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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BUILDNET, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
NORTH CAROLINA 7389 56-1990041
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
4813 EMPEROR BOULEVARD, SUITE 130
DURHAM, NORTH CAROLINA 27703
(919) 941-6269
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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NATHAN P. MORTON
CHIEF EXECUTIVE OFFICER
BUILDNET, INC.
4813 EMPEROR BOULEVARD, SUITE 130
DURHAM, NORTH CAROLINA 27703
(919) 941-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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PLEASE SEND COPIES TO:
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DONALD R. REYNOLDS, ESQ. SARAH BESHAR, ESQ.
WYRICK ROBBINS YATES & PONTON LLP DAVIS POLK & WARDWELL
4101 LAKE BOONE TRAIL, SUITE 300 450 LEXINGTON AVENUE
RALEIGH, NORTH CAROLINA 27607 NEW YORK, NEW YORK 10017
(919) 781-4000 (212) 450-4000
FAX: (919) 781-4865 FAX: (212) 450-4800
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________.
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ] ________.
CALCULATION OF REGISTRATION FEE(1)
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(2) REGISTRATION FEE(3)
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<S> <C> <C>
Common Stock, $.01 par value........... $230,000,000 $60,720
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(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.
(2) Estimated solely for purposes of calculating the registration fee. Includes
shares the underwriters have the option to purchase to cover
over-allotments.
(3) Calculated pursuant to Rule 457(a) based on an estimate of the maximum
aggregate offering price.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 20, 2000
Shares
[LOGO]
BUILDNET, INC.
Common Stock
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Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $
and $ per share. We intend to apply to list our common stock on The
Nasdaq Stock Market's National Market under the symbol "BNET".
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
9.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS BUILDNET
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total.................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about ,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Robertson Stephens
Salomon Smith Barney
Thomas Weisel Partners
The date of this prospectus is , 2000.
<PAGE> 3
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TABLE OF CONTENTS
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Page
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PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 8
FORWARD-LOOKING STATEMENTS............ 21
USE OF PROCEEDS....................... 21
DIVIDEND POLICY....................... 21
CAPITALIZATION........................ 22
DILUTION.............................. 24
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 27
BUSINESS.............................. 35
MANAGEMENT............................ 46
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Page
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CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................ 57
PRINCIPAL STOCKHOLDERS................ 60
DESCRIPTION OF CAPITAL STOCK.......... 62
SHARES ELIGIBLE FOR FUTURE SALE....... 66
UNDERWRITING.......................... 68
NOTICE TO CANADIAN RESIDENTS.......... 71
LEGAL MATTERS......................... 72
EXPERTS............................... 72
CHANGE IN ACCOUNTANTS................. 72
WHERE YOU CAN FIND MORE INFORMATION... 72
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and our financial statements and notes appearing elsewhere in this
prospectus before you decide to purchase our common stock.
BUILDNET, INC.
OUR BUSINESS
Our objective is to be the business-to-business e-commerce solution for the
residential construction industry. We have designed the BuildNet Exchange to
provide secure Internet-based procurement, e-commerce and information services
for homebuilders, suppliers and manufacturers. We believe that the BuildNet
Exchange addresses many of the supply chain inefficiencies that adversely impact
the residential construction industry. The supplier and homebuilder segments of
the residential construction industry are highly fragmented and driven by
regional and local demand. Participants lack accurate and timely information on
product requirements, building materials are transferred multiple times through
the supply chain and most procurement processes are paper-based and
labor-intensive. The BuildNet Exchange allows users to confirm pricing and
product specifications, place purchase orders and add both product and order
information automatically to builders' and suppliers' management systems. In
addition, manufacturers can place product information and catalogs on the
BuildNet Exchange for access by homebuilders and suppliers.
We are testing the BuildNet Exchange and expect to initiate a limited
market rollout in two cities in the second quarter of 2000 and to commence a
commercial rollout in an additional four to six cities in the second half of
2000. Our position as a leading provider of management software to homebuilders
and suppliers gives us a critical mass of software users to connect to the
BuildNet Exchange. Our aggregated software customer base includes homebuilders
that accounted for approximately 43% of 1999 U.S. single-family home closings,
according to our estimates, and three of the top ten residential construction
suppliers in the U.S., according to Pro Sales magazine.
Our customers currently use our software to plan and manage projects and
back-office functions. We have already upgraded four of our six existing builder
management software products and our two principal supplier management software
products so that they connect to the BuildNet Exchange. We refer to the process
by which we connect the BuildNet Exchange to the back-office systems of
homebuilders and suppliers as BuildNet Enabling. We will BuildNet Enable our
remaining builder management software products prior to our commercial rollout.
We believe that BuildNet Enabling our software products gives us a significant
competitive advantage since it connects builders and suppliers with minimal
disruption to their existing systems and processes. We are also developing
software to enable homebuilders, suppliers and manufacturers who are not users
of our management software products to connect to the BuildNet Exchange.
We believe that the BuildNet Exchange will provide significant benefits to
homebuilders, suppliers and manufacturers. Homebuilders will be able to automate
and streamline their procurement process and improve their production planning
efficiency. Suppliers will be able to improve inventory management and enjoy
greater lead times for providing value-added services. Manufacturers will be
able to provide updated and cost-effective online product information to buyers
and increase the efficiency of their marketing efforts.
We have established relationships with many major homebuilders, suppliers
and manufacturers through equity investments and our warrant incentive program
to encourage the rapid adoption of the BuildNet Exchange. We also have an
existing strategic relationship with EDS, which has built and will host our
transaction hub and is promoting the BuildNet Exchange as the standard for the
homebuilding industry. In addition, we have a relationship with mortgage.com
under which we have exclusive rights to offer to homebuilders the ability to
arrange mortgage loans for their homebuyers through mortgage.com.
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OUR MARKET OPPORTUNITY
Business-to-business e-commerce is expected to grow rapidly as the
widespread adoption of intranets and the acceptance of the Internet has created
a business communications platform that offers the potential for companies to
streamline complex processes, lower costs and improve productivity. Business-
to-business e-commerce is expected to grow from an estimated $406 billion in
2000 to $2.7 trillion in 2004, according to Forrester Research.
The residential construction industry is one of the largest sectors of the
U.S. economy. According to the U.S. Census Bureau, the value of residential
construction in the United States in 1997 was approximately $238 billion. Also,
according to the Census Bureau, there were approximately 1.3 million
single-family housing starts in 1999. We believe that this industry has
characteristics that create an attractive opportunity for business-to-business
e-commerce, including large numbers of buyers and sellers, a high degree of
fragmentation among buyers and sellers, significant dependence on information
exchange and large transaction volume.
OUR STRATEGY
Our objective is to be the business-to-business e-commerce solution for the
residential construction industry. Key elements of our strategy to achieve our
objective include the following:
- Roll out the BuildNet Exchange commercially;
- Leverage strategic relationships;
- Generate multiple revenue streams;
- Connect manufacturers to the BuildNet Exchange;
- Build brand recognition;
- Expand e-commerce solutions into complementary markets; and
- Pursue strategic acquisitions and relationships.
OUR HISTORY
BuildNet was incorporated in the state of North Carolina in October 1996.
Prior to the consummation of this offering, we will reincorporate as a Delaware
corporation.
In 1999, we acquired F.A.S.T Management, McCosker Corporation, Systems
Analysis and Maxwell & Company, providers of builder management software
products, and also Site Trak, a management software product for the
subcontractor segment of the homebuilding industry. In January 2000, we
purchased software products for the processing of electronic commerce
transactions in the electrical, plumbing, appliances and HVAC market from The
UniLink Group, LLC and the software and customer base for the homebuilder module
of the World Software System from J.D. Edwards World Source Company.
In February 2000, we entered into an agreement to purchase NxTrend
Technology, Inc., subject to regulatory approval. NxTrend is a leading provider
of supplier management software to suppliers and distributors in the residential
and commercial construction industry and other industries.
BUILDNET(R), BUILDSOFT(R), TREND(R), SHIMS(R), NXTREND(R) and the NxTrend
Logo are registered trademarks, and BUILDNET ENABLED, FAST, TRUELINE, TOM
SYSTEMS, LLOYD's, the BuildNet logo, the BuildSoft logo, Strategic Exchange, SX,
WDS-II, the FAST logo, the TrueLine logo and the TOM Systems logo are trademarks
of BuildNet. This prospectus also includes trademarks of entities other than
BuildNet, as to which BuildNet claims no interest. In addition, buildnet.com,
buildnet.net, buildsoft.com and nxtrend.com are domain names that are owned by
BuildNet.
CORPORATE INFORMATION
BuildNet's executive offices are located at 4813 Emperor Boulevard, Suite
130, Durham, North Carolina 27703, and its telephone number at that location is
(919) 941-4000. Our primary Web site is located at www.buildnet.com. Information
on our Web sites is not part of this prospectus.
4
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THE OFFERING
Common Stock Offered................ shares
Common Stock Outstanding after the
Offering............................ shares
Use of Proceeds..................... General corporate purposes, potential
acquisitions and repayment of NxTrend
notes
Proposed Nasdaq National Market
Symbol.............................. BNET
The outstanding share information set forth above is based on the number of
shares of our common stock outstanding on March 1, 2000. This information
includes:
- 2,678,760 shares of common stock issued upon the assumed exercise of the
outstanding warrants that will expire if not exercised prior to the
consummation of this offering; and
- shares issued upon the assumed conversion of convertible
notes with an aggregate principal of approximately $ as of
, 2000 (at a conversion price equal to the midpoint of the
price range set forth on the front cover of this prospectus).
The outstanding share information above excludes:
- 19,275,363 shares of common stock issuable upon the exercise of stock
options outstanding as of March 1, 2000 under our 1997 stock plan, our
1999 stock plan, the F.A.S.T. Management Group, Inc. 1997 stock option
plan and the NxTrend 1999 amended and restated equity incentive plan,
with a weighted average exercise price of $0.87 per share;
- an additional 28,125,900 shares reserved for issuance under our stock
plans as of March 17, 2000; and
- 16,014,880 shares of common stock issuable upon exercise of outstanding
warrants as of March 17, 2000 with a weighted average exercise price of
$2.38 per share which are not required to be exercised in connection with
and will not expire upon the consummation of this offering.
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
- the issuance of a total of 94,473,379 shares of common stock upon the
consummation of this offering as a result of the conversion of all
outstanding shares of our Series A preferred stock, Series B preferred
stock and Series C preferred stock;
- no exercise of the underwriters' over-allotment option;
- a for stock split of our common stock which will become
effective before consummation of this offering;
- the consummation of our acquisition of NxTrend Technology, Inc., which is
subject to regulatory approval; and
- our reincorporation as a Delaware corporation.
5
<PAGE> 7
SUMMARY FINANCIAL DATA
The following financial data is a summary of the more complete financial
data information provided in our financial statements elsewhere in this
prospectus.
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 24, YEARS ENDED PRO FORMA
1996) TO ------------------------------------------ YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998 1999 1999
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:.................................. $ 388 $ 4,257 $ 4,506 $ 14,601 $ 85,806
Cost of revenues........................... 164 1,369 1,436 9,026 45,836
------ ------- ------- -------- --------
Gross profit............................... 224 2,888 3,070 5,575 39,970
Operating expenses:
General and administrative............... 96 1,348 1,969 8,151
Sales and marketing...................... 224 1,594 2,073 4,845
Research and development................. 168 1,122 2,035 9,898
Amortization of stock based
compensation.......................... -- 202 22 666
------ ------- ------- -------- --------
Total operating expenses......... 488 4,266 6,099 23,560 95,586
------ ------- ------- -------- --------
Operating loss............................. (264) (1,378) (3,029) (17,986) (55,616)
Interest, net.............................. (11) (288) (210) (10,515) (11,158)
------ ------- ------- -------- --------
Provision for income taxes................. -- -- -- -- (1,788)
Loss before extraordinary item............. (275) (1,666) (3,239) (28,501) (68,562)
Extraordinary loss on early extinguishment
of debt.................................. -- -- (107) (28) (28)
------ ------- ------- -------- --------
Net loss................................... (275) (1,666) (3,346) (28,529) (68,590)
Accretion of mandatorily redeemable
preferred stock.......................... -- -- -- (2,069) --
Preferred stock dividends.................. -- -- -- (167) --
------ ------- ------- -------- --------
Net loss available to common
stockholders............................. $ (275) $(1,666) $(3,346) $(30,765) $(68,590)
Net loss per common share -- basic and
diluted.................................. $(0.01) $ (0.08) $ (0.17) $ (0.84)
Weighted average common shares
outstanding -- basic and diluted......... 20,043 20,043 20,043 36,527
</TABLE>
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<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $51,875 $ $
Working capital............................................. 67,495
Total assets................................................ 134,726
Long term liabilities....................................... 13,746
Mandatorily redeemable convertible preferred stock.......... 135,723
Stockholder's equity (deficit).............................. (28,775)
</TABLE>
The pro forma statement of operations data for the year ended December 31,
1999 combine the historical statements of operations of BuildNet, Inc., NxTrend
Technology, Inc., The UniLink Group, LLC, Key Prestige Inc., McCosker
Corporation, F.A.S.T. Management Group, Inc., Systems Analysis, Inc., and
Maxwell & Company, Inc. as if the acquisitions by BuildNet of NxTrend, UniLink,
McCosker, FAST, Systems Analysis, and Maxwell & Company and the acquisition by
UniLink of Key Prestige had been completed on January 1, 1999.
In addition, the pro forma statement of operations data and balance sheet
information gives effect to the following:
- the conversion of all outstanding shares of our preferred stock into
shares of our common stock upon closing of this offering;
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<PAGE> 8
- the assumed exercise of warrants to purchase 2,890,960 shares of our
common stock that will expire if not exercised prior to the consummation
of this offering;
- the issuance, and reservation for issuance upon exercise of outstanding
options, of 25,954,659 shares of our common stock and notes payable in
the aggregate amount of $32.5 million to the former stockholders and
optionees of NxTrend Technology, Inc. in connection with our pending
acquisition of NxTrend, the assumed conversion of $4.4 million of the
principal of the notes payable into shares of common stock
(assuming a conversion price equal to the midpoint of the range set forth
on the front cover page of this prospectus) and the assumed repayment of
the remaining balance of $28.1 million of the notes payable;
- the issuance of a note payable in the amount of $27.0 million in
connection with our acquisition of UniLink and the assumed conversion of
the principal balance of this note payable into 6,136,363 shares of our
common stock; and
- the issuance of a note payable in the amount of $5.9 million in
connection with our purchase of software from J.D. Edwards World Source
Company and the assumed conversion of this note payable into
shares of our common stock (assuming a conversion price
equal to the midpoint of the range set forth on the front cover page of
this prospectus).
The pro forma as adjusted balance sheet information reflects our sale of
shares in this offering at an assumed initial public offering
price of $ per share, after deducting underwriting discounts,
commissions and estimated offering expenses payable by us.
7
<PAGE> 9
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and the other information
contained in this prospectus before deciding to invest in our common stock.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED INTERNET OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR FUTURE
PROSPECTS
Although BuildNet was founded in 1996, we have a very limited operating
history on the Internet. Our limited Internet operating history makes an
evaluation of our future prospects very difficult. We only began testing the
BuildNet Exchange in March 2000. As a result, we will face risks and
difficulties frequently encountered by companies in new and rapidly evolving
markets and our future prospects will depend on a number of factors including:
- we may be unable to attract, increase and maintain customer adoption and
use of the BuildNet Exchange;
- we depend substantially on an e-commerce solution that has not yet been
presented in the market commercially and may not be successful;
- we may be unable to develop and enhance the BuildNet Exchange or to do so
on a timely basis;
- we may be unable to maintain existing or establish new relationships with
homebuilders, suppliers and manufacturers of building materials and
products;
- we may be unable to adapt to rapidly changing technologies and developing
markets;
- we may be unable to compete in a highly competitive market; and
- we may be unable to successfully integrate operations and technologies
from acquisitions or other business combinations.
To date, we have not generated any revenues from our e-commerce business.
Also, we expect that our revenues derived from sales of our builder and supplier
management software will decline as a percentage of our revenues and will
decrease in absolute terms on a pro forma combined basis as we redirect our
efforts to generate revenues from our e-commerce activities. We are also
considering implementing changes to our pricing structure for our software
products. Further, our 1999 revenues were impacted substantially by acquisitions
made in that year. As a result, you should not rely on our revenues or results
of operations for any period as an indication of future performance or
prospects.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE INCREASED LOSSES
We incurred net losses of $1.7 million in 1997, $3.3 million in 1998, $28.5
million in 1999 and $68.6 million in 1999 on a pro forma basis. As of December
31, 1999, our accumulated deficit was $35.5 million. We have not achieved
profitability and expect to incur increasing operating losses for the
foreseeable future. We intend to increase our operating expenses substantially
as we initiate the commercial rollout of the BuildNet Exchange, increase our
marketing and brand-building activities in support of the rollout, and increase
our general and administrative functions and our research and development
activities to support our growing operations. We will need to generate
significant revenues to achieve and maintain profitability and we might not be
able to do so. Even if we do achieve profitability, we might not be able to
sustain or increase profitability. If our revenues grow more slowly than we
anticipate or if our operating expenses exceed our expectations, our financial
performance likely will be adversely affected.
IF WE DO NOT SUCCESSFULLY DEVELOP AND ROLL OUT THE BUILDNET EXCHANGE, OUR
BUSINESS WILL BE HARMED
We are now testing the BuildNet Exchange among a small group of builders
and suppliers and have further development and testing to complete. We expect to
initiate a limited market rollout in two cities in
8
<PAGE> 10
the second quarter of 2000 and a commercial rollout in an additional four to six
cities in the second half of 2000. Our failure to implement this scheduled
rollout and to further develop the BuildNet Exchange on a timely basis and to
roll it out into other cities will materially adversely affect our business
plan.
We must further develop user interfaces, database management and search
technology, security controls and other features and functionality that
customers want. In addition, we have integrated only four of our six existing
builder management software products into the BuildNet Exchange. Developing new
technologies and new services involves numerous technical challenges and
substantial personnel resources, and often takes many months to complete. We
might not be successful at developing or integrating this technology and the
BuildNet Exchange on a timely basis, or in accordance with our product release
objectives. Some of our potential customers may use third-party management
software systems. The vendors of these software systems may not support the
BuildNet Enabling of their customers' systems.
In addition, once developed and implemented, the BuildNet Exchange might
not function as expected. The BuildNet Exchange is complex and might contain
undetected errors or failures. This might result in loss of, or delay in, market
acceptance of our products and services. We might in the future discover errors
and scalability limitations in the BuildNet Exchange. Any inability to timely
deliver fault free services could have a negative effect on our business and
results of operations.
We have no experience operating the BuildNet Exchange commercially and we
might not be able to operate it effectively.
HOMEBUILDERS, SUPPLIERS AND MANUFACTURERS MIGHT NOT ACCEPT THE BUILDNET EXCHANGE
Our operating results will become increasingly dependent on market
acceptance of the BuildNet Exchange. To date, we have not derived any revenues
from the BuildNet Exchange. If we do not attract and retain a substantial number
of homebuilders, suppliers and manufacturers to participate in and use the
BuildNet Exchange, our operating results will be negatively affected. To date,
no homebuilders, suppliers or manufacturers have transacted any business through
the BuildNet Exchange.
In addition, none of the homebuilders with whom we have strategic
relationships is contractually obligated to use the BuildNet Exchange. Upon its
initial rollout the BuildNet Exchange will not allow homebuilders and suppliers
to effect online transactions with manufacturers. There can be no assurance that
the BuildNet Exchange will ever allow homebuilders and suppliers to effect
online transactions with manufacturers.
Homebuilders, suppliers and manufacturers might reject the BuildNet
Exchange because:
- the benefits we believe the BuildNet Exchange offers to these entities
might not materialize;
- homebuilders, suppliers and manufacturers who do not currently use our
software products might be unwilling to invest the time and money to
reconfigure their existing information systems to BuildNet Enable them;
- homebuilders, suppliers and manufacturers might develop and implement
their own exchanges, either individually or by forming joint ventures;
and
- the quality or quantity of goods and services made available on the
BuildNet Exchange might not be sufficient to attract and retain buyers.
Further, because the business-to-business e-commerce market is new and
underdeveloped, potential customers in this market may be confused or uncertain
about the relative merits of different products and services or which to adopt,
if any. Confusion and uncertainty in the marketplace might inhibit customers
from using the BuildNet Exchange, which could harm our business and operating
results.
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OUR CUSTOMERS MIGHT BECOME DISSATISFIED WITH THE BUILDNET EXCHANGE OR BE
ATTRACTED TO ONE OR MORE OF OUR COMPETITORS
To the extent that we establish contractual relationships with
homebuilders, suppliers and manufacturers, we anticipate that these
relationships will be nonexclusive or terminable at will. Consequently, these
parties may transfer their business in part or in whole to our competitors
quickly and at relatively low costs. Our success will depend on our ability to
convince homebuilders, suppliers and manufacturers of the benefits of our
products and services and on our ability to retain, broaden and diversify our
future base of homebuilders, suppliers and manufacturers.
OUR QUARTERLY OPERATING RESULTS MIGHT FLUCTUATE
Our revenues and operating results have varied significantly in the past
and are likely to vary significantly from quarter to quarter in the future. As a
result, you should not rely on period-to-period comparisons of our results of
operations as an indication of future performance. Our operating results might
vary based on a number of factors including:
- demand for and market acceptance of the BuildNet Exchange;
- introduction of new and enhanced purchasing solutions and services by our
competitors;
- loss of one or more of our key customers or strategic relationships;
- timing and number of new hires;
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business and infrastructure;
- technical difficulties or system downtime affecting the BuildNet Exchange
specifically and the Internet generally;
- the ability of our suppliers and manufacturers to offer sufficient
products and materials for the demands of homebuilders through the
BuildNet Exchange;
- budgeting cycles of customers and users;
- the cyclical and seasonal nature of the homebuilding industry;
- general economic conditions, as well as economic conditions specific to
the technology, Internet and/or homebuilding industries; and
- timing of and revenues generated by acquired businesses.
Due to the lack of an operating history for the BuildNet Exchange, we have
limited meaningful historical financial data upon which to base our planned
revenues and operating expenses. We cannot be certain that we will be able to
accurately predict our revenues, particularly in light of the limited operating
history of the BuildNet Exchange, the intense competition in the Internet
industry, and the resulting uncertainty as to the success of our business model
for the BuildNet Exchange.
In some future quarter or quarters, our results of operations might fall
below the expectations of securities analysts or investors. Our failure to meet
these expectations would likely adversely affect the price of our common stock.
WE MIGHT NOT BE ABLE TO ESTABLISH AND STRENGTHEN THE BUILDNET BRAND
We believe that establishing and strengthening the BuildNet brand is
critical to achieving widespread acceptance of the BuildNet Exchange,
particularly because of the early stage of the online market for building
materials. Promoting and positioning our brand will depend largely on the
success of our marketing efforts and our ability to provide consistent,
high-quality customer experiences. We will need to incur additional expenditures
to promote our brand, both on marketing and on customer service. Our brand
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promotion activities might not be successful or result in enough increased
revenues to offset the expenses incurred.
OUR STRATEGY FOR GENERATING MULTIPLE STREAMS OF REVENUE FROM THE BUILDNET
EXCHANGE MAY NOT BE SUCCESSFUL
Because we have only recently begun to test the BuildNet Exchange, we have
not yet developed or implemented our other strategies related to growth for the
BuildNet Exchange, including generating e-commerce revenues from fees for
transactions processed through the BuildNet Exchange, monthly and annual
subscription fees from users of the BuildNet Exchange, advertising revenues,
fees for marketing services related to our mortgage.com relationship and other
complementary revenue opportunities. Even if we are successful in operating the
BuildNet Exchange, we cannot assure you that we will be able to develop our
strategic growth plans for generating multiple streams of revenues from the
BuildNet Exchange.
TO ATTRACT HOMEBUILDERS, SUPPLIERS AND MANUFACTURERS TO THE BUILDNET EXCHANGE,
WE MUST NOT FAVOR ONE OVER ANOTHER
The building market consists of a complex set of relationships among
homebuilders, suppliers, manufacturers and others. Adoption of our solution by
homebuilders, suppliers, manufacturers and others depends on their perception
that we provide a neutral, unbiased marketplace to purchase and sell products.
To the extent that we are perceived by our customers or suppliers as favoring
one over another, others might lose confidence in the BuildNet Exchange as a
fair and neutral marketplace and choose alternative solutions. To facilitate the
establishment and adoption of the BuildNet Exchange, we have established
manufacturing and supplier marketing programs that provide special benefits to
participants that might be viewed as favoring a particular manufacturer or
supplier over others, and therefore might have an adverse effect on our business
and operating results.
WE FACE RISKS ASSOCIATED WITH ACQUISITIONS
We have acquired nine businesses or business lines in the past 12 months,
and will consider acquiring businesses, technologies, services or products that
we believe are a strategic fit with our business. These recent and future
acquisitions subject us to the following risks:
- we might not be able to successfully integrate the services, products,
technologies or personnel of any acquisition into our operations;
- acquisitions might disrupt our ongoing business, distract our management
or other resources, or make it difficult to maintain our standards,
controls and procedures;
- we might acquire companies in markets in which we have little experience;
- acquisitions might result in potentially dilutive issuances of equity
securities, the incurrence of debt or contingent liabilities, or
amortization of expenses related to goodwill; and
- acquisitions might not result in any return on our investment and we
might lose our entire investment.
We might not be able to grow if we are not able to complete and integrate
recent and future acquisitions.
Our acquisition strategy is also subject to the risk of not being able to
identify additional suitable acquisition candidates available for sale at
reasonable prices or on reasonable terms. Additionally, regardless of whether
suitable candidates are available, we might not be able to complete future
acquisitions for other reasons, such as the lack of available capital. If we are
unable to complete future acquisitions, our business, financial condition and
operating results could be adversely affected.
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FLUCTUATIONS DUE TO THE CYCLICAL NATURE OF THE REAL ESTATE MARKET, ECONOMIC
CONDITIONS AND THE RESIDENTIAL CONSTRUCTION INDUSTRY COULD NEGATIVELY AFFECT US
The residential construction industry is cyclical and is significantly
affected by changes in general and local economic conditions. Any significant
downturn in the residential construction market could reduce homebuilder demand
for our services and could materially and adversely affect our business,
financial condition, results of operations and prospects. Factors that could
affect the residential construction market include:
- housing demand;
- availability of financing for home buyers;
- interest rates;
- consumer confidence; and
- employment levels.
The cost and availability of alternatives to new homes, including rental
properties and used homes, directly affects the demand for new homes. Increases
in unemployment and decreases in consumer confidence weaken demand for new
homes. Rising interest rates mean higher monthly mortgage payments, which could
weaken the demand for new homes. We have no control over these economic
conditions.
WE HAVE AND WILL CONTINUE TO HAVE SIGNIFICANT PRODUCT CONCENTRATION
We have derived substantially all of our revenues from our builder and
supplier management software products and related services. We expect that these
products will continue to account for a significant portion of our revenues for
the immediate future, and that we will begin to generate revenues from the
BuildNet Exchange over the next few years. Our future operating results will
depend upon continued market acceptance of our software products and our ability
to develop and market the BuildNet Exchange. Our existing products, including
our recently acquired products, might not retain their market acceptance, and
the BuildNet Exchange might not achieve market acceptance at all. Any decrease
in demand or market acceptance for our products or the BuildNet Exchange would
have a material adverse effect on our business, operating results and financial
condition.
WE DEPEND ON KEY PERSONNEL
We depend to a significant extent on the continued services of our senior
management and other key individuals, including Keith T. Brown, our chairman,
Nathan P. Morton, our Chief Executive Officer, Bayard M. Atwood, our President
and Chief Operating Officer, and other executive officers. Our employment
agreement with Mr. Brown is subject to termination in May 2001, if either
BuildNet or Mr. Brown gives notice of non-renewal 90 days prior to expiration.
The loss of the services of key individuals would likely have a significantly
detrimental effect on our business and operating results.
COMPETITION FOR PERSONNEL IN OUR INDUSTRY AND PRINCIPAL LOCATION IS INTENSE
Our future success depends on our continuing to attract, retain and
motivate highly skilled employees, each of which we might be unable to do in the
future. We have from time to time in the past experienced, and we expect to
continue to experience in the future, difficulty in hiring and retaining highly
skilled employees with appropriate qualifications. We plan to hire additional
sales employees to implement the commercial rollout of the BuildNet Exchange.
There is significant competition for qualified employees in the Internet
industry and in the Research Triangle Park in North Carolina, where our
principal offices are located, as well as in cities where our other offices are
located. As a result, we are incurring and might continue to incur increased
salaries, benefits and recruiting expenses. If we do not attract new personnel
or retain and motivate our current personnel, our business will be adversely
affected.
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WE ARE EXPERIENCING A PERIOD OF SIGNIFICANT GROWTH, WHICH IS PLACING A
SUBSTANTIAL STRAIN ON OUR RESOURCES
We have experienced and might continue to experience rapid growth. From
January 1, 1999 to March 1, 2000 we grew from approximately 70 to approximately
868 full-time employees. This growth has placed, and could continue to place,
significant strain on our managerial, financial and operational resources,
systems, procedures and controls. We will also need to train employees and
maintain close coordination among our product development, marketing and sales,
and general administrative organizations. These processes are time-consuming and
expensive, will increase managerial responsibility, and will divert management
attention from our business. If we are unable to manage our growth effectively,
our business, financial condition, results of operations and prospects could be
materially adversely affected.
OUR MANAGEMENT SYSTEMS SOFTWARE SALES CYCLE CAN BE LONG, WHICH CAN DELAY
REVENUES
Our software sales cycle varies by product, but can take up to 12 months
from initial client contact until we sign a contract. In addition, the
implementation cycle at customer sites can take up to an additional 24 months.
These lengthy cycles have a negative impact on the timing of our revenues.
Not every potential client that we solicit actually purchases our
management system software products. Other factors that contribute to the length
and uncertainty of our software sales cycle and that might reduce the likelihood
that clients will purchase our products include budgeting constraints, incentive
structures that do not reward decision makers for savings achieved through
cost-cutting and the strength of pre-existing software supplier relationships.
If we are unable to enter into contracts with clients on a consistent basis,
then our business might suffer from diminished revenues.
OUR MARKETS ARE COMPETITIVE AND THERE ARE LOW BARRIERS TO ENTRY
Our markets are intensely competitive. In the marketplace for builder and
supplier management software, competitive pressures are likely to result in
price reduction, reduced margins and possibly reduced market share, any one of
which factors could seriously harm our business. The principal market segments
of competitive software management tools or online shopping models that compete
with parts of our planned e-commerce platform include builder and supplier
management (ERP) systems, customer relationship management (CRM) systems, point
of sale and supply chain e-commerce procurement tools, catalog or product data
systems, and online building material shopping solutions.
The business-to-business e-commerce marketplace is new and expected to
evolve rapidly. Many different companies, including our customers and potential
customers, are positioned to emerge as competitors in this marketplace. In
addition, companies that have established online exchanges for different
industries could introduce exchanges that would compete with the BuildNet
Exchange. Manufacturers, homebuilders and suppliers, either individually or
through joint ventures, may develop exchanges that would compete with the
BuildNet Exchange.
Many of our competitors and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, greater name recognition, a larger installed base of potential
customers and more extensive knowledge of our industry. These competitors might
be able to spend more aggressively on marketing and advertising for their
brands, products and services. They also might adopt more aggressive pricing
policies and make more attractive offers to employees. In addition, current and
potential competitors might establish cooperative relationships among themselves
or with third parties to increase the ability of their products to address
customer needs. Accordingly, it is possible that new competitors or alliances
among competitors might emerge and rapidly acquire significant market share. We
also expect that competition will increase as a result of industry
consolidations.
There are minimal barriers to entry in the business-to-business e-commerce
market. Competitors can launch Web-enabled products and services at relatively
low cost. Other companies might develop products and services that are less
expensive and more useful to the homebuilding industry. These companies might be
more successful in their marketing efforts and thereby limit our ability to gain
market share. In
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addition, more established e-commerce participants might enter the online
homebuilding market and compete directly with us.
OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY IS UNCERTAIN
We believe that our intellectual property is critical to our success. We
rely on trademark, copyright and trade secret protection to protect our
proprietary rights. We rely on non-disclosure and other contractual restrictions
on copying and distribution to protect our proprietary technology. The measures
we take to protect our intellectual property might not be successful, which
could have a material adverse effect on our business. The United States or
foreign countries might not grant us any copyrights, trademarks or other
protection for our intellectual property. Our intellectual property rights might
be challenged, invalidated or circumvented, and the rights granted thereunder
might not provide any competitive advantage.
Furthermore, litigation might be necessary to enforce our intellectual
property rights, to protect our trade secrets, to determine the validity and
scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. This litigation could result in substantial costs
and diversion of resources, and could harm our business, operating results and
financial condition.
CLAIMS THAT WE INFRINGE THE INTELLECTUAL PROPERTY OF OTHERS COULD HARM US
Companies might assert infringement claims against us for the use of
technology they believe belongs or is licensed to them. The defense against any
such claims, whether with or without merit, could be time-consuming, result in
costly litigation and diversion of technical and management personnel or require
us to develop non-infringing technology or enter into licensing agreements.
These licensing agreements, if required, might not be available on terms
acceptable to us, or at all. In the event of a successful claim of infringement
against us and our failure or inability to develop non-infringing technology or
to license the infringed or similar technology on a timely basis, our business,
financial condition, results of operations and prospects could be materially
adversely affected.
WE DEPEND ON THIRD PARTIES TO PROVIDE RELIABLE SOFTWARE, SYSTEMS AND RELATED
SERVICES TO US
We currently license from third parties certain technologies and
information incorporated into our products and services. As we continue to
introduce new services, we might be required to license additional technology
and information from others. These third-party technology and information
licenses might not continue to be available to us on commercially reasonable
terms, if at all. Additionally, third parties from which we currently license
technology and information might not be able to defend their proprietary rights
successfully against claims of infringement. Any failure to obtain any of these
technology and information licenses could result in delays or reductions in the
introduction of new features, functions, products or services. It could also
negatively affect the performance of our existing products and services until
equivalent technology or information can be identified, obtained and integrated.
We are relying substantially upon third-party service providers, including
EDS, to help us build, maintain and house key components of the BuildNet
Exchange. These services might not be available in a timely manner or at
commercially reasonable terms, if at all. Any failure to obtain the necessary
services to enable us to build, maintain and house the BuildNet Exchange could
have a material adverse effect on our business, financial condition, results of
operations and prospects.
Several of the third parties upon whom we depend have a limited operating
history, have relatively immature technology and are themselves dependent on
reliable delivery of services from others. As a result, our ability to deliver
various services to our users might be adversely affected by the failure of any
of these third parties to provide reliable software, systems and related
services to us.
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WE NEED TO EXPAND OUR DIRECT SALES OPERATIONS IF WE ARE TO INCREASE MARKET
AWARENESS AND SALES OF OUR PRODUCTS AND SERVICES
We need to substantially expand our direct sales operations if we are to
implement our rollout strategy and increase market awareness and sales of our
products and services. We plan to hire additional sales employees to implement
the commercial rollout of the BuildNet Exchange. If we fail to increase our
direct sales capabilities, our business, financial condition and results of
operations would be materially adversely affected. In particular, the BuildNet
Exchange requires a sophisticated sales effort targeted at senior management of
participants in the building supply chain. We have recently expanded our direct
sales force and plan to hire additional sales personnel. Competition for
qualified sales personnel is intense, and we might not be able to hire the kind
and number of sales personnel we are targeting. New hires often require
extensive training and typically take several months to achieve productivity.
SYSTEMS FAILURE OR DELAY MIGHT CAUSE INTERRUPTION AND DISRUPTION OF OUR BUSINESS
The satisfactory performance, reliability and availability of the BuildNet
Exchange will be critical to our ability to achieve profitability, as well as to
our brand, reputation and ability to attract and retain homebuilders, suppliers,
manufacturers and other business partners. In particular, our ability to provide
high-quality service to our users largely depends on the efficient and
uninterrupted operation of our computer and communications hardware systems. Our
servers could be vulnerable to malfunctions, computer viruses, physical or
electronic break-ins and similar disruptions. Our systems and operations could
also be vulnerable to damage or interruption from fire, flood, other natural
disasters, power outages, telecommunications failures and similar events. Such
disruptions could lead to interruptions, delays, loss of data and content, or
the inability to provide access to our online operations and could cause user
dissatisfaction and thereby materially adversely affect our business, financial
condition, results of operations and prospects. In addition, because the
BuildNet Exchange will be hosted in facilities of EDS in Plano, Texas, we are
dependent on EDS for the avoidance of system failures or interruptions.
We might not be successful in our efforts to improve and increase the
capacity of our systems infrastructure, if required by increases in traffic and
the number of users. Further, we might not be able to accurately project the
rate or timing of increases, if any, in our traffic, or expand and upgrade our
systems in a timely manner to accommodate increases in demand. Our inability to
add software, content or hardware, or to develop and upgrade our existing
technology or systems infrastructure to accommodate increased traffic might
cause unanticipated system disruptions or reduce response times or user
acceptance of our services, any of which could have a material adverse effect on
our business, financial condition, results of operations and prospects.
WE MIGHT NOT BE ABLE TO RESPOND TO RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY
The development of our products and services entails significant technical
and business risks. To remain competitive, we must continue to enhance and
improve the responsiveness, functionality, versatility and creative features of
our products and services. In particular, the Internet is characterized by rapid
technological change, new services embodying new technologies, and new industry
standards and practices. The evolving nature of the Internet could render our
products and services obsolete. Our success will depend, in part, on our ability
to enhance our existing products, and develop new products, services (including,
in particular the BuildNet Exchange) and technology that respond to
technological advances and emerging industry standards and practices on a
cost-effective and timely basis.
IF WE FAIL TO COMPLY WITH THE NUMEROUS LAWS AND REGULATIONS THAT GOVERN THE
MORTGAGE LENDING INDUSTRY, OUR BUSINESS COULD BE ADVERSELY AFFECTED
Any mortgage lending business that is facilitated through the BuildNet
Exchange through our relationship with mortgage.com must comply with extensive
and complex rules and regulations of, and licensing and examination by, various
federal, state and local government authorities. These rules impose obligations
and restrictions on residential loan brokering and lending activities. In
particular, these rules
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limit the broker fees, interest rates, finance charges and other fees that may
be assessed, require extensive disclosure to our customers, prohibit
discrimination and impose multiple qualification and licensing obligations. We
might not always be in compliance with these requirements. Failure to comply
with these requirements may result in, among other things, revocation of
required licenses or registrations, loss of approved status, voiding of loan
contracts or security interests, indemnification liability or the obligation to
repurchase mortgage loans sold to mortgage loan purchasers, rescission of
mortgage loans, class action lawsuits, administrative enforcement actions and
civil and criminal liability.
ADDITIONAL FINANCING IS UNCERTAIN, WHICH COULD AFFECT OUR GROWTH PROSPECTS
We currently anticipate that our available cash resources, combined with
the net proceeds from this offering, will be sufficient to meet our working
capital and capital expenditure requirements for at least 12 months. We might
need to raise additional funds, however, to
- fund more rapid expansion;
- develop new or enhance existing services or products;
- fund acquisitions, joint ventures or partnerships;
- respond to competitive pressures; or
- acquire complementary products, businesses or technologies.
If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage of ownership of our then-current
stockholders will be reduced. Any new securities might have rights, preferences
or privileges senior to these stockholders. Additional financing might not be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
expansion, take advantage of unanticipated opportunities, develop or enhance
services or products or otherwise respond to competitive pressures would be
significantly limited. This limitation could seriously harm our business and
operating results.
OUR PUBLICATION OF INACCURATE CATALOG CONTENT COULD CAUSE THE LOSS OF OUR
HOMEBUILDING CUSTOMERS AND EXPOSE US TO LEGAL LIABILITY
The accurate publication of catalog content is critical to our customers'
businesses. Our failure to accurately publish catalog content could deter
businesses from participating in the BuildNet Exchange, damage our business
reputation, harm our ability to win new customers and potentially expose us to
legal liability. In addition, from time to time some of our customers might
submit to us inaccurate pricing or other information. Even if these inaccuracies
are not our fault and are not within our control, similar consequences could
occur. We currently do not carry insurance that would adequately cover losses
which might be incurred as a result of inaccurate content publication.
UNDETECTED YEAR 2000 COMPLIANCE ISSUES COULD STILL HARM OUR BUSINESS
Our business might suffer as a result of defects relating to Year 2000
compliance issues that have not been detected.
RISKS RELATED TO THE INTERNET INDUSTRY
WE ARE DEPENDENT ON CONTINUED GROWTH IN USE OF THE INTERNET AS A MEDIUM FOR
COMMERCE
Our market is new and rapidly evolving. Our business would be adversely
affected if the Internet did not continue to grow as a medium for commerce,
particularly for the residential construction industry. A
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number of factors might inhibit the development of the Internet and commercial
online services into a commercial marketplace, including:
- inadequate network infrastructure;
- security and privacy concerns;
- inconsistent quality of services and products;
- lack of availability of cost-effective, high-speed service;
- difficulties in delivery, exchange or return of products; and
- government regulation.
Internet infrastructure might not be able to support any Internet growth,
and its performance and reliability might decline. In addition, many Web sites
have experienced interruption in their service as a result of outages and other
delays occurring throughout the Internet. If Internet outages or delays occur
frequently in the future, Internet usage, as well as the usage of the BuildNet
Exchange, could decline or grow more slowly than we anticipated.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD COSTS TO DOING BUSINESS
ON THE INTERNET
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations might
be adopted in the future that address issues such as user privacy, pricing,
taxes and the characteristics and quality of products and services. Any new laws
or regulations relating to the Internet could adversely affect our business. For
example, the Telecommunications Act sought to prohibit transmitting various
types of information and content over the Internet. Several telecommunications
companies have petitioned the Federal Communications Commission to regulate
Internet service providers and online service providers in a manner similar to
long distance telephone carriers and to impose access fees on those companies.
This could increase the cost of transmitting data over the Internet. It might
take years to determine the extent to which existing laws relating to issues
such as property ownership, content, taxation, libel and personal privacy are
applicable to the Internet. Taxes, laws or regulations might limit the growth of
the Internet, suppress e-commerce, reduce the number of transactions, increase
the costs of doing business or increase our exposure to litigation.
We do not collect sales or other similar taxes in respect of goods and
services purchased through the BuildNet Exchange. However, one or more states
might seek to impose sales tax collection obligations on out-of-state companies
like us that engage in or facilitate electronic commerce. A number of proposals
have been made at the state and local level that would impose additional taxes
on the sale of goods and services over the Internet. These proposals, if
adopted, could substantially impair the growth of electronic commerce and could
adversely affect our opportunity to derive financial benefit from such
activities. Moreover, a successful assertion by one or more states or any
foreign country that we should collect sales or other taxes on the exchange of
goods and services through the BuildNet Exchange could seriously harm our
business. Current Federal law imposes a moratorium on the ability of the states
to impose taxes on Internet-based transactions. The moratorium is scheduled to
end in 2001. Failure to enact or renew or an invalidation of this legislation
could allow various states to impose taxes on electronic commerce which could
reduce use of the Internet and the BuildNet Exchange and harm our business and
results of operations.
THE ACCELERATED GROWTH AND INCREASING VOLUME OF INTERNET TRAFFIC MAY CAUSE
PERFORMANCE PROBLEMS WHICH MAY SLOW ADOPTION OF THE BUILDNET EXCHANGE
The growth of Internet traffic to very high volumes of use over a
relatively short period of time has caused frequent periods of decreased
Internet performance, delays and, in some cases, system outages. This decreased
performance is caused by limitations inherent in the technology infrastructure
supporting the Internet and the internal networks of Internet users. If Internet
usage continues to grow rapidly, the
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infrastructure of the Internet and its users might not be able to support the
demands of growing e-commerce usage, and the Internet's performance and
reliability might decline. If our existing or potential customers experience
frequent outages or delays on the Internet, the adoption or use of the BuildNet
Exchange might grow more slowly than we expect or even decline. Our ability to
increase the speed and reliability of the BuildNet Exchange is limited by and
depends upon the reliability of both the Internet and the internal networks of
our customers.
SECURITY AND DISRUPTION PROBLEMS WITH THE INTERNET OR TRANSACTING BUSINESS OVER
THE INTERNET MIGHT INHIBIT OUR GROWTH
The secure transmission of confidential information over the Internet is
essential to maintaining builder, manufacturer and supplier confidence in the
BuildNet Exchange. Customers generally are concerned with security and privacy
on the Internet and any publicized security problems could inhibit the growth of
the Internet, and therefore the BuildNet Exchange, as a means of conducting
transactions. Substantial security breaches on our system could significantly
harm our business. Someone might circumvent our security systems and
misappropriate proprietary information or cause interruptions in our operations.
We incur substantial expense to protect against and remedy security breaches and
their consequences. Despite the implementation of security measures, our
networks may be vulnerable to unauthorized and illegal access, computer viruses
and other disruptive problems. Eliminating computer viruses and alleviating
other security problems may require interruptions, delays or cessation of
service to users accessing our solution.
Internet service providers and on-line service providers have in the past
experienced, and might in the future experience, interruptions in service as a
result of the accidental or intentional actions of Internet users, current and
former employees or others. We may be required to expend significant capital or
other resources to protect against the threat of security breaches or to
alleviate problems caused by these breaches. Although we intend to continue to
implement industry-standard security measures, we cannot be certain that
measures implemented by us will not be circumvented in the future.
If we experience a security breach that results in the misappropriation of
proprietary information maintained in our systems or if we experience
interruptions in our service, our reputation and brand may be damaged and we
might be exposed to a risk of loss or litigation and possible liability. Damage
to our reputation and brand could cause us to lose our community of builders,
suppliers and manufacturers and negatively affect our business and results of
operations. Our insurance policies might not be adequate to reimburse us for
losses caused by security breaches or service disruption.
RISKS RELATED TO THE OFFERING
THE PRICE OF OUR COMMON STOCK AFTER THIS OFFERING MIGHT BE LOWER THAN THE PRICE
YOU PAY
The price of our common stock that will prevail in the market after this
offering might be lower than the price you pay. After this offering, an active
trading market in our stock might not develop or continue. If you purchase
shares of our common stock in this offering, you will pay a price that was
negotiated by us with the representatives of the underwriters and not a price
that was established in a competitive market.
MARKET PRICES OF EMERGING INTERNET COMPANIES HAVE BEEN HIGHLY VOLATILE, AND THE
MARKET FOR OUR STOCK MAY EXHIBIT VOLATILITY AS WELL
The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies, particularly
Internet-related companies, have been extremely volatile. Recent initial public
offerings by Internet companies have been accompanied by exceptional share price
and trading volume volatility in the first days and weeks after the securities
were released for public trading. Investors may not be able to resell their
shares at or above the initial public offering price,
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particularly after periods of volatility because of the market's adverse
reaction to such volatility. There are several factors that could cause such
volatility, many of which are beyond our control, including:
- variations in our quarterly operating results;
- changes in securities analysts' estimates of our financial performance;
- changes in market valuations of similar companies;
- announcements by us or our present and future competitors of significant
acquisitions, strategic partnerships, joint ventures, technical
developments or capital commitments;
- concerns about the viability of e-commerce companies; and
- additions or departures of key personnel.
These factors might materially adversely affect the market price for our
common stock, regardless of our operating performance and other achievements.
THE SIGNIFICANT CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK MIGHT LIMIT YOUR
ABILITY TO INFLUENCE CORPORATE ACTIONS
The concentration of ownership of our common stock might have the effect of
delaying, preventing or deterring a change in control of BuildNet, could deprive
our stockholders of an opportunity to receive a premium for their common stock
as part of a sale of BuildNet and might affect the market price of our common
stock. Immediately following this offering, our executive officers and directors
and their affiliates will beneficially own approximately % of our
outstanding common stock ( % if the underwriters exercise their
over-allotment option in full). As a result, those stockholders, if they act
together, might be able to control all matters requiring stockholder approval,
including the election of directors and approval of any significant corporate
transactions such as a change in control.
A THIRD PARTY COULD BE PREVENTED FROM ACQUIRING YOUR SHARES OF STOCK AT A
PREMIUM TO THE MARKET PRICE BECAUSE OF OUR ANTI-TAKEOVER PROVISIONS
Provisions of our certificate of incorporation and bylaws, including
provisions allowing the issuance of preferred stock and the classification of
our board of directors, and Delaware law could make it more difficult for a
third party to acquire us, even though the acquisition might be beneficial to
you and our other stockholders.
FUTURE SALES OF OUR COMMON STOCK COULD DEPRESS OUR COMMON STOCK PRICE
In this offering, we will sell only shares of common stock, which
represent approximately % of the total outstanding shares of our stock.
Consequently, if new investors or our current stockholders sell substantial
amounts of our common stock, including shares issued upon the exercise of
outstanding options and warrants, in the public market following this offering,
the market price of our common stock could fall. The negative effect of such
sales on our common stock market price could be more pronounced given the
relatively small number of shares offered to the public in this offering
relative to the total number of shares of our common stock to be outstanding
following this offering. In addition, sales could create the perception to the
public of difficulties or problems with our products and services. As a result,
these sales might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate.
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Upon completion of this offering, we will have outstanding shares
of common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options or warrants, based on the shares
outstanding as of March 1, 2000. Of these shares, the shares sold in this
offering are freely tradable. The remaining shares, or approximately
% of our stock, will become eligible for sale in the public market as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES: DATE:
- ----------------- -----
<S> <C>
-- ............................. 180 days after the date of this
prospectus
-- ............................. More than 180 days after the date of this
prospectus
</TABLE>
The above table gives effect to certain lock-up arrangements with Credit
Suisse First Boston under which our directors, officers and stockholders have
agreed not to sell or otherwise dispose of their shares of common stock. Credit
Suisse First Boston may remove these contractual lock-up restrictions at any
time after the offering without prior notice.
We are party to two investor rights agreements which grant some of our
stockholders the right to demand that we register with the SEC the common stock
they acquired from us in private placements. The registration of this stock
would allow these shareholders to sell the stock publicly without any
limitations on the manner or amount of sale. These two registration rights
agreements cover an aggregate of 111,233,358 shares of our common stock. If
these registration rights were exercised in whole or in part, a substantial
number of shares of our common stock could be sold at once and the market price
of our common stock could fall.
WE WILL HAVE BROAD DISCRETION IN USING THE PROCEEDS FROM THIS OFFERING AND MIGHT
NOT USE THEM IN A MANNER STOCKHOLDERS WOULD PREFER
We have not identified specific uses for most of the proceeds from this
offering, and we will have broad discretion in how we use them. In addition, we
are unable to determine how much of the proceeds will be used for any identified
purpose other than repayment of up to $32.5 million of the NxTrend notes because
circumstances regarding our planned uses of the proceeds may change. You will
not have the opportunity to evaluate the economic, financial or other
information on which we base our decisions on how to use the proceeds. If we
fail to apply the funds effectively, it could have a material adverse effect on
our business and financial performance.
YOU WILL EXPERIENCE DILUTION UPON PURCHASE OF YOUR SHARES
The initial public offering price of our shares will substantially exceed
our pro forma net tangible book value per share, which is $0.15 as of December
31, 1999. Investors purchasing shares in this offering will therefore incur
immediate and substantial net tangible book value dilution. To the extent that
future options or warrants to purchase the common stock or shares are exercised,
there will be further dilution.
WE MIGHT IN THE FUTURE BE THE TARGET OF SECURITIES CLASS ACTION LITIGATION,
WHICH WOULD BE COSTLY AND TIME CONSUMING TO DEFEND
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We might in the future be the target of similar litigation.
Securities litigation might result in substantial costs and divert management's
attention or resources, which might seriously harm our business and operating
results.
20
<PAGE> 22
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the federal securities laws that relate to future events or our future financial
performance. In some cases you can identify forward-looking statements by
terminology such as "may," "might," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "intend," "potential" or
"continue" or the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks described above and in other parts of this
prospectus. These factors may cause our actual results to differ materially from
any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus or to conform these statements to actual results.
USE OF PROCEEDS
We will receive net proceeds from this offering of approximately
$ million (approximately $ million if the underwriters
exercise their over-allotment option in full), assuming that our common stock is
sold at $ per share, the midpoint of the range shown on the cover page
of this prospectus, and after deducting underwriting discounts and the estimated
expenses of this offering. We intend to use the net proceeds for general
corporate purposes, including marketing efforts and technology infrastructure
related to the development of the BuildNet Exchange, for potential acquisitions
and to repay all outstanding principal and accrued interest on notes issued to
the stockholders of NxTrend with an aggregate principal of up to $32.5 million.
The NxTrend notes mature on the effective date of this offering and have an
annual interest rate of 8%. As part of our expansion strategy, we may make
acquisitions and enter into joint ventures or strategic alliances which we may
fund with a portion of the net proceeds from this offering. Currently, we are
not contemplating any specific acquisitions. The precise allocation of funds
among these uses will depend on developments in or affecting our business, the
competitive climate in which we operate and the emergence of future
opportunities. The net proceeds will be invested in government securities and
other short-term, investment grade securities until we use them in our business.
DIVIDEND POLICY
We do not intend to pay cash dividends on our common stock in the
foreseeable future. We plan to retain earnings, if any, for use in the operation
of our business and to fund future growth.
21
<PAGE> 23
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999.
Our capitalization is presented:
- on an actual basis;
- on an unaudited pro forma basis to reflect:
- the conversion of all outstanding shares of our preferred stock into
shares of our common stock upon closing of this offering;
- the assumed exercise of warrants to purchase 2,890,960 shares of our
common stock that will expire if not exercised prior to the
consummation of this offering;
- the issuance, and reservation for issuance upon exercise of
outstanding options, of 25,954,659 shares of our common stock and
notes payable in the aggregate amount of $32.5 million to the former
stockholders and optionees of NxTrend Technology, Inc. in connection
with our pending acquisition of NxTrend, the assumed conversion of
$4.4 million of the principal of the notes payable into
shares of common stock (assuming a conversion price
equal to the midpoint of the range set forth on the front cover page
of this prospectus) and the assumed repayment of the remaining balance
of $28.1 million of the notes payable;
- the issuance of a note payable in the amount of $27 million in
connection with our acquisition of The UniLink Group, LLC and the
assumed conversion of the principal balance of this note payable into
6,136,363 shares of our common stock; and
- the issuance of a note payable in the amount of $5.9 million in
connection with our purchase of software from J.D. Edwards World
Source Company and the assumed conversion of this note payable into
shares of our common stock (assuming a conversion price
equal to the midpoint of the range set forth on the front cover page
of this prospectus).
- on an unaudited pro forma as adjusted basis to reflect our receipt of net
proceeds from our sale of shares of common stock at an initial
public offering price of $ per share, after deducting underwriting
discounts, commissions and estimated offering expenses payable by us.
The outstanding share information shown in the table excludes:
- 13,938,382 shares of common stock issuable upon the exercise of stock
options outstanding as of March 1, 2000 under our 1997 stock plan, our
1999 stock plan and the F.A.S.T. Management Group, Inc. 1997 stock option
plan, with a weighted average exercise price of $0.90 per share;
- an additional 28,125,900 shares reserved for issuance under our stock
plans as of March 17, 2000; and
- 16,014,880 shares of common stock issuable upon exercise of outstanding
warrants as of March 17, 2000 with a weighted average exercise price of
$2.38 per share which are not required to be exercised in connection with
and will not expire upon the consummation of this offering.
22
<PAGE> 24
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt and capital leases obligations, long-term portion...... $ 3,287 $ $
Redeemable warrants......................................... 10,458 10,458 10,458
Mandatorily redeemable preferred stock, $.01 par value,
99,563,680 shares authorized actual, no shares authorized
pro forma or pro forma as adjusted........................ -- -- --
Series B -- 74,563,680 shares authorized, 69,031,920
shares issued and outstanding actual and pro forma; no
shares issued and outstanding pro forma as adjusted.... 36,949 -- --
Series C -- 25,000,000 shares authorized, 24,322,619
shares issued and outstanding actual and pro forma; no
shares issued and outstanding pro forma as adjusted.... 102,299 -- --
Subscriptions to purchase mandatorily redeemable convertible
preferred stock........................................... (3,525) -- --
Shareholders equity (deficit):
Preferred stock, undesignated, $.01 par value, 49,167,400
shares authorized, no shares issued or outstanding
actual or pro forma: shares authorized pro forma as
adjusted, none issued or outstanding pro forma as
adjusted...............................................
Series A convertible preferred stock, $.01 par value;
1,268,920 shares authorized; 1,118,840 shares issued
and outstanding actual and pro forma; no shares issued
and outstanding pro forma as adjusted.................. 11 -- --
Common stock, $.01 par value; 350,000,000 shares
authorized; 54,872,024 shares issued and outstanding
actual; shares issued and outstanding pro
forma; shares issued and outstanding pro forma
as adjusted............................................ 549
Subscriptions to purchase common stock.................... -- (3,525) (3,525)
Additional paid-in capital................................ 37,281
Deferred compensation..................................... (28,912) (28,912)
Notes receivable from stockholders........................ (2,237) (2,237) (2,237)
Accumulated deficit....................................... (35,467) (35,467) (35,467)
-------- --------- ---------
Total stockholders' equity (deficit).............. (28,775)
-------- --------- ---------
Total capitalization.............................. $120,693 $ $
======== ========= =========
</TABLE>
23
<PAGE> 25
DILUTION
As of December 31, 1999, our pro forma net tangible book value was
approximately $25.5 million, or $0.15 per share of common stock. Pro forma net
tangible book value represents the amount of our total tangible assets less
total liabilities, reduced by notes payable in the aggregate amount of $65.4
million issued in connection with our acquisition of The UniLink Group, LLC, our
pending acquisition of NxTrend Technology, Inc, and the purchase of proprietary
software from J.D. Edwards World Source Company and gives effect to the
conversion of all outstanding shares of our preferred stock into shares of our
common stock, and the issuance, and reservation for issuance upon exercise of
outstanding options, of 25,954,659 shares of our common stock to the former
stockholders and optionees of NxTrend Technology, Inc. After giving effect to
our sale of shares of common stock at an assumed initial public
offering price of $ per share and the assumed application of the
estimated net proceeds from this sale, the assumed exercise of warrants to
purchase 2,890,960 shares of our capital stock that will expire if not exercised
prior to the consummation of this offering, the conversion of the principal of
$4.4 million into shares of our common stock at a price of $
per share and the repayment of the remaining balance of $28.1 million of the
notes payable issued to the former owners of NxTrend Technology, Inc., the
conversion of the principal balance of the $27 million note payable to the
former owners of The UniLink Group, LLC, into shares of our
common stock, and the conversion of principal of $5.9 of the note payable to
J.D. Edwards World Source Company into shares of our common stock, our
pro forma as adjusted net tangible book value would have been approximately $
million, or $ per share of common stock. This represents an immediate
increase in such pro forma as adjusted net tangible book value of $ per
share to existing stockholders and an immediate decrease in pro forma as
adjusted net tangible book value of $ per share to new investors. The
following table illustrates this per share dilution to new investors:
<TABLE>
<CAPTION>
PER SHARE
-------------------
<S> <C> <C>
Assumed initial public offering price....................... $
Pro forma net tangible book value as of December 31,
1999...................................................
Increase attributable to new investors.................... $
-------
Pro forma as adjusted net tangible book value after this
offering..................................................
Dilution as adjusted to new investors.......................
---------
$
=========
</TABLE>
The following summarizes, as of December 31, 1999, the number of shares of
common stock purchased from us, the total consideration paid to us and the
average price per share paid to us by existing stockholders and by investors
purchasing shares of common stock in this offering, before deducting estimated
underwriting discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. $ $
New investors......................... $
------- ----- -------- ----- -------
Total....................... 100.0% 100.0% $
======= ===== ======== ===== =======
</TABLE>
The tables above assume no exercise of stock options outstanding as of
December 31, 1999. Options to purchase 14,941,254 shares of common stock were
outstanding as of December 31, 1999, with a weighted average exercise price of
$0.75 per share. The tables above assume the exercise of warrants to purchase
2,890,960 shares of common stock which would expire if not exercised prior to
the consummation of this offering but assumes no exercise of warrants to
purchase 8,014,880 shares of common stock with a weighted exercise price of
$0.36 per share which will remain outstanding following the consummation of this
offering and no conversion of notes convertible into common stock upon
consummation of this offering. To the extent these unexercised options and
warrants are exercised, investors in this offering will experience further
dilution.
If the underwriters exercise their over-allotment in full, the following
will occur:
- the number of shares of common stock held by existing stockholders will
decrease to approximately % of the total number of shares of our common
stock outstanding; and
- the number of shares held by new investors will increase to ,
or approximately % of the total number of shares of our common stock
outstanding after this offering.
24
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
Our selected financial data set forth below should be read in conjunction
with our financial statements and accompanying notes, including the unaudited
pro forma combined statement of operations data, appearing elsewhere in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The historical statements and operations data for the
years ended December 31, 1997, 1998, and 1999, and the balance sheet as of
December 31, 1998 and 1999 are derived from, and are qualified by reference to,
our financial statements, which have been audited by PricewaterhouseCoopers LLP.
The balance sheet as of December 31, 1997 is derived from our audited balance
sheet not included in this prospectus. The acquisitions of FAST, McCosker,
Systems Analysis, and Maxwell have been accounted for using the purchase method
of accounting. Accordingly, the actual consolidated statement of operations data
reflects the results of operations of FAST, McCosker, Systems Analysis, and
Maxwell since their acquisition dates of May 19, 1999, May 22, 1999, June 21,
1999, and August 27, 1999, respectively. The pro forma consolidated statement of
operations data combine the historical statements of operations of BuildNet,
NxTrend, UniLink, Key Prestige, McCosker, FAST, Systems Analysis, and Maxwell as
if the acquisitions by BuildNet of NxTrend, UniLink, McCosker, FAST, Systems
Analysis, and Maxwell and the acquisition by UniLink of Key Prestige had been
completed on January 1, 1999. Historical results are not necessarily indicative
of results to be expected in the future.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(OCTOBER 24, 1996)
TO DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 ---------------------------- PRO FORMA
(UNAUDITED) 1997 1998 1999 1999
------------------ ------- ------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 388 $ 4,257 $ 4,506 $ 14,601 $ 85,806
Cost of revenues............................................ 164 1,369 1,436 9,026 45,836
------- ------- ------- -------- --------
Gross profit................................................ 224 2,888 3,070 5,575 39,970
------- ------- ------- -------- --------
Operating expenses:
General and administrative................................ 96 1,348 1,969 8,151
Sales and marketing....................................... 224 1,594 2,073 4,845
Research and development.................................. 168 1,122 2,035 9,898
Stock-based compensation.................................. -- 202 22 666
------- ------- ------- -------- --------
Total operating expenses............................ 488 4,266 6,099 23,560 95,586
------- ------- ------- -------- --------
Operating loss.............................................. (264) (1,378) (3,029) (17,986) (55,616)
Interest, net............................................... (11) (288) (210) (10,515) (11,158)
Provision for income taxes.................................. -- -- -- -- (1,788)
------- ------- ------- -------- --------
Loss before extraordinary item.............................. (275) (1,666) (3,239) (28,501) (68,562)
Extraordinary loss on early extinguishment of debt.......... -- -- (107) (28) (28)
------- ------- ------- -------- --------
Net loss.................................................... (275) (1,666) (3,346) (28,529) (68,590)
Accretion of mandatorily redeemable preferred stock......... -- -- -- (2,069) --
Preferred stock dividend.................................... -- -- -- (167) --
------- ------- ------- -------- --------
Net loss available to common shareholders................... $ (275) $(1,666) $(3,346) $(30,765) $(68,590)
======= ======= ======= ======== ========
Net loss per common share -- basic and diluted.............. $ (0.01) $ (0.08) $ (0.17) $ (0.84)
Weighted average common shares outstanding -- basic and
diluted................................................... 20,043 20,043 20,043 36,527
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,344 $ 260 $ 51,875
Working capital (deficit)................................... 498 (954) 67,495
Total assets........................................ 2,208 916 134,726
Long term liabilities....................................... 2,939 4,418 13,746
Mandatorily redeemable convertible preferred stock.......... -- -- 135,723
Stockholder's equity (deficit).............................. (1,980) (4,897) (28,775)
</TABLE>
25
<PAGE> 27
The pro forma net loss per common share assumes the following:
- the conversion of all outstanding shares of our preferred stock into
shares of our common stock upon closing of this offering;
- the assumed exercise of warrants to purchase 2,890,960 shares of our
common stock that will expire if not exercised prior to the
consummation of this offering;
- the issuance, and reservation for issuance upon exercise of
outstanding options, of 25,954,659 shares of our common stock and
notes payable in the aggregate amount of $32.5 million to the former
stockholders and optionees of NxTrend Technology, Inc. in connection
with our pending acquisition of NxTrend, the assumed conversion of
$4.4 million of the principal of the notes payable into
shares of common stock (assuming a conversion price
equal to the midpoint of the range set forth on the front cover page
of this prospectus) and the assumed repayment of the remaining balance
of $28.1 million of the notes payable;
- the issuance of a note payable in the amount of $27 million in
connection with our acquisition of The UniLink Group, LLC and the
assumed conversion of the principal balance of this note payable into
6,136,363 shares of our common stock; and
- the issuance of a note payable in the amount of $5.9 million in
connection with our purchase of software from J.D. Edwards World
Source Company and the assumed conversion of this note payable into
shares of our common stock (assuming a conversion price
equal to the midpoint of the range set forth on the front cover page
of this prospectus).
26
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and accompanying notes, which appear elsewhere
in this prospectus. This discussion contains forward-looking statements that
involve risk and uncertainties. Our actual results could differ materially from
those anticipated in these forward looking statements as a result of various
risk factors, including those discussed below and elsewhere in this prospectus,
particularly under the heading "Risk Factors."
OVERVIEW
Our objective is to be the business-to-business e-commerce solution for the
residential construction industry. The BuildNet Exchange is designed to provide
secure Internet-based procurement, e-commerce and information services for
homebuilders, suppliers and manufacturers. We are testing the BuildNet Exchange
and expect to initiate a limited market rollout in the second quarter of 2000
and a commercial rollout in the second half of 2000.
History of Losses. We have never been profitable, we expect to incur net
losses in the foreseeable future and we may never be profitable. As of December
31, 1999, we had an accumulated deficit of $35.5 million. Net losses have
increased and we expect this trend will continue.
Sources of Revenues. From our incorporation in 1996 through December 31,
1999, substantially all of our revenues were generated from the sale of
management software and related services for homebuilders. In January 2000, we
acquired assets and assumed liabilities of The UniLink Group, LLC. UniLink's
revenues have been primarily comprised of transaction and service fees related
to transactions between suppliers and manufacturers in the heating, ventilation
and air conditioning (HVAC) and appliance industries using UniLink's transaction
exchange and transaction fees for the processing of warranty claims. In February
2000, we entered into an agreement to acquire NxTrend Technology. NxTrend's
revenues have been primarily generated from the sale of back-office systems to
suppliers of building, electrical, plumbing, HVAC and industrial products.
As we roll out the BuildNet Exchange, we expect that a primary and growing
source of our revenues will be transaction fees paid by suppliers who sell
building materials and products to homebuilders through the BuildNet Exchange.
We expect that these fees will be based upon a negotiated percentage of the
sales price of materials and products ordered online by homebuilders over the
BuildNet Exchange.
As a result of our planned rollout of the BuildNet Exchange, we are
considering changing our pricing structure for homebuilders using our software
products so that they may be charged for software based upon the number of homes
built each year as opposed to one-time license fee payments. In addition, we
anticipate that our sales and marketing efforts will be redirected to focus on
the BuildNet Exchange, which is expected to be an increasingly significant
component of our total revenues. Based on these factors, we expect revenues from
software and related services to decrease in absolute terms on a pro forma basis
and not be as significant a component of our revenues in the future as it has
been in the past. In addition, we do not expect revenues from other sources,
including revenues from the BuildNet Exchange, to offset this decline in the
near term.
In addition to transaction fees processed through the BuildNet Exchange, we
also plan to derive revenues in the future from the following sources:
- subscription fees paid by manufacturers to be included in the BuildNet
Exchange;
- marketing and advertising by manufacturers and suppliers on the BuildNet
Exchange;
- marketing services related to our mortgage.com relationship;
- warranty claim processing;
- administering manufacturer loyalty and rebate programs; and
27
<PAGE> 29
- selling information collected from the BuildNet Exchange.
We anticipate that both sales and marketing expenses and research and
development expenses will increase as we continue to develop and roll out the
BuildNet Exchange. We cannot assure you that we will be successful in developing
our business and generating revenues and we refer you to the specific risks
outlined under the heading "Risk Factors."
Revenue Recognition Policy. Both we and NxTrend recognize software
revenues from multiple element contracts for which the software license element
can be separated from the service elements when the following conditions are
satisfied: there is evidence of an arrangement; the product has been shipped;
fees are fixed and determinable; and collection of the fees is probable.
Software revenues from multiple element contracts for which the software element
cannot be separated from the service elements are recognized based on the
percentage of completion method, whereby revenues are recognized based on the
estimated stage of completion of individual contracts. Revenues from
software-related services, which include customer maintenance and support,
training and consulting, are recognized as the services are performed. UniLink
recognizes transaction fees as the transactions occur, and services fees in the
period in which the services are performed. In addition, once the BuildNet
Exchange is rolled out, we expect to recognize transaction fees as the
transactions occur.
RECENT ACQUISITIONS
Between May and August 1999, we acquired four businesses which were also
providers of back-office management and productivity-based integrated software
for the homebuilder segment of the residential construction industry, including
The F.A.S.T. Management Group, which we acquired on May 19, 1999, McCosker
Corporation, which we acquired on May 22, 1999, Systems Analysis, which we
acquired on June 21, 1999, and Maxwell & Company, which we acquired on August
27, 1999. We also purchased Site Trak, which is a back-office proprietary
software system for the subcontractor segment of the homebuilding industry, on
September 15, 1999. We refer to these acquisitions collectively as the "1999
Acquisitions."
On January 18, 2000, we purchased certain assets and assumed certain
liabilities of UniLink in exchange for a convertible note payable in the amount
of $27.0 million. The assets acquired included software products for the
processing of electronic commerce transactions in the electrical, plumbing,
appliances and HVAC markets, via electricalonline.com, plumbingonline.com,
appliancepartner.com, and hvaconline.com and assets for the electronic
processing of warranty claims. In connection with this purchase, we entered into
a one-year agreement with the former owners of UniLink whereby we will process
warranty transactions in the consumer electronics industry in exchange for fees
of 75% of the fees charged by the former owners of UniLink to those customers.
On January 31, 2000, we purchased the software and customer base for the
homebuilder module of the World Software System from J.D. Edwards World Source
Company in exchange for $650,000 in cash and a note payable in the amount of
$5.9 million. The acquisition of this customer base and software provides us
additional access to the larger homebuilders in the U.S. residential
construction industry.
On February 21, 2000, we entered into an agreement to purchase NxTrend in
exchange for 25,954,659 shares of our common stock and notes payable in the
aggregate amount of $32.5 million. This transaction is subject to regulatory
approval. NxTrend is a leading provider of enterprise-wide solutions designed to
enable suppliers to better manage inventory, order processing, sales, warehouse
logistics and electronic commerce. NxTrend's supply chain solutions are targeted
to the needs of suppliers of building materials, electrical, plumbing, HVAC, and
industrial products.
STRATEGIC RELATIONSHIPS
In May 1999, we issued GE Capital Equity Investments a warrant to purchase
up to 5,426,380 shares of our Series B preferred stock, which will become
exercisable for common stock upon closing of this offering, at an exercise price
of $0.52 per share which vests incrementally upon the achievement of sales and
marketing objectives. As of December 31, 1999, 1,356,660 warrants had been
earned under this
28
<PAGE> 30
agreement based on the achievement of objectives related to the signing of
contracts with specific manufacturers. Accordingly, we recorded $5.6 million in
deferred customer acquisition costs based on the estimated fair value of these
warrants using the Black-Scholes pricing model. Deferred customer acquisition
costs are being amortized as a sales and marketing expense over the term of the
manufacturer contracts. For the year ended December 31, 1999, $117,000 was
amortized as a sales and marketing expense.
In the first quarter of 2000, we issued to homebuilders and suppliers
warrants to purchase 500,000 shares of our common stock at an exercise price of
$4.40 per share and 600,000 shares of our Series C preferred stock, which will
become exercisable for common stock upon closing of this offering, at an
exercise price of $4.40 per share. The warrants become exercisable as the
homebuilders and suppliers achieve milestones related to the promotion and
adoption of the BuildNet Exchange. As and when the homebuilders and suppliers
achieve these milestones, we will record a non-cash charge as sales and
marketing expense, based on the fair market value of the warrants at that time.
In addition, the homebuilders and suppliers can earn warrants to purchase up to
an additional 2,500,000 shares of our common stock at an exercise price of $4.40
and 4,400,000 shares of our Series C preferred stock, which will become
exercisable for common stock upon closing of this offering at an exercise price
of $4.40 per share based on the homebuilders' and suppliers' volume of
transactions through the BuildNet Exchange. We will record a non-cash charge as
sales and marketing expense as and when these warrants become exercisable, based
on the fair market value of the warrants at that time. All of the warrants
issued to the homebuilders and suppliers will expire three years from their
respective dates of issuance.
Stock-Based Compensation. As of December 31, 1999, we had a deferred
compensation balance of $28.9 million as a result of grants of employee stock
options with an exercise price below the assumed fair value of the underlying
common stock for financial accounting purposes only. This deferred compensation
is being amortized as stock-based compensation over the vesting periods. Vesting
periods are generally between three and five years, although some options
include acceleration clauses whereby the vesting of the options will accelerate
upon our achievement of milestones related to the adoption of the BuildNet
Exchange.
29
<PAGE> 31
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998 1999
----- ----- ------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... 100.0% 100.0% 100.0%
----- ----- ------
Cost of revenues............................................ 32.2 31.8 61.8
----- ----- ------
Gross profit................................................ 67.8 68.2 38.2
----- ----- ------
Operating expenses
General and administrative................................ 31.7 43.7 55.8
Sales and marketing....................................... 37.4 46.0 33.2
Research and development.................................. 26.4 45.2 67.8
Stock-based compensation.................................. 4.7 0.5 4.6
----- ----- ------
Total operating expenses.......................... 100.2 135.4 161.4
----- ----- ------
Operating loss.............................................. (32.4) (67.2) (123.2)
Net interest expense........................................ (6.7) (4.7) (72.0)
----- ----- ------
Loss before extraordinary item.............................. (39.1) (71.9) (195.2)
Extraordinary loss on early extinguishment of debt.......... -- (2.4) (0.2)
----- ----- ------
Net loss.................................................... (39.1) (74.3) (195.4)
Accretion of mandatorily redeemable preferred stock......... -- -- (14.2)
Preferred stock dividend.................................... -- -- (1.1)
----- ----- ------
Net loss available to common shareholders................... (39.1)% (74.3)% (210.7)%
===== ===== ======
</TABLE>
YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues. Revenues consist primarily of sales of software licenses,
professional services and support and maintenance contracts. Revenues increased
by 224% to $14.6 million in 1999 from $4.5 million in 1998. The increase in
revenues was due primarily to revenues generated by the 1999 Acquisitions.
Revenues generated by the 1999 Acquisitions accounted for $10.2 million of our
revenues during 1999.
Cost of Revenues. Cost of revenues consist primarily of employee payroll
and related expenses for consulting, training and customer support. Cost of
revenues increased by 529% to $9.0 million in 1999 from $1.3 million in 1998. As
a percentage of revenues, cost of revenues increased to 62% in 1999 from 32% in
1998. The increase in cost of revenues was due primarily to cost of revenues
incurred by the 1999 Acquisitions. Cost of revenues incurred by the 1999
Acquisitions accounted for $6.7 million of our cost of revenues during 1999. As
a percentage of revenues, cost of revenues increased because revenues generated
by the 1999 Acquisitions are comprised largely of revenues from training and
consulting, which tend to have higher related costs due to the personnel
expenses incurred to perform the services.
General and Administrative. General and administrative expenses consist
primarily of employee salaries and other expenses for executive, administrative
and finance personnel. General and administrative expenses increased by 314% to
$8.2 million in 1999 from $2.0 million in 1998. As a percentage of revenues,
general and administrative expenses increased to 56% in 1999 from 44% in 1998.
Both the overall increase in general and administrative expenses and the
increase in general and administrative expenses as a percentage of revenues was
due primarily to an increase in the number of general and administrative
employees to 93 at December 31, 1999 from 11 at December 31, 1998, due primarily
to the continued development of our infrastructure and the 1999 Acquisitions. We
expect these expenses to increase as we develop and roll out the BuildNet
Exchange.
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Sales and Marketing. Sales and marketing expenses consist primarily of
employee salaries, benefits and commissions, and the costs of promotional
materials, trade shows and other sales and marketing programs. Sales and
marketing expenses increased by 134% to $4.8 million in 1999 from $2.1 million
in 1998. The increase in sales and marketing expenses were due primarily to an
increase in the number of sales and marketing employees to 48 at December 31,
1999 from 13 at December 31, 1998, due in part to the 1999 Acquisitions. As a
percentage of revenues, sales and marketing expenses decreased to 33% in 1999
from 46% in 1998. The decrease in sales and marketing expense as a percentage of
revenues was due to revenues generated by the 1999 Acquisitions, the effect of
recurring revenues from maintenance and support contracts and co-marketing
efforts between us and the 1999 Acquisitions. We expect these expenses to
increase as we develop and roll out the BuildNet Exchange.
Research and Development. Research and development expenses consist
primarily of employee salaries and related costs, consulting fees and other
expenses incurred in connection with the development of our products and
services. Research and development expenses increased by 386% to $9.9 million in
1999 from $2.0 million in 1998. As a percentage of revenues, research and
development expenses increased to 68% in 1999 from 45% in 1998. Both the overall
increase in research and development expenses and the increase in research and
development expenses as a percentage of revenues were due to an increase in the
number of research and development employees to 94 at December 31, 1999 from 25
at December 31, 1998, as we increased our efforts to develop the BuildNet
Exchange. In addition, a consulting contract with a third party for the
development of the BuildNet Exchange accounted for research and development
costs of $2.2 million during 1999. We expect these expenses to increase as we
develop and roll out the BuildNet Exchange.
Stock-Based Compensation. Amortization of stock-based compensation
increased to $666,000 in 1999 from $22,000 in 1998. During 1999, we recorded
deferred compensation charges of $29.4 million related to employee stock
options, compared to $359,000 of deferred compensation that was recorded prior
to December 31, 1998. We are amortizing these deferred compensation charges over
the vesting periods of the related options, and therefore the increase in
amortization of stock-based compensation in 1999 is due to the amortization of
the deferred compensation charges that were recorded in 1999.
Interest Expense, Net. Interest expense, net of interest income, increased
to $10.5 million in 1999 from $210,000 in 1998. In October 1997, we entered into
a $3 million debt agreement under which we issued redeemable warrants to
purchase our common stock. These warrants include provisions which may require
us to repurchase the warrants at the fair market value of the warrant.
Therefore, these warrants are required to be carried at their fair market value,
with any changes in the carrying value of the warrants being charged to non-cash
interest income or expense. The fair market value of the warrants increased
significantly in 1999 from 1998, which caused the non-cash charge to interest
expense in 1999. We also recorded debt discount for warrants issued with debt,
which was amortized over the life of the loans as non-cash interest expense. In
1999, net interest expense consisted of non-cash interest charges of $10.1
million, interest income of $643,000, and interest expense of $1.0 million
payable in cash. During 1998, net interest expense consisted of interest expense
of $513,000 payable in cash, interest income of $39,000 and non-cash interest
income of $264,000.
Extraordinary Loss on Early Extinguishment of Debt. Extraordinary loss on
early extinguishment of debt decreased to $28,000 in 1999 from $107,000 in 1998.
The loss on early extinguishment of debt in 1999 consisted of the difference in
the principal balance and the carrying value of two notes payable that were
repaid prior to the maturity date in 1999. The loss on early extinguishment of
debt in 1998 was due to a note payable that was revised in 1998, and represents
the difference in the terms of the revised note payable as compared to the
original terms of the note payable.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues. Revenues increased by 6% to $4.5 million in 1998 from $4.3
million in 1997. The increase in revenues was primarily due to an increase in
recurring revenues from support and maintenance fees as we continued to build
our customer base.
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Cost of Revenues. Cost of revenues increased by 5% to $1.4 million in 1998
from $1.4 million in 1997. As a percentage of revenues, cost of revenues were
32% in both 1998 and 1997. The increase in cost of revenues was due in part to
an increase in the number of support and maintenance and professional service
employees to 19 at December 31, 1998 from 15 at the beginning of 1997.
General and Administrative. General and administrative expenses increased
by 46% to $2.0 million in 1998 from $1.3 million in 1997. As a percentage of
revenues, general and administrative expenses increased to 44% in 1998 from 32%
in 1997. Both the overall increase in general and administrative expenses and
the increase in general and administrative expenses as a percentage of revenues
were primarily due to the leasing of additional facilities and due to the hiring
of additional general and administrative employees, as we contained to build our
infrastructure.
Sales and Marketing. Sales and marketing expenses increased by 30% to $2.1
million in 1998 from $1.6 million in 1997. As a percentage of revenues, sales
and marketing expenses increased to 46% in 1998 from 37% in 1997. The increase
in sales and marketing expenses was due primarily to reinitiating our
advertising, marketing and tradeshow efforts as a result of $3.0 million we
received from the issuance of notes payable in the fourth quarter of 1997.
Research and Development. Research and development expenses increased by
81% to $2.0 million in 1998 from $1.1 million in 1997. As a percentage of
revenues, research and development expenses increased to 45% in 1998 from 26% in
1997. Both the overall increase in research and development expenses and the
increase in research and development expenses as a percentage of revenues was
due to an increased emphasis on the development of our software products and the
BuildNet Exchange and an increase in the number of research and development
employees to 25 at December 31, 1998 from 20 at the beginning of 1997.
Stock-Based Compensation. Amortization of stock-based compensation
decreased by 89% to $22,000 in 1998 from $202,000 in 1997. The decrease was
attributable to employee stock options that were granted during 1997 that were
immediately partially vested, resulting in an immediate charge of $189,000.
There were no such immediate charges during 1998.
Interest Expense, Net. Interest expense, net of interest income, decreased
by 27% to $210,000 in 1998 from $288,000 in 1997. During 1998, net interest
expense consisted of interest expense of $513,000 payable in cash, interest
income of $39,000 and non-cash interest income of $264,000. During 1997, net
interest expense consisted primarily of interest expense of $178,000 payable in
cash, interest income of $29,000 and non-cash interest expense of $139,000.
Extraordinary Loss on Early Extinguishment of Debt. Extraordinary loss on
early extinguishment of debt increased to $107,000 in 1998 from zero in 1997.
The loss on early extinguishment of debt in 1998 was due to a note payable that
was revised in 1997, and represents the difference in the terms of the revised
note payable as compared to the original terms of the note payable.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations through cash from operations
and through private placements of debt instruments and our preferred stock. As
of December 31, 1999, we had cash and cash equivalents of $51.9 million and
long-term investments of $29.7 million. We also had funds of $25.3 million held
in an escrow account at December 31, 1999 from the sale of our preferred stock,
which was disbursed to us in January 2000. Our long-term investments at December
31, 1999 are comprised solely of student loan bonds which are secured by the
U.S. government and underwritten by a major financial institution. We have the
option to sell these bonds back to the financial institution at their face value
approximately every 28 days. Therefore, our long-term investments at December
31, 1999 are considered highly liquid.
Cash used in operating activities during 1999, 1998 and 1997 was $13.4
million, $2.9 million, and $1.4 million, respectively. Cash used in operating
activities was primarily for the development of the BuildNet
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Exchange, the expansion of our sales and marketing force and the expansion of
our administrative and operations staff to support our growth.
Cash used in investing activities during 1999, 1998 and 1997 was $37.6
million, $122,000 and $31,000, respectively. During 1999, cash used in investing
consisted of net cash paid for the 1999 Acquisitions of $3.3 million and
purchases of long-term investments of $33.7 million.
Cash provided by financing activities during 1999, 1998 and 1997 was $102.6
million, $1.9 million, and $2.6 million, respectively. During 1999, 1998 and
1997, we issued an aggregate of $7.5 million of notes payable in exchange for
cash. During 1997, certain of these notes payable with a principal balance of
$200,000 and related accrued interest were converted into 229,200 shares of our
Series A convertible preferred stock. During 1999, certain of these notes with
an aggregate principal balance of $4.7 million and related accrued interest were
converted into 9,471,187 shares of our Series B mandatorily redeemable preferred
stock. Also during 1999, we repaid the remaining notes payable that were issued
during 1999, 1998 and 1997 with an aggregate principal balance of $2.4 million.
During 1999, we issued an additional 59,560,733 shares of our Series B
mandatorily redeemable preferred stock at a price of $0.52 per share and issued
24,322,617 shares of our Series C mandatorily redeemable preferred stock at a
price of $4.40 per share. We received net proceeds of $102.3 million from the
sales of our Series B and Series C mandatorily preferred stock during 1999. At
December 31, 1999, we had funds of $25.3 held in an escrow account which we
received in January 2000 related to shares of our Series B and Series C
mandatorily redeemable preferred stock that were issued during 1999, and
received an additional $3.5 million in January and February 2000 related to
subscriptions for our Series B and Series C mandatorily redeemable preferred
stock that were outstanding at December 31, 1999.
As of December 31, 1999, we had notes payable outstanding in the aggregate
amount of $4.9 million related to our 1999 Acquisitions and the Site Trak
software system. These notes mature between 2001 and 2002 and incur interest at
a rate of 8% per annum.
The $27.0 million note payable to the former shareholders of UniLink is
convertible into shares of our common stock at a rate of $4.40 per share at the
option of the holder at any time prior to the maturity date. Conversion is
mandatory upon the expiration of any lock-up period to which our investors are
subject following the closing of this offering. The $5.9 million note payable to
J.D. Edwards World Source Company is convertible at the option of the holder
into shares of our common stock upon the closing of this offering at the price
per share of the common stock sold in this offering. Of the $32.5 million of
notes payable issued to the former shareholders of NxTrend, $4.4 million of the
notes are convertible at the option of the holders into shares of our common
stock upon the closing of this offering at the price per share of the common
stock sold in this offering. The remaining balance of the notes payable to the
former shareholders of NxTrend is payable in full on the seventh day following
the closing of this offering.
NxTrend has a financing facility including a secured term loan of $25.0
million and a secured revolving credit line. The revolving loan provides for a
maximum outstanding balance of $10.0 million. The facility expires on December
31, 2000, or earlier, based on certain provisions included in the facility.
Principal payments are due quarterly, with interest due monthly. Under certain
conditions, based primarily on our earnings, we might be required to make
certain prepayments of the term loan principal. As of December 31, 1999, $4.1
million was outstanding under the term loan and $500,000 was outstanding under
the revolving loan.
We also have issued warrants to purchase 2,215,660 shares of our common
stock at an exercise price of $0.0005 per share. At the option of the holders of
these warrants, we might be required to repurchase the warrants beginning May
31, 2006 at the fair value of the warrants.
Since our inception in 1996, we have experienced net losses and negative
cash flows from our operations. For the foreseeable future, we expect to
experience significant net losses and negative cash flows. We believe that our
existing liquidity and capital resources, including the proceeds resulting from
the sale of our common stock in this offering, will be sufficient to satisfy our
cash requirements for at least the next 12 months. To the extent that such
amounts are insufficient, we will be required to raise
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additional funds through debt or equity financing. There can be no assurance
that we will be able to raise such funds on favorable terms, or at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. This statement is
effective for financial statements for all fiscal quarters of all fiscal years
beginning after June 15, 2000. We intend to adopt this statement when required;
however, it is not expected to have a material impact on our financial position
or results of operations.
IMPACT OF YEAR 2000 COMPUTER ISSUES
Most reports to date have indicated that computer systems are functioning
normally and the compliance and remediation work was effective to prevent any
problems resulting from systems' inability to recognize dates on and after
January 1, 2000. However, computer experts have warned that there may still be
residual consequences of the change in centuries. It is also possible that
errors or defects may remain undetected, or that dates other than January 1 may
trigger Year 2000 type problems. We designed the most recent versions of our
products and systems to be Year 2000 compliant. To date, Year 2000 remediation
efforts to our products and services were minor due to our awareness of Year
2000 issues when our products were developed. To date, we have not developed any
formalized contingency plans to address the risk that our products, systems,
customers, vendors or other third-parties might fail to be or become Year 2000
compliant. To the extent that we identify third party or other Year 2000
compliance issues that are not capable of remediation on a timely basis, we plan
to develop contingency plans in order to minimize our risks. Although we have
not experienced any Year 2000 problems, it is possible that we could face
problems or disruptions during 2000. Any Year 2000 problems could cause
difficulties accessing the BuildNet Exchange and our Web site thereby resulting
in decreased sales of our services to our customers and damage to our
reputation.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Most of our cash equivalents, capital lease obligations, and long-term debt
obligations are at fixed interest rates, and therefore the fair value of these
investments is affected by changes in market interest rates. However, our cash
equivalents are primarily comprised of high grade commercial paper and highly
liquid deposits with financial institutions. Most of our long-term investments
are comprised of auction rate bonds, for which the interest rate is determined
in an auction approximately every 28 days. Therefore, the fair value of the
underlying bonds are not materially effected by a change in market interest
rates. A hypothetical increase or decrease in market interest rate by 10% from
the market interest rates at December 31, 1999 would not have a material effect
on our portfolio.
All of our revenues recognized to date have been denominated in United
States dollars and are primarily from clients in the United States. Although
NxTrend has generated a small portion of its revenues in Canada, we do not
anticipate that sales denominated in foreign currencies will comprise a
significant portion of our sales in the foreseeable future.
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BUSINESS
OVERVIEW
Our objective is to be the business-to-business e-commerce solution for the
residential construction industry. We have designed the BuildNet Exchange to
provide secure Internet-based procurement, e-commerce and information services
for homebuilders, suppliers and manufacturers. We believe that the BuildNet
Exchange addresses many of the supply chain inefficiencies that adversely impact
the residential construction industry. Homebuilders, suppliers and manufacturers
lack accurate and timely information on product requirements, building materials
are transferred multiple times through the supply chain and most procurement
processes are paper-based and labor intensive. The BuildNet Exchange allows
users to confirm pricing and product specifications, place purchase orders and
add both product and order information automatically to builders' and suppliers'
management systems. In addition, manufacturers can place product information and
catalogs on the BuildNet Exchange for access by homebuilders and suppliers.
We are testing the BuildNet Exchange and expect to initiate a limited
market rollout in two cities during the second quarter of 2000 and plan to
commence a commercial rollout in an additional four to six cities in the second
half of 2000. Our position as a leading provider of management software to
homebuilders and suppliers gives us a critical mass of software users to connect
to the BuildNet Exchange. Our aggregated software customer base includes
homebuilders who accounted for approximately 43% of 1999 U.S. single-family home
closings, according to our estimates, and three of the top ten residential
construction suppliers in the U.S., according to Pro Sales magazine. We have
already completed the initial upgrade of four of our six existing builder
management software products and our two principal supplier management software
products to connect to the BuildNet Exchange. We refer to the process by which
we connect the BuildNet Exchange to the back-office management systems of
homebuilders and suppliers as BuildNet Enabling. We will BuildNet Enable our
remaining builder management software products prior to our commercial rollout.
We have established relationships with many major homebuilders, suppliers
and manufacturers through equity investments and our warrant incentive program
to encourage the rapid adoption of the BuildNet Exchange. We also have an
existing strategic relationship with EDS, under which EDS is promoting the
BuildNet Exchange as the standard for the homebuilding industry and has built
and will host our transaction hub. In addition, we have a relationship with
mortgage.com under which we have exclusive rights to offer to homebuilders the
ability to arrange mortgage loans for their homebuyers through mortgage.com.
INDUSTRY BACKGROUND
Growth of Business-to-Business Commerce on the Internet
The Internet has emerged as the fastest growing communications medium in
history and is dramatically changing how businesses communicate and share
information. International Data Corporation estimates that the number of U.S.
Web users in U.S. commercial business will grow from 33 million at the end of
1999 to 99 million by the end of 2003. Worldwide business-to-business
e-commerce, defined as the total volume of intercompany trade of goods and
services in which the final order is placed over the Internet, is expected to
grow from an estimated $406 billion in 2000 to $2.7 trillion in 2004, according
to Forrester Research.
The widespread adoption of intranets and the acceptance of the Internet as
a business communications platform has created a foundation for
business-to-business e-commerce that offers the potential for companies to
streamline complex processes, lower costs and improve productivity. Business-
to-business e-commerce solutions frequently automate or otherwise modify
workflows or processes that are fundamental to a company's operations by
replacing paper-based transactions with electronic communications. Buyers can
automate and centralize their purchasing processes and access more detailed
information
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on product pricing and availability. Sellers can access timely information
regarding their customers' needs, which enables them to reduce excess inventory
and deliver products and services that are in demand.
Business-to-business e-commerce solutions enable buyers and sellers in
fragmented markets to reduce supply chain inefficiencies. These solutions are
most applicable to industries characterized by large numbers of buyers and
sellers, a high degree of fragmentation among buyers and sellers, significant
dependence on information exchange, large transaction volume and user acceptance
of the Internet.
The Residential Construction Industry
Residential construction is one of the largest sectors of the U.S. economy.
According to the U.S. Census Bureau, the value of residential construction in
the United States in 1997 was approximately $238 billion. Also according to the
Census Bureau, there were approximately 1.3 million single-family housing starts
in 1999. There are many related markets to the residential construction
industry, including mortgage financing, residential construction lending and
advertising and information services to new homeowners.
The main participants in the procurement of residential construction
building materials and products include homebuilders, suppliers and
manufacturers. The homebuilder and supplier segments of the residential
construction industry are highly fragmented and driven by local demand. We
estimate based on Builder magazine data that the top ten largest homebuilders in
1998 represent only approximately 13% of all single-family housing starts.
According to the National Association of Homebuilders, in 1997, there were
approximately 146,000 residential construction companies in the United States,
many of which built fewer than 100 homes per year. We estimate based on
imarketinc data that there are approximately 54,000 building materials and
products suppliers in the United States. Residential construction is a very
local business driven by regional and local demands such as local economic
conditions, raw materials availability and style preferences. Homebuilders
depend on local suppliers to deliver products and materials to the job site on
time and in the order required, and to provide other value-added services such
as consulting, customization and assembly. As a consequence, even the large
national homebuilders generally make purchasing decisions at the local level.
Complex Distribution Network. The localized and fragmented nature of the
residential construction industry has created a complex distribution network for
building materials and products. Building materials and products are transferred
multiple times through the supply chain. A supplier either buys directly from a
manufacturer and then sells to a homebuilder, referred to as one-step
distribution, or buys from a national/regional supplier, who previously has
purchased the materials from the manufacturer, and then sells to the
homebuilder, referred to as two-step distribution. Suppliers vary widely by
their amount of sales, the variety of building materials and products they carry
and the value-added services they provide. We estimate that in 1999 homebuilders
purchased approximately $70 billion worth of building products and materials
from suppliers and each supplier purchased those products and materials from
either another supplier or a manufacturer.
Supply Chain Inefficiencies. We believe that supply chain inefficiencies
adversely impact the residential construction industry. Traditional purchasing
and planning methods in the residential construction industry are complex,
costly and inefficient. The major problems faced by homebuilders, suppliers and
manufacturers include the following:
- Homebuilders. New home construction typically takes between three to 12
months. To build a home, a homebuilder orders a broad range of materials
and products from a number of suppliers. Therefore, construction planning
and the timeliness of delivery of building materials and products from
multiple sources to the job site directly impacts the timing and cost of
completing a home. Homebuilders typically order materials and products
through a paper-based purchasing process that requires manual preparation
and tracking of purchase orders, invoices and reports. In addition, many
of the large residential construction companies have decentralized
purchasing functions. This system can be time-consuming and prone to
errors.
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- Suppliers. The priority of local suppliers is to serve and respond
quickly to the homebuilders. Due to inefficient communications, suppliers
typically do not have accurate and timely information to assess the
projected materials needs and delivery schedules of homebuilders.
Therefore, suppliers often maintain excess inventory of building
materials and products, which results in significant working capital
costs. Suppliers must maintain a vast array of materials and products
that fluctuate in price frequently based on a number of factors: regional
differences, changes in raw material prices and customer relationships.
As a result of this complex pricing of products and materials, the
typical system of manual and paper-based tracking of prices is
time-consuming and prone to errors.
- Manufacturers. Manufacturers have difficulty forecasting demand for
their building material and products. The build-up of inventory in the
supply chain and changes in working capital needs of suppliers can cause
fluctuations in building materials and product purchases unrelated to
underlying demand. In addition, the complexity of the distribution system
and difficulty of communications throughout the supply chain limits the
manufacturer's ability to gain market acceptance of new materials and
products and to establish brand recognition.
We believe that a significant opportunity exists in the residential
construction industry for a business-to-business e-commerce solution that
connects homebuilders, suppliers and manufacturers, enabling them to communicate
across existing back-office management software systems and transact business
with each other in an efficient manner.
THE BUILDNET SOLUTION
Our objective is to be the business-to-business e-commerce solution for the
residential construction industry, providing Internet-based procurement,
e-commerce and information services that address many of the residential
construction industry's supply chain inefficiencies. We are a leading provider
of builder and supplier management software to the residential construction
industry. We intend to leverage our existing management software customer base
to make the BuildNet Exchange the standard for business-to-business e-commerce
in the residential construction industry. By leveraging our own established
customer base, our homebuilder and supplier software customers can obtain
e-commerce capability without time consuming and expensive changes to their
software systems.
We expect to initiate a limited market rollout of the BuildNet Exchange in
the second quarter of 2000 and plan to commence a commercial rollout in the
second half of 2000. We have BuildNet Enabled four of our six existing builder
management software systems and our two principal supplier management software
products. Prior to our commercial rollout we will BuildNet Enable our remaining
builder management software products. We are customizing the back-office systems
of a select number of homebuilders and suppliers who are not users of our
management software systems for connection to the BuildNet Exchange. We are
developing standard browser-based software enhancements and interfaces for
homebuilders, suppliers and manufacturers who are not users of our management
software products to enable access to the BuildNet Exchange. Upon rollout, the
BuildNet Exchange will offer the following benefits to homebuilders, suppliers
and manufacturers:
Benefits to Homebuilders
- Streamline the procurement process. The BuildNet Exchange automates
formerly paper-based purchasing processes and enables cost-effective
communication with suppliers.
- Enhance efficiency of the homebuilding process. Homebuilders will use
the BuildNet Exchange to control the ordering and delivery of building
materials, thereby improving construction planning. Better production
planning should allow homebuilders to build homes more efficiently which
should enable homebuilders to achieve better returns on capital and
increase customer satisfaction.
- Increase options available to customers. The BuildNet Exchange should
enable homebuilders to benefit from improved access to product and price
information from multiple suppliers.
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Benefits to Suppliers
- Increase administrative efficiency. Suppliers will use the BuildNet
Exchange to sell building materials and products and track inventory,
delivery and payments through a secure e-commerce solution which should
increase efficiency. Suppliers should be able to reduce the time spent on
their manual, paper-based communications and fulfillment processes.
- Reduce working capital costs. The BuildNet Exchange enables suppliers to
more accurately track their demand for materials and products from
homebuilders and provide more lead time on requirements. This information
should allow suppliers to reduce their excess inventory, which should
result in reduced carrying costs and improved profitability.
- Facilitate delivery of value-added services. Increased information flow
between manufacturers, suppliers and builders, through the BuildNet
Exchange, will enhance the suppliers' ability to aggregate an optimum mix
of products, deliver products in a timely manner, consult with builders
on materials requirements and product selection and provide other
value-added services.
Benefits to Manufacturers
- Provide cost-effective, timely and accurate dissemination of product
information. Compared to the costs of developing a stand-alone product
catalog and Web site, manufacturers using the BuildNet Exchange should
reduce costs with our shared server environment, catalog technology and
personalization tools. Manufacturers will be able to immediately update
product information, technical documentation and builder specifications,
and should benefit from the commensurate savings in printing and
promotional costs.
- Improve marketing ability. The BuildNet Exchange should enable
manufacturers to further target marketing efforts and increase brand
recognition. We also plan to collect data which should enable
manufacturers to more effectively offer and track targeted rebates and
affinity programs.
- Enhance forecasting ability. The accurate, real-time scheduling, pricing
and purchasing information that we plan to make available in the future
through the BuildNet Exchange should provide manufacturers with enhanced
forecasting capabilities, allowing them to be more efficient. We plan to
distribute this information while protecting the privacy of our users.
STRATEGY
Our objective is to be the business-to-business e-commerce solution for the
residential construction industry. Key elements of our strategy to achieve this
objective include the following:
Commercial Rollout of the BuildNet Exchange. We are testing the BuildNet
Exchange in two cities with a limited number of homebuilders and suppliers. Upon
successful completion of our testing, we expect to begin a limited market
rollout in these two cities in the second quarter of 2000 by expanding the
number of our homebuilders and suppliers connected to the BuildNet Exchange.
During the second half of 2000, we plan to commence our commercial rollout by
expanding to another four to six cities where our strategic homebuilders and
suppliers are located.
Leverage Strategic Relationships. We currently have strategic
relationships with four of the top five homebuilders in the United States ranked
by number of housing starts in 1999, three of the top ten construction suppliers
ranked by 1998 revenues and several of the leading manufacturers. These
strategic relationships consist of equity investments in BuildNet and
participation by the homebuilders and suppliers in our warrant program that
provide an incentive to these homebuilders and suppliers to use the BuildNet
Exchange. We intend to continue to develop relationships with leading
homebuilders, suppliers and manufacturers, and to leverage our strategic
relationships to accelerate adoption of the BuildNet Exchange.
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<PAGE> 40
Generate Multiple Revenue Streams. We believe the BuildNet Exchange should
create multiple revenue streams. In addition to fees generated for transactions
that are processed through the BuildNet Exchange, we plan to generate additional
e-commerce revenues from the following:
- subscription fees paid by manufacturers to be included in the BuildNet
Exchange;
- marketing and advertising by manufacturers and suppliers on the BuildNet
Exchange;
- marketing services related to our mortgage.com relationship;
- warranty claim processing;
- administering manufacturer loyalty and rebate programs; and
- selling information collected from the BuildNet Exchange.
Connect Manufacturers to the BuildNet Exchange. Our objective is to
connect homebuilders, suppliers and manufacturers and enable them to communicate
and transact business with one another in an efficient manner. We intend to
integrate UniLink's products and services that connect residential and
commercial construction suppliers and manufacturers into the BuildNet Exchange.
This integration will enable them to automatically send and receive purchase
orders, warranty claims, advance shipping notices, and invoices and broaden the
use of the BuildNet Exchange. We believe that by integrating manufacturers into
the BuildNet Exchange we will enhance our e-commerce solution for the
residential construction industry.
Build Brand Recognition. Our builder and supplier management software
products have established leading brand recognition in the residential
construction industry. We intend to leverage this brand recognition to establish
the BuildNet brand as the business-to-business e-commerce solution to the
residential construction industry. We have been building our brand recognition
through targeted advertising and promotions, strategic relationships,
participation in trade associations and press coverage. We plan to further
promote the BuildNet Exchange through our Web site which we are designing to be
a leading product, service and information exchange for the residential
construction community.
Expand E-Commerce Solutions into Complementary Markets. There are markets
complementary to the residential construction industry, such as commercial
construction. We intend to expand our e-commerce offerings to electrical,
plumbing, HVAC and industrial suppliers by leveraging the NxTrend and UniLink
customer base. We plan to integrate UniLink's exchange into the BuildNet
Exchange for those contractors and subcontractors who conduct business in both
the residential and commercial construction industries to effectively transact
in one marketplace.
Pursue Strategic Acquisitions and Relationships. We intend to continue to
explore opportunities for strategic acquisitions and relationships. We will
consider acquiring additional builder and supplier management software companies
to access their customer bases. We also will continue to explore opportunities
to acquire other complementary technologies, services and products that will
enable us to add features and functionality to the BuildNet Exchange. In
addition, we will pursue acquisitions that enable us to expand into other
complementary markets such as commercial construction and repair and remodeling.
We are not currently contemplating any specific acquisitions.
PRODUCTS AND SERVICES
The BuildNet Exchange. We expect to initiate a limited market rollout of
the BuildNet Exchange in the second quarter of 2000 and plan to commence a
commercial rollout in the second half of 2000. The BuildNet Exchange will
initially connect homebuilders and suppliers involved in the residential
construction industry. We have BuildNet Enabled four of our existing builder
management software products and our key supplier management products and expect
to BuildNet Enable our remaining builder management software products prior to
our commercial rollout in the second half of 2000. Also, prior to this rollout,
we plan to BuildNet Enable the back-office management systems of a select number
of homebuilders and suppliers who are not users of our management software
systems. In the future, we plan
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<PAGE> 41
to develop standard software enhancements and interfaces to connect
homebuilders, suppliers and manufacturers who are not users of our management
software products to our BuildNet Exchange. Also, we plan to extend our BuildNet
Exchange to connect manufacturers to our transaction hub and to add capability
for complementary markets.
Initial Offerings. When we roll out the BuildNet Exchange, it will offer
the following services:
- Basic Price Quoting, Purchase Orders and Invoices. Homebuilders can send
price requests directly to suppliers electronically. The supplier can
receive the request and automatically reply with responsive data. The
pricing information is sent back to the builder in a secure manner for
review and uploading to the homebuilder's construction management
software system. Homebuilders may then release purchase orders
electronically to the supplier. Those purchase orders are automatically
entered into the supplier's system. After delivery of the products, the
supplier can send an electronic invoice directly into the homebuilder's
system where it is compared with the original purchase order for
accuracy, then approved for payment.
- Online Manufacturers' Catalogs and Information. Manufacturers will be
able to offer complete online product catalogs. Manufacturers will be
able to use tools provided by us to build and manage catalog data
including photographs of products, product codes and Stock Keeping Unit
or SKU numbers, descriptive text, warranty policies and installation and
maintenance instructions. Manufacturers can also provide private and
secure pricing information unique to individual suppliers and
homebuilders. Our catalog environment gives manufacturers a set of
personalization tools. Our registration and information collection
processes help manufacturers create detailed builder profiles. Various
manufacturer marketing programs classify manufacturers in various
categories based on the level of benefits provided, including preferred
placement on our Web site, Web pages and links within our BuildNet
Exchange, and other advertising and sponsorship opportunities.
- Online Homebuyer Mortgages. We have a relationship with mortgage.com
under which we have exclusive rights to offer to homebuilders the ability
to arrange mortgage loans for their homebuyers through mortgage.com.
- Web Site -- BuildNet.com. The BuildNet.com Web site will play a key role
during the rollout of the BuildNet Exchange in communicating with
participants in the residential construction industry supply chain and
educating them about the services we offer. Through user registration and
lead identification the web site will provide an efficient mechanism for
engaging our existing customer base and transitioning them to the use of
e-commerce services as well as for prospecting for new customers.
Future Enhancements. We are developing enhancements to the BuildNet
Exchange that we plan to implement in the future including the following:
- Increase Functionality.
- Handle More Complex Transactions. We plan to enhance the BuildNet
Exchange to handle more complex transactions, such as split purchase
order fulfillment, product substitution and automatic product
information updates.
- Electronic Bill Payment. We plan to allow for electronic bill payment
between a homebuilder and a supplier based on generated and approved
electronic invoices.
- Expansion of User Base. We also plan to introduce BuildNet Enabled
system solutions to subcontractors. We also plan to make available
standard software tools to connect homebuilders, suppliers and
manufacturers to the BuildNet Exchange that are not using any of our
builder or supplier management software products.
- Expansion of Our Community Web Site. Our expanding community Web site
should allow for expansion of manufacturers' catalog offerings, third
party content services in several categories,
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<PAGE> 42
expanded industry training and education content, and increased content
customization and user personalization.
- Manufacturer's Resource Site. We intend to create a resource site for
each manufacturer to augment and extend the functionality of manufacturer
services offered through their corporate branded Web sites on the
BuildNet Exchange. This site will include online tools to help builders
configure complex orders to suppliers to assure the right mix of product
components and subcomponents. In addition, we will add technical
documentation, online training in product installation, and cost
estimation tools that complement the manufacturer's builder loyalty
programs.
- Manufacturers' Loyalty Programs. Purchases of manufacturers' products by
suppliers and homebuilders conducted over the BuildNet Exchange will be
recorded and verified. This transaction data will be collected by
BuildNet and then reported back to manufacturers to assist in the
administration of their loyalty and rebate programs.
UniLink E-Commerce Products and Services. Using UniLink's products and
services, residential and commercial construction suppliers and manufacturers
can automatically send and receive purchase orders, warranty claims, advance
shipping notices, and invoices. We intend to integrate UniLink's products and
services with the BuildNet Exchange and broaden its use. These UniLink products
and services primarily serve customers in the electrical, plumbing, HVAC and
appliances segments.
Builder and Supplier Management Software. We currently offer builder and
supplier management software products designed to meet the needs of local and
national homebuilders and suppliers. Homebuilders use our systems to plan and
manage projects, including the creation and update of job schedules and the
management of back-office functions such as purchasing, payables, receivables
and accounting. Three of the top five U.S. homebuilders use our builder
management software products. Our supplier management software products help
construction materials suppliers manage their back-office functions. NxTrend
currently offers only its Strategic Exchange, or SX, product line to new
customers. The SX product line and other supplier management products consist of
numerous applications for inventory management, warehouse logistics, finance and
administration, business analysis, sales, distribution, customer service and
e-commerce. Our NxTrend customers represent distributors across several
industries, including building materials, electrical supply, industrial supply,
plumbing supply, and HVAC. Three of the top ten construction suppliers, four of
the top ten electrical products distributors, and three of the top ten
wholesalers of plumbing and HVAC products use our supplier management software
products.
The following chart describes our builder and supplier management software
products:
<TABLE>
<CAPTION>
BUILDER MANAGEMENT PRODUCT TARGET CUSTOMERS YEAR INTRODUCED
- -------------------------- ---------------- ---------------
<S> <C> <C>
Homebuilder (acquired from Builders building over 1,000 1998
J.D. Edwards)............... homes per year
Systems Analysis Homebuilder Builders building over 1,000 1977
(acquired from Systems homes per year
Analysis)...................
TrueLine (acquired from Builders building over 400 1970
McCosker Corporation)....... homes per year
FAST (acquired from FAST)..... Builders building between 100 1986
and 500 homes per year
TOM (acquired from Maxwell & Builders building between 50 1978
Company).................... and 200 homes per year
BuildSoft..................... Builders building between 10 1989
and 100 homes per year
</TABLE>
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<TABLE>
<CAPTION>
SUPPLIER MANAGEMENT PRODUCTS NUMBER OF LICENSED CUSTOMERS/USERS YEAR INTRODUCED
- ---------------------------- ---------------------------------- ---------------
<S> <C> <C>
Strategic Exchange (SX)
line........................ 126 (approximately 14,000 total 1999
users licensed)
Trend line.................... 293 (approximately 38,000 total 1990
users licensed)
SHIMS......................... 291 (approximately 27,000 total 1978 (this product and the
users licensed) user base were acquired by
NxTrend in 1995)
WDS-II........................ 172 (approximately 7,000 total 1989 (this product and the
users licensed) user base were acquired by
NxTrend in 1997)
</TABLE>
We also sell other software products, including SiteTrak, a management
software product for the subcontractor segment of the homebuilding segment of
the residential construction industry, and provide consulting, education and
training services to the homebuilding industry.
STRATEGIC RELATIONSHIPS
Homebuilders, Suppliers and Manufacturers. We have established
relationships with many key homebuilders, suppliers and manufacturers through
equity investments and our warrant incentive program. We believe these strategic
relationships will encourage the rapid adoption of the BuildNet Exchange.
The following homebuilders, suppliers and manufacturers have made equity
investments in BuildNet totaling an aggregate of approximately $26 million.
STRATEGIC EQUITY INVESTMENTS
<TABLE>
<CAPTION>
HOMEBUILDERS SUPPLIERS MANUFACTURERS
- ------------ --------- -------------
<S> <C> <C>
Beazer Homes Building Materials Holding Andersen Windows
D.R. Horton Corp. GE Appliances (through GE
Kaufman and Broad Home Corp. Cameron Ashley Capital Equity Investments)
Lennar Corp. Lanoga Corp. Kohler
Pulte Home Corp. Lafarge
Toll Brothers Owens-Corning
</TABLE>
We have issued to Beazer Homes, D.R. Horton, Kaufman and Broad Home Corp.,
Lennar Corp., Pulte Home Corp. and Toll Brothers warrants to purchase shares of
our common stock that will vest based on the level of participation of each
homebuilder in the BuildNet Exchange and the volume of transactions processed
through the BuildNet Exchange. We have also issued a warrant to GE Capital
Equity Investments that will vest based upon the achievement of sales and
marketing objectives by GE Appliances.
Electronic Data Systems. We have an existing strategic relationship with
Electronic Data Systems Corporation that terminates in December 2003 under which
EDS has agreed to promote the BuildNet Exchange as the standard for the
homebuilding industry, to perform supplier implementation services for the
BuildNet Exchange and to provide other resources that we request. EDS has built
and will host our transaction hub, a key component of the BuildNet Exchange.
mortgage.com. We have a relationship with mortgage.com that terminates two
years from deployment of the services under which we have exclusive rights to
offer to homebuilders the ability to arrange mortgage loans for their homebuyers
through mortgage.com. We believe this feature will attract homebuilders to the
BuildNet Exchange as well as create an additional revenue stream for us from our
marketing services related to the program.
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SALES AND MARKETING
We plan to begin a limited rollout of the BuildNet Exchange in two cities
in the second quarter of 2000 and to expand to an additional four to six cities
thereafter in the second half of 2000. As a part of this rollout we plan to
BuildNet Enable the back office systems of six of our large strategic
homebuilders: Beazer Homes; D.R. Horton; Kaufman and Broad Home Corp.; Lennar
Corp.; Pulte Home Corp.; and Toll Brothers. Each of these builders, with the
exception of Pulte, currently uses one of our builder management software
products. These larger homebuilders are working with BuildNet to develop
specific rollout plans to conduct business over the BuildNet Exchange in
selected cities. Additionally, we plan to issue our upgraded BuildNet Enabled
software products to our existing base of homebuilder and supplier customers in
those cities and begin training them to utilize the electronic procurement
features of the BuildNet Exchange.
We intend to utilize members of our existing sales force, field engineers,
professional service personnel and technical training specialists to both
upgrade and train our existing base of homebuilders, as well as BuildNet Enable
our large strategic builders and building materials suppliers who will utilize
the BuildNet Exchange. As of March 1, our product development, sales and
marketing organization consisted of approximately 139 persons. We may also
utilize the services of EDS to assist in system integration for builders and
suppliers who are not users of our management software products if needed.
To accomplish our marketing objectives, we are leveraging our existing
customer base and engaging in marketing activities such as educational seminars,
local homebuilder and supplier conferences, speaking engagements, customer
mailings, and web site marketing. To create awareness of the BuildNet brand name
throughout the residential construction industry, we are conducting national and
regional advertising campaigns in leading industry publications and
participating in national and regional industry trade shows and conferences. We
also are conducting comprehensive public relations programs that include
establishing and maintaining relationships with key trade press, business press
and industry analysts.
TECHNOLOGY
The BuildNet Exchange technology is built on existing BuildNet-provided
builder and supplier management systems and incorporates select software
components from third party providers. The BuildNet Exchange employs open
interfaces based on extensible mark-up language software technology (XML) to
enable links to back-office systems of companies that are not users of our
builder and supplier management software products. This approach enables us to
extend into future back-office systems and the ability to expand and evolve to
meet changing business and market place requirements.
The BuildNet Exchange will include the following technology:
- BuildNet Core Services. BuildNet's core services will include network
security and access control, product data services, and transaction
services, based on distributed object design and development methods and
a scalable architecture. These services provide the core business logic
and interaction to the user interface and network transaction
capabilities to connect our BuildNet Enabled products and Internet-based
applications to include Web based services.
- Third-Party Interface. This interface, based on XML, will connect the
BuildNet Exchange into third-party back-office systems, primarily for
suppliers on the BuildNet Exchange. We are working with the primary
supplier management software vendors in the homebuilding industry to
implement this interface and plan to sell it to suppliers as a low-cost
upgrade. We also are designing the BuildNet Enabling software
enhancements and interface toolkit and plan to make it available to
customers who are not using a BuildNet Enabled software product but would
like to integrate their current back-office systems into the BuildNet
Exchange.
- Web Presentation. We plan to provide a standard browser-based
presentation of the BuildNet Exchange for delivery to customers in an
online community. We plan to provide a general platform for the
personalized creation, maintenance and delivery of industry-specific
content. We also plan to design the Web services platform to allow for
the integration of third-party Web-based applications
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<PAGE> 45
and services, such as mortgage origination services. In addition, we plan
for the Web services platform to provide workflow and publishing tools
for Web site owners to manage their own content, and ensure accurate and
timely publication of changes.
The BuildNet Exchange is hosted in the EDS facilities in Plano, Texas,
which provides a world-class, secured, monitored environment with an extremely
high-bandwidth connection to major Internet backbone carriers. Through the use
of EDS's extensive capabilities, we will be able to expand our services to meet
increased customer requirements.
We intend to allow client access through any standard Internet Service
Provider or through a dedicated connection. All services will be designed to use
standard TCP/IP-based communications. We will use high-availability servers with
redundancy. We will compile daily transaction and operational data and uploaded
it into an offline database to allow for statistical analysis of traffic and
other critical business information.
RESEARCH AND DEVELOPMENT
Our research and development efforts are focused on BuildNet Enabling our
existing line of homebuilder and supplier management software products,
designing and developing the BuildNet Exchange network infrastructure and
creating additional software tools that will enable homebuilders and suppliers
to connect to our online marketplace. We also intend to continue enhancing our
line of builder and supplier management software products and begin development
of next generation systems. As of March 1, 2000, we had 246 employees in our
technology group undertaking our research and development efforts. We expect our
research and development expenditures to increase substantially compared to
prior periods as we continue to develop the BuildNet Exchange, builder and
supplier management software and services for the residential construction
community.
COMPETITION
BuildNet Exchange. The principal market segments of software management
tools or online shopping models that compete with parts of our planned
e-commerce platform include the following: builder and supplier management
systems (ERP), customer relationship management systems (CRM), point of sale and
supply chain e-commerce procurement tools, catalog or product data systems, and
supplier and manufacturer online store front solutions. In addition to
competition within these various segments, established online business to
business e-commerce exchanges could introduce exchanges that would compete with
the BuildNet Exchange. Homebuilders, manufacturers and suppliers, either
individually or through joint ventures, might develop exchanges that would
compete with the BuildNet Exchange. We believe that the principal competitive
factors affecting the business-to-business e-commerce marketplace, include:
- critical mass of homebuilders, suppliers and manufacturers;
- breadth and depth of solutions;
- quality and performance of solutions offered;
- scalability and reliability of the underlying technology and
infrastructure; and
- cost-effectiveness.
Although we believe that we are well positioned to compete favorably with
respect to all the foregoing factors, this marketplace does not yet exist and is
expected to evolve rapidly. Many of the competitors in the individual segments
identified above and other potential competitors, such as established online
exchanges, are also positioned to emerge as competitors in the emerging
business-to business e-commerce marketplace.
Builders and Suppliers Management Software. The market for builder and
supplier management software solutions is intensely competitive and highly
fragmented. Competitors vary in size and in the
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<PAGE> 46
quality of the products and services offered. We believe that the principal
competitive factors in this market are size of reference customer base, breadth
and depth of solution offered, product features, quality and performance, and
customer service and pricing. We believe that we compete favorably with respect
to all these factors. However, we might not be able to maintain our competitive
position against current and potential competitors in this market.
PROPRIETARY RIGHTS AND LICENSING
Our success and ability to compete effectively are dependent on our ability
to develop and maintain the proprietary aspects of our technology. We rely on a
combination of copyright, trademark and trade secret laws and contractual
restrictions to establish and protect the proprietary aspects of our technology.
We seek to protect our source code, documentation and other written materials
under trade secret and copyright laws. Finally, we seek to avoid disclosure of
our intellectual property by requiring employees and consultants with access to
our proprietary information to execute confidentiality agreements with us and by
restricting access to our source code.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, and to
determine the validity and scope of the proprietary rights of others. Any
resulting litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our business operating
results.
Our success and ability to compete are also dependent on our ability to
operate without infringing upon the proprietary rights of others. In the event
of a successful claim of infringement against us and our failure or inability to
license the infringed technology, our business and operating results would be
significantly harmed.
EMPLOYEES
As of March 1, 2000, we had 868 full-time employees, of which 246 were in
research and development, 264 were in consulting services, 139 were in sales and
marketing and 219 were in general administration. We plan to significantly
expand our employee base primarily in research and development and sales and
marketing.
PROPERTIES
Our corporate headquarters are in a leased facility comprising
approximately 42,000 square feet located in Research Triangle Park, North
Carolina. We also lease an aggregate of approximately 160,000 square feet for
our operations in Atlanta, Georgia; Buffalo Grove, Illinois; Bloomington,
Minnesota; Colorado Springs, Colorado; Cypress, California; Dallas, Texas; Green
Bay, Wisconsin; Norcross, Georgia; Redmond, Washington; Walnut Creek,
California; and Thornhill, Ontario.
LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings nor have we
been involved in any such proceedings that have had or may have a significant
effect on the Company's financial position. We are not aware of any material
legal proceedings threatened against us.
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<PAGE> 47
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table contains information concerning our executive officers
and directors as of March 1, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Keith T. Brown............................. 40 Chairman, Founder, Director
Nathan P. Morton........................... 51 Chief Executive Officer, Director
Bayard M. Atwood, III...................... 51 President, Chief Operating Officer,
Director
Peter B. Drayson........................... 52 Executive Vice President, Alliances,
Mergers and Acquisitions
Stephen L. Holcombe........................ 43 Executive Vice President, Chief Financial
Officer and Secretary
Michael J. Cornell......................... 42 Executive Vice President and President of
NxTrend
David F. Russo............................. 55 Executive Vice President, Human Resources
Steven C. Thompson......................... 41 Senior Vice President, Builder Systems
Peter Abene................................ 53 Senior Vice President and Chief Technology
Officer
Justin Hall-Tipping(1)..................... 42 Director
Joel D. Koblentz(2)........................ 55 Director
Norvell E. Miller, IV(1)................... 42 Director
William W. Neal, III(2).................... 67 Director
Jerry A. Rose.............................. 41 Director
Paul A. Ryder(1)(2)........................ 35 Director
Peter J. Smith............................. 55 Director Nominee
</TABLE>
- ---------------
(1) Member of the audit committee
(2) Member of the compensation committee
Keith T. Brown founded BuildNet in October 1996, served as our Chief
Executive Officer through September 1999, has served as our Chairman since
September 1999 and has served as a director since inception. Mr. Brown served as
founder and chief executive officer of Sun Forest Systems, Inc., a construction
software and development marketing company and the predecessor of BuildNet, from
its inception in 1987 to October 1996. Prior to that, Mr. Brown was a general
contractor specializing in custom homes. Mr. Brown has written extensively on
the homebuilding industry and is also a well-recognized industry spokesperson.
Mr. Brown received a B.A. in Architecture and Environmental Design from North
Carolina State University. Mr. Brown serves as a director pursuant to the terms
of a voting agreement that will terminate upon the closing of this offering.
Nathan P. Morton has served as our Chief Executive Officer since September
1999, and served as our Chairman from November 1998 until September 1999. Prior
to that, Mr. Morton served as co-chairman and chief executive officer of
Computer City from July 1997 to October 1998, when the company was sold to
CompUSA, Inc. and as president and chief executive officer of Open Environment
Corp., an enterprise software company, from March 1994 to March 1996. Mr. Morton
also served as a chairman and chief executive officer of CompUSA, Inc. from May
1989 to December 1993, and as senior vice president of operations of Home Depot
from 1984 to 1989. Mr. Morton serves as a director of Consolidated Stores
Corporation and Electrosource, Inc. Mr. Morton received a B.A. from State
University in New York at
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Buffalo. Mr. Morton serves as a director pursuant to the terms of a voting
agreement that will terminate upon the closing of this offering.
Bayard M. Atwood, III has served as our President, Chief Operating Officer
and a director since May 1999. Prior to joining us, Mr. Atwood served in a
number of positions at EDS from June 1974 to April 1999. His last position at
EDS was from February 1998 to May 1999 as the chief operating officer of
Enterprise Solutions, a joint initiative between A. T. Kearney and EDS. In 1989,
Mr. Atwood was promoted by EDS to serve as president of its Advanced Technology
strategic business unit. He served in similar capacities in several other units
until his departure in April 1999. Mr. Atwood holds a B.A. and an M.A. in
Mathematics from Arizona State University. Mr. Atwood serves as a director
pursuant to the terms of a voting agreement that will terminate upon the closing
of this offering.
Peter B. Drayson has served as our Executive Vice President, Alliances,
Mergers and Acquisitions since August 1999. Prior to joining us, Mr. Drayson
served as president and chief executive officer of Reuters Marketing
Information, a division of Reuters, from 1996 to August 1999, where he also
served as managing director of global customers during 1995 and 1996 and
marketing manager of money and capital markets during 1990 to 1995. Mr. Drayson
has also served as a financial advisor for Sanford Bernstein & Company and in
various capacities for International City Holdings over a ten-year period, most
recently as president and chief executive officer of its subsidiary, MKI
Securities Corporation. Mr. Drayson also served as a broker for the Exco Group.
Mr. Drayson received a B.S. in Economics and an M.B.A. from New York University.
Stephen L. Holcombe has served as our Executive Vice President and Chief
Financial Officer since September 1999 and Secretary since March 2000. Prior to
joining us, from 1985 to August 1999, Mr. Holcombe served as an executive vice
president and chief financial officer of Vanguard Cellular Systems, Inc., one of
the largest independent operators of cellular telephone systems in the United
States, where he was responsible for all aspects of the development, financing
and operations of the company. From 1978 to 1985 he served in various positions
with KPMG Peat Marwick, most recently as senior audit manager. Mr. Holcombe
holds a B.S. in Accounting from Wake Forest University.
Michael J. Cornell has served as President and Chief Executive Officer of
NxTrend Technology, Inc., since August 1998. Upon completion of the acquisition
of NxTrend by BuildNet, Mr. Cornell will continue as President of NxTrend and
will also serve as Executive Vice President of BuildNet. From 1993 to 1998, Mr.
Cornell worked for JBA International, advancing from General Manager to
President, North American Operations to President, Americas. Before JBA, Mr.
Cornell was employed by Cimage Corporation in various sales management roles,
including Director of Sales. Mr. Cornell received his B.A. degree from Michigan
State University.
David F. Russo has served as our Executive Vice President, Human Resources
since December 1999. Prior to joining us, Mr. Russo served as the vice president
of human resources of SAS Institute, Inc., from September 1981 to November 1999,
where he was the top level executive in the human resources department. Mr.
Russo received a B.A. in Pre-Law from Duquesne University and a Masters in
Communications from the University of Pittsburgh.
Steven C. Thompson has served us in several capacities since BuildNet's
inception in October 1996, first as Chief Financial Officer from October 1996 to
August 1999, Chief Operating Officer from March 1997 to April 1999, and
currently as Senior Vice President, Builder Systems since August 1999. Prior to
such time, Mr. Thompson served as chief financial officer of Sun Forest Systems,
Inc., predecessor to BuildNet, from March 1996 until October 1996 and as
president and chief executive officer of SMT Inc., a custom manufacturing
company, from July 1995 to February 1996, where he also served as vice president
and chief financial officer from November 1988 to July 1995. From 1981 through
1988 he served in various positions with Touche Ross & Co., now Deloitte &
Touche, most recently as senior audit manager. Mr. Thompson received a B.S. in
Business Administration from the University of North Carolina at Chapel Hill.
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Peter Abene has served as our Senior Vice President and Chief Technology
Officer since September 1999. Prior to that time from February 1986 to September
1999, Mr. Abene served in various positions at Electronic Data Systems, Inc.,
most recently as division vice president for communications and computing for
the Xerox account. Mr. Abene received a B.S. in Industrial Engineering from
North Carolina State University and a M.S. in Electrical Engineering and
Telecommunications from the University of Colorado at Boulder.
Justin Hall-Tipping has served as our director since July 1999. He
currently serves as a managing director of SG Capital Partners LLC, where he has
held such position since August 1998. Mr. Hall-Tipping also currently serves as
a director of the merchant banking group of SG Cowen Securities, formerly
Societe Generale Capital Corporation, where he has held such position since July
1997. Prior to joining SG Capital Partners, Mr. Hall-Tipping served as director
of Data Intelligence Group for Reuters from June 1995 to July 1997 and as chief
executive officer of HeartBeat Corp., a multimedia software company, from 1992
to 1995. Mr. Hall-Tipping has also been a partner in NEPA Venture Fund, which
specializes in start-up and early stage companies, and a vice president of
Capital Commitment in Credit Suisse First Boston's proprietary trading area. Mr.
Hall-Tipping received a B.Sc. with honors in International Finance and Banking
from City University, London and an M.B.A. from Harvard University. Mr.
Hall-Tipping serves as a director at the designation of SG Capital Partners
pursuant to the terms of a voting agreement that will terminate upon the closing
of this offering.
Joel D. Koblentz has served as our director since March 2000. Mr. Koblentz
currently serves as the managing member of Barnard & Co., LLC, a private equity
firm. Mr. Koblentz also serves as a director of various private companies. Mr.
Koblentz holds a B.A. from the University of Michigan and an M.B.A. and M.A. in
Economics from Columbia University. Mr. Koblentz serves as a director pursuant
to the terms of a voting agreement that will terminate upon the closing of this
offering.
Norvell E. Miller, IV has served as our director since August 1998. He
currently serves as a managing director of Southeast Interactive Technology Fund
I, LLC, Southeast Interactive Technology Fund II, LLC and Southeast Interactive
Technology Fund III, LLC, North Carolina-based venture capital firms, where he
has held such position since 1998. Mr. Miller also currently serves as president
of EMS Financial, Inc., where he has held such position since 1981. Mr. Miller
served as co-founder and chief executive officer of Dental Care Partners from
1990 to 1995 and co-founded the Mobius Group in 1989. From 1986 to 1988, Mr.
Miller served as senior vice president of McMillan/Eubanks, Inc. Mr. Miller was
also the founding director of investments for the University of North Carolina
from 1980 to 1986. He also currently serves as a director of several privately
held companies. Mr. Miller is a chartered financial analyst and received an
M.B.A. and B.A. with honors from Duke University. Mr. Miller serves as a
director at the designation of Southeast Interactive Technology Fund pursuant to
the terms of a voting agreement that will terminate upon the closing of this
offering.
William W. Neal, III has served as our director since August 1998. He
currently serves as managing principal of Piedmont Venture Partners Limited
Partnership where he has held such position since July 1996. Prior to joining
Piedmont Venture Partners, Mr. Neal served as president, chief executive officer
and later chairman of Broadway & Seymour, a provider of information technology
solutions to the financial services industry, from July 1989 until July 1996.
Mr. Neal has also served as a general partner with the New York venture capital
and buyout firm of Welsh Carson Anderson & Stowe. Mr. Neal currently serves on
the board of directors of Health Management Systems, Inc., as well as privately
held portfolio companies of Piedmont Venture Partners. Mr. Neal received his
A.B. in Business Administration from Duke University in 1954. Mr. Neal serves as
a director at the designation of Southeast Interactive Technology Fund, GE
Capital Equity Investments and SG Capital Partners pursuant to the terms of a
voting agreement that will terminate upon the closing of this offering.
Jerry A. Rose has served as our director since March 2000. Mr. Rose
currently serves as the general manager of home product services of GE
Appliances, an operating unit of GE, a position he has held since January 1999.
Prior to assuming his current position, Mr. Rose served GE Appliances as the
general manager of sales development from January 1998 to December 1999, the
general manager of product
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management from July 1997 to January 1998 and a marketing manager from June 1995
to June 1997. Mr. Rose received a B.S. degree from Brigham Young University. Mr.
Rose serves as a director at the designation of GE Capital Equity Investments
pursuant to the terms of a voting agreement that will terminate upon the closing
of this offering.
Paul A. Ryder has served as a director since July 1999. Since October 1999,
he has served as managing director, market development, of GE Capital
E-Business. From May 1999 until October 1999, he served as the general manager
for e-commerce of the GE Appliances. From November 1997 to May 1999, Mr. Ryder
served as president of GE Warranty Management, Inc., and from November 1994 to
October 1997 he served as the director of product management, sourcing and
industrial design, each within the GE Appliances Europe Division of General
Electric. Mr. Ryder has served in various other capacities for General Electric
since June 1989. Mr. Ryder received a B.S.M.E. from Worcester Polytechnic
Institute and an M.B.A. from Purdue University.
Peter J. Smith will serve as our director upon the completion of BuildNet's
acquisition of NxTrend. Mr. Smith currently serves as a director of NxTrend. He
has served as chairman of Ansys, Inc., a provider of computer-aided design
analysis software, since June 1995, where he also served as president from March
1994 to March 1999, and chief executive officer from March 1994 to February
2000. Mr. Smith is also a partner in NewcoGen Group, a management firm for early
stage technology companies, and a director of the Pittsburgh Technology Council.
Prior to joining Ansys, Mr. Smith was vice president of European operations for
Digital Equipment Corporation from November 1991 to March 1994. Previously, he
managed Digital's worldwide applications development and marketing activities,
including its engineering systems group. Mr. Smith received his B.S. in
electrical engineering from Northeastern University and an M.B.A. from the
University of Notre Dame. Mr. Smith will serve as a director at the designation
of the former shareholders of NxTrend pursuant to the terms of the merger
agreement. The BuildNet board of directors has an obligation to recommend to
BuildNet's stockholders the election of the former NxTrend stockholders'
director designee so long as the former NxTrend stockholders hold at least 7.5%
of BuildNet's outstanding common stock.
BOARD OF DIRECTORS AND COMMITTEES
Our board of directors is currently composed of ten members. Each director
holds office until the next annual meeting of the stockholders or until his
successor is duly elected and qualified. Our certificate of incorporation and
bylaws will provide that, beginning with the first meeting of the board of
directors following this offering, the board of directors will be divided into
three classes as nearly equal as possible, with each class serving staggered,
three-year terms. Our bylaws will provide that directors can be removed only for
cause by holders of at least 66 2/3% of our common stock. Officers are chosen
by, and serve at the discretion of, the board of directors.
The board of directors has created a compensation committee and an audit
committee. The compensation committee makes recommendations to the board of
directors concerning salaries and incentive compensation for our officers and
employees and administers our stock option plans. The members of the
compensation committee are Messrs. Neal, Koblentz and Ryder. The audit committee
makes recommendations to the board of directors regarding the selection of
independent auditors, reviews the results and scope of audits and other
accounting-related services and reviews and evaluates our internal control
functions. The members of the audit committee are Messrs. Miller and Ryder.
DIRECTOR COMPENSATION
Our directors do not receive any compensation for services they provide as
directors. We reimburse travel expenses for attendance at our board meetings.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our bylaws provide for mandatory indemnification of directors and officers
to the fullest extent permitted by Delaware law. Prior to consummation of this
offering, we intend to obtain additional
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<PAGE> 51
directors' and officers' liability insurance and expect to enter into
indemnification agreements with all of our directors and executive officers. In
addition, our certificate of incorporation limits the liability of our directors
to us or our stockholders for breaches of the directors' fiduciary duties to the
fullest extent permitted by Delaware law.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee consists of Messrs. Neal, Koblentz and Ryder. No
member of the compensation committee serves as our officer or employee. No
member of the compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or its compensation
committee.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth information concerning
the compensation received for services rendered to us by the chief executive
officers who served in 1999 and each of our four other most highly compensated
executive officers for 1999, whose total compensation in 1999 equaled or
exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------- SECURITIES
SALARY BONUS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION $ $ OPTIONS COMPENSATION($)
- --------------------------- -------- -------- ------------ ----------------
<S> <C> <C> <C> <C>
Nathan P. Morton, Chief Executive
Officer(1).................................. $316,667 $ 0 8,000,000 $16,700
Keith T. Brown, Chairman, Former Chief
Executive Officer(2)........................ 159,041 100,000 0 0
Charles M. Cosby, Vice Chairman(3)............ 163,159 30,000 0 0
Bayard M. Atwood, III, President, Chief
Operating Officer(4)........................ 214,443 0 5,000,000 14,443
Peter B. Drayson, Executive Vice President,
Alliances, Mergers and Acquisitions(5)...... 101,154 0 3,300,000 0
Steven C. Thompson, Senior Vice President,
Builder Systems(6).......................... 143,750 50,000 600,000 0
</TABLE>
- ---------------
(1) Mr. Morton received salary at a rate of $200,000 annually from January until
June 1999 when his salary was increased to $400,000 annually upon his
relocation to the Research Triangle Park, North Carolina area. In 1999, Mr.
Morton received option grants to purchase 8,000,000 shares of common stock
and $16,700 in relocation expenses.
(2) In September 1999, Mr. Brown was appointed chairman of BuildNet, and he
receives an annual salary of $175,000.
(3) Through May 1999, Mr. Cosby received salary as president and chief executive
officer of The F.A.S.T. Management Group, Inc. In May 1999, Mr. Cosby was
appointed vice chairman of BuildNet. He resigned as vice chairman in March
2000.
(4) In April 1999, Mr. Atwood was appointed president and chief operating
officer and receives an annual salary of $300,000. In 1999, Mr. Atwood
received option grants to purchase 5,000,000 shares of common stock and
$14,443 in relocation expenses.
(5) In August 1999 Mr. Drayson was appointed executive vice president and
receives an annual salary of $300,000. In 1999, Mr. Drayson received option
grants to purchase 3,300,000 shares of common stock.
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<PAGE> 52
(6) Through July 1999, Mr. Thompson received salary as chief financial officer
and chief operating officer of BuildNet. As of August 1999, Mr. Thompson was
appointed senior vice president and receives an annual salary of $150,000.
In 1999, Mr. Thompson received an option grant to purchase 600,000 shares of
common stock.
The following table sets forth information as to options granted to the
named executive officers during 1999. We have not granted any stock appreciation
rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(1)
OPTIONS IN FISCAL PRICE PER EXPIRATION -----------------------------
NAME GRANTED YEAR(2) SHARE($) DATE 5% 10%
- ---- ---------- ---------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Nathan P. Morton........... 5,000,000 18.73% $0.055 11/1/08 $ 172,946 $ 438,279
3,000,000 11.24 1.400 12/30/09 2,641,357 6,693,718
Keith T. Brown............. -- -- -- -- -- --
Charles M. Cosby(3)........ -- -- -- -- -- --
Bayard M. Atwood, III...... 3,300,000 12.36 0.055 4/2/09 114,144 289,264
1,700,000 6.37 1.400 12/30/09 1,496,769 3,793,107
Peter B. Drayson........... 2,000,000 7.49 0.055 9/7/09 69,178 175,312
1,300,000 4.87 1.400 12/30/09 1,144,588 2,900,611
Steven C. Thompson......... 600,000 2.25 0.055 8/31/09 20,754 52,594
</TABLE>
- ---------------
(1) Potential realizable values are net of exercise price, but before the
payment of taxes associated with exercise. Amounts represent hypothetical
gains that could be achieved for the respective options if exercised at the
end of the option term. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by rules of the Securities and
Exchange Commission and do not represent our estimate or projection of our
future common stock prices. These amounts represent certain assumed rates of
appreciation in the value of the common stock from the fair market value on
the date of grant. Actual gains, if any, on stock option exercises are
dependent on the future performance of the common stock and overall stock
market conditions. The amounts reflected in the table may not necessarily be
achieved.
(2) Based on options to purchase an aggregate of 26,696,200 shares of common
stock granted to our employees during 1999.
(3) Mr. Cosby resigned as vice chairman in March 2000.
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<PAGE> 53
The following table sets forth information concerning the shares acquired
and the value realized upon the exercise of stock options for 1999 and the
fiscal year-end number and value of unexercised options with respect to the
named executive officers. We have not granted any stock appreciation rights.
AGGREGATE STOCK OPTION EXERCISES IN FISCAL 1999
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ON VALUE AT DECEMBER 31, 1999(3) AT DECEMBER 31, 1999
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#)(1) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Nathan P. Morton.............. 5,000,000 $ 3,000,000 -- --
Keith T. Brown................ -- -- -- -- --
Charles M. Cosby(4)........... -- -- -- -- --
Bayard M. Atwood, III......... 3,300,000 1,700,000 -- --
Peter B. Drayson.............. 2,000,000 1,300,000 -- --
Steven C. Thompson............ 600,000 000 -- --
</TABLE>
- ---------------
(1) The acquired shares include vested and unvested shares as not all options
exercised had vested. Unvested shares are subject to repurchase by BuildNet
at the original exercise price paid per share upon certain conditions prior
to vesting of such shares. As of March 1, 2000, the repurchase right had
lapsed with respect to shares acquired during 1999 as follows: 1,666,667
shares for Mr. Morton, 756,250 shares for Mr. Atwood, 250,000 shares for Mr.
Drayson, and 260,000 shares for Mr. Thompson.
(2) There was no public trading market for the common stock as of December 31,
1999. Accordingly, these values have been calculated on the basis of an
assumed offering price of $ per share, less the applicable exercise
price per share, multiplied by the number of shares underlying such options.
(3) Exercisable shares include options to purchase common stock that upon
exercise would be subject to a right of repurchase by BuildNet.
(4) Mr. Cosby resigned as vice chairman in March 2000.
EMPLOYMENT AGREEMENTS
In April 1999, we entered into a five-year employment agreement with Bayard
M. Atwood, III at an annual base salary of $300,000 per year with possible
yearly bonuses awarded at the discretion of our board of directors. Mr. Atwood
is entitled to a seat on the board of directors so long as he remains employed
by us. In addition, we granted Mr. Atwood a stock option to purchase up to an
aggregate of 3,300,000 shares of common stock with an exercise price equal to
the then-current fair market value at the time of the grant. The options vest in
monthly installments over four years, with full acceleration in vesting upon a
change in control of BuildNet. The option grant provides that options for
unvested shares can be exercised subject to repurchase rights that expire in
accordance with the vesting schedule. Mr. Atwood is subject to customary
confidentiality, noncompetition and nonsolicitation provisions during his
employment and for two years after termination of his employment for any reason.
In May 1999, we entered into a four-year employment agreement with Nathan
P. Morton at an annual base salary of $400,000 per year with possible yearly
bonuses awarded at the discretion of our board of directors. The term of the
agreement is automatically extended for successive one-year periods unless
either party gives notice of non-renewal 90 days prior to the beginning of such
renewal term. In addition, we granted Mr. Morton a stock option to purchase up
to an aggregate of 5,000,000 shares of common stock with an exercise price equal
to the then-current fair market value at the time of the grant. The options vest
in monthly installments over four years, with full acceleration in vesting upon
a change in control of BuildNet or upon termination of employment without cause.
The option grant provides that options for unvested shares can be exercised
subject to repurchase rights that expire in accordance with
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<PAGE> 54
the vesting schedule. If Mr. Morton is terminated without cause, we will provide
him salary, bonus and benefits for the remainder of the term of employment. Mr.
Morton is subject to customary confidentiality, noncompetition and
nonsolicitation provisions during his employment and for two years after
termination of his employment for any reason.
In May 1999, we entered into a one-year employment agreement with Keith T.
Brown at an annual base salary of $175,000 per year with possible bonuses of up
to $50,000 per year awarded at the discretion of our board of directors. The
term of the agreement is automatically extended for successive one-year periods
unless either party gives notice of non-renewal 90 days prior to the beginning
of such renewal term. If Mr. Brown is terminated without cause, we will provide
him salary for a period from the effective date of such termination for six
months. Mr. Brown is subject to customary confidentiality, noncompetition and
nonsolicitation provisions during his employment and for six months after
termination of his employment for any reason.
In May 1999, we entered into a one-year employment agreement with Charles
M. Cosby at an annual base salary of $150,000 per year, including a signing
bonus of $65,000, with possible additional yearly bonuses awarded at the
discretion of our board of directors. The term of the agreement may be
automatically extended for successive one-year periods unless either party gives
notice of non-renewal 90 days prior to the beginning of such renewal term. If
Mr. Cosby is terminated without "cause" as defined in the agreement, we will
provide him salary for a period from the effective date of such termination for
six months. Mr. Cosby is subject to customary confidentiality, noncompetition
and nonsolicitation provisions during his employment and for six months after
termination of his employment for any reason so long as he is still paid a
salary by us in accordance with the termination provisions.
In August 1999, we entered into a four-year employment agreement with Peter
B. Drayson at an annual base salary of $300,000 per year with possible yearly
bonuses awarded at the discretion of our board of directors. The term of the
agreement is automatically extended for successive one-year periods unless
either party gives notice of non-renewal 90 days prior to the beginning of such
renewal term. In addition, we granted Mr. Drayson a stock option to purchase up
to 2,000,000 shares of common stock with an exercise price of the then-current
fair market value at the time of the grant. The options vest in monthly
installments over four years, with full acceleration in vesting upon a change in
control of BuildNet or upon termination of employment without cause. The option
grant provides that options for unvested shares can be exercised subject to
repurchase rights that expire in accordance with the vesting schedule. If Mr.
Drayson is terminated without cause, we will provide him salary, bonus and
benefits for the remainder of the term of employment. Mr. Drayson is subject to
customary confidentiality, noncompetition and nonsolicitation provisions during
his employment and for two years after termination of his employment for any
reason.
In August 1999, we entered into a one-year employment agreement with Steven
C. Thompson at an annual base salary of $150,000 per year with possible yearly
bonuses awarded at the discretion of our board of directors. The term of the
agreement is automatically extended for successive one-year periods unless
either party gives notice of non-renewal to the other. In addition, we granted
Mr. Thompson a stock option to purchase up to 600,000 shares of common stock
with an exercise price of the then-current fair market value at the time of the
grant. Options for 120,000 shares were immediately exercisable and options for
the remaining 480,000 shares vest in monthly installments over two years, with
full acceleration in vesting upon a change in control of BuildNet and one-half
of the unvested shares vesting upon termination of employment without cause. The
option grant provides that options for unvested shares can be exercised subject
to repurchase rights that expire in accordance with the vesting schedule. If Mr.
Thompson is terminated without cause, we will provide him salary, bonus and
benefits for the greater of the remainder of the term of employment or six
months. Mr. Thompson is subject to customary confidentiality, noncompetition and
nonsolicitation provisions during his employment and for one year after
termination of his employment for any reason.
In September 1999, we entered into a four-year employment agreement with
Stephen L. Holcombe at an annual base salary of $200,000 per year with possible
yearly bonuses awarded at the discretion of our
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<PAGE> 55
board of directors. The term of the agreement is automatically extended for
successive one-year periods unless either party gives notice of non-renewal 90
days prior to the beginning of such renewal term. In addition, we granted Mr.
Holcombe a stock option to purchase up to 1,440,000 shares of common stock with
an exercise price of the then-current fair market value at the time of the
grant. The options vest in monthly installments over four years, with full
acceleration in vesting upon a change in control of BuildNet or upon termination
of employment without cause. The option grant provides that options for unvested
shares can be exercised subject to repurchase rights that expire in accordance
with the vesting schedule. If Mr. Holcombe is terminated without cause, we will
pay him an amount equal to one half his annual salary, unless he is terminated
without cause upon a sale or merger of BuildNet, in which case we will pay him
an amount equal to his annual salary for the remainder of the term of
employment. Mr. Holcombe is subject to customary confidentiality, noncompetition
and nonsolicitation provisions during his employment and for two years after
termination of his employment for any reason.
In September 1999, we entered into a three-year employment agreement with
David F. Russo commencing on December 1, 1999, at an annual base salary of
$190,000 per year, including a $50,000 bonus payable on December 31, 2000
provided that the chairman of our board of directors and Mr. Russo mutually
determine that certain agreed-upon performance criteria have been met by Mr.
Russo as of such date, with possible yearly bonuses awarded at the discretion of
our board of directors. In addition, we granted Mr. Russo a stock option to
purchase up to 1,000,000 shares of common stock with an exercise price of the
then-current fair market value at the time of the grant. The options vest in
monthly installments over four years, with full acceleration in vesting upon a
change in control of Buildnet. The option grant provides that options for
unvested shares can be exercised subject to repurchase rights that expire in
accordance with the vesting schedule. If Mr. Russo is terminated without cause,
we will provide him salary, bonus and benefits for the remainder of the term of
employment. Mr. Russo is subject to customary confidentiality, noncompetition
and nonsolicitation provisions during his employment and for two years after
termination of his employment for any reason.
In March 2000, conditioned upon closing of the NxTrend merger, we entered
into a three-year employment agreement with Michael J. Cornell at an annual base
salary of $300,000 per year with possible yearly bonuses awarded at the
discretion of our board of directors. In addition, we granted Mr. Cornell a
stock option to purchase up to an aggregate of 1,000,000 shares of common stock
at an exercise price equal to $2.50 per share. One quarter of the options vest
at the start of the term of employment with the remainder vesting in monthly
installments over three years, with full acceleration in vesting upon
termination of employment without cause in connection with a change in control
of BuildNet. Mr. Cornell is subject to customary confidentiality, noncompetition
and nonsolicitation provisions during his employment and for two years after
termination of his employment for any reason.
STOCK OPTION PLANS
BuildNet, Inc. 1997 Stock Plan and 1999 Stock Plan
Our 1997 stock plan was adopted by the board of directors in October 1997.
A total of 2,243,560 shares of common stock have been reserved for issuance
under the 1997 stock plan. Through March 1, 2000, outstanding options to
purchase 994,840 shares of common stock with a weighted average exercise price
of $0.005 were outstanding under the plan, and 1,248,720 shares had been issued
under the plan at an average exercise price of $0.005 per share. No additional
grants shall be made under the 1997 stock plan, and it will terminate in October
2007, unless sooner terminated by the board of directors.
Our 1999 stock plan was adopted by the board of directors and stockholders
in May 1999. A total of 55,000,000 shares of common stock have been reserved for
issuance under the 1999 stock plan. Through March 1, 2000, outstanding options
to purchase 12,346,940 shares of common stock with a weighted average exercise
price of $1.00 were outstanding under the plan, and 14,527,160 shares had been
issued under the plan at an average exercise price of $0.16 per share. The 1999
stock plan will terminate in May 2009, unless sooner terminated by the board of
directors.
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<PAGE> 56
Each of the 1997 and 1999 stock plans provide for grants of "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, to employees (including officers and employee directors) and
grants of nonstatutory options to directors, employees, consultants and
customers. They also allow for the grant of bonus awards of stock and stock
purchase rights to directors, employees, consultants and customers. Each plan is
administered by the compensation committee or by the board of directors. The
exercise price of incentive stock options granted under the stock plans must not
be less than the fair market value of the common stock on the date of grant.
With respect to any optionee who owns stock representing more than 10% of the
voting power of all classes of our outstanding capital stock, the exercise price
of any incentive stock option must be equal to at least 110% of the fair market
value of the common stock on the date of grant, and the term of the option must
not exceed five years. The terms of all other options may not exceed ten years.
The aggregate fair market value of common stock (determined as of the date of
the option grant) for which incentive stock options may for the first time
become exercisable by any individual in any calendar year may not exceed
$100,000.
The board of directors may amend or terminate the plans at any time, except
that stockholder approval may be required for such amendment or termination. No
amendment or termination may adversely affect the rights, with respect to
previous grants, of any optionee without his or her consent. The board of
directors may also select the consultants and employees to whom options or stock
purchase rights may be granted as well as the number of shares of common stock
covered by each award and the terms and conditions, including any vesting
schedule, for each award. The board of directors may accelerate the vesting or
exercisability of any option or stock purchase rights issued under the plans.
In the event of any change in our outstanding common stock by reason of
stock split, reverse stock split or stock dividend of common stock, or any other
increase or decrease in the number of issued shares effected without receipt of
consideration, the plans provide for the proportionate increase or decrease in
the number of shares of our common stock authorized for issuance under the plans
and covered by each outstanding option or stock purchase right, and adjustment
in the purchase price (if any) per share to reflect such subdivision,
combination or stock dividend. In the event of the acquisition of BuildNet by
another entity pursuant to a consolidation, merger or sale of BuildNet's assets,
unless otherwise provided by our board of directors, the board of directors of
the successor entity shall make appropriate and equitable adjustment for the
continuation of options granted pursuant to the plans.
The FAST 1997 Stock Option Plan
The FAST 1997 stock option plan was adopted by the board of directors of
FAST in May 1997. The plan was assumed by us upon the acquisition of FAST in May
1999. A total of 1,230,038 shares of our common stock have been reserved for
issuance under the plan. Through March 1, 2000, outstanding options to purchase
596,602 shares of common stock with a weighted average exercise price of $0.19
were outstanding under the plan, and 633,436 shares had been issued under the
plan at an average exercise price of $0.19 per share. Pursuant to the terms of
the agreement by which we acquired FAST, no additional grants shall be made
under the plan, and it will terminate in May 2007, unless sooner terminated by
the board of directors.
The board of directors may amend or terminate the plan at any time, except
that stockholder approval may be required for such amendment or termination. No
amendment or termination may adversely affect the rights, with respect to
previous grants, of any optionee without his or her consent. The board of
directors may also select the employees, officers, independent contractors and
directors to whom options may be granted as well as the number of shares of
common stock covered by each award and the terms and conditions for each award.
In the event of any change in our outstanding common stock by reason of
stock split, reverse stock split or stock dividend of common stock, or any other
increase or decrease in the number of issued shares effected without receipt of
consideration, the plan provides for the proportionate increase or decrease in
the number of shares of our common stock authorized for issuance under the plan
and covered by each outstanding option or stock purchase right, and adjustment
in the purchase price (if any) per share to
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reflect such subdivision, combination or stock dividend. In the event of the
acquisition of BuildNet by another entity pursuant to a consolidation, merger,
reorganization or sale of BuildNet's assets (other than a merger in which the
holders of BuildNet common stock hold the same proportionate ownership
immediately after the merger, or a reincorporation or the creation of a holding
company), any option granted under the plan shall terminate. If the stockholders
of BuildNet receive capital stock of another corporation in any transaction
involving a merger, all options granted under the plan shall be converted into
such shares of capital stock of the acquiring corporation unless otherwise
determined by the board of directors. In the event of a "change in control" as
defined in the plan, unless otherwise determined by the board of directors prior
to the occurrence of such change in control, any unvested options shall become
immediately exercisable in full.
NxTrend 1999 Amended and Restated Equity Incentive Plan
The NxTrend 1999 amended and restated equity incentive plan was adopted by
the board of directors of NxTrend in October 1999. The plan will be assumed by
us upon completion of the acquisition of NxTrend. A total of 5,336,981 shares of
our common stock will be reserved for issuance under the plan upon our adoption
of the plan. Through March 1, 2000, outstanding options to purchase 5,336,981
shares of common stock with a weighted average exercise price of $0.78 were
outstanding under the plan. Pursuant to the agreement by which we acquired
NxTrend, no additional grants shall be made under the plan, and it will
terminate in October 2009, unless sooner terminated by the board of directors.
The board of directors may amend or terminate the plan at any time, except
that stockholder approval may be required for such amendment or termination. No
amendment or termination may adversely affect the rights, with respect to
previous grants, of any optionee without his or her consent. The board of
directors may also select the consultants and employees to whom options or stock
purchase rights may be granted as well as the number of shares of common stock
covered by each award and the terms and conditions, including any vesting
schedule, for each award. The board of directors may accelerate the vesting or
exercisability of any option or stock purchase rights issued under the plans.
In the event of any change in our outstanding common stock by reason of
stock split, reverse stock split or stock dividend of common stock, or any other
increase or decrease in the number of issued shares effected without receipt of
consideration, the plan provides for the proportionate increase or decrease in
the number of shares of our common stock authorized for issuance under the plan
and covered by each outstanding option or stock purchase right, and adjustment
in the purchase price (if any) per share to reflect such subdivision,
combination or stock dividend. In the event of the acquisition of BuildNet by
another entity pursuant to a consolidation, merger, sale of BuildNet's assets or
other change in control, unless otherwise provided by our board of directors,
the board of directors of the successor entity shall make appropriate and
equitable adjustment for the continuation of options and other stock purchase
rights granted pursuant to the plan. In the event the successor entity refuses
to assume or continue the options and other stock purchase rights granted
pursuant to the plan, then for each current director, employee and consultant,
such options and stock purchase rights held by them shall be accelerated such
that they are fully vested subject to the occurrence of such acquisition. The
options and stock purchase rights held by directors, employees and consultants
shall accelerate and become fully vested if such director, employee or
consultant is terminated without cause or constructively terminated by BuildNet
prior to the acquisition at the request of the successor entity or, within 18
months of such acquisition, such director, officer or consultant is terminated
without cause or resigns as a result of his or her constructive termination by
the successor entity.
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<PAGE> 58
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Sale of Series A Preferred Stock
In October 1997, we issued an aggregate of 116,840 shares of our Series A
preferred stock, at a purchase price of $.8745 per share, to Southeast
Interactive Technology Fund II LLC, a principal stockholder of BuildNet, for an
aggregate purchase price of $102,176. Norvell E. Miller, IV, a director of
BuildNet, is a managing director of Southeast Interactive Technology Fund II
LLC.
Bridge Financings
We have borrowed money from and issued warrants to purchase shares of our
capital stock to the related parties listed in the table below. All these loans
bore interest at 9 1/2% per year, and were converted into 2,700,877 shares of
our Series B preferred stock in May 1999, at a conversion price of $0.51835 per
share, except the loans to Messrs. Brown and Pinto, which were repaid at that
time.
<TABLE>
<CAPTION>
PRINCIPAL PER SHARE
AMOUNT WARRANT WARRANT EXERCISE
DATE NAME, RELATIONSHIP BORROWED SECURITY SHARES PRICE
- ---- ------------------ --------- ------------------ ------- ---------
<C> <S> <C> <C> <C> <C>
10/98 Keith T. Brown, a director, officer and
principal stockholder................ $ 60,000 Series B preferred 17,360 $0.51835
stock
Francis J. Pinto, a former director.... $304,128 Series B preferred 88,020 $0.51835
stock
11/98 Southeast Interactive Technology Fund
II LLC, a principal stockholder...... $250,000 common stock 482,280 $0.00050
12/98 Southeast Interactive Technology Fund
II LLC, a principal stockholder...... $250,000 common stock 482,280 $0.00050
4/99 Southeast Interactive Technology Fund
II LLC, a principal stockholder...... $500,000 common stock 270,000 $0.00050
5/99 Southeast Interactive Technology Fund
II LLC, a principal stockholder...... $400,000 common stock 216,000 $0.00050
</TABLE>
In November 1999, Southeast Interactive Technology Fund II LLC exercised
its warrant to purchase 216,000 shares of common stock for an aggregate exercise
price of $108.
Sale of Series B Preferred Stock
In May 1999, we issued 33,631,320 shares of our Series B preferred stock,
at a purchase price of $0.51835 per share, to a group of private investors in
the first closing of a private placement for an aggregate purchase price of
$17,432,795. In September 1999, we issued an additional 15,433,480 shares of
Series B preferred stock in a second closing, at a purchase price of $0.51835
per share, for an aggregate purchase price of $7,999,944, and in December 1999,
we issued an additional 19,967,120 shares of Series B preferred stock in a third
closing, at a purchase price of $0.51835 per share, for an aggregate
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<PAGE> 59
purchase price of $10,349,957. Purchasers of Series B preferred stock included
the following related parties:
<TABLE>
<CAPTION>
FIRST SECOND THIRD
CLOSING CLOSING CLOSING AGGREGATE
NUMBER OF NUMBER OF NUMBER OF PURCHASE
NAME, RELATIONSHIP SHARES SHARES SHARES PRICE
- ------------------ --------- --------- --------- -----------
<S> <C> <C> <C> <C>
Covestco-Seteura, LLC, a principal stockholder.... 1,556,520 1,003,520 1,298,320 $ 1,999,981
GE Capital Equity Investments, Inc., a principal
stockholder..................................... 9,339,160 6,021,220 7,789,960 $11,999,979
SGC Partners II LLC, a principal stockholder...... 5,836,960 3,763,260 4,868,720 $ 7,499,975
Southeast Interactive Technology Fund II LLC and
affiliated funds, a principal stockholder....... 3,080,380 2,136,680 2,764,320 $ 4,137,148
</TABLE>
At the time of the transaction, Mr. Miller, a director of BuildNet, was a
managing director of Southeast Interactive Technology Fund II and affiliated
funds and Mr. Hall-Tipping, a director of BuildNet, was managing director of SGC
Partners II LLC. In addition, in connection with this financing, GE Capital
Equity Investments obtained the right to appoint two members of the board of
directors and SGC Partners obtained the right to appoint one member of the board
of directors.
Series B Preferred Stock Warrant Issuance
In May 1999, we issued a warrant exercisable for an aggregate 5,426,380
shares of Series B preferred stock, at an exercise price of $0.51835 per share,
to GE Capital Equity Investments, a principal stockholder. This warrant becomes
exercisable upon the achievement of sales and marketing objectives by GE
Appliances.
Acquisition of The F.A.S.T Management Group
In May 1999, we acquired The F.A.S.T. Management Group, Inc. and issued to
the shareholders of FAST an aggregate 19,711,780 shares of our common stock.
Sale of Series C Preferred Stock
From October to December 1999, we issued an aggregate 24,322,619 shares of
our Series C preferred stock, at a purchase price of $4.40 per share, to a group
of private investors in a private placement for an aggregate purchase price of
$107,019,800. Purchasers of our Series C preferred stock included the following
related parties:
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE
NAME, RELATIONSHIP SHARES PRICE
- ------------------ --------- ----------
<S> <C> <C>
Covestco-Seteura, LLC, a principal stockholder.............. 681,818 $2,999,999
SGC Partners II LLC, a principal stockholder................ 1,136,363 $4,999,997
Southeast Interactive Technology Fund II LLC and affiliated
funds, a principal stockholder............................ 227,272 $ 999,997
</TABLE>
Acquisition of NxTrend Technology, Inc.
We will issue to the stockholders and optionholders of NxTrend an aggregate
25,954,659 shares and options to purchase shares of our common stock pursuant to
an agreement and plan of merger entered into in February 2000. As a result of
this transaction, the BuildNet board of directors has an obligation to recommend
to BuildNet's stockholders the election of the former NxTrend stockholders'
director designee so long as the former stockholders hold at least 7.5% of
BuildNet's outstanding common stock. We expect Peter J. Smith to be that
director designee.
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<PAGE> 60
Loans to Officers
We have loaned money to certain of our officers in order to fund their
exercise of options to purchase shares of our common stock as described in the
table below. The loans bear interest at approximately 6% per year and are
payable in five years. We have the right to repurchase an officer's shares upon
his termination, which right lapses over the original vesting schedule of the
underlying option.
<TABLE>
<CAPTION>
PRINCIPAL
DATE OF AMOUNT SHARES
NAME OF OFFICER LOAN LOANED PURCHASED
- --------------- -------- ---------- ---------
<S> <C> <C> <C>
Bayard M. Atwood, III....................................... 8/24/99 $ 181,500 3,300,000
Michael J. Cornell.......................................... 3/ /00 $ 300,000 337,000
Peter B. Drayson............................................ 8/15/99 $ 110,000 2,000,000
Stephen L. Holcombe......................................... 9/28/99 $ 237,600 1,440,000
Nathan P. Morton............................................ 9/20/99 $ 275,000 5,000,000
David F. Russo.............................................. 12/28/99 $1,400,000 1,400,000
Steven C. Thompson.......................................... 8/31/99 $ 33,000 600,000
</TABLE>
Payments to Related Parties
In 1998 and 1997, we paid to Phillip Brown, brother of Keith T. Brown,
annual salaries in the amounts of $100,926 and $96,936, respectively, for
services rendered to us.
In December 1999, we hired Kate Hall-Tipping, sister of our director Justin
Hall-Tipping, at an annual salary of $110,000.
Business Relationships
In connection with the sale of Series B preferred stock to GE Capital
Equity Investments, we entered into an Internet development, marketing and
distribution agreement with General Electric by and through its GE Appliances
operating unit, to develop a building supply purchase process over the Internet
utilizing our technological capabilities. GE Capital Equity Investments, a
principal stockholder, is a wholly owned subsidiary of General Electric.
