may require
that Lessee agree to remove any such alterations, improvements, additions or
utility installations at the expiration of the term, and to restore the Premises
to their prior conditions.
(b) All alterations, improvements and additions to the premises shall
be performed by Lessor's contractor or by another licensed general contractor
mutually acceptable to Lessor and Lessee. Lessee shall pay when due, all claims
for labor or materials furnished to or for Lessee at or for use in the Premises,
which claims are or may be secured by any mechanics' or materialmen's lien
against the Premises or any interest therein, and Lessor shall have the right to
post notices of non-responsibility in or on the Premises as provided by law.
(c) Unless Lessor requires their removal pursuant to Paragraph 6.4 (a)
hereof, all alterations, improvements and additions which may be made on the
Premises shall become the property of Lessor and remain upon and be surrendered
with the Premises at the expiration of the term.
(d) If Lessor, in Lessor's sole discretion, should need or desire to
do any alteration or remodeling in any space next to, above, or below premises,
then Lessor shall have the right to enter into premises to do any and all work
needed, desired or wanted in such adjacent space. Lessor shall be required to
give Lessee twenty-four (24) hour notice and if such work should disrupt
Lessee's business then Lessor shall do said work after normal business hours.
Lessee's premises shall be left in good, clean order and repair.
6.5 Lessor's Rights. If Lessee fails to perform Lessee's obligations under
---------------
this Article 6, Lessor may at its option (but shall not be required to) enter
upon the Premises after fifteen (15) days' prior written notice to Lessee, and
put the same in good order, condition and repair, and the cost thereof together
with interest thereon at the rate of ten percent (10%) per annum shall become
due and payable as additional rent to Lessor together with Lessee's next rental
installment.
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<PAGE>
7. INSURANCE: INDEMNITY
--------------------
7.1 Liability Insurance. Lessee shall, at Lessee's expense, obtain and
-------------------
keep in force during the term of this lease comprehensive public liability
insurance insuring Lessor and Lessee against any liability arising out of the
ownership, use, occupancy or maintenance of the Premises, the Building and all
common areas. Such insurance shall be in the amount of not less than $1,000,000
combined single limit. The limits of said insurance shall not, however, limit
the liability of Lessee hereunder.
7.2 Property Insurance. Lessor shall obtain and keep in force during the
------------------
term of this Lease a policy or policies of insurance covering loss or damage to
the Building, in the amount of the full replacement value thereof against all
perils, included within the classification of fire, extended coverage,
vandalism, malicious mischief, special extended perils (all risk). Said
insurance shall provide for payment of loss thereunder to Lessor or to the
holder of a first mortgage or deed of trust on the Premises as their interests
may appear. Lessor shall obtain and keep in force during the term of this lease
a policy of rental value insurance with an extended period of Indemnity
Endorsement (up to 10 months), with loss payable to Lessor, which insurance
shall also cover all real estate taxes, real estate brokers fees, and insurance
costs for said period. Additional insurance shall include but not be limited to,
a stipulated value or agreed amount endorsement deleting the co-insurance
provision of the policy, an Increased Cost of Construction Endorsement, a
Contingent Liability from Operations to Building Laws Endorsement Demolition and
Increased Time to Rebuild, a Cost of Inventory Appraisal and Adjustment
Endorsement, and an Automatic Increase in Insurance Endorsement. Lessor will not
insure Lessees fixtures, equipment, or supplies.
7.3 Waiver of Subrogation. Notwithstanding any contrary provision of this
---------------------
Lease, Lessee and Lessor each hereby waive any and all rights of recovery
against the other, or against the officers, employees agents and representatives
of the other, for loss of or damage to such waiving party or its property or the
property of others under its control to the extent that such loss or damage is
insured against under any insurance policy in force at the time of such loss or
damage. The insuring party shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease.
7.4 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
---------
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work, or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding is brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon, or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
Notwithstanding the foregoing Lessee shall not be responsible for any claims
which are the sole and proximate result of Lessor's negligence.
-8-
<PAGE>
7.5 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
----------------------------------
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitee customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixture or from any other
cause, whether the said 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 cause or places, and regardless whether the cause of such
damage or injury or the means of repairing the same is inaccessible. Lessor
shall be liable for injury to Lessee's business or loss of income or damage to
the goods, wares, merchandise or other property of Lessee which arises as the
sole and proximate result of Lessor's Gross negligence.
7.6 Insurance Policies. Insurance required hereunder shall be in companies
------------------
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best's Insurance Guide". The insuring party
shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee upon demand.
8. DAMAGE OR DESTRUCTION See Item #26.
---------------------
8.1 Partial Damage - Insured. Subject to the provisions of Paragraph 8.3
------------------------
hereof, if the Premises are damaged and such damage was caused by a casualty
covered under an insurance policy required to be maintained pursuant to
Paragraph 7.2 hereof, Lessor shall at Lessor's expense repair such damage as
soon as reasonably possible and this lease shall continue in full force and
effect.
8.2 Partial Damage - Uninsured. Subject to the provisions of Paragraph
--------------------------
8.3, if at any time during the term hereof the Premises are damaged except by a
negligent or willful act of Lessee, and such damage was caused by casualty not
covered under an insurance policy required to be maintained pursuant to
Paragraph 7.2, Lessor may at Lessor's option either (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence of
such damage. In the event Lessor elects to give such notice of Lessor's
intention to cancel and terminate this Lease, Lessee shall have the right within
ten (10) days after the receipt of such notice to give written notice to Lessor
of Lessee's intention to repair such damage at Lessee's expense, without
reimbursement from Lessor, in which event this Lease shall continue in full
force and effect, and Lessee shall proceed to make such repairs as soon as
reasonably possible. If Lessee does not give such notice within such ten (10)
day period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
8.3 Abatement of Rent: Lessee's Remedies
------------------------------------
(a) If the Premises are partially destroyed or damaged and Lessor or
Lessee repairs or restores them pursuant to the provisions of this Article, the
rent payable under Article 3 for the period during which such damage, repair or
restoration continues shall be abated in proportion to the degree to which
lessee's use of the Premises is impaired. Except for abatement of rent, if any,
Lessee shall have no claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.
-9-
<PAGE>
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Article 8 and shall not commence such repair or
restoration within 90 days after such obligation shall accrue, subject to an
extension of up to another 90 days for delays beyond the reasonable control of
Lessor, Lessee may at Lessee's option:
(1) cancel and terminate this lease by giving Lessor written notice of
Lessee's election to do so at any time prior to the commencement of such repair
or restoration. In such event this Lease shall terminate as of the date of such
notice. Any abatement in rent shall be computed as provided in Paragraph 8.3 (a)
hereof.
or
(2) make such repairs or restoration and deduct the cost of such
repairs or restoration from the rent due under Article 3 hereof.
8.4 Total Destruction. If at any time during the term hereof the Premises
-----------------
are totally destroyed from any cause whether or not covered by the insurance
required to be maintained by Lessor pursuant to Article 7.2 (including any total
destruction required by any authorized public authority) this Lease shall
automatically termite as of the date of such total destruction. For purposes of
this Paragraph, total destruction of the Building shall be damage or destruction
the cost of repair of which shall, in the written opinion of a registered
Architect or engineer appointed by Lessor, exceed fifty percent (50%) of the
then replacement value of the Building and shall not require that the Premises
be totally or partially destroyed or damaged.
8.5 Insurance Proceeds Upon Termination. If this Lease is terminated
-----------------------------------
pursuant to any right given Lessee or Lessor to do so under this Article 8, all
insurance proceeds payable with respect to the damage giving rise to such right
of termination shall be paid to Lessor and any encumbrance of the Premises, as
their interests may appear, except that Lessee will be entitled to the proceeds
of insurance on its leasehold improvements & personal property.
8.6 Restoration. Lessor's obligation to restore shall not include the
-----------
restoration or replacement of Lessee's trade fixtures, equipment, merchandise or
any improvements or alterations made by Lessee to the Premises.
9. PERSONAL PROPERTY TAXES
-----------------------
Lessee shall pay prior to delinquency all taxes assessed against and levied
upon trade fixtures, furnishings, equipment and all other personal property of
Lessee contained in the Premises or elsewhere. When practicable, Lessee shall
cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
10. UTILITIES
---------
Lessor shall maintain and keep lighted all common areas, including but not
limited to, parking areas, landscaping area, sidewalks, entry and stairways.
Lessor shall furnish to premises separate electrical meters. Lessor shall be
responsible for all applications for electrical service, any and all deposits or
fees for electrical service, and all premises electrical useage bills, fees or
charges. Lessor shall furnish water to the premises. Lessor shall furnish
janitorial service to the premises, and such shall be the responsibility of the
Lessee. Lessor shall not be liable for and Lessee shall not be entitled to, any
reduction of rental by reason of Lessor's failure to furnish any of the
foregoing when such failure is caused by accident, breakage, repairs, strikes,
lockouts or other labor disturbances, or labor disputes of any character, or by
any other cause, similar or dissimilar, beyond the reasonable control of Lessor.
Lessor shall not be liable under any circumstances for a loss of or injury to
property, however occurring, through or in connection with or incidental to
failure to furnish any of the foregoing. If lessee shall require water in excess
of that usually furnished or supplied for the use of the premises as general
office space, Lessee shall first procure the written consent of Lessor which
Lessor may refuse, to the use thereof and Lessor may cause a water meter to be
installed in the premises, so as to measure the amount of water consumed for any
such use. The cost of any such meters and of installation, maintenance and
repair thereof shall be paid for by Lessee and Lessee agrees to pay to Lessor
promptly upon demand therefor by lessor for all such water consumed as shown by
said meters, at the rates charged for such services by the local public utility
furnishing the same. Lessee has control of all air conditioning to the suite.
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<PAGE>
11. ASSIGNMENT AND SUBLETTING See Item #27
-------------------------
11.1 Lessee shall not voluntarily or by operation of law sublet, assign,
transfer, mortgage or otherwise encumber, or grant concessions, licenses or
franchises with respect to, all of any part of Lessee's interest this Lease or
the Premises without the prior written consent of Lessor. If Lessee desires at
any time to assign this Lease or sublet the Premises or any portion thereof, it
shall first notify Lessor of its desire to do so and shall submit in writing to
Lessor (i) the name of the proposed subtenant or assigned, (ii) the nature of
the proposed subtenant's or assignee's business to be carried on in the
Premises; (iii) the terms and provisions of the proposed sublease or assignment.
Lessor may, as a condition to granting such consent, require that the obligation
of lessee hereunder be guaranteed by the parent or controlling corporation of
any assignee which is a subsidiary or affiliate of another corporation. Any
sublease, license, concession franchise or other permission to use the premises
made with consent of Lessor shall be expressly subject and subordinate to all
applicable terms and conditions of this Lease. Any purported or attempted
assignments, transfer, mortgage, encumbrance, subletting, license, concession,
franchise or other permission to use the Premises, contrary to the provisions of
this paragraph shall be void, and, at the option of Lessor, shall terminate this
Lease.
11.2 If Lessee is a corporation, any transfer of its stock, or any
disolution, merger or consolidation, which results in a change in the control of
Lessee from the person or persons owning a majority of its voting stock
immediately prior thereto or the sale or other transfer of all or substantially
all of the assets of Lessee, shall constitute an assignment of Lessee's interest
in this Lease within the meaning of this Article 11 and the provision requiring
consent contained herein. Lessor may require as a condition to giving such
consent that the new controlling person(s) immediately execute a guaranty of
this Lease.
11.3 No subletting, assignment, license, concession, franchise or other
permission to use the Premises shall relieve Lessee of its obligations to pay
rent or to perform all of the other obligations to be performed by Lessee
hereunder. The acceptance of rent by Lessor from any other person shall not be
deemed to be a waiver by Lessor of any provision of this Lease.
12. DEFAULTS; REMEDIES
------------------
12.1 Default by Lessee. The occurrence of any one or more of the following
-----------------
events shall constitute a material default of this Lease by Lessee.
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure of Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder as and when due, where such
failure shall continue for a period of ten (10) days after written notice
thereof from Lessor to Lessee; provided, however, that any such notice shall be
in lieu of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than as described in Paragraph 12.1 (b) hereof, where such failure shall
continue for a period of thirty (30) days after written notice thereof from
Lessor to Lessee; provided, however, that any such notice shall be in lieu of,
and not in addition to, any notice required under California Code of Civil
Procedure Section 1161; provided further, that if the nature of Lessee's default
is such that more than 30 days are reasonably required for the cure, then Lessee
shall not be deemed to be in default if Lessee commenced such cure within said
30 day period and thereafter diligently prosecutes such cure to completion.
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<PAGE>
(d) The making by Lessee of any general assignment, or general
arrangement for the benefit of creditors; the filing by or against Lessee of a
petition to have Lessee adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petiton filed against Lessee, the same is dismissed within 60 days); the
appointment of a trustee or receiver to take possession of substantially all of
the Lessee's assets located at the Premises, or of Lessee's interest in this
Lease, where possession is not restored to Lessee within 30 days; or the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty days.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, and assignee of Lessee, any subtennant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
12.2 Remedies for Default of Lessee. In the event of any material default
------------------------------
by Lessee as defined in Paragraph 12.1 hereof, Lessor may at any time
thereafter, upon notice and demand and without limiting Lessor in the exercise
of any other right or remedy which lessor may have by reason of such default or
breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee:
(1) The worth at the time of award of the unpaid rent which has been
earned at the time of termination;
(2) The worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss that Lessee proves could have been
reasonably avoided.
(3) The worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that Lessee proves could be reasonably avoided; and
(4) Any other amount necessary to compensate the Lessor for all the
detriment proximately caused by Lessee's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to, the cost of recovering
possession of the Premises, Real Estate commissions actually paid, reasonable
attorney's fees, and any other reasonable cost.
The "worth at the time of award" of the amounts referred to in subparagraphs (1)
and (2) above shall be computed by allowing interest at ten percent (10%) per
annum. The worth at the time of award of the amount referred to in subparagraph
(3) above shall be computed by discounting such amount at one (1) percentage
point above the discount rate of the Federal Reserve Bank of San Francisco at
the time of award.
(b) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the State of California. Unpaid installments
of rent and other unpaid monetary obligations of Lessee under the terms of this
lease shall bear interest from the date due at maximum rate then allowable by
law.
(c) Maintain Lessee's right to possession in which case this lease
shall continue in effect whether or not Lessee shall has abandoned the premises.
In such an event, Lessor shall be entitled to enforce all of Lessor's rights and
remedies under this lease.
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12.3 Default by Lessor. The failure of Lessor to perform any obligation
-----------------
of Lessor under this Lease shall constitute a material default and breach of
this Lease by Lessor. Notwithstanding the foregoing, Lessor shall not be in
default unless Lessor fails to perform obligations required of Lessor within a
reasonable time, but in no event later than thirty (30) days after written
notice by Lessee to Lessor and to the holder of any first mortgage or deed of
trust covering the Premises whose names and addresses shall have theretofore
been furnished to Lessee in writing, specifying wherein Lessor has failed to
perform such obligations; provided, however, that if the nature of Lessor's
obligations is such that more than thirty (30) days are required for performance
then Lessor shall not be in default if Lessor commences performance within such
30-day period and thereafter diligently prosecutes the same to completion. In
the event of any such default by Lessor, Lessee may pursue any remedy now or
hereafter available to Lessee under the laws or judicial decisions of the State
of California, except that Lessee shall not have the right to terminate this
Lease except as expressly provided in this Lease.
12.4 Late Charges. Lessee hereby acknowledges that the late payment by
------------
Lessee to Lessor of rent and other sums due hereunder will cause Lessor 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, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after
payment is due, then Lessee shall pay to Lessor a late charge equal to ten
percent (10%) of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the cost Lessor will incur
by reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's default with respect to such
overdue amount, nor prevent Lessor from exercising any of the other rights and
remedies granted hereunder.
13. CONDEMNATION OR RESTRICTION ON USE
----------------------------------
13.1 Termination of Lease on Total Taking. In the event the entire
------------------------------------
Premises or leasehold interest shall be appropriated or taken under the power of
eminent domain by any public or quasi-public authority for any period of time,
this Lease shall terminate as of the date of such taking.
13.2 Lessee's Election to Terminate on Partial Taking. In the event more
------------------------------------------------
than ten percent (10%) of the floor area of the Premises or more than thirty
percent (30%) of the adjacent parking facility is taken under the power of
eminent domain by any public or quasi-public authority, and if by reason of any
such appropriation or taking, regardless of the amount so taken, the remainder
of the Premises or parking facility is not reasonably suitable for the operation
of Lessee's business taking into account Lessor's obligation to restore under
Paragraph 13.4, Lessee shall have the right to terminate this Lease as of the
date of such taking upon giving to Lessor notice in writing of such election
within one hundred twenty (120) days after such appropriation or taking.
Notwithstanding the foregoing, if the appropriation or taking is only of the
associated parking area Lessee shall not have a right to terminate this Lease
and rent shall not abate if Lessor promptly provides substitute parking
reasonably accessible to the building of which the Premises are a part.
13.3 Each Party Entitled to Award. If this Lease is terminated in the
----------------------------
manner provided in Paragraph 13.1 or 13.2 hereof, each party shall be entitled
to any award made to it in such proceedings; Lessee shall specifically be
entitled to that portion of any award attributable to unamortized expenditures
made by Lessee for improvements to the Premises. The unamortized portion of the
Lessee's expenditures for improving the Premises shall be determined by
multiplying such expenditures by a faction, the numerator of which shall be the
number of years of the term of this Lease which shall not have expired at the
time of such appropriation or taking, and the denominator of which shall be the
number of years of the term of this Lease which shall not have expired at the
time of improving the Premises. In no event shall options to renew or extend be
taken into consideration in determining the payment to be made to the Lessee.
Lessee's right to receive compensation or damages for its fixtures and personal
property shall not be affected in any manner thereby. The rent for the last
month of Lessee's occupancy shall be prorated and Lessor agrees to refund to
Lessee any unearned rent paid in advance.
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<PAGE>
13.4 No Termination - Repairs and Rent Reduction. In the event of taking
-------------------------------------------
that does not result in a termination of this Lease under Paragraph 13.1 or 13.2
hereof, then Lessor shall, at Lessor's cost and expense, restore the Premises or
the parking facility remaining to a complete unit of the quality and character
as existed prior to such appropriation or taking, and therefore the rent
provided for in Article 3 hereof shall be reduced in the ratio that the floor
area of the Premises taken bears to the floor area of the Premises before such
taking, and Lessor shall be entitled to receive the total award XXX compensation
in such proceedings, including any amount awarded to Lessee; provided, however,
that Lessee shall receive and retain any amount awarded to Lessee as
compensation for the taking of fixtures and equipment owned by Lessee or for the
expense of removal or repair of same.
13.5 Notice of Condemnation. Lessor agrees immediately after it receives
----------------------
notice of the intention of any such authority to appropriate or take to give to
Lessee notice in writing of such fact.
13.6 Voluntary Sale as Taking. A voluntary sale by Lessor to any public
------------------------
body or agency having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed to
be a taking under the power of eminent domain for the purposes of this Article
13.
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14. BROKERS
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Lessor acknowledges its obligation to pay a single commission to the
broker(s) specified in Item 9 of the Basic Lease Provisions, if any. Lessee
represents and warrants that it has neither incurred nor is aware of any other
brokers', finders' or similar fee in connection with the origin, negotiation,
execution or performance of this Lease and agrees to indemnify and hold harmless
Lessor from any loss, liability, damage, cost or expense incurred by reason of
breach of this representation.
15. LESSOR'S LIABILITY
------------------
15.1 The term "Lessor" as used herein shall mean only the owner or owners
at the time in question of the fee title or a Lessee's interest in a ground
lease of the Premises. In the event of any transfer of such title or interest,
Lessor herein named (and in case of any subsequent transfers the then grantor)
shall be relieved from and after the date of such transfer of all liability as
respects Lessor's obligations thereafter to be performed, provided that any
funds in the hands of Lessor or the then grantor at the time of such transfer,
in which Lessee has an interest, then shall be delivered to the grantee. The
obligations contained in this Lease to be performed by Lessor, shall, subject as
aforesaid, be binding on Lessor's successors and assigns only during their
respective periods of ownership.
15.2 In consideration of the benefits accruing hereunder, Lessee, its
successors and assigns covenant and agree that, in the event of any actual or
alleged failure, breach or default hereunder by the initial Lessor:
(a) Lessee's sole and exclusive remedy for any damages from Lessor
shall be against the property that this lease covers, commenly known as 5000
Parkway Calabasas, Calabasas, California 91302.
(b) No judgment will be taken against any co-owner; except against the
premises property.
(c) Any judgment taken against any co-owner - other than the premises
property, may be vacated and set aside at any time nuo pro tuno;
(d) No writ of execution will ever be levied against the assets of any
co-owner; except against the premises property.
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16. GENERAL PROVISIONS
------------------
16.1 Estoppel Certificate
--------------------
(a) Lessee shall at any time upon not less than ten (10) days prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by and prospective purchaser
or encumbrancer of the Premises.
(b) Lessee's failure to deliver such statements within such time shall
be conclusive upon Lessee (i) that this Lease is in full force and effect,
without modification except as may be represented by Lessor, (ii) that there are
no uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance.
(c) If Lessor desires to finance or refinance the Premises or any part
thereof, Lessee hereby agrees to deliver to any lender designated by Lessor such
financial statements of Lessee as may be reasonably required by such lender. All
such financial statements shall be received by Lessor in confidence and shall be
used only for the purposes herein set forth.
16.2 Severability. The invalidity of any provision of this Lease as
------------
determined by a court of competent jurisdiction shall in no way affect the
validity of any other provision hereof.
16.3 Time of Essence. Time is of the essence in the performance of all
---------------
terms and conditions of this Lease.
16.4 Captions. Article and paragraph captions have been solely as a matter
--------
of convenience and such captions in no way define or limit the scope or intent
of any provisions of this Lease.
16.5 Notices. Any notice required or permitted to be given hereunder shall
-------
be in writing and may be served personally or by regular mail addressed to
Lessor and Lessee respectively at the addresses set forth before their
signatures in Item 11 of the Basic Lease Provisions, or such other addresses as
may from time to time be designated in writing by Lessor or Lessee by notice
pursuant hereto.
16.6 Waiver. No waiver of any provisions hereof shall be deemed a waiver
------
of any other provision hereof. Consent to or approval of any act by or of the
parties hereto shall not be deemed to render unnecessary the obtaining of such
party's consent to or approval of any subsequent act. The acceptance of rent
hereunder by Lessor shall not be a wavier of any preceding breach by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular
rent so accepted, regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such rent.
16.7 Holding Over. If Lessee remains in possession of the Premises or any
------------
part thereof after the expiration of the term hereof without the express written
consent of Lessor, such occupancy shall be tenancy from month to month at a
rental in the amount of the last monthly rental.
16.8 Cumulative Remedies. No remedy or election hereunder shall be deemed
-------------------
exclusive but shall, whatever possible, be cumulative with all other remedies at
law or in equity.
16.9 Inurement; Choice of Law. Subject to any provision hereof restricting
------------------------
assignment or subletting by Lessee and subject to the provisions of Article 15
hereof, the terms and conditions contained in this Lease shall bind the parties,
their personal representative, successors and assigns. This Lease shall be
governed by the laws of the State of California.
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<PAGE>
16.10 Subordination.
-------------
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
herafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee herunder, or, at Lessor's option Lessor shall execute
such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does
hereby make, constitute and irrevocable appoint Lessor as Lessee's attorney-in-
fact and in Lessee's name, place and stead, to execute such documents in
accordance with this paragraph 16.10 (b). Lessee's obligation to execute any
documents is subject to the documents containing a non-disturbance clause as is
stipulated in 16.10a.
16.11 Attorney's Fees. If either party hereto brings an action to enforce
---------------
the terms hereof or declare rights hereunder, the prevailing party in any such
action, on trial or appeal, shall be entitled to reasonable costs and attorney's
fees to be paid by the losing party. For purposes of this provision, in any
action or proceedings instituted by Lessor based upon any default or alleged
default by Lessee hereunder, Lessor shall be deemed the prevailing party if (a)
judgement is entered in favor of Lessor or (b) prior to trial or judgment Lessee
shall pay all or any portion of the rent and charges claimed by Lessor,
eliminate the condition(s), cease the act(s) or otherwise cure the omission(s)
claimed by Lessor to constitute a default by Lessee hereunder.
16.12 Lessor's Access. Lessor and Lessor's agents shall have the right to
---------------
enter the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, or lenders, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last one hundred eighty (180) days
of the term hereof place on or about the Premises any ordinary "For Sale," "For
Lease" or similar signs all without rebate of rent or liability to Lessee.
16.13 Corporate Authority. If Lessee is a corporation, each individual
-------------------
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the By-Laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. If Lessee is a corporation, Lessee shall, within thirty (30)
days after execution of this Lease, deliver to Lessor a certified copy of a
resolution of the Board of Directors of said corporation authorizing or
ratifying the execution of this Lease.
16.14 Rights of Others. Except as otherwise provided herein, nothing
----------------
expressed or implied is intended, or shall be construed, to confer upon or grant
any person any rights or remedies under or by reason of any term or condition
contained in this Lease.
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<PAGE>
16.15 Safety and Health. Lessee covenants at all times during the term of
-----------------
the Lease to comply with the requirements of the Occupational Safety and Health
Act of 1970, 29 U.S.C. Section 651 et seq and any analogous legislation in
California (collectively, the "Act"), to the extent that the applies to the
Premises and any activities thereon and without limiting the generality of the
foregoing, Lessee covenants to maintain all working areas, all machinery,
structures, electrical facilities and the like upon the Premises in such a
condition that fully complies with the requirements of the Act, including such
requirements as would be applicable with respect to agents, employees or
contractors of Lessor who may from time to time be present upon the Premises,
and Lessee agrees to indemnify and hold harmless Lessor from a liability, claims
or damages arising as a result of a breach of the foregoing covenant and from
all costs, expenses and charges arising therefrom including without limitation,
attorney's fees and court costs incurred by Lessor in connection therewith,
which indemnity shall survive the expiration or termination of this Lease.
16.16 Surrender or Cancellation. The voluntary or other surrender of this
-------------------------
Lease by Lessee, or a mutual cancellation thereof, shall not work a merger, and
shall terminate all or any existing subleases, unless Lessor elects to treat
such surrender or cancellation as an assignment to Landlord of any or all of
such subleases.
16.17 Entire Agreement. This Lease covers in full each and every agreement
----------------
of every kind or nature whatsoever between the parties hereto concerning the
Premises and the Building, and all preliminary negotiations and agreements of
whatsoever kind or nature are merged herein. Lessor has made no representations
or promises whatsovever with respect to the Premises or the Building, except
those contained herein; and no other person, firm or corporation has at any time
had any authority from Lessor to make any representations or promises on behalf
of Lessor, and Lessee expressly agrees that if any such representations or
promises have been made by others, Lessee hereby waives all right to rely
thereon. No verbal agreement or implied covenant shall be held to vary the
provisions hereof, any statute, law or custom to the contrary notwithstanding.
16.18 Signs. Lessee shall not install any signs on the exterior of the
-----
Premises or Building, or any free standing signs without the prior written
approval of Lessor. All such approved signs shall be installed and removed at
Lessee's sole cost and expense.
16.19 Interest on Past Due Obligations. Any amount due from Lessee to
--------------------------------
Lessor hereunder which is not paid when due shall bear interest at ten percent
(10%) per annum from the date due until paid, but the payment of such interest
shall not excuse or cure any default by Lessee.
16.20 Gender; Number. Whenever the context of this Lease requires the
--------------
masculine gender includes the feminine or neuter, the singular number includes
the plural.
16.21 Lease Not Subject to Levy. This Lease and the interest of Lessee
-------------------------
hereunder shall not be subject to garnishment or sale under execution of any
action or proceeding which may be brought against or by Lessee without the
written consent of Lessor.
16.22 Quitclaim. At the expiration or earlier termination of this Lease,
---------
Lessee shall execute, acknowledge and deliver to Lessor, within ten (10) days
after written demand from Lessor a quitclaim deed or other document reasonably
required by any reputable title company to remove the cloud of this Lease from
the title of the real property subject to Lease.
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16.24 Financial Statements. During term of Lease and any extension
--------------------
thereto, tenant shall produce current financial statements within twenty (20)
days of written notification from Lessor.
17. CONSTRUCTION.
------------
17.1 Lessor shall at its expense cause the construction of tenant
improvements in the Premises in accordance with the attached Plan which has been
initialed by Lessor and Lessee concurrently with the execution of this Lease and
which is incorporated herein by this reference. No changes shall be made in the
initially approved plans and specifications without the prior written approval
of Lessor and lessee, and all additional expenses incurred by Lessor with
respect to any changes (except changes requested by Lessor) shall be reimbursed
to Lessor by Lessee upon demand.
17.2 Lessor shall at its expense promptly correct all items not conforming
with the plans and specifications of which Lessor is notified by Lessee in
writing within sixty (60) days after Lessee takes possession of the Premises.
17.3 Lessor warrants the Building and tenant improvements installed in the
Premises by lessor against any defects in materials and workmanship of which
Lessor is notified by Lessee in writing within one (1) year after date of
completion of the work in question. Lessor further warrants that the
construction of the Building and tenant improvements will, upon completion,
comply with all applicable statutes, ordinances, rules, regulations, orders and
requirements of governmental authorities in effect as of the commencement of the
lease term.
18. PARKING See Item #29.
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During the term of this Lease, Lessee shall have the right in common with
other lessees of the Building (if any) to use the parking area subject to such
rules and regulations as may be established from time to time by Lessor for the
effective use of said parking area. Said rules and regulations may include, but
shall not be limited to, such items as: designation of specific areas for use by
invitees of Lessee and Lessor; hours during which said parking shall be open for
use; use of a parking attendant; and such other matters affecting the parking
operation to the end that said facilities shall be utilized to maximum
efficiency and in the best interest of Lessor, Lessee and their respective
invitees. Lessee shall be limited to 3 parking spaces.
-----
19. CONSENTS. Wherever in this lease the consent of one party is required to
--------
an act of the other party such consent shall not be unreasonably withheld.
20. GUARANTOR. In the event that there is a guarantor of this lease, said
---------
guarantor shall have the same obligations as Lessee under this Lease.
21. QUIET POSSESSION. Upon Lessee paying the rental payments required herein
----------------
and observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all the
provisions of this Lease.
22. OPTIONS. See Item #30.
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23. Security Measures. Lessee hereby acknowledges that the rental payable to
-----------------
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
24. Easements and C,C & R's (covenent, conditions, and restrictions). Lessor
----------------------------------------------------------------
reserves to itself the right, from time to time, to grant such easements/C.C. &
R's, rights and dedications that Lssor deems necessary or desirable, and to
cause the recordation of Parcel Maps and restrictions, so long as such
easements/C.C. & R's, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign
any of the aforementioned documents and/or subordinate this lease XXX the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease, as long as easements and CC & R's do
not limit the rights granted Lessee in this Lease.
25. Auctions. Lessee shall not conduct, or permit to be conducted, either
--------
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
or reasonableness in determining whether to grant such consent.
26. Damage or Destruction. Notwithstanding the language in item #8, Lessee
---------------------
shall have the right to cancel and terminate this lease one hundred fifty (150)
days after casualty, should Lessor be unable to substantially complete repairs
caused by casualty damage within the 150 days period. Lessor shall have this
termination right within ten (10) days after the one hundred fifty (150) day
repair period.
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<PAGE>
27. LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 11 hereof,
Lessee may assign or sublet the Premises, or any portion thereof, without
Lessor's consent, to any corporation which controls, is controlled by or is
under common control with Lessee, or to any person or entity which acquires all
the assets of Lessee as a going concern of the business that is being conducted
on the Premises, all of which are referred to as "Lessee Affiliate"; provided
that before such assignment shall be effective (a) said assignee shall resume,
in full, the obligations of Lessee under this lease and (b) Lessor shall be
given written notice of such assignment and assumption. Any such assignment
shall not, in any way affect or limit the liability of Lessee under the terms of
this Lease even if after such assignment or subletting the terms of this lease
are materially changed or altered without the consent of Lessee, the consent of
whom shall not be necessary.