For information regarding the grant of stock options with our executive
officers, please see "Management -- Executive Compensation."
For information regarding noncompetition and employment agreements to our
executive officers, please see "Management -- Employment Agreements."
For information regarding related party transactions of NxTrend, please see
Footnote 12 of the footnotes to the Consolidated Financial Statements of
NxTrend.
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<PAGE> 61
PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 17, 2000 the number of shares of
common stock and the percentage of outstanding shares of common stock that are
beneficially owned by:
- each person that is the beneficial owner of more than 5% of our common
stock;
- each of our directors and our director nominee;
- each named executive officer; and
- all of our current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to securities,
subject to community property laws, where applicable. Shares of common stock
subject to options and warrants that are presently exercisable or exercisable
within 60 days of March 17, 2000 are deemed to be outstanding and beneficially
owned by the person holding such option or warrant for the purpose of computing
the percentage of ownership of that person, but they are not deemed outstanding
for the purpose of computing the percentage of any other person. The applicable
percent ownership for each shareholder after the offering is based on
174,415,233 shares of common stock outstanding as of March 17, 2000, which
includes 94,473,379 shares issued upon conversion of all of our outstanding
shares of preferred stock, the exercise of preferred stock and common stock
warrants to purchase 2,678,760 shares of common stock prior to the offering
together with applicable exercisable warrants and options for that stockholder.
Unless otherwise noted, each of the persons listed below has sole voting and
investment power with respect to his or her shares and the address for each of
the persons listed below as beneficially owning more than five percent of our
outstanding capital stock is: 4813 Emperor Boulevard, Suite 130, Durham, North
Carolina 27703.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER BENEFICIALLY OWNED
OF SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
Keith T. Brown(1)........................................... 34,447,315 19.45% %
GE Capital Equity Investments, Inc.(2)...................... 28,576,720 15.89
120 Long Ridge Road
Stamford, Connecticut 06927
Justin Hall-Tipping(3)...................................... 15,605,303 8.95
SGC Partners II LLC(4)...................................... 15,605,303 8.95
1221 Avenue of the Americas, 13th Floor
New York, New York 10020
Covestco-Seteura, LLC(5).................................... 11,131,087 6.38
c/o Barnard & Co., LLC
590 Madison Avenue, 37th Floor
New York, New York 10022
Norvell E. Miller, IV(6).................................... 10,462,152 6.00
Southeast Interactive Technology Funds(7)................... 10,462,152 6.00
630 Davis Drive, Suite 220
Morrisville, North Carolina 27713
Nathan P. Morton(8)......................................... 8,000,000 4.51
William W. Neal, III(9)..................................... 6,511,240 3.71
Charles M. Cosby(10)........................................ 7,730,590 4.40
Bayard M. Atwood, III(11)................................... 5,000,000 2.84
Peter B. Drayson(12)........................................ 3,300,000 1.88
Steven C. Thompson(13)...................................... 1,017,200 *
Joel D. Koblentz............................................ 0 *
Jerry A. Rose............................................... 0 *
Paul A. Ryder............................................... 0 * %
Peter J. Smith.............................................. 0 *
---------- -----
All executive officers and directors as a group (14
persons)(14).............................................. 88,489,183 47.67%
</TABLE>
- ---------------
* Indicates less than one percent.
(1) Includes (a) 9,225,260 shares of common stock, (b) 17,360 shares issuable
upon conversion of preferred stock, (c) 22,542,855 shares of common stock
for which Mr. Brown has voting power, and
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<PAGE> 62
(d) 2,661,840 shares issuable upon immediately exercisable options. Mr.
Brown disclaims beneficial ownership of shares for which he holds voting
power pursuant to certain voting agreements.
(2) Includes (a) 23,150,340 shares issuable upon conversion of preferred stock
and (b) 5,426,380 shares issuable upon the exercise of immediately
exercisable warrants. GE Capital is a wholly owned subsidiary of General
Electric.
(3) Mr. Hall-Tipping is managing director of SG Capital Partners, LLC, the
general partner of SG Merchant Banking Fund, L.P., sole owner of SGC
Partners II LLC, and, as such, may be deemed to have beneficial ownership
of such shares. Mr. Hall-Tipping disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(4) Includes 15,605,303 issuable upon conversion of preferred stock.
(5) Includes 4,540,178 shares issuable upon conversion of preferred stock.
(6) Mr. Miller is a managing director Southeast Interactive Technology Fund I,
LLC and Southeast Interactive Technology Fund II, LLC, and, as such, may be
deemed to have beneficial ownership of such shares. Mr. Miller disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein.
(7) Includes (a) 8,897,232 shares issuable upon conversion of preferred stock.
The shares are held by Southeast Interactive Technology Fund I, LLC and
Southeast Interactive Technology Fund II, LLC.
(8) Includes 3,333,333 shares of common stock that are subject to repurchase by
BuildNet and 3,000,000 shares issuable upon exercise of options to purchase
common stock that upon exercise would be subject to repurchase by BuildNet.
(9) Includes 5,168,100 shares issuable upon conversion of preferred stock and
860,860 shares issuable upon the exercise of immediately exercisable
warrants held by Piedmont Venture Partners Limited Partnership. Mr. Neal is
managing principal of Piedmont Venture Partners, and, as such, may be deemed
to have beneficial ownership of such shares. Mr. Neal disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.
(10) Includes 1,295,973 shares issuable upon the exercise of immediately
exercisable options and 6,434,617 shares for which sole voting power is
held by Mr. Brown
(11) Includes 2,543,750 shares of common stock that are subject to repurchase by
BuildNet and 1,700,000 shares issuable upon exercise of options to purchase
common stock that upon exercise would be subject to repurchase by BuildNet.
(12) Includes 1,750,000 shares of common stock that are subject to repurchase by
BuildNet and 1,300,000 shares issuable upon exercise of options to purchase
common stock that upon exercise would be subject to repurchase by BuildNet.
(13) Includes 340,000 shares of common stock that are subject to repurchase by
BuildNet.
(14) Includes the information in the notes above, as applicable.
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<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
Our amended and restated certificate of incorporation, which will become
effective immediately prior to consummation of the offering, authorizes the
issuance of 850,000,000 shares of common stock, $.01 par value per share, and
50,000,000 shares of preferred stock, $.01 par value per share. Immediately
prior to the offering, shares of common stock and no shares of
preferred stock will be issued and outstanding.
COMMON STOCK
Holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders generally, including the election of
directors. Holders of common stock will be entitled to receive dividends, if
any, declared from time to time by our board of directors out of funds legally
available for dividends. If BuildNet is liquidated, dissolved or wound-up,
holders of common stock will share proportionately in all assets available for
distribution. However, dividend and distribution rights of holders of common
stock will be subject to the rights of any holders of any series of preferred
stock as described below. The holders of common stock have no preemptive or
conversion rights. The common stock does not have cumulative voting rights. As a
result, the holder or holders of more than half of the shares of common stock
voting for the election of directors can elect all directors being elected at
that time. All shares of common stock outstanding immediately following the
offering will be fully paid and will not be subject to further calls or
assessments. There are no redemption or sinking fund provisions applicable to
the common stock.
PREFERRED STOCK
After this offering, no shares of preferred stock will be outstanding. Our
board of directors is authorized, without further stockholder action, to issue
preferred stock in one or more series and to fix the voting rights, liquidation
preferences, dividend rights, repurchase rights, conversion rights, redemption
rights and terms, including sinking fund provisions, and certain other rights
and preferences, of the preferred stock. Although there is no current intention
to do so, our board of directors may, without stockholder approval, issue shares
of a class or series of preferred stock with voting and conversion rights which
could adversely affect the voting power or divided rights of the holders of
common stock and may have the effect of delaying, deferring or preventing a
change in control.
WARRANTS
As of March 1, 2000, there were warrants outstanding to purchase 2,423,300
shares of common stock and shares of preferred stock convertible into 255,460
shares of common stock that will expire if not exercised prior to the
consummation of this offering, and warrants outstanding to purchase 2,588,500
shares of common stock and shares of preferred stock convertible into 10,426,380
shares of common stock that are not required to be exercised in connection with
and will not expire upon the consummation of this offering.
REGISTRATION RIGHTS
We are party to an investor rights agreement dated May 1999, as amended,
with stockholders who will hold in the aggregate 60,956,080 shares of common
stock upon the completion of this offering. We are also party to an investor
rights agreement, dated as of October 1999, as amended, with stockholders who
will hold in the aggregate 50,277,278 shares of common stock, plus any shares of
common stock issued upon conversion of the NxTrend, UniLink and J.D. Edwards
World Source Company notes payable, upon the completion of this offering. Each
of the investor rights agreements includes the following rights for each group
of stockholders:
- The right to demand that their shares of common stock be registered under
the Securities Act of 1933, as amended, in a manner similar to the
registration of the shares that are offered by this prospectus. Any
combination of stockholders holding at least 15% of the shares of common
stock
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<PAGE> 64
included in each such investor rights agreement may initiate four such
registrations. Holders of a majority of shares of common stock issuable
upon exercise of certain warrants shall have separate rights to demand
registration of their shares of common stock on one occasion. Each such
registration must include common stock with a fair market value in excess
of $5,000,000.
- The right to demand that their shares of common stock be registered under
the Securities Act on Form S-3 or equivalent registration statement once
we are eligible for that form or equivalent registration statement. We
expect to be eligible for that form or equivalent registration statement
one year after this offering. Any combination of the stockholders party
to the investor rights agreement collectively holding at least 15% of the
common stock subject to that agreement may initiate such registrations;
however, only two requests (or four requests under the October 1999
investor rights agreement) can be made within any 12-month period and
each such registration must include common stock with a fair market value
in excess of $500,000.
- The right to have their shares of common stock included in any
registration of common stock by BuildNet under the Securities Act, other
than those effected on Forms S-4 or S-8, subject to underwriter cutbacks
in the event of over subscription and only to the extent that inclusion
will not diminish the number of securities included by BuildNet; provided
that, for all registrations after this offering, the stockholders under
both investors rights agreements will be entitled to include securities
equal to 25% of the securities included in such offering.
Another holder of warrants to purchase 372,840 shares of common stock has
rights to have its shares of common stock included in any registration of common
stock by BuildNet under the Securities Act, other than those effected on Forms
S-4 or S-8, subject to underwriter cutbacks in the event of over subscription
and only to the extent that inclusion will not diminish the number of securities
included by BuildNet.
We are required to bear all customary registration expenses including
registration and filing fees, exchange listing fees, printing expenses, fees and
expenses of counsel for BuildNet, and expenses of one counsel to the holders of
the common stock being registered. The holders of the common stock being
registered shall pay all underwriting discounts, selling commissions and fees
customarily allocable to each holder registering shares.
VOTING RIGHTS
Holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders generally, including the election of
directors.
Pursuant to the terms of a voting trust agreement dated April 1998, among
Keith T. Brown, certain other stockholders and BuildNet, Mr. Brown possesses all
rights and powers to vote 6,478,000 shares of common stock held by such other
stockholders as trustee pursuant to the terms of the agreement.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS;
ANTI-TAKEOVER EFFECTS
Delaware Corporate Law
The State of Delaware has a statute designed to provide Delaware
corporations with protection against hostile takeovers. The takeover statute,
which is codified in Section 203 of the Delaware General Corporate Law, is
intended to discourage certain takeover practices by impeding the ability of a
hostile acquirer to engage in certain transactions with the target company.
In general, Section 203 provides that a person who owns 15% or more of the
outstanding voting stock of a Delaware corporation, referred to as an interested
stockholder, may not consummate a merger or other business combination
transaction with such corporation at any time during the three year period
following the date such person became an interested stockholder. The term
business combination is defined broadly
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<PAGE> 65
to cover a wide range of corporate transactions including mergers, sales of
assets, issuances of stock, transactions with subsidiaries and the receipt of
disproportionate financial benefits.
The statute exempts the following transactions from the requirements of
Section 203:
- any business combination if, prior to the date a person became an
interested stockholder, the board of directors approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
- any business combination involving a person who acquired at least 85% of
the outstanding voting stock in the transaction in which he became an
interested stockholder, with the number of shares outstanding calculated
without regard to those shares owned by the corporation's directors who
are also officers and by certain employee stock plans;
- any business combination with an interested stockholder that is approved
by the board of directors and by a two-thirds vote of the outstanding
voting stock not owned by the interested stockholder; and
- certain business combinations that are proposed after the corporation had
received other acquisition proposals and which are approved or not
opposed by a majority of certain continuing members of the board of
directors.
A corporation may exempt itself from the requirements of the statute by
adopting an amendment to its certificate of incorporation or bylaws electing not
to be governed by Section 203. At the present time, our board of directors does
not intend to propose any such amendment.
Certificate of Incorporation and Bylaws
Our amended and restated certificate of incorporation, as it will become
effective immediately prior to the consummation of the offering, provides:
- for the authorization of the board of directors to issue, without further
action by the stockholders, up to 50,000,000 shares of preferred stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof;
- that any action required or permitted to be taken by our stockholders
must be effected at a duly called annual or special meeting of the
stockholders and may not be effected by a consent in writing;
- that special meetings of our stockholders may be called only by the
chairman of the board, the chief executive officer or a majority of the
members of the board of directors;
- for a classified board of directors;
- that vacancies on the board of directors, including newly created
directorships, can be filled only by a majority of the directors then in
office.
Our bylaws, effective immediately prior to the consummation of the
offering, shall include provisions (1) imposing advance notice requirements for
stockholder proposals and director nomination and (2) providing that our
directors may be removed only for cause and only by the affirmative vote of
holders at least 66 2/3% of the outstanding shares of voting stock together as a
single class.
These provisions in our certificate of incorporation and bylaws are
intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and in the policies formulated by the
board of directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of BuildNet. These provisions
are designed to reduce our vulnerability to an unsolicited proposal for a
takeover that does not contemplate the acquisition of all of our outstanding
shares, or an unsolicited proposal for the restructuring or sale of all or part
of BuildNet. These provisions, however, could discourage potential acquisition
proposals and could delay or prevent a change in control of BuildNet. These
provisions may also have the effect of preventing changes in our management.
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TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is [ ].
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and we cannot predict the effect, if any, that sales of shares of common
stock or the availability of shares of common stock for sale will have on the
market price of the common stock prevailing from time to time. Nevertheless,
sales of substantial amounts of common stock in the public market, or the
perception that these sales could occur, could adversely affect the market price
of our common stock and could impair our future ability to raise capital through
the sale of our equity securities.
Upon completion of the offering and assuming no exercise of stock options
after March 1, 2000, there will be an aggregate of shares of our
common stock outstanding or shares if the underwriters'
overallotment option is exercised in full, and warrants and options outstanding
for shares. The shares offered by this prospectus,
or shares if the underwriters' overallotment option is exercised
in full, will be freely transferable without restriction or limitation under the
Securities Act of 1933, as amended, unless purchased by our "affiliates" as that
term is defined in Rule 144 under the Securities Act. The remaining
shares outstanding upon completion of the offering will be
"restricted securities" within the meaning of Rule 144 under the Securities Act,
and are subject to restrictions under the Securities Act.
Our directors and officers and security holders holding in the aggregate
shares of and options and warrants to purchase
shares of our common stock will agree not to sell, offer for
sale, or otherwise dispose of any of our common stock for a period of 180 days
from the date of this prospectus without the prior written consent of Credit
Suisse First Boston. In addition, during the 180-day period, we will agree not
to file any registration statement, except for the registration statement on
Form S-8 described below, with respect to our common stock or any securities
convertible into or exercisable or exchangeable for common stock without the
prior written consent of Credit Suisse First Boston.
Subject to these lock-up agreements, the shares of common stock outstanding
upon the completion of this offering, not including the shares
offered by this prospectus, assuming the exercise of outstanding option and
warrants, will be eligible for sale, subject to Rule 144, in the public market
as follows:
<TABLE>
<S> <C>
Immediately after this offering..................... shares;
180 days after this offering........................ shares;
1 year after this offering.......................... shares; and
2 years after this offering......................... shares.
</TABLE>
In general, under Rule 144, as currently in effect, a person, or persons
whose shares are required to be aggregated, who owns shares that were purchased
from us or any of our affiliates at least one year previously, is entitled to
sell in brokers transactions or to market makers, within any three-month period
commencing 90 days after the date of this prospectus, the number of shares of
common stock that does not exceed the greater of (1) one percent of the number
of then outstanding shares, approximately shares immediately
after the offering, or (2) the average weekly reported trading volume during the
four calendar weeks preceding the date on which the required notice of sale is
filed with the SEC. Sales under Rule 144 are generally subject to the
availability of current public information about BuildNet. Any person, or
persons whose shares are aggregated, who owns shares that were purchased from us
or any of our affiliates at least two years previously and who has not been an
affiliate of ours at any time during the 90 days preceding the sale would be
entitled to sell shares under Rule 144(k) without regard to the volume
limitations or manner of sale, public information or notice requirements of Rule
144.
We are party to two investor rights agreements which grant some of our
stockholders the right to demand that we register with the SEC the common stock
they acquired from us in private placements. The registration of this stock
would allow these shareholders to sell the stock publicly without any
limitations on the manner or amount of sale. These two registration rights
agreements cover an aggregate of 111,233,358 shares of our common stock. If
these registration rights were exercised in whole or in part,
66
<PAGE> 68
a substantial number of shares of our common stock could be sold at once and the
market price of our common stock could fall.
Any of our employees, officers, directors or consultants who have purchased
or were awarded shares or options to purchase shares pursuant to a written
compensatory plan or contract are entitled to rely on the resale provisions of
Rule 701 under the Securities Act, which permits affiliates and non-affiliates
to sell such shares without having to comply with the holding period
restrictions of Rule 144, in each case commencing 90 days after the date of this
prospectus. In addition, non-affiliates may sell such shares without complying
with the public information, volume and notice provisions of Rule 144. Rule 701
is available for our option holders as to all shares issued
pursuant to the exercise of options granted prior to this offering.
After the offering, BuildNet intends to file a registration statement on
Form S-8 to register all of the shares of common stock reserved
for issuance under our stock incentive plans and not eligible for sale under
Rule 701. Accordingly, shares issued upon exercise of such options will be
freely tradable by holders who are not our affiliates and, subject to the volume
and other limitations of Rule 144, by holders who are our affiliates.
In addition, BuildNet may raise additional equity capital through the sale
of equity securities. Sales of these shares in the public markets may cause
future dilution to our existing stockholders.
67
<PAGE> 69
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated , we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, FleetBoston
Robertson Stephens Inc., Salomon Smith Barney Inc. and Thomas Weisel Partners
LLC are acting as representatives, the following respective numbers of shares of
common stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
FleetBoston Robertson Stephens Inc..........................
Salomon Smith Barney Inc....................................
Thomas Weisel Partners LLC..................................
-------
Total.............................................
=======
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay:
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and Commissions paid
by us.................................... $ $ $ $
Expenses payable by us..................... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.
Our officers and directors and substantially all of our stockholders and
option and warrant holders have agreed that they will not offer, sell, contract
to sell, pledge or otherwise dispose of, directly or indirectly, any shares of
our common stock or securities convertible into or exchangeable or exercisable
for any shares of our common stock, enter into a transaction which would have
the same effect, or enter into any swap, hedge or other arrangement that
transfers, in whole or in part, any of the economic
68
<PAGE> 70
consequences of ownership of our common stock, whether any such aforementioned
transaction is to be settled by delivery of our common stock or such other
securities, in cash or otherwise, or publicly disclose the intention to make any
such offer, sale, pledge or disposition, or to enter into any such transaction,
swap, hedge or other arrangement, without, in each case, the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days after
the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "BNET"
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price include the following:
- the information included in this prospectus and otherwise available to
the representatives;
- market conditions for initial public offerings;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchase of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing transaction or a syndicate
covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
69
<PAGE> 71
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations.
Thomas Weisel Partners LLC was organized and registered as a broker/dealer
in December 1998. Since December 1998, Thomas Weisel Partners LLC has acted as a
lead or co-manager on numerous public offerings of equity securities. Thomas
Weisel Partners LLC does not have any material relationship with us or any of
our officers, directors or other controlling persons, except with respect to its
contractual relationship with us under the underwriting agreement entered into
in connection with this offering.
70
<PAGE> 72
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) if required
by the law, that such purchaser is purchasing as principal and not as agent, and
(iii) such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against such issuer or persons in Canada or to
enforce a judgment obtained in Canadian courts against the issuer or such
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors about the tax consequences of an investment in the common stock in
their particular circumstances and with respect to the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.
71
<PAGE> 73
LEGAL MATTERS
The validity of the common stock offered hereby will be passed on for us by
Wyrick Robbins Yates & Ponton LLP, Raleigh, North Carolina. Attorneys of Wyrick
Robbins Yates & Ponton LLP beneficially own 11,364 shares of our common stock.
Certain legal matters in connection with the offering will be passed on for the
underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The financial statements of
- BuildNet, Inc. as of December 31, 1998 and 1999 and for each of the three
years in the period ended December 31, 1999,
- NxTrend Technology, Inc. as of December 31, 1998 and 1999 and for each of
the three years in the period ended December 31, 1999,
- The UniLink Group, LLC as of December 31, 1998 and 1999 and for the years
then ended and
- The McCosker Corporation as of December 31, 1998 and for the year then
ended,
included in this prospectus have been so included in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
CHANGE IN ACCOUNTANTS
In March 2000, NxTrend Technology, Inc. dismissed Arthur Andersen LLP as
their independent accountants. The former independent accountants' reports did
not contain an adverse opinion, a disclaimer of opinion or any qualifications or
modifications related to uncertainty, audit scope or accounting principles. The
former independent accountants' report does not cover any of NxTrend's financial
statements in this registration statement. There were no disagreements with the
former public accountants on any matter of accounting principles or practices,
financial statement disclosures or auditing scope or procedure with respect to
NxTrend's financial statements up through the time of dismissal that, if not
resolved to the former accountants' satisfaction, would have caused them to make
reference to the subject matter of the disagreement in connection with their
report. In March 2000, in connection with the pending acquisition by BuildNet,
NxTrend retained PricewaterhouseCoopers LLP as their independent public
accountants. Prior to retaining PricewaterhouseCoopers LLP, NxTrend had not
consulted with PricewaterhouseCoopers LLP regarding accounting principles.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement on Form S-1,
including exhibits, schedules and amendments, under the Securities Act with
respect to the shares of common stock to be sold in this offering. This
prospectus does not contain all the information included in the registration
statement. For further information about us and the shares of our common stock
to be sold in this offering, please refer to this registration statement.
Complete exhibits have been filed with our registration statement on Form S-1.
You may read and copy our registration statement and any contract,
agreement or other document filed as an exhibit to our registration statement or
any other information from our filings at the Commission's public reference room
at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of
these documents, upon payment of a duplicating fee, by writing to the
Commission. Please call the Securities and Exchange Commission at 1-800-SEC-0330
for further information about the public reference rooms. Our filings with the
Commission, including our registration statement, are also available to you on
the Securities and Exchange Commission's Web site, http://www.sec.gov. As a
result of this offering, we will become subject to the information and reporting
requirements of the Securities Exchange
72
<PAGE> 74
Act of 1934, and will file periodic reports, proxy statements and other
information with the Commission. Upon approval of our common stock for quotation
on the Nasdaq National Market, these reports, proxy statements and other
information may also be inspected at the offices of Nasdaq Operations, 1735 K
Street N.W., Washington, DC 20006.
We intend to furnish our stockholders with annual reports containing
audited financial statements, and make available to our stockholders quarterly
reports for the first three quarters of each year containing unaudited interim
financial information.
73
<PAGE> 75
BUILDNET, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUILDNET, INC.
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statements of Shareholders' Deficit for the
Years Ended December 31, 1997, 1998 and 1999.............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
NXTREND TECHNOLOGY, INC.
Report of Independent Accounts.............................. F-27
Balance Sheets as of December 31, 1998 and 1999............. F-28
Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999....................................... F-29
Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1997, 1998 and 1999.................... F-30
Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999....................................... F-31
Notes to Financial Statements............................... F-32
THE UNILINK GROUP, LLC
Report of Independent Accounts.............................. F-46
Balance Sheets as of December 31, 1998 and 1999............. F-47
Statements of Operations for the Years Ended December 31,
1998 and 1999............................................. F-48
Statements of Changes in Members' Capital for the Years
Ended December 31, 1998 and 1999.......................... F-49
Statements of Cash Flows for the Years Ended December 31,
1998 and 1999............................................. F-50
Notes to Financial Statements............................... F-51
THE MCCOSKER CORPORATION
Report of Independent Accounts.............................. F-59
Balance Sheet as of December 31, 1998....................... F-60
Statement of Operations for the Year Ended December 31,
1998...................................................... F-61
Statement of Shareholders' Deficit for the Year Ended
December 31, 1998......................................... F-62
Statement of Cash Flows for the Year Ended December 31,
1998...................................................... F-63
Notes to Financial Statements............................... F-64
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
DATA...................................................... F-69
</TABLE>
F-1
<PAGE> 76
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
BuildNet, Inc.
The -for- common stock split discussed in Note 17 to
the consolidated financial statements has not been consummated as of March ,
2000. When it has been consummated, we will be in a position to furnish the
following audit report:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' deficit and
of cash flows present fairly, in all material respects, the financial
position of BuildNet, Inc. and its subsidiaries (the "Company") at December
31, 1998 and 1999, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United
States. These 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 auditing standards generally accepted in the United
States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above."
/s/ PRICEWATERHOUSECOOPERS LLP
Raleigh, North Carolina
February 26, 2000
F-2
<PAGE> 77
BUILDNET, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
EQUITY
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 259,597 $ 51,874,821
Cash held in escrow................................. -- 25,348,009
Accounts receivable................................. 11,082 2,755,606
Other current assets................................ 168,827 1,549,633
----------- ------------
Total current assets........................ 439,506 81,528,069
Long-term investments................................. -- 29,650,000
Property and equipment, net........................... 439,369 6,522,621
Other assets.......................................... 36,862 17,025,704
----------- ------------
Total assets................................ $ 915,737 $134,726,394
=========== ============
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Current maturities of capital lease obligations..... $ 107,835 $ 758,898
Current maturities of long-term debt................ -- 2,283,000
Accounts payable and accrued liabilities............ 637,151 7,909,733
Deferred revenue.................................... 648,820 3,081,011
----------- ------------
Total current liabilities................... 1,393,806 14,032,642
Capital lease obligations, less current maturities.... 67,865 720,476
Long-term debt, less current maturities............... 4,100,309 2,567,000
Redeemable warrants................................... 250,278 10,458,470
Series B mandatorily redeemable preferred stock
(liquidation preference of $71,565,391)............. -- 36,949,130 $ --
Series C mandatorily redeemable preferred stock
(liquidation preference of $107,019,515)............ -- 102,298,853 --
Subscriptions to purchase mandatorily redeemable
convertible preferred stock......................... -- (3,525,000) --
Commitments (Note 7)
Shareholders' (deficit) equity:
Series A convertible preferred stock, $.01 par
value, 1,268,920 shares designated; 1,061,660 and
1,118,840 shares issued and outstanding at
December 31, 1998 and 1999, respectively; no
shares designated, issued or outstanding pro
forma (unaudited)................................ 10,616 11,188 --
Common stock, $.01 par value, 350,000,000 shares
authorized; 20,042,520 and 54,872,024 shares
issued and outstanding at December 31, 1998 and
1999, respectively; 149,345,403 shares issued and
outstanding pro forma (unaudited)................ 200,425 548,720 1,493,454
Subscriptions to purchase common stock.............. -- -- (3,525,000)
Additional paid-in capital.......................... 1,964,410 37,280,853 170,665,881
Deferred compensation............................... (134,384) (28,912,130) (28,912,130)
Notes receivable from shareholders.................. -- (2,237,100) (2,237,100)
Accumulated deficit................................. (6,937,588) (35,466,708) (35,349,362)
----------- ------------ ------------
Total shareholders' (deficit) equity........ (4,896,521) (28,775,177) $102,135,743
----------- ------------ ------------
Total liabilities and shareholders'
(deficit) equity.......................... $ 915,737 $134,726,394
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 78
BUILDNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues............................................... $ 4,257,110 $ 4,506,041 $ 14,600,929
Cost of revenues....................................... 1,368,803 1,435,917 9,026,423
----------- ----------- ------------
Gross profit................................. 2,888,307 3,070,124 5,574,506
----------- ----------- ------------
Operating expenses:
General and administrative........................... 1,348,292 1,969,011 8,150,656
Sales and marketing.................................. 1,593,550 2,072,244 4,845,404
Research and development............................. 1,121,898 2,035,275 9,898,478
Stock-based compensation............................. 202,017 22,136 665,782
----------- ----------- ------------
Total operating expenses..................... 4,265,757 6,098,666 23,560,320
----------- ----------- ------------
Operating loss............................... (1,377,450) (3,028,542) (17,985,814)
Interest income........................................ 28,662 38,480 642,925
Interest expense....................................... (178,028) (512,829) (1,017,489)
Other noncash interest (expense) income (Note 14)...... (138,651) 264,037 (10,140,341)
----------- ----------- ------------
Loss before extraordinary item............... (1,665,467) (3,238,854) (28,500,719)
Extraordinary loss on early extinguishment of debt..... -- (106,911) (28,401)
----------- ----------- ------------
Net loss..................................... (1,665,467) (3,345,765) (28,529,120)
Accretion of mandatorily redeemable preferred stock.... -- -- (2,068,378)
Preferred stock dividends.............................. -- -- (167,211)
----------- ----------- ------------
Net loss available to common shareholders.... $(1,665,467) $(3,345,765) $(30,764,709)
=========== =========== ============
Net loss per common share -- basic and diluted......... $ (0.08) $ (0.17) $ (0.84)
Weighted average common shares outstanding -- basic and
diluted.............................................. 20,042,520 20,042,520 36,526,929
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 79
BUILDNET, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SERIES A NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
------------------- --------------------- PAID-IN DEFERRED FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION SHAREHOLDERS
--------- ------- ---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1996....... 571,740 $ 5,717 20,042,520 $200,425 $ 686,205 $ -- $ --
Conversion of promissory notes into
489,920 shares of Series A preferred
stock................................ 489,920 4,899 -- -- 456,180 -- --
Value of warrants to purchase
securities of the Company issued in
connection with debt................. -- -- -- -- 56,389 -- --
Deferred compensation related to grant
of stock options..................... -- -- -- -- 271,168 (271,168) --
Amortization of deferred
compensation......................... -- -- -- -- -- 202,017 --
Net loss.............................. -- -- -- -- -- -- --
--------- ------- ---------- -------- ----------- ------------ -----------
BALANCE AS OF DECEMBER 31, 1997....... 1,061,660 10,616 20,042,520 200,425 1,469,942 (69,151) --
Value of warrants to purchase
securities of the Company issued in
connection with debt................. -- -- -- -- 407,099 -- --
Deferred compensation related to grant
of stock options..................... -- -- -- -- 87,369 (87,369) --
Amortization of deferred
compensation......................... -- -- -- -- -- 22,136 --
Net loss.............................. -- -- -- -- -- -- --
--------- ------- ---------- -------- ----------- ------------ -----------
BALANCE AS OF DECEMBER 31, 1998....... 1,061,660 10,616 20,042,520 200,425 1,964,410 (134,384) --
Value of warrants to purchase
securities of the Company issued in
connection with debt................. -- -- -- -- 59,400 -- --
Exercise of common stock options...... -- -- 14,848,144 148,481 2,130,494 -- (2,237,100)
Exercise of common stock warrants..... -- -- 270,000 2,700 (2,565) -- --
Exercise of Series A preferred stock
warrants............................. 57,180 572 -- -- 49,428 -- --
Issuance of common stock and options
and warrants to purchase common stock
in exchange for shares of the
F.A.S.T. Management Group, Inc....... -- -- 19,711,360 197,114 929,050 -- --
Interest on notes receivable from
shareholders......................... -- -- -- -- 13,288 -- --
Deferred compensation related to grant
of stock options..................... -- -- -- -- 29,443,528 (29,443,528) --
Deferred customer acquisition costs... -- -- -- -- 4,929,409 -- --
Amortization of deferred
compensation......................... -- -- -- -- -- 665,782 --
Dividends paid on preferred stock..... -- -- -- -- (167,211) -- --
Accretion of mandatorily redeemable
preferred stock...................... -- -- -- -- (2,068,378) -- --
Net loss.............................. -- -- -- -- -- -- --
--------- ------- ---------- -------- ----------- ------------ -----------
BALANCE AS OF DECEMBER 31, 1999....... 1,118,840 $11,188 54,872,024 $548,720 $37,280,853 $(28,912,130) $(2,237,100)
========= ======= ========== ======== =========== ============ ===========
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
------------ ------------
<S> <C> <C>
BALANCE AS OF DECEMBER 31, 1996....... $ (1,926,356) $ (1,034,009)
Conversion of promissory notes into
489,920 shares of Series A preferred
stock................................ -- 461,079
Value of warrants to purchase
securities of the Company issued in
connection with debt................. -- 56,389
Deferred compensation related to grant
of stock options..................... -- --
Amortization of deferred
compensation......................... -- 202,017
Net loss.............................. (1,665,467) (1,665,467)
------------ ------------
BALANCE AS OF DECEMBER 31, 1997....... (3,591,823) (1,979,991)
Value of warrants to purchase
securities of the Company issued in
connection with debt................. -- 407,099
Deferred compensation related to grant
of stock options..................... -- --
Amortization of deferred
compensation......................... -- 22,136
Net loss.............................. (3,345,765) (3,345,765)
------------ ------------
BALANCE AS OF DECEMBER 31, 1998....... (6,937,588) (4,896,521)
Value of warrants to purchase
securities of the Company issued in
connection with debt................. -- 59,400
Exercise of common stock options...... -- 41,875
Exercise of common stock warrants..... -- 135
Exercise of Series A preferred stock
warrants............................. -- 50,000
Issuance of common stock and options
and warrants to purchase common stock
in exchange for shares of the
F.A.S.T. Management Group, Inc....... -- 1,126,164
Interest on notes receivable from
shareholders......................... -- 13,288
Deferred compensation related to grant
of stock options..................... -- --
Deferred customer acquisition costs... -- 4,929,409
Amortization of deferred
compensation......................... -- 665,782
Dividends paid on preferred stock..... -- (167,211)
Accretion of mandatorily redeemable
preferred stock...................... -- (2,068,378)
Net loss.............................. (28,529,120) (28,529,120)
------------ ------------
BALANCE AS OF DECEMBER 31, 1999....... $(35,466,708) $(28,775,177)
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 80
BUILDNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(1,665,467) $(3,345,765) $(28,529,120)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash interest expense (income).................... 138,651 (264,037) 10,140,341
Loss on early extinguishment of debt................. -- 106,911 28,401
Loss on disposition of fixed assets.................. -- 15,007 --
Depreciation and amortization........................ 238,469 221,062 2,476,137
Amortization of deferred compensation................ 202,017 22,136 665,782
Amortization of deferred customer acquisition
costs............................................. -- -- 117,346
Changes in operating assets and liabilities:
Accounts receivable............................... (312,345) 349,362 (604,270)
Other assets...................................... (77,867) (53,463) (1,605,110)
Accounts payable.................................. (317,885) 143,306 5,006,028
Deferred revenue.................................. 375,083 (63,401) (1,090,305)
----------- ----------- ------------
Net cash used in operating activities........ (1,419,344) (2,868,882) (13,394,770)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................. (31,148) (122,341) (2,950,990)
Purchase of investments.............................. -- -- (33,650,000)
Proceeds from sale of investments.................... -- -- 4,000,000
Costs of internal use software capitalized........... -- -- (1,489,512)
Purchase of proprietary software..................... -- -- (150,000)
Cash paid for acquisitions, net of cash acquired of
$436,632.......................................... -- -- (3,312,010)
----------- ----------- ------------
Net cash used in investing activities........ (31,148) (122,341) (37,552,512)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............. 3,367,491 2,114,000 2,000,000
Payments of principal on long-term debt.............. (436,399) (106,864) (2,804,466)
Payments of capital lease obligations................ (51,988) (100,283) (363,850)
Payment of deferred loan costs....................... (259,040) -- --
Payment of dividends................................. -- -- (167,211)
Proceeds from issuance of mandatorily redeemable
convertible preferred stock....................... -- -- 103,856,024
Proceeds from exercise of warrants for common stock
and Series A preferred stock...................... -- -- 42,009
----------- ----------- ------------
Net cash provided by financing activities.... 2,620,064 1,906,853 102,562,506
----------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents................................ 1,169,572 (1,084,370) 51,615,224
CASH AND CASH EQUIVALENTS:
Beginning of year.................................... 174,395 1,343,967 259,597
----------- ----------- ------------
End of year.......................................... $ 1,343,967 $ 259,597 $ 51,874,821
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 81
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
BuildNet, Inc. (the "Company"), is headquartered in Research Triangle Park,
North Carolina and is currently a provider of management software to
homebuilders. The Company has designed the BuildNet Exchange to provide
Internet-based procurement, e-commerce and information services for
homebuilders, suppliers and manufacturers. The BuildNet Exchange allows users to
confirm pricing and product specifications, place purchase orders and add both
product and order information automatically to builders' and suppliers'
management systems. In addition, manufacturers can place product information and
catalogs on the BuildNet Exchange for access by homebuilders and suppliers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Pro Forma Shareholders' Equity
The Board of Directors has authorized the Company to file a Registration
Statement with the Securities and Exchange Commission permitting the Company to
sell shares of common stock in an initial public offering ("IPO"). If the IPO is
consummated as presently anticipated, all shares, and warrants to acquire
shares, of the Series A, Series B, and Series C preferred stock will
automatically convert into shares, and warrants to acquire shares, of common
stock on a one-to-one conversion ratio. The unaudited pro forma stockholders'
equity reflects the subsequent conversion of Series A, Series B, and Series C
preferred stock and warrants to acquire such stock into common stock and
warrants to acquire common stock as if such conversion had occurred as of
December 31, 1999.
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.
Principles of Consolidation
The consolidated financial statements include the accounts of BuildNet,
Inc. and its wholly-owned subsidiaries, FAST Management Group, Inc, BuildNet
Corporation, Maxwell and Company, Systems Analysis Inc., and BuildNet Financial
Services, Inc. All significant intercompany accounts and transactions have been
eliminated.
Revenue Recognition and Deferred Revenue
The Company's revenues have historically been derived from software
licenses, software related services, and project development fees. The Company
adopted American Institute of Public Accountants ("AICPA") Statement of Position
("SOP") No. 97-2 "Software Revenue Recognition" effective January 1, 1997. The
Company adopted SOP No. 98-9 "Modification of SOP No. 97-2, Software Revenue
Recognition, with Respect to Certain Transactions," effective January 1, 1998.
The adoption of these statements did not have a material effect on the timing of
the Company's revenue recognition.
Software license revenues from multiple element contracts for which the
Company can separate the software license element from the service elements
included in the initial contract is recognized when there is evidence of an
arrangement, the product has been shipped, fees are fixed and determinable and
collection of the related receivable is probable. Revenues from multiple element
software contracts for which the Company cannot separate the software license
element from the service elements is accounted for by the percentage of
completion method, whereby revenues is recognized based on the estimated stage
F-7
<PAGE> 82
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of completion of individual contracts. Software related services revenues
includes professional service revenues and maintenance fees. Professional
service revenues includes system planning and implementation and training, which
are included in deferred revenue until the services are performed. Revenues from
maintenance and support fees represent ongoing customer support and free
unspecified product updates, which are included in deferred revenue and
amortized ratably into revenue over the term of the maintenance period which is
generally twelve months.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of costs, including salaries
and sales commissions, of all personnel involved in the sales process. Sales and
marketing expenses also include costs of advertising, trade shows and certain
indirect costs. All costs of advertising the services and products offered by
the Company are expensed as incurred. Advertising expense totaled $215,000,
$158,000 and $554,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents.
Cash Held in Escrow
Cash held in escrow consist of funds held in an interest-bearing deposit
account by the Company's law firm. The funds were proceeds from sale of
mandatorily redeemable preferred stock, the exercise of a warrant for common
stock, and interest earned. The funds held in this account were disbursed to the
Company subsequent to December 31, 1999.
Investments
The Company considers all investments that are not considered cash
equivalents and have a maturity of less than one year from the balance sheet
date to be short-term investments. The Company considers all investments with a
maturity greater than one year from the balance sheet date to be long-term
investments. At December 31, 1999, all investments are considered as
available-for-sale and are carried at fair value with unrealized gains and
losses recognized as a separate component of other comprehensive income.
Interest income includes interest, amortization of investment purchases premiums
and discounts, and realized gains and losses on sales of securities. The cost of
securities sold is based on the specific identification method.
Property and Equipment
Property and equipment is primarily comprised of furniture and fixtures,
office equipment, computer equipment, and leasehold improvements which are
recorded at cost. Depreciation and amortization is charged to operations over
the estimated useful lives of the property which range from three to seven
years, primarily using the straight-line method. A declining-balance method is
used for certain types of office and computer equipment. Property and equipment
includes certain items that are under capital leases. These items are amortized
over the shorter of the lease period or the estimated useful life of the
equipment.
Capitalized Software Costs
Software development costs are required to be capitalized beginning when a
product's technological feasibility has been established and ending when a
product is available for general release to customers.
F-8
<PAGE> 83
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's policy is to amortize software development costs on a
product-by-product basis at the greater of the amount computed using (a) the
ratio of current gross revenues for a product to the total of current and
anticipated future gross revenues or (b) the straight-line method over the
remaining estimated economic life of the product. To date, the period between
achieving technological feasibility and the general availability of such
software has substantially coincided; therefore software development costs
qualifying for capitalization have been insignificant. Accordingly, the Company
has not capitalized any costs for software developed internally. The Company has
capitalized purchased software costs resulting from the Company's acquisitions
as discussed in Note 3.
Internal Use Software
Effective January 1, 1999, the Company adopted the provisions of the
Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants ("AICPA") Statement of Position No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP No.
98-1"). SOP No. 98-1 provides guidance regarding when software developed or
obtained for internal use should be capitalized. Under the provisions of SOP No.
98-1, external direct costs of materials and services consumed in the
development of internal-use computer software, payroll and payroll related costs
for employees directly associated with internal-use computer software projects,
and interest costs incurred while developing internal-use computer software
should be capitalized once the preliminary project stage has been completed,
management has authorized and committed to funding the project, and it is
probable that the project will be completed and that the software will be used
to perform the function intended. Such costs should be capitalized until the
software is ready for its intended use, at which time the costs should be
amortized over their estimated useful life. During the year ended December 31,
1999, the Company capitalized costs of $1,489,512 related to the development of
the BuildNet Exchange, which are included in property and equipment at December
31, 1999. Prior to January 1, 1999, the Company had not incurred significant
expenses beyond the completion of the preliminary project phase.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets consists of both identifiable and
unidentifiable assets (goodwill) resulting from acquisitions and is amortized on
a straight-line basis over periods ranging from three to five years. The Company
periodically assesses the recoverability of intangible assets by determining
whether the amortization of the balance over its remaining life can be recovered
through undiscounted future operating cash flows of the related operations (see
Note 3). Goodwill is being amortized over a period of five years because of the
rapid changes in the e-commerce industry. Capitalized software and assembled
workforce is being amortized over a period of three years.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets, certain
identifiable intangible assets, and goodwill in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of " ("SFAS 121"). SFAS
121 requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the estimated future undiscounted cash flows
attributable to such assets or the business to which such assets relate. No
impairments were required to be recognized during the years ended December 31,
1997, 1998 or 1999.
Start-Up Costs
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities," ("SOP No. 98-5") which is effective
F-9
<PAGE> 84
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for fiscal years beginning after December 15, 1998. SOP No. 98-5 requires
companies to expense as incurred all preopening, start-up and organizational
costs that are not capitalizable as long-lived assets. The Company adopted SOP
No. 98-5 effective January 1, 1999. The adoption of SOP No. 98-5 had no impact
on the Company's financial condition or results of operations.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts payable and
accounts receivable at December 31, 1999 and 1998 approximated their fair value
due to the short-term nature of these items. The fair value of the Company's
short-term and long-term debt approximated their carrying values based on the
borrowing rates available to the Company for loans of similar terms as of
December 31, 1999 and 1998. The fair value of the Company's investments at
December 31, 1999, based on market quotes, approximated their carrying values.
Income Taxes
The Company accounts for income taxes using the liability method which
requires the recognition of deferred tax assets or liabilities for the temporary
differences between financial reporting and tax basis of the Company's assets
and liabilities and for tax carryforwards at enacted statutory tax rates in
effect for the years in which the differences are excepted to reverse. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. In addition, valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
Credit Risk, Significant Customers and Concentrations
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, accounts
receivable and investments. Cash and cash equivalents are deposited with high
credit quality financial institutions which invest primarily in U.S. Government
securities, highly rated commercial paper and certificates of deposit guaranteed
by banks which are members of the Federal Deposit Insurance Corporation. The
counterparties to the agreements relating to the Company's investments consist
primarily of the U.S. Government and various major corporations with high credit
standings.
The Company's trade receivable result primarily from sales to homebuilders
located throughout the United States. The Company routinely assesses its
customers and the industry in which they operate. No single customer accounted
for more than 10% of the Company's revenues during the years ended December 31,
1997, 1998, or 1999. Concentrations of credit risk with respect to accounts
receivable are limited due to the large number of customers comprising the
Company's customer base and because all customers are located in the United
States. There were no significant individual customer balances as of December
31, 1998 or 1999.
Cash Flows
The Company made cash payments for interest of $178,000, $405,000 and
$917,000 during the years ended December 31, 1997, 1998 and 1999, respectively.
The Company also acquired property and equipment through the assumption of
capital lease obligations amounting to $70,351, $201,333 and $1,472,903 during
the years ended December 31, 1997, 1998 and 1999, respectively. During the year
ended December 31, 1999, interest accrued on notes receivable, which were issued
to shareholders in 1999, has been recorded as additional paid-in capital.
F-10
<PAGE> 85
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting for Stock-Based Compensation
The Company measures compensation expense for its employee stock-based
compensation using the intrinsic value method and provides pro forma disclosures
of net loss as if the fair value method had been applied in measuring
compensation expense. Under the intrinsic value method of accounting for stock-
based compensation, when the exercise price of options granted to employees is
less than the estimated fair value of the underlying stock on the date of the
grant, deferred compensation is recognized and is amortized to compensation
expense over the applicable vesting period. The Company has adopted the
disclosure requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") which requires net
income to be disclosed on a pro forma basis had compensation cost been
determined based on the fair value of the options granted on the date of grant.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," ("SFAS No. 131"). This statement
establishes standards for the way companies report information about operating
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by SFAS No. 131 are effective for the year
ended December 31, 1998. The Company has determined that it does not have any
separately reportable operating segments as of December 31, 1998 or 1999.
Comprehensive Income (Loss)
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
("SFAS No. 130"). SFAS No. 130 establishes standards for reporting comprehensive
income and its components in financial statements. Comprehensive income, as
defined, includes all changes in equity during a period from non-owner sources.
The Company had no items of other comprehensive income for the years ended
December 31, 1997, 1998 or 1999.
Net Income (Loss) Per Common Share
The Company computes net income (loss) per common share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
("SFAS No. 128") and SEC Staff Accounting Bulletin No. 98 ("SAB No. 98"). Under
the provisions of SFAS No. 128 and SAB No. 98, basic net income (loss) per
common share ("Basic EPS") is computed by dividing net income (loss) available
to common shareholders by the weighted average number of common shares
outstanding. Diluted net income (loss) per common share ("Diluted EPS") is
computed by dividing net income (loss) available to common shareholders by the
weighted average number of common shares and dilutive potential common share
equivalents then outstanding. Potential common shares consist of shares issuable
upon the exercise of stock options and warrants and shares issuable upon
conversion of convertible preferred stock. The calculation of the net loss per
share available to common shareholders for the years ended December 1997, 1998
and 1999 does not include 827,849, 2,727,861 and 35,078,796 potential shares of
common stock equivalents, respectively, as their impact would be anti-dilutive.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Investments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities and supercedes several
existing standards. SFAS No. 133, as amended by SFAS No. 137, is effective for
all
F-11
<PAGE> 86
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fiscal quarters of fiscal years beginning after June 15, 2000. The Company does
not expect that the adoption of SFAS No. 133 will have a material impact on the
consolidated financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 provides specific
guidance, among other things, as to the recognition of revenue related to
up-front non-refundable fees and services charges received in connection with a
contractual arrangement. We have applied the provisions of SAB 101 for the year
ended December 31, 1999. The adoption of SAB 101 did not have a material impact
on our financial condition or results of operations.
Reclassifications
Certain balances previously reported have been reclassified to conform to
the 1999 presentation with no effect on previously reported net loss or
accumulated shareholders' deficit.
3. ACQUISITIONS
Between May 1999 and August 1999, the Company acquired four businesses
which were also providers of back office management and productivity based
integrated software for the home building industry, and purchased a proprietary
software system for the subcontractor segment of the homebuilding industry.
Collectively, these entities and proprietary software are referred to as the
"1999 Acquisitions".
On May 19, 1999, the Company acquired all of the outstanding shares of The
F.A.S.T. Management Group, Inc. ("FAST"). The aggregate purchase price of
$4,653,554 consisted of 19,711,360 shares of the Company's common stock with an
estimated fair value of $1,084,126 based on a per share value of $0.06; options
to purchase 1,283,313 and 16,520 shares of the Company's common stock at an
exercise price of $0.18 and $0.62, respectively, with an aggregate fair value of
$42,040 as determined by the Black-Scholes pricing model; the assumption of
liabilities of $3,423,545; and transaction fees of $103,843. The Company also
issued warrants to purchase 372,840 shares of the Company's common stock to
former warrant holders of FAST with exercise prices between $0.10 and $0.09
which expire between 2002 and 2005. The Company did not assign any value to the
warrants, as the value of the warrants calculated using the Black-Scholes
pricing model was determined to be de minimis.
On May 22, 1999, the Company acquired all of the assets of the McCosker
Corporation ("McCosker"). The aggregate purchase price of $8,062,694 consisted
of cash of $2,554,393; a promissory note for $2,750,000 which bears interest of
8% per annum and is payable in two equal annual installments beginning on May
21, 2000; the assumption of liabilities of $2,718,289; and transaction fees of
$40,012.
On June 21, 1999, the Company acquired all of the outstanding shares of
Systems Analysis Inc. ("Systems Analysis"). The aggregate purchase price of
$1,275,789 consisted of cash of $625,000; a promissory note for $625,000 which
bears interest of 8% per annum and is payable in three equal annual installments
beginning on June 21, 2000; the assumption of liabilities of $4,807; and
transaction fees of $20,982.
On August 27, 1999, the Company acquired all of the outstanding shares of
Maxwell & Company ("Maxwell"). The aggregate purchase price of $2,166,802
consisted of cash of $529,211; a promissory note for $1,600,000; the assumption
of liabilities of $26,545; and transaction fees of $11,046. The $1,600,000
promissory note bears interest of 8% per annum and is payable in five
installments with the final payment being due no later than August 2002. These
payments may be accelerated upon the achievement of specified milestones.
On September 15, 1999, the Company purchased the Site Trak Software system,
which is an integrated software system for the subcontractor segment of the
homebuilding industry, in exchange for
F-12
<PAGE> 87
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cash of $150,000 and a promissory note for $150,000 which bears interest of 8%
per annum and is payable in two equal annual installments beginning in September
2000.
The 1999 Acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the respective purchase prices have been allocated,
based on the Company's estimates of fair value, to the tangible assets acquired
and liabilities assumed and to the identifiable intangible assets on the
acquisition dates. The purchase price in excess of identified tangible and
intangible assets and liabilities assumed was allocated to goodwill. The Company
has recorded identifiable intangibles and goodwill on the 1999 Acquisitions, as
follows:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
FAIR USEFUL
VALUE LIFE
----------- ---------
<S> <C> <C>
Purchased software.......................................... $ 1,491,805 36 months
Assembled workforce......................................... 2,031,801 36 months
Goodwill.................................................... 9,442,767 60 months
-----------
$12,966,373
===========
</TABLE>
The following unaudited pro forma consolidated financial information gives
effect to the 1999 Acquisitions as if they had occurred on January 1, 1998, by
consolidating the results of operations of the 1999 Acquisitions with the
results of the Company for the years ended December 31, 1998 and 1999. The pro
forma amounts do not purport to be indicative of the results of operations that
would have been achieved had the transactions been in effect as of the beginning
of 1998 and should not be construed as being representative of future results of
operations.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues................................................... $21,065,540 $ 22,122,160
Net loss................................................... (7,973,008) (31,034,325)
Net loss available to common shareholders.................. (7,973,008) (33,269,914)
Net loss per common share.................................. (0.20) (0.85)
</TABLE>
4. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
------- ----------
<S> <C> <C>
Current trade accounts receivable........................... $11,082 $3,091,580
Less: Allowance for doubtful accounts....................... -- (335,974)
------- ----------
$11,082 $2,755,606
======= ==========
</TABLE>
Write-offs of accounts receivable were $74,749 for the year ended December
31, 1999. There were no significant write-offs during the years ended December
31, 1997 or 1998.
5. LONG-TERM INVESTMENTS
The Company's investments at December 31, 1999, consist of student loan
bonds which are collateralized by the U.S. government and underwritten by a
major financial institution. The maturity dates of these bonds are in excess of
one year from December 31, 1999 and, accordingly, they have been classified as
long-term investments. However, the Company has the option to sell these bonds
back to the financial institution at par value approximately every 28 days. Due
to the nature of these bonds, the cost
F-13
<PAGE> 88
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
basis at December 31, 1999 approximates their fair value. Accordingly, the
Company has not recorded any unrealized gain or loss on these investments.
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Furniture and fixtures...................................... $ 133,678 $ 380,902
Office equipment............................................ 355,441 773,225
Computer equipment.......................................... 582,572 4,958,514
Internal use software....................................... -- 1,489,512
Leasehold improvements...................................... 95,683 233,464
---------- -----------
1,167,374 7,835,617
Less accumulated depreciation and amortization.............. (728,005) (1,312,996)
---------- -----------
$ 439,369 $ 6,522,621
========== ===========
</TABLE>
The net book values of assets acquired under capital leases consisted of
the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Total asset under capital lease............................. $184,931 $1,586,467
Less: accumulated depreciation.............................. (19,544) (302,885)
-------- ----------
Net book value.............................................. $165,387 $1,283,582
======== ==========
</TABLE>
7. LEASE OBLIGATIONS
The Company leases its office facilities and certain equipment under
operating and capital lease agreements. Future minimum lease payments under
noncancelable operating and capital leases at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
- ------------------------ ---------- ----------
<S> <C> <C>
2000........................................................ $1,956,737 $ 909,164
2001........................................................ 1,327,794 617,764
2002........................................................ 950,069 158,890
2003........................................................ 787,188 11,282
2004........................................................ 641,215 --
Thereafter.................................................. 935,478 --
---------- ----------
Total minimum lease payments...................... $6,598,481 1,697,100
==========
Less amount representing interest........................... (217,726)
----------
Present value of capital lease obligations.................. 1,479,374
Less current maturities..................................... (758,898)
----------
Capital lease obligations, less current maturities.......... $ 720,476
==========
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999 was
$302,739, $398,000 and $962,000, respectively.
F-14
<PAGE> 89
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. OTHER ASSETS
Other assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
------- -----------
<S> <C> <C>
Goodwill.................................................... $ -- $ 9,442,767
Capitalized software........................................ -- 1,491,805
Assembled workforce......................................... -- 2,031,801
Deferred customer acquisition costs......................... -- 5,632,603
Other....................................................... 36,862 181,981
------- -----------
36,862 18,780,957
Less accumulated amortization............................... -- (1,755,253)
------- -----------
$36,862 $17,025,704
======= ===========
</TABLE>
During the year ended December 31, 1999, the Company recognized expense of
$217,632 related to the amortization of capitalized software, which is recorded
as cost of software and related services in the consolidated statements of
operations. Accumulated amortization of capitalized software costs is $217,632
at December 31, 1999. Prior to 1999, the Company did not have any capitalized
software.
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
-------- ----------
<S> <C> <C>
Accounts payable............................................ $360,552 $6,355,586
Accrued personnel costs..................................... 132,327 978,989
Accrued interest............................................ -- 191,166
Other accrued expenses...................................... 144,272 383,992
-------- ----------
$637,151 $7,909,733
======== ==========
</TABLE>
10. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1999 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Promissory note due May 2001, interest of 8%................ $ -- $ 2,750,000
Promissory note due on the earlier of August 2002 or the
completion of specified milestones, interest of 8%........ -- 1,325,000
Promissory note due June 2002, interest of 8%............... -- 625,000
Promissory note due September 2001, interest of 8%.......... -- 150,000
Promissory notes, repaid in October 1999.................... 2,000,000 --
Promissory notes, converted to Series B preferred stock
in May 1999............................................... 3,114,000 --
----------- -----------
5,114,000 4,850,000
Less debt discount........................................ (1,013,691) --
Less current maturities................................... -- (2,283,000)
----------- -----------
$ 4,100,309 $ 2,567,000
=========== ===========
</TABLE>
F-15
<PAGE> 90
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the years ended December 31, 1997, 1998 and 1999, the Company
entered into numerous debt agreements which were issued with warrants for the
Company's stock that were immediately exercisable or which became exercisable
depending on when the note was repaid, or when the Company's next round of
equity financing occurred.
Upon the issuance of the Series B Convertible Mandatorily Redeemable
Preferred Stock in May 1999 and the repayment of other notes during 1999, the
number of warrants, exercise price and equity instrument that could be purchased
under the terms of these warrants became fixed.
During the year ended December 31, 1997, the Company issued notes payable
in the aggregate amount of $3,200,000 which bore interest between 10% and 13.5%
per annum (the "1997 Notes"). In connection with the 1997 Notes, the Company
ultimately issued: (i) warrants to certain lenders to purchase 142,940 shares of
the Company's Series A preferred stock at an exercise price of $0.87 per share;
(ii) warrants to purchase 1,607,980 shares of the Company's common stock at an
exercise price of $0.0005 per share, which contain provisions whereby the
Company may be required to repurchase the warrants beginning May 31, 2006 (see
Note 13); and (iii) warrants to purchase 146,460 shares of the Company's common
stock at an exercise price of $1.1265 per share to an investment advisor. The
Company did not record any expense on the warrants paid to the lenders and
investment advisor, as the value of these warrants according to the
Black-Scholes pricing model was determined to be de minimus. The Company
recorded debt discount of $1,300,586, which consisted of $959,011 for the
estimated fair value of 1,607,980 warrants issued with the 1997 Notes and cash
expenditures related to the financing of $341,575. During 1997, the Company
issued 229,200 shares of Series A preferred stock in exchange for certain 1997
Notes with a principal balance of $200,000 and related accrued interest. During
1998, the Company revised the terms of a 1997 Note with a principal balance of
$1,000,000 (see discussion below). During the year ended December 31, 1999, the
Company repaid the remaining $2,000,000 principal balance of the 1997 Notes.
During the year ended December 31, 1998, the Company issued notes payable
in the aggregate amount of $2,114,000 which bore interest between 9.5% and 10%
per annum. The Company also revised the terms of a 1997 Note with a principal
balance of $1,000,000, which resulted in a loss on the early extinguishment of
debt of $106,911. This loss on the early extinguishment of debt is recorded as
an extraordinary item in the consolidated statement of operations. Collectively,
the notes issued in 1998 and the $1,000,000 1997 Note which was revised in 1998
are referred to as the "1998 Notes". In connection with the 1998 Notes, the
Company ultimately issued: (i) warrants to purchase 105,380 shares of the
Company's Series B mandatorily redeemable preferred stock at an exercise price
of $0.52 per share; and (ii) warrants to purchase 2,054,520 shares of the
Company's common stock at an exercise price of $0.0005 per share, of which
607,680 warrants contain provisions whereby the Company may be required to
repurchase the warrants beginning May 31, 2006 (see Note 13). During the year
ended December 31, 2008, the Company recorded debt discount of $422,099 for the
estimated fair value of the warrants issued with the 1998 Notes.
Between February and May 1999, the Company issued notes payable in the
aggregate amount of $2,000,000 which bore interest at 9.5% per annum (the "1999
Notes"). In connection with the 1999 Notes, the Company ultimately issued
warrants to purchase 1,080,000 shares of the Company's common stock at an
exercise price of $0.0005 per share. During the year ended December 31, 1999,
the Company recorded debt discount of $59,400 for the estimated fair value of
the warrants issued with the 1999 Notes.
In connection with the sale of Series B preferred stock in May 1999 (see
Note 11), certain 1998 Notes with principal balances of $2,750,000 and the 1999
Notes and related accrued interest were converted into 9,471,187 shares of the
Company's Series B preferred stock. At the time of the conversion, these notes
had an aggregate outstanding principal balance which totaled $4,750,000 and
accrued interest of $159,420. Proceeds from the sale of Series B preferred stock
were also used to repay the remaining
F-16
<PAGE> 91
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 Notes with aggregate principal balances of $364,000 in May and June 1999,
at which time the Company recorded a loss on the early extinguishment of debt of
$28,401. This loss on the early extinguishment of debt is recorded as an
extraordinary item in the consolidated statement of operations. The Company also
paid $315,000 to the holders of the certain 1998 Notes in exchange for waiving
their right to receive warrants that would have been earned as result of the
notes being outstanding on April 24, 1999. This payment was recorded by the
Company as additional interest expense.
The Company's long-term debt as of December 31, 1999 consisted solely of
debt incurred in connection with acquisitions of businesses and proprietary
software (see Note 3).
Maturities of long-term debt as of December 31, 1999 were as follows:
<TABLE>
<S> <C>
2000........................................................ $2,283,000
2001........................................................ 2,008,666
2002........................................................ 558,334
----------
$4,850,000
==========
</TABLE>
11. CAPITAL STOCK
In October 1999, the Company declared a twenty-for-one stock split for all
common and preferred shareholders. All share and per share amounts have been
retroactively adjusted to reflect this transaction.
On October 29, 1999, the Company's Articles of Incorporation were amended
to authorize 500,000,000 shares of stock with a par value of $0.01, of which
350,000,000 shares were designated as common stock. The Company designated
150,000,000 shares of preferred stock, of which 1,268,920 shares were designated
Series A convertible preferred stock (the "Series A preferred"), 74,563,680
shares were designated Series B convertible preferred stock (the "Series B
preferred"), which are mandatorily redeemable, 25,000,000 shares were designated
as Series C convertible preferred stock (the "Series C preferred"), which were
also mandatorily redeemable, and 49,167,400 shares were undesignated. At all
times, the Company shall reserve a number of shares of unissued common stock for
the purpose of effecting the conversion of all issued and outstanding shares of
preferred stock and the exercise of all outstanding warrants and options to
purchase the Company's common stock.
During the year ended December 31, 1997, the Company issued 489,920 shares
of Series A preferred stock in exchange for the conversion of promissory notes
and accrued interest which totaled $461,079 (see Note 10).
In May 1999, the Company issued 19,711,360 shares of common stock and
1,279,453 options and 372,840 warrants to purchase the Company's common stock to
the former stockholders, option holders, and warrant holders of FAST (see Note
3).
Between August and December 1999, employee stock options to purchase
13,340,000 shares of common stock with exercise prices ranging between $0.06 and
$1.40 were exercised by certain officers of the Company in exchange for full
recourse promissory notes in the amount of $2,237,100. The notes are due between
August 2003 and December 2003 and bear interest between 5.9% and 6.2%.
Rights, Preferences, and Terms of Capital Stock
The following is a summary of the rights, preferences, and terms of the
Company's outstanding series of common and preferred stock.
F-17
<PAGE> 92
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Dividends
The holders of all series of the Company's preferred stock are entitled to
receive non-cumulative dividends, when, as, and if declared by the board of
directors. In the event that the Company declares any dividends or other
distributions for holders of common stock or for holders of any series of
preferred stock, the holders of shares of all series of preferred stock shall be
entitled to receive the same dividend or distribution on an as converted basis.
Liquidation
In the event of any liquidation, dissolution, or winding up of the Company,
holders of Series A preferred stock shall be entitled to receive on a pro rata
basis with holders of Series B and Series C preferred stock based on their
respective liquidation values, an amount equal to $0.875 per share, adjusted for
any stock splits or dividends, plus any accrued but unpaid dividends. Holders of
Series B preferred stock shall be entitled to receive, on a pro rata basis with
holders of Series A and Series C preferred stock based on their respective
liquidation values, an amount equal to the greater of $0.51835 per share,
adjusted for any stock splits or dividends, plus any accrued but unpaid
dividends, times a multiple as defined in the Company's Articles of
Incorporation (the "Series B Multiple") or the amount the holders of Series B
preferred stock would have received if their shares had been converted into
common stock immediately prior to the liquidation, dissolution, or winding up of
the Company. The Series B Multiple is initially equal to two, and shall increase
upon the violation of certain covenants. As of December 31, 1999, the Company
had not violated any covenants, and the Series B Multiple was therefore two.
Holders of Series C preferred stock shall be entitled to receive, on a pro rata
basis with holders of the Series A and Series B preferred stock based on their
respective liquidation values, the greater of an amount equal to $4.40 per
share, adjusted for any stock splits or dividends, plus any accrued but unpaid
dividends or the amount the holders of Series C preferred stock would have
received if their shares had been converted into common stock immediately prior
to the liquidation, dissolution, or winding up of the Company. After all
payments have been made to the holders of Series A, Series B, and Series C
preferred stock, any remaining assets will be distributed on a pro rata basis to
the holders of common stock.
The following is a summary of the liquidation values for the Series A,
Series B, and Series C preferred shares as of December 31, 1999:
<TABLE>
<S> <C>
Series A preferred stock.................................... $ 978,985
Series B mandatorily redeemable preferred stock............. 71,565,391
Series C mandatorily redeemable preferred stock............. 107,019,515
------------
Total............................................. $179,563,891
============
</TABLE>
Voting
Holders of Series A, Series B and Series C preferred shares have voting
rights on an as if converted basis.
Conversion
Each share of Series A, Series B and Series C preferred stock, at the
option of the holder, is convertible into shares of common stock of the Company
at a one to one ratio, subject to certain adjustments as defined. Conversion is
automatic for holders of Series A, Series B and Series C preferred stock upon
the sale of the Company's common stock pursuant to an underwritten public
offering with gross proceeds of at least $18,000,000 at a minimum per share
price of $8.80.
F-18
<PAGE> 93
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. MANDATORILY REDEEMABLE PREFERRED STOCK
In May 1999, the Company sold 24,160,125 shares of Series B preferred in a
private placement transaction for $0.52 per share which resulted in net proceeds
of $12,148,156 and issued 9,471,187 shares of Series B preferred in exchange for
the cancellation of notes payable and accrued interest with an aggregate
carrying value of $4,500,072. In connection with the initial sale of Series B
preferred, the Company issued warrants to purchase 212,000 shares of the
Company's common stock at an exercise price of $0.0005 which expire in 2009 and
warrants to purchase 20,000 shares of the Company's common stock at an exercise
price of $1.1265 which expire in 2003. The Company did not record issuance cost
related to the value of these warrants as the value of the warrants using the
Black-Scholes pricing model was determined to be de minimis. Certain holders of
Series B were obligated to purchase an additional 35,400,608 shares of Series B
on or before the achievement of certain milestones by the Company. These
additional shares were purchased by those holders of Series B preferred between
September and December 1999, resulting in net proceeds of $18,318,894. Proceeds
of the Series B private placement are net of related offering costs of $405,823.
Between October and December 1999, the Company issued 24,322,619 shares of
Series C preferred stock in a private placement transaction for $4.40 per share
which resulted in net proceeds of $102,295,218, of which $73,845,034 was
received by the Company prior to December 31, 1999, $24,925,184 was being held
in escrow by the Company's attorneys at December 31, 1999 and was disbursed to
the Company subsequent to December 31, 1999, and $3,525,000 was received by the
Company's attorneys and disbursed to the Company subsequent to December 31,
1999. Proceeds of the Series C private placement are net of related offering
costs of $4,680,994.
Upon any request by any holder of Series B preferred shares at any time
after May 31, 2004, the Company must redeem the Series B preferred at a price
equal to $0.51835 per share, adjusted for any stock splits or dividends, plus
any accrued but unpaid dividends, times the Series B Multiple. Upon any request
by any holder of Series C preferred shares at any time after May 31, 2004, the
Company must redeem the Series C preferred at a price equal to $4.40 per share,
adjusted for any stock splits or dividends, plus any accrued but unpaid
dividends. The carrying value of both the Series B preferred and the Series C
preferred is being accreted up to the redemption value through the initial
redemption date. As a result, the Company recorded charges of $2,068,378 to
shareholders' equity during the year ended December 31, 1999.
The following table summarizes the Company's outstanding shares and
carrying value of mandatorily redeemable convertible preferred stock at December
31, 1999:
<TABLE>
<CAPTION>
SHARES CARRYING
OUTSTANDING VALUE
----------- ------------
<S> <C> <C>
Series B preferred.......................................... 69,031,920 $ 36,949,130
Series C preferred.......................................... 24,322,619 102,298,853
---------- ------------
93,354,539 $139,247,983
========== ============
</TABLE>
Upon the closing of the Series B preferred private placement, the Series A
preferred shareholders were paid $167,211 based on the antidilution rights of
the Series A preferred shares.
13. STOCK COMPENSATION
In October 1997, the Company adopted the 1997 BuildNet Stock Plan (the
"1997 Plan") which provided for the grant of up to 3,100,000 incentive stock
options and non-qualified stock options. In May 1999, the Company adopted the
1999 BuildNet Stock Plan (the "1999 Plan") which provided for the grant of up to
30,000,000 incentive stock options and non-qualified stock options, and
determined that no
F-19
<PAGE> 94
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
additional options were to be issued under the 1997 plan. In connection with the
Company's purchase of FAST (see Note 3), the Company also assumed options
outstanding under the FAST stock option plan (the "FAST Plan"). Under the 1997
Plan, the 1999 Plan and the FAST Plan (collectively, the "Plans"), incentive
stock options could be granted to employees of the Company and non-qualified
stock options may be granted to directors, employees and consultants. Incentive
stock options granted under the Plans must be for periods not to exceed ten
years, except for options granted to shareholders who own greater than 10% of
the outstanding stock, which must be for periods not to exceed five years.
Options granted under the Plans generally vest over four to five years. Certain
options issued under the 1999 Plan include acceleration clauses whereby the
vesting of the options will accelerate upon the achievement of specified
milestones by the Company. The Company records expense for options granted to
consultants based on the fair value of the options as determined under the
Black-Scholes pricing model.
The Company continues to apply Accounting Principles Board Opinion No. 25
and related interpretations in accounting for the Plans. The Company recognized
$202,017, $22,136 and $665,782 in noncash compensation expense related to
amortization of deferred compensation expense during the years ended December
31, 1997, 1998 and 1999, respectively. Had compensation cost for the Plans been
determined based on the fair value at the grant dates for awards under the Plans
consistent with the method of SFAS No. 123, the Company's net loss for the years
ended December 31, 1997, 1998 and 1999 would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Net loss available to common shareholders:
As reported..................................... $1,665,467 $3,345,765 $30,764,709
Pro forma....................................... 1,665,659 3,347,060 34,111,769
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants: risk-free interest of 6.25%, 5.50% and 6.25% during
the years ended December 31, 1997, 1998 and 1999, respectively; expected lives
of five years; dividend yields of 0%; and volatility features of 0%.
A summary of changes under the Plans during the years ended December 31,
1997, 1998 and 1999 is presented below:
<TABLE>
<CAPTION>
1997 1998 1999
--------------------- --------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- -------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................. -- $ -- 1,396,480 $0.10 2,271,780 $0.10
Granted with exercise
price below fair value
of underlying stock..... 1,396,480 0.10 919,680 0.10 15,709,800 0.79
Granted with exercise
price equal to fair
value of underlying
stock................... -- -- -- 12,286,233 0.48
Exercised................. -- -- -- (14,848,144) 0.15
Forfeited................. -- 0.10 (44,380) 0.10 (478,415) 0.08
--------- ----- --------- ----- ----------- -----
Outstanding at end of
year.................... 1,396,480 $0.10 2,271,780 $0.10 14,941,254 $0.75
========= ===== ========= ===== =========== =====
Options exercisable at end
of year................. 918,260 $0.10 1,042,820 $0.10 2,555,123 $0.11
========= ===== ========= ===== =========== =====
</TABLE>
F-20
<PAGE> 95
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about the Company's stock
options at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE NUMBER OF
OPTIONS CONTRACTUAL EXERCISABLE OPTIONS
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE
- ------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$0.005 -- $0.1815.......................... 7,731,734 9.2 $0.12 2,551,323
$0.62...................................... 16,520 8.9 0.62 3,800
$1.10 -- $1.40............................. 7,193,000 9.9 1.40 --
---------- --- ----- ---------
14,941,254 9.5 $0.75 2,555,123
========== === ===== =========
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1997, 1998 and 1999 was $0.22, $0.06 and $1.18, respectively.
During 1999, the Company issued the following stock options with exercise
prices below the fair market value of the underlying common stock:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE DEFERRED
UNDERLYING EXERCISE COMPENSATION
MONTH OF GRANT OPTIONS PRICE RECORDED
- -------------- ---------- -------- ------------
<S> <C> <C> <C>
August 1999.......................................... 3,273,900 $0.06 $ 286,000
September 1999....................................... 1,440,000 0.17 1,346,400
October 1999......................................... 3,411,800 0.17 3,224,628
December 1999........................................ 8,193,000 1.40 24,586,500
-----------
$29,443,528
===========
</TABLE>
Accordingly, $29,443,528 was recorded as deferred compensation in
shareholders' equity and is being amortized over the option vesting period.
F-21
<PAGE> 96
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. WARRANTS
The Company had the following warrants to purchase the Company's capital
stock exercisable at December 31, 1999:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF TYPE OF PRICE PER EXPIRATION
SHARES WARRANTS SHARE DATE
- --------- -------------------------------- --------- --------------------------------
<C> <S> <C> <C>
2,469,040 Non-redeemable warrants for $0.0005 Earlier of 2008 through 2009, or
common stock close of an initial public
offering
200,760 Non-redeemable warrants for 0.0857 2005
common stock
172,080 Non-redeemable warrants for 0.1000 2002
common stock
166,460 Non-redeemable warrants for 1.1265 Earlier of 2002 through 2003, or
common stock close of an initial public
offering
2,215,660 Redeemable warrants for common 0.0005 2007 through 2009
stock
150,080 Non-redeemable warrants for 0.8745 Earlier of 2001 through 2002, or
Series A convertible preferred close of an initial public
stock offering
105,380 Non-redeemable warrants for 0.5184 Earlier of 2008, or close of an
Series B preferred stock initial public offering
1,356,600 Non-redeemable warrants for 0.5184 2004
Series B preferred stock
- ---------
6,836,060
=========
</TABLE>
See Notes 10 and 12 for a description of the terms of the warrants
summarized above that were issued in connection with debt and equity financing
transactions.
The redeemable warrants for 2,215,660 shares of common stock included in
the above summary are being carried at their redemption value of $9,748,903 at
December 31, 1999. Warrants for 105,380 shares of Series B preferred stock
included in the above summary are being accreted to the redemption value of the
Series B preferred stock through the redemption date of the Series B (see Note
12), less the exercise price of the warrants. The carrying value of the warrants
for Series B preferred stock as of December 31, 1999 is $6,373. At December 31,
1998, the carrying value of redeemable warrants of $250,277 consisted of the
fair value of the warrants for 2,215,660 shares of common stock discussed above,
and $128,416 for the fair value of additional warrants that were forfeited
during 1999 because the related debt was extinguished prior to the end of its
term. Because the redeemable common stock warrants and the warrants for Series B
preferred stock were initially issued in connection with debt, any changes to
the carrying value of these warrants is being recorded as interest expense
(income). The Company recorded interest expense (income) of $0, ($708,734) and
$9,504,999 during the years ended December 31, 1997, 1998 and 1999,
respectively, as result of changes in the carrying value of these warrants.
In connection with the sale of Series B preferred stock in May 1999 (see
Note 12), the Company entered into a warrant agreement with a holder of Series B
preferred stock, whereby the shareholder has the right to earn up to 5,426,380
warrants to purchase the Company's Series B preferred stock at an exercise price
of $0.51835 per share upon the achievement of certain sales and marketing
objectives, as defined in the warrant agreement. As of December 31, 1999,
1,356,600 warrants had been earned under this agreement based on the achievement
of objectives related to the signing of contracts with specific
F-22
<PAGE> 97
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
homebuilding industry manufacturers. Accordingly, the Company recorded
$5,632,603 in deferred customer acquisition costs based on the estimated fair
value of these warrants using the Black-Scholes pricing model. Deferred customer
acquisition costs are being amortized as a sales and marketing expense over the
term of the manufacturer contracts and are included in other assets. For the
year ended December 31, 1999, $117,346 was amortized as a sales and marketing
expense.
15. EMPLOYEE BENEFIT PLANS
In connection with the acquisition of McCosker during the year ended
December 31, 1999 (see Note 3), the Company assumed a 401(k) plan for all
qualified former employees of McCosker (the "McCosker Plan"). McCosker employees
may elect to contribute up to 15% of eligible compensation during any individual
plan year. Matching contributions to the McCosker Plan are made at the
discretion of the Board of Directors. The Company has not made any contributions
to the McCosker Plan during the year ended December 31, 1999.
In connection with the acquisition of FAST during the year ended December
31, 1999 (see Note 3), the Company assumed a 401(k) plan for all qualified
employees of FAST (the "FAST Plan"). FAST employees may elect to contribute up
to 15% of eligible compensation during any individual plan year. The Company is
obligated to provide a 25% matching contribution for an employee's contribution
up to 2% of an employee's eligible salary. Matching contributions may also be
made at the discretion of the Board of Directors. During the year ended December
31, 1999, the Company made contributions to the FAST Plan of $9,500.
At December 31, 1999, the Company has a 401(k) plan covering substantially
all employees of the Company that are not covered under the McCosker Plan or the
FAST Plan (the "BuildNet Plan"). Employees may elect to contribute up to 15% of
eligible compensation during any individual plan year. Matching contributions to
the BuildNet Plan are made at the discretion of the Board of Directors. The
Company has not made any contributions to the BuildNet Plan during the years
ended December 31, 1997, 1998 or 1999.
16. INCOME TAXES
No provision for federal or state income taxes has been recorded as the
Company has incurred net operating losses since inception.
F-23
<PAGE> 98
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Domestic net operating loss carryforwards.................. $ 1,901,439 $ 11,765,648
Stock-based compensation................................... 86,938 345,161
Accrued compensation....................................... 22,554 --
Deferred revenue........................................... -- 145,444
Bad debt................................................... 10,849 53,991
Fixed assets............................................... 10,469 160,536
Other reserves............................................. 20,087 13,213
----------- ------------
Total deferred tax assets........................ 2,052,336 12,483,993
Valuation allowance for deferred assets.......... (2,052,336) (12,229,548)
----------- ------------
Deferred tax assets.............................. $ -- $ 254,445
=========== ============
Acquired intangibles....................................... -- 254,445
----------- ------------
Total deferred tax liabilities................... -- 254,445
----------- ------------
Net deferred tax asset (liability)............... $ -- $ --
=========== ============
</TABLE>
During 1999, the Company acquired the stock of FAST, Systems Analysis, and
Maxwell. These acquisitions were accounted for using the purchase method of
accounting. The purchase price of these companies was in excess of the carryover
tax basis of the assets acquired, resulting in the recognition of a deferred tax
liability of $592,264. Since the acquired companies and the Company may elect to
file a consolidated return on an ongoing basis, the future taxable difference
may be offset by the Company's future deductible differences, primarily its net
operating loss carryforwards. Therefore, the Company's valuation allowance
against its deferred tax asset and its investments in the acquired subsidiaries
was reduced by $592,264.
At December 31, 1998 and 1999, the Company provided a full valuation
allowance against its net deferred tax assets since realization of these
benefits could not be reasonably assured. The increase in valuation allowance
resulted primarily from the additional net operating loss carryforward
generated.
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of $30,335,000. These net operating loss carryforwards begin
to expire in 2011. The utilization of the federal net operating loss
carryforwards may be subject to limitation under the rules regarding a change in
stock ownership as determined by the Internal Revenue Code.
Taxes computed at the statutory federal income tax rate of 34% are
reconciled to the provision for income taxes as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
United States Federal tax at
statutory rate............ $(566,259) 34.0% $(1,137,560) 34.0% $(9,660,004) 40.1%
State taxes (net of Federal
benefit).................. (82,441) 5.0 (162,511) 4.9 (1,328,657) 5.5
Change in valuation
reserves.................. 598,399 (35.9) 1,338,721 (40.0) 10,769,476 (44.7)
Nondeductible goodwill...... -- -- -- -- 168,623 (0.7)
Nondeductible merger
expenses.................. -- -- -- -- 64,455 (0.3)
Other....................... 50,301 (3.0) (38,650) 1.2 (13,893) 0.1
--------- ----- ----------- ----- ----------- -----
Provision for income
taxes..................... $ -- $ -- $ --
--------- ----- ----------- ----- ----------- -----
</TABLE>
F-24
<PAGE> 99
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. SUBSEQUENT EVENTS
Stock Split
On , 2000, the Board of Directors approved a
-for- common stock split to be effective prior to
the effective date of the Company's planned initial public offering. All share
and per share information has been retroactively restated to reflect the effect
of this stock split.
Strategic Relationships
In the first quarter of 2000, the Company issued to homebuilders and
suppliers warrants to purchase 500,000 shares of our common stock at an exercise
price of $4.40 per share and 600,000 shares of Series C preferred stock at an
exercise price of $4.40 per share. The warrants become exercisable as the
homebuilders and suppliers achieve these milestones, related to the promotion
and adoption of the BuildNet Exchange. As the homebuilders and suppliers achieve
milestones, the Company will record a non-cash charge as sales and marketing
expense when these warrants become exercisable, based on the fair market value
of the warrants. In addition, the homebuilders and suppliers can earn warrants
to purchase up to an additional 2,500,000 shares of the Company's common stock
at an exercise price of $4.40 per share and 4,400,000 shares of the Company's
Series C preferred stock at an exercise price of $4.40 per share based on the
homebuilders' and suppliers volume of transactions through the BuildNet
Exchange. The Company will record a non-cash charge as sales and marketing
expense when these warrants become exercisable, based on the fair market value
of the warrants on the date that they become exercisable. All of the warrants
issued to the homebuilders and suppliers will expire three years from their
respective dates of issuance.
Acquisitions
On January 18, 2000, the Company purchased substantially all the assets and
assumed certain liabilities of The UniLink Group, LLC ("UniLink") in exchange
for a convertible note payable in the amount of $27,000,000 with interest of 8%
per annum. Principal and accrued interest on the note may be paid at any time on
or before January 18, 2002. The note payable is convertible into the Company's
common stock at the option of the holder at any time prior to the maturity date
or the date the note is repaid, if earlier. Conversion is mandatory upon the
expiration of any lock up period to which certain of the Company's investors are
subject following an initial public offering of the Company's common stock. The
note shall be converted at a rate of $4.40 per share of common stock, adjusted
for any stock splits or dividends, and is collateralized by the assets that were
purchased. The assets acquired included software products and systems for the
electronic processing of electronic commerce transactions in the electrical,
plumbing, appliances and heating, ventilation and air conditioning markets and
for the electronic processing of warranty claims. In connection with this
purchase, the Company entered into an agreement with the former owners of
UniLink whereby the Company will process warranty transactions in the consumer
electronic industry for a company owned by the former Unilink owners in exchange
for a fee of seventy five percent of the amount charged by the former owners of
UniLink to those customers.
On January 31, 2000, the Company purchased the homebuilder software module
of the World Software System software product from J.D. Edwards World Source
Company ("J.D. Edwards") in exchange for cash of $650,000 and a note payable in
the amount of $5,850,000 with interest of 8% per annum. Principal and accrued
interest payable on this note are due on January 25, 2001. J.D. Edwards has the
option to convert the note payable into shares of the Company's common stock at
the closing of the Company's initial public offering. The conversion price shall
be the per share price paid by investors in such public offering of the
Company's common stock. The note payable is collateralized by the software
product that was purchased.
F-25
<PAGE> 100
BUILDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 21, 2000, the Company entered into a definitive agreement to
purchase all of the outstanding capital stock and stock options of NxTrend
Technology, Inc. ("NxTrend") in exchange for an aggregate amount of 25,954,659
shares of the Company's common stock and options to purchase the Company's
common stock and notes payable of $32,500,000. NxTrend is a provider of
enterprise-wide software solutions that address the critical business
information requirements of durable goods wholesale distributors. The notes
payable carry an interest rate of 8% per annum and are payable in four equal
installments beginning on the one year anniversary of the closing of the
transaction and each six month anniversary thereafter. Upon the closing of an
underwritten initial public offering of the Company's common stock, the holders
of the notes payable will have the option to convert principal of up to
$4,400,000 of their notes payable into the Company's common stock at a
conversion price equal to the per share price paid for the Company's common
stock in such public offering. In addition, the remaining principal balance of
the notes will be payable in full on the seventh day following such public
offering. The Company also committed to issue new employment options to purchase
up to 1,000,000 shares of the Company's common stock to employees of NxTrend.
This transaction is subject to regulatory approval.
Stock Option Plan
On March 16, 2000, the Company's board of directors approved an increase in
the number of stock options available under the 1999 Plan to 55,000,000.
F-26
<PAGE> 101
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
NxTrend Technology, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of NxTrend Technology, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
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
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 15 on February 21, 2000, the Company entered into a
definitive agreement to be acquired by BuildNet, Inc.
/s/ PRICEWATERHOUSECOOPERS LLP
Raleigh, North Carolina
February 21, 2000
F-27
<PAGE> 102
NXTREND TECHNOLOGY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,266,303 $ 403,025
Accounts receivable, net of allowance for doubtful
accounts of $435,000 and $547,200, respectively........ 15,647,578 14,406,122
Other current assets...................................... 961,574 644,894
----------- -----------
Total current assets.............................. 17,875,455 15,454,041
Property and equipment, net................................. 2,177,672 1,903,655
Other assets, net........................................... 2,583,278 476,173
Deferred income taxes -- noncurrent......................... 1,023,685 1,745,829
----------- -----------
Total assets...................................... $23,660,090 $19,579,698
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities.................. $ 8,767,796 $ 5,856,480
Deferred revenue.......................................... 9,699,925 11,109,423
Note payable -- current portion........................... 4,669,020 4,634,320
Capital lease obligation -- current portion............... 73,171 95,604
----------- -----------
Total current liabilities......................... 23,209,912 21,695,827
----------- -----------
Other long-term liabilities................................. 175,074 --
Note payable, net of current portion........................ 5,284,320 --
Capital lease obligation, net of current portion............ 165,251 97,311
Series A and B mandatorily redeemable convertible preferred
stock, $1,000 par value; aggregate liquidation and
redemption preference of $32,500,000 as of December 31,
1998 and 1999; 32,500 shares authorized, issued and
outstanding as of December 31, 1998 and 1999.............. 32,500,000 32,500,000
Commitments(Note 13)
Stockholders' deficit:
Common stock, $0.01 par value; 10,000,000 shares
authorized; 1,603,565 and 1,671,207 shares outstanding
as of December 31, 1998 and 1999, respectively......... 16,035 16,712
Additional paid-in capital................................ 1,994,626 2,129,548
Deferred compensation..................................... -- (56,723)
Accumulated deficit....................................... (39,685,128) (36,802,977)
----------- -----------
Total stockholders' deficit....................... (37,674,467) (34,713,440)
----------- -----------
Total liabilities and stockholders' deficit....... $23,660,090 $19,579,698
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 103
NXTREND TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................................ $49,601,489 $57,881,453 $59,583,778
Cost of revenues........................................ 25,500,261 30,020,245 31,243,221
----------- ----------- -----------
Gross profit.................................. 24,101,228 27,861,208 28,340,557
----------- ----------- -----------
Operating expenses:
Research and development.............................. 5,010,041 5,794,549 7,297,882
Sales and marketing................................... 5,390,270 6,320,161 9,262,672
General and administrative............................ 5,916,798 7,151,854 6,875,631
Stock-based compensation.............................. -- 1,166,000 1,157
Purchased in-process research and development......... 230,000 -- --
----------- ----------- -----------
Total operating expenses...................... 16,547,109 20,432,564 23,437,342
----------- ----------- -----------
Operating income.............................. 7,554,119 7,428,644 4,903,215
Other income (expense):
Interest income....................................... 78,031 103,443 241,885
Interest expense...................................... (1,624,488) (1,343,063) (663,336)
Other, net............................................ 115,193 305,380 52,966
----------- ----------- -----------
Total other income (expense).................. (1,431,264) (934,240) (368,485)
----------- ----------- -----------
Income before income taxes.................... 6,122,855 6,494,404 4,534,730
Provision for income taxes.............................. (2,008,671) (2,908,931) (1,652,579)
----------- ----------- -----------
Net income.................................... $ 4,114,184 $ 3,585,473 $ 2,882,151
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 104
NXTREND TECHNOLOGY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED DEFERRED
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
--------- ------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1996....... 1,281,690 $12,816 $ 307,606 $(47,384,785) $ -- $(47,064,363)
Issuance of common stock in
exchange for acquisition of
assets........................ 105,556 1,056 833,946 -- -- 835,002
Stock options exercised......... 78,120 782 47,261 -- -- 48,043
Net income...................... -- -- -- 4,114,184 -- 4,114,184
--------- ------- ---------- ------------ -------- ------------
BALANCES, DECEMBER 31, 1997....... 1,465,366 14,654 1,188,813 (43,270,601) -- (42,067,134)
Restricted common stock
repurchased................... (40,053) (401) (9,613) -- -- (10,014)
Stock options exercised......... 178,252 1,782 248,966 -- -- 250,748
Stock-based compensation........ -- -- 566,460 -- -- 566,460
Net income...................... -- -- -- 3,585,473 -- 3,585,473
--------- ------- ---------- ------------ -------- ------------
BALANCES, DECEMBER 31, 1998....... 1,603,565 16,035 1,994,626 (39,685,128) -- (37,674,467)
Stock options exercised......... 67,642 677 77,042 -- -- 77,719
Stock-based compensation........ -- -- 57,880 -- (57,880) --
Amortization of deferred
compensation.................. -- -- -- -- 1,157 1,157
Net income...................... -- -- -- 2,882,151 -- 2,882,151
--------- ------- ---------- ------------ -------- ------------
BALANCES, DECEMBER 31, 1999....... 1,671,207 $16,712 $2,129,548 $(36,802,977) $(56,723) $(34,713,440)
--------- ------- ---------- ------------ -------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 105
NXTREND TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $4,114,184 $3,585,473 $2,882,151
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 3,372,121 2,959,734 2,964,580
Provision for bad debt................................... 177,801 111,000 112,200
Deferred income tax provision (benefit).................. (817,419) (538,679) (572,797)
Stock-based compensation................................. -- 566,460 1,157
Write off of purchased in-process research and
development........................................... 230,000 -- --
Changes in operating assets and liabilities:
Accounts receivable................................... (2,405,416) (2,153,794) 1,129,256
Other assets.......................................... 236,455 853,568 296,009
Accounts payable and accrued liabilities.............. 114,081 2,698,520 (2,611,316)
Deferred revenue...................................... 826,649 1,587,568 1,409,498
Other long term liabilities........................... -- 175,074 (175,074)
---------- ---------- ----------
Net cash provided by operating activities........ 5,848,456 9,844,924 5,435,664
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment....................... (627,005) (1,309,857) (723,153)
Purchase of computer software............................ (806,196) -- --
Payments for acquisitions, net of cash acquired of
$158,108.............................................. (2,197,792) -- --
Payments for covenant not to compete..................... (500,000) (500,000) (300,000)
Proceeds from disposal of assets......................... 50,000 82,642 11,019
Repayments on note receivable............................ -- 47,500 --
---------- ---------- ----------
Net cash used in investing activities............ (4,080,993) (1,679,715) (1,012,134)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit................... 2,750,000 1,250,000 --
Payments of revolving line of credit..................... (500,000) (2,850,000) (650,000)
Payments of term loan.................................... (4,147,000) (6,049,660) (4,669,020)
Proceeds from exercise of common stock options........... 47,261 250,748 77,719
Principal payments for capital lease..................... (48,188) (77,411) (45,507)
---------- ---------- ----------
Net cash used in financing activities............ (1,897,927) (7,476,323) (5,286,808)
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents....... (130,464) 688,886 (863,278)
Cash and cash equivalents, beginning of period............. 707,881 577,417 1,266,303
---------- ---------- ----------
Cash and cash equivalents, end of period................... $ 577,417 $1,266,303 $ 403,025
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 106
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
NxTrend Technology, Inc., a Delaware corporation, (the "Company"), is a
provider of enterprise-wide software solutions that address the critical
business information requirements of durable goods wholesale distributors. The
Company develops, licenses and supports proprietary management and accounting
software products, which are marketed under their trademarks, "Strategic
Exchange" or "SX", "Trend", "SHIMS" and "WDS-II." The Company also provides
business consulting services, implementation services, modification services and
training for its customers. In connection with its software license
arrangements, the Company also sells, installs and supports third-party software
and computer equipment. The Company operates primarily in the United States, and
also has operations in Canada. The Company's products and services are marketed
primarily through the Company's direct sales force and, to a significantly
lesser degree, independent resellers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities as well as disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
The Company considers cash on hand, demand deposits in banks, and all
highly liquid investments with original maturities of three months or less to be
cash and cash equivalents.
Inventories
Inventories consist primarily of computer equipment and third-party
software and are stated at the lower of cost (average cost method) or market.
Software Development Costs
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed," capitalization of software development costs commences upon the
establishment of technological feasibility of the product. The Company's
software products are deemed to be technologically feasible at the point a
working model of the software product is developed, which is generally at or
near the point the Company commences field testing of the software. Through
December 31, 1999, for the products developed by the Company, the period from
field testing to the general customer release of the software has been brief
and, accordingly, the Company has not capitalized any qualifying software
development costs in the accompanying financial statements. The Company has
capitalized the estimated fair value of software products that have been
acquired (see Note 3).
Internal Use Software
Effective January 1, 1999, the Company adopted the provisions of the
Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants ("AICPA") Statement of Position No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP No.
98-1"). SOP No. 98-1 provides guidance regarding when software developed or
obtained for internal use should be capitalized. Under the provisions of SOP No.
98-1, external direct costs of
F-32
<PAGE> 107
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
materials and services consumed in the development of internal-use computer
software, payroll and payroll related costs for employees directly associated
with internal-use computer software projects, and interest costs incurred while
developing internal-use computer software should be capitalized once the
preliminary project stage has been completed, management has authorized and
committed to funding the project, and it is probable that the project will be
completed and that the software will be used to perform the function intended.
Such costs should be capitalized until the software is ready for its intended
use, at which time the costs should be amortized over their estimated useful
life.
Start-Up Costs
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities," ("SOP No. 98-5") which is effective for fiscal years beginning
after December 15, 1998. SOP No. 98-5 requires companies to expense as incurred
all preopening, start-up and organizational costs that are not capitalizable as
long-lived assets. The Company adopted SOP No. 98-5 effective January 1, 1999.
The adoption of SOP No. 98-5 had no impact on the Company's financial condition
or results of operations.
Property and Equipment
Property and equipment is primarily comprised of furniture and computer
equipment which are recorded at cost and depreciated using the straight-line
method over their estimated useful lives which range from three to five years.
Property and equipment includes certain equipment under capital leases. These
items are depreciated over the shorter of the lease period or the estimated
useful life of the equipment. Maintenance and repairs are expensed as incurred.
Intangible Assets
The purchase price paid in excess of net tangible assets acquired, goodwill
and non-compete payments to a stockholder are being amortized using the
straight-line method over periods of three and four years, respectively. The
deferred debt issuance costs are being amortized over the term of the debt.
Licensed software and purchased software are being amortized using the
straight-line method over a period of three years.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its property and equipment,
goodwill and other intangible assets in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of " ("SFAS No. 121"). SFAS No. 121
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the estimated future undiscounted cash flows
attributable to such assets or the business to which such assets relate. No
impairments were required to be recognized during the years ended December 31,
1997, 1998 and 1999.
Revenue Recognition
The Company's revenue is derived from software licenses as well as support
and maintenance, training and consulting services. The Company adopted American
Institute of Certified Public Accountants ("AICPA") Statement of Position
("SOP") No. 97-2, "Software Revenue Recognition," as amended effective January
1, 1998. The Company adopted the provisions of SOP 98-9, "Modification of SOP
97-2, Software Revenue Recognition, with Respect to Certain Transactions,"
effective January 1, 1999. These adoptions did not have a material effect on the
timing of the Company's revenue recognition or cause changes to its revenue
recognition policies.
F-33
<PAGE> 108
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenues from software licenses and related sales of hardware are
recognized when there is evidence of an arrangement, the product has been
shipped, fees are fixed and determinable and collection of the related
receivable is probable. Support and maintenance revenues are deferred and
recognized ratably over the service period. When software and services are sold
under one contract, revenue is allocated to each element based on their
respective fair values, with these fair values being determined using the price
charged when that element is sold separately. Consulting and training services
revenue, which is also included in services revenue, is deferred and recognized
as the services are performed.
Cost of Revenues
Cost of revenues includes the cost of media, product packaging, third-party
software license fees, other production costs and salaries, benefits and
allocated overhead costs related to consulting, training and customer support
personnel.
Other Income, Net
For the years ended December 31, 1997, 1998 and 1999, other income was
primarily comprised of referral fees paid by third-party hardware and software
vendors as well as transaction gains and losses resulting from the Company's
foreign operations.
Stock-Based Compensation
The Company accounts for stock based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25") which states that no compensation expense is
recognized for stock options or other stock-based awards to employees that are
granted with an exercise price equal to or above the estimated fair value per
share of the Company's common stock on the grant date. In the event that stock
is granted with an exercise price below the estimated fair market value of the
Company's common stock at the grant date, the difference between the fair market
value of the Company's common stock and the exercise price of the stock option
is recorded as deferred compensation. Deferred compensation is amortized to
compensation expense over the vesting period of the stock option. The Company
has adopted the disclosure requirements of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
which requires net income to be disclosed on a pro forma basis based on the fair
value of the options granted at the date of the grant.
Sales and Marketing Expenses
Sales and marketing expenses consist of costs, including salaries and sales
commissions, of all personnel involved in the sales process. Sales and marketing
expenses also include costs of advertising, trade shows and certain indirect
cost.
Advertising Costs
All costs of advertising the services and products offered by the Company
are expensed as incurred. Advertising expense totaled $245,937, $326,739, and
$934,878 for the years ended December 31, 1997, 1998 and 1999, respectively.
Research and Development Costs
Research and development expenses include all direct costs, primarily
salaries for Company personnel and outside consultants and allocated overhead
costs, related to the development of new products and
F-34
<PAGE> 109
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
significant enhancements to existing products and are charged to operations as
incurred until such time as technological feasibility is achieved.
Income Taxes
Deferred income tax assets and liabilities are recorded for the expected
future income tax consequences, based on enacted tax laws, of temporary
differences between the financial reporting and tax basis of assets, liabilities
and tax carryforwards. Deferred tax assets are recognized for the expected
future effects of all deductible temporary differences, loss carryforwards and
tax credit carryforwards. Deferred tax assets are then reduced, if deemed
necessary, by a valuation allowance for the amount of any tax benefits which,
more likely than not, based on current circumstances, are not expected to be
realized. Income tax provision for a particular period is the tax payable for
the period and the change during the period in deferred tax assets and
liabilities.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable and cash
equivalents. The Company's customers generally operate as wholesale distributors
of durable goods; accordingly, the Company's accounts receivable are
concentrated among wholesale distributors. The Company performs initial and
ongoing credit evaluations of its customers' financial condition and generally
requires no collateral. The Company retains title or a security interest in all
third-party hardware until the full purchase price of the hardware has been
paid. As of December 31, 1998 and 1999, no single customer accounted for more
than ten percent of the Company's accounts receivable balance. For the years
ended December 31, 1997, 1998 and 1999, one customer accounted for approximately
0.5%, 10.1% and 4.6% of the Company's revenue, respectively. The Company's cash
equivalents are primarily invested in money market securities. The Company
maintains the majority of its cash balances with financial institutions in the
form of demand deposits and money market accounts.
Fair Market Value of Financial Instruments
Financial instruments include cash and cash equivalents, accounts
receivable, accounts payable and long-term obligations. The carrying amounts for
cash, cash equivalents, accounts receivable and accounts payable approximate
fair market value because of the short maturity of these instruments. The
carrying amount of the long-term obligation approximates its fair market value.
Cash Flows
The Company made cash payments for interest of $1,485,960, $1,187,030 and
$604,262 during the years ended December 31, 1997, 1998 and 1999, respectively.
The Company made cash payments for taxes of $2,133,000, $3,291,000 and
$3,075,277 during the years ended December 31, 1997, 1998 and 1999,
respectively.
The Company acquired property and equipment through the assumption of
capital lease obligations amounting to $11,080, $0 and $55,130 during the years
ended December 31, 1997, 1998 and 1999, respectively.
Comprehensive Income
Effective January 1, 1998, the company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
("SFAS No. 130"). SFAS No. 130 establishes standards for reporting comprehensive
income and its components in financial statements. Comprehensive
F-35
<PAGE> 110
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
income, as defined, includes all changes in equity during a period from
non-owner sources. The Company had no items of other comprehensive income for
the years ended December 31, 1997, 1998 and 1999.
Recent Accounting Pronouncements
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB"),
"Revenue Recognition in Financial Statements." SAB 101 provides specific
guidance, among other things, as to the recognition of revenue related to
up-front non-refundable fees and services charges received in connection with a
contractual arrangement. We have applied the provisions of SAB 101 for the year
ended December 31, 1999. The adoption of SAB 101 did not have a material impact
on our financial condition or results of operations.
3. ACQUISITIONS
Between January and February of 1997, the Company acquired certain assets
of three companies. Collectively, these entities are referred to as the "1997
Acquisitions".
In January 1997, the Company acquired certain assets of Systemetrix
Corporation ("Systemetrix"), a Canadian company. The aggregate purchase price of
$1,455,072 consisted of $250,000 of cash and 55,556 shares of the Company's
common stock with an estimated fair value of $250,002 based on a per share value
of $4.50, the assumption of certain liabilities totaling $925,651 and
transaction fees of $29,419.
In January 1997, the Company acquired certain assets of Saber Systems
("Saber"). The aggregate purchase price of $2,011,551 consisted of $1,100,000 of
cash and 50,000 shares of the Company's common stock with an estimated fair
value of $225,000 based on a per share value of $4.50, the assumption of certain
liabilities totaling $656,000 and transaction costs of $30,551.
In February 1997, the Company acquired certain assets of Goretek Data
Systems ("Goretek"). The aggregate purchase price of $2,057,305 consisted of
$1,000,000 of cash, the assumption of certain liabilities totaling $966,721 and
transaction costs of $90,584.
As a result of the acquisitions of Systemetrix and Goretek, the Company
incurred one-time charges to earnings totaling $230,000 related to the estimated
value of the purchased in-process research and development costs. The remaining
purchase price was allocated to tangible assets, goodwill and purchased
software. In each acquisition, the purchase price was allocated to the assets
acquired and liabilities assumed based on the Company's estimates of fair value
at the respective acquisition dates. The fair value assigned to intangible
assets acquired in each acquisition was based on valuations prepared by an
independent third-party appraisal of the purchased in-process research and
development and developed technology of Systemetrix and Goretek. The total
purchase price for each acquisition exceeded the amounts allocated to tangible
and intangible assets acquired less liabilities assumed by $1,517,480. This
excess of the purchase price over the fair values of assets acquired less
liabilities assumed was allocated to goodwill.
The Saber acquisition has also been accounted for using the purchase method
of accounting and, accordingly, the recognized purchase price has been
allocated, based on the Company's estimates of fair value, to the tangible
assets acquired and liabilities assumed and to the identifiable intangible
assets on the acquisition dates. The purchase price in excess of identified
tangible and intangible assets and liabilities assumed was allocated to
goodwill.
F-36
<PAGE> 111
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has recorded identifiable intangibles and goodwill on the 1997
Acquisitions as follows:
<TABLE>
<CAPTION>
ESTIMATED
FAIR
VALUE
----------
<S> <C>
Purchased software.......................................... $ 420,000
In-process research and development......................... 230,000
Goodwill.................................................... 2,739,092
----------
$3,389,092
==========
</TABLE>
A total of $230,000 of the purchase price for these acquisitions represents
purchased in-process research and development that had not yet reached
technological feasibility and had no alternative future use. Accordingly, this
amount was immediately expensed in the statement of operations upon consummation
of each acquisition. The value assigned to in-process research and development,
based on a valuation prepared by an independent third-party appraisal company,
was determined by identifying research projects, all of which related to either
add-ons or enhancements of Systemetrix and Goretek's existing products, in areas
for which technological feasibility had not been established. The value of the
in-process projects was adjusted to reflect the relative value and contributions
of the required research and development. In doing so, consideration was given
to the stage of completion, the complexity of the work completed to date, the
difficulty of completing the remaining development costs already incurred, and
the projected cost to complete the projects. The discount rate included a factor
that takes into account the uncertainty surrounding successful development of
the purchased in-process research and development.
The Company has included the operations of Systemetrix and Saber into its
statements of operations from January 2, 1997, the effective dates of both
transactions. The Company has included the operations of Goretek into its
statements of operations from February 1, 1997, the effective date of the
transaction.
4. OTHER ASSETS
Other assets consist of intangible assets, deposits and notes receivable.
Intangible assets and their respective amortizable lives were as follows at
December 31:
<TABLE>
<CAPTION>
LIFE
1998 1999 (IN YEARS)
----------- ----------- ----------
<S> <C> <C> <C>
Goodwill.......................................... $ 2,739,092 $ 2,743,777 3
Purchased software................................ 806,273 806,273 3
Loan fees......................................... 527,060 542,060 5
Software handbook................................. 456,000 456,000 3
Non-compete agreements............................ 2,500,000 2,500,000 4
Other............................................. 150,000 150,000 2
----------- -----------
7,178,425 7,198,110
Less -- accumulated amortization.................. (4,791,769) (6,839,356)
----------- -----------
$ 2,386,656 $ 358,754
=========== ===========
</TABLE>
Total amortization expense was $2,290,249, $2,203,205 and $2,047,587 in
1997, 1998 and 1999, respectively.
F-37
<PAGE> 112
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deposits and notes receivable included in other assets were as follows at
December 31:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deposits.................................................... 156,122 117,419
Notes receivable............................................ 40,500 --
-------- --------
$196,622 $117,419
======== ========
</TABLE>
During 1998, the Company also entered into an employment agreement with an
executive that included a payment of $150,000 of compensation upon commencement
of employment. Such amount is required to be repaid to the Company should the
executive terminate his relationship with the Company prior to his two-year
employment anniversary. The balance has been recorded as an other intangible
asset and is being amortized over a two year period.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Office furniture, fixtures and equipment.................... $ 4,963,627 $ 5,650,350
Less: accumulated depreciation.............................. (2,785,955) (3,746,695)
----------- -----------
Property and equipment, net................................. $ 2,177,672 $ 1,903,655
=========== ===========
</TABLE>
6. OTHER CURRENT ASSETS
Other current assets were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Inventories................................................. $304,166 $135,966
Prepaid expenses............................................ 289,018 289,885
Deferred income taxes -- current portion.................... 368,390 219,043
-------- --------
$961,574 $644,894
======== ========
</TABLE>
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Accounts payable............................................ $5,437,093 $3,461,979
Accrued liabilities......................................... 2,622,113 1,685,088
Income taxes payable........................................ -- 378,174
Customer deposits........................................... 408,590 331,239
Payable to shareholder...................................... 300,000 --
---------- ----------
$8,767,796 $5,856,480
========== ==========
</TABLE>
F-38
<PAGE> 113
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. FINANCING FACILITIES
The Company has a financing facility (the "Facility") including a term loan
("Term Loan") of $25,000,000 and a revolving credit line ("Revolving Loan"). The
Revolving Loan provides for a maximum outstanding balance of $10,000,000. The
Facility expires on December 31, 2000, or earlier, based on certain provisions
included in the Facility. Additionally, the principal balance may be prepaid
without penalty. Interest accrues on the Term Loan and the outstanding balance
of the Revolving Loan at variable rates based on the terms of the Facility. For
the year ended December 31, 1999, the weighted average interest rate was 7.22%
and 7.19% on the Term Loan, and the outstanding balance of the Revolving Loan,
respectively. Principal payments are due quarterly with interest due monthly.
Under certain conditions, based primarily on its earnings, the Company may be
required to make certain prepayments of Term Loan principal. As of December 31,
1998 and 1999, $8,803,340 and $4,134,320, respectively, were outstanding under
the Term Loan and $1,150,000 and $500,000, respectively, were outstanding under
the Revolving Loan. Borrowings under the Facility are collateralized by
substantially all of the assets of the Company.
The Facility requires the Company to maintain, among other restrictions, a
minimum interest coverage ratio, a minimum debt service coverage ratio, and a
maximum ratio of total indebtedness for borrowed money to earnings. The Company
was in compliance with the covenants as of December 31, 1999. As of December 31,
1999, all future principal payments under the Facility are due in 2000.
9. MANDATORILY REDEEMABLE PREFERRED STOCK
The Company has authorized 26,000 shares of Series A mandatorily redeemable
preferred stock (the "Series A Shares") and 6,500 shares of Series B mandatorily
redeemable preferred stock (the "Series B Shares"). The shares of Series A and
Series B mandatorily redeemable preferred stock have a par value of $1,000 per
share.
Dividends. The Series A and Series B stockholders (the "Holders") are not
entitled to receive dividends unless dividends are declared on shares of common
stock, in which case the Holders shall receive a distribution on each
outstanding share of Series A and Series B mandatorily redeemable preferred
stock on an as if converted basis.
Conversion. Each of the Series A and Series B Shares can be converted at
the election of two-thirds of the Holders of each class. The Series A shares
convert into a total of 5,200,000 shares of common stock and 15,500 shares of
Senior Redeemable Preferred Stock, as defined below. The Series B shares convert
into a total of 1,130,000 shares of common stock, 3,875 shares of Senior
Redeemable Preferred Stock and 2,625 shares of Junior Redeemable Preferred
Stock, as defined below.
In the case of an initial public offering, each of the Series A and Series
B Shares will be automatically converted into shares of common stock as
described above. In addition, payments of $15,500,000 and $6,500,000 would be
made to the Series A stockholders and the Series B stockholders, respectively,
rather than issuing Senior Redeemable Preferred Stock and Junior Redeemable
Preferred Stock.
Voting Rights. The Holders of the Series A and Series B Shares vote as a
single class and have one vote for each common share into which such shares
could then be converted, as described above. In addition, the Holders of the
Series A Shares are entitled to elect two directors to the Company's Board of
Directors.
Redemption. The Company could be required to redeem the Series A and
Series B Shares upon receipt of written request from Holders, voting together as
a single class, of shares representing at least 66 2/3% of the aggregate number
of shares of common stock issuable upon conversion. Redemption may first be made
by the Holders on March 31, 2001 and on the first and second anniversaries
thereof. There is no
F-39
<PAGE> 114
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
limit to the amount of shares that may be redeemed at these dates. The
redemption price is equal to the liquidation value of the shares plus any
declared but unpaid dividends.
Carrying value. The Series A and Series B Shares have been recorded at
$32,500,000, the total net proceeds received by the Company upon issuance. The
redemption price was equal to the net proceeds at December 31, 1997, 1998 and
1999.
Liquidation. Upon a liquidation, merger, sale, change in control of the
Company or redemption or repurchase of shares representing a majority of the
voting power of the outstanding shares of capital stock of the Company, the
holders of Series A Preferred are entitled to a senior liquidation preference,
in parity with holders of Series B Preferred and Senior Redeemable Preferred and
in priority to holders of Junior Redeemable Preferred and common stock, in the
amount of $596 per share (approximately $15,500,000 at December 31, 1998 and
1999), or if proceeds are insufficient, to share ratably with holders of Series
B Preferred and Senior Redeemable Preferred. If the liquidation preferences due
to holders of Series A and B Preferred and Senior Redeemable Preferred are paid
in full, the holders of Series A Preferred receive a junior liquidation
preference of the greater of $404 per share (approximately $10,500,000 at
December 31, 1998 and 1999) or the ratable share of amounts payable to holders
of all shares of the Company's capital stock, on an as-if-converted to common
stock basis, once the holders of Series B Preferred have received their
liquidation preference amounts. Upon a liquidation, merger, sale, change in
control of the Company or redemption or repurchase of shares representing a
majority of the voting power of the outstanding shares of capital stock of the
Company, the holders of Series B Preferred are entitled to liquidation
preferences, in parity with holders of Series A Preferred and Senior Redeemable
Preferred, and in priority to holders of Junior Redeemable Preferred and common
stock, in the amount of $596 per share (approximately $3,875,000 at December 31,
1998 and 1999), or if proceeds are insufficient, to share ratably with holders
of Series A Preferred and the Senior Redeemable Preferred. If the senior
liquidation preferences due to the holders of Series A Preferred (approximately
$15,500,000 at December 31, 1998 and 1999) and Series B Preferred (approximately
$3,875,000 at December 31, 1998 and 1999) and Senior Redeemable Preferred ($0 at
December 31, 1998 and 1999), are paid in full and the junior liquidation
preference due the holders of Series A Preferred (approximately $10,500,000 at
December 31, 1998 and 1999) is paid in full, the holders of Series B Preferred
receive $404 per share (approximately $2,625,000 at December 31, 1998 and 1999),
or if proceeds are insufficient, to shares ratably with the holders of Junior
Redeemable Preferred shareholders. Holders of Series B Preferred are also
entitled to share in residual distributions, if any, on an as-if-converted to
common stock basis. Upon liquidation, holders of Senior Redeemable Preferred are
entitled to $1,000 per share on parity with senior liquidation amounts due to
holders of Series A and B Preferred. Upon liquidation, holders of Junior
Redeemable Preferred are entitled to $1,000 per share after holders of Series A
and B Preferred and Senior Redeemable Preferred have received their total
liquidation preference.
Senior Mandatorily Redeemable Preferred Stock
Senior Redeemable Preferred has no voting rights. Dividends will accrue at
the rate of $50 per share per annum, cumulatively, from and after the date upon
which two-thirds of the shares of Series A Preferred have been converted. Senior
Redeemable Preferred must be redeemed in the amount of $19,375,000 immediately
upon a qualified initial public offering, or in equal installments on March 31,
2001, 2002 and 2003. If funds are insufficient to redeem the Senior Redeemable
Preferred, the unpaid redemption amount bears interest at the greater of 12% or
5% over a prime rate.
Junior Mandatorily Redeemable Preferred Stock
Junior Redeemable Preferred has no voting rights. Dividends will accrue at
the rate of $50 per share, cumulatively, from and after the date upon which
two-thirds of the shares of Series A Preferred have been
F-40
<PAGE> 115
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
converted. Junior Redeemable Preferred must be redeemed in the amount of
$2,625,000 immediately upon a qualified initial public offering or in equal
installments on March 31, 2004, 2005 and 2006. However, no redemption can be
made of Junior Redeemable Preferred until all amounts due Series A and B
Preferred and Senior Redeemable Preferred have been paid by the Company. If
funds are insufficient to redeem the Junior Redeemable Preferred, the unpaid
redemption amount bears interest at the greater of 12% or 5% over a prime rate.
10. STOCK COMPENSATION
1999 Amended and Restated Equity Incentive Plan
The Company adopted the 1999 Amended and Restated Equity Incentive Plan (as
amended, the "Plan") was adopted by the Board of Directors. The Plan provides
for the grant of incentive stock options to employees (including officers and
employee-directors), nonstatutory stock options (as defined by the Internal
Revenue Code and regulations), and restricted stock awards for issuance to
employees, directors and consultants. The purchase price of shares subject to an
incentive stock option or nonqualified stock option will be the fair market
value of the Company's common stock on the date the option is granted. If the
grantee owns more than 10% of the total combined voting power of all classes of
stock on the date of grant, the purchase price of the shares subject to a
nonqualified stock option shall be at least 110% of the fair value at the date
of grant and the exercise term will be up to five years from the date of grant.
All incentive options granted under the Plan are exercisable up to 10 years from
the date of grant. Options issued to consultants are charged to expense based on
the fair value as determined by the Black-Scholes model. As of December 31,
1999, there were 4,154,930 shares of common stock reserved for issuance under
the Plan, of which 664,246 shares are available for future grants under the
Plan.
All outstanding options vest over a one to nine-year period. Prior to
December 15, 1998, the vesting of a portion of these options could be
accelerated if certain conditions were met. After December 15, 1998, the vesting
provisions related to unvested options, which could have been accelerated upon
meeting certain future performance-based goals, were accelerated such that the
remaining unvested options will vest over a period of one to four years.
On January 20, 1998, upon approval by the Board of Directors, the Company
exchanged certain outstanding options for common stock whose exercise price was
in excess of the fair market value of the Company's common stock for new options
for common stock having an exercise price of $2.50 per share, the then-current
estimated fair value.
The Company had issued 1,281,690 shares of restricted common stock under
the Plan. The holder of such shares of restricted common stock, who is a former
executive officer and currently a director of the Company, entered into a stock
restriction and repurchase agreement under which the Company had the right to
repurchase unvested common stock at the original issuance price upon termination
of this individual's employment with the Company. Under the original grant,
restrictions on these shares of common stock were to lapse over a nine-year
period, which period was subject to acceleration under certain conditions. At
August 24, 1998, the date the former executive officer terminated employment
with the Company, a total of 291,813 shares remained restricted under the terms
of the grant. Of those shares, the Company's Board of Directors approved the
removal of restrictions with respect to 251,760 shares and the remaining 40,053
shares were forfeited and repurchased for $0.25 per share. Due to the vesting of
the 251,760 shares, the Company recognized approximately $566,000 of
compensation expense in its results of operations for 1998.
F-41
<PAGE> 116
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has elected to account for its stock-based employee and
director compensation plans under APB No. 25 and related interpretations. For
purposes of the pro forma disclosures presented below, the Company has computed
the fair values of all options granted under the Company's Plan during 1998 and
1999, using the Black-Scholes pricing model and the following weighted average
assumptions:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Risk-free interest rate..................................... 5.3% 5.3%
Expected dividend yield..................................... 0% 0%
Expected lives outstanding.................................. 4.0 years 2.9 years
Expected volatility......................................... 0% 7.38%
</TABLE>
To estimate lives of options for this valuation, it was assumed that
options will be exercised upon becoming fully vested. All options are initially
assumed to vest. Cumulative compensation costs recognized in pro forma net
income or loss with respect to options that are forfeited prior to vesting are
adjusted as a reduction of pro forma compensation expense in the period of
forfeiture. The total fair value of options granted under the Plan was computed
to be approximately $498,000 and $93,000 for the years ended December 31, 1998
and 1999, respectively. These amounts are amortized ratably over the vesting
periods of the options or recognized at date of grant if no vesting period is
required. Pro forma stock-based compensation, net of the effect of forfeitures,
was $(111,0000), $68,000 and $(27,000) for 1997, 1998 and 1999, respectively.
A summary of stock options under the Plan as of December 31, 1998 and 1999
and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1998 1999
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year............... 939,380 $ 2.20 1,714,272 $ 1.87
Granted...................................... 1,210,108 2.51 393,375 3.27
Cancelled.................................... (256,964) 6.39 (114,047) 1.75
Exercised.................................... (178,252) 1.41 (68,567) 1.67
--------- ---------
Outstanding at end of year..................... 1,714,272 1.87 1,925,033 2.19
========= =========
Weighted average fair value of options
granted...................................... 0.41 0.24
</TABLE>
The following table summarizes information about the options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
NUMBER WEIGHTED --------------------
OUTSTANDING AVERAGE WEIGHTED WEIGHTED
AT REMAINING AVERAGE NUMBER AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE OF EXERCISE
RANGE OF EXERCISE PRICES 1999 LIFE PRICE SHARES PRICE
- ------------------------ ------------ ----------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
$0.61............................... 446,250 6.35 $ 0.61 323,608 $ 0.61
1.00............................... 39,563 6.64 1.00 31,390 1.00
2.41............................... 25,000 6.83 2.41 18,750 2.41
2.50............................... 1,112,645 8.56 2.50 428,922 2.50
3.50............................... 301,575 9.57 3.50 -- --
--------- ----- ------ ------- ------
1,925,033 8.14 $ 2.19 802,670 $ 1.68
========= ===== ====== ======= ======
</TABLE>
As determined in accordance with APB No. 25 and related interpretations, no
compensation expense was recorded in 1998 or 1999 for grants under the Company's
stock option plan.
F-42
<PAGE> 117
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
If the Company had accounted for its stock option plan in accordance with
SFAS No. 123, the Company's net income and pro forma net income would have been
reported as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported...................................... $4,114,184 $3,585,473 $2,882,151
Pro forma........................................ 4,003,184 3,653,473 2,855,151
</TABLE>
11. INCOME TAXES
The net deferred tax asset has been presented as follows at December 31,
1998 and 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Current deferred tax asset.................................. $ 368,390 $ 219,043
Noncurrent deferred tax asset............................... 1,023,685 1,745,829
---------- ----------
$1,392,075 $1,964,872
========== ==========
</TABLE>
Income before income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Domestic........................................... $5,878,243 $5,896,397 $3,610,544
Foreign............................................ 244,612 580,512 924,186
---------- ---------- ----------
$6,122,855 $6,476,909 $4,534,730
========== ========== ==========
</TABLE>
Components of the Company's income tax provision are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Current provision:
United States Federal............................ $2,319,346 $2,719,495 $1,486,447
State............................................ 413,153 508,021 387,696
Foreign.......................................... 92,953 220,595 351,231
---------- ---------- ----------
$2,825,452 $3,448,111 $2,225,374
========== ========== ==========
Deferred provision (benefit):
United States Federal............................ $ (712,511) $ (454,924) $ (491,795)
State............................................ (104,270) (84,256) (81,000)
Foreign.......................................... -- -- --
---------- ---------- ----------
(816,781) (539,180) (572,795)
---------- ---------- ----------
Income tax provision..................... $2,008,671 $2,908,931 $1,652,579
========== ========== ==========
</TABLE>
F-43
<PAGE> 118
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the company's deferred tax assets and liabilities
at December 31, 1998 and 1999 consist of the following:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Acquired intangible assets.................................. $1,280,814 $1,498,319
Bad debts................................................... 141,301 139,729
Deferred revenue............................................ 40,002 40,002
Fixed assets................................................ 27,941 46,979
Stock-based compensation.................................... -- 212,422
Accruals.................................................... 187,273 55,193
Other....................................................... 65,960 41,407
---------- ----------
Total deferred tax assets......................... $1,743,291 $2,034,051
---------- ----------
Noncompete agreement........................................ 273,438 39,063
Acquired intangible assets.................................. 77,776 30,116
---------- ----------
Total deferred tax liabilities.................... 351,214 69,179
---------- ----------
Net deferred tax asset (liability)................ $1,392,077 $1,964,872
========== ==========
</TABLE>
The following is a reconciliation of the statutory U.S. Federal income tax
rate to the Company's effective income tax rate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
United States Federal tax at statutory rate................. 34.0% 34.0% 34.0%
State taxes (net of Federal benefit)........................ 3.3 3.9 3.5
Expenses not deductible..................................... 0.7 3.3 0.6
Tax credits and other....................................... (1.4) 1.3 (1.7)
---- ---- ----
Provision for income taxes.................................. 36.6% 42.5% 36.4%
==== ==== ====
</TABLE>
12. RELATED PARTY TRANSACTIONS
For the period from August 5, 1998 through December 31, 1998, the Company
purchased computer equipment for resale of approximately $2,066,000 from a
computer equipment dealer in which a stockholder and director of the Company is
a stockholder and director. During the same period, the Company also supplied
consulting services to this related party totaling $10,000. As of December 31,
1998, amounts payable to and receivable from this related party are $1,499,000
and $33,000, respectively.
The Company has entered into non-compete agreements with a former officer
of the Company. As part of the agreement, the Company paid $500,000, $500,000
and $0 in 1997, 1998 and 1999, respectively, to the officer, who remains a
stockholder and director of the Company. These non-compete agreements have been
amortized over the term of the agreements.
During 1998, the Company entered into an agreement with a former executive
officer of the Company, and who is currently a stockholder and director, in
which $600,000 of severance compensation was to be paid to this individual. The
Company paid $300,000 in 1998 and 1999. These severance payments were charged to
compensation expense during 1998.
F-44
<PAGE> 119
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. LEASE COMMITMENTS
The Company leases certain equipment under various noncancelable capital
leases and leases its office space and certain equipment under operating leases.
Future minimum lease payments required under the leases at December 31, 1999
were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
- ----------------------- -------- -----------
<S> <C> <C>
2000...................................................... $109,363 $ 2,795,735
2001...................................................... 101,013 2,365,418
2002...................................................... -- 2,166,814
2003...................................................... -- 1,782,334
2004...................................................... -- 1,504,271
Thereafter................................................ -- 2,919,850
-------- -----------
Total minimum lease payments...................... 210,376 $13,534,422
===========
Amount representing interest................................ (17,461)
--------
Present value of minimum lease payments..................... 192,915
Less current maturities..................................... (95,604)
--------
Long term maturities of capital lease obligation............ $ 97,311
========
</TABLE>
Rent expense recognized under operating leases totaled $1,369,517,
$1,419,511 and $2,027,622 for the years ended December 31, 1997, 1998 and 1999,
respectively.
14. PROFIT SHARING PLAN
The Company maintains a profit sharing plan, including a qualified deferral
arrangement as described in Section 401(k) of the Internal Revenue Code,
covering substantially all full-time employees who meet certain minimum age and
employment requirements. Under the plan, the Company may declare a profit
sharing contribution of up to 15% of a participant's compensation, and/or a
discretionary match of a percentage of participant deferrals. Company
contributions for profit sharing and discretionary match of $391,309, $90,899
and $448,447 were authorized for the years ended December 31, 1997, 1998 and
1999, respectively.
15. SUBSEQUENT EVENT
On February 21, 2000, the Company entered into a definitive agreement under
which BuildNet, Inc. ("BuildNet") will purchase all of the outstanding capital
stock and stock options of the Company in exchange for, in the aggregate,
25,954,659 shares of BuildNet's common stock and stock options to purchase
BuildNet's common stock and notes payable of $32,500,000. The notes payable
carry an interest rate of 8% per annum and are payable in four equal
installments beginning on the one year anniversary of the closing date of the
transaction and each six month anniversary thereafter. Upon the closing of an
underwritten initial public offering of BuildNet common stock, the holders of
the notes payable will have the option to convert principal of up to $4,400,000
of their notes payable into BuildNet common stock at a conversion price equal to
the per share price paid for BuildNet's common stock in such public offering. In
addition, the remaining principal balance of the notes will be payable in full
on the seventh day following closing of such public offering. BuildNet also
committed to issue new stock options to purchase up to 1,000,000 shares of
BuildNet's common stock to the Company's employees. This transaction is subject
to regulatory approval.
F-45
<PAGE> 120
REPORT OF INDEPENDENT ACCOUNTANTS
The Members and Board of Managers of
The UniLink Group, LLC
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in members' capital and of cash flows present fairly,
in all material respects, the financial position of The UniLink Group, LLC (the
"Company") at December 31, 1998 and 1999, and the results of its operations and
its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 10, substantially all of the assets of the Company
were acquired by BuildNet, Inc. on January 18, 2000.
/s/ PRICEWATERHOUSECOOPERS LLP
Raleigh, North Carolina
February 16, 2000
F-46
<PAGE> 121
THE UNILINK GROUP, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ 1,500,249
Accounts receivable, trade................................ -- 39,471
Note receivable from KPI.................................. -- 340,000
Prepaid expenses and other current assets................. 1,768 19,940
----------- -----------
Total current assets.............................. 1,768 1,899,660
Property and equipment, net................................. 22,206 358,078
Goodwill, net............................................... -- 79,495
Other assets................................................ -- 12,299
----------- -----------
Total assets...................................... $ 23,974 $ 2,349,532
=========== ===========
LIABILITIES AND MEMBERS' (DEFICIENCY) CAPITAL
Current liabilities:
Accounts payable.......................................... $ 26,942 $ 578,260
Accrued expense........................................... 75,847 196,327
Notes payable to members, current portion................. 1,976,013 383,454
Deferred revenue.......................................... -- 113,142
----------- -----------
Total current liabilities......................... 2,078,802 1,271,183
Notes payable to members, net of current portion............ -- 331,266
----------- -----------
Total liabilities................................. 2,078,802 1,602,449
Members' (deficiency) capital accounts:
Members' capital.......................................... 248,707 7,325,751
Deferred compensation..................................... -- (789,109)
Accumulated deficit....................................... (2,303,535) (5,789,559)
----------- -----------
Total members' (deficiency) capital............... (2,054,828) 747,083
----------- -----------
Total liabilities and members' (deficiency)
capital......................................... $ 23,974 $ 2,349,532
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE> 122
THE UNILINK GROUP, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Revenues.................................................... $ 101,758 $ 208,188
Cost of revenues............................................ 124,889 283,463
----------- -----------
Gross loss........................................ (23,131) (75,275)
----------- -----------
Operating expenses:
Research and development.................................. 277,403 967,741
Sales and marketing....................................... 199,463 983,819
General and administrative................................ 434,769 1,282,611
Stock-based compensation.................................. -- 17,135
----------- -----------
Total operating expenses.......................... 911,635 3,251,306
----------- -----------
Operating loss.................................... (934,766) (3,326,581)
----------- -----------
Interest income (expense):
Interest income........................................... -- 10,162
Interest expense.......................................... (102,329) (169,605)
----------- -----------
Interest income (expense), net.................... (102,329) (159,443)
----------- -----------
Net loss.......................................... $(1,037,095) $(3,486,024)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE> 123
THE UNILINK GROUP, LLC
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL (DEFICIENCY)
<TABLE>
<CAPTION>
MEMBERS' DEFERRED ACCUMULATED
CAPITAL COMPENSATION DEFICIT TOTAL
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1997.............. $ 248,707 $ -- $(1,266,440) $(1,017,733)
Net loss................................... -- -- (1,037,095) (1,037,095)
---------- --------- ----------- -----------
BALANCE AS OF DECEMBER 31, 1998.............. 248,707 -- (2,303,535) (2,054,828)
Conversion of promissory notes into
membership units........................ 2,495,923 -- -- 2,495,923
Issuance of membership units in exchange
for shares of TPG....................... 270,217 -- -- 270,217
Sale of membership units................... 3,308,550 -- -- 3,308,550
Deferred compensation related to grant of
membership unit options................. 806,244 (806,244) -- --
Amortization of deferred compensation...... -- 17,135 -- 17,135
Value of warrants to purchase membership
units of the Company issued in
connection with debt.................... 196,110 -- -- 196,110
Net loss................................... -- -- (3,486,024) (3,486,024)
---------- --------- ----------- -----------
BALANCE AS OF DECEMBER 31, 1999.............. $7,325,751 $(789,109) $(5,789,559) $ 747,083
========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE> 124
THE UNILINK GROUP, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(1,037,095) $(3,486,024)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 26,259 47,840
Provision for doubtful accounts........................... -- 6,168
Amortization of debt discount............................. -- 27,376
Noncash compensation expense.............................. -- 17,135
Changes in operating assets and liabilities:
Accounts receivable.................................... -- 140,217
Prepaid expenses and other assets...................... 833 (10,521)
Accounts payable....................................... 26,472 547,215
Accrued expenses....................................... 15,847 (61,988)
Deferred revenue....................................... (75,000) 113,142
----------- -----------
Net cash used in operating activities............. (1,042,684) (2,659,440)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (7,555) (276,023)
Cash acquired in purchase of TPG............................ -- 215,496
TPG acquisition costs....................................... -- (17,762)
Loan to KPI................................................. -- (340,000)
----------- -----------
Net cash used in investing activities............. (7,555) (418,289)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from membership units issued....................... -- 3,382,300
Proceeds from issuance of notes payable..................... 1,050,029 1,305,931
Payments of principal on notes payable...................... -- (109,783)
Net increase (decrease) in book overdraft................... 210 (470)
----------- -----------
Net cash provided by financing activities......... 1,050,239 4,577,978
----------- -----------
Net (decrease) increase in cash and cash
equivalents..................................... -- 1,500,249
Cash and cash equivalents, beginning of period.............. -- --
----------- -----------
Cash and cash equivalents, end of period.................... $ -- $ 1,500,249
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE> 125
THE UNILINK GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
Background
The UniLink Group, LLC (the "Company") was formed in June 1995 and is
located in Atlanta, Georgia. The Company specializes in the processing of
electronic commerce transactions in the electrical, plumbing, appliance and
heating, ventilation and air conditioning markets. The Company provides an
electronic link between the manufacturer's computer system and the supplier's
accounting system to process and exchange key documents. The link is provided
either through the internet or through Electronic Data Interchange where
suppliers have such translation software.
Organization
The Company, incorporated under the laws of the State of Georgia, is a
limited liability company ("LLC"). Under the terms of the Company's operating
agreement, the members holding at least 66% of the outstanding units have the
option to terminate the Company at any time.
Allocation of Profits and Losses
Under the terms of the Company's operating agreement, profits are allocated
to each member: (i) in proportion and to the extent that aggregate net losses
allocated to each member during prior years exceeds aggregate net profits
allocated; then (ii) in proportion and to the extent of the aggregate net losses
allocated to each member during prior years; and (iii) to all members in
proportion to their respective sharing ratio, defined as the ownership
percentage of each member. Losses are allocated to each member: (i) to Unilink
investors to the extent of the capital contributions of UniLink investors in the
Company, and thereafter to each member in proportion to the net profit allocated
to them during prior years; then (ii) in proportion to, and to the extent of,
the positive balance in each members' capital account; and finally (iii) to all
members based on their respective sharing ratio.
Distributions
The Company's operating agreement states that distributions shall be made
at such times and in such amounts as determined by the managers of the Company
in their sole discretion. Distributions are to be made to the members pro-rata,
in accordance with the positive balances in the capital accounts of the members.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company's revenues are derived from services provided to customers for
development of e-commerce and from fees on e-commerce transactions.
Service revenues are recognized ratably over the service period upon the
completion of the implementation of e-commerce services. Transaction fees are
recognized as the transactions take place.
F-51
<PAGE> 126
THE UNILINK GROUP, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cost of Revenues
Cost of revenues primarily consists of salaries and consultant fees for the
implementation of e-commerce connections and maintaining systems necessary to
support e-commerce transaction systems.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of costs, including salaries
and sales commissions, of all personnel involved in the sales process. Sales and
marketing expenses also include costs of advertising, trade shows and certain
indirect costs. All costs of advertising the services and products offered by
the Company are expensed as incurred. Advertising expense totaled $16,568 and
$68,975 for the years ended December 31, 1998 and 1999, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents.
Property and Equipment
Property and equipment primarily consists of furniture and computer
equipment that are recorded at cost and depreciated using the straight-line
method over their estimated useful lives which range from three to five years.
Expenditures for repairs and maintenance are charged to expense as incurred.
Internal Use Software
Effective January 1, 1999, the Company adopted the provisions of the
Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants ("AICPA") Statement of Position No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP No.
98-1"). SOP No. 98-1 provides guidance regarding when software developed or
obtained for internal use should be capitalized. Under the provisions of SOP No.
98-1, external direct costs of materials and services consumed in the
development of internal-use computer software, payroll and payroll related costs
for employees directly associated with internal-use computer software projects,
and interest costs incurred while developing internal-use computer software
should be capitalized once the preliminary project stage has been completed,
management has authorized and committed to funding the project, and it is
probable that the project will be completed and that the software will be used
to perform the function intended. Such costs should be capitalized until the
software is ready for its intended use, at which time the costs should be
amortized over their estimated useful life. To date the Company had not incurred
significant expenses beyond the completion of the preliminary project phase.
Accordingly, no costs have been capitalized. As of December 31, 1998, the
Company had not incurred significant expenses beyond the completion of the
preliminary project phase. Accordingly, no costs have been capitalized.
Goodwill
Goodwill consists of unidentifiable intangible assets resulting from
acquisition and is amortized on a straight-line basis over periods ranging from
three to five years. The Company periodically assesses the recoverability of
intangible assets by determining whether the amortization of the balance over
its remaining life can be recovered through undiscounted future operating cash
flows of the related operations (see Note 3). Goodwill is being amortized over a
period of five years because of the rapid changes in the e-commerce industry. As
of December 31, 1999, goodwill reported on the Company's balance sheet is net of
accumulated amortization of $4,099.
F-52
<PAGE> 127
THE UNILINK GROUP, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its property and equipment, and
other assets in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed of " ("SFAS 121"). SFAS 121 requires recognition of impairment of
long-lived assets in the event the net book value of such assets exceeds the
estimated future undiscounted cash flows attributable to such assets or the
business to which such intangible assets relate. No impairments were required to
be recognized during the years ended December 31, 1998 and 1999.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts payable and
accounts receivable at December 31, 1998 and 1999 approximated their fair value
due to the short-term nature of these items. The fair value of the Company's
short-term and long-term debt approximated their carrying values based on the
borrowing rates available to the Company for loans of similar terms as of
December 31, 1998 and 1999.
Income Taxes
There is no provision for income taxes in the financial statements of the
Company as the Company is not subject to income tax. Each member is individually
liable for its own tax payments.
Credit Risk, Significant Customers and Concentrations
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with high credit quality
financial institutions which invest primarily in U.S. Government securities,
highly rated commercial paper and certificates of deposit guaranteed by banks
which are members of the Federal Deposit Insurance Corporation.
The Company's accounts receivable result primarily from sales to
manufacturers and distributors in the heating, ventilation and air conditioning
industry in the United States. The Company routinely assesses its customers and
the industry in which they operate. Revenue and receivables from significant
customers as a percentage of total reported as of and during the years ended
December 31, 1998 and 1999 were as follows:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Revenue:
Customer A................................................ 74% 46%
Customer B................................................ 15% 10%
Receivables:
Customer A................................................ -- 66%
Customer B................................................ -- 13%
</TABLE>
Cash Flows
The Company made cash payments for interest $102,329 and $119,729 during
the years ended December 31, 1998 and 1999, respectively.
F-53
<PAGE> 128
THE UNILINK GROUP, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25"), which states that no compensation expense
is recognized for stock options or other stock-based awards to employees that
are granted with an exercise price equal to or above the estimated fair value
per share of the Company's stock on the grant date. In the event that stock is
granted at an exercise price below the estimated fair market value of the
Company's stock at the grant date, the difference between the fair market value
of the Company's stock and the exercise price of the stock option is recorded as
deferred compensation. Deferred compensation is amortized to compensation
expense over the vesting period of the stock option. The Company has adopted the
disclosure requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), which requires net
income to be disclosed on a pro forma basis based on the fair value of the
options granted at the date of the grant.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which
is required to be adopted for fiscal years beginning after December 15, 1997.
This statement establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose financial statements.
This statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. During the years ended December 31, 1998 and 1999, there
were no such items.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Investments
and Hedging Activities", ("SFAS No. 133"). SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities and supercedes several
existing standards. SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not expect that the adoption of SFAS No. 133 will have a material impact on
its financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 provides specific
guidance, among other things, as to the recognition of revenue related to
up-front non-refundable fees and services charges received in connection with a
contractual arrangement. We have applied the provisions of SAB 101 for the year
ended December 31, 1999. As a result of the adoption of SAB 101, $140,642 of
revenue was deferred in 1999.
3. ACQUISITION
On September 30, 1999 the Company purchased all of the outstanding shares
of The Palmer Group ("TPG"). The aggregate purchase price of $608,486 consisted
of 77,205 of the Company's membership units with an estimated fair value of
$270,217 based on a per share value of $3.50, an additional payable of $109,783,
the assumption of liabilities of $210,724 and transaction fees of $17,762.
The acquisition of TPG has been accounted for using the purchase method of
accounting and, accordingly, the total purchase price has been allocated, based
on the Company's estimates of fair value, to the tangible and identifiable
intangible assets acquired and liabilities assumed on the acquisition date. The
F-54
<PAGE> 129
THE UNILINK GROUP, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
purchase price in excess of tangible and identifiable intangible assets and
liabilities assumed was allocated to goodwill. As a result of this acquisition,
the Company recorded goodwill of $83,594.
4. ACCOUNTS RECEIVABLE, TRADE
Trade accounts receivable consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Current trade accounts receivable........................... $ -- $45,639
Less: Allowance for doubtful accounts....................... -- (6,168)
------- -------
$ -- $39,471
======= =======
</TABLE>
During 1999, the Company acquired certain trade receivable, net of
allowances for doubtful accounts, in conjunction with the acquisition of TPG
(see Note 3). The provision for doubtful accounts was $6,168 for the year ended
December 31, 1999.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
-------- ---------
<S> <C> <C>
Furniture and equipment..................................... $ 3,569 $ 209,793
Computer equipment.......................................... 45,978 368,564
-------- ---------
49,547 578,357
Less: accumulated depreciation.............................. (27,341) (220,279)
-------- ---------
$ 22,206 $ 358,078
======== =========
</TABLE>
6. OPERATING LEASE
The Company leases its office facilities under a noncancelable operating
lease agreement entered into during 1999. Future minimum annual lease payments
under this lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
2000........................................................ $ 97,439
2001........................................................ 97,439
2002........................................................ 97,439
2003........................................................ 40,600
--------
Total minimum lease payments...................... $332,917
========
</TABLE>
Rent expense totaled $18,161 and $43,999 for 1998 and 1999, respectively.
F-55
<PAGE> 130
THE UNILINK GROUP, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. NOTES PAYABLE TO MEMBERS
Long-term debt at December 31, 1998 and 1999 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
----------- ---------
<S> <C> <C>
Convertible promissory notes; interest generally at 8% per
annum; due at various dates from January 1999 to December
1999...................................................... $ 862,500 $ --
Convertible loan from founder............................... 1,113,513 36,021
Collateralized convertible promissory note due August 27,
2001; interest of prime rate plus 2%...................... -- 500,000
Promissory note, interest at 12% per annum, due on demand... -- 250,000
Promissory notes, interest at 9% per annum, due October
2003...................................................... -- 97,433
----------- ---------
1,976,013 883,454
Less current portion........................................ (1,976,013) (383,454)
Less debt discount.......................................... -- (168,734)
----------- ---------
$ -- $ 331,266
=========== =========
</TABLE>
During 1998 and 1997 the Company issued various convertible promissory
notes amounting to $862,500 that were converted to common membership units
during 1999 as follows:
<TABLE>
<S> <C>
88,400 units at $1.24 per unit.............................. $110,000
60,000 units at $1.67 per unit.............................. 100,000
1,450 units at $1.72 per unit............................... 2,500
236,500 units at $1.82 per unit............................. 430,000
52,632 units at $1.90 per unit.............................. 100,000
40,000 units at $3.00 per unit.............................. 120,000
--------
Total loan converted.............................. $862,500
========
</TABLE>
The convertible loan from founder carries interest of 12%, is not
collateralized and is due on demand. During 1999, the majority of this note was
converted into membership units as follows:
<TABLE>
<S> <C>
Loan balance at December 31, 1998........................... $1,113,513
Additional loans during 1999................................ 555,931
Conversions during 1999:
444,444 units at $2.25 per unit........................... (1,000,000)
211,141 units at $3.00 per unit........................... (633,423)
----------
Loan balance at December 31, 1999........................... $ 36,021
==========
</TABLE>
On August 27, 1999, the Company issued $500,000 in a convertible note that
was due August 27, 2001 and bore an interest of prime rate plus 2% per annum
(10.5% as of December 31, 1999). This note is convertible at a price of $3.00
per unit any time on or before the maturity date. If on, or prior to the
conversion date, the Company sells or issues any units at a price below $3.00,
the conversion will then be at this reduced price. In connection with the note,
the Company also issued 166,667 detachable warrants to purchase additional
membership units at a price of $3.00 per unit. The warrants are exercisable at
any time through August 2002. The Company recorded a debt discount of $196,110
related to these warrants.
On November 1, 1999 the Company issued a promissory note payable of
$250,000 to one of the Company's members. The note bears interest of 12% and is
payable on demand. The note is collateralized by the assets of the Company's
founder.
F-56
<PAGE> 131
THE UNILINK GROUP, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLAN
In 1999, the Company started a retirement plan qualified under Section
401(k) of the Internal Revenue Code. Participants may elect to contribute a
portion of their annual compensation to the plan. The Company did not make any
contributions to the plan during the year ended December 31, 1999.
9. STOCK COMPENSATION
In April 1999, the Company adopted the 1999 unit incentive plan (the
"Plan") which provides for the grant of up to 996,000 units. The plan provides
for the grants of unit options, restricted unit awards and unit appreciation
rights to the managers, officers, key employees and consultants of the Company.
No restricted unit awards or unit appreciation rights were granted during the
year.
Options granted under the Plan are exercisable up to ten years from the
date of grant and vest over a period of four years from the date of grant.
The Company continues to apply Accounting Principles Board Opinion No. 25
and related interpretations in accounting for the Plan. The Company recognized
$17,135 in noncash compensation expense related to amortization of deferred
compensation expense during the year ended December 31, 1999. Had compensation
cost for the Plan been determined based on the fair value at the grant dates for
awards under the Plan consistent with the method of SFAS No. 123, the Company's
net loss for the years ended December 31, 1998 and 1999 would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Net loss available to common shareholders:
As reported............................................... $(1,037,095) $(3,486,024)
Pro forma................................................. (1,043,588) (3,545,386)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants: risk-free interest of 6%; expected lives of five
years; dividend yields of 0%; and volatility features of 0%.
A summary of stock options under the plan as of December 31, 1998 and 1999
and change during the years then ended is presented below:
<TABLE>
<CAPTION>
1998 1999
--------------------- ---------------------
WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICE OPTIONS OPTIONS
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.............. -- $ -- 75,000 $2.00
Granted..................................... 75,000 2.00 992,000 3.44
Cancelled................................... -- -- (71,000) 3.03
------ -------
Outstanding at end of year.................... 75,000 2.00 996,000 3.36
====== =======
Weighted average fair value of options
granted..................................... 0.52 0.83
</TABLE>
F-57
<PAGE> 132
THE UNILINK GROUP, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about the options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ---------------------
NUMBER WEIGHTED
OUTSTANDING AVERAGE WEIGHTED WEIGHTED
AT REMAINING AVERAGE SHARES AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE UNDERLYING EXERCISE
EXERCISE PRICE 1999 LIFE PRICE OPTIONS PRICE
- -------------- ------------ ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
$2.00............................... 75,000 8.33 $2.00 18,750 $2.00
3.00............................... 352,000 9.43 3.00 -- --
3.50............................... 471,000 9.92 3.50 -- --
5.00............................... 98,000 9.92 5.00 -- --
------- ---- ------
996,000 9.63 $3.36 18,750 $2.00
======= ==== ======
</TABLE>
10. SUBSEQUENT EVENTS
Acquisition of KeyPrestige, Inc.
On January 10, 2000, the Company acquired all of the outstanding shares of
KeyPrestige, Inc. ("KPI") in exchange for cash of $1,082,387, 371,429 of the
Company's membership units and a promissory note for $1,000,000 which bears
interest of 8% per annum, payable upon the first anniversary of the acquisition
date. The acquisition of KPI will be accounted for using the purchase method of
accounting.
Acquisition of the Company by BuildNet, Inc.
On January 18, 2000, BuildNet, Inc. ("BuildNet") purchased substantially
all of the assets and assumed certain liabilities of the Company in exchange for
a convertible note in the amount of $27,000,000 with interest of 8% per annum.
Principal and accrued interest on the note may be paid at any time on or before
January 18, 2002. The note payable is convertible into BuildNet's common stock
at the option of the holder at any time prior to the maturity date or the date
the note is repaid, if earlier. Conversion is mandatory upon the expiration of
any lock up period to which certain of BuildNet's investors are subject
following an initial public offering of BuildNet's common stock. The note shall
be converted at a rate of $4.40 per share of BuildNet's common stock, adjusted
for any stock splits or dividends, and is collateralized by the Company's assets
that were purchased.
F-58
<PAGE> 133
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
The McCosker Corporation
In our opinion, the accompanying balance sheet and the related statements
of operations, of shareholders' deficit and of cash flows present fairly, in all
material respects, the financial position of The McCosker Corporation (the
"Company") at December 31, 1998, and the results of its operations and its cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on the
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
As discussed in Note 9, substantially all of the assets of the Company were
acquired by BuildNet, Inc. on May 21, 1999.
/s/ PRICEWATERHOUSECOOPERS LLP
Raleigh, North Carolina
August 12, 1999
F-59
<PAGE> 134
THE MCCOSKER CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 168,964
Accounts receivable, net.................................. 1,510,938
Prepaid expenses and other current assets................. 76,112
----------
Total current assets.............................. 1,756,014
Property and equipment, net................................. 390,799
----------
Total assets...................................... $2,146,813
==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 676,120
Accrued expenses.......................................... 283,090
Deferred revenue.......................................... 1,627,836
Due to affiliates......................................... 1,718,018
----------
Total current liabilities......................... 4,305,064
----------
Commitments (Notes 7 and 8)
Shareholders' deficit:
Common stock, no par value; 2,943,000 shares authorized,
issued and outstanding................................. 2,943,000
Accumulated deficit....................................... (5,101,251)
----------
Total shareholders' deficit....................... (2,158,251)
----------
Total liabilities and shareholders' deficit....... $2,146,813
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE> 135
THE MCCOSKER CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Revenues.................................................... $10,457,542
Cost of revenues............................................ 7,498,630
-----------
Gross profit...................................... 2,958,912
-----------
Operating expenses:
Selling, general and administrative....................... 1,720,501
Research and development.................................. 2,146,683
-----------
Total operating expenses.......................... 3,867,184
-----------
Operating loss.................................... (908,272)
Interest and other income................................... 26,244
Interest expense............................................ (196,126)
-----------
Net loss.......................................... $(1,078,154)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE> 136
THE MCCOSKER CORPORATION
STATEMENT OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance as of December 31, 1997................ 2,943,000 $2,943,000 $(4,023,097) $(1,080,097)
Net loss............................. -- -- (1,078,154) (1,078,154)
--------- ---------- ----------- -----------
Balance as of December 31, 1998................ 2,943,000 $2,943,000 $(5,101,251) $(2,158,251)
========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE> 137
THE MCCOSKER CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,078,154)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 99,113
Provision for doubtful accounts........................ 39,179
Interest accrued on due to affiliate................... 51,088
Changes in operating assets and liabilities:
Accounts receivable.................................. (180,258)
Other assets......................................... (38,860)
Accounts payable..................................... 113,891
Accrued expenses..................................... (50,237)
Deferred revenue..................................... 632,435
-----------
Net cash used in operating activities............. (411,803)
-----------
Cash flows from investing activities:
Purchases of property and equipment....................... (275,293)
-----------
Net cash used in investing activities............. (275,293)
-----------
Cash flows from financing activities:
Borrowings from affiliates................................ 1,666,930
Repayment of borrowings from affiliates................... (832,828)
-----------
Net cash provided by financing activities......... 834,102
-----------
Net increase in cash and cash equivalents......... 147,006
Cash and cash equivalents:
Beginning of year......................................... 21,958
-----------
End of year............................................... $ 168,964
===========
Supplemental disclosures:
Cash paid for interest.................................... $ 2,404
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE> 138
THE MCCOSKER CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
The McCosker Corporation (the "Company") was incorporated on November 5,
1992, and is a developer of integrated back office software systems designed for
the homebuilder segment of the residential construction industry. The Company is
located in Walnut Creek, California.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition and Deferred Revenue
The Company's revenues are derived from software licenses and software
related services. The Company adopted American Institute of Public Accountants
("AICPA") Statement of Position ("SOP") No. 97-2, "Software Revenue
Recognition," effective January 1, 1997. The Company adopted SOP No. 98-9,
"Modification of SOP No. 97-2, Software Revenue Recognition, with Respect to
Certain Transactions," effective January 1, 1998. The adoption of these
statements did not have a material effect on the timing of the Company's revenue
recognition.
Revenue includes fees for software licenses, related professional services,
and maintenance and support services. Revenue from software contracts is
accounted for principally by the percentage of completion method, whereby
revenue is recognized based on the estimated stage of completion of individual
contracts. Professional service revenue includes system planning and
implementation and training, which is recognized as the services are performed.
Revenue from maintenance and support fees represent the ongoing customer support
and free product updates, which are included in deferred revenue and amortized
ratably into revenue over the term of the maintenance period.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of costs, including salaries
and sales commissions, of all personnel involved in the sales process. Sales and
marketing expenses also include costs of advertising, trade shows and certain
indirect costs. All costs of advertising the services and products offered by
the Company are expensed as incurred. Advertising expense totaled $76,447 for
the year ended December 31, 1998.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
remaining maturity at the date of purchase of three months or less to be cash
equivalents.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization
of property and equipment is charged to operations over their estimated useful
lives, primarily using accelerated methods.
F-64
<PAGE> 139
THE MCCOSKER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The estimated useful lives are as follows:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 7 years
Computer equipment.......................................... 3 - 5 years
Automobiles................................................. 3 - 5 years
</TABLE>
Expenditures for repairs and maintenance are charged to expense as
incurred. Upon retirement or sale, the cost of assets disposed and the related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in operations.
Research and Development Expenses
Costs incurred in the research and development of the Company's products
are expensed as incurred.
Capitalized Software Costs
Software development costs are required to be capitalized beginning when a
product's technological feasibility has been established and ending when a
product is available for general release to customers. The Company's policy is
to amortize software development costs on a product-by-product basis at the
greater of the amount computed using (a) the ratio of current gross revenues for
a product to the total of current and anticipated future gross revenues or (b)
the straight-line method over the remaining estimated economic life of the
product. To date, the achievement of technological feasibility and the general
availability of such software have substantially coincided; therefore software
development costs qualifying for capitalization have been insignificant.
Accordingly, the Company has not capitalized any costs for software developed
internally.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable and
accounts payable at December 31, 1998 approximated their fair value due to the
short-term nature of these items. The fair value of the Company's amounts due to
affiliate at December 31, 1998 approximated their carrying values, as the
interest rates on the amounts due to affiliate approximated market rates.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its property and equipment and
intangible assets in accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," ("SFAS No. 121"). SFAS No. 121 requires recognition
of impairment of long-lived assets in the event the net book value of such
assets exceeds the future undiscounted cash flows attributable to such assets or
the business to which such assets relate. No impairments were required to be
recognized during the years ended December 31, 1998.
Concentrations of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, accounts
receivable and investments. Cash and cash equivalents are deposited with high
credit quality financial institutions which invest primarily in U.S. Government
securities, highly rated commercial paper and certificates of deposit guaranteed
by banks which are members of the Federal Insurance Corporation.
The Company's accounts receivable result primarily from sales to
homebuilders located throughout the United States. The Company routinely
assesses its customers and the industry in which they operate. No single
customer accounted for more than 10% of the Company's revenues during the years
ended
F-65
<PAGE> 140
THE MCCOSKER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1998. Concentrations of credit risk with respect to accounts
receivable are limited due to the large number of customers comprising the
Company's customer base and because all customers are located in the United
States. There were no significant individual customer balances as of December
31, 1998.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," ("SFAS No. 131"). This statement
establishes standards for the way companies report information about operating
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by SFAS No. 131 are effective for the year
ended December 31, 1998. The Company has determined that it does not have any
separately reportable operating segments as of December 31, 1998.
Income taxes
The Company was incorporated as a Sub-Chapter S corporation under the
Internal Revenue Code. All income of the Company accrues directly to the
stockholders and all income taxes are paid by the stockholders at the individual
level of taxation; therefore, the Company pays no federal or state income taxes.
Comprehensive Income (Loss)
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
("SFAS No. 130"). SFAS No. 130 establishes standards for reporting comprehensive
income and its components in financial statements. Comprehensive income, as
defined, includes all changes in equity during a period from non-owner sources.
The Company had no items of other comprehensive income for the years ended
December 31, 1998.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Investments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities and supercedes several
existing standards. SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not expect that the adoption of SFAS No. 133 will have a material impact on
the consolidated financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1998:
<TABLE>
<S> <C>
Computer equipment.......................................... $ 624,359
Furniture and fixtures...................................... 180,993
Automobiles................................................. 28,846
---------
834,198
Less accumulated depreciation............................... (443,399)
---------
$ 390,799
=========
</TABLE>
F-66
<PAGE> 141
THE MCCOSKER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31, 1998:
<TABLE>
<S> <C>
Accounts receivable......................................... $1,756,641
Less: Allowance for doubtful accounts....................... (245,703)
----------
$1,510,938
==========
</TABLE>
Write-offs of accounts receivable were $198,160 for the year ended December
31, 1998.
5. EMPLOYEE BENEFIT PLANS
The Company provides its employees a retirement plan qualified under
Section 401(k) of the Internal Revenue Code of 1986, as amended, covering
substantially all full-time employees who meet certain minimum age and
employment criteria. The Company may make contributions to the plan at its
discretion. The Company did not make contributions to the plan during the year
ended December 31, 1998.
6. DUE TO AFFILIATES
The Company receives cash advances from an affiliated company (the
"Affiliated Company") to help fund operations. The advances bear interest at a
rate of 8% per annum. The Affiliated Company is owned by a former officer of the
Company, who is related to the Company's current President and Chief Executive
Officer. At December 31, 1998, the due to affiliate balance was made up of the
following amounts:
<TABLE>
<S> <C>
Short-term cash advance from affiliate...................... $1,666,930
Accrued interest on cash advance............................ 51,088
----------
Total due to affiliate balance.................... $1,718,018
==========
</TABLE>
During the year ended December 31, 1998, the Company received cash advances
from and made payments to this affiliate of $1,666,930 and $832,828,
respectively.
7. LEASE OBLIGATIONS
The Company leases its office facilities and certain equipment under
operating lease agreements. Future lease payments under noncancelable operating
leases, exclusive of related party rental payments discussed in Note 8, at
December 31, 1998 were as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1999........................................................ $ 133,120
2000........................................................ 111,422
2001........................................................ 53,457
2002........................................................ 38,527
2003........................................................ 36,239
Thereafter.................................................. 1,298,554
----------
Total minimum lease payments...................... $1,671,319
==========
</TABLE>
Rent expense for the year ended December 31, 1998 was $142,810.
F-67
<PAGE> 142
THE MCCOSKER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED PARTY TRANSACTIONS
The Company rents office space from a company owned by the Company's
majority shareholder. During 1997, the Company received a rent concession which
was recorded as deferred rent and is being amortized over the remaining life of
the lease. As of December 31, 1998, future minimum payments under this rental
agreement were as follows:
<TABLE>
<S> <C>
1999........................................................ $ 360,000
2000........................................................ 360,000
2001........................................................ 360,000
2002........................................................ 360,000
2003........................................................ 360,000
Thereafter.................................................. 1,290,000
----------
$3,090,000
==========
</TABLE>
During the year ended December 31, 1998, the Company recognized rent
expense of $297,888 related to this agreement.
9. SUBSEQUENT EVENTS
On May 21, 1999 (the "closing date"), BuildNet, Inc. ("BuildNet") purchased
substantially all of the assets of the Company in exchange for a cash payment of
$2,554,393 and a promissory note for $2,750,000. Under the terms of this note,
BuildNet will make two equal payments of $1,375,000, plus 8% interest, on the
first and second anniversary of the closing date.
F-68
<PAGE> 143
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The unaudited pro forma combined statement of operations data for the year
ended December 31, 1999 combine the historical statements of operations of
BuildNet, NxTrend, UniLink, McCosker, FAST, Systems Analysis, Maxwell and Key
Prestige, as if the acquisitions by BuildNet of NxTrend, UniLink, McCosker,
FAST, Systems Analysis, and Maxwell and the acquisition by BuildNet of Key
Prestige had been completed on January 1, 1999.
The information in the pro forma combined statement of operations for the
year ended December 31, 1999 has been derived from the audited statements of
operations for the year ended December 31, 1999 of BuildNet, NxTrend and UniLink
included elsewhere in this prospectus, the unaudited statements of operations of
McCosker, FAST, Systems Analysis, and Maxwell for the periods during 1999 prior
to dates of acquisition, and the unaudited statements of operations of Key
Prestige for the year ended December 31, 1999.
The acquisitions the Company made were accounted for using the purchase
method of accounting. The purchase method of accounting allocates the aggregate
purchase price to the assets acquired and liabilities assumed based upon their
respective fair values. The excess of purchase price over the fair value of
tangible and identifiable intangible assets acquired, net of liabilities
assumed, has been reflected as goodwill. Management believes that the
preliminary allocations set forth herein are reasonable; however, in some cases
the final allocations will be based upon the Company's valuations and other
studies that are not yet complete. As a result, the allocations set forth herein
are subject to revision as additional information becomes available, and such
revised allocations could differ from those set forth herein.
The unaudited pro forma combined statement of operations are based upon
currently available information and assumptions and estimates which management
believes are reasonable. This statement is presented for comparative purposes
only and does not purport to be indicative of the actual results of operations
that might have occurred or expected future results. You should read the
unaudited pro forma combined financial data in conjunction with our consolidated
financial statements and the related notes and the audited financial statements
and the related notes of the companies we acquired included elsewhere in this
prospectus.
The pro forma net loss per common share assumes the following:
- the conversion of all outstanding shares of the Company's preferred
stock into shares of the Company's common stock upon closing of this
offering;
- the assumed exercise of warrants to purchase 2,890,960 shares of the
Company's common stock that will expire if not exercised prior to the
consummation of this offering;
- the issuance, and reservation for issuance upon exercise of
outstanding options, of 25,954,659 shares of the Company's common
stock and notes payable in the aggregate amount of $32.5 million to
the former stockholders of NxTrend Technology, Inc. in connection with
the Company's pending acquisition of NxTrend, the assumed conversion
of $4.4 million of the principal of the notes payable into
shares of common stock (assuming a conversion price
equal to the midpoint of the range set forth on the front cover page
of this prospectus);
- the issuance of a note payable in the amount of $27 million in
connection with the Company's acquisition of The UniLink Group, LLC
and the assumed conversion of the principal balance of this note
payable into 6,136,363 shares of the Company's common stock; and
- the issuance of a note payable in the amount of $5.9 million in
connection with the Company's purchase of software from J.D. Edwards
World Source Company and the assumed conversion of this note payable
into shares of the Company's common stock (assuming a
conversion price equal to the midpoint of the range set forth on the
front cover page of this prospectus).
F-69
<PAGE> 144
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------------------
SYSTEMS
CONSOLIDATED NXTREND UNILINK MCCOSKER FAST ANALYSIS MAXWELL
BUILDNET (AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ --------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $ 14,601 $59,584 $ 208 $4,625 $2,003 $ 265 $627
Cost of revenues
(A)................. 8,559 31,243 283 3,337 737 74 100
-------- ------- ------- ------ ------ ----- ----
Gross profit...... 6,042 28,341 (75) 1,288 1,266 191 527
-------- ------- ------- ------ ------ ----- ----
Selling, general, and
administrative(A)... 11,776 14,091 2,262 1,006 1,360 79 184
Research and
development (A)..... 9,831 7,298 968 884 269 295 173
Stock based
compensation........ 666 1 17 -- -- -- --
Amortization of
intangible assets... 1,755 2,048 4 -- 66 -- --
-------- ------- ------- ------ ------ ----- ----
Total
operating
expenses..... 24,028 23,438 3,251 1,890 1,695 374 357
-------- ------- ------- ------ ------ ----- ----
Operating loss....... (17,986) 4,903 (3,326) (602) (429) (183) 170
Net interest
(expense) income.... (10,515) (368) (160) (75) (31) 3 (6)
-------- ------- ------- ------ ------ ----- ----
(Loss) income before
income taxes and
extraordinary
item................ (28,501) 4,535 (3,486) (677) (460) (180) 164
Provision for income
taxes............... -- (1,653) -- -- -- -- --
-------- ------- ------- ------ ------ ----- ----
(Loss) income before
extraordinary
item................ $(28,501) $ 2,882 $(3,486) $ (677) $ (460) $(180) $164
Extraordinary loss... (28) -- -- -- -- -- --
-------- ------- ------- ------ ------ ----- ----
Net (loss) income.... $(28,529) $ 2,882 $(3,436) $ (677) $ (460) $(180) $164
======== ======= ======= ====== ====== ===== ====
Net loss per common
share - basic and
diluted.............
Weighted average
common shares
outstanding.........
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------
PRO FORMA PRO FORMA
KEY PRESTIGE ADJUSTMENTS COMBINED
(UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ----------- -----------
<S> <C> <C> <C>
Revenues............. $3,893 $ -- $ 85,806
Cost of revenues
(A)................. 1,503 -- 45,836
------ -------- --------
Gross profit...... 2,390 -- 39,970
------ -------- --------
Selling, general, and
administrative(A)... 2,030 -- 32,788
Research and
development (A)..... -- -- 19,718
Stock based
compensation........ -- 684
Amortization of
intangible assets... -- 38,523(B) 42,396
------ -------- --------
Total
operating
expenses..... 2,030 38,523 95,586
------ -------- --------
Operating loss....... 360 (38,523) (55,616)
Net interest
(expense) income.... (6) --) (11,158)
------ -------- --------
(Loss) income before
income taxes and
extraordinary
item................ 354 (38,523) (66,774)
Provision for income
taxes............... (135) -- (1,788)
------ -------- --------
(Loss) income before
extraordinary
item................ $ 219 $(38,523) $(68,562)
Extraordinary loss... -- -- (28)
------ -------- --------
Net (loss) income.... $ 219 $(38,523) $(68,590)
====== ======== ========
Net loss per common
share - basic and
diluted.............
Weighted average
common shares
outstanding.........
</TABLE>
- ---------------
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA
The following pro forma adjustments were made to our consolidated statements of
operations to arrive at our unaudited pro forma combined statement of operations
data:
(A) Cost of revenues; selling, general and administrative expenses; and research
and development expenses are shown exclusive of amortization of intangible
assets, which are presented on a separate line.
(B) We recorded additional amortization of intangible assets and goodwill
related to the acquisitions of NxTrend, UniLink, McCosker, FAST, Systems
Analysis, Maxwell and Key Prestige for all 12 months of 1999.
F-70
<PAGE> 145
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the registrant in connection with the sale of
common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC registration fees....................................... $60,720
NASD fees................................................... 23,500
Nasdaq National Market listing fees......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses.................................. 5,000
Transfer agent fees......................................... *
Miscellaneous and registrant's costs........................ *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides,
in effect, that any person made a party to any action by reason of the fact that
he is or was a director, officer, employee or agent of BuildNet may and, in
certain cases, must be indemnified by BuildNet against, in the case of a
non-derivative action, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorneys' fees) incurred by him as a result of
such action, and in the case of a derivative action, against expenses (including
attorneys' fees), if in either type of action he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
BuildNet. This indemnification does not apply, in a derivative action, to
matters as to which it is adjudged that the director, officer, employee or agent
is liable to BuildNet, unless upon court order it is determined that, despite
such adjudication of liability, but in view of all the circumstances of the
case, he is fairly and reasonably entitled to indemnity for expenses, and, in a
non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
BuildNet's' certificate of incorporation, as amended, provides that no
director of BuildNet shall be liable to BuildNet or its stockholders for
monetary damages for breach of fiduciary duty as a director to the fullest
extent permitted by the DGCL.
BuildNet's certificate of incorporation, as amended, also provides that
BuildNet shall indemnify to the fullest extent permitted by Delaware law any and
all of its directors and officers, or former directors and officers, or any
person who may have served at BuildNet's request as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise.
Reference is made to the underwriting agreement to be filed as Exhibit 1.1
hereto, pursuant to which the Underwriters have agreed to indemnify officers and
directors of BuildNet against certain liabilities under the Securities Act.
BuildNet intends to purchase additional directors and officers liability
for indemnification of directors and officers.
II-1
<PAGE> 146
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 19, 1997, BuildNet, Inc., a North Carolina corporation and
predecessor of the Registrant, issued a convertible promissory note in the
principal amount of $100,000 and a stock purchase warrant exercisable for 28,580
shares of Series A preferred stock, at an exercise price of $0.8745 per share,
to one accredited investor. This warrant expires on the earliest to occur of
September 30, 2001, the acquisition of the Registrant, or the closing of the
Registrant's initial public offering. These issuances were made by BuildNet
North Carolina in reliance upon the exemption from registration under Section
4(2) of the Securities Act.
On July 23, 1997, BuildNet North Carolina issued a convertible promissory
note in the principal amount of $100,000 and a stock purchase warrant
exercisable for 114,360 shares of Series A preferred stock, at an exercise price
of $0.8745 per share, to one accredited investor. This warrant expires on the
earliest to occur of July 31, 2002, the acquisition of the Registrant, or the
closing of the Registrant's initial public offering. These issuances were made
by BuildNet North Carolina in reliance upon the exemption from registration
under Section 4(2) of the Securities Act.
On October 8, 1997, BuildNet North Carolina issued 116,840 shares of Series
A preferred stock to one accredited investor for an aggregate purchase price of
$100,000 pursuant to the terms of a Series A preferred stock purchase agreement,
as amended. The shares of Series A preferred stock were issued by BuildNet North
Carolina in reliance upon the exemption from registration under Section 4(2) of
the Securities Act.
On October 8, 1997, BuildNet North Carolina issued stock purchase warrants
exercisable for an aggregate 759,540 shares of common stock, at an exercise
price of $0.0005 per share, to two accredited investors pursuant to the terms of
a credit facility. The warrants expire on October 8, 2007 and were issued by
BuildNet North Carolina in reliance upon the exemption from registration under
Section 4(2) of the Securities Act.
On October 8, 1997, BuildNet North Carolina issued a stock purchase warrant
exercisable for 146,460 shares of common stock, at an exercise price of $1.1265
per share, to one accredited investor. This warrant expires on the earliest to
occur of October 8, 2002, the acquisition of the Registrant or the closing of
the Registrant's initial public offering. The warrant was issued by BuildNet
North Carolina in reliance upon the exemption from registration under Section
4(2) of the Securities Act.
On December 30, 1997, BuildNet North Carolina issued 373,080 shares of
Series A preferred stock to three accredited investors for an aggregate purchase
price of $358,903 pursuant to the terms of loan conversion and stock issuance
agreements. The shares of Series A preferred stock were issued by BuildNet North
Carolina in reliance upon the exemption from registration under Section 4(2) of
the Securities Act.
On April 24, 1998, BuildNet North Carolina issued convertible promissory
notes in the aggregate principal amount of $2,000,000 and a stock purchase
warrant exercisable for 607,680 shares of common stock, at an exercise price of
$0.0005 per share, to one accredited investor pursuant to the terms of a credit
facility. This warrant expires on April 24, 2008, and these issuances were made
by BuildNet North Carolina in reliance upon the exemption from registration
under Section 4(2) of the Securities Act.
On October 6, 1998, BuildNet North Carolina issued convertible promissory
notes in the aggregate principal amount of $364,128 and stock purchase warrants
exercisable for an aggregate 105,128 shares of Series B preferred stock, at an
exercise price of $0.51835 per share, to two accredited investors. These
warrants expire on the earliest to occur of September 30, 2008, the acquisition
of the Registrant or the closing of the Registrant's initial public offering.
These issuances were made by BuildNet North Carolina in reliance upon the
exemption from registration under Section 4(2) of the Securities Act.
On October 8, 1998, BuildNet North Carolina issued a stock purchase warrant
exercisable for 608,440 shares of common stock, at an exercise price of $0.0005
per share, to one accredited investor pursuant to the terms of a credit
facility. This warrant expires on October 8, 2008 and was issued by BuildNet
North Carolina in reliance upon the exemption from registration under Section
4(2) of the Securities Act.
II-2
<PAGE> 147
On November 12, 1998, BuildNet North Carolina issued convertible promissory
notes in the aggregate principal amount of $500,000 and stock purchase warrants
exercisable for an aggregate 964,560 shares of common stock, at an exercise
price of $0.0005 per share, to two accredited investors. These warrants expire
on the earliest to occur of November 15, 2008, the acquisition of the Registrant
or the closing of the Registrant's initial public offering. These issuances were
made by BuildNet North Carolina in reliance upon the exemption from registration
under Section 4(2) of the Securities Act.
On December 14, 1998, BuildNet North Carolina issued a convertible
promissory note in the principal amount of $250,000 and a stock purchase warrant
exercisable for 482,280 shares of common stock, at an exercise price of $0.0005
per share, to one accredited investor. This warrant expires on the earliest to
occur of November 15, 2008, the acquisition of the Registrant or the closing of
the Registrant's initial public offering. These issuances were made by BuildNet
North Carolina in reliance upon the exemption from registration under Section
4(2) of the Securities Act.
On February 22, 1999, BuildNet North Carolina issued a convertible
promissory note in the principal amount of $500,000 and a stock purchase warrant
exercisable for 270,000 shares of common stock, at an exercise price of $0.0005
per share, to one accredited investor. This warrant expires on the earliest to
occur of February 15, 2009, the acquisition of the Registrant or the closing of
the Registrant's initial public offering. These issuances were made by BuildNet
North Carolina in reliance upon the exemption from registration under Section
4(2) of the Securities Act.
On April 9, 1999, BuildNet North Carolina issued convertible promissory
notes in the aggregate principal amount of $1,000,000 and stock purchase
warrants exercisable for an aggregate 540,000 shares of common stock, at an
exercise price of $0.0005 per share, to two accredited investors. These warrants
expire on the earliest to occur of February 15, 2009, the acquisition of the
Registrant or the closing of the Registrant's initial public offering. These
issuances were made by BuildNet North Carolina in reliance upon the exemption
from registration under Section 4(2) of the Securities Act.
On May 10, 1999, BuildNet North Carolina issued convertible promissory
notes in the aggregate principal amount of $500,000 and stock purchase warrants
exercisable for an aggregate 270,000 shares of common stock, at an exercise
price of $0.0005 per share, to three accredited investors. These warrants expire
on the earliest to occur of February 15, 2009, the acquisition of the Registrant
or the closing of the Registrant's initial public offering. These issuances were
made by BuildNet North Carolina in reliance upon the exemption from registration
under Section 4(2) of the Securities Act.
On May 19, 1999, BuildNet North Carolina issued 19,711,360 shares of common
stock to five individual investors and one institutional investor pursuant to an
agreement and plan of merger, in exchange for all of the outstanding capital
stock of The F.A.S.T. Management Group, Inc. The issuance of such common stock
was made by BuildNet North Carolina in reliance upon the exemption from
registration under Section 4(2) of the Securities Act.
Between May and December 1999, BuildNet North Carolina issued an aggregate
69,031,920 shares of Series B preferred stock to 15 accredited investors for an
aggregate purchase price of $35,782,696 pursuant to the terms of a Series B
preferred stock purchase agreement, as amended. These shares of Series B
preferred stock were issued by BuildNet North Carolina in reliance upon the
exemption from registration under the Securities Act provided by Rule 506 of
Regulation D thereunder.
On May 21, 1999, BuildNet North Carolina issued a stock purchase warrant
exercisable for up to 5,426,380 shares of Series B preferred stock, at an
exercise price of $0.51835 per share, to one accredited investor. This warrant
expires on the earliest to occur of May 21, 2009, the acquisition of the
Registrant or the closing of the Registrant's initial public offering. This
warrant was issued by BuildNet North Carolina in reliance upon the exemption
from registration under Section 4(2) of the Securities Act.
On May 21, 1999, BuildNet North Carolina issued a stock purchase warrant
exercisable for 240,000 shares of common stock, at an exercise price of $0.0005
per share, to one accredited investor pursuant to the terms of a credit
facility. This warrant expires on May 21, 2004 and was issued by BuildNet North
Carolina in reliance upon the exemption from registration under Section 4(2) of
the Securities Act.
II-3
<PAGE> 148
On May 21, 1999, BuildNet North Carolina issued a stock purchase warrant
exercisable for 212,200 shares of common stock, at an exercise price of $0.0005
per share, to one accredited investor. This warrant expires on the earliest to
occur of May 21, 2009, the acquisition of the Registrant or the closing of the
Registrant's initial public offering. This warrant was issued by BuildNet North
Carolina in reliance upon the exemption from registration under Section 4(2) of
the Securities Act.
On July 21, 1999, BuildNet North Carolina issued a stock purchase warrant
exercisable for 20,000 shares of common stock, at an exercise price of $1.1265
per share, to one accredited investor. This warrant expires on the earliest to
occur of April 24, 2003, the acquisition of the Registrant or the closing of the
Registrant's initial public offering. This warrant was issued by BuildNet North
Carolina in reliance upon the exemption from registration under Section 4(2) of
the Securities Act.
Between October and December 1999, BuildNet North Carolina issued an
aggregate 24,322,619 shares of Series C preferred stock to 157 accredited
investors for an aggregate purchase price of $107,019,524 pursuant to the terms
of a Series C preferred stock purchase agreement. These shares of Series C
preferred stock were issued by BuildNet North Carolina in reliance upon the
exemption from registration under the Securities Act provided by Rule 506 of
Regulation D thereunder.
On January 18, 2000, BuildNet North Carolina issued a convertible
promissory note in the principal amount of $27,000,000 to one accredited
investor. This convertible promissory note is convertible into shares of common
stock of the Registrant at a conversion price of $4.40 per share and was issued
by BuildNet North Carolina in reliance upon the exemption from registration
under Section 4(2) of the Securities Act.
On January 31, 2000, BuildNet North Carolina issued a convertible
promissory note in the principal amount of $5,850,000 to one accredited
investor. This convertible promissory note is convertible into shares of common
stock of the Registrant at a conversion price per share equal to the public
offering price set forth on the cover page of the prospectus and was issued by
BuildNet North Carolina in reliance upon the exemption from registration under
Section 4(2) of the Securities Act.
In February 2000, BuildNet North Carolina issued stock purchase warrants
exercisable for an aggregate 5,000,000 shares of Series C preferred stock, at an
exercise price of $4.40 per share, to six accredited investors. These warrants
expire three years from their issue date and were issued by BuildNet North
Carolina in reliance upon the exemption from registration under Section 4(2) of
the Securities Act.
Upon consummation of the NxTrend merger, BuildNet North Carolina will issue
25,954,659 shares of common stock to 43 investors pursuant to the agreement and
plan of merger, in exchange for all of the outstanding capital stock of NxTrend
Technology, Inc. The issuance of such common stock will be made by BuildNet
North Carolina in reliance upon the exemption from registration under the
Securities Act provided by Rule 506 of Regulation D thereunder.
In March 2000, BuildNet North Carolina issued stock purchase warrants
exercisable for an aggregate of 2,000,000 shares of common stock and 1,000,000
shares of Series C preferred stock, all at an exercise price of $4.40 per share,
to nine accredited investors. These warrants expire three years from their issue
date and were issued by BuildNet North Carolina in reliance upon the exemption
from registration under Section 4(2) of the Securities Act.
Since March 1, 1997 the Registrant has issued, assumed, and in connection
with the NxTrend merger, will assume, options to purchase an aggregate of
36,207,474 shares of common stock pursuant to the Registrant's stock plans at an
average exercise price of $0.53 per share. The Registrant has also issued an
aggregate of 16,409,316 shares of common stock to various employees upon the
exercise of options granted pursuant to the Registrant's stock plans for an
aggregate consideration of $2,434,211, at an average exercise price of $0.15 per
share. These grants of options, and the sales of common stock upon the exercise
of these options, were made in reliance on the exemptions from registration
under the Securities Act provided by Rule 701 thereunder.
II-4
<PAGE> 149
The following table sets forth information regarding these grants.
<TABLE>
<CAPTION>
YEAR OF GRANT OR ASSUMPTION PLAN SECURITIES UNDERLYING OPTION AVERAGE EXERCISE PRICE
--------------------------- ---- ---------------------------- ----------------------
<S> <C> <C> <C>
1997 1997 Plan 1,396,480 $0.005
1998 1997 Plan 919,680 0.005
1999 1999 Plan 26,696,200 0.49
1999 FAST Plan 1,299,833 0.19
2000 1999 Plan 558,300 2.94
2000 NxTrend Plan 5,336,981 0.78
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<C> <C> <S>
1.1* -- Form of Underwriting Agreement
2.1* -- Agreement and Plan of Merger dated February 21, 2000, by and
among the Company, NTI Acquisition Corp., NxTrend
Technology, Inc. and representatives of the stockholders of
NxTrend named therein
2.2* -- Agreement and Plan of Merger, dated , 2000, by and
between Buildnet, Inc., a North Carolina corporation and
BuildNet, Inc., a Delaware corporation
3.1* -- Amended and Restated Certificate of Incorporation of
Registrant
3.2* -- Form of Amended and Restated Certificate of Incorporation of
Registrant
3.3* -- Form of Amended and Restated Bylaws of Registrant
4.1* -- Specimen certificate for shares of common stock
4.2 -- Amended and Restated Investor Rights Agreement dated May 21,
1999, between the Registrant and the holders of stock and
warrants to purchase stock of the Registrant named therein,
as amended
4.3 -- Series C Investor Rights Agreement dated October 29, 1999,
between the Registrant and the holders of stock of the
Registrant named therein, as amended of the Registrant and
the stockholders of NxTrend Technology, Inc. named therein
5.1* -- Opinion of Wyrick Robbins Yates & Ponton LLP
10.1 -- BuildNet, Inc. 1997 Stock Plan
10.2 -- BuildNet, Inc. 1999 Stock Plan
10.3 -- The F.A.S.T. Management Group, Inc. 1997 Stock Option Plan
10.4* -- NxTrend Technology, Inc. 1999 Amended and Restated Equity
Incentive Plan
10.5 -- Stock Purchase Warrant dated October 8, 1997, issued by the
Registrant to Petra Capital, LLC
10.6 -- Stock Purchase Warrant dated October 8, 1997, issued by the
Registrant to Piedmont Venture Partners Limited Partnership
10.7* -- Stock Purchase Warrant dated April 24, 1998, issued by the
Registrant to Piedmont Venture Partners Limited Partnership
10.8 -- Stock Purchase Warrant dated October 8, 1998, issued by the
Registrant to Petra Capital, LLC
10.9 -- Stock Purchase Warrants dated November 5, 1998, issued by
The F.A.S.T. Management Group, a wholly owned subsidiary of
the Registrant, to Deerwood Enterprises, Ltd.
10.10 -- Stock Purchase Warrant dated May 21, 1999, issued by the
Registrant to Petra Capital, LLC
10.11** -- Stock Purchase Warrant dated May 21, 1999, issued by the
Registrant to GE Capital Equity Investments, Inc.
10.12 -- Form of Founding Member Agreement
10.13 -- Form of Builder Incentive Series C Preferred Stock Purchase
Warrant
</TABLE>
II-5
<PAGE> 150
<TABLE>
<C> <C> <S>
10.14 -- Employment Agreement dated May, 1999, between the Registrant
and Nathan P. Morton
10.15 -- Employment Agreement dated April 2, 1999, between the
Registrant and Bayard M. Atwood, III
10.16 -- Employment Agreement dated May 19, 1999, between the
Registrant and Keith T. Brown
10.17 -- Employment Agreement dated May 19, 1999, between the
Registrant and Charles M. Cosby
10.18 -- Employment Agreement dated August 31, 1999, between the
Registrant and Peter B. Drayson
10.19 -- Employment Agreement dated August 31, 1999, between the
Registrant and Steven C. Thompson
10.20 -- Employment Agreement dated September 27, 1999, between the
Registrant and Stephen L. Holcombe
10.21 -- Employment Agreement dated September 27, 1999, between the
Registrant and David F. Russo
10.22** -- Master Services Agreement dated December 18, 1998, between
the Registrant and Electronic Data Systems Corporation
10.23** -- Internet Development, Marketing and Distribution Agreement
dated as of May 21, 1999, between the Registrant and General
Electric Company
10.24 -- Subordinated Convertible Promissory Note dated January 18,
2000, issued by the Registrant to TUG Liquidation, LLC
10.25 -- Secured Convertible Promissory Note dated January 31, 2000,
issued by the Registrant to J.D. Edward World Source Company
10.26** -- ABA Net Branch and Member Website Development Agreement,
dated February 2000, between Registrant and mortgage.com
10.27** -- Internet Marketing and Co-branded Website Development
Agreement, dated February 2000, between Registrant and
mortgage.com
10.28** -- Marketing Agreement, dated February 2000, between Registrant
and mortgage.com
16.1 -- Letter re Change in Certifying Accountant
21.1 -- List of Subsidiaries
23.1 -- Consents of PricewaterhouseCoopers LLP
23.2 -- Consent of Wyrick Robbins Yates & Ponton LLP (included in
Exhibit 5.1)
24.1 -- Power of Attorney (see page II-8)
27.1 -- Financial Data Schedule (for SEC use only)
99.1 -- Consent of director nominee
</TABLE>
- ---------------
* To be filed in amendment.
** Confidential treatment requested.
(b) Financial Statement Schedules.
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the Financial Statements or the
related Notes.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter 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 foregoing provisions, or otherwise
II-6
<PAGE> 151
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 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 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 Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act, 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) of 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at this time shall
be deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 152
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 Raleigh, State of North
Carolina, on this 17th day of March 2000.
BUILDNET, INC.
By: /s/ NATHAN P. MORTON
------------------------------------
Nathan P. Morton
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and/or officers of BuildNet, Inc. (the
"Company"), hereby severally constitute and appoint Nathan P. Morton and Stephen
L. Holcombe, and each of them individually, with full powers of substitution and
resubstitution, our true and lawful attorneys, with full powers to them and each
of them to sign for us, in our names and in the capacities indicated below, the
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission, and any and all amendments to said Registration Statement (including
post-effective amendments), and any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, in connection with the
registration under the Securities Act of 1933, as amended, of equity securities
of the Company, and to file or cause to be filed the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys, 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 connection therewith, as fully to all intents and
purposes as each of them might or could do in person, and hereby ratifying and
confirming all that said attorneys, and each of them, or their substitute or
substitutes, shall do or cause to be done by virtue of this Power of Attorney.
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 indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
/s/ NATHAN P. MORTON Chief Executive Officer March 17, 2000
- --------------------------------------------------- (Principal Executive Officer)
Nathan P. Morton and Director
/s/ STEPHEN L. HOLCOMBE Chief Financial Officer March 17, 2000
- --------------------------------------------------- (Principal Financial and
Stephen L. Holcombe Accounting Officer)
/s/ KEITH T. BROWN Chairman March 17, 2000
- ---------------------------------------------------
Keith T. Brown
/s/ BAYARD M. ATWOOD, III Director March 17, 2000
- ---------------------------------------------------
Bayard M. Atwood, III
/s/ PAUL A. RYDER Director March 17, 2000
- ---------------------------------------------------
Paul A. Ryder
</TABLE>
II-8
<PAGE> 153
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
/s/ JUSTIN HALL-TIPPING Director March 17, 2000
- ---------------------------------------------------
Justin Hall-Tipping
/s/ NORVELL E. MILLER, IV Director March 17, 2000
- ---------------------------------------------------
Norvell E. Miller, IV
/s/ WILLIAM W. NEAL Director March 17, 2000
- ---------------------------------------------------
William W. Neal
/s/ JERRY A. ROSE Director March 17, 2000
- ---------------------------------------------------
Jerry A. Rose
/s/ JOEL D. KOBLENTZ Director March 17, 2000
- ---------------------------------------------------
Joel D. Koblentz
</TABLE>
II-9
<PAGE> 1
EXHIBIT 4.2
BUILDNET, INC.
-----------------------------------
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
----------------------------------
May 21, 1999
<PAGE> 2
BUILDNET, INC.
-------------------------------
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
-------------------------------
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. RESTRICTIONS ON TRANSFER.....................................................................................2
1.1 RESTRICTIVE LEGEND..............................................................................................2
SECTION 2. REGISTRATION RIGHTS..........................................................................................3
2.1 CERTAIN DEFINITIONS.............................................................................................3
2.2 DEMAND REGISTRATION.............................................................................................4
2.2(a) Demand for Registration.................................................................................4
2.2(b) Underwriting............................................................................................5
2.3 PIGGYBACK REGISTRATION..........................................................................................6
2.3(a) Company Registration....................................................................................6
2.3(b) Underwriting............................................................................................6
2.3(c) Right to Terminate Registration.........................................................................7
2.4 EXPENSES OF REGISTRATION........................................................................................7
2.5 OBLIGATIONS OF THE COMPANY......................................................................................8
2.6 INDEMNIFICATION................................................................................................10
2.7 INFORMATION BY HOLDER..........................................................................................12
2.8 TRANSFER OF REGISTRATION RIGHTS................................................................................12
2.9 FORM S-3.......................................................................................................13
2.10 DELAY OF REGISTRATION..........................................................................................13
2.11 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS..................................................................13
2.12 RULE 144 REPORTING.............................................................................................14
2.13 "MARKET STAND-OFF" AGREEMENT...................................................................................14
2.14 AMENDMENT OF REGISTRATION RIGHTS...............................................................................15
2.15 AIRCRAFT CARRIER RELEASE.......................................................................................15
2.16 TERMINATION OF REGISTRATION RIGHTS.............................................................................15
SECTION 3. RIGHTS OF FIRST REFUSAL.....................................................................................15
3.1 PRO RATA RIGHT.................................................................................................15
3.2 NEW SECURITIES.................................................................................................16
3.3 REQUIRED NOTICES...............................................................................................16
3.4 COMPANY'S RIGHT TO SELL........................................................................................16
3.5 EXPIRATION OF RIGHT............................................................................................17
3.6 ASSIGNMENT.....................................................................................................17
SECTION 4. COMPANY COVENANTS...........................................................................................17
4.1 AFFIRMATIVE COVENANTS..........................................................................................17
4.1(a) Financial Statements and Information...................................................................17
4.1(b) Inspection.............................................................................................19
4.1(c) Budget.................................................................................................19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.1(d) Prompt Payment of Taxes................................................................................19
4.1(e) Observation Rights.....................................................................................20
4.1(f) Maintenance of Insurance...............................................................................20
4.1(g) Material Changes and Other Notices.....................................................................20
4.1(h) Compliance with Applicable Laws........................................................................20
4.1(i) Key Man Insurance......................................................................................20
4.1(j) Use of Proceeds........................................................................................20
4.1(k) Directors' and Officers' Insurance Policy..............................................................20
4.2 NEGATIVE COVENANTS.............................................................................................21
4.2(a) Employment Agreements..................................................................................21
4.2(b) Declaration of Bankruptcy..............................................................................21
4.2(c) Limit on Indebtedness..................................................................................21
4.2(d) Limitation on Liens....................................................................................21
4.2(e) Issuances, Offerings and Dividends.....................................................................22
4.2(f) Merger; Change in Control; Acquisition of Assets.......................................................22
4.2(g) Sale of Assets.........................................................................................22
4.2(h) Executive Compensation.................................................................................22
4.2(i) Related Party Transactions.............................................................................22
4.2(j) Business Purpose.......................................................................................22
4.2(k) Series B Preferred Stock Voting Rights.................................................................22
4.3 ADJUSTMENT OF SERIES B MULTIPLE UPON BREACH OF NEGATIVE COVENANTS..............................................23
4.3(a) Notice of Breach.......................................................................................23
4.3(b) Dispute of Breach Notice...............................................................................23
4.3(c) Determination of Breach................................................................................23
4.4 EXPIRATION OF COVENANTS........................................................................................24
SECTION 5. MISCELLANEOUS...............................................................................................24
5.1 GOVERNING LAW..................................................................................................24
5.2 JURISDICTION...................................................................................................24
5.3 WAIVER OF JURY TRIAL...........................................................................................24
5.4 SUCCESSORS AND ASSIGNS.........................................................................................24
5.5 ENTIRE AGREEMENT...............................................................................................24
5.6 SEVERABILITY...................................................................................................24
5.7 AMENDMENT AND WAIVER...........................................................................................25
5.8 DELAYS OR OMISSIONS............................................................................................25
5.9 NOTICES, ETC...................................................................................................26
5.10 TITLES AND SUBTITLES...........................................................................................26
5.11 COUNTERPARTS...................................................................................................26
EXHIBITS
A Schedule of Investors
SCHEDULES
4.1(j) Use of Proceeds
4.2(j) Business Purpose
</TABLE>
ii
<PAGE> 4
BUILDNET, INC.
--------------------------------
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
--------------------------------
This Amended and Restated Investor Rights Agreement (the
"Agreement") is entered into as of May 21, 1999, by and among Buildnet, Inc., a
North Carolina corporation (the "Company"), with its principal office at 4813
Emperor Blvd., Suite 130, Durham, NC, 27703, the holders of the Company's
Series A Preferred Stock (the "Series A Stock"), the holders of certain
warrants to purchase shares of the Company's Common Stock issued pursuant to
that Loan and Security Agreement dated October 8, 1997, among the Company and
certain of the Investors (as defined below), and that Loan and Security
Agreement dated April 24, 1998, between the Company and Piedmont Venture
Partners Limited Partnership (collectively, the "Warrants"), and the holders of
the Company's Series B Preferred Stock (the "Series B Stock," collectively with
the Series A Stock, the "Preferred Stock"), each as listed on Exhibit A
attached hereto. The holders of Series A Stock are referred to herein as the
"Series A Investors," the holders of Warrants are referred to herein as the
"Warrant Investors," the holders of Series B Stock are referred to herein as
the "Series B Investors," and the Series A Investors, the Warrant Investors,
and the Series B Investors, are referred to herein collectively as the
"Investors" and each individually as an "Investor."
WHEREAS, in connection with the issuance and sale of Series B Stock
to the Series B Investors pursuant to that certain Series B Preferred Stock
Purchase Agreement, dated as of the date hereof, by and among the Company and
the Series B Investors (the "Series B Agreement") the Company desires to
provide the Series B Investors certain rights with respect to registration of
the shares of stock held by them and certain other rights with respect to such
shares as an inducement to the Series B Investors to purchase shares of the
Series B Stock; and
WHEREAS, the Series A Investors and certain Warrant Investors are
parties to a certain Amended and Restated Investor Rights Agreement dated as of
October 8, 1997 (the "Prior Rights Agreement"), which provided such Investors
with certain rights with respect to registration of the shares of stock held by
them; and
WHEREAS, Section 5.5 of the Prior Rights Agreement provides that it
may be amended by the Company and Investors holding at least two thirds of the
shares of Registerable Securities, and the parties to this Agreement hold at
least two thirds of the Registerable Securities outstanding as of the date
hereof; and
WHEREAS, the Company, the Series A Investors and Warrant Investors
desire to amend and restate the Prior Rights Agreement in its entirety, and to
waive any rights of first refusal they may have pursuant to Section 3 thereof
in connection with the Company's sale of Series B Stock pursuant to the Series
B Agreement;
<PAGE> 5
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and conditions contained herein, the Company and each of the Investors hereby
agree to amend and restate the Original Rights Agreement (which shall no longer
have any force or effect) as follows.
Section 1.
RESTRICTIONS ON TRANSFER
1.1 Restrictive Legend. Each certificate representing (a) the
Preferred Stock, (b) the Company's Common Stock issued upon conversion of the
Preferred Stock or upon exercise of the Warrants, and (c) any other securities
issued in respect of the Preferred Stock or Common Stock issued upon conversion
of the Preferred Stock or upon exercise of the Warrants upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 1.2 below) be stamped
or otherwise imprinted with a legend in substantially the following form (in
addition to any legend required under applicable state securities laws).
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES LAWS, OR THE AVAILABILITY OF AN EXEMPTION FROM THE
REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND APPLICABLE STATE SECURITIES LAWS. COPIES OF THE STOCK PURCHASE
AGREEMENT, INVESTOR RIGHTS AGREEMENT AND BYLAWS, AS AMENDED,
PROVIDING FOR RESTRICTIONS ON TRANSFER OF THESE SECURITIES MAY BE
OBTAINED UPON WRITTEN REQUEST BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE CORPORATION.
Each Holder (as defined below) consents to the Company making a
notation on its records and giving instructions to any transfer agent of the
Preferred Stock or the Common Stock in order to implement the restrictions on
transfer established in this Section 1. The requirement that the above
securities legend be placed upon certificates evidencing shares of Stock shall
cease and terminate upon the earliest of the following events: (i) when such
shares are transferred in an underwritten public offering, (ii) when such
shares are transferred pursuant to Rule 144 under the Securities Act or (iii)
when such shares are transferred in any other transaction if the seller
delivers to the Company an opinion of its counsel, which counsel and opinion
shall be reasonably satisfactory to the Company, to the effect that such legend
is no longer necessary in order to protect the Company against a violation by
it of the Securities Act
2
<PAGE> 6
upon any sale or other disposition of such shares without registration
thereunder. Upon the consummation of any event requiring the removal of a
legend hereunder, the Company, upon the surrender of certificates containing
such legend, shall, at its own expense, deliver to the holder of any such
shares as to which the requirement for such legend shall have terminated, one
or more new certificates evidencing such shares not bearing such legend.
Section 2.
REGISTRATION RIGHTS
The Company hereby grants to each of the Holders (as defined below)
the registration rights set forth in this Section 2, with respect to the
Registrable Securities (as defined below) owned by such Holders. The Company
and the Holders agree that the registration rights provided herein set forth
the sole and entire agreement, and supersede any prior agreement, between the
Company and the Holders with respect to registration rights for the Company's
securities.
2.1 Certain Definitions. As used in this Section 2:
(a) The term "Affiliate" means, with respect to any individual,
partnership or entity, any individual, partnership or entity that directly or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, such individual, partnership or entity.
(b) The terms "register," "registered" and "registration" refer
to a registration effected by filing with the SEC a registration statement (the
"Registration Statement") in compliance with the 1933 Act, and the declaration
or ordering by the SEC of the effectiveness of such Registration Statement.
(c) The term "Registrable Securities" means (i) shares of Common
Stock of the Company (the "Common Stock") issued or issuable pursuant to
exercise of the Warrants held by Warrant Investors, or upon conversion of the
shares of Preferred Stock (x) held by Investors as set forth on Exhibit A or
any transferee in a Permitted Transfer (as defined in Section 2.8 below), or
(y) issued or issuable pursuant to exercise of the warrant issued to GE Capital
Equity Investments, Inc. and (ii) any shares of Common Stock issued as (or
issuable upon the conversion or exercise of any warrant, right or other
security that is issued as) a dividend or other distribution with respect to,
or in exchange or in replacement of, such Registrable Securities; provided,
however, that shares of Common Stock or other securities shall only be treated
as Registrable Securities if and so long as (A) they have not been sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, (B) they have not been sold in a transaction exempt
from the registration and prospectus delivery requirements of the 1933 Act
under Section 4(1) thereof so that all transfer restrictions and restrictive
legends with respect thereto are removed upon the consummation of such sale,
and (C) the registration rights associated with such securities have not been
terminated pursuant to Section 2.15 hereof.
3
<PAGE> 7
(d) The term "Holder" (collectively, "Holders") means any
Investor (and any transferee as permitted by Section 2.8 hereof) holding
Registrable Securities, securities exercisable or convertible into Registrable
Securities or securities exercisable for securities convertible into
Registrable Securities.
(e) The term "Initiating Preferred Holders" means any Series A
or Series B Investor(s) holding at least fifteen percent (15%) of the
Registrable Securities then held by all Series A and Series B Investors and not
registered at the time of any request for registration made pursuant to Section
2.2 of this Agreement.
(f) The term "Initiating Warrant Holders" means any Warrant
Holder(s) holding at least a majority of the Registrable Securities then held
by all Warrant Holders and not registered at the time of any request for
registration made pursuant to Section 2.2 of this Agreement.
(g) The term "Initiating Holders" shall refer to the Initiating
Preferred Holders or the Initiating Warrant Holders, as the case may be, with
respect to any particular request for registration.
2.2 Demand Registration.
(a) Demand for Registration. If the Company shall receive from
Initiating Preferred Holders or Initiating Warrant Holders a written demand
that the Company effect any registration (a "Demand Registration") of the
Registrable Securities (other than a registration on Form S-3 or any related
form of registration statement, such a request being provided for under Section
2.9 hereof) having an anticipated net aggregate offering price (after deduction
of underwriter commissions and offering expenses) of at least $5,000,000, the
Company will:
(i) promptly (but in any event within 10 days) give written
notice of the proposed registration to all other Holders; and
(ii) use its best efforts to effect such registration as
soon as practicable and as will permit or facilitate the sale and distribution
of all or such portion of such Initiating Holders' Registrable Securities as
are specified in such demand, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such demand as are
specified in a written demand received by the Company within 15 days after such
written notice is given, provided that the Company shall not be obligated to
take any action to effect any such registration, pursuant to this Section 2.2:
(A) with respect to any demand for registration by
Initiating Preferred Holders, after the Company has effected four (4) such
registrations initiated by Initiating Preferred Holders pursuant to this
Section 2.2; provided, however, that a registration requested pursuant to
Section 2.2 shall not be deemed to be a demand for registration by Initiating
Preferred Holders unless a Registration Statement covering at least eighty
percent (80%) of the Registrable Securities specified in the notices from the
Initiating Preferred Holders has become effective and all shares registered
thereunder have been sold;
4
<PAGE> 8
(B) with respect to any demand for registration by
Initiating Warrant Holders, after the Company has effected one (1) such
registration initiated by Initiating Warrant Holders pursuant to this Section
2.2 and the sales of the shares of Common Stock under such registrations have
closed;
(C) 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 of the Company it would be seriously
detrimental to the Company and its shareholders for such Registration Statement
to be filed at the date filing would be required, in which case the Company
shall have an additional period of not more than sixty (60) days within which
to file such Registration Statement; provided, however, that the Company shall
not use this right more than once in any 12-month period; or
(D) prior to the earlier of (a) the date three (3)
years from the date of this Agreement or (b) the date the initial, firmly
underwritten public offering of the Company's securities is declared effective
by the SEC.
(b) Underwriting. If the Initiating Holders intend to distribute
the Registrable Securities covered by their demand by means of an underwriting,
they shall so advise the Company as part of their demand made pursuant to this
Section 2.2; and the Company shall include such information in the written
notice referred to in Section 2.2(a)(i). In such event, the right of any Holder
to registration pursuant to this Section 2.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
The Company shall, together with all holders of capital stock of the
Company proposing to distribute their securities through such underwriting,
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected by a majority-in-interest of the Initiating Holders and
reasonably satisfactory to the Company. Notwithstanding any other provision of
this Section 2.2, if the underwriter shall advise the Company that marketing
factors (including, without limitation, an adverse effect on the per share
offering price) require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders of Registrable
Securities that have requested to participate in such offering, and the number
of shares of Registrable Securities that may be included in the registration
and underwriting shall be allocated pro rata among such Holders thereof 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. No Registrable Securities excluded from the underwriting by reason
of the underwriter's marketing limitation shall be included in such
registration.
If any Holder disapproves of the terms of the underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The Registrable Securities so withdrawn
shall also be withdrawn from registration.
If the underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account (or for the account of other
5
<PAGE> 9
shareholders) in such registration if the underwriter so agrees and if the
number of Registrable Securities would not thereby be limited.
2.3 Piggyback Registration.
(a) Company 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 for the account of security holders, other than a registration
relating solely to employee benefit plans, a registration on Form S-4 relating
solely to an SEC Rule 145 transaction or a registration pursuant to Section 2.2
or 2.9 hereof, the Company will:
(i) promptly (but in any event within 10 days) give to each
Holder written notice thereof; and
(ii) include in such registration (and any related
qualification under state securities laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within fifteen (15) days after receipt of
such written notice from the Company, by any Holder or Holders, except as set
forth in Section 2.3(b) below.
Such Registrable Securities shall only be included to the extent
that inclusion will not diminish the number of securities included by the
Company.
(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 2.3(a)(i). In such event the right of any Holder to
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
All Holders proposing to distribute their Registrable Securities
through such underwriting shall, together with the Company and the other
parties distributing their securities through such underwriting, enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 2.3, if the underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten, the
underwriter may limit the number of Registrable Securities to be included in
the registration and underwriting, or may exclude Registrable Securities
entirely from such registration and underwriting subject to the terms of this
Section 2.3. The Company shall so advise all holders of the Company's
securities that would otherwise be registered and underwritten pursuant hereto,
and the number of shares of such securities, including Registrable Securities,
that may be included in the registration and underwriting shall be allocated in
the following manner: shares, other than Registrable Securities and other
securities that have contractual rights with respect to registration similar to
those provided for in this Section 2.3 (provided that the holders of
Registrable Securities shall have consented to the granting of such
registration rights pursuant to Section 2.11 hereof), requested to be included
in such registration by shareholders shall be excluded, and if a limitation on
the
6
<PAGE> 10
number of shares is still required, the number of Registrable Securities
and other securities that have contractual rights with respect to registration
that may be included shall be allocated among the holders thereof in
proportion, as nearly as practicable, to the amounts of Registrable Securities
and such other securities held by each such holder at the time of filing the
Registration Statement. For purposes of any such underwriter cutback, all
Registrable Securities and other securities held by any holder that is a
partnership or corporation, shall also include any Registrable Securities held
by the partners, retired partners, shareholders or affiliated entities of such
holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons, and
such holder and other persons shall be deemed to be a single "selling holder,"
and any pro rata reduction with respect to such "selling holder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling holder," as defined in this
sentence. No securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
Nothing in this Section 2.3(b) is intended to diminish the number of securities
to be included by the Company in the underwriting.
If any Holder disapproves of the terms of the underwriting, it may
elect to withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Securities so withdrawn shall also be withdrawn
from registration.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
2.4 Expenses of Registration. All Registration Expenses (as defined
below) incurred in connection with all registrations effected pursuant to
Sections 2.2, 2.3 and 2.9, shall be borne by the Company; provided, however,
that the Company shall not be required to pay stock transfer taxes or
underwriters' discounts or selling commissions relating to Registrable
Securities. "Registration Expenses" means any and all expenses incident to
performance of or compliance with this Agreement, including without limitation,
(i) all registration and filing fees of the Commission, a stock exchange or the
National Association of Securities Dealers, Inc., (ii) all fees and expenses of
complying with securities or blue sky laws (including fees and disbursements of
counsel for the underwriters in connection with blue sky qualifications of the
Registrable Securities) unless paid by the underwriters, (iii) all printing,
messenger and delivery expenses, (iv) all fees and expenses incurred in
connection with the listing of the Registrable Securities on any securities
exchange, (v) the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits
and/or "cold comfort" letters required by or incident to such performance and
compliance (vi) the reasonable fees and disbursements of one counsel selected
by the Holders of a majority of the Registrable Securities being registered to
represent all Holders of the Registrable Securities being registered in
connection with each such registration, (vii) any fees and disbursements of
underwriters customarily paid by the issuers or sellers of securities,
including fees and disbursements of underwriters customarily paid by the
issuers or sellers of securities, including fees and disbursements of counsel
for the underwriters, but excluding underwriting discounts and commissions,
(viii) liability insurance if the Company so desires or if the underwriters so
require,
7
<PAGE> 11
and (ix) the reasonable fees and expenses of any special experts
retained by the Company in connection with the requested registration.
Notwithstanding anything to the contrary above, the Company shall not be
required to pay for any Registration Expenses of any registration proceeding
under Section 2.2 and the Holders shall retain their rights pursuant to Section
2.2 if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to have been registered,
provided, however, that in the event that Holders holding at least a majority
of the Registrable Securities held by the Series A and Series B Investors or
Warrant Investors (as applicable, depending upon which group of Investors
requested such registration) agree to forfeit their right to one demand
registration pursuant to Section 2.2 (in which event such right shall be
forfeited by all of either the Series A and Series B Investors or Warrant
Investors (as applicable, depending upon which group of Investors requested
such registration), then the Company shall be required to pay the expenses of
such withdrawn registration. In the absence of such an agreement to forfeit,
the Holders of Registrable Securities to have been registered shall bear all
such expenses pro rata on the basis of the Registrable Securities to have been
registered. Notwithstanding the preceding sentence, however, if at the time of
the withdrawal, the Holders have learned of a materially adverse change in the
condition, business or prospects of the Company from that known to the Holders
at the time of their request, then the Holders shall not be required to pay any
of said expenses and shall retain their rights pursuant to Section 2.2.
2.5 Obligations of the Company. Whenever required under this Section
2 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) use its best efforts to prepare and file, within forty-five
(45) days after the period within which a request for registration may be given
to the Company, with the SEC a Registration Statement with respect to such
Registrable Securities and use its best efforts to cause such Registration
Statement to become effective, and keep such Registration Statement effective
for the lesser of 120 days or until the Holder or Holders have completed the
distribution relating thereto.
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in
connection with such Registration Statement as may be necessary to keep such
Registration Statement effective and to comply with the provisions of the 1933
Act with respect to the disposition of all securities covered by such
registration statement in accordance with the intended methods of disposition
by the seller or sellers thereof set forth in such Registration Statement;
provided that before filing a Registration Statement or prospectus, or any
amendments or supplements thereto, the Company will furnish to one counsel
selected by the Holders of a majority of the Registrable Securities covered by
such Registration Statement to represent all Holders of Registrable Securities
covered by such Registration Statement, copies of all documents proposed to be
filed, which documents will be subject to the review of such counsel.
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other
8
<PAGE> 12
documents as they may reasonably request in order to facilitate the disposition
of Registrable Securities owned by them.
(d) use its best efforts to register or otherwise qualify the
securities covered by such Registration Statement under such other securities
laws of such states and other jurisdictions as shall be reasonably requested by
the Holders or the managing underwriter, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions where, but for the requirements of this paragraph (d), it
would not be obligated to be so qualified.
(e) in the event of any 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 1933 Act, of the happening of any event as a
result of which the prospectus included in such Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing and at
the request of any such seller, prepare and furnish to such seller a reasonable
number of copies of an amended or supplemental prospectus as may be necessary
so that, as thereafter delivered to the sellers of such Registrable Securities,
such prospectus shall not included an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable (but not more than 18 months) after
the effective date of the Registration Statement, an earnings statement that
shall satisfy the provisions of Section 11(a) of the Securities Act and the
rules and regulations promulgated thereunder.
(h) obtain a "cold comfort" letter or letters from the Company's
independent public accountants in customary form and covering matters of the
type customarily covered by "cold comfort" letters as the seller or sellers of
a majority of such Registrable Securities shall reasonably request.
(i) obtain an opinion of counsel for the Company in customary
form and covering matters of the type customarily covered in opinions of
issuer's counsel as the sellers shall reasonably request.
(j) use its best efforts to list the Registrable Securities
covered by such Registration Statement with any securities exchange on which
the Common Stock is then listed.
9
<PAGE> 13
(k) make available for inspection by each Holder including
Registrable Securities in such registration, any underwriter participating in
any distribution pursuant to such registration, and any attorney, accountant or
other agent retained by such Holder or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, as such
parties may reasonably request, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Holder,
underwriter, attorney, accountant or agent in connection with such Registration
Statement.
(l) cooperate with Holders including Registrable Securities in
such registration and the managing underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold, such certificates to be in such denominations and
registered in such names as such Holders or the managing underwriters may
request at least two business days prior to any sale of Registrable Securities.
(m) permit any Holder which Holder, in the sole and exclusive
judgment, exercised in good faith, of such Holder, might be deemed to be a
controlling person of the Company, to participate in good faith in the
preparation of such Registration Statement and to require the insertion therein
of material, furnished to the Company in writing, that in the reasonable
judgment of such Holder and its counsel should be included.
2.6 Indemnification.
(a) The Company will, and does hereby undertake to, indemnify
and hold harmless each Holder of Registrable Securities, each of such Holder's
officers, directors, partners and agents, and each person controlling such
Holder, with respect to any registration, qualification or compliance effected
pursuant to this Section 2, and each underwriter, if any, and each person who
controls any underwriter, of the Registrable Securities held by or issuable to
such Holder, against all claims, losses, damages and liabilities (or actions in
respect thereto) to which they may become subject under the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or other federal
or state law arising out of or based on (i) any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other similar document (including any related Registration
Statement, notification, or the like) 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 not misleading in light of the circumstances in
which they were made, (ii) any violation or alleged violation by the Company of
any federal, state or common law rule or regulation applicable to the Company
in connection with any such registration, qualification or compliance, or (iii)
any failure to register or qualify Registrable Securities in any state where
the Company or its agents have affirmatively undertaken or agreed in writing
that the Company (the undertaking of any underwriter chosen by the Company
being attributed to the Company) will undertake such registration or
qualification on behalf of the Holders of such Registrable Securities (provided
that in such instance the Company shall not be so liable if it has undertaken
its best efforts to so register or qualify such Registrable Securities) and
will reimburse, as incurred, each such Holder, each such underwriter and each
such director, officer, partner, agent and controlling person, for any legal
and any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action;
10
<PAGE> 14
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 made in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, and if Registrable Securities held by or
issuable to such Holder are included in such registration, qualification or
compliance pursuant to this Section 2, does hereby undertake to indemnify and
hold harmless the Company, each of its directors and officers, and each person
controlling the Company, each underwriter, if any, and each person who controls
any underwriter, of the Company's securities covered by such a Registration
Statement, and each other Holder, each of such other Holder's officers,
partners, directors and agents and each person controlling such other Holder,
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 in light of the
circumstances in which they were made, and will reimburse, as incurred, the
Company, each such underwriter, each such other Holder, and each such director,
officer, partner and controlling person of the foregoing, 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) was 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; provided, however, that the liability of each
Holder hereunder shall be limited to the proportion of any such claim, loss,
damage or liability that is equal to the proportion that the public offering
price of the shares sold by such Holder under such Registration Statement bears
to the total public offering price of all securities sold thereunder, but in
any event not to exceed the net proceeds received by such Holder from the sale
of securities under such Registration Statement. It is understood and agreed
that the indemnification obligations of each Holder pursuant to any
underwriting agreement entered into in connection with any Registration
Statement shall be limited to the obligations contained in this subsection
2.6(b).
(c) Each party entitled to indemnification under this Section
2.6 (the "Indemnified Party") shall give notice to the party required to
provide such indemnification (the "Indemnifying Party") of any claim as to
which indemnification may be sought promptly after such Indemnified Party has
actual knowledge thereof, 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 subject to approval by the Indemnified Party (whose
approval shall not be unreasonably withheld) and the Indemnified Party may
participate in such defense at the Indemnifying Party's expense if
representation of such Indemnified Party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding; 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
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this Section 2, except to the extent that such failure to give notice shall
materially adversely affect the Indemnifying Party in the defense of any such
claim or any such litigation. An Indemnifying Party, in the defense of any such
claim or litigation, may, without the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that includes as
an unconditional term thereof the giving by the claimant or plaintiff therein,
to such Indemnified Party, of a release from all liability with respect to such
claim or litigation.
(d) In order to provide for just and equitable contribution to
joint liability under the 1933 Act in any case in which either (i) any Holder
exercising rights under this Agreement, or any controlling person of any such
Holder, makes a claim for indemnification pursuant to this Section 2.6 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 2.6 provides for
indemnification in such case, or (ii) contribution under the 1933 Act may be
required on the part of any such Holder or any such controlling person in
circumstances for which indemnification is provided under this Section 2.6;
then, and in each such case, the Company and such Holder will contribute to the
aggregate claims, losses, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that such Holder is
responsible for the portion represented by the percentage that the public
offering price of the securities offered by such Holder pursuant to the
Registration Statement bears to the public offering price of all securities
offered by such Registration Statement, and the Company will be responsible for
the remaining portion; provided, however, that, in any case, (A) no such Holder
will be required to contribute any amount in excess of the public offering
price of all securities offered by it pursuant to such Registration Statement,
after deduction of underwriting discounts and commissions; and (B) no person or
entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
(e) The indemnities provided in this Section 2.6 shall survive
the transfer of any Registrable Securities by such Holder.
2.7 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 and the distribution proposed by
such Holder or Holders as the Company may reasonably request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Section 2.
2.8 Transfer of Registration Rights.
(a) The rights, contained in Sections 2.2, 2.3 and 2.9 hereof,
to cause the Company to register the Registrable Securities, may be assigned or
otherwise conveyed to a transferee or assignee of Registrable Securities, who
shall be considered a "Holder" for purposes of this Section 2, provided that
(i) any such transfer by a Series A or Series B Investor is effected in
compliance with Section 1.2 hereof, or by a Warrant Investor is effected in
compliance with the Warrants; and (ii) such transfer is a "Permitted Transfer"
as defined herein.
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(b) For purposes of this Agreement, a "Permitted Transfer" shall
mean: (i) a transaction not involving a change in beneficial ownership; (ii)
transactions involving distribution without consideration by a shareholder that
is a partnership to any of its partners, retired partners, or to the estate of
any of its partners; (iii) transactions involving distribution without
consideration by a shareholder that is a corporation or limited liability
company to any of its shareholders or members, as applicable; (iv) transfers by
any shareholder who is an individual to a trust for the benefit of such
shareholder or his family; (v) a transfer in which the transferee acquires at
least 5,000 shares of Registrable Securities, or Securities convertible into or
exercisable for such number of shares, subject to adjustment for combinations,
consolidations, recapitalizations, stock splits, stock dividends and the like;
or (vi) transfers by gift, will or intestate succession to the spouse, lineal
descendants or ancestors of any shareholder or spouse of a shareholder, or
(vii) transfer by any Holder to any of its Affiliates.
2.9 Form S-3. If the Company's stock becomes publicly traded, the
Company shall use its best efforts to qualify for registration on Form S-3 and
to that end the Company shall register the Common Stock under the 1934 Act
within twelve (12) months following the effective date of the first
registration of any securities of the Company on Form S-1. After the Company
has qualified for the use of Form S-3, the Holders of Registrable Securities
shall have the right to request registrations on Form S-3 thereafter under this
Section 2.9. The Company shall give notice to all Holders of Registrable
Securities of the receipt of a request for registration pursuant to this
Section 2.9 and shall provide a reasonable opportunity for other Holders to
participate in the registration. Subject to the foregoing, the Company will use
its best efforts to effect as soon as practicable the registration of all
shares of Registrable Securities on Form S-3, as the case may be, to the extent
requested by the Holder or Holders thereof for purposes of disposition;
provided, however, that the Company shall not be obligated to effect any such
registration if (a) the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose
to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $500,000, or (b) the Company shall
have already made two registrations on Form S-3 within the 12-month period
immediately preceding the request. Notwithstanding the foregoing, nothing
herein shall restrict, prohibit, or limit in any way a Holder's ability to
exercise its registration rights under Sections 2.2 or 2.3 hereof. The Company
shall have no obligation to take any action to effect any registration pursuant
to this Section 2.9 for any of the reasons set forth in Section 2.2(a)(ii)(A)
or (D) (which shall be deemed to apply to the obligations under this Section
2.9 with equal force). In addition, any registration pursuant to this Section
2.9 shall be subject to the provisions of Section 2.2(b), which shall be deemed
to apply to the obligations under this Section 2.9 with equal force, except
that any reference therein to Section 2.2 or a subsection thereof shall, for
these purposes only, be deemed to be a reference to this Section 2.9.
2.10 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration
as the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.11 Limitations on Subsequent Registration Rights. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the Registrable Securities then
outstanding and not registered, enter into any agreement with
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<PAGE> 17
any holder or prospective holder of any securities of the Company that would
allow such holder or prospective holder to (a) require the Company to effect a
registration or (b) include any securities in any registration filed under
Section 2.2, 2.3 or 2.9 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 such securities will not
diminish the amount of Registrable Securities that are included in such
registration.
2.12 Rule 144 Reporting. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC that may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to:
(a) make and keep current public information available, within
the meaning of SEC Rule 144 or any similar or analogous rule promulgated under
the 1933 Act, at all times after it has become subject to the reporting
requirements of the 1934 Act;
(b) file with the SEC, in a timely manner, all reports and other
documents required of the Company under the 1933 Act and 1934 Act (after it has
become subject to such reporting requirements);
(c) so long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
commencing 90 days after the effective date of the first registration filed by
the Company for an offering of its securities to the general public), the 1933
Act and the 1934 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 as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
2.13 "Market Stand-Off" Agreement. Each Holder that is a "One
Percent Shareholder," as defined below, hereby agrees that during a period, not
to exceed 180 days, following the effective date of a registration statement of
the Company filed under the 1933 Act, it shall not, to the extent requested by
the Company and any underwriter, sell, pledge, transfer, make any short sale
of, loan, grant any option for the purchase of, or otherwise transfer or
dispose of (other than to donees who agree to be similarly bound) any Common
Stock held by it at any time during such period except Common Stock included in
such registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company that covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all other "One Percent Shareholders" with registration
rights (whether or not pursuant to this Agreement) and all officers and
directors of the Company enter into similar agreements.
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For purposes of this Section 2.13, the term "One Percent
Shareholder" shall mean a shareholder of the Company who holds at least one
percent of the outstanding Common Stock of the Company (assuming conversion of
all outstanding Preferred Stock of the Company and full exercise of all
Warrants).
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
2.14 Amendment of Registration Rights. Any provision of this Section
2 may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Holders of at least a majority of
the Registrable Securities then outstanding and not registered; except that any
amendment or waiver affecting the rights or privileges of the Series B
Investors shall require the written consent of the holders of a majority of the
shares of Series B Preferred Stock then outstanding, and Section 2.2(a)(ii)(B)
may not be amended without the consent of Warrant Holders holding at least a
majority of the Registrable Securities then held by all Warrant Holders. Any
amendment or waiver effected in accordance with this Section shall be binding
upon each Holder, each future Holder of Registrable Securities and the Company.
2.15 Aircraft Carrier Release. The parties agree that if Release No.
33-7606A, or a similar release, is adopted by the SEC, the parties shall make
amendments to this Agreement necessary to preserve the intent of this
Agreement. All references to SEC forms in this Agreement include successor
forms thereto.
2.16 Termination of Registration Rights. The rights of any
particular Holder to cause the Company to register securities under Sections
2.2, 2.3 or 2.9 hereof shall terminate as to any Holder on the date such Holder
is able to dispose of all of its Registrable Securities in any 90-day period
pursuant to SEC Rule 144 (or any similar or analogous rule promulgated under
the 1933 Act), provided, however that such rights shall not terminate with
respect to any Holder owning more than one-half percent (1/2%) of the Company's
outstanding Common Stock of the Company until such time as such Holder owns
less than one-half percent (1/2%) of the outstanding Common Stock of the
Company.
Section 3.
RIGHTS OF FIRST REFUSAL
3.1 Pro Rata Right. The Company hereby grants to each Investor,
subject to the terms and conditions specified in this Section 3, the right of
first refusal to purchase up to its pro rata share of all New Securities (as
defined in Section 3.2 hereof) that the Company may, from time to time, propose
to sell and issue. An Investor's pro rata share, for purposes of this right of
first refusal, is the ratio (a) the numerator of which is the number of shares
of Common Stock issued or issuable to such Investor upon exercise of the
Warrants held by such Investor, and/or the number of shares of Common Stock
issued or issuable to such Investor upon the conversion of shares of Preferred
Stock held by such Investor on the date of the Company's written notice
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pursuant to Section 3.3 hereof, and (b) the denominator of which is the number
of shares of Common Stock outstanding, assuming for this purpose conversion or
exercise of all securities convertible into or exercisable for Common Stock of
the Company.
3.2 New Securities. "New Securities" shall mean any capital stock of
the Company, whether now authorized or not, and rights, options or warrants to
purchase capital stock, and securities of any type whatsoever that are, or may
become, convertible into capital stock; provided that the term "New Securities"
does not include (i) the Preferred Stock; (ii) securities issuable upon
conversion of or with respect to Preferred Stock; (iii) the Warrants; (iv) the
securities issuable upon exercise of the Warrants; (v) securities issued
pursuant to the acquisition of another corporation by the Company by merger,
purchase of substantially all the assets or other reorganization whereby the
Company owns more than 50% of the voting power of such corporation; (vi)
capital stock or securities exercisable for or convertible into such capital
stock issued in connection with any borrowings, direct or indirect, from
financial or other institutions regularly engaged in the business of lending of
money if such issuance is approved by the Board of Directors of the Company;
(vii) shares of Common Stock, and options, warrants or rights convertible into
such Common Stock, issued to employees, consultants or directors of the Company
pursuant to any incentive agreement or arrangement approved by the Board of
Directors of the Company; (viii) shares of Common Stock issued upon exercise of
options or warrants outstanding on the date hereof; or (ix) securities issued
pursuant to any stock dividend, stock split, combination or other
reclassification by the Company of any of its capital stock.
3.3 Required Notices. In the event the Company proposes to undertake
an issuance of New Securities, it shall give each Investor written notice of
its intention, describing the type of New Securities, the price and the general
terms upon which the Company proposes to issue the same. Each Investor shall
have fifteen (15) days from the date of any such notice to agree to purchase
the Investor's 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. After such
initial 15-day period, for an additional period of fifteen (15) days, each
Investor may also exercise its right of overallotment such that if any Investor
fails to exercise its right hereunder to purchase its pro rata portion of the
New Securities proposed to be sold by the Company, each other Investor may, by
notifying the Company of such Investor's desire to acquire more that its pro
rata share as part of its exercise notice pursuant to this Section 3.3,
purchase the nonpurchasing Investor's portion on a pro rata basis.
3.4 Company's Right to Sell. In the event the Investors fail to
exercise their rights of first refusal as to all New Securities offered within
said 15-day period, the Company shall have ninety (90) days thereafter to sell
all such New Securities respecting which the Investors' rights of first refusal
hereunder were not exercised, at a price and upon general terms no more
favorable in any material respect to the purchasers thereof than specified in
the Company's notice. In the event the Company has not sold all such New
Securities within said 90-day period, the Company shall not thereafter issue or
sell any New Securities, without first offering such securities to the
Investors in the manner provided herein.
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3.5 Expiration of Right. The rights of first refusal granted under
this Section 3 shall not apply to, and shall expire upon, the effectiveness of
the Company's initial registration statement for the sale of its shares of
Common Stock in a firm commitment underwritten public offering registered under
the 1933 Act (other than a registration relating solely to employee benefit
plans or to a transaction under Rule 145 under the 1933 Act or any successor
rule thereto) (a "Qualified Public Offering").
3.6 Assignment. The rights of first refusal set forth in this
Section 3 are nonassignable, except that (a) such right is assignable by each
Investor to any wholly owned subsidiary or parent of, or to any corporation,
entity or other person that is, within the meaning of the 1933 Act,
controlling, controlled by or under common control with, such Investor, and (b)
such right is assignable in any Permitted Transfer (as defined in Section
2.8(b)) by an Investor.
Section 4.
COMPANY COVENANTS
The Company hereby covenants and agrees as follows.
4.1 Affirmative Covenants.
(a) Financial Statements and Information. The Company will keep
books of account and prepare financial statements and will take the following
actions with respect to such information (all of the foregoing and following to
be kept and prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis).
(i) As soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, beginning with the
fiscal year ended December 31, 1999, the Company will furnish to each Investor
and each other Holder (1) a copy of the financial statements of the Company for
such fiscal year containing a consolidated and consolidating balance sheet,
statement of income, statement of shareholders' equity, and statement of cash
flows, each as at the end of such fiscal year and for the period then ended and
in each case setting forth in comparative form the figures for the preceding
fiscal year, all in reasonable detail and audited and certified by independent
public accountants of recognized standing selected by the Company's Board of
Directors, and containing an opinion that such financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a basis consistent with prior years (except as otherwise specified in such
report) and (2) a statement from the principal financial or accounting officer
of the Company (or, upon the request of the holders of a majority of the Common
Stock issued or issuable upon conversion of the Preferred Stock or exercise of
the Warrants, a statement from the auditors of the Company) discussing whether
the Company is in material compliance with this Agreement and all its other
material agreements. In addition to the foregoing, upon the request of any
Investor who holds no less than 100,000 shares of Common Stock issued or
issuable upon conversion of the Preferred Stock or exercise of the Warrants,
subject to adjustment for stock splits, stock dividends and the like, the
Company shall use its best efforts to cause the auditors of the Company to meet
with such Investor for purposes of reviewing the Company's financial statements
and condition.
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(ii) As soon as practicable after the end of each of the
first three quarters of the fiscal year, but in any event within thirty (30)
days after the end of each such quarter, the Company will furnish to each
Investor and each other Holder the unaudited consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such quarter, and its
unaudited consolidated statements of income and losses, shareholders' equity
and cash flows for such quarter, setting forth in each case in comparative form
the figures for the corresponding period of the preceding fiscal year, all in
reasonable detail and prepared in accordance with generally accepted accounting
principles, except that such financial statements may not contain notes and
will be subject to year-end adjustment, and certified by the principal
financial or accounting officer of the Company. Such quarterly report shall
include a narrative, summary description of the Company's operations for such
quarter from the Chief Executive or Operating Officer, indicating whether the
Company is materially in compliance with this Agreement and other material
agreements and discussing any material variances from the Company's operating
plan, accompanied by an updated forecast of financial performance for the next
four (4) quarters and notice of any material events during such quarter,
including without limitation acquisitions and new product developments.
(iii) As soon as practicable after the end of each month,
but in any event within fifteen (15) business days thereafter, the Company will
furnish to each Investor and each other Holder the unaudited consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of
such month and its unaudited statement of income and losses, shareholders'
equity and cash flows for such month, indicating actual results versus the
Company's plan for such month, setting forth in each case in comparative form
the figures for the corresponding period of the preceding fiscal year and a
summary discussion of the Company's principal functional areas (provided, that
in alternate months the Company shall have the right to provide an interim
letter regarding significant developments in lieu of such summary discussion),
all in reasonable detail and prepared in accordance with generally accepted
accounting principles, except that such financial statements may not contain
notes and will be subject to year end adjustment, and certified by the
principal financial or accounting officer of the Company.
(iv) As soon as practicable after the end of each quarter
of the fiscal year, the Company will furnish to each Investor and each other
Holder a copy of each (1) financial statement, report, notice, or proxy
statement sent by the Company to its shareholders generally; (2) regular,
periodic, or special report, registration statement, or prospectus filed by the
Company with any securities exchange, state securities regulator, or the
Securities and Exchange Commission; (3) press release or other statement made
available by the Company or its officers to the public generally concerning
material developments in the business of the Company; (4) material report
prepared for the Company by an outside consultant; and (5) agreement, letter of
intent or proposal from or with any entity proposing to acquire the Company or
form any potentially material strategic relationship.
(v) Concurrently with the furnishing of the reports
pursuant to Section 4.1(a), the Company shall furnish to each member of the
Board a certificate of the Chief Executive Officer, the Chief Operating Officer
or the Chief Financial Officer of the Company stating that to such officer's
knowledge the Company is not materially in default (with or without notice or
lapse of time or both) under, and has not materially breached any material
agreements or obligations, including, without limitation this Agreement or if
any such material
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<PAGE> 22
default or breach exists, specifying in detail the nature and period of
existence thereof and what actions the Company has taken and proposes to take
with respect thereto. The Company covenants that promptly after the occurrence
of any material default (with or without notice or lapse of time or both)
under, or material breach of, this Agreement or any other material agreement or
obligation, it shall deliver to each member of the Board a certificate of an
officer of the Company specifying in detail the nature and period of existence
thereof and what actions the Company has taken and proposes to take with
respect thereto. The Investors shall be entitled to participate in any
discussions with the Company's lenders regarding any such default.
(vi) With reasonable promptness, the Company will furnish
to each Investor and each other Holder such other information regarding the
business, properties, condition and affairs, financial or other, of the Company
or any subsidiary as any Holder may from time to time reasonably request.
(b) Inspection. The Company shall permit each Investor and each
transferee in a Permitted Transfer (as defined in Section 2.8(b) hereof), its
attorney or its other representative to visit and inspect the Company's
properties, to examine the Company's books of account and other records and
agreements, to make copies or extracts therefrom and to discuss the Company's
affairs, finances and accounts with its officers, management employees and
independent auditors all at such reasonable times and as often as such Investor
or transferee may reasonably request; provided, however, that such Investor
shall bear any costs or expenses of such investigations or inquiries; provided,
further, that the Company shall not be obligated pursuant to this Section
4.2(b) to provide trade secrets or confidential information or to provide
information to any person whom the Company reasonably believes is a competitor
of the Company unless (i) such person or its affiliates purchased its shares of
capital stock directly from the Company, and (ii) such person enters into a
reasonable and customary confidentiality agreement with the Company concerning
such trade secrets or confidential information and agrees to use such
information solely for purposes directly related to such person's investment in
the Company.
(c) Budget. The Company will prepare and submit to the Board of
Directors and Investors an operating budget (the "Budget") for each fiscal year
at least thirty (30) days prior to the beginning of such fiscal year of the
Company, and such Budget will contain forecasts for the next three (3) fiscal
years projected on a quarterly basis and include balance sheets, income
statements, and statements of cash flow. The Budget will be accepted as the
Budget for such fiscal year when it has been approved by a majority of the
Board of Directors, including at least three of the five directors designated
by the Series B Investors. The Budget shall be reviewed by the Company
periodically, and in any event not less frequently than every six months after
the adoption thereof, and all changes therein and all material deviations
therefrom shall be resubmitted to the Board of Directors for approval by a
majority thereof, including at least three of the five directors designated by
the Series B Investors. Within ten (10) days of approval of revisions by the
Board of Directors, the Company will submit the revised Budget to the Investors
with explanation of any deviations from the previous Budget.
(d) Prompt Payment of Taxes. The Company and its subsidiaries,
if any, will timely pay and discharge, or cause to be paid and discharged, all
lawful taxes, assessments and governmental charges or levies imposed upon any
of their income, profits, properties or
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businesses; provided, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings; and provided, further, that the Company and
its subsidiaries will pay all such taxes, assessments, charges or levies
forthwith upon the commencement of proceedings to foreclose any tax lien that
may have attached as security therefor or with respect thereto.
(e) Observation Rights. Each Investor and each transferee in a
Permitted Transfer (as defined in Section 2.8(b) hereof) who holds no less than
100,000 shares of Common Stock issued or issuable upon conversion of Preferred
Stock and exercise of the Warrants, subject to adjustment for stock splits,
stock dividends and the like, shall have the right to receive notice of all
meetings of the Board of Directors and to attend any such meeting as a
nonvoting observer.
(f) Maintenance of Insurance. The Company shall maintain, and
cause each subsidiary to maintain, insurance (including directors and officers
insurance) with responsible and reputable insurance companies or associations
in such amounts and covering such risks as is customarily carried by companies
engaged in similar businesses and owning similar properties in the same general
areas in which the Company or such subsidiary operates.
(g) Material Changes and Other Notices. The Company shall
promptly notify each member of the Board of (a) any materially adverse changes
in the assets, properties, financial condition, operating results, prospects or
business of the Company and its subsidiaries, and (b) any lawsuit, claim,
proceeding or investigation pending or, to the knowledge of the Company,
threatened, or any judgment, order or decree involving the Company or its
subsidiaries that would have a materially adverse effect on the Company's
business, condition or results of operations.
(h) Compliance with Applicable Laws. The Company shall comply in
all material respect with all applicable statutes, laws, ordinances, rules and
regulations of any governmental authority (whether now in effect or hereinafter
enacted) and any filing requirements relating thereto including without
limitation, the U.S. Foreign Corrupt Practices Act and environmental laws and
regulations. The Company shall do all things necessary to preserve, renew and
keep in full force and effect and in good standing its corporate existence and
authority necessary to continue its business.
(i) Key Man Insurance. The Company shall maintain a policy of
"key man" insurance on the lives of Nathan Morton, Mike Atwood, Keith Brown and
Chuck Cosby with minimum coverage of $1,000,000, unless otherwise directed by
the Board of Directors. The proceeds from such policies shall be payable to the
Company.
(j) Use of Proceeds. The Company shall expend the proceeds from
the sale of the Series B Preferred Stock substantially in accordance with the
Schedule 4.1(j) attached hereto.
(k) Directors' and Officers' Insurance Policy. Within ninety
(90) days of the Closing, the Company shall obtain and maintain a valid policy
of Directors' and Officers' insurance covering each member of the Board with a
financially sound and reputable insurer in
20
<PAGE> 24
the amount of $3,000,000 per occurrence. The Articles of Incorporation, Bylaws
and other organizational documents of the Company and each of its subsidiaries
shall at all times to the fullest extent permitted by law, provide for
indemnification or, advancement of expenses to, and limitation of the personal
liability of, the members of the Board and the members of the boards of
directors or other similar managing bodies of each of the Company's
subsidiaries. Any Board observer shall be entitled to indemnification from the
Company to the maximum extent permitted by law as though he or she were a
director of the Company and any of its Subsidiaries. Such provisions may not be
amended, repealed or otherwise modified in any manner materially adverse to any
member of the Board or any member of the boards of directors or other similar
managing bodies of any of the Company's subsidiaries, until at least six years
following the date on which none of the Investors are entitled to nominate a
designee to the Board. Each of the members of the Board (including the
Investors' designees and each Board observer is intended to be a third-party
beneficiary of the obligations of the Company pursuant to this Section 4.1(k)
and the obligations of the Company pursuant to this Section 4.1(k) shall be
enforceable by each such individual.
(l) Covenant Regarding Financial Controls. The Company shall
require that (i) any payment or other transfer of funds by it in excess of
$100,000 (individually or in a series of related transactions) will require the
written signature of at least two Senior Officers of the Company (as defined in
Section 4.2(l) hereof, and (ii) any payment or other transfer of funds by it in
excess of $1 million (individually or in a series of related transactions) will
require the written signature of a nonemployee member of the Board of Directors
(who initially shall be the member of the Board of Directors designated by
Southeast Interactive Technology Fund LLP), and the Company shall provide
appropriate instructions to its depositaries to implement such restrictions.
4.2 Negative Covenants. Without the prior written consent of at
least three of the five directors designated by the Series B Investors, the
Company covenants and agrees as follows.
(a) Employment Agreements. The Company shall not enter into any
employment, severance, option or any other agreements or awards with any
holders of more than one percent (1%) of the Company's capital stock or any
officer or director of the Company.
(b) Declaration of Bankruptcy. The Company shall not voluntarily
declare bankruptcy.
(c) Limit on Indebtedness. The Company and its subsidiaries
shall not, directly or indirectly, create, incur, assume or be or remain liable
with respect to, any indebtedness or obligations in excess of $250,000 in the
aggregate, other than borrowings (i) outstanding on the date hereof; (ii)
incurred for inventory financing; or (iii) arising in the ordinary course of
the Company's business that are approved by the Company's Board of Directors.
(d) Limitation on Liens. The Company and its subsidiaries shall
not create, incur, permit to exist or suffer to be created or incurred any lien
upon any of its property, whether now owned or hereafter acquired, other that
liens (i) outstanding on the date hereof; (ii) incurred for inventory
financing; or (iii) arising in the ordinary course of the Company's business
that are approved by the Company's Board of Directors.
21
<PAGE> 25
(e) Issuances, Offerings and Dividends. Except as otherwise
permitted in the Articles of Incorporation of the Company, as amended from time
to time, or this Agreement, the Company shall not (i) issue, offer or sell any
securities of the Company or (ii) declare or make any dividends or
distributions of its cash, stock, property or assets, unless approved in
writing by at least three of the five directors designated by the Series B
Investors.
(f) Merger; Change in Control; Acquisition of Assets. The
Company will not (a) sell, lease or otherwise dispose of (whether in one
transaction or a series of related transactions) all or substantially all of
its assets, (b) merge with or into or consolidate with another entity (except
into or with a wholly-owned subsidiary of the Company with the requisite
shareholder approval) in which the shareholders of the Company immediately
prior to such merger or consolidation possess a minority of the acquiring
entity immediately following such merger or consolidation, (c) voluntarily
liquidate or wind up its operations, or (d) acquire assets of another entity
(not including acquisitions from vendors in the ordinary course of business)
with an aggregate value greater than $250,000.
(g) Sale of Assets. The Company shall not effect any sale,
lease, assignment, transfer, or other conveyance of any material portion of the
assets or operations or the revenue or income generating capacity of the
Company with an aggregate value greater than $250,000 (other than inventory in
the ordinary course of business and other assets reasonably and in good faith
determined by the Company to be obsolete or no longer necessary to the business
of the Company), or to take any such action that has the effect of any of the
foregoing.
(h) Executive Compensation. The Company shall not increase the
compensation paid to its executive officers by more than five percent (5%) of
their current compensation amounts, whether by means of salary, bonus, profit
sharing, options, dividends or any other means whatsoever.
(i) Related Party Transactions. The Company shall not enter into
any material agreement, transaction or relationship with any person that
controls, is controlled by, or is under common control with, the Company or
with any officer, director, shareholder or employee of the Company, including
any member of any of their immediate families, unless such agreement,
transaction or relationship is substantially on terms that would be offered by
an unaffiliated party.
(j) Business Purpose. The Company shall not engage in any
business other than businesses of the type and nature in which the Company is
currently engaged and described on Schedule 4.2(j) and extensions thereof
reasonably related thereto.
(k) Series B Preferred Stock Voting Rights. The Company shall
not take any corporate action in violation of the voting rights of the holders
of Series B Preferred Stock of the Company contained in Article IV(H) of the
Articles of Incorporation of the Company, as amended from time to time.
(l) Liquidation. The Company shall not approve any liquidation,
dissolution or winding up of the Company (either voluntary or involuntary), or
any sale, transfer or other
22
<PAGE> 26
disposition of all or substantially all of the Company's assets, or any merger
or consolidation of the Company with or into any other person.
4.3 Adjustment of Series B Multiple Upon Breach of Covenants. If it
is determined in accordance with the procedure outlined in this Section 4.3
that the Company has breached any of the covenants contained in Section 4.1 or
4.2 herein, the Series B Multiple (as defined in the Articles) shall be
increased as provided therein, it being understood, however, that such increase
shall not be the sole or exclusive remedy of the Series B Investors and that
the Series B Investors shall be entitled to pursue remedies at law, including
injunctive relief or other equitable remedies, in the event of any such breach;
it is further understood that no remedy is exclusive of any other remedy and
that all available remedies are cumulative to the extent permitted by law. A
"Breach Occurrence" shall refer to a breach by the Company that has been
determined as follows.
(a) Notice of Breach. The Series B Investors shall give written
notice to the President of the Company, with a copy to the Secretary of the
Company, of any claim of breach of any covenant contained in Section 4.1 or 4.2
herein, including in such notice a brief description of the facts upon which
such breach is based (the "Breach Notice") within a reasonable period of time
following the date on which the Series B Investors obtain knowledge thereof.
the Company will have the right to make such investigation of the Series B
Investors' claim as the Company may deem necessary or desirable. The Company
shall have thirty (30) days from the date of receipt of the Breach Notice to
cure such breach or obtain a waiver thereof in accordance with the provisions
hereto.
(b) Dispute of Breach Notice. If the Company disputes the breach
described in the Breach Notice, within thirty (30) days after receipt of the
Breach Notice it shall give written notice to the Series B Investors setting
forth with reasonable specificity the reasons for objecting thereto, whereupon
the Company and Series B Investors shall promptly and in good faith attempt to
resolve such dispute. If no such resolution can be reached after good faith
negotiation, either party may demand arbitration of the matter, and in any such
event the matter shall be settled by arbitration conducted by three
arbitrators. The Company and Series B Investors shall each select one
arbitrator, and the two arbitrators so selected shall select a third
arbitrator. The decision of the arbitrators so selected as to the validity of
any breach in such Breach Notice shall be binding and conclusive upon the
parties to this Agreement, and the parties shall act promptly in accordance
with such decision. Any such arbitration shall be held in New York City, New
York. Any such arbitration shall be conducted under the rules then in effect of
the American Arbitration Association.
(c) Determination of Breach. Any such breach shall be deemed to
be a Breach Occurrence triggering adjustment of the Series B Multiple if (i)
the Company fails to cure such breach, obtain a waiver thereof or invoke the
dispute resolution procedures of Section 4.3(b) within thirty (30) days after
the date of receipt of the Breach Notice or (ii) the arbitrators fail to make a
final determination in accordance with Section 4.3(b) that such breach has not
occurred.
23
<PAGE> 27
4.4 Expiration of Covenants. The covenants set forth in this Section
4 shall expire and be of no further force or effect upon the closing of a
Qualified Public Offering (as defined in Section 3.5 hereof). After such time,
the Investors shall be entitled to receive such annual and quarterly reports as
the Company shall distribute to its shareholders generally.
Section 5.
MISCELLANEOUS
5.1 Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with the laws of the State of New York
as applied to agreements among New York residents made and to be performed
entirely within the State of New York.
5.2 Jurisdiction. Each party hereto hereby irrevocably and
unconditionally submits to the exclusive jurisdiction of the state and federal
courts located in the State of New York, County of New York, for any actions,
suits, or proceedings arising out of or relating to this agreement and the
transactions contemplated hereby. Each party hereto agrees not to commence any
action, suit or proceeding relating thereto except in such courts. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of this
agreement or the transactions contemplated hereby, in such state or federal
courts as aforesaid and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit
or proceeding brought in any such court has been brought in an inconvenient
forum.
5.3 Waiver of Jury Trial. The parties hereby waive trial by jury in
any judicial proceeding to which they are parties involving, directly or
indirectly, any matter in any way arising out of, related to or connected with
this Agreement.
5.4 Successors and Assigns. Except as otherwise expressly 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.
5.5 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subjects
hereof. Without limiting the generality of the foregoing, this Agreement
expressly supersedes the Original Rights Agreement and the parties hereto waive
any rights they have under Section 3 of the Original Rights Agreement. Nothing
in this Agreement, express or implied, is intended to confer upon any party,
other than the parties hereto and their successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided herein.
5.6 Severability. Any invalidity, illegality or limitation of the
enforceability with respect to any Investor of any one or more of the
provisions of this Agreement, or any part thereof, whether arising by reason of
the law of any such person's domicile or otherwise, shall in no way affect or
impair the validity, legality or enforceability of this Agreement with respect
to other Investors. In case any provision of this Agreement shall be invalid,
illegal or
24
<PAGE> 28
unenforceable, it shall to the extent practicable, be modified so as to make it
valid, legal and enforceable and to retain as nearly as practicable the intent
of the parties, and the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
5.7 Amendment and Waiver. Except as otherwise expressly provided
herein, any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely) with the written consent of the Company and
Investors (or their transferees) holding at least a majority of the shares of
Registrable Securities, voting together as a single group (treating Preferred
Stock as if converted at the conversion rate then in effect and treating
Warrants as if exercised for all underlying shares of Common Stock, and
including, for such purposes, shares of Common Stock into which any shares of
Preferred Stock shall have been converted and for which any Warrant shall have
been exercised that are held by a Holder); provided, however, that no such
amendment or waiver shall reduce the aforesaid percentage of Registrable
Securities, the holders of which are required to consent to any waiver or
supplemental agreement, without the consent of the holders of all of such
Registrable Securities; provided, further, that any amendment or waiver
adversely affecting the rights, preferences or privileges of Series B Investors
(in any manner differently than the effect on all Investors, and including,
without limitation, any amendment or waiver to any provision of Sections 4.2 or
4.3, shall require the consent of the holders of a majority of the Registrable
Securities held by the Series B Investors; provided further that Section
2.2(a)(ii)(B) may not be amended without the consent of Warrant Holders holding
at least a majority of the Registrable Securities then held by all Warrant
Holders. Any amendment or waiver effected in accordance with this Section 5.5
shall be binding upon each Investor and each transferee of the Registrable
Securities. Upon the effectuation of each such amendment or waiver, the Company
shall promptly give written notice thereof to the Investors who have not
previously consented thereto in writing. Notwithstanding anything to the
contrary in this Section 5.5, the Company shall be entitled to include
additional purchasers of its Series B Preferred Stock pursuant to the Series B
Agreement as parties to this Agreement, and to treat such purchasers as
"Investors" and "Holders" hereunder, by amending Exhibit A attached hereto and
providing such Exhibit A, as amended, to the other parties to this Agreement.
5.8 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Company, any Investor, or any transferees upon
any breach, default or noncompliance of any Investor or any transferee or the
Company under this Agreement, shall impair any such right, power or remedy, nor
shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of any similar breach, default
or noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character on the part of the Company
or the Investors of any breach, default or noncompliance under this Agreement
or any waiver on the Company's or the Investors' part 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 and that all remedies, either
under this Agreement, by law, or otherwise afforded to the Company and the
Investors, shall be cumulative and not alternative.
25
<PAGE> 29
5.9 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or upon confirmed delivery by facsimile or telecopy, or
on the fifth day (or the tenth day if to a party with an address outside of the
United States) following mailing by registered or certified mail, return
receipt requested, postage prepaid, addressed: (a) if to an Investor, at such
Investor's address as set forth on the schedule attached hereto, or at such
other address as such Investor shall have furnished to the Company in writing,
or (b) if to the Company, at its address first above written, or at such other
address as the Company shall have furnished to the Investors in writing.
5.10 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
26
<PAGE> 30
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the parties as of the date first above written.
THE COMPANY: BUILDNET, INC.
By: /s/ Keith T. Brown
Name: Keith T. Brown
Title: Chief Executive Officer
INVESTORS: /s/ Investors listed in Exhibit A hereto
(Printed or Typed Name)
By: Investors listed in Exhibit A hereto
Name:
---------------------------------------
Title:
--------------------------------------
27
<PAGE> 31
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
NAME AND ADDRESS SERIES A WARRANT SERIES B
SHARES SHARES SHARES
(FIRST (1999 (2000
CLOSING) CLOSING) CLOSING)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BancBoston Ventures 77,826 50,176 64,916
Inc.
175 Federal Street
Boston, MA 02110
Attn: John Doggett
The CIT Group/Equity 38,913 25,088 32,458
Investments, Inc.
650 CIT Drive
Livingston, NJ 07039
Attn: Ken Walters
Covestco-Seteura, LLC 77,826 50,176 64,916
c/o Jura Trust
Mitteldorf 1
Vaduz, Liechtenstein,
FL-9490
Attn: Alein Johann
Deerwood Enterprises, 120,574 - -
Ltd.
5177 Richmond
Suite 1166
Houston, TX 77056
Attn: Frank M.K. Liu
GE Capital Equity 466,958 301,061 389,498
Investments, Inc.
120 Long Ridge Road
Stamford, CT 06927
Attn: James Brown
Michael A. Garcia 5,618
12204 Dumfries Road
Manassas, VA
20112-3541
William H. and Vonna 1,448
K. Graves
325 Sun Forest Way
Chapel Hill, NC 27515
Grove Capital 9,645 - -
Partners, LLC
3347 Divisadero Street
San Francisco, CA
94123
Attn: George Lula
</TABLE>
28
<PAGE> 32
<TABLE>
<S> <C> <C> <C> <C> <C>
Halifax Buildnet 77,826 50,176 64,916
Investors, L.P.
702 Oberlin Road,
Suite 150
Raleigh, NC 27605
Attn: James D. Lumsden
Eric J.E. Higgs 1,890 6,764 - -
881 Innes Avenue
San Francisco, CA
94124
Mayflower Venture 11,588
Capital, LLC
2626 Glenwood Avenue,
Suite 200
Raleigh, NC 27608
Attn: Kimberly Barnes
Petra Capital, LLC 67,740
172 2nd Avenue North,
Suite 112
Nashville, TN 37201
Attn: Casey West
Piedmont Venture 67,157 258,405 - -
Partners
Limited Partnership
One Morrocroft Center,
Suite 380
6805 Morrison Boulevard
Charlotte, NC 28211
Attn: William H.
Neal, III
SGC Partners II LLC 291,848 188,163 243,436
1221 Avenue of the
Americas
13th Floor
New York, NY 10020
Attn: Justin
Hall-Tipping
John P. Siracuse 810 2,899 - -
BancBoston Robertson
Stephens, Inc.
One International
Place, 30th Floor
Boston, MA 02110
Southeast Interactive 28,587 8,686 - -
Technology
Fund I, LLC
2525 Meridian Parkway,
Suite 300-A
Durham, NC 27713
Attn: Norvell Miller
</TABLE>
29
<PAGE> 33
<TABLE>
<S> <C> <C> <C> <C> <C>
Southeast Interactive 5,842 72,528 145,333 106,834 138,216
Technology
Fund II, LLC
2525 Meridian Parkway,
Suite 300-A
Durham, NC 27713
Attn: Norvell Miller
John Stein 13,500 37,267 - -
3605 Saratoga Drive
Nashville, TN 37205
Stein Family Partners, 13,500 60,796 - -
L.P.
3605 Saratoga Drive
Nashville, TN 37205
Attn: John Stein
------ ------- --------- ------- -------
TOTALS 53,083 237,125 1,681,566 771,674 998,356
====== ======= ========= ======= =======
</TABLE>
30
<PAGE> 34
SCHEDULE 4.1(J)
USE OF PROCEEDS
<TABLE>
<S> <C>
INITIAL CLOSING
ACQUISITIONS
McCosker 3,000,000
Lloyds* 625,000
Maxwell* 1,000,000
---------
4,625,000
NOTE REPAYMENT
Homeland 350,000
Francis Pinto 304,218
Keith Brown 60,000
714,218
New development 6,660,782
---------
TOTAL $12,000,000
1999 SUBSEQUENT CLOSING
Acquisitions
New development 6,000,000
Repayment of Petra Debt 2,000,000
---------
TOTAL $8,000,000
2000 SUBSEQUENT CLOSING
ACQUISITIONS
McCosker 1,500,000
Lloyds* 283,333
Maxwell* 500,000
-------
2,283,333
New development 6,016,667
---------
TOTAL $8,300,000
</TABLE>
*It is agreed that in the event that Lloyds or Maxwell is not
consummated, such funds may be used for other acquisitions.
<PAGE> 35
SCHEDULE 4.2(J)
BUSINESS PURPOSE
The Company is engaged in the business of providing software and
electronic commerce solutions for the homebuilding industry and related
industries.
<PAGE> 36
BUILDNET, INC.
AMENDMENT TO
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
THIS AMENDMENT TO THE AMENDED AND RESTATED INVESTOR RICHTS AGREEMENT
(the "Amendment") is entered into this 29th day of October 1999, by and among
Buildnet, Inc., a North Carolina corporation (the "Company"), and the
undersigned holders of certain warrants to purchase Common Stock and holders of
Preferred Stock of the Company.
WHEREAS, the Company and holders of certain warrants to purchase
Common Stock and holders of Preferred Stock of the Company listed on Exhibit A
attached hereto (the "Investors") of the Company have entered into an Amended
and Restated Investor Rights Agreement dated as of May 21, 1999 (the "Rights
Agreement"); and
WHEREAS, in connection with the Company's sale of up to 25,000,000
shares of Series C Preferred Stock at a price per share of $4.40 (the "Series C
Financing") the Company and certain holders of Series C Preferred Stock of the
Company (the "Series C Holders") will enter into an Investor Rights Agreement
(the "Series C Investor Rights Agreement"), pursuant to which the Series C
Holders will obtain certain rights with respect to registration of certain
shares held by them; and
WHEREAS, the Company and the Investors desire to amend the Rights
Agreement to clarify the relative rights of the Investors and Series C Holders
with respect to registration of their shares of Company capital stock; and
WHEREAS, Section 2.14 of the Rights Agreement requires the written
consent of holders of a majority of the Registrable Securities then outstanding
and not registered to amend the registration rights provisions of the Rights
Agreement and Section 5.7 of the Rights Agreement requires the written consent
of holders of a majority of the Registrable Securities, voting together as a
single class, to amend any provision of the Rights Agreement; provided, that,
Sections 2.14 and 5.7 require the written consent of holders of a majority of
the outstanding shares of Series B Preferred Stock for any amendment that
affects the rights or privileges of the Series B Preferred Stock set forth in
the Rights Agreement; and
WHEREAS, the undersigned Investors constitute the requisite percentage
of Investors required to amend the Rights Agreement; and
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions set forth in this Amendment, and other good and valuable
consideration, the receipt of which is hereby acknowledged, and pursuant to
Sections 2.14 and 5.7 of the Rights Agreement, the parties to this Amendment
mutually agree as follows.
1. Capitalized Terms. All capitalized terms used herein that are not
otherwise defined herein shall have the meanings assigned to them in the
Investor Rights Agreement unless the context hereof requires otherwise.
<PAGE> 37
2. Amendments. The Investor Rights Agreement is hereby amended as
follows:
2.1 The first paragraph of the Preamble of the Rights Agreement shall be
amended by adding the following securities to the definition of
"Warrants" contained in the first sentence of such paragraph:
"certain warrants to purchase shares of Company's common stock issued
pursuant to certain Note and Warrant Purchase Agreements, dated
November 12, 1998, February 22, 1999 and April 9, 1999, by and among
the Company and certain Investors named therein."
Exhibit A of the Rights Agreement shall be amended and restated in its
entirety to read as set forth at Exhibit A attached hereto to add the
foregoing securities under the column entitled "Warrant Shares."
2.2 The second sentence of the second paragraph of Section 2.2(b) shall be
amended by adding the following phrase at the end of such second
sentence:
"provided, however, that the number of shares of Registrable
Securities to be included in such underwriting shall not be reduced
unless all other securities are first entirely excluded from the
underwriting."
2.3 The second paragraph of Section 2.3(a)ii shall be amended to add the
following phrase at the end of the only sentence in such paragraph:
"or by other holders of securities exercising a Demand Registration."
2.4 The second paragraph of Section 2.3(b) shall be amended as follows:
The second sentence of such paragraph shall be amended by deleting it
and replacing it in its entirety with the following sentence:
"Notwithstanding any other provision of this Section 2.3, if the
underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the underwriter may limit the
number of Registrable Securities to be included in the registration
and underwriting; provided, however, that the amount of Registrable
Securities and other securities that have contractual rights with
respect to registration similar to those provided in this Section 2.3
shall not be reduced below twenty-five percent (25%) of the total
number of securities in such offering, but in the case of the
Company's initial public offering, the underwriter may exclude
Registrable Securities entirely from such registration and
underwriting subject to the terms of this Section 2.3; provided,
further, that no other stockholders' securities are included
including, without limitation, those of directors, officers and
employees of the Company."
2
<PAGE> 38
The third sentence of such paragraph shall be amended by adding the
following phrase to the end of such sentence:
"provided that no such limitation shall diminish the number of
securities to be included by any holder exercising contractual rights
with respect to a Demand Registration (whether pursuant to this or any
other agreement).
The sixth sentence of such paragraph shall be amended by adding the
following phrase after the word "Company" and before the phrase "in
the underwriting."
"or by any holder exercising contractual rights with respect to a
Demand Registration (whether pursuant to this or any other agreement)"
3. Validity. The parties agree that this Amendment is entered into in
accordance with Sections 2.14 and 5.7 of the Rights Agreement and shall be
effective only upon consummation of the Series C Financing.
4. No Other Amendment. Except as specifically amended pursuant to this
Amendment, the Rights Agreement remains in full force and effect in accordance
with its terms.
5. Governing Law. All questions concerning the construction, validity
and interpretation of this Amendment will be governed by and construed in
accordance with the internal law (and not the law of conflicts) of New York.
6. Counterparts. This Amendment 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.
7. Binding Effect. This Amendment shall be binding upon and shall
inure to the benefit of the parties hereto and their heirs, successors and
assigns.
[THE NEXT PAGE IS THE SIGNATURE PAGE.]
3
<PAGE> 39
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Rights Agreement as of the date first above written.
COMPANY:
BUILDNET, INC.
By: /s/ Stephen L. Holcombe
Name: Stephen L. Holcombe
Title: Executive Vice President and CFO
INVESTORS:
GE CAPITAL EQUITY INVESTMENTS, INC. PIEDMONT VENTURE PARTNERS LIMITED
PARTNERSHIP
By: /s/ Brian S. Graff By: Piedmont Management, Inc.
Name: Brian S. Graff
Title: Senior Vice President
By: /s/ William W. Neal
SGC PARTNERS II, LLC Name: William W. Neal
Title: Managing Principal
By: /s/ Justin Hall-Tipping
Name: Justin Hall-Tipping
Title: Managing Director
SOUTHEAST INTERACTIVE TECHNOLOGY
FUND I, LLC
BANCBOSTON VENTURES, INC.
By: /s/ David C. Blivin
By: /s/ John Doggett Name: David C. Blivin
Name: John Doggett Title: Managing Director
Title: Vice President
THE CITIGROUP/EQUITY INVESTMENTS SOUTHEAST INTERACTIVE TECHNOLOGY
FUND II, LLC
By: /s/ Mark Vanderveen
Name: Mark Vanderveen By: /s/ David C. Blivin
Title: Vice President Name: David C. Blivin
Title: Managing Director
HALIFAX BUILDNET INVESTORS, L.P.
COVESTCO-SETEURA, LLC
By: /s/ James D. Lumsden By: /s/ Alein Johann
Name: James D. Lumsden Name: Alein Johann
Title: Authorized Representative Title: Director
4
<PAGE> 40
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
NAME AND ADDRESS SERIES A WARRANT SERIES B
SHARES SHARES SHARES
(FIRST (1999 (2000
CLOSING) CLOSING) CLOSING)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BancBoston Ventures 77,826 50,176 64,916
Inc.
175 Federal Street
Boston, MA 02110
Attn: John Doggett
The CIT Group/Equity 38,913 25,088 32,458
Investments, Inc.
650 CIT Drive
Livingston, NJ
07039
Attn: Ken Walters
Covestco-Seteura, 77,826 50,176 64,916
LLC
c/o Jura Trust
Mitteldorf 1
Vaduz,
Liechtenstein,
FL-9490
Attn: Alein Johann
Deerwood 120,574 -- --
Enterprises, Ltd.
5177 Richmond
Suite 1166
Houston, TX 77056
Attn: Frank M.K. Liu
GE Capital Equity 466,958 301,061 389,498
Investments, Inc.
120 Long Ridge Road
Stamford, CT 06927
Attn: James Brown
Michael A. Garcia 5,618
12204 Dumfries Road
Manassas, VA
20112-3541
William H. and 1,448
Vonna K. Graves
325 Sun Forest Way
Chapel Hill, NC
27515
Grove Capital 9,645 -- --
Partners, LLC
3347 Divisadero
Street
San Francisco, CA
94123
Attn: George Lula
</TABLE>
<PAGE> 41
<TABLE>
<S> <C> <C> <C> <C> <C>
Halifax Buildnet 77,826 50,176 64,916
Investors, L.P.
702 Oberlin Road,
Suite 150
Raleigh, NC 27605
Attn: James D.
Lumsden
Eric J.E. Higgs 1,890 6,764 -- --
881 Innes Avenue
San Francisco, CA
94124
Mayflower Venture 11,588
Capital, LLC
2626 Glenwood
Avenue, Suite 200
Raleigh, NC 27608
Attn: Kimberly
Barnes
Petra Capital, LLC 67,740
172 2nd Avenue
North, Suite 112
Nashville, TN 37201
Attn: Casey West
Piedmont Venture 67,157 258,405 -- --
Partners
Limited
Partnership
One Morrocroft
Center, Suite 380
6805 Morrison
Boulevard
Charlotte, NC 28211
Attn: William H.
Neal, III
SGC Partners II LLC 291,848 188,163 243,436
1221 Avenue of the
Americas
13th Floor
New York, NY 10020
Attn: Justin
Hall-Tipping
John P. Siracuse 810 2,899 -- --
BancBoston
Robertson Stephens,
Inc.
One International
Place, 30th Floor
Boston, MA 02110
Southeast 8,686 -- --
Interactive
Technology
Fund I, LLC 28,587
2525 Meridian
Parkway, Suite 300-A
Durham, NC 27713
Attn: Norvell
Miller
</TABLE>
6
<PAGE> 42
<TABLE>
<S> <C> <C> <C> <C> <C>
Southeast 5,842 72,528 145,333 106,834 138,216
Interactive
Technology
Fund II, LLC
2525 Meridian
Parkway, Suite 300-A
Durham, NC 27713
Attn: Norvell
Miller
John Stein 13,500 37,267 -- --
3605 Saratoga Drive
Nashville, TN 37205
Stein Family 13,500 60,796 -- --
Partners, L.P.
3605 Saratoga Drive
Nashville, TN 37205
Attn: John Stein
------ ------- --------- ------- -------
TOTALS 53,083 237,125 1,681,566 771,674 998,356
====== ======= ========= ======= =======
</TABLE>
7
<PAGE> 1
EXHIBIT 4.3
BUILDNET, INC.
-----------------------------------
SERIES C INVESTOR RIGHTS AGREEMENT
----------------------------------
October 29, 1999
<PAGE> 2
BUILDNET, INC.
-------------------------------
SERIES C INVESTOR RIGHTS AGREEMENT
-------------------------------
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. RESTRICTIONS ON TRANSFER........................................................................1
1.1 RESTRICTIVE LEGEND.......................................................................................1
SECTION 2. REGISTRATION RIGHTS.............................................................................2
2.1 CERTAIN DEFINITIONS......................................................................................2
2.2 DEMAND REGISTRATION......................................................................................3
2.2(a) Demand for Registration.............................................................................3
2.2(b) Underwriting........................................................................................4
2.3 PIGGYBACK REGISTRATION...................................................................................5
2.3(a) Company Registration................................................................................5
2.3(b) Underwriting........................................................................................5
2.3(c) Right to Terminate Registration.....................................................................6
2.4 EXPENSES OF REGISTRATION.................................................................................6
2.5 OBLIGATIONS OF THE COMPANY...............................................................................7
2.6 INDEMNIFICATION..........................................................................................9
2.7 INFORMATION BY HOLDER...................................................................................12
2.8 TRANSFER OF REGISTRATION RIGHTS.........................................................................12
2.9 FORM S-3................................................................................................12
2.10 DELAY OF REGISTRATION.................................................................................13
2.11 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS.........................................................13
2.12 RULE 144 REPORTING....................................................................................13
2.13 "MARKET STAND-OFF" AGREEMENT..........................................................................14
2.14 AMENDMENT OF REGISTRATION RIGHTS......................................................................14
2.15 AIRCRAFT CARRIER RELEASE..............................................................................14
2.16 TERMINATION OF REGISTRATION RIGHTS....................................................................15
SECTION 3. RIGHTS OF FIRST REFUSAL........................................................................15
3.1 PRO RATA RIGHT..........................................................................................15
3.2 NEW SECURITIES..........................................................................................15
3.3 REQUIRED NOTICES........................................................................................15
3.4 COMPANY'S RIGHT TO SELL.................................................................................16
3.5 EXPIRATION OF RIGHT.....................................................................................16
3.6 ASSIGNMENT..............................................................................................16
SECTION 4. COMPANY COVENANTS..............................................................................16
4.1 AFFIRMATIVE COVENANTS...................................................................................16
4.1(a) Financial Statements and Information...............................................................16
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
4.1(d) Prompt Payment of Taxes............................................................................18
4.1(f) Maintenance of Insurance...........................................................................18
4.1(h) Compliance with Applicable Laws....................................................................18
4.1(i) Key Man Insurance..................................................................................18
4.2 NEGATIVE COVENANTS......................................................................................18
4.2(e) Dividends..........................................................................................19
4.2(f) Merger; Change in Control; Acquisition of Assets...................................................19
4.2(i) Related Party Transactions.........................................................................19
4.4 EXPIRATION OF COVENANTS.................................................................................19
SECTION 5. MISCELLANEOUS..................................................................................20
5.1 GOVERNING LAW...........................................................................................20
5.2 JURISDICTION............................................................................................20
5.3 WAIVER OF JURY TRIAL....................................................................................20
5.4 SUCCESSORS AND ASSIGNS..................................................................................20
5.5 ENTIRE AGREEMENT........................................................................................20
5.6 SEVERABILITY............................................................................................20
5.7 AMENDMENT AND WAIVER....................................................................................20
5.8 DELAYS OR OMISSIONS.....................................................................................21
5.9 NOTICES, ETC............................................................................................21
5.10 TITLES AND SUBTITLES..................................................................................22
5.11 COUNTERPARTS..........................................................................................22
</TABLE>
EXHIBITS
A Schedule of Investors
<PAGE> 4
BUILDNET, INC.
--------------------------------
SERIES C INVESTOR RIGHTS AGREEMENT
--------------------------------
This Series C Investor Rights Agreement (the "Agreement") is entered
into as of October 29, 1999, by and among Buildnet, Inc., a North Carolina
corporation (the "Company"), with its principal office at 4813 Emperor Blvd.,
Suite 130, Durham, NC, 27703, and the holders of the Company's Series C
Preferred Stock (the "Series C Stock") as listed on Exhibit A attached hereto.
The holders of Series C Stock are collectively referred to herein as the
"Investors" and each individually as an "Investor."
WHEREAS, in connection with the issuance and sale of Series C Stock to
the Series C Investors pursuant to that certain Series C Preferred Stock
Purchase Agreement, dated as of the date hereof, by and among the Company and
the Investors (the "Series C Agreement") the Company desires to provide the
Investors certain rights with respect to registration of the shares of stock
held by them and certain other rights with respect to such shares as an
inducement to the Investors to purchase shares of the Series C Stock;
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and conditions contained herein, the Company and each of the Investors hereby
agree as follows.
Section 1.
RESTRICTIONS ON TRANSFER
1.1 Restrictive Legend. Each certificate representing (a) the Series C
Stock, (b) the Company's Common Stock issued upon conversion of the Series C
Stock, and (c) any other securities issued in respect of the Series C Stock or
Common Stock issued upon conversion of the Series C Stock or upon stock split,
stock dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 1.2 below) be stamped
or otherwise imprinted with a legend in substantially the following form (in
addition to any legend required under applicable state securities laws).
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR THE AVAILABILITY
OF AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE
<PAGE> 5
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES
LAWS. COPIES OF THE STOCK PURCHASE AGREEMENT, INVESTOR RIGHTS AGREEMENT
AND BYLAWS, AS AMENDED, PROVIDING FOR RESTRICTIONS ON TRANSFER OF THESE
SECURITIES MAY BE OBTAINED UPON WRITTEN REQUEST BY THE HOLDER OF RECORD
OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
Each Holder (as defined below) consents to the Company making a
notation on its records and giving instructions to any transfer agent of the
Series C Stock or the Common Stock in order to implement the restrictions on
transfer established in this Section 1. The requirement that the above
securities legend be placed upon certificates evidencing shares of Series C
Stock or Common Stock shall cease and terminate upon the earliest of the
following events: (i) when such shares are transferred in an underwritten public
offering, (ii) when such shares are transferred pursuant to Rule 144 under the
Securities Act or (iii) when such shares are transferred in any other
transaction if the seller delivers to the Company an opinion of its counsel,
which counsel and opinion shall be reasonably satisfactory to the Company, to
the effect that such legend is no longer necessary in order to protect the
Company against a violation by it of the Securities Act upon any sale or other
disposition of such shares without registration thereunder. Upon the
consummation of any event requiring the removal of a legend hereunder, the
Company, upon the surrender of certificates containing such legend, shall, at
its own expense, deliver to the holder of any such shares as to which the
requirement for such legend shall have terminated, one or more new certificates
evidencing such shares not bearing such legend.
Section 2.
REGISTRATION RIGHTS
The Company hereby grants to each of the Holders (as defined below) the
registration rights set forth in this Section 2, with respect to the Registrable
Securities (as defined below) owned by such Holders. The Company and the Holders
agree that the registration rights provided herein set forth the sole and entire
agreement, and supersede any prior agreement, between the Company and the
Holders with respect to registration rights for the Company's securities.
2.1 Certain Definitions. As used in this Section 2:
(a) The term "Affiliate" means, with respect to any individual,
partnership or entity, any individual, partnership or entity that directly or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, such individual, partnership or entity.
(b) The terms "register," "registered" and "registration" refer to
a registration effected by filing with the SEC a registration statement (the
"Registration Statement") in
2
<PAGE> 6
compliance with the 1933 Act, and the declaration or ordering by the SEC of the
effectiveness of such Registration Statement.
(c) The term "Registrable Securities" means (i) shares of Common
Stock of the Company issued or issuable upon conversion of the shares of Series
C Stock held by Investors as set forth on Exhibit A or any transferee in a
Permitted Transfer (as defined in Section 2.8 below), and (ii) any shares of
Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange or in replacement of, such
Registrable Securities; provided, however, that shares of Common Stock or other
securities shall only be treated as Registrable Securities if and so long as (A)
they have not been sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, (B) they have not been
sold in a transaction exempt from the registration and prospectus delivery
requirements of the 1933 Act under Section 4(1) thereof so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale, and (C) the registration rights associated with such
securities have not been terminated pursuant to Section 2.16 hereof.
(d) The term "Holder" (collectively, "Holders") means any Investor
(and any transferee as permitted by Section 2.8 hereof) holding Registrable
Securities, securities exercisable or convertible into Registrable Securities or
securities exercisable for securities convertible into Registrable Securities.
(e) The term "Initiating Holders" means any Investor(s) holding at
least fifteen percent (15%) of the Registrable Securities then held by all
Investors and not registered at the time of any request for registration made
pursuant to Section 2.2 of this Agreement.
2.2 Demand Registration.
(a) Demand for Registration. If the Company shall receive from
Initiating Holders a written demand that the Company effect any registration (a
"Demand Registration") of the Registrable Securities (other than a registration
on Form S-3 or any related form of registration statement, such a request being
provided for under Section 2.9 hereof) having an anticipated net aggregate
offering price (after deduction of underwriter commissions and offering
expenses) of at least $5,000,000, the Company will:
(i) promptly (but in any event within ten (10) days) give
written notice of the proposed registration to all other Holders; and
(ii) use its best efforts to effect such registration as soon
as practicable and as will permit or facilitate the sale and distribution of all
or such portion of such Initiating Holders' Registrable Securities as are
specified in such demand, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such demand as are specified in a
written demand received by the Company within fifteen (15) days after such
written notice is given, provided that the Company shall not be obligated to
take any action to effect any such registration, pursuant to this Section 2.2:
3
<PAGE> 7
(A) with respect to any demand for registration by
Initiating Holders, after the Company has effected four (4) such registrations
initiated by Initiating Holders pursuant to this Section 2.2; provided, however,
that a registration requested pursuant to Section 2.2 shall not be deemed to be
a demand for registration by Initiating Holders unless a Registration Statement
covering at least eighty percent (80%) of the Registrable Securities specified
in the notices from the Initiating Holders has become effective and all shares
registered thereunder have been sold;
(B) 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 of the Company it would be seriously
detrimental to the Company and its shareholders for such Registration Statement
to be filed at the date filing would be required, in which case the Company
shall have an additional period of not more than sixty (60) days within which to
file such Registration Statement; provided, however, that the Company shall not
use this right more than once in any 12-month period; or
(C) prior to the earlier of (a) the date three (3) years
from the date of this Agreement or (b) the date the initial, firmly underwritten
public offering of the Company's securities is declared effective by the SEC.
(b) Underwriting. If the Initiating Holders intend to distribute
the Registrable Securities covered by their demand by means of an underwriting,
they shall so advise the Company as part of their demand made pursuant to this
Section 2.2; and the Company shall include such information in the written
notice referred to in Section 2.2(a)(i). In such event, the right of any Holder
to registration pursuant to this Section 2.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
The Company shall, together with all holders of capital stock of the
Company proposing to distribute their securities through such underwriting,
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected by a majority-in-interest of the Initiating Holders and
reasonably satisfactory to the Company. Notwithstanding any other provision of
this Section 2.2, if the underwriter shall advise the Company that marketing
factors (including, without limitation, an adverse effect on the per share
offering price) require a limitation of the number of shares to be underwritten,
then the Company shall so advise all Holders of Registrable Securities that have
requested to participate in such offering, and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated pro rata among such Holders thereof 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; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration.
4
<PAGE> 8
If any Holder disapproves of the terms of the underwriting, such Holder
may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The Registrable Securities so withdrawn
shall also be withdrawn from registration.
If the underwriter has not limited the number of Registrable Securities
to be underwritten, the Company may include securities for its own account (or
for the account of other shareholders) in such registration if the underwriter
so agrees and if the number of Registrable Securities would not thereby be
limited.
2.3 Piggyback Registration.
(a) Company 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 for the account of security holders, other than a registration
relating solely to employee benefit plans, a registration on Form S-4 relating
solely to an SEC Rule 145 transaction or a registration pursuant to Section 2.2
or 2.9 hereof, the Company will:
(i) promptly (but in any event within ten (10) days) give to
each Holder written notice thereof; and
(ii) include in such registration (and any related
qualification under state securities laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within fifteen (15) days after receipt of such
written notice from the Company, by any Holder or Holders, except as set forth
in Section 2.3(b) below.
Such Registrable Securities shall only be included to the extent that
inclusion will not diminish the number of securities included by the Company or
by other holders of securities exercising a Demand Registration.
(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 2.3(a)(i). In such event the right of any Holder to
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
All Holders proposing to distribute their Registrable Securities
through such underwriting shall, together with the Company and the other parties
distributing their securities through such underwriting, enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 2.3, if the underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten, the
underwriter may limit the number of Registrable Securities to be included in the
registration and underwriting; provided, however, that the amount of Registrable
Securities and other securities that have contractual rights with respect to
registration similar to those provided in this Section 2.3 shall not be reduced
below
5
<PAGE> 9
twenty-five percent (25%) of the total number of securities in such offering,
but in the case of the Company's initial public offering, the underwriter may
exclude Registrable Securities entirely from such registration and underwriting
subject to the terms of this Section 2.3; provided, further, that no other
stockholders' securities are included including, without limitation, those of
directors, officers and employees of the Company. The Company shall so advise
all holders of the Company's securities that would otherwise be registered and
underwritten pursuant hereto, and the number of shares of such securities,
including Registrable Securities, that may be included in the registration and
underwriting shall be allocated in the following manner: shares, other than
Registrable Securities and other securities that have contractual rights with
respect to registration similar to those provided for in this Section 2.3
(provided that the holders of Registrable Securities shall have consented to the
granting of such registration rights pursuant to Section 2.11 hereof), requested
to be included in such registration by shareholders shall be excluded, and if a
limitation on the number of shares is still required, the number of Registrable
Securities and other securities that have contractual rights with respect to
registration that may be included shall be allocated among the holders thereof
in proportion, as nearly as practicable, to the amounts of Registrable
Securities and such other securities held by each such holder at the time of
filing the Registration Statement, provided that no such limitation shall
diminish the number of securities to be included by any holder exercising
contractual rights with respect to a Demand Registration (whether pursuant to
this or any other agreement). For purposes of any such underwriter cutback, all
Registrable Securities and other securities held by any holder that is a
partnership or corporation, shall also include any Registrable Securities held
by the partners, retired partners, shareholders or affiliated entities of such
holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons, and
such holder and other persons shall be deemed to be a single "selling holder,"
and any pro rata reduction with respect to such "selling holder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling holder," as defined in this
sentence. No securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
Nothing in this Section 2.3(b) is intended to diminish the number of securities
to be included by the Company or by any holder exercising contractual rights
with respect to a Demand Registration (whether pursuant to this or any other
agreement) in the underwriting.
If any Holder disapproves of the terms of the underwriting, it may
elect to withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Securities so withdrawn shall also be withdrawn
from registration.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
2.4 Expenses of Registration. All Registration Expenses (as defined
below) incurred in connection with all registrations effected pursuant to
Sections 2.2, 2.3 and 2.9, shall be borne by the Company; provided, however,
that the Company shall not be required to pay stock transfer taxes or
underwriters' discounts or selling commissions relating to Registrable
Securities. "Registration Expenses" means any and all expenses incident to
performance of or
6
<PAGE> 10
compliance with this Agreement, including without limitation, (i) all
registration and filing fees of the Commission, a stock exchange or the National
Association of Securities Dealers, Inc., (ii) all fees and expenses of complying
with securities or blue sky laws (including fees and disbursements of counsel
for the underwriters in connection with blue sky qualifications of the
Registrable Securities) unless paid by the underwriters, (iii) all printing,
messenger and delivery expenses, (iv) all fees and expenses incurred in
connection with the listing of the Registrable Securities on any securities
exchange, (v) the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits
and/or "cold comfort" letters required by or incident to such performance and
compliance (vi) the reasonable fees and disbursements of one counsel selected by
the Holders of a majority of the Registrable Securities being registered to
represent all Holders of the Registrable Securities being registered in
connection with each such registration, (vii) any fees and disbursements of
underwriters customarily paid by the issuers or sellers of securities, including
fees and disbursements of underwriters customarily paid by the issuers or
sellers of securities, including fees and disbursements of counsel for the
underwriters, but excluding underwriting discounts and commissions, (viii)
liability insurance if the Company so desires or if the underwriters so require,
and (ix) the reasonable fees and expenses of any special experts retained by the
Company in connection with the requested registration. Notwithstanding anything
to the contrary above, the Company shall not be required to pay for any
Registration Expenses of any registration proceeding under Section 2.2 and the
Holders shall retain their rights pursuant to Section 2.2 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to have been registered, provided, however, that in
the event that Holders holding at least a majority of the Registrable Securities
held by the Investors agree to forfeit their right to one demand registration
pursuant to Section 2.2 (in which event such right shall be forfeited by all the
Investors), then the Company shall be required to pay the expenses of such
withdrawn registration. In the absence of such an agreement to forfeit, the
Holders of Registrable Securities to have been registered shall bear all such
expenses pro rata on the basis of the Registrable Securities to have been
registered. Notwithstanding the preceding sentence, however, if at the time of
the withdrawal, the Holders have learned of a materially adverse change in the
condition, business or prospects of the Company from that known to the Holders
at the time of their request, then the Holders shall not be required to pay any
of said expenses and shall retain their rights pursuant to Section 2.2.
2.5 Obligations of the Company. Whenever required under this Section 2
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) use its best efforts to prepare and file, within forty-five
(45) days after the period within which a request for registration may be given
to the Company, with the SEC a Registration Statement with respect to such
Registrable Securities and use its best efforts to cause such Registration
Statement to become effective, and keep such Registration Statement effective
for the lesser of one hundred twenty (120) days or until the Holder or Holders
have completed the distribution relating thereto, provided, however, that such
one hundred twenty (120) day period shall be extended for a period of time equal
to the period the Holder or Holders refrain from selling any securities included
in such registration at the request of an underwriter of the Company's stock.
7
<PAGE> 11
(b) prepare and file with the SEC such amendments and supplements
to such Registration Statement and the prospectus used in connection with such
Registration Statement as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such Registration Statement; provided that before filing a
Registration Statement or prospectus, or any amendments or supplements thereto,
the Company will furnish to one counsel selected by the Holders of a majority of
the Registrable Securities covered by such Registration Statement to represent
all Holders of Registrable Securities covered by such Registration Statement,
copies of all documents proposed to be filed, which documents will be subject to
the review of such counsel.
(c) furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) use its best efforts to register or otherwise qualify the
securities covered by such Registration Statement under such other securities
laws of such states and other jurisdictions as shall be reasonably requested by
the Holders or the managing underwriter, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions where, but for the requirements of this paragraph (d), it would
not be obligated to be so qualified unless the Company is already subject to
service in such jurisdiction and except as may be required by the 1933 Act.
(e) in the event of any 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 1933 Act, of the happening of any event as a
result of which the prospectus included in such Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing and at
the request of any such seller, prepare and furnish to such seller a reasonable
number of copies of an amended or supplemental prospectus as may be necessary so
that, as thereafter delivered to the sellers of such Registrable Securities,
such prospectus shall not included an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances then
existing.
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably
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practicable (but not more than eighteen (18) months) after the effective date of
the Registration Statement, an earnings statement that shall satisfy the
provisions of Section 11(a) of the Securities Act and the rules and regulations
promulgated thereunder.
(h) obtain a "cold comfort" letter or letters from the Company's
independent public accountants in customary form and covering matters of the
type customarily covered by "cold comfort" letters as the seller or sellers of a
majority of such Registrable Securities shall reasonably request.
(i) obtain an opinion of counsel for the Company in customary form
and covering matters of the type customarily covered in opinions of issuer's
counsel as the sellers shall reasonably request.
(j) use its best efforts to list the Registrable Securities covered
by such Registration Statement with any securities exchange on which the Common
Stock is then listed.
(k) make available for inspection by each Holder including
Registrable Securities in such registration, any underwriter participating in
any distribution pursuant to such registration, and any attorney, accountant or
other agent retained by such Holder or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, as such
parties may reasonably request, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Holder,
underwriter, attorney, accountant or agent in connection with such Registration
Statement.
(l) cooperate with Holders including Registrable Securities in such
registration and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold, such certificates to be in such denominations and registered in such
names as such Holders or the managing underwriters may request at least two
business days prior to any sale of Registrable Securities.
(m) permit any Holder which Holder, in the sole and exclusive
judgment, exercised in good faith, of such Holder, might be deemed to be a
controlling person of the Company, to participate in good faith in the
preparation of such Registration Statement and to require the insertion therein
of material, furnished to the Company in writing, that in the reasonable
judgment of such Holder and its counsel should be included.
(n) 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.
2.6 Indemnification.
(a) The Company will, and does hereby undertake to, indemnify and
hold harmless each Holder of Registrable Securities, each of such Holder's
officers, directors, partners and agents, and each person controlling such
Holder, with respect to any registration, qualification or compliance effected
pursuant to this Section 2, and each underwriter, if any, and
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each person who controls any underwriter, of the Registrable Securities held by
or issuable to such Holder, against all claims, losses, damages and liabilities
(or actions in respect thereto) to which they may become subject under the 1933
Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), or other
federal or state law arising out of or based on (i) any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other similar document (including any related Registration
Statement, notification, or the like) 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 not misleading in light of the circumstances in which
they were made, (ii) any violation or alleged violation by the Company of any
federal, state or common law rule or regulation applicable to the Company in
connection with any such registration, qualification or compliance, or (iii) any
failure to register or qualify Registrable Securities in any state where the
Company or its agents have affirmatively undertaken or agreed in writing that
the Company (the undertaking of any underwriter chosen by the Company being
attributed to the Company) will undertake such registration or qualification on
behalf of the Holders of such Registrable Securities (provided that in such
instance the Company shall not be so liable if it has undertaken its best
efforts to so register or qualify such Registrable Securities) and will
reimburse, as incurred, each such Holder, each such underwriter and each such
director, officer, partner, agent and controlling person, for any legal and any
other expenses reasonably incurred in connection with investigating 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 made in conformity with written information furnished to the Company
by an instrument duly executed by such Holder or underwriter and stated to be
specifically for use therein.
(b) Each Holder will, and if Registrable Securities held by or
issuable to such Holder are included in such registration, qualification or
compliance pursuant to this Section 2, does hereby undertake to indemnify and
hold harmless the Company, each of its directors and officers, and each person
controlling the Company, each underwriter, if any, and each person who controls
any underwriter, of the Company's securities covered by such a Registration
Statement, and each other Holder, each of such other Holder's officers,
partners, directors and agents and each person controlling such other Holder,
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 in light of the
circumstances in which they were made, and will reimburse, as incurred, the
Company, each such underwriter, each such other Holder, and each such director,
officer, partner and controlling person of the foregoing, 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) was 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;
provided, however, that the liability of each Holder hereunder shall be limited
to the proportion of any such claim, loss, damage or liability
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that is equal to the proportion that the public offering price of the shares
sold by such Holder under such Registration Statement bears to the total public
offering price of all securities sold thereunder, but in any event not to exceed
the net proceeds received by such Holder from the sale of securities under such
Registration Statement. It is understood and agreed that the indemnification
obligations of each Holder pursuant to any underwriting agreement entered into
in connection with any Registration Statement shall be limited to the
obligations contained in this subsection 2.6(b).
(c) Each party entitled to indemnification under this Section 2.6
(the "Indemnified Party") shall give notice to the party required to provide
such indemnification (the "Indemnifying Party") of any claim as to which
indemnification may be sought promptly after such Indemnified Party has actual
knowledge thereof, 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 subject to approval by the Indemnified Party (whose
approval shall not be unreasonably withheld) and the Indemnified Party may
participate in such defense at the Indemnifying Party's expense if
representation of such Indemnified Party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding; 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 Section 2, except
to the extent that such failure to give notice shall materially adversely affect
the Indemnifying Party in the defense of any such claim or any such litigation.
An Indemnifying Party, in the defense of any such claim or litigation, may,
without the consent of each Indemnified Party, consent to entry of any judgment
or enter into any settlement that includes as an unconditional term thereof the
giving by the claimant or plaintiff therein, to such Indemnified Party, of a
release from all liability with respect to such claim or litigation.
(d) In order to provide for just and equitable contribution to
joint liability under the 1933 Act in any case in which either (i) any Holder
exercising rights under this Agreement, or any controlling person of any such
Holder, makes a claim for indemnification pursuant to this Section 2.6 but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 2.6 provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of any such Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 2.6; then, and in each such case,
the Company and such Holder will contribute to the aggregate claims, losses,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that such Holder is responsible for the portion
represented by the percentage that the public offering price of the securities
offered by such Holder pursuant to the Registration Statement bears to the
public offering price of all securities offered by such Registration Statement,
and the Company will be responsible for the remaining portion; provided,
however, that, in any case, (A) no such Holder will be required to contribute
any amount in excess of the public offering price of all securities offered by
it pursuant to such Registration Statement, after deduction of underwriting
discounts and commissions; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of
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the 1933 Act) will be entitled to contribution from any person or entity who was
not guilty of such fraudulent misrepresentation.
(e) The indemnities provided in this Section 2.6 shall survive the
transfer of any Registrable Securities by such Holder.
2.7 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 and the distribution proposed by
such Holder or Holders as the Company may reasonably request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Section 2.
2.8 Transfer of Registration Rights.
(a) The rights, contained in Sections 2.2, 2.3 and 2.9 hereof, to
cause the Company to register the Registrable Securities, may be assigned or
otherwise conveyed to a transferee or assignee of Registrable Securities, who
shall be considered a "Holder" for purposes of this Section 2, provided that (i)
any such transfer by Investor is effected in compliance with Section 1.2 hereof;
and (ii) such transfer is a "Permitted Transfer" as defined herein.
(b) For purposes of this Agreement, a "Permitted Transfer" shall
mean: (i) a transaction not involving a change in beneficial ownership; (ii)
transactions involving distribution without consideration by a shareholder that
is a partnership to any of its partners, retired partners, or to the estate of
any of its partners; (iii) transactions involving distribution without
consideration by a shareholder that is a corporation or limited liability
company to any of its shareholders or members, as applicable; (iv) transfers by
any shareholder who is an individual to a trust for the benefit of such
shareholder or his family; (v) a transfer in which the transferee acquires at
least 5,000 shares of Registrable Securities, or securities convertible into or
exercisable for such number of shares, subject to adjustment for combinations,
consolidations, recapitalizations, stock splits, stock dividends and the like;
or (vi) transfers by gift, will or intestate succession to the spouse, lineal
descendants or ancestors of any shareholder or spouse of a shareholder, or (vii)
transfer by any Holder to any of its Affiliates.
2.9 Form S-3. If the Company's stock becomes publicly traded, the
Company shall use its best efforts to qualify for registration on Form S-3 and
to that end the Company shall register the Common Stock under the 1934 Act
within twelve (12) months following the effective date of the first registration
of any securities of the Company on Form S-1. After the Company has qualified
for the use of Form S-3, the Holders of Registrable Securities shall have the
right to request registrations on Form S-3 thereafter under this Section 2.9.
The Company shall give notice to all Holders of Registrable Securities of the
receipt of a request for registration pursuant to this Section 2.9 and shall
provide a reasonable opportunity for other Holders to participate in the
registration. Subject to the foregoing, the Company will use its best efforts to
effect as soon as practicable the registration of all shares of Registrable
Securities on Form S-3, as the case may be, to the extent requested by the
Holder or Holders thereof for purposes of disposition; provided, however, that
the Company shall not be obligated to effect any such registration if (a) the
Holders, together with the holders of any other securities of the Company
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<PAGE> 16
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public of less than $500,000, or (b) the Company shall have already made two (2)
registrations on Form S-3 within the 12-month period immediately preceding the
request, or (c) the Company has already effected four (4) such registrations on
Form S-3 initiated by Initiating Holders pursuant to this Section 2.9.
Notwithstanding the foregoing, nothing herein shall restrict, prohibit, or limit
in any way a Holder's ability to exercise its registration rights under Sections
2.2 or 2.3 hereof. The Company shall have no obligation to take any action to
effect any registration pursuant to this Section 2.9 for any of the reasons set
forth in Section 2.2(a)(ii)(A) or (C) (which shall be deemed to apply to the
obligations under this Section 2.9 with equal force). In addition, any
registration pursuant to this Section 2.9 shall be subject to the provisions of
Section 2.2(b), which shall be deemed to apply to the obligations under this
Section 2.9 with equal force, except that any reference therein to Section 2.2
or a subsection thereof shall, for these purposes only, be deemed to be a
reference to this Section 2.9.
2.10 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.11 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the Registrable Securities then outstanding and
not registered, enter into any agreement with any holder or prospective holder
of any securities of the Company that would allow such holder or prospective
holder to (a) require the Company to effect a registration or (b) include any
securities in any registration filed under Section 2.2, 2.3 or 2.9 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 such securities will not diminish the amount of Registrable
Securities that are included in such registration.
2.12 Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC that may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to:
(a) make and keep current public information available, within the
meaning of SEC Rule 144 or any similar or analogous rule promulgated under the
1933 Act, at all times after it has become subject to the reporting requirements
of the 1934 Act;
(b) file with the SEC, in a timely manner, all reports and other
documents required of the Company under the 1933 Act and 1934 Act (after it has
become subject to such reporting requirements);
(c) so long as a Holder owns any Registrable Securities, furnish to
such Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time
commencing ninety (90) days after the effective date of the first registration
filed by the Company for an offering of its securities to the general public),
the 1933 Act and the 1934 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;
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and such other reports and documents as a Holder may reasonably request in
availing itself of any rule or regulation of the SEC allowing it to sell any
such securities without registration.
2.13 "Market Stand-Off" Agreement. Each Holder that is a "One Percent
Shareholder," as defined below, hereby agrees that during a period, not to
exceed 180 days, following the effective date of a registration statement of the
Company filed under the 1933 Act, it shall not, to the extent requested by the
Company and any underwriter, sell, pledge, transfer, make any short sale of,
loan, grant any option for the purchase of, or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) any Registrable
Securities held by it at any time during such period except Common Stock
included in such registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company that covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all other "One Percent Shareholders" with registration rights
(whether or not pursuant to this Agreement) and all officers and directors of
the Company enter into similar agreements.
For purposes of this Section 2.13, the term "One Percent Shareholder"
shall mean a shareholder of the Company who holds at least one percent of the
outstanding Common Stock of the Company (assuming conversion of all outstanding
Preferred Stock of the Company and full exercise of all Warrants).
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
2.14 Amendment of Registration Rights. Any provision of this Section 2
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of at least a majority of the
Registrable Securities then outstanding and not registered; except that any
amendment or waiver affecting the rights or privileges of the Investors shall
require the written consent of the holders of a majority of the shares of Series
C Stock then outstanding; except further that any amendment to Section 2.13 that
pertains to shares of Registrable Securities held by an investment company
advised by an investment advisor registered under the Investment Company Act of
1940, as amended, requires the written consent of such investment company(s).
Any amendment or waiver effected in accordance with this Section shall be
binding upon each Holder, each future Holder of Registrable Securities and the
Company.
2.15 Aircraft Carrier Release. The parties agree that if Release No.
33-7606A, or a similar release, is adopted by the SEC, the parties shall make
amendments to this Agreement necessary to preserve the intent of this Agreement.
All references to SEC forms in this Agreement include successor forms thereto.
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2.16 Termination of Registration Rights. The rights of any particular
Holder to cause the Company to register securities under Sections 2.2, 2.3 or
2.9 hereof shall terminate as to any Holder on the date such Holder is able to
dispose of all of its Registrable Securities in any 90-day period pursuant to
SEC Rule 144 (or any similar or analogous rule promulgated under the 1933 Act),
provided, however that such rights shall not terminate with respect to any
Holder owning more than one-half percent (1/2%) of the Company's outstanding
Common Stock of the Company until such time as such Holder owns less than
one-half percent (1/2%) of the outstanding Common Stock of the Company.
Section 3.
RIGHTS OF FIRST REFUSAL
3.1 Pro Rata Right. The Company hereby grants to each Investor, subject
to the terms and conditions specified in this Section 3, the right of first
refusal to purchase up to its pro rata share of all New Securities (as defined
in Section 3.2 hereof) that the Company may, from time to time, propose to sell
and issue. An Investor's pro rata share, for purposes of this right of first
refusal, is the ratio (a) the numerator of which is the number of shares of
Common Stock issued or issuable to such Investor upon the conversion of shares
of Series C Stock held by such Investor on the date of the Company's written
notice pursuant to Section 3.3 hereof, and (b) the denominator of which is the
number of shares of Common Stock outstanding, assuming for this purpose
conversion or exercise of all securities convertible into or exercisable for
Common Stock of the Company.
3.2 New Securities. "New Securities" shall mean any capital stock of
the Company, whether now authorized or not, and rights, options or warrants to
purchase capital stock, and securities of any type whatsoever that are, or may
become, convertible into capital stock; provided that the term "New Securities"
does not include (i) the Series A Preferred Stock of the Company, the Series B
Preferred Stock of the Company or the Series C Stock (collectively, the
"Preferred Stock"); (ii) securities issuable upon conversion of or with respect
to Preferred Stock; (iii) securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of substantially all the
assets or other reorganization whereby the Company owns more than 50% of the
voting power of such corporation; (iv) capital stock or securities exercisable
for or convertible into such capital stock issued in connection with any
borrowings, direct or indirect, from financial or other institutions regularly
engaged in the business of lending of money if such issuance is approved by the
Board of Directors of the Company; (v) shares of Common Stock, and options,
warrants or rights convertible into such Common Stock, issued to employees,
consultants or directors of the Company pursuant to any incentive agreement or
arrangement approved by the Board of Directors of the Company; (vi) shares of
Common Stock or Preferred Stock issued upon exercise of options or warrants
outstanding on the date hereof; or (vii) securities issued pursuant to any stock
dividend, stock split, combination or other reclassification by the Company of
any of its capital stock.
3.3 Required Notices. In the event the Company proposes to undertake an
issuance of New Securities, it shall give each Investor written notice of its
intention, describing the type of
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New Securities, the price and the general terms upon which the Company proposes
to issue the same. Each Investor shall have fifteen (15) days from the date of
any such notice to agree to purchase the Investor's 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. After such initial 15-day period, for an additional
period of fifteen (15) days, each Investor may also exercise its right of
overallotment such that if any Investor fails to exercise its right hereunder to
purchase its pro rata portion of the New Securities proposed to be sold by the
Company, each other Investor may, by notifying the Company of such Investor's
desire to acquire more that its pro rata share as part of its exercise notice
pursuant to this Section 3.3, purchase the nonpurchasing Investor's portion on a
pro rata basis.
3.4 Company's Right to Sell. In the event the Investors fail to
exercise their rights of first refusal as to all New Securities offered within
said 15-day period, the Company shall have ninety (90) days thereafter to sell
all such New Securities respecting which the Investors' rights of first refusal
hereunder were not exercised, at a price and upon general terms no more
favorable in any material respect to the purchasers thereof than specified in
the Company's notice. In the event the Company has not sold all such New
Securities within said 90-day period, the Company shall not thereafter issue or
sell any New Securities, without first offering such securities to the Investors
in the manner provided herein.
3.5 Expiration of Right. The rights of first refusal granted under this
Section 3 shall not apply to, and shall expire upon, the effectiveness of the
Company's initial registration statement for the sale of its shares of Common
Stock in a firm commitment underwritten public offering registered under the
1933 Act (other than a registration relating solely to employee benefit plans or
to a transaction under Rule 145 under the 1933 Act or any successor rule
thereto) (a "Qualified Public Offering").
3.6 Assignment. The rights of first refusal set forth in this Section 3
are nonassignable, except that (a) such right is assignable by each Investor to
any wholly owned subsidiary or parent of, or to any corporation, entity or other
person that is, within the meaning of the 1933 Act, controlling, controlled by
or under common control with, such Investor, and (b) such right is assignable in
any Permitted Transfer (as defined in Section 2.8(b)) by an Investor.
Section 4.
COMPANY COVENANTS
The Company hereby covenants and agrees as follows.
4.1 Affirmative Covenants.
(a) Financial Statements and Information. The Company will keep
books of account and prepare financial statements and will take the following
actions with respect to such information (all of the foregoing and following to
be kept and prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis).
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(i) As soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, beginning with the
fiscal year ended December 31, 1999, the Company will furnish to each Investor
and each other Holder (1) a copy of the financial statements of the Company for
such fiscal year containing a consolidated balance sheet, statement of income,
statement of shareholders' equity, and statement of cash flows, each as at the
end of such fiscal year and for the period then ended and in each case setting
forth in comparative form the figures for the preceding fiscal year, all in
reasonable detail and audited and certified by independent public accountants of
recognized standing selected by the Company's Board of Directors, and containing
an opinion that such financial statements have been prepared in conformity with
generally accepted accounting principles applied on a basis consistent with
prior years (except as otherwise specified in such report) and (2) a statement
from the principal financial or accounting officer of the Company (or, upon the
request of the holders of a majority of the Common Stock issued or issuable upon
conversion of the Preferred Stock or exercise of any warrants held by holders of
Preferred Stock, a statement from the auditors of the Company) discussing
whether the Company is in material compliance with this Agreement and all its
other material agreements. In addition to the foregoing, upon the request of any
Investor who holds no less than 1,500,000 shares of Common Stock issued or
issuable upon conversion of the Series C Stock, subject to adjustment for stock
splits, stock dividends and the like, the Company shall use its best efforts to
cause the auditors of the Company to meet with such Investor for purposes of
reviewing the Company's financial statements and condition.
(ii) As soon as practicable after the end of each of the first
three quarters of the fiscal year, but in any event within thirty (30) days
after the end of each such quarter, the Company will furnish to each Investor
and each other Holder the unaudited consolidated balance sheets of the Company
and its subsidiaries, if any, as of the end of such quarter, and its unaudited
consolidated statements of income and losses, shareholders' equity and cash
flows for such quarter, setting forth in each case in comparative form the
figures for the corresponding period of the preceding fiscal year, all in
reasonable detail and prepared in accordance with generally accepted accounting
principles, except that such financial statements may not contain notes and will
be subject to year-end adjustment, and certified by the principal financial or
accounting officer of the Company. Such quarterly report shall include a
narrative, summary description of the Company's operations for such quarter from
the Chief Executive or Operating Officer, indicating whether the Company is
materially in compliance with this Agreement and other material agreements and
discussing any material variances from the Company's operating plan.
(iii) The Company will promptly notify the Investors of the
occurrence of any material default (with or without notice or lapse of time or
both) under, or material breach of, any material debt agreement or obligation,
and it shall deliver to each Investor any default notice in connection
therewith. The Investors shall be entitled to participate in any discussions
with the Company's lenders regarding any such default.
(iv) The Company will provide each Investor who holds no less
than 1,500,000 shares of Common Stock issued or issuable upon conversion of the
Series C Stock, subject to adjustments for stock splits, stock dividends and the
like, a notice and with respect to (ii) a copy via facsimile of the following
events, (i) if the Company files a registration statement under the Securities
Act for purposes of a public offering of securities of the Company, within
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twenty-four hours after such filing, (ii) if the Company issues a press release,
within twenty-four hours after such press release, and (iii) if the Company
issues additional shares of Preferred Stock, within twenty-four hours after such
issuance.
(v) With respect to (i) through (iv) above and (b) below, the
holdings of each Investor advised by the same investment adviser shall be
aggregated for the purposes of determining whether such Investor meets the
1,500,000 share threshold.
(vi) The Company shall permit each holder of at least 1,500,000
shares of Common Stock issued or issuable upon conversion of the Series C Stock,
except for a Holder reasonably deemed by the Company to be a competitor of the
Company, at such Holder's 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; provided, however, that
the Company shall not be obligated pursuant to this Section 4.1(b) to provide
access to any information which it reasonably considers to be a trade secret or
other confidential information.
(c) Prompt Payment of Taxes. The Company and its subsidiaries, if
any, will timely pay and discharge, or cause to be paid and discharged, all
lawful taxes, assessments and governmental charges or levies imposed upon any of
their income, profits, properties or businesses; provided, however, that any
such tax, assessment, charge or levy need not be paid if the validity thereof
shall currently be contested in good faith by appropriate proceedings; and
provided, further, that the Company and its subsidiaries will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any tax lien that may have attached as security
therefor or with respect thereto.
(d) Maintenance of Insurance. The Company shall maintain, and cause
each subsidiary to maintain, insurance (including directors and officers
insurance) with responsible and reputable insurance companies or associations in
such amounts and covering such risks as is customarily carried by companies
engaged in similar businesses and owning similar properties in the same general
areas in which the Company or such subsidiary operates.
(e) Compliance with Applicable Laws. The Company shall comply in
all material respect with all applicable statutes, laws, ordinances, rules and
regulations of any governmental authority (whether now in effect or hereinafter
enacted) and any filing requirements relating thereto including without
limitation, the U.S. Foreign Corrupt Practices Act and environmental laws and
regulations. The Company shall do all things necessary to preserve, renew and
keep in full force and effect and in good standing its corporate existence and
authority necessary to continue its business.
(f) Key Man Insurance. The Company shall maintain a policy of "key
man" insurance on the lives of Nathan Morton, Mike Atwood, Keith Brown and Chuck
Cosby with minimum coverage of $1,000,000, unless otherwise directed by the
Board of Directors. The proceeds from such policies shall be payable to the
Company.
4.2 Negative Covenants. Without the prior written consent of the
holders of at least a majority of the Series C Stock, the Company covenants and
agrees as follows.
18
<PAGE> 22
(a) Dividends. Except as otherwise permitted in the Articles of
Incorporation of the Company, as amended from time to time, or this Agreement,
the Company shall not declare or make any dividends or distributions of its
cash, stock, property or assets.
(b) Merger; Change in Control; Acquisition of Assets. The Company
will not (a) sell, lease or otherwise dispose of (whether in one transaction or
a series of related transactions) all or substantially all of its assets, (b)
merge with or into or consolidate with another entity (except into or with a
wholly-owned subsidiary of the Company with the requisite shareholder approval)
in which the shareholders of the Company immediately prior to such merger or
consolidation possess a minority of the acquiring entity immediately following
such merger or consolidation, or (c) voluntarily liquidate or wind up its
operations.
(c) Related Party Transactions. The Company shall not enter into
any material agreement, transaction or relationship with any person that
controls, is controlled by, or is under common control with, the Company or with
any officer, director, shareholder or employee of the Company, including any
member of any of their immediate families, unless such agreement, transaction or
relationship is substantially on terms that would be offered by an unaffiliated
party.
(d) The Company shall not, directly or indirectly, pay or cause to
be paid any remuneration, whether by way of supplemental or additional interest,
fee or otherwise to any Purchaser or other shareholder of the Company as
consideration for or as an inducement to entering into by any Purchaser or other
shareholder of the Company of any waiver or amendment of any of the terms and
provisions of the Agreements or the Articles which affects any Purchasers'
rights as an investor, unless such remuneration is concurrently paid, on the
same terms, ratably to all Purchaser whether or not such Purchasers grant such
waiver or agree to such amendment.
(e) The Company shall not become an "investment company" or a
company "controlled" by an "investment company", within the meaning of the 1940
Act. In the event the Company breaches the foregoing, the Company shall
forthwith notify the Purchasers and shall take immediate corrective action to
remedy such breach.
4.3 Expiration of Covenants. The covenants set forth in this Section 4
shall expire and be of no further force or effect upon the closing of a
Qualified Public Offering (as defined in Section 3.5 hereof). After such time,
the Investors shall be entitled to receive such annual and quarterly reports as
the Company shall distribute to its shareholders generally.
19
<PAGE> 23
Section 5.
MISCELLANEOUS
5.1 Governing Law. This Agreement shall be governed by, and construed
and interpreted in accordance with the laws of the State of New York as applied
to agreements among New York residents made and to be performed entirely within
the State of New York.
5.2 Jurisdiction. Each party hereto hereby irrevocably and
unconditionally submits to the exclusive jurisdiction of the state and federal
courts located in the State of New York, County of New York, for any actions,
suits, or proceedings arising out of or relating to this agreement and the
transactions contemplated hereby. Each party hereto agrees not to commence any
action, suit or proceeding relating thereto except in such courts. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of this
agreement or the transactions contemplated hereby, in such state or federal
courts as aforesaid and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
5.3 Waiver of Jury Trial. The parties hereby waive trial by jury in any
judicial proceeding to which they are parties involving, directly or indirectly,
any matter in any way arising out of, related to or connected with this
Agreement.
5.4 Successors and Assigns. Except as otherwise expressly 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.
5.5 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subjects
hereof. Nothing in this Agreement, express or implied, is intended to confer
upon any party, other than the parties hereto and their successors and assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
5.6 Severability. Any invalidity, illegality or limitation of the
enforceability with respect to any Investor of any one or more of the provisions
of this Agreement, or any part thereof, whether arising by reason of the law of
any such person's domicile or otherwise, shall in no way affect or impair the
validity, legality or enforceability of this Agreement with respect to other
Investors. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, it shall to the extent practicable, be modified so as to make it
valid, legal and enforceable and to retain as nearly as practicable the intent
of the parties, and the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
5.7 Amendment and Waiver. Except as otherwise expressly provided
herein, any term of this Agreement may be amended and the observance of any term
of this Agreement may
20
<PAGE> 24
be waived (either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely) with
the written consent of the Company and Investors (or their transferees) holding
at least a majority of the shares of Registrable Securities, voting together as
a single group (treating Series C Stock as if converted at the conversion rate
then in effect, and including, for such purposes, shares of Common Stock into
which any shares of Series C Stock shall have been converted that are held by a
Holder); provided, however, that no such amendment or waiver shall reduce the
aforesaid percentage of Registrable Securities, the holders of which are
required to consent to any waiver or supplemental agreement, without the consent
of the holders of all of such Registrable Securities. Any amendment or waiver
effected in accordance with this Section 5.7 shall be binding upon each Investor
and each transferee of the Registrable Securities. Upon the effectuation of each
such amendment or waiver, the Company shall promptly give written notice thereof
to the Investors who have not previously consented thereto in writing.
Notwithstanding anything to the contrary in this Section 5.7, the Company shall
be entitled to include additional purchasers of its Series C Stock pursuant to
the Series C Agreement as parties to this Agreement, and to treat such
purchasers as "Investors" and "Holders" hereunder, by amending Exhibit A
attached hereto and providing such Exhibit A, as amended, to the other parties
to this Agreement. Notwithstanding the foregoing any amendment to Section 2.13
that pertains to shares of Registrable Securities held by any investment company
advised by an investment advisor registered under the Investment Company Act of
1940, as amended, shall require the written consent of such investment
company(s).
5.8 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Company, any Investor, or any transferees upon
any breach, default or noncompliance of any Investor or any transferee or the
Company under this Agreement, shall impair any such right, power or remedy, nor
shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of any similar breach, default or
noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character on the part of the Company
or the Investors of any breach, default or noncompliance under this Agreement or
any waiver on the Company's or the Investors' part 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 and that all remedies, either
under this Agreement, by law, or otherwise afforded to the Company and the
Investors, shall be cumulative and not alternative.
5.9 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or upon confirmed delivery by facsimile or telecopy, or
on the fifth day (or the tenth day if to a party with an address outside of the
United States) following mailing by registered or certified mail, return receipt
requested, postage prepaid, addressed: (a) if to an Investor, at such Investor's
address as set forth on the schedule attached hereto, or at such other address
as such Investor shall have furnished to the Company in writing, or (b) if to
the Company, at its address first above written, or at such other address as the
Company shall have furnished to the Investors in writing.
21
<PAGE> 25
5.10 Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
5.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
22
<PAGE> 26
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties as of the date first above written.
THE COMPANY: BUILDNET, INC.
By: /s/ Stephen L. Holcombe
Name: Stephen L. Holcombe
Title: Senior Vice President, Chief Financial Officer
INVESTORS: /s/ Investors listed in Exhibit A hereto
(Printed or Typed Name)
By: /s/ Investors listed in Exhibit A hereto
Name:
------------------------------------------------
Title:
-----------------------------------------------
[SIGNATURE PAGE TO SERIES C INVESTOR RIGHTS AGREEMENT]
<PAGE> 27
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
- ----------------------------------------------------------
NAME AND ADDRESS SERIES C SHARES
- ----------------------------------------------------------
- ----------------------------------------------------------
<S> <C>
A. G. Jonas, Jr. 11,363
1006 Hibriten Drive
P.O. Box 1650
Lenoir, NC 28645
- ----------------------------------------------------------
A. P. Anderson 11,363
2505 Morganton Boulevard
Lenoir, NC 28645
- ----------------------------------------------------------
Alison W. Killilea 5,000
896 Lombard Street
San Francisco, CA 94133
- ----------------------------------------------------------
Alpine Capital 227,273
Attn: Chet Ranawat
152 East 65th Street, Suite 400
New York, NY 10021
- ----------------------------------------------------------
Andersen Windows, Inc. 227,273
100 Fourth Avenue N
Bayport, MN 55003
- ----------------------------------------------------------
Andrew P. Rifkin 3,409
1 Park Place
Short Hills, NJ 07078
- ----------------------------------------------------------
Antar & Co. 113,636
c/o Legacy Trust Co.
Attn: Edward Naumes
600 Jefferson, Suite 350
Houston, TX 77251
- ----------------------------------------------------------
Argent Fund Management Ltd. 56,818
c/o Bernard Herold & Co., Inc.
Attn: Vidur Bhalla
555 Madison Avenue, 17th Floor
New York, NY 10022
- ----------------------------------------------------------
BancBoston Ventures Inc. 1,818,182
Attn: John Doggett
175 Federal Street
Boston, MA 02110
- ----------------------------------------------------------
Barry A. Sholem 3,409
c/o Donaldson, Lufkin & Jenrette
2121 Avenue of the Stars, Suite 3000
Los Angeles, CA 90067
- ----------------------------------------------------------
Bayview 99 I, LP 61,550
c/o BancBoston Robertson Stephens Inc.
Attn: Jennifer Sherrill
555 California Street, Suite 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Bayview 99 II, LP 52,086
c/o BancBoston Robertson Stephens Inc.
Attn: Jennifer Sherrill
555 California Street, Suite 2600
San Francisco, CA 94104
- ----------------------------------------------------------
BB Smith LLC 113,636
Attn: T. Greg Smith
3918 Jackson Street
Alexandria, LA 71303
- ----------------------------------------------------------
Beazer Homes USA, Inc. 227,272
Attn: David S. Weiss
5775 Peachtree Dunwoody Road, Suite
B-200
Atlanta, GA 30342
- ----------------------------------------------------------
Beth Chartoff 1,136
145 East 27th Street, Apt. 7K
New York, NY 10016
- ----------------------------------------------------------
</TABLE>
<PAGE> 28
<TABLE>
- ----------------------------------------------------------
<S> <C>
BMC Fund, Inc. Growth Portfolio 113,636
c/o First Union National Bank
Attn: Jay Bunnell, NC 1156
301 South Tryon Street, T-12
Charlotte, NC 28288
- ----------------------------------------------------------
Broyhill Family Foundation, Inc. 45,454
Attn: Dan Wakin
800 Golfview Park
P. O. Box 500
Lenoir, NC 28645
- ----------------------------------------------------------
Broyhill Investments, Inc. 45,454
Attn: Dan Wakin
800 Golfview Park
P. O. Box 500
Lenoir, NC 28645
- ----------------------------------------------------------
Building Materials Holding Corporation 227,272
Attn: Michael D. Mahre
One Market Plaza
Steuart Tower
26th Fl, Suite 2650
San Francisco, CA 94105-1475
- ----------------------------------------------------------
Buildnet TTM, LLC 54,545
P.O. Box 12218
RTP, NC 27709
- ----------------------------------------------------------
Burke International Tours Profit Sharing 22,727
401-K Plan
Attn: E. Udean Burke, Trustee
4643 Highway 16 South
Newton, NC 28658
- ----------------------------------------------------------
Cameron Ashley Building Products, Inc. 227,272
Attn: John S. Davis
11651 Plano Road
Dallas, TX 75243
- ----------------------------------------------------------
Carolyn E. West 2,272
16710 Telge Road
Cypress, TX 77429
Tel: (281) 351-4727
- ----------------------------------------------------------
Carpelian Assets Limited 147,727
c/o BancBoston Robertson Stephens Inc.
Attn: Richard Brand
555 California St., Suite 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Charles D. Peebler Jr., For the Benefit of 227,272
Plum Holdings L.P.
c/o Drinker Biddle & Reath, LLP
Attn: Neil Haimm
1000 West Lakes Drive, Suite 300
Berwyn, PA 19312
cc: Paul Gruenberg
c/o Plum Capital, LLC
1018 Westview Street
Philadelphia, PA 19119
- ----------------------------------------------------------
Chartwell Holdings, Ltd. 56,818
c/o BancBoston Robertson Stephens Inc.
Attn: Kimy Ruiz
555 California Street
San Francisco, CA 94104
- ----------------------------------------------------------
Christina's Trust #2 U/D/T dated 1/20/99 56,818
Attn: Mike Huffington
10580 Wilshire Blvd., #71
Los Angeles, CA 90024
- ----------------------------------------------------------
Clark Callander 5,681
2815 Scott Street
San Francisco, CA 94123
- ----------------------------------------------------------
Covestco-Seteura LLC 681,818
c/o Freeborn & Peters
Attn: Kelly North Matthews
950 Seventeenth Street, Suite 2600
</TABLE>
- ----------------------------------------------------------
<PAGE> 29
<TABLE>
- ----------------------------------------------------------
<S> <C>
Denver, CO 80202-2826
- ----------------------------------------------------------
CVT Management LLC 113,636
Attn: Alex Roudi
4370 La Jolla Village Drive, Suite 960
San Diego, CA 92122
- ----------------------------------------------------------
D. Paul Thompson 11,363
3304 Stonethrow Drive
Newton, NC 28658
- ----------------------------------------------------------
D. R. Horton, Inc. 522,726
Attn: Richard Beckwitt
1901 Ascension Boulevard, Suite 100
Arlington, TX 76006
- ----------------------------------------------------------
Dale Haithcock 3,409
c/o BancBoston Robertson Stephens Inc.
555 California St., Ste. 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Damac Associate Investors Inc BVI 227,273
c/o Damac Al Baraka Investment Co. LLC
PO Box 2195
Dubai, United Arab Emirates
- ----------------------------------------------------------
Damac Investor IV Inc BVI 227,273
c/o Damac Al Baraka Investment Co. LLC
PO Box 2195
Dubai, United Arab Emirates
- ----------------------------------------------------------
Damac Technology Partners LP Cayman 454,545
c/o Damac Al Baraka Investment Co. LLC
PO Box 2195
Dubai, United Arab Emirates
- ----------------------------------------------------------
Dana Craver 17,045
24 Brodge Street, Apt. 3
Frenchtown, NJ 08825
- ----------------------------------------------------------
David B. and Lori J. Sanson 5,681
850 Meadow Creek Court
Walnut Creek, CA 94596
- ----------------------------------------------------------
David C. Blatte 2,272
c/o Donaldson, Lufkin & Jenrette
277 Park Avenue
New York, NY 10172
- ----------------------------------------------------------
David K. Dwyer 17,045
c/o Salomon Smith Barney
388 Greenwich Street
New York, New York 10013
- ----------------------------------------------------------
David S. Weiss 5,681
1855 Redbourne Drive
Atlanta, GA 30350
- ----------------------------------------------------------
DCT, L.L.C. 227,272
Attn: Kurt Swanson
3773 Howard Hughes Parkway, Suite 350N
Las Vegas, NV 89109
- ----------------------------------------------------------
Decima Corporation 50,000
c/o Murdoch & Company
Bank of Bermuda
Attn: Charles Boulton
Compass Point
9 Bermudiana Road
Hamilton, HM 11, Bermuda
- ----------------------------------------------------------
Deerwood Enterprises, Ltd. 600,000
Attn: Frank Liu
5177 Richmond Avenue, Suite 1166
Houston, TX 77056
- ----------------------------------------------------------
Diemar Investments LP 2,272
c/o Donaldson, Lufkin & Jenrette
Attn: Robert E. Diemar, Jr.
277 Park Avenue
New York, NY 10172
- ----------------------------------------------------------
</TABLE>
<PAGE> 30
<TABLE>
- ----------------------------------------------------------
<S> <C>
Donald H. Ankeny 2,272
c/o BancBoston Robertson Stephens Inc.
555 California St., Suite 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Donald J. Tomnitz 22,727
c/o D. R. Horton, Inc.
1901 Ascension Boulevard, Suite 100
Arlington, TX 76006
- ----------------------------------------------------------
Donald R. Horton 113,636
c/o D. R. Horton, Inc.
1901 Ascension Boulevard, Suite 100
Arlington, TX 76006
- ----------------------------------------------------------
Douglas M. Weill 2,272
10 Nancy Lane
Chappaqua, NY 10514
- ----------------------------------------------------------
Edelman Investment Partnership 11,363
c/o Ruxton Partners
Attn: Alan Edelman
1233 Mount Royal Avenue
Baltimore, MD 21217
- ----------------------------------------------------------
Edward Borgerding 22,727
- ----------------------------------------------------------
Emmeram von Braun 40,000
Groso Strasse #9
82166 Graefelfing
Germany
- ----------------------------------------------------------
Encore Venture Partners, LP 227,273
Attn: Steve DesJardins
1250 Fourth Street, Fifth Floor
Santa Monica, CA 90401
- ----------------------------------------------------------
Eric A. Anderson 3,409
1088 Park Avenue, Apt. 9C
New York, NY 10128
- ----------------------------------------------------------
Eric J. E. Higgs 2,272
881 Innes Avenue
San Francisco, CA 94124
- ----------------------------------------------------------
Eric S. Lemer 3,409
245 E. 63rd Street, Apt. 216
New York, NY 10021
- ----------------------------------------------------------
Fidelity Management Trust Co., Custodian 11,363
for Galloway C. Carey
III-Rollover IRA
#104-374237
c/o Fidelity Investments
8 Montgomery Street
San Francisco, CA 94104
- ----------------------------------------------------------
First Winchester Investments Ltd. 113,636
c/o NWT Management S.A.
Attn: Angelo De Riz
16-18 rue de la Pelisserie
Case Postale 3501
1211 Geneva 3
Switzerland
- ----------------------------------------------------------
Fujigin Capital Company 113,636
Attn: Takashi Nogata
Central Plaza Building, 4th Floor
1-1 Kaguragashi, Shinjuku-Ku
Tokyo, 162-0823 Japan
- ----------------------------------------------------------
Gary S. Cangelosi 47,727
c/o Kenton Place, LLC
18549 Vineyard Point Lane
Cornelius, NC 28031
- ----------------------------------------------------------
Geoffrey R. B. Carey Rev. Trust dated 11,363
8/28/97
Attn: Geoffrey R.B. Carey
1430 West Joppa Road
Baltimore, MD 21204
- ----------------------------------------------------------
George A. Moretz Family Limited 11,363
Partnership
c/o First Union National Bank
Attn: Matt Fallaw
- ----------------------------------------------------------
</TABLE>
<PAGE> 31
<TABLE>
- ----------------------------------------------------------
<S> <C>
P.O. Box 279
Hickory, NC 28603
- ----------------------------------------------------------
GGEP Coinvestment Partners L.L.C. 80,681
c/o Gilbert Global Equity Partners
Attn: W. Paul Wallace
590 Madison Avenue, 40th Floor
New York, NY 10022
- ----------------------------------------------------------
Global Internet Group Ltd. 170,455
Attn: Thomas O. Mudd, III
5850 San Felipe, Suite 205
Houston, TX 77057
- ----------------------------------------------------------
Global Technology Investors Fund LLC 500,000
c/o Bessemer Trust Company, N.A.
Attn: Peter Frischman
630 Fifth Avenue, 37th Floor
New York, NY 10111
- ----------------------------------------------------------
Global Technology Investors Fund LTD 409,090
c/o Bessemer Trust Company, N.A.
Attn: Peter Frischman
630 Fifth Avenue, 37th Floor
New York, NY 10111
- ----------------------------------------------------------
Gregory A. Nejmeh 11,363
c/o Donaldson, Lufkin & Jenrette
277 Park Avenue
New York, NY 10172
- ----------------------------------------------------------
H.E.P. Living trust U/D/T dated 340,909
5/31/95 as restated 10/16/98
Attn: Mike Huffington
10580 Wilshire Blvd., # 71
Los Angeles, CA 90024
- ----------------------------------------------------------
Isabella's Trust #2 U/D/T dated 1/20/99 56,818
Attn: Mike Huffington
10580 Wilshire Blvd., # 71
Los Angeles, CA 90024
- ----------------------------------------------------------
J. H. McKlveen & Co. 5,000
Attn: Thomas G. McKlveen
Box 517
Prairie City, IA 50228
- ----------------------------------------------------------
James B. Greenfield 7,954
c/o BancBoston Robertson Stephens Inc.
555 California St., Ste. 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Joel Rassman 5,681
c/o Toll Brothers, Inc.
Attn: Ann Marie P. Mitchell
3103 Philmont Avenue
Huntingdon Valley, PA 19006
- ----------------------------------------------------------
John H. McKlveen, III 1,137
1715 Lyon Street
San Francisco, CA 94115
- ----------------------------------------------------------
John Hancock Series Trust on behalf of John 681,817
Hancock Global Technology Fund
c/o John Hancock Advisers, Inc.
Attn: Al Ouellette
101 Huntington Avenue
Boston, MA 02199
- ----------------------------------------------------------
John P. Siracuse 22,727
c/o BancBoston Robertson Stephens Inc.
One International Place, 30th floor
Boston, MA 02110
- ----------------------------------------------------------
Joseph Shalom 56,818
c/o Children's Apparel Network
77 South First Street
Elizabeth, NJ 07206
- ----------------------------------------------------------
Karl Austen 52,413
c/o Armstrong Hirsch
1888 Century Park East
- ----------------------------------------------------------
</TABLE>
<PAGE> 32
<TABLE>
- ----------------------------------------------------------
<S> <C>
18th Floor
Los Angeles, CA 90067
- ----------------------------------------------------------
Kaufman and Broad Home Corporation 227,272
Attn: Glen Barnard
8401 East Belleview Avenue
Denver, CO 80237
- ----------------------------------------------------------
Kelso Traders Limited 22,727
c/o BancBoston Robertson Stephens Inc.
Attn: Kimy Ruiz
555 California Street
San Francisco, CA 94104
- ----------------------------------------------------------
Kevin E. Barnes 11,363
3 Cloud View Circle
Sausalito, CA 94965
- ----------------------------------------------------------
KMF Partners, L.P. 113,636
Attn: Karen M. Fleiss
1270 Avenue of the Americas
11th Fl.
New York, NY 10020
- ----------------------------------------------------------
Kohler Co. 227,272
Attn: Jeffrey P. Cheney
444 Highland Drive
Kohler, WI 53044
- ----------------------------------------------------------
LAD Internet Partners Ltd. 136,363
c/o Sierra Advisory, Ltd.
Attn: Masoud Ladjevardian
1177 West Loop Road, Suite 1450
Houston, TX 77027
- ----------------------------------------------------------
LaFarge Corporation 227,272
Attn: Larry J. Waisanen
11130 Sunrise Valley Drive, Suite 300
Reston, VA 20191
- ----------------------------------------------------------
Lanoga Corporation 227,272
Attn: Daryl D. Nagel
17946 NE 65th Street
Redmond, WA 98073
- ----------------------------------------------------------
Larry M. Tekler 2,272
15A Castle Street
San Francisco, CA 94166
- ----------------------------------------------------------
Lars Sorensen 131,000
c/o BancBoston Robertson Stephens Inc.
555 California St., Ste. 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Lennar Corporation 681,818
Attn: David B. McCain
700 NW 107th Avenue
Miami, FL 33172
- ----------------------------------------------------------
Mathew Yohannan 1,002
c/o BancBoston Robertson Stephens Inc.
555 California St., Ste. 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Matthew Glaser 11,364
c/o BancBoston Robertson Stephens Inc.
590 Madison Avenue, 36th Floor
New York, NY 10022
- ----------------------------------------------------------
Maverick Fund II, Ltd. 26,245
c/o Maverick Capital, Ltd.
Attn: Sharyl Robertson
300 Crescent Court, Suite 1850
Dallas, TX 75201
- ----------------------------------------------------------
Maverick Fund USA, Ltd. 132,385
c/o Maverick Capital, Ltd.
Attn: Sharyl Robertson
300 Crescent Court, Suite 1850
Dallas, TX 75201
- ----------------------------------------------------------
</TABLE>
<PAGE> 33
<TABLE>
<S> <C>
- ----------------------------------------------------------
Maverick Fund, LDC 295,915
c/o Maverick Capital, Ltd.