28. INSURANCE. Should the Lessor decide to obtain earthquake insurance during
the term of this lease, the cost of earthquake insurance shall be excluded from
the building operating expenses detailed in item # 3.3(d).
29. PARKING. Lessee shall three (3) marked parking spaces as shown on
Exhibit "A", Area Map. In addition, Lessee shall be entitled to two (2) more
marked parking spaces should the parking area becomes full on a daily basis and
unsatisfactory to the Lessee.
30. GRANTED OPTION. Lessor grants Lessee two (2) 2-year options under the
same terms and conditions to renew this lease. Notice to exercise each option
shall be given to Lessor no later than 120 days prior to expiration of the
lease. Rent for the initial year of each option period shall be adjusted for any
change in common area maintenance, taxes and insurance, using 1991 as a base
year. 12 cents per sq. ft. per month has been used as the power allowance in
arriving at the initial rental rate. If the average power usage differs from 12
cents per sq. ft. per month over the prior 12 months of the lease, the rental
rate shall be adjusted either upward or downward for each succeeding 12 month
period, including option periods.
-21-
<PAGE>
LEASE
FULL SERVICE LEASE
(NET)
"THIS LEASE is made between Lessor and Lessee named below as of the later of
the dates set forth under their respective signatures.
BASIC LEASE PROVISIONS
----------------------
1. Building Name: Wolcott Business Center
Premises Address: 5000 No. Parkway Calabasas #200, Calabasas, CA 91302
2. Rentable area: 1592 S.F. Useable area _______S.F.
3. Building Maintenance Percentage: N/A
4. Basic Annual Rent: $25,790.40 ($______ per sq. ft.)
5. Monthly Rental Installments: $2,149.20 ($1.35 per sq. ft.)
6. Terms: 2 years and 0 months.
7. Lease Commencement Date: 5/1/92 or sooner, if possible
8. Security Deposit: $2,149.20
9. Broker(s): N/A
10. Lease Occupancy Date: 5/1/92 or sooner
IN WITNESS WHEREOF, the parties hereto have executed this Lease, consisting of
the foregoing Basic Lease provisions and Articles 1 through 26 which follow, as
of the later of the dates below.
LESSOR: Wolcott Business Center LESSEE:
/s/ William L. Wolcott /s/ Homayoon Majd
- ---------------------- -----------------
William L. Wolcott Homayoon Majd
-----------------
Farhad Mirfakhrai
-----------------
Kamyar Tafreshi
GUARANTOR:
DATED: 3/12/92 DATED:
---------------- ---------------
ADDRESS: 5000 N. Parkway Calabasas #202 ADDRESS:
------------------------------ ------------
Calabasas, CA. 91302
- ---------------------------------------
MAIL: P.O. Box 8237, Calabasas, CA. 91302
------------------------------------
TELEPHONE NO.: (818) 222-1221 TELEPHONE NO.:
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
Base Lease Provisions......................................... 1
Table of Contents............................................. 2
1. Lease of Premises............................................. 4
2. Term.......................................................... 4
3. Rent & Security Deposit....................................... 4
4. Operating Expense Adjustment.................................. 6
5. Use........................................................... 8
6. Maintenance, Repairs and Alterations.......................... 8
7. Insurance: Indemnity.......................................... 10
8. Damage or Destruction......................................... 11
9. Personal Property Taxes....................................... 12
10. Utilities..................................................... 12
11. Assignment and Subletting..................................... 13
12. Defaults: Remedies............................................ 13
13. Condemnation or Restriction on Use............................ 15
14. Brokers....................................................... 17
15. Lessor's Liability............................................ 17
16. General Provisions............................................ 18
16.1 Estoppel Certificate.................................. 18
16.2 Severability.......................................... 18
16.3 Time of Essence....................................... 18
16.4 Captions.............................................. 18
16.5 Notices............................................... 18
16.6 Waivers............................................... 18
16.7 Holding Over.......................................... 18
16.8 Cumulative Remedies................................... 18
16.9 Inurement; Choice of Law.............................. 18
16.10 Subordination......................................... 18
16.11 Attorney's Fees....................................... 19
16.12 Lessor's Access....................................... 19
16.13 Corporate Authority................................... 19
16.14 Rights of Others...................................... 19
16.15 Safety & Health....................................... 20
16.16 Surrender of Cancellation............................. 20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
16.17 Entire Agreement................................................ 20
16.18 Signs........................................................... 20
16.19 Interest on Past Due Obligations................................ 20
16.20 Gender; Number.................................................. 20
16.21 Lease Not Subject to Levy....................................... 20
16.22 Quitclaim....................................................... 20
16.23 Confidentiality of Lease........................................ 20
16.24 Financial Statements............................................ 21
17. Construction.............................................................. 21
18. Parking................................................................... 21
19. Consents.................................................................. 21
20. Guarantor................................................................. 21
21. Quiet Possession.......................................................... 21
23. Security Measures......................................................... 22
24. Easements and C,C & R's................................................... 22
25. Auctions.................................................................. 22
</TABLE>
Rules and Regulations
<PAGE>
1. LEASE OF PREMISES
-----------------
Lessor hereby leases to Lessee and Lessee leases from Lessor for the term,
at the rental, and upon all conditions set forth in this Lease, those certain
premises (the "Premises") in that certain building (the "Building") which
address is 5000 North Parkway Calabasas, #200, California, identified in
----------------------------------
Item 1 of the Basic Lease Provisions, together with non-exclusive use of any
common areas in the Building and of the parking areas adjoining the Building in
common with other tenants of the building, if any. The approximate location of
the building, Premises and associated parking is indicated on Exhibit "A" which
is attached hereto and incorporated hereto and incorporated herein by this
reference.
2. TERM
----
2.1 Commencement of Term
--------------------
(a) The term of the Lease shall be as shown in Item 6 of the Basic
Lease Provisions, commencing on the Lease or such later date as may be herein
provided, unless sooner terminated pursuant to any provision hereof.
(b) Notwithstanding the foregoing, the term of this Lease shall
commence upon delivery of the possession of the Premises, and the date thereof
shall constitute the date of commencement of the term of this Lease. Delivery of
possession of the Premises shall occur upon written tender of same by Lessor.
(c) If delivery of possession occurs prior to the Lease Commencement
Date, the term of this Lease and all obligations of this Lease, shall commence
on such date of delivery of possession but the date of termination shall not be
advanced. Occupancy by Lessee for any purpose shall constitute an
acknowledgement that the Building and Premises have been satisfactorily
completed and Lessor shall have no further responsibility with respect to
construction except as herein expressly set forth. Lessee's execution and
delivery to Lessor prior to its occupancy of the Premises of a "Certificate of
Lessee's Acceptance of Occupancy" letter shall be deemed to be conclusive as to
the commencement of the term and Lessee's obligations under this Lease. See item
17.2, sixty day punch list.
(d) The actual date of commencement (the "Commencement Date") shall be
confirmed by the parties by initialling the lower portion of the Basic Lease
Provisions, after insertion of the Commencement Date and expiration date of the
Lease, promptly following such commencement, but failure of Lessee to
acknowledge the Commencement Date as established pursuant to this Article shall
not affect any obligation of Lessee hereunder or Lessor's determination of the
Commencement Date pursuant to this Article 2.
2.2 Delay in Commencement. Notwithstanding the Lease Commencement Date, if
---------------------
for any reason Lessor cannot deliver possession of the Premises to Lessee on or
before said date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease or the obligations of
Lessee hereunder or extend the term hereof, but in such case Lessee shall not be
obligated to pay rent until delivery of possession of the Premises has occurred;
provided, however, that if Lessor shall not have delivered possession of the
Premises within two (2) months after said Lease Commencement Date, Lessor or
Lessee may, at Lessee's option, by notice in writing to Lessor within ten (10)
days thereafter, cancel this Lease, in which event the parties shall be
discharged from all obligations hereunder.
3. RENT & SECURITY DEPOSIT
----
3.1 Basic Rent. Lessee shall pay to Lessor as rent for the Premises a
----------
basic annual rent in the amount specified in Item 4 of the Basic Lease
Provisions, payable without deduction or offset, in equal monthly installments
in the amounts specified in Item 5 of the Basic Lease Provisions in advance, on
the first day of each month, in lawful money of the United States, to Lessor at
the address stated herein, or to such other persons or at such other places as
Lessor may designate in writing. Rent for any period during the term hereof
which is for less than one month shall be a pro rata portion of the monthly
installment based upon a thirty (30) day month.
-4-
<PAGE>
-5-
<PAGE>
-6-
<PAGE>
-7-
<PAGE>
5. USE
---
5.1 The premises shall be used and occupied for general office purposes in
a manner consistent and in compliance with all applicable ordinances and other
governmental requirements affecting the Premises, and the Rules and Regulations
attached hereto and all additions to such Rules and Regulations as Lessor may
from time to time reasonably adopt for the safety, care and cleanliness of the
premises or the preservation of good order, and for no other purpose whatsoever
without the express written consent of Lessor, which consent shall be in the
sole and absolute discretion of Lessor. Lessor shall not be responsible to
Lessee for nonperformance of any said Rules and Regulations by any other tenant
of the Building.
5.2 Compliance with Law. Lessee shall, at Lessee's expense, comply
-------------------
promptly with all applicable statutes, ordinances, rules, regulations, orders
and requirements in effect during the term or any part of the term hereof
regulating the use by Lessee of the Premises. Lessee shall not use or permit the
use of the Premises in any manner that will tend to create waste or a nuisance
or, if there shall be more than one tenant of the Premises, which shall tend to
disturb such other tenants.
5.3 Insurance Cancellation. Notwithstanding the provisions of Paragraph
----------------------
5.1 above, no use shall be made or permitted to be made of the Premises nor acts
done which will cause the cancellation of any insurance policy covering said
Premises or the Building, and if Lessee's use of the Premises causes an increase
in said insurance rates Lessee shall pay any such increases.
6. MAINTENANCE, REPAIRS AND ALTERATIONS
------------------------------------
6.1 Lessor's Obligations. Lessor shall during the term of this lease
--------------------
maintain, or cause to be maintained, in good order, condition and repair, the
roof and walls of the Building (excluding the interior surface thereof and
excluding windows entirely) and any common areas in the Building ("Building
Maintenance"), as well as all parking areas, driveways, sidewalks, private roads
or streets, landscaping and all other areas located within the site, other than
areas occupied by buildings (such nonbuilding areas being herein referred to as
"common areas" and the maintenance thereof being sometime herein referred to as
"common area maintenance"), all signs, plumbing, electrical and air conditioning
equipment on or adjacent to the Premises, whether interior or exterior to the
Building. Lessor responsible for windows, except for breakage due to Lessee's
negligence.
6.2 Lessee's Obligations. Lessee shall during the term of this lease keep
--------------------
in good order, condition and repair, the interior of the Premises and every part
thereof, including without limitation all windows and doors. Except in the event
of Lessor's negligence, Lessor shall incur no expense nor have any obligation of
any kind whatsoever in connection with maintenance of the interior of the
Premises, as defined above, and Lessee expressly waives the benefits of any
statute now or hereafter in effect which would otherwise afford Lessee the right
to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the interior of the Premises in good order, condition
and repair. Notwithstanding the foregoing, Lessor shall be liable for
maintenance or repairs which are caused by Lessor's negligence.
6.3 Surrender. On the last day of the term hereof, or on any ^illegible^
---------
termination, Lessee shall surrender the Premises to Lessor in good order and
condition, broom clean, ordinary wear and tear excepted. Lessee shall repair any
damage to the Premises occasioned by the removal of Lessee's trade fixtures,
furnishing and equipment, which repair shall include the patching and filling of
holes and repair of structural damage.
6.4 Alterations and Additions.
-------------------------
(a) Lessee shall not, without Lessor's prior written consent, make any
alterations, improvements, additions, utility installations in or about the
Premises, except for nonstructural alterations not exceeding
-8-
<PAGE>
$500 in cost. As used in this Paragraph 6.4 the term "utility installations
shall include bus ducting, power panels, fluorescent fixtures, space heater
conduits and wiring. As a condition to giving such consent, Lessor may require
that Lessee agree to remove any such alterations, improvements, additions or
utility installations at the expiration of the term, and to restore the Premises
to their prior conditions.
(b) All alterations, improvements and additions to the premises shall
be performed by Lessor's contractor or by another licensed general contractor
mutually acceptable to Lessor and Lessee. Lessee shall pay when due, all claims
for labor or materials furnished to or for Lessee at or for use in the Premises,
which claims are or may be secured by any mechanics' or materialmen's lien
against the Premises or any interest therein, and Lessor shall have the right to
post notices of non-responsibility in or on the Premises as provided by law.
(c) Unless Lessor requires their removal pursuant to Paragraph 6.4 (a)
hereof, all alterations, improvements and additions which may be made on the
Premises shall become the property of Lessor and remain upon and be surrendered
with the Premises at the expiration of the term.
(d) If Lessor, in Lessor's sole discretion, should need or desire to
do any alteration or remodeling in any space next to, above, or below premises,
then Lessor shall have the right to enter into premises to do any and all work
needed, desired or wanted in such adjacent space. Lessor shall be required to
give Lessee twenty-four (24) hour notice and if such work should disrupt
Lessee's business then Lessor shall do said work after normal business hours.
Lessee's premises shall be left in good, clean order and repair.
6.5 Lessor's Rights. If Lessee fails to perform Lessee's obligations under
---------------
this Article 6, Lessor may at its option (but shall not be required to) enter
upon the Premises after fifteen (15) days' prior written notice to Lessee, and
put the same in good order, condition and repair, and the cost thereof together
with interest thereon at the rate of ten percent (10%) per annum shall become
due and payable as additional rent to Lessor together with Lessee's next rental
installment.
-9-
<PAGE>
7. INSURANCE: INDEMNITY
--------------------
7.1 Liability Insurance. Lessee shall, at Lessee's expense, obtain and
-------------------
keep in force during the term of this lease comprehensive public liability
insurance insuring Lessor and Lessee against any liability arising out of the
ownership, use, occupancy or maintenance of the Premises, the Building and all
common areas. Such insurance shall be in the amount of not less than $1,000,000
combined single limit. The limits of said insurance shall not, however, limit
the liability of Lessee hereunder.
7.2 Property Insurance. Lessor shall obtain and keep in force during the
------------------
term of this Lease a policy or policies of insurance covering loss or damage to
the Building, in the amount of the full replacement value thereof against all
perils, included within the classification of fire, extended coverage,
vandalism, malicious mischief, special extended perils (all risk). Said
insurance shall provide for payment of loss thereunder to Lessor or to the
holder of a first mortgage or deed of trust on the Premises as their interests
may appear. Lessor shall obtain and keep in force during the term of this lease
a policy of rental value insurance with an extended period of Indemnity
Endorsement (up to 10 months), with loss payable to Lessor, which insurance
shall also cover all real estate taxes, real estate brokers fees, and insurance
costs for said period. Additional insurance shall include but not be limited to,
a stipulated value or agreed amount endorsement deleting the co-insurance
provision of the policy, a Increased Cost of Construction Endorsement, a
Contingent Liability from Operations to Building Laws Endorsement Demolition and
Increased Time to Rebuild, a Cost of Inventory Appraisal and Adjustment
Endorsement, and an Automatic Increase in Insurance Endorsement. Lessor will not
insure Lessees fixtures, equipment, or supplies.
7.3 Waiver of Subrogation. Notwithstanding any contrary provision of this
---------------------
Lease, Lessee and Lessor each hereby waive any and all rights of recovery
against the other, or against the officers, employees agents and representatives
of the other, for loss of or damage to such waiving party or its property or the
property of others under its control to the extent that such loss or damage is
insured against under any insurance policy in force at the time of such loss or
damage. The insuring party shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease.
7.4 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
---------
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work, or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding is brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's' expense by counsel satisfactory to Lessor. Lessee as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon, or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
Notwithstanding the foregoing Lessee shall not be responsible for any claims
which are the sole and proximate result of Lessor's negligence.
-10-
<PAGE>
7.5 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
----------------------------------
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitee customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixture or from any other
cause, whether the said 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 cause or places, and regardless whether the cause of such
damage or injury or the means of repairing the same is inaccessible. Lessor
shall be liable for injury to Lessee's business or loss of income or damage to
the goods, wares, merchandise or other property of Lessee which arises as the
sole and proximate result of Lessor's Gross negligence.
7.6 Insurance Policies. Insurance required hereunder shall be in companies
------------------
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best's Insurance Guide". The insuring party
shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee upon demand.
8. DAMAGE OR DESTRUCTION See Item #26.
---------------------
8.1 Partial Damage - Insured. Subject to the provisions of Paragraph 8.3
------------------------
hereof, if the Premises are damaged and such damage was caused by a casualty
covered under an insurance policy required to be maintained pursuant to
Paragraph 7.2 hereof, Lessor shall at Lessor's expense repair such damage as
soon as reasonably possible and this lease shall continue in full force and
effect.
8.2 Partial Damage - Uninsured. Subject to the provisions of Paragraph
--------------------------
8.3, if at any time during the term hereof the Premises are damaged except by a
negligent or willful act of Lessee, and such damage was caused by casualty not
covered under an insurance policy required to be maintained pursuant to
Paragraph 7.2, Lessor may at Lessor's option either (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence of
such damage. In the event Lessor elects to give such notice of Lessor's
intention to cancel and terminate this Lease, Lessee shall have the right within
ten (10) days after the receipt of such notice to give written notice to Lessor
of Lessee's intention to repair such damage at Lessee's expense, without
reimbursement from Lessor, in which event this Lease shall continue in full
force and effect, and Lessee shall proceed to make such repairs as soon as
reasonably possible. If Lessee does not give such notice within such ten (10)
day period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
8.3 Abatement of Rent: Lessee's Remedies
------------------------------------
(a) If the Premises are partially destroyed or damaged and Lessor or
Lessee repairs or restores them pursuant to the provisions of this Article, the
rent payable under Article 3 for the period during which such damage, repair or
restoration continues shall be abated in proportion to the degree to which
lessee's use of the Premises is impaired. Except for abatement of rent, if any,
Lessee shall have no claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.
-11-
<PAGE>
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Article 8 and shall not commence such repair or
restoration within 90 days after such obligation shall accrue, subject to an
extension of up to another 90 days for delays beyond the reasonable control of
Lessor, Lessee may at Lessee's option:
(1) cancel and terminate this lease by giving Lessor written notice of
Lessee's election to do so at any time prior to the commencement of such repair
or restoration. In such event this Lease shall terminate as of the date of such
notice. Any abatement in rent shall be computed as provided in Paragraph 8.3 (a)
hereof.
or
(2) make such repairs or restoration and deduct the cost of such
repairs or restoration from the rent due under Article 3 hereof.
8.4 Total Destruction. If at any time during the term hereof the Premises
-----------------
are totally destroyed from any cause whether or not covered by the insurance
required to be maintained by Lessor pursuant to Article 7.2 (including any total
destruction required by any authorized public authority) this Lease shall
automatically termite as of the date of such total destruction. For purposes of
this Paragraph, total destruction of the Building shall be damage or destruction
the cost of repair of which shall, in the written opinion of a registered
Architect or engineer appointed by Lessor, exceed fifty percent (50%) of the
then replacement value of the Building and shall not require that the Premises
be totally or partially destroyed or damaged.
8.5 Insurance Proceeds Upon Termination. If this Lease is terminated
-----------------------------------
pursuant to any right given Lessee or Lessor to do so under this Article 8, all
insurance proceeds payable with respect to the damage giving rise to such right
of termination shall be paid to Lessor and any encumbrance of the Premises, as
their interests may appear, except that Lessee will be entitled to the proceeds
of insurance on its leasehold improvements & personal property.
8.6 Restoration. Lessor's obligation to restore shall not include the
-----------
restoration or replacement of Lessee's trade fixtures, equipment, merchandise or
any improvements or alterations made by Lessee to the Premises.
9. PERSONAL PROPERTY TAXES
-----------------------
Lessee shall pay prior to delinquency all taxes assessed against and levied
upon trade fixtures, furnishings, equipment and all other personal property of
Lessee contained in the Premises or elsewhere. When practicable, Lessee shall
cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
10. UTILITIES
---------
Lessor shall maintain and keep lighted all common areas, including but not
limited to, parking areas, landscaping area, sidewalks, entry and stairways.
Lessor shall furnish to premises separate electrical meters. Lessor shall
furnish water to the premises. Lessor shall furnish janitorial service to the
premises, and such shall be the responsibility of the Lessee. Lessor shall not
be liable for and Lessee shall not be entitled to, any reduction of rental by
reason of Lessor's failure to furnish any of the foregoing when such failure is
caused by accident, breakage, repairs, strikes, lockouts or other labor
disturbances, or labor disputes of any character, or by any other cause, similar
or dissimilar, beyond the reasonable control of Lessor. Lessor shall not be
liable under any circumstances for a loss of or injury to property, however
occurring, through or in connection with or incidental to failure to furnish any
of the foregoing. If lessee shall require water in excess of that usually
furnished or supplied for the use of the premises as general office space,
Lessee shall first procure the written consent of Lessor which Lessor may
refuse, to the use thereof and Lessor may cause a water meter to be installed in
the premises, so as to measure the amount of water consumed for any such use.
The cost of any such meters and of installation, maintenance and repair thereof
shall be paid for by Lessee and Lessee agrees to pay to Lessor promptly upon
demand therefor by lessor for all such water consumed as shown by said meters,
at the rates charged for such services by the local public utility furnishing
the same. Lessee has control of all air conditioning to the suite.
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<PAGE>
11. ASSIGNMENT AND SUBLETTING See Item #27.
-------------------------
11.1 Lessee shall not voluntarily or by operation of law sublet, assign,
transfer, mortgage or otherwise encumber, or grant concessions, licenses or
franchises with respect to, all of any part of Lessee's interest this Lease or
the Premises without the prior written consent of Lessor. If Lessee desires at
any time to assign this Lease or sublet the Premises or any portion thereof, it
shall first notify Lessor of its desire to do so and shall submit in writing to
Lessor (i) the name of the proposed subtenant or assigned, (ii) the nature of
the proposed subtenant's or assignee's business to be carried on in the
Premises; (iii) the terms and provisions of the proposed sublease or assignment.
Lessor may, as a condition to granting such consent, require that the obligation
of lessee hereunder be guaranteed by the parent or controlling corporation of
any assignee which is a subsidiary or affiliate of another corporation. Any
sublease, license, concession franchise or other permission to use the premises
made with consent of Lessor shall be expressly subject and subordinate to all
applicable terms and conditions of this Lease. Any purported concession,
franchise or other permission to use the Premises, contrary to the provisions of
this paragraph shall be void, and, at the option of Lessor, shall terminate this
Lease.
11.2 If Lessee is a corporation, any transfer of its stock, or any
disolution, merger or consolidation, which results in a change in the control of
Lessee from the person or persons owning a majority of its voting stock
immediately prior thereto or the sale or other transfer of all or substantially
all of the assets of Lessee, shall constitute an assignment of Lessee's interest
in this Lease within the meaning of this Article 11 and the provision requiring
consent contained herein. Lessor may require as a condition to giving such
consent that the new controlling person(s) immediately execute a guaranty of
this Lease.
11.3 No subletting, assignment, license, concession, franchise or other
permission to use the Premises shall relieve Lessee of its obligations to pay
rent or to perform all of the other obligations to be performed by Lessee
hereunder. The acceptance of rent by Lessor from any other person shall not be
deemed to be a waiver by Lessor of any provision of this Lease.
12. DEFAULTS; REMEDIES
------------------
12.1 Default by Lessee. The occurrence of any one or more of the following
-----------------
events shall constitute a material default of this Lease by Lessee.
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure of Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder as and when due, where such
failure shall continue for a period of ten (10) days after written notice
thereof from Lessor to Lessee; provided, however, that any such notice shall be
in lieu of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than as described in Paragraph 12.1 (b) hereof, where such failure shall
continue for a period of thirty (3) days after written notice thereof from
Lessor to Lessee; provided, however, that any such notice shall be in lieu of,
and not in addition to, any notice required under California Code of Civil
Procedure Section 1161; provided further, that if the nature of Lessee's default
is such that more than 30 days are reasonably required for its cure, then Lessee
shall not be deemed to be in default if Lessee commenced such cure within said
30 day period and thereafter diligently prosecutes such cure to completion.
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<PAGE>
(d) The making by Lessee of any general assignment, or general
arrangement for the benefit of creditors; the filing by or against Lessee of a
petition to have Lessee adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petiton filed against Lessee, the same is dismissed within 60 days); the
appointment of a trustee or receiver to take possession of substantially all of
the Lessee's assets located at the Premises, or of Lessee's interest in this
Lease, where possession is not restored to Lessee within 30 days; or the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty days.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, and assignee of Lessee, any subtennant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
12.2 Remedies for Default of Lessee. In the event of any material default
------------------------------
by Lessee as defined in Paragraph 12.1 hereof, Lessor may at any time
thereafter, upon notice and demand and without limiting Lessor in the exercise
of any other right or remedy which lessor may have by reason of such default
breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee:
(1) The worth at the time of aware of the unpaid rent which has been
earned at the time of termination;
(2) The worth at the time of aware of the amount by which the unpaid
rent which would have been earned after termination until the time of aware
exceeds the amount of such rental loss that Lessee proves could have been
reasonably avoided;
(3) The worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that Lessee proves could be reasonably avoided; and
(4) Any other amount necessary to compensate the Lessor for all the
detriment proximately caused by Lessee's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to, the cost of recovering
possession of the Premises, Real Estate comminsions actually paid, reasonable
attorney's fees, and any other reasonable cost.
The "worth at the time of award" of the amounts referred to in subparagraphs (1)
and (2) above shall be computed by allowing interest at ten percent (10%) per
annum. The worth at the time of aware of the amount referred to in subparagraph
(3) above shall be computed by discounting such amount at one (1) percentage
point above the discount rate of the Federal Reserve Bank of San Francisco at
the time of award.
(b) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the State of California. Unpaid installments
of rent and other unpaid monetary obligations of Lessee under the terms of this
lease shall bear interest from the date due at maximum rate then allowable by
law.
(c) Maintain Lessee's right to possession in which case this lease
shall continue in effect whether or not Lessee shall has abandoned the premises.
In such an event, Lessor shall be entitled to enforce all of Lessor's rights and
remedies under this lease.
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<PAGE>
12.3 Default by Lessor. The failure of Lessor to perform any obligation
-----------------
of Lessor under this Lease shall constitute a material default and breach of
this Lease by Lessor. Notwithstanding the foregoing, Lessor shall not be in
default unless Lessor fails to perform obligations required of Lessor within a
reasonable time, but in no event later than thirty (30) days after written
notice by Lessee to Lessor and to the holder of any first mortgage or deed of
trust covering the Premises whose names and addresses shall have theretofore
been furnished to Lessee in writing, specifying wherein Lessor has failed to
perform such obligations; provided, however, that if the nature of Lessor's
obligations is such that more than thirty (30) days are required for performance
then Lessor, shall not be in default if Lessor commences performance within such
30-day period and thereafter diligently prosecutes the same to completion. In
the event of any such default by Lessor, Lessee may pursue any remedy now or
hereafter available to Lessee under the laws or judicial decisions of the State
of California, except that Lessee shall not have the right to terminate this
Lease except as expressly provided in this Lease.
12.4 Late Charges. Lessee hereby acknowledges that the late payment by
------------
Lessee to Lessor of rent and other sums due hereunder will cause Lessor 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, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after
payment is due, then Lessee shall pay to Lessor a late charge equal to ten
percent (10%) of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the cost Lessor will incur
by reason of late payment by Lessee. Acceptance of such late charge by Lessee
shall in no event constitute a waiver of Lessee's default with respect to such
overdue amount, nor prevent Lessor from exercising any of the other rights and
remedies granted hereunder.
13. CONDEMNATION OR RESTRICTION ON USE
----------------------------------
13.1 Termination of Lease on Total Taking. In the event the entire
------------------------------------
Premises or leasehold interest shall be appropriated or taken under the power of
eminent domain by any public or quasi-public authority for any period of time,
this Lease shall terminate as of the date of such taking.
13.2 Lessee's Election to Terminate on Partial Taking. In the event more
------------------------------------------------
than ten percent (10%) of the floor area of the Premises or more than thirty
percent (30%) of the adjacent parking facility is taken under the power of
eminent domain by any public or quasi-public authority, and if by reason of any
such appropriation or taking, regardless of the amount so taken, the remainder
of the Premises or parking facility is not reasonably suitable for the operation
of Lessee's business taking into account Lessor's obligation to restore under
Paragraph 13.4, Lessee shall have the right to terminate this Lease as of the
date of such taking upon giving to Lessor notice in writing of such election
within one hundred twenty (120) days after such appropriation or taking.
Notwithstanding the foregoing, if the appropriation or taking is only of the
associated parking area Lessee shall not have a right to terminate this Lease
and rent shall not abate if Lessor promptly provides substitute parking
reasonably accessible to the building of which the Premises are a part.
13.3 Each Party Entitled to Award. If this Lease is terminated in the
----------------------------
manner provided in Paragraph 13.1 or 13.2 hereof, each party shall be entitled
to any aware made to it in such proceedings; Lessee shall specifically be
entitled to that portion of any award attributable to unamortized expenditures
made by Lessee for improvements to the Premises. The unamortized portion of the
Lessee's expenditures for improving the Premises shall be determined by
multiplying such expenditures by a faction, the numerator of which shall be the
number of years of the term of this Lease which shall not have expired at the
time of such appropriation or taking, and the denominator of which shall be the
number of years of the term of this Lease which shall not have expired at the
time of improving the Premises. In no event shall options to renew or extend be
taken into consideration in determining the payment to be made to the Lessee.
Lessee's right to receive compensation or damages for its fixtures and personal
property shall not be affected in any manner thereby. The rent for the last
month of Lessee's occupancy shall be prorated and Lessor agrees to refund to
Lessee any unearned rent paid in advance.
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<PAGE>
13.4 No Termination - Repairs and Rent Reduction. In the event of taking
-------------------------------------------
that does not result in a termination of this Lease under Paragraph 13.1 or 13.2
hereof, then Lessor shall, at Lessor's cost and expense, restore the Premises or
the parking facility remaining to a complete unit of the quality and character
as existed prior to such appropriation or taking, and therefore the rent
provided for in Article 3 hereof shall be reduced in the ratio that the floor
area of the Premises taken bears to the floor area of the Premises before such
taking, and Lessor shall be entitled to receive the total award compensation in
such proceedings, including any amount awarded to Lessee; provided, however,
that Lessee shall receive and retain any amount awarded to Lessee as
compensation for the taking of fixtures and equipment owned by Lessee or for the
expense of removal or repair of same.
13.5 Notice of Condemnation. Lessor agrees immediately after it receives
----------------------
notice of the intention of any such authority to appropriate or take to give to
Lessee notice in writing of such fact.
13.6 Voluntary Sale as Taking. A voluntary sale by Lessor to any public
------------------------
body or agency having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed to
be a taking under the power of eminent domain from the purposes of this Article
13.
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<PAGE>
14. BROKERS
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Lessor acknowledges its obligation to pay a single commission to the
broker(s) specified in Item 9 of the Basic Lease Provisions, if any. Lessee
represents and warrants that it has neither incurred nor is aware of any other
brokers', finders' or similar fee in connection with the origin, negotiation,
execution or performance of this Lease and agrees to indemnify and hold harmless
Lessor from any loss, liability, damage, cost or expense incurred by reason of
breach of this representation.