Attn: Sharyl Robertson
300 Crescent Court, Suite 1850
Dallas, TX 75201
- ----------------------------------------------------------
Mayflower Venture Capital Fund II, LLC 1,237,499
Attn: Diane Pace
2626 Glenwood Avenue, Suite 100
Raleigh, NC 27608
- ----------------------------------------------------------
Mayflower Venture Capital, LLC 59,558
Attn: Stanley H. Van Etten
2626 Glenwood Avenue, Suite 100
Raleigh, NC 27608
- ----------------------------------------------------------
MCP Global Corporation Ltd 454,545
c/o Robertson Stpehens
Attn: MCP Global Corporation
Ltd.-Acct. 44-
951630
555 California Street, 26th Floor
San Francisco, CA 94104
- ----------------------------------------------------------
Michael E. Powers 11,363
330 Lake Forest Drive
Taylorsville, NC 28681
- ----------------------------------------------------------
Michael Graham 6,818
c/o BancBoston Robertson Stephens Inc.
555 California St., Suite 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Michael J. Rosso 1,503
2525 Larkin Street, #302
San Francisco, CA 94109
- ----------------------------------------------------------
Michael R. Olson 1,136
c/o BancBoston Robertson Stephens Inc.
555 California St., Ste. 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Michael S. Dana 5,681
85 Upper Mountain Avenue
Montclair, NJ 07042
- ----------------------------------------------------------
N.V.C.B.C., LLC 227,272
c/o Michael A. Garcia
10625 Gaskins Way
Manasses, VA 20109
- ----------------------------------------------------------
Neil N. Hasson 3,409
25 Rosslyn Hill
London/NW3 5UJ
United Kingdom
- ----------------------------------------------------------
Newpoint (BVI) Holdings, Ltd. 56,818
c/o BancBoston Robertson Stephens Inc.
Attn: Kimy Ruiz
555 California Street
San Francisco, CA 94104
- ----------------------------------------------------------
Oblique Investments Limited 22,727
c/o NWT Management S.A.
Attn: Angelo De Riz
16-18 rue de la Pelisserie
Case Postale 3501
1211 Geneva 3
Switzerland
- ----------------------------------------------------------
Oktava Management Corporation 50,000
c/o Murdoch & Company
Bank of Bermuda
Attn: Charles Boulton
Compass Point
9 Bermudiana Road
Hamilton, HM 11, Bermuda
- ----------------------------------------------------------
Orion Technology Ventures 113,636
Attn: David Kohl
450 North Roxbury Drive, Suite 600
Beverly Hills, CA 90210
- ----------------------------------------------------------
</TABLE>
<PAGE> 34
<TABLE>
<S> <C>
- ----------------------------------------------------------
Owens Corning 227,272
Attn: Aris Chicles
One Owens Corning Parkway
Toledo, OH 43659
- ----------------------------------------------------------
Paine Webber as Custodian Rollover 56,818
IRA FBO Arjun C. Waney A/C No. WE 41212
c/o Paine Webber
Attn: Carl Waney
1251 Avenue of the Americas, 2nd Floor
New York, Nerw York 10020
- ----------------------------------------------------------
Paul H. Broyhill Family Limited Partnership 22,727
Attn: Dan Wakin
800 Golfview Park
P. O. Box 500
Lenoir, NC 28645
- ----------------------------------------------------------
Philip C. Mittleman 222,726
1108 Somera Road
Bel Air, CA 90077
- ----------------------------------------------------------
Philip P. Vineyard 56,818
912 2nd Street NE
Hickory, NC 28601
- ----------------------------------------------------------
Private Equity Portfolio Fund II, LLC 227,272
c/o BancBoston Capital Inc.
Attn: Cynthia K. Duda
175 Federal Street, 10th Floor
Boston, MA 02110
- ----------------------------------------------------------
Pulte Corporation 227,273
Attn: Roger A. Cregg
33 Bloomfield Hills Parkway, Suite 200
Bloomfield Hills, MI 48304
- ----------------------------------------------------------
Richard A. Brand Rollover IRA 3,409
c/o BancBoston Robertson Stephens Inc.
Attn: Richard Brand
555 California St., Suite 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Richard Beckwitt 22,727
c/o D. R. Horton, Inc.
1901 Ascension Boulevard, Suite 100
Arlington, TX 76006
- ----------------------------------------------------------
Richard L. Moriarty 17,044
83 Ridgewood Avenue
Glenridge, NJ 07028
- ----------------------------------------------------------
Robert A. McLalan & Heidi M. McLalan 5,681
c/o BancBoston Robertson Stephens Inc.
555 California St., Ste. 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Robert Eric Hart 11,363
367 Sixth Street NW
Hickory, NC 28601
- ----------------------------------------------------------
Robert I. Brody 3,409
205 West 89th Street, Apt. 5I
New York, NY 10024
- ----------------------------------------------------------
Robert I. Toll 56,818
c/o Toll Brothers, Inc.
Attn: Ann Marie P. Mitchell
3103 Philmont Avenue
Huntingdon Valley, PA 19006
- ----------------------------------------------------------
Robert Lawrence Zangrillo 227,272
314 Galena
Aspen, CO 81611
- ----------------------------------------------------------
Robert S. Blank 5,681
c/o Toll Brothers, Inc.
Attn: Ann Marie P. Mitchell
3103 Philmont Avenue
Huntingdon Valley, PA 19006
- ----------------------------------------------------------
Robert S. Colman Trust U/D/T dated 3/13/85 113,636
c/o Colman Partners, LLC
Attn: Robert S. Colman
One Maritime Plaza, Suite 2535
</TABLE>
<PAGE> 35
<TABLE>
<S> <C>
San Francisco, CA 94111
- ----------------------------------------------------------
Roger D. Van Dyke 23,000
204 New Castle Place
Chapel Hill, NC 27514
- ----------------------------------------------------------
RS Co-Investment Fund 2,153,068
c/o BancBoston Robertson Stephens Inc.
Attn: Dale Haithcock
555 California St., Suite 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Salim Reshwan 3,409
c/o BancBoston Robertson Stephens Inc.
555 California St., Ste. 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Salomon Smith Barney as Custodian 56,818
Rollover IRA FBO Arjun C. Waney A/C No.
532-63444-12 043
c/o Salomon Smith Barney
Attn: Frank Padace
7979 Ivanhoe Avenue, Suite 300
La Jolla, CA 92037
- ----------------------------------------------------------
Sashi Rentala 1,136
c/o Donaldson, Lufkin & Jenrette
277 Park Avenue
New York, NY 10172
- ----------------------------------------------------------
Seligman Communication And Information 227,273
Fund, Inc.
c/o J&W Seligman
Attn: Jim Curtis
100 Park Avenue, 7th Floor
New York, NY 10017
- ----------------------------------------------------------
Seligman Investment Opportunities (Master) 286,363
Fund-NTV
c/o J&W Seligman
Attn: Jim Curtis
100 Park Avenue, 7th Floor
New York, NY 10017
- ----------------------------------------------------------
Seligman New Technologies Fund, Inc. 1,077,273
c/o J&W Seligman
Attn: Jim Curtis
100 Park Avenue, 7th Floor
New York, NY 10017
- ----------------------------------------------------------
SGC Partners II LLC 1,136,363
Attn: Justin Hall-Tipping
1221 Avenue of the Americas
13th Floor
New York, NY 10020
- ----------------------------------------------------------
Southeast Interactive Technology 227,272
Fund II
Attn: Norvell E. Miller, IV
630 Davis Drive, Suite 220
Morrisville, NC 27713
- ----------------------------------------------------------
SRS Internet Holding Ltd 272,726
c/o Sierra Advisory, Ltd.
Attn: Masoud Ladjevardian
1177 West Loop Road, Suite 1450
Houston, TX 77027
- ----------------------------------------------------------
Stephen G. Blumenreich 2,272
10 Thacher Street, Apt. 512
Boston, MA 02113
- ----------------------------------------------------------
Steven G. Puccinelli 2,272
1030 5th Avenue, Apt. 7E
New York, NY 10028
- ----------------------------------------------------------
Steven L. Kantor 2,272
100 Woodhollow Court
Muttontown, NY 11791
- ----------------------------------------------------------
</TABLE>
<PAGE> 36
<TABLE>
<S> <C>
- ----------------------------------------------------------
The CIT Group/Equity Investments, 56,818
Inc.
Attn: Mark Vanderveen
650 CIT Drive
Livingston, NJ 07039
- ----------------------------------------------------------
The Orion Fund, LP 113,636
c/o Orion Capital Partners
Attn: Robert Choi
1999 Avenue of the Stars, Suite 2820
Los Angeles, CA 90067
- ----------------------------------------------------------
Thomas W. Glasgow, Jr. 11,363
17 Eastwood Road
Asheville, NC 28803
- ----------------------------------------------------------
Thomas W. Sheedy 5,681
c/o BancBoston Robertson Stephens Inc.
555 California St., Ste. 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Todd J. Carter 6,818
c/o BancBoston Robertson Stephens Inc.
555 California St., Suite 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Toll Brothers, Inc. 227,273
Attn: Ann Marie P. Mitchell
3103 Philmont Avenue
Huntingdon Valley, PA 19006
- ----------------------------------------------------------
Trentham Group Limited 17,045
- ----------------------------------------------------------
Vance H. Edwards 45,454
1102 Wessex Court
Goldsboro, NC 27530
- ----------------------------------------------------------
Victory Fire Limited 113,636
c/o BancBoston Robertson Stephens Inc.
Attn: Kimy Ruiz
555 California Street
San Francisco, CA 94104
- ----------------------------------------------------------
Waverly Avenue Investors II LLC 454,545
c/o Banc of America Securities
Attn: John Kern
Two International Place, 25th Floor
Boston, MA 02110
- ----------------------------------------------------------
Wesley E. Collins 11,363
349 Tremont Circle SE
Lenoir, NC 28645
- ----------------------------------------------------------
William J. Abrams 2,272
815 Park Avenue, Apt. 10B
New York, NY 10021
- ----------------------------------------------------------
William J. Curtis 227,272
29160 Heathercliff Road
Malibu, CA 90265
- ----------------------------------------------------------
William James Bell 1993 Trust 454,545
Attn: William Bell
10539 Bellagio Rd.
Los Angeles, CA 90077
- ----------------------------------------------------------
William N. & Kathryn E. Keller 5,681
c/o BancBoston Robertson Stephens Inc.
555 California St., Ste. 2600
San Francisco, CA 94104
- ----------------------------------------------------------
William N. Thompson 5,681
c/o BancBoston Robertson Stephens Inc.
555 California St., Suite 2600
San Francisco, CA 94104
- ----------------------------------------------------------
Windsor Capital Growth Fund #10 340,909
Attn: Mohamed Hadid
638 N. Faring Road
Los Angeles, CA 90077
- ----------------------------------------------------------
WRYP 99 11,364
Attn: Larry Robbins
4101 Lake Boone Trail, Suite 300
Raleigh, NC 27607
- ----------------------------------------------------------
</TABLE>
<PAGE> 37
<TABLE>
<S> <C>
- ----------------------------------------------------------
Zvi Barzilay 5,681
c/o Toll Brothers, Inc.
Attn: Ann Marie P. Mitchell
3103 Philmont Avenue
Huntingdon Valley, PA 19006
- ----------------------------------------------------------
- ----------------------------------------------------------
TOTAL 24,322,619
- ----------------------------------------------------------
</TABLE>
<PAGE> 38
EXHIBIT 4.3
BUILDNET, INC.
AMENDMENT NO. 1 TO
SERIES C INVESTOR RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO THE SERIES C INVESTOR RIGHTS AGREEMENT (the
"Amendment") is entered into this 31st day of January 2000, by and among
Buildnet, Inc., a North Carolina corporation (the "Company"), the undersigned
holders of Preferred Stock of the Company, the undersigned holder of the UniLink
Notes (as defined herein), the undersigned holder of JD Edwards Notes (as
defined herein) and the undersigned holders of the NxTrend Shares (as defined
herein).
WHEREAS, the Company and holders of Series C Preferred Stock of the
Company listed on Exhibit A attached hereto (the "Investors") of the Company
have entered into that Series C Investor Rights Agreement dated as of October
29, 1999 (the "Rights Agreement"); and
WHEREAS, in connection with the Company's acquisition of certain assets
of The UniLink Group, LLC ("UniLink"), the Company has issued a convertible
promissory note or notes (the "UniLink Notes"), as set forth on Exhibit B
attached hereto, to UniLink pursuant to which UniLink and/or its owners may
acquire shares of the Company's Common Stock (the "UniLink Shares"); and
WHEREAS, in connection with the Company's acquisition of certain assets
of the J.D. Edwards World Source Company ("JD Edwards"), the Company intends to
issue a convertible promissory note or notes (the "JD Edwards Notes"), as set
forth on Exhibit C attached hereto, to JD Edwards pursuant to which JD Edwards
and/or its owners may acquire shares of the Company's Common Stock (the "JD
Edwards Shares"); and
WHEREAS, in connection with the Company's acquisition of NxTrend
Technology, Inc. ("NxTrend"), the Company has issued shares of its Common Stock
(the "NxTrend Shares") to the holders of outstanding shares of NxTrend capital
stock, as set forth on Exhibit D attached hereto; and
WHEREAS, the Company has agreed to provide the holders of the UniLink
Notes, and desires to agree to provide the holders of the JD Edwards Notes and
the NxTrend Shares, certain rights with respect to registration of certain
shares held by them by means of amending the Rights Agreement to include the
UniLink Shares, JD Edwards Shares and the NxTrend Shares within the definition
of "Registrable Securities" contained therein; and
WHEREAS, the Company and the Investors desire to amend the Rights
Agreement to include the UniLink Shares, the JD Edwards Shares and the NxTrend
Shares within the definition of "Registrable Securities" contained therein; and
WHEREAS, Section 2.14 of the Rights Agreement requires the written
consent of holders of a majority of the Registrable Securities then outstanding
and not registered to amend the registration rights provisions of the Rights
Agreement and Section 5.7 of the Rights
<PAGE> 39
Agreement requires the written consent of holders of a majority of the
Registrable Securities, voting together as a single class, to amend any
provision of the Rights Agreement; and
WHEREAS, the undersigned Investors constitute the requisite percentage
of Investors required to amend the Rights Agreement; and
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions set forth in this Amendment, and other good and valuable
consideration, the receipt of which is hereby acknowledged, and pursuant to
Sections 2.14 and 5.7 of the Rights Agreement, the parties to this Amendment
mutually agree as follows.
1. Capitalized Terms. All capitalized terms used herein that are
not otherwise defined herein shall have the meanings assigned to them in the
Rights Agreement unless the context hereof requires otherwise.
2. Amendments. The Investor Rights Agreement is hereby amended as
follows:
2.1 Subsection 2.1(c), clause (i), shall be amended and restated as
follows.
"shares of Common Stock of the Company issued or issuable upon
conversion of the shares of Series C Stock held by the Investors as set
forth on Exhibit A, shares of Common Stock of the Company issued or
issuable upon conversion of the UniLink Notes as set forth on Exhibit
B, shares of Common Stock of the Company issued or issuable upon
conversion of the JD Edwards Notes as set forth on Exhibit C, or shares
of Common Stock of the Company issued to the former shareholders of
NxTrend Technology, Inc., as set forth on Exhibit D, or any transferee
in a Permitted Transfer (as defined in Section 2.8 below), and"
2.2 Exhibit B (Holders of UniLink Notes) shall be added to the Rights
Agreement in the form attached hereto as Exhibit B, Exhibit C (Holders
of JD Edwards Notes) shall be added to the Rights Agreement in the form
attached hereto as Exhibit C, and Exhibit D (Holders of NxTrend Shares)
shall be added to the Rights Agreement in the form attached hereto as
Exhibit D.
2.3 Subsection 2.1(d) shall be amended and restated as follows.
"(d) The term "Holder" (collectively, "Holders") means any Investor,
any UniLink Holder, any JD Edwards Holder or any NxTrend Holder (and
any transferee as permitted by Section 2.8 hereof) holding Registrable
Securities, securities exercisable or convertible into Registrable
Securities or securities exercisable for securities convertible into
Registrable Securities."
2.4 Subsection 2.1(e) shall be amended and restated as follows.
"(e) The term "Initiating Holders" means any Investor(s), UniLink
Holder(s), JD Edwards Holder(s) and/or NxTrend Holder(s) holding at
least fifteen percent (15%) of the Registrable Securities then held by
all Investors, UniLink Holders, JD Edwards
<PAGE> 40
Holders and NxTrend Holders and not registered at the time of any
request for registration made pursuant to Section 2.2 of this
Agreement."
2.5 New subsections (f), (g), (h), (i) and (j) shall be added to Section
2.1 immediately following subsection (e), stating as follows.
"(f) The term `UniLink Notes' means the convertible promissory note
or notes issued by the Company to The UniLink Group, LLC, effective
January 18, 2000, as further set forth on Exhibit B.
(g) The term `UniLink Holder' means any holder of a UniLink Note
or shares of the Company's Common Stock issued or issuable upon
conversion thereof.
(h) The term `JD Edwards Notes' means the convertible promissory
note or notes issued by the Company to the J.D. Edwards World Source
Company, on or about January ___, 2000, as further set forth on Exhibit
C.
(i) The term `JD Edwards Holder' means any holder of a JD Edwards
Note or shares of the Company's Common Stock issued or issuable upon
conversion thereof.
(j) The term `NxTrend Holder' means any holder of the Company's
Common Stock as set forth on Exhibit D hereto."
3. Validity. The parties agree that this Amendment is entered
into in accordance with Sections 2.14 and 5.7 of the Rights Agreement.
4. No Other Amendment. Except as specifically amended pursuant to
this Amendment, the Rights Agreement remains in full force and effect in
accordance with its terms.
5. Governing Law. All questions concerning the construction,
validity and interpretation of this Amendment will be governed by and construed
in accordance with the internal law (and not the law of conflicts) of New York.
6. Counterparts. This Amendment 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.
7. Binding Effect. This Amendment shall be binding upon and shall
inure to the benefit of the parties hereto and their heirs, successors and
assigns.
[THE NEXT PAGE IS THE SIGNATURE PAGE.]
<PAGE> 41
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to
the Series C Investor Rights Agreement as of the date first above written.
COMPANY:
BUILDNET, INC.
By: /s/ Bayard M. Atwood, III
Name: Bayard M. Atwood, III
Title: President
INVESTORS:
By: /s/ Investors listed in Exhibit A hereto
Name: Investors listed in Exhibit A hereto
<PAGE> 42
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
INVESTOR SHARES
- -------- ------
<S> <C>
John Hancock Series Trust on behalf of John 681,817
Hancock Global Technology Fund
c/o John Hancock Advisers, Inc.
Attn: Al Ouellette
101 Huntington Avenue
Boston, MA 02199
- ---------------------------------------------------------------
Seligman Communication And Information 227,273
Fund, Inc.
c/o J&W Seligman
Attn: Jim Curtis
100 Park Avenue, 7th Floor
New York, NY 10017
- ---------------------------------------------------------------
Seligman New Technologies Fund, Inc. 1,077,273
c/o J&W Seligman
Attn: Jim Curtis
100 Park Avenue, 7th Floor
New York, NY 10017
- ---------------------------------------------------------------
Seligman Investment Opportunities (Master) 286,363
Fund-NTV
c/o J&W Seligman
Attn: Jim Curtis
100 Park Avenue, 7th Floor
New York, NY 10017
- ---------------------------------------------------------------
Alpine Capital 227,273
Attn: Chet Ranawat
152 East 65th Street, Suite 400 New York, NY 10021
- ---------------------------------------------------------------
BancBoston Ventures Inc. 1,818,182
Attn: John Doggett
175 Federal Street
Boston, MA 02110
- ---------------------------------------------------------------
William James Bell 1993 Trust 454,545
Attn: William Bell
10539 Bellagio Rd.
Los Angeles, CA 90077
- ---------------------------------------------------------------
Christina's Trust #2 U/D/T dated 1/20/99 56,818
Attn: Mike Huffington
10580 Wilshire Blvd., # 71
Los Angeles, CA 90024
- ---------------------------------------------------------------
Isabella's Trust #2 U/D/T dated 1/20/99 56,818
Attn: Mike Huffington
10580 Wilshire Blvd., # 71
Los Angeles, CA 90024
- ---------------------------------------------------------------
H.E.P. Living trust U/D/T dated 5/31/95 as 340,909
restated 10/16/98
Attn: Mike Huffington
10580 Wilshire Blvd., # 71
Los Angeles, CA 90024
- ---------------------------------------------------------------
Robert Lawrence Zangrillo 227,272
314 Galena
Aspen, CO 81611
- ---------------------------------------------------------------
Covestco-Seteura LLC 681,818
c/o Freeborn & Peters
Attn: Kelly North Matthews
950 Seventeenth Street, Suite 2600
Denver, CO 80202-2826
- ---------------------------------------------------------------
SGC Partners II LLC 1,136,363
Attn: Justin Hall-Tipping
1221 Avenue of the Americas, 13th Floor
New York, NY 10020
- ---------------------------------------------------------------
Southeast Interactive Technology Fund II 227,272
Attn: Norvell E. Miller, IV
630 Davis Drive, Suite 220
Morrisville, NC 27713
- ---------------------------------------------------------------
Deerwood Enterprises, Ltd. 600,000
Attn: Frank Liu
5177 Richmond Avenue, Suite 1166
Houston, TX 77056
- ---------------------------------------------------------------
RS Co-Investment Fund 2,153,068
c/o BancBoston Robertson Stephens Inc.
Attn: Dale Haithcock
555 California St., Suite 2600
San Francisco, CA 94104
</TABLE>
10
<PAGE> 43
<TABLE>
<S> <C>
- ---------------------------------------------------------------
William J. Curtis 227,272
29160 Heathercliff Road
Malibu, CA 90265
- ---------------------------------------------------------------
Private Equity Portfolio Fund II, LLC 227,272
c/o BancBoston Capital Inc.
Attn: Cynthia K. Duda
175 Federal Street, 10th Floor
Boston, MA 02110
- ---------------------------------------------------------------
Toll Brothers, Inc. 227,273
Attn: Robert Toll
3103 Philmont Avenue
Huntingdon Valley, PA 19006
- ---------------------------------------------------------------
Robert I. Toll 56,818
c/o Toll Brothers, Inc.
3103 Philmont Avenue
Huntingdon Valley, PA 19006
- ---------------------------------------------------------------
Mayflower Venture Capital, LLC 59,558
Attn: Stanley H. Van Etten
2626 Glenwood Avenue, Suite 100
Raleigh, NC 27608
- ---------------------------------------------------------------
Mayflower Venture Capital Fund II, LLC 1,237,499
Attn: Diane Pace
2626 Glenwood Avenue, Suite 100
Raleigh, NC 27608
- ---------------------------------------------------------------
Lennar Corporation 681,818
Attn: David B. McCain
700 NW 107th Avenue
Miami, FL 33172
- ---------------------------------------------------------------
Global Technology Investors Fund LLC 500,000
c/o Bessemer Trust Company, N.A.
Attn: Peter Frischman
630 Fifth Avenue
New York, NY 10111
- ---------------------------------------------------------------
Global Technology Investors Fund LTD 409,090
c/o Bessemer Trust Company, N.A.
Attn: Peter Frischman
630 Fifth Avenue
New York, NY 10111
- ---------------------------------------------------------------
Maverick Fund, LDC 295,915
c/o Maverick Capital, Ltd.
Attn: Sharyl Robertson
300 Crescent Court, Suite 1850
Dallas, TX 75201
- ---------------------------------------------------------------
Maverick Fund USA, Ltd. 132,385
c/o Maverick Capital, Ltd.
Attn: Sharyl Robertson
300 Crescent Court, Suite 1850
Dallas, TX 75201
- ---------------------------------------------------------------
Maverick Fund II, Ltd. 26,245
c/o Maverick Capital, Ltd.
Attn: Sharyl Robertson
300 Crescent Court, Suite 1850
Dallas, TX 75201
- ---------------------------------------------------------------
D. R. Horton, Inc. 522,726
Attn: Richard Beckwitt
1901 Ascension Boulevard, Suite 100
Arlington, TX 76006
- ---------------------------------------------------------------
Donald R. Horton 113,636
c/o D. R. Horton, Inc.
1901 Ascension Boulevard, Suite 100
Arlington, TX 76006
- ---------------------------------------------------------------
TOTAL: 14,970,571
- ---------------------------------------------------------------
</TABLE>
<PAGE> 44
EXHIBIT B
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"'33 ACT"), OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND SUCH
SECURITIES ARE ACQUIRED FOR INVESTMENT ONLY AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE '33 ACT AND ANY APPLIcABLE
STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO MAKER
THAT SUCH REGISTRATION IS NOT REQUIRED.
BUILDNET, INC.
SUBORDINATED
CONVERTIBLE PROMISSORY NOTE
$27,000,000 Raleigh, North Carolina
January 18, 2000
For value received, BUILDNET, INC., a North Carolina corporation
("Maker"), promises to pay to THE UNILINK GROUP, LLC, a Georgia limited
liability company that is changing its name to TUG LIQUIDATION, LLC ("Payee"),
the principal sum of TWENTY-SEVEN MILLION DOLLARS ($27,000,000), with interest
thereon at the rate of eight per cent (8%) per annum from the date hereof (the
"Original Issue Date"), payable at 1770 The Exchange, Suite 240, Atlanta,
Georgia, 30339 or at such other place as Payee may designate in writing, on or
before January 18, 2002 (the "Maturity Date").
SECTION 1. ISSUE.
SECTION 1.1 RELATIONSHIP OF NOTE TO ACQUISITION. This Note has been
executed and delivered pursuant to and in accordance with the terms and
conditions of that certain Acquisition Agreement of even date herewith by and
among TUG Acquisition Corporation, a Georgia corporation and wholly owned
subsidiary of Maker that is changing its name to The UniLink Group, Inc. (the
"Subsidiary"), Maker and Payee (the "Purchase Agreement"), and is subject to the
terms and conditions thereof which are, by this reference, incorporated herein
and made a part hereof. Payment or conversion of this Note is also secured under
the terms of that certain Security Agreement of even date herewith by and among
the Subsidiary and Payee (the "Security Agreement"), and is subject to the terms
and conditions thereof which are, by this reference, incorporated herein and
made a part hereof. Payment of this Note is subordinated to Senior Debt. As used
herein, "Senior Debt" means the secured and unsecured debt of Maker in favor of
commercial lenders, including banks, insurance companies, and similar financial
institutions, and any first priority security interests in the Assets (as
defined in the Purchase Agreement) heretofore granted by Payee and assumed by
Maker.
SECTION 1.2 PAYMENT OF NOTE. ON THE MATURITY DATE, Maker shall pay
principal and interest in full by wire transfer to Payee's account per Payee's
instructions or by certified check sent by overnight courier to Payee's address,
above (unless otherwise notified by Payee); provided, however, that to receive
such payment Payee must surrender this Note for cancellation to Maker at the
office of Maker described in Section 1.3 hereof or to a paying agent appointed
by Maker. Principal and interest shall be considered paid on the date due, and
no interest shall accrue thereafter, if there is on deposit on that date, in a
bank trust account for the benefit of Payee, money sufficient to pay all
principal and interest then due on the Note.
SECTION 1.3 OFFICE FOR CONVERSION AND PAYMENT. Maker shall maintain an
office where the Note shall be surrendered for conversion or payment. This
office will initially be located at the offices of Maker at 4813 Emperor
Boulevard, Suite 130, Durham, NC 27703, until further notice from Maker to
Payee. Payee may convert all or any portion of the principal amount of this Note
into BuildNet Common Stock at any time and from time to time. If Payee
11
<PAGE> 45
elects to convert less than the full principal amount of this Note then
outstanding, such conversion shall be permitted only in one hundred (100)-share
increments. Upon surrender of this Note for conversion in part, Maker shall
issue a new Note in substantially the same form as this Note, except that the
principal amount thereof shall be reduced by the principal amount hereof so
converted.
SECTION 2. CONVERSION.
SECTION 2.1 RIGHT TO CONVERT. Payee may, at any time and from time to
time prior to the Maturity Date, convert all or, with Maker's prior written
consent, any portion of the then outstanding principal amount and accrued and
unpaid interest thereon of this Note into a number of shares of BuildNet Common
Stock equal to the principal amount of this Note to be converted divided by the
Conversion Price. If Payee elects to convert less than the full principal amount
of this Note then outstanding, such conversion shall be permitted only in one
hundred (100)-share increments unless Maker has given its contemporaneous
consent to conversion of an odd lot. Upon surrender of this Note for conversion
in part, Maker shall issue a new Note in substantially the same form as this
Note, except that the principal amount thereof shall be reduced by the principal
amount hereof so converted. Payee and Maker shall observe the procedures in
Section 2.4 hereof in any conversion under this Section 2.1.
SECTION 2.2 MANDATORY CONVERSION. All outstanding principal and accrued
and unpaid interest due under this Note shall automatically be converted into
BuildNet Common Stock equal to the then outstanding principal amount of this
Note divided by the Conversion Price, in accordance with Section 2.4 hereof,
upon the first to occur of (a) the expiration of any "lock up period" to which
Maker's venture capital investors are subject following an initial public
offering of the BuildNet Common Stock, and (b) the day prior to the closing of
any merger or share exchange in which the consideration to be received by Payee
would consist of freely tradable shares of capital stock of the acquiring
company (in each case, a "Mandatory Conversion Event"). From and after a
Mandatory Conversion Event, this Note shall represent solely the right to
receive such number of shares of BuildNet Common Stock issuable upon the date of
such Mandatory Conversion Event.
SECTION 2.3 CONVERSION PRICE. The conversion price shall initially be
US$4.40 per Conversion Share, subject to adjustment as set forth in Section 2.8
hereof (such conversion price and such conversion price as so adjusted, is
hereinafter the "Conversion Price").
SECTION 2.4 PROCEDURES FOR CONVERSION. To convert this Note into
BuildNet Common Stock, Payee must (i) give written notice to Maker of Payee's
exercise of its right to convert all or any portion of the outstanding principal
amount of this Note into BuildNet Common Stock, specifying the principal amount
hereof to be converted, (ii) if the BuildNet Common Stock is to be registered in
the name of a person other than Payee, furnish to Maker the name, address and
social security or taxpayer identification number of such person, (iii)
surrender this Note to Maker at the office of Maker described in Section 1.3
hereof, or to a stock registrar or conversion agent appointed by Maker, (iv)
furnish appropriate endorsements or transfer documents as required by Maker or
any stock registrar or conversion agent appointed by Maker, and (v) furnish such
other information as Maker may reasonably require. Maker shall pay any and all
documentary stamp or similar issue or transfer taxes payable to the United
States of America or any State of the United States of America, or any political
subdivision thereof, in respect of the delivery to Maker of this Note for
conversion or the issuance or delivery of BuildNet Common Stock upon conversion
of this Note; provided, however, that Maker shall not be required to pay any tax
that may be payable in respect of any transfer involved in the issuance or
delivery of BuildNet Common Stock in a name other than that of Payee upon
conversion, and no such issuance or delivery shall be made unless and until the
person requesting such issuance has paid to Maker the amount of any such tax or
has established, to the satisfaction of Maker, that such tax has been paid. The
date on which Payee satisfies all the requirements of this Section 2.4 shall be
the "Conversion Date." As soon as is practical thereafter, Maker shall deliver,
directly or through any stock registrar or conversion agent appointed by Maker,
a certificate for the number of full number of shares of BuildNet Common Stock
issuable upon such conversion and a check for any fractional share. The
certificate for such shares shall be legended with such securities law
restrictions on transfer as may then be applicable. From and after the
Conversion Date the person in whose name the certificate is registered shall be
treated as a shareholder of record and shall enjoy all rights, privileges,
12
<PAGE> 46
and preferences and shall be subject to all terms, conditions, and limitations
applicable to BuildNet Common Stock pursuant to Maker's Articles of
Incorporation, as amended, and Bylaws.
SECTION 2.5 EFFECT OF RECORD DATE. If any adjustment to be made to the
Conversion Price pursuant to Section 2.8 hereof becomes effective immediately
after a record date for an event as therein described, and conversion occurs
prior to such event but after the record date, Maker may defer issuing,
delivering, or paying to Payee any additional BuildNet Common Stock or check for
any fractional share required by reason of such adjustment until the occurrence
of such event, provided that Maker delivers to Payee an instrument evidencing
Payee's right to receive such additional shares or check upon the occurrence of
the event giving rise to the adjustment.
SECTION 2.6 RESERVATION OF SHARES. Until such time as all of the Notes
have been redeemed or converted into BuildNet Common Stock, Maker shall reserve
out of its authorized but unissued Common Stock a sufficient number of shares
BuildNet Common Stock to permit the conversion of the entire outstanding
principal amount of this Note. All BuildNet Common Stock issued upon conversion
of this Note shall be fully paid and non-assessable.
SECTION 2.7 FRACTIONAL SHARES. Fractional shares will not be issued
upon conversion hereof. In lieu thereof, Maker shall deliver cash in the amount
of the product of the Conversion Price multiplied by the fraction arising in the
calculation of the number of shares of BuildNet Common Stock issuable upon
conversion hereof.
SECTION 2.8 ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price shall
be subject to adjustment from time to time as follows:
(a) Consolidation, Merger, or Sale. In case of the
consolidation or merger of Maker with or into, or the sale of all or
substantially all of its assets to, any person, or in the case of any
consolidation or merger of another corporation into Maker in which
Maker is the surviving corporation, and in which there is a
reclassification or change of the shares of Common Stock of Maker, this
Note shall, after such consolidation, merger or sale, be convertible
into the kind and number of securities or amount and kind of property
of Maker or the corporation resulting from such merger or consolidation
or to which such sale shall be made, as the case may be (the "Successor
Corporation"), to which a holder of the number of shares of BuildNet
Common Stock deliverable upon conversion (immediately prior to the time
of such consolidation, merger or sale) of this Note would have been
entitled upon such consolidation, merger or sale; and in any such case
appropriate adjustments shall be made in the application of the
provisions set forth in Section 2.8 hereof with respect to the rights
and interests of Payee, such that the provisions set forth in Section
2.8 hereof shall thereafter correspondingly be made applicable, as
nearly as may reasonably be, in relation to the number and kind of
securities or the type and amount of property thereafter deliverable
upon the conversion of this Note. The above provisions shall similarly
apply to successive consolidations, mergers and sales. Any adjustment
required by this Section 2.8(a) because of a consolidation, merger or
sale to which Section 2.8(a) hereof is applicable shall be set forth in
an undertaking delivered to Payee and executed by the Successor
Corporation.
(b) Adjustments for Stock Dividends and Splits. In the event
Maker should at any time or from time to time after the Original Issue
Date fix a record date for the effectuation of a stock split, or
subdivision of the outstanding shares of Common Stock (except in
connection with a consolidation, merger, or sale covered by Section
2.8(a) hereof) or the determination of holders of BuildNet Common Stock
entitled to receive a dividend or other distribution payable in
additional shares of BuildNet Common Stock or other securities or
rights convertible into, or entitling Payee thereof to receive directly
or indirectly, additional shares of BuildNet Common Stock (hereinafter
referred to as "BuildNet Common Stock Equivalents") without payment of
any consideration by such Payee for the additional shares of BuildNet
Common Stock or the Common Stock Equivalents (including the additional
shares of BuildNet Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or
13
<PAGE> 47
the date of such dividend, distribution, split, or subdivision if no
record date is fixed), the Conversion Price shall be appropriately
decreased so that the number of shares of BuildNet Common Stock
issuable upon conversion of a Note shall be increased in proportion to
the increase in the number of outstanding shares resulting from such
stock split, stock dividend, distribution, or subdivision.
(c) Reverse Stock Splits. In the event Maker should at any
time or from time to time after the Original Issue Date, fix a record
date for the effectuation of a reverse stock split, or a transaction
having a similar effect on the number of outstanding shares of BuildNet
Common Stock, (except in connection with the consolidation, merger, or
sale covered by Section 2.8(a) hereof), then, as of such record date
(or the date of such reverse stock split or similar transaction if no
record date is fixed), the Conversion Price shall be appropriately
increased so that the number of shares of BuildNet Common Stock
issuable upon conversion of this Note shall be decreased in proportion
to the decrease in the number of outstanding shares of BuildNet Common
Stock resulting from the reverse stock split or similar transaction.
(d) Reclassification. In the event Maker should at any time or
from time to time after the Original Issue Date, fix a record date for
a reclassification of its Common Stock, then, as of such record date
(or the date of the reclassification if no record date is set), this
Note shall thereafter be convertible into such number and kind of
securities as would have been issuable as the result of such
reclassification to a holder of a number of shares of BuildNet Common
Stock equal to the number of shares of BuildNet Common Stock issuable
upon conversion of this Note immediately prior to such
reclassification.
SECTION 3. DEFAULT AND REMEDIES.
SECTION 3.1 DEFAULT. As used herein, a "Default" hereunder occurs if:
(a) Maker defaults in the payment of principal when the same
becomes due and payable at the Maturity Date;
(b) Maker fails to comply with any of its other agreements or
covenants contained in this Note and such failure is not cured within
ten (10) days after Maker receives written demand from Holder to remedy
the same; or
(c) There is an Event of Default under the Security Agreement.
14
<PAGE> 48
SECTION 3.2 REMEDIES OF HOLDERS. Upon the occurrence of a Default
described in Section 3.1 hereof, Payee may, in addition to the exercise of any
right, power, or remedy permitted to such holder or holders by law and under the
Security Agreement, declare (by written notice or notices to Maker) the entire
principal of and all interest accrued on the Note to be due and payable, and
such Notes shall thereupon become immediately due and payable, without
presentment, demand, protest, or other notice of any kind, all of which are
hereby expressly waived by Maker. Subject to restrictions imposed by Senior
Debt, upon such declaration, Maker shall immediately pay to Payee the entire
principal of and interest accrued on the Notes, plus all costs of collection,
including attorneys' fees.
SECTION 3.3 EFFECT OF DELAY. A delay or omission by Payee in exercising
any right or remedy arising upon a Default shall not impair such right or remedy
or constitute a waiver of or an acquiescence in the Default. All remedies are
cumulative to the extent permitted by law.
SECTION 4. GENERAL PROVISIONS.
SECTION 4.1 WAIVERS OF MAKER. Maker hereby waives protest, presentment,
notice of dishonor and notice of acceleration of maturity and agrees to continue
to remain bound for the payment of principal and all other sums due under this
Note notwithstanding any change by way of any extension of time for the payment
hereof.
SECTION 4.2 PREPAYMENT. This Note may be prepaid in full or in part at
any time by the mutual consent of Maker and Payee without penalty or premium.
SECTION 4.3 GOVERNING LAW. This Note is to be governed by and construed
in accordance with the laws of the State of North Carolina.
SECTION 4.4 NO IMPAIRMENT. Maker will not, by amendment of its Articles
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issuance, or sale of securities, or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by Maker, but will at
all times and in good faith assist in the carrying out of all provisions of
Sections 4 and 5 hereof and in the taking of all such action as may be necessary
or appropriate in order to protect the conversion rights of Payees of the Notes
against impairment.
[NEXT PAGE IS THE SIGNATURE PAGE.]
<PAGE> 49
IN WITNESS WHEREOF, the undersigned has caused this instrument to be
executed as of the 18th day of January, 2000.
BUILDNET, INC.
By:
-------------------------------
Name:
--------------------------------
Title:
------------------------------
<PAGE> 50
EXHIBIT C
CONVERTIBLE PROMISSORY NOTE
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR UNDER
ANY STATE SECURITIES LAW. THE SECURITIES MAY NOT BE OFFERED, SOLD, OR OTHERWISE
TRANSFERRED UNLESS THEY ARE RECISTERED UNDER THE ACT AND ALL APPLICABLE STATE
SECURITIES LAWS OR ARE IN COMPLIANCE WITH AN EXEMPTION THEREFROM.
SECURED CONVERTIBLE NOTE
$
------------------
FOR VALUE RECEIVED, BUILDNET CORP., a California corporation (the
"Issuer"), promises and agrees to pay to J.D. Edwards World Source Company
("Lender"), the principal sum of _________________ with interest on the unpaid
principal balance from ______________, until paid, at the rate of eight percent
(8%) per annum (the "Loan Rate"). Principal and interest shall be payable in one
(1) installment ______________________ plus interest, (the "Payment"), due on
the ______ day of _____________ (the "Payment Date"). If not sooner paid, the
entire principal amount outstanding and accrued interest thereon, shall be due
and payable on January 25, 2001 ("Maturity Date"). Payment of this Note shall be
subordinated to any Senior Debt. "Senior Debt" shall mean the secured and
unsecured debt of Issuer in favor of commercial lenders, including banks,
insurance companies and similar financial institutions.
1. Asset Purchase Agreement. This is the "Note" referred to in that
certain Asset Purchase Agreement dated ___________, by and between Issuer and
Lender ("Asset Purchase Agreement"). All capitalized tennis used herein which
are not otherwise defined herein shall have the meanings specified in the Asset
Purchase Agreement.
2. Application of Payments. All payments and prepayments on account of the
indebtedness evidenced by this Note shall be first applied to amounts due
pursuant to the Security Agreement; secondly, to late fees and accrued and
unpaid interest on the unpaid principal balance of this Note; thirdly, to all
other sums then due Lender hereunder; and the remainder, if any, to said unpaid
principal balance. Issuer reserves the privilege, without cost or penalty, to
prepay all or any part of the principal balance of this Note at any time and
from time to time upon the mutual consent of both parties. Any prepayment on
account of the indebtedness evidenced by this Note shall not extend or postpone
the due date of any subsequent payment hereunder. Notwithstanding the above,
Issuer shall not have a night to pre-pay the Not: for a period of sixty (60)
days prior to a Triggering Event.
3. Default Rate. After maturity or the earlier Acceleration of the
indebtedness evidenced by this Note, or if said indebtedness has not been
accelerated, during any period in which an Event of Default (as hereinafter
defined) exists Lender this Note or the Security Agreement. Issuer shall pay
interest on the balance of principal remaining unpaid during any such period at
an annual rate equal to fifteen percent (15%). The interest accruing
<PAGE> 51
under this paragraph shall be immediately due and payable by Issuer to the
holder of this Note and shall be additional indebtedness evidenced by this Note.
4. Payment Terms. All payments of principal and interest hereunder shall
be paid in coin or currency which, at the time or times of payment, is the legal
tender for public and private debts in the United States of America and shall be
made at such place as Lender or the legal holder or holders of this Note may
from time to time appoint, and in the absence of such appointment, then at the
offices of Lender__________________. Payment submitted in funds not available
until collected shall continue to bear interest until collected. If payment
hereunder becomes due and payable on a Saturday, Sunday or legal holiday under
the laws of the State of Colorado, the due date thereof shall be extended to the
next succeeding business day, and interest shall be payable thereon at the then
applicable Loan Rate during such extension. Payment may also be made by wire
transfer to __________________________.
5. Security Agreement. This Note is the note referred to in the Security
Agreement of even date herewith between Issuer and Lender (the "Security
Agreement"). This Note is secured, by the collateral described in the Security
Agreement (the "Collateral"). Reference is hereby made to the Security 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 contained therein, a statement of the rights,
remedies, and security afforded thereby, and all matters therein contained.
6. Conversion.
(a) All or any part of the outstanding principal and accrued but unpaid
interest on this Note (the "Convertible Amount") shall be convertible, at the
option of the Lender upon the occurrence of a Triggering Event (as defined
below), at the office of the Issuer, into the number of fully paid and
nonassessable shares of common stock of Issuer which results from dividing the
"Conversion Price" in effect at the time of the Triggering Event into the
Convertible Amount.
(b) A "Triggering Event" is defined as the closing of the Issuer's sale
of its common stock or the sale of shares of the Issuer's common stock held by
the Issuer's stockholders in a firm commitment underwritten public offering
pursuant to a registration statement under the Securities Act of 1933, as
amended. Subject to compliance with applicable securities laws, issuer shall
notify Lender of the estimated date of the Triggering Event at a reasonable time
prior to the Closing of such public offering. The "Conversion Price" shall be
the price of the shares as stated in the final prospectus filed with the
Securities and Exchange Commission.
(c) Before the Lender shall be entitled to convert this Note into shares
of common stock, Lender shall surrender this Note, accompanied by a proper
assignment thereof to the Company or in blank, at the office of the Issuer, and
shall give written notice to the Issuer at its principal corporate office, of
the election to convert the same (or a specified portion hereof) and shall state
therein the name or names in which the certificate or certificates for shares of
common stock are to be issued. The Issuer shall, as soon as practicable
thereafter, issue and deliver at such Office to the Lender or to the nominee or
nominees of the Lender, a certificate or certificates for the number of shares
of common stock to which the Lender shall be entitled as aforesaid, together
with cash in respect of any fraction of a share of common stock issuable upon
conversion, and, if applicable, a new Note representing the amount of principal
not converted. Such conversion shall be deemed to have been made on the day of
the Triggering Event. The conversion shall be conditioned upon the closing with
the underwriters of the sale of securities pursuant to an underwritten offering
of securities registered pursuant to the Securities Act of
2
<PAGE> 52
1933, as amended, such that the Lender shall not be deemed to have converted
this Note until immediately prior to the closing of such sale of securities.
(d) The Issuer will not, through any reorganization, recapitalization,
transfer of assets, consolidation. merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Issuer, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 8 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the Lender
against impairment.
(e) No fractional shares of common stock or scrip representing
fractional shares shall be issued upon the conversion of a Note. Instead of any
fractional shares of common stock which would otherwise be issuable upon
conversion of a Note, the Company shall pay to the Lender a cash adjustment in
respect of such fractional shares in an amount equal to the same fraction of the
Conversion Price then in effect.
(f) The Issuer shall at all times, reserve and keep available out of its
authorized but unissued shares of common stock, solely for the purpose of
effecting the conversion of this Note, such number of shares of common stock as
shall from time to time be sufficient to effect the conversion of all of the
outstanding principal amount of this Note and if at any time the number of
authorized but unissued Shares of common stock shall not be sufficient to effect
the conversion of this Note, in addition to such other remedies as shall be
available to the Lender, the Issuer will take such corporate action as shall be
necessary to increase the number of authorized but unissued shares of common
stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to these provisions.
(g) Any notice required by the provisions of this Section 8 to be given
to the Lender shall be deemed given if sent by certified mail, return receipt
requested, reputable overnight courier or personal delivery addressed to the
Lender at its address for making payments due hereunder.
7. Termination. Lender may terminate this Agreement upon the occurrence of
any Event of Default subject to the following:
(a) In the Event of Default, Lender shall give written notice of
termination of this Agreement to Issuer, and the specific grounds for
termination.
(b) If such Event of Default is not cured by Issuer within thirty (30)
days from the date of such notice of termination, Lender may terminate this
Agreement.
(c) Upon termination, the entire principal outstanding amount and
accrued interest thereon shall be immediately due and payable upon demand by
Lender.
8. Events of Default. The occurrence of any one or more of the following
events shall constitute an "Event of Default" under this Note:
(a) the failure by Issuer to make payment of principal or interest or
payment of any other amount due to Lender under this Note or the Security
Agreement within fifteen (15) days after the date when any such payment is due
in accordance with the terms hereof;
3
<PAGE> 53
(b) the occurrence of any one or more of the "Events of Default" under
the Security Agreement;
(c) the sale, assignment (other than to Issuer's affiliated companies
and successors) or other disposition of all or any portion of the Collateral or
Issuer's rights in the Collateral in violation of die Security Agreement; or
(d) any default, in payment of performance of any Senior Debt.
9. Remedies. At the election of the holder hereof, and without notice, the
principal balance remaining unpaid under this Note, and all unpaid interest
accrued thereon, shall be and become immediately due and payable in full in the
case of the occurrence of any Event of Default which has not been cured within
the cure period provided in Section 7 above. Failure to exercise this option
shall not constitute a waiver of the right to exercise same in the event of any
subsequent Event of Default. No holder hereof shall, by any act of omission or
commission, be deemed to waive any of its rights, remedies or powers hereunder
or otherwise unless such waiver is in writing and signed by the holder hereof,
and then only to the extent specifically set forth therein. The rights, remedies
and powers of the holder hereof, as provided in this Note and the Security
Agreement are cumulative and concurrent, and may be pursued singly, successively
or together against the Issuer, the Premises and any other security given at any
time to secure the repayment hereof, all at the sole discretion of the holder.
If any suit or action is instituted or attorneys are employed to collect this
Note or any part thereof, Issuer promises and agrees to pay all costs of
collection, including attorneys' fees and court costs.
10. Waiver. Issuer and all others who now or may at time become liable for
all or any part of the obligations evidenced hereby, expressly agree hereby to
be jointly and severally bound, and jointly and severally: (i) waive and
renounce any and all redemption and exemption rights and the benefit of all
valuation and appraisement privileges against the indebtedness evidenced by this
Note or by any extension or renewal hereof; (ii) waive presentment and demand
for payment, notices of nonpayment and of dishonor, protest of dishonor, and
notice of protest, (iii) waive any and all lack of diligence and delays in the
enforcement of the payment hereof; (iv) agree that the liability of each Issuer,
endorser or obligor shall be unconditional and without regard to the liability
of any other person or entity for the payment hereof, and shall not in any
manner be affected by any indulgence or forbearance granted or consented to by
Lender to any of them with respect hereto; (v) consent to any and all extensions
of time, renewals, waivers, or modifications that may be granted by Lender with
respect to the payment or other provisions hereof, and to the release of any
security at any time given for the payment hereof, or any part thereof, with or
without substitution, and to the release of any person or entity liable for the
payment hereof, and (vi) consent to the addition of any and all other borrowers,
endorsers, and other obligors for the payment hereof, and to the acceptance of
any and all other security for the payment hereof, and agree that the addition
of any such borrowers, endorsers, or other obligors, or security shall not
affect the liability of Issuer for all or any part of the obligations evidenced
hereby.
11. Amendments. Time is of the essence hereof. This Note may not be changed
or amended orally but only by an instrument in writing signed by the party
against whom enforcement of the change or amendment is sought. This Note has
been made and delivered at Littleton, Colorado and all funds disbursed to or for
the benefit of Issuer will be disbursed in ________________. This Note shall
inure to the benefit of and may be enforced by Lender, its successors and
assigns.
12. Relationship of Parties. Lender shall in no event be construed for any
purpose to be a partner, joint venturer, agent or associate of Issuer or any
beneficiary thereof or of any lessee, operator, concessionaire or
4
<PAGE> 54
licensee of Issuer or any beneficiary thereof in the conduct of their respective
businesses, and by the execution of this Note, Issuer agrees to indemnify,
defend, and hold Lender harmless from and against any and all damages, costs,
expenses and liability that may be incurred by Lender as a result of a claim
that Lender is such partner, joint venturer, agent or associate.
13. Severability. In the event one or more of the provisions contained in
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect by a court of competent jurisdiction, such invalidity, illegality
or unenforceability shall not affect any other provision of this Note, and this
Note shall be construed as if such invalid, illegal or unenforceable provision
had never been contained herein or therein.
14. Assignment. Lender may assign the Note, and if Lender does assign this
Note, the assignee shall be entitled to the performance of all of BuildNet's
agreements and obligations under this Note and the Security Agreement, and the
assignee shall be entitled to all the rights and remedies of Lender under this
Note and Security Agreement, and Buildnet expressly agrees that it will assert
no claims or defenses it may have against Lender against assignee except those
available to it in this Note and the Security Agreement. Assignments by Lender
to subsidiaries of Lender may be done at any time and without the consent of
Buildnet, Assignments by Lender to other than subsidiaries may be done upon
termination, pursuant to Section 7 hereof, or prior to termination, with the
prior consent of Buildnet.
THIS NOTE SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF
BORROWER AND LENDER DETERMINED, IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED
TO CONFLICTS OF LAW PROVISIONS) OF THE STATE OF COLORADO. AS PART OF THE
CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED, BORROWER HEREBY CONSENTS TO THE
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT WITH JURISDICTION OVER THE
CITY AND COUNTY OF DENVER, STATE OF COLORADO. BORROWER AND LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY SUIT CR PROCEEDING
ARISING OUT OF OR RELATED TO THIS NOTE OR THE OTHER LOAN DOCUMENTS. BORROWER
WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED ON LACK OF JURISDICTION OR
IMPROPER VENUE OR FORUM NON CONVENIENS TO ANY SUIT OR PROCEEDING INSTITUTED BY
LENDER UNDER THIS NOTE IN ANY STATE OR FEDERAL COURT WITH JURISDICTION OVER THE
CITY AND COUNTY OF DENVER, STATE OF COLORADO AND CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER TO ENTER INTO THE NOTE.
Signatures to Follow
5
<PAGE> 55
IN WITNESS WHEREOF, Issuer has executed this Note as of the day and year
first written above.
BUILDNET CORP.
- -----------------------
By: Mike Atwood
Its: President
ATTEST:
-----------------------
-----------------------
Secretary
Address of Issuer:
<PAGE> 56
EXHIBIT D
SCHEDULE OF HOLDERS OF NXTREND SHARES
<TABLE>
<CAPTION>
Common Stock
------------
<S> <C>
Series A Mandatorily Redeemable, Convertible Preferred Stock
Advent VII L.P. 1,500,000.0
Advent Atlantic and Pacific II L.P. 562,200.0
Advent Atlantic and Pacific III L.P. 750,000.0
Advent New York L.P. 150,000.0
TA Venture Investors Limited Partnership 27,000.0
Summit Ventures IV, L.P. 1,908,600.0
Summit Investors III, L.P. 84,200.0
Technology Leaders II L.P. 111,400.0
Technology Leaders II Offshore C.V. 88,600.0
Market Street Partners - R&D System 18,000.0
-------------
Total 5,200,000.0
Series B Mandatorily Redeemable, Convertible Preferred Stock
Guy M. Lammie 455,000.0
Rita L. Lammie 455,000.0
Amy Lammie Trust 97,500.0
Daina Lammie Trust 97,500.0
Lacey Lammie Trust 195,000.0
-------------
Total 1,300,000.0
Senior Mandatorily Redeemable Preferred Stock -
Junior Mandatorily Redeemable Preferred Stock -
Common Stock
Guy Lammie 1,241,637.0
Bob Davidson 16,666.0
1110692 Ontario Limited (Systemetrix) 38,890.0
Saber Systems 50,000.0
-------------
Total 105,556.0
Options Exercised
Aguado, Axel 124.0
Becker, Patrick J. 40,625.0
Berriman, Mark W. 500.0
Bishop, Mike 13,000.0
Bowen, Elizabeth A. 250.0
Bowling, Dawn M. 500.0
Brown, James S. 3,750.0
Clark, Jeffrey 2,800.0
Cunningham, Kathleen J. 73,957.0
Dekker, C. Jeff 17,916.0
Jacobsen, Ross 6,875.0
Lammie, Guy 70,000.0
Mann, John 343.0
Niemann, Ronald W. 250.0
Pallon, Irene 25.0
Patrick, Melissa C. 437.0
Powers, Niel 5,000.0
Quintana, Gerald A. 20,750.0
Riefstahl, Robert D. 8,125.0
Rossi, Frank A. 20,750.0
Siffermann, Robert D. 3,500.0
Smith, Peter 20,750.0
Swaving, Roger 1,625.0
Taylor, Michael T. 500.0
Topp, Jay 15,875.0
Watson, Timothy J. 26,250.0
Wittig, Andrew J. 562.0
-------------
Total 355,039.0
Total 1,702,232.0
-------------
Total Common Stock 8,202,232.0
=============
Granted and Unexercised Options 1,908,539.0
-------------
Total Common & Granted 10,110,771.0
=============
</TABLE>
<PAGE> 1
EXHIBIT 10.1
BUILDNET, INC.
1997 STOCK PLAN
1. Purpose. This 1997 Stock Plan (the "Plan") is intended to
provide incentives:
(a) to employees of Buildnet, Inc. (the "Company"), or its
parent (if any) or any of its present or future subsidiaries (collectively,
"Related Corporations"), by providing them with opportunities to purchase Common
Stock (as defined below) of the Company pursuant to options granted hereunder
that qualify as "incentive stock options" ("ISOs") under Section 422 of the
Internal Revenue Code of 1986, as amended, or any successor statute (the
"Code");
(b) to directors, employees, consultants and customers of the
Company and Related Corporations by providing them with opportunities to
purchase Common Stock (as defined below) of the Company pursuant to options
granted hereunder that do not qualify as ISOs (nonstatutory stock options, or
"NSOs");
(c) to employees and consultants of the Company and Related
Corporations by providing them with bonus awards of Common Stock (as defined
below) of the Company ("Stock Bonuses"); and
(d) to employees and consultants of the Company and Related
Corporations by providing them with opportunities to make direct purchases of
Common Stock (as defined below) of the Company ("Purchase Rights").
Both ISOs and NSOs are referred to hereafter individually as "Options",
and Options, Stock Bonuses and Purchase Rights are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.
2. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors
of the Company (the "Board"); provided, however, the Board may appoint a
committee (the "Committee") of one or more of its members to administer this
Plan.
(b) Subject to ratification of the grant or authorization of
each Stock Right by the Board (if so required by applicable law), and subject to
the terms of the Plan, the Committee, if so appointed, shall have the authority
to:
(i) determine the employees of the Company and Related
Corporations (from among the class of employees eligible under Section 3 to
receive ISOs) to whom ISOs may be granted, and to determine (from among the
class of individuals and entities eligible under Section 3
<PAGE> 2
to receive NSOs, Stock Bonuses and Purchase Rights) to whom NSOs, Stock Bonuses
and Purchase Rights may be granted;
(ii) determine the time or times at which Options, Stock
Bonuses or Purchase Rights may be granted, subject to Section 24 hereof;
(iii) determine the option price of shares subject to each
Option, which price shall not be less than the minimum price specified in
Section 6 hereof, as appropriate, and the purchase price of shares subject to
each Purchase Right;
(iv) determine whether each Option granted shall be an
ISO or NSO;
(v) determine (subject to Section 7) the time or times
when each Option shall become exercisable and the duration of the exercise
period; provided that neither the Board nor the Committee shall have any
authority to revoke or terminate the exercisability of an Option once it shall
have become exercisable;
(vi) determine whether restrictions such as repurchase
options are to be imposed on shares subject to Options, Stock Bonuses and
Purchase Rights and the nature of such restrictions, if any; and
(vii) interpret the Plan and prescribe and rescind rules
and regulations relating to it.
If the Committee determines to issue a NSO, it shall take
whatever actions it deems necessary, under Section 422 of the Code and the
regulations promulgated thereunder, to ensure that such Option is not treated as
an ISO. The interpretation and construction by the Committee of any provisions
of the Plan or of any Stock Right granted under it shall be final unless
otherwise determined by the Board. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Stock Right
granted under it.
(c) The Committee may select one of its members as its
chairman, and shall hold meetings at such time and places as it may determine.
Acts by a majority of the Committee, or acts reduced to or approved in writing
by a majority of the members of the Committee, shall be the valid acts of the
Committee. All references in this Plan to the Committee shall mean the Board if
no Committee has been appointed. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members thereof and thereafter directly
administer the Plan.
3. Eligible Employees and Others. ISOs may be granted to any
employee of the Company or any Related Corporation. Those officers of the
Company who are not employees may not be granted ISOs under the Plan. NSOs,
Stock Bonuses and Purchase Rights may be granted to any director, employee,
consultant or customer of the Company or any Related Corporation.
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<PAGE> 3
4. Stock. The stock subject to Stock Rights shall be authorized
but unissued shares of common stock of the Company, par value $.01 per share, or
such shares of the Company's capital stock into which such class of shares may
be converted pursuant to any reorganization, recapitalization, merger,
consolidation or the like (the "Common Stock"), or shares of Common Stock
reacquired by the Company in any manner. The aggregate number of shares that may
be issued pursuant to the Plan is 155,000 shares of Common Stock, subject to
adjustment as provided herein. Any such shares may be issued as ISOs, NSOs or
Stock Bonuses, or to persons or entities making purchases pursuant to Purchase
Rights, so long as the number of shares so issued does not exceed such aggregate
number, as adjusted. If any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part, or if the Company shall
reacquire any shares issued pursuant to Stock Rights, the unpurchased shares
subject to such Options and any shares so reacquired by the Company shall again
be available for grants of Stock Rights under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under
the Plan at any time after the Effective Date, as set forth in Section 16, and
prior to 10 years thereafter. The date of grant of a Stock Right under the Plan
will be the date specified by the Committee at the time it grants the Stock
Right; provided, however, that such date shall not be prior to the date on which
the Committee acts. The Committee shall have the right, with the consent of the
optionee, to convert an ISO granted under the Plan to an NSO pursuant to Section
17.
6. Minimum Price; ISO Limitations.
(a) The price per share specified in the agreement relating to
each NSO, Stock Bonus or Purchase Right granted under the Plan shall be
established by the Committee, taking into account any noncash consideration to
be received by the Company from the recipient of Stock Rights.
(b) The price per share specified in the agreement relating to
each ISO granted under the Plan shall not be less than the fair market value per
share of Common Stock on the date of such grant. In the case of an ISO to be
granted to an employee owning stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any Related
Corporation, the price per share specified in the agreement relating to such ISO
shall not be less than 110% of the fair market value per share of Common Stock
on the date of the grant.
(c) In no event shall the aggregate fair market value
(determined at the time an ISO is granted) of Common Stock for which ISOs
granted to any employee are exercisable for the first time by such employee
during any calendar year (under all stock option plans of the Company and any
Related Corporation) exceed $100,000; provided that this Section shall have no
force or effect to the extent that its inclusion in the Plan is not necessary
for Options issued as ISOs to qualify as ISOs pursuant to Section 422 of the
Code.
(d) If, at the time an Option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for
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<PAGE> 4
which the prices or quotes discussed in this sentence are available prior to the
time such Option is granted and shall mean:
(i) the average as of the close of business on that date
of the high and low prices of the Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the Common Stock is
then traded on a national securities exchange;
(ii) the last reported sale price as of the close of
business on that date of the Common Stock on the Nasdaq National Market System
(the "NASDAQ/NMS"), if the Common Stock is not then traded on a national
securities exchange but is then traded on the NASDAQ/NMS; or
(iii) the closing bid price or average of bid prices last
quoted on that date by an established quotation service, if the Common Stock is
not reported on the NASDAQ/NMS.
However, if the Common Stock is not publicly traded
at the time an Option is granted under the Plan, "fair market value" shall be
deemed to be the fair value of the Common Stock as determined by the Committee
after taking into consideration all factors that it deems appropriate,
including, without limitation, recent sale and offer prices on the Common Stock
in private transactions negotiated at arm's length, but determined without
regard to any restriction other than a restriction that, by its terms, will
never lapse.
7. Option Duration. Subject to earlier termination as provided in
Sections 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than:
(a) 10 years from the date of grant in the case of NSOs;
(b) 10 years from the date of grant in the case of ISOs
generally; and
(c) 5 years from the date of grant in the case of ISOs granted
to an employee owning stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Related Corporation.
Subject to earlier termination as provided in Sections 9 and
10, the term of each ISO shall be the term set forth in the original instrument
granting such ISO, except with respect to any part of such ISO that is converted
into an NSO pursuant to Section 17.
8. Exercise of Options. Subject to the provisions of Section 9
through Section 12 of the Plan, each Option granted under the Plan shall be
exercisable as follows:
(a) the Option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as the
Committee may specify;
(b) once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the Option, unless otherwise
specified by the Committee;
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<PAGE> 5
(c) each Option or installment may be exercised at any time or
from time to time, in whole or in part, for up to the total number of shares
with respect to which it is then exercisable; and
(d) the Committee shall have the right to accelerate the date
of exercise of any installment of any Option, provided that the Committee shall
not accelerate the exercise date of any installment of any ISO granted to any
employee (and not previously converted into an NSO pursuant to Section 17) if
such acceleration would violate the annual vesting limitation contained in
Section 422 of the Code, as described in Section 6(c).
9. Termination of Employment. If an ISO optionee ceases to be
employed by the Company and all Related Corporations other than by reason of
death or disability as defined in Section 10, unless otherwise specified in the
instrument granting such ISO, the ISO optionee shall have the continued right to
exercise any ISO held by him or her, to the extent of the number of shares with
respect to which he or she could have exercised it on the date of termination,
until the ISO's specified expiration date; provided, however, in the event the
ISO optionee exercises any ISO after the date that is three months following the
date of termination of employment, such ISO will automatically be converted into
an NSO subject to the terms of the Plan. Employment shall be considered as
continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment with the Company is
guaranteed by statute or by contract. A bona fide leave of absence with the
written approval of the Company shall not be considered an interruption of
employment under the Plan, provided that such written approval contractually
obligates the Company or any Related Corporation to continue the employment of
the optionee after the approved period of absence. ISOs granted under the Plan
shall not be affected by any change of employment within or among the Company
and Related Corporations, so long as the optionee continues to be an employee of
the Company or any Related Corporation.
NOTHING IN THE PLAN SHALL BE DEEMED TO GIVE ANY GRANTEE OF ANY STOCK
RIGHT THE RIGHT TO BE RETAINED IN EMPLOYMENT OR OTHER SERVICE BY THE COMPANY OR
ANY RELATED CORPORATION FOR ANY PERIOD OF TIME.
10. Death; Disability.
(a) If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of death, any ISO of his or hers may be
exercised to the extent of the number of shares with respect to which he or she
could have exercised it on the date of death, by his or her estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws of
descent and distribution, at any time prior to the ISO's specified expiration
date, unless otherwise specified in the instrument granting such ISO.
(b) If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of disability, he or she shall continue
to have the right to exercise any ISO
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<PAGE> 6
held by him or her on the date of termination until the ISO's specified
expiration date, unless otherwise specified in the instrument granting such ISO;
provided, however, in the event the optionee exercises after the date that is
one year following the date of termination, such ISO will automatically be
converted into a NSO subject to the terms of the Plan. For the purposes of the
Plan, the term "disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code.
11. Assignability. No Stock Right shall be assignable or
transferable by the grantee except with the consent of the Committee, by will or
by the laws of descent and distribution, and during the lifetime of the grantee
each Stock Right shall be exercisable only by him or her, except with the prior
consent of the Committee.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in Sections 6 through 11 hereof and may contain such other
provisions as the Committee deems advisable that are not inconsistent with the
Plan, including restrictions (or other conditions deemed by the Committee to be
in the best interests of the Company) applicable to the exercise of Options or
to shares of Common Stock issuable upon exercise of Options. In granting any
NSO, the Committee may specify that such NSO shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following
events, the rights of a recipient of a Stock Right granted hereunder shall be
adjusted as hereinafter provided, unless otherwise provided in the written
agreement between the recipient and the Company relating to such Stock Right:
(a) If the shares of Common Stock shall be subdivided or
combined into a greater or smaller number of shares or if the Company shall
issue shares of Common Stock as a stock dividend on its outstanding Common
Stock, the number of shares of Common Stock deliverable upon the exercise of
outstanding Stock Rights shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
(if any) per share to reflect such subdivision, combination or stock dividend.
(b) If the Company is to be consolidated with or acquired by
another entity in a merger, sale of all or substantially all of the Company's
assets or otherwise (an "Acquisition"), unless otherwise provided by the
Committee, in its sole discretion, the Committee or the board of directors of
any entity assuming the obligations of the Company hereunder (the "Successor
Board") shall, as to outstanding Options, make appropriate provision for the
continuation of such Options by substituting on an equitable basis for the
shares then subject to such Options the consideration
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<PAGE> 7
payable with respect to the outstanding shares of Common Stock in connection
with the Acquisition.
(c) In the event of a recapitalization or reorganization of
the Company (other than a transaction described in subsection (b) above)
pursuant to which securities of the Company or of another corporation are issued
with respect to the outstanding shares of Common Stock, an optionee upon
exercising an Option shall be entitled to receive for the purchase price paid
upon such exercise the securities he or she would have received if he or she had
exercised the Option immediately prior to such recapitalization or
reorganization.
(d) Notwithstanding the foregoing, any adjustments made
pursuant to subsections (a), (b) or (c) with respect to ISOs shall be made only
after the Committee determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the Code)
or would cause any adverse tax consequences for the holders of such ISOs. If the
Committee determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOs, it may refrain from making such
adjustments as to all or some of such ISOs.
(e) In the event of the proposed dissolution or liquidation of
the Company, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Committee.
(f) 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 subject to Options. No
adjustments shall be made for dividends paid in cash or in property other than
Common Stock of the Company.
(g) No fractional shares shall be issued under the Plan and
any optionee who would otherwise be entitled to receive a fraction of a share
upon exercise of an Option shall receive from the Company cash in lieu of such
fractional shares in an amount equal to the fair market value of such fractional
shares, as determined in the sole discretion of the Committee.
(h) Upon the happening of any of the foregoing events
described in subsections (a), (b) or (c) above, the class and aggregate number
of shares set forth in Section 4 hereof that are subject to Stock Rights that
previously have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described. The Committee or the
Successor Board shall determine the specific adjustments to be made under this
Section 13 and, subject to Section 2, its determination shall be conclusive.
14. Means of Exercising Stock Rights.
(a) A Stock Right (or any part or installment thereof) shall
be exercised by giving written notice to the Company at its principal office
address. Such notice shall identify the Stock Right being exercised and specify
the number of shares as to which such Stock Right is being
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<PAGE> 8
exercised, accompanied by full payment of the exercise price therefor either (a)
in United States dollars in cash or by check, (b) at the discretion of the
Committee, through the delivery of already-owned shares of Common Stock having a
fair market value equal as of the date of the exercise to the cash exercise
price of the Stock Right, or (c) at the discretion of the Committee, by delivery
of the grantee's personal recourse note bearing interest payable not less than
annually at no less than 100% of the lowest applicable Federal rate, as defined
in Section 1274(d) of the Code, or (d) at the discretion of the Committee, by
any combination of (a), (b) and (c). If the Committee exercises its discretion
to permit payment of the exercise price of an ISO by means of the methods set
forth in clauses (b), (c) or (d) of the preceding sentence, such discretion
shall be exercised in writing at the time of the grant of the ISO in question.
The holder of a Stock Right shall not have the rights of a shareholder with
respect to the shares covered by the Stock Right until the date of issuance of a
stock certificate for such shares. Except as expressly provided above in Section
13 with respect to changes in capitalization and stock dividends, no adjustment
shall be made for dividends or similar rights for which the record date is
before the date such stock certificate is issued.
(b) All Stock Rights granted to officers and directors of the
Company within the meaning of Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or to beneficial owners, directly or
indirectly, of more than ten percent (10%) of any class of any equity security
of the Company which is registered pursuant to Section 12 of the Exchange Act
(such officers, directors and beneficial owners hereinafter referred to as
"Insiders"), shall be held by such Insiders for a period of at least six (6)
months from the date of grant prior to the disposition thereof. In the case of
Options and Purchase Rights, at least six months must elapse from the date of
the grant of the Option or Purchase Right to the date of the disposition of such
Option or Purchase Right (other than upon exercise thereof) or underlying Common
Stock of the Company.
15. Stock Appreciation Rights; Surrender of Options. The Committee
may, in its sole and absolute discretion and subject to such terms and
conditions as it deems appropriate, accept the surrender by an optionee of an
Option granted to him under the Plan and authorize payment in consideration
therefor of an amount equal to the difference between the purchase price payable
for the shares of Common Stock under the instrument granting the Option and the
fair market value of the shares subject to the Option (determined as of the date
of such surrender of the Option). Such payment shall be made in shares of Common
Stock valued at fair market value on the date of such surrender, or in cash, or
partly in such shares of Common Stock and partly in cash as the Committee shall
determine. The surrender shall be permitted only if the Committee determines
that such surrender is consistent with the purpose set forth in Section 1, and
only to the extent that the Option is exercisable under Section 8 on the date of
surrender. In no event shall an optionee surrender his Option under this Section
if the fair market value of the shares on the date of such surrender is less
than the purchase price payable for the shares of Common Stock subject to the
Option. Any ISO surrendered pursuant to the provisions of this Section 15 shall
be deemed to have been converted into a NSO immediately prior to such surrender.
Notwithstanding the foregoing, if on the date of surrender the optionee is an
Insider, then any election to surrender an Option shall not be permitted unless
(a) such surrender shall occur after the date six (6) months from the date such
Option was granted, (b) the Insider shall have made an irrevocable election to
surrender the Option pursuant to this Section 15 at least six (6) months prior
to the date the Option is surrendered
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<PAGE> 9
or (c) the surrender of the Option hereunder by the Insider is otherwise exempt
pursuant to the regulations promulgated under Section 16 of the Exchange Act.
16. Term and Amendment of Plan. This Plan was adopted by the Board
on October 6, 1997 (the "Effective Date"), subject (with respect to the
validation of ISOs granted under the Plan) to approval of the Plan by the
shareholders of the Company. If the approval of shareholders is not obtained by
one year after the Effective Date, any grants of ISOs under the Plan made prior
to that date will be rescinded. The Plan shall expire 10 years after the
Effective Date (except as to Stock Rights outstanding on that date). Subject to
the provisions of Section 5 above, Stock Rights may be granted under the Plan
prior to the date of shareholder approval of the Plan. The Board may terminate
or amend the Plan in any respect at any time, except that without the approval
of the shareholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions,
(a) the total number of shares that may be issued under the
Plan may not be increased (except by adjustment pursuant to Section 13);
(b) the provisions of Section 3 regarding eligibility for
grants of ISOs may not be modified;
(c) the provisions of Section 6(b) regarding the exercise
price at which shares may be offered pursuant to ISOs may not be modified
(except by adjustment pursuant to Section 13); and
(d) the expiration date of the Plan may not be extended.
Except as provided in Section 13(b) and the second sentence of this
Section 16, in no event may action of the Board or shareholders alter or impair
the rights of a grantee, without his or her consent, under any Stock Right
previously granted.
17. Conversion of ISOs into NSOs; Termination of ISOs. The
Committee, at the request of any optionee, may in its discretion take such
actions as may be necessary to convert such optionee's ISOs (or any installments
or portions of installments thereof) that have not been exercised on the date of
conversion into NSOs at any time prior to the expiration of such ISOs. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting NSOs as the
Committee in its discretion may determine, provided that such conditions shall
not be inconsistent with the Plan. Nothing in the Plan shall be deemed to give
any optionee the right to have such optionee's ISOs converted into NSOs, and no
such conversion shall occur until and unless the Committee takes appropriate
action. The Committee, with the consent of the optionee, may also terminate any
portion of any ISO that has not been exercised at the time of such termination.
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<PAGE> 10
18. Application of Funds. The proceeds received by the Company
rom the sale of shares pursuant to Stock Rights shall be used for general
corporate purposes.
19. Governmental Regulation. The Company's obligation to sell and
deliver shares of the Common Stock under the Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
20. Withholding of Additional Income Taxes.
(a) Upon the exercise of an NSO, or the grant of a Stock Bonus
or Purchase Right for less than the fair market value of the Common Stock, the
making of a Disqualifying Disposition (as defined in Section 21), the vesting of
restricted Common Stock acquired on the exercise of a Stock Right hereunder or
the surrender of an Option pursuant to Section 15, the Company, in accordance
with Section 3402(a) of the Code and any applicable state statute or regulation,
may require the optionee, Stock Bonus recipient or purchaser to pay to the
Company additional withholding taxes in respect of the amount that is considered
compensation includable in such person's gross income. With respect to (a) the
exercise of an Option, (b) the grant of a Stock Bonus, (c) the grant of a
Purchase Right of Common Stock for less than its fair market value, (d) the
vesting of restricted Common Stock acquired by exercising a Stock Right, or (e)
the acceptance of a surrender of an Option, the Committee in its discretion may
condition such event on the payment by the optionee, Stock Bonus recipient or
purchaser of any such additional withholding taxes.
(b) At the sole and absolute discretion of the Committee, the
holder of Stock Rights may pay all or any part of the total estimated federal
and state income tax liability arising out of the exercise or receipt of such
Stock Rights, the making of a Disqualifying Disposition, or the vesting of
restricted Common Stock acquired on the exercise of a Stock Right hereunder
(each of the foregoing, a "Tax Event") by tendering already-owned shares of
Common Stock or (except in the case of a Disqualifying Disposition) by directing
the Company to withhold shares of Common Stock otherwise to be transferred to
the holder of such Stock Rights as a result of the exercise or receipt thereof
in an amount equal to the estimated federal and state income tax liability
arising out of such event. In such event, the holder of Stock Rights must,
however, notify the Committee of his or her desire to pay all or any part of the
total estimated federal and state income tax liability arising out of a Tax
Event by tendering already-owned shares of Common Stock or having shares of
Common Stock withheld prior to the date that the amount of federal or state
income tax to be withheld is to be determined. If the holder of Stock Rights is
an Insider, an election by an Insider to pay all or any part of the total
estimated federal and state income tax liability arising out of any Tax Event
(other than a Disqualifying Disposition) by having shares of Common Stock
withheld (i) shall be made at least six (6) months prior to the date of the Tax
Event and shall be irrevocable (except that an Insider can revoke such election
upon six months' notice to the Committee by making a written irrevocable
election to revoke the prior election); or (ii) shall be made in accordance with
Section 15 of the Plan or as otherwise may be permitted pursuant to the
regulations promulgated under Section 16 of the Exchange Act. For purposes of
this Section 20, shares of Common Stock shall be valued at their fair market
value on the date that the amount of the tax withholdings is to be determined.
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21. Notice to Company of Disqualifying Disposition. Each employee
who receives an ISO must agree to notify the Company in writing immediately
after the employee makes a Disqualifying Disposition (as defined below) of any
Common Stock acquired pursuant to the exercise of an ISO. A "Disqualifying
Disposition" is any disposition (including any sale) of such Common Stock before
either (a) two years after the date the employee was granted the ISO, or (b) one
year after the date the employee acquired Common Stock by exercising the ISO. If
the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
22. Governing Law; Construction. The validity and construction of the
Plan and the instruments evidencing Stock Rights shall be governed by the laws
of the State of North Carolina. In construing this Plan, the singular shall
include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
23. Lock-up Agreement. Each recipient of securities hereunder agrees,
in connection with the first registration with the United States Securities and
Exchange Commission under the Securities Act of 1933, as amended, of the public
sale of the Company's Common Stock, upon request of the Company or any
underwriters managing such offering, not to sell, make any short sale of, loan,
grant any option for the purchase of or otherwise dispose of any securities of
the Company (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 180 days) from the effective date of such
registration as the Company or the underwriters, as the case may be, shall
specify. Each such recipient agrees that the Company may instruct its transfer
agent to place stop-transfer notations in its records to enforce this Section
23.
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<PAGE> 1
EXHIBIT 10.2
BUILDNET, INC.
1999 STOCK PLAN
1. Purpose. This 1999 Stock Plan (the "Plan") is intended to
provide incentives:
(a) to employees of Buildnet, Inc. (the "Company"), or its
parent (if any) or any of its present or future subsidiaries (collectively,
"Related Corporations"), by providing them with opportunities to purchase Common
Stock (as defined below) of the Company pursuant to options granted hereunder
that qualify as "incentive stock options" ("ISOs") under Section 422 of the
Internal Revenue Code of 1986, as amended, or any successor statute (the
"Code");
(b) to directors, employees, consultants and customers of the
Company and Related Corporations by providing them with opportunities to
purchase Common Stock (as defined below) of the Company pursuant to options
granted hereunder that do not qualify as ISOs (nonstatutory stock options, or
"NSOs");
(c) to employees and consultants of the Company and Related
Corporations by providing them with bonus awards of Common Stock (as defined
below) of the Company ("Stock Bonuses"); and
(d) to employees and consultants of the Company and Related
Corporations by providing them with opportunities to make direct purchases of
Common Stock (as defined below) of the Company ("Purchase Rights").
Both ISOs and NSOs are referred to hereafter individually as "Options",
and Options, Stock Bonuses and Purchase Rights are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.
2. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors
of the Company (the "Board"). Notwithstanding the preceding sentence, the Board
may appoint a committee (the "Committee") of two or more of its members to
administer this Plan, provided, however, in the event the Company (or any
successor thereto that maintains this Plan) registers equity securities under
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), then each member of the Committee shall be a "Non-Employee Director" as
defined in Rule 16b-3 promulgated under the Exchange Act.
(b) Subject to ratification of the grant or authorization of
each Stock Right by the Board (if so required by applicable law), and subject to
the terms of the Plan, the Committee, if so appointed, shall have the authority
to:
<PAGE> 2
(i) determine the employees of the Company and Related
Corporations (from among the class of employees eligible under
Section 3 to receive ISOs) to whom ISOs may be granted, and to
determine (from among the class of individuals and entities
eligible under Section 3 to receive NSOs, Stock Bonuses and
Purchase Rights) to whom NSOs, Stock Bonuses and Purchase Rights
may be granted;
(ii) determine the time or times at which Options, Stock
Bonuses or Purchase Rights may be granted;
(iii) determine the option price of shares subject to each
Option, which price shall not be less than the minimum price
specified in Section 6 hereof, as appropriate, and the purchase
price of shares subject to each Purchase Right;
(iv) determine whether each Option granted shall be an ISO
or NSO;
(v) determine (subject to Section 7) the time or times when
each Option shall become exercisable and the duration of the
exercise period;
(vi) determine whether restrictions such as repurchase
options are to be imposed on shares subject to Options, Stock
Bonuses and Purchase Rights and the nature of such restrictions,
if any; and
(vii) interpret the Plan and prescribe and rescind rules
and regulations relating to it.
If the Committee determines to issue a NSO, it shall take
whatever actions it deems necessary, under Section 422 of the Code and the
regulations promulgated thereunder, to ensure that such Option is not treated as
an ISO. The interpretation and construction by the Committee of any provisions
of the Plan or of any Stock Right granted under it shall be final unless
otherwise determined by the Board. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Stock Right
granted under it.
(c) The Committee may select one of its members as its
chairman, and shall hold meetings at such time and places as it may determine.
Acts by a majority of the Committee, or acts reduced to or approved in writing
by a majority of the members of the Committee, shall be the valid acts of the
Committee. All references in this Plan to the Committee shall mean the Board if
no Committee has been appointed. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members thereof and thereafter directly
administer the Plan.
3. Eligible Employees and Others. ISOs may be granted to any
employee of the Company or any Related Corporation. Those officers of the
Company who are not employees
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<PAGE> 3
may not be granted ISOs under the Plan. NSOs, Stock Bonuses and Purchase Rights
may be granted to any director, employee, consultant or customer of the Company
or any Related Corporation. Granting of any Stock Right to any individual or
entity shall neither entitle that individual or entity to, nor disqualify him or
her from, participation in any other grant of Stock Rights.
4. Stock. The stock subject to Stock Rights shall be authorized
but unissued shares of common stock of the Company, par value $.01 per share, or
such shares of the Company's capital stock into which such class of shares may
be converted pursuant to any reorganization, recapitalization, merger,
consolidation or the like (the "Common Stock"), or shares of Common Stock
reacquired by the Company in any manner. The aggregate number of shares that may
be issued pursuant to the Plan is 55,000,000* shares of Common Stock subject to
adjustment as provided herein. Any such shares may be issued as ISOs, NSOs or
Stock Bonuses, or to persons or entities making purchases pursuant to Purchase
Rights, so long as the number of shares so issued does not exceed such aggregate
number, as adjusted. If any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part, or if the Company shall
reacquire any shares issued pursuant to Stock Rights, the unpurchased shares
subject to such Options and any shares so reacquired by the Company shall again
be available for grants of Stock Rights under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under
the Plan at any time after the Effective Date, as set forth in Section 16, and
prior to the date which is 10 years thereafter. The date of grant of a Stock
Right under the Plan will be the date specified by the Committee at the time it
grants the Stock Right; provided, however, that such date shall not be prior to
the date on which the Committee acts. The Committee shall have the right, with
the consent of the optionee, to convert an ISO granted under the Plan to an NSO
pursuant to Section 17.
6. Minimum Price; ISO Limitations.
(a) The price per share specified in the agreement relating to
each NSO, Stock Bonus or Purchase Right granted under the Plan shall be
established by the Committee, taking into account any noncash consideration to
be received by the Company from the recipient of Stock Rights.
(b) The price per share specified in the agreement relating to
each ISO granted under the Plan shall not be less than the fair market value per
share of Common Stock on the date of such grant. In the case of an ISO to be
granted to an employee owning stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any Related
Corporation, the price per share specified in the agreement relating to such ISO
shall not be less than 110% of the fair market value per share of Common Stock
on the date of the grant.
(c) In no event shall the aggregate fair market value
(determined at the time an ISO is granted) of Common Stock for which ISOs
granted to any employee are exercisable
* As amended through March 15, 2000.
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<PAGE> 4
for the first time by such employee during any calendar year (under all stock
option plans of the Company and any Related Corporation) exceed $100,000;
provided that this Section shall have no force or effect to the extent that its
inclusion in the Plan is not necessary for Options issued as ISOs to qualify as
ISOs pursuant to Section 422 of the Code.
(d) If, at the time an Option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the time such Option is granted and
shall mean:
(i) the average as of the close of business on that
date of the high and low prices of the Common Stock on the
principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a
national securities exchange;
(ii) the last reported sale price as of the close of
business on that date of the Common Stock on the Nasdaq
National Market System (the "NASDAQ/NMS"), if the Common Stock
is not then traded on a national securities exchange but is
then traded on the NASDAQ/NMS; or
(iii) the closing bid price or average of bid prices
last quoted on that date by an established quotation service,
if the Common Stock is not reported on the NASDAQ/NMS.
However, if the Common Stock is not publicly traded at the
time an Option is granted under the Plan, "fair market value" shall be deemed to
be the fair value of the Common Stock as determined by the Committee after
taking into consideration all factors that it deems appropriate, including,
without limitation, recent sale and offer prices on the Common Stock in private
transactions negotiated at arm's length, but determined without regard to any
restriction other than a restriction that, by its terms, will never lapse.
7. Option Duration. Subject to earlier termination as provided in
Sections 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than:
(a) 10 years from the date of grant in the case of NSOs;
(b) 10 years from the date of grant in the case of ISOs
generally; and
(c) 5 years from the date of grant in the case of ISOs granted
to an employee owning stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any
Related Corporation.
Subject to earlier termination as provided in Sections 9 and
10, the term of each ISO shall be the term set forth in the original instrument
granting such ISO, except with respect to any part of such ISO that is converted
into an NSO pursuant to Section 17.
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<PAGE> 5
8. Exercise of Options. Subject to the provisions of Section 9
through Section 12 of the Plan, each Option granted under the Plan shall be
exercisable as follows:
(a) the Option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as the
Committee may specify;
(b) once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the Option, unless otherwise
specified by the Committee;
(c) each Option or installment may be exercised at any time or
from time to time, in whole or in part, for up to the total number of shares
with respect to which it is then exercisable; and
(d) the Committee shall have the right to accelerate the date
of exercise of any installment of any Option, provided that the Committee shall
not accelerate the exercise date of any installment of any ISO granted to any
employee (and not previously converted into an NSO pursuant to Section 17) if
such acceleration would violate the annual vesting limitation contained in
Section 422 of the Code, as described in Section 6(c).
9. Termination of Employment. If an ISO optionee ceases to be
employed by the Company and all Related Corporations other than by reason of
death or disability as defined in Section 10, unless otherwise specified in the
instrument granting such ISO, the ISO optionee shall have the continued right to
exercise any ISO held by him or her, to the extent of the number of shares with
respect to which he or she could have exercised it on the date of termination,
until the ISO's specified expiration date; provided, however, in the event the
ISO optionee exercises any ISO after the date that is three months following the
date of termination of employment, such ISO will automatically be converted into
an NSO subject to the terms of the Plan. Employment shall be considered as
continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment with the Company is
guaranteed by statute or by contract. A bona fide leave of absence with the
written approval of the Company shall not be considered an interruption of
employment under the Plan, provided that such written approval contractually
obligates the Company or any Related Corporation to continue the employment of
the optionee after the approved period of absence. ISOs granted under the Plan
shall not be affected by any change of employment within or among the Company
and Related Corporations, so long as the optionee continues to be an employee of
the Company or any Related Corporation.
NOTHING IN THE PLAN SHALL BE DEEMED TO GIVE ANY GRANTEE OF ANY STOCK
RIGHT THE RIGHT TO BE RETAINED IN EMPLOYMENT OR OTHER SERVICE BY THE COMPANY OR
ANY RELATED CORPORATION FOR ANY PERIOD OF TIME.
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<PAGE> 6
10. Death; Disability.
(a) If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of death, any ISO of his or hers may be
exercised to the extent of the number of shares with respect to which he or she
could have exercised it on the date of death, by his or her estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws of
descent and distribution, at any time prior to the ISO's specified expiration
date, unless otherwise specified in the instrument granting such ISO.
(b) If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of disability, he or she shall continue
to have the right to exercise any ISO held by him or her on the date of
termination until the ISO's specified expiration date, unless otherwise
specified in the instrument granting such ISO; provided, however, in the event
the optionee exercises after the date that is one year following the date of
termination, such ISO will automatically be converted into a NSO subject to the
terms of the Plan. For the purposes of the Plan, the term "disability" shall
mean "permanent and total disability" as defined in Section 22(e)(3) of the
Code.
11. Assignability. No Stock Right shall be assignable or
transferable by the grantee except with the consent of the Committee, by will or
by the laws of descent and distribution, and during the lifetime of the grantee
each Stock Right shall be exercisable only by him or her, except with the prior
consent of the Committee.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in Sections 6 through 11 hereof and may contain such other
provisions as the Committee deems advisable that are not inconsistent with the
Plan, including restrictions (or other conditions deemed by the Committee to be
in the best interests of the Company) applicable to the exercise of Options or
to shares of Common Stock issuable upon exercise of Options. In granting any
NSO, the Committee may specify that such NSO shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following
events, the rights of a recipient of a Stock Right granted hereunder shall be
adjusted as hereinafter provided, unless otherwise provided in the written
agreement between the recipient and the Company relating to such Stock Right:
(a) If the shares of Common Stock shall be subdivided or
combined into a greater or smaller number of shares or if the Company shall
issue shares of Common Stock as a stock dividend on its outstanding Common Stock
the number of shares of Common Stock deliverable upon the exercise of
outstanding Stock Rights shall be appropriately increased or
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<PAGE> 7
decreased proportionately, and appropriate adjustments shall be made in the
purchase price (if any) per share to reflect such subdivision, combination or
stock dividend.
(b) If the Company is to be consolidated with or acquired by
another entity in a merger, sale of all or substantially all of the Company's
assets or otherwise (an "Acquisition"), unless otherwise provided by the
Committee, in its sole discretion, the Committee or the board of directors of
any entity assuming the obligations of the Company hereunder (the "Successor
Board") shall, as to outstanding Options, make appropriate provision for the
continuation of such Options by substituting on an equitable basis for the
shares then subject to such Options the consideration payable with respect to
the outstanding shares of Common Stock in connection with the Acquisition.
(c) In the event of a recapitalization or reorganization of
the Company (other than a transaction described in subsection (b) above)
pursuant to which securities of the Company or of another corporation are issued
with respect to the outstanding shares of Common Stock an optionee upon
exercising an Option shall be entitled to receive for the purchase price paid
upon such exercise the securities he or she would have received if he or she had
exercised the Option immediately prior to such recapitalization or
reorganization.
(d) Notwithstanding the foregoing, any adjustments made
pursuant to subsections (a), (b) or (c) with respect to ISOs shall be made only
after the Committee determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the Code)
or would cause any adverse tax consequences for the holders of such ISOs. If the
Committee determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOs, it may refrain from making such
adjustments as to all or some of such ISOs.
(e) In the event of the proposed dissolution or liquidation of
the Company, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Committee.
(f) 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 subject to Options. No
adjustments shall be made for dividends paid in cash or in property other than
Common Stock of the Company.
(g) No fractional shares shall be issued under the Plan and
any optionee who would otherwise be entitled to receive a fraction of a share
upon exercise of an Option shall receive from the Company cash in lieu of such
fractional shares in an amount equal to the fair market value of such fractional
shares, as determined in the sole discretion of the Committee.
(h) Upon the happening of any of the foregoing events
described in subsections (a), (b) or (c) above, the class and aggregate number
of shares set forth in Section 4 hereof that are subject to Stock Rights that
previously have been or subsequently may be
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<PAGE> 8
granted under the Plan shall also be appropriately adjusted to reflect the
events described. The Committee or the Successor Board shall determine the
specific adjustments to be made under this Section 13 and, subject to Section 2,
its determination shall be conclusive.
14. Means of Exercising Stock Rights. A Stock Right (or any part
or installment thereof) shall be exercised by giving written notice to the
Company at its principal office address. Such notice shall identify the Stock
Right being exercised and specify the number of shares as to which such Stock
Right is being exercised, accompanied by full payment of the exercise price
therefor either (a) in United States dollars in cash or by check (b) at the
discretion of the Committee, through the delivery of shares of Common Stock
having a fair market value equal as of the date of the exercise to the cash
exercise price of the Stock Right, or (c) at the discretion of the Committee, by
delivery of the grantee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the lowest applicable Federal rate,
as defined in Section 1274(d) of the Code, or (d) at the discretion of the
Committee, by any combination of (a), (b) and (c). If the Committee exercises
its discretion to permit payment of the exercise price of an ISO by means of the
methods set forth in clauses (b), (c) or (d) of the preceding sentence, such
discretion shall be exercised in writing at the time of the grant of the ISO in
question. The holder of a Stock Right shall not have the rights of a shareholder
with respect to the shares covered by the Stock Right until the date of issuance
of a stock certificate for such shares. Except as expressly provided above in
Section 13 with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the record
date is before the date such stock certificate is issued.
15. Stock Appreciation Rights; Surrender of Options. The Committee
may, in its sole and absolute discretion and subject to such terms and
conditions as it deems appropriate, accept the surrender by an optionee of an
Option granted to him under the Plan and authorize payment in consideration
therefor of an amount equal to the difference between the purchase price payable
for the shares of Common Stock under the instrument granting the Option and the
fair market value of the shares subject to the Option (determined as of the date
of such surrender of the Option). Such payment shall be made in shares of Common
Stock valued at fair market value on the date of such surrender, or in cash, or
partly in such shares of Common Stock and partly in cash as the Committee shall
determine. The surrender shall be permitted only if the Committee determines
that such surrender is consistent with the purpose set forth in Section 1, and
only to the extent that the Option is exercisable under Section 8 on the date of
surrender. In no event shall an optionee surrender his Option under this Section
if the fair market value of the shares on the date of such surrender is less
than the purchase price payable for the shares of Common Stock subject to the
Option. Any ISO surrendered pursuant to the provisions of this Section 15 shall
be deemed to have been converted into a NSO immediately prior to such surrender.
16. Term and Amendment of Plan. This Plan was adopted by the
Board on May ___, 1999 (the "Effective Date"), subject (with respect to the
validation of ISOs granted under the Plan) to approval of the Plan by the
shareholders of the Company. The Plan was approved by the shareholders on May
12, 1999. The Plan shall expire 10 years after the Effective Date
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<PAGE> 9
(except as to Stock Rights outstanding on that date). Subject to the provisions
of Section 5 above, Stock Rights may be granted under the Plan prior to the date
of shareholder approval of the Plan. The Board may terminate or amend the Plan
in any respect at any time, except that without the approval of the shareholders
obtained within 12 months before or after the Board adopts a resolution
authorizing any of the following actions:
(a) the total number of shares that may be issued under the
Plan may not be increased (except by adjustment pursuant to Section 13);
(b) the provisions of Section 3 regarding eligibility for
grants of ISOs may not be modified;
(c) the provisions of Section 6(b) regarding the exercise
price at which shares may be offered pursuant to ISOs may not be modified
(except by adjustment pursuant to Section 13); and
(d) the expiration date of the Plan may not be extended.
Except as provided in Section 13(b) and the second sentence of this
Section 16, in no event may action of the Board or shareholders alter or impair
the rights of a grantee, without his or her consent, under any Stock Right
previously granted.
17. Conversion of ISOs into NSOs; Termination of ISOs. The
Committee, at the request of any optionee, may in its discretion take such
actions as may be necessary to convert such optionee's ISOs (or any installments
or portions of installments thereof) that have not been exercised on the date of
conversion into NSOs at any time prior to the expiration of such ISOs. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting NSOs as the
Committee in its discretion may determine, provided that such conditions shall
not be inconsistent with the Plan. Nothing in the Plan shall be deemed to give
any optionee the right to have such optionee's ISOs converted into NSOs, and no
such conversion shall occur until and unless the Committee takes appropriate
action. The Committee, with the consent of the optionee, may also terminate any
portion of any ISO that has not been exercised at the time of such termination.
18. Application of Funds. The proceeds received by the Company
from the sale of shares pursuant to Stock Rights shall be used for general
corporate purposes.
19. Governmental Regulation. The Company's obligation to sell and
deliver shares of the Common Stock under the Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
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<PAGE> 10
20. Withholding of Additional Income Taxes.
(a) Upon the exercise of an NSO, or the grant of a Stock Bonus
or Purchase Right for less than the fair market value of the Common Stock the
making of a Disqualifying Disposition (as defined in Section 21), the vesting of
restricted Common Stock acquired on the exercise of a Stock Right hereunder or
the surrender of an Option pursuant to Section 15, the Company, in accordance
with Section 3402(a) of the Code and any applicable state statute or regulation,
may require the optionee, Stock Bonus recipient or purchaser to pay to the
Company additional withholding taxes in respect of the amount that is considered
compensation includable in such person's gross income. With respect to (i) the
exercise of an Option, (ii) the grant of a Stock Bonus, (iii) the grant of a
Purchase Right of Common Stock for less than its fair market value, (iv) the
vesting of restricted Common Stock acquired by exercising a Stock Right, or (v)
the acceptance of a surrender of an Option, the Committee in its discretion may
condition such event on the payment by the optionee, Stock Bonus recipient or
purchaser of any such additional withholding taxes.
(b) At the sole and absolute discretion of the Committee, the
holder of Stock Rights may pay all or any part of the total estimated federal
and state income tax liability arising out of the exercise or receipt of such
Stock Rights, the making of a Disqualifying Disposition, or the vesting of
restricted Common Stock acquired on the exercise of a Stock Right hereunder
(each of the foregoing, a "Tax Event") by tendering already-owned shares of
Common Stock or (except in the case of a Disqualifying Disposition) by directing
the Company to withhold shares of Common Stock otherwise to be transferred to
the holder of such Stock Rights as a result of the exercise or receipt thereof
in an amount equal to the estimated federal and state income tax liability
arising out of such event. In such event, the holder of Stock Rights must,
however, notify the Committee of his or her desire to pay all or any part of the
total estimated federal and state income tax liability arising out of a Tax
Event by tendering already-owned shares of Common Stock or having shares of
Common Stock withheld prior to the date that the amount of federal or state
income tax to be withheld is to be determined. For purposes of this Section 20,
shares of Common Stock shall be valued at their fair market value on the date
that the amount of the tax withholdings is to be determined.
21. Notice to Company of Disqualifying Disposition. Each employee
who receives an ISO must agree to notify the Company in writing immediately
after the employee makes a Disqualifying Disposition (as defined below) of any
Common Stock acquired pursuant to the exercise of an ISO. A "Disqualifying
Disposition" is any disposition (including any sale) of such Common Stock before
either (a) two years after the date the employee was granted the ISO, or (b) one
year after the date the employee acquired Common Stock by exercising the ISO. If
the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
22. Governing Law; Construction. The validity and construction of
the Plan and the instruments evidencing Stock Rights shall be governed by the
laws of the State of North Carolina. In construing this Plan, the singular shall
include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
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<PAGE> 11
23. Lock-up Agreement. Each recipient of securities hereunder agrees,
in connection with the first registration with the United States Securities and
Exchange Commission under the Securities Act of 1933, as amended, of the public
sale of the Company's Common Stock upon request of the Company or any
underwriters managing such offering, not to sell, make any short sale of, loan,
grant any option for the purchase of or otherwise dispose of any securities of
the Company (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 180 days) from the effective date of such
registration as the Company or the underwriters, as the case may be, shall
specify. Each such recipient agrees that the Company may instruct its transfer
agent to place stop-transfer notations in its records to enforce this Section
23.
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<PAGE> 1
EXHIBIT 10.3
F.A.S.T. MANAGEMENT GROUP, INC.
1997 STOCK OPTION PLAN
SECTION 1. Purpose. The purpose of this 1997 Stock Option Plan (this
"Plan") is to provide a means whereby F.A.S.T. MANAGEMENT GROUP, Inc. (the
"Company") or any parent or subsidiary of the Company, as defined in Subsection
5.9 (the "related Corporations"), may continue to attract, motivate and retain
selected employees, officers, independent contractors and directors (subject to
the restrictions contained in Sections 2 and 4) and to encourage stock ownership
in the Company through granting incentive stock options and/or nonqualified
stock options to purchase the Common Stock of the Company (as defined in Section
3), so that such key employees will more closely identify their interests with
those of the Company and its shareholders.
SECTION 2. Administration. This Plan shall be administered by the Board
of Directors of the Company (the "Board") or, in the event the Board shall
appoint or authorize a committee to administer this Plan, by such committee. The
administrator of this Plan shall hereinafter be referred to as the "Plan
Administrator."
2.1 Procedures. The Board may designate one of the members of
the Plan Administrator as chairperson. The Plan Administrator may hold meetings
at such times and places as it shall determine. The acts of a majority of the
members of the Plan Administrator present at meetings at which a quorum exists,
or acts reduced to or approved in writing by all Plan Administrator members,
shall be valid acts of the Plan Administrator.
2.2 Responsibilities. Except for the terms and conditions
explicitly required in this Plan, the Plan Administrator shall have the
authority, in its discretion, to determine all matters relating to the options
to be granted under this Plan, including selection of the individuals to be
granted options, the number of shares to be subject to each option, the exercise
price, and all other terms and conditions of the options. Grants under this Plan
need not be identical in any respect, even when made simultaneously. The
interpretation and construction by the Plan Administrator of any terms or
provisions of this Plan or any option issued under this Plan, or of any rule or
regulation promulgated in connection with this Plan, shall be conclusive and
binding on all interested parties, so long as such interpretation and
construction with respect to incentive stock options correspond to the
requirements of Section 422 of the Internal Revenue Code (the "Code"), as
amended, and the regulations thereunder.
2.3 Section 16(b) Compliance and Bifurcation of Plan. In the
event the Company registers any of its equity securities pursuant to Section
12(b) or 12(g) of the Exchange Act, it is the intention of the Company that this
Plan, and options granted under this Plan, comply in all respects with Rule
16b-3 under the Exchange Act and, if any Plan provision is later found not to be
in compliance with such Section, the provision shall be deemed null and void,
and in all events this Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3. Notwithstanding anything in this Plan to the
contrary, the Board, in its absolute discretion, may bifurcate this Plan so as
to restrict, limit or condition the use of any provision of this Plan to
participants who are officers and directors subject to Section 16(b) of the
Exchange Act without so restricting, limiting or conditioning other Plan
participants.
<PAGE> 2
SECTION 3. Stock Subject to This Plan. The stock subject to this Plan
shall be the Company's Common Stock (the "Common Stock"), presently authorized
but unissued or now held or subsequently acquired by the Company as treasury
shares. Subject to adjustment as provided in Section 7 of this Plan, the
aggregate amount of Common Stock to be delivered upon the exercise of all
options granted under this Plan shall not exceed 700,000 shares as such Common
Stock was constituted on the effective date of this Plan. If any option granted
under this Plan expires or is surrendered, exchanged for another option,
canceled or terminated for any reason without having been exercised in full, the
unpurchased shares subject to such option shall again be available for purposes
of this Plan, including for replacement options which may be granted in exchange
for such surrendered, canceled or terminated options.
SECTION 4. Eligibility. An incentive stock option may be granted only
to an individual who, at the time the option is granted, is an employee of the
Company and who the Board may from time to time select for participation in this
Plan. Members of the Board shall not be eligible for grants of incentive stock
options unless they are also employees of the Company. At the discretion of the
Plan Administrator, employees, officers, independent contractors and directors
of the Company (including nonemployee directors) may receive nonqualified stock
options. Any party to whom an option is granted under this Plan shall be
referred to in this Plan as an "Optionee."
SECTION 5. Terms and Conditions of Options. Options granted under this
Plan shall be evidenced by written agreements which shall contain such terms,
conditions, limitations and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with this Plan. Notwithstanding the
foregoing, options shall include or incorporate by reference the following terms
and conditions:
5.1 Number of Shares. The maximum number of shares that may be
purchased pursuant to the exercise of each option shall be as established by the
Plan Administrator.
5.2 Price of Shares. The price per share at which each option
is exercisable (the "exercise price") shall be as established by the Plan
Administrator, provided that the Plan Administrator shall act in good faith to
establish the exercise price as follows:
5.2.1 Incentive Stock Options. With respect to
incentive stock options intended to qualify under Section 422 of the Internal
Revenue Code, and subject to Subsection 5.2.3 below, the exercise price shall be
not less than the fair market value per share of the Common Stock at the time
the option is granted.
5.2.2 Nonqualified Stock Options. With respect to
nonqualified stock options, the exercise price shall be the amount set by the
Plan Administrator, provided that if the Company has registered any of its
equity securities pursuant to Section 12(b) or 12(g) of the Exchange Act, the
exercise price shall not be less than 85 percent of the fair market value of a
share of the Common Stock at the time the option is granted.
5.2.3 Incentive Stock Options to Greater than 10%
Shareholders. With respect to incentive stock options granted to greater than
10% shareholders, the exercise price shall be as required by Section 6.
<PAGE> 3
5.2.4 Fair Market Value. The fair market value per
share of the Common Stock for the purpose of determining the exercise price
under this Section 5.2 shall be determined by the Board in good faith at the
time the option is granted.
5.3 Term and Maturity. Subject to the restrictions contained
in Section 6 with respect to granting incentive stock options to greater than
10% shareholders, the term of each incentive stock option shall be ten (10)
years from the date it is granted unless a shorter or longer period of time is
established by the Plan Administrator, but in no event shall the term of any
incentive stock option exceed 10 years. The term of each nonqualified stock
option shall also be ten (10) years from the date it is granted unless a shorter
period of time is established by the Plan Administrator. To ensure that the
Company or related corporation will achieve the purpose and receive the benefits
contemplated in this Plan, any option granted to any Optionee under this Plan
shall, unless the condition of this sentence is waived or modified in the
agreement evidencing the option or by resolution adopted by the Plan
Administrator, be exercisable according to the following schedule:
Period of Optionee's
Continuous Relationship
With the Company or Related
Corporation From the Date Portion of Total Option
the Option Is Granted Which Is Exercisable
--------------------------- -----------------------
after 1 year 25%
after 2 years 50%
after 3 years 75%
after 4 years 100%
5.4 Exercise. Subject to the vesting schedule described in
subsection 5.3 above and to any additional holding period required by applicable
law, each option may be exercised in whole or in part; provided, however, that
only whole shares will be issued pursuant to the exercise of any option. During
an Optionee's lifetime, any incentive stock options granted under this Plan are
personal to him or her and are exercisable solely by such Optionee. Options
shall be exercised by delivery to the Company of notice of the number of shares
with respect to which the option is exercised, together with payment of the
exercise price.
5.5 Payment of Exercise Price. Payment of the option exercise
price shall be made in full at the time the notice of exercise of the option is
delivered to the Company and shall be in cash, bank certified or cashier's check
or personal check (unless at the time of exercise the Plan Administrator in a
particular case determines not to accept a personal check) for the Class A
Common Stock being purchased.
The Plan Administrator can determine at the time the option is
granted for incentive stock options, or at any time before exercise for
nonqualified stock options, that additional forms of payment will be permitted,
including installment payments on such terms and over such period as the Plan
Administrator may determine in its discretion. To the extent permitted by the
Plan Administrator and applicable laws and regulations (including, but not
limited to, federal tax and
<PAGE> 4
securities laws and regulations and state corporate law), an option may be
exercised by:
(a) delivery of shares of stock of the Company held by an
Optionee having a fair market value equal to the exercise price, such fair
market value to be determined in good faith by the Plan Administrator;
(b) delivery of a full-recourse promissory note executed by
the Optionee, provided that (i) such note delivered in connection with an
incentive stock option shall, and such note delivered in connection with a
nonqualified stock option may, in the sole discretion of the Plan Administrator,
bear interest at a rate specified by the Plan Administrator but in no case less
than the rate required to avoid imputation of interest (taking into account any
exceptions to the imputed interest rules) for federal income tax purposes; (ii)
the Plan Administrator in its sole discretion shall specify the term and other
provisions of such note at the time an incentive stock option is granted or at
any time prior to exercise of a nonqualified stock option; (iii) the Plan
Administrator may require that the Optionee pledge the Optionee's shares to the
Company for the purpose of securing the payment of such note and may require
that the certificate representing such shares be held in escrow in order to
perfect the Company's security interest; (iv) the note provides that 90 days
following the Optionee's termination of employment with the Company or a related
entity, the entire outstanding balance under the note shall become due and
payable, if not previously due and payable; and (v) the Plan Administrator in
its sole discretion may at any time restrict or rescind this right upon
notification to the Optionee;
(c) delivery of a properly executed exercise notice, together
with irrevocable instructions to a broker, all in accordance with the
regulations of the Federal Reserve Board, to promptly deliver to the Company the
amount of sale or loan proceeds to pay the exercise price and any federal, state
or local withholding tax obligations that may arise in connection with the
exercise; provided, that the Plan Administrator, in its sole discretion, may at
any time determine that this Subparagraph (c), to the extent the instructions to
the broker call for an immediate sale of the shares, shall not be applicable to
any Optionee who is subject to Section 16(b) of the Exchange Act if such
transaction would result in a violation of Section 16(b), or is not an employee
at the time of exercise;
(d) delivery of a properly executed exercise notice, together
with a request by the Optionee for the Company to pay the exercise price by
withholding from the shares that would otherwise be issued that number of shares
having a fair market value equal to the option exercise price; provided, the
Plan Administrator retains complete discretion to honor or deny the Optionee's
request for such a method of exercise.
5.6 Withholding Tax Requirement. The Company or any related
entity shall have the right to retain and withhold from any payment of cash or
Class A Common Stock under this Plan the amount of taxes required by any
government to be withheld or otherwise deducted and paid with respect to such
payment. At its discretion, the Company may require an Optionee receiving shares
of Class A Common Stock to reimburse the Company or a related entity for any
such taxes required to be withheld and may withhold any distribution in whole or
in part until the Company, or related entity, is so reimbursed. In lieu of such
withholding or reimbursement, the Company (or related entity) shall have the
right to withhold from any other cash amounts due or to become due from the
Company (or related entity) to the Optionee an amount equal to such taxes or
<PAGE> 5
to retain and withhold a number of shares having a market value not less than
the amount of such taxes required to be withheld as reimbursement for any such
taxes and cancel (in whole or in part) any such shares so withheld.
5.7 Nontransferability of Option. Options granted under this
Plan and the rights and privileges conferred by this Plan may not be
transferred, assigned, pledged or hypothecated in any manner (whether by
operation of law or otherwise) other than by will or by the applicable laws of
descent and distribution; provided, with respect to a non-qualified stock
option, an Optionee may transfer the option to a revocable trust created by the
Optionee for the benefit of his or her descendants, to an immediate family
member or to a partnership in which only immediate family members or such trusts
are partners. Options under this Plan shall not be subject to execution,
attachment or similar process. Any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any option under this Plan or of any right
or privilege conferred by this Plan, contrary to the Code or to the provisions
of this Plan, or the sale or levy or any attachment or similar process upon the
rights and privileges conferred by this Plan shall be null and void.
Notwithstanding the foregoing, an Optionee may during the Optionee's lifetime,
designate a person who may exercise the option after the Optionee's death by
giving written notice of such designation to the Plan Administrator. Such
designation may be changed from time to time by the Optionee by giving written
notice to the Plan Administrator revoking any earlier designation and making a
new designation.
5.8 Termination of Relationship.
5.8.1 Termination Other Than Termination For Cause,
Death or Total Disability. If the Optionee's relationship with the Company or
any related corporation ceases for any reason other than termination for cause,
death or total disability, and unless by its terms the option sooner terminates
or expires, then the Optionee may exercise, for a three (3) month period after
such cessation, that portion of the Optionee's option which is exercisable at
the time of such cessation. The Optionee's option, however, shall terminate at
the end of the three (3) month period following such cessation as to all Shares
for which it has not been exercised, unless such provision is waived in the
agreement evidencing the option or by resolution adopted by the Plan
Administrator. If, in the case of an incentive stock option, an Optionee's
relationship with the Company or related corporation changes (i.e., from
employee to nonemployee, such as a consultant), such change shall constitute a
termination of an Optionee's employment with the Company or related corporation
and the Optionee's incentive stock option shall terminate in accordance with
this subsection. Upon the expiration of the three (3) month period following
cessation of employment, the Plan Administrator shall have sole discretion in a
particular circumstance to extend the exercise period following such cessation
beyond that specified above. If, however, in the case of an incentive stock
option, the Optionee does not exercise the Optionee's option within three (3)
months after cessation of employment, the option will no longer qualify as an
incentive stock option under the Code.
5.8.2 Termination For Cause. If an Optionee is
terminated for cause, any option granted under this Plan shall automatically
terminate as of the first discovery by the Company of any reason for termination
for cause, and such Optionee shall have no right to purchase any shares pursuant
to such option. "Termination for cause" shall mean dismissal for dishonesty,
conviction or confession of a crime punishable by law (except minor violations),
fraud,
<PAGE> 6
misconduct or disclosure of confidential information. If an Optionee is
suspended pending an investigation of whether or not the Optionee shall be
terminated for cause, all Optionee's rights under any option granted under this
Plan shall likewise be suspended during the period of investigation.
5.8.3 Termination Because of Total Disability. If an
Optionee's relationship with the Company or any related corporation ceases
because of a total disability, the Optionee's option shall not terminate or, in
the case of an incentive stock option, cease to be treated as an incentive stock
option until the end of the 12-month period following such cessation (unless by
its terms it sooner terminates and expires). As used in this Plan, the term
"total disability" refers to a mental or physical impairment of the Optionee
which is expected to result in death or which has lasted or is expected to last
for a continuous period of 12 months or more and which causes the Optionee to be
unable, in the opinion of the Company and two independent physicians, to perform
his or her duties for the Company and to be engaged in any substantial gainful
activity. Total disability shall be deemed to have occurred on the first day
after the Company and the two independent physicians have furnished their
opinion of total disability to the Plan Administrator.
5.8.4 Transfer of Relationship Between Company and
Related Company. For purposes of this subsection 5.9, a transfer of relationship
between or among the Company and/or any related corporation (as defined in
Section 5.9.6 below) shall not be deemed to constitute a cessation of
relationship with the Company or any of its related corporations.
5.8.5 Military Leave, Sick Leave and Bona Fide Leave
of Absence. For purposes of this subsection 5.9, with respect to incentive stock
options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Plan Administrator). The foregoing notwithstanding, employment shall not be
deemed to continue beyond the first 90 days of such leave, unless the Optionee's
reemployment rights are guaranteed by statute or by contract.
5.8.6 Related Corporation. As used in this Plan, the
term "related corporation," when referring to a subsidiary corporation, shall
mean any corporation (other than the Company) which, at the time of the granting
of the option, is in an unbroken chain of corporations ending with the Company,
if stock possessing 50% or more of the total combined voting power of all
classes of stock of each of the corporations other than the Company is owned by
one of the other corporations in such chain. When referring to a parent
corporation, the term "related corporation" shall mean any corporation in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the option, each of the corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
5.9 Death of Optionee. If an Optionee dies while he or she has
a relationship with the Company or any related corporation or dies within the
three (3) month period (or 12-month period in the case of totally disabled
Optionees) following cessation of such relationship, any option held by such
Optionee to the extent that the Optionee would have been entitled to exercise
such option, may be exercised within one year after his or her death by the
personal representative of his or her estate or by the person or persons to whom
the Optionee's rights under the option shall pass by will or by the applicable
laws of descent and distribution.
<PAGE> 7
5.10 Status of Shareholder. Neither the Optionee nor any party
to which the Optionee's rights and privileges under the option may pass shall
be, or have any of the rights or privileges of, a shareholder of the Company
with respect to any of the shares issuable upon the exercise of any option
granted under this Plan unless and until such option has been exercised.
5.11 Continuation of Employment. Nothing in this Plan or in
any option granted pursuant to this Plan shall confer upon any Optionee any
right to continue in the employ of the Company or of a related corporation, or
to interfere in any way with the right of the Company or of any related
corporation to terminate his or her employment or other relationship with the
Company at any time.
5.12 Modification and Amendment of Option. Subject to the
requirements of Code Section 422 with respect to incentive stock options and to
the terms and conditions and within the limitations of this Plan, the Plan
Administrator may modify or amend outstanding options granted under this Plan.
The modification or amendment of an outstanding option shall not, without the
consent of the Optionee, impair or diminish any of his or her rights or any of
the obligations of the Company under such option. Except as otherwise provided
in this Plan, no outstanding option shall be terminated without the consent of
the Optionee. Unless the Optionee agrees otherwise, any changes or adjustments
made to outstanding incentive stock options granted under this Plan shall be
made in such a manner so as not to constitute a "modification" as defined in
Code Section 424(h) and so as not to cause any incentive stock option issued
hereunder to fail to continue to qualify as an incentive stock option as defined
in Code Section 422(b).
5.13 Limitation on Value for Incentive Stock Options. As to
all incentive stock options granted under the terms of this Plan, to the extent
that the aggregate fair market value (determined at the time the incentive stock
option is granted) of the stock with respect to which incentive stock options
are exercisable for the first time by the Optionee during any calendar year
(under this Plan and all other incentive stock option plans of the Company, a
related corporation or a predecessor corporation) exceeds $100,000, those
options (or the portion of an option) beyond the $100,000 threshold shall be
treated as nonqualified stock options. The previous sentence shall not apply if
the Internal Revenue Service publicly rules, issues a private ruling to the
Company, any Optionee, or any legatee, personal representative or distributee of
an Optionee or issues regulations changing or eliminating such annual limit.
5.14 Shareholders' Agreement. To the extent required by the
Plan Administrator upon exercise of an option the Optionee shall agree to enter
into and be bound by the agreement then in effect, if any, between the Company
and its shareholders relating to the repurchase by the Company of its
outstanding Class A Common Stock.
SECTION 6. Greater Than 10% Shareholders.
6.1 Exercise Price and Term of Incentive Stock Options. If
incentive stock options are granted under this Plan to employees who own more
than 10% of the total combined voting power of all classes of stock of the
Company or any related corporation, the term of such incentive stock options
shall not exceed five years and the exercise price shall be not less than 110%
of the fair market value of the Common Stock at the time the incentive stock
option is granted. This
<PAGE> 8
provision shall control notwithstanding any contrary terms contained in an
option agreement or any other document.
6.2 Attribution Rule. For purposes of subsection 6.1, in
determining stock ownership, an employee shall be deemed to own the stock owned,
directly or indirectly, by or for his brothers, sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its shareholders, partners or beneficiaries. If an
employee or a person related to the employee owns an unexercised option or
warrant to purchase stock of the Company, the stock subject to that portion of
the option or warrant which is unexercised shall not be counted in determining
stock ownership. For purposes of this Section 6, stock owned by an employee
shall include all stock actually issued and outstanding immediately before the
grant of the incentive stock option to the employee.
SECTION 7. Adjustments Upon Changes in Capitalization. The aggregate
number and class of shares for which options may be granted under this Plan, the
number and class of shares covered by each outstanding option and the exercise
price per share thereof (but not the total price), and each such option, shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a split-up or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.
7.1 Effect of Liquidation, Reorganization or Change in
Control.
7.1.1 Cash, Stock or Other Property for Stock. Except
as provided in subsection 7.1.2, upon a merger (other than a merger of the
Company in which the holders of Common Stock immediately prior to the merger
have the same proportionate ownership of Common Stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation, reorganization (other than a mere reincorporation
or the creation of a holding company) or liquidation of the Company, as a result
of which the shareholders of the Company receive cash, stock or other property
in exchange for or in connection with their shares of Common Stock, any option
granted under this plan shall terminate, but the Optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation to exercise such option in
whole or in part, to the extent the vesting requirements set forth in the option
agreement have been satisfied, unless stated otherwise in the optionee's
individual option agreement.
7.1.2 Conversion of Options on Stock for Stock
Exchange. If the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Common Stock in
any transaction involving a merger (other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted under this Plan shall be converted into
options to purchase shares of Exchange Stock unless the Company and the
corporation issuing the Exchange Stock, in their sole discretion, determine that
any or all such options granted under this Plan shall not be converted into
options to purchase shares of Exchange Stock, but instead shall terminate in
accordance with the provisions of subsection 7.1.1. The
<PAGE> 9
amount and price of converted options shall be determined by adjusting the
amount and price of the options granted under this Plan in the same proportion
as used for determining the number of shares of Exchange Stock the holders of
the Common Stock receive in such merger, consolidation, acquisition of property
or stock, separation or reorganization. Unless accelerated by the Board, the
vesting schedule set forth in the option agreement shall continue to apply for
the Exchange Stock.
7.1.3 Change in Control. In the event of a "Change in
Control", as defined below, of the Company, unless otherwise determined by the
Board prior to the occurrence of such Change in Control, any options or portions
of such options outstanding as of the date such Change in Control is determined
to have occurred that are not yet fully vested on such date shall become
immediately exercisable in full.
7.1.4 Definition of "Change in Control." For purposes
of this Plan, a "Change in Control" shall mean (a) the first approval by the
Board or by the stockholders of the Company of an Extraordinary Event, (b) a
Purchase, or (c) a Board Change. For purposes of the Plan, an "Extraordinary
Event" shall mean any of the following actions:
(i) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to
which shares of Common Stock would be converted into cash, securities
or other property, other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, the assets of the Company; or
(iii) the adoption of any plan or proposal for liquidation or
dissolution of the Company.
For purposes of the Plan, a "Purchase" shall mean the
acquisition by any person (as such term is defined in Section 13(d) of
the Exchange Act) of any shares of Common Stock or securities
convertible into Common Stock) without the prior approval of a majority
of the Continuing Directors (as defined below) of the Company, if after
making such acquisition such person is the beneficial owner (as such
term is defined in Rule 13d-3 under the Exchange Act) directly or
indirectly of Securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities
(calculated as provided in paragraph (d) of such Rule 13d-3). For
purposes of the Plan, a "Board Change" shall have occurred if
individuals who constitute the Board of the Company at the time of
adoption of this Plan (the "Continuing Directors") cease for any reason
to constitute at least a majority of the Board, provided that any
person becoming a Director subsequent to the date of adoption of this
Plan whose nomination for election was approved by a vote of at least a
majority of the Continuing Directors (other than a nomination of an
individual whose initial assumption of office is in connection with an
actual threatened election contest relating to the election of the
Directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act) shall be deemed to be a
Continuing Director.
<PAGE> 10
7.2 Fractional Shares. In the event of any adjustment in the
number of shares covered by any option, any fractional shares resulting from
such adjustment shall be disregarded and each such option shall cover only the
number of full shares resulting from such adjustment.
7.3 Determination of Board to Be Final. All Section 7
adjustments shall be made by the Board, and its determination as to what
adjustments shall be made, and the extent of such adjustments, shall be final,
binding and conclusive. Unless an Optionee agrees otherwise, any change or
adjustment to an incentive stock option shall be made in such a manner so as not
to constitute a "modification" as defined in Code Section 424(h) and so as not
to cause his or her incentive stock option issued hereunder to fail to continue
to qualify as an incentive stock option as defined in Code Section 422(b).
SECTION 8. Securities Regulation. Shares shall not be issued with
respect to an option granted under this Plan unless the exercise of such option
and the issuance and delivery of such shares pursuant to the exercise of such
option shall comply with all relevant provisions of law, including, without
limitation, any applicable state securities laws, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance, including the availability of an exemption from
registration for the issuance and sale of any shares under this Plan. Inability
of the Company to obtain from any regulatory body having jurisdiction, the
authority deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares under this Plan or the unavailability of an
exemption from registration for the issuance and sale of any shares under this
Plan shall relieve the Company of any liability in respect of the nonissuance or
sale of such shares as to which such requisite authority shall not have been
obtained.
As a condition to the exercise of an option, the Company may require
the Optionee 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 by any relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order against
any shares of stock may be placed on the official stock books and records of the
Company, and a legend indicating that the stock may not be pledged, sold or
otherwise transferred unless an opinion of counsel is provided (concurred in by
counsel for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order to
assure exemption from registration. The Plan Administrator may also require such
other action or agreement by the Optionees as may from time to time be necessary
to comply with the federal and state securities laws. THIS PROVISION SHALL NOT
OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
HEREUNDER.
Should any of the Company's capital stock of the same class as the
stock subject to options granted under this Plan be listed on a national
securities exchange, all stock issued under this Plan if not previously listed
on such exchange shall be authorized by that exchange for listing on such
exchange prior to the issuance of such stock.
<PAGE> 11
SECTION 9. Amendment and Termination.
9.1 Board Action. The Board may at any time suspend, amend or
terminate this Plan, provided that except as set forth in Section 7, the
approval of the Company's shareholders is necessary within 12 months before or
after the adoption by the Board of any amendment which will:
(a) increase the number of shares which are to be
reserved for the issuance of options under this Plan;
(b) permit the granting of stock options to a class
of persons other than those presently permitted to receive stock options under
this Plan; or
(c) require shareholder approval under applicable
law.
Any amendment made to this Plan which would constitute a "modification"
to incentive stock options outstanding on the date of such amendment, shall not
be applicable to such outstanding incentive stock options, but shall have
prospective effect only, unless the Optionee agrees otherwise.
9.2 Automatic Termination. Unless sooner terminated by the
Board, this Plan shall terminate ten years from the earlier of (a) the date on
which this Plan is adopted by the Board or (b) the date on which this Plan is
approved by the shareholders of the Company. No option may be granted after such
termination or during any suspension of this Plan. The amendment or termination
of this Plan shall not, without the consent of the option holder, alter or
impair any rights or obligations under any option previously granted under this
Plan.
SECTION 10. Effectiveness of This Plan. This Plan shall become
effective upon adoption by the Board so long as it is approved by the Company's
shareholders any time within 12 months before or after the adoption of this
Plan.
Adopted by the Board of Directors on May 14, 1997, and approved by the
shareholders on May 14, 1997.
<PAGE> 1
EXHIBIT 10.5
STOCK PURCHASE WARRANT
This Warrant is issued as of this 8th day of October, 1997, by
BUILDNET, INC., a North Carolina corporation (the "Company"), to PETRA CAPITAL,
LLC, a Georgia limited liability company (Petra Capital, LLC and any subsequent
assignee or transferee hereof are hereinafter referred to collectively as
"Holder" or "Holders").
AGREEMENT:
Section 1. Issuance of Warrant, Term.
(a) Petra Capital, LLC ("Petra") is making a loan to the Company in the
amount of $3,000,000 (the "Loan"). Petra is funding $2,000,000 of the Loan, and
Piedmont Venture Partners Limited Partnership ("Piedmont") is funding $1,000,000
of the Loan. The portion of the Loan funded by Petra is evidenced by a Secured
Promissory Note of even date herewith, in the original principal amount of
$2,000,000, payable to the order of Petra (together with any and all extensions,
replacements and renewals thereof, the "Note") and a Loan and Security Agreement
of even date herewith (as amended, supplemented or otherwise modified from time
to time, the "Loan Agreement"). In consideration of the funding of $2,000,000 of
the Loan, the receipt and sufficiency of which are hereby acknowledged, the
Company hereby grants to Holder the right to purchase 25,318 shares of the
Company's common stock (the "Common Stock"), which the Company hereby represents
to equal 2% of the shares of capital stock outstanding on the date hereof,
calculated on a Fully Diluted Basis (as hereinafter defined) assuming exercise
of this Warrant and issuance of such shares. For purposes of this Warrant,
"Fully Diluted Basis" means at any time, without duplication, the number of
outstanding shares of Common Stock, after giving effect to (x) all shares of
Common Stock actually outstanding at the time of determination, (y) all shares
of Common Stock issuable upon the exercise of any option, warrant (including,
without limitation, this Warrant) or similar right outstanding at the time of
determination, and (z) all shares of Common Stock issuable upon the exercise of
any conversion or exchange right contained in any security convertible into or
exchangeable for shares of Common Stock, and assuming that (i) 16,891 shares of
Common Stock were issuable upon the conversion of all of the convertible
indebtedness of the Company outstanding on the date hereof, (ii) that 1,800
shares of common stock, or warrants to purchase such number of shares, were
issuable to certain vendors of the Company as of the date hereof; (iii) that
options to purchase 155,000 shares of Common Stock were outstanding as of the
date hereof under the Company's 1997 Stock Plan; (iv) that options outstanding
under the Sun Forest Systems, Inc. 1995 Stock Award Plan (the "Sun Forest Plan")
were not outstanding as of the date hereof, (v) that options to purchase 7,323
shares of Common Stock to a financial consultant to the Company were outstanding
as of the date hereof.
(b) The shares of Common Stock issuable upon exercise of this Warrant
are hereinafter referred to as the "Shares." This Warrant shall be exercisable
at any time and from time to time from the date hereof until October 7, 2007.
Section 2. Exercise Price. The exercise price (the "Exercise Price")
per share for which all or any of the Shares may be purchased pursuant to the
terms of this Warrant shall be one cent ($.01).
Section 3. Exercise.
<PAGE> 2
(a) This Warrant may be exercised by the Holder hereof (but only on the
conditions hereafter set forth) as to all or any increment or increments of one
hundred (100) Shares (or the balance of the Shares if less than such number),
upon delivery of written notice of intent to exercise to the Company at the
following address: 4815 Emperor Blvd., Suite 214, Durham, NC 27703, Attention:
Steve Thompson, or such other address as the Company shall designate in a
written notice to the Holder hereof, together with this Warrant and payment to
the Company of the aggregate Exercise Price of the Shares so purchased. The
Exercise Price shall be payable, at the option of the Holder, (i) by certified
or bank check, (ii) by the surrender of the Note or portion thereof having an
outstanding principal balance equal to the aggregate Exercise Price. Upon
exercise of this Warrant as aforesaid, the Company shall as promptly as
practicable, and in any event within fifteen (15) days thereafter, execute and
deliver to the Holder of this Warrant a certificate or certificates for the
total number of whole Shares for which this Warrant is being exercised in such
names and denominations as are requested by such Holder. If this Warrant shall
be exercised with respect to less than all of the Shares, the Holder shall be
entitled to receive a new Warrant covering the number of Shares in respect of
which this Warrant shall not have been exercised, which new Warrant shall in all
other respects be identical to this Warrant. The Company covenants and agrees
that it will pay when due any and all state and federal issue taxes which may be
payable in respect of the issuance of this Warrant or the issuance of any Shares
upon exercise of this Warrant.
(b) In lieu of exercising this Warrant pursuant to Section 3(a) above,
the Holder shall have the right to require the Company to convert this Warrant
(as it may be adjusted pursuant to Section 5 hereof), in whole or in part and at
any time or times into Shares (the "Conversion Right"), upon delivery of written
notice of intent to convert to the Company at its address in Section 3(a) or
such other address as the Company shall designate in a written notice to the
Holder hereof, together with this Warrant. Upon exercise of the Conversion
Right, the Company shall deliver to the Holder (without payment by the Holder of
any Exercise Price) that number of Shares which is equal to the quotient
obtained by dividing (x) the net value of the number of Shares with respect to
which Holder is then exercising the Conversion Right (determined by subtracting
the aggregate Exercise Price for the Shares with respect to which Holder is then
exercising the Conversion Right from a number equal to the product of (i) the
Fair Market Value per Share (as such term is defined in Section 5(b)) as at such
time, multiplied by (ii) that number of Shares with respect to which Holder is
then exercising the Conversion Right), by (y) the Fair Market Value per Share.
Any references in any Warrants to the "exercise" of this Warrant, and the use of
the term exercise herein, shall be deemed to include (without limitation) any
exercise of the Conversion Right.
Section 4. Covenants and Conditions. The above provisions are subject
to the following:
(a) Neither this Warrant nor the Shares have been registered under the
Securities Act of 1933, as amended ("Securities Act") or any state securities
laws ("Blue Sky Laws"). This Warrant has been acquired for investment purposes
and not with a view to distribution or resale. Except for the Holder's intended
transfer to Petra Special Purpose, LLC (the "SPV") and the subsequent collateral
assignment by the SPV, this Warrant may not be pledged, hypothecated, sold, made
subject to a security interest, or otherwise transferred without (i) an
effective registration statement for such Warrant under the Securities Act and
such applicable Blue Sky Laws, or (ii) an opinion of counsel, which opinion and
counsel shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any applicable
Blue Sky Laws (the Company hereby acknowledges that Sherrard & Roe, PLC is
acceptable counsel). Transfer of Shares
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issued upon the exercise of this Warrant shall be restricted in the same manner
and to the same extent as the Warrant, and the certificates representing such
Shares shall, subject to Section 6 hereof, bear substantially the following
legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A
REGISTRATION STATEMENT UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES LAW S
SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (11) IN THE OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH SECURITIES ACTS OR
SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect the
compliance of the issuance of this Warrant and any shares of Common Stock issued
upon exercise hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment therefor,
be legally and validly issued and outstanding, fully paid and nonassessable,
free from all taxes, liens, charges and preemptive rights (other-than any
created by the Holder), if any, with respect thereto or to the issuance thereof.
The Company shall at all times reserve and keep available for issuance upon the
exercise of this Warrant such number of authorized but unissued shares of Common
Stock as will be sufficient to permit the exercise in full of this Warrant.
Section 5. Adjustment of Exercise Price and Number of Shares Issuable.
The Exercise Price and the number of Shares (or other securities or property)
issuable upon exercise of this Warrant shall be subject to adjustment from time
to time upon the occurrence of any of the events enumerated in this Section 5.
(a) Common Stock Reorganization. If the Company shall (i) subdivide or
consolidate its outstanding shares of Common Stock (or any class thereof) into a
greater or smaller number of shares, (ii) pay a dividend or make a distribution
on its Common Stock (or any class thereof) in shares of its capital stock, or
(iii) issue by reclassification of its Common Stock (or any class thereof) any
shares of its capital stock (any such event described in clauses (i), (ii) or
(iii) being called a "Common Stock Reorganization"), then the Exercise Price and
the type of securities for which this Warrant is exercisable shall be adjusted
immediately such that the Holder thereafter shall be entitled to received upon
exercise of this Warrant the aggregate number and type of securities that it
would have received if this Warrant had been exercised immediately prior to such
Common Stock Reorganization.
(b) Common Stock Distribution. If the Company shall issue, sell,
distribute or otherwise grant any shares of Common Stock, other than pursuant to
a Common Stock Reorganization (any such issuance, sale, distribution or grant
being herein called a "Common Stock Distribution"), for a consideration per
share less than the Fair Market Value per Share immediately prior to such Common
Stock Distribution, then the Exercise Price shall be reduced to the price
determined by multiplying
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<PAGE> 4
such Exercise Price by a fraction, the numerator of which shall be the sum of
(A) the number of shares of Common Stock outstanding immediately prior to such
Common Stock Distribution plus the number of shares issuable upon exercise of
this Warrant and any Additional Warrants issued pursuant to the Loan Agreement
plus (B) the quotient obtained by dividing the aggregate consideration, if any,
received by the Company upon such Common Stock Distribution by such Fair Market
Value per Share, and the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such Common Stock
Distribution plus the number of shares issuable upon exercise of this Warrant
and any Additional Warrants issued pursuant to the Loan Agreement. "Fair Market
Value per Share" as of any time means the fair market value of the Company as of
such time divided by the number of outstanding shares of Common Stock, as of
such time after giving effect to the exercise of this Warrant and any Additional
Warrants issued pursuant to the Loan Agreement.
(c) Convertible Securities and Option Securities. If the Company shall
issue, sell, distribute or otherwise grant (including by assumption):
(i) any stock or other securities convertible into or
exchangeable for Common Stock, whether or not the rights to exchange or
convert thereunder are immediately exercisable such convertible or
exchangeable stock or securities being herein called "Convertible
Securities"), or
(ii) any rights to subscribe for or to purchase, or any
warrants or options for the purchase of, Common Stock or Convertible
Securities, whether or not immediately exercisable, other than (A) any
Additional Warrants issued pursuant to the Loan Agreement, -or (B)
Permitted Plan Options (as defined below) (such rights, warrants or
options being herein called "Option Securities"),
and the lowest aggregate consideration per share for which Common Stock is
issuable upon the exercise of such Convertible Securities or Option Securities
(and, if applicable, upon conversion or exchange of Convertible Securities
issuable upon exercise of Option Securities) shall be less than the Fair Market
Value per Share at such time, then the Exercise Price shall be reduced to the
price determined by multiplying such Exercise Price by a fraction, the numerator
of which shall be the sum of (A) the number of shares of Common Stock then
outstanding plus the number of shares issuable upon exercise of this Warrant and
any Additional Warrants issued pursuant to the Loan Agreement plus (B) the
quotient obtained by dividing the aggregate consideration, if any, received or
receivable by the Company upon such issuance, sale, distribution or grant by
such Fair Market Value per Share, and the denominator of which shall be the
total number of shares of Common Stock then outstanding plus the number of
shares issuable upon exercise of this Warrant and any Additional Warrants issued
pursuant to the Loan Agreement plus the total maximum number of shares issuable
upon exercise or conversion of such Convertible Securities or Option Securities
and, in the case of Option Securities to acquire Convertible Securities, upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Option Securities. If any of such
Convertible Securities or Option Securities shall have terminated, lapsed or
expired prior to exercise, exchange or conversion, the Exercise Price then in
effect shall forthwith be readjusted (effective only with respect to any
exercise of Warrants after such readjustment) to the Exercise Price which would
then be in effect had the adjustment not been made upon the issuance, sale,
distribution or grant of such Convertible Securities or Option Securities. For
purposes hereof, "Permitted Plan Options" shall mean Option Securities issued
pursuant to the Company's 1997 Stock Plan; provided that the number of shares of
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<PAGE> 5
Common Stock issuable upon exercise thereof shall not exceed in the aggregate,
the sum of (i) 155,000 shares, less (ii) any shares of Common Stock issuable
upon the exercise of options granted under the Sun Forest Plan (net of any
options thereunder which have been canceled), in each case, adjusted to account
for any stock splits, subdivisions or the like.
(d) Adjustment in Number of Shares. Upon each adjustment to the
Exercise Price pursuant to subsections (a), (b) or (c) this Section 5, this
Warrant shall thereafter evidence the right to receive upon payment of the
adjusted Exercise Price that number of Shares obtained by multiplying the number
of Shares previously issuable upon exercise of this Warrant by a fraction the
numerator of which is the Exercise Price prior to adjustment and the denominator
of which is the adjusted Exercise Price.
(e) Non-Cash Consideration. If any shares of Common Stock, Option
Securities or Convertible Securities shall be issued, sold, distributed or
granted for a consideration other than cash, the amount of the consideration
other than cash received by the Company shall be deemed to be the fair market
value of such consideration, as determined in good faith by the Corporation's
Board of Directors. If any shares of Common Stock, Option Securities or
Convertible Securities shall be issued in connection with any merger in which
the Company is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair market value, as determined in good faith by the
Corporation's Board of Directors, of such portion of the assets and business of
the non-surviving corporation as shall be attributable to such Common Stock,
Option Securities or Convertible Securities, as the case may be.
(f) Capital Reorganizations. If there shall be any consolidation,
merger or amalgamation of the Company with another person or entity or any
acquisition of capital stock of the Company by means of a share exchange, other
than a consolidation, merger or share exchange in which the Company is the
continuing corporation or any sale or conveyance of the property of the Company
as an entirety or substantially as an entirety, or any reorganization or
recapitalization of the Company (any such event being called a "Capital
Reorganization", then the Holder of this Warrant shall no longer have the right
to purchase Common Stock, but shall have instead the right to purchase, upon
exercise of this Warrant, the kind and amount of shares of stock and other
securities and property (including cash) which the Holder would have owned or
have been entitled to receive pursuant to such Capital Reorganization if this
Warrant had been exercised immediately prior to the -effective date of such
Capital Reorganization. As a condition to effecting any Capital Reorganization,
the Company or the successor or surviving corporation, as the case may be, shall
assume by a supplemental agreement, reasonably satisfactory in form, scope and
substance to the Holder (which shall be mailed or delivered to the Holder of
this Warrant at the last address of such Holder appearing on the books of the
Company) the obligation to deliver to such Holder such shares of stock,
securities, cash or property as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase, and all other obligations of the
Company set forth in this Warrant.
(g) Determination of Fair Market Value. Subject to the provisions set
forth below, the fair market value of the Company or of any non-cash
consideration received by the Company upon any Common Stock Distribution shall
be determined in good faith by the Board of Directors of the Company. Upon each
such determination, the Company shall promptly give notice thereof to the
Holder, setting forth in reasonable detail the calculation of such fair market
value and the method and basis of determination thereof (the "Company
Determination"). If the Holder shall disagree with the
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<PAGE> 6
Company Determination and shall, by notice to the Company given within thirty
(30) days after the Company's notice of the Company Determination, elect to
dispute the Company Determination, the Company shall, within thirty (30) days
after such notice, engage an investment bank or other qualified appraisal firm
acceptable to the Holder to make an independent determination of the fair market
value of the Company or of any non-cash consideration received by the Company
upon any Common Stock Distribution (the "Appraiser Determination"). The
Appraiser Determination shall be final and binding on the Company and the
Holder. The cost of the Appraiser Determination shall be borne by the Company.
(h) Adjustment Rules. Any adjustments pursuant to this Section 5 shall
be made successively whenever an event referred to herein shall occur. No
adjustment shall be made pursuant to this Section 5: (i) in respect of the
issuance from time to time of shares of Common Stock upon the exercise of this
Warrant, (ii) in respect of the issuance from time to time of shares of Common
Stock upon the exercise of the Warrant to be issued to Piedmont, (iii) the
exercise or conversion of any other Option Securities or Convertible Securities,
or (iii) in respect of the issuance or exercise of any Additional Warrants (as
defined in the Loan Agreement).
(i) Proceedings Prior to Any Action Requiring Adjustment. As a
condition precedent to the taking of any action which would require an
adjustment pursuant to this Section 5, the Company shall take any action which
may be necessary, including obtaining regulatory approvals or exemptions, in
order that (a) the Company may thereafter validly and legally issue as fully
paid and nonassessable all shares of Common Stock which the Holder of this
Warrant is entitled to receive upon exercise thereof.
(j) Notice of Adjustment. Not less than 10 days prior to the record
date or effective date, as the case may be, of any action which requires or
might require an adjustment or readjustment pursuant to this Section 5, the
Company shall give notice to the Holder of such event, describing such event in
reasonable detail and specifying the record date or effective date, as the case
may be, and, if determinable, the required adjustment and the computation
thereof. If the required adjustment is not determinable at the time of such
notice, the Company shall give notice to the Holder of such adjustment and
computation promptly after such adjustment becomes determinable.
Section 6. Transfer of Warrant. Subject to the provisions of Section 4
hereof, this Warrant may be transferred, in whole or in part, to any person or
business entity, by presentation of the Warrant to the Company with written
instructions for such transfer. Upon such presentation for transfer, the Company
shall promptly execute and deliver a new Warrant or Warrants in the form hereof
in the name of the assignee or assignees and in the denominations specified in
such instructions. The Company shall pay all expenses incurred by it in
connection with the preparation, issuance and delivery of Warrants under this
Section.
Section 7. Warrant Holder Not Shareholder; Rights Offering; Preemptive
Rights. Except as otherwise provided herein, this Warrant does not confer upon
the Holder, as such, any right whatsoever as a shareholder of the Company. The
Company shall not grant any preemptive rights with respect to any of its capital
stock if such preemptive rights are exercisable upon exercise of this Warrant.
Section 8. Observation Rights; Interim Dividends.
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<PAGE> 7
(a) Observation Rights. The Holder of this Warrant shall receive notice
of and be entitled to attend or may send a representative to attend all meetings
of the Company's Board of Directors in a non-voting observation capacity and
shall receive a copy of all correspondence and information delivered to the
Company's Board of Directors, from the date hereof until such time as the
indebtedness evidenced by the Note has been paid in full.
(b) Interim Dividends. If the Company pays a dividend or makes a
distribution to the holders of its capital stock of any securities (other than
capital stock) or property (including cash and securities of other companies) of
the Company, or any rights, options or warrants to purchase securities (other
than capital stock) or property (including securities of other companies) of the
Company, then, simultaneously with the payment of such dividend or the making of
such distribution, and as a condition precedent to its right to do so, it will
pay or distribute to the Holder of this Warrant an amount of property (including
without limitation cash) and/or securities (including without limitation
securities of other companies) of the Company as would have been received by
such Holder had it exercised this Warrant and received all of the Shares of
Common Stock issuable upon the exercise of this Warrant immediately prior to the
record date (or other applicable date) used for determining stockholders of the
Company entitled to receive such dividend or distribution. Anything in Section 5
to the contrary notwithstanding, no adjustment to the Exercise Price shall be
made for any distribution of Convertible Securities of the Company to the Holder
pursuant to the provisions of this Section 8.
Section 9. Financial Statements and Reports. Unless the Company is
otherwise furnishing such information to the Holder hereof, from the date hereof
until the earlier to occur of (i) the exercise in full of this Warrant or (ii)
its termination, the Company shall deliver to the Holder the following financial
information:
(a) within one hundred twenty (120) days after the end of each
fiscal year of Borrower, (A) audited consolidated financial statements
of Borrower, including a balance sheet as of the close of such fiscal
year, an income statement and statements of changes in stockholders'
equity, and of cash flows for such fiscal year, all in reasonable
detail, prepared in accordance with GAAP consistently applied, and with
the report thereon of independent public accountants, reasonably
acceptable to Lender, and (B) unaudited consolidating financial
statements, including a balance sheet as of the close of such fiscal
year, an income statement and statements of changes in stockholders'
equity, and of cash flows for such fiscal year;
(b) within thirty (30) days after the end of each calendar
month, a consolidated balance sheet of Borrower as of the close of such
month and consolidated statements of earnings and retained earnings of
Borrower for such month and for the prior months of the current fiscal
year (on a year to date basis), each compared to the same period in the
previous fiscal year, all in reasonable detail, and unaudited but
prepared on the basis of GAAP consistently applied (except for the
absence of footnotes and subject to year-end adjustments), together
with a narrative status report of Borrower's management; and
(c) with reasonable promptness, such other financial data as
Lender may reasonably request.
Section 10. Certain Notices. In case at any time the Company shall
propose to:
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<PAGE> 8
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in stock or make
any special dividend or other distribution to the holders of its Common Stock;
(c) offer for subscription to the holders of any of its Common Stock
any additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the Company, or
consolidate, merge or otherwise combine with, or sell all or substantially all
of its assets to, another corporation; or
(e) voluntarily or involuntarily dissolve, liquidate or wind up of the
affairs of the Company;
then, in any one or more of said cases, the Company shall give to the Holder, by
certified or registered mail, (i) 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 or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place. Any notice required by clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
Section 11. Put Right.
(a) The Company hereby irrevocably grants and issues to Holder the
right and option to sell to the Company (the "Put") this Warrant or the Shares
with respect to which this Warrant is exercisable, in whole or part, at any time
after October 7, 2002 at a purchase price (the "Purchase Price") equal to the
Put Value (as hereinafter defined) of the shares of Common Stock issuable to
Holder upon exercise of this Warrant.
(b) The Company shall pay to the Holder, in cash or certified or
cashier's check, the Purchase Price within thirty (30) days of the receipt of
written notice from the Holder stating its intention to exercise the Put and the
number of shares with respect to which it is then exercising the Put (the "Put
Securities").
(c) The Put Value shall by equal to the fair market value of the
Company (determined pursuant to Section 5(g) of this Warrant) multiplied by a
fraction, the numerator of which shall be the number of Put Securities and the
denominator of which shall be the number of shares of Common Stock then
outstanding (including the Put Securities).
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[Remainder of Page Intentionally Left Blank]
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[SIGNATURE PAGE TO STOCK PURCHASE WARRANT]
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
BUILDNET, INC.
By: /s/ Keith T. Brown
Name: Keith T. Brown
Title: President and CEO
Attest: /s/ J. William Waddell
Name: J. William Waddell
Title: Secretary
PETRA CAPITAL, LLC, a Georgia
limited liability company
By: Petra Capital Management, LLC,
Manager
By: /s/ John Stein
Name: John Stein
Title: Member
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<PAGE> 11
BUILDNET, INC.
CONSENT, WAIVER AND AMENDMENT AGREEMENT
THIS CONSENT, WAIVER AND AMENDMENT AGREEMENT (the "Agreement") is
entered into by and among Buildnet, Inc., a North Carolina corporation (the
"Company"), Petra Capital, LLC, a Georgia limited liability company and its
assignee, Petra Special Purpose, LLC, a Delaware limited liability company
(collectively, "Petra"), Piedmont Venture Partners Limited Partnership, a North
Carolina limited partnership ("Piedmont"), Southeast Interactive Technology
Fund I, LLC, and Southeast Interactive Technology Fund II, LLC, (collectively,
"Southeast"), John Stein ("Stein") and Stein Family Partners, L.P. ("Stein
Partners"), and is effective this 20th day of May 1999. Petra and Piedmont are
sometimes referred to herein as a "Lender" and collectively as the "Lenders."
RECITALS
WHEREAS, the Company has entered into an Agreement and Plan of Merger
(the "Merger Agreement") with The F.A.S.T. Management Group, Inc., a Washington
corporation ("FAST"), a copy of which is attached hereto as Exhibit A, whereby
FAST has merged with a wholly owned subsidiary of the Company so that FAST is a
wholly owned subsidiary of the Company (the "FAST Merger"). As a result of the
FAST Merger, shareholders of FAST are now shareholders of the Company.
WHEREAS, following consummation of the FAST Merger, the Company
desires to enter into a Series B Preferred Stock Purchase Agreement (the
"Purchase Agreement"), a copy of which is attached hereto as Exhibit B,
pursuant to which the Company would issue approximately 3,300,000 shares of its
Series B Preferred Stock for an aggregate purchase price of approximately
$30,000,000 (excluding convertible debt) (the "Series B Financing"); and
WHEREAS, the Company, Petra and Piedmont are parties to that certain
Loan and Security Agreement dated October 8, 1997 (the "Senior Loan
Agreement"), whereby consents, waivers and amendments under the Senior Loan
Agreement require the agreement of the Required Lenders pursuant to Section
9.15(b) thereof, and Petra and Piedmont collectively constitute the Required
Lenders; and
WHEREAS, Petra and Piedmont hold certain stock purchase warrants and
Petra holds rights to receive future warrants pursuant to the terms of the
Senior Loan Agreement (the "Senior Warrants"), and such Senior Warrants contain
adjustment provisions upon the Company's issuance of securities or other rights
to purchase securities convertible or exchangeable for Common Stock of the
Company; and
WHEREAS, the Company and Piedmont are parties to that certain Loan and
Security Agreement dated April 24, 1998 (the "Junior Loan Agreement"), whereby
consents, waivers and amendments under the Junior Loan Agreement require the
agreement of Piedmont pursuant to Section 8.14(b) thereof; and
<PAGE> 12
WHEREAS, Piedmont holds certain stock purchase warrants and rights to
receive future warrants pursuant to the terms of the Junior Loan Agreement (the
"Junior Warrants"), and such Junior Warrants contain adjustment provisions upon
the Company's issuance of securities or other rights to purchase securities
convertible or exchangeable for Common Stock of the Company; and
WHEREAS, Petra and Piedmont, in their capacities as Lenders, are
willing to consent to the transactions described herein; and
WHEREAS, the Company desires to issue to Petra a warrant to purchase
12,000 shares of Common Stock of the Company at an exercise price of $0.01 per
share and otherwise in substantially the same format as the Senior Warrants (as
amended pursuant to the terms contained herein) in consideration for the
amendment of each Senior Warrant held by it or that it is entitled to receive
(the "New Petra Warrant"); and
WHEREAS, the Company and Petra, Piedmont, Southeast, and certain other
shareholders (collectively, the "Rights Investors") are parties to that certain
Amended and Restated Investor Rights Agreement dated October 8, 1997, as
amended on December 30, 1997 and April 24, 1998 (the "Rights Agreement"),
pursuant to which Section 3 grants the Rights Investors the right of first
refusal to purchase up to their pro rata share of New Securities (as such term
is defined therein); and
WHEREAS, Section 6.5 of the Rights Agreement provides that any term of
such Rights Agreement may be waived with the written consent of the holders of
at least two thirds of the shares of Registrable Securities (as defined
therein); and
WHEREAS, the requisite percentage of Rights Investors desire to waive
the rights of first refusal pursuant to the Rights Agreement in connection with
the Company's issuance of Common Stock pursuant to the FAST Merger and the
Company's execution of the Purchase Agreement and issuance of Series B
Preferred Stock pursuant to the terms thereof; and
WHEREAS, the Company is party to a Note and Warrant Purchase
Agreement, dated November 12, 1998 with Piedmont and Southeast, a Note and
Warrant Purchase Agreement, dated February 22, 1999 with Stein and a Note and
Warrant Purchase Agreement, dated April 9, 1999 with Stein Partners and
Southeast, and has issued warrants to purchase Common Stock of the Company in
connection therewith (the "Bridge Warrants"); and
WHEREAS, the holders of the Bridge Warrants each have the right to
receive additional shares of Common Stock exercisable pursuant to such Bridge
Warrants if the next Equity Financing of the Company (as defined in the
applicable Note and Warrant Purchase Agreement) was not consummated on or
before May 15, 1999, and such holders desire to waive their rights to receive
additional shares of Common Stock exercisable pursuant to the Bridge Warrants
upon these terms.
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt of which is hereby acknowledged, and
pursuant to Section 9.15(b) of the Senior Loan Agreement, Section 8.14(b) of
the Junior Loan Agreement and Section 6.5 of the Rights Agreement, the parties
hereby agree as follows.
<PAGE> 13
1. Consent under Senior Loan Agreement. Pursuant to the terms of the
Senior Loan Agreement, each of Petra and Piedmont hereby consents to
the FAST Merger and the Series B Financing, including the Company's
execution and delivery of the Merger Agreement, the Purchase Agreement
and the transactions contemplated therein. Specifically, and with
reference to the Merger Agreement and Purchase Agreement each of Petra
and Piedmont (i) waives any prohibition contained in Section 4.17 of
the Senior Loan Agreement against acquiring the business of or merging
or consolidating with any other entity or acquiring or creating a
subsidiary, (ii) waives any prohibition contained in Section 4.30 of
the Senior Loan Agreement against issuing any shares of Common Stock
or any securities convertible into shares of Common Stock, (iii)
waives any prohibition contained in Section 4.19 of the Senior Loan
Agreement against declaring a dividend of $3.15 per share on the
Series A Preferred Stock of the Company in connection with the Series
B Financing and (iv) acknowledges that this Agreement shall serve as
adequate notice of the issuance of capital stock or instruments
convertible into or exchangeable for shares of capital stock of the
Company as required by Section 4.22 of the Senior Loan Agreement.
2. Consent under Junior Loan Agreement. Pursuant to the terms of the
Junior Loan Agreement, Piedmont hereby consents to the FAST Merger and
the Series B Financing, including the Company's execution and delivery
of the Merger Agreement, the Purchase Agreement and the transactions
contemplated therein. Specifically, and with reference to the Merger
Agreement and Purchase Agreement, Piedmont (i) waives any prohibition
contained in Section 4.16 of the Junior Loan Agreement against
acquiring the business of or merging or consolidating with any other
entity or acquiring or creating a subsidiary, (ii) waives any
prohibition contained in Section 4.28 of the Junior Loan Agreement
against issuing any shares of Common Stock or securities convertible
into shares of Common Stock, (iii) waives any prohibition contained in
Section 4.18 of the Senior Loan Agreement against declaring a dividend
of $3.15 per share on the Series A Preferred Stock of the Company in
connection with the Series B Financing and (iv) acknowledges that this
Agreement shall serve as adequate notice of the issuance of capital
stock or instruments convertible into or exchangeable for shares of
capital stock of the Company as required by Section 4.21 of the Junior
Loan Agreement.
Additionally, Piedmont hereby waives its right to receive an
additional warrant issuable as of April 24, 1999 pursuant to the terms
of Section 1.4(b)(i) of the Junior Loan Agreement in exchange for the
Company's obligation to pay to Piedmont $315,000 in cash, exchangeable
for shares of the Company's Series B Preferred Stock issued pursuant
to the Purchase Agreement and in accordance with the terms of the
Series B Financing.
3. Waiver of Adjustment and Amendment of Senior Warrants. Each of Petra
and Piedmont hereby waive all adjustment rights contained in Section
5(c) of all Senior Warrants held by it or which it is entitled to
receive, with respect to the issuance of securities by the Company:
(a) pursuant to the Note and Warrant
<PAGE> 14
Purchase Agreements executed by the Company on each of October 6,
1998, November 12, 1998, February 22, 1999 and April 9, 1999; (b)
pursuant to the Merger Agreement; or (c) pursuant to the Purchase
Agreement. Additionally, each of Petra and Piedmont hereby agrees to
amend and restate Section 11(a) of each Senior Warrant held by it or
that it is entitled to receive to read as follows.
(a) The Company hereby irrevocably grants and issues to
Holder the right and option to sell to the Company (the
"Put") this Warrant or the Shares with respect to which this
Warrant is exercisable, in whole or part, at any time after
May 31, 2006 at a purchase price (the "Purchase Price") equal
to the Put Value (as hereinafter defined) of the shares of
Common Stock issuable to holder upon exercise of this
Warrant.
Additionally, each of Petra and Piedmont hereby agrees to amend
Section 11(c) of each Senior Warrant held by it or that it is entitled
to receive by adding the following sentence at the end thereof: For
purposes of this Section 11(c) the "number of shares of Common Stock
then outstanding" shall be deemed to include all shares of Common
Stock issuable upon exercise or conversion of all then outstanding
Convertible Securities directly or indirectly exercisable for or
convertible into Common Stock.
Each of Petra and Piedmont may request that the Company issue to it
amended Senior Warrants reflecting this change.
4. Waiver of Adjustment and Amendment of Junior Warrants. Piedmont hereby
waives all adjustment rights contained in Section 5(c) of all Junior
Warrants held by it or which it is entitled to receive, with respect
to the issuance of securities by the Company: (a) pursuant to the Note
and Warrant Purchase Agreements executed by the Company on each of
October 6, 1998, November 12, 1998, February 22, 1999 and April 9,
1999; (b) pursuant to the Merger Agreement; or (c) pursuant to the
Purchase Agreement. Piedmont hereby agrees to amend and restate
Section 11(a) of each Junior Warrant held by it or that it is entitled
to receive to read as follows.
(a) The Company hereby irrevocably grants and issues to
Holder the right and option to sell to the Company (the
"Put") this Warrant or the Shares with respect to which this
Warrant is exercisable, in whole or part, at any time after
May 31, 2006 at a purchase price (the "Purchase Price") equal
to the Put Value (as hereinafter defined) of the shares of
Common Stock issuable to holder upon exercise of this
Warrant.
Additionally, Piedmont hereby agrees to amend Section 11(c) of each
Junior Warrant held by it or that it is entitled to receive by adding
the following sentence at the end thereof: For purposes of this
Section 11(c) the "number of shares of Common Stock then outstanding"
shall be deemed to include all shares of Common Stock issuable upon
exercise or
<PAGE> 15
conversion of all then outstanding Convertible Securities directly or
indirectly exercisable for or convertible into Common Stock.
Piedmont may request that the Company issue to it amended Junior
Warrants reflecting this change.
5. Approval for New Petra Warrant. In connection with the amendment of
the Senior Warrants as provided in Section 4 above, the Company shall
issue to Petra the New Petra Warrant exercisable for 12,000 shares of
Common Stock of the Company at $0.01 per share. Each of Petra,
Piedmont and Southeast hereby waives any and all approval rights and
preemptive rights it may have with respect to the issuance of the New
Petra Warrant and any antidilution rights it may have with respect to
the issuance and subsequent exercise of the New Petra Warrant.
6. Waiver of Rights of First Refusal. The requisite percentage of Rights
Investors hereby waives any and all right of first refusal to purchase
up to a pro rata share of New Securities pursuant to Section 3 of the
Rights Agreement, in connection with the FAST Merger and the Series B
Financing, including all securities issued or authorized for issuance
pursuant to the terms of the FAST Merger and Series B Financing.
7. Waiver of Adjustment of Bridge Warrants. Each of Piedmont, Southeast,
Stein and Stein Partners hereby waives all rights to receive
additional shares of Common Stock exercisable pursuant to the Bridge
Warrants if the next Equity Financing of the Company (as defined in
the applicable Note and Warrant Purchase Agreement) is not consummated
on or before May 15, 1999; provided that no such waiver shall be
applicable if the Equity Financing of the Company is consummated after
May 30, 1999.
8. Copies. Each of the parties hereto acknowledges that is has received
copies of the Merger Agreement and the Purchase Agreement.
9. Validity. The consents and waivers contained herein shall be
applicable only if both the FAST Merger and the Series B Financing are
consummated within ten (10) business days of each other.
10. Governing Law. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by and construed in
accordance with the internal law (and not the law of conflicts) of
North Carolina.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one agreement.
[THE NEXT PAGE IS THE SIGNATURE PAGE.]
<PAGE> 16
This Consent, Waiver and Amendment Agreement is effective as of the
date first set forth above and may be signed in counterparts.
COMPANY: BUILDNET, INC.
By: /s/ Keith T. Brown
Name: Keith T. Brown
Title: CEO
PETRA: PETRA CAPITAL, LLC
By: /s/ Michael W. Blackburn
Name: Michael W. Blackburn
Title: Member
PETRA SPECIAL PURPOSE, LLC
By: /s/ Michael W. Blackburn
Name: Michael W. Blackburn
Title: Member
PIEDMONT: PIEDMONT VENTURE PARTNERS
LIMITED PARTNERSHIP
By: Piedmont Management, Inc.,
Its General Partner
By: /s/ W. W. Neal
Name: W.W. Neal
Title: Managing Principal
SOUTHEAST: SOUTHEAST INTERACTIVE
TECHNOLOGY FUND I, LLC
By: /s/ David C. Blivin
Name: David C. Blivin
Title: Managing Director
<PAGE> 17
SOUTHEAST INTERACTIVE
TECHNOLOGY FUND II, LLC
By: /s/ David C. Blivin
Name: David C. Blivin
Title: Managing Director
STEIN: JOHN STEIN
/s/ John Stein
STEIN PARTNERS: STEIN FAMILY PARTNERS, L.P.
By: /s/ John Stein
Name: John Stein
Title: Managing General Partner
<PAGE> 1
EXHIBIT 10.6
STOCK PURCHASE WARRANT
This Warrant is issued as of this 8th day of October, 1997, by
BUILDNET, INC., a North Carolina corporation (the "Company"), to PIEDMONT
VENTURE PARTNERS LIMITED PARTNERSHIP, a North Carolina limited partnership
("Piedmont") (Piedmont and any subsequent assignee or transferee hereof are
hereinafter referred to collectively as "Holder" or "Holders").
AGREEMENT:
Section 1. Issuance of Warrant, Term.
(a) Piedmont is making a loan to the Company in the amount of
$1,000,000 (the "Loan"). The loan is evidenced by a Secured Promissory Note of
even date herewith, in the original principal amount of $1,000,000 payable to
the order of Piedmont, by the Company (together with any and all extensions,
replacements and renewals thereof, the "Note") and a Loan and Security Agreement
of even date herewith by and among the Company, Petra Capital, LLC, a Georgia
Limited liability company ("Petra"), and Piedmont (as amended, supplemented or
otherwise modified from time to time, the "Loan Agreement"). In consideration of
the funding of the Loan, the receipt and sufficiency of which are hereby
acknowledged, the Company hereby grants to Holder the right to purchase 12,659
shares of the Company's common stock (the "Common Stock"), which the Company
hereby represents to equal 1% of the shares of capital stock outstanding on the
date hereof, calculated on a Fully Diluted Basis (as hereinafter defined)
assuming exercise of this Warrant and issuance of such shares. For purposes of
this Warrant, "Fully Diluted Basis" means at any time, without duplication, the
number of outstanding shares of Common Stock, after giving effect to (x) all
shares of Common Stock actually outstanding at the time of determination, (y)
all shares of Common Stock issuable upon the exercise of any option, warrant
(including, without limitation, this Warrant) or similar right outstanding at
the time of determination, and (z) all shares of Common Stock issuable upon the
exercise of any conversion or exchange right contained in any security
convertible into or exchangeable for shares of Common Stock, and assuming that
(i) 16,891 shares of Common Stock were issuable upon the conversion of all of
the convertible indebtedness of the Company outstanding on the date hereof, (ii)
that 1,800 shares of common stock, or warrants to purchase such number of
shares, were issuable to certain vendors of the Company as of the date hereof;
(iii) that options to purchase 155,000 shares of Common Stock were outstanding
as of the date hereof under the Company's 1997 Stock Plan; (iv) that options
outstanding under the Sun Forest Systems, Inc. 1995 Stock Award Plan (the "Sun
Forest Plan") were not outstanding as of the date hereof, (v) that options to
purchase 7,323 shares of Common Stock to a financial consultant to the Company
were outstanding as of the date hereof.
(b) The shares of Common Stock issuable upon exercise of this Warrant
are hereinafter referred to as the "Shares." This Warrant shall be exercisable
at any time and from time to time from the date hereof until October 7, 2007.
Section 2. Exercise Price. The exercise price (the "Exercise Price")
per share for which all or any of the Shares may be purchased pursuant to the
terms of this Warrant shall be one cent ($.01).
<PAGE> 2
Section 3. Exercise.
(a) This Warrant may be exercised by the Holder hereof (but only on the
conditions hereafter set forth) as to all or any increment or increments of one
hundred (100) Shares (or the balance of the Shares if less than such number),
upon delivery of written notice of intent to exercise to the Company at the
following address: 4815 Emperor Blvd., Suite 214, Durham, NC 27703, Attention:
Steve Thompson, or such other address as the Company shall designate in a
written notice to the Holder hereof, together with this Warrant and payment to
the Company of the aggregate Exercise Price of the Shares so purchased. The
Exercise Price shall be payable, at the option of the Holder, (i) by certified
or bank check, (ii) by the surrender of the Note or portion thereof having an
outstanding principal balance equal to the aggregate Exercise Price. Upon
exercise of this Warrant as aforesaid, the Company shall as promptly as
practicable, and in any event within fifteen (15) days thereafter, execute and
deliver to the Holder of this Warrant a certificate or certificates for the
total number of whole Shares for which this Warrant is being exercised in such
names and denominations as are requested by such Holder. If this Warrant shall
be exercised with respect to less than all of the Shares, the Holder shall be
entitled to receive a new Warrant covering the number of Shares in respect of
which this Warrant shall not have been exercised, which new Warrant shall in all
other respects be identical to this Warrant. The Company covenants and agrees
that it will pay when due any and all state and federal issue taxes which may be
payable in respect of the issuance of this Warrant or the issuance of any Shares
upon exercise of this Warrant.
(b) In lieu of exercising this Warrant pursuant to Section 3(a) above,
the Holder shall have the right to require the Company to convert this Warrant
(as it may be adjusted pursuant to Section 5 hereof), in whole or in part and at
any time or times into Shares (the "Conversion Right"), upon delivery of written
notice of intent to convert to the Company at its address in Section 3(a) or
such other address as the Company shall designate in a written notice to the
Holder hereof, together with this Warrant. Upon exercise of the Conversion
Right, the Company shall deliver to the Holder (without payment by the Holder of
any Exercise Price) that number of Shares which is equal to the quotient
obtained by dividing (x) the net value of the number of Shares with respect to
which Holder is then exercising the Conversion Right (determined by subtracting
the aggregate Exercise Price for the Shares with respect to which Holder is then
exercising the Conversion Right from a number equal to the product of (i) the
Fair Market Value per Share (as such term is defined in Section 5(b)) as at such
time, multiplied by (ii) that number of Shares with respect to which Holder is
then exercising the Conversion Right), by (y) the Fair Market Value per Share.
Any references in any Warrants to the "exercise" of this Warrant, and the use of
the term exercise herein, shall be deemed to include (without limitation) any
exercise of the Conversion Right.
Section 4. Covenants and Conditions. The above provisions are subject
to the following:
(a) Neither this Warrant nor the Shares have been registered under the
Securities Act of 1933, as amended ("Securities Act") or any state securities
laws ("Blue Sky Laws"). This Warrant has been acquired for investment purposes
and not with a view to distribution or resale. This Warrant may not be pledged,
hypothecated, sold, made subject to a security interest, or otherwise
transferred without (i) an effective registration statement for such Warrant
under the Securities Act and such applicable Blue Sky Laws, or (ii) an opinion
of counsel, which opinion and counsel shall be reasonably satisfactory to the
Company and its counsel, that registration is not required under the Securities
Act or under any applicable Blue Sky Laws (the Company hereby acknowledges that
Sherrard & Roe, PLC is
2
<PAGE> 3
acceptable counsel). Transfer of Shares issued upon the exercise of this Warrant
shall be restricted in the same manner and to the same extent as the Warrant,
and the certificates representing such Shares shall, subject to Section 6
hereof, bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A
REGISTRATION STATEMENT UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES LAWS
SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN THE OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH SECURITIES ACTS OR
SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect the
compliance of the issuance of this Warrant and any shares of Common Stock issued
upon exercise hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment therefor,
be legally and validly issued and outstanding, fully paid and nonassessable,
free from all taxes, liens, charges and preemptive rights (other than any
created by the Holder), if any, with respect thereto or to the issuance thereof.
The Company shall at all times reserve and keep available for issuance upon the
exercise of this Warrant such number of authorized but unissued shares of Common
Stock as will be sufficient to permit the exercise in full of this Warrant.
Section 5. Adjustment of Exercise Price and Number of Shares Issuable.
The Exercise Price and the number of Shares (or other securities or property)
issuable upon exercise of this Warrant shall be subject to adjustment from time
to time upon the occurrence of any of the events enumerated in this Section 5.
(a) Common Stock Reorganization. If the Company shall (i) subdivide or
consolidate its outstanding shares of Common Stock (or any class thereof) into a
greater or smaller number of shares, (ii) pay a dividend or make a distribution
on its Common Stock (or any class thereof) in shares of its capital stock, or
(iii) issue by reclassification of its Common Stock (or any class thereof) any
shares of its capital stock (any such event described in clauses (i), (ii) or
(iii) being called a "Common Stock Reorganization"), then the Exercise Price and
the type of securities for which this Warrant is exercisable shall be adjusted
immediately such that the Holder thereafter shall be entitled to received upon
exercise of this Warrant the aggregate number and type of securities that it
would have received if this Warrant had been exercised immediately prior to such
Common Stock Reorganization.
(b) Common Stock Distribution. If the Company shall issue, sell,
distribute or otherwise grant any shares of Common Stock, other than pursuant to
a Common Stock Reorganization (any such issuance, sale, distribution or grant
being herein called a "Common Stock Distribution"), for a consideration per
share less than the Fair Market Value per Share immediately prior to such Common
Stock Distribution, then the Exercise Price shall be reduced to the price
determined by multiplying
3
<PAGE> 4
such Exercise Price by a fraction, the numerator of which shall be the sum of
(A) the number of shares of Common Stock outstanding immediately prior to such
Common Stock Distribution plus the number of shares issuable upon exercise of
this Warrant and any Additional Warrants issued pursuant to the Loan Agreement
plus (B) the quotient obtained by dividing the aggregate consideration, if any,
received by the Company upon such Common Stock Distribution by such Fair Market
Value per Share, and the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such Common Stock
Distribution plus the number of shares issuable upon exercise of this Warrant
and any Additional Warrants issued pursuant to the Loan Agreement. "Fair Market
Value per Share" as of any time means the fair market value of the Company as of
such time divided by the number of outstanding shares of Common Stock, as of
such time after giving effect to the exercise of this Warrant and any Additional
Warrants issued pursuant to the Loan Agreement.
(c) Convertible Securities and Option Securities. If the Company shall
issue, sell, distribute or otherwise grant (including by assumption):
(i) any stock or other securities convertible into or
exchangeable for Common Stock, whether or not the rights to exchange or
convert thereunder are immediately exercisable such convertible or
exchangeable stock or securities being herein called "Convertible
Securities"), or
(ii) any rights to subscribe for or to purchase, or any
warrants or options for the purchase of, Common Stock or Convertible
Securities, whether or not immediately exercisable, other than (A) any
Additional Warrants issued pursuant to the Loan Agreement, or (B)
Permitted Plan Options (as defined below) (such rights, warrants or
options being herein called "Option Securities"),
and the lowest aggregate consideration per share for which Common Stock is
issuable upon the exercise of such Convertible Securities or Option Securities
(and, if applicable, upon conversion or exchange of Convertible Securities
issuable upon exercise of Option Securities) shall be less than the Fair Market
Value per Share at such time, then the Exercise Price shall be reduced to the
price determined by multiplying such Exercise Price by a fraction, the numerator
of which shall be the sum of (A) the number of shares of Common Stock then
outstanding plus the number of shares issuable upon exercise of this Warrant and
any Additional Warrants issued pursuant to the Loan Agreement plus (B) the
quotient obtained by dividing the aggregate consideration, if any, received or
receivable by the Company upon such issuance, sale, distribution or grant by
such Fair Market Value per Share, and the denominator of which shall be the
total number of shares of Common Stock then outstanding plus the number of
shares issuable upon exercise of this Warrant and any Additional Warrants issued
pursuant to the Loan Agreement plus the total maximum number of shares issuable
upon exercise or conversion of such Convertible Securities or Option Securities
and, in the case of Option Securities to acquire Convertible Securities, upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Option Securities. If any of such
Convertible Securities or Option Securities shall have terminated, lapsed or
expired prior to exercise, exchange or conversion, the Exercise Price then in
effect shall forthwith be readjusted (effective only with respect to any
exercise of Warrants after such readjustment) to the Exercise Price which would
then be in effect had the adjustment not been made upon the issuance, sale,
distribution or grant of such Convertible Securities or Option Securities. For
purposes hereof, "Permitted Plan Options" shall mean Option Securities issued
pursuant to the Company's 1997 Stock Plan; provided that the number of shares of
4
<PAGE> 5
Common Stock issuable upon exercise thereof shall not exceed in the aggregate,
the sum of (i) 155,000 shares, less (ii) any shares of Common Stock issuable
upon the exercise of options granted under the Sun Forest Plan (net of any
options thereunder which have been canceled), in each case, adjusted to account
for any stock splits, subdivisions or the like.
(d) Adjustment in Number of Shares. Upon each adjustment to the
Exercise Price pursuant to subsections (a), (b) or (c) this Section 5, this
Warrant shall thereafter evidence the right to receive upon payment of the
adjusted Exercise Price that number of Shares obtained by multiplying the number
of Shares previously issuable upon exercise of this Warrant by a fraction the
numerator of which is the Exercise Price prior to adjustment and the denominator
of which is the adjusted Exercise Price.
(e) Non-Cash Consideration. If any shares of Common Stock, Option
Securities or Convertible Securities shall be issued, sold, distributed or
granted for a consideration other than cash, the amount of the consideration
other than cash received by the Company shall be deemed to be the fair market
value of such consideration, as determined in good faith by the Corporation's
Board of Directors. If any shares of Common Stock, Option Securities or
Convertible Securities shall be issued in connection with any merger in which
the Company is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair market value, as determined in good faith by the
Corporation's Board of Directors, of such portion of the assets and business of
the non-surviving corporation as shall be attributable to such Common Stock,
Option Securities or Convertible Securities, as the case may be.
(f) Capital Reorganizations. If there shall be any consolidation,
merger or amalgamation of the Company with another person or entity or any
acquisition of capital stock of the Company by means of a share exchange, other
than a consolidation, merger or share exchange in which the Company is the
continuing corporation or any sale or conveyance of the property of the Company
as an entirety or substantially as an entirety, or any reorganization or
recapitalization of the Company (any such event being called a "Capital
Reorganization", then the Holder of this Warrant shall no longer have the right
to purchase Common Stock, but shall have instead the right to purchase, upon
exercise of this Warrant, the kind and amount of shares of stock and other
securities and property (including cash) which the Holder would have owned or
have been entitled to receive pursuant to such Capital Reorganization if this
Warrant had been exercised immediately prior to the -effective date of such
Capital Reorganization. As a condition to effecting any Capital Reorganization,
the Company or the successor or surviving corporation, as the case may be, shall
assume by a supplemental agreement, reasonably satisfactory in form, scope and
substance to the Holder (which shall be mailed or delivered to the Holder of
this Warrant at the last address of such Holder appearing on the books of the
Company) the obligation to deliver to such Holder such shares of stock,
securities, cash or property as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase, and all other obligations of the
Company set forth in this Warrant.
(g) Determination of Fair Market Value. Subject to the provisions set
forth below, the fair market value of the Company or of any non-cash
consideration received by the Company upon any Common Stock Distribution shall
be determined in good faith by the Board of Directors of the Company. Upon each
such determination, the Company shall promptly give notice thereof to the
Holder, setting forth in reasonable detail the calculation of such fair market
value and the method and basis of determination thereof (the "Company
Determination"). If the Holder shall disagree with the
5
<PAGE> 6
Company Determination and shall, by notice to the Company given within thirty
(30) days after the Company's notice of the Company Determination, elect to
dispute the Company Determination, the Company shall, within thirty (30) days
after such notice, engage an investment bank or other qualified appraisal firm
acceptable to the Holder to make an independent determination of the fair market
value of the Company or of any non-cash consideration received by the Company
upon any Common Stock Distribution (the "Appraiser Determination"). The
Appraiser Determination shall be final and binding on the Company and the
Holder. The cost of the Appraiser Determination shall be borne by the Company.
(h) Adjustment Rules. Any adjustments pursuant to this Section 5 shall
be made successively whenever an event referred to herein shall occur. No
adjustment shall be made pursuant to this Section 5: (i) in respect of the
issuance from time to time of shares of Common Stock upon the exercise of this
Warrant, (ii) in respect of the issuance from time to time of shares of Common
Stock upon the exercise of the Warrant to be issued to Petra, (iii) the exercise
or conversion of any other Option Securities or Convertible Securities, or (iii)
in respect of the issuance or exercise of any Additional Warrants (as defined in
the Loan Agreement).
(i) Proceedings Prior to Any Action Requiring Adjustment. As a
condition precedent to the taking of any action which would require an
adjustment pursuant to this Section 5, the Company shall take any action which
may be necessary, including obtaining regulatory approvals or exemptions, in
order that (a) the Company may thereafter validly and legally issue as fully
paid and nonassessable all shares of Common Stock which the Holder of this
Warrant is entitled to receive upon exercise thereof.
(j) Notice of Adjustment. Not less than 10 days prior to the record
date or effective date, as the case may be, of any action which requires or
might require an adjustment or readjustment pursuant to this Section 5, the
Company shall give notice to the Holder of such event, describing such event in
reasonable detail and specifying the record date or effective date, as the case
may be, and, if determinable, the required adjustment and the computation
thereof. If the required adjustment is not determinable at the time of such
notice, the Company shall give notice to the Holder of such adjustment and
computation promptly after such adjustment becomes determinable.
Section 6. Transfer of Warrant. Subject to the provisions of Section 4
hereof, this Warrant may be transferred, in whole or in part, to any person or
business entity, by presentation of the Warrant to the Company with written
instructions for such transfer. Upon such presentation for transfer, the Company
shall promptly execute and deliver a new Warrant or Warrants in the form hereof
in the name of the assignee or assignees and in the denominations specified in
such instructions. The Company shall pay all expenses incurred by it in
connection with the preparation, issuance and delivery of Warrants under this
Section.
Section 7. Warrant Holder Not Shareholder; Rights Offering; Preemptive
Rights. Except as otherwise provided herein, this Warrant does not confer upon
the Holder, as such, any right whatsoever as a shareholder of the Company. The
Company shall not grant any preemptive rights with respect to any of its capital
stock if such preemptive rights are exercisable upon exercise of this Warrant.
Section 8. Observation Rights; Interim Dividends.
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<PAGE> 7
(a) Observation Rights. The Holder of this Warrant shall receive notice
of and be entitled to attend or may send a representative to attend all meetings
of the Company's Board of Directors in a non-voting observation capacity and
shall receive a copy of all correspondence and information delivered to the
Company's Board of Directors, from the date hereof until such time as the
indebtedness evidenced by the Note has been paid in full.
(b) Interim Dividends. If the Company pays a dividend or makes a
distribution to the holders of its capital stock of any securities (other than
capital stock) or property (including cash and securities of other companies) of
the Company, or any rights, options or warrants to purchase securities (other
than capital stock) or property (including securities of other companies) of the
Company, then, simultaneously with the payment of such dividend or the making of
such distribution, and as a condition precedent to its right to do so, it will
pay or distribute to the Holder of this Warrant an amount of property (including
without limitation cash) and/or securities (including without limitation
securities of other companies) of the Company as would have been received by
such Holder had it exercised this Warrant and received all of the Shares of
Common Stock issuable upon the exercise of this Warrant immediately prior to the
record date (or other applicable date) used for determining stockholders of the
Company entitled to receive such dividend or distribution. Anything in Section 5
to the contrary notwithstanding, no adjustment to the Exercise Price shall be
made for any distribution of Convertible Securities of the Company to the Holder
pursuant to the provisions of this Section 8.
Section 9. Financial Statements and Reports. Unless the Company is
otherwise furnishing such information to the Holder hereof, from the date hereof
until the earlier to occur of (i) the exercise in full of this Warrant or (ii)
its termination, the Company shall deliver to the Holder the following financial
information:
(a) within one hundred twenty (120) days after the end of each
fiscal year of Borrower, (A) audited consolidated financial statements
of Borrower, including a balance sheet as of the close of such fiscal
year, an income statement and statements of changes in stockholders'
equity, and of cash flows for such fiscal year, all in reasonable
detail, prepared in accordance with GAAP consistently applied, and with
the report thereon of independent public accountants, reasonably
acceptable to Lender, and (B) unaudited consolidating financial
statements, including a balance sheet as of the close of such fiscal
year, an income statement and statements of changes in stockholders'
equity, and of cash flows for such fiscal year;
(b) within thirty (30) days after the end of each calendar
month, a consolidated balance sheet of Borrower as of the close of such
month and consolidated statements of earnings and retained earnings of
Borrower for such month and for the prior months of the current fiscal
year (on a year to date basis), each compared to the same period in the
previous fiscal year, all in reasonable detail, and unaudited but
prepared on the basis of GAAP consistently applied (except for the
absence of footnotes and subject to year-end adjustments), together
with a narrative status report of Borrower's management; and
(c) with reasonable promptness, such other financial data as
Lender may reasonably request.
Section 10. Certain Notices. In case at any time the Company shall
propose to:
7
<PAGE> 8
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in stock or make
any special dividend or other distribution to the holders of its Common Stock;
(c) offer for subscription to the holders of any of its Common Stock
any additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the Company, or
consolidate, merge or otherwise combine with, or sell all or substantially all
of its assets to, another corporation; or
(e) voluntarily or involuntarily dissolve, liquidate or wind up of the
affairs of the Company;
then, in any one or more of said cases, the Company shall give to the Holder, by
certified or registered mail, (i) 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 or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place. Any notice required by clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
Section 11. Put Right.
(a) The Company hereby irrevocably grants and issues to Holder the
right and option to sell to the Company (the "Put") this Warrant or the Shares
with respect to which this Warrant is exercisable, in whole or part, at any time
after October 7, 2002 at a purchase price (the "Purchase Price") equal to the
Put Value (as hereinafter defined) of the shares of Common Stock issuable to
Holder upon exercise of this Warrant.
(b) The Company shall pay to the Holder, in cash or certified or
cashier's check, the Purchase Price within thirty (30) days of the receipt of
written notice from the Holder stating its intention to exercise the Put and the
number of shares with respect to which it is then exercising the Put (the "Put
Securities").
(c) The Put Value shall by equal to the fair market value of the
Company (determined pursuant to Section 5(g) of this Warrant) multiplied by a
fraction, the numerator of which shall be the number of Put Securities and the
denominator of which shall be the number of shares of Common Stock then
outstanding (including the Put Securities).
[Remainder of Page Intentionally Left Blank]
8
<PAGE> 9
[SIGNATURE PAGE TO STOCK PURCHASE WARRANT]
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
BUILDNET, INC.
By: /s/ Keith T. Brown
Name: Keith T. Brown
Title: President and CEO
Attest: /s/ J. William Waddell
Name: J. William Waddell
Title: Secretary
PIEDMONT VENTURE PARTNERS, L.P., a North
Carolina limited partnership
By its General Partner
PIEDMONT VENTURE MANAGEMENT, INC., a North
Carolina Enterprise Corporation
By: /s/ Pamela K. Clement
Name: Pamela K. Clement
Title: Managing Principal
9
<PAGE> 10
BUILDNET, INC.
CONSENT, WAIVER AND AMENDMENT AGREEMENT
THIS CONSENT, WAIVER AND AMENDMENT AGREEMENT (the "Agreement") is
entered into by and among Buildnet, Inc., a North Carolina corporation (the
"Company"), Petra Capital, LLC, a Georgia limited liability company and its
assignee, Petra Special Purpose, LLC, a Delaware limited liability company
(collectively, "Petra"), Piedmont Venture Partners Limited Partnership, a North
Carolina limited partnership ("Piedmont"), Southeast Interactive Technology
Fund I, LLC, and Southeast Interactive Technology Fund II, LLC, (collectively,
"Southeast"), John Stein ("Stein") and Stein Family Partners, L.P. ("Stein
Partners"), and is effective this 20th day of May 1999. Petra and Piedmont are
sometimes referred to herein as a "Lender" and collectively as the "Lenders."
RECITALS
WHEREAS, the Company has entered into an Agreement and Plan of Merger
(the "Merger Agreement") with The F.A.S.T. Management Group, Inc., a Washington
corporation ("FAST"), a copy of which is attached hereto as Exhibit A, whereby
FAST has merged with a wholly owned subsidiary of the Company so that FAST is a
wholly owned subsidiary of the Company (the "FAST Merger"). As a result of the
FAST Merger, shareholders of FAST are now shareholders of the Company.
WHEREAS, following consummation of the FAST Merger, the Company
desires to enter into a Series B Preferred Stock Purchase Agreement (the
"Purchase Agreement"), a copy of which is attached hereto as Exhibit B,
pursuant to which the Company would issue approximately 3,300,000 shares of its
Series B Preferred Stock for an aggregate purchase price of approximately
$30,000,000 (excluding convertible debt) (the "Series B Financing"); and
WHEREAS, the Company, Petra and Piedmont are parties to that certain
Loan and Security Agreement dated October 8, 1997 (the "Senior Loan
Agreement"), whereby consents, waivers and amendments under the Senior Loan
Agreement require the agreement of the Required Lenders pursuant to Section
9.15(b) thereof, and Petra and Piedmont collectively constitute the Required
Lenders; and
WHEREAS, Petra and Piedmont hold certain stock purchase warrants and
Petra holds rights to receive future warrants pursuant to the terms of the
Senior Loan Agreement (the "Senior Warrants"), and such Senior Warrants contain
adjustment provisions upon the Company's issuance of securities or other rights
to purchase securities convertible or exchangeable for Common Stock of the
Company; and
WHEREAS, the Company and Piedmont are parties to that certain Loan and
Security Agreement dated April 24, 1998 (the "Junior Loan Agreement"), whereby
consents, waivers and amendments under the Junior Loan Agreement require the
agreement of Piedmont pursuant to Section 8.14(b) thereof; and
<PAGE> 11
WHEREAS, Piedmont holds certain stock purchase warrants and rights to
receive future warrants pursuant to the terms of the Junior Loan Agreement (the
"Junior Warrants"), and such Junior Warrants contain adjustment provisions upon
the Company's issuance of securities or other rights to purchase securities
convertible or exchangeable for Common Stock of the Company; and
WHEREAS, Petra and Piedmont, in their capacities as Lenders, are
willing to consent to the transactions described herein; and
WHEREAS, the Company desires to issue to Petra a warrant to purchase
12,000 shares of Common Stock of the Company at an exercise price of $0.01 per
share and otherwise in substantially the same format as the Senior Warrants (as
amended pursuant to the terms contained herein) in consideration for the
amendment of each Senior Warrant held by it or that it is entitled to receive
(the "New Petra Warrant"); and
WHEREAS, the Company and Petra, Piedmont, Southeast, and certain other
shareholders (collectively, the "Rights Investors") are parties to that certain
Amended and Restated Investor Rights Agreement dated October 8, 1997, as
amended on December 30, 1997 and April 24, 1998 (the "Rights Agreement"),
pursuant to which Section 3 grants the Rights Investors the right of first
refusal to purchase up to their pro rata share of New Securities (as such term
is defined therein); and
WHEREAS, Section 6.5 of the Rights Agreement provides that any term of
such Rights Agreement may be waived with the written consent of the holders of
at least two thirds of the shares of Registrable Securities (as defined
therein); and
WHEREAS, the requisite percentage of Rights Investors desire to waive
the rights of first refusal pursuant to the Rights Agreement in connection with
the Company's issuance of Common Stock pursuant to the FAST Merger and the
Company's execution of the Purchase Agreement and issuance of Series B
Preferred Stock pursuant to the terms thereof; and
WHEREAS, the Company is party to a Note and Warrant Purchase
Agreement, dated November 12, 1998 with Piedmont and Southeast, a Note and
Warrant Purchase Agreement, dated February 22, 1999 with Stein and a Note and
Warrant Purchase Agreement, dated April 9, 1999 with Stein Partners and
Southeast, and has issued warrants to purchase Common Stock of the Company in
connection therewith (the "Bridge Warrants"); and
WHEREAS, the holders of the Bridge Warrants each have the right to
receive additional shares of Common Stock exercisable pursuant to such Bridge
Warrants if the next Equity Financing of the Company (as defined in the
applicable Note and Warrant Purchase Agreement) was not consummated on or
before May 15, 1999, and such holders desire to waive their rights to receive
additional shares of Common Stock exercisable pursuant to the Bridge Warrants
upon these terms.
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt of which is hereby acknowledged, and
pursuant to Section 9.15(b) of the Senior Loan Agreement, Section 8.14(b) of
the Junior Loan Agreement and Section 6.5 of the Rights Agreement, the parties
hereby agree as follows.
<PAGE> 12
1. Consent under Senior Loan Agreement. Pursuant to the terms of the
Senior Loan Agreement, each of Petra and Piedmont hereby consents to
the FAST Merger and the Series B Financing, including the Company's
execution and delivery of the Merger Agreement, the Purchase Agreement
and the transactions contemplated therein. Specifically, and with
reference to the Merger Agreement and Purchase Agreement each of Petra
and Piedmont (i) waives any prohibition contained in Section 4.17 of
the Senior Loan Agreement against acquiring the business of or merging
or consolidating with any other entity or acquiring or creating a
subsidiary, (ii) waives any prohibition contained in Section 4.30 of
the Senior Loan Agreement against issuing any shares of Common Stock
or any securities convertible into shares of Common Stock, (iii)
waives any prohibition contained in Section 4.19 of the Senior Loan
Agreement against declaring a dividend of $3.15 per share on the
Series A Preferred Stock of the Company in connection with the Series
B Financing and (iv) acknowledges that this Agreement shall serve as
adequate notice of the issuance of capital stock or instruments
convertible into or exchangeable for shares of capital stock of the
Company as required by Section 4.22 of the Senior Loan Agreement.
2. Consent under Junior Loan Agreement. Pursuant to the terms of the
Junior Loan Agreement, Piedmont hereby consents to the FAST Merger and
the Series B Financing, including the Company's execution and delivery
of the Merger Agreement, the Purchase Agreement and the transactions
contemplated therein. Specifically, and with reference to the Merger
Agreement and Purchase Agreement, Piedmont (i) waives any prohibition
contained in Section 4.16 of the Junior Loan Agreement against
acquiring the business of or merging or consolidating with any other
entity or acquiring or creating a subsidiary, (ii) waives any
prohibition contained in Section 4.28 of the Junior Loan Agreement
against issuing any shares of Common Stock or securities convertible
into shares of Common Stock, (iii) waives any prohibition contained in
Section 4.18 of the Senior Loan Agreement against declaring a dividend
of $3.15 per share on the Series A Preferred Stock of the Company in
connection with the Series B Financing and (iv) acknowledges that this
Agreement shall serve as adequate notice of the issuance of capital
stock or instruments convertible into or exchangeable for shares of
capital stock of the Company as required by Section 4.21 of the Junior
Loan Agreement.
Additionally, Piedmont hereby waives its right to receive an
additional warrant issuable as of April 24, 1999 pursuant to the terms
of Section 1.4(b)(i) of the Junior Loan Agreement in exchange for the
Company's obligation to pay to Piedmont $315,000 in cash, exchangeable
for shares of the Company's Series B Preferred Stock issued pursuant
to the Purchase Agreement and in accordance with the terms of the
Series B Financing.
3. Waiver of Adjustment and Amendment of Senior Warrants. Each of Petra
and Piedmont hereby waive all adjustment rights contained in Section
5(c) of all Senior Warrants held by it or which it is entitled to
receive, with respect to the issuance of securities by the Company:
(a) pursuant to the Note and Warrant
<PAGE> 13
Purchase Agreements executed by the Company on each of October 6,
1998, November 12, 1998, February 22, 1999 and April 9, 1999; (b)
pursuant to the Merger Agreement; or (c) pursuant to the Purchase
Agreement. Additionally, each of Petra and Piedmont hereby agrees to
amend and restate Section 11(a) of each Senior Warrant held by it or
that it is entitled to receive to read as follows.
(a) The Company hereby irrevocably grants and issues to
Holder the right and option to sell to the Company (the
"Put") this Warrant or the Shares with respect to which this
Warrant is exercisable, in whole or part, at any time after
May 31, 2006 at a purchase price (the "Purchase Price") equal
to the Put Value (as hereinafter defined) of the shares of
Common Stock issuable to holder upon exercise of this
Warrant.
Additionally, each of Petra and Piedmont hereby agrees to amend
Section 11(c) of each Senior Warrant held by it or that it is entitled
to receive by adding the following sentence at the end thereof: For
purposes of this Section 11(c) the "number of shares of Common Stock
then outstanding" shall be deemed to include all shares of Common
Stock issuable upon exercise or conversion of all then outstanding
Convertible Securities directly or indirectly exercisable for or
convertible into Common Stock.
Each of Petra and Piedmont may request that the Company issue to it
amended Senior Warrants reflecting this change.
4. Waiver of Adjustment and Amendment of Junior Warrants. Piedmont hereby
waives all adjustment rights contained in Section 5(c) of all Junior
Warrants held by it or which it is entitled to receive, with respect
to the issuance of securities by the Company: (a) pursuant to the Note
and Warrant Purchase Agreements executed by the Company on each of
October 6, 1998, November 12, 1998, February 22, 1999 and April 9,
1999; (b) pursuant to the Merger Agreement; or (c) pursuant to the
Purchase Agreement. Piedmont hereby agrees to amend and restate
Section 11(a) of each Junior Warrant held by it or that it is entitled
to receive to read as follows.
(a) The Company hereby irrevocably grants and issues to
Holder the right and option to sell to the Company (the
"Put") this Warrant or the Shares with respect to which this
Warrant is exercisable, in whole or part, at any time after
May 31, 2006 at a purchase price (the "Purchase Price") equal
to the Put Value (as hereinafter defined) of the shares of
Common Stock issuable to holder upon exercise of this
Warrant.
Additionally, Piedmont hereby agrees to amend Section 11(c) of each
Junior Warrant held by it or that it is entitled to receive by adding
the following sentence at the end thereof: For purposes of this
Section 11(c) the "number of shares of Common Stock then outstanding"
shall be deemed to include all shares of Common Stock issuable upon
exercise or
<PAGE> 14
conversion of all then outstanding Convertible Securities directly or
indirectly exercisable for or convertible into Common Stock.
Piedmont may request that the Company issue to it amended Junior
Warrants reflecting this change.
5. Approval for New Petra Warrant. In connection with the amendment of
the Senior Warrants as provided in Section 4 above, the Company shall
issue to Petra the New Petra Warrant exercisable for 12,000 shares of
Common Stock of the Company at $0.01 per share. Each of Petra,
Piedmont and Southeast hereby waives any and all approval rights and
preemptive rights it may have with respect to the issuance of the New
Petra Warrant and any antidilution rights it may have with respect to
the issuance and subsequent exercise of the New Petra Warrant.
6. Waiver of Rights of First Refusal. The requisite percentage of Rights
Investors hereby waives any and all right of first refusal to purchase
up to a pro rata share of New Securities pursuant to Section 3 of the
Rights Agreement, in connection with the FAST Merger and the Series B
Financing, including all securities issued or authorized for issuance
pursuant to the terms of the FAST Merger and Series B Financing.
7. Waiver of Adjustment of Bridge Warrants. Each of Piedmont, Southeast,
Stein and Stein Partners hereby waives all rights to receive
additional shares of Common Stock exercisable pursuant to the Bridge
Warrants if the next Equity Financing of the Company (as defined in
the applicable Note and Warrant Purchase Agreement) is not consummated
on or before May 15, 1999; provided that no such waiver shall be
applicable if the Equity Financing of the Company is consummated after
May 30, 1999.
8. Copies. Each of the parties hereto acknowledges that is has received
copies of the Merger Agreement and the Purchase Agreement.
9. Validity. The consents and waivers contained herein shall be
applicable only if both the FAST Merger and the Series B Financing are
consummated within ten (10) business days of each other.
10. Governing Law. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by and construed in
accordance with the internal law (and not the law of conflicts) of
North Carolina.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one agreement.
[THE NEXT PAGE IS THE SIGNATURE PAGE.]
<PAGE> 15
This Consent, Waiver and Amendment Agreement is effective as of the
date first set forth above and may be signed in counterparts.
COMPANY: BUILDNET, INC.
By: /s/ Keith T. Brown
Name: Keith T. Brown
Title: CEO
PETRA: PETRA CAPITAL, LLC
By: /s/ Michael W. Blackburn
Name: Michael W. Blackburn
Title: Member
PETRA SPECIAL PURPOSE, LLC
By: /s/ Michael W. Blackburn
Name: Michael W. Blackburn
Title: Member
PIEDMONT: PIEDMONT VENTURE PARTNERS
LIMITED PARTNERSHIP
By: Piedmont Management, Inc.,
Its General Partner
By: /s/ W. W. Neal
Name: W.W. Neal
Title: Managing Principal
SOUTHEAST: SOUTHEAST INTERACTIVE
TECHNOLOGY FUND I, LLC
By: /s/ David C. Blivin
Name: David C. Blivin
Title: Managing Director
<PAGE> 16
SOUTHEAST INTERACTIVE
TECHNOLOGY FUND II, LLC
By: /s/ David C. Blivin
Name: David C. Blivin
Title: Managing Director
STEIN: JOHN STEIN
/s/ John Stein
STEIN PARTNERS: STEIN FAMILY PARTNERS, L.P.
By: /s/ John Stein
Name: John Stein
Title: Managing General Partner
<PAGE> 1
EXHIBIT 10.8
STOCK PURCHASE WARRANT
This Warrant is issued as of this 8th day of October, 1998, by
BUILDNET, INC., a North Carolina corporation (the "Company"), to PETRA CAPITAL,
LLC, a Georgia limited liability company (Petra Capital, LLC and any subsequent
assignee or transferee hereof are hereinafter referred to collectively as
"Holder" or "Holders").
AGREEMENT:
Section 1. Issuance of Warrant, Term.
(a) Petra Capital, LLC ("Petra") and Piedmont Venture Partners
Limited Partnership ("Piedmont") made a loan to the Company in the amount of
$3,000,000 (the "Loan"). The portion of the Loan funded by Petra is evidenced
by a Secured Promissory Note dated October 8, 1998, in the original principal
amount of $2,000,000, payable to the order of Petra (together with any and all
extensions, replacements and renewals thereof, the "Note"), and the Loan was
made pursuant to a Loan and Security Agreement dated October 8, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Loan
Agreement"). In consideration of the funding of $2,000,000 of the Loan, the
receipt and sufficiency of which are hereby acknowledged, the Company hereby
grants to Holder the right to purchase 30,442 shares of the Company's common
stock (the "Common Stock.
(b) The shares of Common Stock issuable upon exercise of this
Warrant are hereinafter referred to as the "Shares." This Warrant shall be
exercisable at any time and from time to time from the date hereof until
October 7, 2007.
Section 2. Exercise Price. The exercise price (the "Exercise
Price") per share for which ail or any of the Shares may be purchased pursuant
to the terms of this Warrant shall be one cent ($.01).
Section 3. Exercise.
(a) This Warrant may be exercised by the Holder hereof (but only
on the conditions hereafter set forth) as to all or any increment or increments
of one hundred (100) Shares (or the balance of the Shares if less than such
number), upon delivery of written notice of intent to exercise to the Company
at the following address: 4815 Emperor Blvd., Suite 214, Durham, NC 27703,
Attention: Steve Thompson, or such other address as the Company shall designate
in a written notice to the Holder hereof, together with this Warrant and
payment to the Company of the aggregate Exercise Price of the Shares so
purchased. The Exercise Price shall be payable, at the option of the Holder,
(i) by certified or bank check, (ii) by the surrender of the Note or portion
thereof having, an outstanding principal balance equal to the aggregate
Exercise Price. Upon exercise of this Warrant as aforesaid, the Company shall
as promptly as practicable, and in any event within fifteen (15) days
thereafter, execute and deliver to the Holder of this Warrant a certificate or
certificates for the total number of whole Shares for which this Warrant is
being exercised in such names and denominations as are requested by such
Holder. If this Warrant shall be exercised with respect to less than all of the
Shares, the Holder shall be entitled to receive a new Warrant covering, the
number of Shares in respect of which this Warrant shall not have been
exercised, which new Warrant shall in all other respects be identical to this
Warrant. The Company covenants and agrees that it will pay when due any and all
state and federal
<PAGE> 2
issue taxes which may be payable in respect of the issuance of this Warrant or
the issuance of any Shares upon exercise of this Warrant.
(b) In lieu of exercising this Warrant pursuant to Section 3(a)
above, the Holder shall have the right to require the Company to convert this
Warrant (as it may be adjusted pursuant to Section 5 hereof), in whole or in
part and at any time or times into Shares (the "Conversion Right"), upon
delivery of written notice of intent to convert to the Company at its address
in Section 3(a) or such other address as the Company shall designate in a
written notice to the Holder hereof, together with this Warrant. Upon exercise
of the Conversion Right, the Company shall deliver to the Holder (without
payment by the Holder of any Exercise Price) that number of Shares which is
equal to the quotient obtained by dividing (x) the net value of the number of
Shares with respect to which Holder is then exercising the Conversion Right
(determined by subtracting the aggregate Exercise Price for the Shares with
respect to which Holder is then exercising the Conversion Right from a number
equal to the product of (i) the Fair Market Value per Share (as such term is
defined in Section 5(b)) as at such time, multiplied by (ii) that number of
Shares with respect to which Holder is then exercising the Conversion Right),
by (y) the Fair Market Value per Share. Any references in any Warrants to the
"exercise" of this Warrant, and the use of the term exercise herein, shall be
deemed to include (without limitation) any exercise of the Conversion Right.
Section 4. Covenants and Conditions. The above provisions are
subject to the following:
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale. Except for
the Holder's intended transfer to Petra Special Purpose, LLC (the "SPV") and
the subsequent collateral assignment by the SPV, this Warrant may not be
pledged, hypothecated, sold, made subject to a security interest, or otherwise
transferred without (i) an effective registration statement for such Warrant
under the Securities Act and such applicable Blue Sky Laws, or (ii) an opinion
of counsel, which opinion and counsel shall be reasonably satisfactory to the
Company and its counsel, that registration is not required under the Securities
Act or under any applicable Blue Sky Laws (the Company hereby acknowledges that
Sherrard & Roe, PLC is acceptable counsel). Transfer of Shares issued upon the
exercise of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant, and the certificates representing such Shares shall.
subject to Section 6 hereof, bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933), AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED UNTIL (1) A
REGISTRATION STATEMENT UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES LAWS
SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (11) IN THE OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH SECURITIES ACTS OR
SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect the
compliance of the issuance of this
2
<PAGE> 3
Warrant and any shares of Common Stock issued upon exercise hereof with
applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment therefor,
be legally and validly issued and outstanding, fully paid and nonassessable,
free from all taxes, liens, charges and preemptive rights (other than any
created by the Holder), if any, with respect thereto or to the issuance
thereof. The Company shall at all times reserve and keep available for issuance
upon the exercise of this Warrant such number of authorized but unissued shares
of Common Stock as will be sufficient to permit the exercise in full of this
Warrant.
Section 5. Adjustment of Exercise Price and Number of Shares
Issuable. The Exercise Price and the number of Shares (or other securities or
property) issuable upon exercise of this Warrant shall be subject to adjustment
from time to time upon the occurrence of any of the events enumerated in this
Section 5.
(a) Common Stock Reorganization. If the Company shall (i)
subdivide or consolidate its outstanding shares of Common Stock (or any class
thereof) into a greater or smaller number of shares, (ii) pay a dividend or
make a distribution on its Common Stock (or any class thereof) in shares of its
capital stock, or (iii) issue by reclassification of its Common Stock (or any
class thereof) any shares of its capital stock (any such event described in
clauses (i), (ii) or (iii) being called a "Common Stock Reorganization"), then
the Exercise Price and the type of securities for which this Warrant is
exercisable shall be adjusted immediately such that the Holder thereafter shall
be entitled to received upon exercise of this Warrant the aggregate number and
type of securities that it would have received if this Warrant had been
exercised immediately prior to such Common Stock Reorganization.
(b) Common Stock Distribution. If the Company shall issue, sell,
distribute or otherwise grant any shares of Common Stock, other than pursuant
to a Common Stock Reorganization (any such issuance, sale, distribution or
grant being herein called a "Common Stock Distribution"), for a consideration
per share less than the Fair Market Value per Share immediately prior to such
Common Stock Distribution, then the Exercise Price shall be reduced to the
price determined by multiplying such Exercise Price by a fraction, the
numerator of which shall be the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such Common Stock Distribution plus the number
of shares issuable upon exercise of this Warrant and any Additional Warrants
issued pursuant to the Loan Agreement plus (B) the quotient obtained by
dividing the aggregate consideration, if any, received by the Company upon such
Common Stock Distribution by such Fair Market Value per Share, and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such Common Stock Distribution plus the number of
shares issuable upon exercise of this Warrant and any Additional Warrants
issued pursuant to the Loan Agreement. "Fair Market Value per Share" as of any
time means the fair market value of the Company as of such time divided by the
number of outstanding shares of Common Stock, as of such time after giving
effect to the exercise of this Warrant and any Additional Warrants issued
pursuant to the Loan Agreement.
(c) Convertible Securities and Option Securities. If the Company
shall issue, sell, distribute or otherwise grant (including by assumption):
3
<PAGE> 4
(i) any stock or other securities convertible into or
exchangeable for Common Stock, whether or not the rights to exchange
or convert thereunder are immediately exercisable such convertible or
exchangeable stock or securities being herein called "Convertible
Securities"), or
(ii) any rights to subscribe for or to purchase, or any
warrants or options for the purchase of, Common Stock or Convertible
Securities, whether or not immediately exercisable, other than (A) any
Additional Warrants issued pursuant to the Loan Agreement, or (B)
Permitted Plan Options (as defined below) (such rights, warrants or
options being herein called "Option Securities"),
and the lowest aggregate consideration per share for which Common Stock is
issuable upon the exercise of such Convertible Securities or Option Securities
(and, if applicable, upon conversion or exchange of Convertible Securities
issuable upon exercise of Option Securities) shall be less than the Fair Market
Value per Share at SUCH time, then the Exercise Price shall be reduced to the
price determined by multiplying such Exercise Price by a fraction, the
numerator of which shall be the sum of (A) the number of shares of Common Stock
then outstanding plus the number of shares issuable upon exercise of this
Warrant and any Additional Warrants issued pursuant to the Loan Agreement plus
(B) the quotient obtained by dividing the aggregate consideration, if any,
received or receivable by the Company upon such issuance, sale, distribution or
grant by such Fair Market Value per Share, and the denominator of which shall
be the total number of shares of Common Stock then outstanding plus the number
of shares issuable upon exercise of this Warrant and any Additional Warrants
issued pursuant to the Loan Agreement plus the total maximum number of shares
issuable upon exercise or conversion of such Convertible-Securities or Option
Securities and, in the case of Option Securities to acquire Convertible
Securities, upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Option Securities. If
any of such Convertible Securities or Option Securities shall have terminated,
lapsed or expired prior to exercise, exchange or conversion, the Exercise Price
then in effect shall forthwith be readjusted (effective only with respect to
any exercise of Warrants after such readjustment) to the Exercise Price which
would then be in effect had the adjustment not been made upon the issuance,
sale, distribution or grant of such Convertible Securities or Option
Securities. For purposes hereof, "Permitted Plan Options" shall mean Option
Securities issued pursuant to the Company's 1997 Stock Plan; provided that the
number of shares of Common Stock issuable upon exercise thereof shall not
exceed in the aggregate, the sum of (i) 155,000 shares, less (ii) any shares of
Common Stock issuable upon the exercise of options granted under the Sun Forest
Plan (net of any options thereunder which have been canceled), in each case,
adjusted to account for any stock splits, subdivisions or the like.
(d) Adjustment in Number of Shares. Upon each adjustment to the
Exercise Price pursuant to subsections (a), (b) or (c) this Section 5, this
Warrant shall thereafter evidence the right to receive upon payment of the
adjusted Exercise Price that number of Shares obtained by multiplying the
number of Shares previously issuable upon exercise of this Warrant by a
fraction the numerator of which is the Exercise Price prior to adjustment and
the denominator of which is the adjusted Exercise Price.
(e) Non-Cash Consideration. If any shares of Common Stock, Option
Securities or Convertible Securities shall be issued, sold, distributed or
granted for a consideration other than cash, the amount of the consideration
other than cash received by the Company shall be deemed to be the fair
4
<PAGE> 5
market value of such consideration, as determined in good faith by the
Corporation's Board of Directors. If any shares of Common Stock, Option
Securities or Convertible Securities shall be issued in connection with any
merger in which the Company is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair market value, as
determined in Good faith by the Corporation's Board of Directors, of such
portion of the assets and business of the non-surviving corporation as shall be
attributable to such Common Stock, Option Securities or Convertible Securities,
as the case may be.
(f) Capital Reorganizations. If there shall be any consolidation,
merger or amalgamation of the Company with another person or entity or any
acquisition of capital stock of the Company by means of a share exchange, other
than a consolidation, merger or share exchange in which the Company is the
continuing corporation or any sale or conveyance of the property of the Company
as an entirety or substantially as an entirety, or any reorganization or
recapitalization of the Company (any such event being called a "Capital
Reorganization", then the Holder of this Warrant shall no longer have the right
to purchase Common Stock, but shall have instead the right to purchase, upon
exercise of this Warrant, the kind and amount of shares of stock and other
securities and property (including cash) which the Holder would have owned or
have been entitled to receive pursuant to such Capital Reorganization if this
Warrant had been exercised immediately prior to the effective date of such
Capital Reorganization. As a condition to effecting any Capital Reorganization,
the Company or the successor or surviving corporation, as the case may be,
shall assume by a supplemental agreement, reasonably satisfactory in form,
scope and substance to the Holder (which shall be mailed or delivered to the
Holder of this Warrant at the last address of such Holder appearing on the
books of the Company) the obligation to deliver to such Holder such shares of
stock, securities, cash or property as, in accordance with the foregoing
provisions, such Holder may be entitled to purchase, and all other obligations
of the Company set forth in this Warrant.
(g) Determination of Fair Market Value. Subject to the provisions
set forth below, the fair market value of the Company or of any non-cash
consideration received by the Company upon any Common Stock Distribution shall
be determined in good faith by the Board of Directors of the Company. Upon each
such determination, the Company shall promptly give notice thereof to the
Holder, setting forth in reasonable detail the calculation of such fair market
value and the method and basis of determination thereof (the "Company
Determination"). If the Holder shall disagree with the Company Determination
and shall, by notice to the Company given within thirty (30) days after the
Company's notice of the Company Determination, elect to dispute the Company
Determination, the Company shall, within thirty (30) days after such notice,
engage an investment bank or other qualified appraisal firm acceptable to the
Holder to make an independent determination of the fair market value of the
Company or of any non-cash consideration received by the Company upon any
Common Stock Distribution (the "Appraiser Determination"). The Appraiser
Determination shall be final and binding on the Company and the Holder. The
cost of the Appraiser Determination shall be borne by the Company.
(h) Adjustment Rules. Any adjustments pursuant to this Section 5
shall be made successively whenever an event referred to herein shall occur. No
adjustment shall be made pursuant to this Section 5: (1) in respect of the
issuance from time to time of shares of Common Stock upon the exercise of this
Warrant, (ii) in respect of the issuance from time to time of shares of Common
Stock upon the exercise of the Warrant to be issued to Piedmont, (iii) the
exercise or conversion of any other
5
<PAGE> 6
Option Securities or Convertible Securities, or (iii) in respect of the
issuance or exercise of any Additional Warrants (as defined in the Loan
Agreement).
(i) Proceedings Prior to Any Action Requiring Adjustment. As a
condition precedent to the taking of any action which would require an
adjustment pursuant to this Section 5, the Company shall take any action which
may be necessary, including obtaining regulatory approvals or exemptions, in
order that (a) the Company may thereafter validly and legally issue as fully
paid and nonassessable all shares of Common Stock which the Holder of this
Warrant is entitled to receive upon exercise thereof.
(j) Notice of Adjustment. Not less than 10 days prior to the
record date or effective date, as the case may be, of any action which requires
or might require an adjustment or readjustment pursuant to this Section 5, the
Company shall give notice to the Holder of such event, describing such event in
reasonable detail and specifying the record date or effective date, as the case
may be, and, if determinable, the required adjustment and the computation
thereof. If the required adjustment is not determinable at the time of such
notice, the Company shall give notice to the Holder of such adjustment and
computation promptly after such adjustment becomes determinable.
Section 6. Transfer of Warrant. Subject to the provisions of
Section 4 hereof, this Warrant may be transferred, in whole or in part, to any
person or business entity, by presentation of the Warrant to the Company with
written instructions for such transfer. Upon such presentation for transfer,
the Company shall promptly execute and deliver a new Warrant or Warrants in the
form hereof in the name of the assignee or assignees and in the denominations
specified in such instructions. The Company shall pay all expenses incurred by
it in connection with the preparation, issuance and delivery of Warrants under
this Section.
Section 7. Warrant Holder Not Shareholder, Rights Offering;
Preemptive Rights. Except as otherwise provided herein, this Warrant does not
confer upon the Holder, as such, any right whatsoever as a shareholder of the
Company. The Company shall not grant any preemptive rights with respect to any
of its capital stock if such preemptive rights are exercisable upon exercise of
this Warrant.
Section 8. Observation Rights, Interim Dividends.
(a) Observation Rights. The Holder of this Warrant shall receive
notice of and be entitled to attend or may send a representative to attend all
meetings of the Company's Board of Directors in a non-voting observation
capacity and shall receive a copy of all correspondence and information
delivered to the Company's Board of Directors, from the date hereof until such
time as the indebtedness evidenced by the Note has been paid in full.
(b) Interim Dividends. If the Company pays a dividend or makes a
distribution to the holders of its capital stock of any securities (other than
capital stock) or property (including cash and securities of other companies)
of the Company, or any rights, options or warrants to purchase securities
(other than capital stock) or property (including securities of other
companies) of the Company, then, simultaneously with the payment of such
dividend or the making of such distribution, and as a condition precedent to
its right to do so, it will pay or distribute to the Holder of this Warrant an
amount of property (including without limitation cash) and/or securities
(including without limitation
6
<PAGE> 7
securities of other companies) of the Company as would have been received by
such Holder had it exercised this Warrant and received all of the Shares of
Common Stock issuable upon the exercise of this Warrant immediately prior to
the record date (or other applicable date) used for determining stockholders of
the Company entitled to receive such dividend or distribution. Anything in
Section 5 to the contrary notwithstanding, no adjustment to the Exercise Price
shall be made for any distribution of Convertible Securities of the Company to
the Holder pursuant to the provisions of this Section 8.
Section 9. Financial Statements and Reports. Unless the Company
is otherwise furnishing such information to the Holder hereof, from the date
hereof until the earlier to occur of (i) the exercise in full of this Warrant
or (ii) its termination, the Company shall deliver to the Holder the following
financial information:
(a) within one hundred twenty (120) days after the end of each
fiscal year of Borrower, (A) audited consolidated financial statements of
Borrower, including a balance sheet as of the close of such fiscal year, an
income statement and statements of changes in stockholders' equity, and of cash
flows for such fiscal year, all in reasonable detail, prepared in accordance
with GAAP consistently applied, and with the report thereon of independent
public accountants, reasonably acceptable to Lender, and (B) unaudited
consolidating financial statements, including a balance sheet as of the close
of such fiscal year, an income statement and statements of changes in
stockholders' equity, and of cash flows for such fiscal year;
(b) within thirty (30) days after the end of each calendar month,
a consolidated balance sheet of Borrower as of the close of such month and
consolidated statements of earnings and retained earnings of Borrower for such
month and for the prior months of the current fiscal year (on a year to date
basis), each compared to the same period in the previous fiscal year, all in
reasonable detail, and unaudited but prepared on the basis of GAAP consistently
applied (except for the absence of footnotes and subject to year-end
adjustments), together with a narrative status report of Borrower's management;
and
(c) with reasonable promptness, such other financial data as
Lender may reasonably request.
Section 10. Certain Notices. In case at any time the Company
shall propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in stock
or make any special dividend or other distribution to the holders of its Common
Stock;
(c) offer for subscription to the holders of any of its Common
Stock any additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the Company,
or consolidate, merge or otherwise combine with, or sell all or substantially
all of its assets to, another corporation; or
(e) voluntarily or involuntarily dissolve, liquidate or wind up
of the affairs of the Company;
7
<PAGE> 8
then, in any one or more of said cases, the Company shall give to the Holder,
by certified or registered mail, (i) 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 or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place. Any notice required by clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
Section 11. Put Right.
(a) The Company hereby irrevocably grants and issues to Holder
the right and option to sell to the Company (the "Put") this Warrant or the
Shares with respect to which this Warrant is exercisable, in whole or part, at
any time after May 31, 2006 at a purchase price (the "Purchase Price") equal to
the Put Value (as hereinafter defined) of the shares of Common Stock issuable
to Holder upon exercise of this Warrant.
(b) The Company shall pay to the Holder, in cash or certified or
cashier's check, the Purchase Price within thirty (30) days of the receipt of
written notice from the Holder stating its intention to exercise the Put and
the number of shares with respect to which it is then exercising the Put (the
"Put Securities").
(c) The Put Value shall by equal to the fair market value of the
Company (determined pursuant to Section 5(g) of this Warrant) multiplied by a
fraction, the numerator of which shall be the number of Put Securities and the
denominator of which shall be the number of shares of Common Stock then
outstanding (including the Put Securities and after giving effect to the
conversion of any Convertible Securities then outstanding).
[Remainder of Page Intentionally Left Blank]
8
<PAGE> 9
[SIGNATURE PAGE TO STOCK PURCHASE WARRANT]
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
BUILDNET, INC.
By: /s/ Keith T. Brown
Name: Keith T. Brown
Title: CEO
Attest: /s/ Steven C. Thompson
Name: Steven C. Thompson
Title: CFO
PETRA CAPITAL, LLC, a Georgia
limited liability company
By: Petra Capital Management,
LLC,
Manager
By: /s/ Petra Capital Management,
LLC
Name: Petra Capital Management,
LLC
Title: Authorized Representative
9
<PAGE> 1
EXHIBIT 10.9
NEITHER THE SECURITY EVIDENCED BY THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES ACT (COLLECTIVELY, THE
"SECURITIES LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES (I) ARE
REGISTERED UNDER THE SECURITIES LAWS OR (II) ARE EXEMPT FROM REGISTRATION UNDER
THE SECURITIES LAWS AND COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY
TO COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
No. _____ WARRANT TO PURCHASE UP TO
ISSUED: NOVEMBER 4, 1998 135,416 SHARES OF COMMON STOCK
THE F.A.S.T. MANAGEMENT GROUP, INC.
COMMON STOCK PURCHASE WARRANT
THIS IS TO CERTIFY that, for value received by THE F.A.S.T. MANAGEMENT
GROUP, INC., a Washington corporation (the "Company") as described in a
Debenture of even date herewith (the "Debenture") made by Company in favor of
DEERWOOD ENTERPRISES, LTD. ("Holder") and subject to the terms and conditions of
this Warrant, Holder is entitled, until the date of the termination of this
Warrant as provided in Section 4 hereof (the "Exercise Period") to subscribe for
and purchase, upon exercise of this Warrant, up to one hundred thirty five
thousand four hundred and sixteen (135,416) fully paid and nonassessable shares
of Common Stock of Company (the "Warrant Stock") at the following prices (the
"Warrant Price"):
(i) sixty two thousand five hundred (62,500) shares at a price of 32.00
per share ("Warrant 1"); and
(ii) seventy two thousand nine hundred sixteen (72,916) shares at a
price of $1.7143 per share ("Warrant 2") (Warrant 1 and Warrant 2 shall
collectively be referred to herein as the "Warrant" or the "Warrants").
As used herein, the terms "Large Scale Financing" and "Event of Default" shall
have the meanings given them in the Debenture.
This Warrant is subject to the following additional terms and
conditions:
1. Method of Exercise. This Warrant may be exercised in whole at any
time or from time to time in part, but not as to a fractional share of Common
Stock, by delivering to Company, during the Exercise Period: (a) the attached
form of Election to Purchase, duly
<PAGE> 2
completed and executed by Holder, (b) this Warrant, and (c) payment of the
Warrant Price in cash or by check, for each share purchased.
2. Delivery of Stock Certificates. Within ten (10) business days after
the exercise of this Warrant (in full or in part). Company, at its expense,
shall issue in the name of and deliver to Holder (a) a certificate or
certificates for the number of fully paid and nonassessable shares of Warrant
Stock to which Holder shall be entitled upon such exercise and (b) unless this
Warrant has expired, a new Warrant representing the number of shares (except a
remaining fractional share) of Warrant Stock, if any, with respect to which this
Warrant shall not have been exercised. Holder shall for all purposes be deemed
to have become the holder of record of such shares of Warrant Stock on the date
on which this Warrant is surrendered and payment on the Warrant Price is made,
irrespective of the date of delivery of the certificate or certificates
representing the Warrant Stock; provided that, if the date of such surrender and
payment is a date when the stock transfer books of Company are closed, such
person shall be deemed to have become the holder of record of such shares of
Warrant Stock at the close of business on the next succeeding date on which the
stock transfer books are open.
3. Covenants as to Warrant Stock. Company covenants and agrees that ail
shares of Warrant Stock issued pursuant to the terms of this Warrant will, upon
their issuance, be validly issued and outstanding, fully paid and nonassessable.
Company further covenants and agrees that Company will at all times have
authorized and reserved a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant.
4. Expiration. Warrant 1 shall be cancelled and all rights granted
hereunder shall terminate four (4) years after the date first written above.
Warrant 2 shall be cancelled and all rights granted hereunder shall terminate
seven (7) years (the date at which either Warrant 1 or Warrant 2 shall terminate
shall hereinafter be referred to as the "Termination Date"). Unless exercised on
or before the Termination Date, this Warrant shall be void and all rights
represented hereby shall cease. All restrictions set forth herein on the shares
of Common Stock issued upon exercise of any rights hereunder shall survive such
exercise and expiration of the rights granted hereunder.
5. Adjustments Affecting Common Stock.
5.1 Antidilution Adjustments. If at any time while this
Warrant remains outstanding and unexpired, the outstanding Common Stock shall be
subdivided (by stock split, or otherwise), into a greater number of shares of
Common Stock, the Warrant Price then in effect shall, concurrently with the
effectiveness of such subdivision, be proportionately decreased. If the
outstanding Common Stock shall be combined or consolidated, by reclassification
or otherwise, into a lesser number of shares of Common Stock the Warrant Price
then in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
5.2 Reorganization; Reclassification. If at any time while
this Warrant remains outstanding and unexpired, the outstanding Common Stock
shall be changed into the
<PAGE> 3
same or a different number of shares of any other class or classes of stock,
whether by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares provided for above), Company shall execute
a new Warrant, providing that Holder of this Warrant shall have the right to
exercise such new Warrant in substantially the form hereof, and upon such
exercise to receive, in lieu of each share of Common Stock theretofore issuable
upon exercise of this Warrant, the number and kind of shares of stock, other
securities, money or property receivable upon such reclassification or change by
a holder of shares of the Common Stock. Such new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 5.
5.3 No Fractional Common Stock. No fractional Shares shall be
issued upon the exercise of this Warrant. In lieu of fractional shares, the
Company shall pay Holder a sum in cash equal to the fair market value of the
fractional shares (as determined by Company's Board of Directors) on the date of
exercise.
5.4 Adjustment for Sale of Shares.
5.4.1 If, at any time after the effective date of
this Agreement and before Holder exercises any Warrants hereunder and to the
extent that Holder has unexercised Warrants hereunder, the Company issues or
sells any shares of its Common Stock or securities convertible into Common
Stock, other than up to 700,000 shares of Common Stock reserved under the
Company's employee stock option plan, for a consideration per share less than
the price per share of the weighted average of the prices per share of the
number of shares exercisable pursuant to the Warrants hereunder (the "Lower
Priced Shares", then and in each such case, the price per share for the exercise
of the Warrants hereunder into the Common Stock will be reduced to a price
(calculated to the nearest cent) determined by multiplying the price per share
of the weighted average of the prices per share of the number of shares
exercisable pursuant to the Warrants hereunder by a fraction (1) the numerator
of which will be the number of shares of Common Stock outstanding, including
Common Stock issuable upon the exercise of the Warrants hereunder, plus the
700,000 shares of Common Stock reserved under the Company's employee stock
option plan, plus the number of shares of Common Stock that could be purchased
with the aggregate amount of. consideration received by the Company for the
issuance of the number of Lower Priced Shares at a price per share of the
weighted average of the prices per share of the number of shares exercisable
pursuant to the Warrants hereunder, and (2) the denominator of which will be the
number of shares of Common Stock outstanding, including Common Stock issuable
upon the exercise of the Warrants hereunder, plus the 700,000 shares of Common
Stock reserved under the Company's employee stock option plan, plus the number
of Lower Priced Shares proposed to be issued or sold is issued or sold; provided
that such fraction will in no event be greater than one.
5.4.2 For the purpose of making any adjustment in the
price per share for the exercise of the Warrants hereunder into the Common Stock
as provided above, the consideration received by the Company for any issue or
sale of Common Stock will be computed:
<PAGE> 4
(a) to the extent it consists of cash, as
the amount of cash received by the Company before deduction of any offering
expenses payable by the Company and any underwriting or similar commissions,
compensation, or concessions paid or allowed by the Company in connection with
such issue or sale;
(b) to the extent it consists of property
other than cash, at the fair market value of that property as determined in good
faith by the Company's Board of Directors; and
(c) if Common Stock is issued or sold
together with other stock or securities or other assets of the Company for a
consideration which covers both, as the portion of the consideration so received
that may be reasonably determined in good faith by the Board of Directors to be
allocable to such Common Stock.
6. Holder as Owner. Company may deem and treat Holder as the absolute
owner of this Warrant for all purposes regardless of any notice to the contrary.
7. No Rights as Shareholder. This Warrant shall not entitle Holder to
any voting rights or any other rights as a shareholder of Company or to any
other rights whatsoever except the rights stated herein. No cash or stock
dividends or interest shall be payable or shall accrue in respect of this
Warrant or the Warrant Stock purchasable hereunder unless, until and only to the
extent that, this Warrant shall be exercised.
8. Replacement. On receipt of evidence reasonably satisfactory to
Company of the loss, theft, destruction or mutilation of this Warrant and, in
the case of loss, theft or destruction, on delivery of an indemnity agreement or
bond reasonably satisfactory in form and amount to Company, or in the case of
mutilation, on surrender and cancellation of this Warrant, Company shall execute
and deliver, in lieu of this Warrant, a new Warrant of like denomination, tenor
and date as this Warrant.
9. Restrictions on Transfer. Neither this Warrant nor any securities
purchased upon exercise of this Warrant may be transferred unless (a) such
transfer is registered under the Securities Act of 1933 as amended (the
"Securities Act") and any applicable state securities or blue sky laws, (b)
Company has received a legal opinion reasonably satisfactory to Company to the
effect that the transfer is exempt from the prospectus delivery and registration
requirements of the Securities Act and any applicable state securities or blue
sky laws, or (c) Company otherwise satisfies itself that such transfer is exempt
from registration.
10. Legend. A legend setting forth or referring to the above
restrictions shall be placed on this Warrant, any replacement hereof and any
certificate representing a security issued pursuant to the exercise hereof and a
stop transfer restriction or order may be placed on the books of Company and
with any transfer agent until such securities may be legally sold or otherwise
transferred.
<PAGE> 5
11. "Piggy-Back" Registration.
11.1 Election to Register Common Stock. If Company shall
determine to register its Common Stock in compliance with the Securities Act,
either for its own account or the account of any shareholder or shareholders
exercising their registration rights, other than a registration relating solely
to employee benefit plans, or a registration on any registration form which does
not permit secondary sales or does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Common Stock, Company will:
(a) promptly give Holder written notice thereof
(which shall include the number of shares that Company or other shareholder
proposes to register and, if known, the name of the proposed underwriter); and
(b) use its best efforts to include in such
registration all the shares of Common Stock specified in a written request or
requests, made by Holder within twenty (20) days after receipt of the written
notice from Company described in clause (a) above. If the total amount of Common
Stock that Company and all shareholders request to be included in such offering
exceeds the amount of securities that the underwriters reasonably believe can be
sold in the offering without adversely affecting the price per share of the
offering or otherwise adversely affecting the prospects of the offering, then
Company will include in such registration only the number of shams which, in the
opinion of such underwriters, can be sold in the following order-
(1) first, the Common Stock sought to be
sold for the account of Company;
(2) second, Common Stock requested to be
included in such registration (and if not all of the Common Stock may be
included in such registration, the number of shares of Common Stock that may be
included in the underwriting shall be allocated among all shareholders who
request that their Common Stock be included in such registration, in proportion
(as nearly as practicable) to the amount of Common Stock owned by each such
shareholder).
11.2 Selection of Underwriter; Expenses. Holder shall have no
right to participate in the selection of an underwriter for an offering made
pursuant to this Section 11. Company shall bear and pay all expenses incurred in
connection with any registration, filing or qualification of its Common Stock
with respect to the registrations made pursuant to this Section 11.
12. The Company's Capitalization Representation. The authorized capital
stock of the Company consists of ten million (10,000,000) shares of Common
Stock, of which seven million (7,000,000) are issued and outstanding as of the
date hereof. The outstanding shares have been duly authorized and validly
issued, and are fully paid and nonassessable. All outstanding securities of the
Company were issued in compliance with applicable federal and state securities
laws. The Company has reserved seven hundred thousand (700,000) shares of Common
Stock
<PAGE> 6
for its employee stock option plan; one hundred forty-five thousand eight
hundred thirty-three (145,833) shares of Common Stock for the issuance upon
conversion of the Debenture; and one hundred thirty five thousand four hundred
and sixteen (135,416) shares of Common Stock for issuance upon exercise of the
Warrant. Other than the employee stock option plan, the Warrant, and the
Debenture, the Company does not have any outstanding capital stock or securities
convertible into or exchangeable for any shares of its capital stock, or any
outstanding rights (either preemptive or other) to subscribe for or to purchase,
or any outstanding rights or options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or outstanding calls,
commitments or claims of any character relating to, any capital stock or any
stock or securities convertible into or exchangeable for any capital stock of
the Company. Except as provided in the employee stock option plan, the Warrant,
and the Debenture, the Company is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares o its capital
stock or any convertible securities, rights or options of the type described in
the preceding sentence.
13. Successors and Assigns. Subject to the restrictions on transfer
described in Section 9 hereof, the rights and obligations of Company and Holder
of this Warrant shall be binding upon and inure to the benefit of the parties'
successors, assigns, heirs, administrators and permitted transferees.
14. Amendment; Waiver. This Warrant and any of its terms may be
modified, amended, waived or terminated (except as provided in Section 4 hereof)
only by a written instrument signed by the party against whom enforcement or
that modification, amendment, waiver or termination is sought.
15. Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be delivered in person or mailed by
United States mail, first-class postage prepaid, or by registered or certified
mail with return receipt requested, addressed as follows:
If to Holder:
Deerwood Enterprises, Ltd.
5177 Richmond
Suite 1166
Houston. TX 77056
<PAGE> 7
If to Company:
The F.A.S.T. Management Group, Inc.
15440 NE 95th Street, Suite 240
Redmond, Washington 98052
Each of the parties shall be entitled to specify a different address by giving
five (5) business days' advance written notice to the other party.
16. Investment Intent. By accepting this Warrant- Holder represents
that it is acquiring it for investment and not with a view to, or for sale in
connection with, any distribution thereof.
17. Governing Law. The validity and interpretation of the terms and
provisions of this Warrant shall be governed by the laws of the State of
Washington.
18. Severability. If any provision of this Warrant or the application
thereof to any person, place or circumstance shall be held by a court of
competent jurisdiction to be invalid, unenforceable or void, the remainder of
this Warrant and such provisions as applied to other persons, places and
circumstances shall remain in full force and effect.
19. Interpretation. The descriptive headings of the several Sections of
this Warrant are inserted for convenience only and shall not control or affect
the meaning or construction of any of the provisions thereof.
20. Counterparts; Facsimile Signatures. This Agreement may be executed
simultaneously in any number of counterparts or executed and delivered by
facsimile transmission, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Company has executed this Warrant as of the date
first above written.
THE F.A.S.T. MANAGEMENT GROUP, INC,
a Washington corporation
By /s/ Charles M. Cosby
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<PAGE> 8
ELECTION TO PURCHASE
(To be executed only upon exercise of Warrant)
The undersigned registered owner of the attached Warrant irrevocably
exercises Warrant for shares of Common Stock of THE F.A.S.T. MANAGEMENT GROUP,
INC., on the terms and conditions specified in the Warrant, and requests that a
certificate for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to ____________________, whose address is ____________________, and,
if such shares of Common Stock shall not include all of the shares of Common
Stock into which the Warrant is exercisable, that a new Warrant of like tenor
and date for the balance of the shares of Common Stock issuable thereunder be
delivered to the undersigned.
Dated: __________
------------------------------------
<PAGE> 1
EXHIBIT 10.10
STOCK PURCHASE WARRANT
This Warrant is issued as of this 21st day of May, 1999, by BUILDNET,
INC., a North Carolina corporation (the "Company"), to PETRA CAPITAL, LLC, a
Georgia limited liability company (Petra Capital, LLC and any subsequent
assignee or transferee hereof are hereinafter referred to collectively as
"Holder" or "Holders").
AGREEMENT:
Section 1. Issuance of Warrant; Term.
(a) Petra Capital, LLC ("Petra") and Piedmont Venture Partners Limited
Partnership ("Piedmont") made a loan to the Company in the amount of $3,000,000
(the "Loan"). The portion of the Loan funded by Petra is evidenced by a Secured
Promissory Note dated October 8, 1998, in the original principal amount of
$2,000,000, payable to the order of Petra (together with any and all extensions,
replacements and renewals thereof, the "Note"), and the Loan was made pursuant
to a Loan and Security Agreement dated October 8, 1998 (as amended, supplemented
or otherwise modified from time to time, the "Loan Agreement"). In consideration
of the funding of $2,000,000 of the Loan, the receipt and sufficiency of which
are hereby acknowledged, the Company hereby grants to Holder the right to
purchase 12,000 shares of the Company's common stock (the "Common Stock.
(b) The shares of Common Stock issuable upon exercise of this Warrant
are hereinafter referred to as the "Shares." This Warrant shall be exercisable
at any time and from time to time from the date hereof until October 7, 2007.
Section 2. Exercise Price. The exercise price (the "Exercise Price")
per share for which all or any of the Shares may be purchased pursuant to the
terms of this Warrant shall be one cent ($.01).
Section 3. Exercise.
(a) This Warrant may be exercised by the Holder hereof (but only on the
conditions hereafter set forth) as to all or any increment or increments of one
hundred (100) Shares (or the balance of the Shares if less than such number),
upon delivery of written notice of intent to exercise to the Company at the
following address: 4815 Emperor Blvd., Suite 214, Durham, NC 27703, Attention:
Steve Thompson, or such other address as the Company shall designate in a
written notice to the Holder hereof, together with this Warrant and payment to
the Company of the aggregate Exercise Price of the Shares so purchased. The
Exercise Price shall be payable, at the option of the Holder, (i) by certified
or bank check, (ii) by the surrender of the Note or portion thereof having, an
outstanding principal balance equal to the aggregate Exercise Price. Upon
exercise of this Warrant as aforesaid, the Company shall as promptly as
practicable, and in any event within fifteen (15) days thereafter, execute and
deliver to the Holder of this Warrant a certificate or certificates for the
total number of whole Shares for which this Warrant is being exercised in such
names and denominations as are requested by such Holder. If this Warrant shall
be exercised with respect to less than all of the Shares, the Holder shall be
entitled to receive a new Warrant covering the number of Shares in
<PAGE> 2
respect of which this Warrant shall not have been exercised, which new Warrant
shall in all other respects be identical to this Warrant. The Company covenants
and agrees that it will pay when due any and all state and federal issue taxes
which may be payable in respect of the issuance of this Warrant or the issuance
of any Shares upon exercise of this Warrant.
(b) In lieu of exercising this Warrant pursuant to Section 3(a) above,
the Holder shall have the right to require the Company to convert this Warrant
(as it may be adjusted pursuant to Section 5 hereof), in whole or in part and at
any time or times into Shares (the "Conversion Right"), upon delivery of written
notice of intent to convert to the Company at its address in Section 3(a) or
such other address as the Company shall designate in a written notice to the
Holder hereof, together with this Warrant. Upon exercise of the Conversion
Right, the Company shall deliver to the Holder (without payment by the Holder of
any Exercise Price) that number of Shares which is equal to the quotient
obtained by dividing (x) the net value of the number of Shares with respect to
which Holder is then exercising the Conversion Right (determined by subtracting
the aggregate Exercise Price for the Shares with respect to which Holder is then
exercising the Conversion Right from a number equal to the product of (i) the
Fair Market Value per Share (as such term is defined in Section 5(b)) as at such
time, multiplied by (ii) that number of Shares with respect to which Holder is
then exercising the Conversion Right), by (y) the Fair Market Value per Share.
Any references in any Warrants to the "exercise" of this Warrant, and the use of
the term exercise herein, shall be deemed to include (without limitation) any
exercise of the Conversion Right.
Section 4. Covenants and Conditions. The above provisions are subject
to the following:
(a) Neither this Warrant nor the Shares have been registered under the
Securities Act of 1933, as amended ("Securities Act") or any state securities
laws ("Blue Sky Laws"). This Warrant has been acquired for investment purposes
and not with a view to distribution or resale. Except for the Holder's intended
transfer to Petra Special Purpose, LLC (the "SPV") and the subsequent collateral
assignment by the SPV, this Warrant may not be pledged, hypothecated, sold, made
subject to a security interest, or otherwise transferred without (i) an
effective registration statement for such Warrant under the Securities Act and
such applicable Blue Sky Laws, or (ii) an opinion of counsel, which opinion and
counsel shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any applicable
Blue Sky Laws (the Company hereby acknowledges that Sherrard & Roe, PLC is
acceptable counsel). Transfer of Shares issued upon the exercise of this Warrant
shall be restricted in the same manner-and to the same extent as the Warrant,
and the certificates representing such Shares shall, subject to Section 6
hereof, bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED UNTIL (1) A
REGISTRATION STATEMENT UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES LAWS
SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (11) IN THE OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH SECURITIES ACTS OR
SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
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<PAGE> 3
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect the
compliance of the issuance of this Warrant and any shares of Common Stock issued
upon exercise hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment therefor,
be legally and validly issued and outstanding, fully paid and nonassessable,
free from all taxes, liens, charges and preemptive rights (other than any
created by the Holder), if any, with respect thereto or to the issuance thereof.
The Company shall at all times reserve and keep available for issuance upon the
exercise of this Warrant such number of authorized but unissued shares of Common
Stock as will be sufficient to permit the exercise in full of this Warrant.
Section 5. Adjustment of Exercise Price and Number of Shares Issuable.
The Exercise Price and the number of Shares (or other securities or property)
issuable upon exercise of this Warrant shall be subject to adjustment from time
to time upon the occurrence of any of the events enumerated in this Section 5.
(a) Common Stock Reorganization. If the Company shall (i) subdivide or
consolidate its outstanding shares of Common Stock (or any class thereof) into a
greater or smaller number of shares, (ii) pay a dividend or make a distribution
on its Common Stock (or any class thereof) in shares of its capital stock, or
(iii) issue by reclassification of its Common Stock (or any class thereof) any
shares of its capital stock (any such event described in clauses (i), (ii) or
(iii) being called a "Common Stock Reorganization"), then the Exercise Price and
the type of securities for which this Warrant is exercisable shall be adjusted
immediately such that the Holder thereafter shall be entitled to received upon
exercise of this Warrant the aggregate number and type of securities that it
would have received if this Warrant had been exercised immediately prior to such
Common Stock Reorganization.
(b) Common Stock Distribution. If the Company shall issue, sell,
distribute or otherwise grant any shares of Common Stock, other than pursuant to
a Common Stock Reorganization (any such issuance, sale, distribution or grant
being herein called a "Common Stock Distribution"), for a consideration per
share less than the Fair Market Value per Share immediately prior to such Common
Stock Distribution, then the Exercise Price shall be reduced to the price
determined by multiplying such Exercise Price by a fraction, the numerator of
which shall be the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such Common Stock Distribution plus the number of shares
issuable upon exercise of this Warrant and any Additional Warrants issued
pursuant to the Loan Agreement plus (B) the quotient obtained by dividing the
aggregate consideration, if any, received by the Company upon such Common Stock
Distribution by such Fair Market Value per Share, and the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
after such Common Stock Distribution plus the number of shares issuable upon
exercise of this Warrant and any Additional Warrants issued pursuant to the Loan
Agreement. "Fair Market Value per Share" as of any time means the fair market
value of the Company as of such time divided by the number of outstanding shares
of Common Stock, as of such
3
<PAGE> 4
time after giving effect to the exercise of this Warrant and any Additional
Warrants issued pursuant to the Loan Agreement.
(c) Convertible Securities and Option Securities. If the Company shall
issue, sell, distribute or otherwise grant (including by assumption):
(i) any stock or other securities convertible into or
exchangeable for Common Stock, whether or not the rights to exchange or
convert thereunder are immediately exercisable such convertible or
exchangeable stock or securities being herein called "Convertible
Securities"), or
(ii) any rights to subscribe for or to purchase, or any
warrants or options for the purchase of, Common Stock or Convertible
Securities, whether or not immediately exercisable, other than (A) any
Additional Warrants issued pursuant to the Loan Agreement, or (B)
Permitted Plan Options (as defined below) (such rights, warrants or
options being herein called "Option Securities"),
and the lowest aggregate consideration per share for which Common Stock is
issuable upon the exercise of such Convertible Securities or Option Securities
(and, if applicable, upon conversion or exchange of Convertible Securities
issuable upon exercise of Option Securities) shall be less than the Fair Market
Value per Share at such time, then the Exercise Price shall be reduced to the
price determined by multiplying such Exercise Price by a fraction, the numerator
of which shall be the sum of (A) the number of shares of Common Stock then
outstanding plus the number of shares issuable upon exercise of this Warrant and
any Additional Warrants issued pursuant to the Loan Agreement plus (B) the
quotient obtained by dividing the aggregate consideration, if any, received or
receivable by the Company upon such issuance, sale, distribution or grant by
such Fair Market Value per Share, and the denominator of which shall be the
total number of shares of Common Stock then outstanding plus the number of
shares issuable upon exercise of this Warrant and any Additional Warrants issued
pursuant to the Loan Agreement plus the total maximum number of shares issuable
upon exercise or conversion of such Convertible Securities or Option Securities
and, in the case of Option Securities to acquire Convertible Securities, upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Option Securities. If any of such
Convertible Securities or Option Securities shall have terminated, lapsed or
expired prior to exercise, exchange or conversion, the Exercise Price then in
effect shall forthwith be readjusted (effective only with respect to any
exercise of Warrants after such readjustment) to the Exercise Price which would
then be in effect had the adjustment not been made upon the issuance, sale,
distribution or grant of such Convertible Securities or Option Securities. For
purposes hereof, "Permitted Plan Options" shall mean Option Securities issued
pursuant to the Company's 1997 Stock Plan; provided that the number of shares of
Common Stock issuable upon exercise thereof shall not exceed in the aggregate,
the sum of (i) 155,000 shares, less (ii) any shares of Common Stock issuable
upon the exercise of options granted under the Sun Forest Plan (net of any
options thereunder which have been canceled), in each case, adjusted to account
for any stock splits, subdivisions or the like.
(d) Adjustment in Number of Shares. Upon each adjustment to the
Exercise Price pursuant to subsections (a), (b) or (c) this Section 5, this
Warrant shall thereafter evidence the right
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<PAGE> 5
to receive upon payment of the adjusted Exercise Price that number of Shares
obtained by multiplying the number of Shares previously issuable upon exercise
of this Warrant by a fraction the numerator of which is the Exercise Price prior
to adjustment and the denominator of which is the adjusted Exercise Price.
(e) Non-Cash Consideration. If any shares of Common Stock, Option
Securities or Convertible Securities shall be issued, sold, distributed or
granted for a consideration other than cash, the amount of the consideration
other than cash received by the Company shall be deemed to be the fair market
value of such consideration, as determined in good faith by the Corporation's
Board of Directors. If any shares of Common Stock, Option Securities or
Convertible Securities shall be issued in connection with any merger in which
the Company is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair market value, as determined in good faith by the
Corporation's Board of Directors, of such portion of the assets and business of
the non-surviving corporation as shall be attributable to such Common Stock,
Option Securities or Convertible Securities, as the case may be.
(f) Capital Reorganizations. If there shall be any consolidation,
merger or amalgamation of the Company with another person or entity or any
acquisition of capital stock of the Company by means of a share exchange, other
than a consolidation, merger or share exchange in which the Company is the
continuing corporation or any sale or conveyance of the property of the Company
as an entirety or substantially as an entirety, or any reorganization or
recapitalization of the Company (any such event being called a "Capital
Reorganization", then the Holder of this Warrant shall no longer have the right
to purchase Common Stock, but shall have instead the right to purchase, upon
exercise of this Warrant, the kind and amount of shares of stock and other
securities and property (including cash) which the Holder would have owned or
have been entitled to receive pursuant to such Capital Reorganization if this
Warrant had been exercised immediately prior to the effective date of such
Capital Reorganization. As a condition to effecting any Capital Reorganization,
the Company or the successor or surviving corporation, as the case may be, shall
assume by a supplemental agreement, reasonably satisfactory in form, scope and
substance to the Holder (which shall be mailed or delivered to the Holder of
this Warrant at the last address of such Holder appearing on the books of the
Company) the obligation to deliver to such Holder such shares of stock,
securities, cash or property as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase, and all other obligations of the
Company set forth in this Warrant.
(g) Determination of Fair Market Value. Subject to the provisions set
forth below, the fair market value of the Company or of any non-cash
consideration received by the Company upon any Common Stock Distribution shall
be determined in good faith by the Board of Directors of the Company. Upon each
such determination, the Company shall promptly give notice thereof to the
Holder, setting forth in reasonable detail the calculation of such fair market
value and the method and basis of determination thereof (the "Company
Determination"). If the Holder shall disagree with the Company Determination and
shall, by notice to the Company given within thirty (30) days after the
Company's notice of the Company Determination, elect to dispute the Company
Determination, the Company shall, within thirty (30) days after such notice,
engage an investment bank or other qualified appraisal firm acceptable to the
Holder to make an independent determination of the fair market value of the
Company or of any non-cash consideration received by the Company upon any Common
Stock Distribution (the "Appraiser Determination"). The Appraiser Determination
shall be
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<PAGE> 6
final and binding on the Company and the Holder. The cost of the Appraiser
Determination shall be borne by the Company.
(h) Adjustment Rules. Any adjustments pursuant to this Section 5 shall
be made successively whenever an event referred to herein shall occur. No
adjustment shall be made pursuant to this Section 5: (i) in respect of the
issuance from time to time of shares of Common Stock upon the exercise of this
Warrant, (ii) in respect of the issuance from time to time of shares of Common
Stock upon the exercise of the Warrant to be issued to Piedmont, (iii) the
exercise or conversion of any other Option Securities or Convertible Securities,
or (iii) in respect of the issuance or exercise of any Additional Warrants (as
defined in the Loan Agreement).
(i) Proceedings Prior to Any Action Requiring Adjustment. As a
condition precedent to the taking of any action which would require an
adjustment pursuant to this Section 5, the Company shall take any action which
may be necessary, including obtaining regulatory approvals or exemptions, in
order that (a) the Company may thereafter validly and legally issue as fully
paid and nonassessable all shares of Common Stock which the Holder of this
Warrant is entitled to receive upon exercise thereof.
(j) Notice of Adjustment. Not less than 10 days prior to the record
date or effective date, as the case may be, of any action which requires or
might require an adjustment or readjustment pursuant to this Section 5, the
Company shall give notice to the Holder of such event, describing such event in
reasonable detail and specifying the record date or effective date, as the case
may be, and, if determinable, the required adjustment and the computation
thereof. If the required adjustment is not determinable at the time of such
notice, the Company shall give notice to the Holder of such adjustment and
computation promptly after such adjustment becomes determinable.
Section 6. Transfer of Warrant. Subject to the provisions of Section 4
hereof, this Warrant may be transferred, in whole or in part, to any person or
business entity, by presentation of the Warrant to the Company with written
instructions for such transfer. Upon such presentation for transfer, the Company
shall promptly execute and deliver a new Warrant or Warrants in the form hereof
in the name of the assignee or assignees and in the denominations specified in
such instructions. The Company shall pay all expenses incurred by it in
connection with the preparation, issuance and delivery of Warrants under this
Section.
Section 7. Warrant Holder Not Shareholder; Rights Offering; Preemptive
Rights. Except as otherwise provided herein, this Warrant does not confer upon
the Holder, as such, any right whatsoever as a shareholder of the Company. The
Company shall not grant any preemptive rights with respect to any of its capital
stock if such preemptive rights are exercisable upon exercise of this Warrant.
Section 8. Observation Rights, Interim Dividends.
(a) Observation Rights. The Holder of this Warrant shall receive notice
of and be entitled to attend or may send a representative to attend all meetings
of the Company's Board of Directors in a non-voting observation capacity and
shall receive a copy of all correspondence and
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<PAGE> 7
information delivered to the Company's Board of Directors, from the date hereof
until such time as the indebtedness evidenced by the Note has been paid in full.
(b) Interim Dividends. If the Company pays a dividend or makes a
distribution to the holders of its capital stock of any securities (other than
capital stock) or property (including cash and securities of other companies) of
the Company, or any rights, options or warrants to purchase securities (other
than capital stock) or property (including securities of other companies) of the
Company, then, simultaneously with the payment of such dividend or the making of
such distribution, and as a condition precedent to its right to do so, it will
pay or distribute to the Holder of this Warrant an amount of property (including
without limitation cash) and/or securities (including without limitation
securities of other companies) of the Company as would have been received by
such Holder had it exercised this Warrant and received all of the Shares of
Common Stock issuable upon the exercise of this Warrant immediately prior to the
record date (or other applicable date) used for determining stockholders of the
Company entitled to receive such dividend or distribution. Anything in Section
to the contrary notwithstanding, no adjustment to the Exercise Price shall be
made for any distribution of Convertible Securities of the Company to the Holder
pursuant to the provisions of this Section 8.
Section 9. Financial Statements and Reports. Unless the Company is
otherwise furnishing such information to the Holder hereof, from the date hereof
until the earlier to occur of (i) the exercise in full of this Warrant or (ii)
its termination, the Company shall deliver to the Holder the following financial
information:
(a) within one hundred twenty (120) days after the end of each fiscal
year of Borrower, (A) audited consolidated financial statements of Borrower,
including a balance sheet as of the close of such fiscal year, an income
statement and statements of changes in stockholders' equity, and of cash flows
for such fiscal year, all in reasonable detail, prepared in accordance with GAAP
consistently applied, and with the report thereon of independent public
accountants, reasonably acceptable to Lender, and (B) unaudited consolidating
financial statements, including a balance sheet as of the close of such fiscal
year, an income statement and statements of changes in stockholders' equity, and
of cash flows for such fiscal year;
(b) within thirty (30) days after the end of each calendar month, a
consolidated balance sheet of Borrower as of the close of such month and
consolidated statements of earnings and retained earnings of Borrower for such
month and for the prior months of the current fiscal year (on a year to date
basis), each compared to the same period in the previous fiscal year, all in
reasonable detail, and unaudited but prepared on the basis of GAAP consistently
applied (except for the absence of footnotes and subject to year-end
adjustments), together with a narrative status report of Borrower's management;
and
(c) with reasonable promptness, such other financial data as Lender may
reasonably request.
Section 10. Certain Notices. In case at any time the Company shall
propose to:
(a) declare any cash dividend upon its Common Stock;
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<PAGE> 8
(b) declare any dividend upon its Common Stock payable in stock or make
any special dividend or other distribution to the holders of its Common Stock;
(c) offer for subscription to the holders of any of its Common Stock
any additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the Company, or
consolidate, merge or otherwise combine with, or sell all or substantially all
of its assets to, another corporation; or
(e) voluntarily or involuntarily dissolve, liquidate or wind up of the
affairs of the Company;
then, in any one or more of said cases, the Company shall give to the Holder, by
certified or registered mail, (i) 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 or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days prior written notice of the date when the same shall take
place. Any notice required by clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
Section 11. Put Right.
(a) The Company hereby irrevocably grants and issues to Holder the
right and option to sell to the Company (the "Put") this Warrant or the Shares
with respect to which this Warrant is exercisable, in whole or part, at any time
after May 31, 2006 at a purchase price (the "Purchase Price") equal to the Put
Value (as hereinafter defined) of the shares of Common Stock issuable to Holder
upon exercise of this Warrant.
(b) The Company shall pay to the Holder, in cash or certified or
cashier's check, the Purchase Price within thirty (30) days of the receipt of
written notice from the Holder stating its intention to exercise the Put and the
number of shares with respect to which it is then exercising the Put (the "Put
Securities").
(c) The Put Value shall by equal to the fair market value of the
Company (determined pursuant to Section 5(g) of this Warrant) multiplied by a
fraction, the numerator of which shall be the number of Put Securities and the
denominator of which shall be the number of shares of Common Stock then
outstanding (including the Put Securities and after giving effect to the
conversion of any Convertible Securities then outstanding).
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[Remainder of Page Intentionally Left Blank]
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<PAGE> 10
[SIGNATURE PAGE TO STOCK PURCHASE WARRANT]
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
BUILDNET, INC.
By: /s/ Keith T. Brown
Name: Keith T. Brown
Title: President and CEO
Attest: /s/ J. William Waddell
Name: J. William Waddell
Title: Secretary
PETRA CAPITAL, LLC, a Georgia limited
liability company
By: Petra Capital Management, LLC,
Manager
By: /s/ Petra Capital Management, LLC
Name: Petra Capital Management, LLC
Title: Authorized Representative
10
<PAGE> 1
EXHIBIT 10.11
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN
JURISDICTION. THIS WARRANT AND SUCH UNDERLYING SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
OFFERED, SOLD, PLEDGED, HYPOTHECATED, RENOUNCED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS AND IN THE ABSENCE OF COMPLIANCE WITH
APPLICABLE LAWS OF ANY FOREIGN JURISDICTION, OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IN NOT REQUIRED AND SUCH
FOREIGN JURISDICTION LAWS HAVE BEEN SATISFIED.
BUILDNET, INC.
STOCK PURCHASE WARRANT
This Warrant is issued as of this 21st day of May 1999 (the "Effective
Date") by BuildNet, Inc., a North Carolina corporation (the "Company"), to GE
Capital Equity Investments, Inc., or permitted assigns (the "Holder").
1. Issuance of Warrant; Term; Price.
1.1 Issuance. Subject to the terms and conditions set forth
herein, Company hereby grants to Holder the right to purchase up to 271,319
shares (which number of shares is subject to adjustment as described below) of
Company's Series B Preferred Stock (the "Warrant Stock"). This Warrant shall
become exercisable based on General Electric Company's operating unit, General
Electric Appliances ("GEA") meeting the milestones as set forth below. In all
cases, achievement of the milestones below will be based on GEA's active
participation in helping to promote the Company's electronic commerce
application and network (the "BuildNet System"). In order to meet the milestones
as set forth below, the Company acknowledges that GEA and the Company will work
together to bring the parties to contract, and it is not required that GEA alone
bring the party to contract, so long as GEA has an active role in introducing
the prospect (manufacturer, distributor or builder) to the Company and uses its
good faith efforts to provide reasonable assistance to Company personnel in
promoting, negotiating and/or closing the prospect's participation in the
BuildNet System.
Commencing on the Commencement Date, as defined below, GEA will
commence sales and marketing efforts designed to increase participant enrollment
in the BuildNet System. "Commencement Date" means the date that GEA, in its good
faith reasonable judgment, (which shall not be unreasonably withheld) confirms
that the Company has provided it with sales and marketing materials sufficient
to allow GEA to solicit manufacturers, distributors and builders in a manner
reasonably likely to result in such persons agreeing to participate in the
BuildNet System. The parties agree that said sales and marketing materials will
be completed within ninety (90) days of the Effective Date, unless extended by
mutual consent. GEA agrees to use its
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
<PAGE> 2
reasonable commercial efforts to help the Company prepare said materials. The
Warrant may be exercised for the following number of shares of Warrant Stock
based on GEA's achievement of the corresponding milestone(s).
(a) For every [*] identified in Exhibit A for which
the Initial Warrant Trigger has been satisfied during the first [*] months after
the Commencement Date, and for which the Final Warrant Trigger is satisfied, and
for every [*] identified in Exhibit A for which the Initial Warrant Trigger has
been satisfied during the next [*] months thereafter (months [*] after the
Commencement Date) and for which the Final Warrant Trigger has been satisfied,
the Warrant will become exercisable as to [*] shares of Warrant Stock.
(b) For every [*] identified in Exhibit A for which
the Initial Warrant Trigger has been satisfied during the first [*] months after
the Commencement Date, and for which the Final Warrant Trigger is satisfied, and
for every [*] identified in Exhibit A for which the Initial Warrant Trigger has
been satisfied during the next [*] months thereafter (months [*] after the
Commencement Date), and for which the Final Warrant Trigger has been satisfied,
the Warrant will become exercisable as to [*] shares of Warrant Stock.
(c) For every [*] identified on Exhibit A for which
the initial Warrant Trigger has been satisfied during the first [*] months after
the Commencement Date, and for which the Final Warrant Trigger is satisfied and
for every [*] for which the Initial Warrant Trigger has been satisfied during
the next [*] months thereafter (months [*] after the Commencement Date), and for
which the Final Warrant Trigger has been satisfied, the Warrants will become
exercisable as to [*] shares of Warrant Stock.
(d) For purposes of this section, "Initial Warrant
Trigger" means, with respect to any manufacturer, distributor or builder listed
on Exhibit A, that (i) such person was introduced to the Company by GEA or its
agents (whether such introduction was made prior to or after the Commencement
Date and regardless of whether the Company has previously been introduced to or
had discussions with such person prior to the Effective Date), (ii) following
such introduction, GEA has used its good faith reasonable efforts to assist the
Company in following up with such person in order to secure such person's
participation in the BuildNet System, and (iii) the Company and such person
enter into a non-binding letter of intent regarding the BuildNet System within
the 12 or 18 month period after the Commencement Date, as applicable. "Final
Warrant Trigger" means, with respect to any manufacturer, distributor or builder
listed on Exhibit A, that the Company and such person enter into a definitive
agreement regarding the BuildNet System within 6 months after execution of a
letter of intent. In the event the BuildNet System is not operational for a
given customer within said 6-month period, said period shall be extended until
the BuildNet System has been made operational.
(e) If GEA thereafter helps bring other participants
to the BuildNet System who meet the criteria used in creating Exhibit A, the
participants will, by mutual agreement of the Company and GEA (which agreement
shall not be unreasonably withheld) be counted toward the milestone goals
notwithstanding that the participants are not then on Exhibit
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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<PAGE> 3
A. In addition, the Company and GEA may mutually agree to count toward the
milestone goals other participants brought by GEA who do not meet the criteria
used in creating Exhibit A.
1.2 Term. The shares of Warrant Stock issuable upon exercise
of this Warrant are hereinafter referred to as the "Shares." This Warrant shall
be exercisable at any time and from time to time from the date hereof until May
21, 2004.
1.3. Exercise Price. The exercise price (the "Warrant Price")
per share for which all or any of the Shares may be purchased pursuant to the
terms of this Warrant shall be equal to [*].
2. Adjustment of Warrant Price, Number and Kind of Shares. The Warrant
Price and the number and kind of securities issuable upon the exercise of this
Warrant shall be subject to adjustment from time to time and the Company agrees
to provide notice upon the happening of certain events as follows.
2.1 Dividends in Stock Adjustment. In case at any time or from
time to time on or after the date hereof the holders of the Warrant Stock of the
Company (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received, or, on or after the record
date fixed for the determination of eligible shareholders, shall have become
entitled to receive, without payment therefor, other or additional securities or
other property (other than cash) of the Company by way of dividend or
distribution, then and in each case, the holder of this Warrant shall, upon the
exercise hereof, be entitled to receive, in addition to the number of shares of
Warrant Stock receivable thereupon, and without payment of any additional
consideration therefor, the amount of such other or additional securities or
other property (other than cash) of the Company which such holder would hold on
the date of such exercise had it been the holder of record of such Warrant Stock
on the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional securities or other property receivable by it as aforesaid during
such period, giving effect to all adjustments called for during such period by
this subsection 2.1 and subsections 2.2 and 2.3 of this Section 2.
2.2. Reorganization, Reclassification, Merger, Consolidation
or Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Series B Preferred Stock or
the Common Stock of the Company), or sell, transfer or otherwise dispose of all
or substantially all its property, assets or business to another corporation
and, pursuant to the terms of such reorganization, reclassification, merger,
consolidation or disposition of assets, shares of common stock of the successor
or acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of the Series B Preferred Stock or Common Stock of the Company,
then Holder shall have the right thereafter to receive, upon exercise of this
Warrant and payment of the Warrant Price then in effect, the number of shares of
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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<PAGE> 4
common stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property receivable upon or as a result
of such reorganization, reclassification, merger, consolidation or disposition
of assets to which the holder would have been entitled upon such consummation of
such event if such holder had exercised this Warrant immediately prior to such
event. In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined by resolution of the Board of Directors of the
Company) in order to provide for adjustments of the Warrant Price and the number
and kind of securities issuable upon the exercise of this Warrant which shall be
as nearly equivalent as practicable to the adjustments provided for in this
Section 2. For purposes of this Section 2.2, "common stock of the successor or
acquiring corporation" shall include stock of such corporation of any class
which is not preferred as to dividends or assets over any other class of stock
of such corporation and which is not subject to redemption and shall also
include any evidences of indebtedness, shares of stock or other securities which
are convertible into or exchangeable for any such stock, either immediately or
upon the arrival of a specified date or the happening of a specified event and
any warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 2.2 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
2.3 Stock Splits and Reverse Stock Splits. If at any time on
or after the date hereof the Company shall subdivide its outstanding shares of
Warrant Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall thereby be proportionately reduced
and the number of shares receivable upon exercise of this Warrant shall thereby
be proportionately increased; and, conversely, if at any time on or after the
date hereof the outstanding number of shares of Warrant Stock shall be combined
into a smaller number of shares, the Warrant Price in effect immediately prior
to such combination shall thereby be proportionately increased and the number of
shares receivable upon exercise of this Warrant shall thereby be proportionately
decreased.
2.4 Conversion or Redemption of Warrant Stock. If at the time
of any exercise of this Warrant there are no other shares of Warrant Stock
outstanding (such shares having been converted or redeemed), this Warrant shall
be exercisable for Common Stock instead of Warrant Stock in the same amounts,
for the same prices and on the same terms, and all references herein to "Warrant
Stock" shall be changed to refer to "Common Stock."
3. No Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with any subscription hereunder. In lieu of any fractional
shares that would otherwise be issuable, the Company shall pay cash equal to the
product of such fraction multiplied by the fair market value of one share of
Warrant Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
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<PAGE> 5
4. No Shareholder Rights. This Warrant as such shall not entitle its
holder to any of the rights of a shareholder of the Company until the holder has
exercised this Warrant in accordance with Section 6 or Section 7 hereof.
5. Reservation of Stock. The Company covenants that during the period
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Warrant Stock a sufficient number of shares to provide for the issuance
of Warrant Stock upon the exercise of this Warrant. The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Warrant Stock upon the exercise of this
Warrant.
6. Exercise of Warrant. This Warrant may be exercised by Holder by the
surrender of this Warrant at the principal office of the Company, accompanied by
payment in full of the purchase price of the Shares purchased thereby, as
described above. This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person or entity entitled to receive the Shares or other
securities issuable upon such exercise shall be treated for all purposes as the
holder of such shares of record as of the close of business on such date. As
promptly as practicable, the Company shall issue and deliver to the person or
entity entitled to receive the same a certificate or certificates for the number
of full shares of Warrant Stock issuable upon such exercise, together with cash
in lieu of any fraction of a share as provided above. The shares of Warrant
Stock issuable upon exercise hereof shall, upon their issuance, be fully paid
and nonassessable.
7. Right to Convert Warrant for Warrant Stock.
7.1 Right to Convert. In addition to and without limiting the
rights of the Holder under the terms of this Warrant, the Holder shall have the
right to convert this Warrant or any portion hereof (the "Conversion Right")
into shares of Warrant Stock as provided in this Section 7, subject to the
restrictions set forth in subsection 7.3 hereof. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the Holder (without
payment by the Holder of any cash or other consideration) that number of shares
of Warrant Stock equal to the quotient obtained by dividing (x) the value of
this Warrant (or the specified portion hereof) on the Conversion Date (as
defined in subsection 7.2 hereof ), which value shall be determined by
subtracting (A) the aggregate Warrant Price of the Converted Warrant Shares
immediately prior to the exercise of the Conversion Right from (B) the aggregate
fair market value of the Converted Warrant Shares issuable upon exercise of this
Warrant (or the specified portion hereof) on the Conversion Date (as herein
defined) by (y) the fair market value of one share of Warrant Stock on the
Conversion Date (as herein defined). No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Holder an amount in cash equal to the fair
market value of the resulting fractional share on the Conversion Date (as herein
defined).
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<PAGE> 6
7.2 Method of Exercise. The Conversion Right may be exercised
by the Holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the Holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant that are being surrendered (referred to in subsection
7.1 hereof as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective immediately upon surrender of this Warrant
(the "Conversion Date"). Certificates for the shares of Warrant Stock issuable
upon exercise of the Conversion Right (or any other securities deliverable in
lieu thereof under subsection 2.1) shall be issued as of the Conversion Date and
shall be delivered to the Holder immediately following the Conversion Date.
7.3 Restrictions on Conversion Right. In the event that, in
connection with or following a public offering of the Company's Common Stock,
the Conversion Right contained herein would, at any time this Warrant remains
outstanding, be deemed by the Company' s independent certified public
accountants to trigger a charge to the Company's earnings for financial
reporting purposes, then the Conversion Right as specified in section 7.1 shall
automatically terminate upon the Company's written notice to the Holder of such
adverse accounting treatment.
7.4 Determination of Fair Market Value. For purposes of this
Section 7, fair market value of a share of Warrant Stock as of a particular date
(the "Determination Date") shall mean:
(a) In the case of a public offering, the initial
"Price to Public" specified in the final prospectus with respect to such
offering if the Holder elects to exercise its Warrants at that time. If the
Holder elects to exercise its warrants in whole or in part after a public
offering, the fair market value of a share of Warrant Stock shall be the last
closing price per share on such date;
(b) In the case of an acquisition of a controlling
interest (51% or more) of BuildNet stock, the effective per share consideration
to be received in an Acquisition by holders of the Warrant Stock, which price
shall be as specified in the agreement entered into with respect to such
Acquisition and determined assuming receipt of the aggregate exercise price of
all outstanding warrants to purchase Warrant Stock (the "Outstanding Warrants"),
or if no such price is set forth in the agreement concerning the Acquisition,
then as determined in good faith by the Company's Board of Directors upon a
review of relevant factors, including the aggregate exercise price of all
Outstanding Warrants; or
(c) In any other case, the price determined in good
faith by the Company's Board of Directors.
8. Certificate of Adjustment. Whenever the Warrant Price or number or
type of securities issuable upon exercise of this Warrant is adjusted, as herein
provided, the Company shall promptly deliver to the record holder of this
Warrant a certificate of an officer of the Company
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<PAGE> 7
setting forth the nature of such adjustment and a brief statement of the facts
requiring such adjustment.
9. Notice of Proposed Transfers. Prior to any proposed transfer of this
Warrant or the shares of Warrant Stock received on the exercise of this Warrant
(the "Securities"), unless there is in effect a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), covering the proposed
transfer, the Holder thereof shall give written notice to the Company of such
Holder's intention to effect such transfer. Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall, if the Company so requests, be accompanied (except in transactions in
compliance with Rule 144) by either (i) a written opinion of legal counsel who
shall be reasonably satisfactory to the Company addressed to the Company and
reasonably satisfactory in form and substance to the Company's counsel, to the
effect that the proposed transfer of the Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Securities Exchange Commission (the "Commission") to the effect that the
transfer of such Securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the Holder of the Securities shall be entitled to transfer
the Securities in accordance with the terms of the notice delivered by the
Holder to the Company; provided, however, no such registration statement or
opinion of counsel shall be necessary for a transfer by a Holder to any
affiliate of such Holder, or a transfer by a Holder which is a partnership to a
partner of such partnership or a retired partner of such partnership who retires
after the date hereof, or to the estate of any such partner or retired partner
or the transfer by gift, will or intestate succession of any partner to his
spouse or lineal descendants or ancestors, if the transferee agrees in writing
to be subject to the terms hereof to the same extent as if such transferee were
the original Holder hereunder. Each certificate evidencing the Securities
transferred as above provided shall bear the appropriate restrictive legend set
forth above, except that such certificate shall not bear such restrictive legend
if in the opinion of counsel for the Company such legend is not required in
order to establish compliance with any provisions of the Securities Act.
10. Replacement of Warrants. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of the Warrant, and in the case of any such loss, theft or
destruction of the Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company, and reimbursement to
the Company of all reasonable expenses incidental thereto, and upon surrender
and cancellation of the Warrant if mutilated, the Company will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
11. Miscellaneous. This Warrant shall be governed by the laws of the
State of New York The headings in this Warrant are for purposes of convenience
of reference only, and shall not be deemed to constitute a part hereof. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provisions. All notices and other
communications from the Company to the holder of this Warrant shall be delivered
personally or mailed by first class mail, postage prepaid, to the address
furnished to the Company in writing by the last holder of this Warrant who shall
have furnished an address to the Company in writing, and if mailed shall be
deemed given three days after deposit in the U.S. Mail.
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<PAGE> 8
12. Taxes. The Company shall pay all issue taxes and other governmental
charges (but not including any income taxes of a Holder) that may be imposed in
respect of the issuance or delivery of the Shares or any portion thereof.
13. Amendment. Any term of this Warrant may be amended with the written
consent of the Company and the Holder. Any amendment effected in accordance with
this Section 13 shall be binding upon the Holder of this Warrant, each future
holder of such Warrant, and the Company.
14. No Impairment. The Company shall not by any action, including,
without limitation, amending its Articles of Incorporation or comparable
governing instruments or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms 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 to protect the rights of Holder against impairment.
Without limiting the generality of the foregoing, the Company will (a) not
increase the par value of any shares of Series B Preferred Stock or Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Series B
Preferred Stock or Common Stock upon the exercise of this Warrant, and (c) use
its best efforts to obtain all such authorizations, exemptions or consents from
any public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
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IN WITNESS WHEREOF, the undersigned officer of the Company has set his
hands as of the date first above written.
BUILDNET, INC.
By: /s/ Keith T. Brown
-------------------------------
Keith T. Brown, President
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<PAGE> 10
EXHIBIT A
TOP MANUFACTURERS, DISTRIBUTORS AND BUILDERS
************************
[*]
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
<PAGE> 1
EXHIBIT 10.12
FORM OF BUILDNET, INC. FOUNDING MEMBER AGREEMENT
This FOUNDING MEMBER AGREEMENT (the "Agreement") is dated as of the
____ day of _____1999 (the "Effective Date"), by and between BuildNet, Inc., a
North Carolina corporation, with its principal place of business at 4815 Emperor
Drive, Suite 214, Morrisville, North Carolina 27560 ("BuildNet"), and
__________________________corporation, by and through its General Electric
Appliances operating unit having a place of business at
_________________("Company").
RECITALS
WHEREAS, BuildNet operates an Internet-based service for processing and
supporting electronic commerce transactions between suppliers and buyers of
building related goods and services (the "BuildNet System"); and
WHEREAS, BuildNet desires to establish one primary sponsor in each
major product category included in the BuildNet System (a "Founding Member"),
which will be accorded advantaged status over preferred and standard members
("Members") on the BuildNet System; and
WHEREAS, Company is the manufacturer of building products, materials
and/or supplies and desires to become a Founding Member with respect to the
products (the "Products") and the Major Product Category as set forth on Exhibit
A attached hereto;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
bound, hereby agree as follows.
Appointment of Founding Member. BuildNet hereby appoints Company as the
exclusive Founding Member for the Major Product Category as set forth on Exhibit
A attached hereto, and Company shall make available for purchase through the
BuildNet System, the Products. During the term of this Agreement, BuildNet shall
not allow any other Member to offer for sale through the BuildNet System the
Products (or products that compete therewith) on the same set of advantaged
terms accorded a Founding Member.
Electronic Commerce Services. In a timely manner, BuildNet shall provide the
following electronic commerce services to Company.
(a) BuildNet shall make available to Company the necessary BuildNet
System software to create and publish Product catalogs through the BuildNet
System. This software will provide a standard set of capabilities for Founding
Members needed to display all relevant Product Information and interface the
transactions facilitated through the BuildNet System with Company's internal
business systems. The BuildNet System will provide basic customer interaction
capabilities to conduct standard commerce transactions including new builder
sign-
<PAGE> 2
up, price quotes, payment services, new orders, back order notification,
advanced ship notice communications and purchase order modifications.
(b) BuildNet will maintain and present Company's Product information on
the BuildNet System, provided that Company shall pay all costs for any third
party software (including upgrades to such software) that is required to publish
and/or maintain Company's Product catalogs through the BuildNet System. There
will no storage or service charges for hosting or maintaining Company Product
information catalogs on the BuildNet System.
(c) BuildNet will manage and distribute to end users of the BuildNet
System Company's Product catalog and upgrades thereto.
(d) BuildNet will provide timely notice to Company of all upgrades and
changes to the BuildNet System, the transaction adapter software or Company's
electronic catalog that may cause changes to be made to Company's internal
electronic commerce systems.
(e) BuildNet will maintain the BuildNet System and all software tools,
interfaces and transaction adapter software provided with the BuildNet System
and keep all e-commerce interfaces working properly.
(f) BuildNet shall provide all required hardware and software to host
the BuildNet System, including telecommunications hardware and software.
BuildNet shall provide the telecommunications equipment and connections to allow
members to access the BuildNet System through the public Internet on a
twenty-four hours per day, seven days per week basis, except during scheduled
maintenance downtime. In addition, BuildNet or its agents shall keep backups of
the BuildNet System, check for errors in the accessibility of the BuildNet
System, and monitor connectivity of the BuildNet System to the Internet.
BuildNet will use commercially reasonable efforts to ensure that the speed and
functionality of the BuildNet System is consistent with industry best of breed
standards.
3. Marketing and Promotional Services. During the term of this Agreement,
Company shall have the right to hold itself out as a "Founding Member" of the
BuildNet System. As a Founding Member, Company shall be entitled to the
following benefits and services with respect to the Major Product Category.
(a) Company shall receive preferred positioning and placement,
including first position for all relevant menus, lists and online catalog
presentations. Company shall receive preferred positioning on any user desktop
screens or interfaces provided by BuildNet including priority positioning on the
desktop within the applicable Major Product Category, and priority by each
individual product category within the Major Product Category.
(b) The BuildNet System shall default to Company in each individual
product category within the Major Product Category for all plans, menus and
applications.
(c) BuildNet shall provide reasonable assistance to Company with its
marketing efforts, including seminars and special promotional events. Company,
as a Founding Member
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<PAGE> 3
shall receive preferential consideration over standard Members during any city
roll-out promotional events conducted by BuildNet.
(d) BuildNet will provide Company prominent Founding Member visibility
in BuildNet on-line and print advertising and other sales and marketing
collateral material that promote the BuildNet System. As a Founding Member,
BuildNet will offer preferred advertising to the Company in the BuildNet System
web site design and on-line advertising, both within the Product Category and
within the BuildNet System generally at the then-current rates.
(e) BuildNet will include Company's name and logo within the BuildNet
Industry Company Index section of the BuildNet System web site, located at
www.buildnet.net and any other indexes that are included on websites that are
part of the BuildNet System.
(f) BuildNet will include a hypertext hot link(s) to Company's Internet
site(s) from the Industry Company Index of the BuildNet System web site(s).
(g) No superceding ads or promotional hot links by non-Founding Members
will be placed on Founding Members webpages.
4. Other Services. BuildNet shall provide to Company services that are required
to integrate Company's Product data systems with the BuildNet System. These
services shall be provided pursuant to BuildNet's standard General Services
Agreement and shall include the provision of a basic template driven catalog of
Company's product data. This catalog will not implement any configuration or
rule driven processes.
5. Company's Duties. Company shall be responsible for providing to BuildNet in a
timely manner the Company Material as defined below, including all designs,
promotional materials, Company marks and logos, advertisements and other Company
material to be provided under the Agreement. All such materials are, and shall
remain, the exclusive property of Company and shall promptly be returned thereto
upon request.
6. Subscription and Transaction Fee. In consideration of its participation as a
Founding Member, Company shall pay to BuildNet an annual Founding Member
subscription fee of $__________. Payment for the first year shall be due upon
the Effective Date and thereafter on each annual anniversary of the Effective
Date. A transaction fee of (i) ____ percent ___% of the net invoice price of any
product or service ordered through the BuildNet System if the sale is to a
supplier, or (ii) a transaction fee of ______ percent ___% of the net invoice
price of any product or service ordered through the BuildNet System if the sale
is a direct shipment to the end user. Transaction fees shall be invoiced
electronically upon notice of shipment from Founding Members and payable within
thirty (30) days of invoice date. Any payments due hereunder not received within
thirty (30) days of the date due shall accrue interest from the date due until
the date paid at twelve percent (12%) per annum or, if less, the maximum per
annum rate permitted by law.
7. Term. The term of the Agreement shall be for a period of one (1) year,
commencing on the Effective Date. Thereafter the Agreement shall automatically
renew for additional one-year
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<PAGE> 4
terms upon receipt of the Annual Fee pursuant to Section 6 unless either party
provided written notice to the other of its intent not to renew not less than
sixty (60) days prior to the end of the then-current term. BuildNet reserves the
right to terminate this Agreement at any time that payment is not received
within thirty (30) days of the date such payment is due.
8. Representations and Warranties of BuildNet. BuildNet represents and warrants
as follows, as of the Effective Date and for the term of this Agreement:
(a) The execution and delivery of this Agreement shall not conflict
with or result in a breach of the terms, conditions or provisions of, or give
rise to a right of termination under, or constitute a default under, or result
in any violation of, any agreement, contract, instrument, order, judgment,
decree, statute, law, rule or regulation to which BuildNet is subject. Neither
the execution and delivery of this Agreement nor the compliance with the terms
and provisions hereof shall result in any violation of any franchise,
certificate, license, permit, or other authorization necessary for the
ownership, maintenance and operation by BuildNet of the BuildNet System.
(b) BuildNet owns, or has the right to use under valid and enforceable
agreements, all of the intellectual property rights related to the operation of
the BuildNet System. The operation of the BuildNet System as presently conducted
or proposed to be conducted by BuildNet does not infringe or violate any
intellectual property rights of any other person. BuildNet represents and
warrants to Company that (i) the technology as utilized by the BuildNet System,
and (ii) any material originated by BuildNet or provided to Company by BuildNet
(other than content originating with Company) ("BuildNet Material") which is
displayed on the BuildNet System shall not (A) violate any criminal laws or any
rights of any third parties, including, but not limited to, such violations as
infringement or misappropriation of intellectual property rights or other
proprietary or property right, false advertising, unfair competition,
defamation, invasion of privacy or rights of celebrity, violation of any
anti-discrimination law or regulation, or any other right of any person or (B)
contain any material that would constitute a criminal offense, give rise to
civil liability, or otherwise violate any applicable local, state or national
law.
(c) All computer systems, software, and hardware used in the operation
of the BuildNet System are able to accurately process date data, including,
calculating, comparing, and sequencing from, into and between the twentieth
century (through year 1999), the year 2000 and the twenty-first century,
including leap year calculations. BuildNet is taking all commercially reasonable
steps to assure that the BuildNet System is not adversely and materially
affected by Year 2000 or other date-related processing failures affecting the
performance of its suppliers and business partners.
(d) The BuildNet System will comport with reasonable commercial or
industry standards, including standards for firewalls, antivirus protection, and
system security. In the event that Company notifies BuildNet that the BuildNet
System is failing to conform to the above warranties, BuildNet, without charge,
shall promptly and in no event more than thirty (30) days thereafter, repair or
replace the cause of such failure, provided however that if the BuildNet System
is not operational for more than three (3) days within any given month, any
additional non-operational days within that given month will be credited against
the Founding Member's future subscription fee on a pro rata daily basis.
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<PAGE> 5
9. Representations and Warranties of Company. Company represents and warrants as
follows, as of the Effective Date and for the term of this Agreement:
(a) The execution and delivery of this Agreement shall not conflict
with or result in a breach of the terms, conditions or provisions of, or give
rise to a right of termination under, or constitute a default under, or result
in any violation of any agreement, contract, instrument, order, judgment,
decree, statute, law, rule or regulation to which Company is subject.
(b) Company represents and warrants to BuildNet that any material
originated by Company or provided to BuildNet by Company (other than content
originating with BuildNet) ("Company Material") which is displayed on the
BuildNet System shall not (A) violate any criminal laws or any rights of any
third parties, including, but not limited to, such violations as infringement or
misappropriation of intellectual property rights or other proprietary or
property right, false advertising, unfair competition, defamation, invasion of
privacy or rights of celebrity, violation of any anti-discrimination law or
regulation, or any other right of any person or (B) contain any material that
would constitute a criminal offense, give rise to civil liability, or otherwise
violate any applicable local, state or national law.
10. Disclaimer. OTHER THAN AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NO PARTY
HERETO MAKES ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE BUILDNET
SYSTEM, THE BUILDNET MATERIAL, THE COMPANY MATERIAL, OR ANY OTHER TECHNOLOGY,
CONTENT, OR INTELLECTUAL PROPERTY RIGHTS, OR ANY OTHER INFORMATION, DATA,
PRODUCTS, SERVICES, ACCURACY OR RESULTS OF USE, RIGHTS OR OTHER SUBJECT MATTER
OF THIS AGREEMENT AND EACH PARTY HEREBY DISCLAIMS ALL IMPLIED WARRANTIES,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
11. Indemnification.
(a) Each of Company and BuildNet, respectively, shall defend, indemnify
and hold each other, and each other's Affiliates, partners, officers, employees,
directors, agents, consultants, contractors, representatives, successors and
assigns, as such, harmless from and against any third party claims, demands,
liabilities, actions, judgments and expenses, including attorneys fees,
("Losses") which arise out of or result from any claim that such party does not
have sufficient right, title or interest in any software, data, or any other
materials used or supplied by such party in performance of such party's
obligations under this Agreement that are subject to any intellectual property
rights (the "Protected Material") or that such Protected Material violates any
intellectual property right of any third party.
(b) In the event that any such claim is made against either Company or
BuildNet, or in one of the parties' (the "Indemnifying Party") opinion is likely
to be made against the other party (the "Indemnified Party"), such Indemnifying
Party reserves the right, in its sole discretion, to avoid infringement by (i)
procuring for the Indemnified Party the right to use the subject Protected
Material, (ii) replacing the subject Protected Material with materials of equal
or superior content and functionality, or (iii) to modify the subject Protected
Material without materially and adversely affecting their content and
functionality.
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(c) Any party claiming indemnification pursuant to this Agreement shall
notify the indemnifying party within thirty (30) days after learning of the
occurrence of any event (including, without limitation, the commencement of any
audit by any taxing authority) that such party asserts is an indemnifiable event
pursuant to this Agreement. If such event involves the claim of any third party
and the indemnifying party confirms in writing its responsibility for such
liability, if established, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, assume control over (in which
case the indemnifying party shall assume all expense with respect to) the
defense, settlement, adjustment or compromise of such claim.
(d) The indemnified party shall have the right to employ separate
counsel in any action or claim and to participate in the defense thereof at the
expense of the indemnifying party (i) if the retention of such counsel has been
specifically authorized by the indemnifying party, or (ii) if the counsel is
retained because the indemnifying party does not notify the indemnified party
within twenty (20) days after receipt of a claim notice that it elects to
undertake the defense thereof. The indemnified party shall have the right to
employ counsel at the indemnified party's own expense and to participate in such
action or claim, including settlement or trial, so long as such participation
does not substantially interfere in the indemnifying party's defense of such
claim or action.
(e) The indemnifying party shall obtain the prior written approval of
the indemnified party, not to be unreasonably withheld, before entering into any
settlement, adjustment, or compromise of such claim or ceasing to defend against
such claim, if pursuant to or as a result of such settlement, adjustment,
compromise, or cessation, injunctive or other relief would be imposed against
the indemnified party.
(f) If the indemnifying party does not assume control over the defense
of such claim as provided in herein, the indemnified party shall have the right
to defend the claim in such manner as it may deem appropriate at the cost and
expense of the indemnifying party, and with the consent of the indemnifying
party, not to be unreasonably withheld, to settle, adjust, or compromise such
claim. The indemnified party may settle, adjust, or compromise any such claim
without the consent of the indemnifying party if the indemnified party waives
indemnification for such claim.
12. Limitation of Damages and Liability. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER
HEREUNDER FOR INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES (INCLUDING
REASONABLE ATTORNEYS' FEES AND LOST PROFITS) THAT RESULT FROM OR ARE RELATED TO
THIS AGREEMENT, EVEN IF THE PARTY FROM WHOM INDEMNITY IS SOUGHT HAS BEEN
INFORMED OF THE POSSIBILITY OF SUCH DAMAGES. IN ANY EVENT OTHER THAN WITH
RESPECT TO INDEMNIFICATION OBLIGATIONS UNDER SECTION 11, BUILDNET'S AGGREGATE
LIABILITY TO COMPANY UNDER THIS AGREEMENT FOR DAMAGES, COSTS, AND EXPENSES SHALL
NOT EXCEED THE AMOUNT RECEIVED BY BUILDNET UNDER THIS AGREEMENT WITHIN TWELVE
MONTHS OF THE CAUSE OF ACTION GIVING RISE TO THE LIABILITY NOTHING IN THIS
SECTION SHALL LIMIT IN ANY MANNER EITHER PARTY'S RIGHTS TO SEEK INJUNCTIVE
RELIEF.
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13. Confidentiality.
(a) Definition. "Proprietary Information" of a party means: any
confidential, proprietary or trade secret information disclosed by a party that
is identified in writing as such at the time of its initial disclosure, or if
initially disclosed in intangible form, is reduced to tangible form and properly
identified as such within 30 days of initial unmarked disclosure, including
without limitation: (i) information disclosed by a party relating to product
development strategy and activity, corporate assessments and strategic plans,
financial and statistical information, accounting information, software,
systems, processes, formulae, inventions, discoveries, policies, guidelines,
procedures, practices, disputes or litigation; (ii) trade information relating
to such party's employees, contractors or customers which, if released, would
cause an unlawful or actionable invasion of privacy; and (iii) compilations or
summaries of information or data that is itself Proprietary Information. For
purposes of this Agreement, information shall be deemed to be disclosed by a
party if such information is disclosed by any of its officers, employees,
directors, consultants, agents, representatives or affiliates.
(b) Protection. Except as provided herein, all Proprietary Information
disclosed by a party hereto to any other party hereto in the course of
performing under this Agreement or to which a party hereto gains access in
connection with this Agreement shall be deemed to be the property of the
disclosing party. The receiving party shall during the life of this Agreement:
(i) receive such Proprietary Information in confidence; (ii) during the life of
this Agreement and for two (2) years thereafter maintain the confidentiality of
such Proprietary Information and not disclose such Proprietary Information to
third parties (except for the receiving party's representatives, agents and
contractors who have a need to know, are under a duty of non-disclosure, and are
acting for the sole benefit of the receiving party), and shall accord such
Proprietary Information at least the same level of protection against
unauthorized use and disclosure as the receiving party customarily accords its
own information of a similar nature; (iii) use or permit the use of such
Proprietary Information solely in accordance with the terms of this Agreement;
and (iv) promptly notify the disclosing party in writing of any loss or
unauthorized use or disclosure of or access to the disclosing party's
Proprietary Information of which it becomes aware. The terms and conditions of
this Agreement (as well as all information regarding the negotiation of this
Agreement) shall be deemed to be the Proprietary Information of the parties
hereto. The parties hereto shall each abide by and reproduce and include any
restrictive legends or proprietary rights notices that appear in or on any
Proprietary Information of the other parties hereto that it is authorized to
reproduce. Each party shall also not remove, alter, cover or distort any
trademark, trade name, copyright or other proprietary rights notices, legends,
symbols or labels appearing in any Proprietary Information of any other party
hereto. Confidentiality obligations and restrictions arising under this Section
13 shall expire two (2) years after expiration or termination of this Agreement.
(c) Exclusions. The restrictions on disclosure set forth above shall
not apply when, and to the extent that the Proprietary Information: (i) is or
becomes generally available to the public through no fault of the receiving
party; (ii) was previously rightfully known to the receiving party free of any
obligation to keep it confidential; (iii) is subsequently disclosed to the
receiving party by a third party who may rightfully transfer and disclose such
information without restriction and free of any obligation to keep it
confidential; (iv) is independently
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developed by the receiving party or a third party without reference to the
disclosing party's Proprietary Information; or (v) is required to be disclosed
by the receiving party as a matter of law, provided that the receiving party
uses all reasonable efforts to provide the disclosing party with at least ten
(10) days' prior written notice of such disclosure and the receiving party
discloses only that portion of the Proprietary Information that is legally
required to be furnished pursuant to the opinion of legal counsel of the
receiving party.
(d) Data Rights. Notwithstanding anything herein to the contrary,
Company hereby grants BuildNet the right to use all transaction data generated
by the BuildNet System in a aggregated form for forecasting or other commercial
purposes, including transactions that contain Company data, provided that no
Company identifying information is included in such data, and provided further
that the data may not be manipulated in any way to individually separate the
transactions that comprise the data or to identity Company as a participant in
the transactions comprising the data. Except as provided above, Assuming that
Company obtains appropriate customer authorization, Company will have the right
to use all data generated by and through its customers for the Products,
including Product transaction data (whether or not such transactions flow
through the BuildNet System) in any manner it deems appropriate.
(e) Security. BuildNet will use commercially reasonable efforts to (i)
ensure the security of individual customer account, pricing, purchasing, and
credit information; and (ii) provide adequate security around the BuildNet
System and to protect proprietary system design, content, and functionality from
unauthorized use or access by third parties.
(f) Equitable Relief. The parties acknowledge that a breach of any
portion of this Article VII would cause the non-disclosing party irreparable
harm for which monetary damages would be inadequate. Accordingly, the
non-disclosing party shall be entitled to seek injunctive or other equitable
relief to remedy any threatened or actual breach of any portion of this Section
13 by the other party.
14. Trademarks.
(a) Right to Use Company Trademarks, Tradenames and Logos. Company
hereby grants to BuildNet the nonexclusive right and license to use the Company
name, trade names, trademarks, logo and service marks (collectively referred to
as the "Company Marks") solely in connection with the use and promotion of the
BuildNet System. Either separately or in conjunction with any Company Mark,
BuildNet agrees to include any notices that Company may reasonably request when
using the Company Marks. BuildNet agrees that any use of the Company Marks shall
be subject to review and approval in advance by Company. Company shall retain
the right, in its sole discretion, to demand immediate modification, revision or
cessation of a Company Mark in the event that Company determines that the
Company Mark is being used improperly. Without limiting the generality of the
foregoing, BuildNet shall not use a Company Mark in a manner that, in Company's
determination, may cause embarrassment to Company or may damage Company's
reputation.
(b) Ownership of Company Marks. All Company Marks shall remain the
exclusive property of Company.
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(c) Right to Use BuildNet Trademarks, Tradenames and Logos. BuildNet
hereby grants to Company the nonexclusive right and license to use the BuildNet
name, trade names, trademarks, logo and service marks (collectively referred to
as the "BuildNet Marks") solely in connection with the use and promotion of the
BuildNet System. Either separately or in conjunction with any BuildNet Mark,
Company agrees to include any notices that BuildNet may reasonably request when
using the BuildNet Marks. Company agrees that any use of the BuildNet Marks
shall be subject to review and approval in advance by BuildNet. BuildNet shall
retain the right, in its sole discretion, to demand immediate modification,
revision or cessation of a BuildNet Mark in the event that BuildNet determines
that the BuildNet Mark is being used improperly. Without limiting the generality
of the foregoing, Company shall not use a BuildNet Mark in a manner that, in
BuildNet's determination, may cause embarrassment to BuildNet or may damage
BuildNet's reputation.
(d) Ownership of BuildNet Marks. All BuildNet Marks shall remain the
exclusive property of BuildNet.
15. Miscellaneous.
(a) Notices. All notices and other communications required or permitted
under this Agreement shall be in writing to the addresses set forth above and
shall be deemed given when delivered personally, or five (5) days after being
deposited in the United States mail, return receipt requested and postage
prepaid, or on the next day when delivered via next day service by an overnight
courier with proof of receipt. Any party may change the address to which notices
hereunder are to be sent to it by giving written notice of such change of
address in the manner herein provided for giving notice.
(b) No Joint Venture. Nothing contained in this Agreement shall be
construed so as to constitute either party as a partner or joint venturer or
agent of the other party, or to require either party to share profits, gains or
ownership interest in or from any property or activities. No party shall be
liable for the debts, accounts, obligations or other liabilities of the other
party, including without limitation, the other party's obligation to withhold
payroll and income taxes.
(c) Entirety. This Agreement together with all exhibits that are
incorporated herein by reference, embodies the entire Agreement and except as
otherwise contemplated herein, supersedes all prior agreements, written and
oral, relating to the subject matter hereof.
(d) Amendment. Amendments to this Agreement, including any exhibit
hereto, shall be enforceable only if they are in writing and are signed by
authorized representatives of both parties.
(e) Waiver. The failure of any party hereto to enforce any provision of
this Agreement, or any right with respect thereto, or failure to exercise any
election provided for herein, shall in no way be considered a waiver of such
provision, right, or election, or in any way affect the validity of this
Agreement. The failure of any party hereto to enforce any provision, right or
election shall not prejudice such party from later enforcing or exercising that
provision, right, or election which it has under this Agreement.
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(f) Severability. In the event that any provision of the Agreement or
any part thereof is held by a court to be invalid, the remainder of this
Agreement shall be binding on the parties and construed as if the invalid
provisions or parts thereof have been deleted from this Agreement.
(g) Assignment. Neither party may assign or subcontract its rights or
obligations under this Agreement, either in whole or in part, without the prior
written consent of the other party, which shall not be unreasonably withheld,
and any attempt to do so shall be void and of no effect.
(h) Execution in Counterpart. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original.
(i) Governing Law and Arbitration. This Agreement will be governed by
the laws of the State of North Carolina without regard to its conflicts of law
provisions. Any dispute or claim arising out of, or in connection with, this
Agreement shall be finally settled by binding arbitration in Raleigh, North
Carolina, in accordance with N.C. Gen. Stat. ss. 1-567.1 et seq. (the "Uniform
Arbitration Act") and the then-current rules and procedures of the American
Arbitration Association by one (1) arbitrator appointed by the American
Arbitration Association. The arbitrator shall apply the law of the State of
North Carolina, without reference to rules of conflict of law or statutory rules
of arbitration, to the merits of any dispute or claim. Judgment on the award
rendered by the arbitrator may be entered in any court of competent
jurisdiction. The parties agree that, any provision of applicable law
notwithstanding, they will not request, and the arbitrator shall have no
authority to award punitive or exemplary damages against any party.
(j) Force Majeure. Except for the payment of money, failure of either
party to perform, in whole or in part, when due, if occasioned in whole or in
part by any act of God, act of governmental authority, fire, explosion, shortage
or failure of supply of materials or labor (including without limitation the
loss, illness, injury or incapacity of key employees), or any other occurrence,
act, course or thing beyond the reasonable control of that party, shall excuse
that party from its obligation to perform when due. The applicable party shall
have no obligations or liability in any amount arising out of or in connection
with such failure.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
[ ] BUILDNET, INC.
By: ___________________________
Name:__________________________ By:_________________________
Title:_________________________
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EXHIBIT A
1. Description of Major Product Category.
2. Products to be provided by Company under the Major Product Category.
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EXHIBIT 10.13
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN
JURISDICTION. THIS WARRANT AND SUCH UNDERLYING SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
OFFERED, SOLD, PLEDGED, HYPOTHECATED, RENOUNCED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS AND IN THE ABSENCE OF COMPLIANCE WITH
APPLICABLE LAWS OF ANY FOREIGN JURISDICTION, OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IN NOT REQUIRED AND SUCH
FOREIGN JURISDICTION LAWS HAVE BEEN SATISFIED.
BUILDNET, INC.
BUILDER INCENTIVE SERIES C PREFERRED STOCK
PURCHASE WARRANT AGREEMENT
This Series C Preferred Stock Purchase Warrant Agreement (the
"Warrant") is entered into as of this ____ day of ________________ (the
"Effective Date") by and between Buildnet, Inc., a North Carolina corporation
(the "Company") and ________________________________, or permitted assigns (the
"Holder").
RECITALS
WHEREAS, the Holder is engaged in business in the commercial and/or
residential construction industry; and
WHEREAS, the Holder has purchased Series C Preferred Stock, par value
$0.01 per share, of the Company (the "Series C Stock") pursuant to that Series C
Preferred Stock Purchase Agreement, dated October 29, 1999, by and among the
Company and the Purchasers referenced therein; and
WHEREAS, the Holder desires to perform certain promotional actions on
behalf of the Company in connection with its participation in the Buildnet
electronic commerce application and network (the "BuildNet System"); and
WHEREAS, the Company desires to grant Holder a position on the Builder
Advisory Council of the Company, where Holder will serve as a consultant to the
Company; and
WHEREAS, the Company desires to provide Holder with the ability to
purchase additional shares of Series C Stock in exchange for Holder's active
participation on the Builder Advisory Council and promotion of the Buildnet
System as further outlined herein.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and conditions contained herein, the parties hereby mutually agree as follows.
1. Issuance of Warrant; Vesting Conditions.
1.1 Issuance. Subject to the terms and conditions set forth
herein, the Company hereby grants to Holder the right to purchase up to 100,000
shares (the "Base Shares") (which number of shares is subject to adjustment as
described below) of the Company's Series C Stock (the "Warrant Stock"). This
Warrant shall become exercisable based on Holder meeting the milestones as set
forth below. In all cases, achievement of the milestones below will be based on
Holder's active participation in helping to promote the BuildNet System. The
number of shares of Warrant Stock exercisable pursuant to the terms of this
Warrant may increase incrementally upon the satisfaction, as determined in the
reasonable discretion of the Company, of the revenue requirements outlined on
Exhibit A attached hereto, which is incorporated herein. Notwithstanding the
foregoing, in no event shall the number of shares of Warrant Stock exercisable
pursuant to this Warrant exceed 1,000,000 (subject to adjustment as described
herein).
The Warrant Stock shall become exercisable upon completion, as
determined in the Company's reasonable discretion, of the following promotional
milestones.
(a) Twenty-five percent (25%) of the Base Shares of
Warrant Stock shall be immediately exercisable upon the Effective Date
of this Warrant, provided that Holder shall have agreed to continuously
promote the Company and the "BuildNet Enabled" logo (subject to the
terms of the Company's Trademark Usage Guidelines, as amended from time
to time) by (i) using the "BuildNet Enabled" logo prominently in
Holder's promotional literature, (ii) displaying the "BuildNet Enabled"
logo at all trade shows and educational events where appropriate and
permissible in which Holder participates, (iii) presenting the Company,
or allowing the Company to have a substantial presence, at all
Holder-sponsored events where appropriate and permissible, (iv)
allowing the Company to use Holder's logo on marketing material and
trade show exhibits, and (v) coordinating promotional access with the
public relations department of the Company, including, but not limited
to, granting access to positive press interviews and magazine profiles;
(b) Twenty-five percent (25%) of the Base Shares of
Warrant Stock shall become exercisable upon completion of BuildNet
enabling of Holder's purchasing, payment and scheduling software
systems;
(c) Twenty-five percent (25%) of the Base Shares of
Warrant Stock shall become exercisable when Holder has reasonably
assisted the Company in seeking participation of suppliers in the
BuildNet System by (i) providing the Company with a list of suppliers
with whom Holder desires the Company to do business (the "Suppliers"),
(ii) sending a letter to each of these Suppliers requesting that they
BuildNet enable their systems, and (iii) reasonably assisting the
Company in its efforts to pursue contractual arrangements with such
Suppliers.
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(d) Twenty-five percent (25%) of the Base Shares of
Warrant Stock shall become exercisable when Holder has reasonably
assisted the Company in seeking participation of subcontractors in the
BuildNet System by (i) providing the Company with a list of
subcontractors with whom Holder desires the Company to do business (the
"Subcontractors"), (ii) sending a letter to each of these
Subcontractors requesting that they BuildNet enable their systems, and
(iii) reasonably assisting the Company in its efforts to pursue
contractual arrangements with such Subcontractors.
In each case, vesting of the Base Shares will be determined in the reasonable
discretion of the Company, and the Company will notify the Holder as each
portion of the Base Shares becomes vested. In the event of any disagreement as
to the vesting of any Base Shares, the parties will attempt to resolve such
disagreement in good faith through discussions between executive officers of the
parties. In the event no resolution is agreed to by the parties within thirty
(30) days after the initial notice of such disagreement by one party to the
other, either party may refer the matter for resolution by binding arbitration
in accordance with the procedures set forth on Exhibit B attached hereto.
Notwithstanding the foregoing, the Base Shares of Warrant Stock
referenced in Sections 1.1(b), 1.1(c) and 1.1(d) above shall fully vest if the
Company has not BuildNet enabled the JD Edwards World Source Company's
homebuilder management software (the "JD Edwards System") within eighteen (18)
months of the Effective Date hereof, provided that the Holder has used its
commercially reasonable efforts to comply with the vesting conditions set forth
in this Section 1.1.
1.2 Term. The shares of Warrant Stock issuable upon exercise
of this Warrant are hereinafter referred to as the "Shares." This Warrant shall
be exercisable at any time and from time to time for a period of three (3) years
from the date hereof.
1.3. Exercise Price. The exercise price (the "Warrant Price")
per share for which all or any of the Shares may be purchased pursuant to the
terms of this Warrant shall be equal to $4.40, subject to adjustment as
described below.
2. Adjustment of Warrant Price, Number and Kind of Shares. The Warrant
Price and the number and kind of securities issuable upon the exercise of this
Warrant shall be subject to adjustment from time to time and the Company agrees
to provide notice upon the happening of certain events as follows.
2.1 Dividends in Stock Adjustment. In case at any time or from
time to time on or after the date hereof the holders of the Warrant Stock of the
Company (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received, or, on or after the record
date fixed for the determination of eligible shareholders, shall have become
entitled to receive, without payment therefor, other or additional securities or
other property (other than cash) of the Company by way of dividend or
distribution, then and in each case, the holder of this Warrant shall, upon the
exercise hereof, be entitled to receive, in addition to the number of shares of
Warrant Stock receivable thereupon, and without payment of any additional
consideration therefor, the amount of such other or additional securities or
other property (other than cash) of the Company which such
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holder would hold on the date of such exercise had it been the holder of record
of such Warrant Stock on the date hereof and had thereafter, during the period
from the date hereof to and including the date of such exercise, retained such
shares and/or all other additional securities or other property receivable by it
as aforesaid during such period, giving effect to all adjustments called for
during such period by this Section 2.
2.2. Reorganization, Reclassification, Merger, Consolidation
or Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Series C Stock or the Common
Stock of the Company), or sell, transfer or otherwise dispose of all or
substantially all its property, assets or business to another corporation and,
pursuant to the terms of such reorganization, reclassification, merger,
consolidation or disposition of assets, shares of common stock of the successor
or acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of the Series C Stock or Common Stock of the Company, then Holder
shall have the right thereafter to receive, upon exercise of this Warrant and
payment of the Warrant Price then in effect, the number of shares of common
stock of the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
to which the holder would have been entitled upon such consummation of such
event if such holder had exercised this Warrant immediately prior to such event.
In case of any such reorganization, reclassification, merger, consolidation or
disposition of assets, the successor or acquiring corporation (if other than the
Company) shall expressly assume the due and punctual observance and performance
of each and every covenant and condition of this Warrant to be performed and
observed by the Company and all the obligations and liabilities hereunder,
subject to such modifications as may be deemed appropriate (as determined by
resolution of the Board of Directors of the Company) in order to provide for
adjustments of the Warrant Price and the number and kind of securities issuable
upon the exercise of this Warrant which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 2. For purposes of
this Section 2.2, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 2.2 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
2.3 Stock Splits and Reverse Stock Splits. If at any time on
or after the date hereof the Company shall subdivide its outstanding shares of
Warrant Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall thereby be proportionately reduced
and the number of shares receivable upon exercise of this Warrant shall thereby
be proportionately increased; and, conversely, if at any time on or after the
date hereof the outstanding
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number of shares of Warrant Stock shall be combined into a smaller number of
shares, the Warrant Price in effect immediately prior to such combination shall
thereby be proportionately increased and the number of shares receivable upon
exercise of this Warrant shall thereby be proportionately decreased.
2.4 Conversion or Redemption of Warrant Stock. If at the time
of any exercise of this Warrant there are no other shares of Warrant Stock
outstanding (such shares having been converted or redeemed), this Warrant shall
be exercisable for Common Stock instead of Warrant Stock in the same amounts,
for the same prices and on the same terms, and all references herein to "Warrant
Stock" shall be changed to refer to "Common Stock."
3. No Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with any subscription hereunder. In lieu of any fractional
shares that would otherwise be issuable, the Company shall pay cash equal to the
product of such fraction multiplied by the fair market value of one share of
Warrant Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
4. No Shareholder Rights. This Warrant as such shall not entitle its
holder to any of the rights of a shareholder of the Company until the holder has
exercised this Warrant in accordance with Section 6 or Section 7 hereof.
5. Reservation of Stock. The Company covenants that, during the period
this Warrant is exercisable, the Company will use its best efforts to reserve
from its authorized and unissued Series C Stock a sufficient number of shares to
provide for the issuance of Warrant Stock upon the exercise of this Warrant. The
Company agrees that its issuance of this Warrant shall constitute full authority
to its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Warrant Stock upon
the exercise of this Warrant. In the event that insufficient shares of Series C
Stock are authorized to accommodate the full exercise of this Warrant, then this
Warrant shall, to that extent, become exercisable for shares of the Company's
Common Stock.
6. Exercise of Warrant. This Warrant may be exercised by Holder by the
surrender of this Warrant at the principal office of the Company, accompanied by
payment in full of the purchase price of the Shares purchased thereby, as
described above. This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person or entity entitled to receive the Shares or other
securities issuable upon such exercise shall be treated for all purposes as the
holder of such shares of record as of the close of business on such date. As
promptly as practicable, the Company shall issue and deliver to the person or
entity entitled to receive the same a certificate or certificates for the number
of full shares of Warrant Stock issuable upon such exercise, together with cash
in lieu of any fraction of a share as provided above. The shares of Warrant
Stock issuable upon exercise hereof shall, upon their issuance, be fully paid
and nonassessable.
7. Net Issue Election.
5
<PAGE> 6
7.1 Right to Convert. In addition to and without limiting the
rights of the Holder under the terms of this Warrant, the Holder shall have the
right to convert this Warrant or any portion hereof (the "Conversion Right")
into shares of Warrant Stock as provided in this Section 7, subject to the
restrictions set forth in subsection 7.3 hereof. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the Holder (without
payment by the Holder of any cash or other consideration) that number of shares
of Warrant Stock equal to the quotient obtained by dividing (x) the value of
this Warrant (or the specified portion hereof) on the Conversion Date (as
defined in subsection 7.2 hereof ), which value shall be determined by
subtracting (A) the aggregate Warrant Price of the Converted Warrant Shares
immediately prior to the exercise of the Conversion Right from (B) the aggregate
fair market value of the Converted Warrant Shares issuable upon exercise of this
Warrant (or the specified portion hereof) on the Conversion Date (as herein
defined) by (y) the fair market value of one share of Warrant Stock on the
Conversion Date (as herein defined). No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Holder an amount in cash equal to the fair
market value of the resulting fractional share on the Conversion Date (as herein
defined).
7.2 Method of Exercise. The Conversion Right may be exercised
by the Holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the Holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant that are being surrendered (referred to in subsection
7.1 hereof as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective immediately upon surrender of this Warrant
(the "Conversion Date"). Certificates for the shares of Warrant Stock issuable
upon exercise of the Conversion Right (or any other securities deliverable in
lieu thereof under subsection 2.1) shall be issued as of the Conversion Date and
shall be delivered to the Holder immediately following the Conversion Date.
7.3 Restrictions on Conversion Right. In the event that, in
connection with or following a public offering of the Company's Common Stock,
the Conversion Right contained herein would, at any time this Warrant remains
outstanding, be deemed by the Company's independent public accountants to
trigger a charge to the Company's earnings for financial reporting purposes,
then the Conversion Right as specified in section 7.1 shall automatically
terminate upon the Company's written notice to the Holder of such adverse
accounting treatment.
7.4 Determination of Fair Market Value. For purposes of this
Section 7, fair market value (the "Market Price") of a share of Common Stock or
Warrant Stock as of a particular date (the "Determination Date") shall mean the
average of the closing prices of such security's sales on the principal
securities exchanges on which such security may at the time be listed, or, if
there has been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such security is not so listed, the average of the last
sale prices quoted in the Nasdaq System, or if on any day such security is not
quoted in the Nasdaq System, the average of the highest bid and
6
<PAGE> 7
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of five (5)
days consisting of the day prior to the day as of which "Market Price" is being
determined and the five (5) consecutive business days prior to such day. If at
any time such security is not listed on any securities exchange or quoted in the
NASDAQ System or the over-the-counter market, the "Market Price" shall be the
fair value thereof as determined in good faith by the Company's Board of
Directors.
8. Certificate of Adjustment. Whenever the Warrant Price or number or
type of securities issuable upon exercise of this Warrant is adjusted, as herein
provided, the Company shall promptly deliver to the record holder of this
Warrant a certificate of an officer of the Company setting forth the nature of
such adjustment and a brief statement of the facts requiring such adjustment.
9. Notice of Proposed Transfers. Prior to any proposed transfer of this
Warrant or the shares of Warrant Stock received on the exercise of this Warrant
(the "Securities"), unless there is in effect a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), covering the proposed
transfer, the Holder thereof shall give written notice to the Company of such
Holder's intention to effect such transfer. Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall, if the Company so requests, be accompanied (except in transactions in
compliance with Rule 144) by either (i) a written opinion of legal counsel who
shall be reasonably satisfactory to the Company addressed to the Company and
reasonably satisfactory in form and substance to the Company's counsel, to the
effect that the proposed transfer of the Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Securities Exchange Commission (the "Commission") to the effect that the
transfer of such Securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the Holder of the Securities shall be entitled to transfer
the Securities in accordance with the terms of the notice delivered by the
Holder to the Company; provided, however, no such registration statement or
opinion of counsel shall be necessary for a transfer by a Holder to any
affiliate of such Holder, or a transfer by a Holder which is a partnership to a
partner of such partnership or a retired partner of such partnership who retires
after the date hereof, or to the estate of any such partner or retired partner
or the transfer by gift, will or intestate succession of any partner to his
spouse or lineal descendants or ancestors, if the transferee agrees in writing
to be subject to the terms hereof to the same extent as if such transferee were
the original Holder hereunder. Each certificate evidencing the Securities
transferred as above provided shall bear the appropriate restrictive legend set
forth above, except that such certificate shall not bear such restrictive legend
if in the opinion of counsel for the Company such legend is not required in
order to establish compliance with any provisions of the Securities Act.
10. Replacement of Warrants. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of the Warrant, and in the case of any such loss, theft or
destruction of the Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company, and reimbursement to
the Company of all reasonable expenses incidental thereto, and upon surrender
and cancellation of the Warrant if mutilated, the Company will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
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<PAGE> 8
11. Miscellaneous. This Warrant shall be governed by the laws of the
State of North Carolina. The headings in this Warrant are for purposes of
convenience of reference only, and shall not be deemed to constitute a part
hereof. The invalidity or unenforceability of any provision hereof shall in no
way affect the validity or enforceability of any other provisions. All notices
and other communications from the Company to the holder of this Warrant shall be
delivered personally or mailed by first class mail, postage prepaid, to the
address furnished to the Company in writing by the last holder of this Warrant
who shall have furnished an address to the Company in writing, and if mailed
shall be deemed given three (3) days after deposit in the U.S. Mail.
12. Taxes. The Company shall pay all issue taxes and other governmental
charges (but not including any income taxes of a Holder) that may be imposed in
respect of the issuance or delivery of the Shares or any portion thereof.
13. Amendment. Any term of this Warrant may be amended with the written
consent of the Company and the Holder. Any amendment effected in accordance with
this Section 13 shall be binding upon the Holder of this Warrant, each future
holder of such Warrant, and the Company.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
Effective Date as first set forth above.
COMPANY: BUILDNET, INC.
By: DRAFT
----------------------------
Name: __________________________
Title: _________________________
HOLDER: _________________________________
[Printed or Typed Name of Holder]
By: DRAFT
----------------------------
Name: __________________________
Title: _________________________
8
<PAGE> 9
EXHIBIT A (Option 1)
TRANSACTION REQUIREMENTS
The number of shares of Warrant Stock shall increase by 1,000 shares
for every $1,000,000 in "Transactions" generated by Holder or its Subcontractors
processed through the BuildNet System during the first year following the
Company's completion of BuildNet enabling the JD Edwards System. The Company
will notify the Holder promptly upon such completion.
The number of shares of Warrant Stock shall increase by 500 shares for
every $1,000,000 in "Transactions" generated by Holder or its Subcontractors
processed through the BuildNet System during the second year following the
Company's completion of BuildNet enabling the JD Edwards System.
For purposes of this Warrant, "Transactions" shall mean purchase
transaction amounts actually processed by the Company's BuildNet System for a
given period, to the extent that such purchase transaction amounts are taken
into account in the calculation of transaction fees for the Company for the use
of the BuildNet System.
Notwithstanding the foregoing, in no event shall this Warrant be
exercisable for shares of Warrant Stock in excess of 1,000,000.
The Company will provide quarterly reports to the Holder, within
forty-five (45) days after the end of the Company's fiscal quarter, as to such
Holder's Adjusted Transaction Revenue for such quarter and the corresponding
increase in number of Warrant Shares that have vested. In each case, calculation
of the Holder's Adjusted Transaction Revenue will be determined in the
reasonable discretion of the Company. In the event of any disagreement as to the
calculation of the Holder's Adjusted Transaction Revenue, the parties will
attempt to resolve such disagreement in good faith through discussions between
executive officers of the parties. In the event no resolution is agreed to by
the parties within thirty (30) days after the initial notice of such
disagreement by one party to the other, either party may refer the matter for
resolution by binding arbitration in accordance with the procedures set forth on
Exhibit B attached hereto.
EXHIBIT A (Option 2)
TRANSACTION REQUIREMENTS
The number of shares of Warrant Stock shall increase by 1,000 shares
for every $1,000,000 in "Transactions" generated by Holder or its Subcontractors
processed through the BuildNet System during the first year following the
Company's completion of BuildNet enabling of Holder's purchasing, payment and
scheduling software systems.
The number of shares of Warrant Stock shall increase by 500 shares for
every $1,000,000 in "Transactions" generated by Holder or its Subcontractors
processed through the BuildNet System during the second year following the
Company's completion of BuildNet enabling of Holder's purchasing, payment and
scheduling software systems.
For purposes of this Warrant, "Transactions" shall mean purchase
transaction amounts actually processed by the Company's BuildNet System for a
given period, to the extent that such purchase transaction amounts are taken
into account in the calculation of transaction fees for the Company for the use
of the BuildNet System.
Notwithstanding the foregoing, in no event shall this Warrant be
exercisable for shares of Warrant Stock in excess of 500,000.
The Company will provide quarterly reports to the Holder, within
forty-five (45) days after the end of the Company's fiscal quarter, as to such
Holder's Adjusted Transaction Revenue for such quarter and the corresponding
increase in number of Warrant Shares that have vested. In each case, calculation
of the Holder's Adjusted Transaction Revenue will be determined in the
reasonable discretion of the Company. In the event of any disagreement as to the
calculation of the Holder's Adjusted Transaction Revenue, the parties will
attempt to resolve such disagreement in good faith through discussions between
executive officers of the parties. In the event no resolution is agreed to by
the parties within thirty (30) days after the initial notice of such
disagreement by one party to the other, either party may refer the matter for
resolution by binding arbitration in accordance with the procedures set forth on
Exhibit B attached hereto.
<PAGE> 10
EXHIBIT B
ARBITRATION PROCEDURES
Any controversy, claim or dispute to be resolved under these procedures
shall be resolved through binding arbitration pursuant to the AAA Commercial
Arbitration Rules (the "Arbitration Rules") in effect at the time arbitration is
initiated by a party. The Arbitration Rules may be obtained from AAA through its
site on the World Wide Web at www.adr.org. Arbitration may be initiated by
providing the other party with written notice of its intention to arbitrate (the
"Demand") the dispute. The Demand shall be in the form set forth in the
Arbitration Rules. Within five days from the date the Demand is provided to the
opposing party, the party seeking arbitration shall file its Demand with the AAA
in the manner set forth in the Arbitration Rules. Responses to the Demand, such
as by Answer or Counterclaim, shall be allowed as prescribed by the Arbitration
Rules. All questions concerning the validity, enforceability, or scope of this
arbitration provision or the entire Warrant shall be resolved by the
arbitrator[s] selected as prescribed by the Arbitration Rules.
In the event that any party's claim exceeds one hundred thousand
dollars ($100,000.00) in value, exclusive of interest and attorney's fees, the
dispute shall be heard and determined by three (3) arbitrators. Where the amount
of a party's claim is less that $100,000.00, the dispute shall be heard by one
(1) arbitrator. Each arbitrator shall be a member of the Bar of the State of
North Carolina, actively engaged in the practice of law for at least ten (10)
years. Other considerations regarding arbitrators, such as the process for their
selection, shall be decided according to the Arbitration Rules. The arbitration
shall take place in Raleigh, North Carolina. The arbitrator[s] may determine how
the costs and expenses of the arbitration will be allocated between the parties,
but, absent a showing of bad faith (as defined by the arbitrator[s]), attorneys'
fees shall not be awarded.
This Warrant, including all provisions related to arbitration and
mediation, shall be governed by and interpreted in accordance with the
substantive laws of the State of North Carolina. The arbitrators may award any
relief or damages allowed by North Carolina law, whether legal or equitable,
except for such relief or damages expressly excluded by this Warrant or
arbitration provision. The parties acknowledge that this Warrant evidences a
transaction involving interstate commerce. The Federal Arbitration Act ("FAA"),
9 U.S.C. ss.ss. 1-16, shall govern the interpretation, enforcement, and
proceedings brought pursuant to the arbitration provision in this Warrant.
Either party may apply to the arbitrator[s] for injunctive or similar
relief until an arbitration award is rendered or the controversy is otherwise
resolved. Either party may also, without waiving any remedy under this Warrant,
seek from any court having jurisdiction, any interim or provisional relief that
is necessary to protect the rights or property of that party, pending the
establishment of the arbitral tribunal. Once selected, the arbitrator[s] shall
be empowered to dissolve or nullify any such interim or provisional relief
established by a court.
<PAGE> 11
Consistent with the expedited nature of arbitration, each party will,
upon written request to the other party, promptly provide the requesting party
with copies of documents relevant to the issues raised by any claim or
counterclaim in the arbitration. Any dispute regarding discovery, or the
relevance or scope thereof, shall be determined by the arbitrator[s], which
determination shall be conclusive. The arbitrator[s] may penalize or remedy
discovery abuses to the extent permitted by Rule 37 of the North Carolina Rules
of Civil Procedure. All discovery shall be completed within forty-five days
following the appointment of the arbitrator[s].
At the request of a party, the arbitrator[s] shall have the discretion
to order examination by deposition of witnesses to the extent the arbitrator[s]
deems such discovery relevant and appropriate. Depositions shall be limited to a
maximum of three (3) per party and shall be held within thirty (30) days of the
making of a request. Additional depositions may be scheduled only with the
permission of the arbitrator[s] and for good cause shown. Each deposition shall
be limited to one day's duration. All objections are reserved for the
arbitration hearing except for objections based on privilege or similar rule
allowed by North Carolina law.
In addition to the discovery processes outlined by the Arbitration
Rules, the arbitrator[s] shall act under the authority of N.C. Gen. Stat. ss.
1-567.8 ("Witnesses; subpoenas; depositions"). To the extent that ss. 1-567.8
applies to the production of documents and other tangible things by a non-party
witness in arbitration, the party seeking such production shall not be
prejudiced if the non-party witness cannot be lawfully compelled to produce
requested documents or materials prior to the arbitration hearing. Therefore, if
a nonparty witness cannot be compelled to produce documents or other tangible
things prior to the arbitration hearing, the parties shall not be disqualified
from using, as evidence or otherwise, materials produced at the arbitration
hearing by nonparty witnesses. The arbitrator[s] shall allow a period, of a
duration fair to the parties, for review of the materials produced by the
nonparty witness.
The arbitrator[s] will have no authority to award punitive damages or
to arbitrate claims on a class action basis. Further, the arbitrator[s] shall
have no authority to decide claims brought by nonparties to this Warrant, and
the arbitrator[s] may not consolidate or join the claims of non-parties who may
have similar claims. Judgment upon any award rendered by the arbitrator[s] may
be entered in any court having competent jurisdiction. The arbitration
provisions contained herein shall survive the satisfaction of the contractual
obligations of this Warrant and its termination. If any portion of this
arbitration provision is deemed invalid or unenforceable under the law of North
Carolina or the FAA, it should not invalidate the remaining portions of this
arbitration provision.
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<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of May, 1999, between BUILDNET INC., a
corporation organized and existing under the laws of the State of North Carolina
("BuildNet") and Nathan Morton ("Employee").
WHEREAS, Employee is currently employed by BuildNet as its Chairman of
the Board; and
WHEREAS, both BuildNet and Employee desire to continue such employment
relationship and are willing to do so upon the terms and conditions hereinafter
set forth; and
WHEREAS, the parties hereby acknowledge that the goodwill, continued
patronage, names, addresses and specific business requirements of BuildNet's
clients and customers, and the designs, procedures, systems, strategies,
business methods and know-how of BuildNet, having been acquired through
BuildNet's efforts and/or the expenditure of considerable time and money, are
among the principal assets of BuildNet; and
WHEREAS, the parties hereby acknowledge that as a result of the
position in which Employee will be employed by BuildNet, Employee has and will
develop special skills and knowledge peculiar to BuildNet's business, whereby
Employee has become and will continue to become, through Employee's employment
with BuildNet, acquainted with the identities of the clients and customers of
BuildNet, and has acquired and will continue to acquire access to the techniques
of BuildNet in carrying on its business, as well as other confidential and
proprietary information; and
WHEREAS, the parties hereto acknowledge that the covenants set forth in
Sections 8 through 11 (the "Covenants") of this Agreement are necessary for the
reasonable and proper protection of BuildNet's confidential and proprietary
information (as defined herein), customer relationships, and the goodwill of
BuildNet's business, and that such Covenants constitute a material portion of
the consideration for Employee's employment hereunder;
NOW, THEREFORE, in consideration of the premises and mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt and legal sufficiency of which are hereby acknowledged, the parties
agree as follows.
1. Position; Employment. BuildNet agrees to employ Employee, and
Employee agrees to be employed, as Chairman of the Board of BuildNet, or in such
other position as the Board of Directors may from time to time reasonably
assign. The employment of Employee shall commence as of the date of this
Agreement and continue for the period beginning on the date hereof and ending as
provided in Section 7 hereof.
2. Relocation; Performance of Duties. Employee agrees to use his best
efforts to relocate his residence to the Raleigh/Durham area as soon as is
practicable. Employee shall devote sufficient time to adequately discharge his
duties as Chairman of the Board, and in any event Employee shall devote more
time to BuildNet than to any other company for which Employee performs services,
it being understood that Employee will devote his best efforts, skill,
<PAGE> 2
ability and attention to the business and affairs of BuildNet. Employee agrees
that during the term of his employment, Employee will not be employed by or
perform services for any new company for which he is not currently employed by
or performing services for as of the date hereof, without the prior consent of
the Board of Directors of BuildNet. In his capacity as Chairman, Employee shall
be one of the executive officers of BuildNet (or any successor, or entity
directly or indirectly controlling BuildNet), and his duties in such position
shall be consistent with that status as a senior executive officer, and he shall
be accorded the benefits, facilities, staff assistance, perquisites and other
privileges accorded such executives.
In the performance of his responsibilities as Chairman of the Board,
Employee shall be subject to all of BuildNet's policies, rules and regulations
applicable to its employees of comparable status. Employee shall report directly
to and be subject to the direction of the Chief Executive Officer and Board of
Directors of BuildNet. Employee shall perform the duties consistent with
Employee's knowledge, experience, and position and the duties of BuildNet
employees of comparable status. Employee shall have such other duties and
responsibilities consistent with his position as the Board of Directors of
BuildNet shall from time to time reasonably assign to him. In performing such
duties, Employee shall be subject to and shall substantially abide by all
policies and procedures developed by BuildNet.
3. Compensation.
(a) Base Salary. In consideration of Employee's services hereunder,
BuildNet shall pay Employee a minimum annual base salary of Four Hundred
Thousand Dollars ($400,000) per annum, less applicable statutory deductions,
payable in accordance with BuildNet's normal payroll practices (the "Base
Salary"). Employee's Base Salary shall be reviewed by the Board of Directors of
BuildNet on an annual basis and may be increased as the Board of Directors of
BuildNet deems appropriate in its sole discretion.
(b) Bonus. Employee may receive a bonus each calendar year during his
continued employment comparable to bonuses paid to other similarly situated
officers of BuildNet and as determined by the Board of Directors in its sole
discretion.
4. Stock Options. Upon the commencement of Employee's employment by
BuildNet, BuildNet shall grant to Employee incentive stock options to purchase
up to an aggregate of Two Hundred Fifty Thousand (250,000) shares of the Common
Stock of BuildNet, with an exercise price equal to the fair market value of the
Common Stock of BuildNet at the time of such grant. Options to purchase all such
shares shall begin to vest upon the effective date of employment in monthly
installments over four (4) years. Such options shall become fully exercisable in
the event of (a) a sale of all or substantially all the assets of BuildNet or a
merger or consolidation involving BuildNet in which the shareholders of BuildNet
prior to such transaction own less than a majority of the voting securities of
the entity surviving such transaction, or (b) any transaction or series of
related transactions pursuant to which a person, entity or persons or entities
under common control or acting as a group within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, as amended, acquires securities
constituting at least a majority of the voting power of BuildNet.
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<PAGE> 3
5. Employee Benefits. During the Term of this Agreement, Employee shall
be eligible to receive and/or participate in all employee benefits that are
offered by BuildNet to its employees generally.