15. LESSOR'S LIABILITY
------------------
15.1 The term "Lessor" as used herein shall mean only the owner or owners
at the time in question of the fee title or a Lessee's interest in a ground
lease of the Premises. In the event of any transfer of such title or interest,
Lessor herein named (and in case of any subsequent transfers the then grantor)
shall be relieved from and after the date of such transfer of all liability as
respects Lessor's obligations thereafter to be performed, provided that any
funds in the hands of Lessor or the then grantor at the time of such transfer,
in which Lessee has an interest, then shall be delivered to the grantee. The
obligations contained in this Lease to be performed by Lessor, shall, subject as
aforesaid, be binding on Lessor's successors and assigns on during their
respective periods of ownership.
15.2 In consideration of the benefits accruing hereunder, Lessee, its
successors and assigns covenant and agree that, in the event of any actual or
alleged failure, breach or default hereunder by the initial Lessor:
(a) Lessee's sole and exclusive remedy for any damages from Lessor
shall be against the property that this lease covers, commonly known as 5000
Pkwy. Calabasas, Calabasas, California 91302.
(b) No judgment will be taken against any co-owner; except against the
premises property.
(c) Any judgment taken against any co-owner - other than the premises
property, may be vacated and set aside at any time nuo pro tuno;
(d) No writ of execution will ever be levied against the assets of any
co-owner; except against the premises property.
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<PAGE>
16. GENERAL PROVISIONS
------------------
16.1 Estoppel Certificate
--------------------
(a) Lessee shall at any time upon not less than ten (10) days prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified an in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by and prospective purchaser
or encumbrancer of the Premises.
(b) Lessee's failure to deliver such statements within such time shall
be conclusive upon Lessee (i) that this Lease is in full force and effect,
without modification except as may be represented by Lessor, (ii) that there are
no uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance.
(c) If Lessor desires to finance or refinance the Premises or any part
thereof, Lessee hereby agrees to deliver to any lender designated by Lessor such
financial statements of Lessee as may be reasonably required by such lender. All
such financial statements shall be received by Lessor in confidence and shall be
used only for the purposes herein set forth.
16.2 Severability. The invalidity of any provision of this Lease as
------------
determined by a court of competent jurisdiction shall in no way affect the
validity of any other provision hereof.
16.3 Time of Essence. Time is of the essence in the performance all terms
---------------
and conditions of this Lease.
16.4 Captions. Article and paragraph captions have been solely as a matter
--------
of convenience and such captions in no way define or limit the scope or intent
of any provisions of this Lease.
16.5 Notices. Any notice required or permitted to be given hereunder shall
-------
be in writing and may be served personally or by regular mail addressed to
Lessor and Lessee respectively at the addresses set forth before their
signatures in Item 11 of the Basic Lease Provisions, or such other addresses as
may from time to time be designated in writing by Lessor or Lessee by notice
pursuant hereto.
16.6 Waiver. No waiver of any provisions hereof shall be deemed a waiver
------
of any other provision hereof. Consent to or approval of any act by or of the
parties hereto shall not be deemed to render unnecessary the obtaining of such
party's consent to or approval of any subsequent act. The acceptance of rent
hereunder by Lessor shall not be a wavier of any preceding breach by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular
rent so accepted, regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such rent.
16.7 Holding Over. If Lessee remains in possession of the Premises or any
------------
part thereof after the expiration of the term hereof without the express written
consent of Lessor, such occupancy shall be tenancy from month to month at a
rental in the amount of the last monthly rental.
16.8 Cumulative Remedies. No remedy or election hereunder shall be deemed
-------------------
exclusive but shall, whatever possible, be cumulative with all other remedies at
law or in equity.
16.9 Inurement; Choice of Law. Subject to any provision hereof restricting
------------------------
assignment or subletting by Lessee and subject to the provisions of Article 15
hereof, the terms and conditions contained in this Lease shall bind the parties,
their personal representative, successors and assigns. This Lease shall be
governed by the laws of the State of California.
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<PAGE>
16.10 Subordination.
-------------
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
herafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee herunder, or, at Lessor's option Lessor shall execute
such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does
hereby make, constitute and irrevocable appoint Lessor as Lessee's attorney-in-
fact and in Lessee's name, place and stead, to execute such documents in
accordance with this paragraph 16.10 (b). Lessee's obligation to execute any
documents is subject to the documents containing a non-disturbance clause as is
stipulated in 16.10a.
16.11 Attorney's Fees. If either party hereto brings an action to enforce
---------------
the terms hereof or declare rights hereunder, the prevailing party in any such
action, on trial or appeal, shall be entitled to reasonable costs and attorney's
fees to be paid by the losing party. For purposes of this provision, in any
action or proceedings instituted by Lessor based upon any default or alleged
default by Lessee hereunder, Lessor shall be deemed the prevailing party if (a)
judgement is entered in favor of Lessor or (b) prior trail or judgment Lessee
shall pay all or any portion of the rent and charges claimed by Lessor,
eliminate the condition(s), cease the act(s) or otherwise cure the omission(s)
claimed by Lessor to constitute a default by Lessee hereunder.
16.12 Lessor's Access. Lessor and Lessor's agents shall have the right to
---------------
enter the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, or lenders, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last one hundred eighty (180) days
of the term hereof place on or about the Premises any ordinary "For Sale," "For
Lease" or similar signs all without rebate of rent or liability to Lessee.
16.13 Corporate Authority. If Lessee is a corporation, each individual
-------------------
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the By-Laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. If Lessee is a corporation, Lessee shall, within thirty (30)
days after execution of this Lease, deliver to Lessor a certified copy of a
resolution of the Board of Directors of said corporation authorizing or
ratifying the execution of this Lease.
16.14 Rights of Others. Except as otherwise provided herein, nothing
----------------
expressed or implied is intended, or shall be construed, to confer upon or grant
any person any rights or remedies under or by reason of any term of condition
contained in this Lease.
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<PAGE>
16.15 Safety and Health. Lessee covenants at all times during the term of
-----------------
the Lease to comply with the requirements of the Occupational Safety and Health
Act of 1970, 29 U.S.C. Section 651 et seq and any analogous legislation in
California (collectively, the "Act"), to the extent that the applies to the
Premises and any activities thereon and without limiting the generality of the
foregoing, Lessee covenants to maintain all working areas, all machinery,
structures, electrical facilities and the like upon the Premises in such a
condition that fully complies with the requirements of the Act, including such
requirements as would be applicable with respect to agents, employees or
contractors of Lessor who may from time to time be present upon the Premises,
and Lessee agrees to indemnify and hold harmless Lessor from a liability, claims
or damages arising as a result of a breach of the foregoing covenant and from
all costs, expenses and charges arising therefrom including without limitation,
attorney's fees and court costs incurred by Lessor in connection therewith,
which indemnity shall survive the expiration or termination of this Lease.
16.16 Surrender or Cancellation. The voluntary or other surrender of this
-------------------------
Lease by Lessee, or a mutual cancellation thereof, shall not work a merger, and
shall terminate all or any existing subleases, unless Lessor elects to treat
such surrender or cancellation as an assignment to Landlord of any or all of
such subleases.
16.17 Entire Agreement. This Lease covers in full each and every agreement
----------------
of every kind or nature whatsoever between the parties hereto concerning the
Premises and the Building, and all preliminary negotiations and agreements of
whatsoever kind or nature are merged herein. Lessor has made no representations
or promises whatsovever with respect to the Premises or the Building, except
those contained herein; and no other person, firm or corporation has at any time
had any authority from Lessor to make any representations or promises on behalf
of Lessor, and Lessee expressly agrees that if any such representations or
promises have been made by others, Lessee hereby waives all right to rely
thereon. No verbal agreement or implied covenant shall be held to vary the
provisions hereof, any statute, law or custom to the contrary notwithstanding.
16.18 Signs. Lessee shall not install any signs on the exterior of the
-----
Premises or Building, or any free standing signs without the prior written
approval of Lessor. All such approved signs shall be installed and removed at
Lessee's sole cost and expense.
16.19 Interest on Past Due Obligations. Any amount due from Lessee to
--------------------------------
Lessor hereunder which is not paid when due shall bear interest at ten percent
(10%) per annum from the date due until paid, but the payment of such interest
shall not excuse or cure any default by Lessee.
16.20 Gender; Number. Whenever the context of this Lease requires the
--------------
masculine gender includes the feminine or neuter, the singular number includes
the plural.
16.21 Lease Not Subject to Levy. This Lease and the interest of Lessee
-------------------------
hereunder shall not be subject to garnishment or sale under execution any action
or proceeding which may be brought against or by Lessee without the written
consent of Lessor.
16.22 Quitclaim. At the expiration or earlier termination of this Lease,
---------
Lessee shall execute, acknowledge and deliver to Lessor, within ten (10) days
after written demand from Lessor a quitclaim deed or other document reasonably
required by any reputable title company to remove the cloud of this Lease from
the title of the real property subject to Lease.
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<PAGE>
16.24 Financial Statements. During term of Lease and any extension
--------------------
thereto, tenant shall produce current financial statements within twenty (20)
days of written notification from Lessor.
17. CONSTRUCTION
------------
17.1 Lessor shall at its expense cause the construction of tenant
improvements in the Premises in accordance with the attached Plan which has been
initialed by Lessor and Lessee concurrently with the execution of this Lease and
which is incorporated herein by this reference. No changes shall be made in the
initially approved plans and specifications without the prior written approval
of Lessor and lessee, and all additional expenses incurred by Lessor with
respect to any changes (except changes requested by Lessor) shall be reimbursed
to Lessor by Lessee upon demand.
17.2 Lessor shall at its expense promptly correct all items not conforming
with the plans and specifications of which Lessor is notified by Lessee in
writing within sixty (60) days after Lessee takes possession of the Premises.
17.3 Lessor warrants the Building and tenant improvements installed in the
Premises by lessor against any defects in materials and workmanship of which
Lessor is notified by Lessee in writing within one (1) year after date of
completion of the work in question. Lessor further warrants that the
construction of the Building and tenant improvements will, upon completion,
comply with all applicable statutes, ordinances, rules, regulations, orders and
requirements of governmental authorities in effect as of the commencement of the
lease term.
18. PARKING See Item #29
-------
During the term of this Lease, Lessee shall have the right in common with
other lessees of the Building (if any) to use the parking area subject to such
rules and regulations as may be established from time to time by Lessor for the
effective use of said parking area. Said rules and regulations may include, but
shall not be limited to, such items as: designation of specific areas for use by
invitees of Lessee and Lessor; hours during which said parking shall be open for
use; use of a parking attendant; and such other matters affecting the parking
operation to the end that said facilities shall be utilized to maximum
efficiency and in the best interest of Lessor, Lessee and their respective
invitees. Lessee shall be limited to seven (7) parking spaces.
19. CONSENTS. Wherever in this lease the consent of one party is required to
--------
an act of the other party such consent shall not be unreasonably withheld.
20. GUARANTOR. In the event that there is a guarantor of this lease, said
---------
guarantor shall have the same obligations as Lessee under this Lease.
21. QUIET POSSESSION. Upon Lessee paying the rental payments required herein
----------------
and observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all the
provisions of this Lease.
22. OPTIONS. See Item #30
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<PAGE>
23. Security Measures. Lessee hereby acknowledges that the rental payable to
-----------------
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
24. Easements and C.C. & R's (covenant, conditions, and restrictions). Lessor
----------------------------------------------------------------
reserves to itself the right, from time to time, to grant such easements/C.C. &
R's, rights and dedications that Lessor deems necessary or desirable, and to
cause the recordation of Parcel Maps and restrictions, so long as such
easements/C.C. & R's, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign
any of the aforementioned documents and/or subordinate this lease XXX the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease, as long as easements and C.C. & R's
do not limit the rights granted Lessee in this Lease.
25. Auctions. Lessee shall not conduct, or permit to be conducted, either
--------
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
or reasonableness in determining whether to grant such consent.
26. Damage or Destruction. Notwithstanding the language in item #8, Lessee
---------------------
shall have the right to cancel and terminate this lease one hundred fifty (150)
days after casualty, should Lessor be unable to substantially complete repairs
caused by casualty damage within the 150 days period. Lessee shall have this
termination right within ten (10) days after the one hundred fifty (150) day
repair period.
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<PAGE>
27. LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 11 hereof,
Lessee may assign or sublet the Premises, or any portion thereof, without
Lessor's consent, to any corporation which controls, is controlled by or is
under common control with Lessee, or to any person or entity which acquires all
the assets of Lessee as a going concern of the business that is being conducted
on the Premises, all of which are referred to as "Lessee Affiliate"; provided
that before such assignment shall be effective (a) said assignee shall resume,
in full, the obligations of Lessee under this lease and (b) Lessor shall be
given written notice of such assignment and assumption. Any such assignment
shall not, in any way affect or limit the liability of Lessee under the terms of
this Lease even if after such assignment or subletting the terms of this lease
are materially changed or altered without the consent of Lessee, the consent of
whom shall not be necessary.
28. INSURANCE. Should the Lessor decide to obtain earthquake insurance during
the term of this lease, the cost of earthquake insurance shall be excluded from
the building operating expenses detailed in item # 3.3(d).
29. PARKING. Lessee shall five (5) marked parking spaces as shown on
Exhibit "A", Area Map. See Addendum. In addition, Lessee shall be entitled to
two (2) more marked parking spaces should the parking area becomes full on a
daily basis and unsatisfactory to the Lessee.
30. GRANTED OPTION. Lessor grants Lessee two (2) 2-year options under the
same terms and conditions to renew this lease. Notice to exercise each option
shall be given to Lessor no later than 120 days prior to expiration of the
lease. Rent for the initial year of each option period shall be adjusted for any
change in common area maintenance, taxes and insurance, using 1991 as a base
year. 12 cents per sq. ft. per month has been used as the power allowance in
arriving at the initial rental rate of $1.35. If the average power usage differs
from 12 cents per sq. ft. per month over the prior 12 months of the lease, the
rental rate shall be adjusted either upward or downward for each succeeding 12
month period, including option periods.
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<PAGE>
RULES AND REGULATIONS ATTACHED TO
---------------------------------
AND MADE A PART OF THIS LEASE
-----------------------------
1. (a) No sign, placard, drapery, picture, advertisement, name or notice
shall be inscribed, displayed or printed or affixed on or to any part of the
outside of the Building without the written consent of Lessor first had and
obtained and Lessor shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the expense of
Lessee.
(b) All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Lessee by a person approved of by Lessor.
(c) Lessee shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unconforming or
unsightly from outside the Premises. This Rule 1(a) shall be in the sole
discretion of Lessor and Lessee shall be in default if Lessee does not remove
same on demand from Lessor.
2. The bulletin board or directory of the Building, if any, will be provided
exclusively for the display of the names and locations of Lessee only and Lessor
reserves the right to exclude any other names therefrom.
3. All sidewalks, decks, halls, passages, exits, entrances, and stairways
of the Building, if any, shall not be obstructed by any Lessee or used by him
for any purpose other than for ingress to and egress from his respective
Premises. The halls, passages, exits, entrances, stairways, balconies and roof
are not for the use of the general public and the Lessor shall in all cases
retain the right to control and prevent access thereto by all persons whose
presence in the judgment of the Lessor shall be prejudicial to the safety,
character, reputation and interest of the Building and its Lessees, provided
that nothing herein contained shall be construed to prevent such access to
persons with whom the Lessee normally deals in the ordinary course of Lessee's
business unless such persons are engaged in illegal activities. No Lessee and no
employee or invitee of any Lessee shall go upon the roof of the Building without
the prior consent of Lessor. For purposes of Lessee's obligations, if any, of
repair and maintenance of the heating, ventillating and air conditioning systems
of the Premises Lessee shall use a maintenance firm selected or designated by
Lessor.
4. Lessee shall not alter any lock nor install any new or additional locks
or any bolts on any door of the Premises.
5. Lessee 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, except for pictures on walls.
6. Lessee shall not use, 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 the Lessor or other
occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other Lessees or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building.
7. No cooking shall be done or permitted by any Lessee on the Premises,
nor shall the Premises be used for washing clothes, for lodging, or for any
improper, objectionable, or immoral purposes.
8. Lessee shall not use or keep in the Premises or Building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any method of
heating or air conditioning other than that supplied by Lessor.
-i-
<PAGE>
9. Lessor will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Lessor. The location of telephone, call boxes and
other office equipment affixed to the Premises shall be subject to the approval
of Lessor.
10. Each Lessee, upon the termination of his tenancy, shall deliver to the
Lessor the keys of the offices, rooms and toilet rooms which shall have been
furnished the Lessee or which the Lessee shall have had made, and in the event
of loss of any keys so furnished, shall pay the Lessor therefor.
11. No Lessee shall 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 Lessor. The expense of repairing and damage
resulting from a violation of this rule or removal of any floor covering shall
be borne by the Lessee by whom, or by whose contractors, employees or invitees,
the damage shall be caused.
12. On Saturdays, Sundays and legal holidays, and on other days between
the hours of 6:00 P.M. and 8:00 A.M., the following day, access to the Building,
or to the halls, corridors or stairways in the Building, if any, or to the
Premises may be refused unless the person seeking access is known to person or
employee of the Building in charge or has a pass or is properly identified. The
Lessor shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building during the continuance of the same
by closing the doors or otherwise, for the safety of the Lessees and protection
of property in the Building and the Building.
13. Lessee shall see that the doors of the Premises are closed and
securely locked before leaving the Building and must observe strict care and
caution that all water faucets or water apparatus are entirely shut off before
Lessee or Lessee'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 Lessee shall make good all injuries sustained by other
tenants or occupants of the Building or Lessor.
14. Lessor reserves the right to exclude or expel from the Building any
person who, in the judgment of Lessor, 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.
15. Employees of Lessor shall not perform any work or do anything outside
of their regular duties unless under special instructions from the Lessor, and
no employee will admit any person (Lessee or otherwise to any office without
specific instructions from the Lessor).
16. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of the
Lessor.
17. Lessor shall have the right, exercisable without notice and without
liability to Lessee, to change the name and street address of the Building of
which the Premises are a part.
18. Lessee shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate to prevent same.
19. Without the written consent of Lessor, Lessee shall not use the name
of the Building in connection with or in promoting or advertising the business
of Lessee except as Lessee's address.
20. Lessor reserves the right to make such other and further
nondiscriminatory Rules and Regulations as in its judgment may be necessary or
desirable for the safety, care and cleanliness of the Premises and the Building
and for the preservation of good order therein. Lessee agrees to abide by all
such Rules and Regulations which are adopted.
21. Any permitted corrosive, flammable or other special wastes shall be
handled for disposal as directed by Lessor.
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<PAGE>
22. Lessee's use of the common areas shall be limited to access and
parking purposes and under no circumstances shall Lessee be permitted to store
any goods or equipment, conduct any operations or construct or place any
improvements, barriers or obstructions in the common areas, or otherwise
adversely affect the appearance thereof.
____________________ ______________________
LESSOR'S INITIALS LESSEE'S INITIALS
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<PAGE>
EXHIBIT "A"
-----------
WOLCOTT BUSINESS CENTER
-- CALABASAS -
SITE PLAN
[Map]
<PAGE>
Addendum to Lease dated 3/12/92 between Genesis 2000 and Wolcott Business Center
for Suite 200, 5000 Parkway Calabasas, Calabasas, Ca. 91302
- -------------------------------------------------------------------------------
This lease is modified as of May 1, 1998.
Suite 233 (1,451 sq. ft.) is hereby added to the lease to begin on May 1, 1998
and terminate on October 31, 2000. The total square footage of all suites will
be 6,501 sq. ft.
The terms of leases for Suites 200, 201, 210 and 232 are extended to terminate
on October 31, 2000.
All terms and conditions shall apply, except that the rental rate for all
suites shall be $1.56 Full Service, effective 5/1/98, with an annual increase of
3% in lieu of a CPI or CAM adjustment.
The rent will be $10,141.00 per month, beginning 5/1/98.
Lease deposits now existing are:
Suite 200 $2,149.20
Suite 201 1,396.50
Suite 210 2,079.00
Suite 232 1,700.00
---------
$7,324.70
=========
Total lease deposits are to be the amount of the new rent, $10,141.00.
Therefore, an additional lease deposit of $2,816.00 is payable upon execution of
this addendum.
Lessor will demo walls in Suite 232, per attached plan, demo wall between Suite
232 and 233, carpet and paint Suite 232 and 233, per Phase One Construction
specifications. Phases Two and Three will follow, upon completion of Phase One.
Lessee has an early termination privilege after Jan. 31, 1999 by giving 60 days
written notice and remitting an amount of $500.00 for each remaining month of
this lease to the date of termination as a settlement amount for unamortized
leasehold improvements. The lease deposit may not be used as a credit toward
this amount.
Wolcott Business Center
/s/ W.L. Wolcott
-------------------------
W.L. Wolcott
Agreed:
Genesis 2000
-----------------
-----------------
-----------------
March 14, 1998
<PAGE>
Phase One Construction
Suite 232
1. Demolition of all interior walls in Suite 232 with the exception of the
office with the 2 glass panels. This will stay intact.
2. Sink and cabinets to be taken out of existing kitchen.
3. All electrical must be moved to accommodate cubicles. Including having power
in modular units in the floor for two units.
4. Ceiling to floor panels to cover phone equipment.
5. Paint and Carpeting
Suite 233 (Occupancy May 1, 1998)
1. Door must be moved on large office to elongate wall so that cubicles may be
built.
2. New wall to be built in front of existing storage area to increase the
storage closet and the door to this storage must be moved. Shelves to be
installed.
3. Demolition of wall between Suite 232 and Suite 233.
4. Paint and carpeting (Gray)
Phase Two Construction
Suite 200
1. New wall built with door creating new office space where existing shipping
area is.
2. Server wall added by column in existing shipping area.
3. Adjoining wall between shipping and existing accounting area to be taken
down.
4. Addition of Sink in new lunchroom with Garbage Disposal.
5. Reconnection of Sink in existing storage room and removal shelves.
Phase Three Construction
Suite 210
1. Demolition of conference room and cubicle.
2. Creation of Kitchenette.
This list has the major starting points for the phases of construction. There
may be needs that arise during the process whereby items may have to be added to
the list. We ask that Wolcott Business Center be responsive to these needs as
they arise.
<PAGE>
[LETTERHEAD OF WOLCOTT BUSINESS CENTER]
William L. Wolcott
Addendum No. 2 to Lease with Homy Majd et al dated 3/12/92
Suite 200, 5000 No. Parkway Calabasas, Calabasas, Ca. 91302
-----------------------------------------------------------
The lease for Suite 200 is hereby extended one year to 4/30/95, under the same
terms and conditions as the lease and addendum dated 3/12/92.
In consideration for this extension, and in consideration of Lessees leasing
Suite 201, Lessor will, at his sole cost, construct a hallway wall to enclose a
storage area, enclose an office, and recarpet and paint the area (except for the
storage room) in Suite 201.
Addendum to Lease with Homy Majd et al dated 3/24/93
Suite 201, 5000 No. Parkway Calabasas, Calabasas, Ca. 91302
-----------------------------------------------------------
All of the provisions of Addendum dated 3/12/92 (Suite 200) and the above
addendum are incorporated into the lease for Suite 201, by reference, except
that the initial rent for Suite 201, beginning 4/15/93, shall be $1.50 per
square foot, and shall not be subject to the 4% increase until the second year.
A lease deposit of $1,396.50 and the first month's rent of
$1.396.50 is due upon execution of the lease for Suite 201.
Wolcott Business Center
/s/ William Wolcott
-----------------------
March 24, 1993
Agreed:
-----------------------
HOMAYOON MAJD
/s/ Farhad Mirfakhrai
-----------------------
FARHAD MIRFAKHRAI
/s/ Kamyar Tafreshi
-----------------------
KAMYAR TAFRESHI
<PAGE>
William L. Wolcott
Addendum No. 3 to Lease with Homy Majd et al dated 3/12/92 for
Suite 200, 5000 No. Parkway Calabasas, Calabasas, Ca. 91302
-----------------------------------------------------------
Lessee hereby leases Suite 210, 5000 No. Parkway Calabasas, Calabasas, Ca. 91302
under the same terms and conditions as the lease of Suite 200, except that the
period shall be from October 9, 1993 to April 30, 1995, and the rental rate
shall be $1.50 full service for the entire period of the lease. The leaseable
suite is 1,386 sq. ft. This lease entitles lessee to 5 parking spaces, per the
terms of the lease dated 3/12/92.
Lessor will carpet and paint the suite per lessee's selection of colors, to
building standards.
Rent for the first full month is $2,079.00 payable, together with a lease
deposit of $2,079.00, upon execution of this Adddendum.
Wolcott Business Center
/s/ William Wolcott
-----------------------
September 16, 1993
Agreed:
/s/ Homayoon Majd
--------------------------
Homayoon Majd
/s/ Farhad Mirfarhrai
--------------------------
Farhad Mirfarhrai
/s/ Kamyar Tafreshi
--------------------------
Kamyar Tafreshi
<PAGE>
EXHIBIT 10.20
AGREEMENT
This Agreement is made and entered into effective as of the December 1, 1997
("Effective Date"), by and between First Franklin Financial Corporation, a
Delaware corporation, with its address at 2150 North First Street, San Jose.
California 95131 ("First Franklin"), and Genesis 2000, Inc. a California
corporation with its principal place of business at 5000 North Parkway
Calabasas, Suite 200, Calabasas, California 91302 ("Genesis"). "Party" or
"Parties" shall herein mean First Franklin and/or Genesis, severally or jointly,
and respectively.
RECITALS
WHEREAS, First Franklin and certain affiliates of First Franklin originate
prime and sub-prime mortgage loans, (collectively, "First Franklin Products"),
which are listed on Attachment 1 (and may be amended by First Franklin), from
time to time on a direct basis or through brokers, bankers, and banks;
WHEREAS, Genesis is a developer, marketer and producer of loan origination
software, and particularly a software product known as Genesis 2000 for Windows
(Microsoft Windows Version) ("Genesis Product"), which is described on
Attachment 2, and is licensed to brokers, bankers, and banks (collectively,
"Licensees") throughout the United States; and
WHEREAS, First Franklin and Genesis desire, to the extent stated herein, to
develop, support, maintain, promote and market a software capability and
electronic data interchange service in conjunction with the Genesis Product and
the First Franklin Products which facilitates the telecommunication of loan and
related financial documents, and resulting acknowledgment, approval and other
communications (collectively "Loan Information"), which are listed on Attachment
3, by and between the Licensees and First Franklin through and between Genesis'
dedicated server system ("Genesis Server") and First Franklin's computer
facilities and systems (collectively, "First Franklin Systems"), as described in
further detail on Attachment 4. For purposes of this Agreement, the development,
support and maintenance of such referenced software system and electronic data
interchange service shall be defined to mean the "Project," with the resulting
works being collectively defined to mean the "EDI Service."
First Franklin and Genesis agree as follows
I. DEFINED TERMS
- ----------------
For the purposes of this Agreement, the following terms shall have the meanings
set forth herein:
[*] Confidential Treatment Requested
1
<PAGE>
"Acknowledgement" shall mean the electronic communication between First
Franklin and Licensees confirming receipt of data via the EDI Service.
"Application" shall mean data received via the EDI Service contemplated
herein. Furthermore, data must be substantially complete to the extent that it
meets the requirements set forth by FHLMC to render an underwriting decision via
its Loan Prospector Automated Underwriting System.
"Credit" shall mean the data describing the complete merged credit history
of all loan applicants as provided in the ordinary course of business by all
three national credit repositories (Equifax, Trans Union, and TRW). Such data
shall include, but not be limited to: applicant names, social security numbers,
public records, creditors, account numbers, credit type, date account opened,
date account last reported, dollar amount of credit approved, current account
balance, monthly payment due, payment status, payment history, amounts past due
(if any), and a credit score from each national credit repository.
"Documentation" shall mean the human-readable user and reference manuals as
well as all related written materials that accompany the Genesis Product as well
as the EDI Service.
"Development Completion" shall mean the date upon which First Franklin
signs the Notice of Development Completion as defined in Section 1.2.
"Development Period" shall mean that time from the Effective Date of this
Agreement until Development Completion.
"EDI Service" shall mean the electronic data interchange service enabling
brokers, bankers, and banks which utilize the Genesis Product, to send
information to and receive information from First Franklin.
"FF Burton" shall mean a menu option or icon resident within the Genesis
Product which provides the Licensees the ability to access the EDI Service.
"First Franklin Products" shall mean the sub-prime mortgage loan programs
offered and amended from time to time by First Franklin.
"First Franklin Systems" shall mean First Franklin's computer facilities,
hardware, and software applications.
"Funding" shall mean the recordation of a new lien against a loan
applicant's property which secures a loan made by First Franklin to the
applicant(s). If First Franklin is unable to obtain recordation information
within ten (10) days of loan funding, then First Franklin shall be required to
notify Genesis of the unfunding of the loan; otherwise, the loan will be
considered funded for the purposes of this Agreement.
2
<PAGE>
"Genesis Product" shall mean a software product developed, marketed, and
produced by Genesis known as Genesis 2000 for Windows.
"Genesis Server" shall mean the dedicated server system, responsible for
providing and maintaining the EDI Service.
"Initial Period" shall mean that period of time commencing from Development
Completion and expiring at 12:00 AM Pacific Standard Time [*].
"License Agreement" shall mean the terms and conditions set forth in the
agreement executed by a user of the Genesis Product.
"Licensed Party" shall mean the party granted the authority to utilize the
trademarks and service marks of the other party to this contract to promote and
support the EDI Service.
"Licensee" shall mean any user of the Genesis Product who has executed the
License Agreement.
"Licensing Party" shall mean the party granting the authority to utilize
the trademarks and service marks owned by it to the other party to this contract
to promote and support the EDI Service contemplated herein.
"Operational Testing" shall mean that testing designed to verify that the
EDI Service executes its functionality as defined in the project Work Plans.
"Loan Information" shall include but not be limited to the Application,
Credit, Ratesheet, Ratelock, Underwriter Analysis, Pipeline Report, and
Acknowledgement defined herein.
"Marks" shall mean the trademarks and service marks individually owned by
First Franklin and Genesis.
"PipelineReport" shall mean the data which describes the last recorded
status update by First Franklin for each Application sent by a Licensee via the
EDI Service.
"Prime Loans" shall mean any borrower with the following Credit:
1. A FICO bureau score provided by any of the three national
credit repositories (Equifax, Trans Union, or TRW) which is above
[*]; AND
2. No [*] day mortgage lates in the last [*] months, and no
more than one [*] day mortgage lates in the past [*] months; AND
3. Not more than [*] of the open revolving and installment
tradelines [*] days or more past due in the last [*] months; AND
4. No outstanding judgements, collections, or tax liens or any
bankruptcy in the past three years at the time of initial loan
application
[*] Confidential Treatment Requested
3
<PAGE>
"Project" shall mean the development, testing, support, and maintenance of
the EDI Service contemplated herein.
"Ratelock" shall mean the data required by First Franklin from a Licensee
to commit First Franklin to an interest rate and fee combination for a
prescribed period of time which is desired by a loan applicant.
"Ratesheet" shall mean the data sent to a Licensee which describes the
interest rate and fee combinations made available by First Franklin from time to
time and in the ordinary course of business.
"Sub-prime Loans" shall mean any borrower not meeting the Credit criteria
defined herein for Prime Loans, but excludes the following types of loans:
1. Any Government Loans, including but not limited to FHA, VA, Title I,
203K.
2. Home Equity lines of credit
3. Second Mortgages
4. Construction Loans
"Test Period" shall mean the period of time that Operational Testing will
be performed.
"Transaction Fee" shall mean the fee due Genesis for each loan received
through the EDI Service which is eventually funded by First Franklin.
"Underwriters Analysis" shall mean the data describing the approval,
suspension, or denial of a particular Application and any underlying
underwriting conditions.
"Work Plans" shall mean a listing of all tasks which are reasonably
believed to be required in order to complete the Project. The Work Plan shall
also include specific schedules for completion of the tasks set forth therein,
which shall not be modified unless mutually agreed to in writing by both parties
to this Agreement.