6. Reimbursement of Expenses. BuildNet shall reimburse Employee for
reasonable and documented expenses associated with Employee's relocation to the
Raleigh/Durham area, including, without limitation (a) fees paid to any
relocation service; (b) moving expenses, which shall include packing and moving
of household items and up to sixty (60) days' temporary living expenses for
Employee and his family; and (c) reasonable closing costs incurred by Employee
in connection with the sale of his home in Dallas, Texas (including but not
limited to sales commissions not to exceed six percent (6%) of the selling
price) and the purchase of a home in the Raleigh/Durham area. Notwithstanding
the provisions of this Section 6, no expense will be reimbursed by BuildNet
without prior consent of the Chief Executive Officer of BuildNet if such expense
is greater than $5,000.
7. Term and Termination. The term of the Employee's employment under
this Agreement (the "Term of Employment") shall commence as of the date hereof
and continue through the date four (4) years from such date, unless earlier
terminated in accordance with the provisions of this Agreement. The Term of
Employment shall automatically be extended for successive one (1) year terms
after the initial four-year term unless either party gives notice of nonrenewal
at least ninety (90) days prior to the end of the then-current term. This
Agreement shall terminate prior to the expiration of the Term of Employment upon
the occurrence of any one of the following events.
(a) Cause. BuildNet may terminate this Agreement, at any time,
with or without Cause, and with or without prior notice to Employee, in which
event all payments under this Agreement shall cease, except as provided in
Section 7(d) below. The term "Cause" as used herein shall mean (i) Employee, in
carrying out his duties hereunder, has been guilty of gross negligence or
willful and wanton misconduct which in either case results in material harm to
the financial condition, business, assets, or prospects of BuildNet; (ii) the
conviction of, or the entering of a plea of no contest by, Employee for a felony
or crime involving moral turpitude, (iii) any act involving dishonesty in the
performance of Employee's duties hereunder, including, without limitation,
fraud, misappropriation or embezzlement, (iv) any material breach of this
Agreement by Employee, which failure cannot be cured or shall not have been
cured within thirty (30) days after receipt by Employee of written notice from
BuildNet specifying in reasonable detail the nature of such breach; or (v)
Employee fails to carry out reasonable directions (consistent with his position
as set forth in Section 1 hereof and the provisions of this Agreement) of the
Board of Directors of BuildNet, which failure cannot be cured or shall not have
been cured within thirty (30) days after receipt by Employee of written notice
from BuildNet specifying in reasonable detail the failure to so carry out such
directions.
(b) Death. This Agreement shall terminate if Employee dies
during the Term of Employment. In such event, BuildNet shall pay to the
Employee's executors, legal representatives or administrators an amount as set
forth in Section 7(d) below.
(c) Disability. BuildNet may terminate this Agreement if
Employee shall suffer a Disability, in which event all payments under this
Agreement shall cease, except as
3
<PAGE> 4
provided in Section 7(d) below. For purposes of this Agreement, "Disability"
shall mean that Employee has not performed his full-time duties with BuildNet
for six (6) consecutive months or an aggregate of six (6) months within a twelve
(12) month period as a result of his incapacity due to physical or mental
illness.
(d) Certain Payments Upon Termination. If, during the Term of
Employment, BuildNet terminates the employment of Employee for Cause, Employee
voluntarily terminates his employment with BuildNet unless such termination
promptly follows a substantial reduction in Employee's duties, responsibility or
authority, or upon the death or Disability of Employee during the Term of
Employment, the Term of Employment shall terminate immediately thereafter, and
BuildNet shall pay Employee or his beneficiary such Base Salary as he may be
entitled to receive for services rendered prior to the date of such termination
and for all accrued and unused vacation and reimbursements of expenses owing to
Employee. If, during the Term of Employment, BuildNet terminates the employment
of Employee without Cause or Employee voluntarily terminates his employment with
BuildNet promptly after (i) there has occurred (without Employee's prior written
consent) a substantial reduction in his duties, responsibilities or authority,
or (ii) BuildNet has breached any term of this Agreement, which breach has not
been cured within thirty (30) days after receipt by BuildNet of written notice
from Employee specifying in reasonable detail the nature of such breach, then
BuildNet shall pay to Employee, within thirty (30) days after the effective date
of such termination, an amount equal to Employee's Base Salary determined
immediately prior to the effective date of such termination, for a period from
the effective date of such termination until the end of the Term of Employment
specified by this Agreement as if such termination had not occurred, plus such
Base Salary as he may be entitled to receive for services rendered prior to the
date of such termination and for all accrued and unused vacation and
reimbursements of expenses owing to Employee. In the event of any such
termination, BuildNet shall not be liable for any other payments to Employee.
8. Restrictive Covenants.
(a) Noncompetition. During the term of his employment, and for a period
of two (2) years after the termination or cessation of Employee's employment
with BuildNet, regardless of manner or cause of termination, Employee agrees
that, within the geographic area described in Section 8(e) hereof, he will not:
(i) engage in, manage, operate, control or supervise, or participate in the
management, operation, control or supervision of, any business or entity which
provides products or services as a substantial part of its business directly
competitive with those then currently provided by BuildNet; or (ii) have any
ownership or financial interest, directly or indirectly, in any entity which
provides products or services as a substantial part of its business directly
competitive with those then currently provided by BuildNet, including, without
limitation, as an individual, partner, shareholder (other than as a shareholder
of a publicly-owned corporation in which Employee owns less than 1% of the
outstanding shares of such corporation), officer, director, employee, member,
associate, principal, agent, representative or consultant, and shall not in any
other manner, directly or indirectly, compete to any extent with such business
of BuildNet.
(b) Restriction on Solicitation of Customers. Employee agrees that he
will not (in addition to any other restriction on his activities), for a period
of two (2) years immediately following Employee's termination, on his own behalf
or on behalf of any other person or entity,
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<PAGE> 5
directly or indirectly call on or otherwise contact customers of BuildNet on or
prior to the date of termination or cessation of Employee's employment with
BuildNet (the "Restricted Customers") within the geographic area described in
Section 8(e) hereof, for the purpose of selling products or services to the
Restricted Customers that are competitive with those provided by BuildNet.
(c) Restriction on Solicitation of Employees. Employee agrees that he
will not, for a period of two (2) years immediately following Employee's
termination, directly or indirectly contact, solicit, interfere with or attempt
to entice in any form, fashion or manner any employee of BuildNet: (i) for the
purpose of inducing that employee to work with or for Employee (or with a person
or business entity with which employee is affiliated); or (ii) to terminate his
employment with BuildNet.
(d) Confidentiality. Employee will not at any time, whether during or
after the termination of his employment, reveal to any person or entity any of
the trade secrets or confidential information concerning the organization,
business or finances of BuildNet or of any third party that BuildNet is under an
obligation to keep confidential (including but not limited to trade secrets or
confidential information respecting inventions, research, products, designs,
methods, know-how, formulae, techniques, systems, processes, software programs,
works of authorship, customer lists, projects, plans and proposals), except as
may be required in the ordinary course of performing his duties as an employee
of BuildNet, and Employee shall keep secret all matters entrusted to him and
shall not use or attempt to use any such information in any manner that may
injure or cause loss to BuildNet. The provisions of this clause (d) shall not
apply to any information that is not treated as confidential by BuildNet or that
has come into the public domain through no fault of Employee.
(e) Geographic Scope of Restrictive Covenants. The geographic area in
which Employee shall not engage in any of the prohibited activities listed in
subsections 8(a) and 8(b) hereof shall be limited to the United States.
9. Employee Developments. If at any time or times during Employee's
employment, Employee shall (either alone or with others) make, conceive,
discover or reduce to practice any invention, modification, discovery, design,
development, improvement, process, software program, work of authorship,
documentation, formula, data, technique, know-how, secret or intellectual
property right whatsoever or any interest therein (whether or not patentable or
registrable under copyright or similar statutes or subject to analogous
protection) (herein called "Developments") that relates to the business of
BuildNet or any of the products or services being developed, manufactured or
sold by BuildNet or that may be used in relation therewith, such Developments
and the benefits thereof shall immediately become the sole and absolute property
of BuildNet and its assigns, and Employee shall promptly disclose to BuildNet
each such Development and hereby assigns any rights Employee may have or acquire
in the Developments and benefits and/or rights resulting therefrom to BuildNet
and its assigns without further compensation and shall communicate, without cost
or delay, and without publishing the same, all available information relating
thereto to BuildNet. Upon the request of BuildNet, the Employee will execute and
deliver all documents and do other acts which are or may be necessary to
document such transfer or to enable BuildNet to file and prosecute applications
for and to acquire, maintain, extend and enforce any and all patents, trademark
registrations or copyrights under United States or foreign law with respect to
any such developments.
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<PAGE> 6
Notwithstanding the foregoing, this Agreement shall not be construed to
apply to, and shall not create any assignment of, any Developments of the
Employee that are covered by Section 66-57.1 of the North Carolina General
Statutes, a copy of which is attached hereto as Exhibit A.
10. Existing Developments. Employee represents that the Developments,
if any, identified on Exhibit B attached hereto comprise all the unpatented and
uncopyrighted Developments that Employee has made or conceived prior to or
otherwise not in connection with Employee's employment by BuildNet, which
Developments are excluded from this Agreement. Employee understands that it is
necessary only to list the title and purpose of such Developments but not
details thereof.
Employee further represents that Employee's performance of all the
terms of this Agreement and as an employee of BuildNet does not and will not
breach any agreement to keep in confidence proprietary information acquired by
Employee in confidence or in trust prior to Employee's employment by BuildNet.
Employee has not entered into, and Employee agrees he will not enter into, any
agreement either written or oral in conflict herewith.
11. Return of BuildNet Property. Upon the termination of Employee's
employment with BuildNet for any reason, Employee shall leave with or return to
BuildNet all personal property belonging to BuildNet ("BuildNet Property") that
is in Employee's possession or control as of the date of such termination of
employment, including, without limitation, all records, papers, drawings,
notebooks, specifications, marketing materials, software, reports, proposals,
equipment, or any other device, document or possession, however obtained,
whether or not such BuildNet Property contains confidential or proprietary
information of BuildNet as described in Section 8(d) hereof.
12. Enforcement of the Covenants. Employee acknowledges and agrees that
the Covenants contained in Sections 8 through 11 of this Agreement are
reasonably necessary to the protection of BuildNet's business, that a violation
of any of the Covenants contained in Sections 8 through 11 of this Agreement
would result in immediate and irreparable harm to BuildNet and that BuildNet's
remedies at law and/or the award of monetary damages would be inadequate relief
for such a violation. Therefore, Employee's violation or threatened violation of
any of the Covenants contained in Sections 8 through 11 of this Agreement will
give BuildNet the right to enforce such Covenants through specific performance,
temporary restraining order, preliminary or permanent injunction, and other
equitable relief. These remedies will be cumulative and in addition to any other
remedies that BuildNet may have. In addition, Employee agrees that the Covenants
contained in Sections 8 through 11 will be extended by a length of time equal to
the period of time running from the filing of any action to enforce or challenge
the validity of the Covenants to the date of a final judgment (after appeals, if
any) or settlement of said litigation, or the expiration of all applicable
appeal periods after the entry of judgment in said litigation, whichever event
last occurs.
13. Waiver of Breach. Any waiver by BuildNet of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of such provision or any other provision hereof.
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<PAGE> 7
14. Validity and Survival of the Covenants. The parties acknowledge and
agree that the obligations contained in this Agreement are exchanged for valid
and reasonable consideration, are reasonably necessary to protect BuildNet's and
Employee's legitimate interests, are reasonable with respect to time, duration,
geographic scope, dollar amounts and other provisions, and do not interfere with
the interests of the public, and that the descriptions of prohibited activities
contained in the covenants of Sections 8 through 11 hereof are sufficiently
precise and definite to inform Employee of the scope of the covenants. The
covenants contained in Sections 7(d) and 8 through 11 of this Agreement will
survive termination of Employee's employment. The parties agree that the
existence of any claim or cause of action that one may have against the other,
whether based on this Agreement or otherwise, will not constitute a defense to
the enforcement of any obligation hereunder.
15. Severability. Employee hereby agrees that each provision herein
shall be treated as a separate and independent clause, and the unenforceability
of any one clause shall in no way impair the enforceability of any of the other
clauses herein. Moreover, if one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to scope,
duration, territory, activity or subject so as to be unenforceable at law, such
provision or provisions shall be construed by the appropriate judicial body by
limiting and reducing it or them, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear. In particular, in
the event that the provisions of Sections 8(a) and 8(b) are found to be
unenforceable or void (either in whole or in part) then the offending portion
shall be construed as valid and enforceable only to the extent permitted by law,
and the balance of this Agreement will remain in full force and effect. It is
the intention of the parties to restrict the activities of Employee only to the
extent necessary to protect the legitimate business interests of BuildNet and
not to deprive Employee of the right to earn a livelihood. Employee agrees that
this Agreement is reasonably necessary to protect BuildNet's legitimate business
interests.
16. Binding Effect. Employee's obligations under this Agreement shall
survive the termination of Employee's employment regardless of the manner of
such termination and shall be binding upon Employee's heirs, executors,
administrators and legal representatives and upon BuildNet's successors and
assigns.
17. Assignment. BuildNet shall have the right to assign this Agreement
to its successors and assigns, and all covenants and agreements hereunder shall
inure to the benefit of and be enforceable by said successors or assigns. This
Agreement may be amended only in a writing signed by each of the parties hereto.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina. This Agreement may be
executed in counterparts.
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<PAGE> 8
19. Entirety. This Agreement, including any exhibits hereto, as it may
be amended pursuant to the terms hereof, represents the complete and final
agreement of the parties and shall control over any other statement,
representation or agreement by BuildNet (e.g., as may appear in employment or
policy manuals). This Agreement supersedes any prior negotiations or discussions
between the parties with regard to the subject matter hereof.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their seals affixed hereto as of the day and year first above
written.
BUILDNET INC.
By: /s/ Keith T. Brown
Name: Keith T. Brown
Title: CEO
EMPLOYEE
/s/ Nathan Morton (SEAL)
Nathan Morton
9
<PAGE> 10
EXHIBIT A
SECTION 66-57.1 OF THE NORTH CAROLINA GENERAL STATUTES
Any provision in an employment agreement which provides that the
[employee] shall assign or offer to assign any of his rights in an invention to
his employer shall not apply to an invention that the employee developed
entirely on his own time without using the employer's equipment, supplies,
facility or trade secret information except for those inventions that:
(i) relate to the employer's business or actual or demonstrably
anticipated research or development, or
(ii) result from any work performed by the employee for the employer.
To the extent a provision in an employment agreement purports to apply
to the type of invention described, it is against the public policy of this
State and [is] unenforceable. The employee shall bear the burden of proof in
establishing that his invention qualifies under this section.
<PAGE> 11
EXHIBIT B
PRIOR DEVELOPMENTS BY EMPLOYEE
The following is a complete list of all unpatented and uncopyrighted
Developments relevant to the subject matter of my employment by BuildNet that
have been made or conceived by me prior to or otherwise not in connection with
my employment by BuildNet.
X No inventions or improvements.
------
All such inventions as are described below:
------
Additional sheets attached.
------
/s/ Nathan Morton
-----------------
Nathan Morton
<PAGE> 1
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of April 2, 1999 between BUILDNET INC., a
corporation organized and existing under the laws of the State of North
Carolina ("BuildNet") and Bayard M. Atwood, III ("Employee").
WHEREAS, BuildNet desires to employ Employee and Employee desires to
accept such employment on the terms and conditions hereinafter set forth; and
WHEREAS, the parties hereby acknowledge that the goodwill, continued
patronage, names, addresses and specific business requirements of BuildNet's
clients and customers, and the designs, procedures, systems, strategies,
business methods and know-how of BuildNet, having been acquired through
BuildNet's efforts and/or the expenditure of considerable time and money, are
among the principal assets of BuildNet; and
WHEREAS, the parties hereby acknowledge that as a result of the
position in which Employee will be employed by BuildNet, Employee will develop
special skills and knowledge peculiar to BuildNet's business, whereby Employee
has become and will continue to become, through Employee's employment with
BuildNet, acquainted with the identities of the clients and customers of
BuildNet, and has acquired and will continue to acquire access to the
techniques of BuildNet in carrying on its business, as well as other
confidential and proprietary information; and
WHEREAS, the parties hereto acknowledge that the covenants set forth
in Sections 8 through 11 (the "Covenants") of this Agreement are necessary for
the reasonable and proper protection of BuildNet's confidential and proprietary
information (as defined herein), customer relationships, and the goodwill of
BuildNet's business, and that such Covenants constitute a material portion of
the consideration for Employee's employment hereunder;
NOW, THEREFORE, in consideration of the premises and mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt and legal sufficiency of which are hereby acknowledged, the parties
agree as follows.
1. Position; Employment. BuildNet agrees to employ Employee, and
Employee agrees to be employed, as President and Chief Operating Officer of
BuildNet, or in such other position as the Board of Directors may from time to
time assign. The employment of Employee shall commence as of the date of this
Agreement and continue for the period beginning on the date hereof and ending
as provided in Section 7 hereof. Employee shall also be entitled to a seat on
the Board of Directors of BuildNet for so long as he shall be employed as
President and Chief Operating Officer, and shall be elected as a member of the
Board of Directors as soon as practicable after the effective date hereof.
2. Relocation; Performance of Duties. Employee agrees to use his
best efforts to relocate his residence to the Raleigh/Durham area as soon as
his house at 2 St Andrew's Court in Frisco, Texas is sold. Until such
relocation, Employee shall devote his time to the business of
<PAGE> 2
BuildNet and to the performance of the services and duties as he may be
assigned from time to time by the Board of Directors of BuildNet, it being
understood that Employee will use his best efforts to devote his entire time
and best efforts, skill, ability and attention to the business and affairs of
BuildNet.
In the performance of his responsibilities as President and Chief
Operating Officer, Employee shall be subject to all of BuildNet's policies,
rules and regulations applicable to its employees of comparable status.
Employee shall report directly to and be subject to the direction of the Chief
Executive Officer and Board of Directors of BuildNet. Employee shall perform
the duties consistent with Employee's knowledge, experience, and position and
the duties of BuildNet employees of comparable status. Employee shall have such
other duties and responsibilities consistent with his position as the Board of
Directors of BuildNet shall from time to time reasonably assign to him. In
performing such duties, Employee shall be subject to and shall substantially
abide by all policies and procedures developed by BuildNet.
3. Compensation.
(a) Base Salary. In consideration of Employee's services
hereunder, BuildNet shall pay Employee a minimum annual base salary of Three
Hundred Thousand Dollars ($300,000) per annum, less applicable statutory
deductions, payable in accordance with BuildNet's normal payroll practices (the
"Base Salary"). Employee's Base Salary shall be reviewed by the Board of
Directors of BuildNet on an annual basis and may be increased as the Board of
Directors of BuildNet deems appropriate in its sole discretion.
(b) Bonus. Employee may receive a bonus each calendar year
during his continued employment comparable to bonuses paid to other similarly
situated officers of BuildNet and as determined by the Board of Directors in
its sole discretion.
4. Stock Options. As of April 2, 1999, BuildNet shall grant to
Employee incentive stock option to purchase up to an aggregate of One Hundred
Sixty-five Thousand (165,000) shares of the Common Stock of Buildnet, with an
exercise price equal to the fair market value of the Common Stock of BuildNet
at the time of such grant. Options to purchase all such shares shall begin to
vest upon the effective date of this Agreement in monthly installments over
four (4) years. Such options shall become immediately fully exercisable in the
event of (a) a sale of all or substantially all the assets of BuildNet or a
merger or consolidation involving BuildNet in which the shareholders of
BuildNet prior to such transaction own less than a majority of the voting
securities of the entity surviving such transaction, or (b) any transaction or
series of related transactions pursuant to which a person, entity or persons or
entities under common control or acting as a group within the meaning of
Section 13(d) of the Securities Exchange Act of 1934, as amended, acquires
securities constituting at least a majority of the voting power of BuildNet.
5. Employee Benefits. During the Term of this Agreement, Employee
shall be eligible to receive and/or participate in all employee benefits that
are offered by BuildNet to its employees generally.
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<PAGE> 3
6. Reimbursement of Expenses. BuildNet shall reimburse Employee for
reasonable and documented expenses associated with Employee's relocation to the
Raleigh/Durham area, including, without limitation (a) fees paid to any
relocation service; (b) moving expenses, which shall include packing and moving
of household items and up to sixty (60) days' temporary living expenses for
Employee and his family; and (c) reasonable closing costs incurred by Employee
in connection with the sale of his home in Dallas, Texas (including but not
limited to sales commissions not to exceed six percent (6%) of the selling
price) and the purchase of a home in the Raleigh/Durham area. Notwithstanding
the provisions of this Section 6, no expense will be reimbursed by BuildNet
without prior consent of the Chief Executive Officer of BuildNet if such
expense is greater than $5,000.
7. Term and Termination. The term of the Employee's employment
under this Agreement (the "Term of Employment") shall commence as of the date
hereof and continue through the date five (5) years from such date, unless
earlier terminated in accordance with the provisions of this Agreement. This
Agreement shall terminate prior to the expiration of the Term of Employment
upon the occurrence of any one of the following events.
(a) Cause. BuildNet may terminate this Agreement, at any time,
for Cause, with or without prior notice to Employee, in which event all
payments under this Agreement shall cease, except as provided in Section 7(d)
below. The term "Cause" as used herein shall mean (i) Employee, in carrying out
his duties hereunder, has been guilty of gross negligence or wilful and wanton
misconduct which in either case results in material harm to the financial
condition, business, assets, or prospects of BuildNet; (ii) the conviction of,
or the entering of a plea of no contest by, Employee for a felony or crime
involving moral turpitude, (iii) any act involving dishonesty in the
performance of Employee's duties hereunder, including, without limitation,
fraud, misappropriation or embezzlement, (iv) any material breach of this
Agreement by Employee, which failure cannot be cured or shall not have been
cured within thirty (30) days after receipt by Employee of written notice from
BuildNet specifying in reasonable detail the nature of such breach; or (v)
Employee fails to carry out directions (consistent with his position as set
forth in Section 1 above) of the Board of Directors of BuildNet, which failure
cannot be cured or shall not have been cured within thirty (30) days after
receipt by Employee of written notice from BuildNet specifying in reasonable
detail the failure to so carry out such directions.
(b) Death. This Agreement shall terminate if Employee dies
during the Term of Employment. In such event, BuildNet shall pay to the
Employee's executors, legal representatives or administrators an amount as set
forth in Section 7(d) below.
(c) Disability. BuildNet may terminate this Agreement if
Employee shall suffer a Disability, in which event all payments under this
Agreement shall cease, except as provided in Section 7(d) below. For purposes
of this Agreement, "Disability" shall mean that Employee has not performed his
full-time duties with BuildNet for six (6) consecutive months or an aggregate
of six (6) months within a twelve (12) month period as a result of his
incapacity due to physical or mental illness.
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<PAGE> 4
(d) Certain Payments Upon Termination. If, during the Term of
Employment, BuildNet terminates the employment of Employee for Cause, Employee
voluntarily terminates his employment with BuildNet, or upon the death or
Disability of Employee during the Term of Employment, the Term of Employment
shall terminate immediately thereafter, and BuildNet shall pay Employee or his
beneficiary such Base Salary as he may be entitled to receive for services
rendered prior to the date of such termination. In the event of any such
termination, BuildNet shall not be liable for any other payments to Employee.
8. Restrictive Covenants.
(a) Noncompetition. During the term of his employment, and for
a period of two (2) years after the termination or cessation of Employee's
employment with BuildNet, regardless of manner or cause of termination,
Employee agrees that, within the geographic area described in Section 8(e)
hereof, he will not: (i) engage in, manage, operate, control or supervise, or
participate in the management, operation, control or supervision of, any
business or entity which provides products or services directly competitive
with those then currently provided by BuildNet; or (ii) have any ownership or
financial interest, directly or indirectly, in any entity which provides
products or services competitive with those then currently provided by
BuildNet, including, without limitation, as an individual, partner, shareholder
(other than as a shareholder of a publicly-owned corporation in which Employee
owns less than 1% of the outstanding shares of such corporation), officer,
director, employee, member, associate, principal, agent, representative or
consultant, and shall not in any other manner, directly or indirectly, compete
to any extent with such business of BuildNet.
(b) Restriction on Solicitation of Customers. Employee agrees
that he will not (in addition to any other restriction on his activities), for
a period of two (2) years immediately following Employee's termination, on his
own behalf or on behalf of any other person or entity, directly or indirectly
call on or otherwise contact customers of BuildNet on or prior to the date of
termination or cessation of Employee's employment with BuildNet (the
"Restricted Customers") within the geographic area described in Section 8(e)
hereof, for the purpose of selling products or services to the Restricted
Customers that are competitive with those provided by BuildNet.
(c) Restriction on Solicitation of Employees. Employee agrees
that he will not, for a period of two (2) years immediately following
Employee's termination, directly or indirectly contact, solicit, interfere with
or attempt to entice in any form, fashion or manner any employee of BuildNet:
(i) for the purpose of inducing that employee to work with or for Employee (or
with a person or business entity with which employee is affiliated); or (ii) to
terminate his employment with BuildNet.
(d) Confidentiality. Employee will not at any time, whether
during or after the termination of his employment, reveal to any person or
entity any of the trade secrets or confidential information concerning the
organization, business or finances of BuildNet or of any third party that
BuildNet is under an obligation to keep confidential (including but not limited
to trade secrets or confidential information respecting inventions, research,
products, designs, methods, know-how, formulae, techniques, systems, processes,
software programs, works of authorship, customer lists, projects, plans and
proposals), except as may be required in the
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<PAGE> 5
ordinary course of performing his duties as an employee of BuildNet, and
Employee shall keep secret all matters entrusted to him and shall not use or
attempt to use any such information in any manner that may injure or cause loss
to BuildNet.
(e) Geographic Scope of Restrictive Covenants. The geographic
area in which Employee shall not engage in any of the prohibited activities
listed in subsections 8(a) and 8(b) hereof shall be limited to the United
States.
9. Employee Developments. If at any time or times during Employee's
employment, Employee shall (either alone or with others) make, conceive,
discover or reduce to practice any invention, modification, discovery, design,
development, improvement, process, software program, work of authorship,
documentation, formula, data, technique, know-how, secret or intellectual
property right whatsoever or any interest therein (whether or not patentable or
registrable under copyright or similar statutes or subject to analogous
protection) (herein called "Developments") that relates to the business of
BuildNet or any of the products or services being developed, manufactured or
sold by BuildNet or that may be used in relation therewith, such Developments
and the benefits thereof shall immediately become the sole and absolute
property of BuildNet and its assigns, and Employee shall promptly disclose to
BuildNet each such Development and hereby assigns any rights Employee may have
or acquire in the Developments and benefits and/or rights resulting therefrom
to BuildNet and its assigns without further compensation and shall communicate,
without cost or delay, and without publishing the same, all available
information relating thereto to BuildNet. Upon the request of BuildNet, the
Employee will execute and deliver all documents and do other acts which are or
may be necessary to document such transfer or to enable BuildNet to file and
prosecute applications for and to acquire, maintain, extend and enforce any and
all patents, trademark registrations or copyrights under United States or
foreign law with respect to any such developments.
Notwithstanding the foregoing, this Agreement shall not be construed
to apply to, and shall not create any assignment of, any Developments of the
Employee that are covered by Section 66-57.1 of the North Carolina General
Statutes, a copy of which is attached hereto as Exhibit A.
10. Existing Developments. Employee represents that the
Developments, if any, identified on Exhibit B attached hereto comprise all the
unpatented and uncopyrighted Developments that Employee has made or conceived
prior to or otherwise not in connection with Employee's employment by BuildNet,
which Developments are excluded from this Agreement. Employee understands that
it is necessary only to list the title and purpose of such Developments but not
details thereof.
Employee further represents that Employee's performance of all the
terms of this Agreement and as an employee of BuildNet does not and will not
breach any agreement to keep in confidence proprietary information acquired by
Employee in confidence or in trust prior to Employee's employment by BuildNet.
Employee has not entered into, and Employee agrees he will not enter into, any
agreement either written or oral in conflict herewith.
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<PAGE> 6
11. Return of BuildNet Property. Upon the termination of Employee's
employment with BuildNet for any reason, Employee shall leave with or return to
BuildNet all personal property belonging to BuildNet ("BuildNet Property") that
is in Employee's possession or control as of the date of such termination of
employment, including, without limitation, all records, papers, drawings,
notebooks, specifications, marketing materials, software, reports, proposals,
equipment, or any other device, document or possession, however obtained,
whether or not such BuildNet Property contains confidential or proprietary
information of BuildNet as described in Section 8(d) hereof.
12. Enforcement of the Covenants. Employee acknowledges and agrees
that the Covenants contained in Sections 8 through 11 of this Agreement are
reasonably necessary to the protection of BuildNet's business, that a violation
of any of the Covenants contained in Sections 8 through 11 of this Agreement
would result in immediate and irreparable harm to BuildNet and that BuildNet's
remedies at law and/or the award of monetary damages would be inadequate relief
for such a violation. Therefore, Employee's violation or threatened violation
of any of the Covenants contained in Sections 8 through 11 of this Agreement
will give BuildNet the right to enforce such Covenants through specific
performance, temporary restraining order, preliminary or permanent injunction,
and other equitable relief. These remedies will be cumulative and in addition
to any other remedies that BuildNet may have. In addition, Employee agrees that
the Covenants contained in Sections 8 through 11 will be extended by a length
of time equal to the period of time running from the filing of any action to
enforce or challenge the validity of the Covenants to the date of a final
judgment (after appeals, if any) or settlement of said litigation, or the
expiration of all applicable appeal periods after the entry of judgment in said
litigation, whichever event last occurs.
13. Waiver of Breach. Any waiver by BuildNet of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach of such provision or any other provision hereof.
14. Validity and Survival of the Covenants. Employee acknowledges
and agrees that the Covenants contained in this Agreement are exchanged for
valid and reasonable consideration, are reasonably necessary to protect
BuildNet's legitimate interests, are reasonable with respect to time duration
and geographic scope, do not interfere with the interests of the public, and
that the descriptions of prohibited activities contained in the covenants are
sufficiently precise and definite to inform me of the scope of the Covenants.
The Covenants contained Sections 8 through 11 of this Agreement will survive
termination of Employee's employment. Employee agrees that the existence of any
claim or cause of action that he may have against BuildNet, whether based on
this Agreement or otherwise, will not constitute a defense to BuildNet's
enforcement of the Covenants.
15. Severability. Employee hereby agrees that each provision herein
shall be treated as a separate and independent clause, and the unenforceability
of any one clause shall in no way impair the enforceability of any of the other
clauses herein. Moreover, if one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to scope,
duration, territory, activity or subject so as to be unenforceable at law, such
provision or provisions shall be construed by the appropriate judicial body by
limiting and reducing it or them, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear. In particular, in
the event that the provisions
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<PAGE> 7
of Sections 8(a) and 8(b) are found to be unenforceable or void (either in
whole or in part) then the offending portion shall be construed as valid and
enforceable only to the extent permitted by law, and the balance of this
Agreement will remain in full force and effect. It is the intention of the
parties to restrict the activities of Employee only to the extent necessary to
protect the legitimate business interests of BuildNet and not to deprive
Employee of the right to earn a livelihood. Employee agrees that this Agreement
is reasonably necessary to protect BuildNet's legitimate business interests.
16. Binding Effect. Employee's obligations under this Agreement
shall survive the termination of Employee's employment regardless of the manner
of such termination and shall be binding upon Employee's heirs, executors,
administrators and legal representatives.
17. Assignment. BuildNet shall have the right to assign this
Agreement to its successors and assigns, and all covenants and agreements
hereunder shall inure to the benefit of and be enforceable by said successors
or assigns. This Agreement may be amended only in a writing signed by each of
the parties hereto.
18. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of North Carolina. This Agreement may
be executed in counterparts.
19. Entirety. This Agreement, including any exhibits hereto, as it
may be amended pursuant to the terms hereof, represents the complete and final
agreement of the parties and shall control over any other statement,
representation or agreement by BuildNet (e.g., as may appear in employment or
policy manuals). This Agreement supersedes any prior negotiations or
discussions between the parties with regard to the subject matter hereof.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their seals affixed hereto as of the day and year first
above written.
BUILDNET INC.
By: /s/ Keith T. Brown
Name: Keith T. Brown
Title: CEO
EMPLOYEE
/s/ Bayard M. Atwood, III (SEAL)
Bayard M. Atwood, III
8
<PAGE> 9
EXHIBIT A
SECTION 66-57.1 OF THE NORTH CAROLINA GENERAL STATUTES
Any provision in an employment agreement which provides that the
[employee] shall assign or offer to assign any of his rights in an invention to
his employer shall not apply to an invention that the employee developed
entirely on his own time without using the employer's equipment, supplies,
facility or trade secret information except for those inventions that:
(i) relate to the employer's business or actual or demonstrably
anticipated research or development, or
(ii) result from any work performed by the employee for the
employer.
To the extent a provision in an employment agreement purports to apply
to the type of invention described, it is against the public policy of this
State and [is] unenforceable. The employee shall bear the burden of proof in
establishing that his invention qualifies under this section.
<PAGE> 10
EXHIBIT B
PRIOR DEVELOPMENTS BY EMPLOYEE
The following is a complete list of all unpatented and uncopyrighted
Developments relevant to the subject matter of my employment by BuildNet that
have been made or conceived by me prior to or otherwise not in connection with
my employment by BuildNet.
[ ] No inventions or improvements.
[ ] All such inventions as are described below:
[ ] Additional sheets attached.
/s/ Bayard M. Atwood, III
Bayard M. Atwood, III
<PAGE> 1
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of May 19, 1999, between BUILDNET INC., a
corporation organized and existing under the laws of the State of North Carolina
("BuildNet") and Keith T. Brown ("Employee").
WHEREAS, BuildNet desires to employ Employee and Employee desires to
accept such employment on the terms and conditions hereinafter set forth; and
WHEREAS, the parties hereby acknowledge that the goodwill, continued
patronage, names, addresses and specific business requirements of BuildNet's
clients and customers, and the designs, procedures, systems, strategies,
business methods and know-how of BuildNet, having been acquired through
BuildNet's efforts and/or the expenditure of considerable time and money, are
among the principal assets of BuildNet; and
WHEREAS, the parties hereby acknowledge that as a result of the
position in which Employee will be employed by BuildNet, Employee has and will
develop special skills and knowledge peculiar to BuildNet's business, whereby
Employee has become and will continue to become, through Employee's employment
with BuildNet, acquainted with the identities of the clients and customers of
BuildNet, and has acquired and will continue to acquire access to the techniques
of BuildNet in carrying on its business, as well as other confidential and
proprietary information; and
WHEREAS, the parties hereto acknowledge that the covenants set forth in
Sections 8 through 11 (the "Covenants") of this Agreement are necessary for the
reasonable and proper protection of BuildNet's confidential and proprietary
information (as defined herein), customer relationships, and the goodwill of
BuildNet's business, and that such Covenants constitute a material portion of
the consideration for Employee's employment hereunder;
NOW, THEREFORE, in consideration of the premises and mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt and legal sufficiency of which are hereby acknowledged, the parties
agree as follows.
1. Position; Employment. BuildNet agrees to employ Employee, and
Employee agrees to be employed, as Chief Executive Officer of BuildNet, or in
such other position as the Board of Directors may from time to time reasonably
assign. The employment of Employee shall commence as of the date of this
Agreement and continue for the period beginning on the date hereof and ending as
provided in Section 7 hereof.
2. Performance of Duties. Employee agrees to use his best efforts to
devote his entire time and best efforts, skill, ability and attention to the
business and affairs of BuildNet and to the performance of the services and
duties as he may be reasonably assigned from time to time by the Board of
Directors of Buildnet.
In the performance of his responsibilities as Chief Executive Officer,
Employee shall be subject to all of BuildNet's policies, rules and regulations
applicable to its employees of comparable status. Employee shall report directly
to and be subject to the direction of the Board
<PAGE> 2
of Directors of BuildNet. Employee shall perform the duties consistent with
Employee's knowledge, experience, and position and the duties of BuildNet
employees of comparable status. Employee shall have such other duties and
responsibilities consistent with his position as the Board of Directors of
BuildNet shall from time to time reasonably assign to him. In performing such
duties, Employee shall be subject to and shall substantially abide by all
policies and procedures developed by BuildNet.
3. Compensation.
(a) Base Salary. In consideration of Employee's services hereunder,
BuildNet shall pay Employee a minimum annual base salary of One Hundred
Seventy-Five Thousand Dollars ($175,000) per annum, less applicable statutory
deductions, payable in accordance with BuildNet's normal payroll practices (the
"Base Salary"). Employee's Base Salary shall be reviewed by the Board of
Directors of BuildNet on an annual basis and may be increased as the Board of
Directors of BuildNet deems appropriate in its sole discretion.
(b) Bonus. Employee may receive a bonus each calendar year during his
continued employment which will be targeted at Fifty Thousand Dollars ($50,000)
and be comparable to bonuses paid to other similarly situated officers of
BuildNet and as determined by the Board of Directors in its sole discretion..
4. Stock Options. Not Applicable.
5. Employee Benefits. During the Term of this Agreement, Employee shall
be eligible to receive and/or participate in all employee benefits that are
offered by BuildNet to its employees generally.
6. Reserved.
7. Term and Termination. The term of the Employee's employment under
this Agreement (the "Term of Employment") shall commence as of the date hereof
and continue through the date four (4) years from such date, unless earlier
terminated in accordance with the provisions of this Agreement. The Term of
Employment shall automatically be extended for successive one (1) year terms
after the initial four-year term unless either party gives notice of nonrenewal
at least ninety (90) days prior to the end of the then-current term. This
Agreement shall terminate prior to the expiration of the Term of Employment upon
the occurrence of any one of the following events.
(a) Cause. BuildNet may terminate this Agreement, at any time,
with or without Cause, and with or without prior notice to Employee, in which
event all payments under this Agreement shall cease, except as provided in
Section 7(d) below. The term "Cause" as used herein shall mean (i) Employee, in
carrying out his duties hereunder, has been guilty of gross negligence or
willful and wanton misconduct which in either case results in material harm to
the financial condition, business, assets, or prospects of BuildNet; (ii) the
conviction of, or the entering of a plea of no contest by, Employee for a felony
or crime involving moral turpitude, (iii) any act involving dishonesty in the
performance of Employee's duties hereunder, including, without limitation,
fraud, misappropriation or embezzlement, (iv) any material breach of this
Agreement by Employee, which failure cannot be cured or shall not have been
cured within
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thirty (30) days after receipt by Employee of written notice from BuildNet
specifying in reasonable detail the nature of such breach; or (v) Employee fails
to carry out reasonable directions (consistent with his position as set forth in
Section 1 hereof and the provisions of this Agreement) of the Board of Directors
of BuildNet, which failure cannot be cured or shall not have been cured within
thirty (30) days after receipt by Employee of written notice from BuildNet
specifying in reasonable detail the failure to so carry out such directions.
(b) Death. This Agreement shall terminate if Employee dies
during the Term of Employment. In such event, BuildNet shall pay to the
Employee's executors, legal representatives or administrators an amount as set
forth in Section 7(d) below.
(c) Disability. BuildNet may terminate this Agreement if
Employee shall suffer a Disability, in which event all payments under this
Agreement shall cease, except as provided in Section 7(d) below. For purposes of
this Agreement, "Disability" shall mean that Employee has not performed his
full-time duties with BuildNet for six (6) consecutive months or an aggregate of
six (6) months within a twelve (12) month period as a result of his incapacity
due to physical or mental illness.
(d) Certain Payments Upon Termination. If, during the Term of
Employment, BuildNet terminates the employment of Employee for Cause, Employee
voluntarily terminates his employment with BuildNet unless such termination
promptly follows a substantial reduction in Employee's duties, responsibility or
authority, or upon the death or Disability of Employee during the Term of
Employment, the Term of Employment shall terminate immediately thereafter, and
BuildNet shall pay Employee or his beneficiary such Base Salary as he may be
entitled to receive for services rendered prior to the date of such termination
and for all accrued and unused vacation and reimbursements of expenses owing to
Employee. If, during the Term of Employment, BuildNet terminates the employment
of Employee without Cause or Employee voluntarily terminates his employment with
BuildNet promptly after (i) there has occurred (without Employee's prior written
consent) a substantial reduction in his duties, responsibilities or authority,
or (ii) BuildNet has breached any term of this Agreement, which breach has not
been cured within thirty (30) days after receipt by BuildNet of written notice
from Employee specifying in reasonable detail the nature of such breach, then
BuildNet shall pay to Employee, within thirty (30) days after the effective date
of such termination, an amount equal to Employee's Base Salary determined
immediately prior to the effective date of such termination, for a period from
the effective date of such termination for six (6) months, plus such Base Salary
as he may be entitled to receive for services rendered prior to the date of such
termination and for all accrued and unused vacation and reimbursements of
expenses owing to Employee. In the event of any such termination, BuildNet shall
not be liable for any other payments to Employee.
8. Restrictive Covenants.
(a) Noncompetition. During the term of his employment, and for a period
of six (6) months after the termination or cessation of Employee's employment
with BuildNet, regardless of manner or cause of termination, Employee agrees
that, within the geographic area described in Section 8(e) hereof, he will not:
(i) engage in, manage, operate, control or supervise, or participate in the
management, operation, control or supervision of, any business or entity which
provides products or services as a substantial part of its business directly
competitive with those
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<PAGE> 4
then currently provided by BuildNet; or (ii) have any ownership or financial
interest, directly or indirectly, in any entity which provides products or
services as a substantial part of its business directly competitive with those
then currently provided by BuildNet, including, without limitation, as an
individual, partner, shareholder (other than as a shareholder of a
publicly-owned corporation in which Employee owns less than 1% of the
outstanding shares of such corporation), officer, director, employee, member,
associate, principal, agent, representative or consultant, and shall not in any
other manner, directly or indirectly, compete to any extent with such business
of BuildNet.
(b) Restriction on Solicitation of Customers. Employee agrees that he
will not (in addition to any other restriction on his activities), for a period
of two (2) years immediately following Employee's termination, on his own behalf
or on behalf of any other person or entity, directly or indirectly call on or
otherwise contact customers of BuildNet on or prior to the date of termination
or cessation of Employee's employment with BuildNet (the "Restricted Customers")
within the geographic area described in Section 8(e) hereof, for the purpose of
selling products or services to the Restricted Customers that are competitive
with those provided by BuildNet.
(c) Restriction on Solicitation of Employees. Employee agrees that he
will not, for a period of two (2) years immediately following Employee's
termination, directly or indirectly contact, solicit, interfere with or attempt
to entice in any form, fashion or manner any employee of BuildNet: (i) for the
purpose of inducing that employee to work with or for Employee (or with a person
or business entity with which employee is affiliated); or (ii) to terminate his
employment with BuildNet.
(d) Confidentiality. Employee will not at any time, whether during or
after the termination of his employment, reveal to any person or entity any of
the trade secrets or confidential information concerning the organization,
business or finances of BuildNet or of any third party that BuildNet is under an
obligation to keep confidential (including but not limited to trade secrets or
confidential information respecting inventions, research, products, designs,
methods, know-how, formulae, techniques, systems, processes, software programs,
works of authorship, customer lists, projects, plans and proposals), except as
may be required in the ordinary course of performing his duties as an employee
of BuildNet, and Employee shall keep secret all matters entrusted to him and
shall not use or attempt to use any such information in any manner that may
injure or cause loss to BuildNet. The provisions of this clause (d) shall not
apply to any information that is not treated as confidential by BuildNet or that
has come into the public domain through no fault of Employee.
(e) Geographic Scope of Restrictive Covenants. The geographic area in
which Employee shall not engage in any of the prohibited activities listed in
subsections 8(a) and 8(b) hereof shall be limited to the United States.
9. Employee Developments. If at any time or times during Employee's
employment, Employee shall (either alone or with others) make, conceive,
discover or reduce to practice any invention, modification, discovery, design,
development, improvement, process, software program, work of authorship,
documentation, formula, data, technique, know-how, secret or intellectual
property right whatsoever or any interest therein (whether or not patentable or
registrable under copyright or similar statutes or subject to analogous
protection) (herein
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<PAGE> 5
called "Developments") that relates to the business of BuildNet or any of the
products or services being developed, manufactured or sold by BuildNet or that
may be used in relation therewith, such Developments and the benefits thereof
shall immediately become the sole and absolute property of BuildNet and its
assigns, and Employee shall promptly disclose to BuildNet each such Development
and hereby assigns any rights Employee may have or acquire in the Developments
and benefits and/or rights resulting therefrom to BuildNet and its assigns
without further compensation and shall communicate, without cost or delay, and
without publishing the same, all available information relating thereto to
BuildNet. Upon the request of BuildNet, the Employee will execute and deliver
all documents and do other acts which are or may be necessary to document such
transfer or to enable BuildNet to file and prosecute applications for and to
acquire, maintain, extend and enforce any and all patents, trademark
registrations or copyrights under United States or foreign law with respect to
any such developments.
Notwithstanding the foregoing, this Agreement shall not be construed to
apply to, and shall not create any assignment of, any Developments of the
Employee that are covered by Section 66-57.1 of the North Carolina General
Statutes, a copy of which is attached hereto as Exhibit A.
10. Existing Developments. Employee represents that the Developments,
if any, identified on Exhibit B attached hereto comprise all the unpatented and
uncopyrighted Developments that Employee has made or conceived prior to or
otherwise not in connection with Employee's employment by BuildNet, which
Developments are excluded from this Agreement. Employee understands that it is
necessary only to list the title and purpose of such Developments but not
details thereof.
Employee further represents that Employee's performance of all the
terms of this Agreement and as an employee of BuildNet does not and will not
breach any agreement to keep in confidence proprietary information acquired by
Employee in confidence or in trust prior to Employee's employment by BuildNet.
Employee has not entered into, and Employee agrees he will not enter into, any
agreement either written or oral in conflict herewith.
11. Return of BuildNet Property. Upon the termination of Employee's
employment with BuildNet for any reason, Employee shall leave with or return to
BuildNet all personal property belonging to BuildNet ("BuildNet Property") that
is in Employee's possession or control as of the date of such termination of
employment, including, without limitation, all records, papers, drawings,
notebooks, specifications, marketing materials, software, reports, proposals,
equipment, or any other device, document or possession, however obtained,
whether or not such BuildNet Property contains confidential or proprietary
information of BuildNet as described in Section 8(d) hereof.
12. Enforcement of the Covenants. Employee acknowledges and agrees that
the Covenants contained in Sections 8 through 11 of this Agreement are
reasonably necessary to the protection of BuildNet's business, that a violation
of any of the Covenants contained in Sections 8 through 11 of this Agreement
would result in immediate and irreparable harm to BuildNet and that BuildNet's
remedies at law and/or the award of monetary damages would be inadequate relief
for such a violation. Therefore, Employee's violation or threatened violation of
any of the Covenants contained in Sections 8 through 11 of this Agreement will
give BuildNet the right to enforce such
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<PAGE> 6
Covenants through specific performance, temporary restraining order, preliminary
or permanent injunction, and other equitable relief. These remedies will be
cumulative and in addition to any other remedies that BuildNet may have. In
addition, Employee agrees that the Covenants contained in Sections 8 through 11
will be extended by a length of time equal to the period of time running from
the filing of any action to enforce or challenge the validity of the Covenants
to the date of a final judgment (after appeals, if any) or settlement of said
litigation, or the expiration of all applicable appeal periods after the entry
of judgment in said litigation, whichever event last occurs.
13. Waiver of Breach. Any waiver by BuildNet of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of such provision or any other provision hereof.
14. Validity and Survival of the Covenants. The parties acknowledge and
agree that the obligations contained in this Agreement are exchanged for valid
and reasonable consideration, are reasonably necessary to protect BuildNet's and
Employee's legitimate interests, are reasonable with respect to time, duration,
geographic scope, dollar amounts and other provisions, and do not interfere with
the interests of the public, and that the descriptions of prohibited activities
contained in the covenants of Sections 8 through 11 hereof are sufficiently
precise and definite to inform Employee of the scope of the covenants. The
covenants contained in Sections 7(d) and 8 through 11 of this Agreement will
survive termination of Employee's employment. The parties agree that the
existence of any claim or cause of action that one may have against the other,
whether based on this Agreement or otherwise, will not constitute a defense to
the enforcement of any obligation hereunder.
15. Severability. Employee hereby agrees that each provision herein
shall be treated as a separate and independent clause, and the unenforceability
of any one clause shall in no way impair the enforceability of any of the other
clauses herein. Moreover, if one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to scope,
duration, territory, activity or subject so as to be unenforceable at law, such
provision or provisions shall be construed by the appropriate judicial body by
limiting and reducing it or them, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear. In particular, in
the event that the provisions of Sections 8(a) and 8(b) are found to be
unenforceable or void (either in whole or in part) then the offending portion
shall be construed as valid and enforceable only to the extent permitted by law,
and the balance of this Agreement will remain in full force and effect. It is
the intention of the parties to restrict the activities of Employee only to the
extent necessary to protect the legitimate business interests of BuildNet and
not to deprive Employee of the right to earn a livelihood. Employee agrees that
this Agreement is reasonably necessary to protect BuildNet's legitimate business
interests.
16. Binding Effect. Employee's obligations under this Agreement shall
survive the termination of Employee's employment regardless of the manner of
such termination and shall be binding upon Employee's heirs, executors,
administrators and legal representatives and upon BuildNet's successors and
assigns.
17. Assignment. BuildNet shall have the right to assign this Agreement
to its successors and assigns, and all covenants and agreements hereunder shall
inure to the benefit of
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and be enforceable by said successors or assigns. This Agreement may be amended
only in a writing signed by each of the parties hereto.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina. This Agreement may be
executed in counterparts.
19. Entirety. This Agreement, including any exhibits hereto, as it may
be amended pursuant to the terms hereof, represents the complete and final
agreement of the parties and shall control over any other statement,
representation or agreement by BuildNet (e.g., as may appear in employment or
policy manuals). This Agreement supersedes any prior negotiations or discussions
between the parties with regard to the subject matter hereof.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their seals affixed hereto as of the day and year first above
written.
BUILDNET INC.
By: /s/ Nathan Morton
Name: Nathan Morton
Title: Chairman
EMPLOYEE
/s/ Keith T. Brown (SEAL)
Keith T. Brown
8
<PAGE> 9
EXHIBIT A
SECTION 66-57.1 OF THE NORTH CAROLINA GENERAL STATUTES
Any provision in an employment agreement which provides that the
[employee] shall assign or offer to assign any of his rights in an invention to
his employer shall not apply to an invention that the employee developed
entirely on his own time without using the employer's equipment, supplies,
facility or trade secret information except for those inventions that:
(i) relate to the employer's business or actual or demonstrably
anticipated research or development, or
(ii) result from any work performed by the employee for the employer.
To the extent a provision in an employment agreement purports to apply
to the type of invention described, it is against the public policy of this
State and [is] unenforceable. The employee shall bear the burden of proof in
establishing that his invention qualifies under this section.
<PAGE> 10
EXHIBIT B
PRIOR DEVELOPMENTS BY EMPLOYEE
The following is a complete list of all unpatented and uncopyrighted
Developments relevant to the subject matter of my employment by BuildNet that
have been made or conceived by me prior to or otherwise not in connection with
my employment by BuildNet.
No inventions or improvements.
------
X All such inventions as are described below:
------
X Additional sheets attached.
------
/s/ Keith T. Brown
------------------
Keith T. Brown
<PAGE> 11
EXHIBIT B
PRIOR DEVELOPMENTS BY EMPLOYEE
Business Plans Owned by Keith T. Brown
HomeSource Realty
HomeSource Vacation
HomeSource Pro
HomeSource Development
HomeSource Magazine
SmartPlan Plan and Design Services
Interior
House Design
Furniture and House Wares TI
Virtual Salesman
CommunityNet
GroceryTI
Industry Sales and Call Center
Interactive Marketplace Distributor Hub and Spoke
Interactive Marketplace Lights Out Manufactured Housing one of a kind Others not
listed presently 44 and counting
Books owned by Keith T. Brown
Builders' Revolution - Published 96
Interactive Marketplace to be published in 99
/s/ Keith T. Brown
----------------------------
Keith T. Brown
/s/ Nathan Morton
---------------------------
Nathan Morton, Chairman of the Board
2
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of May 19, 1999, between BUILDNET INC., a
corporation organized and existing under the laws of the State of North Carolina
("BuildNet") and Charles M. Cosby ("Employee").
WHEREAS, BuildNet desires to employ Employee and Employee desires to
accept such employment on the terms and conditions hereinafter set forth; and
WHEREAS, the parties hereby acknowledge that the goodwill, continued
patronage, names, addresses and specific business requirements of BuildNet's
clients and customers, and the designs, procedures, systems, strategies,
business methods and know-how of BuildNet, having been acquired through
BuildNet's efforts and/or the expenditure of considerable time and money, are
among the principal assets of BuildNet; and
WHEREAS, the parties hereby acknowledge that as a result of the
position in which Employee will be employed by BuildNet, Employee will develop
special skills and knowledge peculiar to BuildNet's business, whereby Employee
has become and will continue to become, through Employee's employment with
BuildNet, acquainted with the identities of the clients and customers of
BuildNet, and has acquired and will continue to acquire access to the techniques
of BuildNet in carrying on its business, as well as other confidential and
proprietary information; and
WHEREAS, the parties hereto acknowledge that the covenants set forth in
Sections 8 through 11 (the "Covenants") of this Agreement are necessary for the
reasonable and proper protection of BuildNet's confidential and proprietary
information (as defined herein), customer relationships, and the goodwill of
BuildNet's business, and that such Covenants constitute a material portion of
the consideration for Employee's employment hereunder;
NOW, THEREFORE, in consideration of the premises and mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt and legal sufficiency of which are hereby acknowledged, the parties
agree as follows.
1. Position; Employment. BuildNet agrees to employ Employee, and
Employee agrees to be employed, as Vice Chairman of BuildNet, or in such other
position as the Board of Directors may from time to time reasonably assign
(subject however to the provisions of Section 7 (d)). The employment of Employee
shall commence as of the date of this Agreement and continue for the period
beginning on the date hereof and ending as provided in Section 7 hereof.
2. Performance of Duties. Employee agrees to use his best efforts to
devote substantially his entire time and best efforts, skill ability and
attention to the business and affairs of BuildNet and to the performance of the
services and duties as he may be reasonably assigned from time to time by the
Chairman of the Board or Board of Directors of BuildNet. In his capacity as Vice
Chairman, Employee shall be one of the executive officers of BuildNet (or any
successor, or entity directly or indirectly controlling BuildNet), and his
duties in such position
<PAGE> 2
shall be consistent with that status as a senior executive officer, and he shall
be accorded the benefits, facilities, staff assistance, perquisites and other
privileges accorded such executives.
In the performance of his responsibilities as Vice Chairman, Employee
shall be subject to all of BuildNet's policies, rules and regulations applicable
to its employees of comparable status. Employee shall report directly to and be
subject to the direction of the Chairman of the Board and Board of Directors of
BuildNet. Employee shall perform the duties consistent with Employee's
knowledge, experience, and position and the duties of BuildNet employees of
comparable status. Employee shall have such other duties and responsibilities
consistent with his position as the Board of Directors of BuildNet shall from
time to time reasonably assign to him. In performing such duties, Employee shall
be subject to and shall substantially abide by all policies and procedures
developed by BuildNet.
3. Compensation.
(a) Base Salary. In consideration of Employee's services
hereunder, BuildNet shall pay Employee a minimum annual base salary of One
Hundred Fifty Thousand Dollars ($150,000) per annum, less applicable statutory
deductions, payable in accordance with BuildNet's normal payroll practices (the
"Base Salary"). Employee's Base Salary shall be reviewed by the Board of
Directors of BuildNet on an annual basis and may be increased as the Board of
Directors of BuildNet deems appropriate in its sole discretion.
(b) Signing Bonus. Employee shall receive a signing bonus
of Sixty-five Thousand Dollars ($65,000) paid in the following fashion. $30,000
will be paid upon series B funding as a signing bonus. $35,000 will be paid upon
series B funding as an interest free loan to be forgiven after 1 year in lieu of
an annual bonus.
(c) Other Bonus. Employee may receive a bonus each calendar
year during his continued employment comparable to bonuses paid to other
similarly situated officers of BuildNet and as determined by the Board of
Directors in its sole discretion.
4. Work Location. Employee's primary work location shall be in King
County, Washington, and he shall be reimbursed for all reasonable expenses of
travel on behalf of BuildNet, or as requested or instructed by BuildNet or its
Board of Directors. If Employee is requested and agrees (in his sole discretion)
to relocate his personal residence, BuildNet shall reimburse Employee for
reasonable and documented expenses associated with Employee's relocation to the
new residence, including, without limitation (a) fees paid to any relocation
service; (b) moving expenses, which shall include packing and moving of
household items and up to sixty (60) days' temporary living expenses for
Employee and his family; and (c) reasonable closing costs incurred by Employee
in connection with the sale of his home in King County, Washington (including
but not limited to sales commissions not to exceed six percent (6%) of the
selling price), and the purchase of a home in the Raleigh/Durham area.
Notwithstanding the provisions of this Section 6, no expense will be reimbursed
by BuildNet without prior consent of the Chairman of BuildNet if such expense is
greater than $5,000.
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<PAGE> 3
5. Employee Benefits. During the Term of this Agreement, Employee shall
be eligible to receive and/or participate in all employee benefits that are
offered by BuildNet to its employees generally.
6. Intentionally Omitted.
7. Term and Termination. The term of the Employee's employment under
this Agreement (the "Term of Employment") shall commence as of the date hereof
and continue through the date four (4) years from such date, unless earlier
terminated in accordance with the provisions of this Agreement. The Term of
Employment shall automatically be extended for successive one (1) year terms
after the initial term unless either party gives notice of non-renewal at least
ninety (90) days prior to the end of the then-current term. This Agreement shall
terminate prior to the expiration of the Term of Employment upon the occurrence
of any one of the following events.
(a) Cause. BuildNet may terminate this Agreement, at any time,
with or without Cause, and with or without prior notice to Employee, in which
event all payments under this Agreement shall cease, except as provided in
Section 7(d) below. The term "Cause" as used herein shall mean (i) Employee, in
carrying out his duties hereunder, has been guilty of gross negligence or
willful and wanton misconduct which in either case results in material harm to
the financial condition, business, assets, or prospects of BuildNet; (ii) the
conviction of, or the entering of a plea of no contest by, Employee for a felony
or crime involving moral turpitude, (iii) any act involving dishonesty in the
performance of Employee's duties hereunder, including, without limitation,
fraud, misappropriation or embezzlement, (iv) any material breach of this
Agreement by Employee, which failure cannot be cured or shall not have been
cured within thirty (30) days after receipt by Employee of written notice from
BuildNet specifying in reasonable detail the nature of such breach; or (v)
Employee fails to carry out reasonable directions (consistent with his position
as set forth in Section 1 hereof and the provisions of this Agreement) of the
Board of Directors of BuildNet, which failure cannot be cured or shall not have
been cured within thirty (30) days after receipt by Employee of written notice
from BuildNet specifying in reasonable detail the failure to so carry out such
directions.
(b) Death. This Agreement shall terminate if Employee dies
during the Term of Employment. In such event, BuildNet shall pay to the
Employee's executors, legal representatives or administrators an amount as set
forth in Section 7(d) below.
(c) Disability. BuildNet may terminate this Agreement if
Employee shall suffer a Disability, in which event all payments under this
Agreement shall cease, except as provided in Section 7(d) below. For purposes of
this Agreement, "Disability" shall mean that Employee has not performed his
full-time duties with BuildNet for six (6) consecutive months or an aggregate of
six (6) months within a twelve (12) month period as a result of his incapacity
due to physical or mental illness.
(d) Certain Payments Upon Termination. If, during the Term of
Employment, BuildNet terminates the employment of Employee for Cause, Employee
voluntarily terminates his employment with BuildNet unless such termination
promptly follows a substantial reduction
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in Employee's duties, responsibility or authority, or upon the death or
Disability of Employee during the Term of Employment, the Term of Employment
shall terminate immediately thereafter, and BuildNet shall pay Employee or his
beneficiary such Base Salary as he may be entitled to receive for services
rendered prior to the date of such termination and for all accrued and unused
vacation and reimbursements of expenses owing to Employee. If, during the Term
of Employment, BuildNet terminates the employment of Employee without Cause or
Employee voluntarily terminates his employment with BuildNet promptly after (i)
there has occurred (without Employee's prior written consent) a change in his
position as Vice Chairman and an executive officer of BuildNet as specified in
Sections 1 and 2 hereof, or a reduction in his responsibilities or authority
commensurate with such positions, or (ii) BuildNet has breached any term of this
Agreement and such breach is not cured within thirty (30) days after receipt by
BuildNet of written notice from Employee specifying in reasonable detail the
nature of such breach, then BuildNet shall pay to employee, within thirty (30)
days after the effective date of such termination , for a period from the
effective date of such termination for six months of base pay as if such
termination had not occurred, plus such Base Salary as he may be entitled to
receive for services rendered prior to the date of such termination and for all
accrued and unused vacation and reimbursements of expenses owing to Employee. In
the event of any such termination, BuildNet shall not be liable for any other
payments to Employee.
8. Restrictive Covenants.
(a) Noncompetition. During the term of his employment, and for
a period of six months (and only if the severance pay listed above is paid)
after the termination or cessation of Employee's employment with BuildNet,
regardless of manner or cause of termination, Employee agrees that, within the
geographic area described in Section 8(e) hereof, he will not: (i) engage in,
manage, operate, control or supervise, or participate in the management,
operation, control or supervision of, any business or entity which provides
products or services as a substantial part of its business directly competitive
with those then currently provided by BuildNet; or (ii) have any ownership or
financial interest, directly or indirectly, in any entity which provides
products or services as a substantial part of its business directly competitive
with those then currently provided by BuildNet, including, without limitation,
as an individual, partner, shareholder (other than as a shareholder of a
publicly-owned corporation in which Employee owns less than 1% of the
outstanding shares of such corporation), officer, director, employee, member,
associate, principal, agent, representative or consultant, and shall not in any
other manner, directly or indirectly, compete to any extent with such business
of BuildNet. Notwithstanding the foregoing, Employee may, after termination of
his employment with BuildNet, engage in business as a consultant to businesses
that may be clients of BuildNet, provided he does not have a direct or indirect
ownership interest in such businesses (other than as permitted above for
publicly owned corporations). Further, nothing in this Section 8 shall prohibit
Employee from owing interest in, or having a position with, or rendering
services to, ICS Corporation, or its successor, or any licensee of ICS
Corporation which in turn licenses technology to BuildNet.
(b) Restriction on Solicitation of Customers. Employee agrees
that he will not (in addition to any other restriction on his activities), for a
period of six (6) months immediately following Employee's termination, on his
own behalf or on behalf of any other person or entity,
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directly or indirectly call on or otherwise contact customers of BuildNet on or
prior to the date of termination or cessation of Employee's employment with
BuildNet (the "Restricted Customers") within the geographic area described in
Section 8(e) hereof, for the purpose of selling products or services to the
Restricted Customers that are competitive with those provided by BuildNet.
(c) Restriction on Solicitation of Employees. Employee agrees
that he will not, for a period of six (6) months immediately following
Employee's termination, directly or indirectly contact, solicit, interfere with
or attempt to entice in any form, fashion or manner any employee of BuildNet:
(i) for the purpose of inducing that employee to work with or for Employee (or
with a person or business entity with which employee is affiliated); or (ii) to
terminate his employment with BuildNet; provided, however, nothing herein shall
restrict Employees' actions or transaction with any person who initiates a
voluntary contact with Employee seeking employment or assistance in obtaining
employment, provided such person professes an intention or desire to terminate
employment with BuildNet.
(d) Confidentiality. Employee will not at any time, whether
during or after the termination of his employment, reveal to any person or
entity any of the trade secrets or confidential information concerning the
organization, business or finances of BuildNet or of any third party that
BuildNet is under an obligation to keep confidential (including but not limited
to trade secrets or confidential information respecting inventions, research,
products, designs, methods, know-how, formulae, techniques, systems, processes,
software programs, works of authorship, customer lists, projects, plans and
proposals), except as may be required in the ordinary course of performing his
duties as an employee of BuildNet, and Employee shall keep secret all matters
entrusted to him and shall not use or attempt to use any such information in any
manner that may injure or cause loss to BuildNet. The provisions of this clause
(d) shall not apply to any information that is not treated as confidential by
BuildNet or that has come into the public domain through no fault of Employee.
(e) Geographic Scope of Restrictive Covenants. The geographic
area in which Employee shall not engage in any of the prohibited activities
listed in subsections 8(a) and 8(b) hereof shall be limited to the United
States.
9. Employee Developments. If at any time or times during Employee's
employment, Employee shall (either alone or with others) make, conceive,
discover or reduce to practice any invention, modification, discovery, design,
development, improvement, process, software program, work of authorship,
documentation, formula, data, technique, know-how, secret or intellectual
property right whatsoever or any interest therein (whether or not patentable or
registrable under copyright or similar statutes or subject to analogous
protection) (herein called "Developments") that relates to the business of
BuildNet or any of the products or services being developed, manufactured or
sold by BuildNet or that may be used in relation therewith, such Developments
and the benefits thereof shall immediately become the sole and absolute property
of BuildNet and its assigns, and Employee shall promptly disclose to BuildNet
each such Development and hereby assigns any rights Employee may have or acquire
in the Developments and benefits and/or rights resulting therefrom to BuildNet
and its assigns without further compensation and shall communicate, without cost
or delay, and without publishing the same, all available information relating
thereto to BuildNet. Upon the request of BuildNet, the Employee
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will execute and deliver all documents and do other acts which are or may be
necessary to document such transfer or to enable BuildNet to file and prosecute
applications for and to acquire, maintain, extend and enforce any and all
patents, trademark registrations or copyrights under United States or foreign
law with respect to any such developments.
Notwithstanding the foregoing, this Agreement shall not be construed to
apply to, and shall not create any assignment of, any Developments of the
Employee that are covered by Section 66-57.1 of the North Carolina General
Statutes, a copy of which is attached hereto as Exhibit A.
10. Existing Developments. Employee represents that the Developments,
if any, identified on Exhibit B attached hereto comprise all the unpatented and
uncopyrighted Developments that Employee has made or conceived prior to or
otherwise not in connection with Employee's employment by BuildNet, which
Developments are excluded from this Agreement. Employee understands that it is
necessary only to list the title and purpose of such Developments but not
details thereof.
Employee further represents that Employee's performance of all the
terms of this Agreement and as an employee of BuildNet does not and will not
breach any agreement to keep in confidence proprietary information acquired by
Employee in confidence or in trust prior to Employee's employment by BuildNet.
Employee has not entered into, and Employee agrees he will not enter into, any
agreement either written or oral in conflict herewith.
11. Return of BuildNet Property. Upon the termination of Employee's
employment with BuildNet for any reason, Employee shall leave with or return to
BuildNet all personal property belonging to BuildNet ("BuildNet Property") that
is in Employee's possession or control as of the date of such termination of
employment, including, without limitation, all records, papers, drawings,
notebooks, specifications, marketing materials, software, reports, proposals,
equipment, or any other device, document or possession, however obtained,
whether or not such BuildNet Property contains confidential or proprietary
information of BuildNet as described in Section 8(d) hereof.
12. Enforcement of the Covenants. Employee acknowledges and agrees that
the Covenants contained in Sections 8 through 11 of this Agreement are
reasonably necessary to the protection of BuildNet's business, that a violation
of any of the Covenants contained in Sections 8 through 11 of this Agreement
would result in immediate and irreparable harm to BuildNet and that BuildNet's
remedies at law and/or the award of monetary damages would be inadequate relief
for such a violation. Therefore, Employee's violation or threatened violation of
any of the Covenants contained in Sections 8 through 11 of this Agreement will
give BuildNet the right to enforce such Covenants through specific performance,
temporary restraining order, preliminary or permanent injunction, and other
equitable relief. These remedies will be cumulative and in addition to any other
remedies that BuildNet may have. In addition, Employee agrees that the Covenants
contained in Sections 8 through 11 will be extended by a length of time equal to
the period of time running from the filing of any action to enforce or challenge
the validity of the Covenants to the date of a final judgment (after appeals, if
any) or settlement of said litigation, or the expiration of all applicable
appeal periods after the entry of judgment in said litigation, whichever event
last occurs.
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13. Waiver of Breach. Any waiver by BuildNet of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of such provision or any other provision hereof.
14. Validity and Survival of the Covenants. The parties acknowledge and
agree that the obligations contained in this Agreement are exchanged for valid
and reasonable consideration, are reasonably necessary to protect BuildNet's and
Employee's legitimate interests, are reasonable with respect to time, duration,
geographic scope, dollar amounts and other provisions, and do not interfere with
the interests of the public, and that the descriptions of prohibited activities
contained in the covenants of Section 8 through 11 hereof are sufficiently
precise and definite to inform Employee of the scope of the covenants. The
covenants contained Sections 7(b), 7(c), 7(d) and 8 through 11 of this Agreement
will survive termination of Employee's employment. The parties agree that the
existence of any claim or cause of action that one may have against the other,
whether based on this Agreement or otherwise, will not constitute a defense to
the enforcement of any obligation hereunder.
15. Severability. Employee hereby agrees that each provision herein
shall be treated as a separate and independent clause, and the unenforceability
of any one clause shall in no way impair the enforceability of any of the other
clauses herein. Moreover, if one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to scope,
duration, territory, activity or subject so as to be unenforceable at law, such
provision or provisions shall be construed by the appropriate judicial body by
limiting and reducing it or them, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear. In particular, in
the event that the provisions of Sections 8(a) and 8(b) are found to be
unenforceable or void (either in whole or in part) then the offending portion
shall be construed as valid and enforceable only to the extent permitted by law,
and the balance of this Agreement will remain in full force and effect. It is
the intention of the parties to restrict the activities of Employee only to the
extent necessary to protect the legitimate business interests of BuildNet and
not to deprive Employee of the right to earn a livelihood. Employee agrees that
this Agreement is reasonably necessary to protect BuildNet's legitimate business
interests.
16. Binding Effect. Employee's obligations under this Agreement shall
survive the termination of Employee's employment regardless of the manner of
such termination and shall be binding upon Employee's heirs, executors,
administrators and legal representatives and upon BuildNet's successors and
assigns.
17. Assignment. BuildNet shall have the right to assign this Agreement
to its successors and assigns, and all covenants and agreements hereunder shall
inure to the benefit of and be enforceable by said successors or assigns. This
Agreement may be amended only in a writing signed by each of the parties hereto.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina. This Agreement may be
executed in counterparts.
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19. Entirety. This Agreement, including any exhibits hereto, as it may
be amended pursuant to the terms hereof, represents the complete and final
agreement of the parties and shall control over any other statement,
representation or agreement by BuildNet (e.g., as may appear in employment or
policy manuals). This Agreement supersedes any prior negotiations or discussions
between the parties with regard to the subject matter hereof.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and their seals affixed hereto as of the day and year first
above written.
BUILDNET INC.
By: /s/ Bayard M. Atwood, III
Name: Bayard M. Atwood, III
Title: President
EMPLOYEE
/s/ Charles M. Cosby (SEAL)
Charles M. Cosby
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EXHIBIT A
SECTION 66-57.1 OF THE NORTH CAROLINA GENERAL STATUTES
Any provision in an employment agreement which provides that the
[employee] shall assign or offer to assign any of his rights in an invention to
his employer shall not apply to an invention that the employee developed
entirely on his own time without using the employer's equipment, supplies,
facility or trade secret information except for those inventions that:
(i) relate to the employer's business or actual or demonstrably
anticipated research or development, or
(ii) result from any work performed by the employee for the employer.
To the extent a provision in an employment agreement purports to apply
to the type of invention described, it is against the public policy of this
State and [is] unenforceable. The employee shall bear the burden of proof in
establishing that his invention qualifies under this section.
<PAGE> 11
EXHIBIT B
PRIOR DEVELOPMENTS BY EMPLOYEE
The following is a complete list of all unpatented and uncopyrighted
Developments relevant to the subject matter of my employment by BuildNet that
have been made or conceived by me prior to or otherwise not in connection with
my employment by BuildNet.
No inventions or improvements.
------
X All such inventions as are described below:
------
Developments (as defined in the attached Agreement) created by or for ICS
Corporation (or any predecessor or successor thereof), or for any other
organization that has licensed, or in the future licenses, technology to The
F.A.S.T. Management Group, Inc., to BuildNet or to any entity directly or
indirectly controlling or controlled by BuildNet.
____ Additional sheets attached.
/s/ Charles M. Cosby
--------------------
Charles M. Cosby
<PAGE> 1
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of August 31, 1999, between Buildnet, Inc., a
corporation organized and existing under the laws of the State of North Carolina
("Buildnet") and Barry Drayson ("Employee").
WHEREAS, Buildnet desires to employ Employee and Employee desires to
accept such employment on the terms and conditions hereinafter set forth; and
WHEREAS, the parties hereby acknowledge that the goodwill, continued
patronage, names, addresses and specific business requirements of Buildnet's
clients and customers, and the designs, procedures, systems, strategies,
business methods and know-how of Buildnet, having been acquired through
Buildnet's efforts and/or the expenditure of considerable time and money, are
among the principal assets of Buildnet; and
WHEREAS, the parties hereby acknowledge that as a result of the
position in which Employee will be employed by Buildnet, Employee will develop
special skills and knowledge peculiar to Buildnet's business, whereby Employee
has become and will continue to become, through Employee's employment with
Buildnet, acquainted with the identities of the clients and customers of
Buildnet, and has acquired and will continue to acquire access to the techniques
of Buildnet in carrying on its business, as well as other confidential and
proprietary information; and
WHEREAS, the parties hereto acknowledge that the covenants set forth in
Sections 8 through 11 (the "Covenants") of this Agreement are necessary for the
reasonable and proper protection of Buildnet's confidential and proprietary
information (as defined herein), customer relationships, and the goodwill of
Buildnet's business, and that such Covenants constitute a material portion of
the consideration for Employee's employment hereunder;
NOW, THEREFORE, in consideration of the premises and mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt and legal sufficiency of which are hereby acknowledged, the parties
agree as follows.
1. Position; Employment. Buildnet agrees to employ Employee, and
Employee agrees to be employed, as Executive Vice President of Sales and
Marketing of Buildnet, or in such other position of comparable seniority and
status suitable to Employee's knowledge and experience as the Board of Directors
may from time to time assign. Employee shall have the executive responsibilities
and authority normally associated with his position, and no executive will have
direct authority over the areas of Employee's sales and marketing
responsibilities senior to that Employee. Employee shall also participate with
Buildnet's Chairman, Vice Chairman, Chief Executive Officer and Chief Operating
Officer in any formal or informal committee developing Buildnet's strategic
direction. The employment of Employee shall commence as of the date of this
Agreement and continue for the period beginning on the date hereof and ending as
provided in Section 6 hereof.
<PAGE> 2
2. Performance of Duties. Employee agrees to use his best efforts to
devote his entire time and best efforts, skill, ability and attention to the
business and affairs of Buildnet and to the performance of the services and
duties consistent with his position with the Company as he may be assigned from
time to time by the Board of Directors of Buildnet.
In the performance of his responsibilities as Executive Vice President
of Sales and Marketing, Employee shall be subject to all of Buildnet's policies,
rules and regulations applicable to its employees of comparable status. Employee
shall report directly to and be subject to the direction of the Chief Executive
Officer and Board of Directors of Buildnet. Employee shall perform the duties
consistent with Employee's knowledge, experience, and position and the duties of
Buildnet employees of comparable status and shall participate with other
comparable senior executive management employees in programs and policies of
Buildnet. Employee shall have such other duties and responsibilities consistent
with his position as the Board of Directors of Buildnet shall from time to time
reasonably assign to him. In performing such duties, Employee shall be subject
to and shall substantially abide by all policies and procedures developed by
Buildnet.
3. Compensation.
(a) Base Salary. In consideration of Employee's services
hereunder, Buildnet shall pay Employee a minimum annual base salary of Three
Hundred Thousand Dollars ($300,000) per annum, less applicable statutory
deductions, payable in accordance with Buildnet's normal payroll practices (the
"Base Salary"). Employee's Base Salary shall be reviewed by the Board of
Directors of Buildnet on an annual basis with a view to the increase thereof
based on Employee's performance, the performance of Buildnet, inflation,
comparable industry salaries and other relevant factors. The Base Salary, as
increased from time to time, shall not be decreased without Employee's consent.
(b) Bonus. Employee shall be entitled to participate in any
bonus plan or program which may currently exist or be developed in the future by
Buildnet for its executives generally or for its sales and marketing personnel
specifically.
4. Stock Options. Upon the commencement of Employee's employment by
Buildnet, Buildnet shall grant to Employee incentive stock options to purchase
up to an aggregate of One Hundred Thousand (100,000) shares of the Common Stock
of Buildnet, which constitutes approximately 1.49% of Buildnet's equity (based
on 6,731,563 shares of Common Stock of Buildnet outstanding on a fully diluted
basis), with an exercise price equal to the fair market value of the Common
Stock of Buildnet at the time of such grant. Options to purchase all such shares
shall begin to vest upon the effective date of this Agreement in monthly
installments over four (4) years. Such options shall become fully exercisable in
the event of (a) the termination of Employee's employment by Buildnet without
Cause (as defined herein), (b) a sale of all or substantially all the assets of
Buildnet or a merger or consolidation involving Buildnet in which the
shareholders of Buildnet prior to such transaction own less than a majority of
the voting securities of the entity surviving such transaction, or (c) any
transaction or series of related transactions pursuant to which a person, entity
or persons or entities under common control or acting as a
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group within the meaning of Section 13(d) of the Securities Exchange Act of
1934, as amended, acquires securities constituting at least a majority of the
voting power of Buildnet.
5. Employee Benefits.
(a) During Employee's Term of Employment (as defined in
Section 6 herein), Employee shall be eligible to receive and/or participate in
all employee benefits that are offered by Buildnet to its employees generally
and to senior executives specifically. In addition, Buildnet will use its best
efforts to provide dependent health care coverage reasonably similar to
Employee's existing dependent health care coverage; however, if Buildnet is
unable to provide such coverage, then Buildnet will assume and continue payments
for Employee's existing dependent health care insurance policy while Employee
resides in Ridgefield, Connecticut or until Buildnet provides comparable
coverage to its executive employees.
(b) Buildnet will reimburse Employee for reasonable and
documented expenses associated with Employee's costs of travel and lodging to
Raleigh, North Carolina, however no expense greater than $5,000 will be
reimbursed by Buildnet without prior consent of the Chief Executive Officer or
Chairman of Buildnet, it being understood that Employee will not be relocating
his principal residence from Ridgefield, Connecticut to Raleigh or Durham, North
Carolina and that Employee will be permitted to work out of his home one day in
each week.
6. Term and Termination. The term of the Employee's employment under
this Agreement (the "Term of Employment") shall commence as of the date hereof
and continue through the date four (4) years from such date, unless earlier
terminated in accordance with the provisions of this Agreement. The Term of
Employment shall automatically be extended for successive one (1) year terms
after the initial four-year term unless either party gives notice of nonrenewal
at least ninety (90) days prior to the end of the then-current term. This
Agreement shall terminate prior to the expiration of the Term of Employment upon
the occurrence of any one of the following events:
(a) Cause. Buildnet may terminate this Agreement, at any time,
for Cause, upon prior written notice to Employee and after giving Employee the
right to be heard before the Board prior to any such termination, in which event
all payments under this Agreement shall cease, except as provided in Section
6(d) below. The term "Cause" as used herein shall mean (i) Employee, in carrying
out his duties hereunder, has been guilty of gross negligence or willful and
wanton misconduct which in either case results in material harm to the financial
condition, business, assets, or prospects of Buildnet; (ii) the conviction of,
or the entering of a plea of no contest by, Employee for a felony or crime
involving moral turpitude, (iii) any act involving dishonesty in the performance
of Employee's duties hereunder, including, without limitation, fraud,
misappropriation or embezzlement, (iv) any material breach of this Agreement by
Employee, which failure cannot be cured or shall not have been cured within
thirty (30) days after receipt by Employee of written notice from Buildnet
specifying in reasonable detail the nature of such breach; or (v) Employee fails
to carry out legitimate written policy directions (consistent with his position
as set forth in Section 1 above) of the Board of Directors of Buildnet, which
failure cannot be cured or shall not have been cured within thirty (30) days
after receipt by
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Employee of written notice from Buildnet specifying in reasonable detail the
failure to so carry out such directions.
(b) Death. This Agreement shall terminate if Employee dies
during the Term of Employment. In such event, Buildnet shall pay to the
Employee's executors, legal representatives or administrators an amount as set
forth in Section 6(d) below.
(c) Disability. Buildnet may terminate this Agreement if
Employee shall suffer a Disability, in which event all payments under this
Agreement shall cease, except as provided in Section 6(d) below. For purposes of
this Agreement, "Disability" shall mean that Employee has not performed his
full-time duties with Buildnet for six (6) consecutive months or an aggregate of
six (6) months within a twelve (12) month period as a result of his incapacity
due to physical or mental illness.
(d) Certain Payments Upon Termination. If, during the Term of
Employment, Buildnet terminates the employment of Employee for Cause, Employee
voluntarily terminates his employment with Buildnet, or upon the death or
Disability of Employee during the Term of Employment, the Term of Employment
shall terminate immediately thereafter, and Buildnet shall pay Employee or his
beneficiary such Base Salary and any accrued bonus as he may be entitled to
receive for services rendered prior to the date of such termination. In the
event of any such termination, Buildnet shall not be liable for any other
payments to Employee. If, during the Term of Employment, Buildnet terminates the
employment of Employee without Cause, the obligations of Buildnet pursuant to
this Agreement, including but not limited to Sections 3, 4, and 5, shall
continue in full force and effect throughout the Term of Employment.
7. Restrictive Covenants.
(a) Noncompetition. During the term of his employment, and for
a period of two (2) years after the termination or cessation of Employee's
employment with Buildnet, regardless of manner or cause of termination, Employee
agrees that, within the geographic area described in Section 8(e) hereof, he
will not: (i) engage in, manage, operate, control or supervise, or participate
in the management, operation, control or supervision of, any business or entity
which provides products or services competitive with those then currently
provided by Buildnet; or (ii) have any ownership or financial interest, directly
or indirectly, in any entity which provides products or services competitive
with those then currently provided by Buildnet, including, without limitation,
as an individual, partner, shareholder (other than as a shareholder of a
publicly-owned corporation in which Employee owns less than 5% of the
outstanding shares of such corporation), officer, director, employee, member,
associate, principal, agent, representative or consultant, and shall not in any
other manner, directly or indirectly, compete to any extent with such business
of Buildnet.
Notwithstanding the foregoing, after termination of Employee's
employment, Employee shall be permitted to be employed by or be otherwise
involved with an entity consisting of more than one separate and distinct
operating divisions, one of which is engaged in business competitive with the
business of Buildnet, provided that Employee's employment by or
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involvement with such entity is not in any aspect related to, connected with or
affected by such operating division that is engaged in business competitive with
Buildnet's business.
(b) Restriction on Solicitation of Customers. Employee agrees
that he will not (in addition to any other restriction on his activities), for a
period of two (2) years immediately following Employee's termination, on his own
behalf or on behalf of any other person or entity, directly or indirectly call
on or otherwise contact customers of Buildnet on or prior to the date of
termination or cessation of Employee's employment with Buildnet (the "Restricted
Customers") within the geographic area described in Section 8(e) hereof, for the
purpose of selling products or services to the Restricted Customers that are
competitive with those provided by Buildnet.
(c) Restriction on Solicitation of Employees. Employee agrees
that he will not, for a period of two (2) years immediately following Employee's
termination, directly or indirectly contact, solicit, interfere with or attempt
to entice in any form, fashion or manner any employee of Buildnet: (i) for the
purpose of inducing that employee to work with or for Employee (or with a person
or business entity with which employee is affiliated); or (ii) to terminate his
employment with Buildnet.
(d) Confidentiality. Employee will not at any time, whether
during or after the termination of his employment, reveal to any person or
entity any of the trade secrets or confidential information concerning the
organization, business or finances of Buildnet or of any third party that
Buildnet is under an obligation to keep confidential (including but not limited
to trade secrets or confidential information respecting inventions, research,
products, designs, methods, know-how, formulae, techniques, systems, processes,
software programs, works of authorship, customer lists, projects, plans and
proposals), except as may be required in the ordinary course of performing his
duties as an employee of Buildnet, and Employee shall keep secret all matters
entrusted to him and shall not use or attempt to use any such information in any
manner that may injure or cause loss to Buildnet. The foregoing shall not apply
to any information that (i) is in the public domain, (ii) is already known to
Employee prior to its disclosure by Buildnet or (iii) is disclosed to Employee
by a third party under no obligation of confidentiality to Buildnet.
(e) Geographic Scope of Restrictive Covenants. The geographic
area in which Employee shall not engage in any of the prohibited activities
listed in subsections 7(a) and 7(b) hereof shall be limited to the United
States.
8. Employee Developments. If at any time or times during Employee's
employment, Employee shall (either alone or with others) make, conceive,
discover or reduce to practice any invention, modification, discovery, design,
development, improvement, process, software program, work of authorship,
documentation, formula, data, technique, know-how, secret or intellectual
property right whatsoever or any interest therein (whether or not patentable or
registrable under copyright or similar statutes or subject to analogous
protection) (herein called "Developments") that relates to the business of
Buildnet or any of the products or services being developed, manufactured or
sold by Buildnet or that may be used in relation therewith, such Developments
and the benefits thereof shall immediately become the sole and absolute property
of Buildnet and its assigns, and Employee shall promptly disclose to Buildnet
each such Development
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and hereby assigns any rights Employee may have or acquire in the Developments
and benefits and/or rights resulting therefrom to Buildnet and its assigns
without further compensation and shall communicate, without cost or delay, and
without publishing the same, all available information relating thereto to
Buildnet. Upon the request of Buildnet, the Employee will execute and deliver
all documents and do other acts which are or may be necessary to document such
transfer or to enable Buildnet to file and prosecute applications for and to
acquire, maintain, extend and enforce any and all patents, trademark
registrations or copyrights under United States or foreign law with respect to
any such developments.
Notwithstanding the foregoing, this Agreement shall not be construed to
apply to, and shall not create any assignment of, any Developments of the
Employee that are covered by Section 66-57.1 of the North Carolina General
Statutes, a copy of which is attached hereto as Exhibit A.
9. Existing Developments. Employee represents that the Developments, if
any, identified on Exhibit B attached hereto comprise all the unpatented and
uncopyrighted Developments that Employee has made or conceived prior to or
otherwise not in connection with Employee's employment by Buildnet, which
Developments are excluded from this Agreement. Employee understands that it is
necessary only to list the title and purpose of such Developments but not
details thereof.
Employee further represents that Employee's performance of all the
terms of this Agreement and as an employee of Buildnet does not and will not
breach any agreement to keep in confidence proprietary information acquired by
Employee in confidence or in trust prior to Employee's employment by Buildnet.
Employee has not entered into, and Employee agrees he will not enter into, any
agreement either written or oral in conflict herewith.
10. Return of Buildnet Property. Upon the termination of Employee's
employment with Buildnet for any reason, Employee shall leave with or return to
Buildnet all personal property belonging to Buildnet ("Buildnet Property") that
is in Employee's possession or control as of the date of such termination of
employment, including, without limitation, all records, papers, drawings,
notebooks, specifications, marketing materials, software, reports, proposals,
equipment, or any other device, document or possession, however obtained,
whether or not such Buildnet Property contains confidential or proprietary
information of Buildnet as described in Section 7(d) hereof.
11. Enforcement of the Covenants. Employee acknowledges and agrees that
the Covenants contained in Sections 7 through 10 of this Agreement are
reasonably necessary to the protection of Buildnet's business, that a violation
of any of the Covenants contained in Sections 7 through 10 of this Agreement
would result in immediate and irreparable harm to Buildnet and that Buildnet's
remedies at law and/or the award of monetary damages would be inadequate relief
for such a violation. Therefore, Employee's violation or threatened violation of
any of the Covenants contained in Sections 7 through 10 of this Agreement will
give Buildnet the right to enforce such Covenants through specific performance,
temporary restraining order, preliminary or permanent injunction, and other
equitable relief. These remedies will be cumulative and in addition to any other
remedies that Buildnet may have.
6
<PAGE> 7
In addition, Employee agrees that the Covenants contained in Sections 7 through
10 will be extended by a length of time equal to the period of time running from
the filing of any action to enforce or challenge the validity of the Covenants
to the date of a final judgment (after appeals, if any) or settlement of said
litigation, or the expiration of all applicable appeal periods after the entry
of judgment in said litigation, whichever event last occurs.
12. Waiver of Breach. Any waiver by Buildnet of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of such provision or any other provision hereof.
13. Validity and Survival of the Covenants. Employee acknowledges and
agrees that the Covenants contained in this Agreement are exchanged for valid
and reasonable consideration, are reasonably necessary to protect Buildnet's
legitimate interests, are reasonable with respect to time duration and
geographic scope, do not interfere with the interests of the public, and that
the descriptions of prohibited activities contained in the covenants are
sufficiently precise and definite to inform me of the scope of the Covenants.
The Covenants contained in Sections 7 through 10 of this Agreement will survive
termination of Employee's employment. Employee agrees that the existence of any
claim or cause of action that he may have against Buildnet, whether based on
this Agreement or otherwise, will not constitute a defense to Buildnet's
enforcement of the Covenants.
14. Severability. Employee hereby agrees that each provision herein
shall be treated as a separate and independent clause, and the unenforceability
of any one clause shall in no way impair the enforceability of any of the other
clauses herein. Moreover, if one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to scope,
duration, territory, activity or subject so as to be unenforceable at law, such
provision or provisions shall be construed by the appropriate judicial body by
limiting and reducing it or them, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear. In particular, in
the event that the provisions of Sections 7(a) and 7(b) are found to be
unenforceable or void (either in whole or in part) then the offending portion
shall be construed as valid and enforceable only to the extent permitted by law,
and the balance of this Agreement will remain in full force and effect. It is
the intention of the parties to restrict the activities of Employee only to the
extent necessary to protect the legitimate business interests of Buildnet and
not to deprive Employee of the right to earn a livelihood. Employee agrees that
this Agreement is reasonably necessary to protect Buildnet's legitimate business
interests.
15. Binding Effect. Employee's obligations under this Agreement shall
survive the termination of Employee's employment regardless of the manner of
such termination and shall be binding upon Employee's heirs, executors,
administrators and legal representatives.
16. Assignment. Buildnet shall have the right to assign this Agreement
to its successors and assigns, and all covenants and agreements hereunder shall
inure to the benefit of and be enforceable by said successors or assigns. As a
condition of any such assignment, Buildnet shall cause the assignee to assume
all of Buildnet's obligations hereunder. This Agreement may be amended only in a
writing signed by each of the parties hereto.
7
<PAGE> 8
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina. This Agreement may be
executed in counterparts.
18. Entirety. This Agreement, including any exhibits hereto, as it may
be amended pursuant to the terms hereof, represents the complete and final
agreement of the parties and shall control over any other statement,
representation or agreement by Buildnet (e.g., as may appear in employment or
policy manuals). This Agreement supersedes any prior negotiations or discussions
between the parties with regard to the subject matter hereof.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and their seals affixed hereto as of the day and year first
above written.
BUILDNET INC.
By: /s/ Nathan Morton
Name: Nathan Morton
Title: Chairman
EMPLOYEE
/s/ Barry Drayson (SEAL)
Barry Drayson
9
<PAGE> 10
EXHIBIT A
SECTION 66-57.1 OF THE NORTH CAROLINA GENERAL STATUTES
Any provision in an employment agreement which provides that the
[employee] shall assign or offer to assign any of his rights in an invention to
his employer shall not apply to an invention that the employee developed
entirely on his own time without using the employer's equipment, supplies,
facility or trade secret information except for those inventions that:
(i) relate to the employer's business or actual or demonstrably
anticipated research or development, or
(ii) result from any work performed by the employee for the employer.
To the extent a provision in an employment agreement purports to apply
to the type of invention described, it is against the public policy of this
State and [is] unenforceable. The employee shall bear the burden of proof in
establishing that his invention qualifies under this section.
<PAGE> 11
EXHIBIT B
PRIOR DEVELOPMENTS BY EMPLOYEE
The following is a complete list of all unpatented and uncopyrighted
Developments relevant to the subject matter of my employment by Buildnet that
have been made or conceived by me prior to or otherwise not in connection with
my employment by Buildnet.
X No inventions or improvements.
------
All such inventions as are described below:
------
-0- Additional sheets attached.
------
/s/ Barry Drayson
-----------------
Barry Drayson
<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of August 31, 1999, between BUILDNET INC., a
corporation organized and existing under the laws of the State of North Carolina
("BuildNet") and Steven C. Thompson ("Employee").
WHEREAS, BuildNet desires to continue to employ Employee and Employee
desires to accept such continued employment on the terms and conditions
hereinafter set forth; and
WHEREAS, the parties hereby acknowledge that the goodwill, continued
patronage, names, addresses and specific business requirements of BuildNet's
clients and customers, and the designs, procedures, systems, strategies,
business methods and know-how of BuildNet, having been acquired through
BuildNet's efforts and/or the expenditure of considerable time and money, are
among the principal assets of BuildNet; and
WHEREAS, the parties hereby acknowledge that as a result of the
position in which Employee will be employed by BuildNet, Employee will develop
special skills and knowledge peculiar to BuildNet's business, whereby Employee
has become and will continue to become, through Employee's employment with
BuildNet, acquainted with the identities of the clients and customers of
BuildNet, and has acquired and will continue to acquire access to the techniques
of BuildNet in carrying on its business, as well as other confidential and
proprietary information; and
WHEREAS, the parties hereto acknowledge that the covenants set forth in
Sections 8 through 11 (the "Covenants") of this Agreement are necessary for the
reasonable and proper protection of BuildNet's confidential and proprietary
information (as defined herein), customer relationships, and the goodwill of
BuildNet's business, and that such Covenants constitute a material portion of
the consideration for Employee's employment hereunder;
NOW, THEREFORE, in consideration of the premises and mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt and legal sufficiency of which are hereby acknowledged, the parties
agree as follows.
1. Position; Employment. BuildNet agrees to employ Employee, and
Employee agrees to be employed, as Vice President of Finance and Operations of
BuildNet, or in such other position of comparable status and seniority suitable
to Employee's knowledge and experience as the Board of Directors may from time
to time assign. The employment of Employee shall be effective as of July 16,
1999 and continue for the period as provided in Section 7 hereof.
2. Performance of Duties. Employee agrees to use his best efforts to
devote his entire time and best efforts, skill, ability and attention to the
business and affairs of BuildNet and to the performance of the services and
duties consistent with his position with BuildNet as he may be assigned from
time to time by the Board of Directors of BuildNet.
<PAGE> 2
In the performance of his responsibilities as Vice President of Finance
and Operations, Employee shall be subject to all of BuildNet's policies, rules
and regulations applicable to its employees of comparable status. Employee shall
report directly to and be subject to the direction of the Chief Executive
Officer, President, Chief Operating Officer, Chief Financial Officer and Board
of Directors of BuildNet. Employee shall perform the duties consistent with
Employee's knowledge, experience, and position and the duties of BuildNet
employees of comparable status. Employee shall have such other duties and
responsibilities consistent with his position as the Board of Directors of
BuildNet shall from time to time reasonably assign to him. In performing such
duties, Employee shall be subject to and shall substantially abide by all
policies and procedures developed by BuildNet.
3. Compensation.
(a) Base Salary. In consideration of Employee's services
hereunder, BuildNet shall pay Employee a minimum annual base salary of One
Hundred Fifty Thousand Dollars ($150,000) per annum, less applicable statutory
deductions, payable in accordance with BuildNet's normal payroll practices (the
"Base Salary"). Employee's Base Salary shall be reviewed by the Board of
Directors of BuildNet on an annual basis and may be increased as the Board of
Directors of BuildNet deems appropriate in its sole discretion.
(b) Bonus. Employee may receive a bonus each calendar year
during his continued employment comparable to bonuses paid to other similarly
situated officers of BuildNet and as determined by the Board of Directors in its
sole discretion.
4. Stock Options. Upon the commencement of Employee's employment by
BuildNet, the shares of BuildNet Common Stock exercisable pursuant to stock
options currently held by Employee shall accelerate and become fully vested and
immediately exercisable, and BuildNet shall grant to Employee new incentive
stock options to purchase up to an aggregate of thirty thousand (30,000) shares
of the Common Stock of BuildNet, with an exercise price equal to the fair market
value of the Common Stock of BuildNet at the time of such grant. Options to
purchase six thousand (6,000) shares shall be immediately exercisable and the
remaining twenty-four thousand (24,000) shares shall begin to vest upon the
effective date Employee's employment in monthly installments over a two (2) year
period. Such options shall become fully exercisable in the event of (a) a sale
of all or substantially all the assets of BuildNet or a merger or consolidation
involving BuildNet in which the shareholders of BuildNet prior to such
transaction own less than a majority of the voting securities of the entity
surviving such transaction, or (b) any transaction or series of related
transactions pursuant to which a person, entity or persons or entities under
common control or acting as a group within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended, acquires securities constituting at
least a majority of the voting power of BuildNet. Notwithstanding the foregoing,
if the Company terminates employment of Employee without Cause (as defined
herein), one-half of the shares remaining unvested on the date of termination
shall be accelerated and vest immediately.
2
<PAGE> 3
5. Employee Benefits. During the Term of this Agreement, Employee shall
be eligible to receive and/or participate in all employee benefits that are
offered by BuildNet to its employees generally.
6. INTENTIONALLY OMITTED.
7. Term and Termination. The term of the Employee's employment under
this Agreement (the "Term of Employment") shall commence effective as of July
16, 1999 and continue through the date one (1) year from the such date, unless
earlier terminated in accordance with the provisions of this Agreement. The Term
of Employment shall automatically extend beyond the initial one-year term until
such time as either party shall give notice of termination to the other. This
Agreement shall terminate prior to the expiration of the Term of Employment upon
the occurrence of any one of the following events.
(a) Cause. BuildNet may terminate this Agreement, at any time,
for Cause, with or without prior notice to Employee, in which event all payments
under this Agreement shall cease, except as provided in Section 7(d) below. The
term "Cause" as used herein shall mean (i) Employee, in carrying out his duties
hereunder, has been guilty of gross negligence or wilful and wanton misconduct
which in either case results in material harm to the financial condition,
business, assets, or prospects of BuildNet; (ii) the conviction of, or the
entering of a plea of no contest by, Employee for a felony or crime involving
moral turpitude, (iii) any act involving dishonesty in the performance of
Employee's duties hereunder, including, without limitation, fraud,
misappropriation or embezzlement, (iv) any material breach of this Agreement by
Employee, which failure cannot be cured or shall not have been cured within
thirty (30) days after receipt by Employee of written notice from BuildNet
specifying in reasonable detail the nature of such breach; or (v) Employee fails
to carry out directions (consistent with his position as set forth in Section 1
above) of the Board of Directors of BuildNet, which failure cannot be cured or
shall not have been cured within thirty (30) days after receipt by Employee of
written notice from BuildNet specifying in reasonable detail the failure to so
carry out such directions.
(b) Death. This Agreement shall terminate if Employee dies
during the Term of Employment. In such event, BuildNet shall pay to the
Employee's executors, legal representatives or administrators an amount as set
forth in Section 7(d) below.
(c) Disability. BuildNet may terminate this Agreement if
Employee shall suffer a Disability, in which event all payments under this
Agreement shall cease, except as provided in Section 7(d) below. For purposes of
this Agreement, "Disability" shall mean that Employee has not performed his
full-time duties with BuildNet for six (6) consecutive months or an aggregate of
six (6) months within a twelve (12) month period as a result of his incapacity
due to physical or mental illness.
(d) Certain Payments Upon Termination. If, during the Term of
Employment, BuildNet terminates the employment of Employee for Cause, Employee
voluntarily terminates his employment with BuildNet, or upon the death or
Disability of Employee during the Term of Employment, the Term of Employment
shall terminate immediately thereafter, and BuildNet shall pay Employee or his
beneficiary such Base Salary as he may be entitled to receive for
3
<PAGE> 4
services rendered prior to the date of such termination. In the event of any
such termination, BuildNet shall not be liable for any other payments to
Employee. If, during the Term of Employment, BuildNet terminates the employment
of Employee without Cause, the obligations of BuildNet pursuant to this
Agreement, including but not limited to Sections 3, 4 and 5, shall continue in
full force and effect for the greater of (a) the remainder of the Term of
Employment or (b) six (6) months from the date of such termination.
8. Restrictive Covenants.
(a) Noncompetition. During the term of his employment, and for
a period of one (1) year after the termination or cessation of Employee's
employment with BuildNet, regardless of manner or cause of termination, Employee
agrees that, within the geographic area described in Section 8(e) hereof, he
will not: (i) engage in, manage, operate, control or supervise, or participate
in the management, operation, control or supervision of, any business or entity
which provides products or services competitive with those then currently
provided by BuildNet; or (ii) have any ownership or financial interest, directly
or indirectly, in any entity which provides products or services competitive
with those then currently provided by BuildNet, including, without limitation,
as an individual, partner, shareholder (other than as a shareholder of a
publicly-owned corporation in which Employee owns less than 1% of the
outstanding shares of such corporation), officer, director, employee, member,
associate, principal, agent, representative or consultant, and shall not in any
other manner, directly or indirectly, compete to any extent with such business
of BuildNet.
(b) Restriction on Solicitation of Customers. Employee agrees
that he will not (in addition to any other restriction on his activities), for a
period of one (1) year immediately following Employee's termination, on his own
behalf or on behalf of any other person or entity, directly or indirectly call
on or otherwise contact customers of BuildNet on or prior to the date of
termination or cessation of Employee's employment with BuildNet (the "Restricted
Customers") within the geographic area described in Section 8(e) hereof, for the
purpose of selling products or services to the Restricted Customers that are
competitive with those provided by BuildNet.
(c) Restriction on Solicitation of Employees. Employee agrees
that he will not, for a period of one (1) year immediately following Employee's
termination, directly or indirectly contact, solicit, interfere with or attempt
to entice in any form, fashion or manner any employee of BuildNet: (i) for the
purpose of inducing that employee to work with or for Employee (or with a person
or business entity with which employee is affiliated); or (ii) to terminate his
employment with BuildNet.
(d) Confidentiality. Employee will not at any time, whether
during or after the termination of his employment, reveal to any person or
entity any of the trade secrets or confidential information concerning the
organization, business or finances of BuildNet or of any third party that
BuildNet is under an obligation to keep confidential (including but not limited
to trade secrets or confidential information respecting inventions, research,
products, designs, methods, know-how, formulae, techniques, systems, processes,
software programs, works of authorship, customer lists, projects, plans and
proposals), except as may be required in the ordinary course of performing his
duties as an employee of BuildNet, and Employee shall keep
4
<PAGE> 5
secret all matters entrusted to him and shall not use or attempt to use any such
information in any manner that may injure or cause loss to BuildNet.
(e) Geographic Scope of Restrictive Covenants. The geographic
area in which Employee shall not engage in any of the prohibited activities
listed in subsections 8(a) and 8(b) hereof shall be limited to the United
States.
9. Employee Developments. If at any time or times during Employee's
employment, Employee shall (either alone or with others) make, conceive,
discover or reduce to practice any invention, modification, discovery, design,
development, improvement, process, software program, work of authorship,
documentation, formula, data, technique, know-how, secret or intellectual
property right whatsoever or any interest therein (whether or not patentable or
registrable under copyright or similar statutes or subject to analogous
protection) (herein called "Developments") that relates to the business of
BuildNet or any of the products or services being developed, manufactured or
sold by BuildNet or that may be used in relation therewith, such Developments
and the benefits thereof shall immediately become the sole and absolute property
of BuildNet and its assigns, and Employee shall promptly disclose to BuildNet
each such Development and hereby assigns any rights Employee may have or acquire
in the Developments and benefits and/or rights resulting therefrom to BuildNet
and its assigns without further compensation and shall communicate, without cost
or delay, and without publishing the same, all available information relating
thereto to BuildNet. Upon the request of BuildNet, the Employee will execute and
deliver all documents and do other acts which are or may be necessary to
document such transfer or to enable BuildNet to file and prosecute applications
for and to acquire, maintain, extend and enforce any and all patents, trademark
registrations or copyrights under United States or foreign law with respect to
any such developments.
Notwithstanding the foregoing, this Agreement shall not be construed to
apply to, and shall not create any assignment of, any Developments of the
Employee that are covered by Section 66-57.1 of the North Carolina General
Statutes, a copy of which is attached hereto as Exhibit A.
10. Existing Developments. Employee represents that the Developments,
if any, identified on Exhibit B attached hereto comprise all the unpatented and
uncopyrighted Developments that Employee has made or conceived prior to or
otherwise not in connection with Employee's employment by BuildNet, which
Developments are excluded from this Agreement. Employee understands that it is
necessary only to list the title and purpose of such Developments but not
details thereof.
Employee further represents that Employee's performance of all the
terms of this Agreement and as an employee of BuildNet does not and will not
breach any agreement to keep in confidence proprietary information acquired by
Employee in confidence or in trust prior to Employee's employment by BuildNet.
Employee has not entered into, and Employee agrees he will not enter into, any
agreement either written or oral in conflict herewith.
11. Return of BuildNet Property. Upon the termination of Employee's
employment with BuildNet for any reason, Employee shall leave with or return to
BuildNet all personal
5
<PAGE> 6
property belonging to BuildNet ("BuildNet Property") that is in Employee's
possession or control as of the date of such termination of employment,
including, without limitation, all records, papers, drawings, notebooks,
specifications, marketing materials, software, reports, proposals, equipment, or
any other device, document or possession, however obtained, whether or not such
BuildNet Property contains confidential or proprietary information of BuildNet
as described in Section 8(d) hereof.
12. Enforcement of the Covenants. Employee acknowledges and agrees that
the Covenants contained in Sections 8 through 11 of this Agreement are
reasonably necessary to the protection of BuildNet's business, that a violation
of any of the Covenants contained in Sections 8 through 11 of this Agreement
would result in immediate and irreparable harm to BuildNet and that BuildNet's
remedies at law and/or the award of monetary damages would be inadequate relief
for such a violation. Therefore, Employee's violation or threatened violation of
any of the Covenants contained in Sections 8 through 11 of this Agreement will
give BuildNet the right to enforce such Covenants through specific performance,
temporary restraining order, preliminary or permanent injunction, and other
equitable relief. These remedies will be cumulative and in addition to any other
remedies that BuildNet may have. In addition, Employee agrees that the Covenants
contained in Sections 8 through 11 will be extended by a length of time equal to
the period of time running from the filing of any action to enforce or challenge
the validity of the Covenants to the date of a final judgment (after appeals, if
any) or settlement of said litigation, or the expiration of all applicable
appeal periods after the entry of judgment in said litigation, whichever event
last occurs.
13. Waiver of Breach. Any waiver by BuildNet of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of such provision or any other provision hereof.
14. Validity and Survival of the Covenants. Employee acknowledges and
agrees that the Covenants contained in this Agreement are exchanged for valid
and reasonable consideration, are reasonably necessary to protect BuildNet's
legitimate interests, are reasonable with respect to time duration and
geographic scope, do not interfere with the interests of the public, and that
the descriptions of prohibited activities contained in the covenants are
sufficiently precise and definite to inform me of the scope of the Covenants.
The Covenants contained Sections 8 through 11 of this Agreement will survive
termination of Employee's employment. Employee agrees that the existence of any
claim or cause of action that he may have against BuildNet, whether based on
this Agreement or otherwise, will not constitute a defense to BuildNet's
enforcement of the Covenants.
15. Severability. Employee hereby agrees that each provision herein
shall be treated as a separate and independent clause, and the unenforceability
of any one clause shall in no way impair the enforceability of any of the other
clauses herein. Moreover, if one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to scope,
duration, territory, activity or subject so as to be unenforceable at law, such
provision or provisions shall be construed by the appropriate judicial body by
limiting and reducing it or them, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear. In particular, in
the event that the provisions of Sections 8(a) and 8(b) are found to be
unenforceable or void (either in whole or in part) then the offending portion
shall be construed as valid and enforceable only to the extent permitted by law,
and the balance of this Agreement will remain in full force and effect. It
6
<PAGE> 7
is the intention of the parties to restrict the activities of Employee only to
the extent necessary to protect the legitimate business interests of BuildNet
and not to deprive Employee of the right to earn a livelihood. Employee agrees
that this Agreement is reasonably necessary to protect BuildNet's legitimate
business interests.
16. Binding Effect. Employee's obligations under this Agreement shall
survive the termination of Employee's employment regardless of the manner of
such termination and shall be binding upon Employee's heirs, executors,
administrators and legal representatives.
17. Assignment. BuildNet shall have the right to assign this Agreement
to its successors and assigns, and all covenants and agreements hereunder shall
inure to the benefit of and be enforceable by said successors or assigns. This
Agreement may be amended only in a writing signed by each of the parties hereto.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina. This Agreement may be
executed in counterparts.
19. Entirety. This Agreement, including any exhibits hereto, as it may
be amended pursuant to the terms hereof, represents the complete and final
agreement of the parties and shall control over any other statement,
representation or agreement by BuildNet (e.g., as may appear in employment or
policy manuals). This Agreement supersedes any prior negotiations or discussions
between the parties with regard to the subject matter hereof.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duly executed and their seals affixed hereto as of
the day and year first above written.
BUILDNET INC.
By: /s/ Keith T. Brown
Name: Keith T. Brown
Title: CEO
EMPLOYEE
/s/ Steven C. Thompson (SEAL)
Steven C. Thompson
8
<PAGE> 9
EXHIBIT A
SECTION 66-57.1 OF THE NORTH CAROLINA GENERAL STATUTES
Any provision in an employment agreement which provides that the
[employee] shall assign or offer to assign any of his rights in an invention to
his employer shall not apply to an invention that the employee developed
entirely on his own time without using the employer's equipment, supplies,
facility or trade secret information except for those inventions that:
(i) relate to the employer's business or actual or demonstrably
anticipated research or development, or
(ii) result from any work performed by the employee for the employer.
To the extent a provision in an employment agreement purports to apply
to the type of invention described, it is against the public policy of this
State and [is] unenforceable. The employee shall bear the burden of proof in
establishing that his invention qualifies under this section.
<PAGE> 10
EXHIBIT B
PRIOR DEVELOPMENTS BY EMPLOYEE
The following is a complete list of all unpatented and uncopyrighted
Developments relevant to the subject matter of my employment by BuildNet that
have been made or conceived by me prior to or otherwise not in connection with
my employment by BuildNet.
No inventions or improvements.
------
All such inventions as are described below:
------
Additional sheets attached.
------
/s/ Steven C. Thompson
----------------------
Steven C. Thompson
<PAGE> 1
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of September 27, 1999, between Buildnet,
Inc., a corporation organized and existing under the laws of the State of North
Carolina ("Buildnet") and Stephen L. Holcombe ("Employee").
WHEREAS, Buildnet desires to employ Employee and Employee desires to
accept such employment on the terms and conditions hereinafter set forth; and
WHEREAS, the parties hereby acknowledge that the goodwill, continued
patronage, names, addresses and specific business requirements of Buildnet's
clients and customers, and the designs, procedures, systems, strategies,
business methods and know-how of Buildnet, having been acquired through
Buildnet's efforts and/or the expenditure of considerable time and money, are
among the principal assets of Buildnet; and
WHEREAS, the parties hereby acknowledge that as a result of the
position in which Employee will be employed by Buildnet, Employee will develop
special skills and knowledge peculiar to Buildnet's business, whereby Employee
has become and will continue to become, through Employee's employment with
Buildnet, acquainted with the identities of the clients and customers of
Buildnet, and has acquired and will continue to acquire access to the techniques
of Buildnet in carrying on its business, as well as other confidential and
proprietary information; and
WHEREAS, the parties hereto acknowledge that the covenants set forth in
Sections 8 through 11 (the "Covenants") of this Agreement are necessary for the
reasonable and proper protection of Buildnet's confidential and proprietary
information (as defined herein), customer relationships, and the goodwill of
Buildnet's business, and that such Covenants constitute a material portion of
the consideration for Employee's employment hereunder;
NOW, THEREFORE, in consideration of the premises and mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt and legal sufficiency of which are hereby acknowledged, the parties
agree as follows.
1. Position; Employment. Buildnet agrees to employ Employee, and
Employee agrees to be employed, as Executive Vice President of Sales and
Marketing of Buildnet, or in such other position of comparable seniority and
status suitable to Employee's knowledge and experience as the Board of Directors
may from time to time assign. The employment of Employee shall commence as of
the date of this Agreement and continue for the period beginning on the date
hereof and ending as provided in Section 6 hereof.
2. Performance of Duties. Employee agrees to use his best efforts to
devote his entire time and best efforts, skill, ability and attention to the
business and affairs of Buildnet and to the performance of the services and
duties consistent with his position with the Company as he may be assigned from
time to time by the Board of Directors of Buildnet.
<PAGE> 2
In the performance of his responsibilities as Chief Financial Officer,
Employee shall be subject to all of Buildnet's policies, rules and regulations
applicable to its employees of comparable status. Employee shall report directly
to and be subject to the direction of the President and Board of Directors of
Buildnet. Employee shall perform the duties consistent with Employee's
knowledge, experience, and position and the duties of Buildnet employees of
comparable status and shall participate with other comparable senior executive
management employees in programs and policies of Buildnet. Employee shall have
such other duties and responsibilities consistent with his position as the Board
of Directors of Buildnet shall from time to time reasonably assign to him. In
performing such duties, Employee shall be subject to and shall substantially
abide by all policies and procedures developed by Buildnet.
3. Compensation.
(a) Base Salary. In consideration of Employee's services
hereunder, Buildnet shall pay Employee a minimum annual base salary of Two
Hundred Thousand Dollars ($200,000) per annum, less applicable statutory
deductions, payable in accordance with Buildnet's normal payroll practices (the
"Base Salary"). Employee's Base Salary shall be reviewed by the Board of
Directors of Buildnet on an annual basis with a view to the increase thereof
based on Employee's performance, the performance of Buildnet, inflation,
comparable industry salaries and other relevant factors. The Base Salary, as
increased from time to time, shall not be decreased without Employee's consent.
(b) Bonus. Employee shall be entitled to participate in any
bonus plan or program which may currently exist or be developed in the future by
Buildnet for its executives generally or for its sales and marketing personnel
specifically.
4. Stock Options. Upon the commencement of Employee's employment by
Buildnet, Buildnet shall grant to Employee incentive stock options to purchase
up to an aggregate of Seventy-Two Thousand (72,000) shares of the Common Stock
of Buildnet, with an exercise price of $3.30. Options to purchase all such
shares shall begin to vest upon the effective date of this Agreement in monthly
installments over four (4) years. Such options shall become fully exercisable in
the event of (a) a sale of all or substantially all the assets of Buildnet or a
merger or consolidation involving Buildnet in which the shareholders of Buildnet
prior to such transaction own less than a majority of the voting securities of
the entity surviving such transaction, (b) any transaction or series of related
transactions pursuant to which a person, entity or persons or entities under
common control or acting as a group within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended, acquires securities constituting at
least a majority of the voting power of Buildnet, or (c) if the employee is
terminated without cause.
5. Employee Benefits.
(a) During Employee's Term of Employment (as defined in
Section 6 herein), Employee shall be eligible to receive and/or participate in
all employee benefits that are offered by Buildnet to its employees generally
and to senior executives specifically.
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(b) If during the term of this agreement, Buildnet and the
employee agree that it would be beneficial for him to relocate to the
Raleigh/Durham area, Buildnet will reimburse the employee for the cost
associated with selling his residence and purchasing one in the Raleigh/Durham
area as well as the costs to move his household goods.
6. Term and Termination. The term of the Employee's employment under
this Agreement (the "Term of Employment") shall commence as of the date hereof
and continue through the date four (4) years from such date, unless earlier
terminated in accordance with the provisions of this Agreement. The Term of
Employment shall automatically be extended for successive one (1) year terms
after the initial four-year term unless either party gives notice of nonrenewal
at least ninety (90) days prior to the end of the then-current term. This
Agreement shall terminate prior to the expiration of the Term of Employment upon
the occurrence of any one of the following events:
(a) Cause. Buildnet may terminate this Agreement, at any time,
for Cause, upon prior written notice to Employee and after giving Employee the
right to be heard before the Board prior to any such termination, in which event
all payments under this Agreement shall cease, except as provided in Section
6(d) below. The term "Cause" as used herein shall mean (i) Employee, in carrying
out his duties hereunder, has been guilty of gross negligence or willful and
wanton misconduct which in either case results in material harm to the financial
condition, business, assets, or prospects of Buildnet; (ii) the conviction of,
or the entering of a plea of no contest by, Employee for a felony or crime
involving moral turpitude, (iii) any act involving dishonesty in the performance
of Employee's duties hereunder, including, without limitation, fraud,
misappropriation or embezzlement, (iv) any material breach of this Agreement by
Employee, which failure cannot be cured or shall not have been cured within
thirty (30) days after receipt by Employee of written notice from Buildnet
specifying in reasonable detail the nature of such breach; or (v) Employee fails
to carry out legitimate written policy directions (consistent with his position
as set forth in Section 1 above) of the Board of Directors of Buildnet, which
failure cannot be cured or shall not have been cured within thirty (30) days
after receipt by Employee of written notice from Buildnet specifying in
reasonable detail the failure to so carry out such directions.
(b) Death. This Agreement shall terminate if Employee dies
during the Term of Employment. In such event, Buildnet shall pay to the
Employee's executors, legal representatives or administrators an amount as set
forth in Section 6(d) below.
(c) Disability. Buildnet may terminate this Agreement if
Employee shall suffer a Disability, in which event all payments under this
Agreement shall cease, except as provided in Section 6(d) below. For purposes of
this Agreement, "Disability" shall mean that Employee has not performed his
full-time duties with Buildnet for six (6) consecutive months or an aggregate of
six (6) months within a twelve (12) month period as a result of his incapacity
due to physical or mental illness.
(d) Certain Payments Upon Termination. If, during the Term of
Employment, Buildnet terminates the employment of Employee for Cause, Employee
voluntarily terminates his
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<PAGE> 4
employment with Buildnet, or upon the death or Disability of Employee during the
Term of Employment, the Term of Employment shall terminate immediately
thereafter, and Buildnet shall pay Employee or his beneficiary such Base Salary
and any accrued bonus as he may be entitled to receive for services rendered
prior to the date of such termination. If, during the Term of Employment,
Buildnet terminates the employment of Employee without Cause, then Buildnet
shall pay the employee an amount equal to one half his annual salary. An
exception to this will occur if a change on control of the company as defined in
4(a) above occurs. If such a change of control occurs and the employee is
terminated without cause then a payment equivalent to the employees salary
through the term of this agreement will be made in lieu of one half of the
annual salary. In the event of any such termination, Buildnet shall not be
liable for any other payments to Employee.
7. Restrictive Covenants.
(a) Noncompetition. During the term of his employment, and for
a period of two (2) years after the termination or cessation of Employee's
employment with Buildnet, regardless of manner or cause of termination, Employee
agrees that, within the geographic area described in Section 8(e) hereof, he
will not: (i) engage in, manage, operate, control or supervise, or participate
in the management, operation, control or supervision of, any business or entity
which provides products or services competitive with those then currently
provided by Buildnet; or (ii) have any ownership or financial interest, directly
or indirectly, in any entity which provides products or services competitive
with those then currently provided by Buildnet, including, without limitation,
as an individual, partner, shareholder (other than as a shareholder of a
publicly-owned corporation in which Employee owns less than 5% of the
outstanding shares of such corporation), officer, director, employee, member,
associate, principal, agent, representative or consultant, and shall not in any
other manner, directly or indirectly, compete to any extent with such business
of Buildnet.
Notwithstanding the foregoing, after termination of Employee's
employment, Employee shall be permitted to be employed by or be otherwise
involved with an entity consisting of more than one separate and distinct
operating divisions, one of which is engaged in business competitive with the
business of Buildnet, provided that Employee's employment by or involvement with
such entity is not in any aspect related to, connected with or affected by such
operating division that is engaged in business competitive with Buildnet's
business.
(b) Restriction on Solicitation of Customers. Employee agrees
that he will not (in addition to any other restriction on his activities), for a
period of two (2) years immediately following Employee's termination, on his own
behalf or on behalf of any other person or entity, directly or indirectly call
on or otherwise contact customers of Buildnet on or prior to the date of
termination or cessation of Employee's employment with Buildnet (the "Restricted
Customers") within the geographic area described in Section 8(e) hereof, for the
purpose of selling products or services to the Restricted Customers that are
competitive with those provided by Buildnet.
(c) Restriction on Solicitation of Employees. Employee agrees
that he will not, for a period of two (2) years immediately following Employee's
termination, directly or indirectly contact,
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<PAGE> 5
solicit, interfere with or attempt to entice in any form, fashion or manner any
employee of Buildnet: (i) for the purpose of inducing that employee to work with
or for Employee (or with a person or business entity with which employee is
affiliated); or (ii) to terminate his employment with Buildnet.
(d) Confidentiality. Employee will not at any time, whether
during or after the termination of his employment, reveal to any person or
entity any of the trade secrets or confidential information concerning the
organization, business or finances of Buildnet or of any third party that
Buildnet is under an obligation to keep confidential (including but not limited
to trade secrets or confidential information respecting inventions, research,
products, designs, methods, know-how, formulae, techniques, systems, processes,
software programs, works of authorship, customer lists, projects, plans and
proposals), except as may be required in the ordinary course of performing his
duties as an employee of Buildnet, and Employee shall keep secret all matters
entrusted to him and shall not use or attempt to use any such information in any
manner that may injure or cause loss to Buildnet. The foregoing shall not apply
to any information that (i) is in the public domain, (ii) is already known to
Employee prior to its disclosure by Buildnet or (iii) is disclosed to Employee
by a third party under no obligation of confidentiality to Buildnet.
(e) Geographic Scope of Restrictive Covenants. The geographic
area in which Employee shall not engage in any of the prohibited activities
listed in subsections 7(a) and 7(b) hereof shall be limited to the United
States.
8. Employee Developments. If at any time or times during Employee's
employment, Employee shall (either alone or with others) make, conceive,
discover or reduce to practice any invention, modification, discovery, design,
development, improvement, process, software program, work of authorship,
documentation, formula, data, technique, know-how, secret or intellectual
property right whatsoever or any interest therein (whether or not patentable or
registrable under copyright or similar statutes or subject to analogous
protection) (herein called "Developments") that relates to the business of
Buildnet or any of the products or services being developed, manufactured or
sold by Buildnet or that may be used in relation therewith, such Developments
and the benefits thereof shall immediately become the sole and absolute property
of Buildnet and its assigns, and Employee shall promptly disclose to Buildnet
each such Development and hereby assigns any rights Employee may have or acquire
in the Developments and benefits and/or rights resulting therefrom to Buildnet
and its assigns without further compensation and shall communicate, without cost
or delay, and without publishing the same, all available information relating
thereto to Buildnet. Upon the request of Buildnet, the Employee will execute and
deliver all documents and do other acts which are or may be necessary to
document such transfer or to enable Buildnet to file and prosecute applications
for and to acquire, maintain, extend and enforce any and all patents, trademark
registrations or copyrights under United States or foreign law with respect to
any such developments.
Notwithstanding the foregoing, this Agreement shall not be construed to
apply to, and shall not create any assignment of, any Developments of the
Employee that are covered by Section 66-57.1 of the North Carolina General
Statutes, a copy of which is attached hereto as Exhibit A.
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<PAGE> 6
9. Existing Developments. Employee represents that the Developments, if
any, identified on Exhibit B attached hereto comprise all the unpatented and
uncopyrighted Developments that Employee has made or conceived prior to or
otherwise not in connection with Employee's employment by Buildnet, which
Developments are excluded from this Agreement. Employee understands that it is
necessary only to list the title and purpose of such Developments but not
details thereof.
Employee further represents that Employee's performance of all the
terms of this Agreement and as an employee of Buildnet does not and will not
breach any agreement to keep in confidence proprietary information acquired by
Employee in confidence or in trust prior to Employee's employment by Buildnet.
Employee has not entered into, and Employee agrees he will not enter into, any
agreement either written or oral in conflict herewith.
10. Return of Buildnet Property. Upon the termination of Employee's
employment with Buildnet for any reason, Employee shall leave with or return to
Buildnet all personal property belonging to Buildnet ("Buildnet Property") that
is in Employee's possession or control as of the date of such termination of
employment, including, without limitation, all records, papers, drawings,
notebooks, specifications, marketing materials, software, reports, proposals,
equipment, or any other device, document or possession, however obtained,
whether or not such Buildnet Property contains confidential or proprietary
information of Buildnet as described in Section 7(d) hereof.
11. Enforcement of the Covenants. Employee acknowledges and agrees that
the Covenants contained in Sections 7 through 10 of this Agreement are
reasonably necessary to the protection of Buildnet's business, that a violation
of any of the Covenants contained in Sections 7 through 10 of this Agreement
would result in immediate and irreparable harm to Buildnet and that Buildnet's
remedies at law and/or the award of monetary damages would be inadequate relief
for such a violation. Therefore, Employee's violation or threatened violation of
any of the Covenants contained in Sections 7 through 10 of this Agreement will
give Buildnet the right to enforce such Covenants through specific performance,
temporary restraining order, preliminary or permanent injunction, and other
equitable relief. These remedies will be cumulative and in addition to any other
remedies that Buildnet may have. In addition, Employee agrees that the Covenants
contained in Sections 7 through 10 will be extended by a length of time equal to
the period of time running from the filing of any action to enforce or challenge
the validity of the Covenants to the date of a final judgment (after appeals, if
any) or settlement of said litigation, or the expiration of all applicable
appeal periods after the entry of judgment in said litigation, whichever event
last occurs.
12. Waiver of Breach. Any waiver by Buildnet of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of such provision or any other provision hereof.
13. Validity and Survival of the Covenants. Employee acknowledges and
agrees that the Covenants contained in this Agreement are exchanged for valid
and reasonable consideration, are reasonably necessary to protect Buildnet's
legitimate interests, are reasonable with respect to time
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<PAGE> 7
duration and geographic scope, do not interfere with the interests of the
public, and that the descriptions of prohibited activities contained in the
covenants are sufficiently precise and definite to inform me of the scope of the
Covenants. The Covenants contained in Sections 7 through 10 of this Agreement
will survive termination of Employee's employment. Employee agrees that the
existence of any claim or cause of action that he may have against Buildnet,
whether based on this Agreement or otherwise, will not constitute a defense to
Buildnet's enforcement of the Covenants.
14. Severability. Employee hereby agrees that each provision herein
shall be treated as a separate and independent clause, and the unenforceability
of any one clause shall in no way impair the enforceability of any of the other
clauses herein. Moreover, if one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to scope,
duration, territory, activity or subject so as to be unenforceable at law, such
provision or provisions shall be construed by the appropriate judicial body by
limiting and reducing it or them, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear. In particular, in
the event that the provisions of Sections 7(a) and 7(b) are found to be
unenforceable or void (either in whole or in part) then the offending portion
shall be construed as valid and enforceable only to the extent permitted by law,
and the balance of this Agreement will remain in full force and effect. It is
the intention of the parties to restrict the activities of Employee only to the
extent necessary to protect the legitimate business interests of Buildnet and
not to deprive Employee of the right to earn a livelihood. Employee agrees that
this Agreement is reasonably necessary to protect Buildnet's legitimate business
interests.
15. Binding Effect. Employee's obligations under this Agreement shall
survive the termination of Employee's employment regardless of the manner of
such termination and shall be binding upon Employee's heirs, executors,
administrators and legal representatives.
16. Assignment. Buildnet shall have the right to assign this Agreement
to its successors and assigns, and all covenants and agreements hereunder shall
inure to the benefit of and be enforceable by said successors or assigns. As a
condition of any such assignment, Buildnet shall cause the assignee to assume
all of Buildnet's obligations hereunder. This Agreement may be amended only in a
writing signed by each of the parties hereto.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina. This Agreement may be
executed in counterparts.
18. Entirety. This Agreement, including any exhibits hereto, as it may
be amended pursuant to the terms hereof, represents the complete and final
agreement of the parties and shall control over any other statement,
representation or agreement by Buildnet (e.g., as may appear in employment or
policy manuals). This Agreement supersedes any prior negotiations or discussions
between the parties with regard to the subject matter hereof.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and their seals affixed hereto as of the day and year first
above written.
BUILDNET INC.
By: /s/ Bayard M Atwood, III
----------------------------
Name: Bayard M. Atwood, III
--------------------------
Title: President
-------------------------
EMPLOYEE
/s/ Stephen L. Holcombe (SEAL)
--------------------------
Stephen L. Holcombe
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EXHIBIT A
SECTION 66-57.1 OF THE NORTH CAROLINA GENERAL STATUTES
Any provision in an employment agreement which provides that the
[employee] shall assign or offer to assign any of his rights in an invention to
his employer shall not apply to an invention that the employee developed
entirely on his own time without using the employer's equipment, supplies,
facility or trade secret information except for those inventions that:
(i) relate to the employer's business or actual or demonstrably
anticipated research or development, or
(ii) result from any work performed by the employee for the employer.
To the extent a provision in an employment agreement purports to apply
to the type of invention described, it is against the public policy of this
State and [is] unenforceable. The employee shall bear the burden of proof in
establishing that his invention qualifies under this section.
<PAGE> 10
EXHIBIT B
PRIOR DEVELOPMENTS BY EMPLOYEE
The following is a complete list of all unpatented and uncopyrighted
Developments relevant to the subject matter of my employment by Buildnet that
have been made or conceived by me prior to or otherwise not in connection with
my employment by Buildnet.
No inventions or improvements.
------
All such inventions as are described below:
------
Additional sheets attached.
-------
/s/ Stephen L. Holcombe
-----------------------
Stephen L. Holcombe
<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of September 29, 1999, between BUILDNET
INC., a corporation organized and existing under the laws of the State of North
Carolina ("BuildNet") and David Russo ("Employee").
WHEREAS, BuildNet desires to employ Employee and Employee desires to
accept such employment on the terms and conditions hereinafter set forth; and
WHEREAS, the parties hereby acknowledge that the goodwill, continued
patronage, names, addresses and specific business requirements of BuildNet's
clients and customers, and the designs, procedures, systems, strategies,
business methods and know-how of BuildNet, having been acquired through
BuildNet's efforts and/or the expenditure of considerable time and money, are
among the principal assets of BuildNet; and
WHEREAS, the parties hereby acknowledge that as a result of the
position in which Employee will be employed by BuildNet, Employee will develop
special skills and knowledge peculiar to BuildNet's business, whereby Employee
has become and will continue to become, through Employee's employment with
BuildNet, acquainted with the identities of the clients and customers of
BuildNet, and has acquired and will continue to acquire access to the
techniques of BuildNet in carrying on its business, as well as other
confidential and proprietary information; and
WHEREAS, the parties hereto acknowledge that the covenants set forth
in Sections 8 through 11 (the "Covenants") of this Agreement are necessary for
the reasonable and proper protection of BuildNet's confidential and proprietary
information (as defined herein), customer relationships, and the goodwill of
BuildNet's business, and that such Covenants constitute a material portion of
the consideration for Employee's employment hereunder;
NOW, THEREFORE, in consideration of the premises and mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt and legal sufficiency of which are hereby acknowledged, the parties
agree as follows.
1. Position; Employment. BuildNet agrees to employ Employee, and
Employee agrees to be employed, as Executive Vice President of Human Resources
of BuildNet, or in such other position as the Board of Directors may from time
to time assign. The employment of Employee shall commence and continue for the
period beginning and ending as provided in Section 7 hereof.
2. Performance of Duties. Employee agrees to use his best efforts to
devote his entire time and best efforts, skill, ability and attention to the
business and affairs of BuildNet and to the performance of the services and
duties as he may be assigned from time to time by the Board of Directors of
BuildNet.
<PAGE> 2
In the performance of his responsibilities as Executive Vice President
of Human Resources, Employee shall be subject to all of BuildNet's policies,
rules and regulations applicable to its employees of comparable status.
Employee shall report directly to and be subject to the direction of the
Chairman and Board of Directors of BuildNet. Employee shall perform the duties
consistent with Employee's knowledge, experience, and position and the duties
of BuildNet employees of comparable status. Employee shall have such other
duties and responsibilities consistent with his position as the Board of
Directors of BuildNet shall from time to time reasonably assign to him. In
performing such duties, Employee shall be subject to and shall substantially
abide by all policies and procedures developed by BuildNet.
3. Compensation.
(a) Base Salary. In consideration of Employee's services
hereunder, BuildNet shall pay Employee a minimum annual base salary of One
Hundred Ninety Thousand Dollars ($190,000) per annum, less applicable statutory
deductions, payable in accordance with BuildNet's normal payroll practices (the
"Base Salary"). Employee's Base Salary shall be reviewed by the Board of
Directors of BuildNet on an annual basis and may be increased as the Board of
Directors of BuildNet deems appropriate in its sole discretion.
(b) Bonus. Employee shall to receive a $50,000 bonus on
December 31, 2000, provided that the Chairman of the Company and Employee
mutually determine that certain agreed upon performance criteria have been met
by Employee as of such date. Employee shall receive a bonus each calendar year
during his continued employment comparable to bonuses paid to other similarly
situated officers of BuildNet and as determined by the Board of Directors in
its sole discretion.
4. Stock Options. Upon the commencement of Employee's employment by
BuildNet, BuildNet shall grant to Employee incentive stock options to purchase
up to an aggregate of Fifty Thousand (50,000) shares of the Common Stock of
BuildNet, with an exercise price equal to the fair market value of the Common
Stock of BuildNet at the time of such grant. Options to purchase all such
shares shall begin to vest upon the commencement of the Term of Employment as
defined in Section 7, in monthly installments over four (4) years. Such options
shall become fully exercisable in the event of (a) a sale of all or
substantially all the assets of BuildNet or a merger or consolidation involving
BuildNet in which the shareholders of BuildNet prior to such transaction own
less than a majority of the voting securities of the entity surviving such
transaction, or (b) any transaction or series of related transactions pursuant
to which a person, entity or persons or entities under common control or acting
as a group within the meaning of Section 13(d) of the Securities Exchange Act
of 1934, as amended, acquires securities constituting at least a majority of
the voting power of BuildNet.
5. Employee Benefits. During the Term of this Agreement, Employee
shall be eligible to receive and/or participate in all employee benefits that
are offered by BuildNet to its employees generally.
6. INTENTIONALLY OMITTED.
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7. Term and Termination. The term of the Employee's employment
under this Agreement (the "Term of Employment") shall commence as of December
1, 1999 and continue through the date three (3) years from such date, unless
earlier terminated in accordance with the provisions of this Agreement. This
Agreement shall terminate prior to the expiration of the Term of Employment
upon the occurrence of any one of the following events.
(a) Cause. BuildNet may terminate this Agreement, at any time,
for Cause, with or without prior notice to Employee, in which event all
payments under this Agreement shall cease, except as provided in Section 7(d)
below. The term "Cause" as used herein shall mean (i) Employee, in carrying out
his duties hereunder, has been guilty of gross negligence or wilful and wanton
misconduct which in either case results in material harm to the financial
condition, business, assets, or prospects of BuildNet; (ii) the conviction of,
or the entering of a plea of no contest by, Employee for a felony or crime
involving moral turpitude, (iii) any act involving dishonesty in the
performance of Employee's duties hereunder, including, without limitation,
fraud, misappropriation or embezzlement, (iv) any material breach of this
Agreement by Employee, which failure cannot be cured or shall not have been
cured within thirty (30) days after receipt by Employee of written notice from
BuildNet specifying in reasonable detail the nature of such breach; or (v)
Employee fails to carry out directions (consistent with his position as set
forth in Section 1 above) of the Board of Directors of BuildNet, which failure
cannot be cured or shall not have been cured within thirty (30) days after
receipt by Employee of written notice from BuildNet specifying in reasonable
detail the failure to so carry out such directions.
(b) Death. This Agreement shall terminate if Employee dies
during the Term of Employment. In such event, BuildNet shall pay to the
Employee's executors, legal representatives or administrators an amount as set
forth in Section 7(d) below.
(c) Disability. BuildNet may terminate this Agreement if
Employee shall suffer a Disability, in which event all payments under this
Agreement shall cease, except as provided in Section 7(d) below. For purposes
of this Agreement, "Disability" shall mean that Employee has not performed his
full-time duties with BuildNet for six (6) consecutive months or an aggregate
of six (6) months within a twelve (12) month period as a result of his
incapacity due to physical or mental illness.
(d) Certain Payments Upon Termination. If, during the Term of
Employment, BuildNet terminates the employment of Employee for Cause, Employee
voluntarily terminates his employment with BuildNet, or upon the death or
Disability of Employee during the Term of Employment, the Term of Employment
shall terminate immediately thereafter, and BuildNet shall pay Employee or his
beneficiary such Base Salary as he may be entitled to receive for services
rendered prior to the date of such termination. In the event of any such
termination, BuildNet shall not be liable for any other payments to Employee.
If, during the Term of Employment, BuildNet terminates the employment of
Employee without Cause, the obligations of BuildNet pursuant to this Agreement,
including but not limited to Sections 3, 4 and 5, shall continue in full force
and effect for the remainder of the Term of Employment.
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<PAGE> 4
8. Restrictive Covenants.
(a) Noncompetition. During the term of his employment, and for
a period of two (2) years after the termination or cessation of Employee's
employment with BuildNet, regardless of manner or cause of termination,
Employee agrees that, within the geographic area described in Section 8(e)
hereof, he will not: (i) engage in, manage, operate, control or supervise, or
participate in the management, operation, control or supervision of, any
business or entity which provides products or services competitive with those
then currently provided by BuildNet; or (ii) have any ownership or financial
interest, directly or indirectly, in any entity which provides products or
services competitive with those then currently provided by BuildNet, including,
without limitation, as an individual, partner, shareholder (other than as a
shareholder of a publicly-owned corporation in which Employee owns less than 1%
of the outstanding shares of such corporation), officer, director, employee,
member, associate, principal, agent, representative or consultant, and shall
not in any other manner, directly or indirectly, compete to any extent with
such business of BuildNet.
(b) Restriction on Solicitation of Customers. Employee agrees
that he will not (in addition to any other restriction on his activities), for
a period of two (2) years immediately following Employee's termination, on his
own behalf or on behalf of any other person or entity, directly or indirectly
call on or otherwise contact customers of BuildNet on or prior to the date of
termination or cessation of Employee's employment with BuildNet (the
"Restricted Customers") within the geographic area described in Section 8(e)
hereof, for the purpose of selling products or services to the Restricted
Customers that are competitive with those provided by BuildNet.
(c) Restriction on Solicitation of Employees. Employee agrees
that he will not, for a period of two (2) years immediately following
Employee's termination, directly or indirectly contact, solicit, interfere with
or attempt to entice in any form, fashion or manner any employee of BuildNet:
(i) for the purpose of inducing that employee to work with or for Employee (or
with a person or business entity with which employee is affiliated); or (ii) to
terminate his employment with BuildNet.
(d) Confidentiality. Employee will not at any time, whether
during or after the termination of his employment, reveal to any person or
entity any of the trade secrets or confidential information concerning the
organization, business or finances of BuildNet or of any third party that
BuildNet is under an obligation to keep confidential (including but not limited
to trade secrets or confidential information respecting inventions, research,
products, designs, methods, know-how, formulae, techniques, systems, processes,
software programs, works of authorship, customer lists, projects, plans and
proposals), except as may be required in the ordinary course of performing his
duties as an employee of BuildNet, and Employee shall keep secret all matters
entrusted to him and shall not use or attempt to use any such information in
any manner that may injure or cause loss to BuildNet.
(e) Geographic Scope of Restrictive Covenants. The geographic
area in which Employee shall not engage in any of the prohibited activities
listed in subsections 8(a) and 8(b) hereof shall be limited to the United
States.
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<PAGE> 5
9. Employee Developments. If at any time or times during Employee's
employment, Employee shall (either alone or with others) make, conceive,
discover or reduce to practice any invention, modification, discovery, design,
development, improvement, process, software program, work of authorship,
documentation, formula, data, technique, know-how, secret or intellectual
property right whatsoever or any interest therein (whether or not patentable or
registrable under copyright or similar statutes or subject to analogous
protection) (herein called "Developments") that relates to the business of
BuildNet or any of the products or services being developed, manufactured or
sold by BuildNet or that may be used in relation therewith, such Developments
and the benefits thereof shall immediately become the sole and absolute
property of BuildNet and its assigns, and Employee shall promptly disclose to
BuildNet each such Development and hereby assigns any rights Employee may have
or acquire in the Developments and benefits and/or rights resulting therefrom
to BuildNet and its assigns without further compensation and shall communicate,
without cost or delay, and without publishing the same, all available
information relating thereto to BuildNet. Upon the request of BuildNet, the
Employee will execute and deliver all documents and do other acts which are or
may be necessary to document such transfer or to enable BuildNet to file and
prosecute applications for and to acquire, maintain, extend and enforce any and
all patents, trademark registrations or copyrights under United States or
foreign law with respect to any such developments.
Notwithstanding the foregoing, this Agreement shall not be construed
to apply to, and shall not create any assignment of, any Developments of the
Employee that are covered by Section 66-57.1 of the North Carolina General
Statutes, a copy of which is attached hereto as Exhibit A.
10. Existing Developments. Employee represents that the
Developments, if any, identified on Exhibit B attached hereto comprise all the
unpatented and uncopyrighted Developments that Employee has made or conceived
prior to or otherwise not in connection with Employee's employment by BuildNet,
which Developments are excluded from this Agreement. Employee understands that
it is necessary only to list the title and purpose of such Developments but not
details thereof.
Employee further represents that Employee's performance of all the
terms of this Agreement and as an employee of BuildNet does not and will not
breach any agreement to keep in confidence proprietary information acquired by
Employee in confidence or in trust prior to Employee's employment by BuildNet.
Employee has not entered into, and Employee agrees he will not enter into, any
agreement either written or oral in conflict herewith.
11. Return of BuildNet Property. Upon the termination of Employee's
employment with BuildNet for any reason, Employee shall leave with or return to
BuildNet all personal property belonging to BuildNet ("BuildNet Property") that
is in Employee's possession or control as of the date of such termination of
employment, including, without limitation, all records, papers, drawings,
notebooks, specifications, marketing materials, software, reports, proposals,
equipment, or any other device, document or possession, however obtained,
whether or not such BuildNet Property contains confidential or proprietary
information of BuildNet as described in Section 8(d) hereof.
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<PAGE> 6
12. Enforcement of the Covenants. Employee acknowledges and agrees
that the Covenants contained in Sections 8 through 11 of this Agreement are
reasonably necessary to the protection of BuildNet's business, that a violation
of any of the Covenants contained in Sections 8 through 11 of this Agreement
would result in immediate and irreparable harm to BuildNet and that BuildNet's
remedies at law and/or the award of monetary damages would be inadequate relief
for such a violation. Therefore, Employee's violation or threatened violation
of any of the Covenants contained in Sections 8 through 11 of this Agreement
will give BuildNet the right to enforce such Covenants through specific
performance, temporary restraining order, preliminary or permanent injunction,
and other equitable relief. These remedies will be cumulative and in addition
to any other remedies that BuildNet may have. In addition, Employee agrees that
the Covenants contained in Sections 8 through 11 will be extended by a length
of time equal to the period of time running from the filing of any action to
enforce or challenge the validity of the Covenants to the date of a final
judgment (after appeals, if any) or settlement of said litigation, or the
expiration of all applicable appeal periods after the entry of judgment in said
litigation, whichever event last occurs.
13. Waiver of Breach. Any waiver by BuildNet of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach of such provision or any other provision hereof.
14. Validity and Survival of the Covenants. Employee acknowledges
and agrees that the Covenants contained in this Agreement are exchanged for
valid and reasonable consideration, are reasonably necessary to protect
BuildNet's legitimate interests, are reasonable with respect to time duration
and geographic scope, do not interfere with the interests of the public, and
that the descriptions of prohibited activities contained in the covenants are
sufficiently precise and definite to inform me of the scope of the Covenants.
The Covenants contained Sections 8 through 11 of this Agreement will survive
termination of Employee's employment. Employee agrees that the existence of any
claim or cause of action that he may have against BuildNet, whether based on
this Agreement or otherwise, will not constitute a defense to BuildNet's
enforcement of the Covenants.
15. Severability. Employee hereby agrees that each provision herein
shall be treated as a separate and independent clause, and the unenforceability
of any one clause shall in no way impair the enforceability of any of the other
clauses herein. Moreover, if one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to scope,
duration, territory, activity or subject so as to be unenforceable at law, such
provision or provisions shall be construed by the appropriate judicial body by
limiting and reducing it or them, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear. In particular, in
the event that the provisions of Sections 8(a) and 8(b) are found to be
unenforceable or void (either in whole or in part) then the offending portion
shall be construed as valid and enforceable only to the extent permitted by
law, and the balance of this Agreement will remain in full force and effect. It
is the intention of the parties to restrict the activities of Employee only to
the extent necessary to protect the legitimate business interests of BuildNet
and not to deprive Employee of the right to earn a livelihood. Employee agrees
that this Agreement is reasonably necessary to protect BuildNet's legitimate
business interests.
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<PAGE> 7
16. Binding Effect. Employee's obligations under this Agreement
shall survive the termination of Employee's employment regardless of the manner
of such termination and shall be binding upon Employee's heirs, executors,
administrators and legal representatives.
17. Assignment. BuildNet shall have the right to assign this
Agreement to its successors and assigns, and all covenants and agreements
hereunder shall inure to the benefit of and be enforceable by said successors
or assigns. This Agreement may be amended only in a writing signed by each of
the parties hereto.
18. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of North Carolina. This Agreement may
be executed in counterparts.
19. Entirety. This Agreement, including any exhibits hereto, as it
may be amended pursuant to the terms hereof, represents the complete and final
agreement of the parties and shall control over any other statement,
representation or agreement by BuildNet (e.g., as may appear in employment or
policy manuals). This Agreement supersedes any prior negotiations, discussions
or written agreements between the parties with regard to the subject matter
hereof.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their seals affixed hereto as of the day and year first
above written.
BUILDNET INC.
By: /s/ Keith T. Brown
-----------------------------
Name: Keith T. Brown
----------------------------
Title: Chairman
---------------------------
EMPLOYEE
/s/ David Russo (SEAL)
-----------------------------
David Russo
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<PAGE> 9
EXHIBIT A
SECTION 66-57.1 OF THE NORTH CAROLINA GENERAL STATUTES
Any provision in an employment agreement which provides that the
[employee] shall assign or offer to assign any of his rights in an invention to
his employer shall not apply to an invention that the employee developed
entirely on his own time without using the employer's equipment, supplies,
facility or trade secret information except for those inventions that:
(i) relate to the employer's business or actual or demonstrably
anticipated research or development, or
(ii) result from any work performed by the employee for the
employer.
To the extent a provision in an employment agreement purports to apply
to the type of invention described, it is against the public policy of this
State and [is] unenforceable. The employee shall bear the burden of proof in
establishing that his invention qualifies under this section.
<PAGE> 10
EXHIBIT B
PRIOR DEVELOPMENTS BY EMPLOYEE
The following is a complete list of all unpatented and uncopyrighted
Developments relevant to the subject matter of my employment by BuildNet that
have been made or conceived by me prior to or otherwise not in connection with
my employment by BuildNet.
[X] No inventions or improvements.
[ ] All such inventions as are described below:
[ ] Additional sheets attached.
/s/ David Russo
----------------------------
David Russo
<PAGE> 1
EXHIBIT 10.22
MASTER SERVICES AGREEMENT
between
ELECTRONIC DATA SYSTEMS CORPORATION
and
BUILDNET, INC.
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
<PAGE> 2
MASTER SERVICES AGREEMENT
THIS MASTER SERVICES AGREEMENT (the "Agreement"), dated as of December 18, 1998,
documents the business relationship between BuildNet, Inc., a North Carolina
corporation ("BuildNet"), and Electronic Data SYSTEMS CORPORATION, a Delaware
corporation ("EDS"), and describes the terms and conditions under which EDS will
perform for BuildNet the information technology services described below.
1. TERM. The term of this Agreement will begin on December 1, 1998 (the
"Effective Date"), and, unless earlier terminated as provided in this
Agreement, will continue through December 30, 2003. Such original term
may be extended by mutual written agreement of the parties.
2. EDS SERVICES. BuildNet agrees to afford EDS the opportunity to make a
proposal on all information technology projects for which BuildNet
contemplates using third party resources during the term of this
Agreement. During the term of this Agreement, the parties may agree
upon Work Orders, which Work Orders shall be generally in the format
specified in ATTACHMENT A hereto, and shall consist of an Exhibit A
which shall describe the services EDS will perform and the deliverables
EDS will produce (the "EDS Services"); an Exhibit B describing the
obligations of BuildNet; an Exhibit C describing the payments due to
EDS for the EDS Services; and, if required, an Exhibit D specifying any
terms and conditions unique to that Work Order. In the event a conflict
between a Work Order and the body of this Agreement should arise, the
body of this Agreement will take precedence. Work Orders shall be
numbered sequentially beginning with the number one (1) and when
executed shall be attached hereto and made a part hereof.
3. REPRESENTATIVES. During the term of this Agreement, EDS and BuildNet
will each maintain a representative who will be its primary point of
contact in dealing with the other under this Agreement and will have
the authority and power to make decisions with respect to actions to be
taken by it under this Agreement. Either party may change its
representative by giving notice to the other of the new representative
and the date upon which such change will become effective. In
performing its obligations under this Agreement, EDS will be entitled
to rely upon any routine instructions, authorizations, approvals or
other information provided to EDS by BuildNet's representative or, as
to areas of competency specifically identified by such representative,
by any other BuildNet personnel identified by BuildNet's
representative, from time to time, as having authority to provide the
same on behalf of BuildNet in such person's area of competency.
BuildNet will inform EDS in writing of areas where BuildNet intends to
rely on EDS as the subject matter experts, and in those areas EDS will
incur the responsibility under this agreement for that ensuring proper
decisions are made, subject to revision based on changes initiated by
BuildNet. Unless EDS knew of any error, incorrectness or inaccuracy in
such instructions, authorizations, approvals or other information, EDS
will incur no liability or responsibility of any kind in relying on or
complying with any such instructions, authorizations, approvals or
other information.
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<PAGE> 3
4. BUILDNET'S ROLE. During the term of this Agreement and in addition to
the other obligations of BuildNet described herein, BuildNet will, at
its own cost and expense, have the obligations to EDS described in any
Work Orders agreed to by the parties.
5. PAYMENT. In consideration for the performance of the EDS Services,
BuildNet will pay to EDS the charges set forth in any Work Orders
agreed to by the parties as such charges may be adjusted from time to
time as provided in such Work Order. In addition, BuildNet will pay or
reimburse EDS for (a) all reasonable out-of-pocket expenses (not to
exceed $5,000 without BuildNet's prior written consent) incurred by EDS
in the performance of the EDS Services specified in any Work Orders
agreed to by the parties, and (b) all taxes, assessments, duties,
permits and fees, however designated, that are levied upon this
Agreement, the EDS Services or the software, equipment, materials or
other property, or their use, provided hereunder, excluding taxes based
on the income of EDS. EDS will submit a written invoice to BuildNet
monthly in arrears reflecting the amount owed to EDS by BuildNet for
the previous month, with such supporting documentation as BuildNet
reasonably requests, and BuildNet will pay the invoiced amount by the
15th day following receipt by BuildNet of the invoice, unless otherwise
agreed on a particular Work Order. Any past due amounts will bear
interest until paid at a rate of interest equal to the lesser of (i)
the prime rate established from time to time by Citibank of New York
plus two percent (2%), or (ii) eighteen percent (18%).
6. EMPLOYEES. The EDS personnel performing the EDS Services will be and
remain the employees of EDS, and EDS will provide for and pay the
compensation and other benefits of such employees, including salary,
health, accident and workers' compensation benefits and all taxes and
contributions which an employer is required to pay relating to the
employment of employees. During the term of this Agreement and for a
period of twelve (12) months thereafter, neither party will solicit,
directly or indirectly, for employment or employ any employee of the
other who is or was involved in the performance of the EDS Services
without the prior written consent of the employing party.
7. CONFIDENTIALITY AND ANNOUNCEMENTS. EDS and BuildNet will have the
confidentiality obligations set forth in ATTACHMENT B. Neither party
will make any media release or other public announcement relating to or
referring to this Agreement without the other's prior written consent,
such consent not to be unreasonably withheld.
8. WARRANTIES AND ADDITIONAL COVENANTS. EDS and BuildNet will have the
obligations relating to warranties and additional covenants set forth
in ATTACHMENT C.
9. OWNERSHIP. Each party will retain all rights it possessed prior -,o the
date of this Agreement in any software, ideas, concepts, know-how,
development tools, techniques or any other proprietary material or
information that may be used by such party in connection with its role
relating to the performance of the EDS Services. Should EDS acquire
third party owned software on BuildNet's behalf and subsequently
deliver such software to BuildNet either as a standalone product, or as
part of a Deliverable hereunder,
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<PAGE> 4
such software will be and remain the property of such vendor and
BuildNet agrees to comply with such third party software owners'
license terms and conditions. Subject to such third party rights or
restrictions and the other provisions of this SECTION 9, [*] the
deliverables developed hereunder, (including source code, development
and user documentation, test plans, build scripts and installation
processes required for BuildNet to continue to maintain and develop the
deliverables in the event of termination of this agreement) that (a)
are described in an Exhibit A to a Work Order hereto, (b) are developed
and delivered by EDS under this Agreement, and (c) are paid for by
BuildNet (the "Deliverables"). Notwithstanding anything to the contrary
in this Agreement, EDS (i) will retain all right, title and interest in
and to all development tools, know-how, methodologies, processes,
technologies or algorithms used in performing the EDS Services which
are based on trade secrets or proprietary information of EDS or are
otherwise owned or licensed by EDS, (ii) will be free to use the ideas,
concepts and know-how which are developed in the course of performing
the EDS Services and may be retained by EDS' employees in intangible
form, and (iii) will retain ownership of any EDS-owned software or
development tools that are used in producing any work product and
become embedded therein. EDS hereby grants to BuildNet a perpetual
(subject to compliance with this sentence), royalty-free, nonexclusive
license to use, sell, copy or distribute such embedded software and
tools (if any) solely in connection with BuildNet's use and
exploitation of the Deliverables and only so long as such software and
tools (if any) remain embedded in the Deliverables or any improvements
thereto or derivative works thereof and are not separated therefrom. No
licenses will be deemed to have been granted by either party to any of
its patents, trade secrets, trademarks or copyrights, except as
otherwise expressly provided in this Agreement.
10. TERMINATION. If either party materially or repeatedly defaults in the
performance of any of its obligations under this Agreement, which
default (a) if of a non-monetary nature, is not substantially cured
within thirty (30) days after notice is given to the defaulting party
specifying the default or, with respect to those defaults that cannot
reasonably be cured within thirty (30) days, should the defaulting
party fail to proceed within thirty (30) days to commence during the
default and thereafter to proceed with all reasonable diligence to
substantially cure the default, or (b) if of a monetary nature, is not
cured within 10 days after notice is given to the defaulting party
specifying the default, the party not in default may, by giving notice
thereof to the defaulting party, terminate this Agreement as of a date
specified in such notice of termination. Upon expiration or termination
of this Agreement for any reason, EDS will cease to perform the EDS
Services for BuildNet, and BuildNet will pay to EDS all sums due to EDS
as a result of the EDS Services performed and expenses incurred through
the effective date of such expiration or termination (prorated as
appropriate). Expiration or termination of this Agreement for any
reason will not release either party from any liabilities or
obligations set forth in this Agreement which (a) the par-ties have
expressly agreed will survive any such expiration or termination or (b)
remain to be performed or by their nature would be intended to be
applicable following any such expiration or termination.
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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<PAGE> 5
11. INDEMNITIES. EDS and BuildNet will have the indemnity obligations set
forth in ATTACHMENT D.
12. LIABILITY. Each party's liability to the other for any damages arising
out-of or related to this Agreement, regardless of the form of action
that imposes liability, whether in contract, equity, negligence,
intended conduct, tort or otherwise, will be limited to and will not
exceed. in the aggregate for all claims, actions and causes of action
of every kind and nature, the lesser of (a) the aggregate amount which
BuildNet has paid EDS for the nine (9) month period directly preceding
the first event, act or omission on which such liability is based, or
(b) two million dollars ($2,000,000) in no event will the measure of
damages payable by EDS include, nor will EDS be liable for, any amounts
for loss of income, profit or savings or indirect, incidental,
consequential, exemplary, punitive or special damages of any party,
including third parties, even if such party has been advised of the
possibility of such damages in advance, and all such damages are
expressly disclaimed. No claim. demand for mediation or arbitration or
cause of action which arose out of an event or events which occurred
more than three (3) years prior to the filing of a demand for mediation
or arbitration or suit alleging a claim or cause of action may be
asserted by either party against the other. The provisions of this
SECTION 12 will survive the expiration or termination of this Agreement
for any reason.
13. MEDIATION ARBITRATION. Any dispute, controversy or claim arising under,
out of, in connection with or in relation to this Agreement, or the
breach, termination, validity or enforceability of any provision hereof
(a "Dispute"), if not resolved informally through negotiation between
the parties, will be submitted to non-binding mediation. The parties
will mutually determine who the mediator will be from a list of
mediators obtained from the American Arbitration Association office
located in the city determined as set forth below in this SECTION 13
(the "AAA"). If the parties are unable to agree on the mediator. The
mediator will be selected by the AAA. If any Dispute is not resolved
through mediation, it will be resolved by final and binding arbitration
conducted in accordance with and subject to the Commercial Arbitration
Rules of the AAA then applicable. One arbitrator will be selected in
accordance with such rules, and the arbitrators will allow such
discovery as is appropriate, consistent with the purposes of
arbitration in accomplishing fair, speedy and cost effective resolution
of disputes. The arbitrator will reference the rules of evidence of the
Federal Rules of Civil Procedure then in effect in setting the scope of
discovery. Judgment upon the award rendered in any such arbitration may
be entered in any court having jurisdiction thereof, or application may
be made to such court for a judicial acceptance of the award and an
enforcement, as the law of such jurisdiction may require or allow. Any
negotiation, mediation or arbitration conducted pursuant to this
SECTION 13 will take place in Plano, Texas, if initiated by BuildNet,
and in Research Triangle Park, North Carolina, if initiated by EDS.
Other than those matters involving injunctive relief or any action
necessary to enforce the award of the arbitrator, the parties agree
that the provisions of this SECTION 13 are a complete defense to any
suit, action or other proceeding instituted in any court or before any
administrative tribunal with respect to any Dispute or the performance
of the EDS Services by EDS. Nothing in
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<PAGE> 6
this SECTION 13 prevents the parties from exercising their right to
terminate this Agreement in accordance with Section 10.
14. EXCUSED PERFORMANCE. Neither party will be deemed to be in default
hereunder, or will be liable to the other, for failure to perform any
of its non-monetary obligations under this Agreement for any period and
to the extent that such failure results from acts or omissions of the
other party, natural disasters, riots, war, civil disorder, or any
other causes beyond that party's reasonable control (including failures
or fluctuations in electrical power, heat, light, air conditioning or
telecommunications equipment or lines) and which it could not have
prevented by reasonable precautions or could not have remedied by the
exercise of reasonable efforts.
15. EXPORT REGULATIONS. This Agreement is expressly made subject to any
United States government laws, regulations, orders or other
restrictions regarding export from the United States of computer
hardware, software, technical data or derivatives of such hardware,
software or technical data. Notwithstanding anything to the contrary in
this Agreement, BuildNet will not directly or indirectly export (or
reexport) any computer hardware, software, technical data or
derivatives of such hardware, software or technical data or permit the
shipment of same: (a) into (or to a national or resident of) Cuba,
North Korea, Iran, Iraq, Libya, Syria or any other country to which the
United States has embargoed goods; (b) to anyone on the U.S. Treasury
Department's List of Specially Designated Nationals, List of Specially
Designated Terrorists or List of Specially Designated Narcotics
Traffickers, or the U.S. Commerce Department's Denied Parties List; or
(c) to any country or destination for which the United States
government or a United States governmental agency requires an export
license or other approval for export without first having obtained such
license or other approval. The provisions of this SECTION 15 will
survive the expiration or termination of this Agreement for any reason.
16. RIGHT TO ENGAGE IN OTHER ACTIVITIES. BuildNet acknowledges and agrees
that, EDS may provide data processing and other information technology
services for third parties at any EDS facility that EDS may utilize
from time to time for performing the EDS Services. Nothing in this
Agreement will impair EDS' right, subject to the provisions of
ATTACHMENT B, to acquire, license, market. distribute, develop for
itself or others or have others develop for EMS similar technology
performing the same or similar functions as the technology and EDS
Services contemplated by this Agreement.
17. NOTICES. All notices under this Agreement will be in writing and will
be deemed to have been duly given if delivered personally or by a
nationally recognized courier service, faxed or mailed by registered or
certified mail, return receipt requested, postage prepaid, to the
parties at the addresses set forth herein. All notices under this
Agreement that are addressed as provided in this SECTION 17, (a) if
delivered personally or by a nationally recognized courier service,
will be deemed given upon delivery, (b) if delivered by facsimile, will
be deemed given when confirmed and (c) if delivered by mail in the
manner described above, will be deemed given on the fifth (5th)
business day after the day it is deposited in a regular depository of
the United States mail. Either party may
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<PAGE> 7
change its address or designee for notification purposes by giving
notice to the other of the new address or designee and the date upon
which such change will become effective.
18. MARKETING AND PROMOTIONAL ACTIVITIES. EDS will use commercially
reasonable efforts to promote and market BuildNet and BuildNet Products
as The electronic commerce standard for the building industry. If
applicable, any such promotional or marketing services of BuildNet and
BuildNet Products shall include displays of promotional material
substantially comparable to displays for other electronic commerce
products and services. Examples of such services would include trade
shows, EDS web site. EDS customer literature, advertisements, event
sponsorships, and sales agent training.
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<PAGE> 8
A. PROMOTIONAL MATERIAL. BuildNet shall, at its own expense, provide
EDS with marketing material that BuildNet deems necessary in order for
EDS to fulfill its obligations pursuant to this Agreement. Any
promotional, sample or demonstration material, including without
limitation software on CDs or diskettes, brochures, and other printed
material provided by BuildNet to EDS shall remain the sole property of
BuildNet. EDS shall have full responsibility for keeping such material
in proper condition during the entire time that the material is in its
possession. Any reproductions made by EDS are strictly for marketing
promotions and are not intended to be a source of revenue for EDS.
B. RIGHT TO USE TRADEMARKS, TRADENAMES AND LOGOS OF BUILDNET. BuildNet
hereby grants to EDS the nonexclusive right and license to use the
BuildNet name, trade names, trademarks, logo and service marks
(collectively referred to as the "Company Marks") solely in connection
with the promotion and marketing of BuildNet and BuildNet Products.
Either separately or in conjunction with any BuildNet trademark or
tradename, EDS agrees to include any notices that BuildNet may
reasonably request when using the Company Marks. In ' using the Company
Marks, EDS agrees to abide by BuildNet's Trademark Usage Guidelines,
separately provided by BuildNet to EDS, as they may be amended from
time to time.
C. COMMERCIALLY REASONABLE EFFORTS. EDS agrees to use commercially
reasonable efforts to promote and market BuildNet and BuildNet Products
to its customers, as appropriate.
19. OTHER. Where agreement, approval, acceptance or consent of either party
is required by this Agreement, such action will not be unreasonably
withheld or delayed. If any provision (other than a provision relating
to any payment obligation) of THIS Agreement or the application thereof
to any persons or circumstances is, to any extent, held invalid or
unenforceable, the remainder of this Agreement or the application of
such provision to persons or circumstances other than those as to which
it is invalid or unenforceable will not be affected thereby, and each
provision of this Agreement will be valid and enforceable to the extent
permitted by law. Nothing in this Agreement may be relied upon or will
benefit any party other than EDS and BuildNet. This Agreement (a) will
be governed by the substantive laws of the State of Texas (without
giving effect to any choice-of-law rules that may require the
application of the laws of another jurisdiction), (b) may not be
assigned by either party without the prior written consent of the other
(except that EDS will have the right to subcontract portions of the EDS
Services to be performed by it so long as EDS remains responsible for
such performance), and (c) together with the attachments hereto (each
of which are incorporated into this Agreement by this reference),
constitutes the entire agreement of the parties with respect to the
subject matter hereof, superseding all previous representations,
understandings or agreements with respect thereto.