ARTICLE 1
PROJECT DEVELOPMENT
Section 1.1 General. First Franklin and Genesis agree to cooperate in the
Project to the extent that:
(a) Genesis will be responsible, at its sole cost and expense, for the
development of a functional capability in the Genesis Product, which will
provide the Licensees the ability to enter into the Genesis Server using
the FF Button thereby permitting the Licensees to telecommunicate to and
receive from First Franklin the Loan Information for processing purposes.
4
<PAGE>
(b) First Franklin will be responsible, at its sole cost and expense, for
the development of a functional capability in the First Franklin Systems to
receive and further telecommunicate to the Licensees via the Genesis Server
as to and with respect to the Loan Information.
(c) Specifically, each Party shall be responsible for the development
efforts described in the Work Plans which are listed on Attachment 5. The
Work Plans listing is understood to be a good faith assessment, as of the
Effective Date, of the tasks that may be required in order to complete and
maintain the Project, and that such listing is anticipated to be modified
as the early stages of the Project proceed towards its conclusion, such
modifications being agreed to in accordance with Section 1.4.
(d) The Parties will conduct Operational Testing of The EDI Service, to
the extent agreed to by the Parties, involving the participation of
four (4) Licensees designated by both parties, which may be increased
or decreased by mutual agreement, for a Test Period of [*],
unless otherwise extended or shortened by agreement of the
Parties. Upon completion of the Operational Testing, Genesis shall
deliver to First Franklin a Notice of Development Completion
validating correct operation of the EDI Service.
Section 1.2 Development Commitment. First Franklin and Genesis shall each
allocate and dedicate adequate and sufficient funding, staff and other resources
to meet the respective obligations under any Work Plans and shall use reasonable
efforts to complete each step in the Work Plan. Until the Project is completed,
Genesis and First Franklin mutually agree to a minimum of two (2) meetings
and/or conference calls per month. Genesis shall also deliver a written report
to First Franklin with respect to the status and progress toward completion of
the Project. This report shall be delivered to First Franklin no later than the
fourth business day of each month subsequent to the Effective Date of this
Agreement.
Section 1.3 Cooperation. The Parties will cooperate to achieve all Work Plan
goals on or before the date set forth in the applicable Work Plans and each
shall provide or otherwise disclose (subject only to the confidentiality
provisions as set forth herein) to the other all relevant technical information
in its possession in order to assist the other Party in performing its tasks
hereunder. Each Party shall use its reasonable efforts to design and produce
components that are compatible, and to conduct and conclude such development in
a professional manner, to incorporate into prototype such modifications as
testing indicates is necessary or as may be reasonably requested by the other
Party, and to conduct such further tests as may be required under the
circumstances. Each Party shall use its reasonable efforts to produce
appropriately detailed test procedures and associated Documentation as may be
necessary in order to fully utilize the components. Genesis shall be responsible
to create, maintain and update such Documentation as is reasonably practical but
no later than quarterly should an update to the EDI Service occur within that
period of time.
Section 1.4 Work Plan Revisions. All components of a Work Plan, except the
time schedules or Work Plan goals incorporated therein, may be revised from time
to time as suggested by the
[*] Confidential Treatment Requested
5
<PAGE>
Party responsible for the development activities under such Work Plan, provided
that such revisions are approved by the other Party (such approval shall not be
unreasonably withheld or delayed). In the event that a proposed revision is
rejected by the other Party, the Party shall promptly confer to determine if
mutually acceptable modifications may be made to overcome the stated reasons for
rejection. If mutually acceptable modifications are agreed upon, the revised
Work Plan shall be deemed approved. All Work Plan goals, design specifications
and time schedules incorporated within Work Plans may be revised from time to
time as deemed appropriate and evidenced by the written agreement of the
authorized representative of each Party.
Section 1.5 Incorporation of Design Suggestions. Each Party shall consider,
and shall not unreasonably refuse to revise its respective components, including
the design features and functionality applicable to such components as set forth
in any Work Plan, in accordance with suggestions made by the other Party.
Section 1.6 Exclusive Territory.
(a) For the Initial Period of this Agreement, Genesis agrees not to provide a
competitive service or similar functionality as the EDI Service to any other
financial lender for sub-prime loans. First Franklin agrees not to promote or
otherwise enter into any agreements with any other computer software company's
software or service which is competitive with or performs functions
substantially similar to the EDI Service. Genesis agrees to provide First
Franklin with no less than six (6) months prior written notice when and if
Genesis offers a competitive service or similar functionality as the EDI Service
to any other financial lender for sub-prime loans, however no such competitive
service or similar functionality as the EDI Service shall be operational or in
use by any other such financial lender during the Initial Period defined herein.
If the six (6) months notice period, or any part thereof, transpires after the
Initial Period, Genesis is permitted to offer a competitive service or similar
functionality as the EDI Service to any other financial lender for subprime
loans during such notice period (and thereafter) that transpires after the
Initial Period. Notwithstanding the foregoing in subsection 1.6(a), Genesis is
permitted to offer a competitive service or similar functionality as the EDI
Service for processing sub-prime loans through Fannie Mae and Freddie Mac.
However, in no event may any of these entities or their affiliates utilizing the
competitive service, other than Fannie Mae or Freddie Mac, be engaged in the
business of funding loans or purchasing loans from mortgage brokers, mortgage
bankers, banks or lending directly to consumers.
(b) First Franklin agrees not to promote or otherwise enter into any agreements
with any other computer software company's software or service which is
competitive with or performs functions substantially similar to the EDI Service.
ARTICLE II
LICENSE
Section 2.1 Appointment; Nature of Relationship. Subject to the terms and
conditions of this Agreement, Genesis hereby appoints First Franklin, for the
term of this Agreement, a nonexclusive
6
<PAGE>
licensee for the use of the Genesis Product in any number of First Franklin's
CPU workstations provided that these CPU's be operated by First Franklin
personnel during use of the EDI Service and subject to the License Agreement set
forth in Attachment 6 hereto.
Section 2.2 Additional Licensing Authority. Genesis furthermore grants to First
Franklin, at no cost to First Franklin, but subject to the terms and conditions
of this Agreement and the License Agreement (except as provided below), a non-
transferable license during the term of this Agreement:
(a) To demonstrate the Genesis Product to its clients, brokers, loan
agents, or customers or potential clients, brokers, loan agents, or
customers;
(b) For use of the Genesis Product by members of First Franklin's Business
Development staff and associated employees and agents for the purpose of
supporting and promoting the relationship established by this Agreement;
and
(c) To use Genesis' technical information solely in connection with the
development of any linking components required to be developed by First
Franklin.
(d) Assignment by First Franklin to a parent, subsidiary, or affiliate
entity shall be permitted without prior written consent from Genesis.
Section 2.3 Trademarks and Service Marks Grants. Each Licensing Party grants to
the Licensed Party a nonexclusive, limited license to use the Licensing Party's
Marks arising from and associated with the Project and promotion and support of
the EDI Service. Such use will comply with guidelines, graphic standards, and
similar criteria provided by the Licensing Party and the terms of this
Agreement. The Licensed Party shall not have the right to grant any sublicenses
of Marks. The Licensed Party acknowledges the Licensing Party's proprietary
interest in and to all the respective Marks and the related goodwill associated
therewith. The Licensed Party further agrees and acknowledges (a) it acquires no
right, title or interest in or to any of the licensed Marks by virtue of this
Agreement or any use of such Marks, and (b) will not contest or challenge the
validity of or any use of such Marks, or the registration or ownership by the
Licensing Party, its parent, or affiliates. Except thus consented to by the
Licensing Party, the Licensed Party will not combine any of the Licensing
Party's Marks (whether used pursuant to a license or otherwise) in any corporate
or trade name. All goodwill rising from the use of the respective Party's Marks
shall inure solely to the benefit of the Licensing Party.
Section 2.4 Term of License Grants. The licenses granted under Article II
shall terminate upon the termination of this Agreement, except as otherwise
stated in this Agreement.
ARTICLE III
OTHER RESPONSIBILITIES
Section 3.1 Responsibilities of Genesis. During the term of this Agreement:
7
<PAGE>
(a) Warranty. Genesis will provide warranty services and support
consistent with the terms of the applicable license agreement provided to
each Licensee.
(b) Development and Support. To the extent reasonable and practical,
Genesis shall use reasonable efforts to maintain, support and enhance the
Genesis Product and The Genesis Server as is necessary to effect the
purposes and objectives of this Agreement. Genesis will maintain and
support the Licensees to no less an extent than that which it provides
maintenance and support to its other customers.
(c) FF Burton or EDI Access. During the term of this Agreement and as
permitted by the provisions contained in Article IV, Genesis agrees to
ensure that all releases of the Genesis Product have or maintain the FF
Button.
Section 3.2 First Franklin Obligations. During the term of this Agreement:
(a) Loan Information Transactions. First Franklin agrees to not
discriminate against the Licensees in the processing, review and approval
of submitted Loan Information pursuant to the EDI Services, including, but
not limited to, not assessing additional charges to any third party for
such telecommunication transactions.
(b) Development and Support. To the extent reasonable and practical, First
Franklin shall use reasonable efforts to maintain and support and also
develop such additional customization of the First Franklin System as is
necessary to effect the purposes and objectives of this Agreement.
(c) Dedicated Lease Line. First Franklin will be responsible for providing
a dedicated telecommunication line for connection between the Genesis
Server and the First Franklin System in order to facilitate the EDI
Service.
Section 3.3 Joint Responsibilities. During the term of this Agreement:
(a) Training. Genesis and First Franklin agree to provide cross-training
to each other's personnel, as well as ongoing product education to their
own personnel, periodically, during the term of this Agreement. Unless
otherwise agreed to by the Parties, all training shall be conducted by
telecommunications or written or e-mail dialogue or physically at the
educating Party's facilities, or at the trainees facility upon mutual
agreement. Any and all travel and related expenses incurred by trainees
shall be borne by the trainees' employer.
(b) Technical Support. In order to perform each other's respective
technical maintenance and support obligations under Sections 3.1 and 3.2,
each Party agrees to support the other Party to the extent necessary to
fulfill the intent of this Agreement. Furthermore, Genesis and First
Franklin agree to cooperate to insure that the upgrades and updates of each
Party's products and services are compatible with current existing programs
8
<PAGE>
of the other Party and will continually consult with one another on methods
to improve the quality of the EDI Service. Genesis and First Franklin will
work together to insure that appropriate technical support is provided to
the Licensees in order to enhance the quality and level of service to such
Licensees.
(c) Marketing. Each Party agrees to use reasonable efforts in marketing
and promoting the EDI Service and the Genesis Product, as each shall
determine in its sole discretion. If requested by a Party, the responding
Party shall be permitted to submit suggestions to the requesting Party.
Section 3.4 Data Content Retention Disclaimer. First Franklin acknowledges
that Genesis will not be responsible for maintaining or storing the EDI Service
transactions data content.
ARTICLE IV
PAYMENTS AND FEES
Section 4.1 Transaction Pricing. First Franklin agrees that during the term of
the Initial Period it will pay to Genesis a Transaction Fee equal to [*] for
Subprime Loan and [*] for each Prime Loan for each First Franklin Products
Funding.
Section 4.2 Development Charges. [*] in the course of developing and
enhancement of the EDI Service pursuant to this Agreement.
Section 4.3 Payment. First Franklin will on a monthly basis for all First
Franklin Products Funding in the previous calendar month, and in any case no
later than on the 20th of each month, pay to Genesis all amounts due pursuant to
Section 4.1. First Franklin will prepare and present with each payment a
detailed written statement which supports the then current payment. All other
amounts due Genesis pursuant to this Agreement will be due and payable net
thirty (30) days of invoice from Genesis. Any amounts due First Franklin from
Genesis will be itemized and deducted from the amounts due Genesis pursuant to
this section and sections 4.1 and 4.2. First Franklin will make payments without
deduction in US Dollars by First Franklin check or wire transfer of immediately
available funds to Genesis or to such bank account as specified by Genesis. Any
and all late payments, not correctly objected to or not object to, shall accrue
late charges at the rate of one and one-half percent (1 1/2%) per month until
paid in full; any interest in excess of the maximum amount permitted under law
is waived.
Section 4.4 Maintenance and Auditing of Records. First Franklin agrees to
maintain for a period not to exceed eighteen (18) months from the date of the
transmission, the pertinent EDI Service transaction traffic record which relates
to and support the payments due under this Article IV. First Franklin agrees to
maintain for a period not to exceed one (1) year any and all First Franklin
System transaction traffic records related to the EDI Service transactions.
Genesis agrees to maintain for a period not to exceed eighteen (18) months form
the date of the performed services, the pertinent performed service hours which
relate to the payment due under this Article IV. Each
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Party shall be permitted the right to audit or cause a representative of the
auditing Party to audit such other Party's relevant records in order to support
or ascertain the correctness of the amounts due or paid under this Article IV.
Such audit is subject to (a) no less than twenty (20) days written notice must
be provided to the other Party, (b) the audit must be conducted during normal
business hours of the audited Party, (c) no more than one (1) audit per quarter
may be conducted. If an audited period results in a determination in favor of
the auditing Party, then the auditing Party shall be entitled to reimbursement
of its incurred reasonable auditing expenses, but not to exceed the incorrect
amounts due the auditing Party.
ARTICLE V
PROPRIETARY RIGHTS
Section 5.1 Genesis Proprietary Rights. First Franklin acknowledges and agrees
that all copyright, patents, trade secrets, trademarks and all other proprietary
rights in and to the Genesis Product, the Genesis Server and the EDI Service
(except to the extent stated in Section 5.2), shall at all times remain with
Genesis, including but not limited to all releases, versions, modifications,
enhancements and all copies thereto (whether or not based on recommendations,
input or otherwise from First Franklin pursuant to this Agreement, in which
event First Franklin agrees to and herein assigns such rights to Genesis). If,
and when requested by Genesis, First Franklin will execute and promptly deliver
to Genesis any reasonable assignment documents in order to fulfill the intent of
this section 5.1.
Section 5.2 First Franklin Proprietary Rights. Genesis acknowledges and agrees
that all copyright, patents, trade secrets, trademarks and all other proprietary
rights in and to the First Franklin System, shall at all times remain with First
Franklin, including but not limited to all releases, versions, modifications,
enhancements and all copies thereto (whether or not based on recommendations,
input or otherwise from Genesis pursuant to this Agreement, in which event
Genesis agrees to and herein assigns such rights to First Franklin). If, and
when requested by First Franklin, Genesis will execute and promptly deliver to
First Franklin any reasonable assignment documents in order to fulfill the
intent of this Section 5.2.
Section 5.3 General Principles. Nothing stated in this Article V shall be
deemed to restrict either Party from utilizing or otherwise exploiting, without
compensation to the other Party, any ideas or concepts which are considered to
be general principles found in the industry through other sources.
ARTICLE VI
TERM AND TERMINATION
Section 6.1 Term. This Agreement shall commence on the Effective Date, and shall
remain in full force and effect for the Initial Period of [*] commencing from
the expiration date of the Test Period, and shall continue thereafter, unless
First Franklin gives no less than [*] written notice of termination to Genesis
or Genesis gives First Franklin no less than [*]
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written notice of termination, but in any case the term shall not extend for
more than [*] unless otherwise agreed to in writing by the parties; unless in
any case it has been sooner terminated as provided in this Agreement.
Section 6.2 Termination. This Agreement may be terminated at any time prior to
the expiration of its then current annual term, as follows:
(a) By either Party by written notice to the other Party if a receiver
shall have been appointed over the whole or any substantial part of the
assets of the other Party, a petition or similar document is filed by the
other Party initiating any bankruptcy or reorganization proceeding, or such
a petition is filed against the other Party and such proceedings shall not
have been dismissed or stayed within sixty (60) days after such filing;
(b) By either Party upon written notice if the other Party has breached
any material term(s) of this Agreement and fails to cure such breach within
thirty (30) days after receipt of written notice of such default, but only
ten (10) days for breach of First Franklin's payment obligations under this
Agreement; or
(c) An adverse judgment, or award is entered against the other Party,
having a material adverse impact on the financial solvency of the other
Party.
Section 6.3 Post Termination Effect. Upon any termination or expiration of this
Agreement:
(a) Both Parties shall continue to jointly support and maintain the EDI
Service, to the extent of each Party's responsibilities prior to such
termination or expiration, for a term of [*] to the same extent
stated in this Agreement, unless otherwise improper pursuant to Section
6.2. Thereafter, each Party shall, in addition to the requirements under
Section 10.5, promptly return to the other Party all proprietary materials
of the other Party, including all copies thereof, with a written affidavit
from an officer of the Party certifying full compliance with this
provision after conducting a reasonable due diligence.
Section 6.4 Survival. Those sections to this Agreement which by their terms
should survive any expiration or termination of this Agreement shall accordingly
remain in full force and effect after any expiration or termination of this
Agreement.
ARTICLE VII
INDEMNIFICATION
Section 7.1 Losses Defined. For purposes of this Article VII, "Losses" shall
mean any and all claims, actions, losses, liabilities, damages, fines,
penalties, costs, and expenses (including, without limitation, interest that may
be imposed in connection therewith, costs and expenses of investigation, and
reasonable fees and disbursements of legal counsel and other experts) incurred
by any Party to this Agreement as a result of claims asserted by a third party,
including a governmental
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authority and a Licensee.
Section 7.2 Scope of Indemnification. Each Party (the "Indemnifying Party")
shall indemnify, defend, and hold harmless (a) the other Party, (b) its
affiliates, their directors, officers, employees, agents, and representatives,
and (c) any person claiming by or through any of them (collectively, the
"Indemnified Party") from and against any Losses which are incurred, caused, or
arise from (i) acts or omissions which cause tangible property damage or bodily
injury (including death), (ii) proprietary infringement with respect to the
Indemnifying Party's products or services, (iii) any gross negligence, fraud, or
willful misconduct of the Indemnifying Party's employees, officers, directors,
or agents, or (iv) violation of any laws, regulations or statutes.
Section 7.3 Indemnification Conditions. The provisions of this Article VII
shall only apply should (a) the Indemnified Party promptly notify the
Indemnifying Party of any such claim or action, or potential exposure to a Loss
which timeliness of such notice does not prejudice the Indemnifying Party's
ability to defend such claim or action, or potential Loss, (b) the Indemnifying
Party is permitted to control the defense and provide its approval to any
settlement, which approval shall not be unreasonably withheld or delayed, and
(c) the Indemnified Party provides its reasonable assistance to the Indemnifying
Party in regards to the claim or action, or potential claim or action.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
Section 8.1 Representations and Warranties of Genesis. Genesis represents and
warrants that:
(a) Genesis is a corporation duly organized and validly existing in and in
good standing under the laws of the state of California.
(b) The execution of this Agreement and the performance of its obligations
hereunder do not constitute a breach of any contract or agreement of
Genesis with any third party.
(c) Genesis owns or otherwise has the authority to market or otherwise
distribute the Genesis Product, and to the actual current knowledge of
Genesis, the Genesis Product does not infringe on any third party's
proprietary rights.
(d) Any and all representations and warranties with respect to the
Genesis Product, the Genesis Server and the EDI Service are exclusively
stated in the applicable Genesis license agreement. EXCEPT AS OTHERWISE
STATED IN THE GENESIS LICENSE AGREEMENT OR THIS AGREEMENT, NO OTHER
REPRESENTATIONS OR WARRANTIES, IMPLIED OR EXPRESS, ARE PROVIDED BY GENESIS
HEREUNDER, INCLUDING, BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE.
(e) Genesis hereby warrants that the EDI Service will meet the business
requirements described
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in the latest mutually agreed to Work Plans, as agreed to on [INSERT DATE],
and will function in accordance with such requirements for the term of this
Agreement. In the event that First Franklin discovers a material non-
conformity in the EDI Service, Genesis agrees, as its sole and exclusive
liability, to correct, cure, replace or otherwise remedy, at Genesis' sole
expense in a prompt and reasonable manner within sixty (60) days of written
notification by First Franklin. First Franklin agrees to cooperate and work
closely with Genesis in a prompt and reasonable manner in connection with
Genesis' correction efforts. Furthermore, should any material non-
conformity prohibit a majority of Licensees from utilizing the EDI Service
to transmit an Application as defined herein, then the Term of the Initial
Period shall be extended by the same period of time that such material non-
conformity exists, which extended period shall be mutually agreed to by the
parties hereto. Genesis shall be required to deliver to First Franklin
notice of correction of such non-conformity in compliance with Section 11.2
of this Agreement.
Section 8.2 Representations and Warranties of First Franklin. First Franklin
represents and warrants that:
(a) First Franklin is a Delaware corporation.
(b) The execution of this Agreement and the performance of its obligations
hereunder do not constitute a breach of any contract or agreement of First
Franklin with any third party.
Article IX
LIMITATION OF LIABILITY
Section 9.1 Limitation of Damages. EXCEPT FOR DAMAGES WHICH MAY BE AWARDED AS
PART OF A CLAIM FOR WHICH THERE IS A RIGHT TO: (a) INDEMNIFICATION UNDER ARTICLE
XIII BELOW (WHICH INDEMNIFICATION RIGHTS SHALL NOT BE LIMITED BY ANY PROVISION
OF THIS AGREEMENT), OR (b) DAMAGES ARISING FROM BREACH OF ARTICLE X, THE
BREACHING PARTY SHALL BE LIABLE FOR ANY ACTUAL DAMAGES CAUSED BY ITS BREACH, BUT
NEITHER PARTY WILL BE LIABLE FOR ANY PUNITIVE OR EXEMPLARY DAMAGES, OR FOR ANY
SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION,
COSTS INCURRED IN DEVELOPING AND IMPLEMENTING THE PROGRAM, LOST REVENUES, LOST
PROFITS, OR LOST PROSPECTIVE ECONOMIC ADVANTAGE) ARISING FROM OR IN CONNECTION
WITH ANY PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT, INCLUDING AN
UNJUSTIFIED, WILLFUL, OR DELIBERATE FAILURE TO PERFORM, EVEN IF SUCH PARTY KNEW
OR SHOULD HAVE KNOWN OF THE EXISTENCE OF SUCH DAMAGES, AND EACH PARTY HEREBY
RELEASES AND WAIVES ANY CLAIMS AGAINST THE OTHER PARTY FOR SUCH DAMAGES.
ARTICLE X
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CONFIDENTIALITY
Section 10.1 Confidential Information. Genesis and First Franklin shall each
hold and shall cause their respective officers, directors, employees, agents and
advisors (collectively, "Representatives") to hold in strict confidence, unless
compelled to disclose by judicial process or by other requirements of law,
regulation, or order, or as provided herein, the material terms of this
Agreement, and all oral and written information concerning the other Party,
including without limitation such Party's products or services, and related
marketing and financial information of the Party (collectively "Confidential
Information"), which has been provided by one Party (the "Providing Party") to
the other Party (the "Receiving Party") in connection with this Agreement and
the transactions contemplated hereby
Section 10.2 Exclusions. Confidential Information shall not include any
information which (i) at the time of disclosure or thereafter is generally
available to or known by the public (other than as a result of a disclosure by
the Receiving Party or one of its Representatives in violation of this
Agreement) or (ii) is available to the Receiving Party on a non-confidential
basis from a third person who, so far as is known to the Receiving Party, is not
prohibited from transmitting the information to the Receiving Party by legal,
contractual, or fiduciary duty to the Providing Party. Each Party agrees to
maintain the Confidential Information of the other Party in secrecy and to keep
the same confidential at all times, using the same degree of care with respect
to such Confidential Information as it uses in protecting its own proprietary
information, trade secrets and similar items.
Section 10.3 Restricted Use. Each Party agrees that it will not use any
Confidential Information of the other Party for any purposes other than as
expressly permitted in this Agreement or required for performance under this
Agreement, and that it will not, without the express written consent of the
Providing Party, sell, transfer, publish, disclose, display or otherwise make
available or provide access to any Confidential Information of the Providing
Party to any person, including the Receiving Party's affiliates or other
Representatives, except as provided below in this section: provided, further,
however, that the Receiving Party may disclose or provide access to Confidential
Information to its Representatives, including affiliates, on a need-to-know
basis, so long as prior to any disclosure to any such Representative or
affiliate, the Receiving Party shall inform such Representative or affiliate of
the confidential nature of the information and that it is subject to this non-
disclosure obligation, and shall further instruct such Representative or
affiliate to treat such information confidentially.
Section 10.4 Legal Proceedings. In the event that either Party or one of its
Representatives is legally compelled (by deposition, interrogatory, request of
documents, subpoena, civil investigative demand or otherwise) to disclose any
Confidential Information, such Party shall provide the Providing Party with
prompt written notice of such demand so that the Providing Party may seek a
protective order or other appropriate remedy or waive compliance with the
provisions of this Article X. If a protective order or other remedy is not
obtained and the Providing Party has not waived compliance with these
provisions, the Receiving Party shall furnish that portion of the Confidential
Information which it is advised in writing by its legal counsel is legally
required to be disclosed and such Party shall use its best efforts to ensure
that confidential treatment be accorded to such
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Confidential Information.
Section 10.5 Return of Confidential Information. Upon termination or expiration
of this Agreement, or at any time upon request by the applicable Party, the
Receiving Party shall return to the Providing Party, upon demand, all
Confidential Information prepared by the Providing Party and will not retain any
copies, extracts or other reproductions in whole or part of such written
material. All documents, memoranda, notes and other writing whatsoever prepared
by the Receiving Party based on the Confidential Information shall be destroyed.
Notwithstanding the foregoing, however, the Receiving Party may retain such
Confidential Information and materials containing or reflecting any Confidential
Information (whether prepared by the Providing Party or the Receiving Party) as
are necessary for the conduct and proper record keeping of its business in
accordance with the Receiving Party's standard operating procedures provided the
Receiving Party continues to be bound by its obligations of confidentiality
under this Article X for a period of three years following such termination.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Assignment. Neither Party may assign or otherwise convey this
Agreement nor any of rights (other than payments) hereunder to any third party
without the prior written consent of the other Party, which consent may not be
unreasonably withheld or delayed; provided, however, that either Party may
assign or transfer this Agreement to a successor in interest or in conjunction
with the sale of substantially all of its assets to a third party assignee with
reasonably sufficient or comparable resources to perform under this Agreement
without the prior written consent of the other Party. Any purchaser or assignee
shall be bound by the provisions hereof, and must agree in writing to abide by
the terms and conditions of this Agreement.
Section 11.2 Notices. Any notice or other communication required to be given
under this Agreement for purposes other than daily operation of the Project
shall be in writing, shall be addressed as provided below, and shall be
considered as properly given (i) if delivered in person; (ii) if sent by an
express courier delivery service which provides signed acknowledgment of
receipt; (iii) if deposited in the U.S. certified or registered first class
mail, postage prepaid, return receipt requested; or (iv) if transmitted by
telecopier or facsimile machine (upon receipt by sender thereof of evidence that
a complete transmission of such telecopy was made to the recipient thereof) and,
in such case, confirmed by a telephone call contemporaneously to the person
entitled to receive such notice or to such person's secretary, dispatching a
copy of such notice by the methods in clauses (i), (ii), or (iii), above. All
notices shall be effective upon receipt.
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If to Genesis:
Kami Tafreshi
Genesis 2000, Inc.
5000 Parkway Calabasas
Suite 200
Calabasas, California 91302
[*]
With a copy to:
Paul S. Anik, Esq.
Anik & Heiberg Law Offices
5655 Lindero Canyon Road, Suite 601
Westlake Village, California 91362
If to First Franklin:
First Franklin
2150 North First Street
San Jose, California 95131
Attn: Marc Geredes
[*]
Either Party may change its address or addressee for purposes of this Section by
providing written notice to the other Party as provided by this Section.
Section 11.3 Waiver. Either Party may, at its option, choose to delay enforcing
or waive any of its rights under this Agreement in certain circumstances, in
which case the Party does not thereby waive the same right in other
circumstances. Either Party may delay enforcing or waive any of its rights
under this Agreement without affecting any of its other rights.
Section 11.4 Severability. If any provision of this Agreement which is not
reasonably deemed by the affected Party to be material to its rights and duties
hereunder is finally determined to be unenforceable under any law, rule, or
regulation, all other provisions of this Agreement shall remain valid and
enforceable to the extent necessary to carry out the intent of the Parties.
Section 11.5 Force Majeure. Except for the obligation to make payments
hereunder, in the event
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either Party is prevented from performing this Agreement by circumstances beyond
its control, including without limitation, labor dispute, fire, explosion,
flood, act of God, war or other hostilities, civil commotion, breakdown of
machinery, domestic or foreign governmental acts, orders, or regulations, or
inability to obtain facilities or supplies, the obligation of either Party to
shall be suspended during the period of such disability.
Section 11.6 Announcements. First Franklin and Genesis agree that neither First
Franklin nor Genesis shall make any publicity release, advertisement, or public
announcement concerning this Agreement or the Project without the prior approval
of the other Party, except as may be required by law.
Section 11.7 Dual Draftsmanship. This Agreement shall be deemed to have been
jointly drafted by the respective Parties hereto, and therefore at no time shall
any ambiguity of any terms or conditions of this Agreement be interpreted
against any Party to this Agreement based on a claim of draftsmanship.
Section 11.8 Entire Agreement. This Agreement, including the Attachments and
Exhibits attached to this Agreement, reflects the entire understanding between
the Parties on the subject matter hereof. Any representation, promise,
modification, or amendment to this Agreement (including such Attachments and
Exhibits), except as provided herein, shall not be binding upon either Party
unless reduced to writing signed on behalf of First Franklin and Genesis by
their duly authorized representatives.
Section 11.9 Nature of Agreement. Nothing contained in this Agreement shall be
construed as constituting or creating a partnership, joint venture, agency, or
other association or relationship between First Franklin and Genesis. To the
extent that either Party undertakes or performs any duty for itself or for the
other Party as required by this Agreement, the Party shall be construed to be
acting as an independent contractor and not as a partner, joint venturer, or
agent of the other Party. Nothing in this Agreement is intended or shall be
construed to create any rights, beneficial or otherwise, in any person not a
party to this Agreement.
Neither of the parties nor any of their employees shall have the power or
authority to bind or obligate the other Party. Except as stated herein, neither
Party shall have authority to make any monetary commitment on behalf of the
other Party or settle any dispute involving the other without the prior written
consent of the other Party.
Section 11.10 Time of the Essence. Time is of the essence with respect to the
performance of all material provisions hereunder.
Section 11.11 Headings, Captions. The article, section, and other headings and
captions contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
Section 11.12 Counterparts. This Agreement may be executed in any number of
counterparts,
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each of which, when executed, shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
Section 11.13 Binding Effect. This Agreement shall inure to the benefit of and
shall be binding upon the Parties hereto and their respective legal
representatives, successors and permitted assigns.
Section 11.14 Choice of Law. This Agreement shall be construed in accordance
with the laws of the State of California.
IN WITNESS WHEREOF, the parties by their duly authorized representatives
executed this Agreement.
First Franklin Financial Genesis 2000, Inc.
By: /s/ Marc A. Geredes By: /s/ Kami Tafreshi
-------------------------- ---------------------------
Name: Marc A. Geredes Name: Kami Tafreshi
------------------------ -------------------------
Title: Chief Operating Officer Title: President
------------------------ ------------------------
Date: 12/3/97 Date: 12/1/97
------------------------- -------------------------
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EXHIBIT 10.21
AGREEMENT
---------
THIS AGREEMENT (the "Agreement"), made effective as of the 20th day of
----
September, 1999, by and between GENESIS 2000 ("Software Vendor") and FEDERAL
- ---------
HOME LOAN MORTGAGE CORPORATION ("Freddie Mac");
WITNESSETH:
----------
WHEREAS, on or about August 6, 1996, Software Vendor and Freddie Mac
entered into an agreement (the "Original Agreement") with respect to the same
subjects as this Agreement and on substantially the same terms as ibis
Agreement; and
WHEREAS, the parties desire to ratify the Original Agreement and restate
the terms thereof in this Agreement; and
WHEREAS, Software Vendor is in the business of developing and licensing
software to third parties including, without limitation, loan origination
software ("LOS"); and
WHEREAS, Freddie Mac is the owner and licensor of an automated underwriting
system (the "System"); and
WHEREAS, Software Vendor desires to develop and license to entities
authorized by Freddie Mac to use the System (the "Customers") certain software
(the "Interface") to enable the Customers to communicate with and use the System
by transmitting information and data to and receiving information and data from
the System; and
WHEREAS, Freddie Mac is willing to provide to Software Vendor the
specifications for the Inter-face (the "Specifications"), subject to the terms
and conditions of this Agreement, all of which are agreeable to Software Vendor.
NOW, THEREFORE, in consideration of the mutual promises herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree and hereby ratify the terms of, and restate, the
Original Agreement, as follows:
1. Provision of the Specifications; Development, Release and Use of Interface.
(a) Freddie Mac hereby grants to Software Vendor a nonexclusive,
nontransferable license for the term of this Agreement to use the
Specifications, as the Specifications may be modified by Freddie Mac from time-
to-time, for the, sole purpose of developing, maintaining, implementing, testing
and licensing the Interface to Customers for use in connection with the System
(collectively, the "Permitted Vendor Purpose"), subject to the provisions of
this Agreement.
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(b) Software Vendor will use the Specifications solely for the Permitted
Vendor Purpose. Software Vendor will own the Interface; however, Software Vendor
will have the right to use, license and/or disclose to third parties the
Interface solely to the extent necessary to enable the Customers to use the
Interface to access, communicate with and otherwise use the System (the
"Permitted Customer Purpose"). Notwithstanding the foregoing, Software Vendor
will also have the right to use the Interface for such other purposes as may be
approved by Freddie Mac in writing, which approval will not be unreasonably
withheld. Except to the extent otherwise agreed by Freddie Mac in writing,
Software Vendor's contracts with the Customers will expressly limit the
Customers' right to use the Interface to the Permitted Customer Purpose, and
Freddie Mac will be a third party beneficiary of said contract provision.
Furthermore, in light of the limited Permitted Customer Purpose, except to the
extent otherwise agreed by Freddie Mac in writing, Software Vendor agrees that
it will not release the Interface to any third party until Software Vendor
receives notice from Freddie Mac that the entity in question has executed a
license or similar agreement with Freddie Mac governing such entity's right to
access and use the System. If a Customer notifies Freddie Mae that Software
Vendor will provide the Interface to such Customer, Freddie Mac will advise
Software Vendor promptly after said license agreement has been executed.
Software Vendor's right to use the Interface for the Permitted Vendor Purpose
will automatically terminate in the event this Agreement is terminated by either
party for any reason. In the event this Agreement is terminated, any Customers
to whom Software Vendor has licensed or sold the Interface prior to the
effective date of the termination may (and Software Vendor shall provide to the
Customers the right to) continue to use the Interface until the effective date
of the next Specification Update issued by Freddie Mac (as defined in subsection
(c) below), provided such Customers comply with the restrictions on use
contained in this Agreement.
(c) The parties acknowledge that Freddie Mac may, at its option, modify or
replace the Specifications from time-to-time (each such revised or new-version
of a Specification is referred to herein as a "Specification Update"). Software
Vendor agrees to revise the Interface to conform to any such Specification
Updates provided by Freddie Mac, and to release the appropriately updated
Interface to all Customers who have licensed or acquired the Interface from
Software Vendor, in each case effective on the date specified by Freddie Mac in
its notice to Software Vendor. In connection with any such release, Software
Vendor will notify its Customers that the earlier version of the Interface
should no longer be used, It is understood that Freddie Mac will endeavor to
provide to Software Vendor sixty (60) days' notice of any major Specification
Update. Freddie Mac will endeavor to provide Software Vendor with as much notice
as is practicable under the circumstances with respect to minor Specification
Updates and any Specification Updates which Freddie Mac desires to have
implemented on an emergency basis and will work with Software Vendor to define a
practicable implementation schedule in each such case. In the event Freddie Mac
fails to specify an effective date for implementation of any Specification
Update, then the effective date will be sixty (60) days after the date of the
notice from Freddie Mac with respect to the Specification Update.
(d) (1) Software Vendor agrees to develop and test the Interface and make
the Interface available to the Customers in accordance with the schedule
attached hereto as Exhibit A (the "Schedule"). In the event Software Vendor
fails to deliver an acceptable Interface and otherwise perform its obligations
under and in accordance with the requirements of the Schedule, Freddie Mac will
have the right to terminate this Agreement effective upon ten (10) business
days' notice to Software Vendor (it being understood that Agreement will not
terminate if, during said 10 business day period, Software Vendor cures any
default(s) which Freddie Mac has identified as the basis for its termination
decision). The Interface will at all times comply in all respects with the then-
current Specifications, as the Specifications may be modified or replaced by
Freddie Mac from time-to-time. Freddie Mac will make itself reasonably available
to respond to questions about the Specifications and any Specification Updates.
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(2) Freddie Mac may, but is not obligated to, test the Interface at
any time and from time-to-time to confirm that the Interface complies with the
Specifications and otherwise meets the requirements of this Agreement; provided
that the fact that the Interface passes any such tests will not be deemed to
alter in any respect Software Vendor's obligations under this Agreement,
including, without limitation, Software Vendor's obligation to provide an
Interface which complies with the requirements of this Agreement. Freddie Mac
hereby elects to test the Interface upon completion of development and testing
by Software Vendor and prior to Software Vendor's license or sale of the
Interface to any third party, and Software Vendor agrees not to release the
Interface to any third party until Freddie Mac notifies Software Vendor in
writing that the Interface has passed Freddie Mac's tests. Software Vendor will
notify Freddie Mac upon completion of such development and testing and will
provide to Freddie Mac one (1) copy of the Interface and the export file which
includes the results of Software Vendor's testing efforts. Freddie Mae will
endeavor to complete its own testing of the Interface within ten (10) business
days after receipt of the foregoing notice and file from Software Vendor.
Software Vendor agrees to provide assistance to and cooperate with Freddie Mac
in the foregoing testing efforts and to correct promptly any defects in the
Interface revealed by any such testing. In addition to the foregoing, Software
Vendor will correct any "bugs" or other defects in the Interface promptly after
it receives notice thereof from Freddie Mac. Software Vendor will cooperate with
Freddie Mac and the Customers to determine the source (as between the Interface,
the System and the Customer's system) of any communication or other problems.
(3) Freddie Mac will have the right to review and approve the form
and content of the screens which Software Vendor uses to provide data through
the Interface, which approval will not be unreasonably withheld or delayed. In
the event the Interface operates in a "Windows" or other graphical user
interface ("GUI") format, Software Vendor will use, and Freddie Mac hereby
licenses to Software Vendor the nonexclusive, nontransferable right to use, for
the term of this Agreement, an icon provided by Freddie Mac as the identifier
for the Interface. Freddie Mac will be the owner of said icon, and Software
Vendor will have no right to use the icon except to introduce the Interface to
Customers in a Windows" or other GUI format for use in connection with the
System.
2. Additional Obligations.
(a) Software Vendor will provide to Freddie Mac, at no charge, two (2)
working days of training on use of the Interface and the LOS. Freddie Mac will
provide to Software Vendor, at no charge, two (2) working days of training on
Freddie Mac's automated underwriting service and the Specifications. The parties
will work together to determine the appropriate contents and timing of such
training programs.
(b) Freddie Mac will provide reasonable assistance to Software Vendor in
Software Vendor's efforts to identify the training, implementation and Customer
service resources that Software Vendor needs to assist the Customers in their
implementation, of the Interface and the System. In connection with its
marketing, licensing and sale of the Interface to the Customers, Software Vendor
will at all times, at a minimum, provide training and conform to the
implementation and customer support requirements set forth in Exhibit B attached
hereto. Software Vendor recognizes that Freddie Mac may alter or refine the
requirements set forth in Exhibit B from time-to-time, Software Vendor agrees to
use its best efforts to comply with any such revised requirements of which
Software Vendor is provided prior notice. Software Vendor agrees to cooperate
with Freddie Mac and the Customers to coordinate the testing and implementation
of the Interface.
3
<PAGE>
3. License to Freddie Mae.
(a) Software Vendor hereby grants to Freddie Mae a nonexclusive,
nontransferable license to use Software Vendor's name and logo during the term
of this Agreement in connection with Freddie Mac's promotional and marketing
efforts related to the System. Without limiting the foregoing, Freddie Mac may,
but is not obligated to, indicate to its customers that Software Vendor is one
of the vendors capable of providing an interface to the System. Freddie Mac will
obtain Software Vendor's approval before using Software Vendor's name and logo
in any particular marketing program or materials. Software Vendor hereby also
grants to Freddie Mac a nonexclusive, nontransferable license to use the
Interface and any documentation related to the Interface (including, without
limitation, any user's manual provided by Software Vendor to the Customers) for
testing and evaluation purposes, other internal purposes and (with Software
Vendor's prior approval) marketing purposes.
(b) Software Vendor hereby grants to Freddie Mac a nonexclusive,
nontransferable license to use the LOS (including, without limitation, upgrades,
modifications and new releases) and any documentation related to the LOS
(including, without limitation, any user's manual provided by Software Vendor to
the Customers) during the term of this Agreement for testing and evaluation
purposes only. Software Vendor will provide to Freddie Mac one (1) copy of the
LOS when Software Vendor delivers the Interface to Freddie Mac. Software Vendor
will provide reasonable installation assistance to Freddie Mac for installation
of the LOS.
4. Confidential Information.
(a) The parties hereto recognize that the information and documentation
previously provided or that may in the future be provided by Freddie Mac to
Software Vendor related to the System (collectively, the ."Freddie Mac
Information and Documentation") includes privileged, confidential and
proprietary information belonging to Freddie Mac which, if disclosed, could
result in substantial and irreparable harm to Freddie Mac. For information and
documentation to qualify as Freddie Mac Information and Documentation, such
information must either be marked "Confidential" or otherwise identified in
writing as confidential at or prior to the time of its delivery to Software
Vendor hereunder. Notwithstanding the foregoing, the following matters will
automatically be deemed Freddie Mac Information and Documentation, whether or
not specifically marked or designated as such either orally or in writing: (i)
the Specifications and any Specification Updates, (ii) any implementation
information or user's guides for the System, (iii) any advances of promotional
material, (iv) information concerning Freddie Mae's business plans and
strategies, and (v) Freddie Mac's customer list. Software Vendor agrees to treat
all Freddie Mac Information and Documentation as strictly confidential, except
to the extent otherwise agreed by Freddie Mac in writing or as provided in
Section 4(f) below. Software Vendor further agrees to treat all materials which
it prepares using or based on the Freddie Mac Information and Documentation or
any portion thereof (the "Derivative Documentation") as strictly confidential,
including, without limitation, the Interface, any notes made by Software Vendor
based on discussions with Freddie Mac officers and employees and all reports
prepared by Software Vendor for Freddie Mac in connection with this Agreement.
The parties understand and agree that, notwithstanding the fact that Software
Vendor will own the Interface (including the code thereto), the source code and
object code to the Interface will be deemed Freddie Mac Information and
Documentation; however, Software Vendor may demonstrate the Interface at
conventions and in its marketing efforts directed at prospective Customers and
may also provide the Interface to Customers in machine-readable form, subject to
the provisions of this Agreement.
4
<PAGE>
(b) Freddie Mac recognizes that certain information and documentation that
may in the future be provided by Software Vendor to Freddie Mac related to the
System (collectively, the "Vendor Information arid Documentation") includes
privileged, confidential and proprietary information belonging to Software
Vendor which, if disclosed, could result in substantial and irreparable harm to
Software Vendor. For information and documentation to qualify as Vendor
Information and Documentation, such information must either be marked
"Confidential" or otherwise identified in writing as confidential at or prior to
the time of its delivery to Freddie Mac hereunder. Notwithstanding the
foregoing, the following matters will automatically be deemed Vendor Information
and Documentation, whether or not specifically marked or designated as such
either orally or in writing: (i) the source code and object code for the
Interface and the LOS, (ii) Software Vendor's business plans and strategies, and
(iii) Software Vendor's customer list. The Freddie Mac Information and
Documentation and the Vendor Information and Documentation are collectively
referred to herein as the "Information and Documentation." Freddie Mac agrees to
treat the Vendor Information and Documentation as strictly confidential, except
to the extent otherwise agreed by Software Vendor in writing or as provided in
Section 4(f) below. Freddie Mac further agrees to treat all materials which it
prepares using or based on the Vendor Information and Documentation or any
portion thereof (also known as the, "Derivative Documentation") as strictly
confidential.
(c) Without limiting the provisions of Section 4(a) above, each of the
parties agrees that it will not, without the prior written consent of the other
party, copy or permit copies to be made of the other party's Information and
Documentation or any portion thereof, except to the extent necessary to exercise
the rights specifically provided to it herein. In no event will Software Vendor
have the right to disclose the Specifications to any third party without Freddie
Mac's prior written consent. Each party further agrees that all Derivative
Documentation it creates from the other party's Information and Documentation
and all copies it makes of the other party's Information and Documentation and
any Derivative Documentation shall be marked "Confidential" in a prominent
location on each such document.
(d) Without limiting the provisions of Section 4(a) above, each party
agrees that it will not, without the prior written consent of the other party,
release or disclose or permit the release or disclosure of the other party's
Information and Documentation, Derivative Documentation or any portion thereof
to any individual or entity, nor use or permit the use of the other party's
Information and Documentation, Derivative Documentation or any portion thereof
for any purpose at any time, except to the extent necessary to exercise its
rights expressly granted in this Agreement or to the extent ordered by a court
or administrative agency of competent jurisdiction. The provisions of the
immediately preceding sentence will not be deemed to authorize release of the
Specifications or any other Information or Documentation to any third party,
except to the extent expressly authorized by the Owner of the Information and
Documentation in writing. Furthermore, in the event either party intends or
anticipates that it may be required for any reason to release or disclose the
other party's Information and Documentation, Derivative Documentation or any
portion thereof (other than a release of the Interface to a Customer in
accordance with the provisions hereof), the releasing party shall promptly
notify the other party and shall take such actions as may be necessary to
provide the other party with a reasonable opportunity to respond in such manner
as the other party deems appropriate to prevent or limit the release or
disclosure of such information and documentation.
(e) Each party shall return to the other party all of the other party's
Information and Documentation, Derivative Documentation, and all copies of such
Information and Documentation and Derivative Documentation (including, without
limitation, bard copies and word processing and other computer files), promptly
upon termination of this Agreement. Notwithstanding the foregoing, Freddie Mac
will have the right to retain a copy of the Interface for the uses specified in
Section 3 above.
5
<PAGE>
(f) The parties confidentiality obligations under this Agreement and the
use restrictions set forth in this Section 4 shall not extend to any Information
and Documentation, Derivative Documentation or any portion thereof (the
"Nonconfidential Information") which (i) now is or hereafter becomes publicly
known without a breach of this Agreement, (ii) is independently developed by the
recipient hereunder (the "Recipient") without use of the Information and
Documentation belonging to the other party (the "Owner"), any Derivative
Documentation based on such information or any portion thereof, or (iii) is
received by the Recipient from a third party (other than, in the case of the
Freddie Mac Information, Freddie Mac, Freddie Mac's customers, consultants or
contractors involved in the development, operation or use of the System, or any
of the foregoing entities' respective agents, officers or employees) which is
not itself under any confidentiality obligation with respect thereto. However,
the Recipient's confidentiality and other obligations under this Agreement shall
continue to apply to all the Owner's Information and Documentation and
Derivative Documentation that does not constitute Nonconfidential Information as
defined in the preceding sentence, notwithstanding the fact that a portion of
the Owner's Information and Documentation and/or Derivative Documentation is or
becomes Nonconfidential Information.
6
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5. Term.
(a) The term of this Agreement will commence on the date first set forth
above and will automatically expire at 11:59 p.m. on [*], unless the term is
extended by mutual written agreement of the parties.
(b) Each party will have the right to terminate this Agreement and the
term thereof at any time in the event of a default by the other party of its
obligations under this Agreement. In the event a default hereunder is curable,
prior to terminating the Agreement, the terminating party will provide the other
party with notice of the default and a reasonable opportunity to cure the same.
In no event will the terminating party be required to provide to the other party
a cure period which exceeds thirty (30) days after the date of the terminating
party's notice. The parties agree that, in the event the Interface fails to
transmit and receive data accurately, the cure period maybe significantly
shorter than thirty days, as determined by Freddie Mac. In the event a default
recurs, or substantially similar defaults occur, two (2) or more times within
six (6) months after the terminating party's original notice of default, the
terminating party will have the option, but not the obligation, to terminate
this Agreement without first providing to the other party an opportunity to cure
the default. In addition, misuse of the other party's trademarks or service
marks and failure to obtain the other party's prior consent to such use in any
marketing materials will be cause for immediate termination of this Agreement
with no cure period. In the event the terminating party Provides a cure period
to the other party and the default is fully cured during the cure period
specified in the terminating party's notice, this Agreement will not terminate
at the time specified in said notice; if the other party fails to cure the
default during said cure period or if no cure period is given, the Agreement
will automatically terminate on the date specified in said notice.
(c) Each party will have the right to terminate the Agreement for any
reason, effective at any time after the first (1st) year of the term of this
Agreement, by providing to the other party at least sixty (60) days' notice of
termination. Freddie Mac will have the right, but not the right to notify the
Customers of any expiration or termination of this Agreement, including both
terminations with and without cause.
6. Warranties. Software Vendor represents and warrants that (i) the
Interface will comply with the Specifications in effect from time-to-time, (ii)
the Interface will accurately transmit to the System all information input into
the Interface; (iii) Software Vendor has, and will throughout the term of the
Agreement have, all licenses and permits necessary to provide the Interface and
LOS and perform any services related thereto, and the Interface and LOS will be
prepared and provided and any related services performed in compliance with all
applicable laws, regulations, licenses and professional standards; (iv) the
Interface and LOS will not violate any patents, copyrights or other proprietary
rights belonging to third parties (provided that Software Vendor is not
responsible for the violation of any such rights by the Specifications); and (v)
Software Vendor will use its best efforts to ensure that the Interface and LOS
will at all times be and remain free of computer viruses and any code designed
to cause the System to malfunction or self-destruct or to allow unauthorized
access or cause harm to the System. The Customers are third party beneficiaries
of Software Vendor's representations and warranties set forth in this Section 6.
7. Indemnification. Software Vendor will indemnify Freddie Mac and hold it
harm less from and against any and all third party claims, and all related
judgments, damages, losses, liabilities, costs and expenses, including
reasonable attorneys' fees, arising from or related to (i) any breach or alleged
breach of the warranties in Section 6 above, or (ii) the provision of the
Interface or LOS. The foregoing indemnification obligation does not apply to
claims to the extent such claims arise out of Freddie Mac's own negligence or
breach of its agreements hereunder.
[*] Confidential Treatment Requested
7
<PAGE>
8. Marketing Standards.
(a) Freddie Mac will have the right, but not the obligation, to review in
advance Software Vendor's advertisements, press releases, brochures, videotapes,
audiovisual materials, sales collateral, newsletters, other written and oral
presentations related to the Interface and other similar materials (collectively
"Marketing Materials") to confirm that such materials are consistent with
Freddie Mac's guidelines for Marketing Materials related to the System. In no
event will Software Vendor have the right to use Freddie Mac's name or logo or
any service mark belonging to Freddie Mac, including, without limitation, the
marks "Freddie Mac"(R) and "Loan Prospector"(SM) Service except strictly in
accordance with Freddie Mac's written guidelines therefor or as consented to by
Freddie Mac. A current copy of Freddie Mac's guidelines for Marketing Materials
and use of Freddie Mac's service marks is attached hereto as Exhibit C.
(b) Software Vendor recognizes that this Agreement and any actions taken
by Freddie Mac related to this Agreement, the System or the Interface, do not
constitute an endorsement by Freddie Mac of Software Vendor, the Interface or
any loan origination system or other product owned or marketed by Software
Vendor. Software Vendor agrees that it will make no representation or statement,
oral or written, to any third party which implies otherwise.
9. Freddie Mac's Rights With Respect to the System. Nothing contained in this
Agreement will be deemed to require Freddie Mac to take any action whatsoever
with respect to the System, the Interface or the LOS, including, without
limitation, any advertising or promotional program. Software Vendor recognizes
that Freddie Mac must develop its policies and determine its actions with
respect to the System as Freddie Mac deems appropriate in its sole and
unreviewable judgment, including, without limitation, any decision to continue,
discontinue or modify the System. Software Vendor acknowledges that Freddie Mac
has the right to contract with other entities for the performance of software
and services comparable or identical to those covered hereunder, and nothing
contained herein will be deemed to restrict in any manner Freddie Mac's right to
do so.
10. Limitation of Liability. In no event will Freddie Mac be liable to
Software Vendor or any third party for any indirect, incidental, special or
consequential damages arising out of or related to this Agreement, the System or
the Interface, even if Freddie Mac is aware of the possibility of such damages.
In no event will Freddie Mac's liability to Software Vendor for any matter
arising out of or related to this Agreement, the System, the Interface or the
LOS exceed the greater of (i) the amount paid by Software Vendor to Freddie Mac
for the right to use the Specifications, if anything, or (ii) the sum of Five
Hundred Dollars ($500).
11. Miscellaneous.
(a) The parties hereto understand and agree that Software Vendor is
furnishing its services and the Interface to the Customers on its own behalf and
not on behalf of Freddie Mac. In no event will Software Vendor state or
otherwise indicate to any third party that it is authorized to represent Freddie
Mac in any respect, except to extent expressly authorized by Freddie Mac.
Nothing contained herein will be construed to create any association,
partnership or joint venture or any agency relationship between the parties
hereto.
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(b) This Agreement will be construed, and the rights and obligations of
the parties hereunder determined, in accordance with the laws of the United
States. Insofar as there may be no applicable precedent, and insofar as to do so
would not frustrate any provisions of this Agreement or the transactions
governed hereby, the laws of the Commonwealth of Virginia will be deemed
reflective of the laws of the United States.
(c) This Agreement constitutes the only agreement between Freddie Mac and
Software Vendor relating to the Specifications and the Interface, and no
representations, promises, understandings or agreements, oral or otherwise, not
herein contained will be of any force or effect. Any conflict between this
Agreement and any exhibits hereto will be resolved in favor of this Agreement.
(d) No modification or waiver of any provision of this Agreement will be
valid unless it is in writing and signed by the party against whom it is sought
to be enforced. No waiver at any time of any provision of this Agreement will be
deemed a waiver of any other provision of this Agreement at that time or a
waiver of that or any other provision of this Agreement at any other time.
(e) In no event may Software Vendor assign its rights or obligations under
this Agreement without Freddie Mac's prior written consent; any such attempted
assignment will be null and void and will constitute a material breach of this
Agreement. Subject to the foregoing, this Agreement is binding upon and inures
to the benefit of the parties hereto and their respective successors and
assigns.
(f) The terms and provisions of the exhibits attached hereto are hereby
incorporated in this Agreement by reference.
(g) The provisions of Sections 4, 5(c), 6, 7, 8(b), 9 and 10 of this
Agreement will survive the expiration or termination of the term of the
Agreement.
(h) If one or more of the provisions of this Agreement are held for any
reason to be invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability will not affect any other provision of this Agreement, and this
Agreement will be construed and enforced as if such invalid, illegal or
unenforceable provisions bad not been contained herein.
(i) Each party represents to the other that it has all necessary power and
authority to enter into and perform its obligations under this Agreement. The
individuals executing this Agreement on behalf of each party represent that they
have authority to do so.
(j) All notices required or permitted to be sent under this Agreement
shall be in writing and shall be sent to the parties at the addresses set forth
in the preamble of this Agreement, or to such other addresses and to such other
individuals of which either party may notify the other in a notice which
complies with the provisions of this subsection. Notices to Freddie Mac shall be
sent to the attention of Laura Janis, with a copy to the Associate General
Counsel, Corporate Affairs of Freddie Mac (at the same address). All notices
will be deemed given (i) when delivered by hand, (ii) one (1) day after delivery
to a reputable overnight carrier, or (iii) three (3) days after placement in
first-class mail, postage prepaid, return receipt requested.
(k) The rights and remedies of the parties hereunder are cumulative and
are in addition to, and not in lieu of, all rights and remedies available at law
and in equity.
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(l) The captions in this Agreement are included for convenience of
reference only and will not be construed to define or limit any of the
provisions contained herein.
By signing below, the undersigned have expressed their mutual agreement to the
foregoing.
GENESIS 2000 FEDERAL HOME LOAN
MORTGAGE CORPORATION
By: By: _______________________________
-------------------------------
Title: Title: _______________________________
-------------------------------
Date: Date: _______________________________
-------------------------------
10
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Exhibit A
Loan Prospector(SM) Software Vendor
Schedule
Software Vendor agrees to commit to a target data for each of the following
critical project milestones:
<TABLE>
<CAPTION>
================================================================================================
Event Target Date
================================================================================================
<S> <C>
Completion of Interface Software Vendor to fill in dates
- ------------------------------------------------------------------------------------------------
Export File submitted for approval
- ------------------------------------------------------------------------------------------------
Screen prints submitted for approval (including
communications log)
- ------------------------------------------------------------------------------------------------
Completion of Communications protocol
- ------------------------------------------------------------------------------------------------
</TABLE>
[NOTE: The dates must still be filled in.)
11
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Exhibit B
Loan Prospector(SM) Software Vendor
Implementation and Training Responsibilities
. The Software Vendor will be available to work jointly with Freddie Mac and
the customer when the Software Vendor interface and Loan Prospector are
being implemented.
. During installation and operational testing of Loan Prospector, the
Software. Vendor is expected to be available to address any customer and
Freddie Mac questions related to the Software Vendor's software.
. The Software Vendor's user manuals with respect to the Loan Prospector
interface will include the following information:
1. Loan Prospector interface installation instructions
2. Information about Loan Prospector screens/options
3. Algorithms for derived data fields and all Loan Prospector
required data edits.
. All documentation distributed to customers which discusses Loan Prospector
must be reviewed and approved by Freddie Mac prior to distribution. Freddie
Mac requires, at a minimum, one week to review and approve new and revised
software documentation that mentions Loan Prospector. More time may be
necessary for complex or lengthy documentation.
. Freddie Mac reserves the right to approve all modems for use with the
software. Software Vendor must provide the customer with the initialization
strings required for each acceptable modem type.
. The Software Vendor will make available to their customers timely and
adequate training on the use of the interface.
. For those origination systems that provide on-line help, the help must
include information on bow to use the Interface.
. The Software Vendor is responsible for fully testing the interface. Freddie
Mac will provide the Software Vendor with an implementation packet which
includes a set of standard test cases for Loan Prospector. Freddie Mac will
use these test cases to test whether the software works correctly. The
Software Vendor must provide Freddie Mac the results of these test cases in
a export file format.
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. Software Vendor must acknowledge within two hours customer inquiries
related to operations of the interface Made by Freddie Mae's customer
support groups. All "level one" inquiries must be resolved by the Software
Vendor within 24 hours, and all "level two" inquiries must be resolved
within 48 hours. "Level one" are high priority inquiries. Example: the
interface/system is not operational. "Level two" are low priority
inquiries. Example: the interface/system will not process a particular
loan.
. Software Vendor must respond to inquiries within one business day made by
Freddie Mac's training and implementation groups.
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EXHIBIT C
Loan Prospector(SM)/1/ Software Vendor Marketing Responsibilities
. Freddie Mac's automated underwriting product should be referred to as Loan
Prospector in all communications.
. The product name, Freddie Mac's Loan Prospector(SM) or Loan Prospector(SM),
is the correct name to use to address Freddie Mae's automated underwriting
service.
. The first use of Loan Prospector (even in a title) in printed materials
(letters, brochures, memos, videos and system demonstrations etc.) must
have the service mark identifier. Example: Loan Prospector(SM). Subsequent
references to Loan Prospector in the same material does not need the
service mark designation. With the first use of Loan Prospector, a footnote
should indicate that Loan Prospector is a service mark belonging to Freddie
Mae.
. The company name is always Freddie Mac. Do not refer to Freddie Mac as the
Federal Home Loan Mortgage or FHLMC.
. Any mention of Freddie Mac and/or Loan Prospector in materials that will be
distributed to customers must be reviewed and approved by Freddie Mac prior
to distribution. This includes, but is not limited to, press releases,
newsletters, advertising, brochures, all sales collateral, and all other
audio visual materials.
. Freddie Mac requires, at a minimum, at least five full business days to
review and approve marketing, advertising copy or other promotional
materials and at least five, full business days for audio visual materials.
_____________
/1/ Loan Prospector is a service mark belonging to Freddie Mac.
14
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EXHIBIT 10.22
[FANNIE MAE LOGO APPEARS HERE]
October 6, 1999
Mr. Charles E. Reed
Vice President
IOWN, Inc.
777 Arnold Drive, Second Floor
Martinez, California 94553
Reference: Master Agreement No. ML02332
Dear Mr. Reed:
This letter shall constitute the master agreement ("Master Agreement") between
Fannie Mae and IOWN, Inc. (the "lender") to enter into one or more transactions
for the sale by the Lender and purchase by Fannie Mae of residential mortgage
loans ("Mortgages"). The obligations of the Lender and Fannie Mae regarding each
such transaction shall be governed by the terms and conditions contained herein
(including Exhibit A and each of the Attachments attached hereto and
incorporated herein by reference) and by the terms and conditions of the
applicable Fannie Mae purchase program ("Program").
The Lender shall sell to Fannie Mae during the Master Agreement Term (which
begins on the Effective Date and ends on the Expiration Date, as those terms are
defined in Exhibit A), Mortgages with an aggregate outstanding principal balance
equal to the Agreed Amount (as defined in Exhibit A) under Fannie Mae's Standard
Portfolio (cash) purchase commitment Program, under the then-current terms and
conditions applying thereto.
If the Agreed Amount is not sold to Fannie Mae prior to the Expiration Date, the
Lender shall pay Fannie Mae the Back-end Buyout Fee, as indicated in Exhibit A.
(The undelivered and uncommitted portion of the Agreed Amount shall be the
difference between (a) the Agreed Amount (taking into account the minus [*]
delivery tolerance, as specified in Exhibit A), and (b) a sum equal to the
aggregate outstanding principal balance of Mortgages (for each Mortgage, as of
the time of sale of the Mortgage) that the Lender has sold to Fannie Mae under
this Master Agreement, plus the principal balance of Mortgages that the Lender
is still obligated to sell under any existing mandatory delivery contracts for
sale and purchase between the Lender and Fannie Mae.) This fee will be drafted
by Fannie Mae from the Lender's designated account immediately following the
Expiration Date of this Master Agreement. However, should Fannie Mae decline to
enforce payment of this fee, such action will not imply a waiver of its right to
collect a similar fee at a subsequent time. Fannie Mae's
[*] Confidential Treatment Requested
Master Agreement No. ML02332
MA-1
<PAGE>
right to receive such a fee is in addition to any right and remedies of Fannie
Mae provided by law or the applicable Program, and the receipt of such fee shall
not affect or impair any such rights and retakes.
All Mortgages shall conform to the requirements of the Mortgage Selling and
Servicing Contract between Fannie Mae and the Lender, the Fannie Mae Selling
Guide ("Selling Guide"), and the Fannie Mae Service Guide ("Servicing Code"), as
applicable, as they may be amended from time to time, except as modified by the
variances contained in this Master Agreement and in the applicable Contract
(defined below) entered into pursuant to this Master Agreement. (Any cash
commitment contracts are referred to herein as a "Contract.") In addition,
without Fannie Mae's prior written approval, the Lender shall not sell to Fannie
Mae any Mortgage that the Lender previously sold (or contracted to sell) to any
third party, if such Mortgage was subsequently declined by, rejected by, or
repurchased from such third party.
Each Contract entered into under this Master Agreement constitutes: (i) an
agreement by the Lender to sell the Mortgages to, and service such Mortgages
for, Fannie Mae and (ii) an agreement by Fannie Mae to purchase the Mortgages.