In Witness Whereof, the parties have duly executed and delivered this Agreement
as of Effective Date.
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<PAGE> 9
BUILDNET, INC.
By: /s/ Keith T. Brown
----------------------------------------------------------------------
Typed Name: Keith T. Brown
--------------------------------------------------------------
Title: President/CEO
------------------------------------------------------------------
Date: 12/31/98
-------------------------------------------------------------------
Address: 4815 Emperor Blvd. - Suite 214 in Durham. North Carolina 27703
ELECTRONIC DATA SYSTEMS CORPORATION
By: /s/ Randy Wiele
----------------------------------------------------------------------
Typed Name: Randy Wiele
--------------------------------------------------------------
Title: Vice President - Electronic Commerce
------------------------------------------------------------------
Date: 12/31/98
--------------------------------------------------------------------
Address: 5400 Legacy Drive Plano, Texas 75024
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<PAGE> 10
[Date]
BuildNet, Inc.
4815 Emperor Blvd. - Suite 214
Durham, NC 27703
Attention:
----------------------
Re: Work Order No.
--------------
This letter ("Work Order No. _____") will confirm the mutual understanding and
agreement of BuildNet, Inc. ("BuildNet") and Electronic Data Systems Corporation
("EDS") as to the terms on which EDS will provide to BuildNet the Services
described in this Work Order No. ____, which terms are as follows:
1. This Work Order No. _____ is entered into by the parties under the
provisions of that certain Master Services Agreement, dated as of
____, ________ , between BuildNet and EDS (the "Agreement"), and,
except as otherwise provided in this Work Order No._____, all
applicable provisions of the Agreement are incorporated into this
Work Order No.____ by this reference.
2. The term of this Work Order No. _____ will commence ___________ ,
_____ on ______ and, unless earlier terminated as provided in the
Agreement or this Work Order No._____ will expire on _________. The
term of this Work Order No._____ may be extended by the mutual
written agreement of the Parties.
3. During the term of this Work Order No. __________ , EDS will provide to
BuildNet the Services described in the attached Exhibit A.
4. In connection with the Services provided by EDS under this Work Order
No. _____ , BuildNet will provide to EDS the support and resources
described in the attached Exhibit B.
5. For the Services provided by EDS under this Work Order No. _______ ,
BuildNet will pay to EDS the amounts specified in the attached Exhibit
C, as such amounts are adjusted from time to time as provided in
Exhibit C.
6. The Services provided by EDS under this Work Order No. _______ will be
subject to the additional provisions (if any) set forth in the attached
Exhibit D.
Please indicate your agreement to the foregoing by signing both copies of this
Work Order No.______ and returning one fully executed copy to EDS.
ELECTRONIC DATA SYSTEMS CORPORATION
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- ---------------------------------------
Randy Wiele
Vice President - Electronic Commerce
Accepted and Agreed:
BUILDNET, INC.
By:
------------------------------------
Typed Name:
Title:
Date:
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EXHIBIT A
EDS SERVICES
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<PAGE> 13
EXHIBIT B
BUILDNET OBLIGATIONS
1. FACILITIES. BuildNet will provide to EDS at Research Triangle Park, NC
(the "BuildNet Facilities") the following items, which will be used by
EDS only to provide the EDS Services: space, parking, office
furnishings, janitorial service, computer hardware, computer software,
voice communication services, data communication services, utilities
(including heat and air conditioning), office-related equipment (such
as telephones, file cabinets and desks), supplies, duplicating and
facsimile equipment and services and premises security services, in
each case as are required for EDS to perform the EDS Services. BuildNet
will give EDS access to such facilities twenty-four (24) hours a day,
seven (7) days a week, subject to any constraints imposed under
applicable leases. BuildNet will provide the BuildNet Facilities and
the items described in this SECTION 1 in a manner such that they (a)
are kept free of health and safety hazards, (b) comply with and are
maintained in compliance with all applicable local, state and federal
laws, including the Americans with Disabilities Act, and (c) meet such
operational, environmental and safety requirements as are required for
EDS to perform the EDS Services.
2. HARDWARE. BuildNet will provide to EDS access to such items of BuildNet
hardware and related equipment (including personal computers,
terminals, printers, remote job entry workstations and similar
equipment), as well as telecommunications lines and equipment, at the
BuildNet Facilities as EDS reasonably requests in connection with the
performance by EDS of the EDS Services. Further, with respect to any
leased hardware and related equipment, BuildNet will obtain any
consents from its vendors as are necessary for EDS to use such hardware
and equipment in performing the EDS Services. BuildNet will be
responsible for obtaining any such consents and for finding an
alternative solution in the event a vendor refuses consent. For
purposes of this Agreement, "access" means the enjoyment of physical
and legal use and operation of a specified item of property as required
for EDS to perform its obligations under this Agreement.
3. SOFTWARE. BuildNet will provide, or cause to be provided, to EDS the
right to access BuildNet-owned software and software licensed to
BuildNet or a customer of BuildNet by a vendor if such is required for
EDS to perform the EDS Services, but for no other purpose. BuildNet
will be responsible for obtaining any such consents, licenses or other
rights and for finding an alternative solution in the event a vendor
refuses consent.
4. PERSONNEL RESOURCES. BuildNet will provide and make available to EDS
appropriate management and technical personnel of BuildNet who ,&U work
with EDS and will perform or ensure the performance of, on a timely
basis, those activities referenced in Exhibit B of any Work Order, the
responsibility for which is required therein to be assumed by BuildNet.
In addition. BuildNet will cooperate with EDS through making available
such -personnel, management decisions, information, authorizations,
business
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plans, approvals and acceptances in order that EDS' performance of the
EDS Services may be properly, timely and efficiently accomplished.
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EXHIBIT C
PAYMENTS DUE EDS
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EXHIBIT D
ADDITIONAL PROVISIONS
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ATTACHMENT B
CONFIDENTIALITY
1. SCOPE OF OBLIGATION. Except as otherwise expressively provided in
this Agreement, EDS and BuildNet each agree that (a) all information
communicated to it by the other and identified in writing as confidential, or
disclosed orally or visually if identified as confidential at the time of
disclosure and if summarized in writing and provided to the other party promptly
after such oral or visual disclosure whether before or after The date hereof,
(b) all information constituting part of the Deliverables in connection with the
EDS Services, whether before or after the date hereof, and (c) this Agreement
and the parties' rights and obligations hereunder, will be and will be deemed to
have been received in confidence and will be used only for purposes of this
Agreement, and each of E-EDS and BuildNet agrees to use the same means as it
uses to protect its own confidential information, but in no event less than
reasonable means, to prevent the disclosure and to protect the confidentiality
thereof. No such information will be disclosed by the recipient party without
the prior written consent of the other party; provided, however, that each party
may disclose this Agreement and the other party s confidential information to
those of the recipient party's attorneys, auditors, insurers (if applicable),
subcontractors and full time employees who have a need to have access to such
information in connection with their employment (or engagement, if applicable)
by the recipient party. Compliance by each of the persons referenced in the
preceding sentence with the confidentiality obligations set forth in this
ATTACHMENT B will remain the responsibility of the party employing or engaging
such persons.
2. EXCEPTIONS. The foregoing will not prevent either party from disclosing
information that belongs to such party or (i) is already known by the
recipient party without an obligation of confidentiality other than
under this Agreement, (ii) is publicly known or becomes publicly known
through no unauthorized act of the recipient party, or (iii) is
rightfully received from a third party. If confidential information is
required to be disclosed pursuant to a requirement of a governmental
authority, such confidential information may be disclosed pursuant to
such requirement so long as the party required to disclose the
confidential information, to the extent possible, provides the other
party with timely prior notice of such requirement and coordinates with
such other party in an effort to limit the nature and scope of such
required disclosure. if confidential information is required to be
disclosed in connection with the conduct of any mediation or
arbitration proceeding carried out pursuant to SECTION 13 of this
Agreement, such confidential information may be disclosed pursuant to
and in accordance with the approval and at the direction of the
mediator or arbitrator, as the case may be, conducting such proceeding.
Upon written request at the expiration or termination of this Agreement
for any reason, all documented confidential information land all copies
thereof) owned by the requesting party will be returned to the
requesting party or will be destroyed, with written certification
Thereof being given to the requesting party. The provisions of this
ATTACHMENT B will survive the expiration or termination of this
Agreement for any reason.
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3. Notwithstanding the foregoing, EDS acknowledges and agrees that
BuildNet is engaged principally m the business of offering electronic
commerce products and services to the building industries and that
nothing disclosed to BuildNet by EDS hereunder shall in any way
preclude BuildNet from engaging in such business in the ordinary,
course consistent with BuildNet's business plans.
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ATTACHMENT C
WARRANTIES AND ADDITIONAL COVENANTS
1. PERFORMANCE. EDS represents and warrants that ail EDS Services will be
performed in a professional and workmanlike manner in accordance with
industry standards.
2. BUILDNET INFORMATION. BuildNet represents and warrants that the
information furnished by BuildNet to EDS on which EDS based the
description of the EDS Services and the charges to be paid by BuildNet
therefor, in each case as set forth in this Agreement, is accurate and
complete in all material respects.
3. VIRUSES. Each party will use commercially reasonable measures to screen
any software provided or made available by it to the or-her party
hereunder for the purpose of avoiding the introduction of any "virus"
or other computer software routine or hardware components which are
designed (i) to permit access or use by third parties to the software
of the other party not authorized by this Agreement, (ii) to disable or
damage hardware or damage, erase or delay access to software or data of
the or-her party or (iii) to perform any other similar actions.
4. DISABLING CODES. EDS will not, without informing BuildNet's
Representative in writing, knowingly insert into the software used by
it hereunder any code or other device which would have the effect of
disabling, damaging, erasing, delaying or otherwise shutting down all
or any portion of the EDS Services or the hardware, software or data
used in performing the EDS Services. EDS will not invoke such code or
other device at any time, including upon expiration or termination of
this Agreement for any reason.
5. YEAR 2000.
(a) Deliverables hereunder which are developed by EDS for BuildNet will
be Year 2000 Compliant, as that term is defined herein). The parties
acknowledge and agree that the EDS Services do not include, and EDS
will not be responsible for, any changes, modifications, updates or
enhancements to any existing software, systems, hardware and related
equipment, data, interfaces or processes (collectively, "Items") which
may be necessary so that such Items, either alone or in conjunction
with or-her Items will be Year 2000 Compliant. For purposes of this
Agreement, the term "Year 2000 Compliant" means that such Items (i)
will operate and produce data before, on or after January 1, 2000
(including taking into effect that such year is a leap year),
accurately and without delay, interruption or error relating to the
fact that the time at which and the date on which such software is
operating is on or after 12:00 a.m. on January 1, 2000, or (iii) will
accept, calculate, process, maintain, store and out-out, accurately and
without delay, interruption or error, any function referencing a time
or date on or after 12:00 a.m. on January 1, 2000, or both, whether
before, on or after 12:00 a.m. on January 1, 2000, and any time period
determined or to be determined based on any such times or dates, or
both. EDS will not be responsible or penalized for any adverse impact
on BuildNet, the EDS
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Services or any performance standards therefor resulting from any Items
of BuildNet or any third party not being Year 2000 Compliant or from
any inaccuracies, delays, interruptions or errors as a result of
receiving data in two digit year date or other formats that are not
Year 2000 Compliant from other software, systems, hardware and related
equipment or third parties or as a result of any changes made by
BuildNet or any third party to the software, being operated by EDS as
part of the EDS Services.
(b) Except for third party owned software that EDS acquires on BuildNet's
behalf and subsequently delivers to BuildNet as either a standalone
product or as part of a Deliverable hereunder, EDS covenants that
Deliverables hereunder will maintain the functionality existing as of
the date of acceptance of such Deliverables by BuildNet taking into
account any processing, accepting, calculating, writing and outputting
of times or dates, or both, whether before, on or after 12:00 a.m.
January 1, 2000, and any time periods determined or to be determined
based on any such times or dates. or both, and BuildNet acknowledges
and agrees that EDS will not be responsible for:
(i) changes, modifications, updates or enhancements to, and any
inaccuracies, delays, interruptions or errors caused by, interfaces
between the Deliverables hereunder and any software or systems which
are not provided by EDS under this Agreement, and
(ii) any inaccuracies, delays, interruptions or errors occurring as
a result of incorrect data or data from other systems, software,
hardware, processes or third parties provided in a format that is
inconsistent with the format and protocols established for the
Deliverables including date data in two digit format, even if such data
is required for the operation of the Deliverables; and
(iii) any inaccuracies, delays, interruptions or errors occurring as
a result of data from telecommunications systems.
6. DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS ATTACHMENT
C, EDS MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED,
REGARDING ANY MATTER, INCLUDING THE MERCHANTABILITY, SUITABILITY,
ORIGINALITY, FITNESS FOR A PARTICULAR USE OR PURPOSE, OR RESULTS TO BE
DERIVED FROM THE USE, OF ANY INFORMATION TECHNOLOGY SERVICE, SOFTWARE,
HARDWARE OR OTHER MATERIALS PROVIDED UNDER THIS AGREEMENT. EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN THIS ATTACHMENT C, EDS DOES NOT
REPRESENT OR WARRANT THAT THE OPERATION OF ANY SOFTWARE WILL BE
UNINTERRUPTED, ERROR-FREE OR YEAR 2000 COMPLIANT.
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ATTACHMENT D
INDEMNITIES
D-1. CLAIMS RELATING TO PERSONAL INJURY AND PROPERTY DAMAGE.
(a) GENERAL. EDS and BuildNet each will be responsible for any and all
claims, actions, damages, liabilities, costs and expenses, including
reasonable attorneys' fees and expenses (collectively, "Losses"), to
their respective tangible personal or real property (whether owned or
leased), and each party agrees to look only to its own insuring
arrangements (if any) with respect to such Losses. EDS and BuildNet
each will be responsible for Losses for the death of or personal injury
to any person (including any employee of either party) and Losses for
damages to any third party's tangible personal or real property
(whether owned or leased), in accordance with the law of the
jurisdiction in which such Loss is alleged to have occurred. Subject to
SECTION 12 of this Agreement and the procedures set forth below in
SECTION D-4, each party will indemnify and defend the other party and
hold the other party harmless from any and all Losses arising out of,
under or in connection with claims for which the indemnitor is
responsible under the preceding sentence.
(B) Waiver of Subrogation. EDS and BuildNet waive all rights to recover
against each other for any Loss to their respective tangible personal
property (whether owned or leased) from any cause covered by insurance
maintained by each of them, including their respective deductibles or
self insured retentions. EDS and BuildNet will use reasonable efforts
to cause their respective insurers to issue appropriate waivers of
subrogation rights endorsements to all property insurance policies
maintained by each Party. Each Party will give the other written notice
if a waiver of subrogation is unobtainable or obtainable only at
additional expense. If the Party receiving such notice agrees to
reimburse the or-her Pam, for such additional expense, the other Party
will obtain such waiver of subrogation. If a waiver is unobtainable or
if a Party elects not to pay the additional expense of a waiver, then
neither Party nor their insurers will waive such subrogation rights.
D-2. INFRINGEMENT CLAIMS.
(a) GENERAL. Subject to SECTION 12 of this Agreement, the limitations set
forth below in this SECTION D-2 and the procedures set forth below in
SECTION D-4, EDS and BuildNet each agree to defend the other party
against any action to the extent that such action is based upon a claim
that the software (other than third party software) or confidential
information provided by the indemnitor, or any part thereof, (i)
infringes a copyright perfected under United States statute, (ii)
infringes a patent granted under United States law or (iii) constitutes
an unlawful disclosure, use or
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misappropriation of another party's trade secret. The indemnitor will
bear the expense of such defense and pay any damages and attorneys'
fees that are attributable to such claim finally awarded by a court of
competent jurisdiction.
(b) Exclusions. Neither EDS nor BuildNet will be liable to the other for
claims of indirect or contributory infringement. In particular, the
indemnitor will have no liability to the indemnitee, hereunder if any
claim of infringement is based upon the use of software provided by the
indemnitor hereunder used in a manner for which the software was not
designed. Also, the indemnitor will have no liability if the indemnitee
modifies any software provided by the indemnitor hereunder and such
infringement would not have occurred but for such modification, or uses
the software in the practice of a patented process and there would be
no infringement in the absence of such practice, or such claim arises
out of the indemnitor's compliance with specifications provided by the
indemnitee and such infringement would not have occurred but for such
compliance.
(C) Additional REMEDY. If software or confidential information becomes the
subject of an infringement claim under this SECTION D-2, or in the
indemnitor's opinion is likely to become the subject of such a claim,
then. in addition to defending the claim and paying any damages and
attorneys' fees as required above in this SECTION D-2, the indemnitor
will either (A) replace or modify the software or confidential
information to make it noninfringing or cure any claimed misuse of
another's trade secret or (B) procure for the indemnitee the right to
continue using the software or confidential information pursuant to
this Agreement. Any costs associated with implementing either of the
above alternatives will be borne by the indemnitor but will be subject
to SECTION 12 of this Agreement. If neither option is available to the
indemnitor through the use of reasonable, diligent efforts, (x) The
indemnitee will return such software or confidential information to the
indemnitor and (y) if requested by the indemnitee in good faith, the
parties will negotiate, pursuant to SECTION 13 of this Agreement but
subject to SECTION 12 of this Agreement. to reach a written agreement
on what, if any, monetary damages (in addition to the indemnitor's
obligation to defend the claim and pay any damages and attorneys' fees
as required above in this SECTION D-2) are reasonably, owed by the
indemnitor to the indemnitee as a result of the indemnitee no longer
having use of such software or confidential information.
D-3. CLAIMS RELATING TO INTERNET USAGE. Subject to SECTION 12 of this
Agreement and the procedures set forth below in SECTION D-4, BuildNet
will indemnify and defend EDS and hold EDS harmless from any and all
Losses, including those associated with claims for indirect or
contributory infringement, arising out of. under or in connection with
any claims relating to (i) content (other than that provided by EDS, if
any), whether of an editorial, advertising or other nature. (ii) the
provision, use, alteration or distribution thereof, the accessibility
thereto or the exchange of information over the Internet in connection
therewith, including copyright infringement, libel, indecency, false
light, misrepresentation. invasion of privacy or image or personality
rights, (iii) statements or other materials made or made available by
readers of the content or by persons to whom the content is linked at
the request of BuildNet or (iv) the conduct of BuildNet's business.
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D-4. Procedures. The indemnification obligations set forth in this
ATTACHMENT D will not apply unless the party claiming indemnification:
(a) notifies the other promptly in writing of any matters in respect of
which the indemnity may apply and of which the notifying party has
knowledge. in order to allow the indemnitor the opportunity to
investigate and defend the matter; provided, however, that the failure
to so notify will only relieve the indemnitor of its obligations under
this ATTACHMENT D if and to the extent that the indemnitor is
prejudiced thereby; and (b) gives the other party full opportunity to
control the response thereto and the defense thereof, including any
agreement relating to the settlement :hereof; provided, however, that
the indemnitee will have the right to participate in any legal
proceeding to contest and defend a claim for indemnification involving
a third party and to be represented by legal counsel of its choosing,
all at the indemnitee's cost and expense. However, if the indemnitor
fails to promptly assume the defense of the claim, the party entitled
to indemnification may assume the defense at the indemnitor's cost and
expense.
The indemnitor will not be responsible for any settlement or compromise
made without its consent, unless the indemnitee has tendered notice and
the indemnitor has then refused to assume and defend the claim and it
is later determined that the indemnitor was liable to assume and defend
the claim. The indemnitee agrees to cooperate in good faith with the
indemnitor at the request and expense of the indemnitor.
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EXHIBIT 10.23
INTERNET DEVELOPMENT, MARKETING AND DISTRIBUTION AGREEMENT
This INTERNET DEVELOPMENT, MARKETING AND DISTRIBUTION AGREEMENT (the
"Agreement") is dated as of May 19, 1999, (the "Effective Date"), by and
between BuildNet, Inc., a North Carolina corporation, with its principal place
of business at 4815 Emperor Drive, Suite 214, Morrisville, North Carolina 27560
("BuildNet"), and General Electric Company, a New York corporation, ("GE") by
and through its General Electric Appliances operating unit having a place of
business at Appliance Park, Louisville, Kentucky 40225 ("GEA").
RECITALS
WHEREAS, BuildNet, itself and through its affiliates, develops and
markets software products and services for builders, and is developing and
intends to operate an Internet-based service for processing and supporting
electronic commerce transactions between suppliers and buyers of building
related goods and services; and
WHEREAS, GEA manufactures and/or sells appliance products and services
to builders and authorized builder-distributors and desires to facilitate those
sales through the BuildNet System; and
WHEREAS, GEA seeks to utilize certain technological capabilities of
BuildNet, including certain technologies used in the operation of the BuildNet
System in order to make the building supply purchase process over the Internet
or other electronic platforms more accessible and efficient; and
WHEREAS, BuildNet wishes to license, for inclusion in the BuildNet
System, certain content owned or licensed by GEA relating to various GEA
products and services; and
WHEREAS, BuildNet and GEA have determined that it is in their
respective strategic interests to enter into this agreement pursuant to which
BuildNet and GEA shall license, develop, promote and present certain
information content, technology, and services related to the building supplies
purchasing process;
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, and in
consideration of the mutual covenants and conditions herein set forth, and with
the intent to be legally bound thereby, BuildNet and GEA hereby agree as
follows:
Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.
<PAGE> 2
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. Unless the parties, in writing, agree
otherwise, the following defined terms shall have the meanings set forth
herein:
(a) "Affiliate" means any entity that controls, is
controlled by, or is under common control with the named entity, whether
directly or through one or more intermediaries. For purposes of this definition
"controlled" and "control" mean ownership of more than fifty percent (50%) of
the voting capital stock or other interests having voting rights with respect
to the election of the board of directors or similar governing authority.
(b) "BuildNet Marks" means any and all trademarks, trade
names and/or service marks owned by BuildNet and related to the BuildNet
System.
(c) "BuildNet System" means the electronic commerce
transactions and information services network under development by BuildNet,
consisting of: (i) BuildNet's Internet website(s) designed hereunder and
devoted to ecommerce transactions, or BuildNet's successor websites thereto;
(ii) any other websites or means of electronic display or presentation relating
to the building supply purchasing process exclusively controlled by BuildNet or
its Affiliates; (iii) software to create and publish product catalogs; (iv)
transaction adapter and transaction processing software; (v) BuildNet's End
User software (or that of its Affiliates or other strategic partners) to the
extent used to connect or provide an interface to the BuildNet System website
or which materially affects a Customer's, End User's or Member's ability to use
the ecommerce functionality of the BuildNet System effectively; and (vi) any
proprietary communications links between the BuildNet System website and
Customers or Members.
(d) "Covered Items" means any products or services offered
to builders in the following categories: refrigeration, cooking, microwave,
laundry, dishwasher, water heaters, water filtration systems, water softeners,
removable room air conditioners (i.e., window mounted), and extended service
contracts for consumer products. The Covered Items are all included under the
appliance major product category (as defined in Section 3.3) for which GEA is
the Founding Member.
(e) "Customer" means any builder that uses the BuildNet
System to obtain information or purchase goods or services.
(f) "End User" means a visitor to the BuildNet System,
other than a Customer, who also may be an actual or potential building supply
purchaser or distributor.
(g) "GEA Content" means GEA product specifications and
descriptions for Covered Items, digitized representations of GEA products, and
any other proprietary informational content provided by GEA for placement on or
linkage from or to the BuildNet System.
(h) "GEA Marks" means any and all trademarks, trade names,
and/or service marks owned by GE and used in connection with the GEA Content.
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(i) "GEA Technology" means: (i) GEA's CustomerNet and
Interactive Design Center sites and related software; (ii) GEA's order entry
and order fulfillment system; and (iii) any Proprietary Information of GEA
provided to BuildNet under this Agreement.
(j) "Intellectual Property Rights" means intellectual
property and/or proprietary rights, including, without limitation, copyrights
(including, but not limited to, rights in audiovisual works); moral rights;
patent rights (including patent applications and disclosures); rights of
priority; publicity rights, trade secret rights; registered or otherwise
protected trademarks, trade names, and service marks, and protections from
trademark dilution; to the extent that any of the foregoing are recognized in
any country or jurisdiction in the world.
(k) "Member" means a manufacturer or distributor of
building supplies who contracts with BuildNet to supply goods or services to
Customers through the BuildNet System. Members include those manufacturers and
distributors, including GEA, who enter into Founding Member Agreements (as
defined in Section 3.3) with BuildNet in accordance with the provisions of this
Agreement ("Founding Members"). A manufacturer or distributor may also become a
"Member" by entering into a Preferred Member Agreement or a Standard Member
Agreement with BuildNet. Those Members entering into Preferred Member
Agreements shall be hereinafter referred to as "Preferred Members" and those
Members entering into Standard Member Agreements shall be hereinafter referred
to as "Standard Members."
(l) "Proprietary Information" of a party means: any
confidential, proprietary or trade secret information disclosed by a party that
is identified in writing as such at the time of its initial disclosure, or if
initially disclosed in intangible form, is reduced to tangible form and
properly identified as such within 30 days of initial unmarked disclosure,
including without limitation: (i) information disclosed by a party relating to
product development strategy and activity, corporate assessments and strategic
plans, financial and statistical information, accounting information, software,
systems, processes, formulae, inventions, discoveries, policies, guidelines,
procedures, practices, disputes or litigation; (ii) trade information relating
to such party's employees, contractors or customers which, if released, would
cause an unlawful or actionable invasion of privacy; and (iii) compilations or
summaries of information or data that is itself Proprietary Information. For
purposes of this Agreement, information shall be deemed to be disclosed by a
party if such information is disclosed by any of its officers, employees,
directors, consultants, agents, representatives or Affiliates.
(m) "Statement of Work" means the description of the
parties' development responsibilities, budgets and implementation schedules set
forth in Exhibit A.
ARTICLE II
DEVELOPMENT AND INTEGRATION OF THE BUILDNET SYSTEM
Section 2.1 Development of BuildNet System. BuildNet will develop
the BuildNet System and integrate GEA Content and transactional capabilities in
accordance with the specifications and schedule set forth in the Statement of
Work. In connection with such
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development efforts, BuildNet and GEA will perform the activities specified in
this Article II and the Statement of Work.
Section 2.2 BuildNet System Design. BuildNet will enable direct
e-commerce transaction processing capabilities for the purchase of the Covered
Items from GEA and GEA-authorized distributors, in a manner consistent with the
BuildNet System architecture for electronic commerce transaction processing
generally; provided, however, GEA will provide design input for product
features specific to Covered Items and have final approval of the results of
the integration of the GEA Content and GEA Technology with the BuildNet System
before such results are made publicly available. No changes to the overall
"look and feel" of the electronic commerce capabilities for Covered Items will
be made without prior approval of GEA. BuildNet shall not alter the wording or
context of any GEA Content without the prior written approval of GEA. GEA shall
use commercially reasonable efforts to promptly correct any errors contained in
such content of which it becomes aware, and BuildNet shall use commercially
reasonable efforts to incorporate any such corrections within forty-eight (48)
hours of its receipt thereof.
Section 2.3 Technical Contacts. BuildNet and GEA will each
designate a technical contact (collectively, the "Technical Contacts") as the
primary individuals responsible for facilitating communication between GEA and
BuildNet and for coordinating the development and integration efforts
contemplated herein.
(a) Modifications to Statement of Work. Upon mutual written
agreement, the Technical Contacts may from time to time modify the Statement of
Work, provided that any modifications to the Statement of Work that materially
increase the cost or time to complete the development and integration are
approved by authorized representatives of GEA and BuildNet. Any modifications
to the Statement of Work will be made in writing.
(b) Schedule. The Technical Contacts will confer on a
regular basis to assess the status of the development effort with respect to
the agreed-upon schedule for such effort ("Schedule").
Section 2.4 Development Personnel. BuildNet will dedicate, as
mutually agreed upon by the Technical Contacts, sufficient personnel with
appropriate technical skill to the development and integration effort to ensure
that the BuildNet System is developed and the integration completed in
accordance with the Schedule.
Section 2.5 "Best of Breed" Performance Standards To Be Maintained
By BuildNet. BuildNet shall exercise all commercially reasonable efforts to
perform its responsibilities set forth in this Agreement so that, to the extent
applicable, the BuildNet System is competitive with or superior to any other
commercial electronic building supply purchasing services offered in similar
markets to similar customers ("Best of Breed Performance Standards"). For
purposes of this Section, competitiveness or superiority shall be ascertained
on the basis of material, objective performance factors, including response
time, functionality, and reliability. [*].
Section 2.6 GEA Assistance. GEA will use reasonable commercial
efforts to provide appropriate and timely support to BuildNet's development and
integration efforts. In connection
4
Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.
<PAGE> 5
with such efforts, GEA will make available: (i) such information and access as
necessary to allow integration of the BuildNet System with GEA's order, ship
and bill systems; (ii) an electronic list of valid GEA model/product
information for Covered Items for sale over the BuildNet System; (iii) all
applicable information and content contained in GEA CustomerNet which is deemed
necessary by both parties for integration; and (iv) development personnel and
resources as provided in the Statement of Work.
Section 2.7 Development Expenses. Except as expressly stated in
this Agreement, [*] and will pay for the costs of the personnel, materials, and
facilities it contributes to such effort. Similarly, [*] will pay for the costs
of the personnel, materials, and facilities it contributes to the integration
effort. Without limiting the foregoing, [*] will be responsible for all costs
associated with the implementation of the BuildNet Transaction Adapter (as
defined in the BuildNet Founding Member Agreement, a copy of which is attached
as Exhibit B). In addition, [*] will be responsible for all costs associated
with the implementation for [*] of the BuildNet Product Data Service, (as
defined in the BuildNet General Services Agreement, substantially in the form
attached hereto as Exhibit E), such costs not to exceed [*] given the following
assumptions: (i) all catalog and Product Data Services are outsourced to
BuildNet; (ii) as necessary for Product Data Services integration, full and
unhindered access to data, information, design documentation, facilities,
equipment, and appropriate [*] personnel is available on a timely basis; and
(iii) there are two, and only two, systems to which the BuildNet Product Data
Service must integrate to allow the creation of an online catalog--(A) an
Oracle database with standard ODBC access methods available, and containing all
basic textual information about GEA products, and (B) a document repository
made by FileNet, Inc. called Panagon, which will supply a "C" language API for
access to the data and for which the API will provide access methods similar to
ODBC (i.e., it allows random access to the data, with indexes or other means of
quickly locating appropriate information, and the resulting datasets can be
extracted in standard formats). The BuildNet General Services Agreement will be
agreed upon by the parties within sixty (60) days of the Effective Date and
will be substantially in the form set forth in Exhibit E. The parties will
discuss in good faith any cost overruns due to failure of the above assumptions
pursuant to Article 13 hereto.
Section 2.8 Maintenance Obligations. BuildNet shall update the
BuildNet System as promptly as is practicable and at least as often as is
necessary to maintain compliance with any applicable government regulations and
standard industry practices. GEA shall update the GEA Content displayed on the
BuildNet System as promptly as is practicable and at least as often as is
necessary to maintain compliance with any applicable government regulations and
standard industry practices. In addition, the parties will cooperate to
maintain the transactional capabilities between GEA and BuildNet as the
BuildNet Transaction Adapter upgrades are released.
5
Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.
<PAGE> 6
ARTICLE III
DISTRIBUTION
Section 3.1 Direct Distribution.
(a) Except as provided in section 3.2, [*] within the
BuildNet System to sell Covered Items to Customers for a period beginning on
the Effective Date and continuing until [*] following completion of Beta Test of
the BuildNet System as integrated with GEA Content transactional capability.
(Such [*] period, during which the parties will be conducting system and
marketing phase-in, is referred to herein as the "National Roll-Out Period").
For the purposes of this Agreement, "Beta Test" will be deemed completed when
the BuildNet System has been introduced and successfully passed preliminary
testing for local distributors in at least two cities and has been introduced
and passed preliminary testing with at least one national building supply
distributor (e.g. Lowes, 84 Lumber, Carolina Holdings). (As used herein,
"preliminary testing" means the BuildNet System shall, with respect to the
above-referenced Beta Test Customers only: (i) demonstrate the functionality
described in Exhibit A, Scope of Work, including a working electronic commerce
system with a working transaction adapter and electronic product catalog, and
(ii) demonstrate the basic operational capabilities of industry-comparable
electronic commerce purchase and order systems, and (iii) be approved by each
designated Beta Test Customer as confirmed by their executing a Beta Test
Certificate of Completion. [*].
(b) After the National Roll-Out Period, the BuildNet
System will be "relationship based" such that any Customer of Covered Items
with an established purchaser relationship with a given manufacturer or
supplier who is a current Member may choose to add that Member to its BuildNet
System interface. In no event will the BuildNet System support generic
comparison shopping for Covered Items. The particular terms of the purchase
relationship (i.e. contract terms, pricing, etc.) between a Member and
Customer, to the extent known and verified by BuildNet, will be treated in the
strictest confidence and will not be disclosed to other Members or Customers,
or be made generally available within the BuildNet System for comparison
shopping purposes. Customers with multiple purchaser relationships in a given
product category will remain free to comparison shop; provided, however, that
the system architecture will not facilitate this with features that primarily
promote comparison shopping, but will instead focus on creating a total
relationship between Customer and Member.
(c) GEA will have the [*] to use the BuildNet system to
sell any of its products or services not included within Covered Items.
Section 3.2 Indirect Distribution. BuildNet will be free to offer
membership in the BuildNet System to "intermediaries" (e.g. distributors and
supply companies), used by manufacturers to distribute their brands of products
and services to builders, without regard to whether such intermediaries offer
or sell Covered Products. Such membership may be offered at any time including
during the National Roll-Out Period. GEA will provide to BuildNet a list of
intermediaries that will have the first right to enroll in the BuildNet System
for the Covered Items, prior to BuildNet contacting others not on the list. Any
such intermediaries electing to enroll in the BuildNet System will be given
priority in scheduling of installation over all other system participants whose
installations have not been scheduled. [*].
6
Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.
<PAGE> 7
Section 3.3 Founding Member Agreements. BuildNet will establish one
ground-floor supporter ("Founding Member") in each major product category
included in the BuildNet System other than the Covered Items (all of which
shall be included in the appliance major product category for which GEA is the
Founding Member). Each Founding Member will enter into a Founding Member
Agreement substantially in the form set forth in Exhibit B, as it may, by
mutual consent, be amended from time to time. BuildNet currently anticipates
that there will be approximately twelve (12) to sixteen (16) major product
categories. GEA (and the other Founding Members, including GEA, to the extent
BuildNet so determines consistent with Exhibit B) will be accorded preferred
status over Preferred Members and Standard Members on the BuildNet System, and
be provided benefits including without limitation:
(a) System default to the Founding Member in each category
for all plans, menus and applications (provided, however, nothing herein will
limit GEA's rights under Section 3.1 with respect to removable room air
conditioners or any other Covered Items);
(b) Preferred positioning and placement, including first
position for all relevant menus and lists, online catalog presence, Customer
desktop Founding Member positioning, priority position on the desktop within
the applicable product category, and distributor priority by product category;
(c) Preferred fee structure;
(d) Preferred marketing assistance, upon a Founding
Member's request, including co-market/sponsor/seminars/events program, city
roll-out sponsor opportunity, and trade show kiosk for Founding Member booth
and BuildNet representative;
(e) Founding Member advertising program, including
prominent Founding Member visibility in advertising and promotion of the
BuildNet System, and preferred status in website design and on-line
advertising;
(f) Fee-waived website hosting for the GEA product and
services catalog and fee-waived resource site hosting (e.g. Owens-Corning
Energy F/X, GE Kitchen Design Center, etc.); and
(g) Other advantages to be added as Internet technology
improves.
ARTICLE IV
MARKETING ASSISTANCE
Section 4.1 Co-marketing. The parties will develop a co-marketing
plan whereby GEA will assist BuildNet to facilitate builder acceptance of the
BuildNet System and related BuildNet software, and help facilitate the training
of builders and authorized builder-dealers using GEA's sales force. BuildNet
will provide in a timely manner training and marketing/promotional materials to
facilitate the adoption of the BuildNet System and related BuildNet software.
BuildNet will compensate GEA's sales force for builder referrals and/or
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sales with agreed-upon referral commissions. BuildNet and GEA will develop and
mutually agree on an appropriate referral fee structure as a component of
cooperatively developing the Sales and Marketing collateral.
Section 4.2 GEA Promotional Efforts. In addition to the above, GEA
will, at its own expense, use reasonable commercial efforts to promote the
BuildNet System through the following means:
(a) Promotion of the BuildNet System as the industry
preferred standard for electronic commerce, including but not limited to
sponsoring a direct mail campaign to all existing GEA customers and all
prospective customers being tracked by GEA's sales team;
(b) Promotion of the BuildNet System throughout its entire
sales force;
(c) Sponsorship and participation of GEA personnel
(including, as necessary and appropriate, GEA executives) in BuildNet's city
rollout programs;
(d) Sponsorship and participation of GEA personnel in
BuildNet's builder education seminars and programs;
(e) Promotion of BuildNet to other manufacturers through
executives and senior personnel of GEA;
(f) Cooperation with BuildNet in the production of
marketing collateral for joint use by GEA and BuildNet with digital video and
still images showing ROI's and case studies of efficiency gains in distribution
and manufacturing through the BuildNet System; and
(g) Through GEA's GE Capital Affiliate, promotion of
BuildNet in the investment banking community.
Notwithstanding the foregoing, GEA's failure to perform any of
the above activities will not be considered a breach of this Agreement. The
sole and exclusive consequence of GEA's non-performance of its promotional
obligations hereunder will be as set forth in Section 4.3 below.
Section 4.3 Warrants. In recognition of GEA's strategic
contribution, BuildNet hereby grants to GEA a warrant in the form attached
hereto as Exhibit C.
ARTICLE V
LICENSE GRANTS
Section 5.1 License For GEA Content and GEA Marks. During the term
of this Agreement, and subject to the terms and conditions of this Agreement,
GEA hereby grants to
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BuildNet, in conjunction with BuildNet's activities pursuant to this Agreement,
a non-exclusive, non-transferable and, pursuant to the terms of this Agreement,
revocable right and license:
(a) to reproduce and publicly display the GEA Content on
or from the BuildNet System website and on or from any co-branded pages (i.e.,
pages identified with both GEA Marks and BuildNet Marks, or the names or
descriptions of both GEA and BuildNet) to End Users and Customers, in the
manner specified in this Agreement or otherwise agreed to by the parties, and
to distribute and transmit the GEA Content for the sole purpose of permitting
End Users and Customers to view it from the BuildNet System and co-branded
pages; and
(b) subject to GEA's prior written right (within its sole
discretion) of approval, to reproduce and publicly display the GEA Content on
or from any Internet site, other electronic platform, or computer system that
is not exclusively controlled by BuildNet, and to electronically distribute and
transmit the GEA Content for the sole purpose of permitting End Users and
Customers to view it from such approved sites, platforms, or systems; and
(c) to display the GEA Marks in direct connection with GEA
Content on or from the BuildNet System website and on or from any co-branded
pages (i.e., pages identified with both GEA Marks and BuildNet Marks, or the
names or descriptions of both GEA and BuildNet) as provided in this Agreement
and, subject to GEA's prior written right of approval, (in its sole discretion)
to display the GEA Marks in direct connection with GEA Content on any Internet
site, other electronic platform, or computer system that is not exclusively
controlled by BuildNet, and
(d) to modify the selection, arrangement, and look and
feel of the GEA Content, only such that BuildNet may determine what portions of
the GEA Content will be incorporated into the BuildNet System or the co-branded
pages referred to above and how that content is arranged and displayed,
provided that BuildNet shall have no right to alter the wording or context of
the portions of the GEA Content selected, without the prior written approval of
GEA, in its sole discretion.
Section 5.2 Limitations.
(a) The use of the GEA Marks shall always be in connection
with GEA Content, be with appropriate attributions displayed to End Users and
Customers, and as otherwise agreed by the parties, provided that: (i) BuildNet
shall at all times use an appropriate trademark or service mark legend as GEA
may from time to time specify with respect to any use of the GEA Marks; (ii)
GEA may request that BuildNet correct the appearance of any GEA Marks by giving
BuildNet two (2) day's prior written notice; and (iii) BuildNet shall not
modify the GEA Marks or use them for any purpose other than as set forth above.
BuildNet shall not engage in any activity associated with the GEA Marks that,
in GEA's sole judgement, adversely affects the good name, good will, image or
reputation of GEA, and BuildNet shall take all reasonable steps to ensure that
Customers do not do so. All uses of the GEA Marks hereunder shall inure only to
the benefit of GE, including GEA.
(b) BuildNet shall use the GEA Content, the GEA Marks, and
the GEA Technology (to the extent that the parties agree that BuildNet may use
the GEA Technology) in
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accordance with any and all standards, policies, and/or guidelines adopted by
GEA, and GEA shall have the right to proscribe any use of the GEA Content, the
GEA Marks, and the GEA Technology pursuant to the exercise of the foregoing
license that is not in accordance with any and all such standards, policies
and/or guidelines.
Section 5.3 No Unauthorized Use. BuildNet shall not:
(a) copy, use, display, distribute, or transfer the GEA
Content, the GEA Marks, or the GEA Technology, except as expressly contemplated
in this Agreement;
(b) create any derivative works based upon the GEA
Technology; and
(c) reverse engineer, disassemble, or decompile the GEA
Technology.
Section 5.4 No Other Licenses. BuildNet's rights in and to the GEA
Content, the GEA Marks, and the GEA Technology shall be limited to those
expressly granted in this Agreement. All other uses, reproduction, or display
of the GEA Content, the GEA Marks, and the GEA Technology shall be subject to
GEA's prior written approval, in GEA's sole discretion.
Section 5.5 License Regarding BuildNet Marks. Subject to the terms
and conditions of this Agreement, BuildNet hereby grants to GEA a
non-exclusive, non-transferable and, pursuant to the terms of this Agreement,
revocable right and license to display BuildNet Marks in links from any GEA
websites to the BuildNet System and in links to the BuildNet System from any
co-branded pages (i.e., pages identified with both GEA Marks and those of third
parties, or with the names or descriptions of both GEA and third parties)
hosted by GEA, and subject to the approval of BuildNet (which shall not be
unreasonably withheld), to display BuildNet Marks in GEA marketing collateral.
The use of BuildNet Marks shall be with appropriate attributions displayed, and
as otherwise agreed by the parties, provided that: (i) GEA shall at all times
use an appropriate trademark or service mark legend as BuildNet may from time
to time specify with respect to any use of BuildNet Marks; (ii) BuildNet may
request that GEA correct the appearance of any BuildNet Marks by giving GEA two
(2) day's prior written notice; and (iii) GEA shall not modify BuildNet Marks
or use them for any purpose other than as set forth above. GEA shall not engage
in any action associated with BuildNet Marks that adversely affects the good
name, goodwill, image or reputation of BuildNet. All uses of BuildNet Marks
hereunder shall inure to the benefit of BuildNet. GEA's rights in and to
BuildNet Marks shall be limited to those expressly granted in this Agreement.
All other uses, reproduction, or display of BuildNet Marks shall be subject to
BuildNet's prior written approval.
Section 5.6 Intellectual Property Rights. Nothing in this Agreement
shall be construed to transfer from one party to another the ownership of any
property subject to Intellectual Property Rights, or any rights to use,
reproduce, or exhibit such property except as provided in this Article V.
Unless otherwise expressly agreed in writing: (i) GEA Technology and GEA
Content, and all Intellectual Property Rights therein, are and will remain the
sole and exclusive property of GEA and its licensors; (ii) the BuildNet System
and all Intellectual Property Rights therein will remain the sole and exclusive
property of BuildNet and its licensors.
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ARTICLE VI
FEES AND PAYMENTS
Section 6.1 Subscription Fee. Commencing after the National
Roll-Out Period, GEA will pay an annual subscription fee equal to [*].
Section 6.2 Transaction Fee. Following the National Roll-Out
Period, GEA will pay a transaction fee on its direct sales to Customers (as
described in Section 3.1) fixed for years 3-10 of this Agreement [*]. As used
herein, the term "net order dollars" refers to GEA's builder invoice price
minus returns, refunds, and industry-standard trailing credits such as volume
rebates, PPD (price promotion differential), PIF (purchase incentive funds) and
deliver/freight terms.
Section 6.3 Other Fees. GEA may elect to engage BuildNet to provide
additional development and/or advertising services to GEA in connection with
the BuildNet System. Development fees, now or in the future, would be totally
within GEA's discretion to accept or decline if offered. Advertising/promotional
fees would be totally within GEA's discretion to accept or decline if offered,
and GEA would be charged [*] discount from fees actually charged to other
comparable companies.
Section 6.4 Payments. Subscription Fees shall be paid annually in
advance. Transaction Fees shall be due and payable no later than thirty (30)
days after the end of the calendar month in which GEA receives payment from its
Customer. Disputes related to any payments due under this Agreement shall not
constitute grounds for any party hereto to cease to perform any of its
obligations under this Agreement and shall be handled in accordance with
Article XI. Any payments not made when due shall accrue interest from the date
due until the date paid at twelve percent (12%) per annum or, if less, the
maximum per annum rate permitted by law.
Section 6.5 Taxes. Each party shall be responsible for all taxes
of any sort due on any fees received by that party pursuant to this Agreement.
ARTICLE VII
PROPRIETARY INFORMATION, USAGE DATA AND PUBLICITY
Section 7.1 Protection. All Proprietary Information disclosed by a
party hereto to any other party hereto in the course of performing under this
Agreement or to which a party hereto gains access in connection with this
Agreement shall be deemed to be the property of the disclosing party. The
receiving party shall during the life of this Agreement: (i) receive such
Proprietary Information in confidence; (ii) during the life of this Agreement
and for two (2) years thereafter maintain the confidentiality of such
Proprietary Information and not disclose such Proprietary Information to third
parties (except for the receiving party's representatives, agents and
contractors who have a need to know, are under a duty of non-disclosure, and
are acting for the sole benefit of the receiving party), and shall accord such
Proprietary Information at least the
11
Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.
<PAGE> 12
same level of protection against unauthorized use and disclosure as the
receiving party customarily accords its own information of a similar nature;
(iii) use or permit the use of such Proprietary Information solely in
accordance with the terms of this Agreement; and (iv) promptly notify the
disclosing party in writing of any loss or unauthorized use or disclosure of or
access to the disclosing party's Proprietary Information of which it becomes
aware. The terms and conditions of this Agreement (as well as all information
regarding the negotiation of this Agreement) shall be deemed to be the
Proprietary Information of the parties hereto. The parties hereto shall each
abide by and reproduce and include any restrictive legends or proprietary
rights notices that appear in or on any Proprietary Information of the other
parties hereto that it is authorized to reproduce. Each party shall also not
remove, alter, cover or distort any trademark, trade name, copyright or other
proprietary rights notices, legends, symbols or labels appearing in any
Proprietary Information of any other party hereto. Confidentiality obligations
and restrictions arising under this Section 7.1 shall expire two (2) years
after expiration or termination of this Agreement.
Section 7.2 Exclusions. The restrictions on disclosure set forth
above shall not apply when, and to the extent that the Proprietary Information:
(i) is or becomes generally available to the public through no fault of the
receiving party; (ii) was previously rightfully known to the receiving party
free of any obligation to keep it confidential; (iii) is subsequently disclosed
to the receiving party by a third party who may rightfully transfer and
disclose such information without restriction and free of any obligation to
keep it confidential; (iv) is independently developed by the receiving party or
a third party without reference to the disclosing party's Proprietary
Information; or (v) is required to be disclosed by the receiving party as a
matter of law, provided that the receiving party uses all reasonable efforts to
provide the disclosing party with at least ten (10) days' prior written notice
of such disclosure and the receiving party discloses only that portion of the
Proprietary Information that is legally required to be furnished pursuant to
the opinion of legal counsel of the receiving party.
Section 7.3 Data Rights. Pursuant to the BuildNet Membership
Agreement or Founding Member Agreement, as the case may be, all data generated
through the BuildNet System shall be the property of the originator, unless
otherwise assigned. BuildNet will not have any right to use Customer purchase
information except with the Customer's express consent. BuildNet will protect
the confidentiality of all Customer-specific or Customer-identifiable data.
Notwithstanding anything herein to the contrary, GEA acknowledges and agrees
that BuildNet may request and obtain all rights from Customers and/or Members
using the system (including GEA) in order for BuildNet to make use of
aggregated data for forecasting or other commercial purposes. BuildNet will
protect the confidentiality of all GEA transactions. Assuming that GEA obtains
appropriate customer authorization, GEA will have the right to use all data
generated by and through its Customers for Covered Items and may use the
Customer transaction data gathered by GEA (whether or not such transactions
flow through the BuildNet System) in any manner GEA deems appropriate.
Section 7.4 Security. BuildNet will ensure the security of
individual customer account, pricing, purchasing, and credit information
pursuant to the BuildNet Membership Agreement or Founding Member Agreement, as
the case may be, and agrees not to share, sell, allow access to, or otherwise
make available any such customer-related information supplied by GEA which GEA
deems confidential, except on an aggregated basis pursuant to Section 7.3.
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GEA and BuildNet agree to provide adequate security around the BuildNet System,
GEA Content and GEA Technology (to the extent utilized) and to protect
proprietary system design, content, and functionality from unauthorized use or
access by third parties.
Section 7.5 Public Statements Regarding Agreement. The parties
hereto shall jointly prepare a press release regarding the existence of this
Agreement at a mutually agreed upon time. The parties acknowledge that each may
have internal constraints that may affect the timing of issuance and the
content of any such press releases. Subject to Section 7.2, unless required by
law or to assert its rights under this Agreement, and except for disclosure on
a "need to know basis" to its own employees and consultants, and its legal,
investment, financial and other professional advisers on a confidential basis,
each party shall not disclose the existence of or any of the terms of this
Agreement without the prior written consent of the other party. The breach of
this Section 7.5 by either GEA or BuildNet, shall constitute a material breach
of this Agreement and shall accord the non-disclosing party the immediate right
to terminate this Agreement as provided in Section 11.2.
Section 7.6 Equitable Relief. The parties acknowledge that a
breach of any portion of this Article VII would cause the non-disclosing party
irreparable harm for which monetary damages would be inadequate. Accordingly,
the non-disclosing party shall be entitled to seek injunctive or other
equitable relief to remedy any threatened or actual breach of any portion of
this Article VII by the other party.
ARTICLE VIII
OTHER BUSINESS RELATIONSHIPS
Section 8.1 Other GE Businesses. So long as BuildNet has not
already established, or entered into discussion with a third party to
establish, a Founding Member or a Preferred Member for a major product category
(as described in Section 3.3) as of the Effective Date, [*] for consideration
of inclusion in the BuildNet System as Founding Members or Preferred Members,
subject to individual negotiations. Upon successful conclusion of such
negotiations, such other GE businesses will be provided priority in scheduling
of installation over all other system participants whose installations have not
been scheduled. If, despite BuildNet's good faith efforts, negotiations for
Founding Membership in a product category are not successful with a particular
GEA Affiliate, within 10 business days of commencement, then BuildNet has the
right to select another Founding Member for that major product category, and
BuildNet is released from all contractual obligations with GEA for that major
product category.
Section 8.2 Relationships With Third Parties. Except for BuildNet's
obligations under Section 3.1(a), no provision of this Agreement shall be
construed so as to preclude or limit a party (or its Affiliates) from: (i)
creating or operating any other websites; (ii) maintaining any and all existing
relationships and performing all existing agreements entered into prior to the
Effective Date of this Agreement; or (iii) providing content, technology and
other services to third parties; or (iv) with respect to GEA, entering into
relationships with third parties with respect to services similar to the
BuildNet System.
13
Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.
<PAGE> 14
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
Section 9.1 Representations and Warranties of BuildNet. BuildNet
represents and warrants as follows, as of the Effective Date and for the term
of this Agreement:
(a) The execution and delivery of this Agreement and
compliance by BuildNet with all provisions of this Agreement (i) are within the
corporate power and authority of BuildNet, and (ii) have been duly authorized
by all requisite corporate proceedings on the part of BuildNet.
(b) The execution and delivery of this Agreement shall not
conflict with or result in a breach of the terms, conditions or provisions of,
or give rise to a right of termination under, or constitute a default under, or
result in any violation of, the organizational documents of BuildNet or any
agreement, contract, instrument, order, judgment, decree, statute, law, rule or
regulation to which BuildNet is subject. Neither the execution and delivery of
this Agreement nor the compliance with the terms and provisions hereof shall
result in any violation of any franchise, certificate, license, permit, or
other authorization necessary for the ownership, maintenance and operation by
BuildNet of the BuildNet System.
(c) BuildNet is in compliance in all material respects
with all applicable federal, state and local laws and regulations and has
obtained all licenses required or necessary for the conduct of the BuildNet
System. There are no claims, notices, civil, criminal or administrative
actions, suits, hearings, investigations, inquiries or proceedings pending or
threatened against BuildNet with respect to the BuildNet System.
(d) BuildNet owns, or has the right to use under valid and
enforceable agreements, all of the Intellectual Property Rights related to the
operation of the BuildNet System. The operation of the BuildNet System as
presently conducted or proposed to be conducted by BuildNet does not infringe
or violate any Intellectual Property Rights of any other person, and BuildNet
has not received any charge, complaint, claim, demand or notice alleging any
such infringement or violation. BuildNet represents and warrants to GEA that
(i) the technology as utilized by the BuildNet System, and (ii) any material
originated by BuildNet or provided to GEA by BuildNet (other than the GEA
Content) ("BuildNet Material") which is displayed on the BuildNet System shall
not (A) violate any criminal laws or any rights of any third parties,
including, but not limited to, such violations as infringement or
misappropriation of Intellectual Property Right or other proprietary or
property right, false advertising, unfair competition, defamation, invasion of
privacy or rights of celebrity, violation of any anti-discrimination law or
regulation, or any other right of any person or (B) contain any material that
would constitute a criminal offense, give rise to civil liability, or otherwise
violate any applicable local, state or national law.
(e) All computer systems, software, and hardware used in
the operation of the BuildNet System are able to accurately process date data,
including, calculating, comparing, and sequencing from, into and between the
twentieth century (through year 1999), the year 2000 and the twenty-first
century, including leap year calculations. BuildNet is taking all commercially
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reasonable steps to assure that the BuildNet System is not adversely and
materially affected by Year 2000 or other date-related processing failures
affecting the performance of its suppliers and business partners.
(f) The BuildNet System will comport with reasonable
commercial or industry standards, including standards for firewalls, antivirus
protection, and system security. In the event that GEA notifies BuildNet that
the BuildNet System is failing to conform to the above warranties, BuildNet,
without charge, shall promptly and in no event more than thirty (30) days
thereafter, repair or replace the cause of such failure.
Section 9.2 Representations and Warranties of GEA. GEA represents
and warrants as follows, as of the Effective Date and for the term of this
Agreement:
(a) The execution and delivery of this Agreement and
compliance by GEA with all provisions of this Agreement (i) are within the
corporate power and authority of GEA, and (ii) have been duly authorized by all
requisite corporate proceedings on the part of GEA.
(b) The execution and delivery of this Agreement shall not
conflict with or result in a breach of the terms, conditions or provisions of,
or give rise to a right of termination under, or constitute a default under, or
result in any violation of, the organizational documents of GEA or any
agreement, contract, instrument, order, judgment, decree, statute, law, rule or
regulation to which GEA is subject.
(c) GEA is in compliance in all material respects with all
applicable federal, state, local and foreign laws and regulations and has
obtained all licenses required or necessary for the provision of GEA Content or
GEA Technology under this Agreement. There are no claims, notices, civil,
criminal or administrative actions, suits, hearings, investigations, inquiries
or proceedings pending or threatened against GEA with respect to the GEA
Content or GEA Technology.
(d) GEA owns, or has the right to use under valid and
enforceable agreements, all of the Intellectual Property Rights related to the
GEA Technology and the GEA Content. GEA represents and warrants to BuildNet
that (i) GEA Technology, and (ii) the GEA Content which used with or displayed
on the BuildNet System shall not (A) violate any criminal laws or any rights of
any third parties, including, but not limited to, such violations as
infringement or misappropriation of Intellectual Property Right or other
proprietary or property right, false advertising, unfair competition,
defamation, invasion of privacy or rights of celebrity, violation of any
anti-discrimination law or regulation, or any other right of any person or (B)
contain any material that would constitute a criminal offense, give rise to
civil liability, or otherwise violate any applicable local, state or national
law.
(e) All computer systems, software, and hardware used in
the operation of the GEA Technology are able to accurately process date data,
including, calculating, comparing, and sequencing from, into and between the
twentieth century (through year 1999), the year 2000 and the twenty-first
century, including leap year calculations. GEA is taking all commercially
reasonable steps to assure that the GEA Technology is not adversely and
materially affected by Year 2000 or other date-related processing failures.
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(f) The GEA Technology will comport with reasonable
commercial or industry standards as applicable, including standards for
firewalls, antivirus protection, and system security. In the event that
BuildNet notifies GEA that the GEA Technology is failing to conform to the
above warranties, GEA, without charge, shall promptly and in no event more than
thirty (30) days thereafter, repair or replace the cause of such failure.
Section 9.3 Disclaimer. OTHER THAN AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NO PARTY HERETO MAKES ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT
TO THE BUILDNET SYSTEM, THE GEA CONTENT, THE GEA TECHNOLOGY, OR ANY OTHER
TECHNOLOGY, CONTENT, OR INTELLECTUAL PROPERTY RIGHTS, OR ANY OTHER INFORMATION,
DATA, PRODUCTS, SERVICES, ACCURACY OR RESULTS OF USE, RIGHTS OR OTHER SUBJECT
MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS ALL IMPLIED WARRANTIES,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
ARTICLE X
LIMITATION OF LIABILITY
OTHER THAN WITH RESPECT TO INDEMNIFICATION OBLIGATIONS UNDER SECTION
12.1 OF ARTICLE XII, BREACH OF THE NONDISCLOSURE OBLIGATIONS UNDER ARTICLE VII,
AND INSTANCES OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER UNDER THIS AGREEMENT FOR ANY FORM OF
SPECIAL, INCIDENTAL, INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES OF ANY KIND
(WHETHER OR NOT FORESEEABLE), EVEN IF INFORMED IN ADVANCE OF THE POSSIBILITY OF
SUCH DAMAGES, AND WHETHER ARISING IN CONTRACT, TORT (INCLUDING NEGLIGENCE), OR
OTHERWISE.
ARTICLE XI
TERM AND TERMINATION
Section 11.1 Term. Once effective, this Agreement shall continue in
force for ten (10) years or until the valid termination hereof as provided
herein.
Section 11.2 Termination for Cause. BuildNet and GEA shall each have
the right to terminate this Agreement if: (i) the other party breaches any
material term or condition of this Agreement and fails to cure such breach
within thirty (30) days after receipt of written notice from the non-breaching
party; (ii) the other party breaches the same material term or condition of
this Agreement three (3) or more times during the same one year term, and was
given notice and an opportunity to cure in each instance as provided above;
(iii) the other party breaches any material term or condition of this Agreement
more than five (5) times during the same one year term, and was given notice
and an opportunity to cure in each instance as provided above; (iv) the other
party becomes the subject of a voluntary petition in bankruptcy or any
voluntary
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proceeding relating to insolvency, receivership, liquidation, composition, or
comparable proceeding or any assignment for the benefit of creditors; or (v)
the other party becomes the subject of an involuntary petition in bankruptcy or
any involuntary proceeding relating to insolvency, receivership, liquidation,
composition, or comparable proceeding or any assignment for the benefit of
creditors, if such petition or proceeding is not dismissed within ninety (90)
days of filing.
Section 11.3 Termination in the Event of Change of Control. In the
event of a Change of Control of BuildNet, GEA may terminate this Agreement by
providing BuildNet with thirty (30) days written notice of such intent to
terminate. For purposes of this Section 11.3, a "Change of Control" shall mean:
(i) the consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of a party; or (ii)
the acquisition by any individual, entity or group of beneficial ownership of a
controlling interest in BuildNet (as defined in Section 1.1(a) above); provided
that a "Change of Control" does not include a reorganization of BuildNet that
does not result in a change in the effective control of BuildNet or an initial
public offering of BuildNet's voting stock.
Section 11.4 Termination in the Event of Excessive Fees. If, at any
time, GEA determines in its sole business judgment that the total fees charged
by BuildNet to GEA are excessive, GEA may terminate this Agreement without
liability or further obligation upon ninety (90) days' notice.
Section 11.5 Survival. All accrued and outstanding payment
obligations hereunder, any remedies for breach of this Agreement, Articles VII,
X, XII and XIII, and all other provisions of this Agreement which may be
reasonably interpreted or construed as surviving the termination or expiration
of this Agreement, shall survive the termination or expiration of this
Agreement.
Section 11.6 Return of Proprietary Information Upon Termination or
Expiration of Agreement. Upon the termination or expiration of this Agreement,
each party shall promptly return all materials subject to Intellectual Property
Rights of the other party, all Proprietary Information of the other party, and
other information, documents, manuals and other materials belonging exclusively
to the other party, except as may be otherwise provided in this Agreement. Each
party shall have the right to request, and the other party shall provide,
written certification from an executive officer of the other party stating that
all such material has been returned or destroyed.
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ARTICLE XII
INDEMNIFICATION
Section 12.1 Intellectual Property Indemnification.
(a) Each of GEA and BuildNet, respectively, shall defend,
indemnify and hold each other, and each other's Affiliates, partners, officers,
employees, directors, agents, consultants, contractors, representatives,
successors and assigns, as such, harmless from and against any third party
claims, demands, liabilities, actions, judgments and expenses, including
attorneys fees, ("Losses") which arise out of or result from any claim that
such party does not have sufficient right, title or interest in any software,
data, or any other materials used or supplied by such party in performance of
such party's obligations under this Agreement that are subject to any
Intellectual Property Rights (the "Protected Material") or that such Protected
Material violates any Intellectual Property Right of any third party.
(b) In the event that any such claim is made against
either GEA or BuildNet, or in one of the parties' (the "Indemnifying Party")
opinion is likely to be made against the other party (the "Indemnified Party"),
such Indemnifying Party reserves the right, in its sole discretion, to avoid
infringement by (i) procuring for the Indemnified Party the right to use the
subject Protected Material, (ii) replacing the subject Protected Material with
materials of equal or superior content and functionality, or (iii) to modify
the subject Protected Material without materially and adversely affecting their
content and functionality.
Section 12.2 General Indemnification. BuildNet shall defend,
indemnify and hold GEA and its Affiliates, officers, directors, agents,
consultants and employees harmless from and against any and all Losses arising
out of or related to BuildNet's material breach of BuildNet's obligations,
representations, and warranties hereunder or any legal liability arising out of
or relating to the BuildNet System.
Section 12.3 General Indemnification. GEA shall defend, indemnify
and hold BuildNet and its Affiliates, officers, directors, agents, consultants
and employees harmless from and against any and all Losses arising out of or
related to GEA's material breach of GEA's obligations, representations, and
warranties hereunder or any legal liability arising out of or relating to the
GEA Technology.
Section 12.4 Indemnification Procedures.
(a) Only claims for indemnification during the term of this
Agreement and for one year following the termination of this Agreement shall be
permitted under this Agreement. Any party claiming indemnification pursuant to
this Agreement shall notify the indemnifying party within thirty (30) days
after learning of the occurrence of any event (including, without limitation,
the commencement of any audit by any taxing authority) that such party asserts
is an indemnifiable event pursuant to this Agreement. If such event involves
the claim of any third party and the indemnifying party confirms in writing its
responsibility for such liability, if established, the indemnifying party shall
be entitled to participate in and, to the extent it shall wish, assume control
over (in which case the indemnifying party shall assume all expense with
respect to) the defense, settlement, adjustment or compromise of such claim.
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(b) The indemnified party shall have the right to employ
separate counsel in any action or claim and to participate in the defense
thereof at the expense of the indemnifying party (i) if the retention of such
counsel has been specifically authorized by the indemnifying party, or (ii) if
the counsel is retained because the indemnifying party does not notify the
indemnified party within twenty (20) days after receipt of a claim notice that
it elects to undertake the defense thereof. The indemnified party shall have
the right to employ counsel at the indemnified party's own expense and to
participate in such action or claim, including settlement or trial, so long as
such participation does not substantially interfere in the indemnifying party's
defense of such claim or action.
(c) The indemnifying party shall obtain the prior written
approval of the indemnified party, not to be unreasonably withheld, before
entering into any settlement, adjustment, or compromise of such claim or
ceasing to defend against such claim, if pursuant to or as a result of such
settlement, adjustment, compromise, or cessation, injunctive or other relief
would be imposed against the indemnified party.
(d) If the indemnifying party does not assume control over
the defense of such claim as provided in Section 12.3(a), the indemnified party
shall have the right to defend the claim in such manner as it may deem
appropriate at the cost and expense of the indemnifying party, and with the
consent of the indemnifying party, not to be unreasonably withheld, to settle,
adjust, or compromise such claim. The indemnified party may settle, adjust, or
compromise any such claim without the consent of the indemnifying party if the
indemnified party waives indemnification for such claim.
ARTICLE XIII
DISPUTE RESOLUTION
Section 13.1 Informal Dispute Resolution.
(a) Disputes. Any dispute, controversy, claim or
disagreement between or among any of the parties hereto arising from, relating
to or in connection with this Agreement, any agreement, certificate or other
document referred to herein or delivered in connection herewith, or the
relationships of the parties hereunder or thereunder, including questions
regarding the interpretation, meaning or performance of this Agreement, and
including claims based on contract, tort, common law equity, statute,
regulation, order or otherwise ("DISPUTE") shall be resolved in accordance with
this Section 13.1. The parties agree that all disputes will involve interstate
commerce in fact, and accordingly, the FAA applies and governs the arbitration.
(b) Level 1 Review. Upon written request of any party,
each of GEA and BuildNet shall appoint a designated representative familiar
with the dealings among the parties hereto whose task it shall be to meet (by
conference telephone call or in person at a mutually agreeable site) for the
purpose of endeavoring to resolve such Dispute ("LEVEL 1 REVIEW"). The
designated representatives shall meet as often as the parties reasonably deem
necessary to discuss the Dispute and negotiate in good faith in an effort to
resolve the Dispute without the necessity of any formal proceeding.
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(c) Level 2 Review. If the Dispute cannot be resolved
within the earlier of (i) fifteen (15) days of the first Level 1 Review meeting
or (ii) such time as when either party gives the other notice of an impasse
("LEVEL 1 TERMINATION DATE"), an executive vice president (or a functional
equivalent) of GEA and chief executive officer of BuildNet shall meet (by
conference telephone call or in person at a mutually agreeable site) within
thirty (30) days after the Level 1 Termination Date for the purpose of
resolving such unresolved Dispute ("LEVEL 2 REVIEW").
Section 13.2 Arbitration.
(a) If the Dispute is not resolved within fifteen (15) days
after the Level 2 Review and any extension of such periods as mutually agreed
to by the parties, either party may submit the Dispute to binding arbitration
in accordance with the following provisions of this Section 13.2.
(b) Any such arbitration shall be conducted by
JAMS/Endispute in accordance with its current rules ("JAMS RULES"), before a
single arbitrator selected under such JAMS Rules. The arbitration shall be
conducted in New York, New York, unless otherwise agreed by the parties.
(c) Except as necessary in court proceedings to enforce
this arbitration provision or an award rendered hereunder, or to obtain interim
relief or as otherwise provided in Section 13.3 or pursuant to lawful
compulsion, no party nor any arbitrator shall disclose the existence, content
or results of any arbitration conducted hereunder without the prior written
consent of the other party to the arbitration.
(d) To the extent that the relief or remedy granted in an
award rendered by the arbitrator is relief or a remedy on which a court could
enter judgment, a judgment upon the award rendered may be entered in any court
having jurisdiction thereof. Otherwise, the award shall be binding on the
parties in connection with their obligations under this Agreement and in any
subsequent arbitration or judicial proceedings among any of the parties.
(e) The parties shall share equally the cost of
arbitration, including any required administrative fee, the compensation of the
arbitrators and the costs of any neutral witnesses or proof produced at the
direct request of the arbitrator. The arbitrator shall have the power to grant
injunctive relief or any other relief allowed by the substantive law of the
State of New York.
Section 13.3 Recourse to Courts and Other Remedies. Notwithstanding
the Dispute resolution procedures contained in Sections 13.1 and 13.2, any
party may apply to the appropriate division of the courts of the State of New
York having proper jurisdiction (i) to enforce this agreement to arbitrate,
(ii) to decide issues of arbitrability, (iii) to seek interim injunctive relief
so as to maintain the status quo until the arbitration award is rendered or the
Dispute is otherwise resolved, (iv) to avoid the expiration of any applicable
limitation period, (v) to preserve a superior position with respect to other
creditors, (vi) to challenge or vacate any final judgment, award or decision of
the arbitrator under the circumstances and to the effect allowed, (vii) to
enforce the payment of undisputed amounts, or (vii) to seek post-arbitration
injunctive relief for the protection of any Intellectual Property Rights of a
party.
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Section 13.4 Miscellaneous. It is the intent of the parties that
reasonable discovery be allowed prior to the arbitration, in the discretion of
the arbitrator, and as further provided by any applicable JAMS Rules. Disputes
submitted shall be governed by the substantive law of the State of New York,
not inconsistent with the Federal Arbitration Act ("FAA"), 9 U.S.C. ss. 1 et
seq. A prevailing party may petition the arbitrator for reasonable attorneys'
fees and expenses.
ARTICLE XIV
GENERAL TERMS AND CONDITIONS
Section 14.1 Force Majeure. Neither party shall be liable to the
other for delays or failures in performance resulting from causes beyond the
reasonable control of that party, including, but not limited to, acts of God,
labor disputes or disturbances, material shortages or rationing, riots, acts of
war, changes in governmental regulations, or casualties.
Section 14.2 Independent Contractor Relationship. The parties to
this Agreement are independent contractors. Neither party is an agent,
representative or partner of the other party. Neither party shall have any
right, power or authority to enter into any agreement for or on behalf of, or
to incur any obligation or liability for, or to otherwise bind, the other
party. This Agreement shall not be interpreted or construed to create an
association, joint venture or partnership between the parties or to impose any
partnership obligation or liability upon either of the parties hereto.
Section 14.3 Severability. If any term, provision, or restriction
of this Agreement and any appendix, exhibit, or schedule hereto is held by a
court or arbitrator of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement and such exhibits shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. The parties
will negotiate in good faith appropriate modifications to the invalidated
provision or this Agreement to most nearly effect the intent of such provision.
Section 14.4 Assignment. Neither party shall assign, sublicense or
otherwise transfer (voluntarily, by operation of law or otherwise) this
Agreement or any right, interest or benefit under this Agreement, without the
prior written consent of the other party, except in the event of its merger,
corporate reorganizations, or sale of all, or substantially all, of its assets,
provided that such assignee (a) is not a direct competitor of the other party,
(b) has financial assets equal to or greater than that of the assigning party,
and (c) is bound by law or written agreements to all of the obligations of the
assigning party under this Agreement. Any attempted assignment, sublicense or
transfer in derogation hereof shall be null and void. Subject to the foregoing,
this Agreement shall be fully binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns.
Section 14.5 Amendment and Modification of Agreement. No change,
amendment or modification of any provision of this Agreement or waiver of any
of its terms shall be valid unless set forth in writing and signed by the party
to be bound thereby.
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Section 14.6 Choice of Law and Venue. This Agreement shall be
interpreted, construed and enforced in all respects in accordance with the laws
of the state of New York. Each party irrevocably consents to the exclusive
jurisdiction of any state or federal court for or within the Borough of
Manhattan over any action or proceeding arising out of or related to this
Agreement, and waives any objection to venue or inconvenience of the forum in
any such court.
Section 14.7 Waiver of Compliance or Enforcement. The failure of any
party hereto to insist upon or enforce strict performance by the other party of
any provision of this Agreement or to exercise any right under this Agreement
shall not be construed as a waiver or relinquishment to any extent of such
party's right to assert or rely upon any such provision or right in that or any
other instance; rather the same shall be and remain in full force and effect.
Section 14.8 Notices. Any notice, approval, request, authorization,
direction or other communication under this Agreement shall be given in
writing, shall reference this Agreement and shall be deemed to have been
delivered and given (a) when delivered personally; (b) three (3) business days
after having been sent by registered or certified U.S. mail, return receipt
requested, postage and charges prepaid, whether or not actually received; or
(c) one (1) business day after deposit with a commercial overnight courier,
with written verification of receipt. All communications shall be sent to the
addresses set forth below or to such other address as may be designated by a
party by giving written notice to the other party pursuant to this Paragraph
14.8.
IF TO GEA:
General Electric Appliances
Appliance Park
Louisville, KY 40225
Attn.: Vice-President and General Counsel
IF TO BUILDNET:
BuildNet, Inc.
4815 Emperor Drive
Suite 214
Morrisville, NC 27560
Attn.: President
Section 14.9 Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto and supersedes any and all prior agreements
or understandings among the parties with respect to the subject matter hereof.
No party hereto shall be bound by, and each party hereto specifically objects
to, any term, condition or other provision or other condition which is
different from or in addition to the provisions of this Agreement (whether or
not it would materially alter this Agreement) and which is proffered by any
other party hereto in any correspondence or other document, unless the party to
be bound thereby specifically agrees to such provision in writing. The parties
understand and agree that the main body of this Agreement, and all the terms
and conditions contained herein, shall govern and take precedence over any
inconsistent terms and conditions (including inconsistent choice of law or
forum provisions) that are or may be contained in those certain ancillary
agreements attached as
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Exhibits hereto, including by way of example not limitation, Exhibit B
(Founding Member Agreement) and Exhibit E (Services Agreement). The fact that
said ancillary agreements may be executed subsequent to this Agreement shall
not alter the intent of this provision. Notwithstanding the foregoing, GEA
shall in all instances be accorded terms and conditions in such ancillary
agreements at least as favorable as accorded other Founding Members.
Section 14.10 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been
signed by each party and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
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IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed on its behalf as of the date first above written.
BUILDNET, INC.
By: /s/ Keith Brown
------------------------------------------
Name: Keith Brown
Title: President
GE Appliances, on behalf of
GENERAL ELECTRIC COMPANY
By: /s/ Paul A. Ryder
------------------------------------------
Name: Paul A. Ryder
Title: Customer Internet Services
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EXHIBIT A
Development Statement of Work
Transaction Adapter
Integration
- GEA will provide the resources and necessary hardware for
integration of the Transaction Adapter into GEA's
environment. The following BuildNet transactions will
initially be integrated:
- Request for Pricing, Request for Availability, Request for
In-Stock, Request for Quote, and Purchase Order (New,
change item(s), change delivery date, and cancel).
- At its discretion, GEA may decide to implement the
following BuildNet transactions (and others) going forward:
- Delivery of Materials, Close PO, Invoicing, and Customer
Account Verification
GEA Product Information
Integration
- BuildNet will furnish the necessary resources to develop an
interface which automates the publishing of GEA's product
information library to the BuildNet cataloging system. On
demand, the interface will gather the necessary data from
GEA's textual product information library and combine it
with appropriate graphical files (product photo, use and
care guide, etc.) from GEA's Panagon document repository.
Then, the package will be sent, via electronic means, to
the BuildNet system for publication.
<PAGE> 26
EXHIBIT B
FORM OF BUILDNET, INC. FOUNDING MEMBER AGREEMENT
This FOUNDING MEMBER AGREEMENT (the "Agreement") is dated as of the ____ day of
_____1999 (the "Effective Date"), by and between BuildNet, Inc., a North
Carolina corporation, with its principal place of business at 4815 Emperor
Drive, Suite 214, Morrisville, North Carolina 27560 ("BuildNet"), and
__________________________corporation, by and through its General Electric
Appliances operating unit having a place of business at
_________________("Company").
RECITALS
WHEREAS, BuildNet operates an Internet-based service for processing
and supporting electronic commerce transactions between suppliers and buyers of
building related goods and services (the "BuildNet System"); and
WHEREAS, BuildNet desires to establish one primary sponsor in each
major product category included in the BuildNet System (a "Founding Member"),
which will be accorded advantaged status over preferred and standard members
("Members") on the BuildNet System; and
WHEREAS, Company is the manufacturer of building products, materials
and/or supplies and desires to become a Founding Member with respect to the
products (the "Products") and the Major Product Category as set forth on
Exhibit A attached hereto;
[*]
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
bound, hereby agree as follows. [*]
1. Appointment of Founding Member. BuildNet hereby appoints Company as
the exclusive Founding Member for the Major Product Category as set
forth on Exhibit A attached hereto, and Company shall make available
for purchase through the BuildNet System, the Products. During the
term of this Agreement, BuildNet shall not allow any other Member to
offer for sale through the BuildNet System the Products (or products
that compete therewith) on the same set of advantaged terms accorded a
Founding Member.
2. Electronic Commerce Services. In a timely manner, BuildNet shall
provide the following electronic commerce services to Company. [*]
(a) BuildNet shall make available to Company the necessary BuildNet
System software to create and publish Product catalogs through the BuildNet
System. This software will
2
Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.
<PAGE> 27
provide a standard set of capabilities for Founding Members needed to display
all relevant Product Information and interface the transactions facilitated
through the BuildNet System with Company's internal business systems. The
BuildNet System will provide basic customer interaction capabilities to conduct
standard commerce transactions including new builder sign-up, price quotes,
payment services, new orders, back order notification, advanced ship notice
communications and purchase order modifications.
(b) BuildNet will maintain and present Company's Product information
on the BuildNet System, provided that Company shall pay all costs for any third
party software (including upgrades to such software) that is required to
publish and/or maintain Company's Product catalogs through the BuildNet System.
There will no storage or service charges for hosting or maintaining Company
Product information catalogs on the BuildNet System.
(c) BuildNet will manage and distribute to end users of the BuildNet
System Company's Product catalog and upgrades thereto.
(d) BuildNet will provide timely notice to Company of all upgrades
and changes to the BuildNet System, the transaction adapter software or
Company's electronic catalog that may cause changes to be made to Company's
internal electronic commerce systems.
(e) BuildNet will maintain the BuildNet System and all software
tools, interfaces and transaction adapter software provided with the BuildNet
System and keep all e-commerce interfaces working properly.
(f) BuildNet shall provide all required hardware and software to
host the BuildNet System, including telecommunications hardware and software.
BuildNet shall provide the telecommunications equipment and connections to
allow members to access the BuildNet System through the public Internet on a
twenty-four hours per day, seven days per week basis, except during scheduled
maintenance downtime. In addition, BuildNet or its agents shall keep backups of
the BuildNet System, check for errors in the accessibility of the BuildNet
System, and monitor connectivity of the BuildNet System to the Internet.
BuildNet will use commercially reasonable efforts to ensure that the speed and
functionality of the BuildNet System is consistent with industry best of breed
standards.
3. Marketing and Promotional Services. During the term of this Agreement,
Company shall have the right to hold itself out as a "Founding Member" of the
BuildNet System. As a Founding Member, Company shall be entitled to the
following benefits and services with respect to the Major Product Category.
(a) Company shall receive preferred positioning and placement,
including first position for all relevant menus, lists and online catalog
presentations. Company shall receive preferred positioning on any user desktop
screens or interfaces provided by BuildNet including priority positioning on
the desktop within the applicable Major Product Category, and priority by each
individual product category within the Major Product Category.
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(b) The BuildNet System shall default to Company in each individual
product category within the Major Product Category for all plans, menus and
applications.
(c) BuildNet shall provide reasonable assistance to Company with its
marketing efforts, including seminars and special promotional events. Company,
as a Founding Member shall receive preferential consideration over standard
Members during any city roll-out promotional events conducted by BuildNet.
(d) BuildNet will provide Company prominent Founding Member
visibility in BuildNet on-line and print advertising and other sales and
marketing collateral material that promote the BuildNet System. As a Founding
Member, BuildNet will offer preferred advertising to the Company in the
BuildNet System web site design and on-line advertising, both within the
Product Category and within the BuildNet System generally at the then-current
rates. [*]
(e) BuildNet will include Company's name and logo within the BuildNet
Industry Company Index section of the BuildNet System web site, located at
www.buildnet.net and any other indexes that are included on websites that are
part of the BuildNet System.
(f) BuildNet will include a hypertext hot link(s) to Company's
Internet site(s) from the Industry Company Index of the BuildNet System web
site(s).
(g) No superceding ads or promotional hot links by non-Founding
Members will be placed on Founding Members webpages.
4. Other Services. BuildNet shall provide to Company services that are
required to integrate Company's Product data systems with the BuildNet System.
These services shall be provided pursuant to BuildNet's standard General
Services Agreement and shall include the provision of a basic template driven
catalog of Company's product data. This catalog will not implement any
configuration or rule driven processes.
5. Company's Duties. Company shall be responsible for providing to
BuildNet in a timely manner the Company Material as defined below, including
all designs, promotional materials, Company marks and logos, advertisements and
other Company material to be provided under the Agreement. All such materials
are, and shall remain, the exclusive property of Company and shall promptly be
returned thereto upon request.
6. Subscription and Transaction Fee. In consideration of its participation
as a Founding Member, Company shall pay to BuildNet an annual Founding Member
subscription fee of [*]. Payment for the first year shall be due upon the
Effective Date and thereafter on each annual anniversary of the Effective Date..
A transaction fee of (i) [*] of the net invoice price of any product or service
ordered through the BuildNet System if the sale is to a supplier, or (ii) a
transaction fee of [*] of the net invoice price of any product or service
ordered through the BuildNet System if the sale is a direct shipment to the end
user. Transaction fees shall be invoiced electronically upon notice of shipment
from Founding Members and payable within thirty (30) days of invoice date. Any
payments due hereunder not received within thirty (30) days of the date due
shall accrue interest from the date due until the
4
Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.
<PAGE> 29
date paid at twelve percent (12%) per annum or, if less, the maximum per annum
rate permitted by law. [*]
7. Term. The term of the Agreement shall be for a period of one (1) year,
commencing on the Effective Date. Thereafter the Agreement shall automatically
renew for additional one-year terms upon receipt of the Annual Fee pursuant to
Section 6 unless either party provided written notice to the other of its
intent not to renew not less than sixty (60) days prior to the end of the
then-current term. BuildNet reserves the right to terminate this Agreement at
any time that payment is not received within thirty (30) days of the date such
payment is due. [*]
8. Representations and Warranties of BuildNet. BuildNet represents and
warrants as follows, as of the Effective Date and for the term of this
Agreement:
(a) The execution and delivery of this Agreement shall not conflict
with or result in a breach of the terms, conditions or provisions of, or give
rise to a right of termination under, or constitute a default under, or result
in any violation of, any agreement, contract, instrument, order, judgment,
decree, statute, law, rule or regulation to which BuildNet is subject. Neither
the execution and delivery of this Agreement nor the compliance with the terms
and provisions hereof shall result in any violation of any franchise,
certificate, license, permit, or other authorization necessary for the
ownership, maintenance and operation by BuildNet of the BuildNet System.
(b) BuildNet owns, or has the right to use under valid and
enforceable agreements, all of the intellectual property rights related to the
operation of the BuildNet System. The operation of the BuildNet System as
presently conducted or proposed to be conducted by BuildNet does not infringe
or violate any intellectual property rights of any other person. BuildNet
represents and warrants to Company that (i) the technology as utilized by the
BuildNet System, and (ii) any material originated by BuildNet or provided to
Company by BuildNet (other than content originating with Company) ("BuildNet
Material") which is displayed on the BuildNet System shall not (A) violate any
criminal laws or any rights of any third parties, including, but not limited
to, such violations as infringement or misappropriation of intellectual
property rights or other proprietary or property right, false advertising,
unfair competition, defamation, invasion of privacy or rights of celebrity,
violation of any anti-discrimination law or regulation, or any other right of
any person or (B) contain any material that would constitute a criminal
offense, give rise to civil liability, or otherwise violate any applicable
local, state or national law.
(c) All computer systems, software, and hardware used in the
operation of the BuildNet System are able to accurately process date data,
including, calculating, comparing, and sequencing from, into and between the
twentieth century (through year 1999), the year 2000 and the twenty-first
century, including leap year calculations. BuildNet is taking all commercially
reasonable steps to assure that the BuildNet System is not adversely and
materially affected by Year 2000 or other date-related processing failures
affecting the performance of its suppliers and business partners.
5
Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.
<PAGE> 30
(d) The BuildNet System will comport with reasonable commercial or
industry standards, including standards for firewalls, antivirus protection,
and system security. In the event that Company notifies BuildNet that the
BuildNet System is failing to conform to the above warranties, BuildNet,
without charge, shall promptly and in no event more than thirty (30) days
thereafter, repair or replace the cause of such failure, provided however that
if the BuildNet System is not operational for more than three (3) days within
any given month, any additional non-operational days within that given month
will be credited against the Founding Member's future subscription fee on a pro
rata daily basis.
9. Representations and Warranties of Company. Company represents and
warrants as follows, as of the Effective Date and for the term of this
Agreement:
(a) The execution and delivery of this Agreement shall not conflict
with or result in a breach of the terms, conditions or provisions of, or give
rise to a right of termination under, or constitute a default under, or result
in any violation of any agreement, contract, instrument, order, judgment,
decree, statute, law, rule or regulation to which Company is subject.
(b) Company represents and warrants to BuildNet that any material
originated by Company or provided to BuildNet by Company (other than content
originating with BuildNet) ("Company Material") which is displayed on the
BuildNet System shall not (A) violate any criminal laws or any rights of any
third parties, including, but not limited to, such violations as infringement
or misappropriation of intellectual property rights or other proprietary or
property right, false advertising, unfair competition, defamation, invasion of
privacy or rights of celebrity, violation of any anti-discrimination law or
regulation, or any other right of any person or (B) contain any material that
would constitute a criminal offense, give rise to civil liability, or otherwise
violate any applicable local, state or national law.
10. Disclaimer. OTHER THAN AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NO
PARTY HERETO MAKES ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE
BUILDNET SYSTEM, THE BUILDNET MATERIAL, THE COMPANY MATERIAL, OR ANY OTHER
TECHNOLOGY, CONTENT, OR INTELLECTUAL PROPERTY RIGHTS, OR ANY OTHER INFORMATION,
DATA, PRODUCTS, SERVICES, ACCURACY OR RESULTS OF USE, RIGHTS OR OTHER SUBJECT
MATTER OF THIS AGREEMENT AND EACH PARTY HEREBY DISCLAIMS ALL IMPLIED
WARRANTIES, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
6
<PAGE> 31
11. Indemnification.
(a) Each of Company and BuildNet, respectively, shall defend,
indemnify and hold each other, and each other's Affiliates, partners, officers,
employees, directors, agents, consultants, contractors, representatives,
successors and assigns, as such, harmless from and against any third party
claims, demands, liabilities, actions, judgments and expenses, including
attorneys fees, ("Losses") which arise out of or result from any claim that
such party does not have sufficient right, title or interest in any software,
data, or any other materials used or supplied by such party in performance of
such party's obligations under this Agreement that are subject to any
intellectual property rights (the "Protected Material") or that such Protected
Material violates any intellectual property right of any third party.
(b) In the event that any such claim is made against either Company
or BuildNet, or in one of the parties' (the "Indemnifying Party") opinion is
likely to be made against the other party (the "Indemnified Party"), such
Indemnifying Party reserves the right, in its sole discretion, to avoid
infringement by (i) procuring for the Indemnified Party the right to use the
subject Protected Material, (ii) replacing the subject Protected Material with
materials of equal or superior content and functionality, or (iii) to modify
the subject Protected Material without materially and adversely affecting their
content and functionality.
(c) Any party claiming indemnification pursuant to this Agreement
shall notify the indemnifying party within thirty (30) days after learning of
the occurrence of any event (including, without limitation, the commencement of
any audit by any taxing authority) that such party asserts is an indemnifiable
event pursuant to this Agreement. If such event involves the claim of any third
party and the indemnifying party confirms in writing its responsibility for
such liability, if established, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, assume control over (in which
case the indemnifying party shall assume all expense with respect to) the
defense, settlement, adjustment or compromise of such claim.
(d) The indemnified party shall have the right to employ separate
counsel in any action or claim and to participate in the defense thereof at the
expense of the indemnifying party (i) if the retention of such counsel has been
specifically authorized by the indemnifying party, or (ii) if the counsel is
retained because the indemnifying party does not notify the indemnified party
within twenty (20) days after receipt of a claim notice that it elects to
undertake the defense thereof. The indemnified party shall have the right to
employ counsel at the indemnified party's own expense and to participate in
such action or claim, including settlement or trial, so long as such
participation does not substantially interfere in the indemnifying party's
defense of such claim or action.
(e) The indemnifying party shall obtain the prior written approval
of the indemnified party, not to be unreasonably withheld, before entering into
any settlement, adjustment, or compromise of such claim or ceasing to defend
against such claim, if pursuant to or as a result of such settlement,
adjustment, compromise, or cessation, injunctive or other relief would be
imposed against the indemnified party.
7
<PAGE> 32
(f) If the indemnifying party does not assume control over the
defense of such claim as provided in herein, the indemnified party shall have
the right to defend the claim in such manner as it may deem appropriate at the
cost and expense of the indemnifying party, and with the consent of the
indemnifying party, not to be unreasonably withheld, to settle, adjust, or
compromise such claim. The indemnified party may settle, adjust, or compromise
any such claim without the consent of the indemnifying party if the indemnified
party waives indemnification for such claim.
12. Limitation of Damages and Liability. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE TO THE
OTHER HEREUNDER FOR INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES
(INCLUDING REASONABLE ATTORNEYS' FEES AND LOST PROFITS) THAT RESULT FROM OR ARE
RELATED TO THIS AGREEMENT, EVEN IF THE PARTY FROM WHOM INDEMNITY IS SOUGHT HAS
BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES. IN ANY EVENT OTHER THAN WITH
RESPECT TO INDEMNIFICATION OBLIGATIONS UNDER SECTION 11, BUILDNET'S AGGREGATE
LIABILITY TO COMPANY UNDER THIS AGREEMENT FOR DAMAGES, COSTS, AND EXPENSES
SHALL NOT EXCEED THE AMOUNT RECEIVED BY BUILDNET UNDER THIS AGREEMENT WITHIN
TWELVE MONTHS OF THE CAUSE OF ACTION GIVING RISE TO THE LIABILITY NOTHING IN
THIS SECTION SHALL LIMIT IN ANY MANNER EITHER PARTY'S RIGHTS TO SEEK INJUNCTIVE
RELIEF.
13. Confidentiality.
(a) Definition. "Proprietary Information" of a party means: any
confidential, proprietary or trade secret information disclosed by a party that
is identified in writing as such at the time of its initial disclosure, or if
initially disclosed in intangible form, is reduced to tangible form and
properly identified as such within 30 days of initial unmarked disclosure,
including without limitation: (i) information disclosed by a party relating to
product development strategy and activity, corporate assessments and strategic
plans, financial and statistical information, accounting information, software,
systems, processes, formulae, inventions, discoveries, policies, guidelines,
procedures, practices, disputes or litigation; (ii) trade information relating
to such party's employees, contractors or customers which, if released, would
cause an unlawful or actionable invasion of privacy; and (iii) compilations or
summaries of information or data that is itself Proprietary Information. For
purposes of this Agreement, information shall be deemed to be disclosed by a
party if such information is disclosed by any of its officers, employees,
directors, consultants, agents, representatives or affiliates.
(b) Protection. Except as provided herein, all Proprietary
Information disclosed by a party hereto to any other party hereto in the course
of performing under this Agreement or to which a party hereto gains access in
connection with this Agreement shall be deemed to be the property of the
disclosing party. The receiving party shall during the life of this Agreement:
(i) receive such Proprietary Information in confidence; (ii) during the life of
this Agreement and for two (2) years thereafter maintain the confidentiality of
such Proprietary Information and not disclose such Proprietary Information to
third parties (except for the receiving party's representatives, agents and
contractors who have a need to know, are under a duty of non-disclosure, and
are acting for the sole benefit of the receiving party), and shall accord such
8
<PAGE> 33
Proprietary Information at least the same level of protection against
unauthorized use and disclosure as the receiving party customarily accords its
own information of a similar nature; (iii) use or permit the use of such
Proprietary Information solely in accordance with the terms of this Agreement;
and (iv) promptly notify the disclosing party in writing of any loss or
unauthorized use or disclosure of or access to the disclosing party's
Proprietary Information of which it becomes aware. The terms and conditions of
this Agreement (as well as all information regarding the negotiation of this
Agreement) shall be deemed to be the Proprietary Information of the parties
hereto. The parties hereto shall each abide by and reproduce and include any
restrictive legends or proprietary rights notices that appear in or on any
Proprietary Information of the other parties hereto that it is authorized to
reproduce. Each party shall also not remove, alter, cover or distort any
trademark, trade name, copyright or other proprietary rights notices, legends,
symbols or labels appearing in any Proprietary Information of any other party
hereto. Confidentiality obligations and restrictions arising under this Section
13 shall expire two (2) years after expiration or termination of this
Agreement.
(c) Exclusions. The restrictions on disclosure set forth above shall
not apply when, and to the extent that the Proprietary Information: (i) is or
becomes generally available to the public through no fault of the receiving
party; (ii) was previously rightfully known to the receiving party free of any
obligation to keep it confidential; (iii) is subsequently disclosed to the
receiving party by a third party who may rightfully transfer and disclose such
information without restriction and free of any obligation to keep it
confidential; (iv) is independently developed by the receiving party or a third
party without reference to the disclosing party's Proprietary Information; or
(v) is required to be disclosed by the receiving party as a matter of law,
provided that the receiving party uses all reasonable efforts to provide the
disclosing party with at least ten (10) days' prior written notice of such
disclosure and the receiving party discloses only that portion of the
Proprietary Information that is legally required to be furnished pursuant to
the opinion of legal counsel of the receiving party.
(d) Data Rights. Notwithstanding anything herein to the contrary,
Company hereby grants BuildNet the right to use all transaction data generated
by the BuildNet System in a aggregated form for forecasting or other commercial
purposes, including transactions that contain Company data, provided that no
Company identifying information is included in such data, and provided further
that the data may not be manipulated in any way to individually separate the
transactions that comprise the data or to identity Company as a participant in
the transactions comprising the data. Except as provided above, Assuming that
Company obtains appropriate customer authorization, Company will have the right
to use all data generated by and through its customers for the Products,
including Product transaction data (whether or not such transactions flow
through the BuildNet System) in any manner it deems appropriate. [*]
(e) Security. BuildNet will use commercially reasonable efforts to
(i) ensure the security of individual customer account, pricing, purchasing,
and credit information; and (ii) provide adequate security around the BuildNet
System and to protect proprietary system design, content, and functionality
from unauthorized use or access by third parties.
(f) Equitable Relief. The parties acknowledge that a breach of any
portion of this Article VII would cause the non-disclosing party irreparable
harm for which monetary damages
9
Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.
<PAGE> 34
would be inadequate. Accordingly, the non-disclosing party shall be entitled to
seek injunctive or other equitable relief to remedy any threatened or actual
breach of any portion of this Section 13 by the other party.
14. Trademarks.
(a) Right to Use Company Trademarks, Tradenames and Logos. Company
hereby grants to BuildNet the nonexclusive right and license to use the Company
name, trade names, trademarks, logo and service marks (collectively referred to
as the "Company Marks") solely in connection with the use and promotion of the
BuildNet System. Either separately or in conjunction with any Company Mark,
BuildNet agrees to include any notices that Company may reasonably request when
using the Company Marks. BuildNet agrees that any use of the Company Marks
shall be subject to review and approval in advance by Company. Company shall
retain the right, in its sole discretion, to demand immediate modification,
revision or cessation of a Company Mark in the event that Company determines
that the Company Mark is being used improperly. Without limiting the generality
of the foregoing, BuildNet shall not use a Company Mark in a manner that, in
Company's determination, may cause embarrassment to Company or may damage
Company's reputation.
(b) Ownership of Company Marks. All Company Marks shall remain the
exclusive property of Company.
(c) Right to Use BuildNet Trademarks, Tradenames and Logos. BuildNet
hereby grants to Company the nonexclusive right and license to use the BuildNet
name, trade names, trademarks, logo and service marks (collectively referred to
as the "BuildNet Marks") solely in connection with the use and promotion of the
BuildNet System. Either separately or in conjunction with any BuildNet Mark,
Company agrees to include any notices that BuildNet may reasonably request when
using the BuildNet Marks. Company agrees that any use of the BuildNet Marks
shall be subject to review and approval in advance by BuildNet. BuildNet shall
retain the right, in its sole discretion, to demand immediate modification,
revision or cessation of a BuildNet Mark in the event that BuildNet determines
that the BuildNet Mark is being used improperly. Without limiting the
generality of the foregoing, Company shall not use a BuildNet Mark in a manner
that, in BuildNet's determination, may cause embarrassment to BuildNet or may
damage BuildNet's reputation.
(d) Ownership of BuildNet Marks. All BuildNet Marks shall remain the
exclusive property of BuildNet.
10
<PAGE> 35
15. Miscellaneous.
(a) Notices. All notices and other communications required or
permitted under this Agreement shall be in writing to the addresses set forth
above and shall be deemed given when delivered personally, or five (5) days
after being deposited in the United States mail, return receipt requested and
postage prepaid, or on the next day when delivered via next day service by an
overnight courier with proof of receipt. Any party may change the address to
which notices hereunder are to be sent to it by giving written notice of such
change of address in the manner herein provided for giving notice.
(b) No Joint Venture. Nothing contained in this Agreement shall be
construed so as to constitute either party as a partner or joint venturer or
agent of the other party, or to require either party to share profits, gains or
ownership interest in or from any property or activities. No party shall be
liable for the debts, accounts, obligations or other liabilities of the other
party, including without limitation, the other party's obligation to withhold
payroll and income taxes.
(c) Entirety. This Agreement together with all exhibits that are
incorporated herein by reference, embodies the entire Agreement and except as
otherwise contemplated herein, supersedes all prior agreements, written and
oral, relating to the subject matter hereof.
(d) Amendment. Amendments to this Agreement, including any exhibit
hereto, shall be enforceable only if they are in writing and are signed by
authorized representatives of both parties.
(e) Waiver. The failure of any party hereto to enforce any provision
of this Agreement, or any right with respect thereto, or failure to exercise
any election provided for herein, shall in no way be considered a waiver of
such provision, right, or election, or in any way affect the validity of this
Agreement. The failure of any party hereto to enforce any provision, right or
election shall not prejudice such party from later enforcing or exercising that
provision, right, or election which it has under this Agreement.
(f) Severability. In the event that any provision of the Agreement or
any part thereof is held by a court to be invalid, the remainder of this
Agreement shall be binding on the parties and construed as if the invalid
provisions or parts thereof have been deleted from this Agreement.
(g) Assignment. Neither party may assign or subcontract its rights or
obligations under this Agreement, either in whole or in part, without the prior
written consent of the other party, which shall not be unreasonably withheld,
and any attempt to do so shall be void and of no effect.
(h) Execution in Counterpart. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original.
(i) Governing Law and Arbitration. This Agreement will be governed by
the laws of the State of North Carolina without regard to its conflicts of law
provisions. Any dispute or claim arising out of, or in connection with, this
Agreement shall be finally settled by binding arbitration
11
<PAGE> 36
in Raleigh, North Carolina, in accordance with N.C. Gen. Stat. ss. 1-567.1 et
seq. (the "Uniform Arbitration Act") and the then-current rules and procedures
of the American Arbitration Association by one (1) arbitrator appointed by the
American Arbitration Association. The arbitrator shall apply the law of the
State of North Carolina, without reference to rules of conflict of law or
statutory rules of arbitration, to the merits of any dispute or claim. Judgment
on the award rendered by the arbitrator may be entered in any court of
competent jurisdiction. The parties agree that, any provision of applicable law
notwithstanding, they will not request, and the arbitrator shall have no
authority to award punitive or exemplary damages against any party.
(j) Force Majeure. Except for the payment of money, failure of either
party to perform, in whole or in part, when due, if occasioned in whole or in
part by any act of God, act of governmental authority, fire, explosion,
shortage or failure of supply of materials or labor (including without
limitation the loss, illness, injury or incapacity of key employees), or any
other occurrence, act, course or thing beyond the reasonable control of that
party, shall excuse that party from its obligation to perform when due. The
applicable party shall have no obligations or liability in any amount arising
out of or in connection with such failure.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
GENERAL ELECTRIC COMPANY BUILDNET, INC.
By: By:
--------------------------------- --------------------------------
Keith T. Brown, President
Name:
-------------------------------
Title:
------------------------------
12
<PAGE> 37
EXHIBIT A
1. Description of Major Product Category.
2. Products to be provided by Company under the Major Product Category.
13
<PAGE> 38
EXHIBIT C
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN
JURISDICTION. THIS WARRANT AND SUCH UNDERLYING SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
OFFERED, SOLD, PLEDGED, HYPOTHECATED, RENOUNCED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS AND IN THE ABSENCE OF COMPLIANCE WITH
APPLICABLE LAWS OF ANY FOREIGN JURISDICTION, OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IN NOT REQUIRED
AND SUCH FOREIGN JURISDICTION LAWS HAVE BEEN SATISFIED.
BUILDNET, INC.
STOCK PURCHASE WARRANT
This Warrant is issued as of this 21st day of May 1999 (the "Effective
Date") by BuildNet, Inc., a North Carolina corporation (the "Company"), to GE
Capital Equity Investments, Inc., or permitted assigns (the "Holder").
1. Issuance of Warrant; Term; Price.
1.1 Issuance. Subject to the terms and conditions set forth
herein, Company hereby grants to Holder the right to purchase up to 271,319
shares (which number of shares is subject to adjustment as described below) of
Company's Series B Preferred Stock (the "Warrant Stock"). This Warrant shall
become exercisable based on General Electric Company's operating unit, General
Electric Appliances ("GEA") meeting the milestones as set forth below. In all
cases, achievement of the milestones below will be based on GEA's active
participation in helping to promote the Company's electronic commerce
application and network (the "BuildNet System"). In order to meet the
milestones as set forth below, the Company acknowledges that GEA and the
Company will work together to bring the parties to contract, and it is not
required that GEA alone bring the party to contract, so long as GEA has an
active role in introducing the prospect (manufacturer, distributor or builder)
to the Company and uses its good faith efforts to provide reasonable assistance
to Company personnel in promoting, negotiating and/or closing the prospect's
participation in the BuildNet System.
Commencing on the Commencement Date, as defined below, GEA will
commence sales and marketing efforts designed to increase participant
enrollment in the BuildNet System. "Commencement Date" means the date that GEA,
in its good faith reasonable judgment, (which shall not be unreasonably
withheld) confirms that the Company has provided it with sales and marketing
materials sufficient to allow GEA to solicit manufacturers, distributors and
builders in a manner reasonably likely to result in such persons agreeing to
participate in the BuildNet System. The parties agree that said sales and
marketing materials will be completed within ninety (90) days of the Effective
Date, unless extended by mutual consent. GEA agrees to use its
14
<PAGE> 39
reasonable commercial efforts to help the Company prepare said materials. The
Warrant may be exercised for the following number of shares of Warrant Stock
based on GEA's achievement of the corresponding milestone(s).
(a) For every [*] identified in Exhibit A for which
the Initial Warrant Trigger has been satisfied during the first [*] months
after the Commencement Date, and for which the Final Warrant Trigger is
satisfied, and for every [*] identified in Exhibit A for which the Initial
Warrant Trigger has been satisfied during the next [*] months thereafter
(months [*] after the Commencement Date) and for which the Final Warrant
Trigger has been satisfied, the Warrant will become exercisable as to [*]
shares of Warrant Stock.
(b) For every [*] identified in Exhibit A for which
the Initial Warrant Trigger has been satisfied during the first [*] months
after the Commencement Date, and for which the Final Warrant Trigger is
satisfied, and for every [*] identified in Exhibit A for which the Initial
Warrant Trigger has been satisfied during the next [*] months thereafter (months
[*] after the Commencement Date), and for which the Final Warrant Trigger has
been satisfied, the Warrant will become exercisable as to [*] shares of Warrant
Stock.
(c) For every [*] identified on Exhibit A for which
the initial Warrant Trigger has been satisfied during the first [*] months
after the Commencement Date, and for which the Final Warrant Trigger is
satisfied and for every [*] for which the Initial Warrant Trigger has been
satisfied during the next [*] months thereafter (months [*] after the
Commencement Date), and for which the Final Warrant Trigger has been satisfied,
the Warrants will become exercisable as to [*] shares of Warrant Stock.
(d) For purposes of this section, "Initial Warrant
Trigger" means, with respect to any manufacturer, distributor or builder listed
on Exhibit A, that (i) such person was introduced to the Company by GEA or its
agents (whether such introduction was made prior to or after the Commencement
Date and regardless of whether the Company has previously been introduced to or
had discussions with such person prior to the Effective Date), (ii) following
such introduction, GEA has used its good faith reasonable efforts to assist the
Company in following up with such person in order to secure such person's
participation in the BuildNet System, and (iii) the Company and such person
enter into a non-binding letter of intent regarding the BuildNet System within
the 12 or 18 month period after the Commencement Date, as applicable. "Final
Warrant Trigger" means, with respect to any manufacturer, distributor or
builder listed on Exhibit A, that the Company and such person enter into a
definitive agreement regarding the BuildNet System within 6 months after
execution of a letter of intent. In the event the BuildNet System is not
operational for a given customer within said 6-month period, said period shall
be extended until the BuildNet System has been made operational.
(e) If GEA thereafter helps bring other participants
to the BuildNet System who meet the criteria used in creating Exhibit A, the
participants will, by mutual agreement of the Company and GEA (which agreement
shall not be unreasonably withheld) be counted toward the milestone goals
notwithstanding that the participants are not then on Exhibit A. In addition,
the Company and GEA may mutually agree to count toward the milestone goals
other participants brought by GEA who do not meet the criteria used in creating
Exhibit A.
15
Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.
<PAGE> 40
1.2 Term. The shares of Warrant Stock issuable upon
exercise of this Warrant are hereinafter referred to as the "Shares." This
Warrant shall be exercisable at any time and from time to time from the date
hereof until May 21, 2004.
1.3. Exercise Price. The exercise price (the "Warrant
Price") per share for which all or any of the Shares may be purchased pursuant
to the terms of this Warrant shall be equal to [*].
2. Adjustment of Warrant Price, Number and Kind of Shares. The
Warrant Price and the number and kind of securities issuable upon the exercise
of this Warrant shall be subject to adjustment from time to time and the
Company agrees to provide notice upon the happening of certain events as
follows.
2.1 Dividends in Stock Adjustment. In case at any time or
from time to time on or after the date hereof the holders of the Warrant Stock
of the Company (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received, or, on or
after the record date fixed for the determination of eligible shareholders,
shall have become entitled to receive, without payment therefor, other or
additional securities or other property (other than cash) of the Company by way
of dividend or distribution, then and in each case, the holder of this Warrant
shall, upon the exercise hereof, be entitled to receive, in addition to the
number of shares of Warrant Stock receivable thereupon, and without payment of
any additional consideration therefor, the amount of such other or additional
securities or other property (other than cash) of the Company which such holder
would hold on the date of such exercise had it been the holder of record of
such Warrant Stock on the date hereof and had thereafter, during the period
from the date hereof to and including the date of such exercise, retained such
shares and/or all other additional securities or other property receivable by
it as aforesaid during such period, giving effect to all adjustments called for
during such period by this subsection 2.1 and subsections 2.2 and 2.3 of this
Section 2.
2.2. Reorganization, Reclassification, Merger, Consolidation
or Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Series B Preferred Stock or
the Common Stock of the Company), or sell, transfer or otherwise dispose of all
or substantially all its property, assets or business to another corporation
and, pursuant to the terms of such reorganization, reclassification, merger,
consolidation or disposition of assets, shares of common stock of the successor
or acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of the Series B Preferred Stock or Common Stock of the Company,
then Holder shall have the right thereafter to receive, upon exercise of this
Warrant and payment of the Warrant Price then in effect, the number of shares
of common stock of the successor or acquiring corporation or of the Company, if
it is the surviving corporation, and Other Property receivable upon or as a
result of such reorganization, reclassification, merger,
16
Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.
<PAGE> 41
consolidation or disposition of assets to which the holder would have been
entitled upon such consummation of such event if such holder had exercised this
Warrant immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined by resolution of the Board of Directors of
the Company) in order to provide for adjustments of the Warrant Price and the
number and kind of securities issuable upon the exercise of this Warrant which
shall be as nearly equivalent as practicable to the adjustments provided for in
this Section 2. For purposes of this Section 2.2, "common stock of the
successor or acquiring corporation" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption and shall
also include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 2.2 shall similarly
apply to successive reorganizations, reclassifications, mergers, consolidations
or disposition of assets.
2.3 Stock Splits and Reverse Stock Splits. If at any time
on or after the date hereof the Company shall subdivide its outstanding shares
of Warrant Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall thereby be proportionately reduced
and the number of shares receivable upon exercise of this Warrant shall thereby
be proportionately increased; and, conversely, if at any time on or after the
date hereof the outstanding number of shares of Warrant Stock shall be combined
into a smaller number of shares, the Warrant Price in effect immediately prior
to such combination shall thereby be proportionately increased and the number
of shares receivable upon exercise of this Warrant shall thereby be
proportionately decreased.
2.4 Conversion or Redemption of Warrant Stock. If at the
time of any exercise of this Warrant there are no other shares of Warrant Stock
outstanding (such shares having been converted or redeemed), this Warrant shall
be exercisable for Common Stock instead of Warrant Stock in the same amounts,
for the same prices and on the same terms, and all references herein to
"Warrant Stock" shall be changed to refer to "Common Stock."
3. No Fractional Shares. No fractional shares of Warrant Stock
will be issued in connection with any subscription hereunder. In lieu of any
fractional shares that would otherwise be issuable, the Company shall pay cash
equal to the product of such fraction multiplied by the fair market value of
one share of Warrant Stock on the date of exercise, as determined in good faith
by the Company's Board of Directors.
4. No Shareholder Rights. This Warrant as such shall not entitle
its holder to any of the rights of a shareholder of the Company until the
holder has exercised this Warrant in accordance with Section 6 or Section 7
hereof.
5. Reservation of Stock. The Company covenants that during the
period this Warrant is exercisable, the Company will reserve from its
authorized and unissued Warrant Stock a sufficient number of shares to provide
for the issuance of Warrant Stock upon the exercise of this
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<PAGE> 42
Warrant. The Company agrees that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Warrant Stock upon the exercise of this Warrant.
6. Exercise of Warrant. This Warrant may be exercised by Holder
by the surrender of this Warrant at the principal office of the Company,
accompanied by payment in full of the purchase price of the Shares purchased
thereby, as described above. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person or entity entitled to
receive the Shares or other securities issuable upon such exercise shall be
treated for all purposes as the holder of such shares of record as of the close
of business on such date. As promptly as practicable, the Company shall issue
and deliver to the person or entity entitled to receive the same a certificate
or certificates for the number of full shares of Warrant Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share as
provided above. The shares of Warrant Stock issuable upon exercise hereof
shall, upon their issuance, be fully paid and nonassessable.
7. Right to Convert Warrant for Warrant Stock.
7.1 Right to Convert. In addition to and without limiting
the rights of the Holder under the terms of this Warrant, the Holder shall have
the right to convert this Warrant or any portion hereof (the "Conversion
Right") into shares of Warrant Stock as provided in this Section 7, subject to
the restrictions set forth in subsection 7.3 hereof. Upon exercise of the
Conversion Right with respect to a particular number of shares subject to this
Warrant (the "Converted Warrant Shares"), the Company shall deliver to the
Holder (without payment by the Holder of any cash or other consideration) that
number of shares of Warrant Stock equal to the quotient obtained by dividing
(x) the value of this Warrant (or the specified portion hereof) on the
Conversion Date (as defined in subsection 7.2 hereof ), which value shall be
determined by subtracting (A) the aggregate Warrant Price of the Converted
Warrant Shares immediately prior to the exercise of the Conversion Right from
(B) the aggregate fair market value of the Converted Warrant Shares issuable
upon exercise of this Warrant (or the specified portion hereof) on the
Conversion Date (as herein defined) by (y) the fair market value of one share
of Warrant Stock on the Conversion Date (as herein defined). No fractional
shares shall be issuable upon exercise of the Conversion Right, and if the
number of shares to be issued determined in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the Holder an
amount in cash equal to the fair market value of the resulting fractional share
on the Conversion Date (as herein defined).
7.2 Method of Exercise. The Conversion Right may be
exercised by the Holder by the surrender of this Warrant at the principal
office of the Company together with a written statement specifying that the
Holder thereby intends to exercise the Conversion Right and indicating the
number of shares subject to this Warrant that are being surrendered (referred
to in subsection 7.1 hereof as the Converted Warrant Shares) in exercise of the
Conversion Right. Such conversion shall be effective immediately upon surrender
of this Warrant (the "Conversion Date"). Certificates for the shares of Warrant
Stock issuable upon exercise of the Conversion Right (or any other securities
deliverable in lieu thereof under subsection 2.1) shall
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<PAGE> 43
be issued as of the Conversion Date and shall be delivered to the Holder
immediately following the Conversion Date.
7.3 Restrictions on Conversion Right. In the event that, in
connection with or following a public offering of the Company's Common Stock,
the Conversion Right contained herein would, at any time this Warrant remains
outstanding, be deemed by the Company' s independent certified public
accountants to trigger a charge to the Company's earnings for financial
reporting purposes, then the Conversion Right as specified in section 7.1 shall
automatically terminate upon the Company's written notice to the Holder of such
adverse accounting treatment.
7.4 Determination of Fair Market Value. For purposes of
this Section 7, fair market value of a share of Warrant Stock as of a
particular date (the "Determination Date") shall mean:
(a) In the case of a public offering, the initial
"Price to Public" specified in the final prospectus with respect to such
offering if the Holder elects to exercise its Warrants at that time. If the
Holder elects to exercise its warrants in whole or in part after a public
offering, the fair market value of a share of Warrant Stock shall be the last
closing price per share on such date;
(b) In the case of an acquisition of a controlling
interest (51% or more) of BuildNet stock, the effective per share consideration
to be received in an Acquisition by holders of the Warrant Stock, which price
shall be as specified in the agreement entered into with respect to such
Acquisition and determined assuming receipt of the aggregate exercise price of
all outstanding warrants to purchase Warrant Stock (the "Outstanding
Warrants"), or if no such price is set forth in the agreement concerning the
Acquisition, then as determined in good faith by the Company's Board of
Directors upon a review of relevant factors, including the aggregate exercise
price of all Outstanding Warrants; or
(c) In any other case, the price determined in good
faith by the Company's Board of Directors.
8. Certificate of Adjustment. Whenever the Warrant Price or
number or type of securities issuable upon exercise of this Warrant is
adjusted, as herein provided, the Company shall promptly deliver to the record
holder of this Warrant a certificate of an officer of the Company setting forth
the nature of such adjustment and a brief statement of the facts requiring such
adjustment.
9. Notice of Proposed Transfers. Prior to any proposed transfer
of this Warrant or the shares of Warrant Stock received on the exercise of this
Warrant (the "Securities"), unless there is in effect a registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), covering
the proposed transfer, the Holder thereof shall give written notice to the
Company of such Holder's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall, if the Company so requests, be accompanied
(except in transactions in compliance with Rule 144) by either (i) a written
opinion of
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<PAGE> 44
legal counsel who shall be reasonably satisfactory to the Company addressed to
the Company and reasonably satisfactory in form and substance to the Company's
counsel, to the effect that the proposed transfer of the Securities may be
effected without registration under the Securities Act, or (ii) a "no action"
letter from the Securities Exchange Commission (the "Commission") to the effect
that the transfer of such Securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the Holder of the Securities shall be entitled to transfer
the Securities in accordance with the terms of the notice delivered by the
Holder to the Company; provided, however, no such registration statement or
opinion of counsel shall be necessary for a transfer by a Holder to any
affiliate of such Holder, or a transfer by a Holder which is a partnership to a
partner of such partnership or a retired partner of such partnership who
retires after the date hereof, or to the estate of any such partner or retired
partner or the transfer by gift, will or intestate succession of any partner to
his spouse or lineal descendants or ancestors, if the transferee agrees in
writing to be subject to the terms hereof to the same extent as if such
transferee were the original Holder hereunder. Each certificate evidencing the
Securities transferred as above provided shall bear the appropriate restrictive
legend set forth above, except that such certificate shall not bear such
restrictive legend if in the opinion of counsel for the Company such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
10. Replacement of Warrants. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of the Warrant, and in the case of any such loss, theft or
destruction of the Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company, and reimbursement to
the Company of all reasonable expenses incidental thereto, and upon surrender
and cancellation of the Warrant if mutilated, the Company will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
11. Miscellaneous. This Warrant shall be governed by the laws of
the State of New York The headings in this Warrant are for purposes of
convenience of reference only, and shall not be deemed to constitute a part
hereof. The invalidity or unenforceability of any provision hereof shall in no
way affect the validity or enforceability of any other provisions. All notices
and other communications from the Company to the holder of this Warrant shall
be delivered personally or mailed by first class mail, postage prepaid, to the
address furnished to the Company in writing by the last holder of this Warrant
who shall have furnished an address to the Company in writing, and if mailed
shall be deemed given three days after deposit in the U.S. Mail.
12. Taxes. The Company shall pay all issue taxes and other
governmental charges (but not including any income taxes of a Holder) that may
be imposed in respect of the issuance or delivery of the Shares or any portion
thereof.
13. Amendment. Any term of this Warrant may be amended with the
written consent of the Company and the Holder. Any amendment effected in
accordance with this Section 13 shall be binding upon the Holder of this
Warrant, each future holder of such Warrant, and the Company.
14. No Impairment. The Company shall not by any action, including,
without limitation, amending its Articles of Incorporation or comparable
governing instruments or
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<PAGE> 45
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms 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 to protect the rights of Holder against impairment. Without
limiting the generality of the foregoing, the Company will (a) not increase the
par value of any shares of Series B Preferred Stock or Common Stock receivable
upon the exercise of this Warrant above the amount payable therefor upon such
exercise immediately prior to such increase in par value, (b) take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Series B Preferred
Stock or Common Stock upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
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IN WITNESS WHEREOF, the undersigned officer of the Company has set his
hands as of the date first above written.
BUILDNET, INC.
By:
-------------------------------
Keith T. Brown, President
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<PAGE> 47
EXHIBIT A
TOP MANUFACTURERS, DISTRIBUTORS AND BUILDERS
************************
[*]
23
Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.
<PAGE> 48
EXHIBIT D
TRANSACTION FEE COST SAVINGS FORMULA
[*]
24
Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.
<PAGE> 49
EXHIBIT E
BUILDNET, INC.
GENERAL SERVICES AGREEMENT
This General Services Agreement (the "Agreement"), dated as of
________, 1999, is entered into pursuant to, under and subject to that certain
Internet Development, Marketing and Distribution Agreement of even date
herewith (the "Master Agreement") by and between BuildNet, Inc., a North
Carolina corporation, with its principal place of business at 4815 Emperor
Drive, Suite 214, Morrisville, North Carolina 27560 ("BUILDNET"), and General
Electric Company, a New York corporation, by and through its General Electric
Appliances operating unit having a place of business at Appliance Park,
Louisville, Kentucky 40225 ("GEA"), and describes the terms and conditions
under which BUILDNET will perform for GEA the information technology services
described below. BUILDNET and GEA are sometimes hereinafter referred to
individually as a "Party" and collectively as "Parties".
1. TERM. The term of this Agreement will commence on __________, 1999
(the "Effective Date"), and, unless earlier terminated as provided in
the Master Agreement, will terminate on December 30, 2009, or sooner
at GEA's election. Thereafter, this Agreement may be renewed for
additional terms of twelve (12) months each if both parties consent.
2. BUILDNET SERVICES. GEA may afford BUILDNET the opportunity to make
proposals on other information technology projects for which GEA
contemplates using third party resources associated with the
implementation and maintenance of BUILDNET related information
services during the term of this Agreement. During the term of this
Agreement, the Parties may agree upon Work Orders, which Work Orders
shall be generally in the format specified in an attachment hereto,
and such attachment shall consist of: (a) an Exhibit A describing the
specific services BUILDNET will perform and the deliverables BUILDNET
will produce (the "BUILDNET Services"); (b) an Exhibit B describing
the obligations of GEA; (c) an Exhibit C describing the payments due
to BUILDNET for the BUILDNET Services; and (d) if required, an
Exhibit D specifying any terms and conditions unique to that Work
Order. In the event of a conflict between the terms of a Work Order
and the terms of this Agreement, the terms of this Agreement will
control. Work Orders shall be numbered sequentially beginning with
the number one (1) and when executed shall be attached hereto and
made a part hereof. The first Work Order, Work Order No. 1, is
attached hereto as Exhibit A.
3. REPRESENTATIVES. During the term of this Agreement, BUILDNET and GEA
will each designate a representative (the "Representative") who will
be its primary point of contact in dealing with the other under this
Agreement and who will have the authority and power to make decisions
with respect to actions to be taken by it under this Agreement.
Either Party may change its Representative by giving notice to the
other Party of the new Representative and the date upon which such
change will become effective. In performing its obligations under
this Agreement, each Party shall be entitled to rely upon any routine
instructions, authorizations, approvals or other information provided
to it by the other Party's
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Representative or, as to areas of competency specifically identified
by such Representative, by any other personnel identified by the
other Party's Representative, from time to time, as having authority
to provide the same on behalf of that Party in such person's area of
competency. Unless a Party knew of any error, incorrectness or
inaccuracy in such instructions, authorizations, approvals or other
information, such Party shall incur no liability or responsibility of
any kind in relying on or complying with any such instructions,
authorizations, approvals or other information supplied by the other
Party's Representative.
4. GEA'S ROLE. During the term of this Agreement and in addition to the
other obligations of GEA described herein, GEA will, at its own cost
and expense, have such other obligations to BUILDNET described in any
Work Orders agreed to by the Parties.
5. PAYMENT. In consideration for the performance of the BUILDNET
Services, GEA shall pay to BUILDNET the charges set forth in any Work
Orders agreed to by the Parties as such charges may be adjusted from
time to time as provided in such Work Order. In addition, GEA shall
pay or reimburse BUILDNET for (a) all reasonable out-of-pocket
expenses incurred by BUILDNET in the performance of the BUILDNET
Services specified in any Work Orders agreed to by the Parties ,
subject, however, to GEA's advance approval of all travel and living
expenses. BUILDNET shall submit written invoices to GEA monthly in
arrears reflecting the amount owed to BUILDNET by GEA for the
previous month, with such supporting documentation as GEA may
reasonably request, and GEA will pay the invoiced amount within sixty
(60) days from receipt of invoice. Delinquent payments will be
subject to interest as provided in section 6.4 of the Master
Agreement.
6. EMPLOYEES. All BUILDNET personnel performing the BUILDNET Services
shall be and remain the employees of BUILDNET, and BUILDNET will
provide for and pay the compensation and other benefits of such
employees, including salary, health, accident and workers'
compensation benefits and all taxes and contributions which an
employer is required to pay relating to the employment of employees.
During the term of this Agreement and for a period of twelve (12)
months thereafter, neither Party will solicit, directly or
indirectly, for employment or employ any employee of the other who is
or was involved in the performance of the BUILDNET Services without
the prior written consent of the employing Party.
7. OWNERSHIP. Subject to the applicable provisions of the Master
Agreement pertaining to ownership and intellectual property rights,
each Party will retain all rights it possessed prior to the date of
this Agreement in any software, ideas, concepts, know-how,
development tools, techniques or any other proprietary material or
information that may be used by such Party in connection with its
role relating to the performance of the BUILDNET Services. Should
BUILDNET acquire third party owned software on GEA's behalf and
subsequently deliver such software to GEA either as a standalone
product or as part of a deliverable hereunder (as hereinafter
defined), such software will be and remain the property of such
vendor and GEA agrees to comply with such third party software
owners' license terms and conditions. Subject to such third party
rights or restrictions and the other provisions of this Section 7,
all deliverables developed specifically to integrate BUILDNET systems
to GEA systems, (including source code, development and user
documentation, test plans, build
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scripts and installation processes required for GEA to continue to
maintain and develop the GEA systems) shall become and remain the
sole and exclusive property of GEA. Notwithstanding anything to the
contrary in this Agreement, BUILDNET (i) will retain all right, title
and interest in and to all development tools, know-how,
methodologies, processes, technologies or algorithms used in
performing the BUILDNET Services which are based on trade secrets or
proprietary information of BUILDNET or are otherwise owned or
licensed by BUILDNET, (ii) will be free to use the ideas, concepts
and know-how that are developed by BUILDNET in the course of
performing the BUILDNET Services and that may be retained by
BUILDNET's employees in intangible form, and (iii) will retain
ownership of any BUILDNET-owned software or development tools that
are used in producing any work product or become embedded therein.
BUILDNET hereby grants to GEA a perpetual, royalty-free, nonexclusive
license to use such embedded software and tools (if any) solely in
connection with GEA's use and exploitation of the deliverables and in
working with the BUILDNET's electronic commerce systems, and only so
long as such software and tools (if any) remain embedded in the
deliverables or any improvements thereto or derivative works thereof
and are not separated therefrom. No licenses will be deemed to have
been granted by either Party to any of its patents, trade secrets,
trademarks or copyrights, except as otherwise expressly provided in
this Agreement.
8. TERMINATION OR EXPIRATION OF AGREEMENT. GEA may terminate this
Agreement with or without cause on sixty (60) days written notice to
BuildNet. In addition, if either Party materially or repeatedly
defaults in the performance of any of its obligations under this
Agreement, which default (a) if of a non-monetary nature, is not
substantially cured within thirty (30) days after notice is given to
the defaulting Party specifying the default or, with respect to those
defaults that cannot reasonably be cured within thirty (30) days,
should the defaulting Party fail to proceed within thirty (30) days
to commence curing the default and thereafter to proceed with all
reasonable diligence to substantially cure the default, or (b) if of
a monetary nature, is not cured within 10 days after notice is given
to the defaulting Party specifying the default, the Party not in
default may, by giving notice thereof to the defaulting Party,
terminate this Agreement as of a date specified in such notice of
termination. Upon expiration or termination of this Agreement for any
reason, BUILDNET will cease to perform the BUILDNET Services for GEA,
and GEA will pay to BUILDNET all sums due to BUILDNET as a result of
the BUILDNET Services performed and expenses incurred through the
effective date of such expiration or termination (prorated as
appropriate). Expiration or termination of this Agreement for any
reason shall not release either Party from any liabilities or
obligations set forth in this Agreement which (a) the Parties have
expressly agreed will survive any such expiration or termination or
(b) remain to be performed or by their nature would be intended to be
applicable following any such expiration or termination.
9. CONFIDENTIALITY.
(A) SCOPE OF OBLIGATION. Except as otherwise expressly provided in
this Agreement, BUILDNET and GEA each agree that (a) all information
communicated to it by the other and identified in writing as
confidential, or disclosed orally or visually if identified as
confidential at the time of disclosure and if summarized in writing
and provided to the other
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<PAGE> 52
party promptly after such oral or visual disclosure whether before or
after the date hereof, (b) all information constituting part of the
work product or deliverables provided in connection with the BUILDNET
Services, whether before or after the date hereof, and (c) this
Agreement and the parties' rights and obligations hereunder, will be
and will be deemed to have been received in confidence and will be
used only for purposes of this Agreement, and each of BUILDNET and
GEA agrees to use the same means as it uses to protect its own
confidential information, but in no event less than reasonable means,
to prevent the disclosure and to protect the confidentiality thereof.
No such information will be disclosed by the recipient Party without
the prior written consent of the other Party; provided, however, that
each Party may disclose this Agreement and the other Party's
confidential information to those of the recipient Party's attorneys,
auditors, insurers (if applicable), subcontractors and full time
employees who have a need to have access to such information in
connection with their employment (or engagement, if applicable) by
the recipient Party. Compliance by each of the persons referenced in
the preceding sentence with the confidentiality obligations set forth
in this Section will remain the responsibility of the Party employing
or engaging such persons.
(B) EXCEPTIONS. The foregoing will not prevent either Party from
disclosing information that belongs to such Party or (i) is already
known by the recipient Party without an obligation of confidentiality
other than under this Agreement, (ii) is publicly known or becomes
publicly known through no unauthorized act of the recipient Party, or
(iii) is rightfully received from a third party. If confidential
information is required to be disclosed pursuant to a requirement of
a governmental authority, such confidential information may be
disclosed pursuant to such requirement so long as the Party required
to disclose the confidential information, to the extent possible,
provides the other Party with timely prior notice of such requirement
and coordinates with such other Party in an effort to limit the
nature and scope of such required disclosure. If confidential
information is required to be disclosed in connection with the
conduct of any mediation or arbitration proceeding carried out
pursuant to Section 13 of this Agreement, such confidential
information may be disclosed pursuant to and in accordance with the
approval and at the direction of the mediator or arbitrator, as the
case may be, conducting such proceeding. Upon written request at the
expiration or termination of this Agreement for any reason, all
documented confidential information (and all copies thereof) owned by
the requesting Party will be returned to the requesting Party or will
be destroyed, with written certification thereof being given to the
requesting Party. The provisions of this Section will survive the
expiration or termination of this Agreement for any reason.
(C) Notwithstanding the foregoing, (a)GEA acknowledges and agrees
that BUILDNET is engaged principally in the business of offering
electronic commerce products and services to the building industries
and that nothing disclosed to BUILDNET by GEA hereunder shall in any
way preclude BUILDNET from engaging in such business in the ordinary
course consistent with BUILDNET's business plans, and (b) BUILDNET
acknowledges and agrees that GEA is engaged in the various business
aspects of electronic commerce and that nothing disclosed to GEA by
BUILDNET hereunder shall in any way preclude GEA from engaging in
such business in the ordinary course consistent with GEA's business
plans.
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<PAGE> 53
10. WARRANTIES.
(A) PERFORMANCE. BUILDNET represents and warrants that all BUILDNET
Services will be performed in a professional and workmanlike manner
in accordance with industry standards.
(B) GEA INFORMATION. GEA represents and warrants that the information
furnished by GEA to BUILDNET on which BUILDNET based the description
of the BUILDNET Services and the charges to be paid by GEA therefor,
in each case as set forth in this Agreement, is accurate and complete
in all material respects.
(C) VIRUSES. Each Party will use commercially reasonable measures to
screen any software provided or made available by it to the other
Party hereunder for the purpose of avoiding the introduction of any
"virus" or other computer software routine or hardware components
which are designed (i) to permit access or use by third parties to
the software of the other Party not authorized by this Agreement,
(ii) to disable or damage hardware or damage, erase or delay access
to software or data of the other Party, or (iii) to perform any other
similar actions.
(D) DISABLING CODES. BUILDNET will not, without informing GEA's
Representative in writing, knowingly insert into the software used by
it hereunder any code or other device which would have the effect of
disabling, damaging, erasing, delaying or otherwise shutting down all
or any portion of the BUILDNET Services or the hardware, software or
data used in performing the BUILDNET Services. BUILDNET will not
invoke such code or other device at any time, including upon
expiration or termination of this Agreement for any reason.
(E) YEAR 2000 The parties rights and responsibilities shall be as
provided in section 9 of the Master Agreement.
11. INDEMNIFICATION.
(A) CLAIMS RELATING TO PERSONAL INJURY AND PROPERTY DAMAGE.
(I) GENERAL. BUILDNET and GEA each will be responsible for any and
all claims, actions, damages, liabilities, costs and expenses,
including reasonable attorneys' fees and expenses (collectively,
"Losses"), to their respective tangible personal or real
property (whether owned or leased), and each Party agrees to
look only to its own insuring arrangements (if any) with respect
to such Losses. BUILDNET and GEA each will be responsible for
Losses for the death of or personal injury to any person
(including any employee of either party) and Losses for damages
to any third party's tangible personal or real property (whether
owned or leased), in accordance with the law of the jurisdiction
in which such Loss is alleged to have occurred. Each Party will
indemnify and defend the other Party and hold the other Party
harmless from any and all Losses arising out of, under or in
connection with claims for which the indemnitor is responsible
under the preceding sentence.
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<PAGE> 54
(II) WAIVER OF SUBROGATION. BUILDNET and GEA waive all rights to
recover against each other for any Loss to their respective
tangible personal property (whether owned or leased) from any
cause covered by insurance maintained by each of them, including
their respective deductibles or self-insured retentions.
BUILDNET and GEA will use reasonable efforts to cause their
respective insurers to issue appropriate waivers of subrogation
rights endorsements to all property insurance policies
maintained by each Party. Each Party will give the other Party
written notice if a waiver of subrogation is unobtainable or
obtainable only at additional expense. If the Party receiving
such notice agrees to reimburse the other Party for such
additional expense, the other Party will obtain such waiver of
subrogation. If a waiver is unobtainable or if a Party elects
not to pay the additional expense of a waiver, then neither
Party nor their insurers will waive such subrogation rights.
(B) INFRINGEMENT CLAIMS.
(I) GENERAL. BUILDNET and GEA each agree to defend the other Party
against any action to the extent that such action is based upon
a claim that the software (other than third party software) or
confidential information provided by the indemnitor, or any part
thereof infringes an intellectual property right of a third
party. The indemnitor will bear the expense of such defense and
pay any damages and reasonable attorneys' fees that are
attributable to such claim finally awarded by a court of
competent jurisdiction.
(II) EXCLUSIONS. Neither BUILDNET nor GEA will be liable to the other
for claims of indirect or contributory infringement. In
particular, the indemnitor will have no liability to the
indemnitee hereunder if any claim of infringement is based upon
the use of software provided by the indemnitor hereunder used in
a manner for which the software was not designed. Also, the
indemnitor will have no liability if the indemnitee modifies any
software provided by the indemnitor hereunder and such
infringement would not have occurred but for such modification,
or uses the software in the practice of a patented process and
there would be no infringement in the absence of such practice,
or such claim arises out of the indemnitor's compliance with
specifications provided by the indemnitee and such infringement
would not have occurred but for such compliance.
(III) ADDITIONAL REMEDY. If software or confidential information
becomes the subject of an infringement claim under this Section
11, or in the indemnitor's opinion is likely to become the
subject of such a claim, then, in addition to defending the
claim and paying any damages and reasonable attorneys' fees as
required above in this Section 11, the indemnitor will either
(A) replace or modify the software or confidential information
to make it noninfringing or cure any claimed misuse of another's
trade secret or (B) procure for the indemnitee the right to
continue using the software or confidential information pursuant
to this Agreement. If neither option is available to the
indemnitor through the use of reasonable, diligent efforts, (x)
the indemnitee will return such software or confidential
information to the indemnitor and (y) if
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<PAGE> 55
requested by the indemnitee in good faith, the parties will
negotiate, pursuant to Section 13 of this Agreement to reach a
written agreement on what, if any, monetary damages (in addition
to the indemnitor's obligation to defend the claim and pay any
damages and reasonable attorneys' fees as required above in this
Section 11) are reasonably owed by the indemnitor to the
indemnitee as a result of the indemnitee no longer having use of
such software or confidential information.
(C) PROCEDURES. The indemnification obligations set forth in this
Section will not apply unless the Party claiming indemnification: (a)
notifies the other Party promptly in writing of any matters in
respect of which the indemnity may apply and of which the notifying
Party has knowledge, in order to allow the indemnitor the opportunity
to investigate and defend the matter; provided, however, that the
failure to so notify will only relieve the indemnitor of its
obligations under this Section if and to the extent that the
indemnitor is prejudiced thereby; and (b) gives the other Party full
opportunity to control the response thereto and the defense thereof,
including any agreement relating to the settlement thereof; provided,
however, that the indemnitee will have the right to participate in
any legal proceeding to contest and defend a claim for
indemnification involving a third party and to be represented by
legal counsel of its choosing, all at the indemnitee's cost and
expense. However, if the indemnitor fails to promptly assume the
defense of the claim, the Party entitled to indemnification may
assume the defense at the indemnitor's cost and expense.
The indemnitor will not be responsible for any settlement or
compromise made without its consent, unless the indemnitee has
tendered notice and the indemnitor has then refused to assume and
defend the claim and it is later determined that the indemnitor was
liable to assume and defend the claim. The indemnitee agrees to
cooperate in good faith with the indemnitor at the request and
expense of the indemnitor.
12. LIABILITY. Except for claims brought under Section 11, with respect
to each Work Order, each Party's liability to the other Party for any
damages arising out of or related to such Work Order, regardless of
the form of action that imposes liability, whether in contract,
equity, negligence, intended conduct, tort or otherwise, will be
limited to and will not exceed, in the aggregate for all claims,
actions and causes of action of every kind and nature, the total of
the amounts received and due BUILDNET under such Work Order. In no
event will the measure of damages payable by either Party include,
nor will either Party be liable for, any amounts for loss of income,
profit or savings or indirect, incidental, consequential, exemplary,
punitive or special damages of any party, including third parties,
even if such party has been advised of the possibility of such
damages in advance, and all such damages are expressly disclaimed. No
claim, demand for mediation or arbitration or cause of action which
arose out of an event or events which occurred more than one (1) year
prior to the filing of a demand for mediation or arbitration or suit
alleging a claim or cause of action may be asserted by either Party
against the other Party. The provisions of this Section 12 will
survive the expiration or termination of this Agreement for any
reason.
13. MEDIATION; ARBITRATION. Any dispute, controversy or claim arising
under, out of, in connection with or in relation to this Agreement,
or the breach, termination, validity or enforceability of any
provision hereof (a "Dispute"), if not resolved informally through
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<PAGE> 56
negotiation between the Parties, will be submitted to non-binding
mediation and/or arbitration as provided in the Master Agreement.
14. EXCUSED PERFORMANCE. Except for the payment of money, neither Party
will be deemed to be in default hereunder, or will be liable to the
other, for failure to perform any of its non-monetary obligations
under this Agreement for any period and to the extent that such
failure results from acts or omissions of the other Party, natural
disasters, riots, war, civil disorder, or any other causes beyond
that Party's reasonable control (including failures or fluctuations
in electrical power, heat, light, air conditioning or
telecommunications equipment or lines) and which it could not have
prevented by reasonable precautions or could not have remedied by the
exercise of reasonable efforts.
15. RIGHT TO ENGAGE IN OTHER ACTIVITIES. GEA acknowledges and agrees that,
BUILDNET may provide data processing and other information technology
services for third parties at any BUILDNET facility that BUILDNET may
utilize from time to time for performing the BUILDNET Services.
Nothing in this Agreement will impair BUILDNET' right, subject to the
provisions of Section 9, to acquire, license, market, distribute,
develop for itself or others or have others develop for BUILDNET
similar technology performing the same or similar functions as the
technology and BUILDNET Services contemplated by this Agreement, so
long as BUILDNET does not use any GEA business data or other
proprietary information in such endeavors.
16. NOTICES. All notices under this Agreement will be in writing and
will be deemed to have been duly given if delivered personally or by
a nationally recognized courier service, faxed or mailed by
registered or certified mail, return receipt requested, postage
prepaid, to the Parties at the addresses set forth below. All notices
under this Agreement that are addressed as provided in this Section
16, (a) if delivered personally or by a nationally recognized courier
service, will be deemed given upon delivery, (b) if delivered by
facsimile, will be deemed given when confirmed and (c) if delivered
by mail in the manner described above, will be deemed given on the
fifth (5th) business day after the day it is deposited in a regular
depository of the United States mail. Either Party may change its
address or designee for notification purposes by giving notice to the
other of the new address or designee and the date upon which such
change will become effective.
17. OTHER. Where agreement, approval, acceptance or consent of either
Party is required by this Agreement, such action will not be
unreasonably withheld or delayed. If any provision (other than a
provision relating to any payment obligation) of this Agreement or
the application thereof to any persons or circumstances is, to any
extent, held invalid or unenforceable, the remainder of this
Agreement or the application of such provision to persons or
circumstances other than those as to which it is invalid or
unenforceable will not be affected thereby, and each provision of
this Agreement will be valid and enforceable to the extent permitted
by law. Nothing in this Agreement may be relied upon or will benefit
any party other than BUILDNET and GEA. This Agreement (a) will be
governed by the substantive laws of the State of New York (without
giving effect to any choice-of-law rules that may require the
application of the laws of another jurisdiction), (b) may not be
assigned by either party without the prior written consent of the
other (except that BUILDNET will
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<PAGE> 57
have the right to subcontract portions of the BUILDNET Services to be
performed by it so long as BUILDNET remains responsible for such
performance), (c) is subject to the terms of the Master Agreement and
(d) together with the attachments hereto (each of which are
incorporated into this Agreement by this reference), constitutes the
entire agreement of the Parties with respect to the subject matter
hereof, superseding all previous representations, understandings or
agreements with respect thereto.
33
<PAGE> 58
In Witness Whereof, the Parties have duly executed and delivered this
Agreement as of the date first set forth above.
GENERAL ELECTRIC COMPANY
By:
------------------------------------------------------
Name:
----------------------------------------------------
Title:
---------------------------------------------------
Address:
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
Phone:
--------------------------------------
Facsimile:
----------------------------------
BUILDNET, INC.
By:
------------------------------------------------------
Name: Keith Brown
Title: President
Address: 4815 Emperor Blvd, Suite 214
Research Triangle Park, North Carolina 27793
Phone:
--------------------------------------
Facsimile:
----------------------------------
34
<PAGE> 1
EXHIBIT 10.24
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"'33 ACT"), OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND SUCH
SECURITIES ARE ACQUIRED FOR INVESTMENT ONLY AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE '33 ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL
SATISFACTORY TO MAKER THAT SUCH REGISTRATION IS NOT REQUIRED.
BUILDNET, INC.
SUBORDINATED
CONVERTIBLE PROMISSORY NOTE
$27,000,000 Raleigh, North Carolina
January 18, 2000
For value received, BUILDNET, INC., a North Carolina corporation
("Maker"), promises to pay to THE UNILINK GROUP, LLC, a Georgia limited
liability company that is changing its name to TUG LIQUIDATION, LLC ("Payee"),
the principal sum of TWENTY-SEVEN MILLION DOLLARS ($27,000,000), with interest
thereon at the rate of eight per cent (8%) per annum from the date hereof (the
"Original Issue Date"), payable at 1770 The Exchange, Suite 240, Atlanta,
Georgia, 30339 or at such other place as Payee may designate in writing, on or
before January 18, 2002 (the "Maturity Date").
Section 1. Issue.
Section 1.1 Relationship of Note to Acquisition. This Note has been
executed and delivered pursuant to and in accordance with the terms and
conditions of that certain Acquisition Agreement of even date herewith by and
among TUG Acquisition Corporation, a Georgia corporation and wholly owned
subsidiary of Maker that is changing its name to The UniLink Group, Inc. (the
"Subsidiary"), Maker and Payee (the "Purchase Agreement"), and is subject to
the terms and conditions thereof which are, by this reference, incorporated
herein and made a part hereof. Payment or conversion of this Note is also
secured under the terms of that certain Security Agreement of even date
herewith by and among the Subsidiary and Payee (the "Security Agreement"), and
is subject to the terms and conditions thereof which are, by this reference,
incorporated herein and made a part hereof. Payment of this Note is
subordinated to Senior Debt. As used herein, "Senior Debt" means the secured
and unsecured debt of Maker in favor of commercial lenders, including banks,
insurance companies, and similar financial institutions, and any first priority
security interests in the Assets (as defined in the Purchase Agreement)
heretofore granted by Payee and assumed by Maker.
Section 1.2 Payment of Note. On the Maturity Date, Maker shall pay
principal and interest in full by wire transfer to Payee's account per Payee's
instructions or by certified check sent by overnight courier to Payee's
address, above (unless otherwise notified by Payee);
<PAGE> 2
provided, however, that to receive such payment Payee must surrender this Note
for cancellation to Maker at the office of Maker described in Section 1.3
hereof or to a paying agent appointed by Maker. Principal and interest shall be
considered paid on the date due, and no interest shall accrue thereafter, if
there is on deposit on that date, in a bank trust account for the benefit of
Payee, money sufficient to pay all principal and interest then due on the Note.
Section 1.3 Office for Conversion and Payment. Maker shall maintain
an office where the Note shall be surrendered for conversion or payment. This
office will initially be located at the offices of Maker at 4813 Emperor
Boulevard, Suite 130, Durham, NC 27703, until further notice from Maker to
Payee. Payee may convert all or any portion of the principal amount of this
Note into BuildNet Common Stock at any time and from time to time. If Payee
elects to convert less than the full principal amount of this Note then
outstanding, such conversion shall be permitted only in one hundred (100)-share
increments. Upon surrender of this Note for conversion in part, Maker shall
issue a new Note in substantially the same form as this Note, except that the
principal amount thereof shall be reduced by the principal amount hereof so
converted.
Section 2. Conversion.
Section 2.1 Right to Convert. Payee may, at any time and from time
to time prior to the Maturity Date, convert all or, with Maker's prior written
consent, any portion of the then outstanding principal amount and accrued and
unpaid interest thereon of this Note into a number of shares of BuildNet Common
Stock equal to the principal amount of this Note to be converted divided by the
Conversion Price. If Payee elects to convert less than the full principal
amount of this Note then outstanding, such conversion shall be permitted only
in one hundred (100)-share increments unless Maker has given its
contemporaneous consent to conversion of an odd lot. Upon surrender of this
Note for conversion in part, Maker shall issue a new Note in substantially the
same form as this Note, except that the principal amount thereof shall be
reduced by the principal amount hereof so converted. Payee and Maker shall
observe the procedures in Section 2.4 hereof in any conversion under this
Section 2.1.
Section 2.2 Mandatory Conversion. All outstanding principal and
accrued and unpaid interest due under this Note shall automatically be
converted into BuildNet Common Stock equal to the then outstanding principal
amount of this Note divided by the Conversion Price, in accordance with Section
2.4 hereof, upon the first to occur of (a) the expiration of any "lock up
period" to which Maker's venture capital investors are subject following an
initial public offering of the BuildNet Common Stock, and (b) the day prior to
the closing of any merger or share exchange in which the consideration to be
received by Payee would consist of freely tradable shares of capital stock of
the acquiring company (in each case, a "Mandatory Conversion Event"). From and
after a Mandatory Conversion Event, this Note shall represent solely the right
to receive such number of shares of BuildNet Common Stock issuable upon the
date of such Mandatory Conversion Event.
Section 2.3 Conversion Price. The conversion price shall initially
be US$4.40 per Conversion Share, subject to adjustment as set forth in Section
2.8 hereof (such conversion price and such conversion price as so adjusted, is
hereinafter the "Conversion Price").
2
<PAGE> 3
Section 2.4 Procedures for Conversion. To convert this Note into
BuildNet Common Stock, Payee must (i) give written notice to Maker of Payee's
exercise of its right to convert all or any portion of the outstanding
principal amount of this Note into BuildNet Common Stock, specifying the
principal amount hereof to be converted, (ii) if the BuildNet Common Stock is
to be registered in the name of a person other than Payee, furnish to Maker the
name, address and social security or taxpayer identification number of such
person, (iii) surrender this Note to Maker at the office of Maker described in
Section 1.3 hereof, or to a stock registrar or conversion agent appointed by
Maker, (iv) furnish appropriate endorsements or transfer documents as required
by Maker or any stock registrar or conversion agent appointed by Maker, and (v)
furnish such other information as Maker may reasonably require. Maker shall pay
any and all documentary stamp or similar issue or transfer taxes payable to the
United States of America or any State of the United States of America, or any
political subdivision thereof, in respect of the delivery to Maker of this Note
for conversion or the issuance or delivery of BuildNet Common Stock upon
conversion of this Note; provided, however, that Maker shall not be required to
pay any tax that may be payable in respect of any transfer involved in the
issuance or delivery of BuildNet Common Stock in a name other than that of
Payee upon conversion, and no such issuance or delivery shall be made unless
and until the person requesting such issuance has paid to Maker the amount of
any such tax or has established, to the satisfaction of Maker, that such tax
has been paid. The date on which Payee satisfies all the requirements of this
Section 2.4 shall be the "Conversion Date." As soon as is practical thereafter,
Maker shall deliver, directly or through any stock registrar or conversion
agent appointed by Maker, a certificate for the number of full number of shares
of BuildNet Common Stock issuable upon such conversion and a check for any
fractional share. The certificate for such shares shall be legended with such
securities law restrictions on transfer as may then be applicable. From and
after the Conversion Date the person in whose name the certificate is
registered shall be treated as a shareholder of record and shall enjoy all
rights, privileges, and preferences and shall be subject to all terms,
conditions, and limitations applicable to BuildNet Common Stock pursuant to
Maker's Articles of Incorporation, as amended, and Bylaws.
Section 2.5 Effect of Record Date. If any adjustment to be made to
the Conversion Price pursuant to Section 2.8 hereof becomes effective
immediately after a record date for an event as therein described, and
conversion occurs prior to such event but after the record date, Maker may
defer issuing, delivering, or paying to Payee any additional BuildNet Common
Stock or check for any fractional share required by reason of such adjustment
until the occurrence of such event, provided that Maker delivers to Payee an
instrument evidencing Payee's right to receive such additional shares or check
upon the occurrence of the event giving rise to the adjustment.
Section 2.6 Reservation of Shares. Until such time as all of the
Notes have been redeemed or converted into BuildNet Common Stock, Maker shall
reserve out of its authorized but unissued Common Stock a sufficient number of
shares BuildNet Common Stock to permit the conversion of the entire outstanding
principal amount of this Note. All BuildNet Common Stock issued upon conversion
of this Note shall be fully paid and non-assessable.
Section 2.7 Fractional Shares. Fractional shares will not be issued
upon conversion hereof. In lieu thereof, Maker shall deliver cash in the amount
of the product of the Conversion
3
<PAGE> 4
Price multiplied by the fraction arising in the calculation of the number of
shares of BuildNet Common Stock issuable upon conversion hereof.
Section 2.8 Adjustments to Conversion Price. The Conversion Price
shall be subject to adjustment from time to time as follows:
(a) Consolidation, Merger, or Sale. In case of the
consolidation or merger of Maker with or into, or the sale of all or
substantially all of its assets to, any person, or in the case of any
consolidation or merger of another corporation into Maker in which
Maker is the surviving corporation, and in which there is a
reclassification or change of the shares of Common Stock of Maker,
this Note shall, after such consolidation, merger or sale, be
convertible into the kind and number of securities or amount and kind
of property of Maker or the corporation resulting from such merger or
consolidation or to which such sale shall be made, as the case may be
(the "Successor Corporation"), to which a holder of the number of
shares of BuildNet Common Stock deliverable upon conversion
(immediately prior to the time of such consolidation, merger or sale)
of this Note would have been entitled upon such consolidation, merger
or sale; and in any such case appropriate adjustments shall be made in
the application of the provisions set forth in Section 2.8 hereof with
respect to the rights and interests of Payee, such that the provisions
set forth in Section 2.8 hereof shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to the
number and kind of securities or the type and amount of property
thereafter deliverable upon the conversion of this Note. The above
provisions shall similarly apply to successive consolidations, mergers
and sales. Any adjustment required by this Section 2.8(a) because of a
consolidation, merger or sale to which Section 2.8(a) hereof is
applicable shall be set forth in an undertaking delivered to Payee and
executed by the Successor Corporation.
(b) Adjustments for Stock Dividends and Splits. In the event
Maker should at any time or from time to time after the Original Issue
Date fix a record date for the effectuation of a stock split, or
subdivision of the outstanding shares of Common Stock (except in
connection with a consolidation, merger, or sale covered by Section
2.8(a) hereof) or the determination of holders of BuildNet Common
Stock entitled to receive a dividend or other distribution payable in
additional shares of BuildNet Common Stock or other securities or
rights convertible into, or entitling Payee thereof to receive
directly or indirectly, additional shares of BuildNet Common Stock
(hereinafter referred to as "BuildNet Common Stock Equivalents")
without payment of any consideration by such Payee for the additional
shares of BuildNet Common Stock or the Common Stock Equivalents
(including the additional shares of BuildNet Common Stock issuable
upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend, distribution, split, or subdivision if no
record date is fixed), the Conversion Price shall be appropriately
decreased so that the number of shares of BuildNet Common Stock
issuable upon conversion of a Note shall be increased in proportion to
the increase in the number of outstanding shares resulting from such
stock split, stock dividend, distribution, or subdivision.
(c) Reverse Stock Splits. In the event Maker should at any
time or from time to time after the Original Issue Date, fix a record
date for the effectuation of a reverse
4
<PAGE> 5
stock split, or a transaction having a similar effect on the number of
outstanding shares of BuildNet Common Stock, (except in connection
with the consolidation, merger, or sale covered by Section 2.8(a)
hereof), then, as of such record date (or the date of such reverse
stock split or similar transaction if no record date is fixed), the
Conversion Price shall be appropriately increased so that the number
of shares of BuildNet Common Stock issuable upon conversion of this
Note shall be decreased in proportion to the decrease in the number of
outstanding shares of BuildNet Common Stock resulting from the reverse
stock split or similar transaction.
(d) Reclassification. In the event Maker should at any time
or from time to time after the Original Issue Date, fix a record date
for a reclassification of its Common Stock, then, as of such record
date (or the date of the reclassification if no record date is set),
this Note shall thereafter be convertible into such number and kind of
securities as would have been issuable as the result of such
reclassification to a holder of a number of shares of BuildNet Common
Stock equal to the number of shares of BuildNet Common Stock issuable
upon conversion of this Note immediately prior to such
reclassification.
Section 3. Default and Remedies.
Section 3.1 Default. As used herein, a "Default" hereunder occurs
if:
(a) Maker defaults in the payment of principal when the same
becomes due and payable at the Maturity Date;
(b) Maker fails to comply with any of its other agreements
or covenants contained in this Note and such failure is not cured
within ten (10) days after Maker receives written demand from Holder
to remedy the same; or
(c) There is an Event of Default under the Security
Agreement.
Section 3.2 Remedies of Holders. Upon the occurrence of a Default
described in Section 3.1 hereof, Payee may, in addition to the exercise of any
right, power, or remedy permitted to such holder or holders by law and under
the Security Agreement, declare (by written notice or notices to Maker) the
entire principal of and all interest accrued on the Note to be due and payable,
and such Notes shall thereupon become immediately due and payable, without
presentment, demand, protest, or other notice of any kind, all of which are
hereby expressly waived by Maker. Subject to restrictions imposed by Senior
Debt, upon such declaration, Maker shall immediately pay to Payee the entire
principal of and interest accrued on the Notes, plus all costs of collection,
including attorneys' fees.
Section 3.3 Effect of Delay. A delay or omission by Payee in
exercising any right or remedy arising upon a Default shall not impair such
right or remedy or constitute a waiver of or an acquiescence in the Default.
All remedies are cumulative to the extent permitted by law.
Section 4. General Provisions.
Section 4.1 Waivers of Maker. Maker hereby waives protest,
presentment, notice of dishonor and notice of acceleration of maturity and
agrees to continue to remain bound for the
5
<PAGE> 6
payment of principal and all other sums due under this Note notwithstanding any
change by way of any extension of time for the payment hereof.
Section 4.2 Prepayment. This Note may be prepaid in full or in part at
any time by the mutual consent of Maker and Payee without penalty or premium.
Section 4.3 Governing Law. This Note is to be governed by and
construed in accordance with the laws of the State of North Carolina.
Section 4.4 No Impairment. Maker will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issuance, or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by Maker, but will at all times and in good faith assist in the
carrying out of all provisions of Sections 4 and 5 hereof and in the taking of
all such action as may be necessary or appropriate in order to protect the
conversion rights of Payees of the Notes against impairment.
[NEXT PAGE IS THE SIGNATURE PAGE.]
6
<PAGE> 7
IN WITNESS WHEREOF, the undersigned has caused this instrument to be
executed as of the 18th day of January, 2000.
BUILDNET, INC.
By: /s/ Bayard M Atwood, III
----------------------------------
Name: Bayard M. Atwood, III
--------------------------------
Title: President
-------------------------------
7
<PAGE> 1
EXHIBIT 10.25
CONVERTIBLE PROMISSORY NOTE
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR
UNDER ANY STATE SECURITIES LAW. THE SECURITIES MAY NOT BE OFFERED, SOLD, OR
OTHERWISE TRANSFERRED UNLESS THEY ARE REGISTERED UNDER THE ACT AND ALL
APPLICABLE STATE SECURITIES LAWS OR ARE IN COMPLIANCE WITH AN EXEMPTION
THEREFROM.
SECURED CONVERTIBLE NOTE
$5,850,000 January 31, 2000
--------- ----------------
FOR VALUE RECEIVED, BUILDNET CORP., a California corporation (the
"Issuer"), promises and agrees to pay to J.D. Edwards World Source Company
("Lender"), the principal sum of five million eight hundred fifty thousand
dollars ($5,850,000) with interest on the unpaid principal balance from January
31, 2000, until paid, at the rate of eight percent (8%) per annum (the "Loan
Rate"). Principal and interest shall be payable in one (1) installment of five
million eight hundred fifty thousand dollars ($5,850,000) plus interest, (the
"Payment"), due on the 25th day of January, 2001 (the "Payment Date"). If not
sooner paid, the entire principal amount outstanding and accrued interest
thereon, shall be due and payable on January 25, 2001 ("Maturity Date").
Payment of this Note shall be subordinated to any Senior Debt. "Senior Debt"
shall mean the secured and unsecured debt of Issuer in favor of commercial
lenders, including banks, insurance companies and similar financial
institutions.
1. Asset Purchase Agreement. This is the "Note" referred to in that certain
Asset Purchase Agreement dated January 31, 2000, by and between Issuer and
Lender ("Asset Purchase Agreement"). All capitalized terms used herein which
are not otherwise defined herein shall have the meanings specified in the Asset
Purchase Agreement.
2. Application of Payments. All payments and prepayments on account of the
indebtedness evidenced by this Note shall be first applied to amounts due
pursuant to the Security Agreement; secondly, to late fees and accrued and
unpaid interest on the unpaid principal balance of this Note; thirdly, to all
other sums then due Lender hereunder; and the remainder, if any, to said unpaid
principal balance. Issuer reserves the privilege, without cost or penalty, to
prepay all or any part of the principal balance of this Note at any time and
from time to time upon the mutual consent of both parties. Any prepayment on
account of the indebtedness evidenced by this Note shall not extend or postpone
the due date of any subsequent payment hereunder. Notwithstanding the above,
Issuer shall not have a right to pre-pay the Note: for a period of sixty (60)
days prior to a Triggering Event.
3. Default Rate. After maturity or the earlier Acceleration of the
indebtedness evidenced by this Note, or if said indebtedness has not been
accelerated, during any period in which an Event of
<PAGE> 2
Default (as hereinafter defined) exists Lender this Note or the Security
Agreement. Issuer shall pay interest on the balance of principal remaining
unpaid during any such period at an annual rate equal to fifteen percent (15%).
The interest accruing under this paragraph shall be immediately due and payable
by Issuer to the holder of this Note and shall be additional indebtedness
evidenced by this Note.
4. Payment Terms. All payments of principal and interest hereunder shall be
paid in coin or currency which, at the time or times of payment, is the legal
tender for public and private debts in the United States of America and shall
be made at such place as Lender or the legal holder or holders of this Note may
from time to time appoint, and in the absence of such appointment, then at the
offices of Lender, One Technology Way, Denver, CO 80217. Payment submitted in
funds not available until collected shall continue to bear interest until
collected. If payment hereunder becomes due and payable on a Saturday, Sunday
or legal holiday under the laws of the State of Colorado, the due date thereof
shall be extended to the next succeeding business day, and interest shall be
payable thereon at the then applicable Loan Rate during such extension. Payment
may also be made by wire transfer to Wells Fargo Bank, San Francisco. CA, ABA #
121000248 to the account of J.D. Edwards & Company, Account # 4159673946.
5. Security Agreement. This Note is the note referred to in the Security
Agreement of even date herewith between Issuer and Lender (the "Security
Agreement"). This Note is secured, by the collateral described in the Security
Agreement (the "Collateral"). Reference is hereby made to the Security
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 contained therein, a statement of the
rights, remedies, and security afforded thereby, and all matters therein
contained.
6. Conversion.
(a) All or any part of the outstanding principal and accrued but unpaid
interest on this Note (the "Convertible Amount") shall be convertible, at the
option of the Lender upon the occurrence of a Triggering Event (as defined
below), at the offiice of the Issuer, into the number of fully paid and
nonassessable shares of common stock of Issuer which results from dividing the
"Conversion Price" in effect at the time of the Triggering Event into the
Convertible Amount.
(b) A "Triggering Event" is defined as the closing of the Issuer's sale
of its common stock or the sale of shares of the Issuer's common stock held by
the Issuer's stockholders in a firm commitment underwritten public offering
pursuant to a registration statement under the Securities Act of 1933, as
amended. Subject to compliance with applicable securities laws, issuer shall
notify Lender of the estimated date of the Triggering Event at a reasonable
time prior to the Closing of such public offering. The "Conversion Price" shall
be the price of the shares as stated in the final prospectus filed with the
Securities and Exchange Commission.
(c) Before the Lender shall be entitled to convert this Note into shares
of common stock, Lender shall surrender this Note, accompanied by a proper
assignment thereof to the Company or in blank, at the office of the Issuer, and
shall give written notice to the Issuer at its principal
<PAGE> 3
corporate office, of the election to convert the same (or a specified portion
hereof) and shall state therein the name or names in which the certificate or
certificates for shares of common stock are to be issued. The Issuer shall, as
soon as practicable thereafter, issue and deliver at such Office to the Lender
or to the nominee or nominees of the Lender, a certificate or certificates for
the number of shares of common stock to which the Lender shall be entitled as
aforesaid, together with cash in respect of any fraction of a share of common
stock issuable upon conversion, and, if applicable, a new Note representing the
amount of principal not converted. Such conversion shall be deemed to have been
made on the day of the Triggering Event. The conversion shall be conditioned
upon the closing with the underwriters of the sale of securities pursuant to an
underwritten offering of securities registered pursuant to the Securities Act
of 1933, as amended, such that the Lender shall not be deemed to have converted
this Note until immediately prior to the closing of such sale of securities.
(d) The Issuer will not, through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Issuer, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 8 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
Lender against impairment.
(e) No fractional shares of common stock or scrip representing fractional
shares shall be issued upon the conversion of a Note. Instead of any fractional
shares of common stock which would otherwise be issuable upon conversion of a
Note, the Company shall pay to the Lender a cash adjustment in respect of such
fractional shares in an amount equal to the same fraction of the Conversion
Price then in effect.
(f) The Issuer shall at all times, reserve and keep available out of its
authorized but unissued shares of common stock, solely for the purpose of
effecting the conversion of this Note, such number of shares of common stock as
shall from time to time be sufficient to effect the conversion of all of the
outstanding principal amount of this Note and if at any time the number of
authorized but unissued Shares of common stock shall not be sufficient to
effect the conversion of this Note, in addition to such other remedies as shall
be available to the Lender, the Issuer will take such corporate action as shall
be necessary to increase the number of authorized but unissued shares of common
stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to these provisions.
(g) Any notice required by the provisions of this Section 8 to be given
to the Lender shall be deemed given if sent by certified mail, return receipt
requested, reputable overnight courier or personal delivery addressed to the
Lender at its address for making payments due hereunder.
7. Termination. Lender may terminate this Agreement upon the occurrence of
any Event of Default subject to the following:
<PAGE> 4
(a) In the Event of Default, Lender shall give written notice of
termination of this Agreement to Issuer, and the specific grounds for
termination.
(b) If such Event of Default is not cured by Issuer within thirty (30)
days from the date of such notice of termination, Lender may terminate this
Agreement.
(c) Upon termination, the entire principal outstanding amount and accrued
interest thereon shall be immediately due and payable upon demand by Lender.
8. Events of Default. The occurrence of any one or more of the following
events shall constitute an "Event of Default" under this Note:
(a) the failure by Issuer to make payment of principal or interest or
payment of any other amount due to Lender under this Note or the Security
Agreement within fifteen (15) days after the date when any such payment is due
in accordance with the terms hereof;
(b) the occurrence of any one or more of the "Events of Default" under
the Security Agreement;
(c) the sale, assignment (other than to Issuer's affiliated companies and
successors) or other disposition of all or any portion of the Collateral or
Issuer's rights in the Collateral in violation of the Security Agreement; or
(d) any default, in payment of performance of any Senior Debt.
9. Remedies. At the election of the holder hereof, and without notice, the
principal balance remaining unpaid under this Note, and all unpaid interest
accrued thereon, shall be and become immediately due and payable in full in the
case of the occurrence of any Event of Default which has not been cured within
the cure period provided in Section 7 above. Failure to exercise this option
shall not constitute a waiver of the right to exercise same in the event of any
subsequent Event of Default. No holder hereof shall, by any act of omission or
commission, be deemed to waive any of its rights, remedies or powers hereunder
or otherwise unless such waiver is in writing and signed by the holder hereof,
and then only to the extent specifically set forth therein. The rights,
remedies and powers of the holder hereof, as provided in this Note and the
Security Agreement are cumulative and concurrent, and may be pursued singly,
successively or together against the Issuer, the Premises and any other
security given at any time to secure the repayment hereof, all at the sole
discretion of the holder. If any suit or action is instituted or attorneys are
employed to collect this Note or any part thereof, Issuer promises and agrees
to pay all costs of collection, including attorneys' fees and court costs.
10. Waiver. Issuer and all others who now or may at time become liable for
all or any part of the obligations evidenced hereby, expressly agree hereby to
be jointly and severally bound, and jointly and severally: (i) waive and
renounce any and all redemption and exemption rights and the benefit of all
valuation and appraisement privileges against the indebtedness evidenced by
this
<PAGE> 5
Note or by any extension or renewal hereof; (ii) waive presentment and demand
for payment, notices of nonpayment and of dishonor, protest of dishonor, and
notice of protest, (iii) waive any and all lack of diligence and delays in the
enforcement of the payment hereof; (iv) agree that the liability of each
Issuer, endorser or obligor shall be unconditional and without regard to the
liability of any other person or entity for the payment hereof, and shall not
in any manner be affected by any indulgence or forbearance granted or consented
to by Lender to any of them with respect hereto; (v) consent to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
Lender with respect to the payment or other provisions hereof, and to the
release of any security at any time given for the payment hereof, or any part
thereof, with or without substitution, and to the release of any person or
entity liable for the payment hereof, and (vi) consent to the addition of any
and all other borrowers, endorsers, and other obligors for the payment hereof,
and to the acceptance of any and all other security for the payment hereof, and
agree that the addition of any such borrowers, endorsers, or other obligors, or
security shall not affect the liability of Issuer for all or any part of the
obligations evidenced hereby.
11. Amendments. Time is of the essence hereof. This Note may not be changed
or amended orally but only by an instrument in writing signed by the party
against whom enforcement of the change or amendment is sought. This Note has
been made and delivered at Littleton, Colorado and all funds disbursed to or
for the benefit of Issuer will be disbursed in Littleton, Colorado. This Note
shall inure to the benefit of and may be enforced by Lender, its successors and
assigns.
12. Relationship of Parties. Lender shall in no event be construed for any
purpose to be a partner, joint venturer, agent or associate of Issuer or any
beneficiary thereof or of any lessee, operator, concessionaire or licensee of
Issuer or any beneficiary thereof in the conduct of their respective
businesses, and by the execution of this Note, Issuer agrees to indemnify,
defend, and hold Lender harmless from and against any and all damages, costs,
expenses and liability that may be incurred by Lender as a result of a claim
that Lender is such partner, joint venturer, agent or associate.
13. Severability. In the event one or more of the provisions contained in
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect by a court of competent jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Note, and this Note shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein or therein.
14. Assignment. Lender may assign the Note, and if Lender does assign this
Note, the assignee shall be entitled to the performance of all of BuidNet's
agreements and obligations under this Note and the Security Agreement, and the
assignee shall be entitled to all the rights and remedies of Lender under this
Note and Security Agreement, and Buildnet expressly agrees that it will assert
no claims or defenses it may have against Lender against assignee except those
available to it in this Note and the Security Agreement. Assignments by Lender
to subsidiaries of Lender may be done at any time and without the consent of
Buildnet, Assignments by Lender to other than subsidiaries may be done upon
termination, pursuant to Section 7 hereof, or prior to termination, with the
prior consent of Buildnet.
<PAGE> 6
THIS NOTE SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF
BORROWER AND LENDER DETERMINED, IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF THE STATE OF COLORADO. AS PART OF
THE CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED, BORROWER HEREBY CONSENTS TO
THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT WITH JURISDICTION OVER
THE CITY AND COUNTY OF DENVER, STATE OF COLORADO. BORROWER AND LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY SUIT CR PROCEEDING
ARISING OUT OF OR RELATED TO THIS NOTE OR THE OTHER LOAN DOCUMENTS. BORROWER
WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED ON LACK OF JURISDICTION OR
IMPROPER VENUE OR FORUM NON CONVENIENS TO ANY SUIT OR PROCEEDING INSTITUTED BY
LENDER UNDER THIS NOTE IN ANY STATE OR FEDERAL COURT WITH JURISDICTION OVER THE
CITY AND COUNTY OF DENVER, STATE OF COLORADO AND CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR LENDER TO ENTER INTO THE NOTE.
[Signatures to Follow]
<PAGE> 7
IN WITNESS WHEREOF, Issuer has executed this Note as of the day and
year first written above.
BUILDNET CORP.
/s/ Mike Atwood
- -------------------
By: Mike Atwood
Its: President
ATTEST:
/s/ Steven C. Thompson
----------------------
Steven C. Thompson
Secretary
Address of Issuer: 1777 Oakland Blvd., Suite 201, Walnut Creek, CA 94596
<PAGE> 1
EXHIBIT 10.26
ABA NET BRANCH WEB SITE DEVELOPMENT AGREEMENT
This Affiliated Business Arrangement Net Branch Web Site Development
Agreement ("Agreement") is made this 1st day of March, 2000, by and between
BuildNet Financial Services, Inc., a North Carolina Corporation with its
principal place of business located at 4813 Emperor Boulevard, Suite 130,
Durham, North Carolina 27703 ("BuildNet") and mortgage.com, inc., a Florida
corporation, with its principal place of business located at 1643 N. Harrison
Parkway, Sunrise, FL 33323 ("MDC").
RECITALS
WHEREAS, MDC develops web sites for companies engaged in the mortgage
origination business(the "MDC Site") on the Internet (example located at
www.onlinecap.com) through which it or its clients offer residential mortgage
services and products ("MDC Products"); and
WHEREAS, MDC offers various programs which enable homebuilders to
participate in the revenues associated with mortgage loan origination services.
Such programs are generally known as Net Branch programs , but within the
mortgage finance industry are commonly known as Affiliated Business Arrangement
(as that term is defined in The Real Estate Settlement Procedures Act or RESPA)
Programs ("ABA Programs").
WHEREAS, BuildNet and MDC wish to establish a version of the MDC Site
(the "ABA Site") through which users of the ABA Site (defined as customers of
home builders or developers and hereafter known as "Consumers") would have the
opportunity to purchase residential permanent mortgage products offered by MDC
or the homebuilder.
AGREEMENT
NOW, THEREFORE, MDC and BuildNet agree as follows:
1. PROMOTION OF ABA, TERM, EXCLUSIVITY, PRICING, SITE DEVELOPMENT,
HOSTING, MAINTENANCE AND CUSTOMER SERVICE
1.1. ABA PROMOTION OF ABA PROGRAMS:
As more particularly set forth in Section 1.5, MDC grants to
BuildNet the exclusive right to promote and market the MDC ABA Programs
to homebuilders, as hereinafter defined, nationwide, for the term of
this Agreement. MDC agrees to (i) provide training with respect to the
content of the ABA Programs to BuildNet sales staff; (ii) maintain a
sales force to answer questions and generally be available for joint
sales calls with BuildNet sales staff during regular business hours.
MDC shall not unreasonably withhold approval of any homebuilder
presented to MDC by BuildNet to participate in the ABA Programs with
MDC.
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
<PAGE> 2
1.2. BUILDNET PARTICIPATION
Nothing contained in this Agreement shall limit the right of
BuildNet to own one or more Net Branch Managers, (as that term is
defined in the attached Standard MDC Net Branch Agreement), engaged by
MDC pursuant to a Net Branch Agreement. A finalized Standard MDC Net
Branch Agreement shall be attached hereto as Exhibit A (the "Net Branch
Agreement") within sixty (60) days from the effective date of this
Agreement.
1.3. PROMOTION/MARKETING
BuildNet shall use commercially reasonable efforts to develop
and implement a sales staff to promote the MDC ABA Programs. BuildNet
shall provide a detailed budget and marketing plan, attached as
Schedule 1, (the "Schedule 1 Plan") outlining the commitment of
BuildNet to effectuate a national sales effort to promote the sale of
the ABA Programs. Notwithstanding the previous sentence, in the event
the Schedule 1 Plan is not completed before signing the Agreement, it
shall be provided to MDC for its written approval within sixty (60)
days of the effective date hereof; in the event the Schedule 1 Plan is
not approved by MDC, MDC shall give BuildNet thirty (30) days written
notice of disapproval setting forth in reasonable detail the reasons
for disapproval (the "MDC Objection"). In the event the Schedule 1 Plan
is not amended by BuildNet in conformity with the Objection, either
party shall have the right to terminate this Agreement upon thirty (30)
days written notice of the date of the MDC Objection. Moreover, at any
time during the Term, either party shall have the right to propose a
reasonable modification to the Schedule 1 Plan and such modification
may not be unreasonably denied by such other party. The Schedule 1 Plan
shall include, but not be limited to, the following
a. A marketing strategy overview; and
b. Completed marketing materials describing the three
ABA Program models for distribution to the sales
staff; and
c. Creation of a sales incentive program for the
BuildNet sales force; and
d. Scheduling of trade show exhibits for the year 2000;
and
e. Completed builder launch kit for each ABA Program
model; and
f. BuildNet sales staffing estimates.
1.4. TERM
The Term of this Agreement shall commence as of the date set
forth above and end on the last day of the twenty-fourth (24th)
calendar month following the month in which the ABA Site becomes active
(the "Deployment Date") subject to renewal as follows: The Term shall
automatically be extended for additional consecutive twelve month (12)
renewal periods (each a "Renewal Term") unless, (i) either party
provides written notice to the other party at least thirty (30) days
prior to expiration of the Term, or
2
<PAGE> 3
any renewal thereof, of its desire not to renew or (ii) at MDC's sole
discretion if BuildNet fails to meet such performance criteria as set
forth in Section 1.4(a), and 1.4(b) herein so long as MDC has not
contributed in any way to BuildNet's failure to meet said performance
criteria as further described in Section 1.4.3. Any reference herein to
the "Term" shall include each Renewal Term. This Agreement may be
terminated upon mutual agreement of the parties or upon a material
breach by either party not cured within the time set forth in Section
5.13 Notwithstanding termination of this Agreement by MDC for reasons
other than for breach of contract, BuildNet shall be entitled to
compensation at the rates provided herein (or in such Net Branch
Agreements that may be executed pursuant to this Agreement and which
may remain in place in spite of the termination of this Agreement) for
all transactions, as hereinafter defined, in process.
a. During the first twelve months from the Deployment
Date ("First Year"), BuildNet shall establish or have
a signed letter of intent (LOI) with a minimum of [*]
Net Branches between residential home builders and
MDC using the attached Net Branch Agreement or LOI.
In addition, MDC shall receive a minimum of [*], as
hereinafter defined, in the First Year from any
combination of Net Branches established by BuildNet
under the terms of this Agreement. For purposes of
this Agreement, the term [*].
b. During the thirteenth (13th) through the
twenty-fourth (24th) month from the Deployment Date
("Second Year"), BuildNet shall establish or have a
signed letter of intent (LOI) with a minimum of [*]
Net Branches between residential home builders and
MDC using the attached Net Branch Agreement or LOI.
In addition, MDC shall receive a minimum of [*] in
the Second Year from any combination of Net Branches
established by BuildNet under the terms of this
Agreement.
c. MDC recognizes that the commitments made in Sections
1.4(a) and 1.4(b), above are contingent upon not only
BuildNet's performance under this Agreement, but also
upon MDC's delivery of basic fulfillment products and
services including, but not limited to customer
services, web site accessibility, and competitive
products and pricing.
d. Should this Agreement be terminated, MDC agrees that
the obligations it has through any Net Branch
Agreement shall remain in full force and effect for
the term of said Net Branch Agreement. BuildNet shall
have, after any termination, the sole discretion to
select another provider of services similar to that
of MDC for any Net Branch Agreements entered into
hereunder. Upon implementation of such a provider,
MDC's obligations to any Net Branch shall cease other
than for outstanding loan and application
commitments.
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
3
<PAGE> 4
MDC shall provide reasonable assistance in
transitioning Net Branches to the new provider.
1.5. EXCLUSIVITY AND NON COMPETE.
a. Except as to existing clients of MDC as set forth on
Exhibit B, BuildNet shall have the exclusive right to
market, advertise and promote MDC's ABA Programs and
MDC Products to Homebuilders, and, accordingly, for
the term hereof, BuildNet will not market, advertise,
promote or offer residential mortgage products of any
mortgage lenders, other than those of MDC, to
Homebuilders. Notwithstanding the foregoing, BuildNet
may market, promote and advertise General Electric's
mortgage products and services to any party including
Homebuilders. Notwithstanding the foregoing, MDC
clients listed on Exhibit B, who [*] in BuildNet
after execution of this Agreement will automatically
be removed from Exhibit B. Homebuilder is a natural
person or legal entity licensed by all applicable
federal, state and local government authority and
whose principal business is to construct new homes
for sale to the public in the United States.
b. In the event that a Homebuilder desires to purchase
from MDC any residential mortgage services offered by
MDC including but not limited to (i) mortgage banking
services such as originating, processing,
underwriting, closing, funding and selling loans, or
(ii) the development, marketing, sale and operating
of Web Sites for consumers to obtain residential
loans or (iii) the development, marketing, sale and
operation of private label web sites or (iv) net
branch operations, point of sale kiosks and rapid
response centers or any other internet technology
related services, which services are hereinafter
collectively referred to as "Other Services" and in
the event such Other Services are not available
through the (i) the ABA Programs or (ii) a program
jointly developed by BuildNet and MDC that in
BuildNet's reasonable sole discretion meets the
requirements of such Homebuilder, MDC may offer such
services to any such Homebuilder notwithstanding the
Exclusivity and Non Compete provisions set forth
above.
c. For the term of this Agreement, MDC shall not enter
into any agreements with any entity that is a
competitor of BuildNet, as hereinafter defined (the
"BuildNet Competitors"), to provide the ABA Programs
or MDC Products.. BuildNet shall provide to MDC an
initial list, which may be amended from time to time,
of all BuildNet Competitors and such list shall be
set forth on Exhibit C and made a part of this
Agreement. Notwithstanding the foregoing, MDC shall
use its best efforts to identify potential MDC
clients, not on the list in Exhibit C, who may also
be competitors of BuildNet and seek BuildNet approval
before entering into an agreement with said client to
provide the ABA Programs or MDC Products offered
hereunder. For purposes of this Agreement, the term "
BuildNet Competitor" shall mean (i) a Homebuilder
that offers mortgage services to its clients, other
than those excluded pursuant
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
4
<PAGE> 5
to Section 1.5(a) and Exhibit B, or (ii) an entity
which offers back office administrative or
transaction processing software for Homebuilders with
the same or similar functionality as the proprietary
software of BuildNet which includes, but is not
limited to, purchase ordering, invoicing, scheduling
and job costing in connection with the construction
of homes, or (iii) any person or entity, which is not
a Homebuilder, which over the previous three fiscal
years has obtained more than 25% of its total
mortgage revenues through leads generated from
Homebuilders as demonstrated by audited or if
unavailable, unaudited financial statements.
d. Notwithstanding anything contained herein to the
contrary, nothing contained herein shall limit the
right of MDC to enter into any agreement to provide
any services or products, including the services and
products offered hereunder to any person or entity,
which is not a Homebuilder, which over the previous
three fiscal years has obtained no more than 25% of
its total mortgage revenues through leads generated
from Homebuilders as demonstrated by audited or if
unavailable, unaudited financial statements. In
addition, MDC shall have the right to enter into an
agreement with any party including a BuildNet
Competitor relating solely to the sale of debt or
equity securities of MDC.
1.6. MDC MORTGAGE PRODUCTS AND PRICING
MDC shall have the right to decide which residential mortgage
products it will offer to Net Branches , and has sole discretion to
approve or reject any credit applications it receives, and to determine
the criteria on which these decisions will be based. MDC shall set the
pricing and lender fees of the MDC Products on the ABA Site equal to
those offered to MDC retail loan originators working in similar
environments (e.g. located on the premises of a homebuilder or
Realtor). Such pricing may be adjusted in writing by mutual agreement
of the parties from time to time. Notwithstanding the foregoing, MDC
agrees to cooperate and confer as may be reasonably requested by
BuildNet regarding mortgage product selection.
1.7. MDC ABA SITE DEVELOPMENT, HOSTING AND MAINTENANCE
MDC shall create, host and maintain the ABA Site. The parties
agree that the information and data contained on the ABA Site pages
shall be physically located on a web server owned and/or operated by
MDC. MDC agrees to host and maintain the ABA Site pursuant to the
standards set forth in Exhibit D. MDC and BuildNet will confer and
mutually agree on ABA Site page design, provided that such pages shall
be consistent with the MDC Site design, navigation and look and feel.
MDC shall incorporate some or all of BuildNet Materials, as well as any
other text, graphics, animation, scripts or other materials deemed
necessary or desirable by both parties. BuildNet may request that MDC
modify the design of the ABA Site pages. MDC shall respond to such
reasonable requests to improve, change or alter the ABA Site and
provide time frames in which such requests will be completed. MDC shall
not unreasonably reject any such request by BuildNet to modify the
design of the ABA Site pages. Any additional customization of
5
<PAGE> 6
the ABA Site, pursuant to a written work order signed by BuildNet,
shall be billed to BuildNet by MDC at a rate of [*].
a. Site identification and workflow. The home page of
the ABA Site shall reference BuildNet or the
homebuilder as the provider of the site.
b. NET BRANCHES: During the application process,
Consumers will be notified on the site and in writing
that the lender for the ABA site is First Mortgage
Network, a trade name used by MDC to conduct its
mortgage business and the entity that has been
selected to provide application, processing,
underwriting and closing services for BuildNet
Consumers. Customer service and loan processing for
loan applications originated on the ABA Site shall be
conducted under the name of First Mortgage Network.
Phone calls fielded from the 800 number featured on
the ABA Site shall be answered "BuildNet Financial,
First Mortgage Network." Final closing documents,
including but not limited to the Note and Deed of
Trust, shall identify the lender as "mortgage.com,
inc. dba First Mortgage Network." Consumers will be
required to sign an Affiliated Business Arrangement
disclosure as mandated by the Real Estate Settlement
Procedures Act (RESPA) which indicates that the
homebuilder will receive a financial benefit as a
result of the Consumer using the Net Branch's
services to obtain a mortgage. MDC reserves the right
to modify the ABA Site identification and workflow
described in this paragraph as may be required from
time to time by state or federal licensing and
regulatory requirements.
1.8. MAINTENANCE
Information maintained on the ABA Site pages shall be updated
on a regular basis to reflect the changes in functionality exhibited on
the MDC Site. The ABA Site shall contain functionality to originate
prime credit loans (defined as conforming to either Fannie Mae/Freddie
MAC, underwriting guidelines or jumbo or portfolio loans to non-agency
guidelines), sub-prime credit loans (defined as not conforming to
Fannie Mae or Federal Home Loan Mortgage Corporation underwriting
guidelines) and home equity lines of credit. MDC shall update and
maintain the ABA Site for all non-routine material modifications,
including, but not limited to, upgrades, changes to underlying source
code, web server maintenance, and debugging. BuildNet shall have the
right to perform minor and routine weekly ABA Site maintenance. MDC
shall train BuildNet personnel to perform such maintenance and MDC
shall provide remote access to the ABA Site to allow BuildNet to
perform such services.
1.9. CUSTOMER SERVICE & TECHNICAL SUPPORT INQUIRIES.
All customer service or technical support inquiries shall be
directed to an email address and phone numbers specified by MDC, and
MDC shall respond to all associated first-line customer service and
technical support inquiries from Consumers. MDC shall provide such
technical support at service levels in accordance with its standard
policies and procedures, as set forth in Exhibit E, but shall provide
support not less than an
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
6
<PAGE> 7
amount that is commercially reasonable and customary in the industry.
Both parties will assign content project managers to manage the
development and maintenance, which results from the execution of this
Agreement.
1.10. BUILDNET PERMISSIONS
BuildNet authorizes MDC to refer in MDC's advertising and
promotion to the fact that the ABA Site was developed and hosted by
MDC, provided that any such statement (a) does not include any
trademarks, service marks, design marks, symbols and/or other indicia
of origin of BuildNet other than the name of BuildNet except as
provided in the BuildNet Materials herein; and (b) does not disparage
BuildNet, its products, services or affiliates. Within sixty (60) days
from the date of this Agreement, MDC shall shall transfer the domain
name registration rights to the domain names, www.Bldnetfin.com and
www.Buildnetfin.com to BuildNet and such addresses shall then be
considered part of the BuildNet Materials. BuildNet hereby grants to
MDC, its affiliates and agents the nonexclusive, nontransferable,
non-assignable (except as provided in Section 5.1) right during the
Term to use (i.e., to copy, transmit, distribute, display and perform
both privately and publicly) BuildNet's name, the name of the BuildNet
web sites (including www.BuildnetFinancial.com,
www.BuildnetFinancial.org and www.BuildnetFinancial.net), and other
related textual and graphic material that are provided by BuildNet to
MDC for the express purpose of inclusion on any ABA Site. All use of
the BuildNet Materials hereunder shall inure to the benefit of BuildNet
and shall not create any rights, title or interest in them for MDC. No
other use of BuildNet's names, trademarks, services marks, design
marks, symbols and/or other indicia of origin will be made by MDC for
any purpose without the prior written approval of BuildNet. As between
MDC and BuildNet, BuildNet owns and shall continue to own, exclusively,
all right, title and interest (including, without limitation, all
rights provided under the law of copyright and trademark) in and to the
BuildNet Materials and all names, trademarks, service marks, URL
addresses, design marks, symbols and/or indicia of origin therein
throughout the world and in perpetuity, subject to the permissions
granted in this Agreement. MDC agrees that any use of the BuildNet
Materials, by MDC shall be subject to review and approval in advance by
BuildNet. BuildNet shall retain the right, in its sole discretion, to
demand immediate modification, revision or cessation of the use of
BuildNet Materials in the event that BuildNet determines that the
BuildNet Materials are being used improperly. Without limiting the
generality of the foregoing, MDC shall not use BuildNet Materials in a
manner that BuildNet determines to be inappropriate or unacceptable.
2. FEES
2.1. TRANSACTIONS
The fees payable to MDC by the Consumer for processing,
underwriting and closing a mortgage loan transaction shall total [*],
not including any third party fees, appraisal fees, or credit reporting
fees. In addition, the Net Branch shall pay BuildNet a management fee.
BuildNet shall then pay MDC a fee of [*] as a Membership Fee for the
technology services provided pursuant to the Net Branch
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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<PAGE> 8
Agreements, (i) MDC shall be responsible for any salary and commissions
payable to Net Branch employees and (ii) the Net Branch Manager will
retain any origination fee that it negotiates with a Consumer as part
of its revenue, and the Net Branch Manager shall earn any Net Branch
profits as more particularly described in the Net Branch Agreement in
Exhibit A. Such fees may be amended from time to time as mutually
agreed to in writing by both parties.
2.2. ABA SITE DEVELOPMENT AND FEE
BuildNet agrees to pay MDC a fee of [*] for the development of
the ABA Site ("ABA Site Fee"). It is acknowledged by both parties that
BuildNet has already paid (50%) of the ABA Site Fee payable and due
hereunder. The ABA Site Fee shall cover the development of the initial
ABA Site. Upon notification of the completion of the initial ABA Site,
(as defined herein), the balance of the ABA Site Fee shall become due
and payable. Each ABA Site developed for a new Net Branch ("Subsequent
Sites") shall follow the same template as and be substantially similar
to the initial ABA Site. For the purpose of this section "completion"
shall mean development of the ABA Site by MDC which is sufficient for
the conduct of business contemplated under this Agreement. The fee
payable by BuildNet to MDC for evaluating and approving a new Net
Branch and developing a Subsequent Site for that entity shall be [*]
per site. Any material modifications requested in writing by BuildNet
other than name and logo shall be billed by MDC to BuildNet at a rate
of [*].
2.3. ABA SITE HOSTING FEE
BuildNet agrees that beginning with the first month following
the Deployment Date of the initial ABA Site, it shall pay MDC a web
site hosting fee ("Hosting Fee") in the sum of [*] for the Term hereof.
There shall be no hosting fee for any Subsequent Site developed under
the terms of this Agreement.
2.4. AUDITING
Either party shall have the right, at its expense, upon thirty
(30) business days written notice and during the other party's normal
business hours, to inspect and audit the site logs of the ABA Site or
the directly relevant books and records of the other party for the
purpose of verifying the performance, any reports, information or
payments due under this Agreement. Any such audit shall be conducted by
a firm of independent certified public accountants reasonably
acceptable to the other party. In the event any shortfall in payment to
either party is found which exceeds five percent (5%) of the total due
under this Agreement for the reporting period audited, the party
asserting such shortfall shall be reimbursed by the other party for the
reasonable costs incurred while conducting such audit. plus all amounts
then due plus interest at Prime.
2.5. REPORTING AND PAYMENTS
Within fifteen (15) days following the close of each calendar
month during the Term, each party shall pay the other all amounts due
for such previous month and shall
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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submit with payment a statement providing in reasonable detail the
basis for such payment. BuildNet shall report to MDC, on a regular
basis, regarding the progress of its online advertising campaign and
promotional efforts.
2.6. TRACKING
MDC shall track all visitors to the co-branded sites using the
unique URL associated with each site, as is currently done on all MDC
sites. Additional levels of tracking can be accomplished using "sender
codes", which are also currently in use on all MDC sites. MDC shall
cooperate reasonably with BuildNet to identify feasible, lawful,
available alternate means to identify users if the current methods used
for this purpose do not reliably identify and track the source of
consumer traffic to the sites. Notwithstanding the foregoing, MDC shall
separately track and report all electronic mail leads generated by the
BuildNet inquiry forms.
a. Within 30 days of execution of this Agreement, MDC
shall provide for review and approval a detailed
description of the tracking methodology and
technology used under this Section. If deficiencies
are found by BuildNet in the methodology and
technology, MDC shall make reasonable efforts to
correct the deficiencies and shall submit for
BuildNet's review the corrective measures taken.
b. BuildNet shall have the right to periodically review
on 15 days notice MDC's tracking methodology and
technology. This review shall take place no more
frequently than semi-annually or upon reasonable
belief that the tracking technology or methodology is
flawed or not functioning correctly.
c. MDC shall notify BuildNet of any change in the
tracking methodology or technology used under this
Section at least fifteen (15) business days before
such change is made. BuildNet shall have the right of
prior approval for any change that it reasonably
believes shall impair the obligations of tracking
under this Section.
3. CONFIDENTIAL INFORMATION
3.1. DEFINITION
As used herein, "Confidential Information" shall mean all oral
or written information, of whatever kind and in whatever form, relating
to past, present or future products, software, research, development,
inventions, processes, techniques, designs or other technical
information and date, and marketing plans (including such information
of third parties that a party hereto is obligated to hold as
confidential), provided that such information has been reasonably
identified as or could be reasonably considered to be proprietary or
confidential, that either party (a) may have received prior to the date
of this Agreement, whether directly from the other or indirectly from
third parties, or (b) may receive hereunder from the other. The terms
of this Agreement shall be deemed Confidential Information.
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3.2. OBLIGATION
Each party agrees that, with respect to its receipt of
Confidential Information of the other party it shall:
a. use the same care and discretion to prevent
disclosure of such Confidential Information as it
uses with similar Confidential Information of its own
that it does not desire to disclose but in no even
with less than a reasonable degree of care;
b. accept such Confidential Information and use such
Confidential Information only for the purposes
permitted hereunder; and
c. restrict disclosure of Confidential Information
solely to those of its employees and agents who have
a need to know and are obligated not to disclose such
Confidential Information to any third parties.
3.3. EXCEPTIONS
The restrictions of Section 3.2 shall not apply to information
that:
a. is or hereafter becomes part of the public domain
through no wrongful act, fault or negligence on the
part of the recipient;
b. the recipient can reasonably demonstrate, is already
in its possession and not subject to an existing
agreement of confidentiality;
c. is received from a third party without restriction
and without breach of this Agreement;
d. was independently developed by the recipient as
evidenced by its records; or
e. recipient is required to disclose pursuant to a valid
order of a court or other governmental body;
provided, however, that the recipient shall first
have given notice to the disclosing party and shall
give the disclosing party a reasonable opportunity of
at least 10 days to interpose an objection or obtain
a protective order requiring that the confidential
Information so disclosed be used only for the
purposes for which the order was issued.
3.4. RETURN
All notes, data, reference manuals, sketches, drawings,
memoranda, electronic media, records in any way incorporating or
reflecting any Confidential Information of the disclosing party and all
proprietary rights therein shall belong exclusivity to such disclosing
party and the recipient agrees to return all copies of such materials
to the disclosing party immediately upon request or upon termination or
expiration of this Agreement.
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3.5. CONSUMER CREDIT INFORMATION
MDC hereby agrees that all information, excluding Social
Security Numbers and credit reports, provided by Consumers who access a
mortgage.com web site or similar mortgage.com services either from (i)
a BuildNet owned or operated web site or (ii) a BuildNet software
product, shall be the sole and exclusive property of BuildNet (the
"BuildNet Consumer Information"). Without limiting the foregoing,
"BuildNet Consumer Information" shall include both completed
applications and incomplete applications and/or web site hit and use
information. MDC agrees that it shall not use the BuildNet Consumer
Information for any purpose, except as permitted in the limited license
granted by this Section, or disclose such information to any third
party. BuildNet agrees that it shall use the BuildNet Consumer
Information only for purposes that are consistent with the BuildNet
Privacy policy, as it may be amended from time to time in the sole
discretion of BuildNet. BuildNet hereby grants to MDC a limited license
to use the BuildNet Consumer Information for the sole purpose of
performing its services under this Agreement. MDC shall supply BuildNet
with the BuildNet Consumer Information on a monthly basis or more
frequently as agreed to between the parties. Both parties agree to
comply with all State and Federal laws governing the confidentiality of
consumer credit information and to maintain confidentiality of this
information. It is mutually agreed and understood that BuildNet under
this Agreement is not a lender or engaged in any way in lending
activities, and is solely promoting and advertising MDC's Products to
Consumers. MDC will comply with all applicable Federal and State laws,
including legal requirements for disclosures, notices and reporting.
4. LIABILITY
4.1. PRODUCT RESPONSIBILITY
MDC and BuildNet acknowledge that neither advocates or
endorses the purchase or the use of any of the products or services
offered by the other through their respective World Wide Web sites or
otherwise, nor do they guaranty the quality, fitness or results of any
such products or their compliance with any law or regulation.
4.2. REPRESENTATIONS AND WARRANTIES OF MDC
MDC represents and warrants that: (a) MDC has the right to
enter into this Agreement and to grant the rights and licenses granted
herein; (b) the ABA Site and the reproduction, distribution,
transmission, public performance and public display of the MDC Material
in connection with the ABA Site do not and will not (i) invade the
right of privacy or publicity of any third person, (ii) contain any
libelous, obscene, indecent or otherwise unlawful material, or (iii)
infringe any patent, copyright or trademark right in any jurisdiction,
or (iv) contravene any other rights of any third person; (c) MDC has
received no notice of such invasion, violation or infringement of
rights; except that the representations and warranties in subsections
(b) and (c) above shall not apply to User Content or Product
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Content. Instead, MDC agrees that it shall use commercially reasonable
efforts to monitor and edit such User Content and Product Content and
shall use commercially reasonable efforts to promptly remove any User
Content and Product Content from the ABA Site which fails to conform
with the warranties and representations in subjection (b) above. "User
Content" means content uploaded by parties other than MDC; "Product
Content" means content contained in products sold by parties other than
MDC. MDC shall provide commercially reasonable customer service to
consumers in connection with the BuildNet site, subject to the cure
provisions set forth in Section 5.13.
4.3. REPRESENTATIONS AND WARRANTIES OF BUILDNET
BuildNet represents and warrants that: (a) BuildNet has the
right to enter into this Agreement and to grant the rights and licenses
granted herein; (b) the use of BuildNet Materials as permitted herein
do not and will not (i) invade the right of privacy or publicity of any
third person, (ii) contain any libelous, obscene, indecent or otherwise
unlawful material, or (iii) infringe any patent, copyright or trademark
right in any jurisdiction; or (iv) contravene any other rights of any
third person; and (c) BuildNet has received no notice of such invasion,
violation or infringement of rights.
4.4. BREACH OF REPRESENTATION, WARRANTY OR COVENANT AND
INDEMNIFICATION
Each party to this Agreement shall defend, indemnify and hold
harmless the other party and each of its officers, directors, employees
and agents (each, an "Indemnitee") against and in respect of any loss,
debt, liability, damage, obligation, claim, demand, judgment or
settlement of any nature or kind, known or unknown, liquidated or
unliquidated, including without limitation all reasonable costs and
expenses incurred (legal, accounting or otherwise) (collectively
"Damages") arising out of, resulting from or based upon any claim,
action or proceeding by any third party alleging facts or circumstances
constituting a breach of the representations and warranties of this
Section 4 made by such indemnifying party (the "Indemnifying Party").
4.5. PROCEDURES FOR INDEMNIFICATION
Whenever a claim shall arise for indemnification under this
Section 4, the relevant Indemnities, as appropriate, shall promptly
notify the Indemnifying Party and request the Indemnifying Party to
defend the same. Failure to so notify the Indemnifying Party shall not
relieve the Indemnifying Party of any liability which the Indemnifying
Party might have, except to the extent that such failure prejudices the
Indemnifying Party's ability to defend such claim. The Indemnifying
Party shall have the right to defend against such liability or
assertion in which event the Indemnifying Party shall give written
notice to the relevant Indemnities of acceptance of the defense of such
claim and the identity of counsel selected by the Indemnifying Party.
Such notice of the relevant Indemnities shall give the Indemnifying
Party full authority to defend, adjust, compromise or settle such
action, suit, proceeding or demand with respect to which such notice
shall have been given, except to the extent that any compromise or
settlement shall affect any rights of any Indemnitee, which settlement
or compromise shall be subject to the prior approval of the Indemnitee.
With respect to any defense accepted by the Indemnifying Party, the
relevant Indemnities shall be entitled to participate with the
Indemnifying Party in such defense if the action or claim requests
equitable relief or other relief that could affect the
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rights of the Indemnity and also shall be entitled to employ separate
counsel for such defense at such Indemnities expense. In the event the
Indemnifying Party does not accept the defense of any indemnified claim
as provided above, the relevant Indemnities shall have the right to
employ counsel for such defense at the expense of the Indemnifying
Party. Each party agrees to cooperate and to cause its employees and
agents to cooperate with then other party in the defense of any such
action and the relevant records of each party shall be available to the
other party with respect to any such defense.
4.6. RISK ALLOCATION
NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY (NOR TO ANY
PERSON CLAIMING RIGHTS DERIVED FROM THE OTHER PARTY'S RIGHTS) FOR
INCIDENTAL, INDIRECT, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY
DAMAGES OF ANY KIND - INCLUDING LOST REVENUES OR PROFITS, LOSS OF
BUSINESS OR LOSS OF DATA - ARISING OUT OF THIS AGREEMENT (INCLUDING
WITHOUT LIMITATION AS A RESULT OF ANY BREACH OF ANY WARRANTY OR OTHER
TERM OF THIS AGREEMENT), REGARDLESS OF WHETHER THE PARTY LIABLE OR
ALLEGEDLY LIABLE WAS ADVISED, HAD OTHER REASON TO KNOW, OR IN FACT KNEW
OF THE POSSIBILITY THEREOF.
4.7. ACKNOWLEDGEMENT OF NO WARRANTY
EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER PARTY WARRANTS
THAT THEIR RESPECTIVE WEB SITES OR THE ABA SITE WILL PERFORM IN THE
MANNER EXPECTED OR WITHOUT INTERRUPTION, ERROR OR DEFECT OR THAT ANY
REVENUE TO EITHER PARTY WILL RESULT FROM THE ACTIVITIES CONTEMPLATED BY
THIS AGREEMENT. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES ANY WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR WARRANTIES AGAINST INFRINGEMENT OF ANY INTELLECTUAL PROPERTY
RIGHTS NOT SPECIFICALLY ENUMERATED.
4.8. LIMITATION OF LIABILITY
Each party's liability to the other party for any and all
claims and damages incurred by such party relating to or arising out of
the subject matter of this Agreement, whether in contract, tort,
implied warranty, strict liability or other form of action, except for
claims for violations of a party's intellectual property rights, and
any right of indemnity provided herein, shall be limited to the greater
of (x) the amounts paid by MDC to BuildNet pursuant to this Agreement
for the preceding six (6) months or (y) one thousand dollars. BuildNet
and MDC 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
associated with this Agreement. The warranty disclaimers and
limitations in this Agreement are intended to limit the circumstances
of liability. The remedy limitations, and the limitations of
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liability, are separately intended to limit the forms of relief
available to the parties. The provisions of this Section 4.8 shall be
enforceable independent and severable from any other enforceable or
unenforceable provision of this Agreement.
5. MISCELLANEOUS PROVISIONS
5.1. ASSIGNMENT AND CHANGE IN CONTROL
Except as otherwise provided herein, neither MDC nor BuildNet
may assign this Agreement or any of its rights or delegate any of its
duties under this Agreement without prior written consent of the other,
which consent shall not be unreasonably withheld. . In the event of a
Change in Control of either party , the other party has the right to
terminate this Agreement upon thirty (30) days' notice from the date of
the Change of Control . A "CHANGE OF CONTROL" means any: (a) sale of
all or substantially all assets either party ; (b) merger,
reorganization or consolidation pursuant to which the stockholders or
successor of either party immediately prior to such merger,
reorganization or consolidation: (i) hold less than 50% of the voting
power of the surviving company following the merger, reorganization or
consolidation, or (ii) in the event that the securities of an
affiliated entity are issued to the stockholders in the transaction in
exchange for their shares, hold less than 50% of the voting power of
such affiliated entity.
5.2. COUNTERPARTS
This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and all of which together shall be
deemed the same Agreement.
5.3. GOVERNING LAW
This Agreement, its interpretation, performance or any breach
thereof, shall be construed in accordance with, and all questions with
respect thereto shall be determined by, internal, substantive laws in
the State of North Carolina and the venue for any lawsuit, action or
arbitration under this Agreement shall be the courts of Wake County,
North Carolina. If either party employs attorneys to enforce any right
arising out of or relating to this Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees, in
arbitration, litigation, or otherwise.
5.4. HEADINGS
Section headings are for convenience only and are not a part
of the Agreement.
5.5. INDEPENDENT CONTRACTORS
MDC and BuildNet are independent contractors under this
Agreement, and nothing herein shall be construed to create a
partnership, joint venture or agency relationship between MDC. Neither
party has the authority to enter into agreements of any kind on behalf
of the other party.
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5.6. INTEGRATION
This Agreement contains the entire understanding of the
parties hereto with respect to the transactions and matters
contemplated hereby, supersedes all previous agreements between
BuildNet and MDC concerning the subject matter, and cannot be amended
except by a writing signed by both parties.
5.7. NO RELIANCE
No party hereto has relied on any statement, representation or
promise of any other party or with any other officer, agent, employee
or attorney for the other party in executing this Agreement except as
expressly stated herein.
5.8. NOTICE
All notices, demands and other communications hereunder shall
be in writing or by written telecommunications, and shall be deemed to
have been duly given: (i) if mailed by certified mail, postage prepaid,
on the date five (5) days from the date of mailing, (ii) if delivered
by overnight courier, when received by the addressee or (iii) if sent
by confirmed telecommunication, one business day following receipt by
the addressee at the following address:
If to BuildNet:
Barry Drayson
Chairman
BuildNet Financial Services, Inc.
4813 Emperor Boulevard, Suite 103
Durham, NC 27703
With copy to:
Mike Atwood
President
BuildNet, Inc.
4813 Emperor Boulevard, Suite 103
Durham, NC 27703
If to MDC:
Mr. John Hogan
Senior Executive Vice President
mortgage.com, inc.
983 University Avenue, Building D
Los Gatos, CA 95032
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With copy to:
Mr. Michael Brenner
General Counsel
mortgage.com, inc.
8751 Broward Boulevard, 5th Floor
Plantation, FL 33324
or such other address as either party may specify by notice given in
writing.
5.9. PRESUMPTIONS
In resolving any dispute or construing any provision
hereunder, there shall be no presumptions made or inferences drawn (i)
because the attorneys for one of the parties drafted the agreement,
(ii) because of the drafting history of the agreement; or (iii) because
of the inclusion of a provision not contained in a prior draft, or the
deletion of a provision contained in a prior draft.
5.10. SEVERABILITY
In the event any provision of this Agreement shall for any
reason be held to be invalid, illegal or enforceable in any respect,
the remaining provisions shall remain in full force and effect.
5.11. SURVIVAL
The provisions of Section 3 and 4 shall survive termination or
expiration of this Agreement.
5.12. WAIVER
No waiver of any breach or any provision of this Agreement
shall constitute a waiver of any prior, concurrent or subsequent breach
of the same of any other provisions hereof, and no waiver shall be
effective unless made in writing and signed by an authorized
representative of the waiving party.
5.13. RIGHT TO CURE
In the event either party desires to assert any remedies for
breach of this Agreement, the party desiring to assert such remedies
shall give the other party thirty (30) days written notice and an
opportunity to cure within ten (10) business days.
5.14. PUBLICITY
a. Other than the rights granted in this Section,
nothing in this Agreement shall be construed to grant
any right or license to BuildNet in or to any content
or other material supplied by MDC other than the
right to use the content or material in the
marketing, promotion and advertising of the ABA Site.
BuildNet agrees that it will not, without the prior
written consent of MDC in
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each instance: (i) use in advertising, publicity,
press release or otherwise the name of MDC, nor any
trade name, trademark, trade device, service mark,
symbol or any abbreviation, contraction or simulation
thereof owned by MDC; or (ii) represent, directly or
indirectly, that any product or any service provided
by BuildNet has been approved or endorsed by MDC.
Without in any way limiting the foregoing
restrictions, BuildNet may: (i) disclose the
existence of this Agreement for any purpose required
by law or for the purposes of financial reporting or
disclosure, including, without limitation, any
disclosure or reporting that may be reasonably
required to obtain equity financing; and (ii) list
MDC as a business partner of BuildNet on BuildNet's
internal and external customer lists.
b. Other than the rights granted in this Section or
elsewhere in the Agreement, nothing in this Agreement
shall be construed to grant any right or license to
MDC in or to any content or other material supplied
by BuildNet other than the right to use the content
or material in the marketing, promotion and
advertising of the ABA Site. MDC agrees that it will
not, without the prior written consent of BuildNet in
each instance: (i) use in advertising, publicity,
press release or otherwise the name of BuildNet, nor
any trade name, trademark, trade device, service
mark, symbol or any abbreviation, contraction or
simulation thereof owned by BuildNet; or (ii)
represent, directly or indirectly, that any product
or any service provided by BuildNet has been approved
or endorsed by BuildNet. Without in any way limiting
the foregoing restrictions, MDC may: (i) disclose the
existence of this Agreement for any purpose required
by law or for the purposes of financial reporting or
disclosure, including, without limitation, any
disclosure or reporting that may be reasonably
required to obtain equity financing; and (ii) list
BuildNet as a business partner of BuildNet on
BuildNet's internal and external customer lists.
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IN WITNESS WHEREOF, the parties hereto caused their duly authorized
officers to execute this Agreement as of the date set forth above.
BuildNet Financial Services, Inc.
By: /s/ Barry Drayson
------------------------------------
Name: Barry Drayson
Title: Chairman
mortgage.com, inc.
By: /s/ Michael Brenner
------------------------------------
Name: Michael Brenner
Title: Executive Vice President
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SCHEDULE 1 - BUILDNET MARKETING PLAN
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EXHIBIT A - NET BRANCH MANAGER AGREEMENT
20
<PAGE> 21
EXHIBIT B - MDC CLIENTS
[*]
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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EXHIBIT C - BUILDNET COMPETITORS
o [*]
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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EXHIBIT D - WEB SITE HOSTING & MAINTENANCE STANDARDS
The following terms, when used in this Exhibit, shall have the following
meanings:
"DOWN TIME" shall mean any time that any Web Site is not in a Fully Functional
State for any reason or cause other than: (i) any force majeure events; (ii) the
scheduled services outages set forth below in Section 2(a)(iv)(1) of this
EXHIBIT D; and (iii) causes which are the fault of the builder or BuildNet.
"FULLY FUNCTIONAL STATE" shall mean that the Web Sites are: (i) available for
access and use by the builder and/or Consumers.
"WEB SITE(S)" shall mean any Web Site created by MDC for a builder under the
terms of an executed Net Branch Agreement, Co-Branded Web Site Agreement or
Marketing Agreement.
MDC shall provide to BuildNet the following hosting services described below for
the Web Sites (the "Hosting Services"):
1. SUMMARY OF SERVICES
MDC shall procure, provide, install and manage MDC owned Windows NT(R)
web server(s) and all other equipment and telecommunications facilities
unless otherwise agreed upon by the parties, on behalf of BuildNet at
the MDC Service Center. This production server will house the Web
Sites. MDC shall maintain sufficient server capacity and Internet
connectivity throughout the Term to accommodate growth in user numbers
and overall traffic levels to the Web Sites. MDC shall host and operate
the Web Sites such that the users experience access times and time to
retrieve full web pages that are substantially similar to the access
times and time to retrieve full web pages by users visiting other sites
hosted by MDC including, without limitation, www.mortgage.com.
2. SERVICE MONITORING & MANAGEMENT
(a) MDC will perform continuous monitoring and management of each
Web Site to optimize availability of service. Included within
the scope of Service Monitoring & Management is the proactive
monitoring of the web servers and all service components of
the MDC's firewall for trouble on a 7 day by 24 hour basis,
and the expedient restoration of components when failures
occur within the time period set forth in "Service Outages"
below. MDC shall maintain redundancy in all key components
such that service outages are less likely to occur due to
individual component failures.
i. Permissible Down Time
1. In any month during the term of this
Agreement, the Web Sites shall be in a Fully
Functional State for no less than
ninety-ninety nine and
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one half percent (99.5%) of the time; and
shall experience no more than one half
percent (.5%) Down Time (the "Permissible
Down Time"). Permissible Down Time shall
include any scheduled maintenance.
2. If, during any given month of this
Agreement, the Web Sites fail to remain in a
Fully Functional State in accordance with
2.i.1, above, then BuildNet shall be
entitled and MDC shall remit to BuildNet the
greater of (i) the monthly hosting fee paid
by BuildNet for Web Site hosting divided by
the number of days in the month or (ii) the
monthly hosting fee broken down to an hourly
basis times the number of hours that the
system was down.
3. If the Web Sites remain down for three
consecutive twenty four (24) hour period or
five total twenty four (24) hour periods
(based upon the total number of hours of
down time) during any given month, then
BuildNet shall be entitled to consider MDC
in breach of its hosting requirements and
may seek termination of the Agreement.
ii. Service Hours
MDC's Service Center is staffed 24 hours a day, 7
days a week, to support BuildNet's needs and make all
notifications to BuildNet required pursuant to this Exhibit D.
Automated monitoring tools alert service personnel of problems
on a 7 day by 24-hour basis.
iii. Service Reliability
MDC protects all mission-critical equipment (e.g.,
routers, hubs, servers) in the MDC Service Center with
Uninterruptable Power Supplies (UPS) which are covered by a
service contract. Sufficient sparing levels are kept on-site
for all key equipment components. In addition, MDC has
implemented redundant servers for all key services, such as
routing, DNS and email gateways.
iv. Service Outages
1. Scheduled
MDC scheduled outages must be notified to
BuildNet at least 24 hours in advance, and
shall last no longer than one hour and shall
be scheduled between the hours of 1:00 a.m.
and 5:00 a.m., Eastern Time). MDC may
request extensions of scheduled down time
above one (1) hour and such approval by
BuildNet may not be unreasonably withheld.
2. Unscheduled
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Unscheduled outages are caused by loss of
connectivity to the Internet, or by failure
of a MDC service. In cases where a
destination is not available, or
unacceptable service is reported, MDC will
attempt to determine the source of the
problem and report its findings to BuildNet.
(b) MDC will monitor "heartbeat" signals of all servers, routers
and leased lines, and HTTP availability of the web server, by
proactive probing at 30-second intervals 24 hours a day using
HP Openview as well as HP ManageX or the equivalent. If a
facility does not respond to a ping-like stimulus, it is
immediately checked again. A second failure will trigger
automatically a page to MDC's Service Center and selected
engineers, as well as generating a log entry. The Service
Center monitors this service 24 hours a day.
(c) When the Customer Service Center receives a "down" signal, or
otherwise has knowledge of a failure in the production server
or the application hardware, MDC personnel will:
i. Confirm (or disconfirm) the outage by a direct check
of the facility;
ii. If confirmed, take such action as may restore the
service in one hour or less, or, if determined to be
a telephone company problem, open a trouble ticket
with the telephone company carrier;
iii. Notify the BuildNet Technical Administrator by
telephone or voicemail according to predefined
procedures that an outage has occurred, providing
such details as may be available, including the MDC
ticket number if appropriate and time of outage;
iv. Work the problems until resolution, escalating to
management or to engineering as required;
v. Notify the BuildNet Technical Administrator of final
resolution, along with any pertinent findings or
action taken, and requests concurrence to close the
ticket.
3. BACK UPS
a. Back-Up Administration provides for both the regular back-up
of standard file systems, and the timely restoral of data from
a BuildNet request due to a site failure.
i. Perform back-ups of file systems housed in the MDC
Service Center at One Paragon Drive, Suite 240,
Montvale, New Jersey;
ii. Perform weekly full back-ups;
iii. Perform daily incremental back-ups;
iv. Send back-up tapes to secured, off-site storage
facilities with a 30 day rotation of tapes;
v. Retain one back-up tape per month for one year ;
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vi. Fulfill restoral requests as directed by BuildNet due
to site failures. Restoral will be performed within
the interval of 2 to 4 hours dependent on the urgency
of the request, and the agreed upon location of the
desired tape.
vii. If the hosting server or location is expected to be
down for more than 24 hours, the MDC will immediately
transfer appropriate back-up data and re-establish
all hosting operations in an appropriately
functioning secondary server or location.
4. SECURITY
a. Monitoring
i. MDC will
1. Limit physical and electronic access to web
servers ;
2. Review security notifications and alerts
relevant to the hosting platform (e.g.,
vendor notifications of bugs, attacks,
patches), and apply as appropriate to
maintain the highest level of defense; and
b. Breaches
i. In the event of an attack or threatened or suspected
breach of security against the Web Sites, MDC will
take whatever reasonable steps that are necessary to
halt such action, including taking the affected Web
Sites down. Down time due to external attacks shall
not count against "permissible down time". MDC will
immediately contact BuildNet's authorized contact to
discuss what measure to take. However, if time is
critical, action may be required before the contact
can be reached. MDC's actions will include:
1. Confirm the threat;
2. Deny access from the source of the attack;
3. Investigate the extent of the damage, if
any;
4. Back-up the affected systems and those
suspected to be affected;
5. Strengthen defenses everywhere, not just the
suspected path that the attacker used;
6. Contact the ISP where the threat or attack
originated and/or law enforcement to work
with MDC's security team;
7. Contact builder and BuildNet to inform them
of the breach;
8. Produce an Incident Report within 24 hours
detailing MDC's findings and distribute the
report to the client(s) affected; and
9. Re-instate the denial of access after a set
time period, but continue to monitor traffic
from that source until risk of further
attacks is deemed to be minimized.
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ii. BuildNet shall have the right to audit MDC security
procedures and actions taken as a result of a breach
of security. Such audit shall include review and
post-mortem analysis of MDC security precautions
taken as a result of the breach and on-site review if
necessary. BuildNet shall bear the costs associated
with any such security audit, except for routine
copying and postage as necessary for MDC to provide
the Incident Report and accompanying data on the
breach to BuildNet.
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EXHIBIT E - CUSTOMER SERVICE STANDARD
The professionals at mortgage.com firmly believe in making you, our customer, a
top priority. As a valued customer, you have certain rights. Showing our respect
for your rights in all we do, mortgage.com ensures:
At mortgage.com, you can always count on your personal
mortgage consultant for fast, friendly service. You have the
right to receive a prompt response to your inquiry within 4
hours of your initial contact. You can also expect same-day
credit approvals ... simply submit your application to us by
5:00 PM no matter where you are in the country!
You have the right to privacy and confidentiality. When you
complete your loan application, your personal information is
protected using the latest encryption technology.
We respect your time. Provided that you allow us to use one
of our preferred service providers, we can guarantee your
right to close on or before your desired closing date, as
agreed to at the time you applied. Just be sure to return all
required documentation to us in a timely manner.
You have the right to expect that your closing costs will not
exceed those disclosed to you in your Good Faith Estimate,
again, provided that you select one of our preferred service
providers. PLEASE NOTE: THIS does not apply to prepaid
amounts for taxes, insurance, and mortgage insurance.
Should mortgage.com's personal consultants fall to meet any of these
commitments, as outlined above, we will send you a check for $300.00 once you
close with us.
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EXHIBIT 10.27
INTERNET MARKETING & CO-BRANDED WEB SITE AGREEMENT
This Internet Marketing & Co-branded Web Site Agreement ("Agreement")
is made this 1st day of March, 2000, by and between BuildNet Financial Services,
Inc., a North Carolina Corporation, with its principal place of business located
at 4813 Emperor Boulevard, Suite 103, Durham, North Carolina 27703 ("BuildNet")
and mortgage.com, inc., a Florida corporation, with its principal place of
business located at 1643 N. Harrison Parkway, Sunrise, FL 33323 ("MDC").
RECITALS
WHEREAS, MDC operates a World Wide Web site (the "MDC Site") on the
Internet (currently located at www.mortgage.com) through which it sells
residential mortgage services and products and MDC creates, hosts and maintains
Web Sites on a co-branded marketing basis with third party marketers ("MDC
Products"); and
WHEREAS, BuildNet operates various web sites (collectively the
"BuildNet Sites"); and
WHEREAS, BuildNet and MDC wish to establish a version of the MDC Site
(the "Co-Branded Site") through which users of the Co-Branded Site (defined as
customers of residential real estate builders or developers and hereafter known
as "Consumers") would have the opportunity to purchase residential permanent
mortgage products offered by MDC through BuildNet financial.
AGREEMENT
NOW, THEREFORE, MDC and BuildNet agree as follows:
1. LINKING AGREEMENT
1.1. DISPLAY OF LINKS TO CO-BRANDED SITE:
During the term of this Agreement, as hereinafter defined (the
"Term"), BuildNet shall create and display a mortgage channel that will
provide a hyperlink ("Unique Hyperlink") to the Co-Branded Site via
text and/or graphics. A Unique Hyperlink will be placed in a prominent
location within the BuildNet Sites mutually acceptable to the parties.
The Unique Hyperlink will take Consumers from the BuildNet Sites to the
Co-Branded Site using distinct URLs supplied by MDC exclusively for
linking and tracking (the "Supplied URLs"). The Unique Hyperlink to the
Co-branded Site shall be displayed in the area of the BuildNet Sites
that promotes residential mortgage services and products and, if
BuildNet displays or makes accessible to Consumers descriptive
information regarding any of the vendors whose icons are displayed on
the BuildNet Site then BuildNet shall have the right, but not the
obligation, (and subject to MDC's prior written approval of the content
thereof in each instance the foregoing right is to be exercised), to
include similar descriptive information regarding the Co-Branded Site.
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
<PAGE> 2
1.2. PROMOTION/MARKETING
BuildNet shall use commercially reasonable efforts to develop
and implement promotions to stimulate transactions, electronic mail
leads and otherwise to support the sales of MDC Products through the
Co-Branded Site. In furtherance thereof, BuildNet shall conduct the
promotional activities described in Exhibit A ( the "Marketing Plan").
Notwithstanding the previous sentence, in the event the Marketing Plan
is not completed before signing this Agreement, it shall be provided to
MDC for its written approval within sixty (60) days of the effective
date hereof; in the event the Marketing Plan is not approved by MDC,
MDC shall give BuildNet thirty (30) days written notice of its
disapproval setting forth in reasonable detail the reasons for such
disapproval (the "MDC Objection"). In the event the Marketing Plan is
not amended by BuildNet in conformity with the MDC Objection, either
party shall have the right to terminate this agreement upon thirty (30)
days written notice of the date of the MDC Objection.
1.3. TERM
The Term of this Agreement shall commence as of the date set
forth above and end on the last day of the twenty-fourth (24th)
calendar month following the month in which the Unique Hyperlink and
the Co-Branded Site becomes active (the "Deployment Date") subject to
renewal as follows: The Term shall automatically be extended for
additional consecutive twelve month (12) renewal periods (each a
"Renewal Term") unless (i) either party provides written notice to the
other party at least thirty (30) days prior to expiration of the Term,
or any renewal thereof, of its desire not to renew or (ii) at MDC's
sole discretion if BuildNet fails to meet such performance criteria as
set forth in Sections 1.3(a) and 1.3(b) herein so long as BuildNet's
failure to meet said performance criteria as further described in
Section 1.3(c) was not caused by a default of this Agreement by MDC.
Any reference herein to the "Term" shall include each Renewal Term.
BuildNet shall place the Unique Hyperlink on the BuildNet Sites so that
the Deployment Date occurs promptly but in any event no later than five
(5) business days from the date in which MDC notifies BuildNet of the
availability of a fully functional Co-Branded Site. This Agreement may
be terminated upon mutual agreement of the parties or upon a material
breach by either party not cured within the time set forth in Section
6.13. Notwithstanding termination of this Agreement by MDC for reasons
other than for breach of contract, BuildNet shall be entitled to
compensation at the rates provided herein for all transactions, as
hereinafter defined, in process.
a. During the first twelve months from the Deployment
Date (the "First Year"), BuildNet shall enlist a
minimum of [*] builders to offer the MDC Products
through the Co-Branded Site to Consumers. In
addition, MDC shall receive a minimum of [*]
during the First Year through the Co-Branded Site.
For purposes of this Agreement, the term [*].
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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<PAGE> 3
b. During the thirteenth (13th) through the
twenty-fourth (24th) month from the Deployment Date
(the "Second Year"), BuildNet shall enlist a minimum
of [*] builders to offer the MDC Products through the
Co-Branded Site to Consumers. In addition, MDC shall
receive a minimum of [*] during the Second Year
through the Co-Branded Site.
c. MDC recognizes that the commitments made in sections
1.3(a) and 1.3(b), above are contingent upon not only
BuildNet's performance under this Agreement, but also
upon MDC's delivery of basic fulfillment products and
services including, but not limited to customer
services, web site accessibility, and competitive
products and pricing.
d. Should this Agreement be terminated, MDC agrees that
it shall continue to host Consumer branded web sites
powered by MDC's system for a minimum of 90 days or
until BuildNet or another provider of similar hosting
capabilities can assume MDC's duties under this
Agreement. BuildNet shall have, after any
termination, the sole discretion to select another
provider of services similar to that of MDC for any
Customer entered into hereunder. Upon implementation
of such a provider, MDC's obligations to any Customer
shall cease other than for outstanding loan and
application commitments. MDC shall provide reasonable
assistance in transitioning Customers to the new
provider.
1.4. EXCLUSIVITY
BuildNet shall have the exclusive right to market, advertise
and promote MDC's residential first lien mortgage products to Consumers
on an exclusive basis, and exclusively display the Unique Hyperlinks
with regard to any Co-Branded Site developed by MDC for this purpose,
and for the term hereof will not provide links from the BuildNet Sites
to any other web sites for the purposes of offering residential first
lien mortgages. Notwithstanding the foregoing, BuildNet may market,
promote and advertise General Electric's mortgage products and services
to anyone including homebuilders.
a. Except as to existing clients of MDC as set forth on
Exhibit B, BuildNet shall have the exclusive right to
market, advertise and promote the MDC Products to
Homebuilders, and, accordingly, for the term hereof,
BuildNet will not market, advertise, promote or offer
residential mortgage products of any mortgage
lenders, other than those of MDC, to Homebuilders.
Notwithstanding the foregoing, MDC clients listed on
Exhibit B, who [*] in BuildNet after execution of
this Agreement will automatically be removed from
Exhibit B. Homebuilder is a natural person or legal
entity licensed by all applicable federal, state and
local government authority and whose principal
business is to construct new homes for sale to the
public in the United States.
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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b. In the event that a Homebuilder desires to purchase
from MDC any residential mortgage services offered by
MDC including but not limited to (i) mortgage banking
services such as originating, processing,
underwriting, closing, funding and selling loans, or
(ii) the development, marketing, sale and operating
of Web Sites for consumers to obtain residential
loans or (iii) the development, marketing, sale and
operation of private label web sites or (iv) net
branch operations, point of sale kiosks and rapid
response centers or any other internet technology
related services, which services are hereinafter
collectively referred to as "Other Services" and in
the event such Other Services are not available
through (i) the MDC Products or (ii) a program
jointly developed by BuildNet and MDC that in
BuildNet's reasonable sole discretion meets the
requirements of such Homebuilder, MDC may offer such
services to any such Homebuilder notwithstanding the
exclusivity provisions set forth above.
c. For the term of this Agreement, MDC shall not enter
into any agreements with any entity that is a
competitor of BuildNet, as hereinafter defined (the
"BuildNet Competitors"), to provide the MDC Products.
BuildNet shall provide to MDC an initial list, which
may be amended from time to time, of all BuildNet
Competitors and such list shall be set forth on
Exhibit C and made a part of this Agreement.
Notwithstanding the foregoing, MDC shall use its best
efforts to identify potential MDC clients, not on the
list in Exhibit C, who may also be competitors of
BuildNet and seek BuildNet approval before entering
into an agreement with said client to provide the MDC
Products offered hereunder. For purposes of this
Agreement, the term "BuildNet Competitor" shall mean
(i) a Homebuilder that offers mortgage services to
its clients, other than those excluded pursuant to
Section 1.4(a) and Exhibit B, or (ii) an entity which
offers back office administrative or transaction
processing software for Homebuilders with the same or
similar functionality as the proprietary software of
BuildNet which includes, but is not limited to,
purchase ordering, invoicing, scheduling and job
costing in connection with the construction of homes,
or (iii) any person or entity, which is not a
Homebuilder, which over the previous three fiscal
years has obtained more than 25% of its total
mortgage revenues through leads generated from
Homebuilders as demonstrated by audited or if
unavailable, unaudited financial statements.
d. Notwithstanding anything contained herein to the
contrary, nothing contained herein shall limit the
right of MDC to enter into any agreement to provide
any services or products, including the services and
products offered hereunder to any person or entity,
which is not a Homebuilder, which over the previous
three fiscal years has obtained no more than 25% of
its total mortgage revenues through leads generated
from Homebuilders as demonstrated by audited or if
unavailable, unaudited financial statements. In
addition, MDC shall have the right to enter into an
agreement with any party including a BuildNet
Competitor relating solely to the sale of debt or
equity securities of MDC.
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2. CO-BRANDED WEB SITE & UNIQUE HYPERLINK
2.1. DELIVERY OF UNIQUE HYPERLINK
MDC shall furnish to BuildNet prior to the Deployment Date a
Unique Hyperlink. If MDC subsequently modifies the Unique Hyperlink, it
shall furnish a representation in the same format which BuildNet shall
substitute for the prior version within ten (10) days after receipt.
During this 10 day notice period, a functional Co-Branded Web Site
shall be available at both the old URL Unique Hyperlink and the new
replacement URL address.
2.2. MDC PERMISSIONS
MDC hereby grants to BuildNet the nonexclusive,
nontransferable, nonassignable (except as provided in Section 6.1)
right during the Term to use (i.e., to copy, transmit, distribute,
display and perform both privately and publicly) the Unique Hyperlink,
the MDC name, the MDC Site name and other related textual and graphic
material that are provided by MDC to BuildNet for the express purpose
of inclusion on the BuildNet Sites from time to time (collectively, the
"MDC Materials") solely on the BuildNet Sites for the specific purposes
authorized in Section 1.1 and Section 1.2. MDC also authorizes BuildNet
to refer in BuildNet's advertising and promotion to the fact that the
MDC services are accessible through the BuildNet Site, provided that
any such statement (a) does not include any trademarks, service marks,
design marks, symbols and/or other indicia or origin of MDC other than
MDC's name and/or the MDC Site name in a non-distinctive typeface
(i.e., not the typeface used in the logo design of any MDC mark); (b)
does not state, suggest or imply by the wording or prominence of such
statement, or otherwise, that MDC sponsors, authorizes and/or is the
source or origin of the BuildNet Sites and (c) does not disparage MDC,
its products, services or affiliates. All use of MDC Materials
hereunder shall inure to the benefit of MDC and shall not create any
rights, title or interest in them for BuildNet. No other use of MDC's
names, trademarks, services marks, design marks, symbols and/or other
indicia of origin or other designations confusingly similar to any of
the foregoing may be made by BuildNet for any purpose without the prior
written approval of MDC. As between MDC and BuildNet, with the
exception for all BuildNet Materials as defined herein, MDC owns and
shall continue to own, exclusively, all right, title and interest
(including, without limitation, all rights provided under the law of
copyright and trademark) in and to the MDC Materials, Co-Branded Site
and all MDC names, trademarks, service marks, design marks, symbols
and/or indicia of origin therein throughout the world and in
perpetuity, subject to the permissions granted in this Agreement
2.3. MDC MORTGAGE PRODUCTS AND PRICING
MDC shall have the right to decide which residential mortgage
products it will offer to Consumers, and has sole discretion to approve
or reject any credit applications it receives, and to determine the
criteria on which these decisions will be based. MDC shall set the
pricing and lender fees of the MDC Products on the Co-Branded Site
equal to
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<PAGE> 6
those prices as found on the MDC Site with the exception that MDC shall
add up to [*] to points for all products offered. Such pricing may be
adjusted in writing by mutual agreement of the parties from time to
time. Notwithstanding the forgoing, MDC agrees to meet and confer with
BuildNet as may be reasonably necessary regarding mortgage product
selection.
2.4. MDC CO-BRANDED SITE DEVELOPMENT, HOSTING AND MAINTENANCE
MDC shall create, host and maintain the Co-Branded Site. The
parties agree that the information and data contained on the Co-Branded
pages shall be physically located on a web server owned and/or operated
by MDC. The Co-Branded Site shall contain the legend "BuildNet
Financial powered by Mortgage.Com" in a clear an conspicuous manner on
the each respective home page. MDC agrees to host and maintain the
Co-Branded Site pursuant to the standards set forth in Exhibit D. MDC
and BuildNet will confer and mutually agree on Co-Branded Site design,
provided that such pages shall be consistent with the MDC
functionality. MDC shall incorporate some or all of BuildNet Materials
(as defined in Section 2.8), as well as any other text, graphics,
animation, scripts or other materials deemed necessary or desirable by
both parties within the frame of the Co-Branded Site. BuildNet shall
control and make all final decisions regarding the frame, its layout,
displays and linkages. No links or link exchanges will be placed by MDC
on the BuildNet Co-Branded site without prior approval of BuildNet.
BuildNet may request that MDC modify the design of the Co-Branded
pages. MDC shall respond to such reasonable requests of BuildNet and
provide time frames in which such requests will be completed. MDC shall
not unreasonably reject any such request by BuildNet to modify the
design of the Co-Branded pages. MDC agrees that part of this design
will include site navigation that will allow users to return to the
BuildNet Sites through a text or logo link provided by BuildNet (the
"Return Icon"). MDC shall customize the Co-Branded Site such that the
home page of the Co-Branded Site will allow the Consumer to identify
the builder that referred them to the site. Upon selection of the
appropriate builder by the Consumer, the Consumer will then be
forwarded to a customized home page for the builder. Each builder shall
have the ability to access the loan application status of each Consumer
it referred to the Site. BuildNet shall have the ability to obtain loan
application status for every Consumer that applies through the
Co-Branded Site. In addition, all customized builder home pages shall
be accessible via their own unique URL address. Any additional
customization work for builder home pages or the Co-Branded Site, as
per a written work order signed by BuildNet, shall be billed to
BuildNet at a rate of [*].
2.5. SITE IDENTIFICATION AND WORKFLOW
The home page of the Co-Branded Site shall reference BuildNet
as the provider of the site, as opposed to MDC. During the application
process, Consumers will be notified on the site and in writing that the
lender for the Co-Branded Site is First Mortgage Network, a trade name
of MDC and the entity that has been selected to provide application,
processing, underwriting and closing services for BuildNet Consumers.
Customer service and loan processing for loan applications originated
on the Co-Branded Site shall be conducted under the name of First
Mortgage Network. Phone calls fielded
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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<PAGE> 7
from the toll free number featured on the Co-Branded Site shall be
answered in the name of "BuildNet Financial," or in the name of the
sponsor of the Co-Branded Site. Final closing documents, including but
not limited to the Note and Deed of Trust, shall identify the lender as
"mortgage.com, inc. dba First Mortgage Network." MDC reserves the right
to modify the Co-Branded Site identification and workflow described in
this paragraph as may be required from time to time by state or federal
licensing and regulatory requirements.
2.6. MAINTENANCE
Information maintained on the Co-branded pages shall be
updated on a regular basis to reflect the changes in functionality
exhibited on the MDC Site. The Co-Branded Site shall contain
functionality to originate prime credit loans (defined as conforming to
either Fannie Freddie MAC, underwriting guidelines or jumbo or
portfolio loans to non-agency guidelines), sub-prime credit loans
(defined as not conforming to Fannie Mae or Federal Home Loan Mortgage
Corporation underwriting guidelines) and home equity lines of credit.
MDC shall update and maintain the Co-Branded Site on a regular basis.
2.7. CUSTOMER SERVICE & TECHNICAL SUPPORT INQUIRIES.
All customer service or technical support inquiries shall be
directed to an email address and phone numbers specified by MDC, and
MDC shall respond to all associated first-line customer service and
technical support inquiries from Consumers. MDC shall provide such
technical support at service levels in accordance with its standard
policies and procedures, as set forth in Exhibit E, but shall provide
support not less than an amount that is commercially reasonable and
customary in the industry or. Both parties will assign content project
managers to manage the development and maintenance, which results from
the execution of this Agreement.
2.8. BUILDNET PERMISSIONS
BuildNet hereby grants to MDC, its affiliates and agents the
nonexclusive, nontransferable, nonassignable (except as provided in
Section 6.1) right during the Term to use (i.e., to copy, transmit,
distribute, display and perform both privately and publicly) the Return
Icon, BuildNet's name, the name of the BuildNet Sites (including
www.BuildnetFinancial.com, www.BuildnetFinancial.org and
www.BuildnetFinancial.net), and other related textual and graphic
material that are provided by BuildNet to MDC for the express purpose
of inclusion on the Co-Branded Site from time to time (collectively,
the "BuildNet Materials") solely on the Co-Branded Site for the
specific purposes permitted hereunder. BuildNet also authorizes MDC to
refer in MDC's advertising and promotion to the fact that the
Co-Branded Site is accessible through the BuildNet Site, provided that
any such statement (a) does not include any trademarks, service marks,
design marks, symbols, URL Addresses and/or other indicia of origin of
BuildNet, except as provided in the BuildNet Materials; and (b) does
not disparage BuildNet, its products, services or affiliates. Within
sixty (60) days from the date of this Agreement, MDC shall shall
transfer the domain name registration ownership for the domain names,
www.Bldnetfin.com and www.Buildnetfin.com to
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<PAGE> 8
BuildNet and such addresses shall then be considered part of the
BuildNet Materials. All use of the BuildNet Materials hereunder shall
inure to the benefit of BuildNet and shall not create any rights, title
or interest in them for MDC. No other use of BuildNet's names,
trademarks, services marks, design marks, symbols and/or other indicia
of origin will be made by MDC for any purpose without the prior written
approval of BuildNet. As between MDC and BuildNet, BuildNet owns and
shall continue to own, exclusively, all right, title and interest
(including, without limitation, all rights provided under the law of
copyright and trademark) in and to the BuildNet Materials and all
names, trademarks, service marks, design marks, URL addresses, symbols
and/or indicia of origin therein throughout the world and in
perpetuity, subject to the permissions granted in this Agreement. MDC
agrees that any use of the BuildNet Materials, by MDC shall be subject
to review and approval in advance by BuildNet. BuildNet shall retain
the right, in its sole discretion, to demand immediate modification,
revision or cessation of the use of BuildNet Materials in the event
that BuildNet determines that the BuildNet Materials are being used
improperly. Without limiting the generality of the foregoing, MDC shall
not use BuildNet Materials in a manner that BuildNet determines to be
inappropriate or unacceptable.
3. FEES
3.1. TRANSACTIONS
The parties believe and have agreed that the annual fair
market value of the BuildNet marketing services to be performed under
this Agreement [*] and further agree, consistent with Section 8 of the
Real Estate Settlement Procedures Act of 1974 as amended ("RESPA"),
that MDC's payments to BuildNet for its marketing services in any
annual period may be less than, but can not exceed, this fair market
value amount. For the performance of the marketing services set forth
herein from the effective Date of the contract through December 31,
2000, BuildNet shall be entitled to a fee of up to [*], which fee will
be paid by MDC in the following manner and at the following rates until
the aggregate fees in any annual period equal the [*] figure; MDC shall
pay BuildNet at the rate [*] . If MDC's payments to BuildNet for its
marketing services do exceed this amount in any annual period, BuildNet
agrees to return any excess to MDC with interest calculated at Prime
within ten (10) days of discovering or being informed that it has
received more than the fair market value amount. MDC shall have
exclusive right in determining whether a mortgage loan meets its
criteria as a conforming, sub prime or second lien home equity line of
credit loan. For purposes of this Agreement, "Prime" shall be defined
as the interest rate, commonly known as the "Prime Rate", set by the
Federal Reserve Bank and which represents the lowest rate a bank will
charge its best large customers for a loan. All fees in this Section
3.1 may be adjusted by mutual agreement in writing between the parties.
a. For future marketing services, beginning on January
1, 2001, both parties shall, within 30 days of
year-end, reassess the fair market value of
BuildNet's marketing services and mutually agree upon
the valuation to be paid by MDC.
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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3.2. CO-BRANDED SITE DEVELOPMENT AND FEE
BuildNet agrees to pay MDC a fee of [*] for the development of
the Co-Branded Site and for performance of its maintenance duties as
set forth herein ("Co-Branded Site Fee"). It is acknowledged by both
parties that BuildNet has paid fifty percent (50%) of the Co-Branded
Site Fee payable and due hereunder. The Co-Branded Site Fee shall cover
the initial five (5) customized builder home pages in addition to the
training of BuildNet personnel to be able to set up additional builders
on the Co-Branded Site. Upon completion of the initial five builder
home pages and the subsequent training of BuildNet personnel, the
balance of the Co-Branded Site Fee shall become due and payable, and it
is agreed to by the parties that BuildNet shall have sole
responsibility of adding additional builders to the Co-Branded Site.
3.3. CO-BRANDED SITE HOSTING FEE
BuildNet agrees that beginning with the thirteenth month
(13th) following the Deployment Date of the Co-Branded Site, it shall
pay MDC a web site hosting fee ("Hosting Fee") in the sum of [*] per
month for the Term hereof.
3.4. AUDITING
Either party shall have the right, at its expense, upon thirty
(30) business days written notice and during the other party's normal
business hours, to inspect and audit the site logs of the Co-Branded
Site or the directly relevant books and records of the other party for
the purpose of verifying the performance, any reports, information or
payments due under this Agreement. Any such audit shall be conducted by
a firm of independent certified public accountants reasonably
acceptable to the other party. In the event of any shortfall in payment
to BuildNet is found which exceeds five percent (5%) of the total due
to BuildNet for the monthly period audited, MDC shall reimburse
BuildNet for the reasonable costs incurred in conducting the audit plus
all amounts then due plus interest at Prime.
3.5. REPORTING AND PAYMENTS
Within fifteen (15) days following the close of each calendar
month during the Term, each party shall pay and the other party shall
receive all amounts due for such previous month and shall submit with
payment a statement providing in reasonable detail the basis for such
payment. BuildNet shall report to MDC, on a regular basis, regarding
the progress of its online advertising campaign and promotional
efforts. Any payment not received when due shall accrue interest from
the date due until the date paid at ten percent (10%) interest per
annum, or if less, the maximum per annum rate permitted by law.
3.6. TRACKING
MDC shall track all visitors to the co-branded sites using the
unique URL associated with each site, as is currently done on all MDC
sites. Additional levels of tracking can be accomplished using "sender
codes", which are also currently in use on all
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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<PAGE> 10
MDC sites. MDC shall cooperate reasonably with BuildNet to identify
feasible, lawful, available alternate means to identify users if the
current methods used for this purpose do not reliably identify and
track the source of consumer traffic to the sites. Notwithstanding the
foregoing, MDC shall separately track and report all electronic mail
leads generated by the BuildNet inquiry forms.
a. Within 30 days of execution of this Agreement, MDC
shall provide for review and approval a detailed
description of the tracking methodology and
technology used under this Section. If deficiencies
are found by BuildNet in the methodology and
technology, MDC shall make reasonable efforts to
correct the deficiencies and shall submit for
BuildNet's review the corrective measures taken.
b. BuildNet shall have the right to periodically review
on 15 days notice MDC's tracking methodology and
technology. This review shall take place no more
frequently than semi-annually or upon reasonable
belief that the tracking technology or methodology is
flawed or not functioning correctly.
c. MDC shall notify BuildNet of any change in the
tracking methodology or technology used under this
Section 15 business days before such change is made.
BuildNet shall have the right of prior approval for
any change that it reasonably believes shall impair
the obligations of tracking under this Section.
4. CONFIDENTIAL INFORMATION
4.1. DEFINITION
As used herein, "Confidential Information" shall mean all oral
or written information, of whatever kind and in whatever form, relating
to past, present or future products, software, research, development,
inventions, processes, techniques, designs or other technical
information and date, and marketing plans (including such information
of third parties that a party hereto is obligated to hold as
confidential), provided that such information has been reasonably
identified as or could be reasonably considered to be proprietary or
confidential, that either party (a) may have received prior to the date
of this Agreement, whether directly from the other or indirectly from
third parties, or (b) may receive hereunder from the other. The terms
of this Agreement shall be deemed Confidential Information.
4.2. OBLIGATION
Each party agrees that, with respect to its receipt of
Confidential Information of the other party it shall:
a. use the same care and discretion to prevent
disclosure of such Confidential Information as it
uses with similar Confidential Information of its own
that it does not desire to disclose but in no even
with less than a reasonable degree of care;
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b. accept such Confidential Information and use such
Confidential Information only for the purposes
permitted hereunder; and c. restrict disclosure of
Confidential Information solely to those of its
employees and agents who have a need to know and are
obligated not to disclose such Confidential
Information to any third parties.
4.3. EXCEPTIONS
The restrictions of Section 4.2 shall not apply to information
that:
a. is or hereafter becomes part of the public domain
through no wrongful act, fault or negligence on the
part of the recipient;
b. the recipient can reasonably demonstrate, is already
in its possession and not subject to an existing
agreement of confidentiality;
c. is received from a third party without restriction
and without breach of this Agreement;
d. was independently developed by the recipient as
evidenced by its records; or
e. recipient is required to disclose pursuant to a valid
order of a court or other governmental body;
provided, however, that the recipient shall first
have given notice to the disclosing party and shall
give the disclosing party a reasonable opportunity of
at least 10 days to interpose an objection or obtain
a protective order requiring that the confidential
Information so disclosed be used only for the
purposes for which the order was issued.
4.4. RETURN
All notes, data, reference manuals, sketches, drawings,
memoranda, electronic media, records in any way incorporating or
reflecting any Confidential Information of the disclosing party and all
proprietary rights therein shall belong exclusivity to such disclosing
party and the recipient agrees to return all copies of such materials
to the disclosing party immediately upon request or upon termination or
expiration of this Agreement.
4.5. CONSUMER CREDIT INFORMATION
MDC hereby agrees that all information, excluding Social
Security Numbers and credit reports, provided by Consumers who access a
mortgage.com web site or similar mortgage.com service either from (i) a
BuildNet owned or operated web site or (ii) a BuildNet software product
shall be the sole and exclusive property of BuildNet (the "BuildNet
Consumer Information"). Without limiting the foregoing, "BuildNet
Consumer Information" shall include both completed applications and
incomplete applications and/or web site hit and use information. MDC
agrees that it shall not use the BuildNet Consumer Information for any
purpose, except as permitted in the limited license granted by this
Section, or disclose such information to any third party. BuildNet
agrees that it shall use the BuildNet Consumer Information only for
purposes that are consistent with the BuildNet Privacy policy, as it
may be amended from time to time in the sole discretion of BuildNet.
BuildNet hereby grants to MDC a limited license to use the BuildNet
Consumer Information for the sole purpose of performing its services
under this Agreement. MDC shall supply BuildNet with the BuildNet
Consumer Information on
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a monthly basis or more frequently as agreed to between the parties.
Both parties agree to comply with all State and Federal laws governing
the confidentiality of consumer credit information and to maintain
confidentiality of this information. It is mutually agreed and
understood under this Agreement that BuildNet is not a lender or
engaged in any way in lending activities, and is solely promoting and
advertising MDC's Products to Consumers. MDC will comply with all
applicable Federal and State laws, including legal requirements for
disclosures, notices and reporting.
5. LIABILITY
5.1. PRODUCT RESPONSIBILITY
MDC and BuildNet acknowledge that neither advocates or
endorses the purchase or the use of any of the products or services
offered by the other through their respective World Wide Web sites or
otherwise, nor do they guaranty the quality, fitness or results of any
such products or their compliance with any law or regulation.
5.2. REPRESENTATIONS AND WARRANTIES OF MDC
MDC represents and warrants that: (a) MDC has the right to
enter into this Agreement and to grant the rights and licenses granted
herein; (b) the Co-Branded Site and the reproduction, distribution,
transmission, public performance and public display of the MDC Material
in connection with the BuildNet Sites do not and will not (i) invade
the right of privacy or publicity of any third person, (ii) contain any
libelous, obscene, indecent or otherwise unlawful material, or (iii)
infringe any patent, copyright or trademark right in any jurisdiction,
or (iv) contravene any other rights of any third person; (c) MDC has
received no notice of such invasion, violation or infringement of
rights; except that the representations and warranties in subsections
(b) and (c) above shall not apply to User Content or Product Content.
Instead, MDC agrees that it shall use commercially reasonable efforts
to monitor and edit such User Content and Product Content and shall use
commercially reasonable efforts to promptly remove any User Content and
Product Content from the Co-Branded Site which fails to conform with
the warranties and representations in subjection (b) above. "User
Content" means content uploaded by parties other than MDC; "Product
Content" means content contained in products sold by parties other than
MDC. MDC shall provide commercially reasonable customer service to
consumers in connection with the BuildNet site, subject to the cure
provisions set forth in Section 6.13.
5.3. REPRESENTATIONS AND WARRANTIES OF BUILDNET
BuildNet represents and warrants that: (a) BuildNet has the
right to enter into this Agreement and to grant the rights and licenses
granted herein; (b) the BuildNet Sites and the reproduction,
distribution, transmission, public performance and public display of
the BuildNet Materials as permitted herein do not and will not (i)
invade the right of privacy or publicity of any third person, (ii)
contain any libelous, obscene, indecent or otherwise unlawful material,
or (iii) infringe any patent, copyright or trademark right in any
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jurisdiction; or (iv) contravene any other rights of any third person;
and (c) BuildNet has received no notice of such invasion, violation or
infringement of rights.
5.4. BREACH OF REPRESENTATION, WARRANTY OR COVENANT
Each party to this Agreement shall defend, indemnify and hold
harmless the other party and each of its officers, directors, employees
and agents (each, an "Indemnitee") against and in respect of any loss,
debt, liability, damage, obligation, claim, demand, judgment or
settlement of any nature or kind, known or unknown, liquidated or
unliquidated, including without limitation all reasonable costs and
expenses incurred (legal, accounting or otherwise) (collectively
"Damages") arising out of, resulting from or based upon any claim,
action or proceeding by any third party alleging facts or circumstances
constituting a breach of the representations and warranties of this
Section 5 made by such indemnifying party (the "Indemnifying Party").
5.5. PROCEDURES FOR INDEMNIFICATION
Whenever a claim shall arise for indemnification under this
Section 5, the relevant Indemnities, as appropriate, shall promptly
notify the Indemnifying Party and request the Indemnifying Party to
defend the same. Failure to so notify the Indemnifying Party shall not
relieve the Indemnifying Party of any liability which the Indemnifying
Party might have, except to the extent that such failure prejudices the
Indemnifying Party's ability to defend such claim. The Indemnifying
Party shall have the right to defend against such liability or
assertion in which event the Indemnifying Party shall give written
notice to the relevant Indemnities of acceptance of the defense of such
claim and the identity of counsel selected by the Indemnifying Party.
Such notice of the relevant Indemnities shall give the Indemnifying
Party full authority to defend, adjust, compromise or settle such
action, suit, proceeding or demand with respect to which such notice
shall have been given, except to the extent that any compromise or
settlement shall affect any rights of any Indemnitee, and which
settlement or compromise shall be subject to the prior approval of the
Indemnitee. With respect to any defense accepted by the Indemnifying
Party, the relevant Indemnities shall be entitled to participate with
the Indemnifying Party in such defense if the action or claim requests
equitable relief or other relief that could affect the rights of the
Indemnity and also shall be entitled to employ separate counsel for
such defense at such Indemnities expense. In the event the Indemnifying
Party does not accept the defense of any indemnified claim as provided
above, the relevant Indemnities shall have the right to employ counsel
for such defense at the expense of the Indemnifying Party. Each party
agrees to cooperate and to cause its employees and agents to cooperate
with then other party in the defense of any such action and the
relevant records of each party shall be available to the other party
with respect to any such defense.
5.6. RISK ALLOCATION
NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY (NOR TO ANY
PERSON CLAIMING RIGHTS DERIVED FROM THE OTHER PARTY'S RIGHTS) FOR
INCIDENTAL, INDIRECT, CONSEQUENTIAL, SPECIAL,
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PUNITIVE OR EXEMPLARY DAMAGES OF ANY KIND - INCLUDING LOST REVENUES OR
PROFITS, LOSS OF BUSINESS OR LOSS OF DATA - ARISING OUT OF THIS
AGREEMENT (INCLUDING WITHOUT LIMITATION AS A RESULT OF ANY BREACH OF
ANY WARRANTY OR OTHER TERM OF THIS AGREEMENT), REGARDLESS OF WHETHER
THE PARTY LIABLE OR ALLEGEDLY LIABLE WAS ADVISED, HAD OTHER REASON TO
KNOW, OR IN FACT KNEW OF THE POSSIBILITY THEREOF.
5.7. ACKNOWLEDGEMENT OF NO WARRANTY
EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER PARTY WARRANTS
THAT THEIR RESPECTIVE WEB SITES OR THE CO-BRANDED SITE WILL PERFORM IN
THE MANNER EXPECTED OR WITHOUT INTERRUPTION, ERROR OR DEFECT OR THAT
ANY REVENUE TO EITHER PARTY WILL RESULT FROM THE ACTIVITIES
CONTEMPLATED BY THIS AGREEMENT. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTIES OF ANY KIND, EXPRESS OR
IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR WARRANTIES AGAINST INFRINGEMENT OF ANY
INTELLECTUAL PROPERTY RIGHTS NOT SPECIFICALLY ENUMERATED.
5.8. LIMITATION OF LIABILITY
Each party's liability to the other party for any and all
claims and damages incurred by such party relating to or arising out of
the subject matter of this Agreement, whether in contract, tort,
implied warranty, strict liability or other form of action, except for
claims for violations of a party's intellectual property rights, and
any right of indemnity provided herein, shall be limited to the greater
of (x) the amounts paid by MDC to BuildNet pursuant to this Agreement
for the preceding six months or (y) one thousand dollars. BuildNet and
MDC 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
associated with this Agreement. The warranty disclaimers and
limitations in this Agreement are intended to limit the circumstances
of liability. The remedy limitations, and the limitations of liability,
are separately intended to limit the forms of relief available to the
parties. The provisions of this Section 5.8 shall be enforceable
independent and severable from any other enforceable or unenforceable
provision of this Agreement.
6. MISCELLANEOUS PROVISIONS
6.1. ASSIGNMENT AND CHANGE IN CONTROL
Except as otherwise provided herein, neither MDC nor BuildNet
may assign this Agreement or any of its rights or delegate any of its
duties under this Agreement without prior written consent of the other,
which consent shall not be unreasonably withheld. However, both parties
agree that this Agreement may not be assigned to a competitor of
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the other party. In the event of a Change in Control of either party ,
the other party has the right to terminate this Agreement upon thirty
(30) days' notice. A "CHANGE OF CONTROL" means any: (a) sale of all or
substantially all assets of either party .; (b) merger, reorganization
or consolidation of either party pursuant to which the stockholders or
successor immediately prior to such merger, reorganization or
consolidation: (i) hold less than 50% of the voting power of the
surviving company following the merger, reorganization or
consolidation, or (ii) in the event that the securities of an
affiliated entity are issued to the stockholders in the transaction in
exchange for their shares, hold less than 50% of the voting power of
such affiliated entity.
6.2. COUNTERPARTS
This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and all of which together shall be
deemed the same Agreement.
6.3. GOVERNING LAW
This Agreement, its interpretation, performance or any breach
thereof, shall be construed in accordance with, and all questions with
respect thereto shall be determined by, internal, substantive laws in
the State of North Carolina and the venue for any lawsuit, action or
arbitration under this Agreement shall be the courts of Wake County,
North Carolina.. If either party employs attorneys to enforce any right
arising out of or relating to this Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees, in
arbitration, litigation, or otherwise.
6.4. HEADINGS
Section headings are for convenience only and are not a part
of the Agreement.
6.5. INDEPENDENT CONTRACTORS
MDC and BuildNet are independent contractors under this
Agreement, and nothing herein shall be construed to create a
partnership, joint venture or agency relationship between MDC. Neither
party has the authority to enter into agreements of any kind on behalf
of the other party.
6.6. INTEGRATION
This Agreement contains the entire understanding of the
parties hereto with respect to the transactions and matters
contemplated hereby, supersedes all previous agreements between
BuildNet and MDC concerning the subject matter, and cannot be amended
except by a writing signed by both parties.
6.7. NO RELIANCE
No party hereto has relied on any statement, representation or
promise of any other party or with any other officer, agent, employee
or attorney for the other party in executing this Agreement except as
expressly stated herein.
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6.8. NOTICE
All notices, demands and other communications hereunder shall
be in writing or by written telecommunications, and shall be deemed to
have been duly given when received: (i) if mailed by certified mail,
postage prepaid, return receipt requested, (ii) if delivered by
overnight courier or (iii) sent by confirmed telecommunication to
addressee at the following address:
If to BuildNet:
Barry Drayson
Chairman
BuildNet Financial Services, Inc.
4813 Emperor Boulevard, Suite 103
Durham, NC 27703
With copy to:
Mike Atwood
President
BuildNet, Inc.
4813 Emperor Boulevard, Suite 103
Durham, NC 27703
If to MDC:
Mr. John Hogan
Senior Executive Vice President
mortgage.com, inc.
983 University Avenue, Building D
Los Gatos, CA 95032
With copy to:
Mr. Michael Brenner
General Counsel
mortgage.com, inc.
8751 Broward Boulevard, 5th Floor
Plantation, FL 33324
or such other address as either party may specify by notice given in
writing.
6.9. PRESUMPTIONS
In resolving any dispute or construing any provision
hereunder, there shall be no presumptions made or inferences drawn (i)
because the attorneys for one of the parties drafted the agreement,
(ii) because of the drafting history of the agreement; or (iii) because
of the inclusion of a provision not contained in a prior draft, or the
deletion of a provision contained in a prior draft.
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6.10. SEVERABILITY
In the event any provision of this Agreement shall for any
reason be held to be invalid, illegal or enforceable in any respect,
the remaining provisions shall remain in full force and effect.
6.11. SURVIVAL
The provisions of Section 4 and 5 shall survive termination or
expiration of this Agreement.
6.12. WAIVER
No waiver of any breach or any provision of this Agreement
shall constitute a waiver of any prior, concurrent or subsequent breach
of the same of any other provisions hereof, and no waiver shall be
effective unless made in writing and signed by an authorized
representative of the waiving party.
6.13. RIGHT TO CURE
In the event either party desires to assert any remedies for
breach of this Agreement, the party desiring to assert such remedies
shall give the other party thirty (30) days written notice and an
opportunity to cure within ten (10) business days.
6.14. PUBLICITY
a. Other than the rights granted in this Section,
nothing in this Agreement shall be construed to grant
any right or license to BuildNet in or to any content
or other material supplied by MDC other than the
right to use the content or material in the
marketing, promotion and advertising of the
Co-Branded Site. BuildNet agrees that it will not,
without the prior written consent of MDC in each
instance: (i) use in advertising, publicity, press
release or otherwise the name of MDC, nor any trade
name, trademark, trade device, service mark, symbol
or any abbreviation, contraction or simulation
thereof owned by MDC; or (ii) represent, directly or
indirectly, that any product or any service provided
by BuildNet has been approved or endorsed by MDC.
Without in any way limiting the foregoing
restrictions, BuildNet may: (i) disclose the
existence of this Agreement for any purpose required
by law or for the purposes of financial reporting or
disclosure, including, without limitation, any
disclosure or reporting that may be reasonably
required to obtain equity financing; and (ii) list
MDC as a business partner of BuildNet on BuildNet's
internal and external customer lists.
b. Other than the rights granted in this Section or
elsewhere in the Agreement, nothing in this Agreement
shall be construed to grant any right or license to
MDC in or to any content or other material supplied
by BuildNet other than the right to use the content
or material in the marketing, promotion and
advertising of the ABA Site. MDC agrees that it will
not, without the prior
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written consent of BuildNet in each instance: (i) use
in advertising, publicity, press release or otherwise
the name of BuildNet, nor any trade name, trademark,
trade device, service mark, symbol or any
abbreviation, contraction or simulation thereof owned
by BuildNet; or (ii) represent, directly or
indirectly, that any product or any service provided
by BuildNet has been approved or endorsed by
BuildNet. Without in any way limiting the foregoing
restrictions, MDC may: (i) disclose the existence of
this Agreement for any purpose required by law or for
the purposes of financial reporting or disclosure,
including, without limitation, any disclosure or
reporting that may be reasonably required to obtain
equity financing; and (ii) list BuildNet as a
business partner of BuildNet on BuildNet's internal
and external customer lists.
IN WITNESS WHEREOF, the parties hereto caused their duly authorized
officers to execute this Agreement as of the date set forth above.
BuildNet Financial Services, Inc.
By: /s/ Barry Drayson
-----------------------------------
Name: Barry Drayson
Title: Chairman
mortgage.com, inc.
By: /s/ Michael Brenner
-----------------------------------
Name: Michael Brenner
Title: Executive Vice President
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EXHIBIT A
BuildNet Promotional Activities
In addition to those services as described in Section 1.1,
BuildNet shall, using Trademarks, information and other material
supplied by BuildNet in context of the Co-Branded Site, promote,
market, and advertise the availability of the MDC's Products and
services to Consumers looking to purchase or refinance residential real
estate and to builders looking for residential mortgages for their
customers. BuildNet shall promote the availability of the customized
builder home page on the Co-Branded Site to residential real estate
builders and developers which frequent the BuildNet Sites. BuildNet
shall be responsible for the preparation and dissemination of all
promotional materials utilized to promote MDC's Products as approved by
BuildNet. BuildNet shall use commercially reasonable efforts to attract
Consumers, builders and developers alike. BuildNet shall provide a
detailed budget and marketing plan outlining the commitment of BuildNet
to effectuate a national sales effort to promote the sale of the MDC
Products to Consumers. Such marketing plan shall include, but not be
limited to, the following:
o A marketing strategy overview; and
o Completed marketing materials describing the MDC
Products for distribution to the sales staff; and
o Creation of a sales incentive program for the
BuildNet sales force; and
o Scheduling of trade show exhibits for the year 2000;
and
o Completed builder launch kit for each Co-Branded
Site; and
o BuildNet sales staffing estimates.
BuildNet may enter into agreements with other Internet web sites or
corporate Intranet sites to advertise, market and promote MDC's Products. Such
cooperative marketing arrangements shall be subject to prior review and written
approval of MDC. BuildNet will submit all such marketing agreements to MDC for
approval at least five (5) business days prior to publication or distribution of
such materials. MDC agrees that approval of such marketing agreements shall not
be unreasonably withheld.
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EXHIBIT B
MDC CLIENTS
[*]
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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EXHIBIT C
BUILDNET COMPETITORS
o [*]
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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EXHIBIT D
WEB SITE HOSTING & MAINTENANCE STANDARDS
The following terms, when used in this Exhibit, shall have the following
meanings:
"DOWN TIME" shall mean any time that the Co-Branded Site is not in a Fully
Functional State for any reason or cause other than; (i) the scheduled services
outages set forth below in Section 2(a)(iv)(1) of this EXHIBIT D; and (ii)
causes which are the fault of the builder or BuildNet.
"FULLY FUNCTIONAL STATE" shall mean that the Co-Branded Site is available for
access and use by Consumers.
MDC shall provide to BuildNet the following hosting services described below for
the Co-Branded Site (the "Hosting Services"):
SUMMARY OF SERVICES
MDC shall procure, provide, install and manage MDC owned Windows NT(R)
web server(s) and all other equipment and telecommunications facilities
unless otherwise agreed upon by the parties, on behalf of BuildNet at
the MDC Service Center. This production server will house the
Co-Branded Site. MDC shall maintain sufficient server capacity and
Internet connectivity throughout the Term to accommodate growth in user
numbers and overall traffic levels to the Co-Branded Site. MDC shall
host and operate the Co-Branded Site such that the users experience
access times and time to retrieve full web pages that are substantially
similar to the access times and time to retrieve full web pages by
users visiting other sites hosted by MDC including, without limitation,
www.mortgage.com.
1. SERVICE MONITORING & MANAGEMENT
(a) MDC will perform continuous monitoring and management of each
Web Site to optimize availability of service. Included within
the scope of Service Monitoring & Management is the proactive
monitoring of the web servers and all service components of
the MDC's firewall for trouble on a 7 day by 24 hour basis,
and the expedient restoration of components when failures
occur within the time period set forth in "Service Outages"
below. MDC shall maintain redundancy in all key components
such that service outages are less likely to occur due to
individual component failures.
i. Permissible Down Time
1. In any month during the term of this
Agreement, the Web Sites shall be in a Fully
Functional State for no less than
ninety-ninety nine and
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one half percent (99.5%) of the time; and
shall experience no more than one half
percent (.5%) Down Time (the "Permissible
Down Time"). Permissible Down Time shall
include any scheduled maintenance.
2. If, during any given month of this
Agreement, the Web Sites fail to remain in a
Fully Functional State in accordance with
2.i.1, above, then BuildNet shall be
entitled and MDC shall remit to BuildNet the
greater of (i) the monthly hosting fee paid
by BuildNet for Web Site hosting divided by
the number of days in the month or (ii) the
monthly hosting fee broken down to an hourly
basis times the number of hours that the
system was down.
3. If the Web Sites remain down for three
consecutive twenty four (24) hour period or
five total twenty four (24) hour periods
(based upon the total number of hours of
down time) during any given month, then
BuildNet shall be entitled to consider MDC
in breach of its hosting requirements and
may seek termination of the Agreement.
ii. Service Hours
MDC's Service Center is staffed 24 hours a day, 7
days a week, to support BuildNet's needs and make all
notifications to BuildNet required pursuant to this Exhibit E.
Automated monitoring tools alert service personnel of problems
on a 7 day by 24-hour basis.
iii. Service Reliability
MDC protects all mission-critical equipment (e.g.,
routers, hubs, servers) in the MDC Service Center with
Uninterruptable Power Supplies (UPS) which are covered by a
service contract. Sufficient sparing levels are kept on-site
for all key equipment components. In addition, MDC has
implemented redundant servers for all key services, such as
routing, DNS and email gateways.
iv. Service Outages
1. Scheduled
MDC scheduled outages must be notified to
BuildNet at least 24 hours in advance, and
shall last no longer than one hour and shall
be scheduled between the hours of 1:00 a.m.
and 5:00 a.m., Eastern Time). MDC may
request extensions of scheduled down time
above one (1) hour and such approval by
BuildNet may not be unreasonably withheld.
2. Unscheduled
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Unscheduled outages are caused by loss of
connectivity to the Internet, or by failure
of a MDC service. In cases where a
destination is not available, or
unacceptable service is reported, MDC will
attempt to determine the source of the
problem and report its findings to BuildNet.
(b) MDC will monitor "heartbeat" signals of all servers, routers
and leased lines, and HTTP availability of the web server, by
proactive probing at 30-second intervals 24 hours a day using
HP Openview as well as HP ManageX or the equivalent. If a
facility does not respond to a ping-like stimulus, it is
immediately checked again. A second failure will trigger
automatically a page to MDC's Service Center and selected
engineers, as well as generating a log entry. The Service
Center monitors this service 24 hours a day.
(c) When the Customer Service Center receives a "down" signal, or
otherwise has knowledge of a failure in the production server
or the application hardware, MDC personnel will:
i. Confirm (or disconfirm) the outage by a direct check
of the facility;
ii. If confirmed, take such action as may restore the
service in one hour or less, or, if determined to be
a telephone company problem, open a trouble ticket
with the telephone company carrier;
iii. Notify the BuildNet Technical Administrator by
telephone or voicemail according to predefined
procedures that an outage has occurred, providing
such details as may be available, including the MDC
ticket number if appropriate and time of outage;
iv. Work the problems until resolution, escalating to
management or to engineering as required;
v. Notify the BuildNet Technical Administrator of final
resolution, along with any pertinent findings or
action taken, and requests concurrence to close the
ticket.
2. BACK UPS
a. Back-Up Administration provides for both the regular back-up
of standard file systems, and the timely restoral of data from
a BuildNet request due to a site failure.
i. Perform back-ups of file systems housed in the MDC
Service Center at One Paragon Drive, Suite 240,
Montvale, New Jersey;
ii. Perform weekly full back-ups;
iii. Perform daily incremental back-ups;
iv. Send back-up tapes to secured, off-site storage
facilities with a 30 day rotation of tapes;
v. Retain one back-up tape per month for one year;
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vi. Fulfill restoral requests as directed by BuildNet due
to site failures. Restoral will be performed within
the interval of 2 to 4 hours dependent on the urgency
of the request, and the agreed upon location of the
desired tape.
vii. If the hosting server or location is expected to be
down for more than 24 hours, the MDC will immediately
transfer appropriate back-up data and re-establish
all hosting operations in an appropriately
functioning secondary server or location.
4. SECURITY
a. Monitoring
i. MDC will
1. Limit physical and electronic access to web
servers;
2. Review security notifications and alerts
relevant to the hosting platform (e.g.,
vendor notifications of bugs, attacks,
patches), and apply as appropriate to
maintain the highest level of defense; and
b. Breaches
i. In the event of an attack or threatened or suspected
breach of security against the Co-Branded Site, MDC
will take whatever reasonable steps that are
necessary to halt such action, including taking the
affected Co-Branded Site down. Down time due to
external attacks shall not count against "permissible
down time". MDC will immediately contact BuildNet's
authorized contact to discuss what measure to take.
However, if time is critical, action may be required
before the contact can be reached. MDC's actions will
include:
1. Confirm the threat;
2. Deny access from the source of the attack;
3. Investigate the extent of the damage, if
any;
4. Back-up the affected systems and those
suspected to be affected;
5. Strengthen defenses everywhere, not just the
suspected path that the attacker used;
6. Contact the ISP where the threat or attack
originated and/or law enforcement to work
with MDC's security team;
7. Contact builder and BuildNet to inform them
of the breach;
8. Produce an Incident Report within 24 hours
detailing MDC's findings and distribute the
report to the client(s) affected; and
9. Re-instate the denial of access after a set
time period, but continue to monitor traffic
from that source until risk of further
attacks is deemed to be minimized.
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ii. BuildNet shall have the right to audit MDC security
procedures and actions taken as a result of a breach
of security. Such audit shall include review and
post-mortem analysis of MDC security precautions
taken as a result of the breach and on-site review if
necessary. BuildNet shall bear the costs associated
with any such security audit, except for routine
copying and postage as necessary for MDC to provide
the Incident Report and accompanying data on the
breach to BuildNet.
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EXHIBIT E
CUSTOMER SERVICE STANDARDS
The professionals at mortgage.com firmly believe in making you, our customer,
a top priority. As a valued customer, you have certain rights. Showing our
respect for your rights in all we do, mortgage.com ensures:
At mortgage.com, you can always count on your personal
mortgage consultant for fast, friendly service. You have the
right to receive a prompt response to your inquiry within 4
hours of your initial contact. You can also expect same-day
credit approvals ... simply submit your application to us by
5:00 PM no matter where you are in the country!
You have the right to privacy and confidentiality. When you
complete your loan application, your personal information is
protected using the latest encryption technology.
We respect your time. Provided that you allow us to use one
of our preferred service providers, we can guarantee your
right to close on or before your desired closing date, as
agreed to at the time you applied. Just be sure to return all
required documentation to us in a timely manner.
You have the right to expect that your closing costs will not
exceed those disclosed to you in your Good Faith Estimate,
again, provided that you select one of our preferred service
providers. PLEASE NOTE: THIS does not apply to prepaid
amounts for taxes, insurance, and mortgage insurance.
Should mortgage.com's personal consultants fall to meet any of these
commitments, as outlined above, we will send you a check for $300.00 once you
close with us.
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EXHIBIT 10.28
MARKETING AGREEMENT
This Marketing Agreement (hereinafter the "Agreement") is made
this 1st day of March, 2000, by and between BuildNet Financial
Services, Inc., a North Carolina Corporation , with its principal place
of business located at 4813 Emperor Boulevard, Suite 103, Durham, North
Carolina 27703 ("BuildNet") and mortgage.com, inc., a Florida
corporation, with its principal place of business located at 1643 N.
Harrison Parkway, Building H, Sunrise, Florida 33323 ("MDC").
RECITALS
WHEREAS, MDC is engaged in, among other activities,
originating, processing, underwriting, closing and funding first-lien
and second-lien, prime and sub-prime residential mortgage loans
throughout the United States and also offers a "Rapid Response Mortgage
Center (RRMC)", which is dedicated hardware, software,
telecommunications equipment and marketing materials designed to be
placed in a home builder's office for the purpose of allowing customers
of the home builder (the "Consumers") to make applications for mortgage
loans via the Internet on the MDC web site, www.mortgage.com (the "MDC
Site") or the telephone, (hereinafter the "MDC Products");
WHEREAS, BuildNet develops and provides software and back
office services for the home builder industry and a transaction
enabling web based system for builders, suppliers and manufacturers;
WHEREAS, BuildNet and MDC wish to enter into a marketing
arrangement whereby BuildNet will market, advertise, promote and
stimulate sales of the MDC Products to the home builder industry; and
WHEREAS, BuildNet and MDC wish to establish a version of the
MDC Site (the "Co-Branded Site") through which users of the Co-Branded
Site at RRMC locations (defined as customers of residential real estate
builders or developers and hereafter known as "Consumers") would have
the opportunity to purchase residential permanent mortgage products
offered by MDC through BuildNet.
AGREEMENT
NOW, THEREFORE, MDC and BuildNet agree as follows:
1. MARKETING AGREEMENT
1.1. BUILDNET MARKETING SERVICES
BuildNet shall use commercially reasonable efforts to market,
advertise, promote and sell the MDC's residential permanent mortgage
products to various homebuilders and other similar type businesses (the
term "Contacts" to be defined as a natural person or legal entity
licensed by all applicable federal, state and local government
authority and
Portions of this exhibit marked by [*] have been omitted pursuant to a
request for confidential treatment.
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
<PAGE> 2
whose principal business is to construct new homes for sale to the
public in the United States). BuildNet shall cause each Contact to
execute the Builder Marketing Agreement of which a finalized version
shall be attached hereto as Exhibit A (a "Participating Builder")
within sixty (60) days from the effective date of this Agreement. MDC
reserves the right to accept or reject the sale of MDC Products to any
Contact based upon commercially reasonable standards. All Participating
Builders shall be set forth on Exhibit B which shall be amended from
time to time. In furtherance thereof, BuildNet shall conduct the
promotional activities described in Exhibit C (the "Marketing Plan").
Notwithstanding the previous sentence, in the event the Marketing Plan
is not completed before signing the Agreement, it shall be provided to
MDC for its written approval within sixty (60) days of the effective
date hereof; in the event the Marketing Plan is not approved by MDC,
MDC shall give BuildNet thirty (30) days written notice of disapproval
setting forth in reasonable detail the reasons for disapproval (the
"MDC Objection"). In the event the Marketing Plan is not amended by
BuildNet in conformity with the MDC Objection, either party shall have
the right to terminate this agreement upon thirty (30) days written
notice of the date of the MDC Objection. Moreover, at any time during
the Term, either party shall have the right to propose a modification
to the Marketing Plan following the procedure set forth above.
1.2. BUILDNET MANAGEMENT SERVICES
BuildNet shall perform the following managerial duties for
each Contact which it establishes through its marketing efforts:
1.2.1. actively participate in the oversight of the
relationship between the Contact and MDC;
1.2.2. act as a liaison between the Contact and MDC upon the
reasonable request of MDC;
1.2.3. assist the Contact in the performance of its duties
as required under the Builder Marketing Agreement
with BuildNet;
1.2.4. conduct monthly on-site meetings with the Contact, as
necessary in BuildNet's sole discretion;;
1.2.5. conduct monthly meetings with MDC management, in
person or by phone, to review all Contact accounts
and their progress; and
1.2.6. provide other such assistance in enhancing the
relationship between MDC and the Contact as MDC
and/or the Contact may reasonably request from time
to time.
1.3. TERM
The Term of this Agreement shall commence as of the date set
forth above (the "Effective Date") and end on the last day of the
twenty-fourth (24th) calendar month following such date subject to
renewal as follows: The Term shall automatically be
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<PAGE> 3
extended for additional consecutive twelve month (12) renewal periods
(each a "Renewal Term") unless (i) either party provides written notice
to the other party at least thirty (30) days prior to expiration of the
Term, or any renewal thereof, of its desire not to renew or (ii) at
MDC's sole discretion if BuildNet fails to meet such performance
criteria as set forth in Section 1.3.1 and 1.3.2 herein so long as MDC
has not contributed in any way to BuildNet's failure to meet said
performance criteria as further described in Section 1.3.3. Any
reference herein to the "Term" shall include each Renewal Term. This
Agreement may be terminated upon mutual agreement of the parties or
upon a material breach by either party not cured within the time set
forth in Section 6.13. Notwithstanding termination of this Agreement by
MDC for reasons other than for breach of contract, BuildNet shall be
entitled to compensation at the rates provided herein for all
transactions, as hereinafter defined, in process.
1.3.1. During the first twelve months from the Effective
Date (the "First Year"), BuildNet shall execute a
minimum of [*] Builder Marketing Agreements between
BuildNet and a home builder to market and promote the
MDC Products to Consumers. In addition, MDC shall
receive a minimum of [*] during the First Year from
Consumers. For purposes of this Agreement, the term
[*].
1.3.2. During the thirteenth (13th) through the
twenty-fourth (24th) month from the Effective Date
(the "Second Year"), BuildNet shall execute a minimum
of an additional [*] Builder Marketing Agreements
between BuildNet and a home builder to market and
promote the MDC Products to Consumers. In addition,
MDC shall receive a minimum of [*] during the Second
Year from Consumers.
1.3.3. MDC recognizes that the commitments made in sections
1.3.1 and 1.3.2, above are contingent upon not only
BuildNet's performance under this Agreement, but also
upon MDC's delivery of basic fulfillment products and
services including, but not limited to customer
services, web site accessibility, and competitive
products and pricing.
1.3.4. Effect of Termination. Should this Agreement be
terminated, MDC agrees that the obligations it has to
any Contacts shall remain in full force and effect
for the term of said Contact Marketing Agreement.
BuildNet shall have, after any termination, the sole
discretion to select another provider of services
similar to that of MDC for any Contact Marketing
Agreement entered into hereunder. Upon implementation
of such a provider, MDC's obligations to any Contact
shall cease other than for outstanding loan and
application commitments. MDC shall provide reasonable
assistance in transitioning Contacts to the new
provider.
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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<PAGE> 4
1.4. EXCLUSIVITY
BuildNet shall market, advertise and promote the MDC Products
to Contacts on an exclusive basis, and for the term hereof will not
promote permanent residential mortgage products of other mortgage
lenders to Homebuilders, as hereinafter defined, except as set forth
herein. Notwithstanding the foregoing, BuildNet may market, promote and
advertise General Electric's mortgage products and services to anyone
including Homebuilders. Homebuilder is a legal entity licensed by all
applicable federal, state and local government authority and whose
principal business is to construct new homes for sale to the public in
the United States.
1.4.1. Except as to existing clients of MDC as set forth on
Exhibit D, BuildNet shall have the exclusive right to
market, advertise and promote the MDC Products to
Contacts, and, accordingly, for the term hereof,
BuildNet will not market, advertise, promote or offer
residential mortgage products of any mortgage
lenders, other than those of MDC to Contacts.
Notwithstanding the foregoing, MDC clients listed on
Exhibit B, who in BuildNet after execution of this
Agreement will automatically be removed from Exhibit
D.
1.4.2. In the event that a Contact desires to purchase from
MDC any residential mortgage services offered by MDC
including but not limited to (i) mortgage banking
services such as originating, processing,
underwriting, closing, funding and selling loans, or
(ii) the development, marketing, sale and operating
of Web Sites for consumers to obtain residential
loans or (iii) the development, marketing, sale and
operation of private label web sites or (iv) net
branch operations, point of sale kiosks and rapid
response centers or any other internet technology
related services, which services are hereinafter
collectively referred to as "Other Services" and in
the event such Other Services are not available
through (i) the MDC Products or (ii) a program
jointly developed by BuildNet and MDC that in
BuildNet's reasonable sole discretion meets the
requirements of such Contact, MDC may offer such
services to any such Contact notwithstanding the
exclusivity provisions set forth above.
1.4.3. For the term of this Agreement, MDC shall not enter
into any agreements with any entity that is a
competitor of BuildNet, as hereinafter defined (the
"BuildNet Competitors"), to provide the MDC Products.
BuildNet shall provide to MDC an initial list, which
may be amended from time to time, of all BuildNet
Competitors and such list shall be set forth on
Exhibit E and made a part of this Agreement.
Notwithstanding the foregoing, MDC shall use its best
efforts to identify potential MDC clients, not on the
list in Exhibit E, who may also be competitors of
BuildNet and seek BuildNet approval before entering
into an agreement with said client to provide the MDC
Products offered hereunder. For purposes of this
Agreement, the term " BuildNet Competitor" shall mean
(i) a Contact that offers mortgage services to its
clients, other than those excluded pursuant to
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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<PAGE> 5
Section 1.4.1 and Exhibit E, or (ii) an entity which
offers back office administrative or transaction
processing software for homebuilders with the same or
similar functionality as the proprietary software of
BuildNet which includes, but is not limited to,
purchase ordering, invoicing, scheduling and job
costing in connection with the construction of homes,
or (iii) any person or entity, which is not a
homebuilder, which over the previous three fiscal
years has obtained more than [*] of its total
mortgage revenues through leads generated from
homebuilders as demonstrated by audited or if
unavailable, unaudited financial statements.
1.4.4. Notwithstanding anything contained herein to the
contrary, nothing contained herein shall limit the
right of MDC to enter into any agreement to provide
any services or products, including the services and
products offered hereunder to any person or entity,
which is not a Contact, which over the previous three
fiscal years has obtained no more than [*] of its
total mortgage revenues through leads generated from
homebuilders as demonstrated by audited or if
unavailable, unaudited financial statements. In
addition, MDC shall have the right to enter into an
agreement with a BuildNet Competitor relating solely
to the sale of debt or equity securities of MDC.
1.5. MDC MAINTENANCE AND SUPPORT OBLIGATIONS.
1.5.1. MDC shall maintain and upgrade the RRMC at its sole
expense. This maintenance shall include, but is not
limited to, upgrading computer hardware, software,
modems, cables, replacing damaged software and
hardware, maintaining the communications link between
the RRMC and the communications provider, and
maintaining the RRMC internal support structure of
the RRMC. At least annually, MDC shall perform a site
survey, by the method of its choice, to determine the
condition of the RRMC and shall replace or repair any
items that prevent the RRMC from functioning
according to the terms and conditions of this
Agreement. MDC shall promptly respond to all Contact
inquiries regarding the condition of the RRMC and
shall repair problems with the RRMC according to the
following schedule:
(i) Critical issues - Those problems that impair
the functioning of the RRMC in such a way to
prevent Customer applications from being
received, either whole or in-part, or
without corruption by MDC. Critical issues
shall be addressed and repaired within
forty-eight hours of receipt of notice of
the Critical issue.
(ii) Mid-Priority issues- Those problems that
have some impact on the function of the RRMC
such as slowing down response time,
intermittent system crashes, etc..
Mid-Priority issues shall be addressed by
MDC within 96 hours of receipt of issue.
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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<PAGE> 6
(iii) Low-Priority issues- Those problems that do
not impair the functioning of the RRMC, nor
slow down the down the system functionality.
Low-Priority issues should be addressed
within 10 days of receipt of notice of the
issue.
1.5.2. MDC shall provide, upon request a log of
issues/problems experienced at the various RRMC sites
set up under this Agreement. BuildNet shall be solely
responsible for the marketing pieces associated with
the RRMC which include marketing literature, external
marketing appearance and structure(not including
physical support structure).
1.6. MDC CO-BRANDED SITE DEVELOPMENT, HOSTING AND MAINTENANCE
MDC shall create, host and maintain the Co-Branded Site for
use in the RRMC kiosks. The parties agree that the information and data
contained on the Co-Branded pages shall be physically located on a web
server owned and/or operated by MDC. The Co-Branded Site shall contain
the legend "BuildNet Financial powered by Mortgage.Com" in a clear an
conspicuous manner on the each respective home page. MDC agrees to host
and maintain the Co-Branded Site pursuant to the standards set forth in
Exhibit G. MDC and BuildNet will confer and mutually agree on
Co-Branded Site design, provided that such pages shall be consistent
with the MDC functionality. MDC shall incorporate some or all of
BuildNet Materials (as defined in Section 2.4), as well as any other
text, graphics, animation, scripts or other materials deemed necessary
or desirable by both parties within the frame of the Co-Branded Site.
BuildNet shall control and make all final decisions regarding the
frame, its layout, displays and linkages. No links or link exchanges
will be placed by MDC on the BuildNet Co-Branded site without prior
approval of BuildNet.. BuildNet may request that MDC modify the design
of the Co-Branded pages. MDC shall respond to such reasonable requests
of BuildNet and provide time frames in which such requests will be
completed. MDC shall not unreasonably reject any such request by
BuildNet to modify the design of the Co-Branded pages. MDC agrees that
part of this design will include site navigation that will allow users
to return to the BuildNet Sites through a text or logo link provided by
BuildNet (the "Return Icon"). MDC shall customize the Co-Branded Site
such that the home page of the Co-Branded Site will allow the Consumer
to identify the builder in or other location where the RRMC resides.
Upon selection of the appropriate builder by the Consumer, the Consumer
will then be forwarded to a customized home page for the RRMC. Each
builder shall have the ability to access the loan application status of
each Consumer it referred to the Site. BuildNet shall have the ability
to obtain loan application status for every Consumer that applies
through the Co-Branded Site. In addition, all customized builder home
pages shall be accessible via their own unique URL address. Any
additional customization work for builder home pages or the Co-Branded
Site, as per a written work order signed by BuildNet, shall be billed
to BuildNet at a rate of [*].
1.6.1. Site identification and workflow
The home page of the Co-Branded Site shall reference
BuildNet as the provider of the site, as opposed to MDC.
During the application process,
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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<PAGE> 7
Consumers will be notified on the site and in writing that the
lender for the Co-Branded Site is First Mortgage Network, a
trade name of MDC and the entity that has been selected to
provide application, processing, underwriting and closing
services for BuildNet Consumers. Customer service and loan
processing for loan applications originated on the Co-Branded
Site shall be conducted under the name of First Mortgage
Network. Phone calls fielded from the toll free number
featured on the Co-Branded Site shall be answered in the name
of "BuildNet Financial," or in the name of the sponsor of the
Co-Branded Site. Final closing documents, including but not
limited to the Note and Deed of Trust, shall identify the
lender as "mortgage.com, inc. dba First Mortgage Network." MDC
reserves the right to modify the Co-Branded Site
identification and workflow described in this paragraph as may
be required from time to time by state or federal licensing
and regulatory requirements.
1.7. MAINTENANCE
Information maintained on the Co-branded pages shall be
updated on a regular basis to reflect the changes in functionality
exhibited on the MDC Site. The Co-Branded Site shall contain
functionality to originate prime credit loans (defined as conforming to
either Fannie Freddie MAC, underwriting guidelines or jumbo or
portfolio loans to non-agency guidelines), sub-prime credit loans
(defined as not conforming to Fannie Mae or Federal Home Loan Mortgage
Corporation underwriting guidelines) and home equity lines of credit.
MDC shall update and maintain the Co-Branded Site on a regular basis.
1.8. APPLICATION COMPLETION
MDC agrees to provide, under the terms of this Agreement, a
method for Consumers to begin or complete the residential mortgage
application started through the RMMC. This method may take the form of
a hyperlink, web site or other secure Internet approach. The MDC
approach shall provide for appropriate linking and tracking to meet the
tracking requirements of Section 3.5.
2. MDC PERMISSIONS
2.1. MDC PERMISSIONS
MDC hereby grants to BuildNet the nonexclusive,
nontransferable, nonassignable (except as provided in Section 6.1)
right during the Term to use (i.e., to copy, transmit, distribute,
display and perform both privately and publicly) the MDC name, the MDC
Site name and other related textual and graphic material that are
provided by MDC to BuildNet for the express purpose of inclusion in the
BuildNet marketing presentation from time to time (collectively, the
"MDC Materials") for the specific purposes authorized in Section 1.1
and Section 1.2. MDC also authorizes BuildNet to refer in BuildNet's
advertising and promotion to the fact that the MDC Products are
available through BuildNet, provided that any such statement (a) does
not include any trademarks, service marks, design marks, symbols and/or
other indicia or origin of MDC other than MDC's name and/or the MDC
Site name in a non-distinctive typeface (i.e., not the
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<PAGE> 8
typeface used in the logo design of any MDC mark); (b) does not state,
suggest or imply by the wording or prominence of such statement, or
otherwise, that MDC sponsors, authorizes and/or is the source or origin
of the BuildNet Site and (c) does not disparage MDC, its products,
services or affiliates. All use of MDC Materials hereunder shall inure
to the benefit of MDC and shall not create any rights, title or
interest in them for BuildNet. No other use of MDC's names, trademarks,
services marks, design marks, symbols and/or other indicia of origin or
other designations confusingly similar to any of the foregoing may be
made by BuildNet for any purpose without the prior written approval of
MDC. As between MDC and BuildNet, MDC owns and shall continue to own,
exclusively, all right, title and interest (including, without
limitation, all rights provided under the law of copyright and
trademark) in and to the MDC Materials, MDC Site and all names,
trademarks, service marks, design marks, symbols and/or indicia of
origin therein throughout the world and in perpetuity, subject to the
permissions granted in this Agreement.
2.2. MDC MORTGAGE PRODUCTS & PRICING
MDC shall have the right to decide which residential mortgage
products it will offer to Consumers, and has sole discretion to approve
or reject any credit applications it receives, and to determine the
criteria on which these decisions will be based. MDC shall set the
pricing and lender fees of the MDC Products equal to those prices as
found on the MDC Site with the exception that MDC shall add up to [*]
to points for all products offered. Such pricing may be adjusted in
writing by mutual agreement of the parties from time to time.
Notwithstanding the foregoing, MDC agrees to cooperate and confer as
may be reasonably requested by BuildNet regarding the foregoing.
2.3. CUSTOMER SERVICE & TECHNICAL SUPPORT INQUIRIES.
All customer service or technical support inquiries shall be
directed to an email address and phone numbers specified by MDC, and
MDC shall respond to all associated first-line customer service and
technical support inquiries from Consumers. MDC shall provide such
technical support at service levels in accordance with its standard
policies and procedures, as set forth in Exhibit F, but shall provide
support not less than an amount that is commercially reasonable and
customary in the industry. Both parties will assign content project
managers to manage the development and maintenance, which results from
the execution of this Agreement.
2.4. BUILDNET PERMISSIONS
BuildNet hereby grants to MDC, its affiliates and agents the
nonexclusive, nontransferable, nonassignable (except as provided in
Section 6.1) right during the Term to use (i.e., to copy, transmit,
distribute, display and perform both privately and publicly) BuildNet's
name, the name of the BuildNet Sites (including
www.BuildnetFinancial.com, www.BuildnetFinancial.org and
www.BuildnetFinancial.net), and other related textual and graphic
material that are provided by BuildNet to MDC for the express purpose
of inclusion on the RRMC from time to time (collectively, the "BuildNet
Materials") solely on the RRMC for the specific
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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<PAGE> 9
purposes permitted hereunder. BuildNet also authorizes MDC to refer in
MDC's advertising and promotion to the fact that the RRMC is accessible
through the Participating Builder's facilities, provided that any such
statement (a) does not include any trademarks, service marks, design
marks, URL Addresses symbols and/or other indicia of origin of
BuildNet, except as provided in the BuildNet Materials; and (b) does
not disparage BuildNet, its products, services or affiliates. All use
of the BuildNet Materials hereunder shall inure to the benefit of
BuildNet and shall not create any rights, title or interest in them for
MDC. No other use of BuildNet's names, trademarks, services marks,
design marks, symbols and/or other indicia of origin will be made by
MDC for any purpose without the prior written approval of BuildNet. As
between MDC and BuildNet, BuildNet owns and shall continue to own,
exclusively, all right, title and interest (including, without
limitation, all rights provided under the law of copyright and
trademark) in and to the BuildNet Materials and all names, trademarks,
service marks, design marks, URL Addresses, symbols and/or indicia of
origin therein throughout the world and in perpetuity, subject to the
permissions granted in this Agreement.
2.4.1. MDC agrees that any use of the BuildNet Materials, by
MDC shall be subject to review and approval in
advance by BuildNet. BuildNet shall retain the right,
in its sole discretion, to demand immediate
modification, revision or cessation of the use of
BuildNet Materials in the event that BuildNet
determines that the BuildNet Materials are being used
improperly. Without limiting the generality of the
foregoing, MDC shall not use BuildNet Materials in a
manner that BuildNet determines to be inappropriate
or unacceptable.
3. FEES
3.1. TRANSACTIONS
The parties believe and have agreed that the fair market value
of the BuildNet marketing services to be performed under this Agreement
[*] and further agree, consistent with Section 8 of the Real Estate
Settlement Procedures Act of 1974 as amended ("RESPA"), that MDC's
payments to BuildNet for its marketing services in any annual period
may be less than, but can not exceed, this fair market value amount.
For its performance of the marketing services set forth herein from the
effective Date of the contract through December 31, 2000, BuildNet
shall be entitled to an Fee of [*], which fee shall be paid by MDC in
the following manner and at the following rates until the aggregate
fees in any annual period equal the Annual Marketing Fee. MDC shall pay
BuildNet the sum of [*] originated from a Participating Builder.
BuildNet shall pay each Participating Builder the sum of [*], up to,
but not exceeding the fair market value of the marketing services
performed by each Participating Builder. BuildNet shall set the
individual value of each Contact Marketing Agreement, following the
form of Exhibit A, entered into between BuildNet and Contact. If MDC's
payments to BuildNet for its marketing services exceed the Annual
Marketing Fee during any annual period, BuildNet agrees to return any
excess to MDC with interest calculated at Prime within ten (10) days of
discovering or being informed that it has
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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<PAGE> 10
received more than the fair market value amount. MDC shall have
exclusive right in determining whether a mortgage loan meets its
criteria as a conforming, sub prime or second lien home equity line of
credit loan. For purposes of this Agreement, "Prime" shall be defined
as the interest rate, commonly known as the "Prime Rate", set by the
Federal Reserve Bank and which represents the lowest rate a bank will
charge its best large customers for a loan. All fees in this Section
3.1 may be adjusted by mutual agreement in writing between the parties.
3.1.1. For future marketing services, beginning on January
1, 2001, both parties shall, within 30 days of
year-end, reassess the fair market value of
BuildNet's marketing services and mutually agree upon
the valuation to be paid by MDC.
3.2. AUDITING
Either party shall have the right, at its expense, upon thirty
(30) business days written notice and during the other party's normal
business hours, to inspect and audit the directly relevant books and
records of the other party for the purpose of verifying the
performance, any reports, information or payments due under this
Agreement. Any such audit shall be conducted by a firm of independent
certified public accountants reasonably acceptable to the other party.
In the event of any shortfall in payment to BuildNet is found which
exceeds five percent (5%) of the total due to BuildNet for the
reporting period audited, MDC shall reimburse BuildNet for the
reasonable costs incurred in conducting the audit.
3.3. REPORTING AND PAYMENTS
Within fifteen (15) days following the close of each calendar
month during the Term, MDC shall pay BuildNet all amounts due for such
previous month and shall submit with payment a statement providing in
reasonable detail the basis for such payment. BuildNet shall report to
MDC, on a regular basis, regarding the progress of its online
advertising campaign and promotional efforts. Any payment not received
when due shall accrue interest from the date due until the date paid at
ten percent (10%) interest per annum, or if less, the maximum per annum
rate permitted by law.
3.4. DELIVERY OF UNIQUE HYPERLINK
MDC shall furnish to BuildNet prior to the Deployment Date a
unique hyperlink for accessing the Co-Branded site for use in the
RRMCs. If MDC subsequently modifies the Unique Hyperlink, it shall
furnish a representation in the same format which BuildNet shall
substitute for the prior version within ten (10) days after receipt.
During this 10-day notice period, a functional Co-Branded Web Site
shall be available at both the old URL Unique Hyperlink and the new
replacement URL address.
3.5. TRACKING
MDC shall track all visitors to the co-branded sites using the
unique URL associated with each site, as is currently done on all MDC
sites. Additional levels of
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tracking can be accomplished using "sender codes", which are also
currently in use on all MDC sites. MDC shall cooperate reasonably with
BuildNet to identify feasible, lawful, available alternate means to
identify users if the current methods used for this purpose do not
reliably identify and track the source of consumer traffic to the
sites. Notwithstanding the foregoing, MDC shall separately track and
report all electronic mail leads generated by the BuildNet inquiry
forms.
3.5.1. Within 30 days of execution of this Agreement, MDC
shall provide for review and approval a detailed
description of the tracking methodology and
technology used under this Section. If deficiencies
are found by BuildNet in the methodology and
technology, MDC shall make reasonable efforts to
correct the deficiencies and shall submit for
BuildNet's review the corrective measures taken.
3.5.2. BuildNet shall have the right to periodically review
on 15 days notice MDC's tracking methodology and
technology. This review shall take place no more
frequently than semi-annually or upon reasonable
belief that the tracking technology or methodology is
flawed or not functioning correctly.
3.5.3. MDC shall notify BuildNet of any change in the
tracking methodology or technology used under this
Section 15 business days before such change is made.
BuildNet shall have the right of prior approval for
any change that it reasonably believes shall impair
the obligations of tracking under this section.
4. CONFIDENTIAL INFORMATION
4.1. DEFINITION
As used herein, "Confidential Information" shall mean all oral
or written information, of whatever kind and in whatever form, relating
to past, present or future products, software, research, development,
inventions, processes, techniques, designs or other technical
information and date, and marketing plans (including such information
of third parties that a party hereto is obligated to hold as
confidential), provided that such information has been reasonably
identified as or could be reasonably considered to be proprietary or
confidential, that either party (a) may have received prior to the date
of this Agreement, whether directly from the other or indirectly from
third parties, or (b) may receive hereunder from the other. The terms
of this Agreement shall be deemed Confidential Information.
4.2. OBLIGATION
Each party agrees that, with respect to its receipt of
Confidential Information of the other party it shall:
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4.2.1. use the same care and discretion to prevent
disclosure of such Confidential Information as it
uses with similar Confidential Information of its own
that it does not desire to disclose but in no even
with less than a reasonable degree of care;
4.2.2. accept such Confidential Information and use such
Confidential Information only for the purposes
permitted hereunder; and
4.2.3. restrict disclosure of Confidential Information
solely to those of its employees and agents who have
a need to know and are obligated not to disclose such
Confidential Information to any third parties.
4.3. EXCEPTIONS
The restrictions of Section 4.2 shall not apply to information
that:
4.3.1. is or hereafter becomes part of the public domain
through no wrongful act, fault or negligence on the
part of the recipient;
4.3.2. the recipient can reasonably demonstrate, is already
in its possession and not subject to an existing
agreement of confidentiality;
4.3.3. is received from a third party without restriction
and without breach of this Agreement;
4.3.4. was independently developed by the recipient as
evidenced by its records; or
4.3.5. recipient is required to disclose pursuant to a valid
order of a court or other governmental body;
provided, however, that the recipient shall first
have given notice to the disclosing party and shall
give the disclosing party a reasonable opportunity of
at least 10 days to interpose an objection or obtain
a protective order requiring that the confidential
Information so disclosed be used only for the
purposes for which the order was issued.
4.4. RETURN
All notes, data, reference manuals, sketches, drawings,
memoranda, electronic media, records in any way incorporating or
reflecting any Confidential Information of the disclosing party and all
proprietary rights therein shall belong exclusivity to such disclosing
party and the recipient agrees to return all copies of such materials
to the disclosing party immediately upon request or upon termination or
expiration of this Agreement.
4.5. CONSUMER CREDIT INFORMATION
MDC hereby agrees that all information, excluding Social
Security Numbers and credit reports, provided by Consumers who access a
mortgage.com web site or similar
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mortgage.com service either from (i) a BuildNet owned or operated web
site or (ii) a BuildNet software product shall be the sole and
exclusive property of BuildNet (the "BuildNet Consumer Information").
Without limiting the foregoing, "BuildNet Consumer Information" shall
include both completed applications and incomplete applications and/or
web site hit and use information. MDC agrees that it shall not use the
BuildNet Consumer Information for any purpose, except as permitted in
the limited license granted by this Section, or disclose such
information to any third party. BuildNet agrees that it shall use the
BuildNet Consumer Information only for purposes that are consistent
with the BuildNet privacy policy-, as it may be amended from time to
time in the sole discretion of BuildNet. BuildNet hereby grants to MDC
a limited license to use the BuildNet Consumer Information for the sole
purpose of performing its services under this Agreement. MDC shall
supply BuildNet with the BuildNet Consumer Information on a monthly
basis or more frequently as agreed to between the parties. Both parties
agree to comply with all State and Federal laws governing the
confidentiality of consumer credit information, to maintain
confidentiality of this information. It is mutually agreed and
understood under this Agreement that BuildNet is not a lender or
engaged in any way in lending activities, and is solely promoting and
advertising MDC's Products to Consumers. Both parties will comply with
all applicable Federal and State laws, including legal requirements for
disclosures, notices and reporting.
5. LIABILITY
5.1. PRODUCT RESPONSIBILITY
MDC and BuildNet acknowledge that neither advocates or
endorses the purchase or the use of any of the products or services
offered by the other through their respective World Wide Web sites or
otherwise, nor do they guaranty the quality, fitness or results of any
such products or their compliance with any law or regulation.
5.2. REPRESENTATIONS AND WARRANTIES OF MDC
MDC represents and warrants that: (a) MDC has the right to
enter into this Agreement and to grant the rights and licenses granted
herein; (b) the MDC Site and the reproduction, distribution,
transmission, public performance and public display of the MDC Material
in connection with the BuildNet Site do not and will not (i) invade the
right of privacy or publicity of any third person, (ii) contain any
libelous, obscene, indecent or otherwise unlawful material, or (iii)
infringe any patent, copyright or trademark right in any jurisdiction,
or (iv) contravene any other rights of any third person; (c) MDC has
received no notice of such invasion, violation or infringement of
rights; except that the representations and warranties in subsections
(b) and (c) above shall not apply to User Content or Product Content.
Instead, MDC agrees that it shall use commercially reasonable efforts
to monitor and edit such User Content and Product Content and shall use
commercially reasonable efforts to promptly remove any User Content and
Product Content from the MDC Site which fails to conform with the
warranties and representations in subjection (b) above. "User Content"
means content uploaded by parties other than MDC; "Product Content"
means content contained in products sold by parties other than MDC. MDC
shall provide commercially reasonable
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customer service to consumers in connection with the BuildNet site,
subject to the cure provisions set forth in Section 6.13.
5.3. REPRESENTATIONS AND WARRANTIES OF BUILDNET
BuildNet represents and warrants that: (a) BuildNet has the
right to enter into this Agreement and to grant the rights and licenses
granted herein; (b) the BuildNet Site and the Sales Area and the
reproduction, distribution, transmission, public performance and public
display of the BuildNet Materials as permitted herein do not and will
not (i) invade the right of privacy or publicity of any third person,
(ii) contain any libelous, obscene, indecent or otherwise unlawful
material, or (iii) infringe any patent, copyright or trademark right in
any jurisdiction; or (iv) contravene any other rights of any third
person; (c) BuildNet has received no notice of such invasion, violation
or infringement of rights; except that the representations and
warranties in subsections (b) and (c) above shall not apply to User
Content or Product Content. Instead, BuildNet agrees that it shall use
commercially reasonable efforts to monitor and edit such User Content
and Product Content and shall use commercially reasonable efforts to
promptly remove any User Content and Product Content which fails to
conform with the warranties and representations in subsection (b)
above.
5.4. BREACH OF REPRESENTATION, WARRANTY OR COVENANT
Each party to this Agreement shall defend, indemnify and hold
harmless the other party and each of its officers, directors, employees
and agents (each, an "Indemnitee") against and in respect of any loss,
debt, liability, damage, obligation, claim, demand, judgment or
settlement of any nature or kind, known or unknown, liquidated or
unliquidated, including without limitation all reasonable costs and
expenses incurred (legal, accounting or otherwise) (collectively
"Damages") arising out of, resulting from or based upon any claim,
action or proceeding by any third party alleging facts or circumstances
constituting a breach of the representations and warranties of this
Section 5 made by such indemnifying party (the "Indemnifying Party").
5.5. PROCEDURES FOR INDEMNIFICATION
Whenever a claim shall arise for indemnification under this
Section 5, the relevant Indemnities, as appropriate, shall promptly
notify the Indemnifying Party and request the Indemnifying Party to
defend the same. Failure to so notify the Indemnifying Party shall not
relieve the Indemnifying Party of any liability which the Indemnifying
Party might have, except to the extent that such failure prejudices the
Indemnifying Party's ability to defend such claim. The Indemnifying
Party shall have the right to defend against such liability or
assertion in which event the Indemnifying Party shall give written
notice to the relevant Indemnities of acceptance of the defense of such
claim and the identity of counsel selected by the Indemnifying Party.
Except as set forth below, such notice of the relevant Indemnities
shall give the Indemnifying Party full authority to defend, adjust,
compromise or settle such action, suit, proceeding or demand with
respect to which such notice shall have been given, except to the
extent that any compromise or settlement shall prejudice the
intellectual property rights of the relevant Indemnities. The
Indemnifying
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Party shall consult with the relevant Indemnities prior to any
compromise or settlement which would affect the intellectual property
rights or other rights of any Indemnitee, and the relevant Indemnitees
shall have the right to refuse such compromise or settlement and, at
the refusing party's or refusing parties' cost, to take over such
defense, provided that in such event the Indemnifying Party shall not
be responsible for, nor shall it be obligated to indemnify the relevant
Indemnities against, any costs or liability in excess of such refused
compromise or settlement. With respect to any defense accepted by the
Indemnifying Party, the relevant Indemnities shall be entitled to
participate with the Indemnifying Party in such defense if the action
or claim requests equitable relief or other relief that could affect
the rights of the Indemnity and also shall be entitled to employ
separate counsel for such defense at such Indemnities expense. In the
event the Indemnifying Party does not accept the defense of any
indemnified claim as provided above, the relevant Indemnities shall
have the right to employ counsel for such defense at the expense of the
Indemnifying Party. Each party agrees to cooperate and to cause its
employees and agents to cooperate with then other party in the defense
of any such action and the relevant records of each party shall be
available to the other party with respect to any such defense.
5.6. RISK ALLOCATION
NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY (NOR TO ANY
PERSON CLAIMING RIGHTS DERIVED FROM THE OTHER PARTY'S RIGHTS) FOR
INCIDENTAL, INDIRECT, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY
DAMAGES OF ANY KIND - INCLUDING LOST REVENUES OR PROFITS, LOSS OF
BUSINESS OR LOSS OF DATA - ARISING OUT OF THIS AGREEMENT (INCLUDING
WITHOUT LIMITATION AS A RESULT OF ANY BREACH OF ANY WARRANTY OR OTHER
TERM OF THIS AGREEMENT), REGARDLESS OF WHETHER THE PARTY LIABLE OR
ALLEGEDLY LIABLE WAS ADVISED, HAD OTHER REASON TO KNOW, OR IN FACT KNEW
OF THE POSSIBILITY THEREOF.
5.7. ACKNOWLEDGEMENT OF NO WARRANTY
EXCEPTS AS EXPRESSLY PROVIDED HEREIN, NEITHER PARTY WARRANTS
THAT THEIR RESPECTIVE WEB SITES WILL PERFORM IN THE MANNER EXPECTED OR
WITHOUT INTERRUPTION, ERROR OR DEFECT OR THAT ANY REVENUE TO EITHER
PARTY WILL RESULT FROM THE ACTIVITIES CONTEMPLATED BY THIS AGREEMENT.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES
ANY WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR WARRANTIES
AGAINST INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS NOT
SPECIFICALLY ENUMERATED.
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5.8. LIMITATION OF LIABILITY
Each party's liability to the other party for any and all
claims and damages incurred by such party relating to or arising out of
the subject matter of this Agreement, whether in contract, tort,
implied warranty, strict liability or other form of action, except for
claims for violations of a party's intellectual property rights, and
any right of indemnity provided herein, shall be limited to the greater
of (x) the amounts paid by MDC to BuildNet pursuant to this Agreement
for the preceding three months or (y) one thousand dollars. BuildNet
and MDC 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
associated with this Agreement. The warranty disclaimers and
limitations in this Agreement are intended to limit the circumstances
of liability. The remedy limitations, and the limitations of liability,
are separately intended to limit the forms of relief available to the
parties. The provisions of this Section 5.8 shall be enforceable
independent and severable from any other enforceable or unenforceable
provision of this Agreement.
6. MISCELLANEOUS PROVISIONS
6.1. ASSIGNMENT AND CHANGE IN CONTROL
Except as otherwise provided herein, neither MDC nor BuildNet
may assign this Agreement or any of its rights or delegate any of its
duties under this Agreement without prior written consent of the other,
which consent shall not be unreasonably withheld. However, both parties
agree that this Agreement may not be assigned to a competitor of the
other party. In the event of a Change in Control of either party , the
other party has the right to terminate this Agreement upon thirty-(30)
days' notice. A "CHANGE OF CONTROL" means any: (a) sale of all or
substantially all assets either party .; (b) merger, reorganization or
consolidation of either party pursuant to which the stockholders or
successor immediately prior to such merger, reorganization or
consolidation: (i) hold less than 50% of the voting power of the
surviving company following the merger, reorganization or
consolidation, or (ii) in the event that the securities of an
affiliated entity are issued to the stockholders in the transaction in
exchange for their shares, hold less than 50% of the voting power of
such affiliated entity.
6.2. COUNTERPARTS
This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and all of which together shall be
deemed the same Agreement.
6.3. GOVERNING LAW
This Agreement, its interpretation, performance or any breach
thereof, shall be construed in accordance with, and all questions with
respect thereto shall be determined by, internal, substantive laws of
the State of North Carolina and the venue for any lawsuit, action or
arbitration under this Agreement shall be the courts of Wake County,
North Carolina.. In connection with any judicial proceeding: (i) the
parties consent to the exclusive jurisdiction of the state and federal
courts having jurisdiction over Wake
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County, North Carolina; (ii) both BuildNet and MDC waive personal
service and agree that service of any pleading, notice, complaint, etc.
may be served by certified or registered mail by one party to the other
party at such other party's address for notices as set forth above; and
(iii) such service shall be deemed effective as if personally served
upon the receiving party at its principal place of business. If either
party employs attorneys to enforce any right arising out of or relating
to this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees, in arbitration, litigation, or otherwise.
6.4. HEADINGS
Section headings are for convenience only and are not a part
of the Agreement.
6.5. INDEPENDENT CONTRACTORS
MDC and BuildNet are independent contractors under this
Agreement, and nothing herein shall be construed to create a
partnership, joint venture or agency relationship between MDC. Neither
party has the authority to enter into agreements of any kind on behalf
of the other party.
6.6. INTEGRATION
This Agreement contains the entire understanding of the
parties hereto with respect to the transactions and matters
contemplated hereby, supersedes all previous agreements between
BuildNet and MDC concerning the subject matter, and cannot be amended
except by a writing signed by both parties.
6.7. NO RELIANCE
No party hereto has relied on any statement, representation or
promise of any other party or with any other officer, agent, employee
or attorney for the other party in executing this Agreement except as
expressly stated herein.
6.8. NOTICE
All notices, demands and other communications hereunder shall
be in writing or by written telecommunications, and shall be deemed to
have been duly given: (i) if mailed by certified mail, postage prepaid,
on the date five (5) days from the date of mailing, (ii) if delivered
by overnight courier, when received by the addressee or (iii) if sent
by confirmed telecommunication, one business day following receipt by
the addressee at the following address:
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If to BuildNet:
Barry Drayson
Chairman
BuildNet Financial Services, Inc.
4813 Emperor Boulevard, Suite 103
Durham, NC 27703
With copy to:
Mike Atwood
President
BuildNet, Inc.
4813 Emperor Boulevard, Suite 103
Durham, NC 27703
If to MDC:
Mr. John Hogan
Senior Executive Vice President
mortgage.com, inc.
1643 N. Harrison Parkway
Sunrise, FL 33323
With copy to:
Mr. Michael Brenner
Senior Vice President & General Counsel
mortgage.com, inc.
1643 N. Harrison Parkway
Sunrise, FL 33323
or such other address as either party may specify by notice given in
writing.
6.9. PRESUMPTIONS
In resolving any dispute or construing any provision
hereunder, there shall be no presumptions made or inferences drawn (i)
because the attorneys for one of the parties drafted the agreement,
(ii) because of the drafting history of the agreement; or (iii) because
of the inclusion of a provision not contained in a prior draft, or the
deletion of a provision contained in a prior draft.
6.10. SEVERABILITY
In the event any provision of this Agreement shall for any
reason be held to be invalid, illegal or enforceable in any respect,
the remaining provisions shall remain in full force and effect.
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6.11. SURVIVAL
The provisions of Section 4 and 5 shall survive termination or
expiration of the Agreement.
6.12. WAIVER
No waiver of any breach of any provision of this Agreement
shall constitute a waiver of any prior, concurrent or subsequent breach
of the same of any other provisions hereof, and no waiver shall be
effective unless made in writing and signed by an authorized
representative of the waiving party.
6.13. RIGHT TO CURE
In the event either party desires to assert any remedies for
breach of this Agreement, the party desiring to assert such remedies
shall give the other party thirty (30) days written notice and an
opportunity to cure within ten (10) business days.
6.14. PUBLICITY
6.14.1. Other than the rights granted in this Section,
nothing in this Agreement shall be construed to grant
any right or license to BuildNet in or to any content
or other material supplied by MDC other than the
right to use the content or material in the
marketing, promotion and advertising of the MDC Site.
BuildNet agrees that it will not, without the prior
written consent of MDC in each instance: (i) use in
advertising, publicity, press release or otherwise
the name of MDC, nor any trade name, trademark, trade
device, service mark, symbol or any abbreviation,
contraction or simulation thereof owned by MDC; or
(ii) represent, directly or indirectly, that any
product or any service provided by BuildNet has been
approved or endorsed by MDC. Without in any way
limiting the foregoing restrictions, BuildNet may:
(i) disclose the existence of this Agreement for any
purpose required by law or for the purposes of
financial reporting or disclosure, including, without
limitation, any disclosure or reporting that may be
reasonably required to obtain equity financing; and
(ii) list MDC as a business partner of BuildNet on
BuildNet's internal and external customer lists.
6.14.2. Other than the rights granted in this Section or
elsewhere in the Agreement, nothing in this Agreement
shall be construed to grant any right or license to
MDC in or to any content or other material supplied
by BuildNet other than the right to use the content
or material in the marketing, promotion and
advertising of the MDC Site. MDC agrees that it will
not, without the prior written consent of BuildNet in
each instance: (i) use in advertising, publicity,
press release or otherwise the name of BuildNet, nor
any trade name, trademark, trade device, service
mark, symbol or any abbreviation, contraction or
simulation thereof owned by BuildNet; or (ii)
represent, directly or indirectly, that any product
or any
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service provided by BuildNet has been approved or
endorsed by BuildNet. Without in any way limiting the
foregoing restrictions, MDC may: (i) disclose the
existence of this Agreement for any purpose required
by law or for the purposes of financial reporting or
disclosure, including, without limitation, any
disclosure or reporting that may be reasonably
required to obtain equity financing; and (ii) list
BuildNet as a business partner of BuildNet on
BuildNet's internal and external customer lists.
IN WITNESS WHEREOF, the parties hereto caused their duly authorized
officers to execute this Agreement as of the date set forth above.
BuildNet Financial Services, Inc.
By: /s/ Barry Drayson
----------------------------------------
Name: Barry Drayson
Title: Chairman
mortgage.com, inc.
By: /s/ Michael Brenner
----------------------------------------
Name: Michael Brenner
Title: Executive Vice President
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EXHIBIT A
MARKETING AGREEMENT
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EXHIBIT B
PARTICIPATING LENDERS
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EXHIBIT C
BuildNet Promotional Activities
In addition to those services as described in Sections 1.1 and
1.2, BuildNet shall, using trademarks, information and other material
supplied by BuildNet in context of the RRMC, promote, market, and
advertise the availability of the MDC's Products and services to home
builders looking for residential mortgage solutions for their
Consumers. BuildNet shall promote the availability of the MDC Products
(RRMC) to residential real estate builders and developers which
frequent the BuildNet Sites. BuildNet shall be responsible for the
preparation and dissemination of all promotional materials utilized to
promote MDC's Products as approved by BuildNet. BuildNet shall use
commercially reasonable efforts to attract homebuilders. BuildNet shall
provide a detailed budget and marketing plan outlining the commitment
of BuildNet to effectuate a national sales effort to promote the sale
of the MDC Products to homebuilders. Such marketing plan shall include,
but not be limited to, the following:
o A marketing strategy overview; and
o Completed marketing materials describing the MDC
Products for distribution to the sales staff; and
o Creation of a sales incentive program for the
BuildNet sales force; and
o Scheduling of trade show exhibits for the year 2000;
and
o Completed builder launch kit for each RRMC; and
o BuildNet sales staffing estimates.
BuildNet may enter into agreements with other Internet web
sites or corporate Intranet sites to advertise, market and promote
MDC's Products. Such cooperative marketing arrangements shall be
subject to prior review and written approval of MDC. BuildNet will
submit all such marketing agreements to MDC for approval at least five
(5) business days prior to publication or distribution of such
materials. MDC agrees that approval of such marketing agreements shall
not be unreasonably withheld.
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EXHIBIT D
MDC CLIENTS
[*]
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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EXHIBIT E
BUILDNET COMPETITORS
o [*]
Portions of this exhibit marked by [*] have been omitted pursuant to a request
for confidential treatment.
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EXHIBIT F
MDC SERVICE LEVELS
The professionals at mortgage.com firmly believe in making you, our customer,
a top priority. As a valued customer, you have certain rights. Showing our
respect for your rights in all we do, mortgage.com ensures:
At mortgage.com, you can always count on your personal
mortgage consultant for fast, friendly service. You have the
right to receive a prompt response to your inquiry within 4
hours of your initial contact. You can also expect same-day
credit approvals ... simply submit your application to us by
5:00 PM no matter where you are in the country!
You have the right to privacy and confidentiality. When you
complete your loan application, your personal information is
protected using the latest encryption technology.
We respect your time. Provided that you allow us to use one
of our preferred service providers, we can guarantee your
right to close on or before your desired closing date, as
agreed to at the time you applied. Just be sure to return all
required documentation to us in a timely manner.
You have the right to expect that your closing costs will not
exceed those disclosed to you in your Good Faith Estimate,
again, provided that you select one of our preferred service
providers. PLEASE NOTE: THIS does not apply to prepaid
amounts for taxes, insurance, and mortgage insurance.
Should mortgage.com's personal consultants fall to meet any of these
commitments, as outlined above, we will send you a check for $300.00 once you
close with us.
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EXHIBIT G
WEB SITE HOSTING & MAINTENANCE STANDARDS
The following terms, when used in this Exhibit, shall have the following
meanings:
"DOWN TIME" shall mean any time that the Co-Branded Site is not in a Fully
Functional State for any reason or cause other than; (i) the scheduled services
outages set forth below in Section 2(a)(iv)(1) of this EXHIBIT G; and (ii)
causes which are the fault of the builder or BuildNet.
"FULLY FUNCTIONAL STATE" shall mean that the Co-Branded Site is available for
access and use by Consumers.
MDC shall provide to BuildNet the following hosting services described below for
the Co-Branded Site (the "Hosting Services"):
SUMMARY OF SERVICES
MDC shall procure, provide, install and manage MDC owned Windows NT(R)
web server(s) and all other equipment and telecommunications facilities
unless otherwise agreed upon by the parties, on behalf of BuildNet at
the MDC Service Center. This production server will house the
Co-Branded Site. MDC shall maintain sufficient server capacity and
Internet connectivity throughout the Term to accommodate growth in user
numbers and overall traffic levels to the Co-Branded Site. MDC shall
host and operate the Co-Branded Site such that the users experience
access times and time to retrieve full web pages that are substantially
similar to the access times and time to retrieve full web pages by
users visiting other sites hosted by MDC including, without limitation,
www.mortgage.com.
1. SERVICE MONITORING & MANAGEMENT
(a) MDC will perform continuous monitoring and management of each
Web Site to optimize availability of service. Included within
the scope of Service Monitoring & Management is the proactive
monitoring of the web servers and all service components of
the MDC's firewall for trouble on a 7 day by 24 hour basis,
and the expedient restoration of components when failures
occur within the time period set forth in "Service Outages"
below. MDC shall maintain redundancy in all key components
such that service outages are less likely to occur due to
individual component failures.
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i. Permissible Down Time
1. In any month during the term of this
Agreement, the Web Sites shall be in a Fully
Functional State for no less than
ninety-ninety nine and one half percent
(99.5%) of the time; and shall experience no
more than one half percent (.5%) Down Time
(the "Permissible Down Time"). Permissible
Down Time shall include any scheduled
maintenance.
2. If, during any given month of this
Agreement, the Web Sites fail to remain in a
Fully Functional State in accordance with
2.i.1, above, then BuildNet shall be
entitled and MDC shall remit to BuildNet the
greater of (i) the monthly hosting fee paid
by BuildNet for Web Site hosting divided by
the number of days in the month or (ii) the
monthly hosting fee broken down to an hourly
basis times the number of hours that the
system was down.
3. If the Web Sites remain down for three
consecutive twenty four (24) hour period or
five total twenty four (24) hour periods
(based upon the total number of hours of
down time) during any given month, then
BuildNet shall be entitled to consider MDC
in breach of its hosting requirements and
may seek termination of the Agreement.
ii. Service Hours
MDC's Service Center is staffed 24 hours a day, 7
days a week, to support BuildNet's needs and make all
notifications to BuildNet required pursuant to this Exhibit E.
Automated monitoring tools alert service personnel of problems
on a 7 day by 24-hour basis.
iii. Service Reliability
MDC protects all mission-critical equipment (e.g.,
routers, hubs, servers) in the MDC Service Center with
Uninterruptable Power Supplies (UPS) which are covered by a
service contract. Sufficient sparing levels are kept on-site
for all key equipment components. In addition, MDC has
implemented redundant servers for all key services, such as
routing, DNS and email gateways.
iv. Service Outages
1. Scheduled
MDC scheduled outages must be notified to
BuildNet at least 24 hours in advance, and
shall last no longer than one hour and shall
be scheduled between the hours of 1:00 a.m.
and 5:00 a.m., Eastern Time). MDC may
request extensions of scheduled down time
above one (1) hour and such approval by
BuildNet may not be unreasonably withheld.
28
<PAGE> 29
2. Unscheduled
Unscheduled outages are caused by loss of
connectivity to the Internet, or by failure
of a MDC service. In cases where a
destination is not available, or
unacceptable service is reported, MDC will
attempt to determine the source of the
problem and report its findings to BuildNet.
(b) MDC will monitor "heartbeat" signals of all servers,
routers and leased lines, and HTTP availability of
the web server, by proactive probing at 30-second
intervals 24 hours a day using HP Openview as well as
HP ManageX or the equivalent. If a facility does not
respond to a ping-like stimulus, it is immediately
checked again. A second failure will trigger
automatically a page to MDC's Service Center and
selected engineers, as well as generating a log
entry. The Service Center monitors this service 24
hours a day.
(c) When the Customer Service Center receives a "down"
signal, or otherwise has knowledge of a failure in
the production server or the application hardware,
MDC personnel will:
i. Confirm (or disconfirm) the outage by a
direct check of the facility;
ii. If confirmed, take such action as may
restore the service in one hour or less, or,
if determined to be a telephone company
problem, open a trouble ticket with the
telephone company carrier;
iii. Notify the BuildNet Technical Administrator
by telephone or voicemail according to
predefined procedures that an outage has
occurred, providing such details as may be
available, including the MDC ticket number
if appropriate and time of outage;
iv. Work the problems until resolution,
escalating to management or to engineering
as required;
v. Notify the BuildNet Technical Administrator
of final resolution, along with any
pertinent findings or action taken, and
requests concurrence to close the ticket.
2. BACK UPS
a. Back-Up Administration provides for both the regular back-up
of standard file systems, and the timely restoral of data from
a BuildNet request due to a site failure.
i. Perform back-ups of file systems housed in the MDC
Service Center at One Paragon Drive, Suite 240,
Montvale, New Jersey;
ii. Perform weekly full back-ups;
iii. Perform daily incremental back-ups;
iv. Send back-up tapes to secured, off-site storage
facilities with a 30 day rotation of tapes;
v. Retain one back-up tape per month for one year;
29
<PAGE> 30
vi. Fulfill restoral requests as directed by BuildNet due
to site failures. Restoral will be performed within
the interval of 2 to 4 hours dependent on the urgency
of the request, and the agreed upon location of the
desired tape.
vii. If the hosting server or location is expected to be
down for more than 24 hours, the MDC will immediately
transfer appropriate back-up data and re-establish
all hosting operations in an appropriately
functioning secondary server or location.
4. SECURITY
a. Monitoring
i. MDC will
1. Limit physical and electronic access to web
servers;
2. Review security notifications and alerts
relevant to the hosting platform (e.g.,
vendor notifications of bugs, attacks,
patches), and apply as appropriate to
maintain the highest level of defense; and
b. Breaches
i. In the event of an attack or threatened or suspected
breach of security against the Co-Branded Site, MDC
will take whatever reasonable steps that are
necessary to halt such action, including taking the
affected Co-Branded Site down. Down time due to
external attacks shall not count against "permissible
down time". MDC will immediately contact BuildNet's
authorized contact to discuss what measure to take.
However, if time is critical, action may be required
before the contact can be reached. MDC's actions will
include:
1. Confirm the threat;
2. Deny access from the source of the attack;
3. Investigate the extent of the damage, if
any;
4. Back-up the affected systems and those
suspected to be affected;
5. Strengthen defenses everywhere, not just the
suspected path that the attacker used;
6. Contact the ISP where the threat or attack
originated and/or law enforcement to work
with MDC's security team;
7. Contact builder and BuildNet to inform them
of the breach;
8. Produce an Incident Report within 24 hours
detailing MDC's findings and distribute the
report to the client(s) affected; and
9. Re-instate the denial of access after a set
time period, but continue to monitor traffic
from that source until risk of further
attacks is deemed to be minimized.
30
<PAGE> 31
ii. BuildNet shall have the right to audit MDC security
procedures and actions taken as a result of a breach
of security. Such audit shall include review and
post-mortem analysis of MDC security precautions
taken as a result of the breach and on-site review if
necessary. BuildNet shall bear the costs associated
with any such security audit, except for routine
copying and postage as necessary for MDC to provide
the Incident Report and accompanying data on the
breach to BuildNet.
31
<PAGE> 1
EXHIBIT 16.1
[ARTHUR ANDERSEN Logo]
Arthur Andersen LLP
Suite 3100
1225 17th Street
Denver CO 80202-5531
Tel 303 295 1900
Fax 303 291 9200
March 17, 2000
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Commissioners:
We have read the statements made by NxTrend Technology, Inc. (copy attached),
which we understand will be filed with the Commission, pursuant to Item 304 of
Regulation S-K promulgated under the Securities Act of 1933, as amended, as
part of the Form S-1 report dated March 17, 2000, to be filed by BuildNet, Inc.
and are in agreement with the statements contained therein.
Very truly yours,
/s/ Arthur Andersen LLP
<PAGE> 1
EXHIBIT 21.1 - LIST OF SUBSIDIARIES
SUBSIDIARY STATE OF INCORPORATION
- ---------- ----------------------
The F.A.S.T. Management Group, Inc. Washington
Maxwell & Company Georgia
Systems Analysis, Inc. Texas
Buildnet Corp. California
Buildnet Financial Services, Inc. North Carolina
The UniLink Group, Inc. Georgia
Key Prestige, Inc. Delaware
Palmer & Associates, Inc. Georgia
NxTrend Technology, Inc. Delaware
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated February 26, 2000 relating to the consolidated financial statements
of BuildNet, Inc., which appears in such Registration Statement. We also consent
to the references to us under the headings "Experts" and "Selected Consolidated
Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Raleigh, North Carolina
March 17, 2000
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated February 21, 2000 relating to the financial statements of NxTrend
Technology, Inc., which appears in such Registration Statement. We also consent
to the references to us under the headings "Experts" and "Selected Consolidated
Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Raleigh, North Carolina
March 17, 2000
<PAGE> 3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated February 16, 2000 relating to the financial statements of The
UniLink Group, LLC, which appears in such Registration Statement. We also
consent to the references to us under the headings "Experts" and "Selected
Consolidated Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Raleigh, North Carolina
March 17, 2000
<PAGE> 4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated August 12, 1999 relating to the financial statements of The
McCosker Corporation, which appears in such Registration Statement. We also
consent to the references to us under the headings "Experts" and "Selected
Consolidated Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Raleigh, North Carolina
March 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BUILDNET, INC. FOR THE YEAR ENDED DECEMBER 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 51,874,821
<SECURITIES> 29,650,000
<RECEIVABLES> 2,755,606
<ALLOWANCES> 335,974
<INVENTORY> 0
<CURRENT-ASSETS> 81,528,069
<PP&E> 6,522,621
<DEPRECIATION> 1,312,996
<TOTAL-ASSETS> 134,726,394
<CURRENT-LIABILITIES> 14,032,642
<BONDS> 0
135,722,983
11,188
<COMMON> 548,720
<OTHER-SE> (28,214,569)
<TOTAL-LIABILITY-AND-EQUITY> 134,726,394
<SALES> 14,600,929
<TOTAL-REVENUES> 14,600,929
<CGS> 9,026,423
<TOTAL-COSTS> 32,586,743
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 335,974
<INTEREST-EXPENSE> (10,514,905)
<INCOME-PRETAX> (28,529,120)
<INCOME-TAX> 0
<INCOME-CONTINUING> (28,500,719)
<DISCONTINUED> 0
<EXTRAORDINARY> (28,401)
<CHANGES> 0
<NET-INCOME> (28,529,120)
<EPS-BASIC> (0.84)
<EPS-DILUTED> (0.84)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CONSENT OF PETER J. SMITH
The undersigned hereby consents, pursuant to Rule 438 of the
Securities Act of 1933, as amended, to the reference to him under the caption,
"MANAGEMENT - Directors and Executive Officers," in the Prospectus which is
part of this Registration Statement on Form S-1.
/s/ Peter J. Smith
Pittsburg, Pennsylvania
March 17, 2000