By execution of this Master Agreement, the Lender and Fannie Mae agree to the
terms and conditions set forth herein and in any Contract entered into
simultaneously with this Master Agreement.
Each Mortgage delivered under this Master Agreement that has been submitted for
underwriting analysis by Fannie Mae's Desktop UnderwriterTM shall conform to the
requirements of the Guide to Underwriting with Desktop UnderwriterTM, as amended
from time to time (the "Desktop UnderwriterTM Guide"), Section 5 of the Desktop
UnderwriterTM Seller/Servicer Software License and Subscription Agreement, and
this Master Agreement.
The form, terms, and provisions of this Master Agreement, as well as all
information regarding the negotiation of the form, terms, and provisions of this
Master Agreement, are confidential. The Lender shall not disclose or
disseminate, directly or indirectly, the form, terms, or provisions of this
Master Agreement, or such other information regarding the negotiation of this
Master Agreement, to any party other than the Lender's employees or agents who
need to know the same in order to perform their duties for the Lender and who
are legally obligated not to further disclose or disseminate such form, terms,
provisions, and information upon receipt thereof. The Lender shall take all
necessary and reasonable action to preserve the confidentiality of such form,
terms, provisions, and information and shall use at least the same degree of
care in such efforts as it employs when preserving the confidentiality of its
own information of a similar nature. Such necessary and reasonable action that
must be taken by the Lender shall include, without limitation, providing
instruction to such employees and agents regarding the confidential nature of
the form, terms, and provisions of this Master Agreement and the negotiations
surrounding this Master Agreement.
Master Agreement No. ML02332
MA-2
<PAGE>
Notwithstanding the provisions of the immediately preceding paragraph, the
Lender may disclose or disseminate such form, terms, provisions, and information
if it is required to do so by law (including a subpoena, or judicial or
governmental requirement or order) and has given Fannie Mae prior written notice
of such requirement and of the information required to be disseminated or
disclosed.
The Lender acknowledges that the unauthorized disclosure or dissemination of the
form, terms, or provisions of the Master Agreement, or other information
regarding the negotiation of the Master Agreement, is likely to cause
irreparable harm to Fannie Mae and that monetary damages may be inadequate to
compensate Fannie Mae for such breach. Accordingly, in addition to and not in
limitation of any other rights and remedies available to Fannie Mae at law or in
equity, Fannie Mae shall be entitled to injunctive relief in order to prevent or
restrain such unauthorized disclosure or dissemination. The obligations of the
Lender regarding confidentiality shall survive termination of this Master
Agreement.
The Lender's right to sell, and Fannie Mae's obligation to purchase, Mortgages
under this Master Agreement may be terminated by Fannie Mae prior to the
Expiration Date of the Master Agreement if the Lender has breached the Mortgage
Selling and Servicing Contract it has entered into with Fannie Mae, or any of
the provisions of this Master Agreement, or any Contract entered into pursuant
to this Master Agreement. If the Agreed Amount, as adjusted by the minus [*]
delivery tolerance, is not sold to Fannie Mae prior to the Expiration Date of
the Master Agreement, Lender shall be in breach of the provisions of the Master
Agreement. The Lender's responsibilities and liabilities under this Master
Agreement shall survive the expiration or earlier termination of the Lender's
right to sell, and Fannie Mae's obligation to purchase Mortgages under this
Master Agreement. This Master Agreement and any Contract entered into pursuant
to this Master Agreement may only be amended by the mutual agreement of Fannie
Mae and the Lender. Each amendment shall be in writing and shall consist of a
transmittal letter from Fannie Mae to the Lender generally describing the
amended provisions of the Master Agreement or the Contract, together with the
newly revised pages of the Master Agreement or the Contract. The revised pages
of the Master Agreement or the Contract should be added to the Master Agreement
as described in the transmittal letter. The Lender shall acknowledge its
acceptance of the amended terms and conditions by returning to Fannie Mae a duly
executed copy of the transmittal letter.
The Lender may not assign this Master Agreement or any rights or obligations
hereunder. The Lender may not assign any Contract entered into pursuant to this
Master Agreement or any rights or obligations thereunder.
The Lender hereby confirms, by checking the appropriate section below, that:
__It is not a federally-insured institution or an affiliate or subsidiary of a
===
federally-insured institution.
Master Agreement No. ML02332
MA-3
<PAGE>
__It is a federally-insured institution or an affiliate or subsidiary of a
federally-insured institution, and
(a) the sale to, and (if applicable) servicing for, Fannie Mae of the Mortgages
delivered to Fannie Mae pursuant to this Master Agreement has either been
(i) specifically approved by the board of directors of the Lender and such
approval is reflected in the minutes of the meetings of such board of
directors, or (ii) approved by an officer of the Lender who was duly
authorized by the board of directors to enter into such types of
transactions and such authorization is reflected in the minutes of the
board of directors' meetings; and
(b) this Master Agreement and any Contracts or amendments pursuant hereto,
together with the applicable Fannie Mae Guides and the Mortgage Selling and
Servicing Contract between the Lender and Fannie Mae, constitute the
"written agreement" governing the Lender's sale to, and servicing for,
Fannie Mae of the Mortgages delivered pursuant to this Master Agreement,
and the Lender (or any successor thereto) shall continuously maintain all
components of such "written agreement" as an official record.
[Signature page follows]
Master Agreement No. ML02332
MA-4
<PAGE>
The Lender must accept this Master Agreement by returning a duly-executed
duplicate original to Fannie Mae within ten business days of the date of this
Master Agreement. If the executed Master Agreement is not received by Fannie Mae
on or before the above date, Fannie Mae may at its option declare this Master
Agreement null and void.
Sincerely,
FANNIE MAE
By: /s/ David Rowell POC
-------------------------------
David Rowell
Director of Customer Management
Date: October 6, 1999
-------------------------------
Agreed, acknowledged, and accepted:
IOWN, INC.
By: /s/ Charles E Reed
-------------------------------
(Authorized Signature)
Charles E. Reed Vice President
-------------------------------
(Typed Name & Title)
Date: 10/16/99
-------------------------------
Master Agreement No. ML02332
MA-5
<PAGE>
EXHIBIT A
Master Agreement Number: ML02332
Effective Date: October 1, 1999
Expiration Date: [*]
Parties to Agreement: IOWN, Inc. and Fannie Mae
Lender Number: [*]
Agreed Amount: [*]
Back-end Buyout Fee: [*]
[*] Confidential Treatment Requested
Master Agreement No. ML02332
MA-6
<PAGE>
SPECIAL REQUIREMENTS
This Special Requirements Attachment for the Mortgage is attached to and made a
part of the Master Agreement. Each Mortgage must meet the specifications in the
Selling Guide, except as modified by this Master Agreement, the terms of any
Pool Purchase Contract or Cash Commitment Contract, the Guide to Underwriting
with Desktop Underwriter (the "Desktop Underwriter Guide"), and the following
specific eligibility criteria, a breach of which shall be deemed to be a breach
of warranty by the Lender, as provided in Part 1, Section 201.01 of the Selling
Guide.
<PAGE>
MORTGAGES SUBMITTED TO DESKTOP UNDERWRITER(R)
Lender may deliver Mortgages under this Master Agreement that either the Lender
has submitted to Desktop Underwriter, or pursuant to Fannie Mae Announcement 98-
08, dated September 4, 1998, another Lender has submitted to Desktop Underwriter
for analysis, and for which, in each case, Desktop Underwriter has displayed one
of the following recommendations:
1. Eligible Mortgages. "Approve/Eligible" or "Refer/Eligible" provided that
each such Mortgage complies with all requirements, restrictions,
stipulations, and limitations applicable, to such Mortgage specified in
this Special Requirements Attachment and the Desktop Underwriter Guide,
which may include the purchase price or guaranty fee, any price adjustment,
or similar charge and the aggregate outstanding principal amount.
2. Ineligible Mortgages. "Approve/Ineligible" or "Refer/Ineligible," provided
that any "Ineligible" Mortgage is:
a. eligible for delivery pursuant to one or more of the variances set
forth in the Variance Attachment to this Master Agreement; and
b. subject to all applicable requirements, restrictions, stipulations,
and limitations specified in this Master Agreement and the Desktop
Underwriter Guide, which may include the purchase price or guaranty
fee, any price adjustment or similar charge and the aggregate
outstanding principal amount.
3. Refer with Caution Mortgages. "Refer with Caution" provided that:
a. each such Mortgage:
i. complies with Fannie Mae's eligibility requirements; and
ii. is subject to all applicable requirements, restrictions,
stipulations, and limitations specified in this Master Agreement
and the Desktop Underwriter Guide, which may include the purchase
price or guaranty fee, any price adjustment, or similar charge
and the aggregate outstanding principal amount; or
b. if such Mortgage does not comply with Fannie Mae's eligibility
requirements:
i. such Mortgage is eligible for delivery pursuant to one or more of
the variances set forth in the Variance Attachment to this Master
Agreement; and
ii. such Mortgage is subject to all applicable requirements,
restrictions, stipulations, and limitations specified in this
Master Agreement and the
Master Agreement No. ML02332
SR-1
<PAGE>
Desktop Underwriter Guide, which may include the purchase price
or guaranty fee, any price adjustment, or similar charge and the
aggregate outstanding principal amount; and
c. an underwriter has approved such Mortgage in accordance with the
requirements relating to "Refer with Caution" Mortgages in the Desktop
Underwriter Guide.
4. Out of Scope Mortgages. "Out of Scope" Mortgages provided that:
a. each such Mortgage is eligible for delivery pursuant to the Selling
Guide or one or more of the variances set forth in the Variance
Attachment to this Master Agreement; and
b. each such Mortgage is subject to all applicable requirements,
restrictions, stipulations, and limitations specified in this Master
Agreement, which may include the purchase price or guaranty fee, any
price adjustment, or similar charge and the aggregate outstanding
principal amount.
Please note that any price adjustment associated with the delivery of Mortgages
underwritten through Desktop Underwriter is subject to change at any time during
the term of this Master Agreement. Such changes will be reflected in the Desktop
Underwriter Guide or other written notice from Fannie Mae.
Master Agreement No. ML02332
SR-2
<PAGE>
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made, entered into, and
is effective as of this 25/th/ day of October 1999 (the "Effective Date"), by
and between Ned Hoyt ("Executive"), and iOwn Holdings, Inc. ("Company"), a
Delaware corporation, on the other hand.
WHEREAS, Company wishes to employ Executive as its Chief Executive
Officer and Executive wishes to be so employed; and
WHEREAS, Company and Executive are desirous of setting forth the terms
and conditions of Executive's employment by Company.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth in this Agreement, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Company and Executive, intending to be legally bound, agree as
follows:
1. Term of Employment.
------------------
(a) Basic Agreement. Company agrees to employ Executive, and
---------------
Executive agrees to be employed by Company, from the date of this Agreement
until the date when Executive's employment terminates pursuant to
Subsections(b), (c) or (d) below. Executive shall serve as Chief Executive
Officer of Company and report to the Board of Directors of the Company.
(b) Termination Without Cause. Company may terminate
-------------------------
Executive's employment at any time and for any reason or for no reason by giving
Executive thirty (30) days' advance notice in writing. The Employee may
terminate his employment by giving Company thirty (30) days' advance notice in
writing. The Employee's employment shall terminate automatically in the event of
his death. Any waiver of notice shall be valid only if it is made in writing and
expressly refers to the applicable notice requirement of this Section 1.
(c) Cause. Company may terminate Executive's employment at any
-----
time for Cause. For all purposes under this Agreement, "Cause" shall mean (i)
gross misconduct or fraud, (ii) material breach of any obligation under this
Agreement, or (iii) conviction of, or a plea of "guilty" or "no contest" to, a
felony.
(d) Disability. Company may terminate Executive's active
----------
employment due to Disability by giving Executive thirty (30) days' advance
notice in writing. For all purposes under this Agreement, "Disability" shall
mean that Executive, at the time notice is given, has failed to perform his
duties under this Agreement for a period of not less than three (3) consecutive
months as the result of his incapacity due to physical or mental illness. In the
event that Executive resumes the performance of substantially all of his duties
hereunder before
<PAGE>
the termination of his active employment under this Subsection (d) becomes
effective, the notice of termination shall automatically be deemed to have been
revoked.
(e) Voluntary Termination for Good Reason. Executive may
-------------------------------------
terminate Executive's employment at any time for Good Reason. For purposes of
this Agreement, Good Reasons shall mean:
(i) any failure by Company to comply with any material
provision of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by Company
promptly after receipt of notice thereof given by the Executive.
(ii) Company's requiring Executive to be based at any
office or location more than seventy-five (75) miles from Company's current
corporate headquarters.
(iii) any reduction in Executive's compensation or
benefits.
(f) Rights Upon Termination. Upon the termination of
-----------------------
Executive's employment pursuant to this Section 1, Executive shall be entitled
only to the compensation, benefits and reimbursements described in Sections 3, 4
and 5 and the payments, if any, described in Section 6. The payments under this
Agreement shall fully discharge all responsibilities of Company to Executive and
Company shall have no further obligation or liability to Executive.
2. Title and Duties. The title of Executive shall be Chief Executive
----------------
Officer with such duties and responsibilities to be mutually agreed upon by
Executive and the Board of Directors of the Company at that time. Executive
shall be a member of the Board of Directors of the Company.
Executive shall devote full time and use Executive's skills and
competence to promote the interest of Company and to improve and extend the
business thereof. During the Term, Executive shall not be employed by any other
person or entity without the express prior written consent of Company, directly
or indirectly, whether alone or as a partner, employee, creditor, shareholder,
officer, or otherwise, and shall not render services of a professional nature to
or for any other person or firm for compensation or promote, participate, or
engage in any activity or other business competitive with or adverse to
Company's business or practice. The making of passive and personal investments
shall not be prohibited under this paragraph.
3. Compensation.
------------
(a) Salary. Company shall pay to Executive an annual salary of
------
One hundred forty thousand dollars ($140,000) or such higher rate as Company may
determine from time to time. Such salary shall be payable in accordance with
Company's standard payroll procedures.
(b) Bonus. Executive shall be eligible for an annual bonus to
------
be determined by Company based on the performance of the Executive and the
Company in the preceding year. Executive's annual bonus target shall be set by
the compensation committee.
-2-
<PAGE>
(c) Option. From time to time the Executive shall be granted a
------
stock options (the "Option") pursuant to Company's 1999 Stock Plan which
entitles Executive to purchase shares of Common Stock of the Company (the
"Shares"). The Option shall be immediately exercisable and subject to the
Company's standard vesting schedule pursuant to which twenty-five percent (25%)
of such shares will vest upon the first anniversary of Executive's employment
with Company, and the remaining shares will vest in equal monthly installments
over the succeeding thirty-six (36) month period. The Options shall be
exercisable at the fair market value of the stock as of the date which Executive
commences his employment with Company as determined by the Board of Directors of
Company. The Option is subject to all the terms, conditions, and restrictions of
Company's 1999 Stock Plan and the Stock Option Agreement to be executed between
Executive and the Company. It is expected that the Executives compensation shall
be reviwed after the Series E Preferred Stock financing. Any option grants as a
result of the compensation review shall be at a strike price greater than $3.30
per share (adjusted for stock splits, dividends, recapitalizations and the
like).
(d) Medical and Dental Benefits. Commencing the first day of
---------------------------
the month following Executive's 30th day of employment, Executive and his
dependents shall receive medical and dental benefits on the same basis as such
benefits are made available to other executives of Company of similar level of
responsibility, as that may change from time to time.
(e) 401(k) Plan. Executive shall be entitled to participate in
-----------
Company's 401(k) Plan, subject to the limitations imposed by applicable tax and
regulatory authorities.
(f) Review of Compensation. It is expected that the Executive's
----------------------
compensation shall be reviewed after the date on which Series E Preferred Stock
is first sold and adjusted as deemed necessary by the Board of Directors of the
Company. Any additional option grants proposed by the Board as a result of the
compensation review shall have an exercise price no lower than the price at
which shares of Series E Preferred Stock are first sold.
4. Reimbursement of Expenses. Company shall, upon presentation of
-------------------------
itemized receipts, reimburse Executive for all required traveling and other
business expenses, in accordance with Company policy, directly and reasonably
incurred by Executive in the performance of Executive's duties. Executive shall
be reimbursed for the reasonable expenses of relocation of Executive and his
dependents to the San Francisco Bay area, such expenses to be agreed upon in
advance by Executive and Company.
5. Vacation/Paid Time Off. Executive shall accrue Paid Time Off on a
----------------------
monthly basis at the rate of eighteen days (18) days per year until such time as
Executive has accrued Paid Time Off of eighteen (18) days, at which time Paid
Time Off accrual will cease and shall only recommence at such time as the total
accrued Paid Time Off is less than eighteen (18) days. Paid Time Off may be
utilized for vacation, illness, personal days, or religious holidays. In
addition to Paid Time Off, Executive shall be entitled to nine paid holidays per
year as designated by Company.
6. Compensation Upon Termination or During Disability.
--------------------------------------------------
-3-
<PAGE>
(a) During any period that Executive fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("disability period"), Executive shall continue to receive his full salary at
the rate then in effect for such period (and shall not be eligible for payments
under the disability plans, programs and polices maintained by Company or in
connection with employment by Company ("Disability Plans")) until his employment
is terminated pursuant to Section 1(d) hereof, and upon such termination,
Executive shall, within ten (10) days of such termination, be entitled to all
amounts to which Executive is entitled pursuant to short-term Disability Plans.
Executive's rights under any long-term Disability Plan shall be determined in
accordance with the provisions of such plans.
(b) If Executive's employment shall be terminated by Company for
Cause or by Executive, Company shall pay Executive his full salary through the
Date of Termination at the rate in effect at the time Notice of Termination is
given and Company shall have no further obligations to Executive under this
Agreement or otherwise.
(c) If Executive's employment shall be terminated by the Company
for any reason other than Cause, death, or Disability, Company shall: (i)
continue to pay Executive's salary at the rate then in effect for two (2) months
following such termination. The payments under this Section 6(c) shall cease in
the event of Executive's death.
(d) Employment Termination in Connection with a Change in
-----------------------------------------------------
Control. In the event of a Qualifying Termination (as defined below) within
- -------
twelve (12) months following the effective date of a Change in Control (as
defined below), then in lieu of all other benefits provided to the Executive
under the provisions of this Agreement, Executive shall receive the following
severance benefits:
(i) Company shall pay Executive an amount equal to two (2)
months of salary at the rate in effect at the time of the effective date of
termination.
(ii) Company shall agree to the acceleration of vesting
equal to fifty percent (50%) of the then unvested Shares from any stock grant or
stock option grant made to Executive at any time after the date hereof.
(iii) Company shall pay Executive an amount equal to the
Executive's unpaid salary and accrued vacation pay through the effective date of
termination.
For purposes of this Section 6(d), a Qualifying Termination shall mean
any termination of the Executive's employment other than: (1) by the Company
for Cause (as provided in Section 1(c) herein); (2) by reason of death or
Disability (as provided in Section 1(d) herein); or (3) by the Executive without
Good Reason (as provided in Section 1(e)).
(e) Definition of "Change in Control." "Change in Control" shall
--------------------------------
mean:
(i) The consummation of a merger or consolidation of
Company with or into another entity or any other corporate reorganization, if
persons who were
-4-
<PAGE>
not shareholders of Company immediately prior to such merger, consolidation or
other reorganization own immediately after such merger, consolidation or other
reorganization fifty percent (50%) or more of the voting power of the
outstanding securities of each of (A) the continuing or surviving entity, and
(B) any direct or indirect parent corporation of such continuing or surviving
entity; or
(ii) The sale, transfer or other disposition of all or
substantially all of Company's assets.
A transaction shall not constitute a Change Control if its sole
purpose is to change the state of Company's incorporation or to create a holding
company that will be owned in substantially the same proportions by the persons
who held the Company's securities immediately before such transaction.
7. Commitment to Vote Stock. If the holders of a majority of the
------------------------
Company's capital stock (not including those shares held by Executive) determine
to approve any transaction between the Company and a third party that
contemplates the acquisition of all or substantially all of the Company's
outstanding capital stock or assets by the third party, or determine to tender
or exchange their shares of stock in a transaction proposed by any third party
in which such third party would acquire all or substantially all of the
Company's outstanding capital stock directly from the stockholders of the
Company, then in such event Executive shall agree to approve such transaction by
voting all such shares of Company capital stock held by Executive in the same
proportion as the vote of the shares of Company capital stock not held by
Executive and tender or exchange all shares then held by Executive, to such
third party offeror on the same terms and conditions, including the per share
price and date of sale, as are received by the other stockholders.
8. Employee Confidentiality Agreement. Prior to Executive's Start
----------------------------------
Date, Executive shall execute Company's Employee Confidential Information and
Inventions Assignment Agreement in the form attached hereto as Exhibit "A."
9. Non-Solicitation of Employees. Executive shall not, during the
-----------------------------
Term and for a period of one year after the termination of this Agreement, on
Executive's own behalf or on behalf of any other person, entity, or venture,
whether directly or indirectly, in any capacity whatsoever, alone, through or in
connection with any person, entity or venture:
(a) Solicit the employment or engagement of or otherwise entice
away from the employment of Company any individual who is employed by Company at
the time of termination of this Agreement or who was employed by Company within
the preceding six (6) months; or
(b) Procure or assist any Person to employ, offer employment to
or solicit the employment or engagement of or otherwise entice away from the
employment of Company any individual who is employed by Company at the time of
termination of this Agreement or who was employed by Company within the
preceding six (6) months.
-5-
<PAGE>
10. Property of Company. Executive hereby agrees to return to
-------------------
Company, immediately upon termination of this Agreement and without making
copies or disclosing information relating thereto, any and all documents,
equipment and other property belonging to Company. Without restricting the
generality of the foregoing, Executive shall return all credit cards,
identification cards and keys belonging to Company.
11. Notices. Any notice required or permitted to be given by a party
-------
hereto to the other shall be deemed validly given if personally delivered or
mailed by registered prepaid post, and addressed as follows:
In the case of Company, to: iOwn Holdings, Inc.
333 Bryant Street, Lower Level
San Francisco, CA 94107
Attention: Chief Financial Officer
In the case of Executive, to: 170 Funston Avenue
San Francisco, CA 94118
provided that a party hereto may from time to time notify the other of a new
address to which notices to it shall henceforth be given until further notice.
Any notice so delivered or so mailed shall be deemed to be effected, if
delivered, on the date of its delivery or, if mailed, on the fifth business day
following the date of mailing.
12. Entire Agreement; Modification. This Agreement supersedes any
------------------------------
and all other agreements, either oral or in writing, between the parties hereto
with the covenants and agreements between the parties with respect to such
employment in any manner whatsoever. Each party to this Agreement acknowledges
that no representations, inducements, promises, or agreements, orally or
otherwise, have been made by any party, or anyone acting on behalf of any party,
which are not embodied herein, and that no other agreement, statement or promise
not contained in this Agreement shall be valid or binding. Any modification of
this Agreement will be effective only if it is in writing and signed by both
parties to this Agreement.
13. Consultation With Counsel. Executive and Company each
-------------------------
acknowledge that he or it has consulted with legal counsel or had the
opportunity to consult with counsel before executing this Agreement and that he
or it understands its meaning, and expressly consents that this Agreement shall
be given its full force and effect according to each and all of its express
terms and provisions.
14. Severability. If any provision of this Agreement is held by a
------------
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
15. Applicable Law Governing Agreement; Jurisdiction and Venue. This
----------------------------------------------------------
Agreement shall be governed by and construed in accordance with the laws of the
of State of California. Jurisdiction over and venue of any action arising out
of this Agreement or
-6-
<PAGE>
Executive's employment by Company shall be exclusively in the Superior Court of
the City and County of San Francisco or the United States District Court for the
Northern District of California.
16. Attorneys' Fees and Costs. In any dispute, lawsuit, or
-------------------------
litigation arising out of Executive's employment by Company or to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs, and necessary disbursements in addition to
any other relief to which that party may be entitled.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the day and year first written above.
"Company" iOwn Holdings, Inc.
By ____________________________________
Name ______________________________
Title _____________________________
"Executive" Ned Hoyt
______________________________________
-7-
<PAGE>
EXHIBIT "A"
EMPLOYEE CONFIDENTIAL INFORMATION AND
INVENTIONS ASSIGNMENT AGREEMENT
-8-
<PAGE>
EXHIBIT 10.24
iOWN HOLDINGS, INC.
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
This agreement (this "Agreement") is made effective as of November 30,
1999, between iOwn Holdings, Inc., a Delaware corporation (the "Company"), and
the entities listed on Exhibit A hereto (each an "Investor," and collectively,
---------
the "Investors").
SECTION 1.
Authorization and Sale of Series E Preferred Stock
1.1. Authorization of Series E Preferred Stock. The Company has
-----------------------------------------
authorized the sale and issuance hereunder of up to 13,666,667 shares of its
Series E Preferred Stock (the "Series E Preferred"), having the rights,
preferences, privileges and restrictions set forth in the Company's Amended and
Restated Certificate of Incorporation in the form attached hereto as Exhibit B
---------
(the "Restated Certificate"). The Company shall adopt and file with the
Secretary of State of the State of Delaware on or before the Initial Closing the
Restated Certificate. The shares of Series E Preferred to be sold hereunder are
collectively referred to as the "Shares."
1.2. Sale of Series E Preferred. Subject to the terms and conditions
--------------------------
hereof, on the Closing Date (as defined below) the Company will issue and sell
to each Investor, and each Investor will purchase severally, and not jointly, at
a purchase price of $3.00 per Share from the Company, the number of Shares
specified opposite the name of each such Investor on Exhibit A.
---------
SECTION 2.
Closing Date; Delivery
2.1. Closing Date. The closing of the purchase and sale of the Shares
------------
hereunder (the "Initial Closing") shall be held at the offices of Perkins Coie
LLP, 135 Commonwealth Drive, Suite 250, Menlo Park, California 94025-1105 on
December 6, 1999, or at such other time and place upon which the Company and the
Investors shall agree (the date of the Initial Closing is hereinafter referred
to as the "Closing Date").
2.2. Delivery. At the Initial Closing, the Company will deliver to each
--------
Investor a certificate or certificates representing the number of Shares set
forth opposite such Investor's name on Exhibit A hereto, as appropriate, against
---------
payment of the purchase price therefor, by check or wire transfer payable to the
Company.
2.3. Subsequent Closing. The Company shall have the right, at any time
------------------
on or prior to December 6, 1999, to sell additional shares of Series E Preferred
up to the fully authorized 13,666,667 of Series E Preferred to one or more
additional investors (the "Additional Investors") as determined by the Company
at the price and on the terms set forth herein; provided, however, that any
-------- -------
Additional Investor shall be required to execute a signature page to, and become
a party to, this Agreement. Thereafter, any such Additional Investor shall be
considered an "Investor" for purposes of this Agreement and shall be added to
Exhibit A hereof, and any shares of Series E Preferred so acquired by such
- ---------
Additional Investor shall be considered
<PAGE>
"Shares" for purposes of this Agreement and all other agreements contemplated
hereby. The conditions to the subsequent closing shall be the same as the
conditions to the Closing and shall not be waived unless consented to by a
majority in interest of the Series E Preferred, provided that there shall be no
Opinion of Counsel or Compliance Certificate pursuant to Sections 5.5 and 5.11,
respectively, in any subsequent closing.
SECTION 3.
Representations and Warranties of the Company
Except as set forth on Exhibit C attached hereto (the "Disclosure
---------
Schedule"), the Company hereby represents and warrants to each of the Investors
as of the date hereof as follows:
3.1. Organization and Standing; Certificate and Bylaws. The Company is a
-------------------------------------------------
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of Delaware and is in good standing under such laws. The
Company has all requisite corporate power to own and operate its properties and
assets, and to carry on its business as presently conducted. The Company is
qualified to do business as a foreign corporation in any jurisdiction in which
failure to qualify would have a material adverse effect on the Company's
business, properties, operations, prospects or condition (financial or
otherwise). Attached hereto as Exhibit D are true and complete copies of its
---------
Bylaws in effect as of the date hereof.
3.2. Corporate Power. The Company has all requisite legal and corporate
---------------
power to execute and deliver this Agreement and the Fifth Amended and Restated
Investor Rights Agreement of even date herewith, by and among the Company, the
holders of the Company's Series A Preferred Stock, the holders of the Company's
Series B Preferred Stock, the holders of the Company's Series C Preferred Stock,
the holders of the Company's Series D or Series DD Preferred Stock and the
Investors, the form of which is attached hereto as Exhibit E (the "Rights
---------
Agreement"), the Fifth Amended and Restated Voting Agreement of even date
herewith, by and among the Company, Edward P. Hoyt, the holders of the Company's
Series A Preferred Stock, the holders of the Company's Series B Preferred Stock,
the holders of the Company's Series C Preferred Stock, the holders of the
Company's Series D or Series DD Preferred Stock and the Investors, the form of
which is attached hereto as Exhibit F (the "Voting Agreement"), and the Fifth
---------
Amended and Restated Right of First Refusal and Co-Sale Agreement of even date
herewith, by and among the Company, Edward P. Hoyt, the holders of the Company's
Series A Preferred Stock, the holders of the Company's Series B Preferred Stock,
the holders of the Company's Series C Preferred Stock, the holders of the
Company's Series D or Series DD Preferred Stock and the Investors, the form of
which is attached hereto as Exhibit G (the "Co-Sale Agreement"), to sell and
---------
issue the Shares hereunder, to issue the Common Stock issuable upon conversion
of the Shares and to carry out and perform its obligations under the terms of
this Agreement and the transactions contemplated hereby. The Rights Agreement,
the Voting Agreement and the Co-Sale Agreement shall be referred to,
collectively, as the "Ancillary Agreements."
3.3. Subsidiaries. The Company has one subsidiary or affiliated company,
------------
iOwn, Inc., a California corporation which is a wholly-owned subsidiary of the
Company. The Company does not otherwise own or control any other corporation,
association or business entity.
-2-
<PAGE>
3.4. Capitalization. The authorized capital stock of the Company will,
--------------
upon the Closing Date, consist solely of (a) 150,000,000 shares of Common Stock,
7,419,859 of which are issued and outstanding prior to the Initial Closing, and
(b) 123,964,068 shares of Preferred Stock of which (i) 2,492,900 are designated
as Series A Preferred Stock, all of which are issued and outstanding as of the
Closing Date, (ii) 2,492,900 are designated as Series A-1 Preferred Stock, none
of which are issued and outstanding as of the Closing Date, (iii) 12,170,924
are designated as Series B Preferred Stock, 11,951,764 of which are issued and
outstanding as of the Closing Date, (iv) 12,170,924 are designated as Series B-1
Preferred Stock, none of which are issued and outstanding as of the Closing
Date, (v) 17,740,000 are designated as Series C Preferred Stock, 17,740,000 of
which are issued and outstanding as of the Closing Date, (vi) 17,740,000 are
designated as Series C-1 Preferred Stock, none of which are issued and
outstanding as of the Closing Date, (vii) 11,000,000 are designated as Series D
Preferred Stock, 7,820,643 of which are issued and outstanding prior to the
Closing Date, (viii) 11,000,000 are designated as Series D-1 Preferred Stock,
none of which are issued and outstanding as of the Closing Date, (ix) 5,200,000
are designated as Series DD Preferred Stock, none of which are issued and
outstanding prior to the Closing Date, (x) 5,200,000 are designated Series DD-1
Preferred Stock, none of which are issued and outstanding as of the Closing
Date, (xi) 11,666,667 are designated as Series E Preferred Stock, none of which
are issued and outstanding prior to the Closing Date, (xii) 11,666,667 are
designated Series E-1 Preferred Stock, none of which are issued and outstanding
prior to the Closing Date, (xiii) 711,543 are designated as Series EE Preferred
Stock, none of which are issued and outstanding as of the Closing Date, and
(xiv) 711,543 are designated as Series EE-1 Preferred Stock, none of which are
issued and outstanding as of the Closing Date. All such issued and outstanding
shares have been duly authorized and validly issued, and are fully paid and
nonassessable and were issued in compliance with applicable federal and state
securities laws. The Company has reserved an aggregate of 123,964,068 shares of
Common Stock for issuance upon conversion of the Preferred Stock and 12,580,533
shares of its Common Stock for issuance to officers, directors, employees, sales
representatives and consultants of the Company pursuant to the Company's 1999
Stock Option Plan. As of the Closing Date, the Company has reserved authorized
but unissued shares of Common Stock in an amount that would be sufficient to
effect the conversion of all outstanding shares of Preferred Stock as of such
date. The Series E Preferred Stock, Series E-1 Preferred Stock, Series EE
Preferred Stock and Series EE-1 Preferred Stock shall have the rights,
preferences, privileges and restrictions set forth in the Restated Certificate.
Except as referenced herein, in the Rights Agreement or in the Disclosure
Schedule, there are no options, warrants, conversion privileges or other rights
presently outstanding to purchase or otherwise acquire any authorized but
unissued shares of the capital stock or other securities of the Company, nor any
agreements or understandings with respect thereto. Except for the Voting
Agreement, the Company is not a party or subject to any agreement or
understanding and, to the Company's knowledge, there is no agreement or
understanding between any persons and/or entities, which affects or relates to
the voting or giving of consents with respect to any security of the Company.
3.5. Authorization. All corporate action on the part of the Company, its
-------------
officers, directors and shareholders necessary for the authorization, execution,
delivery and performance of this Agreement and the Ancillary Agreements by the
Company; and the authorization, sale, issuance and delivery of the Shares (and
the Common Stock issuable upon conversion of the Shares) and the performance of
the Company's obligations hereunder and thereunder has been
-3-
<PAGE>
taken prior to the Initial Closing. This Agreement and the Ancillary Agreements,
have been duly executed and delivered by the Company, and constitute the valid
and legally binding obligations of the Company, enforceable against the Company
in accordance with their respective terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing equitable remedies.
3.6. Validity of Shares. The Shares have been duly authorized and, when
------------------
issued, sold and delivered in compliance with the provisions of this Agreement,
will be duly and validly issued and will be fully paid and nonassessable and
free and clear of all liens and encumbrances, the Series E-1 Preferred Stock,
Series EE Preferred Stock and Series EE-1 Preferred Stock issuable upon special
mandatory conversion of the Shares has been duly authorized and validly reserved
and, when issued and delivered in compliance with the provisions of the Restated
Certificate, will be duly and validly issued and will be fully paid and
nonassessable and free and clear of all liens and encumbrances, and the Common
Stock issuable upon conversion of the Shares or the Series E-1 Preferred Stock,
Series EE Preferred Stock and Series EE-1 Preferred Stock has been duly
authorized and validly reserved and, when issued and delivered in compliance
with the provisions of the Restated Certificate, will be duly and validly issued
and will be fully paid and nonassessable and free and clear of all liens and
encumbrances and restrictions on transfer other than as set forth in this
Agreement and the Ancillary Agreements; provided, however, that the Shares and
the Series E-1 Preferred Stock, Series EE Preferred Stock and Series EE-1
Preferred Stock issuable upon special mandatory conversion of the Shares (and
the Common Stock issuable upon conversion of the Shares or the Series E-1
Preferred Stock, Series EE Preferred Stock and Series EE-1 Preferred Stock) may
be subject to restrictions on transfer under state and/or federal securities
laws and will be issued in compliance with all applicable federal and state
laws. Except as set forth herein or in the Rights Agreement, there are no
outstanding rights of first refusal or preemptive rights applicable to the
Shares or the Series E-1 Preferred Stock, Series EE Preferred Stock and Series
EE-1 Preferred Stock.
3.7. Title to Properties and Assets; Liens, etc. The Company has good
------------------------------------------
and marketable title to all its properties and assets, and is in compliance with
the lease of all material properties leased by it, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than the lien of
current taxes not yet due and payable. The Company is not in default under or in
breach of any provision of its leases, and the Company holds valid leasehold
interests in the properties which it leases. The Company's material properties
and assets are in good condition and repair, ordinary wear and tear excepted, in
all material respects.
3.8. Material Contracts and Commitments. The Disclosure Schedule sets
----------------------------------
forth a list of all agreements, contracts, indebtedness, liabilities and other
obligations to which the Company is a party or by which it or its assets are
bound that (a) involve in excess of $50,000 aggregating similar agreements or
obligations to the same party; (b) involve any Affiliate (as defined below) of
the Company, any consultants or employees of the Company or, to the Company's
knowledge, any members of the immediate family of the foregoing; or (c) obligate
the Company to share, license or develop any product. Copies of such agreements
and contracts and documentation evidencing such liabilities and other
obligations have been made available by the Company to the Investors or their
counsel. Except as expressly contemplated by this Agreement or as set forth on
the Disclosure Schedule, the Company is not a party to any written
-4-
<PAGE>
or oral: (i) pension, profit sharing, stock option, employee stock purchase or
other plan or arrangement providing for deferred or other compensation to
employees or any other employee benefit plan or arrangement, or any contract
with any labor union, or any severance agreements; (ii) contract for the
employment of any officer, individual employee or other Person on a full-time,
part-time, consulting or other basis providing annual compensation in excess of
$100,000 or contract relating to loans to officers, directors or affiliates;
(iii) contract under which it has advanced or loaned any other Person amounts in
the aggregate exceeding $15,000; or (iv) contract or agreement prohibiting it
from freely engaging in any business or competing anywhere in the world. Solely
for purposes of this Section 3.8: (i) "Affiliate" means, with respect to any
specified Person (as defined below), any other Person which, directly or
indirectly, controls, is under common control with, or is owned or controlled
by, such specified Person, (ii) "control" means, with respect to any specified
Person, either (x) the beneficial ownership of 10 percent or more of any class
of equity securities or (y) the power to direct the management or policies of
the specified Person through the ownership of voting securities, by contract,
voting agreement or otherwise, (iii) the terms "controlling", "control with" and
"controlled by", etc. shall have meanings correlative to the foregoing and (iv)
the officers, directors and 10% shareholders of any specified Person shall be
deemed to be Affiliates of the Company. "Person" means any individual,
corporation, general or limited partnership, joint venture, association, limited
liability company, joint stock company, trust, business trust, bank, trust
company, estate (including any beneficiaries thereof), unincorporated
organization, cooperative, association or government or branch, agency or
political subdivision thereof.
3.9. Patents, Trademarks, etc. To the knowledge of the Company, and
------------------------
except as set forth in the Disclosure Schedule, the Company has exclusive title
to its tradename and trademark - iOwn -- and sufficient title and ownership of
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
proprietary rights and processes necessary for its business as now conducted,
without conflict with or infringement of the rights of others. The Company has
not received any communications alleging that the Company has violated or, by
conducting its business, would violate, the proprietary or intellectual property
rights of any other person or entity. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants, or
commitments of any nature) or other agreement, or subject to any judgment,
decree, or order of any court or administrative agency, that would interfere
with the use of such employee's best efforts to promote the interests of the
Company or that would conflict with the Company's business. Neither the
execution nor delivery of this Agreement or the Ancillary Agreements, nor, to
the Company's knowledge, the carrying on of the Company's business by the
employees of the Company, 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 is not aware of any violation or infringement by a third party of any of
the Company's patents, licenses, trademarks, service marks, trade names,
copyrights, trade secrets or other proprietary rights.
3.10. Compliance with Other Instruments. The Company is not in violation
---------------------------------
of any term of the Restated Certificate or Bylaws, or in any material respect of
any term or provision of any mortgage, indenture, contract, agreement,
instrument, judgment or decree, and to its knowledge is not in violation of any
order, statute, rule or regulation applicable to the Company (the "Laws"). The
business and operations of the Company have been and are being conducted
-5-
<PAGE>
in material compliance with all applicable Laws. The execution, delivery and
performance of and compliance with this Agreement and the Ancillary Agreements
and the issuance of the Shares (and the Common Stock issuable upon conversion of
the Shares), have not (i) resulted and will not result in any violation of, or
conflict with, or constitute a default under any of the foregoing, (ii) resulted
and will not result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company, (iii) resulted
and will not result in the breach of or constitute a default under any material
contact, agreement or instrument to which the Company is a party or by which it
is bound that is listed on the Disclosure Schedule ("Material Contracts") (iv)
given or gives any person rights to terminate any Material Contracts or
agreements of the Company or, to its knowledge, otherwise to exercise rights
against the Company or (v) violated and will not violate any order, writ,
judgment, injunction, decree, statute, rule or regulation of any court, tribunal
or governmental entity applicable to or the Company or any of its assets or
businesses.
3.11. Litigation, etc. There are no actions, suits, proceedings or
---------------
investigations pending or, to the Company's knowledge, threatened against the
Company or its properties, assets or business before any court or governmental
agency, which, either in any case or in the aggregate, might result in any
material adverse change in the business, prospects, financial condition,
affairs, operations or equity ownership of the Company or any of its properties
or assets, or in any material impairment of the right or ability of the Company
to carry on its business as now conducted, or in any material liability on the
part of the Company, and none which questions the validity of this Agreement or
the Ancillary Agreements or any action taken or to be taken in connection
herewith. There is no action, suit, proceeding, or investigation by the Company
currently pending or that the Company intends to initiate.
3.12. Employees. To the Company's knowledge, no employee of the Company
---------
is or will be in violation of any judgment, decree or order of any court or
administrative agency, or any term of any employment contract or any other
contract (including without limitation any covenant not to compete) or agreement
relating to the relationship of any such employee with the Company or any other
party because of the nature of the business conducted by the Company or to the
utilization by the employee of such employee's reasonable efforts with respect
to such business. Except as set forth in the Disclosure Schedule, 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 written employee compensation agreement.
The Company does not have any collective bargaining agreements covering any of
its employees. To the Company's knowledge, the Company is not using any
inventions of any of its employees, consultants or officers made before their
employment by the Company. To the Company's knowledge, no employee, consultant
or officer has taken, removed, or made use of any proprietary documentation,
manuals, products, materials, or any other tangible items from the employee's
previous employers relating to the Company's business. To the Company's
knowledge, no officer or key employee of the Company currently intends to
terminate his or her employment with the Company. The Company is not a party to
any Plan, as defined in the Employee Retirement Income Security Act of 1974.
3.13. Insurance. The Company has in full force and effect fire, casualty
---------
and comprehensive general liability insurance policies with recognized insurers
with such coverages
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<PAGE>
as are sufficient in amount to allow replacement of the tangible properties of
the Company that might be damaged or destroyed and the Company has not received
any notice of cancellation with respect to, and does not have any pending claims
under, such policies.
3.14. Registration Rights. Except as contemplated by the Rights
-------------------
Agreement, the Company is not under any obligation to register any of its
presently outstanding securities or any of its securities that may hereafter be
issued.
3.15. Governmental Consents, etc. No consent, approval, order or
--------------------------
authorization of or designation, declaration or filing with any local, state or
federal governmental authority of the United States on the part of the Company
is required in connection with the valid execution, delivery and performance of
this Agreement, or the offer, sale or issuance of the Shares (and the Preferred
Stock or Common Stock issuable upon conversion of the Shares), or the
consummation of any other transaction contemplated hereby, except (a) filing of
the Restated Certificate in the office of the Secretary of State of the State of
Delaware, and (b) qualification (or taking such action as may be necessary to
secure an exemption from qualification, if available) under the Securities laws
of the State of Delaware, the California Corporate Securities Law and other
applicable Blue Sky laws, of the offer and sale of the Shares (and the Common
Stock issuable upon conversion of the Shares), which filing and qualification,
if required, will be accomplished in a timely manner prior to or promptly
following completion of the Initial Closing.
3.16. Offering. Assuming the accuracy of the Investor representations in
--------
Section 4 hereof, the offer, sale and issuance of the Shares to be issued in
conformity with the terms of this Agreement (and the issuance of the Preferred
Stock or Common Stock to be issued upon conversion of the Shares) constitute
transactions exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended (the "Securities Act"), and will have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws. Neither the Company nor any agent on its behalf has
solicited or will solicit any offers to sell or has offered to sell or will
offer to sell all or any part of the Shares to any person or persons so as to
bring the sale of such Shares by the Company within the registration provisions
of the Securities Act.
3.17. Disclosure. No statement by the Company contained in this
----------
Agreement, any Ancillary Agreement, or any exhibit, attachment or schedule, or
in any certificate furnished or to be furnished to the Investors pursuant hereto
or written information otherwise provided to the Investors, contains or will
contain any untrue statement of a material fact or omits or will omit 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.
3.18. Brokers or Finders. Except as otherwise disclosed in the Disclosure
------------------
Schedule, the Company has not incurred, and will not incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
3.19. Environmental Laws. To the Company's knowledge, the Company is not
------------------
in violation of any applicable statute, law or regulation relating to the
environment or occupational
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<PAGE>
health and safety, and to its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
No Hazardous Materials (as defined below) are used or have been used, stored, or
disposed of by the Company or, to the Company's knowledge by any other person or
entity on any property owned, leased or used by the Company. For purposes of the
preceding sentence, "Hazardous Materials" shall mean (a) materials which are
listed or otherwise defined as "hazardous" or "toxic" under any applicable
local, federal and/or foreign laws and regulations that govern the existence
and/or remedy of contamination on property, the protection of the environment
from contamination, the control of hazardous wastes, or other activities
involving hazardous substances, including building materials or (b) any
petroleum products or nuclear materials.
3.20. Liabilities. Except as set forth in the Disclosure Schedule, the
-----------
Company has not entered into any agreements involving, individually or in the
aggregate, in excess of $50,000 (written or verbal) with any third parties,
including employees and consultants.
3.21. Financial Statements; Undisclosed Liabilities. The Company has
---------------------------------------------
delivered to each Investor an audited Balance Sheet, Income Statement and
Statement of Cash Flows (collectively, the "Financial Statements") dated
December 31, 1998 (the "Statement Date"). The Company has also delivered an
unaudited Balance Sheet, Statement of Income and Statement of Cash Flows,
reviewed by Price Waterhouse, for the six months ending June 30, 1999 and an
unaudited Balance Sheet, Statement of Income and Statement of Cash Flows for the
eight months ending August 31, 1999 (the "Interim Financial Statements"). The
Financial Statements and the Interim Financial Statements are complete and
correct in all material respects, have been prepared in accordance with
generally accepted accounting principles consistently applied and present fairly
the financial condition of the Company as of the Statement Date and the results
of operations and cash flows of the Company for the period then ended; provided,
however, that the Interim Financial Statements are subject to normal recurring
year-end audit adjustments and do not contain footnotes required under generally
accepted accounting principles. Since the date of the Financial Statements,
there have been no material changes in the Company's accounting policies.
3.22. Changes. Since the Statement Date, there has not been:
-------
(a) any damage, destruction or loss, whether or not covered by
insurance, materially adversely affecting the properties or tangible assets of
the Company;
(b) any waiver or compromise by the Company of a valuable right or of
a material debt owed to it;
(c) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company, except in the ordinary course of
business and that is not material to the business, properties, prospects or
financial condition of the Company (as such business is presently conducted);
(d) any sale, assignment or transfer by the Company of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
-8-
<PAGE>
(e) any resignation or termination of employment of any key officer of
the Company or any change in officer compensation except in the ordinary course
of business and consistent with past practice;
(g) any loans or guarantees made by the Company to or for the benefit
of its employees, shareholders, officers, or directors, or any members of their
immediate families, other than in amounts immaterial to the Company's operating
results or financial condition and other than travel advances and other advances
made in the ordinary course of its business;
(h) any declaration, setting aside, or payment of any dividend or
other distribution of the Company's assets in respect of any of the Company's
capital stock, or any direct or indirect redemption, purchase, or other
acquisition of any of such stock by the Company;
(i) any incurrence of any material indebtedness;
(j) any changes in the assets, liabilities, financial condition or
operating results of the Company other than that reflected in the Financial
Statements or Interim Financial Statements that, either individually or in the
aggregate, would have a material, adverse effect on the Company's business,
prospects, properties, financial condition or results of operations; or
(k) any commitment, obligation, understanding or other arrangement,
contingent or otherwise, to effect, directly or indirectly, any of the
foregoing.
3.23. Proprietary Information Agreement. All officers, employees of and
---------------------------------
consultants to the Company with access to proprietary information of the Company
have executed and delivered to the Company a Proprietary Information Agreement
in substantially the form attached as Exhibit H hereto, and the Company is not
---------
aware of any material breach thereof by any such persons.
3.24. Taxes. The Company has never had any tax deficiency proposed or
-----
assessed against it and has not executed any waiver of any statute of
limitations on the assessment or collection of any tax or governmental charge.
The Company has timely filed all tax returns, submitting true and complete
information; has paid all taxes when due (other than those that are being
contested in good faith); and has received no notice of audit. Except as set
forth on the Disclosure Schedule, no federal or state income tax returns of the
Company has ever been audited. Proper and accurate amounts have been withheld
by the Company from its employees for all periods in compliance with the tax,
social security and any employment withholding provisions of applicable federal
and state laws. The Company has made all withholdings or collections for all
taxes, including, without limitation, all employee income tax withholding,
social security and unemployment taxes.
-9-
<PAGE>
3.25. Other Relationships. Except as set forth on the Disclosure
-------------------
Schedule, to the best knowledge of the Company (a) no officer of the Company,
nor any of its affiliates, has any interest (other than as non-controlling
holders of securities of a publicly-traded company), either directly or
indirectly, in any Person (whether as an employee, officer, director,
shareholder, agent, independent contractor, security holder, creditor,
consultant or otherwise) that presently (i) provides any services or designs,
produces or sells any products or product lines, or engages in any activity
which is the same, or competitive with any activity or business in which the
Company is now engaged, (ii) is a supplier of, customer of, creditor of, or has
an existing contractual relationship with, the Company, or (iii) has any direct,
or indirect interest in any asset or property used by the Company or any
property, real or personal, tangible or intangible, that is necessary or
desirable for the conduct of the business of the Company; and (b) no current or
former stockholder, director, officer or employee of the Company, nor any of its
affiliates, is at present, or since the inception of the Company has been,
directly or indirectly through his affiliation with any other Person, a party to
any transaction (other than as an employee) with the Company providing for the
furnishing of services by, or rental of real or personal property from, or
otherwise requiring cash payments to any such Person.
3.26. Investment Company Act. The Company is not, and immediately after
----------------------
the Closing Date will not be, an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act.
3.27. Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company, nor is the Company aware of any
labor organization activity involving its employees. Except as set forth in the
Disclosure Schedule, the employment of each officer and employee of the Company
is terminable at the will of the Company. To its knowledge, the Company has
complied in all material respects with all applicable state and federal equal
employment opportunity laws and with other laws related to employment.
3.28. Permits. The Company and each of its subsidiaries has all
-------
franchises, permits, licenses and any similar authority necessary for the
conduct of business, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company. Except
as set forth in the Disclosure Schedule, the Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
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<PAGE>
3.29. Corporate Documents. A copy of the Restated Certificate and Bylaws
-------------------
of the Company have been provided to counsel for the Investors. The minute
books of the Company contain minutes of all meetings of directors and
stockholders and all actions by written consent without a meeting by the
directors and stockholders since the date of incorporation and reflects all
actions by the directors (and any committee of directors) and stockholders with
respect to all transactions referred to in such minutes accurately in all
material respects. The Restated Certificate and Bylaws and the minute books are
true, correct and complete and, with respect to the Restated Certificate and
Bylaws, contain all amendments through the date hereof.
3.30. Small Business Investment Company Applicant. The Company's tangible
-------------------------------------------
net worth (including its Affiliates) is not in excess of $18 million, and the
Company's average net income after Federal income taxes (excluding any carry-
over losses) for the preceding 2 completed fiscal years is not in excess of $6
million. The Company has heretofore furnished to each Investor that is an SBIC
Holder (as defined below) the following completed forms, which are true and
correct in all material respects: Size Status Declaration on SBA Form 480,
Assurance of Compliance on SBA Form 652D and Portfolio Financing Report on SBA
Form 1031 (the "SBA Forms"). As of the Closing Date, the Company is not a
"relender" or "reinvestor" as defined in Section 107.720 of Title 13 of the Code
of Federal Regulations." "SBIC Holder" means that the Investor is a Small
Business Investment Company regulated pursuant to Section 121.301(c)(1) of Title
13 of the Code of Federal Regulations (an "SBIC").
SECTION 4.
Representations, Warranties and Covenants of the Investors
Each of the Investors hereby represents, warrants and covenants, severally
and not jointly, to the Company with respect to its individual purchase of the
Shares as follows:
4.1. Accredited Investor. The Investor is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
4.2. Foreign Investor. If the Investor is not a United States person (as
----------------
defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended), such Investor hereby represents that it has satisfied itself as to the
full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Shares or any use of this Agreement, including
(i) the legal requirements within its jurisdiction for the purchase of the
Shares, (ii) any foreign exchange restrictions applicable to such purchase,
(iii) any governmental or other consents that may need to be obtained, and (iv)
the income tax and other tax consequences, if any, that may be relevant to the
purchase, holding, redemption, sale, or transfer of the Shares. Such Investor's
subscription and payment for and continued beneficial ownership of the Shares,
will not violate any applicable securities or other laws of the Investor's
jurisdiction.
4.3. Experience; Risk. The Investor has such knowledge and experience in
----------------
financial and business matters that such Investor is capable of evaluating the
merits and risks of the purchase of the Shares pursuant to this Agreement and of
protecting the Investor's interests in connection therewith. The Investor's
financial condition is such that it has the ability to bear the
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<PAGE>
economic risk of the investment, including complete loss of the investment. The
Investor is experienced in evaluating and investing in new companies such as the
Company.
4.4. Investment. The Investor is acquiring the Shares for investment for
----------
its own account, not as a nominee or agent, and not with a view to, or for
resale in connection with, any distribution thereof; and the Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. The Investor understands that the Shares to be purchased
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 and the
accuracy of such Investor's representations as expressed herein.
4.5. Restricted Securities; Rule 144. The Investor understands that the
-------------------------------
Shares and the shares of Common Stock issuable upon conversion of the Shares,
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 the Shares may be
resold without registration under the Securities Act only in certain limited
circumstances. The Investor acknowledges that the Shares must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. The 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, including, among other things, the existence of a public
market for the shares, the availability of certain current public information
about the Company, the resale occurring not less than one year after a party has
purchased and paid for the security to be sold, the sale being effected through
a "broker's transaction" or in transactions directly with a "market maker" (as
provided by Rule 144(f)) and the number of shares being sold during any three-
month period not exceeding specified limitations.
4.6. No Public Market. The Investor understands that no public market
----------------
now exists for any of the securities issued by the Company and that there is no
assurance that a public market will ever exist for the Shares.
4.7. Access to Data. The Investor has had an opportunity to discuss the
--------------
Company's business, management and financial affairs with the Company's
management and the opportunity to review the Company's facilities and has
received all information requested from the Company regarding the investment in
the Company, but the Company acknowledges that this Section 4.7 shall not
relieve the Company for any liability arising in connection with a breach of any
of its representations or warranties in Article 3.
4.8. Authorization. The Investor represents that it has all requisite
-------------
corporate power and authority to enter into and perform the Investor's
obligations under this Agreement and the Ancillary Agreements, and this
Agreement, the Rights Agreement, the Voting Agreement and the Co-Sale Agreement
when executed and delivered by the Investor will constitute valid and binding
obligations of the Investor, enforceable in accordance with their respective
terms, subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors, rules of law governing specific
performance, injunctive relief or other equitable remedies.
-12-
<PAGE>
4.9. Government Consents. No consent, approval or authorization of or
-------------------
designation, declaration or filing with any local, state, federal or foreign
governmental authority on the part of the Investor is required in connection
with the valid execution and delivery of this Agreement by the Investor, and the
consummation by the Investor of the transactions contemplated hereby.
4.10. Further Limitations on Disposition. Without in any way limiting the
----------------------------------
presentations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Shares unless and until:
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
(b) The Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
proposed disposition, and if reasonably requested by the Company, such Investor
shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
under the Securities Act.
4.11. Legends. It is understood that each certificate representing the
-------
Shares (and the shares of Common Stock issuable upon conversion of the Shares)
and any securities issued in respect thereof under applicable state securities
laws shall bear the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR, IF REASONABLY REQUESTED BY
THE CORPORATION, AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933."
(b) "THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY
AND THE REGISTERED HOLDER OR HIS PREDECESSOR IN INTEREST. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY."
(c) Any legend required to be placed thereon by the California
Commissioner of Corporations or any other applicable state securities laws.
4.12. SBIC Holder. CIBC Wood Gundy represents and warrants that it is
-----------
an SBIC Holder, that it is a wholly owned subsidiary of a bank listed in
Schedule I to the Canadian Bank Act, that all of CIBC Wood Gundy's voting shares
are owned by such bank listed in
-13-
<PAGE>
Schedule I to the Canadian Bank Act, and that CIBC Wood Gundy is purchasing the
Shares as a principal.
SECTION 5.
Conditions to Initial Closing of Investor
Each Investor's obligation to purchase the Shares at the Initial Closing
is, at the option of the each of the Investors individually, subject to the
fulfillment on or prior to the Closing Date of the following conditions:
5.1. Execution of Documents. The Company and the Investors shall have
----------------------
duly authorized, executed and delivered copies of this Agreement, each Ancillary
Agreement and each other agreement, document or instrument related hereto or
thereto required in connection with the consummation of the transactions
contemplated hereby. This Agreement, each Ancillary Agreement and each other
related agreement, document or instrument shall be in full force and effect on
the Closing Date.
5.2. Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 3 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date with the same force
and effect as if they had been made on and as of said date.
5.3. Covenants. All covenants, agreements and conditions contained in
---------
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all material respects.
5.4. Good Standing. The Company shall have obtained a good standing
--------------
certificate from the State of California and from each other state where it is
qualified to do business and shall have provided copies to special counsel to
the Investors on or prior to the Closing Date.
5.5. Opinion of Company's Counsel. The Investors shall have received
----------------------------
from Perkins Coie LLP, counsel to the Company, an opinion addressed to the
Investors, dated the Closing Date, substantially in the form of Exhibit I
---------
hereto.
5.6. Blue Sky. The Company shall have obtained all necessary Blue Sky
--------
law permits and qualifications, or secured an exemption therefrom, required by
any state for the offer and sale of the Shares and the Common Stock issuable
upon conversion of the Shares.
5.7. Restated Certificate of Incorporation. The Restated Certificate
-------------------------------------
shall have been filed with, and approved by, the Secretary of State of the State
of Delaware.
5.8. Reservation of Common Stock. The shares of the Common Stock
---------------------------
issuable upon conversion of the Shares shall have been duly authorized and
reserved for issuance upon such conversion.
5.9. Board of Directors. The Bylaws of the Company shall reflect that
------------------
the size of the Board of Directors shall be nine (9) members. At the Closing,
ABN AMRO shall be entitled
-14-
<PAGE>
to appoint one member to the Board of Directors on behalf of the Series E
Preferred Investors. The holders of the Company's Common and Preferred Stock,
voting together as a single class, shall be entitled to appoint one member to
the Board of Directors. Immediately prior to the Initial Closing, the Board of
Directors shall be comprised of Han Kim, David Chao, David Kniffin, Scott Shay,
Peter Nieh, Edward Hoyt, and Brendan Calder.
5.10. Aggregate Purchase. The Investors shall purchase an aggregate of at
------------------
least 5,000,000 shares of Series E Preferred at the Initial Closing.
5.11. Compliance Certificate. The Company shall have delivered to the
----------------------
Investors a certificate executed by the President of the Company, dated the
Closing Date and certifying to the fulfillment of the conditions specified in
Sections 5.2, 5.4, 5.6, 5.7, 5.8, and 5.9 of this Agreement.
5.12. Authorization. All authorizations, approvals, or permits of any
-------------
governmental authority that are required in connection with the lawful issuance
and sale of the Stock, the conversion of the Stock into common stock and the
issuance of such common stock upon conversion shall have been duly obtained and
shall be effective on and as of the Closing.
SECTION 6.
Conditions to Initial Closing of the Company
The Company's obligation to sell and issue the Shares at the Initial
Closing is, at the option of the Company, subject to the fulfillment of the
following conditions:
6.1. Representations. The representations made by the Investors in
---------------
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date with the same force and effect as if they had been
made on and as of said date.
6.2. Ancillary Agreements. The Investors shall have executed and
--------------------
delivered to the Company the Ancillary Agreements.
6.3. Restated Certificate of Incorporation. The Restated Certificate
-------------------------------------
shall have been filed with, and approved by, the Secretary of State of the State
of Delaware.
6.4. Employment Agreement. The Company shall have entered into an
--------------------
employment agreement with Edward P. Hoyt, on terms and conditions acceptable to
the Investors.
-15-
<PAGE>
SECTION 7.
Miscellaneous
7.1. Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of Delaware as applied to contracts made and to be fully
performed entirely within that state between residents of that state.
7.2. Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive any investigation made by any Investor and the closing
of the transactions contemplated hereby.
7.3. 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;
provided, however, that the rights of the Investors to purchase the Shares shall
not be assignable without the consent of the Company.
7.4. Assignment of Securities and Rights Between Times Mirror Entities.
-----------------------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, The Times Mirror
Company ("Times Mirror"), any affiliates of Times Mirror, any operating unit of
Times Mirror, Eagle New Media Investments, LLC, Liberty Bell I and TMCT
Ventures, L.P. (each, a "Times Mirror Entity") may transfer or otherwise convey
to any other Times Mirror Entity any capital stock or securities of the Company
held by such Times Mirror Entity and any such party's rights under this
Agreement and the related agreements without obtaining the signature, consent or
permission of the Company or any Investor, so long as such Time Mirror Entity
receiving such capital stock or securities of the Company is or becomes a
signatory to the this Agreement and the Ancillary Agreements. Upon a transfer
or assignment meeting the above conditions, the Company and the Investors will
be automatically deemed to have approved such transfers and waive all rights of
first refusal, co-sale or participation, if any, and all rights to notice, if
any, in connection with such assignment or transfer.
7.5. Entire Agreement; Amendment. This Agreement and the other documents
---------------------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
This Agreement or any term hereof may be amended, waived, discharged or
terminated solely by a written instrument signed by the Company and the holders
of a majority of the Common Stock issued or issuable upon conversion of the
Shares.
7.6. 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, or otherwise delivered by hand or by messenger,
addressed (a) if to an Investor, at the address set forth on Exhibit A, hereto,
---------
or at such other address as shall have been furnished to the Company upon not
less than 10 days notice in writing, (b) if to any other holder of the Shares,
at such address as such holder will have furnished to the Company upon not less
than 10 days notice in writing, or (c) if to the Company, at the address set
forth below and addressed to the attention of the President and with a copy to
Perkins Coie LLP, 135 Commonwealth Drive, Suite 250, Menlo
-16-
<PAGE>
Park, California 94025-1105, Attention: Ralph L. Arnheim, III, Esq. or at such
other address as the Company shall have furnished to the Investors upon not less
than 10 days notice in writing.
7.7. 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. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
7.8. 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.
7.9. Expenses. Upon receipt of documentation therefor at the Closing,
--------
the Company shall pay the reasonable fees and expenses of Wilmer, Cutler &
Pickering, incurred with respect to this Agreement, the documents referred to
herein and the transactions contemplated hereby and thereby, in an amount not to
exceed $20,000.
7.10. Severability. 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 shall continue in full force and effect
without said provision.
7.11. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
7.12. Waiver of Potential Conflict of Interest. Each party to this
----------------------------------------
Agreement acknowledges that Perkins Coie LLP, counsel for the Company, may in
the past have performed and may continue to perform legal services for certain
of the Investors in matters unrelated to the transactions described in this
Agreement, including the representation of such Investors in venture capital
financings and other matters. Accordingly, each party to this Agreement hereby
(1) acknowledges that they have had an opportunity to ask for information
relevant to this disclosure; and (2) gives its informed consent to Perkins Coie
LLP's representation of certain of
-17-
<PAGE>
the Investors in such unrelated matters and to Perkins Coie LLP's representation
of the Company in connection with this Agreement and the transactions
contemplated hereby.
[SIGNATURE PAGE FOLLOWS]
-18-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date set forth above.
"COMPANY"
iOwn Holdings, Inc., a Delaware corporation
By: /s/ Edward P. Hoyt
---------------------------------------
Edward P. Hoyt, Chief Executive Officer
<PAGE>
EXHIBIT 10.25
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION
IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SUCH ACT.
WARRANT TO PURCHASE COMMON STOCK
of
iOwn Holdings, Inc.
Void after September 16, 2002
This Warrant is issued to Cashin Realty Group, Inc. (dba Cashin Co.) or its
registered assigns ("Holder") by iOwn Holdings, Inc., a Delaware corporation
(the "Company"), on September 16, 1999 (the "Warrant Issue Date").
1. Purchase of Shares. Subject to the terms and conditions hereinafter
------------------
set forth herein, the Holder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company up to Ten
Thousand (10,000) fully paid and nonassessable shares of Common Stock of the
Company, as constituted on the Warrant Issue Date (the "Common Stock"). The
number of shares of Common Stock issuable pursuant to this Section 1 (the
"Shares") shall be subject to adjustment pursuant to Section 9 hereof.
2. Exercise Price. The purchase price for the Shares shall be two dollars
--------------
and seventy five cents per share ($2.75), as adjusted from time to time pursuant
to Section 9 hereof (the "Exercise Price").
3. Exercise Period. This Warrant shall be exercisable, in whole or in
---------------
part, during the term commencing on the Warrant Issue Date and ending at 5:00
p.m. on September 16, 2002; provided, however, that in the event of (a) the
closing of the Company's sale or transfer of all or substantially all of its
assets or (b) the closing of the acquisition of the Company by another entity by
means of merger, consolidation or other transaction or series of related
transactions, resulting in the exchange of the outstanding shares of the
Company's capital stock such that the stockholders of the Company prior to such
transaction own, directly or indirectly, less than 50% of the voting power of
the surviving entity, this Warrant shall, on the date of such event, no longer
be exercisable and become null and void. In the event of a proposed transaction
of the kind described above, the Company shall notify the holder of the Warrant
at least fifteen (15) days prior to the consummation of such event or
transaction.
<PAGE>
4. Automatic Exercise. Notwithstanding the provisions of Section 3, this
------------------
Warrant shall automatically be deemed to be exercised in full in the manner set
forth in Section 5, without any further action on behalf of the Holder
immediately prior to: (a) the closing of the Company's sale or transfer of all
or substantially all of its assets or (b) the closing of the acquisition of the
Company by another entity by means of merger, consolidation or other transaction
or series of related transactions, resulting in the exchange of the outstanding
shares of the Company's capital stock such that the stockholders of the Company
prior to such transaction own, directly or indirectly, less than 50% of the
voting power of the surviving entity.
5. Method of Exercise. While this Warrant remains outstanding and
------------------
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) the surrender of the Warrant, together with a duly executed copy
of the form of Notice of Election attached as Exhibit A hereto, to the Secretary
---------
of the Company at its principal offices; and
(b) the payment to the Company of an amount equal to the aggregate
Exercise Price for the number of Shares being purchased.
6. Net Exercise. In lieu of exercising this Warrant pursuant to
------------
Section 4, the Holder may elect to receive, without the payment by the Holder of
any additional consideration, 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 hereof a number of shares of
Common Stock computed using the following formula:
Y (A - B)
---------
X = A
Where: X = The number of shares of Common pursuant to this net
exercise; Stock to be issued to the Holder
Y = The number of Shares in respect of which the net issue
election is made;
A = The fair market value of one share time the net issue
election is of the Common Stock at the made;
B = The Exercise Price (as adjusted to the date of the net
issuance).
For purposes of this Section 5, the fair market value of one share of
Common Stock as of a particular date shall be determined as follows: (i) if
traded on a securities exchange or through the Nasdaq National Market, the value
shall be deemed to be the average of the closing prices of the securities on
such exchange over the thirty (30) day period ending three (3) days prior to the
net exercise election; (ii) if traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty (30) day period ending
-2-
<PAGE>
three (3) days prior to the net exercise; and (iii) if there is no active public
market, the value shall be the fair market value thereof, as determined in good
faith by the Board of Directors of the Company; provided, that, if the Warrant
is being exercised upon the closing of the Initial Public Offering, the value
will be the initial "Price to Public" of one share of such Common Stock
specified in the final prospectus with respect to such offering.
7. Certificates for Shares. Upon the exercise of the purchase rights
-----------------------
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter (with appropriate
restrictive legends, if applicable), and in any event within thirty (30) days of
the delivery of the subscription notice.
8. Issuance of Shares. The Company covenants that the Shares, when issued
------------------
pursuant to the exercise of this Warrant, will be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens, and charges with respect
to the issuance thereof.
9. Adjustment of Exercise Price and Number of Shares. The number of and
-------------------------------------------------
kind of securities purchasable upon exercise of this Warrant and the Exercise
Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the Company
----------------------------------------------
shall at any time prior to the expiration of this Warrant subdivide its Common
Stock, by split-up or otherwise, or combine its Common Stock, or issue
additional shares of its Common Stock or Common Stock as a dividend with respect
to any shares of its Common Stock, the number of Shares issuable on the exercise
of this Warrant shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the purchase price
payable per share, but the aggregate purchase price payable for the total number
of Shares purchasable under this Warrant (as adjusted) shall remain the same.
Any adjustment under this Section 9(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective, or as of
the record date of such dividend, or in the event that no record date is fixed,
upon the making of such dividend.
(b) Reclassification, Reorganization and Consolidation. In case of
--------------------------------------------------
any reclassification, capital reorganization, or change in the Common Stock of
the Company (other than as a result of a subdivision, combination, or stock
dividend provided for in Section 9(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant, the kind and amount of shares
of stock and other securities and property receivable in connection with such
reclassification, reorganization, or change by a holder of the same number of
shares of Common Stock as were purchasable by the Holder immediately prior to
such reclassification, reorganization, or change. In any such case appropriate
provisions shall be made with respect to the rights and interest of the Holder
so that the provisions hereof shall thereafter be applicable with respect to any
shares of stock or other securities and property
-3-
<PAGE>
deliverable upon exercise hereof, and appropriate adjustments shall be made to
the purchase price per share payable hereunder, provided the aggregate purchase
price shall remain the same.
(c) Notice of Adjustment. When any adjustment is required to be made
--------------------
in the number or kind of shares purchasable upon exercise of the Warrant, or in
the Warrant Price, the Company shall promptly notify the holder of such event
and of the number of shares of Common Stock or other securities or property
thereafter purchasable upon exercise of this Warrant.
10. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price then in effect.
11. No Stockholder Rights. Prior to exercise of this Warrant, the Holder
---------------------
shall not be entitled to any rights of a stockholder with respect to the Shares,
including (without limitation) the right to vote such Shares, receive dividends
or other distributions thereon, exercise preemptive rights or be notified of
stockholder meetings, and such holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. However,
nothing in this Section 10 shall limit the right of the Holder to be provided
the Notices required under this Warrant.
12. Restrictions on Transfer. The Holder agrees that the Holder will not
------------------------
offer, sell or otherwise dispose of this Warrant or any securities issued on
exercise of this Warrant except under circumstances which will not result in a
violation of the Securities Act.
(a) Investment Representation. Upon exercise of this Warrant, the
-------------------------
Holder shall confirm in writing, by executing the form attached as Exhibit B
hereto, that the securities purchased thereby are being acquired for investment
solely for the Holder's own account and not as a nominee for any other Person,
and not with a view toward distribution or resale.
(b) Certificate Legends. This Warrant and all securities issued upon
-------------------
exercise of this Warrant (unless registered under the Securities Act) shall be
stamped or imprinted with a legend in substantially the following form (in
addition to any legends required by applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SUCH ACT.
(c) Disposition of Warrant or Shares. With respect to any offer, sale
--------------------------------
or other disposition of this Warrant or any securities issued upon exercise of
this Warrant before an Initial
-4-
<PAGE>
Public Offering, the Holder agrees to give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of the Holder's counsel, if reasonably requested by the Company, to the effect
that such offer, sale or other disposition may be effected without registration
under the Securities Act or qualification under any applicable state securities
laws of this Warrant or such shares, as the case may be, and indicating whether
or not under the Securities Act certificates for this Warrant or such shares, as
the case may be, to be sold or otherwise disposed of require any restrictive
legend as to applicable restrictions on transferability in order to insure
compliance with the Securities Act. Each certificate representing this Warrant
or the securities thus transferred (except a transfer pursuant to Rule 144)
shall bear a legend as to the applicable restrictions on transferability in
order to insure compliance with the Securities Act, unless in the aforesaid
reasonably satisfactory opinion of counsel for the Holder or the security
holder, as the case may be, such legend is not necessary in order to insure
compliance with the Securities Act. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.
13. Successors and Assigns. The terms and provisions of this Warrant and
----------------------
the Purchase Agreement shall inure to the benefit of, and be binding upon, the
Company and the Holders hereof and their respective successors and assigns.
14. Amendments and Waivers. Any term of this Warrant may be amended and
----------------------
the observance of any term of this Warrant may be waived (either generally or in
a particular instance and either retroactively or prospectively), with the
written consent of the Company and the Holder. Any waiver or amendment effected
in accordance with this Section shall be binding upon each holder of any Shares
purchased under this Warrant at the time outstanding (including securities into
which such Shares have been converted), each future holder of all such Shares,
and the Company.
15. Effect of Amendment or Waiver. The Holder acknowledges that the
-----------------------------
holders of a majority of shares of Common Stock issued or issuable upon exercise
of Warrants issued will have the right and power to diminish or eliminate all
rights of all holders of Common Stock, including Holder under this Warrant.
16. Notices. All notices required under this Warrant and shall be deemed
-------
to have been given or made for all purposes (i) upon personal delivery, (ii)
upon confirmation receipt that the communication was successfully sent to the
applicable number if sent by facsimile; (iii) one day after being sent, when
sent by professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail. Notices to the Company shall be sent
to the principal office of the Company (or at such other place as the Company
shall notify the Holder hereof in writing). Notices to the Holder shall be sent
to the address of the Holder on the books of the Company (or at such other place
as the Holder shall notify the Company hereof in writing).
17. Attorneys' Fees. If any action of law or equity is necessary to
---------------
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to its reasonable attorneys' fees, costs and disbursements in addition
to any other relief to which it may be entitled.
-5-
<PAGE>
18. Captions. The section and subsection headings of this Warrant are
--------
inserted for convenience only and shall not constitute a part of this Warrant in
construing or interpreting any provision hereof.
19. Governing Law. This Warrant shall be governed by the laws of the State
-------------
of Delaware as applied to agreements among Delaware residents made and to be
performed entirely within the State of Delaware.
20. Lockup Agreement. Each Holder agrees that, if, in connection with the
----------------
Initial Public Offering of the Company's securities, the Company or the
underwriters managing the offering so request, the Holder shall not sell, make
any short sale of, loan, grant any option for the purchase of or otherwise
dispose of any registrable securities (other than those included in the
registration) without the prior written consent of the Company or such
underwriters as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the effective date of such registration as may
be requested by the Company or the underwriters; provided that each officer and
director of the Company who owns stock of the Company and other holders of at
least 5% of the Company's voting securities also agrees to such restrictions.
This Section shall be binding on all transferees or assignees of registrable
securities, whether or not such persons are entitled to registration rights.
21. Investment Purpose. The Holder is acquiring this Warrant and the
------------------
Shares issuable upon the exercise hereof for investment for its own account, not
as a nominee or agent, and not with a view to, or for resale in connection with,
any distribution thereof; and the Holder has no present intention of selling,
granting any participation in, or otherwise distributing the same. The Holder
understands that this Warrant and the Shares issuable upon the exercise hereof
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 and the
accuracy of such Holder's representations as expressed herein.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company caused this Warrant to be executed by an
officer thereunto duly authorized.
iOwn Holdings, Inc.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
-7-
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
------------------
To: iOwn Holdings, Inc.
The undersigned hereby elects to:
______ (a) Purchase _________________ shares of Common Stock of
iOwn Holdings, Inc., pursuant to the terms of the
attached Warrant and payment of the Exercise Price per
share required under such Warrant accompanies this
notice;
OR
______ (b) Exercise the attached Warrant for _________________ of
the shares purchasable under the Warrant pursuant to
the net exercise provisions of Section 6 of such
Warrant.
The undersigned hereby represents and warrants that the undersigned is
acquiring such shares for its own account for investment purposes only, and not
for resale or with a view to distribution of such shares or any part thereof.
WARRANTHOLDER:
Cashin Realty Group, Inc
(dba Cashin Co.)
By:________________________________
Name:______________________________
Title:_____________________________
Date:_________
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
-----------------------------------
STOCKHOLDER: Cashin Realty Group, Inc. (dba Cashin Co.)
COMPANY: iOwn Holdings, Inc.
SECURITY: COMMON STOCK
AMOUNT: ___________________
DATE: ___________________
In connection with the purchase of the above-listed Securities, the
undersigned Stockholder represents to the Company the following:
(a) Stockholder 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. Stockholder is
acquiring these Securities for investment for Stockholder'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) Stockholder 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
Stockholder's investment intent as expressed herein. In this connection,
Stockholder understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Stockholder'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. Stockholder 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. Stockholder
further acknowledges and understands that the Company is under no obligation to
register the Securities. Stockholder 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>
(c) Stockholder is familiar with the provisions of Rule 144, 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.
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 certain conditions 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 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, and (4) the
timely filing of a Form 144, if applicable.
(d) Stockholder further understands that in the event all of the
applicable requirements of 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 Rule 144 is
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 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. Stockholder understands that no assurances can be given that any such
other registration exemption will be available in such event.
STOCKHOLDER:
Cashin Realty Group, Inc.
(dba Cashin Co.)
By:______________________________
Name:____________________________
Title:___________________________
Date:______________
<PAGE>
EXHIBIT 10.26
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SUCH ACT.
WARRANT TO PURCHASE COMMON STOCK
of
iOwn Holdings, Inc.
Void after October 29, 2006
This Warrant is issued to ABN AMRO Capital Investments (Belgie) NV, a
company organized and existing under the laws of the Netherlands, or its
registered assigns ("Holder") by iOwn Holdings, Inc., a Delaware corporation
(the "Company"), on October 29, 1999 (the "Warrant Issue Date").
1. Purchase of Shares. Subject to the terms and conditions hereinafter
------------------
set forth herein, the Holder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company up to One
Million Six Hundred Sixty Six Thousand Six Hundred Sixty Six (1,666,666) fully
paid and nonassessable shares of Common Stock of the Company, as constituted on
the Warrant Issue Date (the "Common Stock"). The number of shares of Common
Stock issuable pursuant to this Section 1 (the "Shares") shall be subject to
adjustment pursuant to Section 8 hereof.
2. Exercise Price. The purchase price for the Shares shall be three
--------------
dollars ($3.00) per share, as adjusted from time to time pursuant to Section 8
hereof (the "Exercise Price").
3. Exercise Period. This Warrant shall be exercisable, in whole or in
---------------
part, during the term commencing on the Warrant Issue Date and ending at 5:00
p.m. on October 29, 2006; provided, however, that in the event of (a) the
-------- -------
commencement by the Company, or the Company's wholly-owned subsidiary, of
operations in Europe, (b) the execution of a definitive agreement between the
Holder (or any related entity thereto) and the Company pursuant to which the
parties shall provide mortgage services in Europe, (c) the closing of the
Company's sale of all or substantially all of its assets, (d) the closing of the
acquisition of the Company by another entity by means of merger, consolidation
or other transaction or series of related transactions, resulting in the
exchange of the outstanding shares of the Company's capital stock such that the
stockholders of the Company prior to such transaction own, directly or
indirectly, less than 50%
<PAGE>
of the voting power of the surviving entity, or (e) the Closing of an Initial
Public Offering of the Company's stock in aggregate proceeds of which are not
less than $30,000,000, this Warrant shall, on the date of such event, no longer
be exercisable and become null and void, provided, further, that in the event
-------- -------
that the Company proposes to sell its shares in an Initial Public Offering, ABN
must commit to exercise the Warrant by no later than the filing of the amendment
to the registration statement resulting in the "Red Herring." The Company shall
notify ABN of any such event no fewer than fifteen (15) days prior to the
consummation of such event or transaction described in (a) through (e) above
4. Method of Exercise. While this Warrant remains outstanding and
------------------
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) the surrender of the Warrant, together with a duly executed copy
of the form of Notice of Election attached as Exhibit A hereto, to the Secretary
---------
of the Company at its principal offices; and
(b) the payment to the Company of an amount equal to the aggregate
Exercise Price for the number of Shares being purchased.
5. Net Exercise. In lieu of exercising this Warrant pursuant to Section
------------
4, the Holder may elect to receive, without the payment by the Holder of any
additional consideration, 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 hereof a number of shares of
Common Stock computed using the following formula:
Y (A - B)
---------
X = A
Where: X = The number of shares of Common pursuant to this net
exercise; Stock to be issued to the Holder
Y = The number of Shares in respect of which the net issue
election made; i s
A = The fair market value of one share of the Common Stock at
the time the net issue election is made;
B = The Exercise Price (as adjusted to the date of the net
issuance).
For purposes of this Section 5, the fair market value of one share of
Common Stock as of a particular date shall be determined as follows: (i) if
traded on a securities exchange or through the Nasdaq National Market, the value
shall be deemed to be the average of the closing prices of the securities on
such exchange over the thirty (30) day period ending three (3) days prior to the
net exercise election; (ii) if traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty (30) day period ending
-2-
<PAGE>
three (3) days prior to the net exercise; and (iii) if there is no active public
market, the value shall be the fair market value thereof, as determined in good
faith by the Board of Directors of the Company; provided, that, if the Warrant
is being exercised upon the closing of the Initial Public Offering, the value
will be the initial "Price to Public" of one share of such Common Stock
specified in the final prospectus with respect to such offering.
6. Certificates for Shares. Upon the exercise of the purchase rights
-----------------------
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter (with appropriate
restrictive legends, if applicable), and in any event within thirty (30) days of
the delivery of the subscription notice.
7. Issuance of Shares. The Company covenants that the Shares, when issued
------------------
pursuant to the exercise of this Warrant, will be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens, and charges with respect
to the issuance thereof.
8. Adjustment of Exercise Price and Number of Shares. The number of and
-------------------------------------------------
kind of securities purchasable upon exercise of this Warrant and the Exercise
Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the Company
----------------------------------------------
shall at any time prior to the expiration of this Warrant subdivide its Common
Stock, by split-up or otherwise, or combine its Common Stock, or issue
additional shares of its Common Stock or Common Stock as a dividend with respect
to any shares of its Common Stock, the number of Shares issuable on the exercise
of this Warrant shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the purchase price
payable per share, but the aggregate purchase price payable for the total number
of Shares purchasable under this Warrant (as adjusted) shall remain the same.
Any adjustment under this Section 8(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective, or as of
the record date of such dividend, or in the event that no record date is fixed,
upon the making of such dividend.
(b) Reclassification, Reorganization and Consolidation. In case of
--------------------------------------------------
any reclassification, capital reorganization, or change in the Common Stock of
the Company (other than as a result of a subdivision, combination, or stock
dividend provided for in Section 8(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant, the kind and amount of shares
of stock and other securities and property receivable in connection with such
reclassification, reorganization, or change by a holder of the same number of
shares of Common Stock as were purchasable by the Holder immediately prior to
such reclassification, reorganization, or change. In any such case appropriate
provisions shall be made with respect to the rights and interest of the Holder
so that the provisions hereof shall thereafter be applicable with respect to any
shares of stock or other securities and property
-3-
<PAGE>
deliverable upon exercise hereof, and appropriate adjustments shall be made to
the purchase price per share payable hereunder, provided the aggregate purchase
price shall remain the same.
(c) Notice of Adjustment. When any adjustment is required to be made
--------------------
in the number or kind of shares purchasable upon exercise of the Warrant, or in
the Warrant Price, the Company shall promptly notify the holder of such event
and of the number of shares of Common Stock or other securities or property
thereafter purchasable upon exercise of this Warrant.
9. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price then in effect.
10. No Stockholder Rights. Prior to exercise of this Warrant, the Holder
---------------------
shall not be entitled to any rights of a stockholder with respect to the Shares,
including (without limitation) the right to vote such Shares, receive dividends
or other distributions thereon, exercise preemptive rights or be notified of
stockholder meetings, and such holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. However,
nothing in this Section 10 shall limit the right of the Holder to be provided
the Notices required under this Warrant.
11. Restrictions on Transfer. The Holder agrees that the Holder will not
------------------------
offer, sell or otherwise dispose of this Warrant or any securities issued on
exercise of this Warrant except under circumstances which will not result in a
violation of the Securities Act.
(a) Investment Representation. Upon exercise of this Warrant, the
-------------------------
Holder shall confirm in writing, by executing the form attached as Exhibit B
---------
hereto, that the securities purchased thereby are being acquired for investment
solely for the Holder's own account and not as a nominee for any other Person,
and not with a view toward distribution or resale.
(b) Certificate Legends. This Warrant and all securities issued upon
-------------------
exercise of this Warrant (unless registered under the Securities Act) shall be
stamped or imprinted with a legend in substantially the following form (in
addition to any legends required by applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
(c) Disposition of Warrant or Shares. With respect to any offer, sale
--------------------------------
or other disposition of this Warrant or any securities issued upon exercise of
this Warrant before an Initial
-4-
<PAGE>
Public Offering, the Holder agrees to give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of the Holder's counsel, if reasonably requested by the Company, to the effect
that such offer, sale or other disposition may be effected without registration
under the Securities Act or qualification under any applicable state securities
laws of this Warrant or such shares, as the case may be, and indicating whether
or not under the Securities Act certificates for this Warrant or such shares, as
the case may be, to be sold or otherwise disposed of require any restrictive
legend as to applicable restrictions on transferability in order to insure
compliance with the Securities Act. Each certificate representing this Warrant
or the securities thus transferred (except a transfer pursuant to Rule 144)
shall bear a legend as to the applicable restrictions on transferability in
order to insure compliance with the Securities Act, unless in the aforesaid
reasonably satisfactory opinion of counsel for the Holder or the security
holder, as the case may be, such legend is not necessary in order to insure
compliance with the Securities Act. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.
12. Successors and Assigns. The terms and provisions of this Warrant and
----------------------
the Purchase Agreement shall inure to the benefit of, and be binding upon, the
Company and the Holders hereof and their respective successors and assigns.
13. Amendments and Waivers. Any term of this Warrant may be amended and
----------------------
the observance of any term of this Warrant may be waived (either generally or in
a particular instance and either retroactively or prospectively), with the
written consent of the Company and the Holder. Any waiver or amendment effected
in accordance with this Section shall be binding upon each holder of any Shares
purchased under this Warrant at the time outstanding (including securities into
which such Shares have been converted), each future holder of all such Shares,
and the Company.
14. Effect of Amendment or Waiver. The Holder acknowledges that the
-----------------------------
holders of a majority of shares of Common Stock issued or issuable upon exercise
of Warrants issued will have the right and power to diminish or eliminate all
rights of all holders of Common Stock, including Holder under this Warrant.
15. Notices. All notices required under this Warrant and shall be deemed
-------
to have been given or made for all purposes (i) upon personal delivery, (ii)
upon confirmation receipt that the communication was successfully sent to the
applicable number if sent by facsimile; (iii) one day after being sent, when
sent by professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail. Notices to the Company shall be sent
to the principal office of the Company (or at such other place as the Company
shall notify the Holder hereof in writing). Notices to the Holder shall be sent
to the address of the Holder on the books of the Company (or at such other place
as the Holder shall notify the Company hereof in writing).
16. Attorneys' Fees. If any action of law or equity is necessary to
---------------
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to its reasonable attorneys' fees, costs and disbursements in addition
to any other relief to which it may be entitled.
-5-
<PAGE>
17. Captions. The section and subsection headings of this Warrant are
--------
inserted for convenience only and shall not constitute a part of this Warrant in
construing or interpreting any provision hereof.
18. Governing Law. This Warrant shall be governed by the laws of the State
-------------
of Delaware as applied to agreements among Delaware residents made and to be
performed entirely within the State of Delaware.
19. Lockup Agreement. Each Holder agrees that, if, in connection with the
----------------
Initial Public Offering of the Company's securities, the Company or the
underwriters managing the offering so request, the Holder shall not sell, make
any short sale of, loan, grant any option for the purchase of or otherwise
dispose of any registrable securities (other than those included in the
registration) without the prior written consent of the Company or such
underwriters as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the effective date of such registration as may
be requested by the Company or the underwriters; provided that each officer and
director of the Company who owns stock of the Company and other holders of at
least 5% of the Company's voting securities also agrees to such restrictions.
This Section shall be binding on all transferees or assignees of registrable
securities, whether or not such persons are entitled to registration rights.
20. Investment Purpose. The Holder is acquiring this Warrant and the
------------------
Shares issuable upon the exercise hereof for investment for its own account, not
as a nominee or agent, and not with a view to, or for resale in connection with,
any distribution thereof; and the Holder has no present intention of selling,
granting any participation in, or otherwise distributing the same. The Holder
understands that this Warrant and the Shares issuable upon the exercise hereof
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 and the
accuracy of such Holder's representations as expressed herein.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company caused this Warrant to be executed by an
officer thereunto duly authorized.
iOwn Holdings, Inc.
By:_____________________________
Name:___________________________
Title:__________________________
-7-
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
------------------
To: iOwn Holdings, Inc.
The undersigned hereby elects to:
______ (a) Purchase _________________ shares of Common Stock of
iOwn Holdings, Inc., pursuant to the terms of the
attached Warrant and payment of the Exercise Price per
share required under such Warrant accompanies this
notice;
OR
______ (b) Exercise the attached Warrant for _________________ of
the shares purchasable under the Warrant pursuant to
the net exercise provisions of Section 6 of such
Warrant.
The undersigned hereby represents and warrants that the undersigned is
acquiring such shares for its own account for investment purposes only, and not
for resale or with a view to distribution of such shares or any part thereof.
WARRANTHOLDER:
ABN AMRO Capital Investments (Belgie)
NV
By:__________________________________
Name:________________________________
Title:_______________________________
Date:_____________
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
-----------------------------------
STOCKHOLDER: ABN AMRO Capital Investments (Belgie) NV
COMPANY : iOwn Holdings, Inc.
SECURITY : COMMON STOCK
AMOUNT : ______________
DATE : ______________
In connection with the purchase of the above-listed Securities, the
undersigned Stockholder represents to the Company the following:
(a) Stockholder 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. Stockholder is
acquiring these Securities for investment for Stockholder'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) Stockholder 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 Stockholder's investment intent as expressed herein. In this
connection, Stockholder understands that, in the view of the Securities and
Exchange Commission, the statutory basis for such exemption may be unavailable
if Stockholder'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. Stockholder 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. Stockholder
further acknowledges and understands that the Company is under no obligation to
register the Securities. Stockholder 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>
(c) Stockholder is familiar with the provisions of Rule 144, 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.
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 certain conditions 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 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, and (4) the
timely filing of a Form 144, if applicable.
(d) Stockholder further understands that in the event all of the applicable
requirements of 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 Rule 144 is 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 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.
Stockholder understands that no assurances can be given that any such other
registration exemption will be available in such event.
STOCKHOLDER:
ABN AMRO Capital Investments (Belgie)
NV
By:__________________________________
Name:________________________________
Title:_______________________________
Date:___________
<PAGE>
Exhibit 11.1
iOwn Holdings, Inc.
Computation of Per Share Earnings
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
July 11, 1996
(date of
incorporation)
to Years Ended Nine Months Ended
December 31, December 31, September 30,
---------------- ------------------------------ ---------------------------
1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
Net Loss $ (48) $(2,363) $(16,015) $ (9,392) $(32,115)
Dividend accretion on preferred stock - (70) (1,326) (636) (3,101)
------ ------- -------- -------- --------
Net Loss attributable to common shareholders $ (48) $(2,433) $(17,341) $(10,028) $(35,216)
------ ------- -------- -------- --------
Weighted average number of common shares
outstanding 820 2,560 4,460 4,382 5,676
------ ------- -------- -------- --------
Net loss per share attributable to common
shareholders - basic and diluted $(0.06) $ (0.95) $ (3.89) $ (2.29) $ (6.20)
------ ------- -------- -------- --------
</TABLE>
<PAGE>
Exhibit 12.1
iOwn Holdings, Inc.
Computation of Ratio of Earnings to Fixed Charges
(in thousands)
<TABLE>
<CAPTION>
July 11, 1996
(date of
incorporation)
to Years Ended Nine Months Ended
December 31, December 31, September 30,
------------------ ------------------------------ ---------------------------
1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
Earnings:
Net Loss $ (48) $(2,363) $(16,015) $(9,392) $(32,115)
Interest Expense - 22 112 85 285
----- ------- -------- ------- --------
Total $ (48) $(2,341) $(15,903) $(9,307) $(31,830)
----- ------- -------- ------- --------
Fixed Charges:
Interest Expense $ - $ 22 $ 112 $ 85 $ 285
Dividend accretion on preferred stock - 70 1,326 636 3,101
----- ------- -------- ------- --------
Total $ - $ 92 $ 1,438 $ 721 $ 3,386
----- ------- -------- ------- --------
Ratio of Earnings to Fixed Charges
and Dividend accretion on preferred stock - (25.45) (11.06) (12.91) (9.40)
----- ------- -------- ------- --------
</TABLE>
<PAGE>
Exhibit 21.1
iOwn Holdings, Inc.
Subsidiaries of the Company
iOwn, Inc., a California corporation
Genesis 2000, Inc., a California corporation.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
(File No. 333- ) of our reports dated November 19, 1999, relating to the
consolidated financial statements of iOwn Holdings, Inc. which appear in such
Registration Statement. We also consent to the references to us under the
caption "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Francisco, California
December 23, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
(File No. 333- ) of our reports dated November 29, 1999 relating to the
financial statements of Genesis 2000 Inc. which appear in such Registration
Statement. We also consent to the references to us under the caption "Experts"
in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Woodland Hills, California
December 23, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our reports included in the registration
statement of iOwn Holdings, Inc. and to the reference to our firm under the
heading "Experts" in the prospectus.
/s/ KPMG LLP
KPMG LLP
Miami, Florida
December 22, 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF THOMAS H. MEYER
I am a nominee director of iOwn Holdings, Inc. and consent to being so
named in this Registration Statement on Form S-1 (File No. 333- ).
/s/ Thomas H. Meyer
-------------------------------------
Thomas H. Meyer
Miami, Florida
December 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
<CASH> 2,907 10,157
<SECURITIES> 0 0
<RECEIVABLES> 217 151
<ALLOWANCES> (79) (9)
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,940 10,970
<PP&E> 7,531 2,241
<DEPRECIATION> (1,584) (377)
<TOTAL-ASSETS> 12,637 14,275
<CURRENT-LIABILITIES> 6,797 2,679
<BONDS> 4,058 334
54,562 31,665
0 0
<COMMON> 3 2
<OTHER-SE> (52,783) (20,405)
<TOTAL-LIABILITY-AND-EQUITY> 12,637 14,275
<SALES> 0 0
<TOTAL-REVENUES> 3,589 1,313
<CGS> 0 0
<TOTAL-COSTS> (35,535) (17,417)
<OTHER-EXPENSES> (174) 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (285) (112)
<INCOME-PRETAX> (32,115) (16,015)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (32,115) (16,015)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (32,115) (16,015)
<EPS-BASIC> (18.61) (11.66)
<EPS-DILUTED> (18.61) (11.66)
</TABLE>
